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 March 31, 1999

                                       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                                 65-0180800
 (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 / /  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 March 31, 1999
                      -----                      -----------------------------
            Common Stock, $.001 par value               7,216,664 shares

<PAGE>
                                   NUCO2 INC.

                                   INDEX PAGE

PART I.    FINANCIAL INFORMATION

ITEM 1.    CONSOLIDATED FINANCIAL STATEMENTS

           Consolidated Balance Sheets as of March 31, 1999 and             3
               June 30, 1998

           Consolidated Statements of Operations for the Three Months
               Ended March 31, 1999 and March 31, 1998                      4

           Consolidated Statements of Operations for the Nine Months
               Ended March 31, 1999 and March 31, 1998                      5

           Consolidated Statement  of Shareholders' Equity for the Nine
               Months Ended March 31, 1999                                  6

           Consolidated Statements of Cash Flows for the Nine Months
               Ended March 31, 1999 and March 31, 1998                      7

           Notes to Consolidated Financial Statements                       8

ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF                         12
              FINANCIAL CONDITION AND RESULTS OF
              OPERATIONS

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES                        18
              ABOUT MARKET RISK

PART II.   OTHER INFORMATION

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K                                18

SIGNATURES                                                                 19


                                       2
<PAGE>
PART I.     FINANCIAL INFORMATION

ITEM 1.     CONSOLIDATED FINANCIAL STATEMENTS

                                   NUCO2 INC.

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS
<TABLE>
<CAPTION>

                                                                    March 31, 1999                  June 30, 1998
                                                                    --------------                  -------------
                                                                       (unaudited)

Current assets:
<S>                                                                 <C>                           <C>         
    Cash and cash equivalents                                       $ 1,207,062                   $    336,510
    Trade accounts receivable; net of allowance for doubtful
        accounts of $759,104 and $395,491, respectively               6,669,343                      4,457,505
    Inventories                                                         228,871                        211,027
    Prepaid expenses and other current assets                         1,233,795                        262,437
                                                                    -----------                   ------------
           Total current assets                                       9,339,071                      5,267,479
                                                                    -----------                   ------------
Property and equipment, net                                          97,154,766                     85,435,933
                                                                    -----------                   ------------

Other assets:
    Goodwill, net                                                    21,965,708                     22,891,846
    Deferred charges, net                                             1,791,051                      2,004,259
    Customer lists, net                                               3,124,030                      3,963,588
    Restrictive covenants, net                                        2,032,760                      2,275,964
    Deferred lease acquisition costs, net                             3,086,064                      2,475,139
    Deposits                                                            232,468                        184,059
                                                                   ------------                   ------------
                                                                     32,232,081                     33,794,855
                                                                   ------------                   ------------
                                                                   $138,725,918                   $124,498,267
                                                                   ============                   ============
</TABLE>
<TABLE>
<CAPTION>

                      LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
<S>                                                                <C>                            <C>         
    Current maturities of long-term debt                           $    124,155                   $    139,251
    Accounts payable                                                  6,994,963                      6,596,722
    Accrued expenses                                                    176,600                        323,254
    Accrued interest                                                  1,955,039                        844,153
    Accrued payroll                                                     506,045                        476,458
    Other current liabilities                                            35,499                          7,179
                                                                   ------------                   ------------
        Total current liabilities                                     9,792,301                      8,387,017

Long-term debt, excluding current maturities                         47,873,647                     29,460,614
Subordinated debt                                                    29,760,714                     29,728,571
Customer deposits                                                     1,863,921                      1,279,178
                                                                   ------------                   ------------
           Total liabilities                                         89,290,583                     68,855,380
                                                                    -----------                   ------------
Commitments and contingencies

Shareholders' equity:
    Preferred Stock; no par value; 5,000,000 shares authorized;
        none issued                                                           -                              -
    Common stock; par value $.001 per share; 30,000,000 authorized;
        issued and outstanding 7,216,664 shares at each date              7,217                          7,217
    Additional paid-in capital                                       63,809,014                     63,809,014
    Accumulated deficit                                             (14,380,896)                    (8,173,344)
                                                                    -----------                   ------------
           Total shareholders' equity                                49,435,335                     55,642,887
                                                                    -----------                   ------------
                                                                   $138,725,918                   $124,498,267
                                                                   ============                   ============
</TABLE>

                                       3
<PAGE>
                                   NUCO2 INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                       Three Months Ended
                                                                       ------------------
                                                         March 31, 1999                   March 31, 1998
                                                         --------------                   --------------

<S>                                                      <C>                              <C>         
Net Sales                                                $ 12,008,422                     $  9,463,552

Costs and expenses:
    Cost of products sold                                   6,459,627                        5,161,496
    Selling, general and administrative expenses            2,703,649                        2,523,072
    Depreciation and amortization                           3,229,969                        2,506,824
                                                         ------------                     ------------
                                                           12,393,245                       10,191,392
                                                         ------------                     ------------

    Operating  (loss)                                        (384,823)                        (727,840)

    Interest expense, net                                   1,892,699                        1,208,740
                                                         ------------                     ------------
    Net  (loss)     before extraordinary item              (2,277,522)                      (1,936,580)
                                                         ------------                     ------------

Extraordinary item - loss on extinguishment of debt                 -                            2,084
                                                         ------------                     ------------
    Net (loss)                                            $(2,277,522)                    $ (1,938,664)
                                                         ============                     ============

Basic and Diluted EPS:

    (Loss) before extraordinary item                      $      (.32)                     $      (.27)
                                                          -----------                      -----------
    Extraordinary item                                              -                                -
                                                          ------------                     -----------

