SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    ---------


                                    FORM 10-Q



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

For the quarterly period ended December 31, 1997

                                       OR

/ /    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 Registrant as Specified in Its Charter)


                   Florida                             65-010800
 (State or Other Jurisdiction of            (I.R.S. Employer Identification No.)
 Incorporation or Organization)


  2800 Southeast Market Place, Stuart, FL                   34997
 (Address of Principal Executive Offices)                 (Zip Code)


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


                                       N/A
              Former Name, Former Address and Former Fiscal Year,
                         if Changed Since Last Report.


         Indicate by check /X/ 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  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest practicable date:

           Class                               Outstanding at December 31, 1997
           -----                               --------------------------------
Common Stock, $.001 par value                          7,216,553 shares

<PAGE>
                                   NUCO2 INC.

                                      INDEX


PART I.    FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

           Consolidated Balance Sheets as of December 31, 1997               3
           and June 30, 1997

           Consolidated Statements of Operations for the Three               4
           Months Ended December 31, 1997 and
           December 31, 1996

           Consolidated Statements of Operations for the Six                 5
           Months Ended December 31, 1997 and
           December 31, 1996

           Consolidated Statement  of Shareholders'                          6
           Equity for the Six Months Ended
           December 31, 1997

           Consolidated Statements of Cash Flows for the Six               7-8
           Months Ended December 31, 1997 and
           December 31, 1996

           Notes to Consolidated Financial Statements                     9-13


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF                       14-19
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS

PART II.   OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS                                                20

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY                      20
           HOLDERS

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K                                 20

SIGNATURES                                                                  21

                                        2

<PAGE>
PART I.    FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

                            NUCO2 INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS


                                     ASSETS
<TABLE>
<CAPTION>

                                                                              December 31, 1997          June 30, 1997
                                                                              -----------------          -------------
                                                                                (unaudited)

Current assets:
<S>                                                                           <C>                     <C>            
   Cash and cash equivalents                                                  $    1,090,897          $    11,672,506
   Trade accounts receivable; net of allowance for doubtful
     accounts of $274,455 and $113,054, respectively                               3,502,351                2,120,880
   Inventories                                                                       188,613                   85,601
   Prepaid expenses and other current assets                                         795,459                  276,858
                                                                                ------------             ------------
        Total current assets                                                       5,577,320               14,155,845
                                                                                ------------             ------------

Property and equipment, net                                                       70,129,527               46,803,050
                                                                                ------------             ------------

Other assets:
   Goodwill, net                                                                  19,567,472                7,580,763
   Deferred charges, net                                                           2,344,894                  272,608
   Customer lists, net                                                             4,131,075                1,755,919
   Restrictive covenants, net                                                      1,835,347                1,401,833
   Deferred lease acquisition costs, net                                           1,794,557                1,274,577
   Deposits                                                                          162,138                   99,863
                                                                                ------------             ------------
                                                                                  29,835,483               12,385,563
                                                                                ------------             ------------

                                                                              $  105,542,330          $    73,344,458
                                                                                ============             ============
</TABLE>
<TABLE>
<CAPTION>

                      LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
<S>                                                                           <C>                     <C>            
   Current maturities of long-term debt                                       $      142,372          $     2,180,601
   Accounts payable                                                                5,145,897                1,514,048
   Accrued expenses                                                                1,945,602                  961,544
   Other current liabilities                                                          32,395                   22,699
                                                                                ------------             ------------
     Total current liabilities                                                     7,266,266                4,678,892

Long-term debt, excluding current maturities                                       8,045,308                7,365,740
Subordinated debt                                                                 30,000,000                   -
Customer deposits                                                                    938,575                  598,177
                                                                                ------------             ------------
        Total Liabilities                                                         46,250,149               12,642,809
                                                                                ------------             ------------

Shareholders' equity:
   Common stock; par value $.001 per share;  30,000,000  authorized;
     issued and outstanding 7,216,553 shares at December 31, 1997
     and 7,197,718 shares at June 30, 1997                                             7,217                    7,198
   Additional paid-in capital                                                     63,808,015               63,233,043
   Accumulated deficit                                                            (4,523,051)              (2,538,592)
                                                                                ------------             ------------
        Total shareholders' equity                                                59,292,181               60,701,649

Commitments and contingencies 
                                                                                ------------            -------------
                                                                               $ 105,542,330          $    73,344,458
                                                                                ============            =============
</TABLE>

                                        3
<PAGE>
                            NUCO2 INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                         THREE MONTHS ENDED
                                                                                         ------------------
                                                                               DECEMBER 31, 1997        DECEMBER 31, 1996
                                                                               -----------------        -----------------

<S>                                                                              <C>                     <C>         
Net Sales                                                                        $ 8,077,798             $  4,332,528

Costs and expenses:
   Cost of products sold                                                           4,309,627                2,095,313
   Selling, general and administrative expenses                                    2,399,037                1,401,549
   Depreciation and amortization                                                   2,051,101                  995,798
                                                                                 -----------             ------------
                                                                                   8,759,765                4,492,660
                                                                                 -----------             ------------

     Operating  (loss) net                                                          (681,967)                (160,132)

Other expenses (income):
   Interest expense (income), net                                                    806,721                 (225,952)
                                                                                 -----------             ------------

     Income (loss) before extraordinary item                                      (1,488,688)                  65,820
                                                                                 -----------             ------------

Extraordinary item - loss on extinguishment of debt                                  184,861                   -
                                                                                 -----------             ------------

   Net  (loss) income                                                           $(1,673,549)             $     65,820
                                                                                ===========              ============

Basic and Diluted EPS:

   Income (loss) before extraordinary item                                       $      (.20)            $       0.01
                                                                                 -----------             ------------

   Extraordinary item                                                                   (.03)                 -
                                                                                 -----------             ------------

   Net income (loss)                                                             $      (.23)            $       0.01
                                                                                 ===========             ============

   Weighted average number of common and common
      equivalent shares outstanding

     Basic                                                                         7,210,616                7,161,957
                                                                                 ===========             ============

     Diluted                                                                       7,210,616                7,283,451
                                                                                 ===========             ============
</TABLE>

