`UNITED STATES
                       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, 2003

                                       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
Incorporation or Organization)                               Identification No.)

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


Registrant's Telephone Number, Including Area Code:    (772) 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 by check /X/ whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). 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, 2003
                      -----                        -----------------------------
          Common Stock, $.001 par value                 10,633,405 shares






                                   NUCO2 INC.

                                      INDEX
                                      -----

PART I.    FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

           Balance Sheets as of March 31, 2003 and June 30, 2002           3

           Statements of Operations for the Three Months
                Ended March 31, 2003 and March 31, 2002                    4

           Statements of Operations for the Nine Months
                Ended March 31, 2003 and March 31, 2002                    5

           Statement of Shareholders' Equity for the Nine Months
                Ended March 31, 2003                                       6

           Statements of Cash Flows for the Nine Months
                Ended March 31, 2003 and March 31, 2002                    7

           Notes to Financial Statements                                   8

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

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES
              ABOUT MARKET RISK                                           23

ITEM 4.    CONTROLS AND PROCEDURES                                        23

PART II.   OTHER INFORMATION

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K                               24

SIGNATURES                                                                25

                                       2





PART I.     FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

                                   NUCO2 INC.

                                 BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)


                                     ASSETS
                                     ------

                                                                            March 31, 2003    June 30, 2002
                                                                            --------------    -------------
                                                                             (unaudited)

Current assets:
    Cash and cash equivalents                                                  $     517        $   1,562
    Trade accounts receivable, net of allowance for doubtful
        accounts of $2,360 and $3,085, respectively                                6,694            7,171
    Inventories                                                                      197              235
    Prepaid expenses and other current assets                                      2,476            1,966
                                                                               ---------        ---------
        Total current assets                                                       9,884           10,934
                                                                               ---------        ---------

Property and equipment, net                                                       93,233           95,084
                                                                               ---------        ---------

Other assets:
    Goodwill, net                                                                 19,222           19,222
    Non-competition agreements, net                                                1,055            1,282
    Customer lists, net                                                               24              281
    Deferred financing costs, net                                                  1,888            2,524
    Deferred lease acquisition costs, net                                          2,896            2,991
    Other assets                                                                     199              320
                                                                               ---------        ---------
                                                                                  25,284           26,620
                                                                               ---------        ---------
           Total assets                                                        $ 128,401        $ 132,638
                                                                               =========        =========

                      LIABILITIES AND SHAREHOLDERS' EQUITY
                      ------------------------------------

Current liabilities:
    Current maturities of long-term debt                                       $      43        $      40
    Accounts payable                                                               3,188            3,512
    Accrued expenses                                                               3,006            2,304
    Accrued interest                                                               2,403            1,479
    Accrued payroll                                                                  723              897
    Other current liabilities                                                        312              371
                                                                               ---------        ---------
        Total current liabilities                                                  9,675            8,603

Long-term debt, less current maturities                                           32,421           48,254
Subordinated debt                                                                 39,526           39,366
Customer deposits                                                                  2,974            2,644
                                                                               ---------        ---------
        Total liabilities                                                         84,596           98,867
                                                                               ---------        ---------

Commitments and contingencies
Redeemable preferred stock                                                         9,076            8,552
                                                                               ---------        ---------

Shareholders' equity:
    Preferred stock; no par value; 5,000,000 shares authorized;
        7,500 shares issued and outstanding                                         --               --
    Common stock; par value $.001 per share; 30,000,000 shares authorized;
        issued and outstanding 10,633,405 shares at March 31, 2003
        and 8,969,059 shares at June 30, 2002                                         11                9
    Additional paid-in capital                                                    93,119           78,584
    Accumulated deficit                                                          (58,146)         (52,945)
    Accumulated other comprehensive loss                                            (255)            (429)
                                                                               ---------        ---------
        Total shareholders' equity                                                34,729           25,219
                                                                               ---------        ---------
           Total liabilities and shareholders' equity                          $ 128,401        $ 132,638
                                                                               =========        =========

See accompanying Notes to Financial Statements.

                                       3





                                   NUCO2 INC.

                            STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)


                                                              Three Months Ended March 31,
                                                              ----------------------------
                                                                   2003          2002*
                                                                   ----          ----

Net sales                                                        $ 18,340      $ 17,743
                                                                 --------      --------

Costs and expenses:
    Cost of products sold, excluding depreciation
        and amortization                                            8,743         8,964
    Selling, general and administrative expenses                    3,832         3,914
    Depreciation and amortization                                   4,355         4,044
    Loss on asset disposals                                           364           599
                                                                 --------      --------
                                                                   17,294        17,521
                                                                 --------      --------

    Operating income                                                1,046           222

    Interest expense                                                1,823         2,035
                                                                 --------      --------

    Net (loss)                                                   $   (777)     $ (1,813)
                                                                 ========      ========



    Basic and diluted (loss) per share                           $  (0.09)     $  (0.23)
                                                                 ========      ========

    Weighted average number of common and common
            equivalent shares outstanding, basic and diluted       10,633         8,734
                                                                 ========      ========

*Restated - See Notes 1, 2 and 8 to the Financial Statements.

See accompanying Notes to Financial Statements.

                                       4





                                   NUCO2 INC.

                            STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)



                                                               Nine Months Ended March 31,
                                                               ---------------------------
                                                                   2003          2002*
                                                                   ----          ----

Net sales                                                        $ 55,119      $ 54,439
                                                                 --------      --------

Costs and expenses:
    Cost of products sold, excluding depreciation
        and amortization                                           26,584        26,763
    Selling, general and administrative expenses                   13,591        11,237
    Depreciation and amortization                                  13,171        12,242
    Loss on asset disposals                                         1,229         1,560
                                                                 --------      --------
                                                                   54,575        51,802
                                                                 --------      --------

    Operating income                                                  544         2,637

    Loss on early extinguishment of debt -
        write-off of deferred financing costs                        --             796
    Interest expense                                                5,745         6,361
                                                                 --------      --------

    Net (loss)                                                   $ (5,201)     $ (4,520)
                                                                 ========      ========



    Basic and diluted (loss) per share                           $  (0.55)     $  (0.57)
                                                                 ========      ========

    Weighted average number of common and common
            equivalent shares outstanding, basic and diluted       10,320         8,692
                                                                 ========      ========


*Restated - See Notes 1, 2 and 8 to the Financial Statements.

See accompanying Notes to Financial Statements.

                                       5





                                   NUCO2 INC.

                        STATEMENT OF SHAREHOLDERS' EQUITY
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
                                   (UNAUDITED)





                                                                                                        Accumulated
                                             Common Stock                Additional                        Other         Total
                                         ----------------------           Paid-In       Accumulated    Comprehensive  Shareholders'
                                         Shares          Amount           Capital         Deficit          Loss          Equity
                                         ------          ------           -------         -------          ----          ------
Balance, June 30, 2002                  8,969,059      $         9      $    78,584     $   (52,945)    $    (429)     $    25,219
Comprehensive (loss):
  Net (loss)                                                                                 (5,201)                        (5,201)
  Other comprehensive income:
    Interest rate swap transaction                                                                            174              174
                                                                                                                        ----------
Total comprehensive (loss)                                                                                                  (5,027)
Redeemable preferred stock dividend                                            (526)                                          (526)
Issuance of common stock,
   net of issuance costs                1,663,846                2           15,055                                         15,057
Exercise of options                           500                                 6                                              6
                                      -----------      -----------      -----------     -----------      -----------    ----------
Balance, March 31, 2003                10,633,405      $        11      $    93,119     $   (58,146)     $   (255)      $   34,729
                                      ===========      ===========      ===========     ===========      ===========    ==========


See accompanying Notes to Financial Statements.

                                       6





                                   NUCO2 INC.

                            STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)


                                                                                Nine Months Ended March 31,
                                                                                ---------------------------
                                                                                    2003          2002*
                                                                                    ----          -----

Cash flows from operating activities:
    Net loss                                                                      $ (5,201)     $ (4,520)
    Adjustments to reconcile net loss to net cash provided
        by operating activities:
        Depreciation and amortization of property and equipment                     10,490         9,430
        Amortization of other assets                                                 2,681         2,812
        Amortization of original issue discount                                        160           143
        Loss on asset disposals                                                      1,229         1,560
        Loss on early extinguishment of debt                                          --             796
        Changes in operating assets and liabilities
           Decrease (increase) in:
              Trade accounts receivable                                                577           405
              Inventories                                                               39           (27)
              Prepaid expenses and other current assets                               (511)          147
           Increase (decrease) in
              Accounts payable                                                        (324)         (875)
               Accrued expenses                                                      1,583          (934)
               Other current liabilities                                               (56)           79
               Customer deposits                                                       430          (807)
                                                                                  --------      --------

        Net cash provided by operating activities                                   11,097         8,209
                                                                                  --------      --------

Cash flows from investing activities:
    Purchase of property and equipment                                              (9,781)       (8,311)
    Increase in deferred lease acquisition costs                                      (810)         (680)
    Increase in other assets                                                           (21)         (547)
                                                                                  --------      --------
        Net cash used in investing activities                                      (10,612)       (9,538)
                                                                                  --------      --------

Cash flows from financing activities:
    Repayment of long-term debt                                                    (15,831)      (51,377)
    Proceeds from issuance of long-term debt                                          --          51,500
    Proceeds from issuance of common stock                                          16,222
    Issuance costs - common stock                                                   (1,167)         --
    Proceeds from issuance of redeemable preferred stock                              --           2,500
    Exercise of stock options                                                            6           670
    Increase in deferred charges                                                      (760)       (2,116)
                                                                                  --------      --------
        Net cash (used in) provided by financing activities                         (1,530)        1,177
                                                                                  --------      --------

    Decrease in cash and cash equivalents                                           (1,045)         (152)
    Cash and cash equivalents at the beginning of period                             1,562           626
                                                                                  --------      --------

    Cash and cash equivalents at the end of period                                $    517      $    474
                                                                                  ========      ========

Supplemental disclosure of cash flow information: Cash paid during the period
    for:
        Interest                                                                  $  4,489      $  4,974
                                                                                  ========      ========
        Income taxes                                                              $   --        $   --
                                                                                  ========      ========

*Restated - See Notes 1, 2 and 8 to the Financial Statements.
See accompanying Notes to Financial Statements.

