UNITED
        STATES
 SECURITIES
        AND EXCHANGE
        COMMISSION
 Washington,
        D.C.
        20549
 
 FORM
        10-Q
 
 (Mark
        One)
 
  ̈QUARTERLY
        REPORT PURSUANT TO SECTION
        13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For
        the
        quarterly period ended December 31,
        2007
 
 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
 
 NUCO2INC.(Exact
                  name of registrant as specified in its
                  charter)
 
 Florida
              65-0180800(State
                  or other jurisdiction of incorporation or organization)
              (I.R.S.
                  Employer Identification No.)
 
 2800
                  SE Market Place, Stuart, FL
              34997(Address
                  of principal executive offices)
              (Zip
                  Code)
 
 (772)
                  221-1754(Registrant’s
                  telephone number, including area code)N/A(Former
                  name, former address and former fiscal year, if changed since last
                  report)
 
 Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days.     Yes þ     No
         ̈
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
        one):
 Large
        accelerated filer  ̈                 Accelerated
        filer þ                 Non-accelerated
        filer  ̈
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).     Yes  ̈     No
þ
  Indicate
        the number of shares outstanding of each of the issuer's classes of common
        stock, as of the latest practicable date:
 
 Class
                Outstanding
                    at December 31, 2007Common
                    Stock, $.001 par value
                14,769,532
                    shares
   
  NUCO2
        INC.
 
 Index
 
 PART
                  I.
              FINANCIAL
                  INFORMATIONITEM
                  1.
              FINANCIAL
                  STATEMENTSBalance
                  Sheets as of December 31, 2007 (unaudited)
                  and
                June
                  30,
                  2007
              3Statements
                  of Income for the Three Months
                  Ended
                December
                  31, 2007 (unaudited) and  December 31, 2006
                (unaudited)
              4Statements
                  of Income for the Six Months
                  Ended
                December
                  31, 2007 (unaudited) and  December 31, 2006
                (unaudited)
              5Statement
                  of Shareholders’ Equity for the Six
                  Months
                Ended
                  December 31, 2007  (unaudited)
              6Statements
                  of Cash Flows for the Six
                  Months
                Ended
                  December 31, 2007 (unaudited) and December 31,
                2006  (unaudited)
              8Notes
                  to Financial Statements
              10ITEM
                  2.
              MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OF
                FINANCIAL
                  CONDITION AND RESULTS OF
                OPERATIONS
              15ITEM
                  3.
              QUANTITATIVE
                  AND QUALITATIVE DISCLOSURESABOUT MARKET
                  RISK
              25ITEM
                  4.
              CONTROLS
                  AND PROCEDURES
              26PART
                  II.
              OTHER
                  INFORMATIONITEM
                  2.
              UNREGISTERED
                  SALES OF EQUITY SECURITIES
                  AND
                USE
                  OF PROCEEDS
              26ITEM
                  4.
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY
                  HOLDERS
              26ITEM
                  6.
              EXHIBITS
              27SIGNATURES
              28
 
  2
 Index
 
 PART
                  I.
              FINANCIAL
                  INFORMATION
 
 ITEM
                  1.
              FINANCIAL
                  STATEMENTS
 NUCO2
        INC.
 BALANCE
        SHEETS
 (In
        thousands, except share amounts)
 ASSETS
 December
                    31, 2007
              
              
              June
                    30, 2007(UNAUDITED)Current
                  assets:Cash
                  and cash equivalents
              
              $
              384
              
              
              $
              343Trade
                  accounts receivable; net of allowance for doubtful Accounts of
                  $767 and
                  $1,004, respectively
              
              
              10,536
              
              
              
              11,823Inventories
              
              
              313
              
              
              
              297Prepaid
                  insurance expense and deposits
              
              
              3,776
              
              
              
              3,121Prepaid
                  expenses and other current assets
              
              
              2,592
              
              
              
              1,412Deferred
                  tax assets – current portion
              
              
              8,250
              
              
              
              8,264Total
                  current assets
              
              
              25,851
              
              
              
              25,260Property
                  and equipment, net
              
              
              121,654
              
              
              
              122,364Goodwill,
                  net
              
              
              25,909
              
              
              
              25,909Deferred
                  financing costs, net
              
              
              209
              
              
              
              254Customer
                  lists, net
              
              
              5,949
              
              
              
              6,761Non-competition
                  agreements, net
              
              
              266
              
              
              
              512Deferred
                  lease acquisition costs, net
              
              
              5,943
              
              
              
              5,744Deferred
                  tax assets, net
              
              
              594
              
              
              
              3,813Other
              
              
              228
              
              
              
              22139,098
              
              
              
              43,214Total
                  assets
              
              $
              186,603
              
              
              $
              190,838LIABILITIES
                AND SHAREHOLDERS' EQUITYCurrent
                  liabilities:Accounts
                  payable
              
              $
              7,035
              
              
              $
              6,061Accrued
                  expenses
              
              
              2,619
              
              
              
              2,043Accrued
                  insurance
              
              
              1,508
              
              
              
              1,054Accrued
                  interest
              
              
              161
              
              
              
              121Accrued
                  payroll
              
              
              2,149
              
              
              
              2,357Other
                  current liabilities
              
              
              1,288
              
              
              
              314Total
                  current liabilities
              
              
              14,760
              
              
              
              11,950Long-term
                  debt
              
              
              27,500
              
              
              
              34,750Customer
                  deposits
              
              
              4,316
              
              
              
              4,246Total
                  liabilities
              
              
              46,576
              
              
              
              50,946Commitments
                  and contingenciesShareholders'
                  equity:Common
                  stock; par value $.001 per share; 30,000,000 shares authorized;
                  issued
                  15,965,136 shares at December 31, 2007 and 15,921,066 shares at
                  June 30,
                  2007
              
              
              16
              
              
              
              16Additional
                  paid-in capital
              
              
              177,177
              
              
              
              174,831Less
                  treasury stock at cost; 1,195,604 shares at December 31, 2007 and
                  921,409
                  shares at June 30, 2007
              
              
              (30,018
              )
              
              
              (22,937
              )Accumulated
                  deficit
              
              
              (7,079
              )
              
              
              (12,126
              )Accumulated
                  other comprehensive income (loss)
              
              
              (69
              )
              
              
              108Total
                  shareholders’ equity
              
              
              140,027
              
              
              
              139,892Total
                  liabilities and shareholders’ equity
              
              $
              186,603
              
              
              $
              190,838
 See
        accompanying notes to financial statements.
  3
 Index
  NUCO2
        INC.
 STATEMENTS
        OF INCOME
 (In
        thousands, except per share amounts)
 (UNAUDITED)
 
 
 Three
                  Months Ended December 31,2007
              
              
              2006Revenues:Product
                  sales
              
              $
              22,455
              
              
              $
              21,319Equipment
                  rentals
              
              
              11,630
              
              
              
              10,642Total
                  revenues
              
              
              34,085
              
              
              
              31,961Costs
                  and expenses:Cost
                  of products sold, excluding depreciation and amortization
              
              
              14,759
              
              
              
              13,645Cost of equipment rentals, excluding depreciation and
                  amortization
              
              
              2,453
              
              
              
              2,101Selling,
                  general and administrative expenses
              
              
              6,947
              
              
              
              7,834Depreciation
                  and amortization
              
              
              5,025
              
              
              
              4,897Loss
                  on asset disposal
              
              
              794
              
              
              
              54229,978
              
              
              
              29,019Operating
                  income
              
              
              4,107
              
              
              
              2,942Interest
                  expense
              
              
              512
              
              
              
              550Income
                  before provision for income taxes
              
              
              3,595
              
              
              
              2,392Provision
                  for income taxes
              
              
              1,538
              
              
              
              1,009Net
                  income
              
              $
              2,057
              
              
              $
              1,383Weighted
                  average outstanding shares of common stock:Basic
              
              
              14,768
              
              
              
              15,776Diluted
              
              
              15,137
              
              
              
              16,087Net
                  income per basic share
              
              $
              0.14
              
              
              $
              0.09Net
                  income per diluted share
              
              $
              0.14
              
              
              $
              0.09
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 See
        accompanying notes to financial statements.
   4
 Index
 
  NUCO2
        INC.
 STATEMENTS
        OF INCOME
 (In
        thousands, except per share amounts)
 (UNAUDITED)
 
 
 Six
                    Months Ended December 31,2007
              
              
              2006Revenues:Product sales
              
              $
              45,848
              
              
              $
              42,870Equipment rentals
              
              
              23,170
              
              
              
              21,447Total
                  revenues
              
              
              69,018
              
              
              
              64,317Costs
                  and expenses:Cost
                  of products sold, excluding depreciation and amortization
              
              
              29,290
              
              
              
              27,918Cost
                  of equipment rentals, excluding depreciation and
                  amortization
              
              
              4,585
              
              
              
              2,605Selling,
                  general and administrative expenses
              
              
              13,318
              
              
              
              14,391Depreciation
                  and amortization
              
              
              10,048
              
              
              
              9,742Loss
                  on asset disposal
              
              
              1,740
              
              
              
              98458,981
              
              
              
              55,640Operating
                  income
              
              
              10,037
              
              
              
              8,677Interest
                  expense
              
              
              1,092
              
              
              
              1,126Income
                  before provision for income taxes
              
              
              8,945
              
              
              
              7,551Provision
                  for income taxes
              
              
              3,898
              
              
              
              3,649Net
                  income
              
              $
              5,047
              
              
              $
              3,902Weighted
                  average outstanding shares of common stock:Basic
              
              
              14,806
              
              
              
              15,725Diluted
              
              
              15,159
              
              
              
              16,035Net
                  income per basic share
              
              $
              0.34
              
              
              $
              0.25Net
                  income per diluted share
              
              $
              0.33
              
              
              $
              0.24
 
 
 
 
 
 
  
 
 
 
 
 
 See
        accompanying notes to financial statements.
 
