UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-QSB


/X/      QUARTERLY  REPORT  PURSUANT  TO SECTION 13 OR 15 (d) OF THE  SECURITIES
         EXCHANGE ACT OF 1934

For the quarterly period ended  DECEMBER 31, 1996

/ /      TRANSITION  REPORT  PURSUANT  TO SECTION 13 OR 15(d) OF THE  SECURITIES
         EXCHANGE ACT OF 1934

For the transition period from ____________ to ________________

                         COMMISSION FILE NUMBER 0-27378

                                   NUCO2 INC.
        (Exact Name of Small Business Issuer as Specified in Its Charter)

                     Florida                        65-0180800
        (State or Other Jurisdiction of        (I.R.S. Employer
        Incorporation or organization)         Identification Number)

                           2800 Southeast Market Place
                              Stuart, Florida 34997
                    (Address of Principal Executive Offices)

                                 (561) 221-1754
                (Issuer's Telephone Number, Including Area Code)

         Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 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  / /

         State the number of shares  outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:


                 CLASS                       OUTSTANDING AT DECEMBER 31, 1996
                 -----                       --------------------------------
         Common Stock, $.001 par value                7,163,434 shares


<PAGE>

                                   NUCO2 INC.

                                      INDEX

  PART I.       FINANCIAL INFORMATION

  ITEM 1.       FINANCIAL STATEMENTS

                Consolidated Balance Sheets as of                          3
                December 31, 1996 and June 30, 1996

                Consolidated Statements of Operations                      4
                for the Three Months Ended December 31,
                1996 and December 31, 1995

                Consolidated Statements of  Operations                     5
                for the Six Months Ended December 31, 1996
                and December 31, 1995

                Consolidated Statement  of Shareholders'                   6
                Equity for the Six Months Ended
                December 31, 1996

                Consolidated Statements of Cash Flows for the            7-8
                Six Months Ended December 31, 1996 and
                December 31, 1995

                Notes to Consolidated Financial Statements

  ITEM 2.       MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
                OF OPERATION                                            13-18

  PART II.      OTHER INFORMATION

  ITEM 6.       EXHIBITS AND REPORTS ON FORM 8-K                           19

  SIGNATURES                                                               20

                                       2
<PAGE>
PART I.     FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

                            NUCO2 INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS

                                         ASSETS                                (unaudited)
                                                                            December 31, 1996         June 30, 1996
                                                                            -----------------         -------------
<S>                                                                            <C>                     <C>        
Current assets:
    Cash and cash equivalents                                                  $31,235,268             $43,000,676
    Trade accounts receivable, net of allowance for doubtful accounts
    of $331,777 and
    $210,629, respectively                                                       1,647,925               1,385,642
    Inventories                                                                     79,040                  52,425
    Prepaid expenses and other current assets                                      647,399                 384,948
                                                                                ----------              -----------
        Total current assets                                                    33,609,632              44,823,691
                                                                                -----------             ----------

Property and equipment, net                                                     34,461,814              24,392,692
                                                                                -----------             -----------

Other assets:
    Goodwill, net                                                                3,055,722              3,064,877
    Deferred charges, net                                                          310,107                389,343
    Customer lists, net                                                            997,033                873,512
    Restrictive covenants, net                                                     177,500                114,167
    Deferred lease acquisition costs, net                                          989,169                714,040
    Deposits                                                                        82,107                260,363
                                                                               -----------             -----------
       Total other assets                                                        5,611,638               5,416,302
                                                                               -----------             -----------
          Total assets                                                         $73,683,084             $74,632,685
                                                                               ===========             ===========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
    Current maturities of long-term debt                                        $2,293,527              $1,358,447
    Accounts payable                                                             2,020,833               2,226,795
    Accrued expenses                                                               514,655                 497,975
    Other current liabilities                                                       24,442                  73,529
                                                                                ----------              -----------
       Total current liabilities                                                 4,853,457               4,156,746

    Long-term debt, excluding current maturities                                 8,365,438               9,485,994
    Customers' deposits                                                            425,205                 305,535
                                                                                ----------              -----------
       Total liabilities                                                        13,644,100              13,948,275
                                                                                -----------             -----------

Shareholders' Equity:
     Common stock; par value $.001 per share; 30,000,000 authorized;
     issued and outstanding 7,163,434 and 7,129,467 shares,
     respectively
                                                                                     7,163                   7,129
    Additional paid-in capital                                                  62,690,183              63,743,312
    Accumulated deficit                                                         (2,658,362)             (3,066,031)
                                                                                ----------              ----------
       Total shareholders' equity                                               60,038,984              60,684,410
    Commitments and contingencies
                                                                               -----------             -----------
                                                                               $73,683,084             $74,632,685
                                                                               ===========             ===========
</TABLE>

                                       3
<PAGE>
                            NUCO2 INC. AND SUBSIDIARY


                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                           Three Months Ended
                                                                           ------------------
                                                                 December 31, 1996        December 31, 1995
                                                                 -----------------        -----------------

<S>                                                                <C>                      <C>       
 Net sales                                                         $4,332,528               $2,783,003

Costs and expenses:
    Cost of products sold                                           2,095,313                1,198,481
    Selling, general and administrative expenses                    1,401,549                  590,102
    Depreciation and amortization                                     995,798                  537,437
                                                                   ----------                ----------
                                                                    4,492,660                2,326,020
                                                                   ----------                ----------

            Operating (loss) income                                  (160,132)                 456,983

Other (Income) Expenses:
      Interest (income) expense, net                                 (225,952)                 496,663
                                                                   ----------               -----------

           Income (loss) before extraordinary item                     65,820                  (39,680)
                                                                   ----------               -----------

Extraordinary item - loss on extinguishment of debt                      --                    859,522
                                                                   ----------                ----------
           Net income (loss)                                        $  65,820                $(899,202)
                                                                   ==========                ==========

           Dividends on Preferred Stock                             $    --                  $ (53,492)
                                                                   ==========                ==========