                                       7


                                   NUCO2 INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1.     BASIS OF PRESENTATION

            The accompanying  unaudited 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  accounts  of NuCo2 Inc.  (the
"Company") and its wholly-owned  subsidiaries,  NuCo2 Acquisition Corp. and Koch
Compressed Gases, Inc. were merged during fiscal 2002.

            Net loss as  presented  herein,  for the three and nine months ended
March 31, 2002 differs from the net loss as previously reported in the Company's
Form  10-Qs  for  such  periods  due  to  fiscal  year-end  adjustments.   These
adjustments  related to the  amortization  of  customer  lists and loss on asset
disposals (see Note 8).

            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, 2002 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, 2002.  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.     ACCOUNTING PRONOUNCEMENTS

            In December 2002, the Financial  Accounting Standards Board ("FASB")
issued  Statement of Financial  Accounting  Standards No. 148,  "ACCOUNTING  FOR
STOCK-BASED  COMPENSATION - TRANSITION AND  DISCLOSURE"  ("SFAS 148").  SFAS 148
amends SFAS No. 123, "ACCOUNTING FOR STOCK-BASED  COMPENSATION" ("SFAS 123"), to
provide  alternative  methods of transition  for a voluntary  change to the fair
value based method of  accounting  for  stock-based  employee  compensation.  In
addition,  SFAS 148 amends the  disclosure  requirements  of SFAS 123 to require
prominent  disclosure in both annual and interim financial  statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on the reported  results.  The  provisions of SFAS 148 are effective
for financial  statements  for fiscal years ending after  December 15, 2002. The
adoption of SFAS 148 did not impact the Company's financial position, results of
operations or cash flows for the periods presented (see Note 7).

            In the first  quarter of fiscal 2003,  the Company  adopted SFAS No.
145,  "RESCISSION  OF FASB  STATEMENTS  NO.  4, 44,  AND 64,  AMENDMENT  OF FASB
STATEMENT NO. 13, AND TECHNICAL  CORRECTIONS"  ("SFAS 145"). Among other things,
SFAS  145  rescinds  the  provisions  of SFAS No. 4 that  require  companies  to
classify  certain gains and losses from debt  extinguishments  as  extraordinary
items.   The  provisions  of  SFAS  145  related  to   classification   of  debt
extinguishments  are  effective for fiscal years  beginning  after May 15, 2002.
Gains and losses from extinguishment of debt will be classified as extraordinary
items only if they meet the criteria in APB Opinion No. 30 ("APB 30"); otherwise
such losses will be classified  within  income from  continuing  operations.  In
accordance with APB 30 and SFAS 145, the Company has  reclassified  the $796,000
extraordinary loss on the early extinguishment of debt for the nine months ended
March 31, 2002 to a component of continuing operations.

            In the first quarter of fiscal 2003,  the Company  adopted SFAS 146,
"ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL  ACTIVITIES" ("SFAS 146")
which  addresses  financial  accounting and reporting for costs  associated with
exit or  disposal  activities  and  nullifies  EITF  Issue No.  94-3  "LIABILITY
RECOGNITION FOR CERTAIN EMPLOYEE TERMINATION BENEFITS AND OTHER COSTS TO EXIT AN
ACTIVITY  (INCLUDING CERTAIN COSTS INCURRED IN A RESTRUCTURING)"  ("EITF 94-3").
The  principal  difference  between SFAS 146 and EITF 94-3 relates to SFAS 146's
requirements  for  recognition of a liability for a cost associated with an exit
or disposal activity.  SFAS 146 requires that a liability be recognized when the
liability  is  incurred.  Under  EITF  94-3,  a  liability  for an exit cost was
recognized at the date of an entity's  commitment to an exit plan. SFAS 146 also
establishes  that fair value is the  objective  for initial  measurement  of the
liability.  The  provisions  of SFAS  146 are  effective  for  exit or  disposal
activities that are initiated after December 31, 2002, but early  application is
encouraged.  The adoption of SFAS 146 had no impact on the Company's  results of
operations and financial position.

            In the first quarter of fiscal 2003, the Company  adopted SOP 01-06,
"ACCOUNTING BY CERTAIN ENTITIES (INCLUDING ENTITIES WITH TRADE RECEIVABLES) THAT
LEND TO OR FINANCE THE ACTIVITIES OF OTHERS" ("SOP 01-06").  SOP 01-06 addresses
disclosures on accounting  policies relating to trade accounts receivable and is
effective  prospectively  for  financial  statements  issued  for  fiscal  years
beginning  after  December 15, 2001.  The adoption of SOP 01-06 had no impact on
the Company's results of operations or financial position.

                                       8



NOTE 3.     NET LOSS PER COMMON SHARE

            Basic loss per common  share has been  computed by dividing  the net
loss, after giving effect to redeemable  preferred stock dividends (see Note 6),
by the weighted average number of common shares  outstanding  during the period.
Diluted  loss per common  share has been  computed on the basis of the  weighted
average number of common and, if dilutive,  common equivalent shares outstanding
during the period.  Common  equivalent  shares for stock  options  and  warrants
calculated  pursuant to the  treasury  stock method were not included in diluted
earnings per common share because they would have been anti-dilutive.  Also, not
included in the computation of diluted  earnings per common share was the effect
of  outstanding  shares of redeemable  preferred  stock using the "if converted"
method, because the effect would be anti-dilutive.

            The following  table presents the Company's net (loss)  available to
common  shareholders  and (loss) per share,  basic and  diluted  (in  thousands,
except per share amounts):

                                                          Three Months Ended          Nine Months Ended
                                                               March 31,                  March 31,
                                                               ---------                  ---------
                                                          2003          2002          2003          2002
                                                        --------      --------      --------      --------

Net (loss)                                              $   (777)     $ (1,813)     $ (5,201)     $ (4,520)
Redeemable preferred stock dividends                        (178)         (165)         (526)         (420)
                                                        --------      --------      --------      --------
Net (loss) available to common shareholders             $   (955)     $ (1,978)     $ (5,727)     $ (4,940)
                                                        ========      ========      ========      ========


Weighted average outstanding shares of common stock       10,633         8,734        10,320         8,692
(Loss) per share - basic and diluted                    $  (0.09)     $  (0.23)     $  (0.55)     $  (0.57)

NOTE 4.     LONG-TERM DEBT

            In September  2001, the Company  entered into a $60.0 million second
amended  and  restated  revolving  credit  facility  with a  syndicate  of banks
("Amended  Credit  Facility").  This new facility  replaced the Company's  prior
facility,  which  was due to expire in May 2002.  The  Amended  Credit  Facility
contains  interest  rates and an unused  commitment  fee based on a pricing grid
calculated  quarterly  on total  debt to  annualized  EBITDA (as  defined).  The
Company is entitled to select the Base Rate or LIBOR,  plus  applicable  margin,
for principal  drawings under the Amended Credit Facility.  The applicable LIBOR
margin  pursuant to the pricing grid currently  ranges from 2.50% to 4.75%,  the
applicable unused commitment fee pursuant to the pricing grid ranges from 0.375%
to 0.50% and the  applicable  Base Rate  margin  pursuant  to the  pricing  grid
currently  ranges  from 1.50% to 3.75%.  Interest  only is payable  periodically
until the expiration of the Amended Credit Facility. The Amended Credit Facility
is collateralized  by substantially  all of the Company's assets.  Additionally,
the Company is precluded from declaring or paying any cash dividends, except the
Company may accrue and accumulate, but not pay, cash dividends on the redeemable
preferred  stock.  The Company is also required to meet certain  affirmative and
negative covenants including, but not limited to, financial covenants.

            The Company is required to assess compliance with its debt covenants
under  the  Amended  Credit  Facility  on a  quarterly  basis.  These  financial
covenants  are  based  on a  measure  that  is not  consistent  with  accounting
principles  generally accepted in the United States of America.  Such measure is
EBITDA (as defined),  which represents  earnings (loss) before interest,  taxes,
depreciation and amortization,  as modified by certain defined adjustments.  The
failure to meet these covenants,  absent a waiver or amendment,  would place the
Company in  default  and cause the debt  outstanding  under the  Amended  Credit
Facility to become immediately due and payable. The Amended Credit Facility also
includes   certain   cross-default   provisions  to  the  Company's  12%  Senior
Subordinated Promissory Notes (see Note 5).

            Prior to June 30, 2002, the Amended  Credit  Facility was amended to
adjust  certain  financial  covenants  for the  quarter  ended June 30, 2002 and
prospectively, and non-compliance with the minimum EBITDA covenant for the three


                                       9




months ended March 31, 2002 was waived. As of June 30, 2002, the Company was not
in compliance  with certain of its financial  covenants.  On September 27, 2002,
the Amended Credit  Facility was amended to adjust certain  financial  covenants
for the quarter ended September 30, 2002, and prospectively, non-compliance with
its financial covenants for the three months ended June 30, 2002 was waived, and
the maturity of the Amended  Credit  Facility was extended to November 17, 2003.
As of  September  30,  2002,  the  Company  was in  compliance  with  all of the
financial covenants under the Amended Credit Facility.  On February 7, 2003, the
Amended Credit  Facility was amended to adjust certain  financial  covenants for
the three months ended March 31, 2003 and prospectively, non-compliance with the
minimum EBITDA covenant for the three months ended December 31, 2002 was waived,
the maturity of the Amended Credit  Facility was extended to April 29, 2004, and
the Amended Credit Facility was reduced to $45.0 million.  As of March 31, 2003,
the Company was in  compliance  with all of the  financial  covenants  under the
Amended Credit Facility.

            On August 22, 2002, the Company  completed the private  placement of
1,663,846  shares of its common stock to 24  accredited  investors at a price of
$9.75 per share realizing net cash proceeds of approximately $15.1 million after
issuance  costs of $1.1  million.  Pursuant to the  requirements  of the Amended
Credit  Facility,  the Company  used $14.5  million of the  proceeds to pay down
outstanding debt under the Amended Credit Facility.