  5
 Index
  
 NUCO2
        INC.
 STATEMENT
        OF SHAREHOLDERS’ EQUITY
 (In
        thousands, except share amounts)
 (UNAUDITED)
 
 Common
                  Stock
              
              
              Additional
                Paid-In
              
              
              Treasury
                  StockShares
              
              
              Amount
              
              
              Capital
              
              
              Shares
              
              
              AmountBalance,
                  June 30, 2007
              
              
              15,921,066
              
              
              $
              16
              
              
              $
              174,831
              
              
              
              921,409
              
              
              $
              (22,937
              )Comprehensive
                  income:Net
                  income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Other
                  comprehensive income:Interest
                  rate swap
                  transaction
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Total
                  comprehensive incomeShare-based
                  compensation
              
              
              -
              
              
              
              -
              
              
              
              1,641
              
              
              
              -
              
              
              
              -Excess
                  tax benefits from share-based arrangements
              
              
              -
              
              
              
              -
              
              
              
              281
              
              
              
              -
              
              
              
              -Issuance
                  of 44,070 shares of common stock -exercise
                  of
                  options
              
              
              44,070
              
              
              
              -
              
              
              
              424
              
              
              
              -
              
              
              
              -Purchase
                  of treasury stock
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              274,195
              
              
              
              (7,081
              )Balance,
                  December 31, 2007
              
              
              15,965,136
              
              
              $
              16
              
              
              $
              177,177
              
              
              
              1,195,604
              
              
              $
              (30,018
              )
 
 
 
 
 See
        accompanying notes to financial statements.
  6
 Index
  
 NUCO2
        INC.
 STATEMENT
        OF SHAREHOLDERS’ EQUITY
 (In
        thousands, except share amounts)
 (UNAUDITED)
 
 Accumulated
              
              
              Accumulated
                  Other Comprehensive
              
              
              Total
                Shareholders'Deficit
              
              
              Income
                  (Loss)
              
              
              EquityBalance,
                  June 30, 2007
              
              $
              (12,126
              )
              
              $
              108
              
              
              $
              139,892Comprehensive
                  income:Net
                  income
              
              
              5,047
              
              
              
              -
              
              
              
              5,047Other
                  comprehensive income:Interest
                  rate swap
                  transaction
              
              
              -
              
              
              
              (177
              )
              
              
              (177
              )Total
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              4,870Share-based
                  compensation
              
              
              -
              
              
              
              -
              
              
              
              1,641Excess
                  tax benefits from share-based arrangements
              
              
              -
              
              
              
              -
              
              
              
              281Issuance
                  of 44,070 shares of common stock -exercise
                  of
                  options
              
              
              -
              
              
              
              -
              
              
              
              424Purchase
                  of treasury stock
              
              
              -
              
              
              
              -
              
              
              
              (7,081
              )Balance,
                  December 31, 2007
              
              $
              (7,079
              )
              
              $
              (69
              )
              
              $
              140,027
 
 
 See
        accompanying notes to financial statements.
 
  7
 Index
  
 
 NUCO2
        INC.
 STATEMENTS
        OF CASH FLOWS
 (In
        thousands)
 (UNAUDITED)
 
 
 Six
                    Months Ended December 31,2007
              
              
              2006Cash
                  flows from operating activities:Net
                  income
              
              $
              5,047
              
              
              $
              3,902Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Depreciation
                  and amortization of property and equipment
              
              
              8,402
              
              
              
              8,120Bad
                  debt expense
              
              
              501
              
              
              
              1,495Amortization
                  of other assets
              
              
              1,646
              
              
              
              1,622Loss
                  on asset disposal
              
              
              1,740
              
              
              
              984Change
                  in net deferred tax asset
              
              
              3,514
              
              
              
              3,512Share-based
                  compensation
              
              
              1,641
              
              
              
              1,944Excess
                  tax benefits from share-based arrangements
              
              
              (281
              )
              
              
              (1,174
              )Changes
                  in operating assets and liabilities:Decrease
                  (increase) in:Trade
                  accounts receivable
              
              
              787
              
              
              
              (2,020
              )Inventories
              
              
              (16
              )
              
              
              (4
              )Prepaid
                  insurance expense and deposits
              
              
              (655
              )
              
              
              2,051Prepaid
                  expenses and other current assets
              
              
              (1,355
              )
              
              
              (1,269
              )Increase
                  (decrease) in:Accounts
                  payable
              
              
              972
              
              
              
              681Accrued
                  expenses
              
              
              595
              
              
              
              401Accrued
                  insurance
              
              
              454
              
              
              
              (2,474
              )Accrued
                  payroll
              
              
              (207
              )
              
              
              85Accrued
                  interest
              
              
              39
              
              
              
              (33
              )Other
                  current liabilities
              
              
              974
              
              
              
              (180
              )Customer
                  deposits
              
              
              70
              
              
              
              310Net
                  cash provided by operating activities
              
              
              23,868
              
              
              
              17,953Cash
                  flows from investing activities:Purchase
                  of property and equipment
              
              
              (9,009
              )
              
              
              (14,694
              )Proceeds
                  on sale of assets
              
              
              29
              
              
              
              -Increase
                  in deferred lease acquisition costs
              
              
              (1,214
              )
              
              
              (1,058
              )Increase
                  in other assets
              
              
              (7
              )
              
              
              (19
              )Net
                  cash used in investing activities
              
              $
              (10,201
              )
              
              $
              (15,771
              )
 
 
 
 
 
 
 
 
 
 See
        accompanying notes to financial statements.
 
  8
 Index
  
 
 NUCO2
        INC.
 STATEMENTS
        OF CASH FLOWS
 (In
        thousands)
 (Continued)
 
 Six
                    Months Ended December 31,2007
              
              
              2006Cash
                  flows from financing activities:Net
                  proceeds from issuance of long-term debt
              
              $
              4,050
              
              
              $
              2,550Repayment
                  of long-term debt
              
              
              (11,300
              )
              
              
              (7,500
              )Purchase
                  of treasury stock
              
              
              (7,081
              )
              
              
              -Exercise
                  of options
              
              
              424
              
              
              
              1,440Excess
                  tax benefits from share-based arrangements
              
              
              281
              
              
              
              1,174Net
                  cash used in financing activities
              
              $
              (13,626
              )
              
              $
              (2,336
              )Increase
                  (decrease) in cash and cash equivalents
              
              
              41
              
              
              
              (154
              )Cash
                  and cash equivalents, beginning of period
              
              
              343
              
              
              
              341Cash
                  and cash equivalents, end of period
              
              $
              384
              
              
              $
              187Supplemental
                  disclosure of cash flow information:Cash
                  paid during the period for:Interest
              
              $
              1,128
              
              
              $
              1,160Income
                  taxes
              
              $
              141
              
              
              $
              235
 
 
 See
        accompanying notes to financial statements.
 
  9
 Index
  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
        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 audited
        financial statements for the fiscal year ended June 30, 2007 of NuCO2
        Inc. (the
“Company”) included in Form 10-K (“Form 10-K”), filed with the Securities and
        Exchange Commission (“SEC”).
 
 All
        adjustments (consisting of normal
        recurring 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, 2007.  The results of
        operations for the periods presented are not necessarily indicative of the
        results to be expected for the full fiscal year.  The Company
        anticipates that reported revenue will fluctuate on a quarterly basis due
        to
        seasonal variations.  Based on historical data and expected trends,
        the Company anticipates that demand for the delivery of CO2
        will be
        highest in the first fiscal quarter and lowest in the third fiscal
        quarter.
 
 Certain
        prior period amounts have been
        reclassified to conform with the current year presentation.
 
 NOTE
        2 –
RECENT ACCOUNTING PRONOUNCEMENTS AND SIGNIFICANT ACCOUNTING
        POLICIES
 
 In
        December 2007, the Financial Accounting Standards Board (“FASB”) issued
        Statement of Financial Accounting Standard (“SFAS”) No. 141R, “Business Combinations” (“SFAS
        No. 141R”). SFAS No. 141R will require, among other things, the expensing of
        direct transaction costs, including deal costs and restructuring costs as
        incurred, acquired in process research and development assets to be capitalized,
        certain contingent assets and liabilities to be recognized at fair value
        and
        earn-out arrangements, including contingent consideration, may be required
        to be
        measured at fair value until settled, with changes in fair value recognized
        each
        period into earnings.  In addition, material adjustments made to the
        initial acquisition purchase accounting will be required to be recorded back
        to
        the acquisition date. This will cause companies to revise previously reported
        results when reporting comparative financial information in subsequent filings.
        SFAS No. 141R will become effective for the Company on a prospective basis
        for
        transactions occurring in fiscal 2010 and early adoption is not
        permitted.  SFAS No. 141R may have a material impact on the Company’s
        financial position, results of operations and cash flows if it enters into
        a
        material business combination after the standard’s effective date.
 