          Net income (loss) attributable to
          stockholders                                               $ 65,820                $(952,694)
                                                                   ==========                ==========
Income (loss) per common share

           Income (loss) before extraordinary item                     $ 0.01                  $ (0.03)

           Extraordinary item                                            --                      (0.23)
                                                                  ===========                ==========

           Net income (loss)                                           $ 0.01                  $ (0.26)
                                                                  ===========                ==========

          Weighted average number of common and
          common equivalent shares outstanding                      7,284,986                3,673,404
                                                                  ===========               ===========
</TABLE>

                                       4

<PAGE>

                            NUCO2 INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>


                                                                           Six Months Ended
                                                                           ----------------
                                                                 December 31, 1996     December 31, 1995
                                                                 -----------------     -----------------

<S>                                                                <C>                    <C>
Net Sales                                                          $ 8,404,185            $ 5,480,701

Costs and expenses:
    Cost of products sold                                             4,064,864              2,315,519
    Selling, general and administrative expenses                      2,631,974              1,152,918
    Depreciation and amortization                                     1,817,641              1,128,179
                                                                   ------------           ------------
                                                                      8,514,479              4,596,616
                                                                   ------------           ------------

             Operating income (loss)                                   (110,294)               884,085

Other (Income) Expenses:
        Interest (income) expense, net                                 (517,964)               998,970
                                                                   ------------           ------------

             Income (loss) before extraordinary item                   $407,670             $ (114,885)
                                                                   ------------           ------------

Extraordinary item - loss on extinguishment of debt                       --                  859,522
                                                                   ------------           ------------

             Net  income (loss)                                        $407,670            $ (974,407)
                                                                   ============           ============

             Dividends on Preferred Stock                          $      --              $  (110,917)
                                                                   ============           ============

             Net income (loss) attributable to common stockholders     $407,670           $(1,085,324)
                                                                   ============           ============
             
Income (loss) per common share

             Income (loss) before extraordinary item                     $ 0.06           $    (0.07)

             Extraordinary item                                              --                (0.24)

                                                                       --------            ----------
             Net income (loss)                                           $ 0.06            $   (0.31)
                                                                       =========           ==========

             Weighted average number of common and
                 common equivalent shares outstanding                 7,310,975            3,530,320
                                                                      =========            ==========
</TABLE>

                                       5

<PAGE>

                            NUCO2 INC. AND SUBSIDIARY

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                    Common Stock              Additional                             Total
                                                    ------------                Paid-in         Accumulated      Shareholders'
                                             Shares             Amount           Capital          Deficit            Equity
                                             ------             ------           -------          -------            ------

<S>           <C> <C>                       <C>                <C>             <C>              <C>              <C>        
Balance, June 30, 1996                      7,129,467          $7,129          $63,743,312      $(3,066,031)     $60,684,410

Exercise of options                            33,967              34              149,421                           149,455

Redemption of warrant                                                           (1,143,450)                       (1,143,450)

Additional expenses - secondary offering                                           (59,100)                          (59,100)

Net income                                                                                          407,669          407,669
                                            ---------         ----------       -----------      -----------       -----------

Balance, December 31, 1996                  7,163,434          $7,163          $62,690,183      $(2,658,362)      $60,038,984
                                            =========         =========        ===========      ============      ===========
</TABLE>

                                       6
<PAGE>
                            NUCO2 INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                                                                    Six Months Ended
                                                                                                    ----------------
                                                                                  December 31, 1996           December 31, 1995
                                                                                  -----------------           -----------------

<S>                                                                                 <C>                        <C>         
Net income (loss) before extraordinary item                                            $407,670                $(114,885)
Extraordinary item - loss on extinguishment of debt                                        --                    859,522
                                                                                    -----------               -----------
Net income (loss)                                                                       407,670                 (974,407)

Cash flows from operating activities:
Adjustments to  reconcile  net income  (loss) to net cash  provided by
    operating activities:
    Depreciation of property and equipment                                            1,349,905                  712,010
    Amortization of other assets                                                        467,736                  416,169
     (Gain) on disposal of property and equipment                                        (1,825)                  (8,765)
      Write-off of deferred financing costs                                                --                    784,069
    Changes in operating assets and liabilities:
    Decrease (increase) in:
                 Trade accounts receivable                                             (262,283)                (204,146)
           Inventories                                                                  (26,615)                   1,795
           Prepaid expenses and other current assets                                   (262,451)                (175,932)
    Increase (decrease) in:
           Accounts payable                                                            (205,962)                 279,566
           Accrued expenses                                                              16,680                  (21,589)
           Other current liabilities                                                    (49,087)                  17,773
           Customers' deposits                                                          119,670                   34,785
                                                                                    -----------               -----------

                Net cash provided by operating activities                             1,553,438                  861,328
                                                                                    -----------               -----------

Cash flows from investing activities:
    Proceeds from disposal of property and equipment                                     74,813                   20,600
    Purchase of property and equipment                                              (11,492,015)              (2,481,550)
    Acquisition of customer list                                                       (250,000)                   --
    Increase in restrictive covenant                                                   (100,000)                   --
       Increase in deferred charges                                                        --                    (643,466)
    Increase in goodwill                                                                (72,932)                  (40,000)
    (Increase) decrease in deposits                                                     178,256                    (4,889)
    Increase in deferred lease acquisition costs                                       (413,779)                 (232,613)
                                                                                    ------------                  ---------

            Net cash (used in) investing activities                                 $(12,075,657)              $(3,381,918)
                                                                                    -------------              ------------
</TABLE>

                                       7
<PAGE>
                            NUCO2 INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (continued)
                                   (unaudited)

<TABLE>
<CAPTION>

                                                                                                   Six Months Ended
                                                                                                   ----------------
                                                                                 December 31, 1996        December 31, 1995
                                                                                 -----------------        -----------------

Cash flows from financing activities:

<S>                                                                                <C>                        <C>       
    Proceeds from issuance of common stock                                              $--                  $16,232,804
    Proceeds from issuance of long-term debt                                            11,604                 7,681,631
    Repayment of long-term debt                                                       (197,080)              (15,633,847)
    Increase in loan payable to shareholder                                              --                      200,000
    Repayment of loan payable to shareholder                                             --                     (200,000)
    Increase in deferred charges                                                        (4,618)                    --
    Decrease in deferred interest payable                                                --                     (306,535)
    Exercise of warrants and options                                                   149,455                   656,902
    Preferred stock dividends                                                            --                     (361,275)
    Redemption of Series A preferred stock                                               --                     (485,000)
    Redemption of Series B preferred stock                                               --                         (500)
    Redemption of warrants                                                          (1,143,450)                     --
    Additional expenses - secondary offering                                           (59,100)                     --
                                                                                    -----------               -----------

                    Net cash  (used in ) provided by financing activities           (1,243,189)                7,784,180
                                                                                    -----------               -----------

   (Decrease ) Increase in cash and cash equivalents                               (11,765,408)                5,263,590
    Cash and cash equivalents, beginning of period                                  43,000,676                   561,778
                                                                                   ------------              ----- ------
    Cash and cash equivalents, end of period                                       $31,235,268                $5,825,368
                                                                                   ============              ============



    Supplemental  disclosure of cash flow  information:
       Cash paid during the period for:
       Interest                                                                       $455,400                $1,396,821
                                                                                    ==========                ===========
       Income taxes                                                                       0                         0
                                                                                    ==========                ===========
</TABLE>

                                       8
<PAGE>

                             NUCO2 INC. & SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1.     BASIS OF PRESENTATION

            The accompanying  unaudited  consolidated  financial statements have
been  prepared  in  accordance  with the  instructions  to Form  10-QSB used for
quarterly  reports under Section 13 or 15 (d) of the Securities  Exchange Act of
1934, and therefore,  do not include all information and footnotes necessary for
a fair presentation of financial position,  results of operations and cash flows
in conformity with generally accepted  accounting  principles.  The accompanying
unaudited  consolidated financial statements are consolidated with the Company's
newly formed (July 1996) wholly-owned subsidiary, NuAir Inc.

            The financial  information included in this report has been prepared
in  conformity  with the  accounting  principles  and methods of applying  those
accounting principles, reflected in the financial statements for the fiscal year
ended June 30,  1996  included  in Form  10-KSB  filed with the  Securities  and
Exchange Commission.

            All  adjustments  necessary for a fair  statement of the results for
the interim periods presented have been recorded.  This quarterly report on Form
10-QSB  should  be read in  conjunction  with the  Company's  audited  financial
statements  for the fiscal year ended June 30, 1996.  The results of  operations
for the periods  presented are not  necessarily  indicative of the results to be
expected for the full fiscal year.


NOTE 2.     NET INCOME OR LOSS PER COMMON SHARE

            The net income or loss per share  computations for the 1996 and 1995
periods  presented are based on the weighted average number of common shares and
dilutive common equivalent shares outstanding during each period.  Fully diluted
and  primary  income  or loss per  common  share are the same  amounts  for each
period.

            In connection with the Initial Public  Offering  (IPO),  155,164 and
300,266  shares of Common  Stock were issued upon  conversion  of the  Company's
Series  C  Preferred  Stock  and  Series D  Preferred  Stock,  respectively.  An
additional 805,209 shares of Common Stock were issued upon the conversion of the
convertible  portion  of the Senior  Subordinated  Notes and  118,167  shares of
Common Stock were issued upon the  exercise of warrants  and options.  The above
shares  have  been  treated  as  outstanding  for the  entirety  of the  periods
presented.  Stock options and warrants to purchase an additional  152,851 shares
of Common Stock granted  during 1995 have also been treated as  outstanding  for
the entirety of those periods, using the treasury stock method.

NOTE 3.     PUBLIC OFFERING

                  (a)  Initial Public Offering (IPO)

            In connection  with the Company's  IPO,  2,022,576  shares of Common
Stock were sold by the Company in December 1995. In addition, Representatives of
the  Underwriters  acquired  warrants to purchase up to 110,000 shares of Common
Stock.  Such warrants are exercisable for a period of five years, at an exercise
price  of  $10.80.   In  July  1996,  the  Company   redeemed  and  cancelled  a
Representative's  warrant to purchase 77,000 shares for $1,143,450.  This amount
represented the approximate market value of such warrant. The gross proceeds the
Company  received  from the sale of the  2,022,576  shares of Common  Stock were
$18,203,184.  After  deducting the  underwriters'  discounts and commissions and
other offering expenses, the net proceeds were $16,151,364.

                                       9

<PAGE>

            Prior to the IPO,  the Company had  outstanding  approximately  $2.9
million in principal amount of Senior Subordinated Notes, a portion of which was
convertible at the option of the holders thereof into Common Stock.  The holders
of the Senior  Subordinated  Notes converted,  effective upon the closing of the
IPO,  approximately  $407,000 of the principal amount of the Senior Subordinated
Notes into an aggregate of 805,209  shares of Common Stock.  The Company  repaid
the remaining  principal of the Senior  Subordinated  Notes and accrued interest
thereon  with a portion of the net  proceeds  from the IPO. The Company also had
outstanding  485  shares of Series A  Preferred  Stock,  500  shares of Series B
Preferred  Stock,  500 shares of Series C  Preferred  Stock and 1,500  shares of
Series D Preferred  Stock.  Effective  upon  closing of the IPO, (i) the Company
redeemed  with a portion of the net  proceeds of the IPO all of the  outstanding
Series A  Preferred  Stock and  Series B  Preferred  Stock for an  aggregate  of
$485,500  plus  approximately   $243,000  of  dividends  and  (ii)  all  of  the
outstanding Series C Preferred Stock and Series D Preferred Stock  automatically
converted into an aggregate of 455,430 shares of Common Stock.  The Company used
a portion  of the net  proceeds  of the IPO to pay  dividends  of  approximately
$118,000  on the Series C  Preferred  Stock and  Series D  Preferred  Stock.  In
addition,  the holders of warrants to purchase an aggregate of 118,167 shares of
Common Stock exercised such warrants effective upon the closing of the IPO.