                                        4
<PAGE>
                            NUCO2 INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                           SIX MONTHS ENDED
                                                                                           ----------------
                                                                               DECEMBER 31, 1997        DECEMBER 31, 1996
                                                                               -----------------        -----------------

<S>                                                                              <C>                    <C>        
Net Sales                                                                        $15,192,088            $ 8,404,185

Costs and expenses:
   Cost of products sold                                                           7,892,494              4,064,864
   Selling, general and administrative expenses                                    4,399,360              2,631,974
   Depreciation and amortization                                                   3,683,998              1,817,641
                                                                                 -----------             ----------
                                                                                  15,975,852              8,514,479
                                                                                 -----------             ----------

     Operating  (loss), net                                                         (783,764)              (110,294)

Other expenses (income):
   Interest expense (income), net                                                  1,015,834               (517,964)
                                                                                 -----------             ----------

     Income (loss) before extraordinary item                                      (1,799,598)               407,670
                                                                                 -----------             ----------

Extraordinary item - loss on extinguishment of debt                                  184,861                   -
                                                                                 -----------             ----------

   Net  (loss) income                                                            $(1,984,459)           $   407,670
                                                                                 ===========             ==========

Basic and Diluted EPS:

   Income (loss) before extraordinary item                                       $      (.25)           $      0.06
                                                                                 -----------             ----------

   Extraordinary item                                                                   (.03)                   -
                                                                                 -----------             ----------

   Net income (loss)                                                             $      (.28)           $      0.06
                                                                                 ===========             ==========

   Weighted average number of common and common
       equivalent shares outstanding

      Basic                                                                        7,204,167              7,162,696
                                                                                 ===========             ==========

     Diluted                                                                       7,204,167              7,307,585
                                                                                 ===========             ==========
</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, 1997                   7,197,718        $7,198        $63,233,043       $(2,538,592)    $60,701,649

Issuance of 18,835 shares of
   common stock - asset acquisition         18,835            19            274,972           -               274,991

Issuance of warrants                        -              -                300,000           -               300,000

Net (loss)                                  -              -                 -             (1,984,459)     (1,984,459)
                                     -------------     ---------       ------------       -----------     -----------

Balance, December 31, 1997               7,216,553        $7,217        $63,808,015       $(4,523,051)    $59,292,181
                                     =============     =========       ============       ===========     ===========
</TABLE>


                                        6
<PAGE>
                            NUCO2 INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                         Six Months Ended
                                                                                         ----------------
                                                                            December 31, 1997       December 31, 1996*
                                                                            -----------------       ------------------
<S>                                                                           <C>                     <C>            
Net (loss) income before extraordinary item                                   $   (1,799,598)         $       407,670
Extraordinary item - loss on extinguishment of debt                                  184,861                     -
                                                                                 -----------             ------------
Net (loss) income                                                                 (1,984,459)                 407,670

Cash flows from operating activities:
   Adjustments to reconcile  net (loss) income to net cash provided
        by operating activities:
          Depreciation and amortization of property and equipment                  2,550,038                1,349,905
          Amortization of other assets                                             1,133,960                  467,736
          Loss on disposal of property, and equipment                                238,659                   67,379
          Write-off of deferred financing costs                                      184,861                     -
          Changes in operating assets and liabilities:
          Decrease (increase) in:
              Trade accounts receivable                                           (1,364,506)                (262,283)
              Inventories                                                           (103,012)                 (26,615)
              Prepaid expenses and other current assets                             (518,601)                (262,451)
          Increase (decrease) in:
              Accounts payable                                                     3,631,849                 (205,962)
              Accrued expenses                                                       984,058                   16,680
              Other current liabilities                                                9,696                  (49,087)
              Customer deposits                                                      340,398                  119,670
                                                                                 -----------            -------------

              Net cash provided by operating activities                       $    5,102,941          $     1,622,642
                                                                                 -----------            -------------

Cash flows from investing activities:
   Proceeds from disposal of property and equipment                                   75,714                   74,813
   Purchase of property and equipment                                             (9,626,455)             (11,561,219)
   Acquisition of businesses                                                     (12,132,122)                (422,932)
   (Increase) decrease in deposits                                                   (62,275)                 178,256
   (Increase) in deferred lease acquisition costs                                   (789,336)                (413,779)
                                                                                 -----------            -------------
        Net cash (used in) investing activities                                  (22,534,474)             (12,144,861)
                                                                                 -----------            -------------

Cash flows from financing activities:
   (Redemption) of warrants                                                            -                   (1,143,450)
   Exercise of options                                                                 -                      149,455
   Repayment of long-term debt                                                      (757,964)                (197,080)
   Proceeds from issuance of long-term debt and subordinated debt                  9,689,190                   11,604
   Increase in deferred charges                                                   (2,081,302)                  (4,618)
   Additional expenses - secondary offering                                            -                      (59,100)
                                                                                 -----------            -------------
     Net cash provided by (used in) financing activities                           6,849,924               (1,243,189)
                                                                                 -----------            -------------

Net decrease in cash and cash equivalents                                        (10,581,609)             (11,765,408)
Cash and cash equivalents at the beginning of period                              11,672,506               43,000,676
                                                                                 -----------            -------------
Cash and cash equivalents at the end of period                                $    1,090,897          $    31,235,268
                                                                                 ===========            =============
</TABLE>


* Restated to conform to current year's classifications.

                                        7
<PAGE>
                            NUCO2 INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Continued)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                         Six Months Ended
                                                                                         ----------------
                                                                            December 31, 1997       December 31, 1996
                                                                            -----------------       -----------------

<S>                                                                           <C>                     <C>         
Supplemental  disclosure of cash flow  information:
  Cash paid during the period for:
     Interest                                                                 $      408,926          $    455,400
                                                                                 ===========            =============
     Income taxes                                                             $       0               $        0
                                                                                 ===========            =============



Supplemental schedule of noncash investing and financing activities:
   Acquisition of businesses:
     Fair value of assets acquired                                            $   19,759,698          $       -
     Cost in excess of net assets of businesses acquired                          12,136,387                  -
     Liabilities assumed or incurred                                             (19,729,345)                 -
     Issuance of common stock                                                       (274,991)                 -
                                                                                 -----------            -------------
        Cash paid                                                             $   11,891,749          $       -
                                                                                 ===========            =============
</TABLE>



         In July 1997,  the Company  wrote-off a  restrictive  covenant  and the
related liability in the amount of $19,231 due to the employee resigning.

