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

                                    FORM 10-Q


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

For the quarterly period ended March 31, 2005

                                       OR

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

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

                         Commission file number 0-27378

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


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

    2800 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 /X/  whether  the  registrant:  (1) has filed all
reports  required to be filed by Section 13 or 15(d) of the Securities  Exchange
Act of 1934 during the preceding 12 months (or for such shorter  period that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.  Yes /X/     No / /

            Indicate by check /X/ whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).  Yes /X/     No / /

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

          Class                                    Outstanding at March 31, 2005
          -----                                    -----------------------------
Common Stock, $.001 par value                             15,175,986 shares



                                   NUCO2 INC.

                                      Index

PART I.     FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

            Balance Sheets as of March 31, 2005 and                            3
              June 30, 2004

            Statements of Operations for the Three Months Ended                4
              March 31, 2005 and March 31, 2004

            Statements of Operations for the Nine Months Ended                 5
              March 31, 2005 and March 31, 2004

            Statement of Shareholders' Equity for the Nine                     6
              Months Ended March 31, 2005

            Statements of Cash Flows for the Nine Months                       7
              Ended March 31, 2005 and March 31, 2004

            Notes to Financial Statements                                      8

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

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES
              ABOUT MARKET RISK                                               33

ITEM 4.     CONTROLS AND PROCEDURES                                           33

PART II.    OTHER INFORMATION

ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND                       33
              USE OF PROCEEDS

ITEM 6.     EXHIBITS                                                          34

SIGNATURES                                                                    35

                                       2

PART I.     FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

                                   NUCO2 INC.

                                 BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

                                     ASSETS
                                     ------
                                                                                 March 31, 2005        June 30, 2004*
                                                                                 --------------        -------------
                                                                                  (unaudited)
Current assets:
    Cash and cash equivalents                                                      $    38,405          $     505
    Trade accounts receivable, net of allowance for doubtful
        accounts of $1,962 and $2,095, respectively                                      7,953              6,141
    Inventories                                                                            249                226
    Prepaid insurance expense and deposits                                               2,036              2,193
    Prepaid expenses and other current assets                                            1,422                719
                                                                                   -----------          ---------
        Total current assets                                                            50,065              9,784
                                                                                   -----------          ---------

Property and equipment, net                                                            101,681             92,969
                                                                                   -----------          ---------

Other assets:
    Goodwill, net                                                                       22,037             19,222
    Deferred financing costs, net                                                        2,428              2,178
    Customer lists, net                                                                  5,362                 41
    Non-competition agreements, net                                                        950                703
    Deferred lease acquisition costs, net                                                4,197              3,458
    Other assets                                                                           174                181
                                                                                   -----------          ---------
                                                                                        35,148             25,783
                                                                                   -----------          ---------

           Total assets                                                            $   186,894          $ 128,536
                                                                                   ===========          =========


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

Current liabilities:
    Current maturities of long-term debt                                           $     5,666          $   6,048
    Current maturities of subordinated debt                                             30,495               --
    Accounts payable                                                                     5,050              4,579
    Accrued expenses                                                                     1,501              1,840
    Accrued interest                                                                       438                440
    Accrued payroll                                                                        889              1,137
    Other current liabilities                                                              393                343
                                                                                   -----------          ---------
        Total current liabilities                                                       44,432             14,387

Long-term debt, excluding current maturities                                            32,332             30,962
Subordinated debt, excluding current maturities                                           --               29,163
Customer deposits                                                                        3,560              3,247
                                                                                   -----------          ---------
        Total liabilities                                                               80,324             77,759
                                                                                   -----------          ---------

Commitments and contingencies
Redeemable preferred stock                                                                --               10,021
                                                                                   -----------          ---------

Shareholders' equity:
    Preferred  stock;  no par value; 5,000,000 shares authorized;  issued and
         outstanding 0 shares at March 31, 2005
        and 7,500 shares at June 30, 2004                                                 --                 --
    Common stock; par value $.001 per share; 30,000,000 shares authorized;
        issued and outstanding 15,175,986 shares at March 31, 2005
        and 10,840,831 shares at June 30, 2004                                              15                 11
    Additional paid-in capital                                                         154,966             96,185
    Accumulated deficit                                                                (48,703)           (55,704)
    Accumulated other comprehensive income                                                 292                264
                                                                                   -----------          ---------

        Total shareholders' equity                                                     106,570             40,756
                                                                                   -----------          ---------
                                                                                   $   186,894          $ 128,536
                                                                                   ===========          =========

*Restated to conform to current year presentation.
See accompanying notes to financial statements.

                                        3


                                   NUCO2 INC.

