`SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                   -----------


                                    FORM 10-Q


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

For the quarterly period ended March 31, 2002

                                       OR

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

For the transition period from                       to
                               ---------------------     -----------------------

                         Commission file number 0-27378

                                   NUCO2 INC.
             (Exact Name of Registrant as Specified in Its Charter)


                 Florida                                  65-0180800
(State or Other Jurisdiction of                        (I.R.S. Employer
Incorporation or Organization)                         Identification No.)

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


Registrant's Telephone Number, Including Area Code:    (772) 221-1754


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


            Indicate  by check /x/  whether  the  registrant:  (1) has filed all
reports  required to be filed by Section 13 or 15(d) of the Securities  Exchange
Act of 1934 during the preceding 12 months (or for such shorter  period that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days Yes /x/ No / /

            Indicate  the number of shares  outstanding  of each of the issuer's
classes of Common Stock, as of the latest practicable date:

                    Class                   Outstanding at March 31, 2002
                    -----                   -----------------------------

Common Stock, $.001 par value                       8,739,845 shares





                                   NUCO2 INC.

                                      Index

PART I.     FINANCIAL INFORMATION

ITEM 1.     CONSOLIDATED FINANCIAL STATEMENTS

            Consolidated Balance Sheets as of March 31, 2002 and             3
                June 30, 2001

            Consolidated Statements of Operations for the Three Months       4
                Ended March 31, 2002 and March 31, 2001

            Consolidated Statements of Operations for the Nine Months        5
                Ended March 31, 2002 and March 31, 2001

            Consolidated Statement of Shareholders' Equity for the Nine      6
                Months Ended March 31, 2002

            Consolidated Statements of Cash Flows for the Nine Months        7
                Ended March 31, 2002 and March 31, 2001

            Notes to Consolidated Financial Statements                       8

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF                         13
               FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES                        19
               ABOUT MARKET RISK

PART II.    OTHER INFORMATION

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

SIGNATURES                                                                  20

                                       2




PART I.     FINANCIAL INFORMATION

ITEM 1.     CONSOLIDATED FINANCIAL STATEMENTS

                                   NUCO2 INC.

                           CONSOLIDATED BALANCE SHEETS
                      (In thousands, except share amounts)


                                     ASSETS

                                                                           March 31, 2002         June 30, 2001
                                                                           --------------         -------------
                                                                             (unaudited)

Current assets:
    Cash and cash equivalents                                                $     474              $     626
    Trade accounts receivable, net of allowance for doubtful
        accounts of $1,886 and $2,506, respectively                              7,408                  7,312
    Inventories                                                                    226                    199
    Prepaid expenses and other current assets                                    1,071                  1,218
                                                                             ---------              ---------
        Total current assets                                                     9,179                  9,355
                                                                             ---------              ---------

Property and equipment, net                                                     98,713                100,370
                                                                             ---------              ---------

Other assets:
    Goodwill, net                                                               20,268                 20,268
    Restrictive covenants, net                                                   1,380                  1,672
    Deferred charges, net                                                        2,405                  2,079
    Deferred lease acquisition costs, net                                        3,143                  3,426
    Other assets                                                                   964                    412
                                                                             ---------              ---------
                                                                                28,160                 27,857
                                                                             ---------              ---------
           Total assets                                                      $ 136,052              $ 137,582
                                                                             =========              =========


               LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Current maturities of long-term debt                                     $      39              $      36
    Accounts payable                                                             2,083                  2,958
    Accrued expenses                                                               687                  2,504
    Accrued interest                                                             2,551                  1,343
    Accrued payroll                                                                485                    880
    Other current liabilities                                                      493                    414
                                                                             ---------              ---------
        Total current liabilities                                                6,338                  8,135

Long-term debt, less current maturities                                         48,264                 48,144
Subordinated debt                                                               39,309                 39,166
Customer deposits                                                                2,383                  2,689
                                                                             ---------              ---------
        Total liabilities                                                       96,294                 98,134
                                                                             ---------              ---------

Commitments and contingencies                                                     --                     --
Redeemable preferred stock                                                       8,385                  5,466
                                                                             ---------              ---------

Shareholders' equity:
    Preferred stock; no par value; 5,000,000 shares authorized;
       issued and outstanding 7,500 shares at March 31, 2002
       and 5,000 shares at June 30, 2001                                          --                     --
    Common stock; par value $.001 per share; 30,000,000 shares authorized;
       issued and outstanding 8,739,845 shares at March 31, 2002
       and 8,651,125 shares at June 30, 2001                                         9                      9
    Additional paid-in capital                                                  76,539                 76,290
    Accumulated deficit                                                        (44,867)               (41,974)
    Accumulated other comprehensive loss                                          (308)                  (343)
                                                                             ---------              ---------
        Total shareholders' equity                                              31,373                 33,982
                                                                             ---------              ---------
           Total liabilities and shareholders' equity                        $ 136,052              $ 137,582
                                                                             =========              =========

                                       3




                                   NUCO2 INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)
                                   (UNAUDITED)



                                                 Three Months Ended March 31,
                                                 ----------------------------
                                                     2002        2001*
                                                     ----        ----


Net sales                                          $ 17,743    $ 17,028
                                                   --------    ---------

Costs and expenses:
    Cost of products sold                             8,963       8,031
    Selling, general and administrative expenses      3,914       3,533
    Depreciation and amortization                     3,531       4,384
    Loss on asset disposals                             304         385
                                                   --------    ---------
                                                     16,712      16,333
                                                   --------    ---------

Operating income                                      1,031         695

Interest expense, net                                 2,035       2,494
                                                   --------   ---------

Net loss                                           $ (1,004)   $ (1,799)
                                                   ========    =========

Basic and diluted earnings per share (Note 2):

    Net loss                                       $  (0.13)   $  (0.23)
                                                   ========    =========

    Weighted average number of common and common
      equivalent shares outstanding:

        Basic and diluted                             8,734       8,387
                                                   ========    =========


*Restated to conform to current year's classification.