 In
        December 2007, the FASB issued SFAS
        No. 160, “Noncontrolling
        Interests in Consolidated Financial Statements” (“SFAS No.
        160”).  SFAS No. 160 will change the accounting for and reporting of
        minority interests. Under the new standard, minority interests, will be referred
        to as noncontrolling interests and will be reported as equity in the parent
        company’s consolidated financial statements. Transactions between the parent
        company and the noncontrolling interests will be treated as transactions
        between
        shareholders provided that the transactions do not create a change in control.
        Gains and losses will be recognized in earnings for transactions between
        the
        parent company and the noncontrolling interests, unless control is achieved
        or
        lost.  SFAS No. 160 requires retrospective adoption of the
        presentation and disclosure requirements for existing minority interests.
        All
        other requirements of SFAS No. 160 shall be applied prospectively. SFAS No.
        160
        is effective for the Company beginning in the first quarter of fiscal year
        2010
        and earlier adoption is not permitted.  SFAS No. 160 may have a
        material impact on the Company’s consolidated financial position, results of
        operations and cash flows if it enters into material transactions or acquires
        a
        noncontrolling interest after the standard’s effective date.
 
 In
        February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
        for Financial
        Assets and Financial Liabilities – Including an Amendment of FASB Statement
        No. 115”(“SFAS No. 159”), which provides companies with an
        option to report selected financial assets and liabilities at their fair
        values.
        The objective is to improve financial reporting by providing entities with
        the
        opportunity to mitigate volatility in reported earnings caused by measuring
        related assets and liabilities differently without having to apply complex
        hedge
        accounting provisions. SFAS No. 159 is expected to expand the use of fair
        value
        measurement, which is consistent with the FASB’s long-term measurement
        objectives for accounting for financial instruments. SFAS No. 159 will
        become effective for the Company on July 1, 2008.  The Company is
        currently evaluating the impact, if any, that the adoption of  SFAS
        No. 159 will have on its financial condition, results of operations or cash
        flows.
   10
 Index
 
 In
        September 2006, the FASB issued
        SFAS No. 157, “Fair Value
        Measurements” (“SFAS No. 157”), which defines fair value,
        establishes guidelines for measuring fair value and expands disclosures
        regarding fair value measurements. SFAS No. 157 is effective for fiscal
        years beginning after November 15, 2007. The Company is currently
        evaluating what impact, if any, the adoption of SFAS No. 157 will have on
        its financial condition, results of operations or cash flows.
 
  In
        July 2006, the FASB issued
        Interpretation 48, “Accounting
        for Uncertainty in Income Taxes - An Interpretation of FASB Statement
        No. 109” (“FIN No. 48”). FIN No.
        48 clarifies
        the accounting for uncertainty in income taxes recognized in an enterprise’s
        financial statements in accordance with SFAS 109. FIN No. 48 also prescribes
        a
        recognition threshold and measurement attribute for the financial statement
        recognition and measurement of a tax position taken or expected to be taken
        in a
        tax return. FIN No. 48 also provides guidance on derecognition, classification,
        interest and penalties.  The Company adopted the provisions of FIN No.
        48 effective July 1, 2007. The adoption of FIN No. 48 did not have a material
        impact on the Company, as it had no uncertain tax positions recorded at June
        30,
        2007 or December 31, 2007.
  
 Please
        see the Company's Form 10-K
        for a discussion of the significant accounting policies.
 
 NOTE
        3 -
        EARNINGS PER SHARE AND OTHER COMPREHENSIVE INCOME
 
 (a)
        Earnings per Share
 
 The
        Company calculates earnings per share in accordance with the requirements
        of
        SFAS No. 128, "Earnings Per
        Share." The weighted average shares outstanding used to calculate basic
        and diluted earnings per share were calculated as follows (in
        thousands):
 
 Three
                  Months Ended December
                  31,
              
              
              Six
                  Months Ended December
                  31,2007
              
              
              2006
              
              
              2007
              
              
              2006Weighted
                  average shares outstanding - basic
              
              
              14,768
              
              
              
              15,776
              
              
              
              14,806
              
              
              
              15,725Outstanding
                  options and warrants to purchaseshares
                  of common stock - remaining sharesafter
                  assuming repurchase with proceedsfrom
                  exercise
              
              
              369
              
              
              
              311
              
              
              
              353
              
              
              
              310Weighted
                  average shares outstanding - diluted
              
              
              15,137
              
              
              
              16,087
              
              
              
              15,159
              
              
              
              16,035
  
 (b)
        Other Comprehensive Income
 
 Comprehensive
        income is defined as the
        change in equity (net assets) of a business enterprise during a period from
        transactions and other events and circumstances from non-owner sources, and
        is
        comprised of net income and “other comprehensive income.” The components of
        other comprehensive income are as follows for the periods presented (in
        thousands):
 
 Three
                  Months Ended December
                  31,
              
              
              Six
                  Months Ended December
                  31,2007
              
              
              2006
              
              
              2007
              
              
              2006Net
                  income
              
              $
              2,057
              
              
              $
              1,383
              
              
              $
              5,047
              
              
              $
              3,902Interest
                  rate swap transaction (Note 4)
              
              
              73
              
              
              
              2
              
              
              
              (177
              )
              
              
              (178
              )Comprehensive
                  income
              
              $
              2,130
              
              
              $
              1,385
              
              
              $
              4,870
              
              
              $
              3,724
 
  11
 Index
  NOTE
        4 –
LONG TERM DEBT
 
 (a)
        Revolving Credit Facility
 
 On
        May 27, 2005, the Company terminated
        its previous credit facility and entered into a $60.0 million revolving credit
        facility with Bank of America, N.A. (the “2005 Credit Facility”), maturing on
        May 27, 2010. The Company is entitled to select either Base Rate Loans (as
        defined) or Eurodollar Rate Loans (as defined), plus applicable margin, for
        principal borrowings under the 2005 Credit Facility. Applicable margin is
        determined by a pricing grid, as amended in March 2006, based on the Company’s
        Consolidated Leverage Ratio (as defined) as follows:
 
 
 Pricing
                Level
              Consolidated
                  Leverage Ratio
              Eurodollar
                  Rate
                Loans
              Base
                  Rate
                LoansI
              Greater
                  than or equal to 2.50x
              2.000%
              0.500%II
              Less
                  than 2.50x but greater than or equal to 2.00x
              1.750%
              0.250%III
              Less
                  than 2.00x but greater than or equal to 1.50x
              1.500%
              0.000%IV
              Less
                  than 1.50x but greater than or equal to 0.50x
              1.250%
              0.000%V
              Less
                  than 0.50x
              1.000%
              0.000%
 
 Interest
        is payable periodically on
        borrowings under the 2005 Credit Facility. The 2005 Credit Facility is
        uncollateralized. The Company is required, on a quarterly basis, to assess
        and
        meet certain affirmative and negative covenants, including financial 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), which represents earnings 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 the Company in default and cause the debt outstanding under the
        2005
        Credit Facility to immediately become due and payable. In connection with
        the
        Company’s share repurchase program announced during the quarter ended March 31,
        2007, the 2005 Credit Facility was amended to modify certain
        covenants.  The Company was in compliance with all covenants under the
        2005 Credit Facility as of the first assessment date on June 30, 2005 and
        through December 31, 2007.
 
 As
        of December 31, 2007, a total of
        $27.5 million was outstanding under the 2005 Credit Facility, primarily
        consisting of Libor (Eurodollar Rate) loans, with a weighted average interest
        rate of 6.4% per annum.
 
 (b)
              Hedging
                  Activities
 
 Effective
        July 1, 2000, the Company adopted SFAS No. 133, “Accounting for Derivative
        Instruments and Hedging Activities,” as amended, which, among other
        things, 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 as other comprehensive income and are recognized
        in the
        statement of income when the hedged item affects
        earnings.  Ineffective portions of changes in the fair value of cash
        flow hedges (if any) are recognized in earnings.
 
  12
 Index
  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
        impact of this exposure.
 
 In
        order
        to reduce the Company’s exposure to increases in Eurodollar rates, and
        consequently to increases in interest payments, the Company entered into
        an
        interest rate swap transaction (the “2005 Swap”), comprised of two instruments
        (“Swap A” and “Swap B”), on September 28, 2005, with an effective date of
        October 3, 2005.  Swap A, in the amount of $15.0 million (the “A
        Notional Amount”), matures on October 3, 2008 and Swap B, in the amount of $5.0
        million (the “B Notional Amount”), matured on April 3, 2007.  Pursuant
        to Swap A, the Company currently pays a fixed interest rate of 4.69% per
        annum
        and receives a Eurodollar-based floating rate.  The effect of Swap A
        is to neutralize any changes in Eurodollar rates on the A Notional
        Amount.  The 2005 Swap meets the requirements to be designated as a
        cash flow hedge and is deemed a highly effective
        transaction.  Accordingly, changes in the fair value of Swap A are
        recorded as other comprehensive income (loss).  During the six months
        ended December 31, 2007, we recorded a loss of $0.2 million, representing
        the
        change in fair value of Swap A from June 30, 2007 through December 31, 2007,
        as
        other comprehensive loss.
 