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




                                               Three Months Ended March 31,
                                               ----------------------------
                                                     2005       2004*
                                                     ----       -----

Revenues:
    Product sales                                  $15,578    $12,361
    Equipment rentals                                9,033      7,711
                                                    -------    -------

Total revenues                                      24,611     20,072
                                                    -------    -------

Costs and expenses:
    Cost of products sold, excluding
        depreciation and amortization               10,504      8,364
    Cost of equipment rentals, excluding
        depreciation and amortization                  724        624
    Selling, general and administrative
        expenses                                     4,063      3,748
    Depreciation and amortization                    4,276      3,776
    Loss on asset disposal                             163        331
                                                    -------    -------
                                                    19,730     16,843
                                                    -------    -------

Operating income                                     4,881      3,229
Unrealized loss on financial instrument               --          177
Interest expense                                     2,171      1,980
                                                    -------    -------

Income before provision for income taxes             2,710      1,072
Provision for income taxes                            --         --
                                                    -------    -------


Net income                                         $ 2,710    $ 1,072
                                                    =======    =======


Weighted average outstanding shares of
    common stock:

    Basic                                           12,807     10,683
                                                    =======    =======
    Diluted                                         13,826     11,964
                                                    =======    =======

Net income per basic common share                  $  0.21    $  0.08
                                                    =======    =======
Net income per diluted common share                $  0.20    $  0.07
                                                    =======    =======


*Restated to conform to current year presentation.
See accompanying notes to financial statements.

                                        4


                                   NUCO2 INC.

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




                                                Nine Months Ended March 31,
                                                ---------------------------
                                                     2005       2004*
                                                     ----       -----

Revenues:
    Product sales                                  $44,719      $ 36,576
    Equipment rentals                               26,453        23,188
                                                   -------      --------

Total revenues                                      71,172        59,764
                                                   -------      --------

Costs and expenses:
    Cost of products sold, excluding
        depreciation and amortization               29,975        25,375
    Cost of equipment rentals, excluding
        depreciation and amortization                1,844         1,833
    Selling, general and administrative
        expenses                                    12,774        11,530
    Depreciation and amortization                   12,213        11,481
    Loss on asset disposal                             820         1,050
                                                   -------      --------
                                                    57,626        51,269
                                                   -------      --------

Operating income                                    13,546         8,495
Loss on early extinguishment of debt                  --           1,964
Unrealized loss on financial instrument               --             177
Interest expense                                     6,439         5,927
                                                   -------      --------

Income before provision for income taxes             7,107           427
Provision for income taxes                             106          --
                                                   -------      --------

Net income                                         $ 7,001      $    427
                                                   =======      ========

Weighted average outstanding shares of
    common stock:

    Basic                                           11,996        10,656
                                                   =======      ========
    Diluted                                         13,395        10,656
                                                   =======      ========

Net income (loss) per basic common share           $  0.57      $  (0.01)
                                                   =======      ========
Net income (loss) per diluted common share         $  0.51      $  (0.01)
                                                   =======      ========


*Restated to conform to current year presentation.
 See accompanying notes to financial statements.

                                        5


                                   NUCO2 INC.

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

                                                                                                      Accumulated
                                                        Common Stock        Additional                   Other          Total
                                                        ------------         Paid-In    Accumulated   Comprehensive  Shareholders'
                                                      Shares     Amount      Capital      Deficit       Income         Equity
                                                      ------     ------      -------      -------       ------         ------
Balance, June 30, 2004                            10,840,831      $11      $  96,185       $(55,704)      $264      $  40,756
Comprehensive income:
    Net income                                          --         --           --            7,001        --           7,001
    Other comprehensive income:
    Interest rate swap transaction                      --         --           --             --           28             28
                                                                                                                    ---------
Total comprehensive income                                                                                              7,029

Conversion of 5,000 shares of
    Redeemable Preferred Stock                       754,982        1          7,005           --          --           7,006
Conversion of 2,500 shares of
    Redeemable Preferred Stock                       247,420       --          3,196           --          --           3,196
Issuance of 953,285 shares of
    common stock - exercise of
    warrants                                         953,285        1            742           --          --             743
Issuance of 337,755 shares of
    common stock - exercise of
    options                                          337,755       --          2,449           --          --           2,449
Issuance of 2,041,713 shares of
    common stock                                   2,041,713        2         45,571           --          --          45,573
Redeemable preferred stock dividend                     --         --           (182)          --          --            (182)
                                                  ----------      ---      ---------       --------       ----      ---------
Balance, March 31, 2005                           15,175,986      $15      $ 154,966       $(48,703)      $292      $ 106,570
                                                  ==========      ===      =========       ========       ====      =========

See accompanying notes to financial statements.

                                        6


                                   NUCO2 INC.