    Net (loss)                                            $      (.32)                     $      (.27)
                                                          ===========                      ===========

    Weighted average number of common and common
         equivalent shares outstanding

        Basic and Diluted                                   7,216,664                        7,216,605
                                                          ===========                      ===========
</TABLE>



                                        4
<PAGE>
                                   NUCO2 INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                       Nine Months Ended
                                                                       -----------------
                                                         March 31, 1999                   March 31, 1998
                                                         --------------                   --------------

<S>                                                      <C>                              <C>         
Net Sales                                                $ 34,123,575                     $ 24,655,640

Costs and expenses:
    Cost of products sold                                  18,282,207                       13,053,990
    Selling, general and administrative expenses            7,602,121                        6,922,432
    Depreciation and amortization                           9,170,979                        6,190,822
                                                         ------------                     ------------
                                                           35,055,307                       26,167,244
                                                         ------------                     ------------

    Operating  (loss)                                        (931,732)                      (1,511,604)

    Interest expense, net                                   5,275,820                        2,224,574
                                                         ------------                     ------------

    Net  (loss) before extraordinary item                  (6,207,552)                      (3,736,178)
                                                         ------------                     ------------

Extraordinary item - loss on extinguishment of debt                 -                          186,945
                                                         ------------                     ------------

    Net (loss)                                           $ (6,207,552)                    $ (3,923,123)
                                                         ============                     ============

Basic and Diluted EPS:

    (Loss) before extraordinary item                     $       (.86)                    $       (.52)
                                                         ------------                     ------------
    Extraordinary item                                              -                             (.02)
                                                         ------------                     ------------
    Net (loss)                                           $       (.86)                    $       (.54)
                                                         ============                     ============

    Weighted average number of common and common
         equivalent shares outstanding

        Basic and Diluted                                   7,216,664                        7,208,252
                                                         ============                     ============
</TABLE>


                                       5
<PAGE>
                                   NUCO2 INC.


                 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>          
Balance, June 30, 1998          7,216,664      $  7,217         $  63,809,014     $  (8,173,344)        $  55,642,887

Net (loss)                              -             -                     -        (6,207,552)           (6,207,552)
                                ---------      --------         -------------     -------------         -------------
Balance, March 31, 1999         7,216,664      $  7,217         $  63,809,014     $ (14,380,896)        $  49,435,335
                                =========      ========         =============     =============         =============
</TABLE>



                                       6
<PAGE>
                                   NUCO2 INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                          Nine Months Ended
                                                                                          -----------------
                                                                             March 31, 1999                  March 31, 1998
                                                                             --------------                  --------------

<S>                                                                         <C>                             <C>           
Net (loss) before extraordinary item                                        $  (6,207,552)                  $  (3,736,178)
Extraordinary item - loss on extinguishment of debt                                     -                         186,945
                                                                            -------------                   -------------
Net (loss)                                                                     (6,207,552)                     (3,923,123)

Cash flows from operating activities:
    Adjustments to reconcile net(loss) to net cash provided
        by operating activities:
            Depreciation and amortization of property and equipment             6,366,101                       4,179,031
            Amortization of other assets                                        2,804,878                       2,011,790
            Amortization of original issue discount                                32,143                          17,857
            Loss on disposal of property and equipment                            682,037                         318,554
            Write-off of deferred financing costs                                                                 186,945
            Changes in operating assets and liabilities:
            Decrease (increase) in:
               Trade accounts receivable                                       (2,211,838)                     (2,322,560)
               Inventories                                                        (17,844)                       (142,694)
               Prepaid expenses and other current assets                         (971,357)                       (518,231)
            Increase (decrease) in:
               Accounts payable                                                   398,241                       3,557,388
               Accrued expenses                                                  (146,654)                        135,111
               Accrued payroll                                                     29,587                         211,242
               Accrued interest                                                 1,110,886                       1,644,881
               Other current liabilities                                           28,320                          93,744
               Customer deposits                                                  584,743                         485,526
                                                                               ----------                    ------------

               Net cash provided by operating activities                        2,481,691                       5,935,461
                                                                               ----------                    ------------

Cash flows from investing activities:
   Proceeds from disposal of property and equipment                                83,980                         337,238
   Purchase of property and equipment                                         (18,751,286)                    (15,173,107)
   Acquisition of businesses                                                       45,460                     (12,270,750)
   (Increase) in deposits                                                         (48,409)                        (78,183)
   Increase in deferred lease acquisition costs                                (1,285,969)                     (1,256,760)
                                                                              -----------                      ----------
        Net cash (used in) investing activities                               (19,956,224)                    (28,441,562)
                                                                              -----------                      ----------

Cash flows from financing activities:
  Exercise of options                                                                   -                             999
  Repayment of long-term debt                                                    (102,063)                       (800,634)
  Proceeds from issuance of long-term debt and subordinated debt               18,500,000                      13,813,754
  Increase in deferred charges                                                    (52,851)                     (2,069,707)
                                                                              -----------                     -----------
     Net cash provided by financing activities                                 18,345,086                      10,944,412
                                                                              -----------                     -----------

Net increase (decrease) in cash and cash equivalents                              870,552                     (11,561,689)
Cash and cash equivalents at the beginning of period                              336,510                      11,672,506
                                                                            -------------                    ------------
Cash and cash equivalents at the end of period                              $   1,207,062                    $    110,817
                                                                            =============                    ============

Supplemental disclosure of cash flow information:
  Cash paid during the period for:
    Interest                                                                    4,153,560                    $    596,023
                                                                            =============                   =============
    Income taxes                                                                        0                    $          0
                                                                            =============                   =============

Supplemental schedule of noncash investing and
   financing activities:
   Acquisition of businesses:
     Fair value of assets acquired                                                      -                    $ 27,702,406
     Cost in excess of net assets of businesses acquired                                -                      15,536,887
     Liabilities assumed or incurred                                                    -                     (31,072,553)
     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 in the  amount  of
$20,782,995  with  the  proceeds  of  the  issuance  of  subordinated  debt.  In
connection  therewith,  detachable  warrants  were  issued  and  original  issue
discount in the amount of $300,000 was recorded.