 NOTE
        5 –
SHAREHOLDERS’ EQUITY
 
 (a)  Stock
        Option Plans
 
 The
        Company recognized $0.9 million and
        $1.6 million ($0.6 million and $1.2 million, net of income taxes) in stock
        option compensation during the three and six months ended December 31, 2007
        as
        compared to $1.2 million and $1.9 million ($0.9 million and $1.4 million,
        net of
        taxes) during the three and six months ended December 31, 2006.
 
 (b)  Share
        Repurchase
        Plan
 
 On
        January 31, 2007, the Company
        publicly announced that its Board of Directors authorized a share repurchase
        program under which the Company may repurchase up to $50 million of its common
        shares through December 31, 2007. During the six months ended December 31,
        2007,
        the Company purchased a total of 274,195 common shares at an average price
        of
        $25.83 per share for an aggregate purchase price of $7.1 million.
 
 NOTE
        6 –
INCOME TAXES
 
 The
        Company accounts for income taxes
        under SFAS No. 109, “Accounting for Income
        Taxes”
        (“SFAS 109”).  Deferred income taxes reflect the net tax effects of
        net operating loss carryforwards and temporary differences between the carrying
        amounts of assets and liabilities for financial reporting purposes and the
        amounts used for income tax purposes.
  As of June 30, 2007, the Company had net operating loss carryforwards for
        federal income tax purposes of approximately $91 million and for state purposes
        in varying amounts, expiring through June 2025.  The Company’s
        effective rate, exclusive of the impact of the net operating loss carryforwards,
        for the three and six months ended December 31, 2007, was approximately 42.8%
        and 43.5%, respectively.  If an “ownership change” for federal income
        tax purposes were to occur in the future, the Company’s ability to use its
        pre-ownership change federal and state net operating loss carryforwards (and
        certain built-in losses, if any) would be subject to an annual usage limitation,
        which under certain circumstances may prevent the Company from being able
        to
        utilize a portion of such loss carryforwards in future tax periods and may
        reduce its after-tax cash flow.  During the three and six months ended
        December 31, 2007, the Company recorded $0.1 million and $0.3 million,
        respectively, as additional paid-in capital representing the excess tax benefit
        associated with the disqualifying disposition of incentive stock options
        and
        exercise of non-qualified stock options.
  In
          July 2006, the FASB issued Interpretation 48 (“FIN No. 48”),
“*Accounting for Uncertainty in Income Taxes — An Interpretation of FASB
          Statement No. 109*.” FIN No. 48 clarifies the accounting for
          uncertainty in income taxes recognized in an enterprise’s financial statements
          in accordance with SFAS 109. FIN No. 48 also prescribes a recognition threshold
          and measurement attribute for the financial statement recognition and
          measurement of a tax position taken or expected to be taken in a tax
          return.  FIN No. 48 also provides guidance on derecognition,
          classification, interest and penalties.
 
 Effective
          July 1, 2007, the Company adopted the provisions of FIN No. 48. The
          implementation of FIN No. 48 did not have a material impact on the Company,
          as
          it had no uncertain tax positions recorded at June 30, 2007 or December
          31,
          2007.  The Company recognizes interest accrued related to unrecognized
          tax benefits in interest expense and penalties in operating expense. The
          Company
          does not currently anticipate that the total amount of unrecognized tax
          benefits
          will significantly increase or decrease by the end of Fiscal 2008. The
          Company
          is no longer subject to tax examinations by tax authorities for fiscal
          years
          ended on or prior to June 30, 2004.
 
 NOTE
        7 –
COMMITMENTS AND CONTINGENCIES
 
 The
        Company is a defendant in legal
        actions which arise in the normal course of business.  In the opinion
        of management, the outcome of these matters will not have a material effect
        on
        the Company’s financial position or results of operations.
 
  13
 Index
  NOTE
        8 –
SUBSEQUENT EVENTS
 
 On
        January 29, 2008, the Company entered into an Agreement and Plan of Merger
        (the
“Merger Agreement”) with NuCO2
        Acquisition Corp., a Delaware corporation (“Parent”), and NuCO2Merger
        Co., a Florida corporation and a wholly owned subsidiary of Parent (“Merger
        Sub”), pursuant to which Merger Sub will merge with and into the Company (the
        “Merger”) with the Company being the surviving corporation in the Merger. Under
        the terms of the Merger Agreement, at the effective time of the Merger, each
        issued and outstanding share of common stock, par value $0.001 per share
        (the
“Common Stock”), of the Company (other than treasury shares, shares owned by
        Parent, Merger Sub or any direct or indirect wholly owned subsidiary of Parent
        and shares owned by stockholders who perfect applicable appraisal rights
        under
        Florida law) will be converted automatically into the right to receive $30.00
        in
        cash.  The closing of the Merger is subject to regulatory approval,
        satisfying the conditions of the proposed financing and other customary closing
        conditions, including the approval of the transaction by shareholders of
        the
        Company. Merger Sub and Parent are affiliates of Aurora Capital Group, a
        Los
        Angeles-based private equity firm.
 
  14
 Index
  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 REGARDING FUTURE EVENTS AND OUR FUTURE RESULTS
        THAT
        ARE BASED ON CURRENT EXPECTATIONS, ESTIMATES, FORECASTS, AND PROJECTIONS
        ABOUT
        THE INDUSTRY IN WHICH WE OPERATE AND THE BELIEFS AND ASSUMPTIONS OF OUR
        MANAGEMENT.  WORDS SUCH AS “EXPECTS,” “ANTICIPATES,” “TARGETS,”
“GOALS,” “PROJECTS,” “INTENDS,” “PLANS,” “BELIEVES,” “SEEKS,” “ESTIMATES,”
VARIATIONS OF SUCH WORDS AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
        SUCH
        FORWARD-LOOKING STATEMENTS.  IN ADDITION, ANY STATEMENTS THAT REFER TO
        PROJECTIONS OF OUR FUTURE FINANCIAL PERFORMANCE, OUR ANTICIPATED GROWTH AND
        TRENDS IN OUR BUSINESS, AND OTHER CHARACTERIZATIONS OF FUTURE EVENTS OR
        CIRCUMSTANCES, ARE FORWARD-LOOKING STATEMENTS.  READERS ARE CAUTIONED
        THAT THESE FORWARD-LOOKING STATEMENTS ARE ONLY PREDICTIONS AND ARE SUBJECT
        TO
        RISKS, UNCERTAINTIES, AND ASSUMPTIONS THAT ARE DIFFICULT TO
        PREDICT.  THEREFORE, ACTUAL RESULTS MAY DIFFER MATERIALLY AND
        ADVERSELY FROM THOSE EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS.
 
 Overview
 
 We
        believe we are the leading supplier
        of bulk CO2
        systems
        and bulk CO2
        for
        carbonating fountain beverages in the United States based on the number of
        bulk
        CO2
        systems leased to customers and the only company in our industry to operate
        a
        national network of bulk CO2
        service
        locations. As of December 31, 2007, we operated a national network of 128
        service locations (116 stationary and 12 mobile) servicing approximately
        116,100
        customer locations in 45 states.  Currently, virtually all fountain
        beverage users in the continental United States are within our present service
        area.
 
 We
        market our bulk CO2
        products
        and services to large customers such as restaurant and convenience store
        chains,
        movie theater operators, theme parks, resorts and sports venues. Our customers
        include many of the major national and regional chains throughout the United
        States.  Our success in reaching multi-unit placement agreements is
        due in part to our national delivery system.  We typically approach
        large chains on a corporate or regional level for approval to become the
        exclusive supplier of bulk CO2
        products
        and services on a national basis or within a designated territory. We then
        direct our sales efforts to the managers or owners of the individual or
        franchised operating units. Our relationships with chain customers in one
        geographic market frequently help us to establish service with these same
        chains
        when we expand into new markets. After accessing the chain accounts in a
        new
        market, we attempt to rapidly build route density by leasing bulk CO2
        systems to
        independent restaurants, convenience stores and theaters.
 
 We
        have entered into master service
        agreements which include 100 restaurant and convenience store concepts that
        provide fountain beverages. These master service agreements generally provide
        for a commitment on the part of the operator for all of its currently owned
        locations and may also include future locations. We currently service
        approximately 57,800 chain and franchisee locations with chains that have
        signed
        master service agreements.  We are actively working on expanding the
        number of master service agreements with numerous restaurant
        chains.
 
 We
        believe that our future revenue
        growth, gains in gross margin and profitability will be dependent upon (1)
        increases in route density in our existing markets and the expansion and
        penetration of bulk CO2
        system
        installations in new market regions, both resulting from successful ongoing
        marketing, (2) improved operating efficiencies and (3) price
        increases.  New multi-unit placement agreements combined with
        single-unit placements will drive improvements in achieving route
        density.  We maintain a highly efficient route structure and establish
        additional 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 also 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.
 
  15
 Index
  Generally,
        our experience has been that
        as our service locations mature their gross profit margins improve as a result
        of business volume growth 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.  Accordingly, we believe that we are
        in position to build our customer base while maintaining and improving upon
        our
        superior levels of customer service, with minimal changes required to support
        our infrastructure.  However, while the past several years have been
        years of strong growth, for the foreseeable future, we plan to increase our
        focus on improving operating effectiveness, pricing for our services and
        strengthening our workforce.
 
