United States
                       Securities and Exchange Commission
                             Washington, D.C. 20549

                                    FORM 10-K

                                   (Mark One)
             (X) Annual Report Pursuant to Section 13 or 15(d) of the Securities
                              Exchange Act of 1934

                   For the fiscal year ended December 31, 1999

     ( )  Transition  Report  Pursuant to Section 13 or 15(d) of the  Securities
                              Exchange Act of 1934

                        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)

        Securities registered pursuant to Section 12(b) of the Act: None

        Securities registered pursuant to Section 12(g) of the Act: None

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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( X )

The number of shares of Common  Stock of the  Registrant,  par value of $.01 per
share,  outstanding on February 29, 2000 was 100 shares. The Registrant's Common
Stock is not  registered  under  the  Securities  Act of 1933 or the  Securities
Exchange Act of 1934.

                    Documents Incorporated by Reference: None

--------------------------------------------------------------------------------
*  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 and its I.R.S.  Employer  Identification Number is
75-2512100.

<PAGE>

                                      INDEX
<TABLE>
<CAPTION>

                                                                            Page
<S>                                                                          <C>
Part I.

        Item 1.     Business..............................................    3

        Item 2.     Properties............................................   10

        Item 3.     Legal Proceedings.....................................   10

        Item 4.     Submission of Matters to a Vote of Security  Holders..   10

Part II.

        Item 5.     Market for the Registrant's Common Equity and
                     Related Stockholder Matters..........................   10

        Item 6.     Selected Financial Data...............................   11

        Item 7.     Management's Discussion and Analysis of Financial
                     Condition and Results of Operations..................   12

        Item 7a.    Quantitative and Qualitative Disclosure about Market
                     Risk.................................................   17

        Item 8.     Financial Statements and Supplementary Data...........   18

        Item 9.     Changes in and disagreements with Accountants
                     on Accounting and Financial Disclosure...............   35

Part III.

        Item 10.   Directors and Executive Officers of the Registrant.....   35

        Item 11.   Executive Compensation.................................   37

        Item 12.   Security Ownership of Certain Beneficial
                     Owners and Management................................   39

        Item 13.   Certain Relationships and Related Transactions.........   41

Part IV.

        Item 14.   Exhibits, Financial Statement Schedules
                     and Reports on Form 8-K..............................   41

Signatures................................................................   45

Exhibit Index.............................................................   47
</TABLE>


                                        2

<PAGE>

Forward-Looking Statements

In addition to historical  information,  this Form 10-K Annual  Report  contains
forward-looking  statements.  These  forward-looking  statements  are subject to
certain  risks and  uncertainties  that  could  cause  actual  results to differ
materially from those  reflected in these  forward-looking  statements.  Factors
that might  cause such a  difference  include,  but are not  limited  to,  those
discussed in the sections entitled  "Business" and "Management's  Discussion and
Analysis  of  Financial  Condition  and  Results  of  Operations."  Readers  are
cautioned  only as of the date on which such  statements  are made.  The Company
undertakes  no  obligation  to revise or  publicly  release  the  results of any
revision to these  forward-looking  statements.  Readers should carefully review
the risk factors  described in other  documents  the Company  files from time to
time with the  Securities  and  Exchange  Commission,  including  the  Quarterly
Reports on Form 10-Q to be filed by the Company in fiscal year 2001.

Part I.

Item 1.  BUSINESS

General

     HydroChem Industrial Services, Inc.  ("HydroChem"),  was formed in 1993 for
the  purpose  of  combining  the   industrial   cleaning   businesses  of  Hydro
Environmental  Services Limited  Partnership  ("Hydro  Services") and the Dowell
Industrial   Services  division  ("DIS")  of  Dowell   Schlumberger  Inc.  These
businesses  had been  operating  since  1961 and  1938,  respectively.  In 1995,
HydroChem   acquired  the  industrial   cleaning  business  of  the  Halliburton
Industrial Services division ("HIS") of Brown & Root Industrial  Services,  Inc.
HIS had been operating since 1962.

     Effective  January 1, 1999,  HydroChem  acquired  substantially  all of the
assets and  assumed  certain  liabilities  of Valley  Systems,  Inc.  and Valley
Systems of Ohio, Inc., (collectively "Valley").  Valley had been operating since
1973. On November 19, 1999, HydroChem acquired all of the issued and outstanding
shares of capital stock of Landry Service Co., Inc. ("LANSCO").  LANSCO had been
operating  since  1984.  Effective  October  1, 2000,  LANSCO  was  merged  into
HydroChem  and now  operates  as a division  of  HydroChem.  (See  "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations"  and
Note 14 of Notes to Consolidated Financial Statements.)

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

     The Company is a leading provider of 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 ("UHP") water
cleaning  ("hydroblasting"),   chemical  cleaning,  industrial  vacuuming,  tank
cleaning,  mechanical,  waste minimization,  commissioning and other specialized
services.  The majority of these  services  involves  recurring  maintenance  to
improve or sustain the  operating  efficiencies  and extend the useful  lives of
process  equipment and facilities.  During the year ended December 31, 2000, the
Company  provided  services to  approximately  1,200 customers at  approximately
1,875  customer  sites from 83 operating  locations  (including  both branch and
satellite  locations)  in the United  States and one  international  location in
Singapore.

     In 2000,  approximately 55.2% of the Company's revenue was derived from its
20  largest  customers,  14 of  which  are,  or  are  affiliated  with,  Fortune
500/Global  1000  companies,  and  approximately  68.6% was derived  from its 40
largest  customers,  23 of which are, or are affiliated with, Fortune 500/Global
1000 companies.

                                       3

<PAGE>

     The  Company's  revenue by industry for each of the last three fiscal years
is set forth in the following table (in thousands):
<TABLE>
<CAPTION>
                                       Year ended December 31,
                         ----------------------------------------------------
                         1998     %          1999      %        2000       %
                         ----     -          ----      -        ----       -
<S>                    <C>        <C>      <C>        <C>      <C>        <C>
Petrochemical ....     $ 84,600   50.1%    $ 97,590   50.9%    $112,657   52.6%
Oil refining .....       34,245   20.3       26,915   14.0       36,085   16.9
Electrical utility       16,779    9.9       23,348   12.2       25,960   12.1
Pulp and paper ...       11,985    7.1       10,571    5.5        7,014    3.3
Other ............       21,161   12.6       33,512   17.4       32,476   15.1
                         ------   ----       ------   ----       ------   ----
     Total .......     $168,770  100.0%    $191,936  100.0%    $214,192  100.0%
                       ========  =====     ========  =====     ========  =====
</TABLE>


     The  Company's  revenue by service  line for each of the last three  fiscal
years is set forth in the following table (in thousands):
<TABLE>
<CAPTION>
                                       Year ended December 31,
                         ----------------------------------------------------
                         1998     %          1999      %        2000       %
                         ----     -          ----      -        ----       -
<S>                    <C>        <C>      <C>        <C>      <C>        <C>
Hydroblasting ......   $ 79,665   47.2%    $ 86,173   44.9%    $ 83,795   39.1%
Chemical cleaning ..     52,954   31.4       53,771   28.0       54,446   25.4
Industrial vacuuming     24,500   14.5       36,184   18.9       43,404   20.3
Tank cleaning ......          -      -        2,079    1.1       18,267    8.5
Other ..............     11,651    6.9       13,729    7.1       14,280    6.7
                         ------    ---       ------    ---       ------    ---
     Total .........   $168,770  100.0%    $191,936  100.0%    $214,192  100.0%
                       ========  =====     ========  =====     ========  =====
</TABLE>

Services

     Hydroblasting, chemical cleaning and industrial vacuuming are the Company's
largest  sources of  revenue,  but the  Company  also  offers a variety of other
services,   including  tank  cleaning,   mechanical,   waste   minimization  and
commissioning  services,  as described  below.  The  majority of these  services
involves  recurring  maintenance  programs,  and may be  provided  on a time and
materials basis or bid on a project basis.

Hydroblasting Services

     The  Company's   hydroblasting   services   involve  the   application   of
high-pressure  and UHP  streams  of water to clean  the  interior  and  exterior
surfaces of process  equipment,  storage tanks and other vessels,  and to unplug
piping,  tubes and lines.  Hydroblasting  is particularly  effective in cleaning
deposits  that cannot be  chemically  dissolved  or that are located on surfaces
where the circulation of chemical cleaning solvents is not feasible.

     Hydroblasting  is primarily used for the removal of scale and other fouling
deposits to improve the operating or energy  efficiency  of  equipment,  prevent
contamination of finished  products,  and clean equipment in preparation for, or
subsequent to, other  maintenance  work.  Hydroblasting  is also used to prepare
surfaces  for  welding,  inspection  or  painting,  to clean  exterior  surfaces
cosmetically  and,  with  special  additives  and  equipment,  to cut  steel  or
concrete.

     The Company  performs  its  hydroblasting  services  using  equipment  that
includes  an  engine,   pump  and  high-pressure  hoses  that  are  attached  to
specialized application devices. Water typically emerges at pressures from 5,000
to 20,000 pounds per square inch,  although in UHP applications,  pressure of up
to 40,000 pounds per square inch is used for certain  cleaning and cutting jobs.
The deposits and wastes removed by  hydroblasting,  along with water used in the
process,  are typically deposited into the customer's waste treatment system for
further processing and disposal by the customer.

Chemical Cleaning Services

     Chemical cleaning typically involves  circulating chemical solvents through
process  equipment,  piping and tanks or other storage vessels under  controlled
conditions of  temperature,  pressure and time to remove  fouling  deposits from
interior  surfaces.  Chemical  cleaning is generally  performed as a closed loop
process and employed to dissolve substances on surfaces that are inaccessible to

                                       4

<PAGE>

hydroblasting,  or where  chemical  cleaning  is more  effective  or safer  than
hydroblasting.  Chemical  cleaning also may involve the  application of chemical
solvents to deposits on exterior  surfaces  that cannot be cleaned with water or
the addition of chemicals to by-products or waste products.

     Chemical   cleaning  has  many  of  the  same  uses  and   applications  as
hydroblasting in industrial  cleaning.  It is also used for "degassing"  process
equipment to remove volatile  substances.  In addition,  the Company's  chemical
cleaning  services  are  required  from  time-to-time  in  connection  with  the
commissioning,  or pre-operational cleaning, of new equipment or an entire plant
to remove soil, debris and other substances that accumulate during construction.

     Most of the Company's  chemical cleaning  services involves  circulation of
chemical solvents through process  equipment,  piping and tanks or other storage
vessels. For many of these jobs, a sample of the fouling deposit or substance to
be removed is sent to the Company's  laboratory  facility in the Houston,  Texas
area,  where  the  Company's  chemists  determine  its  chemical  make-up,   the
combination and concentration of chemicals best suited for the cleaning process,
and the appropriate temperature,  pressure and timing parameters for circulation
of the chemicals. The Company also has mobile laboratory units which are used to
perform limited chemical  analysis  on-site and to assist in monitoring  ongoing
chemical cleaning jobs. After the proper procedure for the on-site work has been
determined,  a field  crew  mixes the  chemicals,  typically  on the  customer's
premises.   Using  pumping  and  circulating  equipment,  the  field  crew  then
circulates  the  solution  through  the  process  equipment  and, in most cases,
collects the waste material and used chemical  solution.  During the circulation
process,  the  concentration  levels of the  substance  to be  removed,  and the
chemicals that have been  introduced  into the system are monitored to determine
the rate at which the  deposits  are being  removed,  and to ensure  that proper
conditions  are being  maintained.  After  collection,  the waste  typically  is
emptied at the customer's  on-site  disposal or storage  facility,  or it may be
pumped into  holding  tanks that  remain on the  customer's  property  for later
disposal or treatment by the customer.

Industrial Vacuuming Services

     Industrial vacuuming is the process of removing industrial waste and debris
by  conveyance  of air or by  traditional  vacuuming  techniques.  The Company's
industrial  vacuuming services typically are required to recover these materials
for  disposal or  recycling,  to move them within a plant,  to remove waste from
sumps, to prepare tanks or other storage facilities for routine maintenance,  or
to assist in other types of cleaning and maintenance services.

     The Company  provides  air-moving  services  using  specialized  trucks and
trailer-mounted  equipment  to  collect  and  remove  a  variety  of  solid  and
semi-solid materials, including dust, powder, oil, resins, wood chips, steel and
plastic pellets,  solid catalysts and bricks.  The Company also furnishes liquid
vacuuming services using conventional vacuum trucks, which maintain a continuous
negative tank pressure, for the removal of liquid waste, sludge or spent process
fluids from pits, ponds, tanks or process equipment.  The Company often provides
vacuuming services in connection with its other services.

Other Services

     Tank Cleaning.  The Company's  tank cleaning  services  involve  cleaning a
variety  of  aboveground  storage  tanks,  ranging  from  large  crude  oil  and
wastewater  storage  tanks to smaller  tanks used for storage of a wide range of
finished chemical products or chemicals used in production processes.

     The cleaning of aboveground storage tanks generally involves the removal of
sludge from the tank by transforming  the sludge to a pumpable state and pumping
it out of the  tank.  Once out of the  tank,  the  sludge  is  processed  with a
centrifuge or filter press in order to separate the solid component for disposal
and possible internal recycling of usable product back to the customer.

     Many of the smaller  chemical storage tanks are cleaned using the LANSCO GT
(Gas-Tight)  System which was developed in 1997. This process utilizes  robotics
in  combining  the cleaning  and  degassing  of a tank without  manned entry and
without venting vapors to the atmosphere.  This makes this process  advantageous
for tanks with hazardous  materials and applications where VOC (volatile organic
compound)   emissions  must  be  controlled  for  regulatory   compliance.   The
conventional  method entails  degassing  first and then cleaning in a subsequent
step, requiring more time and higher cost.

                                       5
<PAGE>

     Mechanical Services. In 1998, the Company began offering certain mechanical
services to its  customers,  including  specialized  "turnkey"  heat  exchanger,
piping, tower and vessel services. These turnkey services involve providing both
mechanical and industrial cleaning services to customers, usually in conjunction
with a scheduled plant shutdown or "turnaround."

     Mechanical services typically involve heat exchangers.  Heat exchangers are
made up of tube bundles,  and are essential components of petroleum refining and
petrochemical  processing.  Heat  exchangers  require  periodic  maintenance and
cleaning.  Mechanical services offered by the Company include disassembling heat
exchangers  prior to in-place  cleaning or  extraction.  If extracted,  the tube
bundles are placed on nearby  concrete slabs for cleaning.  After slab cleaning,
the tube bundles are  reinserted.  Following  either  in-place or slab cleaning,
heat exchangers are reassembled and pressure tested.

     Waste  Minimization  Services.  The Company employs  several  techniques to
reduce customer waste volumes prior to customer disposal,  including de-watering
and  chemical  treatment  techniques  as well as on-line  water  recycling.  The
equipment often employed in these processes  consists of recessed chamber filter
presses  and  centrifuges,  which  are used to  reduce  the  customer's  cost of
disposing of waste and enhance recovery of usable product.

