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, 2001

     ( )  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 28, 2002 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
75-2512500.

<PAGE>

                                      INDEX
<TABLE>
<CAPTION>

                                                                            Page
<S>                                                                          <C>
Part I.

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

        Item 2.     Properties............................................    9

        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...............   38

Part III.

        Item 10.   Directors and Executive Officers of the Registrant.....   38

        Item 11.   Executive Compensation.................................   40

        Item 12.   Security Ownership of Certain Beneficial
                     Owners and Management................................   42

        Item 13.   Certain Relationships and Related Transactions.........   44

Part IV.

        Item 14.   Exhibits, Financial Statement Schedules
                     and Reports on Form 8-K..............................   44

Signatures................................................................   48

Exhibit Index.............................................................   50
</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 2002.

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,  power  plants,  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,  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.  During  the year ended
December  31,  2001,  the Company  provided  services to  approximately  1,250
customers at  approximately  1,850 customer sites from 76 operating  locations
(including  both branch and satellite  locations) in the United States and one
international location in Singapore.

     In 2001,  approximately  59.6% of the Company's  revenue was derived from
its 20 largest  customers,  15 of which are, or are affiliated  with,  Fortune
500/S&P Global 1200 companies,  and  approximately  72.2% was derived from its
40  largest  customers,  27 of which  are,  or are  affiliated  with,  Fortune
500/S&P Global 1200 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,
                         ----------------------------------------------------
                         1999     %          2000      %        2001       %
                         ----     -          ----      -        ----       -
<S>                    <C>        <C>      <C>        <C>      <C>        <C>
Petrochemical ....     $ 97,590   50.9%    $112,657   52.6%    $110,682   50.6%
Oil refining .....       26,915   14.0       36,085   16.9       38,725   17.7
Power ............       23,348   12.2       25,960   12.1       31,298   14.3
Pulp and paper ...       10,571    5.5        7,014    3.3        6,280    2.9
Other ............       33,512   17.4       32,476   15.1       31,835   14.5
                         ------   ----       ------   ----       ------   ----
     Total .......     $191,936  100.0%    $214,192  100.0%    $218,820  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,
                         ----------------------------------------------------
                         1999     %          2000      %        2001       %
                         ----     -          ----      -        ----       -
<S>                    <C>        <C>      <C>        <C>      <C>        <C>
Hydroblasting ......   $ 86,173   44.9%    $ 83,795   39.1%    $ 88,249   40.3%
Chemical cleaning ..     53,771   28.0       54,446   25.4       51,481   23.5
Industrial vacuuming     36,184   18.9       43,404   20.3       51,265   23.4
Tank cleaning ......      2,079    1.1       18,267    8.5       16,284    7.5
Other ..............     13,729    7.1       14,280    6.7       11,541    5.3
                         ------    ---       ------    ---       ------    ---
     Total .........   $191,936  100.0%    $214,192  100.0%    $218,820  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,   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.  The  Company  started  providing
mechanical   services  in  1998.   During  2001,   the  Company   began  using
sub-contractors  to  provide  these  services  to  its  customers,   primarily
utilizing the services of a company with whom it has a  non-exclusive  teaming
arrangement.

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 40,000  pounds per square inch,  and water  volumes  generally  range
from one gallon per minute ("gpm") to 300 gpm.  Pressures  ranging from 20,000
psi to 40,000 psi,  generally  considered  UHP, are 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.
                                       4
<PAGE>

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  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.

Tank Cleaning Services

     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.
                                       5
<PAGE>
     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.

Other Services

     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.

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.
                                       6
<PAGE>

     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.   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  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

                                       7

<PAGE>

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 and claims 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 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 2001,  The Dow Chemical  Company  represented  13.3% 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 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

                                       8
<PAGE>
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.

     Due to  adverse  changes in market  conditions,  the  Company  incurred a
significant  increase in the price of these  coverages  when they were renewed
in December 2001.  Insurance premiums  increased by $2.3 million,  or 134%, to
$4.0  million  for  2002  from  $1.7  million  for  2001.  In  addition,   the
deductible  for  automobile  liability  coverage  increased  from  $25,000  to
$250,000 per occurrence.

Employees

     As of December 31,  2001,  the Company had  approximately  2,050 full and
part-time  employees.  Two 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.

Item 2.  PROPERTIES

     The Company's  corporate and corporate support  headquarters,  as well as
its tank  cleaning,  commissioning  services and operations  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, 2002, the Company had 81 operating and  administrative
locations in the United  States and one  international  location in Singapore.
The Company's current domestic  locations are located in Alabama,  California,
Florida,  Georgia,  Illinois,  Iowa, Kansas,  Kentucky,  Louisiana,  Michigan,
Minnesota, New Jersey, Ohio, Oklahoma,  Pennsylvania,  Tennessee, Texas, Utah,
                                       9

<PAGE>

Virginia  and  West  Virginia.   The  Company  owns  10  of  these  locations.
Generally,  the remaining  locations are leased.  Of the operating  locations,
46 are on-site facilities provided by or leased from the Company's customers.

Item 3.  LEGAL PROCEEDINGS

     The Company was a defendant in a lawsuit  filed on September  20, 1999 in
the 24th  Judicial  District  for the  Parish of  Jefferson,  Louisiana  which
sought class  certification  on behalf of an unknown  number of plaintiffs who
alleged  personal  and  property  damage  arising from the release of a single
330-gallon  container  of  hydrochloric  acid on a public  highway  in Kenner,
Louisiana in September  1999.  Thereafter,  the Plaintiffs  filed a Motion for
Class  Certification  which the Court denied on September 13, 2001. Any person
who  desires to pursue an  individual  claim must file it by November 6, 2002.
To  date,  there  have  been  three  individual  suits  (with a total of eight
claimants)  filed,  all of  which  were  filed  prior to the  denial  of class
certification.  It is not  known how many  additional  persons,  if any,  will
file individual claims.

     On September 30, 2001, the Company's  primary  insurance  carrier in this
matter  entered  into  a  liquidation  proceeding.  It  is  uncertain  if  any
coverage in this  litigation  will be available  from the Louisiana  Insurance
Guaranty  Association  or  any  reinsurance  carriers.  The  Company's  excess
insurance is not affected by the liquidation of the primary carrier.

     Although  it is  difficult  to predict  with  certainty  until the actual
number of claimants is known,  management  believes,  that  regardless  of the
foregoing  insurance  considerations,  the  resolution of any such claims 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,
                            ------------------------------------------------------------
                             1997        1998        1999        2000        2001
                                            (dollars in thousands)

<S>                         <C>           <C>           <C>           <C>          <C>
Financial Data:
  Revenue ...............   $ 160,604     $ 168,770     $ 191,936     $ 214,192    $ 218,820
  Gross profit ..........      65,019        63,599        77,984        81,870       78,364
  Gross margin ..........        40.5%         37.7%         40.6%         38.2%        35.8%

  Operating income ......   $  12,658     $   7,220     $  15,865     $  15,804    $   9,357
  Income (loss) before taxes
    and extraordinary loss      4,101        (3,191)        2,638          (256)      (5,544)
  Net income (loss) .....        (523)       (3,191)        2,603           603       (4,996)

  Capital expenditures ..       9,557        19,149         6,282         6,457        5,862

  Net  cash  provided  by
    operating activities       12,682        12,978        16,780        12,297       15,911

  Net cash  (provided by)
    used in investing and  .
    financing activities      (20,509)       13,065        46,415        10,057       14,348
</TABLE>
<TABLE>
<CAPTION>
                                                As of December 31,
                            ------------------------------------------------------------
                             1997        1998        1999        2000        2001
                                                (in thousands)
Balance Sheet Data:
<S>                          <C>         <C>         <C>         <C>         <C>
  Cash and cash equivalents  $ 33,862    $ 33,775    $  4,140     $  6,380   $  7,943
  Working capital ......       52,324      46,755      19,202       21,808     22,156
  Total assets .........      152,093     156,425     200,902      198,345    181,635
  Total long-term debt,
    including current
    maturities .........      110,000     116,117     150,879      148,208    140,000
  Dividends paid .......        8,540           -           -            -          -
  Stockholder's equity .       16,707      13,516      16,119       16,722     11,726

Other Data:
  EBITDA (1) ...........     $ 22,405     $17,799    $ 30,163     $ 31,506   $ 24,200
  EBITDA margin (2) ....         14.0%       10.5%       15.7%        14.7%      11.1%
</TABLE>
----------
(1)EBITDA for  any relevant  period  presented above  represents  gross profit
   less  selling,  general and  administrative  expense  and special  charges.
   EBITDA should not be construed as a substitute for operating  income, as an
   indicator  of  liquidity  or as a  substitute  for  net  cash  provided  by
   operating  activities,  which are determined in accordance  with accounting
   principles  generally  accepted  in the United  States.  EBITDA is included
   because management  believes it to be a useful tool for analyzing operating
   performance,  leverage,  liquidity and a company's ability to service debt.
   The  Company's  calculation  of EBITDA  may not be  comparable  to  similar
   entitled  items  reported by other  companies;  as such  companies  may not
   define EBITDA as the Company defines it.

(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.