                                       4




                                   NUCO2 INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)
                                   (UNAUDITED)




                                                 Nine Months Ended March 31,
                                                 ---------------------------
                                                      2002         2001*
                                                      ----         ----

Net sales                                          $ 54,439    $ 49,573
                                                   --------    --------

Costs and expenses:
    Cost of products sold                            26,763      24,098
    Selling, general and administrative expenses     11,237      10,219
    Depreciation and amortization                    11,316      13,010
    Loss on asset disposals                             859         881
                                                   --------    --------
                                                     50,175      48,208
                                                   --------    --------

Operating income                                      4,264       1,365

Interest expense, net                                 6,361       7,885
                                                   --------    --------

Net Loss before extraordinary item                   (2,097)     (6,520)
Extinguishment of debt, net of tax                      796        --
                                                   --------    --------

    Net  loss                                      $ (2,893)   $ (6,520)
                                                   ========    ========

Basic and diluted earnings per share (Note 2):

    Loss before extraordinary item                 $  (0.29)   $  (0.88)
    Extraordinary item, extinguishment of debt        (0.09)       --
                                                   --------    --------

Basic and diluted earnings per share               $  (0.38)   $  (0.88)
                                                   ========    ========

    Weighted average number of common and common
      equivalent shares outstanding:

        Basic and diluted                             8,692       7,742
                                                   ========    ========


*Restated to conform to current year's classification.

                                       5





                                   NUCO2 INC.

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                      (In thousands, except share amounts)
                                   (UNAUDITED)





                                                                                       Accumulated
                                          Common Stock        Additional                  Other        Total
                                      --------------------     Paid-In    Accumulated Comprehensive Shareholders'
                                        Shares      Amount      Capital     Deficit       Loss        Equity
                                        ------      ------      -------     -------       ----        ------

Balance, June 30, 2001                8,651,125   $       9   $  76,290    $ (41,974)   $    (343)   $  33,982

Net loss                                   --          --          --         (2,893)        --         (2,893)

Other comprehensive expense:

  Interest rate swap transaction           --          --          --           --             35           35
                                                                                                     ---------
Total comprehensive loss                   --          --          --           --           --         (2,858)

Redeemable preferred stock dividend        --          --          (420)        --           --           (420)

Issuance of common stock -
  exercise of options                    88,720        --           669         --           --            669
                                      ---------   ---------   ---------    ---------    ---------    ---------

Balance, March 31, 2002               8,739,845   $       9   $  76,539    $ (44,867)   $    (308)   $  31,373
                                      =========   =========   =========    =========    =========    =========

                                       6




                                   NUCO2 INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (UNAUDITED)


                                                                 Nine Months Ended March 31,
                                                                 ---------------------------
                                                                    2002         2001*
                                                                    ----         -----

Cash flows from operating activities:
    Net loss                                                      $ (2,893)   $ (6,520)
    Adjustments to reconcile net loss to net cash provided
        by operating activities:
        Depreciation and amortization of property and equipment      9,169       9,207
        Amortization of other assets                                 2,147       3,803
        Amortization of original issue discount                        143         166
        Loss on asset disposals                                        859         881
        Loss on early extinguishment of debt                           796        --
        Changes in operating assets and liabilities:
        Decrease (increase) in:
           Trade accounts receivable                                   405          63
           Inventories                                                 (27)        (17)
           Prepaid expenses and other current assets                   147      (1,763)

        Increase (decrease) in:
           Accounts payable                                           (875)     (5,689)
           Accrued expenses                                         (1,782)        455
           Accrued payroll                                            (395)         26
           Accrued interest                                          1,243         758
           Other current liabilities                                    79          89
           Customer deposits                                          (807)         49
                                                                  --------    --------

        Net cash provided by operating activities                    8,209       1,508
                                                                  --------    --------

Cash flows from investing activities:
    Proceeds from disposal of property and equipment                  --             4
    Purchase of property and equipment                              (8,311)     (8,010)
    Increase in deferred lease acquisition costs                      (680)       (909)
    Increase in restrictive covenants                                 --           (37)
    Increase in other assets                                          (547)       (135)
                                                                  --------    --------
        Net cash used in investing activities                       (9,538)     (9,087)
                                                                  --------    --------

Cash flows from financing activities:
    Repayment of long-term debt                                    (51,377)     (6,524)
    Proceeds from issuance of long-term debt                        51,500       4,400
    Proceeds from issuance of common stock                            --         9,863
    Proceeds from issuance of redeemable preferred stock             2,500        --
    Exercise of stock options                                          670          19
    Increase in deferred charges                                    (2,116)       (158)
                                                                  --------    --------
        Net cash provided by financing activities                    1,177       7,600
                                                                  --------    --------

    Increase (decrease) in cash and cash equivalents                  (152)         21
    Cash and cash equivalents at the beginning of period               626         279
                                                                  --------    --------
    Cash and cash equivalents at the end of period                $    474    $    300
                                                                  ========    ========

Supplemental  disclosure of cash flow  information:
  Cash paid during the period for:
        Interest                                                  $  5,010    $  6,963
                                                                  ========    ========
        Income taxes                                              $   --      $   --
                                                                  ========    ========


*Restated to conform to current year's classification.

                                       7





                                   NUCO2 INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (In thousands, except per share amounts)
                                   (UNAUDITED)
Note 1.     Basis of Presentation

            The accompanying  unaudited  consolidated  financial statements have
been  prepared  in  accordance  with  the  instructions  to Form  10-Q  used for
quarterly  reports under Section 13 or 15 (d) of the Securities  Exchange Act of
1934, and therefore,  do not include all information and footnotes necessary for
a fair presentation of consolidated  financial  position,  results of operations
and cash flows in conformity with generally accepted accounting principles.  The
accompanying unaudited consolidated financial statements include the accounts of
NuCo2 Inc. (the "Company") and its wholly-owned  subsidiary,  NuCo2  Acquisition
Corp.  which was formed to acquire the stock of Koch Compressed  Gases,  Inc. in
October 1997.  All material  intercompany  accounts and  transactions  have been
eliminated.

            The financial  information included in this report has been prepared
in  conformity  with the  accounting  principles  and methods of applying  those
accounting  principles,  reflected in the consolidated  financial statements for
the  fiscal  year  ended  June 30,  2001  included  in Form 10-K  filed with the
Securities and Exchange Commission.

            All  adjustments  necessary for a fair  statement of the results for
the interim periods presented have been recorded.  This quarterly report on Form
10-Q  should  be  read in  conjunction  with  the  Company's  audited  financial
statements for the fiscal year ended June 30, 2001. The consolidated  results of
operations  for the periods  presented  are not  necessarily  indicative  of the
results to be expected for the full fiscal year.


Note 2.     Net Loss per Common Share

            Basic loss per common  share has been  computed by dividing  the net
loss, after giving effect to preferred stock dividends,  by the weighted average
number of common shares outstanding  during the period.  Diluted loss per common
share has been  computed on the basis of the weighted  average  number of common
and, if dilutive, common equivalent shares outstanding during the period. Common
equivalent  shares for stock  options and  warrants  calculated  pursuant to the
treasury  stock  method were not  included in diluted  earnings per common share
because they would have been antidilutive. Also, not included in the computation
of diluted  earnings  per common share was the effect of  outstanding  shares of
Redeemable Preferred Stock (See Note 5) using the "if converted" method, because
the effect would be antidilutive.