         In October 1997, the Company repaid long-term debt with the proceeds of
the issuance of subordinated  debt in the amount of  $20,782,995.  In connection
therewith,  detachable  warrants were issued and original  issue discount in the
amount of $300,000 was recorded.

                                        8

<PAGE>
                            NUCO2 INC. AND 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-Q 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
wholly-owned  subsidiaries,  NuAir Inc. for the periods ended  December 31, 1996
and NuCo2  Acquisition  Corp.  for the periods  ended  December 31, 1997.  NuCo2
Acquisition Corp. owns all of the issued and outstanding  shares of common stock
of Koch Compressed Gases, Inc. (see Note 3).

         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,  1997  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-Q
should be read in conjunction with the Company's  audited  financial  statements
for the fiscal  year ended June 30,  1997.  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

         In February 1997, the FASB issued Statement 128,  "Earnings Per Share".
Statement 128 supersedes APB Opinion No. 15,  "Earnings Per Share" and specifies
the computation, presentation and disclosure requirements for earnings per share
("EPS") for entities with publicly held common stock or potential  common stock.
It replaces the  presentation of primary EPS with the  presentation of basic EPS
and  replaces  fully  diluted  EPS  with  diluted  EPS.  It also  requires  dual
presentation of basic and diluted EPS on the face of the statement of operations
for all entities with complex capital  structures and requires a  reconciliation
of the numerator and  denominator of the basic EPS  computation to the numerator
and denominator of the diluted EPS  computation.  Statement 128 is effective for
financial  statements  for both interim and annual periods ending after December
15, 1997.

         Earnings  per  share of  common  stock  for the  quarter  and six month
periods ended December 31, 1997 have been calculated according to the guidelines
of Statement  128 and earnings per share of common stock for the quarter and six
month  periods  ended  December  31,  1996 have been  restated  to conform  with
Statement 128.

         Basic  earnings per share for the quarter and six month  periods  ended
December  31,  1997 and  1996  has  been  computed  by  dividing  income  before
extraordinary  item,  extraordinary item and net income/loss for each respective
period by the weighted average number of shares of common stock  outstanding for
each respective period. Diluted earnings per share for the quarter and six month
periods  ended  December 31, 1996 has been  computed by dividing  income  before
extraordinary item, extraordinary item and net income for each respective period
by the  weighted  average  number of shares of  common  stock and  common  stock
equivalents outstanding for each respective period, plus the assumed exercise of
stock options and  warrants,  less the number of treasury  shares  assumed to be
purchased from the proceeds of such exercises  using the average market price of
the  Company's  common stock during each  respective  period.  Stock options and
warrants have been excluded from the  calculation of diluted  earnings per share
for the quarter and six month  periods  ended  December 31, 1997  because  their
inclusion would be antidilutive.

                                        9

<PAGE>
Note 2.  Net Income or Loss per Common Share - (Continued)

         Following are reconciliations of the numerators and denominators of the
basic and diluted per share  computations for income from continuing  operations
for the respective periods.
<TABLE>
<CAPTION>

                                                For the Three Months Ended December 31, 1996
                                                --------------------------------------------

                                                                     Weighted        Per-Share
                                                Net Income       Average Shares       Amount
                                                ----------       --------------       ------

Basic EPS

<S>                                            <C>                  <C>              <C>     
Income available to common stockholders        $    65,820          7,161,957        $   0.01
Effect of Dilutive Options and Warrants             -                 121,494           -
                                                  --------         ----------          ------

Diluted EPS                                    $    65,820          7,283,451        $   0.01
                                                  ========         ==========          ======


                                                  For the Six Months Ended December 31, 1996
                                                  ------------------------------------------

                                                                     Weighted        Per-Share
                                                Net Income       Average Shares       Amount
                                                ----------       --------------       ------
Basic EPS

Income available to common stockholders        $   407,670          7,162,696        $   0.06
Effect of Dilutive Options and Warrants             -                 144,889           -
                                                  --------         ----------         -------

Diluted EPS                                    $   407,670          7,307,585        $   0.06
                                                  ========         ==========         =======
</TABLE>

         Incremental shares for stock options and warrants  calculated  pursuant
to the treasury  stock  method for the three and six months  ended  December 31,
1997 were 128,115 and 153,090,  respectively.  These shares were not included in
diluted  EPS  because  they  would  have  been  antidilutive  for such  periods.
Additionally,  options and warrants to purchase 1,000,000 shares, 655,738 shares
(see Note 5) and 30,000  shares  (see Note 5) for  $17.00,  $16.40  and  $14.64,
respectively,  were  outstanding  during  all or a portion  of the three and six
months  ended  December  31, 1997 but were not  included in the  computation  of
diluted EPS because the options and warrants exercise price was greater than the
average market price of the common shares.

NOTE 3.  ACQUISITIONS

         In August 1996,  the Company  acquired the bulk CO2  operations  of two
affiliated  companies  operating in Ohio,  Kentucky and Indiana for an aggregate
purchase  price of  approximately  $1,350,000.  The Company  paid cash for these
transactions.

         Effective July 15, 1997, the Company purchased substantially all of the
assets of a bulk CO2  company  operating  in  Colorado  for a purchase  price of
$675,000.  The purchase price was funded through a borrowing under the Company's
NationsBank credit facility (see Note 4).

         Effective July 31, 1997, the Company  purchased  certain assets from CC
Acquisition  Corp.  (Carbo Co.) for an aggregate  purchase price of $11,000,000.
Carbo Co. had operations in Nebraska, Kansas, Oklahoma, Iowa, Missouri, Arkansas
and South Dakota.  The Company funded  $5,000,000  through a borrowing under its
$30  million  NationsBank  credit  facility  (see  Note 4) and paid cash for the
balance.