            As of March  31,  2003,  a total of $32.5  million  was  outstanding
pursuant  to the  Amended  Credit  Facility  with  interest at 4.00% above LIBOR
(4.59% to 5.66%).

            Effective July 1, 2000, the Company adopted SFAS No. 133 "ACCOUNTING
FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES," which establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments  embedded  in  other  contracts  and  for  hedging  activities.  All
derivatives, whether designated in hedging relationships or not, are required to
be recorded on the balance sheet at fair value. For a derivative designated as a
cash flow  hedge,  the  effective  portions  of changes in the fair value of the
derivative are recorded in other comprehensive  income and are recognized in the
income statement when the hedged item affects earnings.  Ineffective portions of
changes in the fair value of cash flow hedges are recognized in earnings.

            The  Company  uses  derivative  instruments  to manage  exposure  to
interest rate risks.  The Company's  objectives for holding  derivatives  are to
minimize the risks using the most  effective  methods to eliminate or reduce the
impacts of this  exposure.  As of March 31, 2003,  the Company was a party to an
interest  rate swap  agreement  (the  "Swap")  with a  notional  amount of $12.5
million and a  termination  date of  September  28,  2003.  Under the Swap,  the
Company pays a fixed interest rate of 5.23% per annum and receives a LIBOR-based
floating rate.

            The Swap,  which is designated as a cash flow hedge, is deemed to be
a highly  effective  transaction,  and  accordingly,  the loss on the derivative
instrument is reported as a component of other  comprehensive loss. For the nine
months ended March 31, 2003 and 2002, the Company recorded gains of $174,000 and
$36,000,  respectively,  representing  the change in fair value of the Swap,  as
other  comprehensive  income.  The net derivative  gain will be classified  into
earnings over the term of the underlying cash flow hedge.

NOTE 5.     SUBORDINATED DEBT

            In October 1997,  the Company issued $30.0 million of its 12% Senior
Subordinated  Promissory  Notes (the "1997  Notes") with  interest  only payable
semi-annually  on April 30 and October 31, due October 31, 2004.  The 1997 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 share.  At the
date of issuance,  in accordance with APB 14,  "ACCOUNTING FOR CONVERTIBLE  DEBT
AND DEBT ISSUED WITH PURCHASE WARRANTS," the Company allocated proceeds of $29.7
million to the debt and $0.3 million to warrants, with the resulting discount on
the debt referred to as the Original Issue Discount. The Original Issue Discount
is being amortized as interest  expense over the life of the debt,  resulting in
an  effective  interest  rate on the 1997 Notes of 12.1% per  annum.  The amount
allocated  to the  warrants  was  credited to  Additional  Paid-In  Capital.  In
conjunction with the issuance of the 1997 Notes, the Company is required to meet
certain affirmative and negative covenants. In addition,  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
share which expires on October 31, 2004.

            On May 4, 1999, the Company sold an additional  $10.0 million of its
12% Senior  Subordinated  Promissory Notes (the "1999 Notes").  Except for their
October 31, 2005 maturity  date, the 1999 Notes are  substantially  identical to
the 1997 Notes described  above.  The 1999 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 share.


                                       10



            In return for modifying  certain financial  covenants  governing the
1997 Notes,  the exercise price of 612,053 of the warrants  issued in connection
with the 1997 Notes was reduced to $6.65 per share.  On May 4, 1999, the trading
range of the Company's common stock was $6.44 to $6.88 per share. To assist with
the  valuation of the newly  issued  warrants  and the  repriced  warrants,  the
Company hired an outside  consultant.  Utilizing the  Black-Scholes  Model,  the
warrants  issued  with the 1997 Notes were  valued at $1.26 per  warrant,  or an
aggregate  value of  $773,702,  and the  warrants  issued with the 1999 Notes at
$1.47 per warrant, or an aggregate value of $549,032. Both amounts are reflected
as Additional Paid-In Capital,  offset by the Original Issue Discount,  which is
netted against the outstanding  balance of the 1997 Notes and 1999 Notes.  After
giving effect to the amortization of the Original Issue Discount,  the effective
interest rate on the 1999 Notes is 13.57% per annum.

            As of March 31, 2003, the Company was in compliance  with all of the
financial  covenants  under the 1997 Notes and 1999 Notes.  On February 7, 2003,
the interest  coverage ratio governing the 1997 Notes and 1999 Notes was amended
for the quarter ending March 31, 2003 and prospectively.

NOTE 6.     REDEEMABLE PREFERRED STOCK

            In May 2000,  the  Company  sold  5,000  shares  of its  Series A 8%
Cumulative  Convertible  Preferred  Stock, no par value (the "Series A Preferred
Stock"), for $1,000 per share (the initial "Liquidation Preference"). Cumulative
dividends  are payable  quarterly  in arrears at the rate of 8% per annum on the
Liquidation  Preference,  and, to the extent not paid in cash,  are added to the
Liquidation Preference.  Shares of the Series A Preferred Stock may be converted
into shares of Common Stock at any time at a current  conversion  price of $9.28
per share.  In  connection  with the sale,  costs in the amount of $65,000  were
charged to paid-in capital.

            In November  2001,  the Company sold 2,500 shares of its Series B 8%
Cumulative  Convertible  Preferred  Stock, no par value (the "Series B Preferred
Stock"), at the initial Liquidation Preference. Cumulative dividends are payable
quarterly in arrears at the rate of 8% per annum on the Liquidation  Preference,
and, to the extent not paid in cash,  are added to the  Liquidation  Preference.
Shares of the Series B Preferred  Stock may be  converted  into shares of Common
Stock at any time at a current conversion price of $12.92 per share.

            During the fiscal year ended June 30, 2002 and the nine months ended
March 31, 2003, the carrying amount (and Liquidation  Preferences) of the Series
A Preferred Stock and Series B Preferred Stock ("Preferred Stock") was increased
by $586,000 and $526,000,  respectively,  for dividends  accrued.  The Preferred
Stock shall be mandatorily redeemed by the Company within 30 days after a Change
in Control (as  defined) of the Company (the date of such  redemption  being the
"Mandatory   Redemption  Date")  at  an  amount  equal  to  the  then  effective
Liquidation  Preference plus accrued and unpaid dividends  thereon from the last
dividend  payment date to the Mandatory  Redemption  Date, plus if the Mandatory
Redemption Date is on or prior to the fourth  anniversary of the issuance of the
Preferred  Stock,  the amount of any dividends  that would have accrued and been
payable on the Preferred  Stock from the Mandatory  Redemption  Date through the
fourth anniversary date.

            In addition,  outstanding  shares of Preferred  Stock vote on an "as
converted  basis" with the holders of the common  stock as a single class on all
matters that the holders of the Common Stock are entitled to vote upon.

NOTE 7.     STOCK OPTION PLANS

            The board of directors  of the Company  adopted the 1995 Option Plan
(the "1995  Plan").  Under the 1995 Plan,  the  Company has  reserved  1,950,000
shares of Common Stock for employees of the Company. Under the terms of the 1995
Plan,  options granted may be either  incentive  stock options or  non-qualified
stock options.  The exercise price of incentive  options shall be at least equal
to 100% of the fair market  value of the  Company's  Common Stock at the date of
the grant,  and the exercise  price of  non-qualified  stock  options  issued to
employees  may not be less than 75% of the fair  market  value of the  Company's
Common  Stock at the date of the grant.  The maximum term for all options is ten
years.  Options granted to date generally vest in equal installments from one to
five years, though a limited number of grants were partially vested at the grant
date.  As of June 30,  2002 and March 31,  2003  options for 503,072 and 510,436
shares were exercisable, respectively. The weighted-average fair value per share
of options  granted  during the three  months ended March 31, 2003 and 2002 were
$1.67 and $4.91,  respectively;  while the weighted-average fair value per share
of options  granted  during the nine  months  ended March 31, 2003 and 2002 were
$2.41  and  $3.52  respectively  As of  March  31,  2003,  the  weighted-average
remaining life of the options was 8.05 years.


                                       11



            The following table summarizes the transactions pursuant to the 1995
Plan.
                                                 Weighted
                                                 Average
                                                 Exercise
                                     Shares       Price      Exercise Price
                                  -----------------------------------------

Outstanding at June 30, 2002       1,162,450      $10.15     $ 5.50 - $13.04
Additions                            326,350        6.87       4.49 -   9.90
Exercises                               (500)      11.25      11.25 -  11.25
Cancellations                       (198,030)      11.39       5.50 -  13.04
                                   -----------------------------------------
Outstanding at March 31, 2003      1,290,270      $ 9.13     $ 4.49 - $13.04
                                   =========================================

            The board of directors of the Company  adopted the Directors'  Stock
Option  Plan  (the   "Directors'   Plan").   Under  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. The maximum term for all options is ten years.
As of June 30, 2002 and March 31, 2003 options for 34,000 and 44,000 shares were
exercisable,  respectively. The weighted-average fair value per share of options
granted during the three months ended March 31, 2003 and 2002 were $1.68 and $0,
respectively; while the weighted-average fair value per share of options granted
during  the nine  months  ended  March 31,  2003 and 2002 were  $1.82 and $3.52,
respectively.  As of March 31, 2003, the weighted-average  remaining life of the
options was 6.74 years.
                                            Weighted
                                            Average
                                            Exercise
                                  Shares     Price      Exercise Price
                                  --------------------------------------

Outstanding at June 30, 2002      60,000     $ 9.15    $ 6.06 -  $13.25
Additions                          6,000       8.69      8.69 -    8.69
                                  --------------------------------------
Outstanding at March 31, 2003     66,000     $ 9.11    $ 6.06 -  $13.25
                                  ======================================

            Statement of Financial Accounting Standards No. 123, "ACCOUNTING FOR
STOCK-BASED  COMPENSATION"  ("SFAS  123"),  defines a fair value based method of
accounting for stock  options.  SFAS 123 allows an entity to continue to measure
cost using the accounting  method  prescribed by APB Opinion No.  25,"ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES"  ("APB 25") and to make pro forma  disclosures of
net  income  and  earnings  per  share  as if the fair  value  based  method  of
accounting had been applied. The fair value of each option grant is estimated on
the  date of  grant  using  the  Black-Scholes  option  pricing  model  with the
weighted-average  assumptions,  expected volatility and risk-free interest rate,
as listed in the table below. The following table  illustrates the effect on net
income  and  earnings  per  share if the  Company  had  applied  the fair  value
recognition  provisions of SFAS 123 to  stock-based  compensation.  However,  no
stock based compensation was recognized in the financial  statements pursuant to
APB 25.