                                                      Three Months Ended    Nine Months Ended
                                                      ------------------    -----------------
                                                                   March 31,
                                                         2002       2001       2002      2001
                                                         ----       ----       ----      ----

Net loss                                              $(1,004)   $(1,799)   $(2,893)   $(6,520)
Redeemable Preferred Stock dividends                     (165)      (105)      (420)      (309)
                                                      -------    -------    -------    -------
Net loss available for common shareholders            $(1,169)   $(1,904)   $(3,313)   $(6,829)
                                                      =======    =======    =======    =======

Weighted average outstanding shares of common stock     8,734      8,387      8,692      7,742
                                                      =======    =======    =======    =======
Loss per share - basic and diluted                    $ (0.13)   $ (0.23)   $ (0.38)   $ (0.88)
                                                      =======    =======    =======    =======

Note 3.     Long-Term Debt

            In September  2001, the Company  entered into a $60.0 million second
amended  and  restated  revolving  credit  facility  with a  syndicate  of banks
("Amended  Credit  Facility").  Pursuant to the  Amended  Credit  Facility,  the
Company  may  request,  at any time absent a default,  that the  Amended  Credit
Facility  be  increased  by an  additional  $15.0  million  to a total  of $75.0
million. This new facility replaced the Company's prior facility,  which was due
to expire in May 2002. The Amended Credit Facility  contains  interest rates and
an unused  commitment fee based on a pricing grid calculated  quarterly on total
debt to annualized  EBITDA (as  defined).  The Company is entitled to select the
Base Rate or LIBOR,  plus applicable  margin,  for principal  drawings under the
Amended Credit  Facility.  The applicable  LIBOR margin  pursuant to the pricing
grid currently ranges from 2.50% to 3.75%, the applicable  unused commitment fee
pursuant to the pricing grid ranges from .375% to .50% and the  applicable  Base
Rate margin  pursuant to the pricing grid currently  ranges from 1.50% to 2.75%.
Interest only is payable periodically until the expiration of the Amended Credit
Facility.  The Amended Credit Facility is collateralized by substantially all of
the Company's assets.  Additionally,  the Company is precluded from declaring or
paying any cash dividends, except the Company may accrue and accumulate, but not
pay, cash dividends on the Redeemable  Preferred Stock (see Note 5). The Company

                                       8




is also required to meet certain  affirmative and negative covenants  including,
but not limited to,  financial  covenants.  For the period ended March 31, 2002,
the Company was not in compliance  with the minimum  EBITDA  covenant  under the
Amended  Credit  Facility.  On May 10,  2002,  the Amended  Credit  Facility was
amended to adjust  certain  financial  covenants for the quarter ended March 31,
2002 and prospectively,  and non-compliance with the minimum EBITDA covenant for
the three months ended March 31, 2002 was waived.  If the  Company's  total debt
coverage  ratio (as defined)  exceeds the ratio of 4.00 to 1.00,  the applicable
LIBOR and Base Rate  margins  will be increased by 25 to 50 basis points in each
fiscal quarter  beginning with the fiscal quarter ending June 2002, to a maximum
of 4.75% and 3.75%, respectively.  The Amended Credit Facility expires September
30,  2003  and  accordingly,  the  Company  has  classified  its  borrowings  as
long-term.

            As of March  31,  2002,  a total of $48.0  million  was  outstanding
pursuant  to the  Amended  Credit  Facility  with  interest  at 3.5% above LIBOR
(5.3700% to 5.4038%).

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

            The  Company  uses  derivative  instruments  to manage  exposure  to
interest rate risks.  The Company's  objectives for holding  derivatives  are to
minimize the risks using the most  effective  methods to eliminate or reduce the
impacts of this  exposure.  On August  31,  2000,  the  Company  entered  into a
two-year  interest rate swap  transaction  (the "Swap"),  as required  under its
prior credit facility, with a notional amount of $10.0 million as a hedge of the
variable interest rate debt outstanding under its credit facility. The effective
date of the Swap is  September  1, 2000,  and it was  scheduled  to terminate on
September 3, 2002. On September  28, 2001,  the Company,  as required  under the
Amended Credit Facility,  amended the Swap to a notional amount of $12.5 million
and the termination date to September 28, 2003. In addition, the Company's fixed
interest  rate under the Swap was amended from 7% to 5.23% per annum.  Under the
Swap,  the Company pays a fixed  interest rate of 5.23% per annum and receives a
LIBOR-based floating rate.

            The Swap,  which is designated as a cash flow hedge, is deemed to be
a highly  effective  transaction,  and  accordingly  the cumulative  loss on the
derivative  instrument is reported as a component of other  comprehensive  loss.
For the nine  months  ended  March 31,  2002,  the  Company  recorded  a gain of
$35,000,   representing  the  difference   between  mark  to  market,  as  other
comprehensive  loss.  The net derivative  loss will be classified  into earnings
over the term of the underlying cash flow hedge.

Note 4.     Subordinated Debt

            In October 1997,  the Company issued $30.0 million of its 12% Senior
Subordinated Promissory Notes ("Notes") with interest only payable semi-annually
on April 30 and  October  31, due  October  31,  2004.  The Notes were sold with
detachable  seven year  warrants to purchase an aggregate  of 655,738  shares of
common stock at an exercise  price of $16.40 per share.  The effective  interest
rate on the Notes is 12.1% per annum after giving effect to the  amortization of
the original issue discount. The Company is required to meet certain affirmative
and negative covenants.  Additionally,  NationsBanc Montgomery Securities, Inc.,
the  placement  agent,  received a warrant to  purchase an  aggregate  of 30,000
shares of common stock at an exercise price of $14.64 per share which expires on
October 31, 2004.

            On May 4, 1999, the Company sold an additional  $10.0 million of its
12% Senior Subordinated  Promissory Notes ("Additional Notes"). Except for their
October 31, 2005 maturity date, the Additional Notes are substantially identical
to the Notes  described  above.  The Additional  Notes were sold with detachable
6-1/2 year  warrants to purchase an aggregate of 372,892  shares of common stock
at an  exercise  price of $6.65 per share.  In  connection  with the sale of the
Additional  Notes,  certain  financial  covenants  governing  the  Notes and the
Additional  Notes were adjusted as of March 31, 1999 and  prospectively  and the
exercise price for 612,023 of the warrants issued in connection with the sale of
the Notes was reduced to $6.65 per share.  The  effective  interest  rate on the
Additional  Notes is 13.57% per annum after giving effect to the amortization of
the original issue  discount.  In September 2001, in connection with the Amended
Credit  Facility,  certain  financial  covenants  governing  the  Notes  and the
Additional Notes were adjusted prospectively.