         In September 1997, the Company  purchased  certain assets of a bulk CO2
company  with  operations  in  Arizona  for  an  aggregate   purchase  price  of
$1,084,250.  The  Company  funded  $1,075,000  through  a  borrowing  under  its
NationsBank credit facility (see Note 4) and paid cash for the balance.

                                       10

<PAGE>
Note 3.  Acquisitions - (Continued)

         Effective  October 1, 1997, a newly formed  wholly-owned  subsidiary of
the Company  purchased all of the issued and outstanding  shares of common stock
of Koch  Compressed  Gases,  Inc.,  ("Koch") for an aggregate  purchase price of
$5,500,000 subject to adjustments.  Koch operated a bulk CO2 business as well as
provided carbon dioxide and other gases in  high-pressure  cylinders  throughout
the tri-state New York metropolitan  area. The purchase price was funded through
a borrowing under the Company's NationsBank credit facility (see Note 4).

         In November 1997, the Company purchased substantially all of the assets
of a bulk CO2 company  operating in Texas for a purchase price of $949,240.  The
Company paid  approximately  $674,249  cash and issued  18,835  shares of common
stock at market, for a value of $274,991.

         Effective  December 2, 1997, the Company  purchased certain assets from
four related carbonic gas distributors, Miller Carbonic Systems Co. Inc., Miller
Carbonic,  Inc., Carbonic National Systems, Inc., and Carbonic Gas Service, Inc.
operating  primarily  in  Illinois,  Indiana,  Wisconsin  and  Michigan  for  an
aggregate  purchase  price  of  $11,500,000.   The  Company  paid  approximately
$5,000,000  cash and funded  $6,500,000  through a borrowing under the Company's
SunTrust credit facility (see Note 4).

         Effective  December 2, 1997, the Company  purchased certain assets of a
bulk CO2 company with  operations in Kansas for a purchase  price of $1,000,000.
The purchase price was funded through a borrowing  under the Company's  SunTrust
credit facility (see Note 4).

         These  acquisitions  were  accounted  for by  the  purchase  method  of
accounting  and,  accordingly,  the  purchase  prices  and  direct  costs of the
acquisitions have been allocated to the respective assets and liabilities of the
acquired companies based upon their estimated fair market values at the dates of
acquisition.  This resulted in goodwill of approximately $12,377,000 for the six
months  ended  December 31, 1997,  which is being  amortized on a  straight-line
basis over twenty years. The results of operations of the acquired companies are
included in the Company's financial  statements since the effective dates of the
acquisitions.

NOTE 4.  LONG-TERM DEBT

         On October 31,  1997,  the Company  finalized  a $50.0  million  senior
secured  revolving credit facility with SunTrust Bank,  South Florida,  National
Association ("SunTrust Facility").  The SunTrust Facility replaced the Company's
prior facility with NationsBank of Florida,  N.A. The Suntrust Facility contains
a mechanism to increase it by an  additional  $50.0 million to a total of $100.0
million upon the  achievement  of annualized  one quarter  EBITDA on a pro-forma
basis  for  acquisitions  of  $15.0  million  or upon  request  by the  Company.
Additionally,  the  SunTrust  Facility  contains  interest  rates  and an unused
facility fee based on a pricing grid calculated  quarterly on senior funded debt
to annualized EBITDA. The pricing grid is as follows:
<TABLE>
<CAPTION>

<S>                                                     <C>               <C>              <C>                 <C>
      Senior Funded Debt to Annualized EBITDA           Under 1.50        1.50 and 2.25    2.25 and 3.00       Over 3.00

      Commitment Fee                                     0.1875%             0.25%             0.375%            0.50%

      Applicable LIBOR Margin                            1.25%               1.75%             2.25%             2.75%

      Applicable Base Rate Margin                        0.00%               0.00%             0.00%             0.50%
</TABLE>

         The  Company  is  entitled  to  select  the Base  Rate or  LIBOR,  plus
applicable margin, for principal drawings under the SunTrust Facility. Base Rate
is defined as the higher of the prime  lending  rate of  SunTrust or the Federal
Funds rate plus  one-half  of one  percent  (1/2%) per annum.  Interest  only is
payable periodically until the expiration of the SunTrust Facility at which time
all outstanding  principal and interest is due. The SunTrust Facility expires on
October 31, 2000; however, it contains a two year renewal option.  Additionally,
it is collateralized by substantially all of the assets of the Company.  A total
of $7,500,000 was outstanding pursuant to the SunTrust Facility with interest at
7.625% as of December 31, 1997. In December,  SunTrust  syndicated  the SunTrust
Facility with three additional banks.

         Extraordinary item - loss on extinguishment of debt

         For the three and six months  ended  December  31,  1997,  the  Company
incurred  a one time  extraordinary  charge of  $184,861  for the  write-off  of
deferred  financing  costs in connection  with the repayment of the  NationsBank
credit facility.

                                       11

<PAGE>
NOTE 5.  SUBORDINATED DEBT

         Represents Senior Subordinated Promissory Notes ("Notes") with interest
only at 12% per annum  payable  semi-annually  on April 30 and  October  31, due
October 31, 2004.  The Notes were sold with  detachable  seven year  warrants to
purchase an  aggregate  of 655,738  shares of the  Company's  Common Stock at an
exercise  price  of  $16.40  per  share.  Additionally,  NationsBanc  Montgomery
Securities,  Inc.,  the  placement  agent,  received  a warrant to  purchase  an
aggregate of 30,000 shares of the Company's Common Stock at an exercise price of
$14.64 per share which expires on October 31, 2004.


NOTE 6.  STOCK OPTION PLAN

         In 1995,  the  Company  adopted  the 1995 Stock  Option Plan (the "1995
Plan").  Under the 1995 Plan, the Company has reserved  850,000 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 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.  Options  granted to date vest in
three through five equal increments  commencing one year from the date of grant.
As of December 31, 1997, options for 118,646 shares are exercisable.