                            STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

                                                                                             Nine Months Ended March 31,
                                                                                             ---------------------------
                                                                                               2005              2004*
                                                                                               ----              -----
Cash flows from operating activities:

    Net income                                                                              $  7,001          $    427
    Adjustments to reconcile net income to net cash provided
        by operating activities:
            Depreciation and amortization of property and equipment                           10,163             9,983
            Amortization of other assets                                                       2,050             1,498
            Amortization of original issue discount                                              318               300
            Paid-in-kind interest                                                              1,014               776
            Loss on disposals                                                                    820             1,050
            Loss on early extinguishment of debt                                                --               1,964
            Unrealized loss on financial instrument                                             --                 177
            Changes in operating assets and liabilities:
                Decrease (increase) in:
                    Trade accounts receivable                                                 (1,813)              385
                    Inventories                                                                  (22)              (18)
                    Prepaid insurance expense and deposits                                       157            (1,107)
                    Prepaid expenses and other current assets                                   (703)             (546)
                Increase (decrease) in:
                    Accounts payable                                                             472               329
                    Accrued expenses                                                            (803)               11
                    Accrued payroll                                                             (249)             (528)
                    Accrued interest                                                              27              (513)
                    Other current liabilities                                                     49                51
                    Customer deposits                                                            313                50
                                                                                            --------          --------

            Net cash provided by operating activities                                         18,794            14,289
                                                                                            --------          --------

Cash flows from investing activities:
    Purchase of property and equipment                                                       (12,985)          (10,528)
    Increase in deferred lease acquisition costs                                              (1,662)           (1,208)
    Acquisition of business                                                                  (15,739)             --
    Decrease in other assets                                                                       7                 3
                                                                                            --------          --------
            Net cash used in investing activities                                            (30,379)          (11,733)
                                                                                            --------          --------

Cash flows from financing activities:
    Repayment of long-term debt                                                              (23,261)          (79,832)
    Proceeds from issuance of long-term debt                                                  24,250            79,400
    Proceeds from the issuance of common stock                                                46,633              --
    Issuance costs - common stock                                                               (510)             --
    Exercise of warrants                                                                         743                15
    Exercise of stock options                                                                  2,449               443
    Increase in deferred financing costs                                                        (819)           (2,745)
                                                                                            --------          --------
            Net cash provided by (used in) financing activities                               49,485            (2,719)
                                                                                            --------          --------


Increase (decrease) in cash and cash equivalents                                              37,900              (163)
Cash and cash equivalents at the beginning of period                                             505               455
                                                                                            --------          --------
Cash and cash equivalents at the end of period                                              $ 38,405          $    292
                                                                                            ========          ========


Supplemental  disclosure of cash flow  information:
    Cash paid during the period for:
        Interest                                                                            $  5,109          $  5,277
                                                                                            ========          ========
        Income taxes                                                                        $    127          $   --
                                                                                            ========          ========

See accompanying notes to financial statements.
*Restated to conform to current year presentation.

                                        7


                                   NUCO2 INC.

                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1.     BASIS OF PRESENTATION

            The accompanying  unaudited financial  statements have been prepared
in accordance  with the  instructions  to Form 10-Q used for  quarterly  reports
under Section 13 or 15(d) of the Securities Exchange Act of 1934, and therefore,
do not include all information and footnotes  necessary for a fair  presentation
of financial  position,  results of operations and cash flows in conformity with
generally accepted accounting principles.

            The 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 Company's audited financial statements
for the fiscal  year ended June 30,  2004  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, 2004.  The results of  operations
for the periods  presented are not  necessarily  indicative of the results to be
expected  for the full fiscal  year.  As a result of the  adoption of EITF 00-21
(see Note 2), 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 revenue from the delivery of CO2
will be highest in the first quarter and lowest in the third quarter.

NOTE 2.     ACCOUNTING PRONOUNCEMENTS

            On July 1, 2003, the Company adopted EITF Issue No. 00-21,  "REVENUE
ARRANGEMENTS WITH MULTIPLE  DELIVERABLES"  ("EITF 00-21").  EITF 00-21 addresses
certain aspects of the accounting by a vendor for  arrangements  under which the
vendor will perform multiple revenue generating  activities.  The Company's bulk
CO2 budget plan agreements  provide for a fixed monthly payment to cover the use
of a bulk CO2 system and a  predetermined  maximum  quantity of CO2. As of March
31, 2005, approximately 63,000 of the Company's customer locations utilized this
plan. Prior to July 1, 2003, the Company,  as lessor,  recognized  revenue under
its budget plan agreements on a straight-line basis over the life of the related
leases.  The Company  developed a methodology  for the purpose of separating the
aggregate revenue stream between the rental of the equipment and the sale of the
CO2.  Effective July 1, 2003,  revenue  attributable  to the lease of equipment,
including equipment leased under the budget plan, is recorded on a straight-line
basis over the term of the lease and revenue  attributable  to the supply of CO2
and other gases,  including CO2 provided under the budget plan, is recorded upon
delivery to the customer.