                                       7
<PAGE>
                                   NUCO2 INC.

                   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 consolidated  financial  position,  results of operations
and cash flows in conformity with generally accepted accounting principles.  The
accompanying unaudited consolidated financial statements include the accounts of
NuCo2 Inc. (the "Company") and its wholly-owned  subsidiary,  NuCo2  Acquisition
Corp.  which was formed during the year ended June 30, 1998 to acquire the stock
of Koch  Compressed  Gases,  Inc. in October  1997.  All  material  intercompany
accounts and transactions have been eliminated.

            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 consolidated  financial statements for
the  fiscal  year  ended  June 30,  1998  included  in Form 10-K  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, 1998. The consolidated  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 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 three and nine  months
ended March 31, 1999 and 1998 have been  calculated  according to the guidelines
of Statement 128.

            Incremental  shares  for  stock  options  and  warrants   calculated
pursuant to the treasury  stock method for the three and nine months ended March
31, 1999 were 39,721 and 32,888, respectively. These shares were not included in
diluted  EPS  because  they  would  have  been  antidilutive  for such  periods.
Additionally,  options and warrants to purchase 1,073,715 shares, 869,833 shares
and 390,956 shares for $14.64 - $17.00 per share,  $11.25 - $12.50 per share and
$8.94 - $11.00 per share, respectively, were outstanding during all or a portion
of the three and nine months  ended March 31, 1999 but were not  included in the
computation  of diluted  EPS  because  the  exercise  price of the  options  and
warrants was greater than the average market price of the Common Stock.

            Incremental  shares  for  stock  options  and  warrants   calculated
pursuant to the treasury  stock method for the three and nine months ended March
31, 1998 were 143,760 and 148,726, respectively.  These shares were not included
in diluted  EPS  because  they would have been  antidilutive  for such  periods.
Additionally,  options and warrants to purchase 75,000 shares, 1,000,000 shares,
655,738 shares (see Note 5) and 30,000 shares (see Note 5) for $17.50 per share,
$17.00 per share,  $16.40  per share and  $14.64 per share,  respectively,  were
outstanding during all or a portion of the three and nine months ended March 31,
1998 but were not  included  in the  computation  of  diluted  EPS  because  the
exercise  price of the options and warrants was greater than the average  market
price of Common Stock.


                                       8
<PAGE>
NOTE 3.     ACQUISITIONS

            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
credit facility.

            Effective July 31, 1997, the Company  purchased  certain assets from
CC  Acquisition  Corp.  (Carbo  Co.) for an  aggregate  purchase  price of $11.0
million. Carbo Co. had operations in Nebraska, Kansas, Oklahoma, Iowa, Missouri,
Arkansas and South Dakota.  The Company funded $5.0 million  through a borrowing
under its credit facility 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 credit
facility and paid cash for the balance.

            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 $5.0
million.  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 credit facility.

            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  $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 $11,150,000.  The Company paid approximately
$4,650,000  cash and funded $6.5 million through a borrowing under the Company's
credit facility.

            Effective  December 2, 1997, the Company purchased certain assets of
a  bulk  CO2  company  with  operations  in  Kansas  for  a  purchase  price  of
approximately  $990,000. The purchase price was funded through a borrowing under
the Company's credit facility.

            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 $4.5 million.  The purchase  price was funded  through a borrowing  under the
Company's credit facility.

            Effective March 2, 1998, the Company  purchased  certain assets from
Florida  Carbonic  Distributor  Inc.,  a carbonic gas  distributor  operating in
Florida for a purchase  price of $6.3  million.  The  purchase  price was funded
through a borrowing under the Company's credit facility.

            In March  1998,  the  Company  purchased  certain  assets from three
unrelated carbonic gas distributors with operations in Texas, Maine, and Alabama
for an aggregate  purchase  price of  $406,000.  The Company paid cash for these
transactions.

            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 $16,257,000 for the nine
months ended March 31, 1998,  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.


                                       9
<PAGE>
NOTE 4.     LONG-TERM DEBT

            As of March 31,  1999,  the Company had a $50.0  million  syndicated
bank  facility  ("SunTrust  Facility")  lead  managed by  SunTrust  Bank,  South
Florida,  National  Association  ("SunTrust").  The SunTrust Facility  contained
interest  rates and an unused  facility fee based on a pricing  grid  calculated
quarterly on senior funded debt to annualized EBITDA.

            The  Company  was  entitled  to select the Base Rate or LIBOR,  plus
applicable margin, for principal drawings under the SunTrust Facility. Base Rate
was 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.  The applicable  LIBOR
margin  pursuant to the pricing grid ranges from 1.25% to 2.75%,  the applicable
unused  facility  fee  pursuant to the pricing grid ranges from 0.1875% to 0.50%
and the  applicable  Base Rate margin  pursuant to the pricing  grid ranges from
0.00% to 0.50%.  Interest only was payable  periodically until the expiration of
the SunTrust  Facility at which time all outstanding  principal and interest was
due. The SunTrust  Facility was due to expire on October 31, 2000;  however,  it
contained a two year renewal  option subject to approval.  Additionally,  it was
collateralized  by substantially  all of the assets of the Company.  The Company
was  precluded  from  declaring or paying any dividends and was required to meet
certain  affirmative  and  negative  covenants  including,  but not  limited  to
financial covenants (see Note 8).