     Commissioning  Services.   Commissioning  services  include  a  variety  of
processes utilized to clean newly constructed  systems of industrial  processing
plants prior to their initial  operation.  These services  include the Company's
SILENTSTEAM(R)  process  for  cleaning  steam  path  components,  as well as the
application  of  flushing,  cleaning  and  passivation  technologies  to piping,
vessels,  boilers,  and lubrication and hydraulic oil systems.  Depending on the
nature of the commissioning  services,  the revenue derived may be attributed to
hydroblasting, chemical cleaning, industrial vacuuming or other services.

Competition and Market Factors

     The industrial cleaning service business is highly competitive.  Management
believes  that the  principal  competitive  factors in this  business are price,
quality of service, safety record, reputation,  competence and responsiveness of
personnel,   efficiency  of  service,  and  knowledge  of  customer  plants  and
operations.  Location is an important factor in being able to provide timely and
cost-effective  services,  although  this is more of a  factor  in daily or more
frequently recurring maintenance services than in project work.

     The Company competes with a large number of companies in substantially  all
of the  regions in which it  operates.  Many of these  competitors  are local or
regional  operations  servicing a limited geographic area;  however,  others are
larger  companies  with  broader  geographic  coverage,  similar to the Company.
Accordingly,  the Company's  competitors in any particular geographic market may
differ.  In addition,  competitors  tend to be stronger in certain  services and
weaker in others,  or may not offer a full range of services.  While many of the
Company's  smaller  competitors  do not offer as extensive a line of services as
the  Company,  future  expansion  by  these  companies  or  the  development  of
alternative cleaning methods represents potential competition for the Company.

     Management   believes  that  factors  such  as  maintenance   for  improved
efficiency,  a  trend  toward  outsourcing,  industry  consolidation  among  the
Company's  customers and environmental  regulations have effected the demand for
the Company's  industrial  cleaning services.  Management also believes that the
Company  benefits from competitive  strengths which include industry  experience
and long-term  relationships with quality  customers,  a broad range of services
and  industry  expertise,  an  excellent  safety  record,  strategic  locations,
customer  contracts,   customer  alliances,  and  experienced  management.   See
"Marketing, Sales and Service Contracts."

Business Strategy

     The Company's  business strategy is to expand services provided to existing
customers through cross selling,  establish  relationships with new customers in
existing geographic areas, expand geographically,  establish additional customer
alliances, pursue additional strategic acquisitions and control costs.

                                       6
<PAGE>

     The  Company  has  successfully  grown  its  business  in the past  through
strategic acquisitions. Management intends to continue to consider opportunistic
acquisitions  that will add  additional  services  and products to market to the
Company's  existing  customer base, or to facilitate  expansion of the Company's
customer base or geographic coverage.

Field Organizational Structure

     The  Company's  field  organization  is  primarily  based  on  geographical
divisions.  Divisions are generally  subdivided  into areas,  regions and branch
locations, some of which are on-site locations. Branch locations are the primary
business or operating units.

     The Company  maintains  operating and sales personnel at each of its branch
locations and operates each location  under the direction of a branch manager in
accordance with policies,  procedures and objectives  established by management.
Subject to these  guidelines,  branch  personnel  have  significant  autonomy in
dealing with  customers,  employees and vendors in their  geographic  area. Each
branch  operates as a separate  profit center and is responsible for billing and
collecting accounts  receivable,  although cash receipts are collected centrally
via lockbox.  Each branch is also  responsible  for initiating  vendor  purchase
orders and entering  payroll  hours,  although  vendor and payroll  payments are
processed  at the  Company's  headquarters  location.  Each  branch  location is
allotted certain equipment, vehicles and various types of specialized equipment.
However,  equipment  and  personnel  are shared  among  locations  as  workloads
dictate, enabling the Company to realize better utilization of its resources.

Marketing, Sales and Service Contracts

     The Company's sales and marketing is  characterized  by long-term  customer
relationships  which management believes results from the consistent delivery of
high quality,  dependable  service,  advanced  technical  capabilities,  a broad
service offering,  competitive pricing and a strong customer service orientation
among the  Company's  employees.  The  Company's  services are marketed and sold
through a tiered approach,  targeting both maintenance and purchasing  personnel
at the plant level as well as corporate purchasing  managers.  Direct selling at
the plant level is the primary marketing thrust.  The Company's sales people and
account  managers  maintain  consistent  communications  with plant  contacts to
position the Company better to obtain  upcoming work and to ensure that on-going
work is being performed to meet or exceed customer  expectations.  The Company's
national marketing effort is focused on (i) servicing  existing  accounts,  (ii)
establishing  new  customer  accounts,  (iii)  obtaining  multi-plant  contracts
(regional or national in scope) and (iv)  implementing  alliance  relationships.
These efforts are  supplemented  by  advertising  in industry  publications  and
participating in industry trade shows.

     Most of the Company's existing and prospective customers have procedures by
which they  qualify  contractors  to become  approved  vendors in their  plants.
Customers  award master service  contracts or contracts for individual  projects
only to approved  vendors.  Contractors may be selected at the individual  plant
level, or on a regional or national basis covering  multiple plant locations.  A
particular  plant will typically have two or more approved  industrial  cleaning
providers.  One of these may be designated as the primary  service  provider and
receive a majority  of the work.  Alternatively,  the work may be spread  evenly
between the service providers by the customer,  or market share within the plant
may be determined by the sales,  marketing  and  operating  capabilities  of the
different service providers. Plants also may have approved service providers for
specific services (for example, plants may have hydroblasting contracts with one
or more service providers and separate  industrial  vacuuming contracts with one
or more  other  service  providers)  or may  have  contracts  covering  multiple
services provided by the same provider.

     Master service agreements typically establish general terms and conditions,
as well as time and  material  pricing  for  services.  These  contracts  do not
guarantee  work,  but they do allow  Company  personnel to enter the plants more
easily,  fostering the development of relationships with plant personnel and the
marketing of the  Company's  services.  Specific jobs may be performed on a time
and materials  basis or granted as part of a competitive  bid process.  Daily or
more frequently  recurring  maintenance work tends to be performed on a time and
materials basis, while larger, less frequent projects tend to be bid.

     The  Company's  alliance,  or  managed  services,  process  is a method  of
providing services to its customers. In an alliance, the Company provides a more
comprehensive  outsourcing  solution  to the  customer,  with the  Company  more

                                       7
<PAGE>

involved in scheduling,  managing and benchmarking the delivery of services in a
manner that reduces  costs for the customer and the Company,  and provides for a
continuous  improvement process over time. Generally,  the customer will further
benefit from additional  savings resulting from reduced downtime for maintenance
and increased production.

     Management estimates that approximately two-thirds of the Company's revenue
comes from services performed under its master service agreements and alliances,
or separately bid projects in plants where it has master  service  agreements or
alliances.   Management   believes  these  agreements   generally   enhance  the
consistency and stability of the Company's revenue stream.

Safety and Training

     Industrial cleaning involves exposure to potentially  dangerous conditions.
For liability and other  reasons,  customers are very  concerned with the safety
records of contractors used to perform services at their plants. To minimize the
dangers  inherent in this type of work, the Company  conducts broad training and
educational  programs  and  has  developed  comprehensive  safety  policies  and
regulations. The main factors driving the Company's investment in these programs
and policies are: (i) achieving  employee and customer safety;  (ii) controlling
insurance  costs;  (iii)  satisfying  customers'  growing  safety  and  training
requirements;  (iv) meeting increasing governmental and regulatory requirements;
and (v) improving  the  Company's  overall  performance.  The  Company's  safety
program  includes  educating  Company  personnel,  implementing,  monitoring and
improving Company safety policies,  employing field safety personnel,  providing
the proactive support of management, working with insurance companies and safety
organizations  to make use of  their  resources  and  expertise,  using  process
improvement  teams and  undertaking  safety  audits,  providing  cash  incentive
programs for employees and linking a component of management  bonuses to safety,
requiring   substance  abuse  screening,   investigating   all  accidents,   and
distributing on a company-wide basis information  regarding  accidents that have
occurred and how they could have been avoided.

     Management  believes the Company's safety indices are among the best in the
industry. As an example, HydroChem's workers' compensation interstate experience
modification  rate ("EMR") is  substantially  below the average for companies in
its industry.  The EMR,  calculated by a private  advisory  rating  organization
supporting the insurance  industry,  is one of the most widely  observed  safety
statistics.  The EMR is a method  of  reflecting  a  company's  actual  workers'
compensation  claims experience  relative to the normally expected experience of
companies within a particular industry.

Major Customer

     In 2000, The Dow Chemical Company  represented 12.4% of the Company's total
revenue. This includes revenue from Union Carbide Corporation which was acquired
by The Dow Chemical Corporation in February 2001.

Governmental Regulations

     The Company's  operations are subject to various  federal,  state and local
regulations governing employee health and safety, protection of the environment,
protection of the public,  and motor  carriers.  While  management  believes the
Company  operates  safely and prudently and is in  substantial  compliance  with
these laws and  regulations,  there can be no assurance  that accidents will not
occur or that the Company will not incur penalties or fines for  violations.  In
addition,  noncompliance with these laws and regulations could negatively impact
the Company's  ability to secure  contracts  with  customers or obtain  adequate
insurance  at  reasonable  costs.  Any of these  factors  could  have a material
adverse effect on the Company's financial condition and results of operations.

     Occupational  Safety and Health  Act.  The  operations  of the  Company are
subject  to the  requirements  of the  Occupational  Safety  and Health Act (the
"Act") and comparable state laws. Regulations  promulgated under the Act require
employers  in the  industries  that the  Company  serves to  implement  training
programs, work procedures, medical surveillance systems and personnel protection
programs,  in order to protect  employees from workplace hazards and exposure to
hazardous  chemicals.  The Company has  established  comprehensive  programs for
complying with these health and safety regulations.  The Company is also subject
to inspections by the Occupational Health and Safety Administration ("OSHA") and
comparable state regulatory agencies following accidents involving the Company's
employees,  as  well  as on a  random  basis  at  both  its  facilities  and its
customer's  facilities.  These  inspections seek to determine whether or not the

                                       8
<PAGE>

Company's  work  practices are in  substantial  compliance  with the Act.  While
management  believes the Company operates safely and prudently,  there can be no
assurance that accidents will not occur or that the Company will not incur fines
as a result of OSHA inspections.

     Federal,  State and Local Environmental  Regulations.  The Company performs
substantially  all of its  industrial  cleaning  services at industrial  process
facilities  owned by its  customers.  Although  chemicals  may be  stored at the
Company's  branch  locations and  transported  by the Company to its  customers'
plants,  no industrial  cleaning services are performed at the branch locations.
Typically,  hazardous and non-hazardous waste handled by the Company is disposed
of by the customer using the customer's waste disposal facilities.  However, the
Company will  transport the  customer's  waste from one point in the  customer's
plant to another  point within the plant,  which may involve  travel on a public
road or, on a limited basis, to a commercial disposal facility. As a part of its
services to its customers,  the Company may treat the customer's waste collected
by the Company in the cleaning  process to  neutralize,  minimize or separate it
into its components, thus facilitating disposal or recycling by the customer. At
all times,  the customer  retains  title to and is deemed to be the generator of
the waste. Therefore,  management does not believe that the Company's activities
subject it to the duties  pertaining  to  generators  of  hazardous  waste or to
owners  and  operators  of  hazardous  waste  treatment,   storage  or  disposal
facilities.  However, the Company could be subject to liability under applicable
environmental  statutes  in the  event  of a  spill,  discharge  or  release  of
chemicals   at  a  branch   location,   at  a  customer   location,   or  during
transportation.

     Department of Transportation. Certain of the Company's vehicles are subject
to the  regulations of the Department of  Transportation,  which address,  among
other things,  maintenance  of the  vehicles,  driver  qualification  and record
keeping.  Failure to comply  with  these  regulations  could  result in fines or
modification of the Company's current procedures with respect to its vehicles.

     Certain of the laws and regulations  applicable to the Company require that
it obtain  permits  and  licenses.  Management  believes  that the  Company  has
obtained the permits and licenses  material to its  business,  and that it is in
substantial  compliance  with all federal,  state and local laws and regulations
governing  it. To date,  the  Company  has not been  subject to any  significant
fines, penalties or other liabilities under these laws and regulations.

Intellectual Property

     While the Company has numerous patents and proprietary  techniques  related
to its products  and  services,  it does not believe the ongoing  success of its
operations is dependent on these patents or techniques, individually or taken as
a whole.

Insurance

     In the normal  course of  business,  the  Company  is  subject to  numerous
operating risks, including risks associated with the safety of its employees and
its customers' employees while providing industrial cleaning services, potential
damage to a customer's  property or business in performing  these services,  and
the potential for an environmental accident.

     The Company  currently has in force  insurance  policies  covering  general
liability,  workers'  compensation/employer's  liability,  automobile liability,
environmental  liability  and excess  liability.  All of these  policies  are in
amounts the Company believes are consistent with industry  practices and provide
for the Company to pay a  deductible  or  self-insured  retention on each claim.
However,  there can be no assurance that the insurance will  adequately  protect
the  Company  and,  if the  Company  is only  partially  insured  or  completely
uninsured,  a related  claim could  result in a material  adverse  effect on the
Company's financial condition and results of operations.

Employees

     As of December  31,  2000,  the Company  had  approximately  2,300 full and
part-time  employees.  Ten of the Company's employees at one branch location are
covered by a collective bargaining agreement. Management believes that relations
between the Company and its employees are good.

                                       9
<PAGE>

Item 2.  PROPERTIES

     The Company's corporate and corporate support headquarters,  as well as its
tank cleaning, commissioning services and West Division headquarters are located
in a 132,000  square foot facility  constructed in 1998 on 19.4 acres of land in
the Houston,  Texas area.  This facility,  which is owned by the Company,  is in
close proximity to many of the Company's  branch  locations and customers in the
Houston ship channel area.

     As of February  28,  2001,  the Company had 83  operating  locations in the
United States and one international location in Singapore. The Company's current
domestic  operating  locations  are  located  in  Texas,   Louisiana,   Alabama,
California,  Delaware,  Florida,  Georgia,  Illinois,  Iowa,  Kansas,  Kentucky,
Maryland,  Michigan,  Minnesota,  North Carolina, Ohio, Pennsylvania,  Oklahoma,
South  Carolina,  Tennessee,  Utah,  and Virginia.  The Company owns 10 of these
locations.  Generally,  the remaining  locations are leased.  Of these operating
locations,  44 are on-site  facilities  provided by or leased from the Company's
customers.

Item 3.  LEGAL PROCEEDINGS

     The Company has  substantially  completed the  settlement,  or has received
indemnity for, all lawsuits originally filed in the 18th Judicial District Court
for  the  Parish  of  Iberville,  Louisiana  against  Georgia  Gulf  Corporation
("Georgia Gulf"), the Company and other defendants as well as certain additional
claims  which have been filed  against the Company  since the date the  original
lawsuits were filed.  These lawsuits all arose from a chemical exposure incident
at a Georgia Gulf  facility in  Plaquemine,  Louisiana in  September  1996.  The
plaintiffs in these lawsuits sought damages for alleged toxic exposure resulting
from this  incident.  Settlement of the majority of the  litigation was achieved
pursuant to a  Memorandum  Of  Understanding  effective  April 15, 1999  between
Georgia  Gulf,  the  Company  and other  defendants.  In  addition,  by separate
agreements, Georgia Gulf assumed the Company's defense and indemnity against the
claims of any plaintiff who did not participate in the settlement, the claims of
plaintiffs who were not parties to the settlement,  the additional  claims which
have been filed and all future  claims which may arise in  connection  with this
incident. The Company,  therefore, is no longer involved in the defense of these
lawsuits.