         The following table  summarizes the  transactions  pursuant to the 1995
Plan.
<TABLE>
<CAPTION>

                                                     Shares             Exercise Price
<S>                                                   <C>               <C>
          Outstanding at June 30, 1995                    -0-                     -0-
          Granted                                     130,991               $9-$17.50
          Expired or canceled                             340                      $9
          Exercised                                       -0-                     -0-
                                                   ----------           -------------
          Outstanding at June 30, 1996                130,651               $9-$17.50
          Granted                                     222,500                  $11.25
          Expired or canceled                           6,225               $9-$11.25
          Exercised                                       322                      $9
                                                   ----------           -------------
          Outstanding at June 30, 1997                346,604               $9-$17.50
          Granted                                     518,000           $10.25-$11.28
          Expired or canceled                         175,300           $11.25-$17.50
                                                   ----------           -------------
          Outstanding at December 31, 1997            689,304               $9-$11.28
                                                   ==========           =============
</TABLE>

         In 1995,  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,  1997,  options to purchase a total of 20,000
shares of Common Stock at an exercise price of $9 per share had been issued.  Of
these options, 14,000 are currently exercisable.

NOTE 7.  OPERATING LEASES

         The  Company  entered  into  forty-eight  operating  leases from July 1
through  December 31, 1997.  Eighteen leases were for warehouse  facilities with
aggregate  annual rentals of  approximately  $447,000  expiring at various dates
through 2002.  Thirty leases were for trucks with  aggregate  annual  rentals of
approximately $324,000 expiring at various dates through 2003.

                                       12

<PAGE>
NOTE 8.  CONTINGENCIES

         Carbonic Designs,  Inc. v. MVE, Inc., The  Taylor-Wharton Gas Equipment
Division of Harsco  Corporation,  Welders Supply Co. and NuCo2 Inc., filed on or
about  December  31,  1996,  asserted  claims  for  violation  of the Texas Free
Enterprise  and  AntiTrust  Act  of  1983,  business   disparagement,   tortious
interference  with contract,  tortious  interference  with prospective  business
relations  and civil  conspiracy.  The Company  settled this lawsuit in December
1997 for an immaterial amount.

NOTE 9.  SUBSEQUENT EVENTS

         Effective January 23, 1998, the Company purchased  substantially all of
the assets of a bulk CO2 company operating in California for a purchase price of
$4,500,000.  The  purchase  price  was  funded  through  a  borrowing  under the
Company's SunTrust Facility.


                                       13

<PAGE>
ITEM 2.

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

         This  Management's  Discussion and Analysis of Financial  Condition and
Results of Operations 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

         During the quarter ended December 31, 1997,  the Company  finalized its
new credit  facility and  subordinated  debt  agreements as well as continued to
take major steps towards becoming the national  supplier of bulk CO2 systems and
liquid carbon dioxide to the restaurant and  convenience  store  industries.  In
October 1997, the Company  purchased the stock of a company that operated a bulk
CO2 business as well as provided carbon dioxide and other gases in high-pressure
cylinders throughout the tri-state New York metropolitan area. In November 1997,
the Company  purchased a bulk CO2 company operating in Texas.  Additionally,  in
December 1997, the Company acquired four related bulk CO2 distributors  based in
the Illinois market, and in a separate agreement, a distributor based in Kansas.
Through these acquisitions,  the Company continued its expansion by adding three
additional  states,  Illinois,  Wisconsin and North  Dakota.  As of December 31,
1997, the Company was operating from fifty-three  depots in thirty-nine  states.
Acquisitions during the quarter added approximately 3,300 bulk CO2 customers and
approximately  6,600  high-pressure  customers  while new  internally  generated
placements  totaled 2,263.  Additionally,  during the quarter ended December 31,
1997,  the Company  reached  multi-unit  placement  agreements  with Papa Ginos,
Grandys, KFC, 7-Eleven, Bertucci's and Exxon.

         At December 31, 1997, the Company leased  approximately 31,700 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 under the
above two types of  contracts.  As of December  31, 1997,  the Company  provided
"fill only" service to approximately 5,500 customers.

         As of December 31, 1997,  approximately  13,000 of the Company's 38,000
bulk CO2  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,  1997,  approximately  25,000 of the
Company's  38,000 bulk  customers  were billed at a flat monthly rate which does
not vary throughout the year. Additionally,  the Company has approximately 9,000
high pressure 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 its
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 1997 and the
six months  ended  December  31,  1997,  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.

                                       14

<PAGE>
GENERAL

         Under the budget plan,  the  Company's  net sales consist of charges to
customers  for the use of Company  owned bulk CO2  systems  and a  predetermined
quantity  of liquid CO2. On customer  invoices,  the Company  does not  separate
charges for equipment use from charges for liquid CO2  delivered;  customers are
presented  with a single  amount  payable.  Customers  are  invoiced  monthly in
advance of services  rendered.  For  customers  on rental plus per pound  charge
contracts,  invoices are broken down into the two respective services,  with the
charge for liquid CO2 supply  varying with the amount  delivered.  The Company's
net sales also include  revenues  received  from  customers to which it supplies
only CO2 refill services, based on the amount delivered.

         Cost of products sold is comprised of purchased CO2 and labor,  vehicle
and depot costs  associated with the Company's  delivery and storage of bulk CO2
to customers.  Selling, general and administrative expenses consist of salaries,
dispatch and  communications  costs,  and expenses  associated  with  marketing,
administration,  accounting and employee  training.  Consistent with the capital
intensive character of its business, the Company incurs significant depreciation
and  amortization  expenses.  These stem from the  depreciation of Company owned
bulk CO2 systems;  depreciation  and  amortization  of bulk system  installation
costs; amortization of sales commissions, and amortization of goodwill, deferred
financing costs and other intangible assets.

         With respect to bulk CO2 systems,  the Company only  capitalizes  costs
that are  associated  with specific  successful  placements of such systems with
customers under  noncancelable  contracts and which would not be incurred by the
Company  but for a  successful  placement.  All  other  service,  marketing  and
administrative costs are expensed as incurred.  Capitalized  component parts and
direct  costs  associated  with  installation  of bulk CO2  equipment  leased to
customers  was  approximately  $4.5  million and $9.1 million as of December 31,
1996 and 1997,  respectively.  Depreciation and amortization  expense related to
capitalized  component parts and direct costs  associated with  installation was
approximately  $399,000 and $736,000 for the six months ended  December 31, 1996
and 1997, respectively.