Critical Accounting Policies

     The  discussion  and analysis of the  Company's  financial  condition and
results of operations are based upon our  consolidated  financial  statements,
which have been  prepared in accordance  with  generally  accepted  accounting
principles.   The   preparation  of  these   financial   statements   requires
management to make  estimates and judgments  that affect the reported  amounts
of assets,  liabilities,  revenues  and  expenses  and related  disclosure  of
contingent   assets  and  liabilities.   On  an  on-going  basis,   management
evaluates these estimates,  including those related to self-insurance reserves
and the allowance  for doubtful  accounts  receivable.  Estimates are based on
historical  experience and on various other  assumptions  that are believed to
be  reasonable  under the  circumstances,  the results of which form the basis
for making  judgments about the carrying values of assets and liabilities that
are not readily  apparent from other  sources.  Actual results may differ from
these estimates under different assumptions or conditions.

     Management  believes  the  following  are  the  Company's  most  critical
accounting  policies.   These  policies  require  significant   judgments  and
estimates  used in the  preparation  of the Company's  consolidated  financial
statements.

     Allowance  for  doubtful  accounts  receivable.  The Company  establishes
reserves for doubtful accounts receivable using various percentages  according
to the age of the receivable  and also  evaluates  customers on a case-by-case
basis when management  believes the required  payment of specific amounts owed
to the Company is unlikely to occur.

     Property and  casualty  insurance  reserve.  The  Company's  property and
casualty  insurance  reserves  are based  upon  management's  assumptions  and
estimates  regarding  the probable  outcome of the claims.  Should the outcome
differ from  management's  assumptions  and  estimates or should the insurance
carriers  become  insolvent  to  cover  claims  in  excess  of  the  Company's
deductible,  revisions  to the  estimated  reserves  for property and casualty
insurance would be required.

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.

                                       12

<PAGE>


<TABLE>
<CAPTION>
                                                   Year Ended December 31,
                                             ------------------------------------
                                                1999        2000        2001
<S>                                            <C>         <C>         <C>
       Revenue............................     100.0%      100.0%      100.0 %
       Cost of revenue....................      59.4        61.8        64.2
                                                ----        ----        ----
         Gross profit.....................      40.6        38.2        35.8
       SG&A expense.......................      24.9        23.5        23.8
       Special charges....................         -             -       0.9
       Depreciation.......................       6.0         5.5         5.0
       Amortization of intangibles........       1.5         1.9         1.8
                                                 ---         ---         ---
         Operating income.................       8.2         7.3         4.3
       Other:
         Interest expense, net............       6.8         7.4         6.9
         Other income.....................         -           -        (0.1)
                                                 ---        ----        ----
       Income (loss) before taxes and
          extraordinary loss..............       1.4        (0.1)       (2.5)
         Income tax benefit...............         -        (0.4)       (0.8)
       Income (loss) before extraordinary
          loss............................       1.4         0.3        (1.7)
         Extraordinary loss on early
          extinguishment of debt, net of taxes     -           -          .6
                                                 ---         ---        ----
       Net income (loss)..................       1.4%        0.3%       (2.3)%
                                                 ===         ===        ====
       EBITDA.............................      15.7%       14.7%       11.1 %
                                                ====        ====        ====
</TABLE>

Comparison of 2001 results to 2000

     Revenue.  Revenue increased $4.6 million,  or 2.2%, to $218.8 million for
the year ended  December 31, 2001 from $214.2  million in the prior year.  The
increase  resulted  from an increase in industrial  vacuuming  revenue of $7.9
million,  or 18.1%,  from $43.4 million to $51.3  million,  and an increase in
hydroblasting  revenue of $4.4 million,  or 5.3%,  from $83.8 million to $88.2
million.  These  increases  were  partially  offset by a decrease  in chemical
cleaning  revenue  of $2.9  million,  or 5.5%  from  $54.4  million  to  $51.5
million,  a decrease in tank cleaning revenue of $2.0 million,  or 10.9%, from
$18.3 million to $16.3  million and a decrease in revenue from other  services
of $2.8 million,  or 19.2%, from $14.3 million to $11.5 million.  The increase
in industrial  vacuuming revenue resulted from additional vacuum trucks placed
in service by the Company in 2001 and 2000.  Hydroblasting  revenue  increased
primarily  as a result of an  increase  in  turnaround  activity  and  routine
maintenance  work.  Chemical  cleaning,  tank  cleaning and revenue from other
services revenue decreased primarily due to fewer projects.

     Gross profit.  Gross profit  decreased  $3.5  million,  or 4.3%, to $78.4
million in 2001 from $81.9  million in the prior  year.  This  decrease is due
to an increase in cost of revenue of $8.1 million,  or 6.1%, to $140.5 million
in 2001 from  $132.3  million in the prior  year.  Cost of  revenue  increased
primarily due to increases in  compensation  expense and, to a lesser  extent,
operating  supplies and site services  expense.  The Company  typically  makes
lower margins on site services,  which consists  mainly of field equipment and
tank rental, and other third party services.

     SG&A expense.  SG&A expense  increased  $1.8  million,  or 3.5%, to $52.1
million in 2001 from $50.4 million in the prior year.  The increase  primarily
resulted  from  an  increase  in  compensation   and  other  employee  related
expenses.

     Special  charges.  In 2001, the Company  incurred $2.0 million in special
charges.  A  restructuring  charge of $1.5 million was incurred in  connection
with a cost  reduction  program in the fourth quarter of 2001 and consisted of
$945,000 in severance  compensation  to 125 employees and $591,000  related to
the  closing  of  certain  facilities.  Accruals  of  $791,000  remain  as  of
December 31, 2001 related to this restructuring  charge.  Substantially all of
the restructuring  charge is SG&A expense.  In addition,  the Company incurred
$483,000 of expenses  principally  consisting of legal,  accounting  and other
services related to the negotiation of a possible  business  transaction which
did  not  materialize.   (See  Note  6  of  Notes  to  Consolidated  Financial
Statements.)

     EBITDA.   Decreased  gross  profit  and  an  increase  in  SG&A  expense,
including special charges,  resulted in a $7.3 million, or 23.2%,  decrease in
EBITDA to $24.2 million in 2001 from $31.5 million in the prior year.

                                       13
<PAGE>

     Depreciation.  Depreciation  expense  decreased  $846,000,  or  7.2%,  to
$10.9  million in 2001 from $11.7  million in the prior year.  The decrease in
depreciation  expense principally  resulted from certain assets becoming fully
depreciated.

     Amortization.   Amortization   expense  of  $4.0   million  in  2001  was
relatively unchanged from the prior year.

     Operating  income.  Decreased  gross profit and  increased  SG&A expense,
partially offset by reduced  depreciation  expense,  resulted in a decrease in
operating  income of $6.4  million,  or 40.8%,  to $9.4 million in 2001,  from
$15.8 million in the prior year.

     Interest expense,  net. Interest expense,  net decreased $1.0 million, or
6.2%,  to  $15.0  million  in 2001  from  $16.0  million  in the  prior  year.
Decreased interest expense,  net resulted from a reduction of outstanding debt
from the prior year and lower interest rates on floating rate debt.

     Income  (loss)  before  taxes and  extraordinary  loss.  For the  reasons
described above,  the Company  incurred a loss before taxes and  extraordinary
loss of $5.5  million in 2001 as  compared  to a loss of $256,000 in the prior
year.

     Income tax  benefit.  The  effective  income tax rate  decreased in 2001,
primarily as a result of a change in the valuation  allowance for deferred tax
assets  recorded  in 2000.  Additionally,  the  effective  income  tax rate is
higher  than  the  statutory  rate  due  to  certain  nondeductible  operating
expenses and nondeductible goodwill amortization.

     Extraordinary  loss.  In 2001,  as a result  of the  early  repayment  of
HydroChem's   previously   existing  bank  debt,  an  extraordinary  loss  was
recognized in the amount of $1.4 million.  The  extraordinary  loss  consisted
of $1.6 million for the write-off of associated  deferred  financing costs and
$582,000 for terminating a related  interest rate swap  agreement,  before the
related tax benefit of $839,000.

     Net income (loss).  For the reasons  described  above,  the Company's net
income decreased $5.6 million  resulting in a loss of $5.0 million in 2001, as
compared to income of $603,000 in the prior year.

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 2000 and 1999.  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.

     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 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.
                                       14
<PAGE>

     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 2000 and 1999,  partially  offset by a reduction
in depreciation associated with fully depreciated assets.

     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.

     Operating income.  Increased gross profit,  partially offset by increased
SG&A and depreciation  expense,  resulted in operating income being relatively
unchanged at $15.8 million.

     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.

     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 $363,000 and $2.3
million  as of  December  31,  2000 and  1999,  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.

Quarterly Financial Data

     The following table sets forth certain unaudited consolidated  statements
of operations and EBITDA 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.