            A total of $47.5  million was  outstanding  pursuant to the SunTrust
Facility with interest from 7.73% to 7.88% per annum as of March 31, 1999.

            As of March 31, 1999,  the Company  maintained an interest rate swap
transaction  (the "Swap") with SunTrust  Bank,  Atlanta,  in the amount of $10.0
million (the "Notional Amount").  The effective date of the Swap is September 2,
1998 and it terminates on September 5, 2000.  Pursuant to the Swap,  the Company
pays a fixed  interest rate of 6% per annum and receives a LIBOR-based  floating
rate.

NOTE 5.     SUBORDINATED DEBT

            Represents unsecured 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 Common  Stock at an
exercise  price of $16.40 per stock unit. In July 1998,  the Note  agreement was
amended  to  adjust  certain  financial  covenants  as  of  June  30,  1998  and
prospectively.  In exchange for the  amendment,  the exercise  price for 612,023
warrants  was  reduced  to  $12.40  per stock  unit (see Note 8).  Additionally,
NationsBanc Montgomery Securities, Inc., the placement agent, received a warrant
to purchase an aggregate of 30,000  shares of Common Stock at an exercise  price
of $14.64 per stock unit 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  stock options must be at least equal to 100% of
the fair market value of the Common Stock at the date of grant, and the exercise
price of non-qualified stock options may not be less than 75% of the fair market
value of the Common Stock at the date of grant. The maximum term for all options
is 10  years.  Options  granted  to date  vest  in  three  or four  installments
commencing  one year from the date of grant.  As of March 31, 1999,  options for
278,847 shares were exercisable.

            The following table summarizes the transactions pursuant to the 1995
Plan.

<TABLE>
<CAPTION>

                                                                                      WEIGHTED-AVERAGE
                                               SHARES          EXERCISE PRICE          EXERCISE PRICE
                                               ------          --------------          --------------

<S>          <C>                              <C>              <C>                        <C>   
             Outstanding at June 30, 1997     346,604              $9-$17.50               $12.28
             Granted                          341,500          $10.25-$11.28               $10.43
             Expired or canceled               77,067              $9-$17.50               $17.29
             Exercised                            111                     $9                   $9
                                             --------          -------------          -----------
             Outstanding at June 30, 1998     610,926              $9-$11.28               $10.61
             Granted                           59,500            $5.50-$7.00                $6.38
             Expired or canceled               18,660              $9-$11.25               $10.40
             Exercised                            -0-                    -0-                  -0-
                                             --------          -------------          -----------
             Outstanding at March 31, 1999    651,766           $5.50-$11.28               $10.24
                                             ========          =============          ===========
</TABLE>


                                       10
<PAGE>
            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 receives 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 receives an additional
option to purchase  6,000 shares of Common Stock.  The exercise  price per share
for all options  granted under the  Directors'  Plan is equal to the fair market
value of the Common Stock at the date of grant.  All options vest in three equal
annual installments  beginning on the first anniversary of the date of grant. As
of March 31, 1999,  options to purchase a total of 10,000 shares of Common Stock
at an  exercise  price of $9.00 per share,  6,000  shares of Common  Stock at an
exercise price of $12.50 per share,  6,000 shares of Common Stock at an exercise
price of $8.938 per share and 6,000 shares of Common Stock at an exercise  price
of $6.625 per share had been  issued.  Of these  options,  as of March 31,  1999
options to purchase 10,000 and 2,000 shares of Common Stock at an exercise price
of $9.00 and $12.50 per share, respectively, were exercisable.

NOTE 7.     OPERATING LEASES

            The  Company  entered  into 60  operating  leases  from July 1, 1998
through  March  31,  1999.  Three  leases  were for  warehouse  facilities  with
aggregate  annual  rentals of  approximately  $79,100  expiring at various dates
through 2004.  Fifty-seven  leases were for trucks with aggregate annual rentals
of approximately $578,000 expiring at various dates through 2006.

NOTE. 8.    SUBSEQUENT EVENTS

            a)   Credit Facility

            On May 4, 1999, the Company entered into a $75.0 million amended and
restated  revolving  credit  facility  with a syndicate of banks led by SunTrust
Bank, South Florida,  National Association  ("Amended SunTrust  Facility").  The
Amended  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  Company  is  entitled  to  select  the Base  Rate or  LIBOR,  plus
applicable  margin,  for principal drawings under the Amended SunTrust Facility.
The  applicable  LIBOR margin  pursuant to the pricing grid ranges from 1.75% to
3.5%,  the  applicable  unused  facility fee pursuant to the pricing grid ranges
from .375% to .50% and the applicable  Base Rate margin  pursuant to the pricing
grid ranges from 0.25% to 2.00%. Interest only is payable periodically until the
expiration  of the Amended  SunTrust  Facility.  The Amended  SunTrust  Facility
expires May 4, 2002,  however,  it contains a two year renewal option subject to
approval.  Additionally, it is collateralized by substantially all of the assets
of the  Company.  The Company is  precluded  from  declaring  or paying any cash
dividends  and is required to meet certain  affirmative  and negative  covenants
including but not limited to financial covenants.

            b)   Senior Subordinated Promissory Notes

            On May 4, 1999,  the  Company  sold $10.0  million of its 12% Senior
Subordinated  Promissory  Notes due 2005  ("Additional  12% Notes").  Except for
their October 31, 2005 maturity date, the Additional 12% Notes are substantially
identical to the Company's 12% Senior Subordinated  Promissory Notes due October
31, 2004  ("Notes").  The Additional 12% Notes were sold with  detachable  6-1/2
year  warrants to purchase an aggregate of 372,892  shares of Common Stock at an
exercise  price of $6.65  per stock  unit.  In  connection  with the sale of the
Additional 12% Notes,  certain financial  covenants  governing the Notes and the
Additional  12% Notes were adjusted as of March 31, 1999 and  prospectively  and
the exercise price for 612,023  warrants  issued in connection  with the sale of
the Notes was reduced from $12.40 per stock unit to $6.65 per stock unit.