 General
 
 Substantially
        all of our revenues have
        been derived from the rental of bulk CO2
        systems
        installed at customers’ sites, the sale of bulk CO2
        and high
        pressure cylinder revenues.  Revenues have grown from $72.3 million in
        fiscal 2002 to $130.1 million in fiscal 2007.  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 and
        (3) price increases.
 
 Cost
        of products sold is comprised of
        purchased CO2
        and
        vehicle and service location costs associated with the storage and delivery
        of
        CO2.  As
        of December 31, 2007, we operated a total of 364 specialized bulk CO2
        delivery
        vehicles and technical service vehicles that logged approximately 15 million
        miles over the last twelve months.  While significant fluctuations in
        fuel prices impact our operating costs, such impact is largely offset by
        fuel
        surcharges billed to the majority of our customers.  Consequently,
        while the impact on our gross profit and operating income is substantially
        mitigated, rising fuel prices do result in lower gross profit
        margins.  Cost of equipment rentals is comprised of costs associated
        with customer equipment leases, including the repair and refurbishment of
        leased
        assets.  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 company-owned bulk CO2
        systems,
        we capitalize direct installation costs associated with installation 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 resulted in an
        accumulated deficit of $7.1 million at December 31, 2007.
 
  16
 Index
  Results
        of Operations
 
 The
        following table sets forth, for the periods indicated, the percentage
        relationship which the various items bear to total revenues:
 
 Three
                  Months Ended December
                  31,
              
              Six
                  Months Ended December
                  31,Income
                  Statement Data:
              2007
              
              2006
              
              2007
              
              
              
              2006Product
                  sales
              65.9
              %
              66.7
              %
              66.4
              %
              
              
              66.7
              %Equipment
                  rentals
              34.1
              
              33.3
              
              33.6
              
              
              
              33.3Total
                  revenues
              100.0
              
              100.0
              
              100.0
              
              
              
              100.0Cost
                    of products sold, excluding depreciation
                    and amortization
              43.3
              
              42.7
              
              42.4
              
              
              
              43.4Cost
                    of equipment rentals, excludingdepreciation
                    and amortization
              7.2
              
              6.6
              
              6.6
              
              
              
              4.1Selling,
                  general and administrative expenses
              20.5
              
              24.5
              
              19.3
              
              
              
              22.4Depreciation
                  and amortization
              14.7
              
              15.3
              
              14.6
              
              
              
              15.1Loss
                  on asset disposal
              2.3
              
              1.7
              
              2.5
              
              
              
              1.5Operating
                  income
              12.0
              
              9.2
              
              14.6
              
              
              
              13.5Interest
                  expense
              1.5
              
              1.7
              
              1.6
              
              
              
              1.8Income
                  before income taxes
              10.5
              
              7.5
              
              13.0
              
              
              
              11.7Provision
                  for income taxes
              4.5
              
              3.2
              
              5.7
              
              
              
              5.6Net
                  income
              6.0
              %
              4.3
              %
              7.3
              %
              
              
              6.1
              %
 
 Three
        Months Ended December 31, 2007 Compared to the Three Months Ended December
        31,
        2006
 
 Total
        Revenues
 
 Total
        revenues increased by $2.1 million, or 6.6%, from $32.0 million in 2006 to
        $34.1
        million in 2007.  Revenues derived from our bulk CO2
        service
        plans increased by $1.7 million, primarily due to pricing initiatives and
        an
        increase in the number of customer locations serviced.  Revenues
        derived from the sale of high pressure cylinder products, fuel surcharges,
        and
        equipment sales increased by $0.4 million.  The number of customer
        locations utilizing our products and services increased from approximately
        115,900 at December 31, 2006 to approximately 116,100 at December 31, 2007,
        due
        primarily to organic growth.
 
 The
        following table sets forth, for the periods indicated, the percentage of
        total
        revenues by service plan:
 
 Three
                  Months Ended December
                  31,Service
                  Plan
              
              2007
              
              2006Bulk
                  budget plan1
              
              48.4%
              
              51.3%Equipment
                  lease/product purchase plan2
              
              20.5
              
              17.7Product
                  purchase plan3
              
              10.9
              
              10.7High
                  pressure cylinder4
              
              5.4
              
              5.8Other
                  revenues5
              
              14.8
              
              14.5100.0%
              
              100.0%1
                  Combined fee for bulk CO2
                  tank
                  and bulk CO2.2
                  Fee for bulk CO2
                  tank
                  and, separately, bulk CO2usage.3
                  Bulk CO2
                  only.4
                  High pressure CO2
                  cylinders and non-CO2
                  gases.5
                  Surcharges and other charges.
  Product
        Sales -Revenues
        derived from the product sales portion of our service plans increased by
        $1.2
        million, or 5.3%, from $21.3 million in 2006 to $22.5 million in
        2007.  The increase in revenues is primarily due to a 0.6% increase in
        the average number of customer locations serviced and pricing
        initiatives.  In addition, sales of products and services other than
        bulk CO2
        increased
        by $0.4 million due in large part to an increase in revenues derived from
        cylinder products, fuel surcharges, equipment sales, and other
        revenues.
   17
 Index
 
 Equipment
        Rentals -Revenues
        derived from the lease portion of our service plans increased by $1.0 million,
        or 9.3%, from $10.6 million in 2006 to $11.6 million in 2007, primarily due
        to a
        1.3% increase in the average number of customer locations leasing equipment
        from
        us, including the impact of price increases to a significant number of our
        customers consistent with the Consumer Price Index, partially offset by
        incentive pricing provided to multiple national restaurant organizations
        utilizing our equipment under the bulk budget plan and equipment lease/product
        purchase plans pursuant to master service agreements.  The number of
        customer locations renting equipment from us increased from 95,700 at December
        31, 2006 to 96,400 at December 31, 2007.
 
 Cost
        of Products Sold, Excluding Depreciation and Amortization
 
 Cost
        of products sold, excluding
        depreciation and amortization, increased from $13.6 million in 2006 to $14.8
        million in 2007, while increasing as a percentage of product sales revenue
        from
        64.0% to 65.7%.
 
 Raw
        product costs increased by $0.5 million, from $5.3 million in 2006 to $5.8
        million in 2007, due in large part to a $0.4 million increase in CO2
        costs.  The volume of CO2
        sold by us
        increased 3.7%, primarily due to a 0.6% increase in our average customer
        base,
        and an increase in the average usage of 2.5%.
 
 Operational
        costs, primarily wages and
        benefits related to cost of products sold, decreased from $5.6 million in
        2006
        to $5.5 million in 2007.
 
 Truck
        delivery expenses increased from
        $2.1 million in 2006 to $2.4 million in 2007 primarily due to the increased
        customer base and fuel costs.  We have been able to continue to
        minimize the impact of increased fuel costs and variable lease costs associated
        with truck usage by continuing to improve efficiencies in the timing and
        routing
        of deliveries.  During the last six months of fiscal 2007, we
        implemented a new routing routine at select locations across the
        country.  The full implementation of “alpha routing” will be
        systematically implemented through the end of fiscal 2008.
 
 Occupancy
        and shop costs related to cost of products sold increased from $0.9 million
        in
        2006 to $1.1 in 2007.
 
 Cost
        of Equipment Rentals, Excluding Depreciation and Amortization
 
 Cost
        of
        equipment rentals, excluding depreciation and amortization, increased from
        $2.1
        million in 2006 to $2.5 million in 2007, while increasing as a percentage
        of
        equipment rentals revenue from 19.7% to 21.1%.  During the second
        fiscal quarter of 2007, we made a strategic decision to be more selective
        with
        customer activations on a going forward basis, while improving both operating
        and customer service metrics.  As part of this decision, rather than
        reducing the number of technicians, we increased our emphasis on the assessment,
        upgrade and service of our bulk CO2
        tanks at
        customer sites.  To the degree that our installers and other personnel
        are involved in such activities, as compared to initial installation of tanks
        at
        customer sites, which consumed the substantial majority of our technicians’
efforts over the past several years, the related expense is recognized in
        our
        statement of income as incurred.  We are continuing to increase
        capacity to repair and service tanks, which reduces our need to purchase
        new
        tanks.  Tank repair and service costs are expensed as incurred as
        compared to the purchase of a tank, which is capitalized at cost.
 
 Selling,
        General and Administrative Expenses
 
 Selling,
        general and administrative expenses decreased by $0.9 million from $7.8 million
        in 2006 to $6.9 million in 2007, while decreasing as a percentage of total
        revenues from 24.5% in 2006 to 20.5% in 2007.
 
 Selling
        related expenses decreased by $0.4 million, from $1.4 million in 2006 to
        $1.0
        million in 2007.  In October 2006 and January 2007, as part of our new
        strategic growth plan, we reduced our sales force by 28
        associates.  We expect the full impact of this reduction to be fully
        seen throughout fiscal 2008.
 
 General
        and administrative expenses
        decreased by $0.5 million, or 7.6%, from $6.5 million in 2006 to $6.0 million
        in
        2007.  This decrease is primarily due to a decrease in bad debt
        expense of $0.7 million due to improved collections experience over the last
        year.
 
  18
 Index
  Depreciation
        and Amortization
 
 Depreciation
        and amortization increased from $4.9 million in 2006 to $5.0 million in
        2007.   As a percentage of total revenues, depreciation and
        amortization expense decreased from 15.3% in 2006 to 14.7% in 2007.
 
 Depreciation
        expense increased from $4.1 million in 2006 to $4.2 million in 2007, decreasing
        as a percentage of revenues from 12.8% to 12.4%.
 