                                       15

<PAGE>

<TABLE>
<CAPTION>
                                                                      Three months ended
                               ---------------------------------------------------------------------------------------------------
                                                     2000                                              2001
                               ------------------------------------------------- -------------------------------------------------
                                 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..................         $53,439     $54,199     $52,049      $54,505      $59,390     $57,159     $52,017      $50,254
Cost of revenue..........          32,264      33,173      32,733       34,152       37,331      35,937      34,469       32,719
                                   ------      ------      ------       ------       ------      ------      ------       ------
   Gross profit..........          21,175      21,026      19,316       20,353       22,059      21,222      17,548       17,535
SG&A expense.............          12,801      12,257      12,293       13,013       13,457      13,164      13,097       12,428
Special charges..........               -           -           -            -            -           -           -        2,018
Depreciation.............           2,933       2,882       3,016        2,879        2,701       2,719       2,717        2,727
Amortization of intangibles           983       1,013         999          997          995         996         995          993
                                    -----       -----       -----        -----        -----       -----       -----        -----
   Operating income......           4,458       4,874       3,008        3,464        4,906       4,343         739         (631)
Other:
  Interest expense, net..           4,014       4,019       4,018        3,984        3,930       3,893       3,726        3,487
  Other(income)expense,
    net..................              27         134         (98)         (38)           5          15        (128)         (27)
                                    -----       -----       -----        -----        -----       -----       -----        -----
Income (loss) before taxes
    and extraordinary loss            417         721        (912)        (482)         971         435      (2,859)      (4,091)
  Income tax expense (benefit)          -           -           -         (859)         495         490      (1,459)      (1,442)
                                    -----       -----       -----        -----        -----       -----       -----        -----
Income (loss) before
    extraordinary loss...             417         721        (912)         377          476         (55)     (1,400)      (2,649)
  Extraordinary loss.....               -           -           -            -            -           -           -        1,368
                                    -----       -----       -----        -----        -----       -----       -----        -----
Net income (loss)........         $   417     $   721     $  (912)     $   377      $   476     $   (55)    $(1,400)     $(4,017)
                                    =====       =====       =====        =====        =====       =====       =====        =====

EBITDA...................         $ 8,374     $ 8,769     $ 7,023      $ 7,340      $ 8,602     $ 8,058     $ 4,451      $ 3,089
                                    =====       =====       =====        =====        =====       =====       =====        =====
</TABLE>
Liquidity and Capital Resources

     The Company has  financed  its  operations  through net cash  provided by
operating activities,  existing cash balances, available credit facilities and
capital  contributions from Holding.  On October 25, 2001, the Company entered
into a financing  agreement  with The CIT  Group/Business  Credit,  Inc.,  the
proceeds of which were used for the  refinancing  of previously  existing bank
debt.  The new credit  facility  in the amount of $62.5  million  consists  of
(i) a  revolving  line of  credit  (the  "Revolver")  of up to $32.5  million,
subject to a borrowing  base  determined by accounts  receivable  balances and
(ii) two separate  term loans in the amount of $24.3 million and $5.8 million,
respectively  (collectively,   the  "Term  Loans").  The  Term  Loans  require
quarterly  principal  payments  which  began in January  2002.  The  financing
agreement  expires on October 25,  2006,  requires the Company to meet a fixed
charge  coverage ratio and certain other customary  covenants,  and is secured
by  all  current  and  future  assets  of  the  Company.   HydroChem,  at  its
discretion,  can pay interest on a Base Rate or  Eurodollar  ("LIBOR")  basis,
plus  applicable  margins.  Base Rate  margins  range  from 0.50% to 1.00% and
LIBOR-based  margins  range  from  2.75%  to  3.25%.   Interest  payments  are
required monthly.

     As of December 31, 2001,  $30.0  million was  outstanding  under the Term
Loans. The Company's  borrowing base under the Revolver was $23.5 million,  of
which $3.5  million was reserved  for standby  letters of credit,  principally
issued in  connection  with the  Company's  property  and  casualty  insurance
program.

     For the year  ended  December  31,  2001,  $10.9  million of net cash was
provided by  operating  and  investing  activities,  which  consisted of $15.9
million  provided by operating  activities  and $5.0 million used in investing
activities.  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,  2001,  expenditures  for  property and
equipment   were  $5.9  million.   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.

     Future   contractual   obligations   related   to   long-term   debt  and
non-cancelable  operating  leases as of December  31, 2001 were as follows (in
thousands):
                                       16

<PAGE>

<TABLE>
<CAPTION>

                                        Payments due by period
                      ------------------------------------------------------------
                                                 Years       Years       After
                         Total      Year 1       2 - 3       4 - 5      Year 5
                      ------------------------------------------------------------
<S>                     <C>         <C>         <C>         <C>         <C>
   Long-term debt       $ 140,000   $   4,286   $   8,568   $  17,146   $ 110,000
   Operating leases        29,484       8,169      12,095       6,945       2,275
                           ------       -----      ------       -----       -----
                        $ 169,484   $  12,455   $  20,663   $  24,091   $ 112,275
                        =========   =========   =========   =========   =========
</TABLE>
     Management  believes that cash and cash equivalents at December 31, 2001,
net cash expected to be provided by operating  activities and  borrowings,  if
necessary,  under the Revolver will be  sufficient to meet the Company's  cash
requirements  for operations and  expenditures  for property and equipment for
the next twelve months and the  foreseeable  future  thereafter.  From time to
time, the Company reviews  acquisition  opportunities  as they arise,  and may
require  additional  financing if it decides to make additional  acquisitions.
However,  there can be no  assurance  that if such  acquisition  opportunities
arise,  that such  acquisitions  will be consummated,  there will be financing
available and on terms satisfactory to the Company.

Inflation

     Certain  of the  Company's  expenses,  such  as  compensation,  benefits,
chemicals,  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.

New Accounting Pronouncement

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

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

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 currently use derivative
instruments  or engage in hedging  activities.  The  Company  had an  interest
rate  swap  that  was  put in  place  during  1998  and  terminated  upon  the
refinancing of certain debt in 2001.

     The  Company  provides  industrial  cleaning  services to a wide range of
processing industries including  petrochemical  plants, oil refineries,  power
plants,  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

                                       17

<PAGE>

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, 2001,  the Company had  short-term
investments  totaling  $7.9  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 2001
would be material to the Company during 2002.

     As of  December  31,  2001,  the  Company's  outstanding  long-term  debt
included Senior  Subordinated  Notes.  The Senior  Subordinated  Notes totaled
$110.0  million,  are due in the year 2007,  and bear interest at a fixed rate
of 10 3/8%.  As of December 31, 2001 and 2000,  their fair value was estimated
to be $81.4 million and $79.2 million,  respectively.  The carrying  amount of
the  remaining  long-term  debt  totaled  $30.0  million and $38.2  million at
December  31,  2001  and  2000  respectively,   and  approximated  fair  value
primarily due to the variable nature of their related interest rates.

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 16.
Supplementary schedules for the Company are included in Item 14.

                                       18

<PAGE>

                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS





Consolidated Financial Statements                                         Page

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

  Consolidated Balance Sheets as of December 31, 2000 and 2001..............21

  Consolidated Statements of Operations for each of the years ended
     December 31, 1999, 2000 and 2001.......................................22

  Consolidated Statements of Stockholder's Equity for each of the years ended
     December 31, 1999, 2000 and 2001.......................................23

  Consolidated Statements of Cash Flows for each of the years ended
     December 31, 1999, 2000 and 2001.......................................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. as of December 31, 2000 and 2001, 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,  2001.
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. at December 31, 2000 and 2001,  and the
consolidated  results  of its  operations  and its cash  flows for each of the
three  years  in the  period  ended  December  31,  2001  in  conformity  with
accounting principles generally accepted in the United States.



                                                ERNST & YOUNG LLP



Houston, Texas
February 22, 2002


                                       20

<PAGE>


                     HYDROCHEM INDUSTRIAL SERVICES, INC.
                               AND SUBSIDIARIES

                         CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share data)
<TABLE>
<CAPTION>
                                                                     December 31,
                                                             ------------------------
                                                                  2000          2001
                                                             ------------    ---------
                                     ASSETS
<S>                                                                <C>        <C>
Current assets:
   Cash and cash equivalents ................................   $  6,380   $  7,943
   Receivables, less allowance of $723 and $280, respectively     39,781     30,589
   Inventories ..............................................      4,467      4,119
   Prepaid expenses and other current assets ................      1,224      2,566
   Income taxes receivable ..................................        328        652
   Deferred income taxes (Note 7) ...........................      1,536      3,042
                                                                   -----      -----
      Total current assets ..................................     54,716     48,911

Property and equipment, at cost (Note 3) ....................    100,419    103,438
   Accumulated depreciation .................................    (53,721)   (62,411)
                                                                 -------    -------
                                                                  46,698     41,027

Intangible assets, net (Note 4) .............................     96,931     91,697
                                                                 -------     ------

      Total assets ..........................................   $198,345   $181,635
                                                                ========   ========

                     LIABILITIES AND STOCKHOLDER'S EQUITY

Current liabilities:
   Accounts payable .........................................   $  9,455   $  7,065
   Accrued liabilities ......................................     15,595     15,404
   Current portion of long-term debt (Note 5) ...............      7,858      4,286
         Total current liabilities ..........................     32,908     26,755

Long-term debt (Note 5) .....................................    140,350    135,714
Deferred income taxes (Note 7) ..............................      8,365      7,440
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) ...........................        163     (4,833)
                                                                     ---     ------
         Total stockholder's equity .........................     16,722     11,726
                                                                  ------     ------

         Total liabilities and stockholder's equity .........   $198,345   $181,635
                                                                ========   ========
</TABLE>


                           See accompanying notes.