                                       11
<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,  YEAR  2000  ISSUES  AND
AVAILABILITY OF MANAGERIAL PERSONNEL.

OVERVIEW

            The Company is the largest as well as the sole national  supplier of
bulk CO2 systems and bulk CO2 for carbonating and dispensing fountain beverages.
At March 31,  1999,  the  Company  operated  83 service  locations  in 44 states
servicing  over 63,000 bulk and high  pressure CO2 fountain  beverage  customers
consisting primarily of restaurants,  convenience stores,  taverns, theme parks,
resorts and stadiums.  Over 96% of potential  fountain beverage CO2 users in the
Continental United States are located within the Company's current service area.

            CO2 is  universally  used  for the  carbonation  and  dispensing  of
fountain  beverages.  In most instances,  CO2 is presently  supplied to fountain
beverage  users in the form of gas,  which is  transported  and  stored  in high
pressure  cylinders.  Bulk CO2 is a relatively  new  technology  that is quickly
replacing  high pressure CO2 as the beverage  carbonation  system of choice.  It
reduces flat drinks, is safer to use,  eliminates  downtime,  beverage waste and
employee  handling,  and is space efficient.  The Company has been a significant
force in the  introduction  of bulk CO2  technology  and the  conversion of high
pressure CO2 users to bulk CO2.

            The  Company  currently  services   approximately  one-half  of  the
approximately 110,000 bulk CO2 fountain beverage users in the Continental United
States.  The Company  estimates that there are  approximately  800,000  fountain
beverage CO2 users in the Continental United States, presenting the Company with
significant long-term growth potential.

            In fiscal 1998,  the Company  achieved its objective of becoming the
sole national supplier of bulk CO2 systems and bulk CO2 to fountain beverage CO2
users. The Company's objective in fiscal 1999 is to replicate the business model
that it has  achieved  in its more  mature  markets by  building  route  density
throughout  the country.  New depots  operate at negative  EBITDA margins in the
early stages and detract from the Company's highly  profitable  depots in mature
markets. Depots in mature markets have gross margins generally in the 55% to 65%
range.  For the three months ended March 31, 1999,  30% of the Company's  depots
were open over three years and averaged a 55% gross  margin,  22% of depots were
open between two and three years and averaged a 51% gross margin,  39% of depots
were open between one and two years and averaged a 35% gross  margin,  and 9% of
depots were open under one year and averaged a (1)% gross margin.  Additionally,
as of March 31, 1999, the Company had 14 mobile depots with an average 27% gross
margin.  New  accounts  are  being  added to newer  depots  for  which  there is
substantial excess capacity, and therefore, relatively little additional cost is
incurred to service  new  customers.  Increases  in gross  margins are  directly
related  to  increases  in the  number  of  accounts  serviced.  New  multi-unit
placement agreements combined with single-unit  placements will help the Company
in achieving  route  density.  During the nine months ended March 31, 1999,  the
Company  reached  multi-unit  placement  agreements  with  national and regional
chains  aggregating  approximately  7,000  locations.  The Company's  success in
reaching  these  multi-placement  agreements  is due in  part  to the  Company's
national delivery system. As the Company's customer base increases,  the Company
anticipates that its financial performance on a sequential basis will improve at
an accelerated rate.

GENERAL

            Net sales  from bulk CO2  customers  are  comprised  of budget  plan
revenues  and  rental  plus per pound  revenues.  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 bulk CO2.  For  customers  on
rental  plus per  pound,  invoices  are  broken  down  into  the two  respective
services, with the charge for bulk CO2 supply varying with the amount delivered.
The  Company's  net sales  also  include  revenues  from  customers  to which it
supplies  only CO2  refill  services,  based on the amount  delivered,  and high
pressure charges.


                                       12
<PAGE>
            Cost of  products  sold is  comprised  of  purchased  CO2 and labor,
vehicle and depot costs  associated  with the Company's  delivery and storage of
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 CO2 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.

            The Company  believes  EBITDA is useful as a means of measuring  the
growth and earning power of its business.  In addition,  the Company's revolving
credit  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            Nine Months Ended
                                                                             March 31,                   March 31,
                                                                             ---------                   ---------

                                                                       1999           1998        1999               1998
                                                                       ----           ----        ----               ----
            Income Statement Data:

<S>                                                                   <C>            <C>          <C>                <C>   
            Net sales..............................................   100.0%         100.0%       100.0%             100.0%
            Cost of products sold..................................    53.8%          54.5%        53.6%              52.9%
            Selling, general and administrative expenses...........    22.5%          26.7%        22.3%              28.1%
            Depreciation and amortization..........................    26.9%          26.5%        26.9%              25.1%
                                                                   ---------      ---------     --------        -----------
            Operating (loss).......................................    (3.2%)         (7.7%)       (2.7%)             (6.1%)
                                                                   ---------      ---------     --------        -----------
            Interest expense, net..................................    15.8%          12.8%        15.5%               9.0%
            Extraordinary item - loss on extinguishment of debt....       -            -            -                  0.8%
                                                                   ---------      ---------     --------        -----------