 Amortization
        expense remained consistent at $0.8 million in both 2006 and 2007.
 
 Loss
        on Asset Disposal
 
 Loss
        on asset disposal increased from
        $0.5 million in 2006 to $0.8 million in 2007, increasing as a percentage
        of
        total revenues from 1.7% to 2.3%.  This increase is primarily due to
        the write-off of deferred lease acquisition costs and soft costs associated
        with
        customer attrition. The attrition increase is primarily related to the
        disposition of lower revenue generating accounts.
 
 Operating
        Income
 
 For
        the reasons previously discussed,
        operating income increased by $1.2 million from $2.9 million in 2006 to $4.1
        million in 2007.  As a percentage of total revenues, operating income
        increased from 9.2% to 12.0%.
 
 Interest
        Expense
 
 Interest
        expense decreased from $0.6 million in 2006 to $0.5 million in 2007, while
        the
        effective interest rate of our debt remained consistent at 6.7% for the three
        months ended December 31, 2006 and 2007.  See “Quantitative and
        Qualitative Disclosures About Market Risk.”
 
 Income
        Before Provision for Income Taxes
 
 Primarily,
        for the reasons described
        above, income before provision for income taxes increased by $1.2 million,
        or
        50.3%, from $2.4 million in 2006 to $3.6 million in 2007.
 
 Provision
        for Income Taxes
 
 During
        the three months ended December
        31, 2006 and 2007, we recognized a tax provision consistent with our effective
        tax rate.  However, while we anticipate continuing to recognize a full
        tax provision in future periods, we expect to pay only AMT and state/local
        taxes
        until such time that our net operating loss carryforwards are fully
        utilized.  Our effective rate for the three months ended December 31,
        2007 was 42.8%, as compared to 42.2% for the three months ended December
        31,
        2006.
 
 As
        of June 30, 2007, we had net
        operating loss carryforwards for federal income tax purposes of $91 million
        and
        for state purposes in varying amounts, expiring through June 2025.  If
        an “ownership change” for federal income tax purposes were to occur in the
        future, our ability to use our pre-ownership change federal and state net
        operating loss carryforwards (and certain built in losses, if any) would
        be
        subject to an annual usage limitation, which under certain circumstances
        may
        prevent us from being able to utilize a portion of such loss carryforwards
        in
        future tax periods and may reduce our after-tax cash flow.
 
 Net
        Income
 
 For
        the reasons described above, net
        income increased from $1.4 million in 2006 to $2.1 million in 2007.
   19
 Index
 
 Non-GAAP
        Measures EBITDA and EBITDA Excluding Option Compensation
 
 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 lender also uses 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.
 
 Three
                  Months Ended December
                  31,2007
              
              
              2006Net
                  income
              
              $
              2,057
              
              
              $
              1,383Interest
                  expense
              
              
              512
              
              
              
              550Depreciation
                  and amortization
              
              
              5,025
              
              
              
              4,897Provision
                  for income taxes
              
              
              1,538
              
              
              
              1,009EBITDA
              
              
              9,132
              
              
              
              7,839Noncash
                  option compensation
              
              
              885
              
              
              
              1,245EBITDA
                  excluding the impact of option compensation
              
              $
              10,017
              
              
              $
              9,084Cash
                  flows provided by (used in):Operating
                  activities
              
              $
              10,889
              
              
              $
              9,104Investing
                  activities
              
              $
              (5,352
              )
              
              $
              (7,455
              )Financing
                  activities
              
              $
              (5,399
              )
              
              $
              (1,934
              )
 
 Six
        Months Ended December 31, 2007 Compared to the Six Months Ended December
        31,
        2006
 
 Total
        Revenues
 
 Total
        revenues increased by $4.7 million, or 7.3%, from $64.3 million in 2006 to
        $69.0
        million in 2007.  Revenues derived from our bulk CO2
        service
        plans increased by $3.5 million, primarily due to an increase in the number
        of
        customer locations, while revenues derived from the sale of high pressure
        cylinder products, fuel surcharges, equipment sales and other revenues increased
        by $1.2 million. The number of customer locations utilizing our products
        and
        services increased from approximately 115,900 customers at December 31, 2006,
        to
        approximately 116,100 customers at December 31, 2007, due primarily to organic
        growth.
 
 The
        following table sets forth, for the periods indicated, the percentage of
        total
        revenues by service plan:
 
 
 Six
                  Months Ended December
                  31,Service
                  Plan
              
              2007
              
              
              2006Bulk
                  budget plan1
              
              
              48.7
              %
              
              
              51.6
              %Equipment
                  lease/product purchase plan2
              
              
              20.3
              
              
              
              18.0Product
                  purchase plan3
              
              
              10.9
              
              
              
              10.6High
                  pressure cylinder4
              
              
              5.4
              
              
              
              5.5Other
                  revenues5
              
              
              14.7
              
              
              
              14.3100.0
              %
              
              
              100.0
              %1
                  Combined fee for bulk CO2
                  tank
                  and bulk CO2.2
                  Fee for bulk CO2
                  tank
                  and, separately, bulk CO2usage.3
                  Bulk CO2
                  only.4
                  High pressure CO2
                  cylinders and non-CO2
                  gases.5
                  Surcharges and other charges.
 
 Product
        Sales -Revenues
        derived from the product sales portion of our service plans increased by
        $2.9
        million, or 6.9%, from $42.9 million in 2006 to $45.8 million in
        2007.  The increase in revenues is primarily due to a 1.5% increase in
        the average number of customer locations serviced combined with slight increase
        in the quantity of CO2
        sold to
        the average customer. In addition, sales of products and services other than
        bulk CO2
        increased
        by $1.2 million due in large part to an increase in revenues derived from
        cylinder products, fuel surcharges, and other revenues, partially offset
        by a
        decrease in equipment sales.
   20
 Index
 
 Equipment
        Rentals -Revenues
        derived from the lease portion of our service plans increased by $1.8 million,
        or 8.0%, from $21.4 million in 2006 to $23.2 million in 2007, primarily due
        to a
        2.3% increase in the average number of customer locations leasing equipment
        from
        us, including the impact price increases to a significant number of our
        customers consistent with the Consumer Price Index, offset by incentive pricing
        provided to multiple national restaurant organizations utilizing our equipment
        under the bulk budget plan and equipment lease/product purchase plans pursuant
        to master service agreements.  The number of customer locations
        renting equipment from us increased from 95,700 for 96,400 for the six months
        ended December 31, 2007 and 2006, respectively.
 
 Cost
        of Products Sold, Excluding Depreciation and Amortization
 
 Cost
        of products sold, excluding
        depreciation and amortization, increased from $27.9 million in 2006 to $29.3
        million in 2007, while decreasing as a percentage of product sales revenue
        from
        65.1% to 63.9%.
 
 Raw
        product costs increased by $0.8
        million, from $10.9 million in 2006 to $11.7 million in 2007, due in large
        part
        to a $0.6 million increase in CO2
        costs.  The volume of CO2
        sold by us
        increased 3.9%, primarily due to the 1.5% increase in our average customer
        base
        and an increase in usage of 1.8%.
 
 Operational
        costs, primarily wages and
        benefits related to cost of products sold, remained consistent at $10.9 million
        for the six months ended December 2006 and 2007
 
 Truck
        delivery expenses increased from
        $4.3 million in 2006 to $4.7 million in 2007. We have been able to continue
        to
        minimize the impact of increased fuel costs and variable lease costs associated
        with truck usage by continuing to improve efficiencies in the timing and
        routing
        of deliveries.  During the last three months, we have begun to
        implement a new routing routine at select locations across the
        country.  The full implantation of “alpha routing” will be
        systematically implemented through the end of fiscal 2008.
 
 Occupancy
        and shop costs related to cost of products sold increased from $1.8 million
        in
        2006 to $1.9 million in 2007.
 
 Cost
        of Equipment Rentals, Excluding Depreciation and Amortization
 
 Cost
        of
        equipment rentals, excluding depreciation and amortization, increased from
        $2.6
        million in 2006 to $4.6 million in 2007 while increasing as a percentage
        of
        equipment rentals revenue from 12.1% to 19.8%.  During the second
        quarter of fiscal 2007, we made a strategic decision to be more selective
        with
        our customer activations on a going forward basis, while improving both
        operating and customer service metrics.  As part of this decision,
        rather than reducing the number of technicians, we are increasing our emphasis
        on the assessment, upgrade and service of our bulk CO2
        tanks at
        customer sites.  To the degree that our installers and other personnel
        are involved in such activities, as compared to initial installation of tanks
        at
        customer sites, which consumed the substantial majority of our technicians’
efforts over the past several years, the related expense is recognized in
        our
        statement of operations as incurred.  We are increasing capacity to
        repair and service tanks, which is and will continue to reduce our need to
        purchase new tanks.  Tank repair and service costs are expensed as
        incurred as compared to the purchase of a tank, which is capitalized at
        cost.
 
 Selling,
        General and Administrative Expenses
 
 Selling,
        general and administrative expenses deceased  by $0.9 million from
        $14.4 million in 2006 to $13.3 million in 2007, while decreasing as a percentage
        of total revenues from 22.4% in 2006 to 19.3% in 2007.
 