            For  the  period  ended  March  31,  2002,  the  Company  was not in
compliance  with the total net funded debt  coverage  ratio  covenant  under the
Notes and Additional Notes. On May 10, 2002,  concurrently with the amendment to

                                       9





the Amended Credit Facility,  certain financial  covenants for the quarter ended
March 31, 2002 and prospectively were adjusted and non-compliance with the total
net funded debt  coverage  ratio  covenant  for the three months ended March 31,
2002 was  waived.  If the total net  funded  debt  coverage  ratio (as  defined)
exceeds the applicable ratio for each fiscal quarter ending on or after June 30,
2002,  the interest rate on the Notes and  Additional  Notes will increase by an
additional 75 basis points per annum up to a maximum of 14% per annum.

Note 5.     Redeemable Preferred Stock

            In May 2000,  the  Company  sold  5,000  shares  of its  Series A 8%
Cumulative  Convertible  Redeemable Preferred Stock, no par value (the "Series A
Preferred Stock"), for $1,000 per share (the initial "Liquidation  Preference").
Cumulative  dividends  are  payable  quarterly  in arrears at the rate of 8% per
annum on the  Liquidation  Preference,  and, to the extent not paid in cash, are
added to the Liquidation Preference.  Shares of the Series A Preferred Stock may
be converted  into shares of common  stock at any time at a conversion  price of
$9.47 per share,  which represents a 20% premium to the average closing price of
the common stock on the Nasdaq  National Market for the 20 trading days prior to
May 12,  2000.  In  connection  with the sale,  costs in the  amount of $65 were
charged to paid-in capital.

            In November  2001,  the Company sold 2,500 shares of its Series B 8%
Cumulative  Convertible  Redeemable Preferred Stock, no par value (the "Series B
Preferred Stock"), for the initial Liquidation Preference.  Cumulative dividends
are payable  quarterly in arrears at the rate of 8% per annum on the Liquidation
Preference,  and, to the extent not paid in cash,  are added to the  Liquidation
Preference.  Shares of the Series B Preferred Stock may be converted into shares
of common stock at any time at a conversion price of $13.20 per share.

            During the fiscal year ended June 30, 2001,  and for the nine months
ended March 31, 2002, the carrying amount (and  Liquidation  Preferences) of the
Series A Preferred  Stock and Series B Preferred  Stock  ("Redeemable  Preferred
Stock") was increased by $416 and $420 respectively,  for dividends accrued. The
Redeemable  Preferred Stock shall be mandatorily  redeemed by the Company within
30 days after a Change in Control (as  defined) of the Company (the date of such
redemption being the "Mandatory Redemption Date") at an amount equal to the then
effective Liquidation  Preference plus accrued and unpaid dividends thereon from
the last dividend  payment date to the Mandatory  Redemption  Date,  plus if the
Mandatory  Redemption  Date is on or  prior  to the  fourth  anniversary  of the
issuance of the  Redeemable  Preferred  Stock,  the amount of any dividends that
would have accrued and been payable on the Redeemable  Preferred  Stock from the
Mandatory Redemption Date through the fourth anniversary date.

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

Note 6.     Accounting Pronouncements

            In June 2001,  the FASB issued  Statement  of  Financial  Accounting
Standard  No. 141 ("SFAS  141"),  "Business  Combinations,"  which  requires all
business  combinations  initiated  after June 30, 2001 to be accounted for under
the  purchase  method.  SFAS 141 also sets forth  guidelines  for  applying  the
purchase  method  of  accounting  in the  determination  of  intangible  assets,
including  goodwill  acquired in a business  combination,  and expands financial
disclosures  concerning business  combinations  consummated after June 30, 2001.
The  application  of SFAS  141 did not  affect  any of our  previously  reported
amounts included in goodwill or other intangible assets.

            As of July 1, 2001,  the  Company  adopted  Statement  of  Financial
Accounting Standards No. 142 ("SFAS 142"), Goodwill and Other Intangible Assets,
which  addresses  the  financial  accounting  and  reporting  standards  for the
acquisition of intangible  assets acquired.  This accounting  standard  requires
that  goodwill  be  separately  disclosed  from other  intangible  assets in the
statement  of  financial  position,  and no longer be  amortized  but tested for
impairment on a periodic basis. The provisions of this accounting  standard also
require the  completion of a transitional  impairment  test within six months of
adoption,  with any impairments  identified  treated as a cumulative effect of a
change in accounting principle.

                                       10




            In  accordance   with  SFAS  142,  the  Company   discontinued   the
amortization of goodwill  effective July 1, 2001. A reconciliation of previously
reported  net income and  earnings  per share to the  amounts  adjusted  for the
exclusion of goodwill and customer lists amortization, net of the related income
tax effect, is as follows:


                                   Three Months Ended        Nine Months Ended
                                   ------------------        -----------------
                                        March 31                   March 31
                                        --------                   --------
                                   2002          2001         2002         2001
                                   ----          ----         ----         ----

Reported net loss           $     (1,004)$     (1,799)$     (2,893)$     (6,520)

Add:  Goodwill amortization,
  net of tax                        --            519         --          1,556
                               ---------    ---------    ---------    ---------
Adjusted net loss           $     (1,004)$     (1,280)$     (2,893)$     (4,964)
                               =========    =========    =========    =========

Reported basic and diluted
  earnings per share        $      (0.13)$      (0.23)$      (0.38)$      (0.88)

Add:  Goodwill amortization,
  net of tax                        --           0.06      --              0.20
                               ---------    ---------    ---------    ---------

Adjusted basic and diluted
  earnings per share        $      (0.13)$      (0.17)$      (0.38)$      (0.68)
                               =========    =========    =========    =========

            Based  on the  criteria  of  SFAS  142,  the  Company  has a  single
reporting  unit.  Changes in the carrying amount of goodwill for the nine months
ended March 31, 2002, for the single operating segment,  for acquired intangible
assets are as follows:

                                                  Company
                                                  -------
Balance as of July 1, 2001                        $20,268
Goodwill acquired during the period                  --
                                                  -------

Balance as of March 31, 2002                      $20,268
                                                  =======

            As required by the SFAS 142,  intangible assets that do not meet the
criteria for recognition  apart from goodwill must be reclassified.  As a result
of the Company's analysis, $1,046 previously accounted for as customer lists was
reclassified to goodwill as of July 1, 2001.