            Net (loss).............................................   (19.0%)        (20.5%)      (18.2%)            (15.9%)
                                                                   =========      =========     ========        ===========

            Other Data:
            Operating income before depreciation and amortization..
            (EBITDA)...............................................    23.7%          18.8%        24.1%              19.0%
                                                                   =========      =========     ========        ===========
</TABLE>

THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998

            Net sales increased by $2.5 million,  or 26.9%, from $9.5 million in
the 1998 period to $12.0 million in the 1999 period.  Approximately  $437,000 of
the increase  represented net sales resulting from four  acquisitions  completed
during the quarter  ended March 31, 1998.  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 serviced.

            Cost of products sold  increased by $1.3 million,  from $5.2 million
in the 1998  period  to $6.5  million  in the 1999  period  and  decreased  as a
percentage  of net sales from 54.5% to 53.8%.  The dollar  increase is primarily
attributable to the continued  expansion of the Company and direct costs related
to additional  customers.  The percentage decrease is attributable to a decrease
in route driver  expense  expressed as a percentage  of net sales.  Fully loaded
route drivers increased by $201,000 from $1.8 million in the 1998 period to $2.0
million in the 1999 period and decreased as a percentage of net sales from 18.9%
to 16.6%. Expressed as a percentage of net sales, medical insurance premium cost
was 2.2% in the 1998 period and 1.3% in the 1999 period. The decrease in medical
insurance   premium  cost  is   attributable  to   re-negotiated   lower  rates.
Additionally,  overtime  expressed as a percentage  of net sales was 3.8% in the
1998 period and 1.9% in the 1999 period. The percentage  decrease in overtime is
attributable  to  new  payroll  software  which  enables  the  Company  to  more
effectively control overtime.

                                       13
<PAGE>

The number of depots  operated by the Company at March 31, 1999 increased to 69,
compared to 62 at March 31, 1998.  When the Company opens new service  locations
and expands into new  markets,  higher  costs  expressed as a percentage  of net
sales are incurred until route density is achieved.

            Selling,  general and administrative  expenses increased by $181,000
from $2.5  million in the 1998  period to $2.7  million  in the 1999  period and
decreased as a percentage of net sales from 26.7% to 22.5%.  The dollar increase
is  primarily   attributable   to  growth  in  the  number  of   marketing   and
administrative personnel and their associated expenses as well as an increase in
legal fees. The percentage  decrease is  attributable  to economies of scale. At
March 31,  1998,  the  Company  had  operations  in 42 states and  employed  206
marketing and  administrative  personnel and at March 31, 1999,  the Company had
operations in 44 states and employed 243 marketing and administrative personnel.
Legal fees  increased  by $82,000 from $52,000 in the 1998 period to $134,000 in
the 1999 period and increased as a percentage of net sales from 0.6% in the 1998
period to 1.1% in the 1999  period.  The  increase  in legal  fees is  primarily
attributable  to lawsuits  initiated  by the  Company.  The Company has asserted
claims that a competitor is engaged in unfair trade practices, and that a former
employee has been  disparaging the Company on the Internet and infringing on the
Company's trademarks.

            Depreciation  and  amortization  increased  by  $723,000  from  $2.5
million in the 1998 period to $3.2 million in the 1999  period.  As a percentage
of net sales, such expenses  increased from 26.5% in the 1998 period to 26.9% in
the 1999 period. Depreciation expense increased by $640,000 from $1.6 million in
the 1998  period  to $2.3  million  in the 1999  period  principally  due to the
increase  in bulk CO2  systems  owned by the  Company  and leased to  customers.
Expressed as percentage of net sales,  depreciation expense increased from 17.2%
in the 1998 period to 18.9% in the 1999 period.  Amortization  expense increased
by $83,000  from  $878,000  in the 1998  period to  $961,000  in the 1999 period
primarily due to amortization  related to goodwill,  customer lists and deferred
lease  acquisition  costs.  As a percentage of net sales,  amortization  expense
decreased from 9.3% to 8.0%.

            Net interest expense  increased by $684,000 from $1.2 million in the
1998 period to $1.9 million in the 1999 period and  increased as a percentage of
net sales from 12.8% to 15.8%.  This increase was  attributable to the increased
level of long-term debt and subordinated  debt in the 1999 period as compared to
the 1998 period.

            For the reasons  described  above,  EBITDA,  representing  operating
income plus depreciation and amortization,  increased by $1.1 million, or 59.9%,
from $1.8  million in the 1998  period to $2.8  million  in the 1999  period and
increased as a percentage  of net sales from 18.8% to 23.7%,  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.

NINE MONTHS ENDED MARCH 31, 1999 COMPARED TO NINE MONTHS ENDED MARCH 31, 1998

            Net sales increased by $9.5 million, or 38.4%, from $24.7 million in
the 1998 period to $34.1 million in the 1999 period.  Approximately $3.6 million
of the increase  represented net sales resulting from 15 acquisitions  completed
during the fiscal year ended June 30, 1998. 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.  Increases in net sales due to price
increases were insignificant.