 Selling
        related expenses decreased by $0.7 million, from $2.7 million in 2006 to
        $2.0
        million in 2007.  In October 2006 and January 2007, as part of our new
        strategic growth plan, we reduced our sales force by 28
        associates.  We expect the full impact of this reduction to be fully
        seen throughout fiscal 2008.
 
 General
        and administrative expenses
        decreased by $0.4 million, or 3.3%, from $11.7 million in 2006 to $11.3 million
        in 2007.
 
  21
 Index
  Depreciation
        and Amortization
 
 Depreciation
        and amortization increased from $9.7 million in 2006 to $10.0 million in
        2007.   As a percentage of total revenues, depreciation and
        amortization expense decreased from 15.1% in 2006 to 14.6% in 2007.
 
 Depreciation
        expense increased from $8.1 million in 2006 to $8.4 million in
        2007.  The increase was due in large part to the purchase and
        placement of additional bulk CO2
        tanks at
        customer sites.
 
 Amortization
        expense remained consistent at $1.6 million in both 2006 and 2007.
 
 Loss
        on Asset Disposal
 
 Loss
        on asset disposal increased from
        $1.0 million in 2006 to $1.7 million in 2007, increasing as a percentage
        of
        total revenues from 1.5% to 2.5%.   This increase is primarily
        due to the write-off of deferred lease acquisition costs and soft costs
        associated with customer attrition. The attrition increase is primarily related
        to the disposition of lower revenue generating accounts.
 
 Operating
        Income
 
 For
        the reasons previously discussed,
        operating income increased by $1.3 million from $8.7 million in 2006 to $10.0
        million in 2007.  As a percentage of total revenues, operating income
        increased from 13.5% to 14.6%.
 
 Interest
        Expense
 
 Interest
        expense remained consistent at $1.1 million in both 2006 and 2007, while
        the
        effective interest rate of our debt increased from 6.6% per annum in 2006
        to
        6.8% per annum in 2007 due to rising libor rates over the past
        year.  See “Quantitative and Qualitative Disclosures About Market
        Risk.”
 
 Income
        Before Provision for Income Taxes
 
 Primarily
        for the reasons described
        above, income before provision for income taxes increased by $1.3 million,
        or
        18.5%, from $7.6 million in 2006 to $8.9 million in 2007.
 
 Provision
        for Income Taxes
 
 During
        the six months ended December
        31, 2006 and 2007, we recognized a tax provision consistent with our effective
        tax rate.  However, while we anticipate continuing to recognize a full
        tax provision in future periods, we expect to pay only AMT and state/local
        taxes
        until such time that our net operating loss carryforwards are fully
        utilized.  Our effective rate for the six months ended December 31,
        2007 was 43.5%, as compared with 48.3% last year. Included in the 2006 rate
        is
        $0.5 million in income tax expense associated with a decrease in state and
        local
        net operating loss carryforwards expected to be available to offset future
        taxable income.
 
 As
        of June 30, 2007, we had net
        operating loss carryforwards for federal income tax purposes of $91 million
        and
        for state purposes in varying amounts, expiring through June 2025.  If
        an “ownership change” for federal income tax purposes were to occur in the
        future, our ability to use our pre-ownership change federal and state net
        operating loss carryforwards (and certain built in losses, if any) would
        be
        subject to an annual usage limitation, which under certain circumstances
        may
        prevent us from being able to utilize a portion of such loss carryforwards
        in
        future tax periods and may reduce our after-tax cash flow.
 
 Net
        Income
 
 For
        the reasons described above, net
        income increased from $3.9 million 2006 to $5.0 million in 2007.
   22
 Index
 
 Non-GAAP
        Measures EBITDA and EBITDA Excluding Option Compensation
 
 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 lender also uses 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.
 
 Six
                  Months Ended December
                  31,2007
              
              
              2006Net
                  income
              
              $
              5,047
              
              
              $
              3,902Interest
                  expense
              
              
              1,092
              
              
              
              1,126Depreciation
                  and amortization
              
              
              10,048
              
              
              
              9,742Provision
                  for income taxes
              
              
              3,898
              
              
              
              3,649EBITDA
              
              
              20,085
              
              
              
              18,419Noncash
                  option compensation
              
              
              1,641
              
              
              
              1,944EBITDA
                  excluding the impact of option compensation
              
              $
              21,726
              
              
              $
              20,363Cash
                  flows provided by (used in):Operating
                  activities
              
              $
              23,868
              
              
              $
              17,953Investing
                  activities
              
              $
              (10,201
              )
              
              $
              (15,771
              )Financing
                  activities
              
              $
              (13,626
              )
              
              $
              (2,336
              )
 
 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 principal and 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.  We anticipate making cash capital expenditures of
        approximately $23.1 million for internal growth over the next twelve months,
        primarily for purchases of bulk CO2
        systems
        and utilization of existing bulk CO2
        systems
        for new customers.
 
 On
        January 29, 2007, our Board of Directors authorized a share repurchase program
        under which we may repurchase up to $50 million of our common shares from
        time
        to time in the open market through December 31, 2007. The share repurchase
        program commenced on February 5, 2007.  During the six months ended
        December 31, 2007, we purchased a total of 274,195 common shares at an average
        price of $25.83 per share for an aggregate purchase price of $7.1
        million.
 
 Long
        Term Debt
 
 On
        May 27, 2005, we terminated our
        previous credit facility and entered into a $60.0 million revolving credit
        facility with Bank of America, N.A. (the “2005 Credit Facility”). The 2005
        Credit Facility matures on May 27, 2010. We are entitled to select either
        Base
        Rate Loans (as defined) or Eurodollar Rate Loans (as defined), plus applicable
        margin, for principal borrowings under the 2005 Credit Facility. Applicable
        margin is determined by a pricing grid, as amended March 2006, based on our
        Consolidated Leverage Ratio (as defined) as follows:
 
 Pricing
                Level
              Consolidated
                  Leverage
                Ratio
              Eurodollar
                  Rate
                Loans
              Base
                  Rate
                LoansI
              Greater
                  than or equal to
                2.50x
              2.000%
              0.500%II
              Less
                  than 2.50x but greater
                than
                  or equal to 2.00x
              1.750%
              0.250%III
              Less
                  than 2.00x but greater
                than
                  or equal to 1.50x
              1.500%
              0.000%IV
              Less
                  than 1.50x but greater
                than
                  or equal to 0.50x
              1.250%
              0.000%V
              Less
                  than 0.50x
              1.000%
              0.000%
   23
 Index
 
 Interest
        is payable periodically on
        borrowings under the 2005 Credit Facility. The 2005 Credit Facility is
        uncollateralized. We are required to meet certain affirmative and negative
        covenants, including financial covenants. We are required to assess our
        compliance with these financial covenants under the 2005 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 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
        2005 Credit Agreement to immediately become due and payable.  In
        connection with our share repurchase program announced during the quarter
        ended
        March 31, 2007, the 2005 Credit Facility was amended to modify certain
        covenants.  We were in compliance with all covenants under the 2005
        Credit Facility as of June 30, 2005 and all subsequent periods through December
        31, 2007.
 
 As
        of
        December 31, 2007, a total of $27.5 million was outstanding pursuant to the
        2005
        Credit Facility, primarily consisting of Libor (Eurodollar Rate) loans with
        a
        weighted average interest rate of 6.4% per annum.
 
 Other
 
 During
        the six months ended December
        31, 2007, our capital resources included cash flows from operations and
        available borrowing capacity under the 2005 Credit Facility.  We
        believe that cash flows from operations and available borrowings under the
        2005
        Credit Facility will be sufficient to fund proposed operations for at least
        the
        next twelve months.
 
 Working
        Capital.  As of December 31, 2007 and June 30, 2007, we had
        working capital of $11.1 million and $13.3 million, respectively.
 
 Cash
        Flows from Operating
        Activities: During 2006 and 2007, net cash generated by operating
        activities was $18.0 million and $23.9 million, respectively.  Cash
        used by our working capital assets improved by $1.7 million, partially offset
        by
        the cash generated from our results of operations.
 
 Cash
        Flows from Investing
        Activities.  During 2006 and 2007, net cash used in investing
        activities was $15.8 million and $10.2 million,
        respectively.  Investing activities in 2006 included $9.0 million
        associated with the purchase and installation of tanks at customer sites
        as
        compared with $14.7 million last year. As previously noted, we have increased
        our capacity to repair and service tanks resulting in a reduction in the
        number
        of tanks purchased.
 
 Cash
        Flows from Financing
        Activities.  During 2006, cash flows used in financing
        activities was $2.3 million, compared to $13.6 million used in financing
        activities in 2007.  During 2007, we made repayments on outstanding
        debt of approximately $7.3 million as compared to repayments of approximately
        $5.0 million in 2006.  Additionally, as previously discussed during
        the six months ended December 31, 2007, we repurchased a total of 274,194
        common
        shares for an aggregate purchase price of $7.1 million.
 
 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, whichever is less.
 