         The  Company  believes  EBITDA is useful  as a means of  measuring  the
growth and earning power of its  business.  In addition,  the SunTrust  Facility
utilizes EBITDA for its formal calculation of financial leverage,  affecting the
amount of funds  available  and rates to the  Company for  borrowing  under such
credit  facility.  EBITDA  represents  operating  income plus  depreciation  and
amortization.  Information  regarding EBITDA is presented  because of its use by
certain  investors as one measure of a  corporation's  ability to generate  cash
flow.  EBITDA  should not be considered an  alternative  to, or more  meaningful
than,  operating income or cash flows from operating  activities as an indicator
of a corporation's  operating performance.  EBITDA excludes significant costs of
doing business and should not be considered in isolation from GAAP measures.


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,
                                                                        ------------                     ------------

                                                                    1996           1997              1996          1997
                                                                    ----           ----              ----          ----

         Income Statement Data:
<S>                                                                  <C>            <C>               <C>           <C>   
         Net sales.....................................              100.0%         100.0%            100.0%        100.0%
         Cost of products sold.........................               48.4%          53.3%             48.4%         52.0%
         Selling, general and administrative expenses..               32.3%          29.7%             31.3%         29.0%
         Depreciation and amortization.................               23.0%          25.4%             21.6%         24.2%
                                                                   --------        -------           -------       -------
         Operating (loss)..............................               (3.7%)         (8.4%)            (1.3%)        (5.2%)
                                                                   ---------       --------          -------       -------
         Interest (income) expense, net................               (5.2%)         10.0%             (6.2%)         6.7%
         Extraordinary item - loss on extinguishment of debt          -               2.3%               -            1.2%
                                                                   --------        -------           -------       -------

         Net income (loss).............................                1.5%         (20.7%)             4.9%        (13.1%)
                                                                   ========        ========          =======       =======

         Other Data:
         Operating income before depreciation and amortization
         (EBITDA)                                                     19.3%          16.9%             20.3%         19.1%
                                                                   ========        =======           =======       =======
</TABLE>

                                       15
<PAGE>
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1996

         Net sales increased by $3.7 million, or 86.4%, from $4.3 million in the
1996 period to $8.1  million in the 1997 period.  Approximately  $328,000 of the
increase  represented  net  sales  resulting  from the May 1997  acquisition  of
certain assets of the BOC Group, Inc., $509,000 of the increase  represented net
sales resulting from the July 1997  acquisition of CC Acquisition  Corp.  (Carbo
Co.) and $511,000 from the October 1997  acquisition of Koch  Compressed  Gases,
Inc. In addition, approximately $623,000 and $394,000 represented net sales from
seven acquisitions during the second half of the fiscal year ended June 30, 1997
and eight  acquisitions  during the first half of the fiscal year ended June 30,
1998, 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.

         Cost of products sold  increased by $2.2 million,  from $2.1 million in
the 1996 period to $4.3 million in the 1997 period and increased as a percentage
of net sales from 48.4% to 53.3%. The increase was attributable to the expansion
of the Company into new  territories,  an increase in fully loaded route drivers
and an increase in high pressure cylinder  business.  Fully loaded route drivers
increased  by $734,000  from  $725,000 in the 1996 period to $1.5 million in the
1997  period and  increased  as a  percentage  of net sales from 16.7% to 18.1%.
Overtime  increased  by $169,000  from  $97,000 in the 1996  period  compared to
$266,000 in the 1997 period and increased as a percentage of net sales from 2.2%
in the 1996 period to 3.3% in the 1997  period.  The  increase  in overtime  was
attributable to the acquisitions  during the 1997 period.  Additionally,  helium
and nitrogen  purchases and high pressure cylinder rent and testing increased by
$197,000  from  $118,000  in the 1996  period  compared  to $315,000 in the 1997
period and  increased as a percentage  of net sales from 2.7% in the 1996 period
to 3.9% in the 1997 period. During the three months ended December 31, 1997, the
Company  acquired  approximately  6,600 high pressure  customers.  The number of
depots  operated by the Company at December 31, 1997,  increased to 53, compared
to 35 at December 31, 1996.  In  addition,  as of December 31, 1997,  eight more
depots were at various stages of being set up. 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 $997,000 from
$1.4 million in the 1996 period to $2.4 million in the 1997 period and decreased
as a  percentage  of net sales from  32.3% to 29.7%.  The  dollar  increase  was
primarily  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.  The percentage decrease is attributable
to economies of scale.  At December 31, 1996,  the Company had  operations in 22
states and employed 47 marketing personnel and at December 31, 1997, the Company
had operations in 39 states and employed 83 marketing personnel.

         Depreciation and  amortization  increased by $1.1 million from $996,000
in the 1996 period to $2.1  million in the 1997 period.  As a percentage  of net
sales,  such  expenses  increased  from 23.0% in the 1996 period to 25.4% in the
1997 period.  Depreciation  expense  increased by $638,000  from $750,000 in the
1996 period to $1.4 million in the 1997 period  principally  due to the increase
in bulk CO2 systems leased to customers. Expressed as a percentage of net sales,
depreciation  expense  decreased  from 17.3% in the 1996  period to 17.2% in the
1997 period.  Amortization  expense  increased by $417,000  from $246,000 in the
1996 period to $663,000 in the 1997  period  primarily  due to the  amortization
related to restrictive  covenants,  goodwill and customer lists. As a percentage
of net sales, amortization expense increased from 5.7% to 8.2%, respectively.

         Net  interest  income in the 1996 period was  $226,000  compared to net
interest expense in the 1997 period of $807,000.  This change is attributable to
the decreased  level of cash and cash  equivalents  and the  increased  level of
long-term debt and subordinated  debt in the 1997 period as compared to the 1996
period.

         During the 1997  period,  the  Company  wrote off  $185,000 of deferred
financing costs related to its NationsBank  Facility which was replaced by a new
syndicated bank group facility led by SunTrust Bank.

         For the reasons described above, EBITDA,  representing operating income
plus depreciation and amortization, increased by $533,000 or 63.8% from $836,000
in the 1996  period  to $1.4  million  in the 1997  period  and  decreased  as a
percentage of net sales from 19.3% to 16.9%, 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.