     All payments by the Company under these  arrangements have been made by the
Company's  insurance  carriers.  Because the settlement  process is sufficiently
completed,  management  believes this litigation has been concluded and will not
have a material adverse affect on the Company's financial position or results of
operations.

     The Company is also a defendant in a lawsuit filed on September 20, 1999 in
the 24th Judicial District Court for the Parish of Jefferson,  Louisiana,  which
seeks  class  certification  on behalf of an unknown  number of  plaintiffs  who
allege  personal  and  property  damages  arising  from the  release of a single
330-gallon  container  of  hydrochloric  acid on a  public  highway  in  Kenner,
Louisiana in September  1999.  The Company is being defended in this suit by one
of its  liability  insurance  carriers.  Although  this matter is in its initial
stages and its  outcome  is  therefore  difficult  to  predict  with  certainty,
management  believes  that any  resolution  will be  within  the  limits  of its
applicable insurance coverage and will not have a material adverse affect on the
Company's financial position or results of operations.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

Part II.

Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Not applicable.

                                       10
<PAGE>

Item 6.  SELECTED FINANCIAL DATA

     The selected  financial  data below  includes the accounts of all companies
acquired by the Company from their respective dates of acquisition. The selected
financial  data should be read in  conjunction  with the Company's  Consolidated
Financial  Statements and the Notes thereto,  and  "Management's  Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
                                               Year ended December 31,
                             ------------------------------------------------------------
                              1996         1997          1998          1999         2000
                              ----         ----          ----          ----         ----
                                            (dollars in thousands)
<S>                          <C>          <C>           <C>           <C>          <C>
Financial Data:
  Revenue ...............    $156,003     $160,604      $168,770      $191,936     $214,192
  Gross profit ..........      61,630       65,019        63,599        77,984       81,870
  Gross margin ..........        39.5%        40.5%         37.7%         40.6%        38.2%

  EBITDA (1) ............    $ 19,527     $ 22,405      $ 19,354      $ 30,163     $ 31,506
  EBITDA margin (2) .....        12.5%        14.0%         11.5%         15.7%        14.7%

  Operating income ......    $ 11,762     $ 14,189      $ 10,276      $ 18,699     $ 19,796
  Income(loss)before taxes
   and extraordinary loss       1,829        4,101        (3,191)        2,638         (256)
  Net income (loss) .....         545         (523)       (3,191)        2,603          603

  Capital expenditures ..       6,829        9,557        19,149         6,282        6,457

  Net  cash  provided  by
   operating activities .      14,861       12,682        12,978        16,780       12,297
</TABLE>
<TABLE>
<CAPTION>

                                                 As of December 31,
                             ------------------------------------------------------------
                              1996         1997          1998          1999         2000
                              ----         ----          ----          ----         ----
                                                    (in thousands)
<S>                          <C>          <C>           <C>           <C>          <C>
Balance Sheet Data:
  Cash and cash
   equivalents.........      $    671     $ 33,862      $ 33,775      $  4,140     $  6,380
  Working capital......        13,216       52,324        46,755        19,202       21,808
  Total assets.........       115,522      152,093       156,425       200,902      198,345
  Total long-term debt,
   including current
    maturities ........        68,325      110,000       116,117       150,879      148,208
  Dividends paid.......             -        8,540             -             -            -
  Stockholder's equity.        25,770       16,707        13,516        16,119       16,722
</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  generally  accepted  accounting  principles.
   EBITDA is  included  because  management  believes it to be a useful tool for
   analyzing operating performance, leverage, liquidity, and a company's ability
   to service debt.

(2)EBITDA  margin for any relevant  period  presented  above  represents  EBITDA
   divided by revenue.

                                       11

<PAGE>

Item 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
      RESULTS OF OPERATIONS

The  following  discussion  should  be read in  conjunction  with  the  Selected
Financial Data, the Company's  Consolidated  Financial  Statements and the Notes
thereto, and the other financial and operating information included elsewhere in
this Form 10-K. This Form 10-K contains, in addition to historical  information,
forward-looking  statements that include risks and uncertainties.  The Company's
actual  results  may  differ  materially  from  the  results  discussed  in  the
forward-looking  statements.  Factors that might cause such a difference include
those discussed  below, as well as those discussed  elsewhere in this Form 10-K.
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.

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>
                                                   Year Ended December 31,
                                            ------------------------------------
                                                1998        1999        2000
                                                ----        ----        ----
<S>                                            <C>         <C>         <C>
       Revenue............................     100.0%      100.0%      100.0%
       Cost of revenue....................      62.3        59.4        61.8
                                                ----        ----        ----
         Gross profit.....................      37.7        40.6        38.2
       SG&A expense.......................      26.2        24.9        23.5
       Depreciation.......................       5.4         6.0         5.5
                                                ----        ----        ----
         Operating income.................       6.1         9.7         9.2
       Other (income) expense:
         Interest expense, net............       6.2         6.8         7.4
         Special charges..................       0.5          -           -
         Restructuring charge.............       0.4          -           -
         Other (income) expense, net......        -           -           -
         Amortization of intangibles......       0.9         1.5         1.9
                                                ----        ----        ----
       Income   (loss)   before   taxes  and
        extraordinary loss................      (1.9)        1.4        (0.1)
         Income tax benefit...............        -            -        (0.4)
                                                ----        ----        ----
       Income  (loss)  before  extraordinary
        loss..............................      (1.9)        1.4         0.3
         Extraordinary loss on early
          extinguishment of debt,
            net of taxes..................        -           -          -
                                                ----        ----        ----
       Net income (loss)..................      (1.9)%       1.4        0.3%
                                                ====        ====        ====
       EBITDA.............................      11.5%       15.7%       14.7%
                                                ====        ====        ====
</TABLE>

Comparison of 2000 results to 1999

     Revenue.  Revenue increased $22.3 million,  or 11.6%, to $214.2 million for
the year ended  December  31,  2000 from $191.9  million in the prior year.  The
increase  resulted from an increase in tank cleaning  revenue of $16.2  million,
principally  attributable to the LANSCO  acquisition,  an increase in industrial
vacuuming  revenue  of $7.2  million,  or 20.0%,  from  $36.2  million  to $43.4
million,  an increase in chemical  cleaning  revenue of $675,000,  or 1.3%, from
$53.8 million to $54.4  million,  and an increase in revenue from other services
of $551,000, or 4.0%, from $13.7 million to $14.3 million.  These increases were
partially offset by a decrease in hydroblasting revenue of $2.4 million, or 2.8%
from $86.2  million to $83.8  million.  The  increase  in  industrial  vacuuming
revenue resulted from additional  vacuum trucks placed in service by the Company
in 1999 and 2000.  Chemical cleaning revenue increased  primarily as a result of
an increase in the volume of  projects.  Revenue from other  services  increased
principally as a result of increased waste  minimization  and nuclear  projects.
The decrease in hydroblasting revenue resulted from a reduced volume of projects
and reduced refinery turnaround activity.

                                       12
<PAGE>

     Gross  profit.  Gross profit  increased  $3.9  million,  or 5.0%,  to $81.9
million in 2000 from $78.0 million in the prior year. Cost of revenue  increased
$18.4  million,  or 16.1%,  to $132.3 million in 2000 from $114.0 million in the
prior year primarily due to the LANSCO  acquisition.  The 2.4% decrease from the
prior  year  period  in gross  profit as a  percentage  of  revenue  principally
resulted from increased labor,  fuel and equipment  maintenance  costs and lower
margins in the acquired LANSCO operations.

     SG&A  expense.  SG&A expense  increased  $2.5  million,  or 5.3%,  to $50.4
million in 2000 from $47.8  million in the prior year.  The  increase  primarily
resulted from the SG&A expense of LANSCO,  which was partially  reduced by lower
insurance and profit sharing expense.

     EBITDA. Increased gross profit, partially offset by increased SG&A expense,
resulted in a $1.3 million, or 4.5%, increase in EBITDA to $31.5 million in 2000
from $30.2 million in the prior year.

     Depreciation.  Depreciation  expense increased $246,000,  or 2.2%, to $11.7
million  in  2000  from  $11.5  million  in the  prior  year.  The  increase  in
depreciation  expense  principally  resulted from the acquired LANSCO assets and
from capital  expenditures in 1999 and 2000,  partially offset by a reduction in
depreciation associated with fully depreciated assets.

     Operating  income.  Increased gross profit,  partially  offset by increased
SG&A and  depreciation  expense,  resulted in an increase in operating income of
$1.1 million, or 5.9%, to $19.8 million in 2000, from $18.7 million in the prior
year.

     Interest expense,  net. Interest  expense,  net increased $2.9 million,  or
22.1%, to $16.0 million in 2000 from $13.1 million in the prior year.  Increased
interest expense, net resulted from additional  borrowings to finance the LANSCO
acquisition.

     Amortization.  Amortization  expense  increased $1.2 million,  or 40.9%, to
$4.0 million in 2000 from $2.8 million in the prior year. Increased amortization
expense  resulted from goodwill  incurred in connection  with the acquisition of
LANSCO.

     Income (loss) before taxes.  For the reasons  described  above, the Company
incurred a loss before  taxes of  $256,000 in 2000 as compared to income  before
taxes of $2.6  million in the prior  year.  This  represents  a decrease of $2.9
million.

     Income tax  benefit.  An income tax benefit in the amount of  $859,000  was
recorded,  principally  resulting  from changes in the  valuation  allowance for
deferred  taxes.  The  Company  had a valuation  allowance  of $2.3  million and
$363,000  as of  December  31,  1999  and  2000,  respectively  against  the net
operating loss and foreign tax credit carryforwards. The change in the valuation
allowance is the result of utilizing net operating loss carryforwards. These net
operating loss  carryforwards are being recognized as management  believes it is
more likely than not that the deferred tax asset would be realized primarily due
to the expected future reversal of depreciation temporary differences.

     Net income (loss).  For the reasons  described  above, net income decreased
$2.0 million to $603,000 in 2000, from $2.6 million in the prior year.



                                       13
<PAGE>

Comparison of 1999 results to 1998

     Revenue.  Revenue increased $23.2 million,  or 13.7%, to $191.9 million for
the year ended  December  31,  1999 from $168.8  million in the prior year.  The
increase  in  revenue,  which  applied to all service  lines,  resulted  from an
increase in industrial  vacuuming revenue of $11.7 million, or 47.7%, from $24.5
million to $36.2 million, an increase in hydroblasting  revenue of $6.5 million,
or 8.2% from $79.7 million to $86.2  million,  an increase in revenue from other
services of $4.2 million, or 35.7%, from $11.6 million to $15.8 million,  and an
increase in chemical  cleaning revenue of $817,000,  or 1.5%, from $53.0 million
to $53.8 million.  The increase in industrial  vacuuming  revenue  resulted from
additional  vacuum trucks placed in service by the Company in 1998 and 1999, and
the acquisition of the Valley assets.  Hydroblasting revenue increased primarily
as a result of the  acquisition  of the  Valley  assets,  partially  offset by a
reduced  volume of projects in other  locations.  The  increase in revenue  from
other services  principally  resulted from an increased  volume of commissioning
services  projects,  mechanical  services  projects,  and tank cleaning services
resulting  from the  acquisition  of LANSCO in November  1999.  The  increase in
chemical  cleaning  revenue  principally  resulted  from an increased  volume of
projects.

     Gross profit.  Gross profit  increased  $14.4 million,  or 22.6%,  to $78.0
million  in 1999 from $63.6  million in the prior  year.  Gross  profit  margins
increased from 37.7% to 40.6%. Cost of revenue increased $8.8 million,  or 8.3%,
to $114.0 million in 1999 from $105.2 million in the prior year primarily due to
the revenue increases described above, partially offset by the results of a cost
reduction program implemented in late 1998, which included,  among other things,
a reduction in work force.

     SG&A  expense.  SG&A expense  increased  $3.6  million,  or 8.1%,  to $47.8
million in 1999 from $44.2 million in the prior year.  This  increase  primarily
resulted from the Valley and LANSCO acquisitions and was partially offset by the
cost reduction  program described above. SG&A expense as a percentage of revenue
decreased to 24.9% in 1999 from 26.2% in the prior year.

     EBITDA. Increased gross profit, partially offset by increased SG&A expense,
resulted in a $10.8  million,  or 55.8%,  increase in EBITDA to $30.2 million in
1999 from $19.4 million in the prior year.  As a percentage  of revenue,  EBITDA
increased to 15.7% in 1999 from 11.5% in the prior year.

     Depreciation.  Depreciation  expense  increased $2.4 million,  or 26.3%, to
$11.5 million in 1999 from $9.1 million in the prior year, and was 6.0% and 5.4%
of revenue,  respectively.  The  increase in  depreciation  expense  principally
resulted from the Valley and LANSCO acquisitions,  and from capital expenditures
in 1998 and 1999.

     Operating  income.  Increased gross profit,  partially  offset by increased
SG&A and  depreciation  expense,  resulted in an increase in operating income of
$8.4 million, or 82.0%, to $18.7 million in 1999 from $10.3 million in the prior
year. As a percentage  of revenue,  operating  income  increased to 9.7% in 1999
from 6.1% in the prior year.

     Interest expense,  net. Interest  expense,  net increased $2.7 million,  or
25.4%, to $13.1 million in 1999 from $10.5 million in the prior year.  Increased
interest  expense,  net resulted from (i) beginning in July 1998, an increase in
debt due to borrowings  related to the Company's new  headquarters and operating
facility,   (ii)  additional   borrowings  to  finance  the  Valley  and  LANSCO
acquisitions, and (iii) a decrease in interest income due to lower invested cash
balances.

     Special charges. In 1998, the Company incurred $325,000 in expenses related
to  negotiation  and  due  diligence   efforts   associated  with  a  terminated
acquisition,  $290,000 related to the consolidation of corporate  facilities and
certain other  operations into the Company's new  headquarters,  and $200,000 in
non-capitalizable  costs  incurred in connection  with the  Company's  Year 2000
compliance program. (See Note 6 of Notes to Consolidated Financial Statements.)

     Restructuring   charge.   The  Company  incurred   $740,000  in  severance,
facilities and other costs in connection with a cost reduction program initiated
in late 1998. (See Note 6 of Notes to Consolidated Financial Statements.)

     Amortization.  Amortization  expense  increased $1.3 million,  or 88.8%, to
$2.8 million in 1999 from $1.5 million in the prior year. Increased amortization
expense resulted from goodwill incurred in connection with the Valley and LANSCO
acquisitions.

                                       14
<PAGE>

     Income  (loss)  before  taxes  and  extraordinary  loss.  For  the  reasons
described  above,  income before taxes and  extraordinary  loss  increased  $5.8
million to $2.6 million in 1999 from a loss before taxes and extraordinary  loss
of $3.2 million in the prior year.  As a percentage  of revenue,  income  before
taxes and  extraordinary  loss was 1.4% in 1999  compared to a loss before taxes
and extraordinary loss of 1.9% in the prior year.