                                       21

<PAGE>

                     HYDROCHEM INDUSTRIAL SERVICES, INC.
                               AND SUBSIDIARIES

                    CONSOLIDATED STATEMENTS OF OPERATIONS
                                (in thousands)
<TABLE>
<CAPTION>
                                               Year ended December 31,
                                     -------------------------------------------
                                          1999           2000          2001
                                          ----           ----          ----
<S>                                   <C>            <C>           <C>
Revenue...........................    $ 191,936      $  214,192    $ 218,820
Cost of revenue...................      113,952         132,322      140,456
                                        -------        --------      -------
   Gross profit...................       77,984          81,870       78,364

Selling, general and administrative
   expense........................       47,821          50,364       52,146
Special charges (Note 6)..........            -               -        2,018
Depreciation......................       11,464          11,710       10,864
Amortization of intangibles.......        2,834           3,992        3,979
                                        -------        --------      -------
   Operating income...............       15,865          15,804        9,357

Other:
   Interest expense, net..........       13,129          16,035       15,036
   Other (income) expense, net....           98              25         (135)
                                        -------        --------      -------

Income (loss) before taxes and
   extraordinary loss.............        2,638            (256)      (5,544)

   Income tax benefit (Note 7)....            -            (859)      (1,916)
                                        -------        --------      -------

Income (loss) before extraordinary
   loss...........................        2,638             603       (3,628)

   Extraordinary loss on early
     extinguishment of debt,
     net of taxes (Note 5)........           35               -        1,368
                                        -------        --------      -------

Net income (loss).................    $   2,603      $      603    $  (4,996)
                                        =======        ========      =======
</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, 1998   $     1       $16,558     $(3,043     $13,516
   Net loss ................         -             -       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
   Net income ..............         -             -      (4,996)     (4,996)
                               -------       -------     -------     -------
Balance at December 31, 2001   $     1       $16,558     $(4,833)    $11,726
                               =======       =======     =======     =======
</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,
                                               ---------------------------------
                                                  1999       2000       2001
                                                  ----       ----       ----

<S>                                              <C>        <C>        <C>
Operating activities:
   Net income (loss).........................    $  2,603   $   603    $(4,996)
Adjustments to reconcile net income (loss) to
   net cash provided by operating activities:
     Depreciation............................      11,464    11,710     10,864
     Amortization............................       2,834     3,992      3,979
     Amortization of deferred financing costs         504       738        723
     Write-off of deferred financing costs...          35         -      1,626
     Deferred income tax provision (benefit).         349      (651)    (2,431)
     Loss (gain) on sale of property and
      equipment..............................          13       130       (147)
   Changes in operating assets and liabilities,
    net of acquisitions:
     Receivables, net........................      (1,061)   (6,293)     9,192
     Inventories.............................        (819)      254        348
     Prepaid expenses and other current assets        256      (231)      (342)
     Income taxes receivable.................        (106)      176       (324)
     Accounts payable........................         292     2,626     (2,390)
     Accrued liabilities.....................         416      (757)      (191)
                                                      ---      ----       ----
      Net cash provided by operating activities    16,780    12,297     15,911
                                                   ------    ------     ------

Investing activities:
   Expenditures for property and equipment...      (6,282)   (6,457)    (5,862)
   Acquisitions, net of cash acquired........     (63,362)   (1,518)         -
   Proceeds from sale of property and equipment       307       835        816
                                                      ---       ---        ---
      Net cash used in investing activities..     (69,337)   (7,140)    (5,046)
                                                  -------    ------     ------

Financing activities:
   Proceeds from long-term debt..............      70,289         -     49,400
   Repayments of long-term debt..............     (45,699)   (2,671)   (57,608)
   Debt financing costs......................      (1,668)     (246)    (1,094)
                                                   ------      ----     ------
     Net cash provided by (used in) financing
       activities............................      22,922    (2,917)    (9,302)
                                                   ------    ------     ------

Net increase (decrease) in cash and cash
  equivalents................................     (29,635)    2,240      1,563
Cash and cash equivalents at beginning of
  period.....................................      33,775     4,140      6,380
                                                   ------     -----      -----
Cash and cash equivalents at end of period...    $  4,140   $ 6,380    $ 7,943
                                                 ========   =======    =======

Supplemental disclosure:
   Cash paid during the year for interest....    $ 12,738   $15,481    $14,384
   Cash refunded during the year for income
      taxes, net of amounts paid.............        (151)     (145)      (217)
</TABLE>



                           See accompanying notes.

                                       24

<PAGE>

                     HYDROCHEM INDUSTRIAL SERVICES, INC.
                               AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              December 31, 2001


1.   Organization, Formation and Basis of Presentation

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

     The Company is engaged in the business of providing  industrial  cleaning
services to a wide range of  processing  industries,  including  petrochemical
plants, oil refineries,  power plants,  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,  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  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.

Intangibles

     Intangible  assets,  which  primarily  consist  of  goodwill,  are  being
amortized  over 3 to 40 years on a  straight-line  basis.  Costs  allocated to
other  specifically  identifiable  intangible  assets  arising  from  business
acquisitions are being amortized over their estimated  useful lives.  Deferred
financing  costs are being  amortized over three to ten year  financing  terms
and are recorded as interest expense.

     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 use an estimate of the
acquired  business'  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.

                                       25
<PAGE>

Derivative Investments

     In June 1998, the Financial  Accounting  Standards Board issued Statement
No.  133  (SFAS  133),  Accounting  for  Derivative  Instruments  and  Hedging
Activities,  as amended by SFAS 138,  which is required to be adopted in years
beginning  after June 15, 2000. On January 1, 2001,  the Company  adopted SFAS
133. SFAS 133 requires that all  derivatives  be recorded on the  consolidated
balance  sheet at their fair value.  Changes in the fair value of  derivatives
are recorded  each period in earnings or other  comprehensive  income  (loss),
depending on the type of hedging  instrument  and the  effectiveness  of those
hedges.  All  derivatives  are adjusted to their fair market values at the end
of each  quarter.  Unrealized  net gains and losses  for cash flow  hedges are
recorded in other comprehensive income (loss).

     In 1998,  the  Company  entered  into an  interest  rate  swap to fix the
interest  rate on a  variable  rate  term  loan.  This  derivative,  which was
designated  as a cash  flow  hedge  at the  time  of  adoption  of  SFAS  133,
qualified   for   evaluation   using  the  short  cut  method  for   assessing
effectiveness  and was considered  highly effective as defined by SFAS 133. In
connection with debt  refinancing  activities in 2001, this interest rate swap
was terminated.   (See Note 5.)

Revenues

     Revenues are recognized as services are provided.

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
income 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").
The Company has elected to follow APB 25.

Reclassifications

     Certain 1999 and 2000 amounts  have been  reclassified  to conform to the
2001 presentation.

Use of Estimates

     The  preparation  of  these  financial  statements  requires  us to  make
estimates  and  judgments   that  affect  the  reported   amounts  of  assets,
liabilities,  revenues  and  expenses  and related  disclosure  of  contingent
assets and  liabilities.  On an on-going  basis,  management  evaluates  these
estimates,   including  those  related  to  self-insurance  reserves  and  the
allowance   for  doubtful   accounts   receivable.   Estimates  are  based  on
historical  experience and on various other  assumptions  that are believed to
be  reasonable  under the  circumstances,  the results of which form the basis
for making  judgments about the carrying values of assets and liabilities that
are not readily  apparent from other  sources.  Actual results may differ from
these estimates under different assumptions or conditions.

     Management  believes  the  following  are  the  Company's  most  critical
accounting  policies.   These  policies  require  significant   judgments  and
estimates  used in the  preparation  of the Company's  consolidated  financial
statements.

     Allowance  for  doubtful  accounts  receivable.  The Company  establishes
reserves for doubtful accounts receivable using various percentages  according
to the age of the receivable  and also  evaluates  customers on a case-by-case
basis when management  believes the required  payment of specific amounts owed
to the Company is unlikely to occur.

     Property and  casualty  insurance  reserve.  The  Company's  property and
casualty  insurance  reserves  are based  upon  management's  assumptions  and
estimates  regarding  the probable  outcome of the claims.  Should the outcome
differ from  management's  assumptions  and  estimates or should the insurance
carriers  become  insolvent  to  cover  claims  in  excess  of  the  Company's

                                       26

<PAGE>

deductible,  revisions  to the  estimated  reserves  for property and casualty
insurance would be required.

Concentration of Credit Risk

     The  Company  provides  industrial  cleaning  services to a wide range of
processing industries including  petrochemical  plants, oil refineries,  power
plants,  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 2001, the Financial  Accounting  Standards Board issued SFAS No.
141,  "Business   Combinations",   and  SFAS  No.  142,  "Goodwill  and  Other
Intangible  Assets",  effective for fiscal years  beginning after December 15,
2001.  Under the new rules,  goodwill and  intangible  assets with  indefinite
lives will no longer be  amortized  but will be  subject to annual  impairment
tests  in  accordance  with  the  statements.  Other  intangible  assets  will
continue to be amortized over their useful lives.

     The  Company  will apply the new rules on  accounting  for  goodwill  and
other intangible  assets  beginning in the first quarter of 2002.  Application
of the  non-amortization  provisions of the statement is expected to result in
an annual  increase in net income of  approximately  $2,600,000.  During 2002,
the  Company  will  perform  the  first of the  required  impairment  tests of
goodwill and intangible  assets with  indefinite  lives as of January 1, 2002.
The Company has not yet  determined  what the effect of these tests will be on
the earnings and financial position of the Company.