            Information  regarding the Company's other  intangible  assets is as
follows:

                                                 As of March 31, 2002
                                                 --------------------
                                             Carrying  Accumulated
                                               Amount  Amortization     Net
                                               ------  ------------     ---

          Restrictive covenants              $ 3,110   $ 1,730        $ 1,380
          Deferred charges                     4,355     1,950          2,405
          Deferred lease acquisition costs     7,563     4,420          3,143
                                             -------   -------        -------

          Total                              $15,028   $ 8,100        $ 6,928
                                             =======   =======        =======



                                                   As of June 30, 2001
                                                   -------------------
                                            Carrying   Accumulated
                                              Amount   Amortization     Net
                                              ------   ------------     ---

          Restrictive covenants              $ 3,110   $ 1,438        $ 1,672
          Deferred charges                     5,232     3,153          2,079
          Deferred lease acquisition costs     7,139     3,713          3,426
                                             -------   -------        -------

          Total                              $15,481   $ 8,304        $ 7,177
                                             =======   =======        =======

                                       11



            Amortization  expense for the nine  months  ended March 31, 2002 was
$2,147.  Estimated  amortization  expense for each of the five succeeding fiscal
years is as follows:

                Fiscal year ended June 30:             Amount
                --------------------------             ------

                        2002                         $3,771,000
                        2003                         $2,135,000
                        2004                         $1,009,000
                        2005                           $368,000
                        2006                           $277,000

            The Company completed the transitional  goodwill  impairment test as
required by SFAS 142 in December 2001 using a measurement  date of July 1, 2001.
Based on the results of the  transitional  impairment  test, the Company was not
required to recognize an  impairment  of goodwill.  The Company will continue to
perform future impairment tests as required by SFAS 142.

                                       12




ITEM 2.

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

            THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE  FORWARD-LOOKING  STATEMENTS.  FACTORS THAT MAY CAUSE SUCH  DIFFERENCES
INCLUDE,  BUT ARE NOT LIMITED TO, OUR EXPANSION  INTO NEW MARKETS,  COMPETITION,
TECHNOLOGICAL ADVANCES, RELIANCE ON KEY SUPPLIERS AND AVAILABILITY OF MANAGERIAL
PERSONNEL.  THE FORWARD-LOOKING  STATEMENTS ARE MADE AS OF THE DATE OF THIS FORM
10-Q AND WE ASSUME NO OBLIGATION TO UPDATE THE FORWARD-LOOKING  STATEMENTS OR TO
UPDATE THE REASONS WHY ACTUAL  RESULTS COULD DIFFER FROM THOSE  PROJECTED IN THE
FORWARD-LOOKING STATEMENTS.

Overview

            We are the largest supplier in the United States of bulk CO2 systems
and bulk CO2 for carbonating and dispensing fountain beverages.  As of March 31,
2002,  we  operated a national  network  of 99  service  locations  in 45 states
servicing approximately 70,000 bulk and high pressure customers.  Currently, 99%
of  fountain  beverage  users in the  continental  United  States are within our
present service area. Historically,  due to a combination of internal growth and
acquisitions,  we have  experienced  high levels of growth in terms of number of
customers  and net sales,  averaging 20% to 40% per year from 1998 through 2001.
Today,  the majority of our growth is internal  resulting from the conversion of
high pressure CO2 users to bulk CO2 systems.

            During the fiscal year ended June 30, 2001, we  deliberately  slowed
new customer  contract  signings and the related  installation  rate of bulk CO2
systems. This decision was made to enable us to focus on improving our operating
effectiveness in order to better position us for future growth. We decentralized
service  location  management from our  headquarters  in Stuart,  Florida to the
depot  locations  themselves  and in connection  with this decision hired 18 new
full-time  depot  managers.  This slowed our gross  margin  improvement  plan in
fiscal 2001,  although it is  anticipated  to enhance it in the future.  We also
devoted  significant  resources to developing and implementing our new AccuRoute
system to improve our productivity and better service our customers.  The result
of this decision was that our revenue  growth  slowed from prior years  although
still remained  strong.  In addition,  the ramp down in growth enabled our sales
force to  concentrate  on signing  higher  margin new  customers  and  resigning
existing  customers at increased rates.  Because of these  initiatives,  we feel
that we will be ready to  accelerate  our growth in the first  quarter of fiscal
2003.

            For the nine months  ended March 31,  2002,  increases  in net sales
were  primarily  the  result  of  pricing  initiatives  on both new and  renewal
customers.  During the quarter ended March 31, 2002,  revenue growth reflected a
strategic  decision  to reduce  fuel and other  surcharges  along with a planned
reduction in our high pressure cylinder business. The weak economy also impacted
revenues  during  the  quarter  due  to a  large  number  of  small  independent
restaurant  closings,  reduced  volume on per pound and fill only  customers and
slower growth in new customer installations.

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

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

                                       13





General

            Substantially  all of our revenues have been derived from the rental
of bulk CO2 systems  installed  at  customers'  sites,  the sale of CO2 and high
pressure  cylinder  revenues.  Revenues  have grown from $18.9 million in fiscal
1997 to $67.6 million in fiscal 2001. We believe that our revenue base is stable
due to the existence of long-term  contracts with our customers  which generally
roll-over  with a  limited  number  expiring  without  renewal  in any one year.
Revenue  growth  is  largely  dependent  on (1) the rate of new bulk CO2  system
installations,  (2) the growth in bulk CO2 sales at (i) customers  having rental
plus per pound charge  contracts  and (ii)  customers who own their own bulk CO2
systems, and (3) price increases.

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

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

            We believe that earnings before  interest,  taxes,  depreciation and
amortization  ("EBITDA") is one of the principal  financial measures by which we
should be measured as we continue to achieve  national  market  presence  and to
build route density.  Information  regarding EBITDA is presented  because of its
use by certain  investors as one measure of a corporation's  ability to generate
cash  flow.  EBITDA  should  not be  considered  as an  alternative  to, or more
meaningful than,  operating income or cash flows from operating activities as an
indicator of a corporation's operating performance.  EBITDA excludes significant
costs of doing  business and should not be  considered  in  isolation  from GAAP
measures.

            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  cost  of  this  expansion  and the
significant  depreciation  expense  recognized  on our  installed  network  have
resulted in  significant  accumulated  net losses of $44.9  million at March 31,
2002.