            Prior to the IPO,  the  board of  directors  approved,  among  other
things,  an increase in the number of shares  authorized  of Common Stock of the
Company to  20,000,000  shares,  reduced the par value to $ .001 per share,  and
increased  the  number of  authorized  shares of  Preferred  Stock to  5,000,000
shares.

            The  Company's  board of  directors  also  declared  an  approximate
3,866-for-1 stock split of the Company's Common Stock. This stock split resulted
in the  issuance  of an  additional  1,932,453  shares  of  Common  Stock of the
Company.  All share, per share and conversion  amounts relating to Common Stock,
stock options and warrants,  included in the accompanying consolidated financial
statements have been restated to reflect this stock split.

            In  December  1996,  the  shareholders  voted and  approved  another
increase in the number of shares  authorized  of Common  Stock of the Company to
30,000,000 shares.

                   (b)    Secondary Public Offering

            In  connection  with  the  Company's   Secondary   Public  Offering,
1,425,165  shares of Common  Stock were sold by the  Company  in June  1996.  In
addition,  an over-allotment  option from the Company for an additional  336,000
shares of Common Stock was exercised.

            The net proceeds the Company received from the sale of the 1,761,165
shares  of  Common  Stock,  after  deducting  the  underwriters'  discounts  and
commissions  and other  offering  expenses was  $44,584,145.  The Company repaid
$1,963,486  of   indebtedness   outstanding   under  its  credit  facility  with
NationsBank of Florida, N.A. with the proceeds of the Secondary Public Offering.
The Company intends to use the remaining  proceeds to fund internal growth,  for
the  acquisition  of  additional  bulk CO2 systems  leasing  businesses  and for
general corporate purposes.

NOTE 4.                 ACQUISITIONS

            Effective August 30, 1996, the Company purchased certain assets from
Geer Gas Corporation  and OK Leasing Company for an aggregate  purchase price of
$1,400,000. The Company paid cash in these transactions.

                                       10

<PAGE>

NOTE 5.      LONG-TERM DEBT

            The Company  entered  into an  agreement  for a $30  million  dollar
credit facility with NationsBank of Florida,  N.A. simultaneous with the closing
of the IPO.  Additionally,  all  loans  with the  Company's  previous  bank were
repaid. As of December 31, 1996, a total of $10,156,465 was outstanding pursuant
to the new credit  facility  which is  comprised of a $6.0 million term loan and
$4,156,465  of drawings  pursuant to the tank and  acquisition  revolvers of the
credit  facility.  The term loan is payable  interest only for twelve months and
principal  payments of $100,000 plus interest at a fixed rate of 8.51%,  payable
monthly  for  twenty-three   months  commencing   January  1997.  The  tank  and
acquisition   revolvers   are  interest  only  for  12  months  at  two  hundred
seventy-five  basis  points  above the 30-day  London  InterBank  Offering  Rate
("LIBOR") (8.13% at December 31, 1996), with the principal amount outstanding at
the end of 12 months  (December 1996) and 24 months (December 1997) converted to
term loans calculated on a 60 month amortization  schedule. Any accrued interest
and one final payment of all unpaid principal is due and payable on November 30,
1998.

Extraordinary item - loss on extinguishment of debt

            For the six months ended  December  31, 1995 the Company  incurred a
one  time  extraordinary  charge  of  $859,522  for the  write-off  of  deferred
financing costs and prepayment  penalties  related to debt which was repaid with
the proceeds of the IPO.

NOTE 6.         STOCK OPTION PLAN

            In 1995, the board of directors  approved the 1995 Stock Option Plan
(the "1995 Plan").  Under the 1995 Plan, the Company has reserved 350,000 shares
of Common Stock for employees of the Company.  Under the terms of the 1995 Plan,
options  granted may be either  incentive  stock options or non qualified  stock
options. The exercise price of incentive options shall be at least equal to 100%
of the fair market value of the Company's Common Stock at the date of the grant,
and the exercise  price of non qualified  stock options  issued to employees may
not be less than 75% of the fair market value of the  Company's  Common Stock at
the date of the grant.  The  maximum  term for all  options  is 10 years.  As of
December 31, 1996, 50,576 options were granted at an exercise price of $9.00 per
share,  75,000 options were granted at an exercise price of $17.50 per share and
222,500  options  were  granted at an  exercise  price of $11.25 per share.  The
50,576  options,  the 75,000 options and the 222,500  options vest one-third per
annum commencing  December 1996, April 1997 and October 1997,  respectively.  Of
these options, 16,859 are currently exercisable.

            The board of directors of the Company  adopted the Directors'  Stock
Option Plan (the "Directors' Plan").  Under the Directors' Plan, the Company has
reserved  60,000 shares of Common Stock.  Under the terms of the Directors' Plan
each non-employee director will receive options for 6,000 shares of Common Stock
on the date of his or her first election to the board of directors. In addition,
on the third  anniversary of each director's first election to the Board, and on
each three year anniversary thereafter,  each non-employee director will receive
an  additional  option to purchase  6,000 shares of Common  Stock.  The exercise
price per share for all options  granted under the Directors' Plan will be equal
to the fair  market  value of the  Common  Stock  as of the date of  grant.  All
options  vest  in  three  equal  annual  installments  beginning  on  the  first
anniversary of the date of grant. As of December 31, 1996, options to purchase a
total of 24,000 shares of Common Stock at an exercise  price of $9 per share had
been issued. Of these options, 8,000 are currently exercisable.