                                                 Three Months Ended March 31,        Nine Months Ended March 31,
                                                 ----------------------------        ---------------------------
                                                   2003              2002              2003              2002
                                                 -------           -------           -------           ---------
Net income, as reported                          $  (777)          $(1,813)          $(5,201)          $  (4,520)
Less:
   Stock-based compensation
       - fair value measurement                      (56)             (221)             (507)               (663)
                                                 -------           -------           -------           ---------
                                                 $  (833)          $(2,034)          $(5,708)          $  (5,183)
                                                 =======           =======           =======           =========

Basic and diluted loss per share - reported      $ (0.09)          $ (0.23)          $ (0.55)          $   (0.57)
                                                 =======           =======           =======           =========
Basic and diluted loss per share - pro forma     $ (0.10)          $ (0.25)          $ (0.60)          $   (0.64)
                                                 =======           =======           =======           =========

                                       12



                                        Three Months Ended March 31,        Nine Months Ended March 31,
Weighted Average Assumptions for        ----------------------------        ---------------------------
Grants During:                           2003                 2002            2003                2002
                                         -----                -----           -----               ----

Expected volatility                       40%                  40%              40%                40%
Risk free interest rate               2.6% - 2.8%          4.2% - 4.8%       2.6% - 3.2%       3.7% - 4.8%
Expected dividend yield                    0%                   0%               0%                 0%
Expected lives                         3-4 years            1-5 years        3 - 4 years        1-5 years

            All grants under the 1995 Plan have an expected  volatility  between
39-40%,  risk free interest rate of 2.55% to 6.60%,  expected  dividend yield of
0%, and expected lives of one to five years.

NOTE 8.     PRIOR PERIOD ADJUSTMENTS

            Net loss as  presented  herein,  for the three and nine months ended
March 31, 2002,  differs from the net loss previously  reported in the Company's
Form  10-Qs  for  such  periods  due  to  fiscal  year-end  adjustments.   These
adjustments  related to the  amortization  of  customer  lists and loss on asset
disposals.  Customer  list  amortization  was increased by $0.2 million and $0.6
million,  respectively,  based on the incorrect decision to reclassify  customer
lists into goodwill at the time of the initial  adoption of SFAS 142,  "GOODWILL
AND OTHER INTANGIBLE ASSET."  Depreciation expense was increased by $0.3 million
during  the  three   months  ended  March  31,  2002  to  correct  for  a  prior
understatement.

            In addition, during the fiscal year ended June 30, 2001, the Company
decided  not to  replace  its 50 and 100 lb.  tanks as they  were  removed  from
service.  In  conjunction  with this decision,  the loss on asset  disposals was
increased by $0.3 million and $0.7 million,  respectively, as a result of 50 and
100 lb. tanks that were  removed  from service  during the three and nine months
ended March 31, 2002, but which were not written off until June 2002. The impact
of these  adjustments  on the  Company's  net  (loss)  and  (loss) per share are
provided in the following table (in thousands, except per share amounts):

                                                   Three Months   Nine Months
                                                   ------------   -----------
                                                       Ended March 31, 2002
                                                   --------------------------
Net (loss) originally reported                      $(1,004)        $(2,889)
    Adjustments:
           Amortization of customers lists             (194)           (606)
           Depreciation of property and equipment      (320)           (320)
           Loss on asset disposals                     (295)           (705)
                                                    -------         -------


Net (loss) as adjusted                              $(1,813)        $(4,520)
                                                    =======         =======


Basic and diluted earnings per common share:

           Net (loss) originally reported           $ (0.13)        $ (0.38)
           Adjustments                                (0.10)          (0.19)
                                                    -------         -------


           Net (loss) as adjusted                   $ (0.23)        $ (0.57)
                                                    =======         =======

            The Company's accumulated deficit, as previously reported as of
March 31, 2002, was $44.9 million compared to the accumulated deficit of $46.5
million, as adjusted.

                                       13



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. OUR 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, OUR EXPANSION  INTO NEW MARKETS,  COMPETITION,
TECHNOLOGICAL ADVANCES, RELIANCE ON KEY SUPPLIERS AND AVAILABILITY OF MANAGERIAL
PERSONNEL.  THE FORWARD-LOOKING  STATEMENTS ARE MADE AS OF THE DATE OF THIS FORM
10-Q AND WE ASSUME NO OBLIGATION TO UPDATE THE FORWARD-LOOKING  STATEMENTS OR TO
UPDATE THE REASONS WHY ACTUAL  RESULTS COULD DIFFER FROM THOSE  PROJECTED IN THE
FORWARD-LOOKING STATEMENTS.

OVERVIEW

            We believe that we are the largest  supplier in the United States of
bulk CO2 systems and bulk CO2 for  carbonating  fountain  beverages based on the
number of bulk CO2 systems  leased to our  customers.  As of March 31, 2003,  we
operated a national  network of 102  service  locations  in 45 states  servicing
approximately  73,000  bulk  and  high  pressure  customers.  Currently,  99% of
fountain beverage users in the continental  United States are within our present
service  area.  Historically,  due  to a  combination  of  internal  growth  and
acquisitions,  we have  experienced  high levels of growth in terms of number of
customers  and net sales,  averaging 20% to 50% per year from 1995 through 2000.
Today,  the majority of our growth is internal  resulting from the conversion of
high pressure CO2 users to bulk CO2 systems.

            During  the  fiscal   years  ended  June  30,  2001  and  2002,   we
deliberately slowed new customer contract signings and the related  installation
rate of bulk  CO2  systems.  This  decision  was made to  enable  us to focus on
improving our operating  effectiveness in order to better position us for future
growth.  We decentralized  service location  management from our headquarters in
Stuart,  Florida to the depot  locations  themselves and in connection with this
decision hired new full-time depot and regional managers.  This slowed our gross
margin  improvement plan in fiscal 2001 and 2002,  although it is anticipated to
enhance it in the future.  We also devoted  significant  resources to developing
and  implementing our new  AccuRoute(TM)  system to improve our productivity and
better service our  customers.  The result of this decision was that our revenue
growth slowed from prior years although  revenue still grew at 16.7% and 6.9% in
fiscal 2001 and 2002,  respectively.  The ramp down in growth  enabled our sales
force to  concentrate  on signing  higher margin new  customers  and  re-signing
existing customers at increased rates.

            We believe that our future revenue growth, gains in gross margin and
profitability  will be dependent upon (i) increases in route density in existing
markets and the expansion and  penetration of bulk CO2 system  installations  in
new market  regions,  both resulting from  successful  ongoing  marketing,  (ii)
improved  operating  efficiencies  and (iii)  price  increases.  New  multi-unit
placement   agreements   combined  with   single-unit   placements   will  drive
improvements in achieving route density. Our success in reaching multi-placement
agreements is due in part to our national  delivery  system.  We maintain a "hub
and spoke" route structure and establish additional  stationary bulk CO2 service
locations as service areas expand through geographic growth. Our entry into many
states was  accomplished  largely through the  acquisition of businesses  having
thinly  developed route networks.  We expect to benefit from route  efficiencies
and other  economies  of scale as we build  our  customer  base in these  states
through  intensive  regional and local  marketing  initiatives.  Greater density
should lead to enhanced  utilization  of vehicles and other fixed assets and the
ability  to spread  fixed  marketing  and  administrative  costs  over a broader
revenue base.

            Generally,  our  experience  has been that as our service  locations
mature their gross profit  margins  improve as a result of their volume  growing
while fixed costs remain essentially unchanged.  New service locations typically
operate at low or negative  gross  margins in the early  stages and detract from
our highly  profitable  service  locations in more mature markets.  Fiscal 2001,
2002 and the first two quarters of fiscal 2003 were periods of transition for us
in which we achieved  significant  progress in better positioning  ourselves for
the  next  phase  of  growth.  We  continue  to  focus  on  improving  operating
effectiveness,  increasing  prices and strengthening  management.  We anticipate
that these initiatives will contribute positively to all areas of our Company.


                                       14



GENERAL

            Substantially  all of our revenues have been derived from the rental
of bulk CO2 systems  installed  at  customers'  sites,  the sale of CO2 and high
pressure  cylinder  revenues.  Revenues  have grown from $18.9 million in fiscal
1997 to $72.3 million in fiscal 2002. We believe that our revenue base is stable
due to the existence of long-term  contracts with our customers  which generally
rollover with a limited number expiring without renewal in any one year. Revenue
growth  is  largely   dependent   on  (1)  the  rate  of  new  bulk  CO2  system
installations,  (2) the growth in bulk CO2 sales at (i) customers  having rental
plus per pound charge  contracts  and (ii)  customers who own their own bulk CO2
systems, and (3) price increases.

            Cost of products  sold is comprised of  purchased  CO2,  vehicle and
service location costs associated with the storage and delivery of CO2. Selling,
general and administrative expenses consist of wages and benefits,  dispatch and
communications   costs,   as  well  as  expenses   associated   with  marketing,
administration,   accounting  and  employee   training.   Consistent   with  the
capital-intensive  nature of our business, we incur significant depreciation and
amortization expenses.  These stem from the depreciation of our bulk CO2 systems
and related  installation  costs,  amortization  of deferred  lease  acquisition
costs, and amortization of deferred financing costs and other intangible assets.

            With  respect  to bulk CO2  systems,  we  capitalize  costs that are
associated  with specific  installations  of such systems with  customers  under
non-cancelable  contracts  and which would not be incurred  but for a successful
placement. All other service, marketing and administrative costs are expensed as
incurred.