            The  Company has  elected to apply EITF 00-21  retroactively  to all
budget plan  agreements in existence as of July 1, 2003.  Based on the Company's
analysis,  the  aggregate  amount of CO2 actually  delivered  under budget plans
during the quarter  ended June 30, 2003 was not  materially  different  than the
corresponding portion of the fixed charges attributable to CO2. Accordingly, the
Company believes the cumulative  effect of the adoption of EITF 00-21 as of July
1, 2003 was not significant.

            Under the budget plan,  each  customer  has a maximum CO2  allowance
that is measured and reset on the contract anniversary date. At that date, it is
appropriate to record revenue for actual deliveries of CO2 in excess of contract
billings. Because of the large number of customers under the budget plan and the
fact that the anniversary  dates for determining  maximum  quantities are spread
throughout the year, the Company's  methodology  necessarily involves the use of
estimates and assumptions to separate the aggregate  revenue stream derived from
equipment  rentals  to  budget  plan  customers,  and  also to  approximate  the
recognition  of revenue from CO2 sales to budget plan  customers  upon delivery.
The Company  believes that the adoption of EITF 00-21 has the most impact on the
recognition  of revenue on a quarterly  basis as CO2 usage  fluctuates  during a
fiscal year based on factors such as weather, and traditional summer and holiday
periods.  Over a twelve-month  period,  the Company  believes the effect is less
significant since seasonal  variations are largely eliminated and CO2 allowances
under budget plan agreements are measured and reset annually.

            In December 2003, the Financial  Accounting Standards Board ("FASB")
revised  FASB  Interpretation  No.  46,   "CONSOLIDATION  OF  VARIABLE  INTEREST
ENTITIES."  Application of FASB Interpretation No. 46 is required in a company's
financial  statements  for  interests  in variable  interest  entities  that are
considered special-purpose entities for reporting periods ending after March 15,
2004.  FASB  Interpretation  No.  46 did  not  affect  the  Company's  financial
position, results of operations, or cash flows.

                                       8


            In  December  2003,  the  FASB  revised  SFAS  No.  132,   "EMPLOYER
DISCLOSURES  ABOUT PENSIONS AND OTHER  POSTRETIREMENT  BENEFITS" ("SFAS 132-R").
SFAS 132-R requires additional  disclosures  regarding the assets,  obligations,
cash flows,  and net periodic  benefit cost of defined  benefit  plans and other
defined benefit  postretirement plans. SFAS 132-R requires that this information
be provided separately for pension plans and other postretirement benefit plans.
The adoption of the revised SFAS No. 132-R,  effective  January 1, 2004, did not
affect the Company's financial position, results of operations, or cash flows.

            In December  2004,  the FASB revised SFAS No. 123,  "ACCOUNTING  FOR
STOCK-BASED  COMPENSATION" ("SFAS 123-R"). SFAS 123-R supersedes APB Opinion No.
25,  "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES," and its related  implementation
guidance.  SFAS 123-R requires all share-based payments to employees,  including
grants  of  employee  stock  options,  to be  recognized  in  the  statement  of
operations based on their fair value and vesting schedule.  However,  SFAS 123-R
does not change the accounting  guidance for  share-based  payment  transactions
with parties other than employees  provided in SFAS 123 as originally issued and
EITF Issue No.  96-18,  "ACCOUNTING  FOR EQUITY  INSTRUMENTS  THAT ARE ISSUED TO
OTHER THAN EMPLOYEES FOR ACQUIRING,  OR IN  CONJUNCTION  WITH SELLING,  GOODS OR
SERVICES."  The Company will adopt SFAS 123-R  effective with the fiscal quarter
beginning  July 1, 2005, at which time,  pro forma  disclosure of net income and
earnings  per share as provided in Note 7, will no longer be an  alternative  to
recognition in the statement of operations.

NOTE 3.     EARNINGS (LOSS) PER COMMON 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 (loss) per share were
calculated as follows (in thousands):

                                                                      Three Months Ended March 31,       Nine Months Ended March 31,
                                                                      ----------------------------       ---------------------------
                                                                          2005           2004                2005           2004
                                                                          ----           ----                ----           ----

Weighted average shares outstanding - basic                              12,807          10,683             11,996          10,656

Outstanding  options and warrants to purchase
  shares of common stock - remaining
  shares after assuming repurchase with proceeds
  from exercise                                                           1,019           1,281              1,399            --
                                                                        -------         -------            -------          ------

Weighted average shares outstanding - diluted                            13,826          11,964             13,395          10,656
                                                                        =======         =======            =======          ======

            The Company  excluded  the  equivalent  of 931,143  shares of common
stock for the nine months ended March 31, 2004, as these options and warrants to
purchase  common  stock were  anti-dilutive  for that period.  In addition,  the
Company  excluded the effects of the  conversion of its  outstanding  redeemable
preferred  stock  using  the "if  converted"  method,  as the  effect  would  be
anti-dilutive  for all  periods  presented  (Note 6). The  Company's  redeemable
preferred stock was convertible  into 954,024 shares of common stock as of March
31, 2004.