                                       11

<PAGE>


            Statement of Financial  Standards No. 123 Accounting for Stock-Based
Compensation, defines a fair value based method of accounting for stock options.
It is  effective  for fiscal  years  beginning  after  December  15,  1995.  The
Statement  allows an entity to  continue  to measure  cost using the  accounting
method  prescribed  by APB  Opinion  No.  25,  Accounting  for  Stock  Issued to
Employees,  and to make pro forma  disclosures  of net income and  earnings  per
share as if the fair value based method of accounting had been applied. The fair
value  of each  option  grant  is  estimated  on the  date of  grant  using  the
Black-Scholes   option-pricing   model  with  the   following   weighted-average
assumptions used for grants in fiscal 1996 and fiscal 1997;  expected volatility
of 78%, risk-free interest rate of approximately 6.0%, and expected lives of one
to five years. The Company is adopting SFAS 123 in fiscal year end June 30, 1997
and presents the following pro forma disclosures  rather than change its present
method of accounting for employee stock options:


                                                            Six Months Ended
                                                            December 31, 1996
                                                            -----------------
          Net income attributable to common shareholders        $  183,670
                                                                ==========
          Net income  per common share                          $     0.03
                                                                ==========
          Weighted average number of common
          and common equivalent shares                           7,281,983
          outstanding                                           ==========
           

            The  pro  forma  adjustment  for  stock  based   compensation  costs
recognized under SFAS 123 is approximately $224,000.

NOTE 7.         OPERATING LEASES

            The Company entered into thirty seven  operating  leases from July 1
through  December 31, 1996.  Twelve  leases were for warehouse  facilities  with
aggregate  annual rentals of  approximately  $235,000  expiring at various dates
through 1999.  Twenty five leases were for trucks with aggregate  annual rentals
of approximately $250,000 expiring at various dates through 2003.

                                       12

<PAGE>

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OR
                                PLAN OF OPERATION

            This  Management's  Discussion  and  Analysis  or Plan of  Operation
contains  forward-looking  statements that involve risks and uncertainties.  The
Company's actual results could differ materially from those anticipated in these
forward-looking statements. Factors that may cause such differences include, but
are not limited  to, the  Company's  expansion  into new  markets,  competition,
technological advances and availability of managerial personnel.

OVERVIEW

            The following  discussion and analysis should be read in conjunction
with the unaudited  Consolidated Financial Statements and Notes thereto included
elsewhere in this Form 10-QSB.

            During the quarter  ending  December 31, 1996,  the Company  entered
into several  agreements to help build route density and, in some cases,  expand
its service area. On October 16, 1996, the Company announced that it had reached
an  agreement  to supply bulk CO2 systems to  approximately  140 theaters in the
Northeast,  owned by Loew's  Theaters  Management  Corp.  and  operating as Sony
Theaters.  On  November  7,  1996,  the  Company  reached an  agreement  with BP
Exploration & Oil Inc.  ("BP") to supply bulk CO2 systems to BP owned  locations
on a  roll-out  basis.  The  initial  installations  began in the  Ohio  market,
followed shortly thereafter with installations in the Southeast. On November 22,
1996,  the Company  announced  the  opening of its  service and supply  depot in
Houston,  Texas. This event, coupled with the simultaneous  installation rollout
of new Pizza Hut and previously  announced Church's Chicken  locations,  allowed
the Company to intensify its presence in the Texas market.

            Highlighting  the events in this quarter was the Company reaching an
agreement  with Burger King  Corporation  ("Burger  King"),  a division of Grand
Metropolitan  PLC,  to supply  Burger  King  locations  with  bulk CO2  services
throughout  the  United  States.  This  agreement  includes   approximately  550
company-owned  locations,  and, more importantly,  provides that the Company and
Burger King will work jointly in the development of a program to be presented to
Burger King franchisees. The Company believes that there are approximately 1,100
franchisees  operating  6,000  Burger  King  restaurants  in the United  States.
Currently,  over  3,500 of these  locations  are within  the  Company's  current
service area.

            The Company continued  dialogue with major fast-food  restaurant and
convenience store chains both on regional and national levels.  The Company also
recorded  its  largest  increase in new  internally  generated  placements  in a
quarter (1,380),  continuing to strive towards its major objective, the building
of route density.

GENERAL

            At December 31, 1996 the Company  leased  15,575 bulk CO2 systems to
its customers,  principally pursuant to five year noncancelable lease contracts.
These customers include restaurants,  convenience stores, theaters,  taverns and
other businesses which dispense carbonated beverages. Generally, these contracts
are classified as one of two types:  "budget-plan" service contracts and "rental
plus per pound charge" contracts.  Pursuant to budget plan contracts,  customers
pay a fixed  monthly  charge for the lease of a Company owned bulk CO2 system on
the  customer's  premises and refills of bulk CO2  according to a  predetermined
schedule.  The  bulk  CO2 is  included  in the  monthly  rental  charge  up to a
predetermined  maximum annual volume.  If the maximum annual volume is exceeded,
the customer is charged for additional  bulk CO2  delivered.  Pursuant to rental
plus per pound  charge  contracts,  the Company also leases a bulk CO2 system to
the customer,  but the customer is charged on a per pound basis for all bulk CO2
delivered.  The Company's  contracts generally provide for price increases based
upon increases in the consumer price index.  The Company  provides some services
besides those offered

                                       13
<PAGE>

under the above two types of  contracts.  As of December 31,  1996,  the Company
provided "fill only" service to approximately 3,400 customers.

            As of December 31, 1996, approximately 6,274 of the Company's 18,975
bulk  customers  were billed on a per pound basis which varies with the quantity
of bulk CO2  delivered.  These  customers  will tend to consume  less CO2 in the
winter  months,  and this may cause the Company's  revenues and earnings for its
fiscal quarters ending in December and March to be relatively lower than for its
other quarters.  As of December 31, 1996,  approximately 12,700 of the Company's
18,975 bulk  customers  were billed at a flat  monthly  rate which does not vary
throughout  the year.  The Company also supplies  carbon  dioxide,  nitrogen and
helium in high pressure cylinders, to approximately an additional 700 customers.