            Since 1990,  we have  devoted  significant  resources  to building a
sales and marketing organization, adding administrative personnel and developing
a  national  infrastructure  to  support  the rapid  growth in the number of our
installed  base of bulk  CO2  systems.  The  costs  of  this  expansion  and the
significant  depreciation  expense  recognized  on our  installed  network  have
contributed to accumulated net losses of $58.1 million at March 31, 2003.

RESULTS OF OPERATIONS

            THE  FOLLOWING  TABLE SETS  FORTH,  FOR THE PERIODS  INDICATED,  THE
PERCENTAGE RELATIONSHIP WHICH VARIOUS ITEMS BEAR TO NET SALES:



                                                 Three Months Ended    Nine Months Ended
                                                     March 31,            March 31,
                                                 ------------------    -----------------
                                                 2003       2002*      2003       2002*
                                                 ----       ----       ----       ----
Income Statement Data:

Net sales                                       100.0%     100.0%     100.0%     100.0%
Cost of products sold, excluding
  depreciation and amortization                  47.7       50.5       48.2       49.2
Selling, general and administrative expenses     20.9       22.0       24.7       20.6
Depreciation and amortization                    23.7       22.8       23.9       22.5
Loss on asset disposals                           2.0        3.4        2.2        2.8
                                                 ----       ----       ----       ----
Operating income                                  5.7        1.3        1.0        4.9
Loss on early extinguishment of debt                -          -          -        1.5
Interest expense                                  9.9       11.5       10.4       11.7
                                                 ------   --------    --------   -------

Net (loss)                                       (4.2)%    (10.2)%     (9.4)%     (8.3)%
                                                 ======    ========   ========   =======

*RESTATED, SEE NOTES 1, 2 AND 8 TO THE FINANCIAL STATEMENTS.

THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31, 2002

NET SALES

            Net sales increased by $0.6 million,  or 3.4%, from $17.7 million in
2002 to $18.3 million in 2003.  Sales derived from our sales plans  increased by
$0.7 million,  or 4.0%,  due to an increase in the number of accounts,  and $0.2
million,  or 1.3%, due to pricing initiatives and changes in the amount CO2 sold
to the average customer under our variable product purchase plans.  Improvements
in pricing  are the direct  result of our  efforts to obtain  favorable  pricing
terms from the average  customer,  partially  offset by the impact of a national
restaurant  organization  receiving  favorable  pricing  terms in  exchange  for


                                       15



placement  of  an  increased   number  of  their   restaurants  with  us.  These
improvements in sales derived from an increase in the number of active customers
and pricing initiatives were partially offset by a decrease of $0.3 million from
the rental of high pressure cylinders and the sale of gases other than CO2.

            The  following  table sets  forth,  for the periods  indicated,  the
percentage relationship which our service plans bear to net sales:


                                                Three Months March 31,
                                                ----------------------
Service Plan                                     2003            2002
                                                -----           -----
     Bulk budget plan(1)                         78.2%           80.3%

     Equipment lease/product purchase plan(2)    10.8             7.7

     Product purchase plan(3)                    10.8            11.1

     Stand alone high pressure cylinder(4)        0.2             0.9
                                                -----           -----
                                                100.0%          100.0%
                                                =====           =====

    (1)   Combined fee for bulk CO2 tank and bulk CO2.
    (2)   Fee for bulk CO2 tank and, separately, bulk CO2 usage.
    (3)   Bulk CO2 only.
    (4)   High pressure CO2 cylinders,  not used in conjunction  with a bulk CO2
          plan.

            During the fiscal  year  ended June 30,  2002,  we adopted a plan to
phase out those  customers that use only high pressure  cylinders and who do not
utilize one of our bulk CO2 service plans. Revenues derived from our stand-alone
high pressure  cylinder  customers may not be fully  eliminated from our ongoing
revenues  inasmuch  as our  goal is to  convert  these  customers  to a bulk CO2
service  plan.  Accordingly,   the  expected  declining  revenues  derived  from
stand-alone high pressure cylinder  customers is not expected to have a material
impact on our results of operations.

COST OF PRODUCTS SOLD

            Costs of products sold decreased by $0.3 million, or 2.5%, from $9.0
million  in 2002 to $8.7  million  in 2003,  and as a  percentage  of net sales,
decreased from 50.5% in 2002 to 47.7% in 2003.  Product costs  increased by $0.1
million,  representing  14.3% of net sales in both 2003 and 2002. Truck expenses
increased  by $0.2  million,  primarily  due to a  greater  number  of trucks in
service and higher fuel costs than a year ago.

            Operational  wages  decreased by $0.2 million,  from $3.5 million in
2002 to $3.3 million in 2003 due  primarily to a planned  reduction in headcount
compared to the same quarter last year;  unabsorbed tank  installation  expenses
decreased  by $0.5 million from $0.6 million in 2002 to $0.1 million in 2003 due
to greater  operating  efficiencies.  Other  operational costs increased by $0.2
million  from $1.1  million  in 2002 to $1.3  million in 2003 due  primarily  to
increased tank repair costs and equipment lease rental costs.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

            Selling,  general  and  administrative  expenses  decreased  by $0.1
million  from $3.9  million  in 2002 to $3.8  million  in 2003,  or 2.1%,  while
decreasing  as a  percentage  of net sales  from 22.0% in 2002 to 20.9% in 2003.
Selling  expenses  increased  from $0.7  million in 2002 to $0.8 million in 2003
million.

            General and  administrative  expenses decreased by $0.2 million from
$3.2 million in 2002 to $3.0 million in 2003.  The decrease was primarily due to
a planned  reduction  in  headcount,  effective  December  2002,  resulting in a
savings of $0.4  million  compared  to last year,  and a  reduction  in bad debt
expense  of  $0.1  million  due  to  improvements  in  our  internal  collection
procedures.  These  savings  were  partially  offset by an  increase in property
taxes, insurance and other expenses of $0.4 million.


                                       16



DEPRECIATION AND AMORTIZATION

            Depreciation and amortization increased from $4.0 million in 2002 to
$4.4  million  in  2003.  As  a  percentage  of  net  sales,   depreciation  and
amortization expense increased from 22.8% in 2002 to 23.7% in 2003. Depreciation
expense  increased from $3.1 million in 2002 to $3.6 million in 2003 principally
due to the  acceleration  of  depreciation  expense  resulting  from our plan to
replace all 50 and 100 lb. tanks over the next three to four years. Amortization
expense  decreased from $0.9 million in 2002 to $0.8 million in 2003,  primarily
due a decrease in  amortization  related to the  acquisition of customer  lists,
many of which were fully amortized as of March 31, 2003,  partially offset by an
increase in the amortization of financing charges.

LOSS ON ASSET DISPOSALS

            Loss on asset disposals  decreased from $0.6 million in 2002 to $0.4
million in 2003,  while  decreasing  as a  percentage  of net sales from 3.4% to
2.0%.  During 2002, we recognized  $0.3 million related to the disposition of 50
and 100 lb. tanks removed from service.

OPERATING INCOME

            For the reasons previously discussed,  operating income increased by
$0.8 million from $0.2 million in 2002 to $1.0 million in 2003.  As a percentage
of net sales, operating income increased from 1.3% in 2002 to 5.7% in 2003.

INTEREST EXPENSE

            Interest  expense  decreased by $0.2  million,  from $2.0 million in
2002 to $1.8 million in 2003,  and  decreased as a percentage  of net sales from
11.5% in 2002 to 9.9% in 2003,  primarily due to a decrease in the average level
of  outstanding  debt.  This reduction of debt is primarily due to $15.1 million
generated  from the private  placement of 1.7 million shares of our Common Stock
in August  2002,  $14.5  million  of which was used to  reduce  the  outstanding
balance  of our  senior  facility.  The  effective  interest  rate  of all  debt
outstanding during 2003 was 10.1%, as compared to 9.4% in 2002.

NET (LOSS)

            For the  reasons  described  above,  our net loss  improved  by $1.0
million  from $1.8 million in 2002 to $0.8  million in 2003.  No  provision  for
income tax expense has been made due to historical net losses.

EBITDA

            Earnings  before  interest,  taxes,  depreciation  and  amortization
("EBITDA")  is one of the principal  financial  measures by which we measure our
financial  performance.  EBITDA is a widely accepted financial indicator used by
many  investors,  lenders and  analysts to analyze and compare  companies on the
basis of  operating  performance,  and we believe  that EBITDA  provides  useful
information  regarding  our ability to service  our debt and other  obligations.
However,  EBITDA does not represent cash flow from  operations,  nor has it been
presented as a substitute to operating income or net income as indicators of our
operating  performance.  EBITDA excludes significant costs of doing business and
should not be  considered  in  isolation  or as a  substitute  for  measures  of
performance prepared in accordance with accounting principles generally accepted
in the United States of America.  In addition,  our calculation of EBITDA may be
different  from  the  calculation  used  by  our   competitors,   and  therefore
comparability  may be  affected.  In  addition,  our lenders  also use EBITDA to
assess our compliance with debt covenants.  These financial  covenants are based
on a  measure  that  is not  consistent  with  accounting  principles  generally
accepted in the United States of America. Such measure is EBITDA (as defined) as
modified by certain defined adjustments.

            EBITDA,  as set forth in the table below increased by  approximately
$1.1  million,  or 26.6%,  from $4.3 million in 2002 to $5.4 million in 2003 and
increased as a percentage of net sales from 24.0% to 29.4%.


                                       17



                                  Three Months Ended March 31,
                                  ----------------------------
                                       2003         2002
                                      -------      -------

Net (loss)                            $  (777)     $(1,813)
Interest expense                        1,823        2,035
Depreciation and amortization           4,355        4,044
                                      -------      -------
EBITDA                                $ 5,401      $ 4,266
                                      =======      =======


Cash flows provided by (used in):
  Operating activities                $ 7,601      $ 2,288
  Investing activities                $(3,461)     $(2,613)
  Financing activities                $(3,818)     $  (892)

NINE MONTHS ENDED MARCH 31, 2003 COMPARED TO NINE MONTHS ENDED MARCH 31, 2002

            Net sales increased by $0.8 million,  or 1.2%, from $54.4 million in
2002 to $55.2 million in 2003.  Sales derived from our sales plans  increased by
$0.9 million,  or 1.6%,  due to an increase in the number of accounts,  and $0.5
million,  or 1.0%, due to pricing initiatives and changes in the amount CO2 sold
to the average customer under our variable product purchase plans.  Improvements
in pricing  are the direct  result of our  efforts to obtain  favorable  pricing
terms  from  average  customer,  partially  offset by the  impact of a  national
restaurant  organization  receiving  favorable  pricing  terms in  exchange  for
placement  of  an  increased   number  of  their   restaurants  with  us.  These
improvements  in sales  derived  from  the  increase  in the  number  of  active
customers and pricing  initiatives  were partially  offset by a decrease of $0.7
million rental of high pressure cylinders and the sale of gases other than CO2.