            In August 2004, 5,000 shares of the Company's  redeemable  preferred
stock were converted into 754,982  shares of common stock.  The remaining  2,500
shares of  redeemable  preferred  stock were  converted  into 247,420  shares of
common stock in December 2004 (see Note 6).

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

                                       9


                                             Three Months Ended March 31,         Nine Months Ended March 31,
                                             ----------------------------         ---------------------------
                                                2005             2004               2005               2004
                                                ----             ----               ----               ----

Net income (loss)                              $ 2,710          $  1,072           $  7,001           $    427
Redeemable preferred stock dividends              --                (193)              (182)              (566)
                                               -------          --------           --------           --------
Net income (loss) -
    available to common shareholders           $ 2,710          $    879           $  6,819           $   (139)
                                               =======          ========           ========           ========

Weighted average outstanding shares of
    common stock:

Basic                                           12,807            10,683             11,996             10,656
Diluted                                         13,826            11,964             13,395             10,656

Basic income (loss) per share                  $  0.21          $   0.08           $   0.57           $  (0.01)
                                               =======          ========           ========           ========
Diluted income (loss) per share                $  0.20          $   0.07           $   0.51           $  (0.01)
                                               =======          ========           ========           ========

NOTE 4.     LONG-TERM DEBT

            In September  2001, the Company  entered into a $60.0 million second
amended  and  restated  revolving  credit  facility  with a  syndicate  of banks
("Amended  Credit  Facility").  The Amended Credit Facility  contained  interest
rates and an unused commitment fee based on a pricing grid calculated  quarterly
on total debt to  annualized  EBITDA (as  defined).  The Company was entitled to
select the Base Rate (as defined) or LIBOR (as defined), plus applicable margin,
for principal  drawings  under the Amended  Credit  Facility.  Interest only was
payable  periodically until the termination of the Amended Credit Facility.  The
Amended Credit Facility was collateralized by substantially all of the Company's
assets.  Additionally,  the Company was precluded  from  declaring or paying any
cash dividends,  except the Company was permitted to accrue and accumulate,  but
not pay, cash dividends on the redeemable  preferred stock. The Company was also
required to meet certain affirmative and negative covenants  including,  but not
limited to, financial covenants.

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

            On August 25,  2003,  the  Company  terminated  the  Amended  Credit
Facility  and  entered  into a  $50.0  million  senior  credit  facility  with a
syndicate of banks (the "Senior Credit  Facility").  The Senior Credit  Facility
initially consisted of a $30.0 million A term loan facility (the "A Term Loan"),
a $10.0 million B term loan  facility  (the "B Term Loan"),  and a $10.0 million
revolving loan facility (the "Revolving Loan Facility"). On October 1, 2004, the
Senior Credit  Facility was amended to, among other things,  increase the B Term
Loan to $23.0 million and to modify certain financial covenants. The A Term Loan
and  Revolving  Loan Facility  mature on August 25, 2007,  while the B Term Loan
matures on August 25, 2008. The Company is entitled to select either  Eurodollar
Loans (as defined) or Base Rate Loans (as defined),  plus applicable margin, for
principal  borrowings  under the Senior Credit  Facility.  Applicable  margin is
determined by a pricing grid based on the Company's  Consolidated Total Leverage
Ratio (as defined) as follows:

                                       10

                                           B Term         Revolving       A Term          B Term           Revolving
        Consolidated     A Term Loans       Loans           Loans          Loans           Loans             Loans
           Total         maintained as    maintained    maintained as   maintained as    maintained        maintained
          Leverage         Base Rate     as Base Rate     Base Rate      Eurodollar     as Eurodollar     as Eurodollar
Level      Ratio             Loans          Loans           Loans          Loans            Loans             Loans
-----      -----             -----          -----           -----          -----            -----             -----

         Less than
  1      2.50:1.00           2.50%          2.75%           2.50%          3.50%            3.75%             3.50%
         Greater than
         or equal to
         2.50:1.00 but
         less than
  2      3.00:1.00           2.75%          3.00%           2.75%          3.75%            4.00%             3.75%
         Greater than
         or equal to
  3      3.00:1.00           3.00%          3.25%           3.00%          4.00%            4.25%             4.00%

            Interest  is payable  periodically  on  borrowings  under the Senior
Credit Facility.  In addition,  on December 31, 2003 and on the last day of each
quarter thereafter,  the Company is required to make principal repayments on the
A Term Loan in  increasing  amounts and on December 31, 2004 and on the last day
of each quarter  thereafter,  the Company is required to make principal payments
on the B Term Loan in the  amount of  $57,500  until  August  25,  2008 when the
Company is required to make a payment in the amount of  $22,137,500.  The Senior
Credit Facility is collateralized by all of the Company's assets.  Additionally,
the Company is precluded from declaring or paying any cash dividends.