Results of Operations

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

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

                                                        2002       2001*      2002     2001*
                                                        ----       ----       ----     ----
        Income Statement Data:

        Net sales ..................................     100.0%    100.0%    100.0%    100.0%
        Cost of products sold ......................      50.5      47.2      49.2      48.6
        Selling, general and administrative expenses      22.1      20.7      20.6      20.6
        Depreciation and amortization ..............      19.9      25.7      20.8      26.2
        Loss on asset disposals ....................       1.7       2.3       1.6       1.8
                                                       -------   -------   -------   -------
        Operating income ...........................       5.8       4.1       7.8       2.8
        Interest expense, net ......................      11.5      14.6      11.7      15.9
                                                       -------   -------   -------   -------

        Loss before extraordinary item .............      (5.7)    (10.5)     (3.9)    (13.1)
        Extinguishment of debt, net of tax .........       --        --        1.4       --
                                                       -------   -------   -------   -------
        Net loss ...................................      (5.7)%   (10.5)%    (5.3)%   (13.1)%
                                                       =======   =======   =======   =======

        Other Data:
        EBITDA .....................................      25.7%     29.8%     28.6%     29.0%
                                                       =======   =======   =======   =======

*Restated to conform to current year's classification.

                                       14




Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2001

Net Sales

            Net sales  increased  $0.7 million,  or 4.2%,  from $17.0 million in
2001 to $17.7  million in 2002.  The  increase in sales is primarily a result of
improved pricing initiatives on both new and renewal customers.

Cost of Products Sold

            Costs of products  sold  increased by $0.9 million,  or 11.6%,  from
$8.0 million in 2001 to $8.9 million in 2002,  and as a percentage of net sales,
increased  from 47.2% in 2001 to 50.5% in 2002.  Operational  wages and benefits
increased by $0.6 million from $3.4 million in 2001 to $4.0 million in 2002, and
as a percentage of net sales, increased from 19.9% in 2001 to 22.3% in 2002. The
increases are primarily  attributable to increased field management personnel to
enhance the  operational  effectiveness  of our depots  locally.  CO2  purchases
increased by $0.3 million from $1.7 million in 2001 to $2.0 million in 2002, and
as a percentage of net sales,  increased from 9.8% in 2001 to 11.0% in 2002. The
dollar increase is attributable to increased  purchases of CO2, partially offset
by lower per pound costs based on volume incentive pricing.

Selling, General and Administrative Expenses

            Selling,  general  and  administrative  expenses  increased  by $0.4
million,  or 10.8%,  from $3.5  million  in 2001 to $3.9  million  in 2002,  and
increased as a percentage of net sales from 20.7% in 2001 to 22.1% in 2002.  The
increases are  attributable to an increase in selling and  administrative  wages
and benefits.  Selling and  administrative  wages and benefits increased by $0.4
million from $2.1 million in 2001 to $2.5 million in 2002.  These costs  include
wages,  benefits and relocation  fees  associated with the hiring of incremental
sales and corporate management.

Depreciation and Amortization

            Depreciation and amortization decreased from $4.4 million in 2001 to
$3.5  million  in  2002.  As  a  percentage  of  net  sales,   depreciation  and
amortization expense decreased from 25.7% in 2001 to 19.9% in 2002. Depreciation
expense  decreased from $3.1 million in 2001 to $2.9 million in 2002 principally
due to an increase in assets which are fully depreciated.  Amortization  expense
decreased by $0.6 million from $1.3 million in 2001 to $0.7 million in 2002. The
decrease in  amortization  expense is a result of our  adoption of  Statement of
Financial  Accounting  Standard  No.  142  ("SFAS  142"),  "Goodwill  and  Other
Intangible Assets."

Loss on Asset Disposals

            Loss on asset disposals  decreased by $0.1 million from $0.4 million
in 2001 to $0.3 million in 2002.  The loss is  attributable  to the write-off of
capitalized costs upon service termination from customers.

Operating Income

            Operating income increased by $0.3 million from $0.7 million in 2001
to $1.0  million  in  2002.  As a  percentage  of net  sales,  operating  income
increased from 4.1% in 2001 to 5.8% in 2002.

Interest Expense

            Interest expense,  net, decreased by $0.5 million, from $2.5 million
in 2001 to $2.0 million in 2002, and decreased as a percentage of net sales from
14.6% in 2001 to 11.5%  in 2002.  The  dollar  decrease  is  attributable  to an
overall decline in interest rates and lower average debt levels.

Net Loss

            Net loss decreased by $0.8 million,  or 44.2%,  from $1.8 million in
2001 to $1.0 million in 2002.  No provision for income tax expense in either the
2001 or 2002 periods has been made due to historical net losses.

                                       15





EBITDA

            For the reasons  described above,  EBITDA decreased by approximately
$0.5  million,  or 10.2%,  from $5.1 million in 2001 to $4.6 million in 2002 and
decreased as a percentage of net sales from 29.8% to 25.7%.

Nine Months Ended March 31, 2002 Compared to Nine Months Ended March 31, 2001

Net Sales

            Net sales  increased  $4.9 million,  or 9.8%,  from $49.6 million in
2001 to $54.4  million in 2002.  The  increase in sales is primarily a result of
improved pricing initiatives on both new and renewal customers.

Cost of Products Sold

            Costs of products  sold  increased by $2.7 million,  or 11.1%,  from
$24.1  million in 2001 to $26.8  million  in 2002,  and as a  percentage  of net
sales,  increased  from  48.6% in 2001 to 49.2% in 2002.  Operational  wages and
benefits increased by $1.5 million from $9.4 million in 2001 to $10.9 million in
2002, and as a percentage of net sales, increased from 18.9% in 2001 to 20.0% in
2002. The increases are primarily  attributable  to increased  field  management
personnel to enhance the operational  effectiveness  of our depots locally.  CO2
purchases increased by $0.7 million from $5.7 million in 2001 to $6.4 million in
2002, and as a percentage of net sales, increased from 11.5% in 2001 to 11.7% in
2002.  The dollar  increase  is  attributable  to  increased  purchases  of CO2,
partially offset by lower per pound costs based on volume incentive pricing.

Selling, General and Administrative Expenses

            Selling,  general  and  administrative  expenses  increased  by $1.0
million, or 10.0%, from $10.2 million in 2001 to $11.2 million in 2002, and as a
percentage  of net  sales was 20.6% in 2001 and 2002.  The  dollar  increase  is
attributable  to an increase in selling and  administrative  wages and benefits.
Selling and  administrative  wages and  benefits  increased by $0.9 million from
$6.2  million  in 2001 to $7.1  million  in 2002.  These  costs  include  wages,
benefits and relocation fees associated with the hiring of incremental sales and
corporate management.