3.   Property and Equipment

     Property and  equipment  at December  31, 2000 and 2001  consisted of the
following (in thousands):
<TABLE>
<CAPTION>
                                                            2000        2001
                                                            ----        ----
<S>                                                      <C>         <C>
      Land............................................   $  1,961    $  1,736
      Office facilities, furniture, fixtures and
       computer equipment.............................     22,055      23,065
      Machinery and equipment.........................     74,826      77,376
      Vehicles........................................      1,577       1,261
                                                            -----       -----
         Total property and equipment.................   $100,419    $103,438
                                                         ========    ========
</TABLE>

4.   Intangibles

     Intangible  assets  as of  December  31,  2000  and 2001  consist  of the
following (in thousands):
<TABLE>
<CAPTION>
                                               2000                        2001
                                      ----------------------     ----------------------
                                      Gross Book    Net Book      Gross Book   Net Book
                                         Value        Value          Value       Value
                                         -----        -----          -----       -----

<S>                                   <C>           <C>           <C>          <C>
    Deferred financing costs..        $  6,646      $  4,032      $  5,127     $  2,777
    Other intangibles.........          14,761        10,076        14,759        9,418
    Goodwill .................          92,115        82,823        92,116       79,502
                                        ------        ------        ------       ------
       Total .................        $113,522      $ 96,931      $112,002     $ 91,697
                                      ========      ========      ========     ========
</TABLE>

                                       27
<PAGE>

5.   Long-Term Debt

     Long-term  debt at December 31, 2000 and 2001  consisted of the following
(in thousands):
<TABLE>
<CAPTION>
                                                      2000         2001
                                                      ----         ----
<S>                                                 <C>          <C>
        Subordinated Notes ......................   $ 110,000    $ 110,000
        Machinery and Equipment Loan ............           -       24,250
        Real Estate Loan ........................           -        5,750
        Term Loan ...............................      29,000            -
        Mortgage Loan ...........................       7,208            -
        Seller Notes ............................       2,000            -
                                                        -----        -----
           Total long-term debt .................     148,208      140,000
           Less current portion of long-term debt      (7,858)      (4,286)
                                                    $ 140,350    $ 135,714
                                                    =========    =========
</TABLE>
     In August  1997,  HydroChem  issued  $110,000,000  of its 10 3/8%  Senior
Subordinated  Notes  due 2007 (the  "Subordinated  Notes").  The  Subordinated
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 Subordinated 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
Subordinated Notes on a full and unconditional, and joint and several basis.

     On November 19, 1999,  the Company  entered into a credit  agreement with
six  financial  institutions  which  provided for secured  borrowings of up to
$60,000,000,  and consisted of a $30,000,000 term loan (the "Term Loan") and a
$30,000,000   revolving  loan  (the  "Old  Revolver")  which  was  subject  to
borrowing  base  limitations.  The  credit  facility  would  have  expired  on
December 31, 2004, and required HydroChem to meet certain customary  financial
ratios and covenants,  and restricted the Company from any further pledging of
its assets.  The credit  facility was secured by all current and future assets
of the Company and Holding.

     In connection  with the  construction of 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 was  collateralized
by first  priority liens on the land and  improvements,  would have matured on
September  30,  2006,  and  required   quarterly   payments  of  interest  and
principal.

     On October 25, 2001, the Company entered into a financing  agreement with
The CIT  Group/Business  Credit,  Inc.,  proceeds  of which  were used for the
refinancing  of the Company's  previous  Term Loan,  Old Revolver and Mortgage
Loan  described  above.  The new credit  facility in the amount of $62,500,000
consists  of  (i)  a  revolving  line  of  credit  (the  "Revolver")  of up to
$32,500,000,  subject to a borrowing  base  determined by accounts  receivable
balances,  (ii) a term loan in the amount of $24.3 million (the "Machinery and
Equipment  Loan")  and (iii) a term loan in the  amount of $5.8  million  (the
"Real Estate  Loan").  The Machinery  and  Equipment  Loan and the Real Estate
Loan require  quarterly  principal  payments that began in January  2002.  The
financing  agreement expires on October 25, 2006, requires the Company to meet
a fixed charge  coverage ratio and certain other customary  covenants,  and is
secured by all current and future  assets of the  Company.  HydroChem,  at its
discretion,  can pay interest on a Base Rate or  Eurodollar  ("LIBOR")  basis,
plus  applicable  margins.  Base Rate  margins  range  from 0.50% to 1.00% and
LIBOR-based  margins  range  from  2.75%  to  3.25%.   Interest  payments  are
required monthly.

     As a result of the early  repayment of  HydroChem's  prior  existing bank
debt,  an  extraordinary  loss  was  recognized  in  2001  in  the  amount  of
$1,369,000,  net of taxes. The extraordinary  loss consisted of $1,626,000 for
the  write-off  of  associated  deferred  financing  costs  and  $582,000  for
terminating  a related  interest rate swap  agreement,  before the related tax
benefit of $839,000.

     As of December 31, 2001,  $30,000,000 was outstanding under the Machinery
and  Equipment  Loan and the Real Estate Loan.  The Company's  borrowing  base
under the  Revolver  was  $23,500,000,  of which  $3,500,000  was reserved for
standby  letters  of  credit,   principally  issued  in  connection  with  the
Company's property and casualty  insurance  program.  There was no funded debt
outstanding under the Revolver at December 31, 2001.

                                       28
<PAGE>

     In connection  with an  acquisition  in November 1999, the Company issued
two promissory  notes to the principal  selling  shareholders in the aggregate
principal amount of $3,500,000.  The final principal  payments,  in the amount
of $2,000,000, were paid on November 19, 2001.

     Maturities  of  long-term  debt for the years ended  December  31, are as
follows (in thousands):
<TABLE>
            <S>                                       <C>
            2002..................................    $   4,286
            2003..................................        4,284
            2004..................................        4,284
            2005..................................        4,284
            2006..................................       12,862
            Thereafter............................      110,000
                                                        -------
                                                      $ 140,000
                                                      =========
</TABLE>

6.   Special Charges

      In 2001,  the  Company  incurred  $2.0  million  in special  charges.  A
restructuring  charge of $1.5 million was incurred in  connection  with a cost
reduction  program in the fourth  quarter of 2001 and consisted of $945,000 in
severance  compensation  to 125 employees and $591,000  related to the closing
of certain  facilities.  Accruals of $791,000  remain as of December  31, 2001
related to this restructuring  charge.  Substantially all of the restructuring
charge is SG&A expense.

     In 2001,  the  Company  was also  involved  in  negotiations  regarding a
possible  business   transaction  which  did  not  materialize.   The  Company
incurred  $483,000 of expenses,  principally  consisting of legal,  accounting
and other services which were provided in connection with these negotiations.

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, 2000 and 2001 were as follows (in thousands):
<TABLE>
<CAPTION>
                                                     2000         2001
                                                     ----         ----
<S>                                               <C>           <C>
        Deferred tax liabilities:
              Property and equipment .......      $  8,128      $  7,993
              Intangibles ..................         3,088         3,456
                                                     -----         -----
              Total deferred tax liabilities        11,216        11,449
        Deferred tax assets:
              Net operating loss ...........         1,325         3,255
              Alternative minimum tax ......         1,477         1,477
              Foreign tax credit ...........           366           250
              Accrued liabilities ..........         1,221         2,077
              Receivables ..................           250           107
              Other ........................           114           135
              Valuation allowance ..........          (366)         (250)
                                                      ----          ----
              Total deferred tax assets ....         4,387         7,051
                                                     -----         -----
        Net deferred tax liability .........      $  6,829      $  4,398
                                                  ========      ========
</TABLE>

     The  provision  (benefit)  for income taxes for the years ended  December
31, 1999, 2000 and 2001 consisted of the following (in thousands):
<TABLE>
<CAPTION>
                                               1999        2000        2001
                                               ----        ----        ----
<S>                                        <C>         <C>         <C>
      Current..........................    $   (349)   $   (208)   $   (325)
      Deferred.........................         349        (651)     (1,591)
                                                ---        ----      ------
                                           $      -    $   (859)   $ (1,916)
                                           ========    ========    ========
</TABLE>

                                       29
<PAGE>

     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, 1999, 2000 and 2001 consisted of the following (in thousands):
<TABLE>
<CAPTION>
                                                   1999       2000       2001
                                                   ----       ----       ----
<S>                                            <C>         <C>         <C>
    Income taxes computed at federal income
      tax rate.............................    $    885    $    (90)   $ (1,940)
    State income taxes, net of federal tax
      benefit..............................         305         178         249
    Nondeductible permanent differences....         515       1,385         622
    Change in valuation allowance..........      (1,040)     (1,969)          -
    Other, net.............................        (665)       (363)       (847)
                                                   ----        ----        ----
    Provision for income taxes.............    $      -    $   (859)   $ (1,916)
                                               ========    ========    ========
</TABLE>
     At December  31,  2001,  the Company had  alternative  minimum tax credit
carryforwards of approximately  $1,477,000,  foreign tax credit  carryforwards
of   approximately   $250,000  and  a  net  operating  loss   carryforward  of
approximately  $8,564,000.  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.

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, 1999,  2000 and 2001was  $8,744,000,
$9,072,000 and $9,177,000, respectively.

     Future minimum rental  commitments  under  operating  leases with initial
terms of one year or more at December 31, 2001 are as follows (in thousands):
<TABLE>
        <S>                                                <C>
        2002...........................................    $8,169
        2003...........................................     6,635
        2004...........................................     5,460
        2005...........................................     4,201
        2006...........................................     2,744
        Thereafter.....................................     2,275
                                                            -----
        Total..........................................   $29,484
                                                          =======
</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,
1999,  2000 and 2001.  For the same  years,  HydroChem  made  employer  401(k)
matching  contributions  to the  Plan  of  $522,000,  $560,000  and  $614,000,
respectively.
                                       30
<PAGE>

     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 participant upon receiving an initial
award under the Deferred  Plan in any given year is  guaranteed  an additional
award  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 an Acceleration Event.   The Company
accrued  $601,000 and  $888,000 of Deferred Compensation expense for the years
ended   December  31,  2000  and  2001, respectively.