            The  Company  is also  required  to  meet  certain  affirmative  and
negative  covenants,  including  but not  limited to  financial  covenants.  The
Company is  required to assess its  compliance  with these  financial  covenants
under the Senior 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 the Company in
default  and cause the debt  outstanding  under the Senior  Credit  Facility  to
immediately  become due and  payable.  The  Company was in  compliance  with all
covenants  under the Senior  Credit  Facility as of  September  30, 2003 and all
subsequent quarters up to and including March 31, 2005.

            In connection with the  termination of the Amended Credit  Facility,
during the first quarter of fiscal 2004,  the Company  recognized a loss of $0.9
million from the write-off of unamortized  financing  costs  associated with the
Amended Credit Facility and recorded $2.2 million in financing costs  associated
with the Senior Credit Facility. Such costs are being amortized over the life of
the Senior Credit Facility.

            On March 30, 2005, the Company sold  2,041,713  shares of its common
stock in an underwritten public offering.  Based on the public offering price of
$24.17 per share and after deducting underwriting discounts and commissions, net
proceeds  were  approximately  $46.6  million.  On March 31,  2005,  the Company
reduced the outstanding  principal amount of the Senior Credit Facility by $11.2
million and on April 4, 2005,  the Company used  approximately  $34.3 million of
the net proceeds  from the offering to redeem all of the New Notes (see Note 5).
In addition,  the Company incurred $1.1 million in legal,  accounting,  printing
and other  expenses,  of which $0.5 million was paid as of March 31, 2005. As of
March 31, 2005,  $14.9 million was  outstanding  under the A Term Loan and $22.9
million was outstanding  under the B Term Loan with a weighted  average interest
rate of 6.6% per annum.  No amounts were  outstanding  under the Revolving  Loan
Facility as of March 31, 2005.

            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 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.

                                       11


            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. Prior to August 25, 2003, the Company was a party to an
interest rate swap agreement (the "Prior Swap") with a notional  amount of $12.5
million and a termination  date of September 28, 2003. Under the Prior Swap, the
Company paid a fixed interest rate of 5.23% per annum and received a LIBOR-based
floating  rate. In conjunction  with the  termination of the Prior Swap prior to
maturity, the Company paid $86,000, which represented the fair value of the swap
liability.  The $86,000 was  reclassified  from other  comprehensive  income and
recognized as a component of the loss on early extinguishment of debt.

            The Prior  Swap,  which was  designated  as a cash flow  hedge,  was
deemed to be a highly  effective  transaction,  and  accordingly the loss on the
derivative  instrument was reported as a component of other comprehensive income
(loss).  Prior to  termination  of the Prior Swap in August  2003,  the  Company
recorded   $43,000,   net  of  the   reclassification   adjustment  of  $86,000,
representing the change in fair value of the Prior Swap, as other  comprehensive
income.

            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 "Swap") on October 2, 2003, in the
amount of $20.0 million ("Notional  Amount") with an effective date of March 15,
2004 and a maturity  date of  September  15,  2005.  Pursuant  to the Swap,  the
Company  pays  a  fixed  interest  rate  of  2.12%  per  annum  and  receives  a
Eurodollar-based  floating  rate.  The effect of the Swap is to  neutralize  any
changes  in  Eurodollar  rates  on the  Notional  Amount.  As the  Swap  was not
effective  until March 15, 2004 and no cash flows were  exchanged  prior to that
date,  the Swap did not meet the  requirements  to be  designated as a cash flow
hedge.  As such, an unrealized  loss of $177,000 was recognized in the Company's
results of operations  for the fiscal year ended June 30, 2004,  reflecting  the
change in fair value of the Swap from  inception to the  effective  date.  As of
March 15, 2004,  the Swap met the  requirements  to be designated as a cash flow
hedge and is deemed a highly  effective  transaction.  Accordingly,  the Company
recorded $264,000,  representing the change in fair value of the Swap from March
15, 2004 through June 30, 2004, as other comprehensive income. The fair value of
the Swap  increased  by $28,000  during the first nine  months of fiscal 2005 to
$115,000.