 As
        of December 31, 2007, we operated a
        total of 364 specialized bulk CO2
        delivery
        vehicles and technical service vehicles that logged approximately 15 million
        miles over the last twelve months.  While significant increases in
        fuel prices impact our operating costs, such impact is largely offset by
        fuel
        surcharges billed to the majority of our customers.
   24
 Index
 
 Recent
        Accounting Pronouncements
 
 In
        December 2007, the Financial
        Accounting Standards Board (“FASB”) issued Statement of Financial Accounting
        Standard (“SFAS”) No. 141R, “Business Combinations” (“SFAS
        No. 141R”). SFAS No. 141R will require, among other things, the expensing of
        direct transaction costs, including deal costs and restructuring costs as
        incurred, acquired in process research and development assets to be capitalized,
        certain contingent assets and liabilities to be recognized at fair value
        and
        earn-out arrangements, including contingent consideration, may be required
        to be
        measured at fair value until settled, with changes in fair value recognized
        each
        period into earnings.  In addition, material adjustments made to the
        initial acquisition purchase accounting will be required to be recorded back
        to
        the acquisition date. This will cause companies to revise previously reported
        results when reporting comparative financial information in subsequent filings.
        SFAS No. 141R will become effective for us on a prospective basis for
        transactions occurring in 2009 and earlier adoption is not
        permitted.  We are currently evaluating the impact, if any, that the
        adoption of SFAS No. 141R will have on our financial condition results of
        operations or cash flows.
 
 In
        December 2007, the FASB issued SFAS
        No. 160, “Noncontrolling
        Interests in Consolidated Financial Statements” (“SFAS No. 160”). SFAS
        No. 160 will change the accounting for and reporting of minority interests.
        Under the new standard, minority interests, will be referred to as
        noncontrolling interests and will be reported as equity in the parent company’s
        consolidated financial statements. Transactions between the parent company
        and
        the noncontrolling interests will be treated as transactions between
        shareholders provided that the transactions do not create a change in control.
        Gains and losses will be recognized in earnings for transactions between
        the
        parent company and the noncontrolling interests, unless control is achieved
        or
        lost. SFAS No. 160 requires retrospective adoption of the presentation and
        disclosure requirements for existing minority interests. All other requirements
        of SFAS No. 160 shall be applied prospectively. SFAS No. 160 is effective
        for us
        beginning in the first quarter of fiscal year 2009 and earlier adoption is
        not
        permitted. We are currently evaluating the impact, if any, that the adoption
        of
        SFAS No. 160 will have on our financial condition, results of operations or cash
        flows.
 
 In
        February 2007, the FASB issued SFAS
        No. 159, “The Fair Value
        Option for Financial Assets and Financial Liabilities – Including an Amendment
        of FASB Statement No. 115”(“SFAS No. 159”), which provides
        companies with an option to report selected financial assets and liabilities
        at
        their fair values. The objective is to improve financial reporting by providing
        entities with the opportunity to mitigate volatility in reported earnings
        caused
        by measuring related assets and liabilities differently without having to
        apply
        complex hedge accounting provisions. SFAS No. 159 is expected to expand the
        use
        of fair value measurement, which is consistent with the FASB’s long-term
        measurement objectives for accounting for financial instruments. SFAS
        No. 159 will become effective for us on July 1, 2008.  We
        are currently evaluating the impact, if any, that the adoption of SFAS No.
        159
        will have on our financial condition, results of operations or cash
        flows.
 
 In
        September 2006, the FASB issued
        SFAS No. 157, “Fair Value
        Measurements” (“SFAS No. 157”), which defines fair value,
        establishes guidelines for measuring fair value and expands disclosures
        regarding fair value measurements. SFAS No. 157 is effective for fiscal
        years beginning after November 15, 2007. We are currently evaluating what
        impact, if any, the adoption of SFAS No. 157 will have on our financial
        condition, results of operations or cash flows.
 
 In
        July 2006, the FASB issued
        Interpretation Number 48,“Accounting
        for Uncertainty in Income
        Taxes - An Interpretation of FASB Statement No. 109” (“FIN No. 48”). FIN
        No. 48 clarifies the accounting for uncertainty in income taxes recognized
        in an
        enterprise’s financial statements in accordance with SFAS 109. FIN No. 48 also
        prescribes a recognition threshold and measurement attribute for the financial
        statement recognition and measurement of a tax position taken or expected
        to be
        taken in a tax return.  FIN No. 48 also provides guidance on
        derecognition, classification, interest and penalties.  FIN No. 48 is
        mandatory for years beginning after December 15, 2006; accordingly, we
        adopted FIN No. 48 effective July 1, 2007. The adoption of FIN No. 48 did
        not
        have a material impact on our results of operations, as we had no potential
        liabilities that would have met the pre-FIN No. 48 accrual criteria, discussed
        above, at June 30, 2007 or December 31, 2007.
 
 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
        December 31, 2007, a total of $27.5 million was outstanding under the 2005
        Credit Facility with a weighted average interest rate of 6.4% per
        annum.  Based upon the $27.5 million outstanding under the 2005 Credit
        Facility at December 31, 2007, our annual interest cost under the 2005 Credit
        Facility would increase by $0.3 million for each 1% increase in Eurodollar
        interest rates.
   25
 Index
 
 In
        order
        to reduce our exposure to increases in Eurodollar rates, and consequently
        to
        increases in interest payments, we entered into an interest rate swap
        transaction (the “2005 Swap”) comprised of two instruments (“Swap A” and “Swap
        B”) on September 28, 2005, with an effective date of October, 3,
        2005.  Swap A, in the amount of $15.0 million (the “A Notional
        Amount”), matures on October 3, 2008 and Swap B, in the amount of $5.0 million
        (the “B Notional Amount”), matured on April 3, 2007.  Pursuant to Swap
        A, we currently pay a fixed interest rate of 4.69% per annum and receive
        a
        Eurodollar-based floating rate.  The effect of Swap A is to neutralize
        any changes in Eurodollar rates on the A Notional Amount.  The 2005
        Swap meets the requirements to be designated as a cash flow hedge and is
        deemed
        a highly effective transaction.  Accordingly, changes in the fair
        value of Swap A are recorded as other comprehensive income
        (loss).  During the six months ended December 31, 2007, we recorded a
        loss of $0.2 million, representing the change in fair value of Swap A from
        June
        30, 2007 through December 31, 2007, as other comprehensive loss.
 
 ITEM
        4.                      CONTROLS
        AND PROCEDURES
 
  Evaluation
        of disclosure
        controls and procedures.  Based
        on
        our management’s evaluation (with the participation of our principal executive
        officer and principal financial officer), as of the end of the period covered
        by
        this report, our principal executive officer and principal financial officer
        have concluded that our disclosure controls and procedures (as defined in
        Rules
        13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended,
        (the “Exchange Act”) are effective to ensure that information required to be
        disclosed by us in reports that we file or submit under the Exchange Act
        is
        recorded, processed, summarized and reported within the time periods specified
        in SEC rules and forms.
  Changes
        in internal control
        over financial reporting. There have been no changes in our internal
        control over financial reporting during the quarter ended December 31, 2007
        that
        have materially affected, or is reasonably likely to materially affect, our
        internal control over financial reporting.
 
 PARTII.                      OTHER
        INFORMATION.
 
 ITEM
        2.                      UNREGISTERED
        SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
 
 (c)
              Issuer
                  Purchases of Equity Securities.
 
 On
        January 31, 2007, we publicly announced that our Board of Directors authorized
        a
        share repurchase program under which we may repurchase up to $50 million
        of our
        common shares through December 31, 2007. As of December 31, 2007, we had
        purchased 1,180,304 common shares at an average price of $25.09 per share
        for an
        aggregate purchase price of $29,612,760 since inception of the share repurchase
        program.
 
 ITEM
        4.                      SUBMISSION
        OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
 (a)
              Our
                  2007 Annual Meeting of Shareholders was held on December 4,
                  2007.
 (b)
              Robert
                  L. Frome and Steven J. Landwehr were elected as Class I directors
                  of the
                  Company to serve until our 2010 Annual Meeting of Shareholders.
                  The terms
                  of Michael E. DeDomenico and Daniel Raynor, Class II directors
                  of the
                  Company, and J. Robert Vipond and Christopher White, Class III
                  directors
                  of the Company, continue until our 2008 Annual Meeting of Shareholders
                  and
                  2009 Annual Meeting of Shareholders,
                  respectively.
 (c)
              (1)                 Election
                  of Directors:
 
 Nominee
              Number
                  of Votes
                  For
              Number
                  of Votes
                  WithheldRobert
                  L. Frome
              9,732,237
              4,564,123Steven
                  J. Landwehr
              14,216,589
              79,771
 
 (2)
              Ratification
                  of the appointment of Ernst & Young LLP as our independent registered
                  public accounting firm for fiscal
                  2008:
 
 Number
                  of Votes
                  For
              Number
                  of Votes
                  Against
              Number
                  of Votes
                  Abstaining14,288,473
              4,206
              3,681
 
  26
 Index
  ITEM
        6.                      EXHIBITS.
 
 
 
 Exhibit
                No.
              Exhibit31.1
              Section
                  302 Certification of Principal Executive
                  Officer.
 31.2
              Section
                  302 Certification of Principal Financial
                  Officer.
 32.1
              Section
                  906 Certification of Principal Executive Officer.32.2
              Section
                906 Certification of Principal Financial
                Officer.
 27
 Index
 
 SIGNATURES
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, the Registrant
        has
        duly caused this report to be signed on its behalf by the undersigned thereunto
        duly authorized.
 
 
 NuCO2
                  Inc.Dated:  February
                  11, 2008
              By:
              /s/
                    Robert R. GalvinRobert
                  R. GalvinChief
                  Financial Officer
 
 
 28