            Cost of products sold increased by $5.2 million,  from $13.1 million
in the 1998  period to $18.3  million  in the 1999  period  and  increased  as a
percentage  of net  sales  from  52.9% in the 1998  period  to 53.6% in the 1999
period.  The increase is attributable to the continued  expansion of the Company
and an increase in fully  loaded  route  drivers.  Fully  loaded  route  drivers
increased  by $1.6  million from $4.5 million in the 1998 period to $6.1 million
in the 1999  period and  decreased  as a  percentage  of net sales from 18.2% to
17.8%.  The  percentage  decrease  was  attributable  to a decline  in  overtime
expressed as a  percentage  of net sales from 3.4% in the 1998 period to 2.7% in
the 1999 period.  This decrease is a direct result of new payroll  software that
enables the Company to monitor and more effectively  control overtime on a daily
basis. As of March 31, 1998, the Company employed 215 route drivers and at March
31, 1999, the Company employed 252 route drivers.  The number of depots operated
by the Company at March 31, 1999,  increased to 69,  compared to 62 at March 31,
1998. When the Company opens new service locations and expands into new markets,
higher costs  expressed as a  percentage  of net sales are incurred  until route
density is achieved.


                                       14
<PAGE>
            Selling,  general and administrative  expenses increased by $680,000
from $6.9  million in the 1998  period to $7.6  million  in the 1999  period and
decreased as a percentage of net sales from 28.1% to 22.3%.  The dollar increase
was   primarily   attributable   to  growth  in  the  number  of  marketing  and
administrative  employees and their associated expenses. The percentage decrease
is  attributable  to  economies  of scale.  At March 31,  1998,  the Company had
operations in 42 states and employed 206 marketing and administrative  personnel
and at March 31, 1999,  the Company had operations in 44 states and employed 243
marketing and administrative personnel.

              Depreciation and amortization  increased by $3.0 million from $6.2
million in the 1998 period to $9.2 million in the 1999  period.  As a percentage
of net sales, such expenses  increased from 25.1% in the 1998 period to 26.9% in
the 1999  period.  Depreciation  expense  increased  by $2.2  million  from $4.2
million in the 1998 period to $6.4 million in the 1999 period principally due to
the increase in bulk CO2 systems  owned by the Company and leased to  customers.
Expressed as a percentage  of net sales,  depreciation  expense  increased  from
16.9% in the 1998  period  to 18.7%  in the 1999  period.  Amortization  expense
increased  by $793,000  from $2.0  million in the 1998 period to $2.8 million in
the 1999 period  primarily  due to  amortization  related to goodwill,  customer
lists,  and deferred  lease  acquisition  costs.  As a percentage  of net sales,
amortization expense remained unchanged at 8.2%.

             Net interest expense increased by $3.1 million from $2.2 million in
the  1998  period  to  $5.3  million  in  the  1999  period.  This  increase  is
attributable  to the  decreased  level  of cash  and  cash  equivalents  and the
increased  level of long-term debt and  subordinated  debt in the 1999 period as
compared to the 1998 period.  Except for their October 31, 2005  maturity  date,
the Additional 12% Notes are identical to the Company's 12% Senior  Subordinated
Promissory Notes due October 31, 2004 ("Notes").

             For the reasons  described above,  EBITDA,  representing  operating
income plus depreciation and amortization,  increased by $3.6 million, or 76.1%,
from $4.7  million in the 1998  period to $8.2  million  in the 1999  period and
increased as a percentage  of net sales from 19.0% to 24.1%,  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.

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 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 $5.0
million to $10.0  million  during the  remaining  three  months of fiscal  1999,
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  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.

             On May 4, 1999,  the Company  entered into a $75.0 million  amended
and restated revolving credit facility with a syndicate of banks led by SunTrust
Bank, South Florida,  National Association  ("Amended SunTrust  Facility").  The
Amended  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  Company  is  entitled  to  select  the Base  Rate or  LIBOR,  plus
applicable  margin,  for principal drawings under the Amended SunTrust Facility.
The  applicable  LIBOR margin  pursuant to the pricing grid ranges from 1.75% to
3.5%,  the  applicable  unused  facility fee pursuant to the pricing grid ranges
from .375% to .50% and the applicable  Base Rate margin  pursuant to the pricing
grid ranges from 0.25% to 2.00%. Interest only is payable periodically until the
expiration  of the Amended  SunTrust  Facility.  The Amended  SunTrust  Facility
expires May 4, 2002,  however,  it contains a two year renewal option subject to
approval.  Additionally, it is collateralized by substantially all of the assets
of the  Company.  The Company is  precluded  from  declaring  or paying any cash
dividends and is required to meet certain  affirmative  and negative  covenants,
including but not limited to financial covenants.


                                       15
<PAGE>
            Simultaneously with the Amended SunTrust Facility,  the Company sold
$10.0  million  of  its  12%  Senior  Subordinated  Promissory  Notes  due  2005
("Additional  12% Notes").  Except for their October 31, 2005 maturity date, the
Additional  12% Notes are  substantially  identical to the  Company's 12% Senior
Subordinated Promissory Notes due October 31, 2004 ("Notes"). The Additional 12%
Notes were sold with detachable  6-1/2 year warrants to purchase an aggregate of
372,892  shares of Common Stock at an exercise price of $6.65 per stock unit. In
connection  with  the  sale  of the  Additional  12%  Notes,  certain  financial
covenants  governing the Notes and the  Additional 12% Notes were adjusted as of
March 31, 1999 and  prospectively  and the exercise  price for 612,023  warrants
issued in  connection  with the sale of the Notes was  reduced  from  $12.40 per
stock unit to $6.65 per stock unit.