                                       16
<PAGE>
SIX MONTHS  ENDED  DECEMBER 31, 1997  COMPARED TO SIX MONTHS ENDED  DECEMBER 31,
1996

         Net sales increased by $6.8 million, or 80.8%, from $8.4 million in the
1996 period to $15.2 million in the 1997 period.  Approximately  $715,000 of the
increase  represented  net  sales  resulting  from the May 1997  acquisition  of
certain assets of the BOC Group, Inc., $895,000 of the increase  represented net
sales resulting from the July 1997  acquisition of CC Acquisition  Corp.  (Carbo
Co.) and $511,000 from the October 1997  acquisition of Koch  Compressed  Gases,
Inc. In addition,  approximately $1.3 million and $462,000 represented net sales
from seven acquisitions during the second half of the fiscal year ended June 30,
1997 and eight  acquisitions  during the first half of the fiscal  year end June
30, 1998, 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.

         Cost of products sold  increased by $3.8 million,  from $4.1 million in
the 1996 period to $7.9 million in the 1997 period and increased as a percentage
of net sales from 48.4% to 52.0%. The increase was attributable to the expansion
of the Company into new  territories,  an increase in fully loaded route drivers
and an increase in high pressure cylinder  business.  Fully loaded route drivers
increased  by $1.3  million from $1.4 million in the 1996 period to $2.7 million
in the 1997  period and  increased  as a  percentage  of net sales from 16.5% to
17.7%.  Overtime increased by $298,000 from $199,000 in the 1996 period compared
to $497,000 in the 1997 period and  increased as a percentage  of net sales from
2.4% in the 1996 period to 3.3% in the 1997 period. The increase in overtime was
attributable to the acquisitions  during the 1997 period.  Additionally,  helium
and nitrogen and high pressure  cylinder rent and testing  increased by $294,000
from $203,000 in the 1996 period to $497,000 in the 1997 period and increased as
a  percentage  of net  sales  from  2.4% in the 1996  period to 3.3% in the 1997
period.  During the six months ended  December 31,  1997,  the Company  acquired
approximately  8,700 high pressure  customers.  The number of depots operated by
the Company at December  31, 1997,  increased to 53,  compared to 35 at December
31,  1996.  As of December  31, 1997,  eight  additional  depots were at various
stages of being set up. 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 $1.8 million
from $2.6  million in the 1996  period to $4.4  million  in the 1997  period and
decreased as a percentage of net sales from 31.3% to 29.0%.  The dollar increase
was   primarily   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. The percentage decrease is
attributable  to  economies  of scale.  At December  31,  1996,  the Company had
operations in 22 states and employed 47 marketing  personnel and at December 31,
1997,  the  Company  had  operations  in 39 states  and  employed  83  marketing
personnel.

         Depreciation  and  amortization  increased  by $1.9  million  from $1.8
million in the 1996 period to $3.7 million in the 1997  period.  As a percentage
of net sales, such expenses  increased from 21.6% in the 1996 period to 24.2% in
the 1997  period.  Depreciation  expense  increased  by $1.2  million  from $1.3
million in the 1996 period to $2.6 million in the 1997 period principally due to
the increase in bulk CO2 systems leased to customers.  Expressed as a percentage
of net sales,  depreciation  expense  increased from 16.1% in the 1996 period to
16.8% in the 1997  period.  Amortization  expense  increased  by  $666,000  from
$246,000 in the 1996 period to $1.1 million in the 1997 period  primarily due to
the amortization related to restrictive covenants,  goodwill and customer lists.
As a percentage of net sales,  amortization expense increased from 5.6% to 7.5%,
respectively.

         Net  interest  income in the 1996 period was  $518,000  compared to net
interest expense in the 1997 period of $1.0 million. This change is attributable
to the decreased  level of cash and cash  equivalents and the increased level of
long-term debt and subordinated  debt in the 1997 period as compared to the 1996
period.

         During the 1997  period,  the  Company  wrote off  $185,000 of deferred
financing costs related to its NationsBank  Facility which was replaced by a new
syndicated bank group facility led by SunTrust Bank.

         For the reasons described above, EBITDA,  representing operating income
plus depreciation and amortization, increased by $1.2 million or 69.9% from $1.7
million in the 1996 period to $2.9 million in the 1997 period and decreased as a
percentage of net sales from 20.3% to 19.1%, 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.

                                       17
<PAGE>
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  $10.0 million to $15.0 million during the remaining six months of
fiscal 1998,  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.

         During the six months ended  December 31, 1997,  the Company's  capital
resources  included cash flows from  operations,  available  borrowing  capacity
under the Company's credit facilities (NationsBank Facility through October 1997
and SunTrust  Facility  thereafter) and proceeds from the sale of its 12% Senior
Subordinated  Promissory  Notes. In July and September of 1997,  certain assets,
primarily consisting of bulk CO2 systems, were acquired for $6.0 million in cash
and $6.8 million  from  borrowings  under the  Company's  NationsBank  Facility.
Effective October 1, 1997, a newly formed wholly-owned subsidiary of the Company
purchased  all of the  issued  and  outstanding  shares of common  stock of Koch
Compressed Gases, Inc. for an aggregate purchase price of $5.5 million which was
funded through a borrowing under the NationsBank  Facility. On October 31, 1997,
the Company repaid the NationsBank  credit facility which totaled  approximately
$21.0 million with the proceeds of its 12% Senior Subordinated  Promissory Notes
due 2004.  The notes which  aggregated  $30.0  million were sold with seven year
warrants to purchase an  aggregate  of 655,738  shares of the  Company's  Common
Stock at an  exercise  price of  $16.40  per  share.  Additionally,  NationsBanc
Montgomery Securities, Inc., the placement agent, received a warrant to purchase
an aggregate of 30,000 shares of the Company's Common Stock at an exercise price
of $14.64 per share which expires on October 31, 2004.