            The  following  table sets  forth,  for the periods  indicated,  the
percentage relationship which our service plans bear to net sales:


                                             Nine Months Ended March 31,
                                             ---------------------------
Service Plan                                     2003            2002
                                              ----------      ----------
     Bulk budget plan(1)                         78.8%           78.7%

     Equipment lease/product purchase plan(2)     9.5             8.4

     Product purchase plan(3)                    11.3            12.0

     Stand alone high pressure cylinder(4)        0.4             0.9
                                              --------        --------
                                                100.0%          100.0%
                                              ========        ========


    (1)   Combined fee for bulk CO2 tank and bulk CO2.
    (2)   Fee for bulk CO2 tank and, separately, bulk CO2 usage.
    (3)   Bulk CO2 only.
    (4)   High pressure CO2 cylinders,  not used in conjunction  with a bulk CO2
          plan.

            During the fiscal  year  ended June 30,  2002,  we adopted a plan to
phase out those  customers that use only high pressure  cylinders and who do not
utilize one of our bulk CO2 service plans. Revenues derived from our stand-alone
high pressure  cylinder  customers may not be fully  eliminated from our ongoing
revenues  inasmuch  as our  goal is to  convert  these  customers  to a bulk CO2
service  plan.  Accordingly,   the  expected  declining  revenues  derived  from
stand-alone high pressure cylinder  customers is not expected to have a material
impact on our results of operations.

COST OF PRODUCTS SOLD

            Costs of products sold decreased by $0.2 million from $26.8 million
in 2002 to $26.6 million in 2003, and decreased as a percentage of sales from
49.2% to 48.2%. Product costs decreased by $0.1 million, while representing
14.6% and 14.9% of net sales in 2003 and 2002, respectively.


                                       18



            Unabsorbed tank installation expenses decreased by $0.6 million from
$1.2  million  in  2002  to  $0.6  million  in  2003  due to  greater  operating
efficiencies,  while  truck and  operational  wage  expenses  decreased  by $0.2
million.  These improvements were partially offset by a $0.7 million increase in
other  operational  costs  from $3.3  million  in 2002 to $4.0  million  in 2003
primarily due to increased tank repair costs and equipment lease rental costs.


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

            Selling,  general  and  administrative  expenses  increased  by $2.4
million,  or 21.0%,  from $11.2  million in 2002 to $13.6  million in 2003,  and
increased as a percentage of net sales from 20.6% in 2001 to 24.7% in 2003.

            Selling  expenses  increased by $0.7  million,  from $2.0 million in
2002 to $2.7  million in 2003.  Wages and  related  benefits  increased  by $0.5
million; however, as previously mentioned, we reduced the headcount of our sales
organization  in February 2003,  which we believe will result in improvements to
our  selling  wage and  related  expenses on a  going-forward  basis,  while not
hindering our ability to generate account bookings.

            General and  administrative  expenses increased by $1.7 million from
$9.2 million in 2002 to $10.9 million in 2003. The increase is  attributable  to
an increase in  administrative  wages and  benefits  of $0.4  million,  which is
primarily  attributable  to severance  costs  recognized  in  connection  with a
planned  headcount  reduction  during the three months ended  December 31, 2002.
Professional  and consulting fees also increased by $0.8 million,  primarily due
to  non-recurring  fees incurred  during the first six months of fiscal 2003 for
repairs of certain software,  improvements in our processes to track and collect
customer  receivables,  and  other  process  improvements.   Other  general  and
administrative  expenses  increased $0.5 million,  the result of increased depot
related taxes, insurance costs and other general expenses.

DEPRECIATION AND AMORTIZATION

            Depreciation and  amortization  increased from $12.2 million in 2002
to $13.2  million  in 2003.  As a  percentage  of net  sales,  depreciation  and
amortization expense increased from 22.5% in 2002 to 23.9% in 2003. Depreciation
expense increased from $9.4 million in 2002 to $10.5 million in 2003 due in part
to our plan to  replace  all 50 and 100 lb.  tanks  over the next  three to four
years,  resulting in  accelerated  depreciation  expense of $0.8 million in 2003
related to the shortened lives of these assets.  Amortization  expense decreased
from $2.8 million in 2002 to $2.7 million in 2003,  primarily  due a decrease in
amortization  related to the acquisition of customer  lists,  many of which were
fully  amortized  as of March 31, 2003,  partially  offset by an increase in the
amortization of financing charges.

LOSS ON ASSET DISPOSALS

            Loss on asset disposals  decreased from $1.6 million in 2002 to $1.2
million in 2003,  while  decreasing  as a  percentage  of net sales from 2.8% to
2.2%.  During 2002, we recognized  $0.7 million related to the disposition of 50
and 100 lb. tanks removed from service, compared to $0.2 million in 2003.

OPERATING INCOME

            For the reasons previously discussed,  operating income decreased by
$2.1 million from $2.6 million in 2002 to $0.5 million in 2003.  As a percentage
of net sales, operating income decreased from 4.9% in 2002 to 1.0% in 2003.

LOSS ON EARLY EXTINGUISHMENT OF DEBT

            We accelerated the recognition of $0.8 million in deferred financing
costs in 2002 associated with the refinancing of our long-term debt.

INTEREST EXPENSE

            Interest  expense  decreased by $0.7  million,  from $6.4 million in
2002 to $5.7 million in 2003,  and  decreased as a percentage  of net sales from
11.7% in 2002 to 10.4% in 2003, primarily due to a decrease in the average level
of  outstanding  debt.  This reduction of debt is primarily due to $15.1 million
generated  from the private  placement of 1.7 million shares of our Common Stock
in August  2002,  $14.5  million  of which was used to  reduce  the  outstanding
balance  of our  senior  facility.  The  effective  interest  rate  of all  debt
outstanding during 2003 was 9.9%, as compared to 9.6% in 2002.


                                       19



NET (LOSS)

            For the reasons  described  above,  net (loss)  increased  from $4.5
million in 2002 to $5.2 million in 2003. No provision for income tax expense has
been made due to historical net losses.

EBITDA

            Earnings  before  interest,  taxes,  depreciation  and  amortization
("EBITDA")  is one of the principal  financial  measures by which we measure our
financial  performance.  EBITDA is a widely accepted financial indicator used by
many  investors,  lenders and  analysts to analyze and compare  companies on the
basis of operating  performance,  and the we believe that EBITDA provides useful
information  regarding  our ability to service  our debt and other  obligations.
However,  EBITDA does not represent cash flow from  operations,  nor has it been
presented as a substitute to operating income or net income as indicators of our
operating  performance.  EBITDA excludes significant costs of doing business and
should not be  considered  in  isolation  or as a  substitute  for  measures  of
performance prepared in accordance with accounting principles generally accepted
in the United States of America.  In addition,  our calculation of EBITDA may be
different  from  the  calculation  used  by  our   competitors,   and  therefore
comparability  may be  affected.  In  addition,  our lenders  also use EBITDA to
assess our compliance with debt covenants.  These financial  covenants are based
on a  measure  that  is not  consistent  with  accounting  principles  generally
accepted in the United States of America. Such measure is EBITDA (as defined) as
modified by certain defined adjustments.

            EBITDA  decreased by $1.2  million,  or 7.8%,  from $14.9 million in
2002 to $13.7  million in 2003 and  decreased as a percentage  of net sales from
27.3% to 24.9%.

                                        Nine Months Ended March 31,
                                        ---------------------------
                                           2003             2002
                                         --------         --------

Net (loss)                               $ (5,201)        $ (4,520)
Interest expense                            5,745            6,361
Depreciation and amortization              13,171           12,242
Early Extinguishment of Debt                    -              796
                                         --------         --------
EBITDA                                   $ 13,715         $ 14,879
                                         ========         ========


Cash flows provided by (used in):
  Operating activities                   $ 11,097         $  8,209
  Investing activities                   $(10,612)        $ (9,538)
  Financing activities                   $ (1,530)        $  1,177

LIQUIDITY AND CAPITAL RESOURCES

            Our  cash   requirements   consist   principally   of  (1)   capital
expenditures  associated  with  purchasing and placing new bulk CO2 systems into
service  at  customers'   sites;   (2)  payments  of  interest  on   outstanding
indebtedness;  and (3) working capital. Whenever possible, we seek to obtain the
use of vehicles,  land, buildings,  and other office and service equipment under
operating  leases as a means of  conserving  capital.  As of March 31, 2003,  we
anticipated  making cash capital  expenditures of approximately $16 million over
the next twelve  months,  primarily  for  purchases  of bulk CO2 systems for new
customers,  the replacement  with larger bulk CO2 systems of 50 and 100 lb. bulk
CO2 systems in service at existing  customers,  as appropriate,  and replacement
units for our truck fleet. In June 2002, we adopted a plan to replace all 50 and
100 lb.  bulk CO2  systems  in service  at  customers  over a three to four year
period.  While this  decision may not  increase  revenues  generated  from these
customers, it is expected to improve operating  efficiencies,  gross margins and
profitability.  Once bulk CO2  systems  are placed into  service,  we  generally
experience  positive  cash  flows on a  per-unit  basis,  as there  are  minimal
additional capital expenditures required for ordinary operations. In addition to
capital  expenditures  related to internal  growth,  we review  opportunities to
acquire bulk CO2 service accounts, and may require cash in an amount dictated by
the scale and terms of any such transactions successfully concluded.