     Income tax benefit.  The effective income tax rate remained at zero in 1999
consistent  with the prior year,  principally  as a result  from  changes in the
valuation allowance of deferred tax assets.

     Extraordinary  loss.  In  1999,  as a  result  of the  early  repayment  of
HydroChem's prior credit facility,  an extraordinary  loss was recognized in the
amount of $35,000.

     Net income  (loss).  For the reasons  described  above,  the  Company's net
income  increased  $5.8  million to $2.6 million in 1999 from a net loss of $3.2
million in the prior year.  As a percentage  of revenue,  net income was 1.4% in
1999 compared to a net loss of 1.9% in the prior year.

Quarterly Financial Data

     The following table sets forth certain unaudited  consolidated statement of
operations and other  supplemental data of the Company for the quarterly periods
shown. The unaudited  quarterly  information has been prepared on the same basis
as Company's annual financial information and, in management's opinion, includes
all adjustments,  consisting of normal recurring accruals,  necessary to present
fairly the information for the quarters presented. The operating results for any
quarter are not necessarily indicative of results for the year or for any future
period.
<TABLE>
<CAPTION>
                                                                      Three months ended
                               ---------------------------------------------------------------------------------------------------
                                                     1999                                              2000
                               ------------------------------------------------- -------------------------------------------------
                                 Mar. 31     June 30     Sept. 30      Dec. 31     Mar. 31     June 30     Sept. 30      Dec. 31
                                 -------     -------     --------      -------     -------     -------     --------      -------
                                                                          (in thousands)
<S>                               <C>         <C>         <C>          <C>          <C>         <C>         <C>          <C>
Revenue..................         $50,905     $52,194     $43,010      $45,827      $53,439     $54,199     $52,049      $54,505
Cost of revenue..........          30,263      30,437      25,709       27,543       32,264      33,173      32,733       34,152
                                   ------      ------      ------       ------       ------      ------      ------       ------
   Gross profit..........          20,642      21,757      17,301       18,284       21,175      21,026      19,316       20,353
SG&A expense.............          12,500      12,874      11,144       11,303       12,801      12,257      12,293       13,013
Depreciation.............           2,913       2,839       2,836        2,876        2,933       2,882       3,016        2,879
                                    -----       -----       -----        -----        -----       -----       -----        -----
   Operating income......           5,229       6,044       3,321        4,105        5,441       5,887       4,007        4,461
Other (income) expense:
  Interest expense, net..           3,268       3,228       3,229        3,404        4,014       4,019       4,018        3,984
  Other(income)expense,
    net..................             (42)        (26)        105           61           27         134         (98)         (38)
  Amortization of
    intangibles..........             634         633         634          933          983       1,013         999          997
                                      ---         ---         ---          ---          ---       -----         ---          ---
Income (loss) before taxes
    and extraordinary loss          1,369       2,209        (647)        (293)         417         721        (912)        (482)
  Income tax benefit.....               -           -           -            -            -           -           -         (859)
                                    -----       -----       -----        -----        -----       -----       -----        -----
Income (loss) before
   extraordinary loss....           1,369       2,209        (647)        (293)         417         721        (912)         377
  Extraordinary loss.....               -           -           -           35            -           -           -            -
                                    -----       -----       -----        -----        -----       -----       -----        -----
Net income (loss)........         $ 1,369     $ 2,209     $  (647)     $  (328)     $   417     $   721     $  (912)     $   377
                                    =====       =====       =====        =====        =====       =====       =====        =====
EBITDA...................         $ 8,142     $ 8,883     $ 6,157      $ 6,981      $ 8,374     $ 8,769     $ 7,023      $ 7,340
                                    =====       =====       =====        =====        =====       =====       =====        =====
</TABLE>

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%

                                       15
<PAGE>

per annum which is payable  semi-annually  in arrears on February 1 and August 1
of each year. 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. All
HydroChem subsidiaries,  including International, are guarantors of the Series B
Notes on a full and unconditional basis.

     On November 19, 1999, the Company entered into a credit  agreement with six
financial  institutions  which  provides 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.  The  credit  facility  expires  on  December  31,  2004,  requires
HydroChem to meet certain customary financial ratios and covenants and restricts
the Company  from any further  pledging  of its assets.  The credit  facility is
secured by all current and future assets of the Company and Holding.  HydroChem,
at its  discretion,  can pay  interest  on a Base Rate or  Eurodollar  ("LIBOR")
basis,  plus  applicable  margins.  Base Rate margins  range from 0.00% to 1.75%
depending on the type of advance and the Company's  leverage ratio as determined
quarterly.  LIBOR-based  margins  range  from 1.75% to 3.00%,  depending  on the
Company's leverage ratio as determined quarterly.  The length of the LIBOR-based
interest periods is generally one to six months in duration.  However,  interest
payments are required at least every three months. In addition, a commitment fee
of 0.3% to  0.5%  per  annum,  depending  on the  Company's  leverage  ratio  as
determined  quarterly,  is payable  quarterly on the  unborrowed  portion of the
Revolver.

     As of December 31, 2000, $29.0 million was outstanding under the Term Loan.
The Term Loan  requires  scheduled  quarterly  principal  payments,  which began
September 30, 2000. In addition,  the Company may be required to make  mandatory
additional  principal  payments,  based on the  Company's  excess  cash flow and
certain other  events,  as defined in the credit  agreement.  As of December 31,
2000,  the Company's  borrowing  base under the Revolver was $28.9  million,  of
which $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,  and the Company had  available  unused  borrowings of $23.6
million, net of covenant test limitations.

     In connection with the Company's  headquarters and operating  facilities in
the  Houston,  Texas  area,  HydroChem  entered  into  a loan  agreement  with a
financial  institution on July 17, 1998, as amended. The loan agreement provided
for an interim  financing  construction  loan of up to $7.5  million,  which was
converted to a term loan (the "Mortgage  Loan") in the amount of $7.5 million on
March 31, 1999. The Mortgage Loan is  collateralized  by first priority liens on
the land and improvements, matures on September 30, 2006, and requires quarterly
payments of interest and  principal.  Interest rates on the Mortgage Loan are at
LIBOR plus 1.75%,  adjusted quarterly.  On July 17, 1998, HydroChem also entered
into an interest rate protection  agreement with the same financial  institution
(the  "Interest  Rate  Swap").  Under the  Interest  Rate  Swap,  the  Company's
effective  fixed  borrowing  rate  for the  Mortgage  Loan is  7.82%.  The  loan
agreement  requires the Company to meet certain  customary  financial ratios and
covenants and generally  restricts the Company from transferring or pledging the
facility's   assets.  At  December  31,  2000,  the  Company  had  $7.2  million
outstanding under the Mortgage Loan.

     The Company  acquired  LANSCO on November 19, 1999. In connection  with the
LANSCO acquisition, the Company issued two promissory notes (the "Seller Notes")
to the  principal  selling  shareholders  of LANSCO in the  aggregate  principal
amount of $3.5 million.  The Seller Notes bear interest at 8% per annum,  mature
on November  19,  2001,  and require  semi-annual  interest  payments and annual
principal  payments.  The first principal payments in the amount of $1.5 million
were paid on November 19, 2000. The final principal  payments,  in the amount of
$2.0  million,  are due  November  19,  2001.  The Seller  Notes are  unsecured,
subordinated to all Senior Debt (as defined in the Seller Notes) of the Company,
and contain no financial  ratios or covenants  that must be met. (See Note 14 of
Notes to Consolidated Financing Statements.)

     For the year ended December 31, 2000, $5.2 million of net cash was provided
by operating and investing activities, which consisted of $12.3 million provided
by operating activities and $7.1 million used in investing  activities.  For the
year ended  December  31, 1999,  the Company used net cash of $52.5  million for
operating and investing activities, which consisted of $16.8 million provided by
operating  activities  and $69.3 million used in investing  activities.  For the
year ended December 31, 1998, $5.9 million of net cash was used in operating and
investing  activities,  which  consisted of $12.9 million  provided by operating
activities and $18.8 million used in investing activities. Except for the Valley
and LANSCO acquisitions in 1999 and 2000,  investing  activities for all periods
primarily consisted of expenditures for property and equipment.

                                       16
<PAGE>

     For the year  ended  December  31,  2000,  expenditures  for  property  and
equipment  were  $6.5  million.  These  expenditures  were  principally  for the
purchase of operating equipment. Expenditures for property and equipment for the
year ended  December 31, 1999 were $6.3  million.  Of this amount,  $4.2 million
principally was used to purchase operating  equipment,  $1.2 million to purchase
and implement new field and corporate  computer  software and hardware  systems,
and $956,000 in connection with the  construction of the Company's  headquarters
and operating facility.  In 1998, $19.1 million of expenditures for property and
equipment included $9.1 million for the purchase of land and the construction of
the Company's headquarters and operating facility,  $8.4 million principally for
the purchase of operating equipment,  and $1.6 million for the implementation of
new field and corporate computer software and hardware systems.

     Effective  January 1, 1999,  HydroChem  acquired  substantially  all of the
assets and assumed certain  liabilities of Valley.  The adjusted  purchase price
for the  acquired  assets was $30.9  million in cash,  of which $4.0 million was
deposited  into escrow.  In addition,  the Company  assumed  approximately  $2.5
million in capital  lease  obligations,  which were  subsequently  replaced with
operating  leases,  and paid $5.6 million in cash at closing to retire  Valley's
bank debt. The source of funds for the acquisition was a combination of existing
available cash and bank borrowings.

     On November 19, 1999,  HydroChem acquired all of the issued and outstanding
shares of capital stock (the "Shares") of LANSCO. The Company paid $35.5 million
for the  Shares,  consisting  of $32.0  million in cash paid at closing and $3.5
million in Seller Notes payable in installments with interest over the two years
following the date of acquisition to the two principal  stockholders  of LANSCO.
Further,  the Company has agreed to pay one of these  principal  stockholders an
additional  $1.25  million over two years as  additional  consideration  for his
Shares and for consulting services.  The source of funds for the acquisition was
a  combination  of existing  available  cash,  the Seller  Notes,  and bank debt
pursuant to the Term Loan and Revolver.

     Management  believes that cash and cash  equivalents  at December 31, 2000,
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.

Inflation

     Certain of the  Company's  expenses,  such as  compensation  and  benefits,
chemicals and supplies,  and equipment  repair and  replacement,  are subject to
normal  inflationary  pressures.  Although  the Company to date has been able to
offset inflationary cost increases through increased operating  efficiencies and
modest price increases,  there can be no assurance that the Company will be able
to offset any future inflationary cost increases through these or similar means.

Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

     The Company is exposed to certain  market risks,  which  include  financial
instruments such as short-term  investments,  trade  receivables,  and long-term
debt.  The  adverse  effects  of  potential  changes in these  market  risks are
discussed below. The sensitivity  analyses 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 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 put in place during 1999
in connection with the Mortgage Loan.

                                       17
<PAGE>

     The  Company  provides  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.  Management
believes the Company's portfolio of accounts receivable is well diversified and,
as a result, its credit risks are low. On a periodic basis, management evaluates
the   creditworthiness   of  the  Company's   customers  and  monitors  accounts
receivable,  but typically  does not require  collateral.  The  Company's  trade
receivables  are  primarily  denominated  in  U.S.  dollars  and  are  generally
collected in a timely manner. Historically, bad debts have not been material and
have  been  within   management's   expectations.   Management  believes  timely
collection of trade receivables minimizes associated credit risk.

     The Company places its short-term investments,  which generally have a term
of less than 90 days,  with high  quality  financial  institutions,  limits  the
amount of credit exposure to any one institution,  and has investment guidelines
relative to  diversification  and  maturities  designed  to maintain  safety and
liquidity.  As of December  31,  2000,  the Company had  short-term  investments
totaling $6.3 million. Due to the short-term nature of these instruments,  their
carrying value  approximated  market value.  Management  does not believe that a
decrease of 1.0% from average  investment rates in 2000 would be material to the
Company during 2001.

     As of December 31, 2000, the Company's outstanding long-term debt consisted
of the Series B Notes,  the Term Loan,  the Mortgage Loan, and the Seller Notes.
The Series B Notes totaled  $110.0  million,  are due in the year 2007, and bear
interest at a fixed rate of 10 3/8%.  As of December 31, 2000,  their fair value
was estimated to be $79.2 million. At the same date, the Term Loan, the Mortgage
Loan and the Seller Notes totaled $29.0 million,  $7.2 million and $2.0 million,
respectively,  and  approximated  their  fair  value.  The Term Loan  matures 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 rates 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 Seller Notes are due in two  installments
with the final installment due on November 19, 2001, and bear interest at 8% 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 to not be material to the Company during 2001.

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Reference is made to the Index to Consolidated Financial Statements on page
19 of  the  Company's  Consolidated  Financial  Statements  and  Notes  thereto.
Quarterly financial data for the Company is presented on page 15.  Supplementary
schedules  for the Company have been  omitted as not required or not  applicable
because the  information  required to be presented is included in the  Company's
Consolidated Financial Statements and Notes thereto.


                                       18
<PAGE>


                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS





Consolidated Financial Statements                                         Page

  Report of Independent Auditors............................................20

  Consolidated Balance Sheets as of December 31, 1999 and 2000..............21

  Consolidated Statements of Operations for each of the years ended
     December 31, 1998, 1999 and 2000.......................................22

  Consolidated Statements of Stockholder's Equity for each of the years ended
     December 31, 1998, 1999 and 2000.......................................23

  Consolidated Statements of Cash Flows for each of the years ended
     December 31, 1998, 1999 and 2000.......................................24

  Notes to Consolidated Financial Statements................................25



                                       19
<PAGE>


                         REPORT OF INDEPENDENT AUDITORS





Board of Directors
HydroChem Industrial Services, Inc.


     We have audited the accompanying  consolidated  balance sheets of HydroChem
Industrial Services, Inc. and Subsidiaries as of December 31, 1999 and 2000, and
the related consolidated statements of operations, stockholder's equity and cash
flows for each of the three years in the period ended  December 31, 2000.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States.  Those standards require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all  material  respects,  the  consolidated  financial  position of HydroChem
Industrial  Services,  Inc. and  Subsidiaries at December 31, 1999 and 2000, and
the  consolidated  results of their  operations and their cash flows for each of
the three years in the period  ended  December  31,  2000,  in  conformity  with
accounting principles generally accepted in the United States.