NOTE 5.     SUBORDINATED DEBT

            In October 1997,  the Company issued $30.0 million of its 12% Senior
Subordinated  Promissory  Notes (the "1997  Notes") with  interest  only payable
semi-annually  on April 30 and October 31, due October 31, 2004.  The 1997 Notes
were sold with  detachable  seven year  warrants  to purchase  an  aggregate  of
655,738 shares of common stock at an exercise price of $16.40 per share.  At the
date of issuance,  in accordance with APB 14,  "ACCOUNTING FOR CONVERTIBLE  DEBT
AND DEBT ISSUED WITH PURCHASE WARRANTS," the Company allocated proceeds of $29.7
million to the debt and $0.3 million to warrants, with the resulting discount on
the debt referred to as the original issue  discount.  Prior to August 25, 2003,
the original  issue  discount was being  amortized as interest  expense over the
life of the debt,  resulting in an effective  interest rate on the 1997 Notes of
12.1% per annum. The amount allocated to the warrants was credited to additional
paid-in capital. In conjunction with the issuance of the 1997 Notes, the Company
was required to meet certain  affirmative and negative  covenants.  In addition,
NationsBanc Montgomery Securities, Inc., the placement agent, received a warrant
to purchase an aggregate of 30,000  shares of common stock at an exercise  price
of $14.64 per share.

            On May 4, 1999, the Company sold an additional  $10.0 million of its
12% Senior  Subordinated  Promissory Notes (the "1999 Notes").  Except for their
October 31, 2005 maturity date, the 1999 Notes were  substantially  identical to
the 1997 Notes described  above.  The 1999 Notes were sold with detachable 6-1/2
year  warrants to purchase an aggregate of 372,892  shares of common stock at an
exercise price of $6.65 per share.

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

            As of December 31, 2002,  the Company was in compliance  with all of
the  financial  covenants  under the 1997 Notes and 1999  Notes.  On February 7,
2003, the interest  coverage  ratio  governing the 1997 Notes and 1999 Notes was
amended for the quarter ending March 31, 2003 and prospectively. As of March 31,

                                       12


2003 and June 30, 2003, the Company was in compliance  with all of the financial
covenants under the 1997 Notes and 1999 Notes.

            On August  25,  2003,  concurrently  with the  closing of the Senior
Credit  Facility,  the Company  prepaid the 1997 Notes and 1999 Notes and issued
$30.0 million of the Company's 16.3% Senior  Subordinated Notes due February 27,
2009 (the "New  Notes")  with  interest  only  payable  quarterly  in arrears on
February 28, May 31, August 31 and November 30 of each year, commencing November
30, 2003.  Interest on the New Notes was 12% per annum  payable in cash and 4.3%
per annum  payable  "in  kind" by adding  the  amount  of such  interest  to the
principal  amount  of the New  Notes  then  outstanding.  Ten year  warrants  to
purchase an  aggregate  of 425,000  shares of the  Company's  common stock at an
exercise price of $8.79 per share were issued in connection  with the New Notes.
Utilizing the  Black-Scholes  Model,  the warrants issued in connection with the
New Notes were valued at $3.70 per warrant, or an aggregate value of $1,573,000.
In addition,  the maturity  date of 665,403  existing  warrants,  335,101 due to
expire in 2004 and 330,302 due to expire in 2005, was extended to February 2009,
resulting in additional value of $1.31 and $0.97 per warrant,  respectively,  or
an aggregate value of $760,090.  At the date of issuance, in accordance with APB
14,  "ACCOUNTING FOR CONVERTIBLE  DEBT AND DEBT ISSUED WITH PURCHASE  WARRANTS,"
the Company allocated  proceeds of $27.7 million to the debt and $2.3 million to
the  warrants,  with  the  resulting  discount  on the debt  referred  to as the
original issue  discount.  The original  issue  discount was being  amortized as
interest expense over the life of the debt.

            In  connection  with the early  repayment of the 1997 Notes and 1999
Notes during the first quarter of fiscal 2004, the Company  recognized a loss of
$1.0 million attributable to the unamortized  financing costs and original issue
discount  associated  with the 1997  Notes and 1999  Notes,  and  recorded  $0.6
million of financing costs  associated with the New Notes.  Such fees were being
amortized  over  the  life of the New  Notes.  The  weighted  average  effective
interest rate of the New Notes,  including the  amortization  of original  issue
discount, was 18.0% per annum.

            As with the Senior Credit Facility, the Company was required to meet
certain  affirmative and negative  covenants under the New Notes,  including but
not limited to financial covenants.  In conjunction with the modification of the
Senior Credit Facility on October 1, 2004,  certain  financial  covenants of the
New Notes were modified.  The Company was in compliance with all covenants under
the New Notes as of  September  30, 2003 and all  subsequent  quarters up to and
including the quarter ended March 31, 2005.

            On April 4, 2005, the Company used $34.3 million of the net proceeds
from the sale of 2,041,713 shares of its common stock in an underwritten  public
offering in March 2005 to redeem the New Notes at 106% of the original principal
amount plus accrued  interest.  In addition,  during the quarter ending June 30,
2005,  the  Company  will  recognize  a loss on the  early  termination  of debt
associated with the New Notes of approximately $4.1 million,  which includes the
prepayment penalty, unamortized fees and the unamortized portion of the original
issue discount.