            On  September  24,  2001,  we entered  into a $60.0  million  second
amended  and  restated  revolving  credit  facility  with a  syndicate  of banks
("Amended  Credit  Facility").  This new facility  replaced our prior  facility,
which was due to  expire  in May 2002.  The  Amended  Credit  Facility  contains
interest rates and an unused  commitment fee based on a pricing grid  calculated
quarterly on total debt to annualized  EBITDA (as  defined).  We are entitled to
select the Base Rate or LIBOR, plus applicable  margin,  for principal  drawings
under the Amended Credit  Facility.  The applicable LIBOR margin pursuant to the


                                       20



pricing  grid  currently  ranges  from  2.50% to 4.75%,  the  applicable  unused
commitment  fee pursuant to the pricing grid ranges from 0.375% to 0.50% and the
applicable Base Rate margin  pursuant to the pricing grid currently  ranges from
1.50% to 3.75%.  Interest only is payable  periodically  until the expiration of
the Amended Credit Facility.  The Amended Credit Facility is  collateralized  by
substantially all of our assets.  Additionally,  we are precluded from declaring
or paying any cash dividends,  except we may accrue and accumulate, but not pay,
cash dividends on the redeemable  preferred  stock. We are also required to meet
certain  affirmative  and  negative  covenants,  including  but not  limited  to
financial covenants.

            We are  required to assess our  compliance  with our debt  covenants
under  the  Amended  Credit  Facility  on a  quarterly  basis.  These  financial
covenants  are  based  on a  measure  that  is not  consistent  with  accounting
principles  generally accepted in the United States of America.  Such measure is
EBITDA (as defined),  which represents  earnings (loss) before interest,  taxes,
depreciation   and   amortization,   as  further  modified  by  certain  defined
adjustments.  The failure to meet these covenants, absent a waiver or amendment,
would  place us in  default  and cause the debt  outstanding  under the  Amended
Credit  Facility to become  immediately  due and  payable.  The  Amended  Credit
Facility  also  includes  certain  cross-default  provisions  to our 12%  Senior
Subordinated Promissory Notes.

            Prior to June 30, 2002, the Amended  Credit  Facility was amended to
adjust  certain  financial  covenants  for the  quarter  ended June 30, 2002 and
prospectively, and non-compliance with the minimum EBITDA covenant for the three
months  ended  March 31, 2002 was waived.  As of June 30,  2002,  we were not in
compliance with certain of our financial  covenants.  On September 27, 2002, the
Amended Credit  Facility was amended to adjust certain  financial  covenants for
the quarter ended  September 30, 2002, and  prospectively,  non-compliance  with
financial covenants for the three months ended June 30, 2002 was waived, and the
maturity of the Amended  Credit  Facility was extended to November 17, 2003.  On
August 22, 2002, we completed the private  placement of 1,663,846  shares of our
Common Stock to 24 accredited  investors at a price of $9.75 per share realizing
net cash proceeds of approximately  $15.1 million after $1.1 million of issuance
costs.  Pursuant to the  requirements  of the Amended Credit  Facility,  we used
$14.5  million of the  proceeds to pay down  outstanding  debt under the Amended
Credit Facility. As of September 30, 2002, we were in compliance with all of the
financial covenants under the Amended Credit Facility.  On February 7, 2003, the
Amended  Credit  Facility  was  amended to adjust  certain  financial  covenants
prospectively,  non-compliance  with the minimum  EBITDA  covenant for the three
months ended  December 31, 2002 was waived,  the maturity of the Amended  Credit
Facility  was extended to April 29, 2004,  and the Amended  Credit  Facility was
reduced to $45.0 million.  As of March 31, 2002, we were in compliance  with all
of the financial covenants under the Amended Credit Facility.

            As of March 31, 2003, a total of $32.5 million was outstanding under
the Amended Credit Facility with interest 4.00% above LIBOR (4.59% to 5.66%).

            In  October  1997,  we  issued  $30.0  million  of  our  12%  Senior
Subordinated   Promissory  Notes  ("1997  Notes")  with  interest  only  payable
semi-annually  on April 30 and October 31, due October 31, 2004. On May 4, 1999,
we sold an additional  $10.0 million of our 12% Senior  Subordinated  Promissory
Notes ("1999 Notes").  Except for their October 31, 2005 maturity date, the 1999
Notes are substantially  identical to the 1997 Notes. As of June 30, 2002 and at
various  dates in the past we have been unable to meet certain  covenants  under
the 1997 Notes and 1999 Notes and have had to obtain  waivers or  modifications.
On September 27, 2002,  concurrently  with the  amendment to the Amended  Credit
Facility,  certain  financial  covenants  of the 1997  Notes and 1999 Notes were
amended to adjust  certain  financial  covenants  for the quarter ended June 30,
2002, and prospectively.  As of September 30, 2002, December 31, 2002, and March
31, 2003, we were in compliance  with all of the financial  covenants  under the
1997 Notes and 1999 Notes.  On February 7, 2003,  the  interest  coverage  ratio
governing  the 1997 Notes and 1999 Notes was amended for the quarter ended March
31, 2003 and prospectively.

            During the nine months ended March 31, 2003,  our capital  resources
included cash flows from operations,  proceeds from the private placement of our
Common Stock and available borrowing capacity under the Amended Credit Facility.
We believe that cash flows from  operations and available  borrowings  under the
Amended  Credit  Facility will be sufficient to fund proposed  operations for at
least the next twelve months.

            The  table  below  sets  forth  our  contractual  obligations,   (in
thousands):


                                       21



                                               Less than 1
Contractual obligations            Total           Year        2-3 Years      4-5 Years    Thereafter
                                  -------------------------------------------------------------------
Senior debt                       $32,464        $    43        $32,189        $   195        $    37
Subordinated debt                  39,526              -         39,526              -              -
Non-competition agreements            120            120              -              -              -
Operating leases                   12,383          3,860          4,959          2,611            953
                                  -------        -------        -------        -------        -------
Total obligations                 $84,493        $ 4,023        $76,674        $ 2,806        $   990
                                  =======        =======        =======        =======        =======


            WORKING CAPITAL. At March 31, 2003 and June 30, 2002, we had working
capital of $0.2 million and $2.3 million, respectively.

            CASH FLOWS FROM  OPERATING  ACTIVITIES.  Cash flows  generated  from
operating  activities  increased  from $8.2 million in 2002 to $11.1  million in
2003,  primarily the result of a $3.8 million  improvement  in cash derived from
operating assets,  partially offset by a decrease in our net income and non-cash
adjustments to income.

            CASH FLOWS FROM INVESTING ACTIVITIES. During 2003 and 2002, net cash
used in investing  activities was $10.6 million and $9.5 million,  respectively.
These  investing  activities  were primarily  attributable  to the  acquisition,
installation and direct placement costs of bulk CO2 systems.

            CASH FLOWS FROM FINANCING  ACTIVITIES.  During 2003, cash flows used
in  financing  activities  was $1.5  million  compared to cash flow  provided by
financing activities of $1.2 million in 2002. In 2003, cash flows from financing
activities  included  $15.1  million from the issuance of 1.7 million  shares of
Common Stock,  offset by $15.8 million from the net repayment of long-term debt.
In 2002,  cash flows from financing  activities  included $50.0 million from the
refinancing  of the Amended  Credit  Facility that  occurred in September  2001,
offset by the net  repayment of  long-term  debt.  In addition,  cash flows from
financing  activities  included  proceeds of $2.5  million  from the issuance of
Series B Preferred Stock and the exercise of stock options,  partially offset by
an increase in deferred financing charges under the Amended Credit Facility.

INFLATION

            The modest  levels of  inflation  in the  general  economy  have not
affected  our  results  of  operations.  Additionally,  our  customer  contracts
generally  provide  for annual  increases  in the  monthly  rental rate based on
increases in the consumer price index. We believe that inflation will not have a
material adverse effect on our future results of operations.

            Our bulk CO2  exclusive  requirements  contract  with The BOC Group,
Inc. ("BOC") provides for annual  adjustments in the purchase price for bulk CO2
based upon  increases or decreases in the Producer  Price Index for Chemical and
Allied Products or the average percentage  increase in the selling price of bulk
merchant  carbon  dioxide  purchased  by BOC's  large,  multi-location  beverage
customers in the United States.

RECENT ACCOUNTING PRONOUNCEMENTS

            In December 2002, the Financial  Accounting Standards Board ("FASB")
issued SFAS No. 148,  "ACCOUNTING FOR STOCK-BASED  COMPENSATION - TRANSITION AND
DISCLOSURE"  ("SFAS  148").  SFAS 148  amends  SFAS  No.  123,  "ACCOUNTING  FOR
STOCK-BASED  COMPENSATION"  ("SFAS  123"),  to  provide  alternative  methods of
transition  for a voluntary  change to the fair value based method of accounting
for  stock-based  employee  compensation.  In  addition,  SFAS  148  amends  the
disclosure  requirements  of SFAS 123 to require  prominent  disclosure  in both
annual and  interim  financial  statements  about the method of  accounting  for
stock-based  employee  compensation  and the  effect of the  method  used on the
reported  results.  The  provisions  of SFAS  148 are  effective  for  financial
statements for fiscal years ending after December 15, 2002. The adoption of SFAS
148 did not impact our financial  position,  results of operations or cash flows
for the periods presented.

            In April 2002,  the FASB issued  SFAS No. 145,  "RESCISSION  OF FASB
STATEMENTS NO. 4, 44, AND 64,  AMENDMENT OF FASB STATEMENT NO. 13, AND TECHNICAL
CORRECTIONS"  ("SFAS 145"). Among other things, SFAS 145 rescinds the provisions
of SFAS No. 4 that require  companies to classify  certain gains and losses from
debt  extinguishments as extraordinary items. The provisions of SFAS 145 related
to  classification  of debt  extinguishments  are  effective  for  fiscal  years
beginning after May 15, 2002. Gains and losses from  extinguishment of debt will
be  classified  as  extraordinary  items only if they meet the  criteria  in APB
Opinion  No. 30 ("APB  30");  otherwise  such  losses  will be  classified  as a


                                       22



component of continuing operations. We adopted SFAS 145 during the quarter ended
September 30, 2002. In accordance with APB 30 and SFAS 145, we have reclassified
the $796,000 extraordinary loss on the early extinguishment of debt for the nine
months ended March 31, 2002 to a component of continuing operations.