                                                ERNST & YOUNG LLP



Houston, Texas
February 20, 2001




                                       20
<PAGE>


                       HYDROCHEM INDUSTRIAL SERVICES, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                     December 31,
                                                             ------------------------
                                                                  1999          2000
                                                             ------------    ---------
                                     ASSETS
<S>                                                                <C>        <C>
Current assets:
   Cash and cash equivalents ................................   $  4,140   $  6,380
   Receivables, less allowance of $671 and $723, respectively     33,488     39,781
   Inventories ..............................................      4,721      4,467
   Prepaid expenses and other current assets ................      1,993      2,224
   Income taxes receivable ..................................        504        328
   Deferred income taxes (Note 7) ...........................      1,725      1,536
                               -                                   -----      -----
      Total current assets ..................................     46,571     54,716

Property and equipment, at cost (Note 4) ....................     96,672    100,419
   Accumulated depreciation .................................    (43,756)   (53,721)
                                                                 -------    -------
                                                                  52,916     46,698

Intangible assets, net (Note 2) .............................    101,415     96,931
                             -                                   -------     ------

      Total assets ..........................................   $200,902   $198,345
                                                                ========   ========

                     LIABILITIES AND STOCKHOLDER'S EQUITY

Current liabilities:
   Accounts payable .........................................   $  6,829   $  9,455
   Accrued liabilities ......................................     17,870     15,595
   Current portion of long-term debt (Note 5) ...............      2,670      7,858
         Total current liabilities ..........................     27,369     32,908

Long-term debt (Note 5) .....................................    148,209    140,350
Deferred income taxes (Note 7) ..............................      9,205      8,365
Commitments and contingencies (Note 8)

Stockholder's equity:
      Common stock, $.01 par value:
         1,000 shares authorized, 100 shares outstanding.....          1          1
      Additional paid-in-capital ............................     16,558     16,558
      Retained earnings (deficit) ...........................       (440)       163
                                                                    ----        ---
         Total stockholder's equity .........................     16,119     16,722
                                                                  ------     ------

         Total liabilities and stockholder's equity .........   $200,902   $198,345
                                                                ========   ========
</TABLE>





                             See accompanying notes.

                                       21
<PAGE>


                       HYDROCHEM INDUSTRIAL SERVICES, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (in thousands)

<TABLE>
<CAPTION>

                                               Year ended December 31,
                                     -------------------------------------------
                                          1998           1999          2000
                                          ----           ----          ----
<S>                                   <C>            <C>           <C>
Revenue...........................    $ 168,770      $  191,936    $ 214,192
Cost of revenue...................      105,171         113,952      132,322
                                        -------        --------      -------
   Gross profit...................       63,599          77,984       81,870

Selling, general and administrative
   expense........................       44,245          47,821       50,364
Depreciation......................        9,078          11,464       11,710
                                        -------        --------      -------
   Operating income...............       10,276          18,699       19,796

Other (income) expense:
   Interest expense, net..........       10,470          13,129       16,035
   Special charges (Note 6).......          815               -            -
   Restructuring charge (Note 6)..          740               -            -
   Other (income) expense, net....          (59)             98           25
   Amortization of intangibles....        1,501           2,834        3,992
                                        -------        --------      -------

Income (loss) before taxes and
   extraordinary loss.............       (3,191)          2,638         (256)

   Income tax benefit (Note 7)....            -               -         (859)
                                        -------        --------      -------

Income (loss) before extraordinary
   loss...........................       (3,191)          2,638          603

   Extraordinary loss on early
     extinguishment of debt,
     net of taxes (Note 5)........            -              35            -
                                        -------        --------      -------

Net income (loss).................    $  (3,191)     $    2,603    $     603
                                        =======        ========      =======
</TABLE>
















                             See accompanying notes.

                                       22
<PAGE>


                       HYDROCHEM INDUSTRIAL SERVICES, INC.
                                AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
                                 (in thousands)


<TABLE>
<CAPTION>

                                            Additional   Retained
                                Common       Paid-in     Earnings
                                 Stock       Capital     (Deficit)    Total
                                 -----       -------     ---------    -----
<S>                            <C>           <C>         <C>         <C>
Balance at December 31, 1997   $     1       $16,558     $   148     $16,707
   Net loss ................         -             -      (3,191)     (3,191)
                               -------       -------     -------     -------
Balance at December 31, 1998         1        16,558      (3,043)     13,516
   Net income ..............         -             -       2,603       2,603
                               -------       -------     -------     -------
Balance at December 31, 1999   $     1       $16,558     $  (440)    $16,119
   Net income ..............         -             -         603         603
                               -------       -------     -------     -------
Balance at December 31, 2000   $     1       $16,558     $   163     $16,722
                               =======       =======     =======     =======
</TABLE>





























                             See accompanying notes.

                                       23
<PAGE>


                       HYDROCHEM INDUSTRIAL SERVICES, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                     Year ended December 31,
                                                 -------------------------------
                                                    1998       1999       2000
                                                    ----       ----       ----
<S>                                              <C>        <C>        <C>
Operating activities:
   Net income (loss).........................    $(3,191)   $  2,603   $   603
Adjustments to reconcile net income (loss)
   to net cash provided by operating activities:
     Depreciation............................      9,078      11,464    11,710
     Amortization............................      1,501       2,834     3,992
     Amortization of deferred financing costs        392         504       738
     Write-off of deferred financing costs...          -          35         -
     Deferred income tax provision (benefit).        241         349      (651)
     Loss (gain) on sale of property and
      equipment..............................        (36)         13       130
   Changes in operating assets and liabilities:
     Restricted cash.........................      2,858           -         -
     Receivables, net........................        400      (1,061)   (6,293)
     Inventories.............................        (39)       (819)      254
     Prepaid expenses and other current assets        77         256      (231)
     Income taxes receivable.................        164        (106)      176
     Accounts payable........................        150         292     2,626
     Income taxes payable....................        (40)          -         -
     Accrued liabilities.....................      1,423         416      (757)
                                                   -----      ------     -----
      Net cash provided by operating activities    12,978     16,780     12,297
                                                   ------     ------     ------

Investing activities:
   Expenditures for property and equipment...    (19,149)     (6,282)   (6,457)
   Acquisitions, net of cash acquired........          -     (63,362)   (1,518)
   Proceeds from sale of property and equipment      308         307       835
                                                   -----      ------     -----
      Net cash used in investing activities..    (18,841)    (69,337)   (7,140)
                                                 -------     -------    ------

Financing activities:
   Proceeds from (repayments of) long-term
    debt, net................................      6,117      24,590    (2,671)
   Debt financing costs......................       (341)     (1,668)     (246)
                                                   -----      ------     ------
      Net cash provided (used) by financing
       activities............................      5,776      22,922    (2,917)
                                                   -----      ------    ------

Net increase (decrease) in cash and cash
 equivalents.................................        (87)    (29,635)    2,240
Cash and cash equivalents at beginning of period  33,862      33,775     4,140
                                                  ------      ------     -----
Cash and cash equivalents at end of period...    $33,775    $  4,140   $ 6,380
                                                  ======      ======     =====

Supplemental disclosure:
   Cash paid during the year for interest....    $11,290    $ 12,738   $15,481
   Cash refunded during the year for income
    taxes, net of amounts paid...............       (355)       (151)     (145)
</TABLE>



                             See accompanying notes.

                                       24
<PAGE>


                       HYDROCHEM INDUSTRIAL SERVICES, INC.
                                AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2000


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.

2.   Significant Accounting Policies

Principles of Consolidation

     The accompanying  consolidated financial statements include the accounts of
HydroChem  and its  subsidiaries.  All  significant  intercompany  accounts  and
transactions have been eliminated in consolidation.

Cash and Cash Equivalents

     All debt instruments and investments that are readily  convertible to known
amounts of cash are considered to be cash equivalents.

Inventories

     Inventories are stated at the lower of cost or market.

Property and Equipment

     Property and equipment are recorded at cost. Costs assigned to property and
equipment of acquired  businesses  are based on estimated fair value at the date
of acquisition. Depreciation is provided for using the straight-line method over
estimated useful lives ranging from 3 to 39 years.

     When  property is retired or  otherwise  disposed  of, the related cost and
accumulated depreciation are removed from the accounts and any resulting gain or
loss is reflected in income.

Intangible Assets, net

     Intangible  assets,  which relate  primarily to costs in excess of the fair
value of net assets acquired,  primarily are being amortized over 10 to 40 years
on a  straight-line  basis.  Intangible  assets also include costs  allocated to
other specifically  identifiable assets arising from business acquisitions which
are being amortized on a straight-line  basis over their estimated useful lives,
which range from 4 to 40 years. These net intangible assets totaled  $96,874,000
and $92,899,000,  net of accumulated amortization of $9,985,000 and $13,977,000,
at December 31, 1999 and 2000,  respectively.  The Company continually evaluates
whether  events or  circumstances  have  occurred  that  indicate the  remaining
estimated useful lives of the intangible assets may warrant revision or that the
remaining  balances may not be  recoverable.  Should  factors  indicate that the
intangible assets should be evaluated for possible impairment, the Company would

                                       25
<PAGE>

use an  estimate  of the  acquired  business's  undiscounted  future  cash flows
compared to the carrying value of the assets to determine whether the assets are
deemed impaired.  Management believes there have been no events or circumstances
which  warrant  revision  to the  remaining  useful  lives or which  affect  the
recoverability of the Company's intangible assets.

     Other  intangibles  include net deferred  financing costs of $4,541,000 and
$4,032,000,  net of accumulated  amortization of $1,875,000 and  $2,614,000,  at
December 31, 1999 and 2000,  respectively.  Deferred  financing  costs are being
amortized  over five to ten year  financing  terms and are  recorded as interest
expense.

Revenues

     Revenues are recognized when services are provided.

     In December  1999,  the  Securities  and Exchange  Commission  issued Staff
Accounting  Bulletin  No.  101, or SAB 101,  Revenue  Recognition  in  Financial
Statements.  SAB 101 provides guidance on applying generally accepted accounting
principles to revenue  recognition issues in financial  statements.  The Company
adopted SAB 101 in the fourth  calendar  quarter of 2000.  The  adoption did not
require  the  Company to make any  changes in its  current  revenue  recognition
policies, practices or procedures.

Income Taxes

     Income taxes are provided for based on the liability  method of accounting.
Deferred  income  taxes  are  recorded  to  reflect  the  tax   consequences  of
differences  between the financial  statement  basis and the tax basis of assets
and liabilities.

Stock-Based Compensation

     Holding grants stock options to employees of the Company for a fixed number
of shares  with an  exercise  price no less than the fair value of the shares at
the date of  grant.  The  Company  accounts  for such  stock  option  grants  in
accordance  with  Financial   Accounting  Standards  Board  Statement  No.  123,
Accounting  for  Stock-Based   Compensation   ("FAS  123"),  which  permits  the
measurement of compensation  expense in accordance  with  Accounting  Principles
Board Opinion No. 25,  Accounting for Stock Issued to Employees  ("APB 25"), and
the Company has elected to follow APB 25.

Reclassifications

     Certain 1998 and 1999 amounts have been reclassified to conform to the 2000
presentation.

Use of Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the amounts  reported in the financial  statements  and
accompanying notes. Actual results could differ from those estimates.

Concentration of Credit Risk

     The  Company  provides  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. The Company
believes its  portfolio of accounts  receivable  is well  diversified  and, as a
result, its credit risks are minimal. The Company evaluates the creditworthiness
of its customers and monitors  accounts on a periodic basis,  but typically does
not  require   collateral.   Credit   losses   have  been  within   management's
expectations.

New Accounting Pronouncement

     In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative  Instruments and Hedging Activities,  as amended,
which is required to be adopted in years  beginning  after June 15,  2000.  As a

                                       26
<PAGE>

result  of  the  Company's  minimal  use of  derivatives,  management  does  not
anticipate that the adoption of the new statement will have a significant affect
on earnings or the financial position of the Company.

3.   Receivables

     Receivables  primarily  include trade  accounts and accrued  receivables of
$33,488,000 and $39,781,000,  net of allowance for doubtful accounts of $671,000
and $723,000, at December 31, 1999 and 2000, respectively. During 1999 and 2000,
the Company  recorded  bad debt expense of $85,000 and  $549,000,  respectively.
During  2000,  the Company  wrote off  $680,000  related to  receivables  from a
customer which filed bankruptcy.  In addition, during 1999 and 2000, the Company
recorded other  adjustments to the allowance for doubtful accounts in the amount
of $9,000 and  $183,000,  respectively.  During 1999,  $59,000 of allowance  for
doubtful accounts was added in connection with the acquisition of LANSCO.  Also,
in 1999 the Company recovered $190,000 which was previously written-off.

4.   Property and Equipment

     Property  and  equipment  at December  31, 1999 and 2000  consisted  of the
following (in thousands):
<TABLE>
<CAPTION>
                                                             1999       2000
                                                             ----       ----
<S>                                                       <C>        <C>
      Land............................................    $ 2,104    $  1,961
      Office facilities, furniture, fixtures and
       computer equipment.............................     21,005      22,055
      Machinery and equipment.........................     71,706      74,826
      Vehicles........................................      1,857       1,577
                                                          -------    --------
         Total property and equipment.................    $96,672    $100,419
                                                           ======     =======
</TABLE>

5.   Long-Term Debt

     Long-term debt at December 31, 1999 and 2000 consisted of the following (in
thousands):
<TABLE>
<CAPTION>
                                                            1999          2000
                                                            ----          ----
<S>                                                       <C>           <C>
      Series B Notes..................................    $110,000      $110,000
      Term Loan.......................................     30,000         29,000
      Mortgage Loan...................................      7,379          7,208
      Seller Notes....................................      3,500          2,000
                                                          -------       --------
         Total long-term debt.........................    150,879        148,208
         Less current portion of long-term debt.......     (2,670)        (7,858)
                                                          -------       --------
                                                         $148,209       $140,350
                                                         ========       ========
</TABLE>

     In  August  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.  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. All HydroChem subsidiaries,
including  International,  are  guarantors  of the  Series B Notes on a full and
unconditional basis.

     On November 19, 1999, the Company entered into a credit  agreement with six
financial   institutions   which  provides  for  secured  borrowings  of  up  to
$60,000,000,  consisting  of a  $30,000,000  term loan (the  "Term  Loan") and a
$30,000,000  revolving loan (the "Revolver")  which is subject to borrowing base
limitations.  The  credit  facility  expires  on  December  31,  2004,  requires
HydroChem  to  meet  certain  customary  financial  ratios  and  covenants,  and
restricts  the  Company  from any further  pledging  of its  assets.  The credit
facility is secured by all current and future assets of the Company and Holding.
HydroChem,  at its  discretion,  can pay  interest on a Base Rate or  Eurodollar
("LIBOR") basis, plus applicable margins.  Base Rate margins range from 0.00% to
1.75%,  depending  on the type of advance and the  Company's  leverage  ratio as
determined quarterly.  LIBOR-based margins range from 1.75% to 3.00%,  depending
on  the  Company's  leverage  ratio  as  determined  quarterly.  The  length  of
LIBOR-based  interest  periods  is  generally  one to six  months  in  duration.
However,  interest  payments  are  required  at least  every  three  months.  In

                                       27
<PAGE>

addition, a commitment fee of 0.3% to 0.5% per annum, depending on the Company's
leverage ratio as determined  quarterly,  is payable quarterly on the unborrowed
portion of the Revolver.

     As of December 31, 2000,  $29,000,000 was outstanding  under the Term Loan.
The Term Loan  requires  scheduled  quarterly  principal  payments  which  began
September 30, 2000. In addition,  the Company may be required to make  mandatory
additional  principal  payments,  based on the  Company's  excess  cash flow and
certain other  events,  as defined in the credit  agreement.  As of December 31,
2000, the Company's borrowing base under the Revolver was $28,871,000,  of which
$1,520,000 had been drawn in the form of standby letters of credit,  principally
issued in connection with the Company's property and casualty insurance program,
and the Company had available unused borrowings of $23,554,000,  net of covenant
test limitations.