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,
generally  over  three to four  year  periods  after  the date of  grant.  The
weighted-average   remaining   contractual  life  of  outstanding  options  at
December 31, 2001 was 4.6 years.

                                       31
<PAGE>

     A summary of the Option Plan as of December 31,  1999,  2000 and 2001 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, 1999....................       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
       Granted.......................................         8,625       1.00
       Exercised.....................................        14,875       1.00
       Canceled......................................        21,000       1.00
                                                             ------       ----
   Outstanding at December 31, 2001..................       184,300      $1.00
                           === =====                        =======      =====
   Exercisable at:
       December 31, 1999.............................       186,000      $1.00
       December 31, 2000.............................       180,200      $1.00
       December 31, 2001.............................       165,150      $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.

11.  Fair Value of Financial Instruments

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

     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.  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 approximate their fair values,  principally due to the
short-term  maturities of these  instruments.  The estimated fair value of the
Subordinated  Notes of $79,200,000 and $81,400,000 as of December 31, 2000 and
2001,  respectively,  is based on the most recently  available trading prices.
The carrying  amounts for the Company's  other  long-term  debt are reasonable
estimates of their fair  values,  principally  due to the  variable  nature of
their respective interest rates.

                                       32
<PAGE>

12.   Guarantor Information

      Summary   financial   information   for  HydroChem  is  as  follows  (in
thousands):
<TABLE>
<CAPTION>
                          CONDENSED CONSOLIDATING BALANCE SHEETS

                                                       As of December 31, 2000
                                                       -----------------------
                                                   Guarantor                       Total
                                    HydroChem    Subsidiaries    Eliminations   Consolidated
                                    ---------    ------------    ------------   ------------
                                                Int'l    Other
                                                -----    -----
<S>                                  <C>        <C>       <C>      <C>            <C>
Assets
  Receivables...................     $ 36,611   $ 2,958   $ 212    $      -       $ 39,781
  Other current assets..........       12,645     1,724     566           -         14,935
                                       ------     -----     ---         ---         ------
    Total current assets........       49,256     4,682     778           -         54,716

  Property and  equipment, net..       46,498       122      78           -         46,698
  Intangible assets, net........       96,864        67       -           -         96,931
  Investments...................        1,102         -       -      (1,102)             -
                                        -----       ---     ---      ------        -------
    Total assets................     $193,720   $ 4,871   $ 856    $ (1,102)      $198,345
                                     ========   =======   =====    ========       ========

Liabilities and Equity
  Current liabilities...........       32,033       801      74           -         32,908

  Long-term debt................      140,350         -       -           -        140,350
  Deferred income taxes.........        8,365         -       -           -          8,365
  Stockholder's equity..........       12,972     4,070     782      (1,102)        16,722
                                       ------     -----     ---      ------         ------
    Total liabilities and equity     $193,720   $ 4,871   $ 856    $ (1,102)      $198,345
                                     ========   =======   =====    ========       ========
</TABLE>
<TABLE>
<CAPTION>
                                                       As of December 31, 2001
                                                       -----------------------
                                                  Guarantor                          Total
                                    HydroChem    Subsidiaries    Eliminations     Consolidated
                                    ---------    ------------    ------------     ------------
                                                Int'l     Other
                                                -----     -----
<S>                                  <C>        <C>       <C>      <C>            <C>
Assets
  Receivables...................     $ 30,127   $  462    $   -    $   -          $30,589
  Other current assets..........       13,929    3,748      645        -           18,322
                                       ------    -----      ---       ---          ------
    Total current assets........       44,056    4,210      645        -           48,911

  Property and  equipment, net..       40,793      101      133        -           41,027

  Intangible assets, net........       91,630       67        -        -           91,697
  Investments...................        1,102        -        -     (1,102)            -
                                        -----      ---      ---     ------         ------
    Total assets................     $177,581   $4,378    $ 778    $(1,102)       $181,635
                                     ========   ======    =====    =======        ========

Liabilities and Equity
  Current liabilities...........       26,454      282       19          -          26,755

  Long-term debt................      135,714        -        -          -         135,714
  Deferred income taxes.........        7,440        -        -          -           7,440
  Stockholder's equity..........        7,973    4,096      759     (1,102)         11,726
                                        -----    -----      ---     ------          ------

    Total liabilities and equity     $177,581   $4,378    $ 778    $(1,102)       $181,635
                                     ========   ======    =====    =======        ========
</TABLE>


                                       33
<PAGE>
<TABLE>
<CAPTION>
                CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

                                                       Year Ended December 31, 1999
                                                       ----------------------------
                                                  Guarantor                          Total
                                    HydroChem    Subsidiaries    Eliminations     Consolidated
                                    ---------    ------------    ------------     ------------
                                                Int'l     Other
                                                -----     -----
 <S>                                 <C>        <C>       <C>      <C>            <C>
 Revenue..........................   $181,534   $7,155    $3,247   $    -         $191,936
 Cost of revenue..................    107,460    4,462     2,030        -          113,952
                                      -------    -----     -----      ---          -------
    Gross profit..................     74,074    2,693     1,217        -           77,984
 Selling, general and
  administrative expense..........     45,616    1,663       542        -           47,821
 Depreciation.....................     11,255      105       104        -           11,464
 Amortization of intangibles......      2,834        -         -        -            2,834
                                        -----      ---       ---      ---            -----
    Operating income..............     14,369      925       571        -           15,865
 Interest and other expense, net..     13,214       15        (2)       -           13,227
                                       ------       --        --      ---           ------
    Income before taxes and
     extraordinary loss...........      1,155      910       573        -            2,638
 Extraordinary loss...............         35        -         -        -               35
                                           --      ---       ---      ---               --
    Net income....................   $  1,120   $  910    $  573   $    -         $  2,603
                                     ========   ======    ======   ======         ========

</TABLE>
<TABLE>
<CAPTION>
                                                       Year Ended December 31, 2000
                                                       ----------------------------
                                                   Guarantor                         Total
                                    HydroChem    Subsidiaries    Eliminations     Consolidated
                                    ---------    ------------    ------------     ------------
                                                Int'l     Other
                                                -----     -----
 <S>                                 <C>        <C>       <C>      <C>            <C>
 Revenue..........................   $205,751   $7,539    $902     $    -         $214,192
 Cost of revenue..................    127,105    4,752     465          -          132,322
                                      -------    -----     ---        ---          -------
    Gross profit..................     78,646    2,787     437          -           81,870
 Selling, general and
  administrative expense..........     49,164      954     246          -           50,364
 Depreciation.....................     11,625       75      10          -           11,710
 Amortization of intangibles......      3,992        -       -          -            3,992
                                        -----      ---     ---        ---            -----
    Operating income..............     13,865    1,758     181          -           15,804
 Interest and other expense, net..     16,049       11       -          -           16,060
                                       ------       --     ---        ---           ------
    Income (loss) before taxes....     (2,184)   1,747     181          -             (256)
 Income tax benefit...............       (859)       -       -          -             (859)
                                         ----      ---     ---        ---             ----
    Net income (loss).............   $ (1,325)  $1,747    $181     $    -         $    603
                                     ========   ======    ====     ======         ========
</TABLE>
<TABLE>
<CAPTION>
                                                       Year Ended December 31, 2001
                                                       ----------------------------
                                                  Guarantor                          Total
                                    HydroChem    Subsidiaries    Eliminations     Consolidated
                                    ---------    ------------    ------------     ------------
                                                Int'l     Other
                                                -----     -----
 <S>                                 <C>        <C>       <C>      <C>            <C>
 Revenue..........................   $214,188   $3,946    $ 686    $    -         $218,820
 Cost of revenue..................    137,138    2,866      452         -          140,456
                                      -------    -----      ---       ---          -------
    Gross profit..................     77,050    1,080      234         -           78,364
 Selling, general and
  administrative expense..........     50,957      952      237         -           52,146
 Special charge...................      2,018        -        -         -            2,018
 Depreciation.....................     10,774       68       22         -           10,864
 Amortization of intangibles......      3,979        -        -         -            3,979
                                        -----      ---      ---       ---            -----
    Operating income..............      9,322       60      (25)        -            9,357
 Interest and other expense, net..     14,868       35       (2)        -           14,901
                                       ------       --       --       ---           ------
    Income (loss) before taxes
     and extraordinary loss.......     (5,546)      25      (23)        -           (5,544)
 Income tax benefit...............     (1,916)       -        -         -           (1,916)
                                       ------      ---      ---       ---           ------
    Income (loss) before
     extraordinary loss...........     (3,630)      25      (23)        -           (3,628)
 Extraordinary loss...............      1,368        -        -         -            1,368
                                        -----      ---      ---       ---            -----
    Net income (loss).............   $ (4,998)   $  25    $(686)   $    -         $ (4,996)
                                     ========    =====    =====    ======         ========
</TABLE>
                                       34
<PAGE>
<TABLE>
<CAPTION>
                     CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