Depreciation and Amortization

            Depreciation and  amortization  decreased from $13.0 million in 2001
to $11.3  million  in 2002.  As a  percentage  of net  sales,  depreciation  and
amortization expense decreased from 26.2% in 2001 to 20.8% in 2002. Depreciation
expense was $9.2  million in 2001 and 2002.  Amortization  expense  decreased by
$1.7 million from $3.8 million in 2001 to $2.1 million in 2002.  The decrease in
amortization  expense is a result of our  adoption  of  Statement  of  Financial
Accounting  Standard  No.  142  ("SFAS  142"),  "Goodwill  and Other  Intangible
Assets."

Loss on Asset Disposals

            Loss on asset  disposals was $0.9 million in 2001 and 2002. The loss
is attributable to the write-off of capitalized  costs upon service  termination
from customers.

Operating Income

            Operating income increased by $2.9 million from $1.4 million in 2001
to $4.3  million  in  2002.  As a  percentage  of net  sales,  operating  income
increased from 2.8% in 2001 to 7.8% in 2002.

Interest Expense

            Interest expense,  net, decreased by $1.5 million, from $7.9 million
in 2001 to $6.4 million in 2002, and decreased as a percentage of net sales from
15.9% in 2001 to 11.7%  in 2002.  The  dollar  decrease  is  attributable  to an
overall decline in interest rates and lower average debt levels.

                                       16



Extraordinary Item

            Extraordinary item,  extinguishment of debt, totaled $0.8 million in
2002. This charge is  attributable to the write-off of deferred  charges related
to our prior credit  facility.  The  refinancing  of our prior  credit  facility
occurred during the first quarter of 2002 (see Note 3 to Consolidated  Financial
Statements).

Net Loss

            Net loss decreased by $3.6 million,  or 55.6%,  from $6.5 million in
2001 to $2.9 million in 2002.  No provision for income tax expense in either the
2001 or 2002 periods has been made due to historical net losses.

EBITDA

            For the reasons  described above,  EBITDA increased by approximately
$1.2 million,  or 8.4%,  from $14.4 million in 2001 to $15.6 million in 2002 and
decreased as a percentage of net sales from 29.0% to 28.6%.

Liquidity and Capital Resources

            Our  cash   requirements   consist   principally   of  (1)   capital
expenditures  associated  with  purchasing and placing new bulk CO2 systems into
service  at  customers'   sites;   (2)  payments  of  interest  on   outstanding
indebtedness;  and (3) working capital. Whenever possible, we seek to obtain the
use of vehicles,  land, buildings,  and other office and service equipment under
operating  leases as a means of  conserving  capital.  As of March 31, 2002,  we
anticipate  making cash capital  expenditures of  approximately  $2.0 million to
$4.0 million  during the  remaining  three months of fiscal 2002,  primarily for
purchases  of bulk CO2 systems that we expect to place into  service.  Once bulk
CO2 systems are placed into service, we generally experience positive cash flows
on a  per-unit  basis,  as there are  minimal  additional  capital  expenditures
required for ordinary operations. In addition to capital expenditures related to
internal growth,  we review  opportunities to acquire bulk CO2 service accounts,
and may  require  cash in an amount  dictated by the scale and terms of any such
transactions successfully concluded.

            On  September  24,  2001,  we entered  into a $60.0  million  second
amended  and  restated  revolving  credit  facility  with a  syndicate  of banks
("Amended Credit  Facility").  Pursuant to the Amended Credit  Facility,  we may
request,  at any time  absent a default,  that the  Amended  Credit  Facility be
increased by an additional  $15.0 million to a total of $75.0 million.  This new
facility  replaced our prior facility,  which was due to expire in May 2002. The
Amended Credit Facility contains interest rates and an unused facility fee based
on a pricing grid calculated  quarterly on total debt to annualized  EBITDA.  We
are  entitled  to select the Base Rate or LIBOR,  plus  applicable  margin,  for
principal  drawings under the Amended  Credit  Facility.  The  applicable  LIBOR
margin  pursuant to the pricing grid currently  ranges from 2.50% to 3.75%,  the
applicable unused facility fee pursuant to the pricing grid ranges from .375% to
..50% and the applicable  Base Rate margin pursuant to the pricing grid currently
ranges  from 1.50% to 2.75%.  Interest  only is payable  periodically  until the
expiration of the Amended Credit  Facility on September 30, 2003.  Additionally,
it is  collateralized  by substantially all of our assets. We are precluded from
declaring  or  paying  any  cash  dividends  and are  required  to meet  certain
affirmative  and  negative  covenants,  including  but not limited to  financial
covenants.  At  various  dates in the past we have been  unable to meet  certain
covenants  and have had to obtain  waivers  or  modifications  of terms from our
lenders.  In May 2002, the Amended Credit Facility was amended to adjust certain
financial covenants for the quarter ended March 31, 2002 and prospectively,  and
a waiver was obtained for  non-compliance  with the minimum EBITDA  covenant for
the quarter ended March 31, 2002. If the total debt coverage  ratio (as defined)
exceeds the ratio of 4.00 to 1.00,  the  applicable  LIBOR and Base Rate margins
will be increased by 25 to 50 basis points in each fiscal quarter beginning with
the  fiscal  quarter  ending June  2002,  to  a  maximum  of  4.75%  and  3.75%,

                                       17


respectively.  Although  we  believe  that we will be able to  comply  with  the
current  provisions of our borrowing  arrangements,  circumstances may result in
our having to obtain waivers or further modifications in the future.

             For the period ended March 31, 2002, we were not in compliance with
the total net funded debt coverage ratio covenant under the Notes and Additional
Notes.  On May 10, 2002,  concurrently  with the amendment to the Amended Credit
Facility,  certain financial covenants for the quarter ended March 31, 2002, and
prospectively,  were adjusted and non-compliance  with the total net funded debt
coverage  ratio  covenant for the three months ended March 31, 2002, was waived.
If the total net funded debt coverage ratio (as defined)  exceeds the applicable
ratio for each fiscal  quarter  ending on or after June 30,  2002,  the interest
rate on the Notes and  Additional  Notes will increase by an additional 75 basis
points per annum up to a maximum of 14% per annum.