     In connection with the Company's headquarters and operating facility in the
Houston,  Texas area,  HydroChem  entered into a loan agreement with a financial
institution dated July 17, 1998 as amended.  The loan agreement  provided for an
interim financing construction loan of up to $7,500,000,  which was converted to
a term loan (the "Mortgage Loan") in the amount of $7,500,000 on March 31, 1999.
The Mortgage  Loan is  collateralized  by first  priority  liens on the land and
improvements,  matures on September 30, 2006, and requires quarterly payments of
interest and  principal.  Interest  rates on the Mortgage Loan are at LIBOR plus
1.75%,  adjusted  quarterly.  On July 17, 1998,  HydroChem  also entered into an
interest rate  protection  agreement  with the same financial  institution  (the
"Interest  Rate Swap").  Under the Interest Rate Swap,  the Company's  effective
fixed borrowing rate for the Mortgage Loan is 7.82%. The loan agreement requires
the  Company  to meet  certain  customary  financial  ratios and  covenants  and
generally  restricts the Company from  transferring  or pledging the  facility's
assets.  At December 31, 2000, the Company had $7,208,000  outstanding under the
Mortgage Loan.

     In connection with an acquisition,  the Company issued two promissory notes
(the "Seller  Notes") to the  principal  selling  shareholders  in the aggregate
principal amount of $3,500,000.  The Seller Notes bear interest at 8% per annum,
mature on November  19,  2001,  and require  semi-annual  interest  payments and
annual  principal  payments.  The first  principal  payments,  in the  amount of
$1,500,000, were paid on November 19, 2000. The final principal payments, in the
amount of $2,000,000, are due November 19, 2001. The Seller Notes are unsecured,
subordinated to all Senior Debt (as defined in the Seller Notes) of the Company,
and contain no financial ratios or covenants that must be met.

     Maturities  of  long-term  debt for the years  ended  December  31,  are as
follows (in thousands):
<TABLE>

            <S>                                       <C>
            2001..................................    $    7,186
            2002..................................         7,202
            2003..................................         8,218
            2004..................................         9,230
            2005..................................           251
            Thereafter............................       116,121
                                                         -------
                                                      $  148,208
                                                      ==========
</TABLE>

6.   Special and Restructuring Charges

     In March  1998,  HydroChem  signed a letter of intent to acquire all of the
outstanding  capital stock of an industrial  cleaning company.  The parties were
unable  to agree on the  terms  of a  definitive  agreement  and,  as a  result,
terminated negotiations.  The Company incurred $325,000 of expenses, principally
consisting  of legal,  accounting  and other  services  which were  provided  in
connection  with  negotiation  and due diligence  efforts.  These  expenses were
recorded as a special charge in 1998.

     During 1998,  HydroChem incurred other  non-recurring  expenses of $290,000
related  to  its  consolidation  of  corporate   facilities  and  certain  other
operations into the Company's new headquarters.  In addition, HydroChem incurred
$200,000 of  non-capitalizable  costs incurred in connection  with its Year 2000
compliance  program.  These  expenses were also  recorded as special  charges in
1998.

     In  late  1998,  HydroChem  implemented  a  cost  reduction  program  which
included,  among other things,  a reduction in work force. The reduction in work
force affected 92 field and office personnel. The Company recognized $740,000 of

                                       28
<PAGE>

severance,  facility  closure and other costs in  connection  with this program,
which were recorded as a restructuring charge in 1998.

7.   Income Taxes

     The  Company  files a  consolidated  tax return with  Holding.  Current and
deferred taxes are allocated on a separate company basis. Significant components
of the Company's deferred tax liabilities and assets as of December 31, 1999 and
2000 were as follows (in thousands):
<TABLE>
<CAPTION>
                                                        1999         2000
                                                        ----         ----
      <S>                                           <C>           <C>
      Deferred tax liabilities:
           Property and equipment...............    $   5,586     $    8,128
           Intangibles..........................        6,409          3,088
                                                       ------        -------
           Total deferred tax liabilities.......       11,995         11,216
      Deferred tax assets:
           Net operating loss...................        4,011          1,325
           Alternative minimum tax..............        1,367          1,477
           Foreign tax credit...................          366            366
           Accrued liabilities..................          843          1,221
           Receivables..........................          197            250
           Other................................           66            114
           Valuation allowance..................       (2,335)          (366)
                                                       -------       --------
      Total deferred tax assets.................        4,515          4,387
                                                       ------        -------
      Net deferred tax liability................    $   7,480     $    6,829
                                                       ======        =======
</TABLE>

     The provision  (benefit) for income taxes for the years ended  December 31,
1998, 1999 and 2000 consisted of the following (in thousands):
<TABLE>
<CAPTION>
                                               1998        1999        2000
                                               ----        ----        ----
      <S>                                  <C>         <C>         <C>
      Current..........................    $   (241)   $   (349)   $   (208)
      Deferred.........................         241         349        (651)
                                               ----        ----        ----
                                           $      -    $      -    $   (859)
                                            =======     =======     =======
</TABLE>

     The  differences  between  income taxes  computed at the federal  statutory
income tax rate and the provision for income taxes for the years ended  December
31, 1998, 1999 and 2000 consisted of the following (in thousands):
<TABLE>
<CAPTION>
                                                   1998       1999       2000
                                                   ----       ----       ----
    <S>                                        <C>        <C>        <C>
    Income taxes computed at federal income
      tax rate..............................   $ (1,085)  $    885   $    (90)
    State income taxes, net of federal tax
      benefit...............................        (64)       305        178
    Nondeductible permanent differences.....        538        515      1,385
    Change in valuation allowance...........        995     (1,040)    (1,969)
    Other, net..............................       (384)      (665)      (363)
                                                 ------     ------     ------
    Provision for income taxes..............   $      -   $      -   $   (859)
                                                 ======     ======     ======
</TABLE>

     At  December  31,  2000,  the Company  had  alternative  minimum tax credit
carryforwards of approximately  $1,477,000,  foreign tax credit carryforwards of
approximately  $366,000 and a net operating loss  carryforward of  approximately
$3,489,000.  The  alternative  minimum tax credit  carryforwards  are  available
indefinitely,  the foreign tax credit  carryforwards began to expire in 1999 and
the net operating loss carryforward  begins to expire in 2009. The change in the
valuation   allowance  is  due  to  the   utilization   of  net  operating  loss
carryforwards in the current period.  Management believes it is more likely than
not that  the  deferred  tax  asset  will be  realized  and as a result  the net
operating loss carryforwards have been recognized.


                                       29
<PAGE>

8.   Commitments and Contingencies

     The Company leases most of its operating  locations,  and certain  vehicles
and  equipment  under  operating  leases.  The leases  contain  various  renewal
options,  rent escalation provisions and insurance  requirements.  Lease expense
for the years ended December 31, 1998, 1999 and 2000 was $8,470,000,  $8,744,000
and $9,072,000, respectively.

     Future minimum rental commitments under operating leases with initial terms
of one year or more at December 31, 2000 are as follows (in thousands):
<TABLE>

        <S>                                               <C>
        2001...........................................   $ 7,166
        2002...........................................     6,311
        2003...........................................     5,256
        2004...........................................     4,165
        2005...........................................     3,011
        Thereafter.....................................     2,206
                                                           ------
        Total..........................................   $28,115
                                                           ======
</TABLE>

     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.   Employee Benefit Plans

     Profit Sharing and 401(k) Plan

     HydroChem maintains the HydroChem Industrial Services  Discretionary Profit
Sharing Plan and 401(k) Plan (the "Plan").  Profit sharing  contributions to the
Plan are at the  discretion of the Board of Directors of  HydroChem.  All profit
sharing  contributions are allocated to the accounts of individual  participants
based  upon a  formula.  Eligible  employees,  at their  option,  may also  make
contributions  to their  separate  401(k)  accounts  within the Plan.  HydroChem
matches 100% of the first 3% of compensation contributed by non-exempt employees
and 50% of the first 3% of compensation contributed by exempt employees, up to a
maximum of $750 per employee.  All profit sharing and 401(k)  contributions  and
any earnings thereon are tax-deferred.

     No profit  sharing  contribution  was made for the years ended December 31,
1998, 1999 and 2000. For the same years, HydroChem made employer 401(k) matching
contributions to the Plan of $502,000, $522,000 and $560,000, respectively.

     Deferred Compensation Plan

     Effective  May 1, 1999,  the  Company  adopted a  deferred  bonus plan (the
"Deferred  Plan").  Awards  under the  Deferred  Plan may be granted to a select
group of management  employees as determined by the Board of Directors.  Subject
to  continuing  employment,  each person who received an initial award under the
Deferred Plan as of May 1, 1999 or May 1, 2000 will receive an additional  award
as of May 1 in the  following  year equal to at least one half of that  person's
discretionary cash bonus for the prior year. Awards under the Deferred Plan vest
in equal annual  installments on the first four anniversary  dates of the award.
Awards also become fully vested if the participant dies, becomes disabled, or is
terminated  without  cause  within  one  year  after a  change  of  control  (an
"Acceleration  Event").  Generally,  the vested  portion of any award is payable
with interest  either four years from the date of grant or, at the option of the
participant,  seven years after the date of the grant.  Awards are also  payable
upon the occurrence of an Acceleration Event. In most cases, the interest on any
award is at one of two  specified  rates.  The lower of the two rates applies if
the payment is made after four years. The higher rate applies if the participant
elects to defer payment until seven years after the date of grant or if there is


                                       30
<PAGE>

an Acceleration  Event.  The Company accrued  $601,000 of Deferred  Compensation
expense for the year ended December 31, 2000.

10.  Stock Option Plan

     In 1994, the Board of Directors of Holding (the "Board")  adopted,  and the
stockholders  approved,  the HydroChem Holding, Inc. 1994 Stock Option Plan (the
"Option  Plan"),  pursuant to which  options to purchase up to an  aggregate  of
620,779 shares of Holding's Class A Common Stock may be granted. The Option Plan
is administered by a committee of not fewer than two directors  appointed by the
Board.  Among other things,  the committee  decides which employees will receive
options,  the number of shares  covered by any option  granted,  the term of the
option  and the  exercise  price and other  terms  and  conditions  of each such
option.  The committee also decides if each option granted shall be an incentive
stock option under Section 422 of the Internal Revenue Code of 1986 (the "Code")
or  an  option   that  does  not  qualify   under  that   section  of  the  Code
("Non-Qualified  Stock Option").  The Board may at any time suspend or terminate
the Option Plan or revise or amend it in any respect.

     All options granted under the Option Plan are nontransferable except by the
laws of descent and  distribution.  All options granted to date expire ten years
after the date of grant or upon earlier  termination of employment unless due to
death,  disability or retirement,  in which case the option remains  exercisable
for an  additional  three months in the case of  retirement  and one year in the
case of death or  disability,  but,  in all  cases,  only to the  extent  it was
exercisable  at the time of such death,  disability or  retirement.  All options
granted  since the  inception of the Option Plan have been  Non-Qualified  Stock
Options and become  exercisable in installments  over three to four year periods
after the date of grant.  The  weighted-average  remaining  contractual  life of
outstanding options at December 31, 2000 was 5.5 years.

     A summary of the Option Plan as of  December  31,  1998,  1999 and 2000 and
changes during the years ended on those dates is presented below:
<TABLE>
<CAPTION>

                                                         Number of    Weighted-
                                                           Shares      Average
                                                         Covered by    Exercise
                                                          Options         Price
                                                          -------         -----
   <S>                                                      <C>          <C>
   Outstanding at January 1, 1998....................       618,390      $1.00
       Granted.......................................             -          -
       Exercised.....................................       308,101       1.00
       Canceled......................................        28,500       1.00
                                                             ------       ----
   Outstanding at December 31, 1998..................       281,789       1.00
       Granted.......................................        38,300       1.00
       Exercised.....................................        54,539       1.00
       Canceled......................................        19,500       1.00
                                                             ------       ----
   Outstanding at December 31, 1999 .................       246,050       1.00
       Granted.......................................        16,089       1.00
       Exercised.....................................        35,964       1.00
       Canceled......................................        14,625       1.00
                                                             ------       ----
   Outstanding at December 31, 2000 .................       211,550      $1.00
   Exercisable at:
       December 31, 1998.............................       197,789      $1.00
       December 31, 1999.............................       186,000      $1.00
       December 31, 2000.............................       180,200      $1.00
</TABLE>

     The Company has  elected to follow APB 25 and  related  interpretations  in
accounting for employee stock options.  Accordingly, no compensation expense has
been  recognized for these stock options.  Pro forma  information  regarding net
income and earnings per share is required by FAS 123,  which also  requires that
the  information  be determined as if the Company had accounted for its employee
stock  options  under the fair value method of FAS 123. The fair value for these
options was estimated at the date of grant using a minimum value option  pricing
model.  The minimum value method  calculated a fair value that is materially the
same as  recorded  by the  Company  according  to APB 25,  therefore  pro  forma
presentation has not been included.


                                       31
<PAGE>

11.  Fair Value of Financial Instruments

     The  Company  does not  hold or issue  financial  instruments  for  trading
purposes.

     The  following  estimated  fair value  amounts have been  determined  using
available  market  information  and  appropriate   valuation   methodologies  as
described below. However,  considerable judgment is required to interpret market
data and to develop the  estimates  of fair value.  Accordingly,  the  estimates
presented herein are not necessarily indicative of the amounts the Company could
realize in a current market exchange.

     The following  methods and assumptions were used to estimate the fair value
of each class of financial  instruments  for which it is practicable to estimate
that value.  Potential  income tax  ramifications  related to the realization of
unrealized  gains  and  losses  that  would be  incurred  in an  actual  sale or
settlement have not been taken into consideration.

     The carrying amounts for cash and cash  equivalents,  accounts  receivable,
and  current  liabilities  are  reasonable   estimates  of  their  fair  values,
principally due to the short-term maturities of these instruments. The estimated
fair value of the Series B Notes is based on the most recently available trading
prices.  The carrying amounts for the Term Loan,  Mortgage Loan and Seller Notes
are  reasonable  estimates  of  their  fair  values,  principally  due to  their
relatively short-term maturities and the lack of markets for these instruments.