            In June  2002,  the FASB  issued  SFAS  146,  "ACCOUNTING  FOR COSTS
ASSOCIATED  WITH EXIT OR  DISPOSAL  ACTIVITIES"  ("SFAS  146")  which  addresses
financial  accounting and reporting for costs  associated  with exit or disposal
activities and nullifies EITF Issue No. 94-3 "LIABILITY  RECOGNITION FOR CERTAIN
EMPLOYEE  TERMINATION  BENEFITS  AND OTHER COSTS TO EXIT AN ACTIVITY  (INCLUDING
CERTAIN  COSTS  INCURRED  IN A  RESTRUCTURING)"  ("EITF  94-3").  The  principal
difference between SFAS 146 and EITF 94-3 relates to SFAS 146's requirements for
recognition  of a  liability  for a cost  associated  with an  exit or  disposal
activity. SFAS 146 requires that a liability be recognized when the liability is
incurred.  Under EITF 94-3, a liability  for an exit cost was  recognized at the
date of an entity's  commitment to an exit plan. SFAS 146 also  establishes that
fair value is the  objective  for  initial  measurement  of the  liability.  The
provisions of SFAS 146 are effective  for exit or disposal  activities  that are
initiated  after  December 31, 2002, but early  application  is encouraged.  The
adoption  of SFAS 146 during the first  quarter of fiscal  2003 had no impact on
our results of operations and financial position.

            In  the  first  quarter  of  fiscal  2003,  we  adopted  SOP  01-06,
"ACCOUNTING BY CERTAIN ENTITIES (INCLUDING ENTITIES WITH TRADE RECEIVABLES) THAT
LEND TO OR FINANCE THE ACTIVITIES OF OTHERS" ("SOP 01-06").  SOP 01-06 addresses
disclosures on accounting  policies relating to trade accounts receivable and is
effective  prospectively  for  financial  statements  issued  for  fiscal  years
beginning  after  December 15, 2001.  The adoption of SOP 01-06 had no impact on
our results of operations or financial position.

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, 2003, a total of $32.5 million was outstanding  under the
Amended  Credit  Facility  with  interest at 4.00% above LIBOR (4.59% to 5.66%).
Based upon $32.5 million  outstanding under the Amended Credit Facility at March
31, 2003,  our annual  interest  cost under the Amended  Credit  Facility  would
increase by $0.3 million for each 1% increase in LIBOR.

            In  order  to  reduce  our  exposure  to  increases  in  LIBOR,  and
consequently to increases in interest payments, we entered into an interest rate
swap  transaction  (the "Swap") in the amount of $12.5  million  (the  "Notional
Amount") which terminates on September 28, 2003.  Pursuant to the Swap, we pay a
fixed interest rate of 5.23% per annum and receive a LIBOR-based  floating rate.
The effect of the Swap is to  neutralize  any  changes in LIBOR on the  Notional
Amount. If the LIBOR based rate decreases below 5.23% during the period the Swap
is in effect,  interest  payments by us on the  Notional  Amount will be greater
than if we had not entered into the Swap,  since by exchanging LIBOR for a fixed
interest  rate,  we would not benefit from falling  interest  rates on LIBOR,  a
variable interest rate. We do not enter into speculative derivative transactions
or leveraged swap transactions.

ITEM 4.    CONTROLS AND PROCEDURES

            As  previously  reported  in our  Form  10-Q for the  quarter  ended
September 30, 2002,  the Chief  Executive  Officer and Chief  Financial  Officer
concluded  that our  disclosure  controls  and  procedures  (as defined in Rules
13a-14 and 15d-14 under the Securities  Exchange Act of 1934),  while  generally
effective,  were deficient in certain areas.  During the quarters ended December
31, 2002 and March 31, 2003,  we undertook  certain  corrective  actions.  While
there have been no significant  changes in internal controls or in other factors
that could  significantly  affect these controls subsequent to the date of their
most  recent  evaluation,  we  continue  to  improve  the  effectiveness  of our
disclosure controls and procedures.


                                       23



PART II.    OTHER INFORMATION

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K


(a)    Exhibit No.                                        Exhibit
       ----------                                         -------
          99.1               -    Certification of Chief Executive Officer dated May 15, 2003

          99.2               -    Certification of Chief Financial Officer dated May 15, 2003

(b)    Reports on Form 8-K.

       A report on From 8-K dated  March 27, 2003  reporting an Item 5 event was
       filed during the quarter ended March 31, 2003.


                                       24



                                   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 15, 2003                           By:      /s/ Robert R. Galvin
                                                    ----------------------------
                                                       Robert R. Galvin
                                                       Chief Financial Officer


                                       25



                      -------------------------------------
                         SECTION 302 10-Q CERTIFICATIONS
                      -------------------------------------

I, Michael E. DeDomenico, certify that:

     1.   I have reviewed this quarterly report on Form 10-Q of NuCo2 Inc.;

     2.   Based on my  knowledge,  this  quarterly  report  does not contain any
          untrue  statement of a material  fact or omit to state a material fact
          necessary to make the statements  made, in light of the  circumstances
          under which such  statements were made, not misleading with respect to
          the period covered by this quarterly report;

     3.   Based on my knowledge,  the financial statements,  and other financial
          information  included in this quarterly report,  fairly present in all
          material respects the financial  condition,  results of operations and
          cash flows of the registrant as of, and for, the periods  presented in
          this quarterly report;

     4.   The registrant's  other certifying  officers and I are responsible for
          establishing  and maintaining  disclosure  controls and procedures (as
          defined in Exchange  Act Rules  13a-14 and 15d-14) for the  registrant
          and we have:

          a)   designed such  disclosure  controls and procedures to ensure that
               material  information  relating to the registrant,  including its
               consolidated  subsidiaries,  is made known to us by others within
               those  entities,  particularly  during  the  period in which this
               quarterly report is being prepared;

          b)   evaluated  the  effectiveness  of  the  registrant's   disclosure
               controls and  procedures as of a date within 90 days prior to the
               filing date of this quarterly report (the "Evaluation Date"); and

          c)   presented  in this  quarterly  report our  conclusions  about the
               effectiveness of the disclosure  controls and procedures based on
               our evaluation as of the Evaluation Date;

     5.   The registrant's other certifying officers and I have disclosed, based
          on our most recent  evaluation,  to the registrant's  auditors and the
          audit  committee  of  registrant's  board  of  directors  (or  persons
          performing the equivalent function):

          a)   all  significant  deficiencies  in the  design  or  operation  of
               internal  controls which could adversely  affect the registrant's
               ability to record,  process,  summarize and report financial data
               and have  identified for the  registrant's  auditors any material
               weaknesses in internal controls; and

          b)   any fraud,  whether or not material,  that involves management or
               other employees who have a significant  role in the  registrant's
               internal controls; and

     6.   The  registrant's  other  certifying  officers and I have indicated in
          this quarterly report whether or not there were significant changes in
          internal controls or in other factors that could significantly  affect
          internal   controls   subsequent  to  the  date  of  our  most  recent
          evaluation,   including   any   corrective   actions  with  regard  to
          significant deficiencies and material weaknesses.



         Date:     May 15, 2003                 /s/ Michael E. DeDomenico
                                                --------------------------------
                                                Michael E. DeDomenico
                                                Chief Executive Officer


                                       26



                      -------------------------------------
                         SECTION 302 10-Q CERTIFICATIONS
                      -------------------------------------

I, Robert R. Galvin, certify that:

     1.   I have reviewed this quarterly report on Form 10-Q of NuCo2 Inc.;

     2.   Based on my  knowledge,  this  quarterly  report  does not contain any
          untrue  statement of a material  fact or omit to state a material fact
          necessary to make the statements  made, in light of the  circumstances
          under which such  statements were made, not misleading with respect to
          the period covered by this quarterly report;

     3.   Based on my knowledge,  the financial statements,  and other financial
          information  included in this quarterly report,  fairly present in all
          material respects the financial  condition,  results of operations and
          cash flows of the registrant as of, and for, the periods  presented in
          this quarterly report;

     4.   The registrant's  other certifying  officers and I are responsible for
          establishing  and maintaining  disclosure  controls and procedures (as
          defined in Exchange  Act Rules  13a-14 and 15d-14) for the  registrant
          and we have:

          a)   designed such  disclosure  controls and procedures to ensure that
               material  information  relating to the registrant,  including its
               consolidated  subsidiaries,  is made known to us by others within
               those  entities,  particularly  during  the  period in which this
               quarterly report is being prepared;

          b)   evaluated  the  effectiveness  of  the  registrant's   disclosure
               controls and  procedures as of a date within 90 days prior to the
               filing date of this quarterly report (the "Evaluation Date"); and

          c)   presented  in this  quarterly  report our  conclusions  about the
               effectiveness of the disclosure  controls and procedures based on
               our evaluation as of the Evaluation Date;

     5.   The registrant's other certifying officers and I have disclosed, based
          on our most recent  evaluation,  to the registrant's  auditors and the
          audit  committee  of  registrant's  board  of  directors  (or  persons
          performing the equivalent function):

          a)   all  significant  deficiencies  in the  design  or  operation  of
               internal  controls which could adversely  affect the registrant's
               ability to record,  process,  summarize and report financial data
               and have  identified for the  registrant's  auditors any material
               weaknesses in internal controls; and

          b)   any fraud,  whether or not material,  that involves management or
               other employees who have a significant  role in the  registrant's
               internal controls; and

     6.   The  registrant's  other  certifying  officers and I have indicated in
          this quarterly report whether or not there were significant changes in
          internal controls or in other factors that could significantly  affect
          internal   controls   subsequent  to  the  date  of  our  most  recent
          evaluation,   including   any   corrective   actions  with  regard  to
          significant deficiencies and material weaknesses.



          Date:  May 15, 2003                       /s/ Robert R. Galvin
                                                    ----------------------------
                                                    Robert R. Galvin
                                                    Chief Financial Officer



                                       27`