                                                       Year Ended December 31, 1999
                                                       ----------------------------
                                                   Guarantor                         Total
                                    HydroChem    Subsidiaries    Eliminations     Consolidated
                                    ---------    ------------    ------------     ------------
                                                Int'l     Other
                                                -----     -----
  <S>                                <C>        <C>       <C>       <C>           <C>
  Net cash provided by (used in)
    operating activities...........  $ 16,989   $ (95)    $  (114)  $    -        $ 16,780

  Capital expenditures.............    (6,205)     (5)        (72)       -          (6,282)
  Other investing activities,
    primarily acquisitions.........   (63,055)      -           -        -         (63,055)
                                      -------     ---         ---      ---         -------
  Net cash used in investing
    activities.....................   (69,260      (5)        (72)       -         (69,337)

  Proceeds from (repayments) of
  long-term debt, net..............    25,547       -        (957)       -          24,590
  Other financing activities.......    (1,668)      -           -        -          (1,668)
                                       ------     ---         ---      ---          ------
  Net cash provided by (used in)
    financing activities...........    23,879       -        (957)       -          22,922
                                       ------     ---        ----      ---          ------

  Net decrease in cash.............  $(28,392)  $(100)    $(1,143)  $    -        $(29,635)
                                     ========   =====     =======   ======        ========
</TABLE>
<TABLE>
<CAPTION>
                                                       Year Ended December 31, 2000
                                                       ----------------------------
                                                   Guarantor                         Total
                                    HydroChem    Subsidiaries    Eliminations     Consolidated
                                    ---------    ------------    ------------     ------------
                                                Int'l     Other
                                                -----     -----
  <S>                                <C>        <C>       <C>       <C>           <C>
  Net cash provided by operating     $11,896    $333      $68       $    -        $12,297
    activities.....................

  Capital expenditures.............   (6,452)     (5)       -            -         (6,457)
  Other investing activities.......     (683)      -        -            -           (683)
                                        ----     ---      ---          ---           ----
  Net cash used in investing
    activities.....................   (7,135)     (5)       -            -         (7,140)

  Repayments of long-term debt, net   (2,671)      -        -            -         (2,671)
  Other financing activities.......     (246)      -        -            -           (246)
                                        ----     ---      ---          ---           ----
  Net cash used in financing
    activities.....................   (2,917)      -        -            -         (2,917)

  Net increase in cash.............  $ 1,844    $328      $68       $    -        $ 2,240
                                     =======    ====      ===       ======        =======
</TABLE>


                                       35
<PAGE>
<TABLE>
<CAPTION>
                                                       Year Ended December 31, 2001
                                                       ----------------------------
                                                   Guarantor                         Total
                                    HydroChem    Subsidiaries    Eliminations     Consolidated
                                    ---------    ------------    ------------     ------------
                                                Int'l     Other
                                                -----     -----
  <S>                                <C>        <C>       <C>       <C>           <C>
  Net cash provided by (used in)
    operating activities...........  $16,148    $(309)    $   72    $    -        $15,911

  Capital expenditures.............   (5,737)     (48)       (77)        -         (5,862)
  Other investing activities.......      816        -          -         -            816
                                         ---      ---        ---       ---            ---
  Net cash used in investing
    activities.....................   (4,921)     (48)       (77)        -         (5,046)

  Repayments of long-term debt, net   (8,208)       -          -         -         (8,208)
  Other financing activities.......   (1,094)       -          -         -         (1,094)
  Net cash used in financing
    activities.....................   (9,302)       -          -         -         (9,302)
                                      ------      ---        ---       ---         ------

  Net increase (decrease) in cash..  $ 1,925    $(357)    $   (5)   $    -        $ 1,563
                                     -------    -----     ------    ------        -------
</TABLE>
13.  Major Customer

     In 1999,  2000,  and 2001,  one customer and its  affiliates  represented
10.0%, 9.2% and 13.3%, 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  $30,900,000 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 paid in
installments   with  interest  over  the  two  years  following  the  date  of
acquisition  to  the  two  principal  stockholders  of  LANSCO.  Further,  the
Company paid one of these  principal  stockholders  an  additional  $1,250,000
over two years as additional  consideration  for his Shares and for consulting
                                       36
<PAGE>

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.)

     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  represented
an amount that was paid over two years to a former  principal  stockholder  of
LANSCO.   Transaction  costs  primarily  consisted  of  fees  to  accountants,
attorneys and other outside  service  providers.  Acquisition  costs primarily
consisted 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.


                                       37

<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........   57    Chairman   of  the   Board   and  Chief
                                       Executive Officer
     Robert B. Crates.........   39    Director
     Carl L. Blonkvist........   64    Director
     Gary D. Noto.............   47    President and Chief Operating Officer
     Donovan W. Boyd..........   48    Executive Vice President
     J. Pat DeBusk............   61    Executive Vice President
     Kelvin R. Collard........   44    Vice  President  and  Chief Financial
                                       Officer
     Pelham H. A. Smith.......   45    Executive   Vice  President
     R. Dwane Ruiz............   47    Vice President
     Gregory G. Rice..........   37    Vice President
     Michael P. Steindler.....   54    General Counsel and Secretary
</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.
Mr.  Blonkvist  has been  engaged in private  consulting  beginning in January
2002. Prior thereto,  he had been President and Chief Operating  Officer since
February  1998 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.

                                       38
<PAGE>

     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.

     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.

     Kelvin R. Collard has been a Vice President and Chief  Financial  Officer
of HydroChem  since  February  2002.  From July 1999 to June 2001, he was Vice
President  and  Controller of Lyondell  Chemical  Company,  a global  chemical
manufacturer  ("Lyondell").  He held the same  position  from  August  1997 to
June  2001  with   Equistar   Chemicals,   L.P.,   a  domestic   petrochemical
manufacturer  for which  Lyondell is the managing  general  partner.  From May
1989 to July 1997, Mr. Collard held various management  positions for Atlantic
Richfield and its  subsidiaries,  with the final  position as  controller  for
ARCO Coal Company.

     Pelham H. A. Smith has been an  Executive  Vice  President  of  HydroChem
since  December  2000.  He was also  Chief  Financial  Officer  from such date
until  February 2002.  Prior  thereto,  Mr. Smith had served as Vice President
of  HydroChem  since  December  1993.  Before  that time,  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.

     Gregory  G. Rice has been a Vice  President  of  HydroChem  since  August
1998.  Prior  thereto,   Mr.  Rice  held  various  management  positions  with
HydroChem or DIS since August 1987.

     Michael P.  Steindler  has been the General  Counsel of  HydroChem  since
April 1994 and has been the  Secretary  of  HydroChem  since March 1995.  From
August  1993 to  February  1998,  he was  also a  partner  in the law  firm of
Cassell & Stone in Dallas, Texas.

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),  Kelvin R. Collard  (Vice  President and Chief
Financial Officer),  Pelham H. A. Smith (Executive Vice President) and Michael
P. Steindler (General Counsel).


                                       39
<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,
2001 who received  compensation  in excess of $100,000  (the "Named  Executive
Officers") for the period indicated.
<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 ...........   2001   $275,000  $      -     8,625     $   750
  Chairman of the Board and .   2000    265,835         -    16,089         750
  Chief Executive Officer ...   1999    240,406   150,000         -         750

Gary D. Noto ................   2001    196,538    50,000         -      52,913
  President and Chief .......   2000    186,026    70,000         -      31,512
  Operating Officer .........   1998    186,028    97,000     4,000         750

Donovan W. Boyd .............   2001    165,000    87,000         -      42,213
  Executive Vice President ..   2000    151,820    73,500         -      22,150
                                1999    150,155    75,000    20,000         750

R. Dwane Ruiz ...............   2001    140,577    67,000         -      42,213
  Vice President ............   2000    112,692    53,125         -      22,150
                                1999     96,500    42,525         -         750

Michael P. Steindler ........   2001    180,000    41,000         -           -
  Executive Vice President ..   2000    180,000    50,000         -           -
  and Chief Financial Officer   1999    180,000    42,000         -           -
</TABLE>
__________
(1) Consists of HydroChem's  401(k)  matching  contribution of $750 per person
   per year,  and for 2000 and 2001,  the portion of any  deferred  bonus that
   vested  during  the  year  plus  interest  on  such  vested  portion.   See
   "Deferred Bonus Plan."

Director Compensation

     Directors  receive  a $1,500  fee for each  Board of  Directors  meeting,
unless  they are also  employees  of the  Company  and as such 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.  In  connection  with serving on the
Board of Directors as the CVC designee,  CVC has transferred to Mr.  Blonkvist
30,000  shares of  Holding's  Class B Common  Stock.  See  "Item 12.  Security
Ownership of Certain Beneficial Owners and Management".