         On October 31,  1997,  the Company  finalized  a $50.0  million  senior
secured  revolving credit facility with SunTrust Bank,  South Florida,  National
Association ("SunTrust Facility"). The SunTrust Facility contains a mechanism to
increase it by an additional $50.0 million to a total of $100.0 million upon the
achievement  of  annualized  one  quarter  EBITDA  on  a  pro-forma   basis  for
acquisitions of $15.0 million or upon request by the Company.  Additionally, the
SunTrust  Facility contains interest rates and an unused facility fee based on a
pricing grid  calculated  quarterly on senior funded debt to annualized  EBITDA.
The pricing grid is as follows:
<TABLE>
<CAPTION>

<S>                                   <C>            <C>               <C>            <C>
Senior Funded Debt to Annualized      Under 1.50     1.50 and 2.25     2.25 and      Over 3.00
EBITDA                                                                  3.00
Commitment Fee                         0.1875%           0.25%          0.375%         0.50%
Applicable LIBOR Margin                1.25%             1.75%          2.25%          2.75%
Applicable Base Rate Margin            0.00%             0.00%          0.00%          0.50%
</TABLE>

         The  Company  is  entitled  to  select  the Base  Rate or  LIBOR,  plus
applicable margin, for principal drawings under the SunTrust Facility. Base Rate
is defined as the higher of the prime  lending  rate of  SunTrust or the Federal
Funds rate plus  one-half  of one  percent  (1/2%) per annum.  Interest  only is
payable periodically until the expiration of the SunTrust Facility at which time
all outstanding  principal and interest is due. The SunTrust Facility expires on
October 31, 2000; however, it contains a two year renewal option.  Additionally,
it is  collateralized  by  substantially  all of the assets of the  Company.  In
December 1997,  SunTrust  syndicated the SunTrust Facility with three additional
banks.

         As of December 31, 1997, a total of $7.5 million was borrowed under the
SunTrust Facility with interest at one hundred  seventy-five  basis points above
the 90-day  London  InterBank  Offering Rate  ("LIBOR")  (7.625% at December 31,
1997).

         In November and December 1997, the Company  purchased assets consisting
primarily  of bulk CO2 and high  pressure  assets for $6.0  million  cash,  $7.5
million  borrowing  under the  Company's  SunTrust  Facility and the issuance of
18,835 shares of common stock at market for a value of $275,000.

         The Company believes that cash from operating  activities and available
borrowings  under the SunTrust  Facility  will be  sufficient  to fund  proposed
operations for at least the next twelve months at its current rate of growth.

                                       18
<PAGE>
         Working  Capital.  At June 30, 1997 the Company had working  capital of
$9.5 million.  At December 31, 1997, the Company had negative working capital of
$1.7 million.

         Cash Flows from Operating Activities. For the six months ended December
31, 1996 and December 31, 1997 net cash  provided by  operating  activities  was
$1.6 million and $5.1 million,  respectively.  The increase from the 1996 period
to  the  1997  period  of  $3.5  million  is  primarily  due to an  increase  in
depreciation  and  amortization  and an increase in accounts payable and accrued
expenses.

         Cash Flows from Investing Activities. For the six months ended December
31, 1996 and December 31, 1997 net cash used in investing  activities  was $12.1
million  and  $22.5  million,  respectively.  These  investing  activities  were
attributable to the  installation  and direct placement costs and acquisition of
bulk  CO2  systems,   and  the  cash  expended  in  connection  with  the  asset
acquisitions.

         Cash Flows from Financing Activities. For the six months ended December
31, 1996 cash flows used in financing  activities were $1.2 million. For the six
months ended December 31, 1997, cash flows provided by financing activities were
$6.8  million.  For the six months ended  December  31,  1996,  net cash used in
financing  activities are primarily from the  redemption and  cancellation  of a
warrant issued to a representative  of the underwriters in the Company's initial
public offering in December 1995. For the six months ended December 31, 1997 net
cash  provided  by  financing  activities  was  primarily  from the  issuance of
long-term debt and subordinated debt.


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.



                                       19

<PAGE>
PART II
OTHER INFORMATION

ITEM 1.           LEGAL PROCEEDINGS

         Carbonic Designs,  Inc. v. MVE, Inc., The  Taylor-Wharton Gas Equipment
Division of Harsco  Corporation,  Welders Supply Co. and NuCo2 Inc., filed on or
about  December  31,  1996,  asserted  claims  for  violation  of the Texas Free
Enterprise  and  AntiTrust  Act  of  1983,  business   disparagement,   tortious
interference  with contract,  tortious  interference  with prospective  business
relations  and civil  conspiracy.  The Company  settled this lawsuit in December
1997 for an immaterial amount.

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

                  (a) The Company's  Annual Meeting of Shareholders  was held on
December 3, 1997 (the "Annual Meeting").

                  (b)     Edward  M.  Sellian,  Joseph M.  Criscuolo,  Robert L.
                          Frome,  John J.  O'Neil  and Edward F.  O'Reilly  were
                          elected as directors of the Company to serve until the
                          next  annual  meeting of  shareholders  or until their
                          successors  are  elected  and   qualified.   No  other
                          director's  term of office  continued after the Annual
                          Meeting.

                  (c)(1)  Election of Directors:


                              Number of                   Number of
                              Votes For                 Votes Against
                              ---------                 -------------
Edward M. Sellian             6,140,018                     14,710
Joseph M. Criscuolo           6,139,098                     14,730
Robert L. Frome               6,140,118                     14,610
John J. O'Neil                6,140,118                     14,610
Edward F. O'Reilly            6,140,098                     14,630


                     (2)  Amendment of 1995 Stock Option Plan:


               Number of            Number of              Number of
               Votes For          Votes Against         Votes Abstaining
               ---------          -------------         ----------------
               4,709,361            1,417,137                28,230


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

                  (a)       Exhibit 27 - Financial Data Schedule.

                  (b)       Reports on Form 8-K.

                            (1) The Company  filed a Form 8-K dated  November 6,
1997 reporting an Item 5 event.

                            (2) The Company  filed a Form 8-K dated  December 9,
1997 reporting an Item 2 event.


                                       20

<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 17, 1998             By:   /S/ JOANN SABATINO
                                          ------------------
                                          Joann Sabatino
                                          Chief Financial Officer



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