            The Company  intends to continue to grow  through a  combination  of
internal growth and acquisitions.  The Company requires  significant  capital to
purchase and install bulk CO2 systems at  customers'  locations  and to grow the
network of service  and supply  depots and  specialized  CO2  delivery  vehicles
required to service these  installations.  Once  installed,  however,  there are
minimal additional capital requirements for bulk CO2 systems in service, and the
Company has generally experienced  significant positive cash flows on a per-unit
basis.  These cash flows  stem from  per-unit  operating  income  combined  with
per-unit  non-cash  charges  for  depreciation  and  amortization.  The  Company
believes its current installed base of bulk CO2 systems is stable, partly due to
the existence of long-term contracts with its customers.  In fiscal 1996 and the
six months  ended  December  31,  1996,  less than 5% of Company  owned bulk CO2
systems experienced service termination. Service termination is typically caused
by  restaurant  closure.  Affected  bulk CO2  systems  are  either  removed  and
reconditioned for use with other customers,  or left in place when prospects for
a new restaurant in the same location are deemed favorable.

RESULTS OF OPERATIONS

            The  following  table sets  forth,  for the periods  indicated,  the
percentage relationship which various items bear to net sales:
<TABLE>
<CAPTION>

                                                             Three Months Ended                   Six Months Ended
                                                                December 31,                        December 31,
                                                                ------------                        ------------
                                                           1995             1996             1995              1996
                                                           ----             ----             ----              ----
<S>                                                      <C>             <C>                <C>              <C> 
Income Statement Data:
Net sales ..........................................      100.0%          100.0%            100.0%           100.0%
Cost of products sold...............................       43.1%           48.4%             42.3%            48.4%
Selling, general and administrative expenses........       21.2%           32.3%             21.0%            31.3%
Depreciation and amortization.......................       19.3%           23.0%             20.6%            21.6%
                                                           -----         -------             -----            ------
Operating income....................................       16.4%         (3.7)%              16.1%            (1.3)%
                                                           -----         -------             -----            ------
Interest expense (income), net......................       17.8%          (5.2)%             18.2%            (6.2)%
                                                                                                              ------
Extraordinary item - loss on extinguishment of debt        30.9%            --               15.7%             --
                                                         -------         -------            -------           ------
Net (loss) income...................................     (32.3%)           1.5%             (17.8)%            4.9%
                                                         =======         =======            ======            =====

Other Data:
Operating income before depreciation and amortization
(EBITDA)............................................      35.7%           19.3%             36.7%             20.3%
                                                          =====          ======             =====             =====
</TABLE>


                                       14
<PAGE>
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1995

            Net sales increased by $1.5 million,  or 55.7%, from $2.8 million in
the 1995 period to $4.3  million in the 1996 period.  Approximately  $272,000 of
the increase  represented net sales  resulting from the May 1996  acquisition of
the  BevServ  Division  of the  Coca-Cola  Bottling  Company  of New York,  Inc.
(BevServ).   In  addition,   approximately   $124,000,   $35,000,  and  $122,000
represented net sales from two acquisitions in January, 1996, one acquisition in
June 1996, and one acquisition in September 1996, respectively. The remainder of
the increase in net sales was primarily due to internal  growth in the number of
Company owned and customer owned bulk CO2 systems in service.

            Costs of products  sold  increased by $897,000  from $1.2 million in
the  1995  period  to $ 2.1  million  in the  1996  period  and  increased  as a
percentage of net sales from 43.1% to 48.4%.  This increase was  attributable to
the expansion of the Company into new territories. The number of depots operated
by the Company at December 31, 1996, increased to 35, compared to 21 at December
31, 1995. When the Company opens new depots and expands into new markets, higher
costs expressed as a percentage of net sales are incurred until route density is
achieved.  The  Company  typically  services  approxiamtely  350  customers  per
delivery vehicle in its mature markets.  In new territories,  a delivery vehicle
can initially service as few as 100 customers.

            Selling,  general and administrative  expenses increased by $811,000
from  $590,000  in the  1995  period  to $1.4  million  in the 1996  period  and
increased as a percentage of net sales, from 21.2% to 32.3%. The dollar increase
was  attributable  to  growth  in the  number of  marketing  and  administrative
personnel and their associated  expenses,  as well as the costs of expanding the
Company's  geographic  areas of service.  At  December  31, 1995 the Company had
operations in seven southeastern  states and employed 13 marketing personnel and
at December 31, 1996,  the Company had  operations  in 22 states and employed 34
marketing  personnel.  The Company also  experienced  approximately  $134,000 of
general and  administrative  expenses in connection with the Company's  airplane
and  $64,000  of  additional  insurance,   professional  fees  and  other  costs
associated with being a public company.

            Depreciation and amortization increased by $458,000 from $537,000 in
the 1995 period to $996,000 in the 1996 period.  As a  percentage  of net sales,
such  expenses  increased  from  19.3% in the 1995  period  to 23.0% in the 1996
period.  Depreciation  expense  increased by $388,000  from $362,000 in the 1995
period to $750,000 in the 1996 period  principally  due to the  increase in bulk
CO2  systems  leased to  customers  and the  Company's  airplane.  Expressed  as
percentage of net sales,  depreciation  expense increased from 13.0% in the 1995
period to 17.3% in the 1996 period.  Amortization  expense  increased by $70,000
from $176,000 in the 1995 period to $246,000 in the 1996 period primarily due to
the amortization related to deferred lease acquisition costs. As a percentage of
net sales, amortization expense decreased from 6.3% to 5.7%, respectively.

            Net interest expense in the 1995 period was $497,000 compared to net
interest  income in the 1996 period of $226,000.  This change is attributable to
the  repayment  of debt from the  proceeds of the IPO in  December  1995 and the
increased level of cash equivalents in the 1996 period from the Secondary Public
Offering in June 1996.

            During the 1995 period,  the Company wrote-off  $785,000 of deferred
financing  costs and incurred  $75,000 in prepayment  penalties  related to debt
which was repaid with the proceeds of the IPO.

                                       15
<PAGE>

            For the reasons  described  above,  EBITDA,  representing  operating
income plus depreciation and  amortization,  decreased from $994,000 in the 1995
period to $836,000 in the 1996 period and decreased as a percentage of net sales
from 35.7% to 19.3%,  respectively.  The Company  believes EBITDA is useful as a
means of measuring the growth and earning  power of its  business.  In addition,
the Company uses EBITDA to measure how well the Company is generating cash flow.
EBITDA excludes significant costs and should not be considered in isolation from
GAAP measures.