             In November  2001,  we sold 2,500 shares of our Series B Cumulative
Convertible  Redeemable  Preferred  Stock, no par value (the "Series B Preferred
Stock"),  for  $1,000  per  share  (the  "Liquidation  Preference").  Cumulative
dividends are payable  quarterly in arrears at the rate of 8.0% per annum on the
Liquidation  Preference,  and, to the extent not paid in cash,  will be added to
the  Liquidation  Preference.  Shares of the Redeemable  Preferred  Stock may be
converted  into  shares of  Common  Stock at any time at a  conversion  price of
$13.20 per share.  Additionally,  we must redeem the Redeemable  Preferred Stock
upon the occurrence of a change in control of the Company.

            During the nine months ended March 31, 2002,  our capital  resources
included  cash flows  from  operations,  proceeds  from the sale of our Series B
Preferred Stock, the exercise of stock options, and available borrowing capacity
under  the  Amended  Credit  Facility.  As of March 31,  2002,  a total of $48.0
million was outstanding  under the Amended Credit Facility with interest at 3.5%
above LIBOR (5.3700% to 5.4038%).

            We believe that cash flows from operations and available  borrowings
under the Amended Credit Facility will be sufficient to fund proposed operations
for at least the next twelve months.

            Working Capital. At March 31, 2002 and June 30, 2001, we had working
capital of $2.8 million and $1.2 million, respectively.

             Cash Flows from  Operating  Activities.  For the nine months  ended
March 31, 2002 and March 31,  2001,  net cash  provided by  operations  was $8.2
million and $1.5  million,  respectively.  The  increase of $6.7 million in 2002
compared  to 2001 is  primarily a result of changes in the net loss from 2001 to
2002 of $3.6 million,  the loss on early  extinguishment of debt of $0.8 million
in 2002, accounts payables of $4.8 million,  and accounts receivable and prepaid
expenses and other  assets of $2.2  million,  offset by changes in  amortization
expense  associated  with the  adoption of SFAS 142 of $1.6  million and accrued
expenses and customer deposits of $3.1 million.

            Cash Flows from  Investing  Activities.  For the nine  months  ended
March 31, 2002 and March 31,  2001,  net cash used in investing  activities  was
$9.5 million and $9.1 million,  respectively.  These  investing  activities were
primarily  attributable to the  acquisition,  installation  and direct placement
costs of bulk CO2 systems.

            Cash Flows from  Financing  Activities.  For the nine  months  ended
March 31, 2002 and March 31, 2001,  cash flows provided by financing  activities
were $1.2  million  and $7.6  million,  respectively.  In 2001,  cash flows from
financing  activities  included  the issuance  1,111,111  shares of common stock
offset  by the net  repayment  of  long-term  debt.  In 2002,  cash  flows  from
financing activities included the issuance of 2,500 shares of Series B Preferred
Stock,  the exercise of stock  options,  and the net issuance of long-term  debt
offset by an increase in deferred charges under the Amended Credit Facility.

Inflation

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

            Our bulk  CO2  supply  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,  however,  such  increases  are  limited to 3%
annually until June 2002.

Significance of Estimates

            We prepare our consolidated  financial statements in conformity with
accounting  principles  generally  accepted in the United States of America and,
therefore, are required to make estimates regarding the values of our assets and
in recording  income and expenses.  These  estimates are based,  in part, on our
judgment and assumptions  regarding various economic  conditions that we believe
are  reasonable  based  on  facts  and  circumstances  existing  at the  time of
reporting.  The results of these estimates  affect reported  amounts of revenues
and expenses during the periods  presented.  As indicated  within Note 15 to the
consolidated financial statements in our Annual Report on Form 10-K for the year
ended  June 30,  2001,  during the fourth  quarter  of fiscal  2001,  management
continued to monitor and evaluate the collectibility of and potential impairment
of its assets, in particular,  accounts  receivable and certain fixed assets. In
connection  therewith,  an additional  allowance  for doubtful  accounts of $1.7
million and  significant  reserves and write-downs on fixed assets were recorded
in the fourth  quarter of 2001. We continue to closely  monitor these assets and
although  management believes that current allowances and reserves are adequate,
there can be no assurances that  additional  allowances and reserves will not be
necessary in the future.
                                       18





ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

            As  discussed  under   "Management's   Discussion  and  Analysis  of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
above, as of March 31, 2002, a total of $48.0 million was outstanding  under the
Amended Credit  Facility with interest at 3.5% above LIBOR (5.3700% to 5.4038%).
Based upon $48.0 million  outstanding under the Amended Credit Facility at March
31, 2002,  our annual  interest  cost under the Amended  Credit  Facility  would
increase by $0.5 million for each 1% increase in LIBOR.

             In  order to  reduce  our  exposure  to  increases  in  LIBOR,  and
consequently  to increases in interest  payments,  on August 31, 2000 we entered
into an  interest  rate swap  transaction  (the  "Swap")  in the amount of $10.0
million (the "Notional Amount").  The effective date of the Swap is September 1,
2000 and it was  scheduled to terminate on September 3, 2002.  On September  28,
2001,  we  amended  the  Swap to a  Notional  Amount  to $12.5  million  and the
termination date to September 28, 2003. In addition, the fixed interest rate was
amended  from 7% to  5.23%  per  annum.  Pursuant  to the  Swap,  we pay a fixed
interest rate of 5.23% per annum and receive a LIBOR-based  floating  rate.  The
effect of the Swap is to neutralize any changes in LIBOR on the Notional Amount.
If LIBOR decreases below 5.23% during the period the Swap is in effect, interest
payments by us on the Notional Amount will be greater than if we had not entered
into the Swap, since by exchanging LIBOR for a fixed interest rate, we would not
benefit from falling  interest rates on LIBOR,  a variable  interest rate. We do
not  enter  into   speculative   derivative   transactions   or  leveraged  swap
transactions.



PART II.  OTHER INFORMATION


ITEM 6.      EXHIBITS AND REPORTS ON FORM 8-K

             (a)   Exhibit No.             Exhibit
                   -----------             -------

                   10.1             --     First  Amendment and Waiver to Second
                                           Amended and Restated Revolving Credit
                                           Agreement dated as of May 10, 2002 by
                                           and among the Company, SunTrust Bank,
                                           Heller   Financial,   Inc.   and  BNP
                                           Paribas.
                   10.2             --     Amendment  No.  8 dated as of May 10,
                                           2002  to  Senior   Subordinated  Note
                                           Purchase  Agreement  by and among the
                                           Company and the Investors.

             (b)   Reports on Form 8-K.

                   No reports on Form 8-K were filed  during the  quarter  ended
                   March 31, 2002.

                                       19




                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                                   NuCo2 Inc.


Dated:  May 15, 2002               By: /s/ Gregg F. Stewart
                                       ------------------------
                                       Gregg F. Stewart
                                       Chief Financial Officer

                                       20`