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, 2001,  options for 184,300  shares

                                       40
<PAGE>
of  Class A Common  were  outstanding  and  options  for  21,000  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, 2001         at December 31, 2001 (1)
 ----               -----------   --------        --------------------         ------------------------
                                              Exercisable  Unexercisable      Exercisable   Unexercisable
                                              -----------  -------------      -----------   -------------
<S>                    <C>        <C>         <C>           <C>               <C>           <C>
B.Tom Carter.........  16,089     $  0             -              -           $  0          $  0
Gary D. Noto.........       -        -        19,500          2,000              0             0
Donovan W. Boyd......       -        -        10,000         10,000              0             0
R. Dwane Ruiz........       -        -         8,150          4,650              0             0
Michael P. Steindler.       -        -             -              -              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,  2001,  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  $434,362.  The loan is  evidenced  by a secured  promissory
note dated  March  15,  2002  bearing interest at the rate of 4.52% per annum,
compounded annually.  Principal and all accrued interest thereon is payable on
March  14, 2008.  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 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 and Boyd is
$210,000 and  $165,000,  respectively.  Such amounts are subject to review and
may be increased  periodically  at the discretion of HydroChem.  For Mr. Noto,
bonuses are also  payable at the sole  discretion  of  HydroChem.  Mr.  Boyd's
agreement  provided  a  performance  bonus  for  1999 of up to 50% of his base
compensation.   Mr.  Boyd's   agreement  also  provided  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.  Each of
the agreements for Messrs.  Noto and Boyd contain covenants not to compete and
other customary restrictions
                                       41
<PAGE>

     The Company and Mr.  Ruiz are parties to a  Supplemental  Confidentiality
and  Proprietary  Information  Agreement with Provision for Severance  Benefit
dated as of April 1, 2000.  Among other things,  this Agreement  provides that
if HydroChem  terminates  the  employment of Mr. Ruiz without cause as therein
defined,  then he is  entitled  to a  continuation  of his then  current  base
compensation for six months.

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 participant upon receiving an initial
award under the Deferred  Plan in any given year is  guaranteed  an additional
award 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, 2002.

                                       42
<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..............        30,000       2.4%       30,000       *           -          -
Gary D. Noto (2) (3) ..........        38,079       3.0%          880       *        31,488        *
Donovan W. Boyd (4)............        10,000        *            -         -           -          -
Michael P. Steindler...........             -        -            -         -           -          -
R. Dwane Ruiz (5)..............         8,150        *            -         -           -          -
All directors and executive
officers as a group
 (11 persons) (2) (6)..........       640,710      47.0%       32,420       *       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 1600
   Fort Worth, Texas 76102
Citicorp Venture Capital, Ltd.(2)   2,818,510      69.0%    2,818,510     71.8%   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
Heller Financial, Inc.(8) .....       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) (9)...        67,343       5.0%       67,343      1.7%      33,871        *
   c/o Citicorp Venture Capital, Ltd.
   399 Park Avenue
   New York, New York 10043
</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  19,500  shares of Class A Common that Mr. Noto may acquire upon
     the exercise of stock options within 60 days of February 28, 2002.

(4)  Represents 10,000 shares of Class A Common that Mr. Boyd may acquire upon
     exercise of stock options within 60 days of February 28, 2002.

                                       43
<PAGE>

(5)  Represents 8,150 shares of Class A Common Stock that Mr. Ruiz may acquire
     upon exercise of stock options within 60 days of February 28, 2002.

(6)  Includes  62,650  shares of Class A Common that may be acquired  upon the
     exercise  of stock  options  within 60 days of  February  28,  2002,  and
     32,420 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, 2002.

(8)  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, 2002.  Heller  Financial,  Inc. may acquire 310,390 shares of Class A
     Common  within 60 days of February 28, 2002,  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.

(9)  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  $434,362.  The loan is  evidenced  by a secured  promissory
note dated  March  15, 2002  bearing  interest at the rate of 4.52% per annum,
compounded  annually.  Principal and all accrued  interest  thereon is payable
on  March  14,  2008.   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. Financial Statement Schedules.

           Schedule II        Valuation and Qualifying Accounts            S-1


                                       44
<PAGE>

                                 SCHEDULE II

                      Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
                                                      Additions
                                               ------------------------
                                                Charged         Charged
                                 Balance at     to Costs        to Other                      Balance at
                                 Beginning        and          Accounts-       Deductions      End of
                                 of Period      Expenses       Describe         Describe       Period
                                 ---------      --------       --------         --------       ------
                                                            (In thousands)
<S>                               <C>            <C>            <C>             <C>            <C>

Year Ended December 31, 1999
Reserves and allowances
deducted from asset accounts:
Allowance for doubtful
accounts receivable...........    $ 536          $  85          $  59(1)        $   9(2)       $ 671

Year Ended December 31, 2000
Reserves and allowances
deducted from asset accounts:
Allowance for doubtful
accounts receivable...........    $ 671          $ 549          $   -           $ 497(2)        $ 723

Year Ended December 31, 2001
Reserves and allowances
deducted from asset accounts:
Allowance for doubtful
accounts receivable...........    $ 723          $ (11)         $   -           $ 432(2)        $ 280
</TABLE>

(1) Added in connection with the acquisition of Lansco.
(2) Uncollectible accounts receivable written off, net of recoveries.


                                      S-1
<PAGE>

     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.)

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

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

                                       45
<PAGE>

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

        10.7     Secured  Promissory  Note dated  March  15, 2001  from  B. Tom
                 Carter,  Jr. to HydroChem  Holding,  Inc. (Filed herewith.)

        10.8     Pledge  Agreement  dated   March  15,  2002   between  B.  Tom
                 Carter, Jr. and HydroChem  Holding,  Inc. (Filed herewith.)

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

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

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

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

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

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

        10.15    Supplemental   Confidentiality  and  Proprietary   Information
                 Agreement  with  Provision  for Severance  Benefit dated as of
                 April 1, 2000 between HydroChem Industrial Services,  Inc. and
                 Dwane Ruiz.  (Filed herewith.)

        10.16    Letter Agreement  regarding  termination of employment  dated
                 March 27,  2002  between HydroChem  Industrial Services,  Inc.
                 and Pelham H. A. Smith.  (Filed herewith.)

        10.17    Letter Agreement regarding employment dated January  28, 2002
                 between  HydroChem  Industrial  Services,  Inc.  and   Kelvin
                 Collard.(Filed herewith.)

        10.18    Finance  Agreement  dated  October  25,  2001 among  HydroChem
                 Industrial Services, Inc.,  HydroChem Holding,  Inc. HydroChem
                 International, Inc. HydroChem  Industrial  Cleaning,  Inc. and
                 The CIT  Group/Business  Credit, Inc.,  as Agent  and  Lender.
                 (Exhibit  10.25 to the Company's Form 10-Q,  filed November 8,
                 2001, is hereby incorporated by reference.)

        10.19    First  Amendment  dated  as of  November 30,  2001 to  Finance
                 Agreement dated  October 25, 2001 among  HydroChem  Industrial
                 Services,    Inc.,    HydroChem   Holding,   Inc.,   HydroChem
                 International,  Inc, HydroChem Industrial Cleaning,  Inc., and
                 The CIT Group/Business  Credit,  Inc.  as  Agent  and  Lender.
                 (Filed herewith.)

                                      46
<PAGE>

        10.20    Second  Amendment  dated  as of  January  31, 2002 to  Finance
                 Agreement dated  October 25, 2001 among  HydroChem  Industrial
                 Services,   Inc.,    HydroChem   Holding,    Inc.,   HydroChem
                 International, Inc., HydroChem Industrial Cleaning,  Inc., The
                 CIT Group/Business Credit,  Inc., as Agent and Lender, and the
                 other Lender parties thereto.  (Filed herewith.)


  (b)   Reports on Form 8-K.

     None.



                                       47
<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 29th day
of March 2002.


                                    HYDROCHEM INDUSTRIAL SERVICES, INC.


                                    By:   /s/ Kelvin R. Collard
                                          ---------------------
                                          Kelvin R. Collard, 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 29th day of March 2002.



        Name:                       Capacities:



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



     /s/ Kelvin R. Collard
     ---------------------
       Kelvin R. Collard            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


                                       48
<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 29th day
of March 2002.


                                    HYDROCHEM INTERNATIONAL, INC.

                                    By:   /s/ Kelvin R. Collard
                                          ---------------------
                                          Kelvin R. Collard, 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 29th day of March 2002.



        Name:                       Capacities:



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



     /s/ Kelvin R. Collard
     ---------------------
       Kelvin R. Collard            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


                                       49
<PAGE>




                                   EXHIBIT INDEX



      10.7          Secured Promissory Note dated March 15, 2002 from  B. Tom
                    Carter, Jr. to Hydrochem Holding, Inc.

      10.8          Pledge Agreement dated March 15, 2002 from B. Tom Carter,
                    Jr. to Hydrochem Holding, Inc.

      10.15         Supplemental  Confidentiality and Proprietary Information
                    Agreement with  Provision for Severance  Benefit dated as
                    of April 1, 2000 between HydroChem  Industrial  Services,
                    Inc. and Dwane Ruiz.

      10.16         Letter  Agreement  regarding  termination  of  employment
                    dated   March  27,  2002   between  HydroChem  Industrial
                    Services, Inc. and Pelham H. A. Smith.

      10.17         Letter  Agreement regarding  employment dated January 28,
                    2002  between  HydroChem  Industrial  Services,  Inc. and
                    Kelvin Collard.

      10.19         First  Amendment dated as of November 30, 2001 to Finance
                    Agreement   dated   October  25,  2001  among   HydroChem
                    Industrial  Services,   Inc.,  HydroChem  Holding,  Inc.,
                    HydroChem   International,   Inc,  HydroChem   Industrial
                    Cleaning,  Inc., and The CIT Group/Business  Credit, Inc.
                    as Agent and Lender.

      10.20         Second  Amendment dated as of January 31, 2002 to Finance
                    Agreement   dated   October  25,  2001  among   HydroChem
                    Industrial  Services,   Inc.,  HydroChem  Holding,  Inc.,
                    HydroChem   International,   Inc.,  HydroChem  Industrial
                    Cleaning,  Inc., The CIT Group/Business  Credit, Inc., as
                    Agent and Lender, and the other Lender parties thereto.






                                       50