     The  estimated  fair  values of  financial  instruments  are as follows (in
thousands):
<TABLE>
<CAPTION>
                                                As of December 31,
                                 -----------------------------------------------
                                          1999                      2000
                                 ------------------------  ---------------------
                                    Carrying    Fair        Carrying      Fair
                                     Amounts    Value        Amounts      Value
                                 ------------------------  ---------------------
     <S>                            <C>         <C>          <C>         <C>
     Financial assets:
        Cash and cash equivalents   $ 4,148     $ 4,148      $ 6,380     $ 6,380
        Accounts  receivable, net    33,488      33,488       39,781      39,781
     Financial liabilities:
        Current liabilities......    27,369      27,369       32,908      32,908
     Long-term debt-principal:
        Series B Notes...........   110,000      94,325      110,000      79,200
        Term Loan................    29,000      29,000       23,328      23,328
        Mortgage Loan............     7,209       7,209        7,022       7,022
        Seller Notes.............     2,000       2,000            -           -
</TABLE>

12.   Summary Financial Information

      Summary  financial  information  for  HydroChem  International,  Inc. as
consolidated with HydroChem is as follows (in thousands):
<TABLE>
<CAPTION>
                                                            As of December 31,
                                                            ------------------
                                                            1999         2000
                                                            ----         ----
      <S>                                                  <C>          <C>
      Current assets...............................        $2,727       $4,682
      Noncurrent assets............................            92          189
      Current liabilities..........................           496          801
      Noncurrent liabilities.......................           -            -
</TABLE>
<TABLE>
<CAPTION>
                                                     Year Ended December 31,
                                                     -----------------------
                                                     1998       1999      2000
                                                     ----       ----      ----
      <S>                                           <C>        <C>       <C>
      Revenue...................................    $3,771     $7,155    $7,539
      Gross profit..............................     1,246      2,692     2,787
      Net income (loss).........................      (207)      910      1,747
</TABLE>

                                       32
<PAGE>

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                                        -----------------------
                                                        1998      1999    2000
                                                        ----      ----    ----
     <S>                                               <C>       <C>      <C>
     Net cash provided (used) by operating
       activities..............................        $(323)    $ (95)   $ 333
     Net cash used in investing activities.....            -        (5)      (5)
     Net increase (decrease) in cash and cash
       equivalents.............................         (323)     (100)     328
</TABLE>

13.  Major Customer

     In 1998, 1999 and 2000, one customer and its affiliates  represented 10.7%,
10.0% and 9.2%, respectively, of the Company's total revenue.

14.  Acquisitions

     Effective  January 1, 1999, the Company acquired  substantially  all of the
assets and  assumed  certain  liabilities  of Valley  Systems,  Inc.  and Valley
Systems of Ohio, Inc.  (collectively  "Valley"),  a regional industrial services
provider.  The assets acquired consisted  primarily of (i) accounts  receivable,
(ii) property, plant and equipment, (iii) intangibles,  and (iv) other operating
assets.  The adjusted  purchase price for the acquired assets was $30,857,000 in
cash, of which $4,000,000 was deposited into escrow. As part of the transaction,
the Company also assumed  $2,493,000 in capital lease obligations and $5,594,000
in bank debt. The Company has replaced the capital leases with operating  leases
and  retired  the bank  debt.  The  source of funds for the  purchase  price and
retirement  of  Valley's  bank  debt  was a  combination  of cash  on  hand  and
borrowings under a previous credit facility.

     The  acquisition  has been  accounted  for  using  the  purchase  method of
accounting.  The  excess of the  purchase  price  over the fair value of the net
assets  acquired is being amortized over periods ranging from 10 to 25 years and
is estimated as follows (in thousands):
<TABLE>

         <S>                                            <C>
         Purchase price (as adjusted).............      $ 30,857
         Transaction and acquisition costs........         1,950
                                                         -------
                                                          32,807
         Fair value of net assets acquired........         5,857
                                                         -------
         Excess of purchase price over fair value.      $ 26,950
                                                          ======
</TABLE>

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

     On  November  19,  1999,  the  Company  acquired  all  of  the  issued  and
outstanding capital stock (the "Shares") of Landry Service Co., Inc. ("LANSCO").
LANSCO is primarily  engaged in the business of tank cleaning,  oil  reclamation
and  liquid-solid  waste separation for the oil refining  industry.  The Company
paid  $35,500,000  for the Shares,  consisting  of  $32,000,000  in cash paid at
closing and  $3,500,000  in Seller Notes payable in  installments  with interest
over the two  years  following  the  date of  acquisition  to the two  principal
stockholders  of LANSCO.  Further,  the  Company  has agreed to pay one of these
principal  stockholders  an additional  $1,250,000  over two years as additional
consideration  for his Shares and for consulting  services.  The source of funds
for the  acquisition  was a combination of existing  available  cash, the Seller
Notes, and the Term Loan.(See Note 5.)

                                       33
<PAGE>

     The  acquisition  of the Shares has been  accounted  for using the purchase
method of  accounting.  The excess of the purchase  price over the fair value of
the net assets  acquired is being  amortized over periods  ranging from 10 to 25
years and is estimated as follows (in thousands):
<TABLE>

     <S>                                                      <C>
     Cash payment .....................................       $32,000
     Seller Notes .....................................         3,500
     Additional purchase price ........................         1,050
     Transaction and acquisition costs ................         1,150
                                                              -------
                                                               37,700
     Fair value of net assets acquired ................         4,975
                                                              -------
     Excess of purchase price over fair value .........       $32,725
                                                              =======
</TABLE>

     The book value of net assets  acquired was determined to  approximate  fair
value at the date of  acquisition.  The  additional  purchase  price  represents
amounts  payable  over two years to a former  principal  stockholder  of LANSCO.
Transaction costs primarily consist of fees to accountants,  attorneys and other
outside service  providers.  Acquisition  costs primarily  consist of consulting
fees  payable  over two years to a former  principal  stockholder  of LANSCO and
costs  directly  associated  with  the  integration  of  LANSCO  operations  and
facilities.

     The results of operations  derived from the Valley and LANSCO  acquisitions
are included in the Company's  financial  statements  from the effective date of
each acquisition.  Unaudited pro forma  consolidated  results of operations have
been  prepared  as if the  acquisition  of the Valley  assets and the Shares had
occurred on January 1, 1998 and 1999 and include (in thousands):
<TABLE>
<CAPTION>
                                              Year ended December 31,
                                              -----------------------
                                           1998                    1999
                                       -------------          -------------
       <S>                               <C>                     <C>
       Revenue.....................      $218,519                $210,292
       Net income (loss)...........       (2,314)                     227
</TABLE>

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


                                       34
<PAGE>

Item 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
      FINANCIAL DISCLOSURE

     None.

Part III.

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The directors and executive officers of HydroChem are as follows:
<TABLE>
<CAPTION>
      Names of Directors
      and Executive Officers    Age                      Position
      ----------------------    ---                      --------

     <S>                         <C>   <C>
     B. Tom Carter, Jr........   56    Chairman   of  the   Board   and  Chief
                                       Executive Officer
     Robert B. Crates.........   38    Director
     Carl L. Blonkvist........   63    Director
     Gary D. Noto.............   46    President and Chief Operating Officer
     Donovan W. Boyd..........   47    Executive Vice President
     J. Pat DeBusk............   60    Executive Vice President
     Pelham H. A. Smith.......   44    Executive   Vice  President  and  Chief
                                       Financial Officer
     R. Dwane Ruiz............   46    Vice President
</TABLE>

     Subject to the terms of a  stockholders  agreement  entered into by Holding
and  all of its  stockholders  (the  "Stockholders  Agreement"),  the  Board  of
Directors of HydroChem  currently  consists of three  directors  who hold office
until the next annual meeting of the  stockholders or until their successors are
duly elected and qualified. Pursuant to the terms of the Stockholders Agreement,
one director,  Mr.  Blonkvist,  has been designated by Citicorp Venture Capital,
Ltd. ("CVC") and one director,  Mr. Crates,  has been designated by LKCM Venture
Partners I Ltd. The  stockholders  also agreed to elect Mr. Carter as a director
so long as he serves as Chief  Executive  Officer.  The  Stockholders  Agreement
further provides that CVC has the right to designate an additional director, and
that the holders of a majority of the shares of Holding's capital stock owned by
such  stockholders  may  designate a director,  but neither CVC nor the majority
stockholders  have exercised these rights.  See Item 12. "Security  Ownership of
Certain Beneficial Owners and Management."

     The executive  officers are elected  annually by the Board of Directors and
serve at the discretion of the Board until their successors are duly elected and
qualified.

     B. Tom Carter,  Jr. has  been  Chairman  of  the Board and Chief  Executive
Officer of HydroChem or Chief  Executive  Officer of Hydro  Services since 1990.
Mr. Carter was also the President until August 1998. As a private investor,  Mr.
Carter  assembled the investment  groups,  which acquired Hydro Services in 1990
and formed  HydroChem in 1993 for the purposes of combining  the  businesses  of
Hydro Services and DIS.

     Robert B.  Crates has been  a  director  of  HydroChem  since  1993.  Since
December 1995, Mr. Crates has been a principal of Crates Thompson Capital, Inc.,
an investment  company  engaged in the management of private equity funds.  From
May 1988 to November  1995,  Mr.  Crates  served as the general  partner of LKCM
Venture Partners I Ltd., a private equity fund.

     Carl L.  Blonkvist has been a director of HydroChem  since  November  2000.
Since  February  1998,  he has been  President  and Chief  Operating  Officer of
Page-Wheatcroft  & Co., an executive  search  firm.  From January 1994 to August
1997, he was a Senior Vice President of Coca-Cola  Foods. Mr. Blonkvist has also
been a director of  Merchant  Metals  Incorporated,  a  manufacturer  of cyclone
fencing, since April 1997.

     Gary D. Noto has been  President and Chief  Operating  Officer of HydroChem
since  August  1998.  Mr.  Noto had served as an  Executive  Vice  President  of
HydroChem  since  December  1996 and in various  executive,  management or other
positions with HydroChem, or Hydro Services or the predecessor to its operations
since 1978.


                                       35
<PAGE>

     Donovan W. Boyd  has  been an Executive Vice  President of HydroChem  since
August 1998. Mr. Boyd had served as a Vice President of HydroChem since November
1997.  From April 1995 to October 1997,  Mr. Boyd was Senior Vice  President and
Chief Operating  Officer of North American  Technologies  Group, a publicly held
technology  development company. Prior thereto, Mr. Boyd was a Vice President of
Rust Industrial Services, Inc. for more than one year.

     J. Pat DeBusk  has  been an Executive  Vice  President  of HydroChem  since
December  1993.  Mr.  DeBusk also held  various  executive  or other  management
positions with Hydro Services or the predecessor to its operations since 1964.

     Pelham  H. A.  Smith  has  been  an  Executive  Vice  President  and  Chief
Financial Officer of HydroChem since December 2000. Mr. Smith had served as Vice
President of HydroChem  since December 1993.  Prior thereto,  Mr. Smith had been
assisting Mr. Carter since 1990 in various private investment activities.

     R. Dwane Ruiz has  been a  Vice  President of HydroChem  since August 1998.
Prior thereto,  Mr. Ruiz held various management positions with HydroChem or HIS
since 1977.

Directors and Officers of Holding and International

     The  directors  of  Holding  and  International  are  the same as  those of
HydroChem.  The  executive  officers  of Holding  and  International  are B. Tom
Carter, Jr. (Chairman and Chief Executive Officer),  Gary D. Noto (President and
Chief Operating  Officer),  and Pelham H. A. Smith (Executive Vice President and
Chief Financial Officer).

                                       36
<PAGE>


Item 11.  EXECUTIVE COMPENSATION

     The following table provides certain  information  concerning  compensation
earned by the Chief  Executive  Officer and the Company's  next four most highly
compensated  executive  officers serving in such capacities at December 31, 2000
who received compensation in excess of $100,000 (the "Named Executive Officers")
for the period indicated.

                           Summary Compensation Table
<TABLE>
<CAPTION>
                                                           Long-Term Compensation
                                                           ----------------------
                                                            Number of
                                 Annual Compensation        Shares
                                                            Underlying       All Other
Name and Principal Position     Year   Salary    Bonus      Options     Compensation(1)
---------------------------     ----   ------    -----      -------     ---------------
<S>                             <C>    <C>       <C>         <C>        <C>
B. Tom Carter, Jr ...........   2000   $265,835  $    (1)    16,089     $   750
  Chairman of the Board and .   1999    240,406   150,000         -         750
  Chief Executive Officer ...   1998    249,231         -         -         750

Gary D. Noto ................   2000    186,026    70,000         -      31,512
  President and Chief .......   1999    186,028    97,000     4,000         750
  Operating Officer .........   1998    159,684    85,000         -         750

Donovan W. Boyd (2) .........   2000    151,820    73,500         -      22,150
  Executive Vice President ..   1999    150,155    75,000    20,000         750
                                1998    135,000    80,750         -           -

J. Pat Debusk ...............   2000    151,332    36,000         -      14,125
  Executive Vice President ..   1999    151,342    50,000         -         750
                                1998    156,741    50,000         -         750

Pelham H. A. Smith ..........   2000    124,099    43,500         -      18,138
  Executive Vice President ..   1999    114,155    70,500         -         750
  and Chief Financial Officer   1998     97,900    70,000         -         750
</TABLE>
----------
(1)The  amount  of any bonus to Mr.  Carter  for 2000  will be  determined  at a
   subsequent  meeting of Holding's  Board of  Directors,  and  therefore is not
   calculable at this time.
(2)Consists  of  HydroChem's  401(k)  matching  contribution of  $750 per person
   per year,  and for 2000,  the  portion  of  any  deferred  bonus that  vested
   during  the year plus interest on such  vested  portion.  See "Deferred Bonus
   Plan."
(3)Includes  a   bonus   payment  of   $25,000  in  1998  which  was  guaranteed
   pursuant to  Mr. Boyd's  employment  agreement.   See "Employment  Agreements
   and Other Arrangements."


Director Compensation

     Directors  who are  employees  of the  Company  do not  receive  additional
compensation  for  serving  as  directors.  All  directors  of the  Company  are
reimbursed  for  out-of-pocket  expenses  incurred in attending  meetings of the
Board of  Directors  and for other  expenses  incurred  in their  capacities  as
directors of the Company.

Stock Option Information

     Holding has adopted the HydroChem Holding, Inc. 1994 Stock Option Plan (the
"Option  Plan").  The Option Plan is  administered  by a committee  of Holding's
Board of  Directors  (the  "Committee"),  which  currently  consists  of Messrs.
Blonkvist and Crates. The purpose of the Option Plan is to advance the interests
of Holding and its subsidiaries by encouraging  certain employees of the Company
to acquire a  proprietary  interest in Holding  through  ownership  of Holding's
Class A Common Stock  ("Class A Common").  The total number of shares of Class A
Common that may be subject to options  under the Option  Plan is 620,779.  As of
December 31, 2000, options for 211,550 shares of Class A Common were outstanding

                                       37
<PAGE>

and options for 8,625  shares were  available  for grant.  The  duration of each
option and the exercise  schedule therefor is determined by the Committee at the
time of grant.

     The  following  table sets forth  certain  information  with respect to the
exercise of stock options and unexercised options granted to the Named Executive
Officers.

                          Fiscal Year End Option Values
<TABLE>
<CAPTION>
                                                  Number of Securities               Value of
                                                     Underlying                    Unexercised
                  Shares Acquired   Value         Unexercised Options           In-the-Money Options
 Name               on Exercise   Realized          at December 31,            at December 31, 1998(1)
 ----               -----------   --------          ---------------           -----------------------
                                              Exercisable  Unexercisable      Exercisable   Unexercisable
                                              -----------  -------------      -----------   -------------
<S>                    <C>        <C>         <C>           <C>               <C>           <C>
B.Tom Carter.......    16,089     $  0         6,250              -           $  0          $  0
Gary D. Noto.......         -        -        18,500          3,000              0             0
Donovan W. Boyd....         -        -         5,000         15,000              0             0
J. Pat DeBusk......         -        -        20,000              -              0             0
Pelham H. A. Smith.         -        -             -              -              0             0
</TABLE>
----------
(1) There is no  established  trading  market  for the Class A  Common,  but the
  Company  has  attempted  to  determine  its market  value  based upon the same
  criteria  which were used to  determine  the  exercise  prices of past options
  granted.  Based upon these  criteria,  at  December  31,  2000,  there were no
  options which were in-the-money.