            During the nine months ended March 31, 1999,  the Company's  capital
resources  included cash flows from operations and available  borrowing capacity
under the Company's revolving credit facility.  As of March 31, 1999, a total of
$47.5 million was outstanding under the Company's revolving credit facility with
interest at two hundred  seventy-five  basis points above the applicable  London
InterBank Offering Rate ("LIBOR") (7.73% to 7.88% at March 31, 1999).

            The Company  believes that cash flows from  operations and available
borrowings under the Amended SunTrust  Facility  together with the proceeds from
the  sale of the  Additional  12%  Notes  will be  sufficient  to fund  proposed
operations for at least the next twelve months.

            Working  Capital.  At June 30, 1998 the Company had negative working
capital of $3.1  million.  At March 31, 1999,  the Company had negative  working
capital of $453,000.

            Cash Flows from  Operating  Activities.  For the nine  months  ended
March 31, 1998 and March 31, 1999, net cash provided by operating activities was
$5.9 million and $2.5 million,  respectively.  The decrease from the 1998 period
to the 1999 period of $3.5  million is  primarily  due to an increase in the net
loss of the Company and an increase in accounts receivable.

            Cash Flows from  Investing  Activities.  For the nine  months  ended
March 31, 1998 and March 31,  1999,  net cash used in investing  activities  was
$28.4 million and $20.0 million,  respectively.  These investing activities were
attributable to the  installation  and direct placement costs and acquisition of
bulk CO2 systems.  In addition,  in the 1998  period,  the Company  completed 15
acquisitions and expended cash of $12.3 million.

            Cash Flows from  Financing  Activities.  For the nine  months  ended
March 31, 1998 and March 31, 1999,  cash flows provided by financing  activities
were $10.9 million and $18.3  million,  respectively.  For the nine months ended
March 31, 1998 and March 31, 1999, net cash provided by financing activities was
primarily from the issuance of long-term debt.

YEAR 2000

            The Company has conducted a review to identify which of its computer
and other business operating systems will be affected by the "Year 2000" problem
and has  developed a project  plan and  schedule to solve this issue.  Among the
functions  and systems  impacted  could be  inventory  and  accounting  systems,
dispatch and delivery  systems,  electronic  data  interchange,  and  mechanical
systems  operating  everything  from office building  environmental  controls to
telephone switches and fax machines.  The Company is on schedule to be Year 2000
compliant  by  June  30,  1999.   The  Company   believes   that  the  costs  of
modifications,  upgrades,  or  replacements  of software,  hardware,  or capital
equipment  which  would  not  be  incurred  but  for  Year  2000   compatibility
requirements  have  not and will not have a  material  impact  on the  Company's
financial position or results of operations.

            The Company is also engaged in  communications  with its significant
business partners,  suppliers and customers to determine the extent to which the
Company is vulnerable to such third  parties'  failure to address their own Year
2000  issues.  The  Company's  assessment  of the impact of its Year 2000 issues
includes an assessment of the Company's vulnerability to such third parties. The
Company is seeking assurances from its significant business partners,  suppliers
and customers  that their computer  applications  will not fail due to Year 2000
problems. Nevertheless, the Company does not control, and can give no assurances
as to the  substance  or  success  of the Year 2000  compliance  efforts of such
independent  third  parties and the Company  believes  that there is a risk that
certain of these third  parties on whom the  Company's  finances and  operations
depend  will  experience  Year 2000  problems  that could  affect the  financial
position or results of operations of the Company.  These risks include,  but are
not limited to, the  potential  inability  of  suppliers  to correctly or timely
provide  necessary   services,   materials  and  components  for  the  Company's
operations;  the  inability  of the  Company's  customers to timely or correctly
process and pay the Company's invoices; and the inability of lenders, lessors or
other  sources of the  Company's  necessary  capital and liquidity to make funds
available to the Company when required.


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<PAGE>
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  generally 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.


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<PAGE>
ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

            As  discussed  under   "Management's   Discussion  and  Analysis  of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
above, as of March 31, 1999, a total of $47.5 million was outstanding  under the
Company's  revolving  credit facility with interest at two hundred  seventy-five
basis points above the applicable LIBOR rate (7.73% to 7.88% at March 31, 1999).
Based upon $47.5 million  outstanding  at March 31, 1999,  the Company's  annual
interest cost under its revolving credit facility would increase by $475,000 for
each one percent increase in LIBOR (i.e., from 8.0% to 9.0%).

            In order to reduce the Company's exposure to increases in LIBOR, and
consequently  to  increases  in interest  payments,  on June 9, 1998 the Company
entered into an interest rate swap  transaction (the "Swap") with SunTrust Bank,
Atlanta, in the amount of $10.0 million (the "Notional  Amount").  The effective
date of the Swap is  September 2, 1998 and it  terminates  on September 5, 2000.
Pursuant to the Swap, the Company pays a fixed interest rate of 6% per annum and
receives a LIBOR-based  floating  rate.  The effect of the Swap is to neutralize
any changes in LIBOR on the Notional Amount.  If LIBOR decreases below 6% during
the  period  the Swap is in  effect,  interest  payments  by the  Company on the
Notional  Amount will be greater  than if the  Company had not entered  into the
Swap, since by exchanging LIBOR for a fixed interest rate, the Company would not
benefit from falling interest rates on LIBOR, a variable interest rate.


PART II.  OTHER INFORMATION


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

            (a)   Exhibit 27 - Financial Data Schedule.

            (b)   Reports on Form 8-K.

                  (1) No reports on Form 8-K were filed during the quarter ended
                  March 31, 1999.




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<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:  May 12, 1999                    By: /s/ Joann Sabatino
                                            -----------------------------------
                                            Joann Sabatino
                                            Chief Financial Officer


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