SIX MONTHS  ENDED  DECEMBER 31, 1996  COMPARED TO SIX MONTHS ENDED  DECEMBER 31,
1995

            Net sales increased by $2.9 million,  or 53.3%, from $5.5 million in
the 1995 period to $8.4  million in the 1996 period.  Approximately  $591,000 of
the increase  represented net sales  resulting from the May 1996  acquisition of
the  BevServ  Division  of The  Coca-Cola  Bottling  Company  of New York,  Inc.
(BevServ).   In  addition,   approximately   $259,000,   $79,000  and  $162,000,
represented net sales from two  acquisitions in January 1996 and one acquisition
in June 1996 and September 1996, respectively.  The remainder of the increase in
net sales was  principally due to internal growth in the number of Company owned
and customer owned bulk CO2 systems in service.

            Cost of products sold increased by $1.7 million from $2.3 million in
the 1995 period to $4.1 million in the 1996 period and increased as a percentage
of net  sales  from  42.3% to  48.4%.  This  increase  was  attributable  to the
expansion of the Company into new territories.  The number of depots operated by
the Company at December 31, 1996 increased to 35, compared to 21 at December 31,
1995.  When the Company  opens new depots and expands into new  markets,  higher
costs expressed as a percentage of net sales are incurred until route density is
achieved.  The  Company  typically  services  approximately  350  customers  per
delivery vehicle in its mature markets.  In new territories,  a delivery vehicle
can initially service as few as 100 customers.

            Selling,  general  and  administrative  expenses  increased  by $1.5
million  from $1.2 million in the 1995 period to $2.6 million in the 1996 period
and  increased as a  percentage  of net sales,  from 21.0% to 31.3%.  The dollar
increase  was   attributable   to  growth  in  the  number  of   marketing   and
administrative  personnel and their associated expenses, as well as the costs of
expanding the Company's  geographic  areas of service.  At December 31, 1995 the
Company had  operations in seven  southeastern  states and employed 13 marketing
personnel  and at December 31, 1996 the company had  operations in 22 states and
employed 34  marketing  personnel.  The Company also  experienced  approximately
$167,000 of general and administrative expenses in connection with the Company's
airplane and $141,000 of additional insurance, professional fees and other costs
associated with being a public company.

            The agreement  entered into in July 1996 with  McDonald's to service
370 store  owned bulk CO2  systems in the Ohio  region  resulted  in  additional
operating  expenses estimated by the Company to be approximately  $100,000.  Had
the Company purchased a customer list through acquisition this amount would have
been in  excess  of  $100,000;  however,  it would  have  been  capitalized  and
amortized  over the estimated life of the customer thus  alleviating  the income
statement effect in one period.

            Depreciation  and  amortization  increased  by  $689,000  from  $1.1
million in the 1995 period to $1.8 million in the 1996  period.  As a percentage
of net sales, such expenses  increased from 20.6% in the 1995 period to 21.6% in
the 1996 period. Depreciation expense increased by $638,000 from $712,000 in the
1995 period to $1.3 million in the 1996 period  principally  due to the increase
in bulk CO2  systems  leased to  customers  and  depreciation  on the  Company's
airplane. Expressed as a percentage of net sales, depreciation expense increased
from 13.0% in the 1995 period to 16.1% in the 1996 period.  Amortization expense
increased  by $52,000  from  $416,000 in the 1995 period to $468,000 in the 1996
period primarily due to amortization  related to deferred  financing costs. As a
percentage  of net  sales,  amortization  expense  decreased  from7.6%  to 5.6%,
respectively.

                                       16

<PAGE>

            Net interest expense in the 1995 period was $999,000 compared to net
interest  income in the 1996 period of $518,000.  This change is attributable to
the  repayment  of debt from the  proceeds of the IPO in  December  1995 and the
increased  level of cash  and  cash  equivalents  in the  1996  period  from the
Secondary Public Offering in June 1996.

            During the 1995 period,  the Company wrote-off  $785,000 of deferred
financing  costs and incurred  $75,000 in prepayment  penalties  related to debt
which was repaid with the proceeds of the IPO.

            For the reasons  described  above,  EBITDA,  representing  operating
income plus  depreciation and  amortization,  decreased from $2.0 million in the
1995 period to $1.7 million in the 1996 period and  decreased as a percentage of
net sales from 36.7% to 20.3%,  respectively.  The  Company  believes  EBITDA is
useful as a means of measuring the growth and earning power of its business.  In
addition,  the Company uses EBITDA to measure how well the Company is generating
cash flow.  EBITDA  excludes  significant  costs and should not be considered in
isolation from GAAP measures.


LIQUIDITY AND CAPITAL RESOURCES

            The  Company's  cash  requirements  consist  principally  of capital
expenditures  associated  with  placing  new bulk CO2  systems  into  service at
customers'  locations;  payments of principal  and  interest on its  outstanding
indebtedness;  payments for acquired businesses;  and working capital.  Whenever
possible, the Company seeks to obtain the use of vehicles,  land, buildings, and
other  office  and  service  equipment  under  operating  leases  as a means  of
conserving capital.  The Company anticipates making cash capital expenditures of
approximately  $6.0 million to $9.0 million  during the  remaining six months of
fiscal 1997,  primarily for the purchases of bulk CO2 systems that it expects to
place into  service  during  this time.  Once bulk CO2  systems  are placed into
service, the Company has generally  experienced  significant positive cash flows
on a  per-unit  basis,  as there are  minimal  additional  capital  expenditures
required  for  ordinary  operations.  In addition  to the  capital  expenditures
related to internal growth,  the Company  continually  reviews  opportunities to
acquire bulk CO2 service businesses,  and may require cash in an amount dictated
by the scale  and  terms of any such  transactions  successfully  concluded.  In
August 1996 certain  assets,  primarily  consisting  of bulk CO2  systems,  were
acquired for an aggregate cash purchase price of $1.4 million.