Employment Agreements and Other Arrangements

     Holding has an employment  agreement  with Mr. Carter under which he serves
as the  Chairman  of the Board and Chief  Executive  Officer of Holding  and the
Company. Either Holding or Mr. Carter may terminate this agreement at anytime by
giving one year advance notice.  Mr. Carter's  current base  compensation  under
this  Agreement  is  $275,000  per year,  and is  subject  to review  and may be
increased  periodically  at the discretion of the Board.  Under this  agreement,
bonuses  are payable to Mr.  Carter at the sole  discretion  of the Board.  Also
under this  agreement,  Holding  granted  Mr.  Carter in March 1995 an option to
purchase  310,390  shares  of Class A Common at an  exercise  price of $1.00 per
share under Holding's 1994 Stock Option Plan. See "Stock Option Information." If
Mr. Carter's employment is terminated without cause as defined in his agreement,
then he is entitled  to a lump sum  severance  payment  equal to one year of his
then current base  compensation.  Mr. Carter's agreement contains a covenant not
to compete and other  customary  restrictions.  The covenant not to compete does
not apply if there is a  termination  without  cause,  or a  resignation  by Mr.
Carter  after a  change  in  control  as  defined  in his  agreement  or after a
diminution in his duties. The Company has guaranteed Holding's obligations under
the employment agreement.

     In connection with the exercise of certain stock options and the payment of
accrued interest on prior loans,  Holding has loaned to Mr. Carter the principal
sum of  $411,402.  The loan is evidenced  by a secured  promissory  note bearing
interest at the rate of 5.07% per annum, compounded annually.  Principal and all
accrued interest thereon is payable upon the earlier of February 8, 2007, or any
termination of Mr. Carter's  employment,  but not earlier than February 8, 2004.
The note is secured by a pledge of the Class A Common shares  acquired  pursuant
to Mr. Carter's stock option exercises.

     HydroChem has employment  agreements  with Messrs.  Noto,  DeBusk and Boyd.
Each of these agreements  renews  automatically on an annual basis unless either
HydroChem  or the  employee  gives 30 days notice to the  contrary.  The current
annual base  compensation  under these agreements for Messrs.  Noto,  DeBusk and
Boyd is $185,000, $150,000 and $165,000,  respectively. Such amounts are subject
to review and may be increased periodically at the discretion of HydroChem.  For
Messrs.  Noto and DeBusk,  bonuses are also  payable at the sole  discretion  of
HydroChem.  Mr. Boyd's agreement provides for a signing bonus of $20,000,  and a
performance  bonus for 1998 and 1999 of up to 50% of his base  compensation  for
each such year with a minimum of $25,000 for 1998.  Mr.  Boyd's  agreement  also
provides for an award under  HydroChem's  Deferred  Plan, as defined  below,  of
$80,000  in 1999 and an  amount  in 2000  equal to at least  100% of Mr.  Boyd's
performance  bonus for 1999. If HydroChem  terminates  the employment of Messrs.
Noto or Boyd without cause, as defined in their respective agreements, then such
individual is entitled to a continuation  of his then current base  compensation
for 12 months.  If HydroChem  terminates  the  employment of Mr. DeBusk  without
cause, as defined in his agreement, then he is entitled to a continuation of his
then  current  base  compensation  for six months.  Each of the  agreements  for

                                       38
<PAGE>

Messrs.  Noto,  DeBusk  and Boyd  contain  covenants  not to  compete  and other
customary restrictions.

     The Company and Mr. Smith are parties to a letter  agreement  dated October
31, 1997 which provides severance compensation equal to 12 months of base salary
if the Company terminates his employment  without cause as therein defined.  The
letter agreement also provides for the same amount of severance  compensation if
Mr.  Smith  resigns  in certain  circumstances  within 90 days after a change in
control.

Deferred Bonus Plan

     Effective  May 1, 1999,  the  Company  adopted a  deferred  bonus plan (the
"Deferred  Plan").  Awards  under the  Deferred  Plan may be granted to a select
group of management  employees as determined by the Board of Directors.  Subject
to  continuing  employment,  each person who received an initial award under the
Deferred Plan as of May 1, 1999 or May 1, 2000 will receive an additional  award
as of May 1 in the following  year,  equal to at least one half of that person's
discretionary cash bonus for the prior year. Awards under the Deferred Plan vest
in equal annual  installments on the first four anniversary  dates of the award.
Awards also become fully vested if the participant dies, becomes disabled, or is
terminated  without  cause  within  one  year  after a  change  of  control  (an
"Acceleration  Event").  Generally,  the vested  portion of any award is payable
with interest  either four years from the date of grant or, at the option of the
participant,  seven years after the date of the grant.  Awards are also  payable
upon the occurrence of an Acceleration Event. In most cases, the interest on any
award is at one of two  specified  rates.  The lower of the two rates applies if
the  payment is made after four years  after the date of grant.  The higher rate
applies if the  participant  elects to defer payment until seven years after the
date of grant or if there is an Acceleration Event.

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     All  of  the  outstanding  capital  stock  of  International  is  owned  by
HydroChem.  All of the  outstanding  capital  stock  of  HydroChem  is  owned by
Holding.  The  authorized  capital  stock of Holding  consists of (i)  8,000,000
shares of Class A Common, par value $.00005 per share, of which 1,268,881 shares
are issued and  outstanding;  (ii) 5,000,000 shares of Class B Common Stock, par
value $.00005 per share ("Class B Common"), of which 3,926,598 shares are issued
and  outstanding;  (iii)  1,000,000  shares of Class C Common  Stock,  par value
$.00005  per  share  ("Class  C  Common"),  of which no shares  are  issued  and
outstanding;  and (iv)  5,000,000  shares of Series A 13%  Cumulative  Preferred
Stock,  par value  $.00005 per share  ("Series A  Preferred"),  all of which are
issued and outstanding.

     The  following  table sets forth certain  information  known to the Company
with respect to beneficial  ownership of Holding's equity securities (rounded to
the nearest  share) by (i) each  director;  (ii) each Named  Executive  Officer;
(iii) all executive  officers and directors of the Company as a group;  and (iv)
each  stockholder  known by the Company to be the beneficial  owner of more than
five percent of any class of voting  securities of Holding.  Such information is
presented as of February 28, 2001.



                                       39
<PAGE>
<TABLE>
<CAPTION>
                                      Class A Common         Class B Common       Series A Preferred
                                    --------------------   --------------------   --------------------
                                     No. of       % of      No. of       % of      No. of       % of
              Name                   Shares      Class      Shares      Class      Shares       Class
---------------------------------   ----------   -------   ----------   -------   ----------    -------
Executive Officers and
Directors:
<S>                                   <C>          <C>         <C>        <C>     <C>            <C>
B. Tom Carter, Jr. (1) ........       462,754      36.5%          -         -       360,993       7.2%
   900 Georgia Avenue
   Deer Park, Texas 77536
Robert B. Crates ..............           -          -            -         -           -          -
Carl L. Blonkvist..............           -          -            -         -           -          -
Gary D. Noto (2) (3) ..........        37,079       2.9%          880       *        31,488        *
J. Pat DeBusk (2) (4) .........        56,727       4.4%        1,540       *        55,103       1.1%
Donovan W. Boyd (5)............         5,000          *          -         -           -          -
Pelham H. A.Smith..............        30,000       2.4%          -         -           -          -
All directors and executive
officers as a group
 (8  persons) (2) (6)..........       596,885      45.2%        2,420       *       447,584       9.0%

Other Principal Stockholders:
LKCM Venture Partners I Ltd. ..       673,993      53.1%          -         -     2,100,628      42.0%
   301 Commerce Street,
   Suite 1300
   Fort Worth, Texas 76102
Citicorp Venture Capital, Ltd.(2)   2,461,712      66.0%    2,461,712     62.7%   1,250,861      25.0%
   399 Park Avenue
   New York, New York 10043
BT Capital Partners, Inc. (2) .       705,154      35.7%      705,154     18.0%     793,959      15.9%
   280 Park Avenue (32W)
   New York, New York 10017
World Equity Partners, L.P. (7)       496,623      28.1%          -         -           -          -
   399 Park Avenue
   New York, New York 10043
CCT Partners II, L.P. (2) (8) .       434,420      25.5%      434,420     11.1%     220,740       4.4%
   c/o Citicorp Venture Capital, Ltd.
   399 Park Avenue
   New York, New York 10043
Heller Financial, Inc. (9).....       310,390      19.7%          -         -           -          -
   500 West Monroe Street
   Chicago, Illinois 60661
HES Management, Inc. ..........       102,650       8.1%          -         -       360,993       7.2%
   5956 Sherry Lane, Suite 930
   Dallas, Texas 75225
Thomas F. McWilliams (2) (10)..        67,343       5.0%       67,343      1.7%      33,871        *
   5956 Sherry Lane, Suite 930
   Dallas, Texas 75225
</TABLE>
----------
*     Less than one percent.

(1)  Includes  102,650  shares of Class A Common and 360,993  shares of Series A
     Preferred held in the name of HES Management, Inc., of which Mr. Carter, as
     a sole stockholder, may be deemed the beneficial owner.

(2)  Includes  a number  of shares of Class A Common  that the  stockholder  may
     acquire upon the conversion of shares of Class B Common on a 1-for-1 basis.

(3)  Includes 18,500 shares of Class A Common that Mr. Noto may acquire upon the
     exercise of stock options within 60 days of February 28, 2001.

                                       40
<PAGE>

(4)  Includes  20,000  shares of Class A Common that Mr. DeBusk may acquire upon
     the exercise of stock options within 60 days of February 28, 2001.

(5)  Represents  5,000  shares of Class A Common that Mr. Boyd may acquire  upon
     exercise of stock options within 60 days of February 28, 2001.

(6)  Includes  48,825  shares of Class A Common  that may be  acquired  upon the
     exercise of stock  options  within 60 days of February 28, 2001,  and 2,420
     shares of Class A Common that may be acquired upon the conversion of shares
     of Class B Common on a 1-for-1 basis.

(7)  Represents  496,623  shares of Class A Common that World  Equity  Partners,
     L.P. may purchase upon the exercise of a warrant within 60 days of February
     28, 2001.

(8)  William T. Comfort,  whose address is  c/o Citicorp Venture Capital,  Ltd.,
     399 Park  Avenue,  New  York,  New  York,  10043,  is  the  sole  director,
     executive  officer,  and  stockholder  of   the   general  partner  of  CCT
     Partners  II,  L.P.,  and  may  be  deemed  the  beneficial  owner  of  the
     securities held in the name of CCT Partners II, L.P.

(9)  Represents 310,390 shares of Class C Common that Heller Financial, Inc. may
     purchase  upon the  exercise of a warrant  within 60 days of  February  28,
     2001. Heller  Financial,  Inc. may acquire 310,390 shares of Class A Common
     within 60 days of February 28, 2001,  upon exercise of its right to convert
     all of its shares of Class C Common into Class A Common on a 1-for-1 basis.

(10) Represents  56,393  shares of Class B Common  held in the name of  Alchemy,
     L.P., of which Mr. McWilliams,  as the sole general partner,  may be deemed
     the beneficial owner, and 10,950 shares of Class B Common and 33,871 shares
     of Series A Preferred  held in the name of the Thomas F.  McWilliams  Flint
     Trust of which Mr.  McWilliams,  as the sole beneficiary of such trust, may
     be deemed the beneficial owner.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     In connection with the exercise of certain stock options and the payment of
accrued interest on prior loans,  Holding has loaned to Mr. Carter the principal
sum of  $411,402.  The loan is  evidenced  by a secured  promissory  note  dated
February 9, 2001  bearing  interest  at the rate of 5.07% per annum,  compounded
annually. Principal and all accrued interest thereon is payable upon the earlier
of February 8, 2007, or any  termination  of Mr.  Carter's  employment,  but not
earlier  than  February 8, 2004.  The note is secured by a pledge of the Class A
Common shares acquired pursuant to Mr. Carter's stock option exercises.

Part IV.

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

  (a)1. See  the  Index  to  Consolidated  Financial  Statements  in  "Item 8 -
        Financial Statements and Supplementary Data."

     2. Schedules  otherwise  required  by  Item 8 or  Item  14.2(d)  have  been
        omitted as not required or not applicable.

     3. 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.)

                                       41
<PAGE>


        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.)

        10.4        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.)

        10.5        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.)

        10.6        Secured Promissory Note dated  February  9, 2001 from B. Tom
                    Carter, Jr. to HydroChem Holding, Inc.  (Filed herewith.)

        10.7        Pledge Agreement dated  February  9,  2001  between  B.  Tom
                    Carter, Jr. and HydroChem Holding, Inc.  (Filed herewith.)

        10.8        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.)

                                       42
<PAGE>

        10.9        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.)

        10.10       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.)

        10.11       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.)

        10.12       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.)

        10.13       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.  (Filed herewith.)

        10.14       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.)

        10.15       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.)

        10.16       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.)

        10.17       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.)

        10.18       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.)

        10.19       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.)

        10.20       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.)

        10.21       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.)

                                       43
<PAGE>


        10.22       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.)

        10.23       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.)

        10.24       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.


                                       44
<PAGE>


                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned,  thereunto duly  authorized,  on  the 21st day of
March 2001.


                          HYDROCHEM INDUSTRIAL SERVICES, INC.


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



     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities indicated on the 21st day of March 2001.



         Name:                              Capacities:



/s/ B. Tom Carter, Jr.
----------------------
    B. Tom Carter, Jr.             Chairman of the Board and
                                   Chief Executive Officer



/s/ Pelham H. A. Smith
----------------------
    Pelham H. A. Smith             Executive Vice President and
                                   Chief Financial Officer


/s/ Patricia K. Burns
---------------------
    Patricia K. Burns              Vice President and Corporate Controller



/s/ Robert B. Crates
--------------------
    Robert B. Crates               Director



/s/ Carl L. Blonkvist
---------------------
    Carl L. Blonkvist              Director





                                       45
<PAGE>


                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned,  thereunto  duly  authorized,  on the 21st day of
March 2001.


                          HYDROCHEM INTERNATIONAL, INC.

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



      Pursuant to the requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities indicated on the 21st day of March 2001.



         Name:                              Capacities:



/s/ B. Tom Carter, Jr.
----------------------
    B. Tom Carter, Jr.             Chairman of the Board and
                                   Chief Executive Officer



/s/ Pelham H. A. Smith
----------------------
    Pelham H. A. Smith             Executive Vice President and
                                   Chief Financial Officer


/s/ Patricia K. Burns
---------------------
    Patricia K. Burns              Vice President and Corporate Controller



/s/ Robert B. Crates
--------------------
    Robert B. Crates               Director



/s/ Carl L. Blonkvist
---------------------
    Carl L. Blonkvist              Director



                                       46
<PAGE>


                                  EXHIBIT INDEX


10.6    Secured  Promissory Note dated February 9, 2001 from B. Tom Carter,  Jr.
        to HydroChem Holding, Inc.

10.7    Pledge  Agreement dated February 9, 2001 between B. Tom Carter,  Jr. and
        HydroChem Holding, Inc.

10.13   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.