            Prior to the IPO, the Company's  primary  sources of liquidity  were
borrowings under its then existing credit facility with its secured lender which
was repaid and terminated upon  consummation of the IPO; equity and debt capital
obtained from various venture capital funds and individuals,  including  parties
that sold businesses to the Company; and cash flows from operations.

            Prior to the IPO,  the Company had  outstanding  approximately  $2.9
million in principal amount of Senior Subordinated Notes, a portion of which was
convertible at the option of the holders thereof into Common Stock.  The holders
of the Senior  Subordinated  Notes converted,  effective upon the closing of the
IPO,  approximately  $407,000 of the principal amount of the Senior Subordinated
Notes into an aggregate of 805,209  shares of Common Stock.  The Company  repaid
the remaining  principal of the Senior  Subordinated  Notes and accrued interest
thereon  with a portion of the net  proceeds of the IPO.  The  Company  also had
outstanding  485  shares of Series A  Preferred  Stock;  500  shares of Series B
Preferred  Stock;  500 shares of Series C  Preferred  Stock and 1,500  shares of
Series D Preferred  Stock.  Effective  upon  closing of the IPO, (i) the Company
redeemed  with a portion of the net  proceeds of the IPO all of the  outstanding
Series A Preferred  Stock and Series B  Preferred  Stock for an  aggregate  of $
485,500 plus  approximately  $243,000 of accrued  dividends  and (ii) all of the
outstanding Series C Preferred Stock and Series D Preferred Stock  automatically
converted into an aggregate of 455,430 shares of Common Stock.  The Company used
a  portion  of  the  net  proceeds  of  the  IPO to  pay  accrued  dividends  of
approximately  $118,000 on the Series C  Preferred  Stock and Series D Preferred
Stock. In addition,  the holders of warrants to purchase an aggregate of 118,167
shares of Common Stock exercised such warrants effective upon the closing of the
IPO.

                                       17
<PAGE>

            The Company's  capital resources include cash flows from operations;
the net proceeds from the Company's sale of 1,761,165  shares of Common Stock in
the Company's  Secondary  Public Offering in June 1996; and available  borrowing
capacity under the Company's credit facility with  NationsBank of Florida,  N.A.
(the  "NationsBank  Facility").  The Company has available under the NationsBank
Facility an aggregate of $30.0 million,  including a $6.0 million term loan that
was used,  together  with a portion of the net proceeds of the IPO, to refinance
the  outstanding  balance  of  existing  indebtedness  under  its  prior  credit
facility;   a  $13.0  million  "tank  revolver"  to  finance  the  purchase  and
installation  of new bulk  CO2  service  systems;  a $10.0  million  acquisition
revolver to finance the  purchase  of bulk CO2  service  businesses;  and a $1.0
million line of credit for general  working  capital needs.  All portions of the
NationsBank  Facility  require full repayment of all  outstanding  principal and
interest on November 30, 1998,  the maturity date of the  NationsBank  Facility.
The Company believes that cash from operating activities,  the net proceeds from
the IPO and the Secondary  Public  Offering and available  borrowings  under the
NationsBank Facility will be sufficient to fund proposed operations for at least
the next 12 months at its current rate of growth.  The  NationsBank  Facility is
secured by substantially all the assets of the Company.  The Company is required
to meet certain financial covenants under the NationsBank Facility,  and may not
access borrowings which would cause its total debt to exceed 3.25 times EBITDA.

            Working Capital. At June 30, 1996 the Company had working capital of
$40.7 million.  At December 31, 1996,  the Company had working  capital of $28.8
million.

            Cash  Flows from  Operating  Activities.  For the six  months  ended
December  31,  1995  and  December  31,  1996  net cash  provided  by  operating
activities  was $861,000 and $1.6 million,  respectively.  The increase from the
1995 period to the 1996 period of  $692,000 is  primarily  due to the net income
and an increase in depreciation and amortization.

            Cash  Flows from  Investing  Activities.  For the six  months  ended
December 31, 1995 and  December  31, 1996 net cash used in investing  activities
was $3.4 million and $12.1 million,  respectively.  These  investing  activities
were attributable to the installation and direct placement costs and acquisition
of new bulk CO2  systems,  the  additional  fixed assets for the  Company's  new
corporate  headquarters  and the purchase of an airplane by the Company's  newly
formed July 1996,  wholly-owned  subsidiary  NuAir,  Inc.  The airplane is to be
utilized  exclusively by the Company. It will enable the Company to reach remote
geographic   locations   which  are   inconvenient   by   commercial   means  of
transportation.  However,  due to the higher than  anticipated  costs associated
with the airplane,  on February 5, 1997 NuAir,  Inc.  listed the airplane on the
market to be sold.

            Cash  Flows from  Financing  Activities.  For the six  months  ended
December  31,  1995 and  December  31,  1996,  net cash  provided  by (used  in)
financing activities were $7.8 million and ($1.2 million), respectively. For the
six months ended  December 31, 1995,  cash flows from  financing  activities are
primarily from the issuance of Common Stock in connection  with the IPO less the
repayment of  long-term  debt,  redemption  of  Preferred  Stock and  additional
borrowings used to finance the placement of bulk CO2 systems into service.

INFLATION

            The modest  levels of  inflation  in the general  economy  since the
Company  began  business in 1990 have not  affected  its results of  operations.
Additionally, the Company's contracts with its customers contain an annual lease
rate  adjustment  clause based on any increase in the consumer price index.  The
Company  believes that inflation will not have a material  adverse effect on its
future results of operations.

                                       18
<PAGE>

PART II        OTHER INFORMATION

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

                (a)   Exhibit 27 - Financial data schedule

                (b)   No reports on Form 8-K were filed for the quarter ended
                      December 31, 1996





























                                       19


<PAGE>

                                   SIGNATURES

Pursuant  to the  requirements  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.


                                   NuCo2 Inc.


Dated February 12, 1997            By: /S/ JOANN SABATINO
                                       ------------------
                                       Joann Sabatino
                                       Chief Financial Officer

                                       20