            During the fiscal year ended June 30,  2002,  65,574 of the warrants
issued in  connection  with the 1997 Notes were  exercised  and  converted  into
shares of the Company's  common stock.  On August 22, 2002, in conjunction  with
the private  placement of 1,663,846  shares of the Company's  common stock,  the
remaining  warrants  issued in conjunction  with the 1997 Notes and the warrants
issued in connection with the 1999 Notes were adjusted pursuant to anti-dilution
provisions  to provide for the purchase of an  additional  21,906  shares of the
Company's common stock.  During fiscal 2004,  warrants to purchase 30,831 shares
of the Company's  common stock issued in connection with the 1997 Notes and 1999
Notes were exercised  pursuant to the cashless exercise  provision  contained in
the warrants.  In connection  with the cashless  exercise,  warrants to purchase
50,647  shares of the  Company's  common stock were  canceled.  In addition,  in
fiscal 2004 warrants to purchase  75,000  shares of the  Company's  common stock
issued in connection with the New Notes were exercised for proceeds of $659,250,
recorded as additional paid-in-capital on the Company's balance sheet as of June
30,  2004.  During the first nine  months of fiscal  2005,  warrants to purchase
893,956 shares of the Company's  common stock issued in connection with the 1997
Notes,  1999 Notes and New Notes were  exercised  for proceeds of  $742,812.  In
connection with certain cashless exercises,  warrants to purchase 389,528 shares
of the Company's  common stock were canceled.  As of March 31, 2005, no warrants
issued  in  connection  with the  1997  Notes,  1999  Notes  or New  Notes  were
outstanding.

NOTE 6.     REDEEMABLE PREFERRED STOCK

            In May 2000,  the  Company  sold  5,000  shares  of its  Series A 8%
Cumulative  Convertible  Preferred  Stock, no par value (the "Series A Preferred
Stock"), for $1,000 per share (the initial "Liquidation Preference"). Cumulative
dividends  were payable  quarterly in arrears at the rate of 8% per annum on the
Liquidation  Preference,  and, to the extent not paid in cash, were added to the
Liquidation Preference.  Shares of the Series A Preferred Stock were convertible
into  shares  of  common  stock at any time at a  conversion  price of $9.28 per
share. In connection with the sale,  costs in the amount of $65,000 were charged
to  additional  paid-in  capital.  In August  2004,  the  holder of the Series A
Preferred  Stock  converted its shares into 754,982 shares of common stock,  and

                                       13


$7,006,241,  representing the Liquidation Preference, was reclassified to common
stock and additional paid-in capital on the Company's balance sheet.

            In November  2001,  the Company sold 2,500 shares of its Series B 8%
Cumulative  Convertible  Preferred  Stock, no par value (the "Series B Preferred
Stock"), for $1,000 per share (the initial "Liquidation Preference"). Cumulative
dividends  were payable  quarterly in arrears at the rate of 8% per annum on the
Liquidation  Preference,  and, to the extent not paid in cash, were added to the
Liquidation Preference.  Shares of the Series B Preferred Stock were convertible
into  shares of common  stock at any time at a  conversion  price of $12.92  per
share.  In December 2004, the holder of the Series B Preferred  Stock  converted
its shares into 247,420 shares of common stock, and $3,196,674, representing the
Liquidation Preference,  was reclassified to common stock and additional paid-in
capital on the Company's balance sheet.

            During the nine months  ended March 31, 2005 and 2004,  the carrying
amount (and Liquidation  Preferences) of the Series A Preferred Stock and Series
B Preferred  Stock  ("Preferred  Stock") was increased by $182,000 and $566,000,
respectively, for dividends accrued.

NOTE 7.     SHAREHOLDERS' EQUITY

            (a)  NON-QUALIFIED STOCK OPTIONS AND WARRANTS

            In May 1997,  the Company  entered into a supply  agreement with The
BOC Group,  Inc. ("BOC") by which BOC committed to provide the Company with 100%
of  its  CO2  requirements  at  competitive  prices.  In  connection  with  this
agreement, the Company granted BOC a warrant to purchase 1,000,000 shares of its
common stock.  The warrant was  exercisable at $17 per share from May 1, 1999 to
May 1, 2002 and  thereafter  at $20 per share until April 30, 2007. In May 2000,
the Company  solicited BOC to purchase  1,111,111  shares of its common stock at
$9.00  per  share.  In  connection  with this  purchase  of  common  stock,  the
outstanding warrant was reduced to 400,000 shares, with an exercise price of $17
per share. On the date of issuance of the common stock, the closing price of the
common stock on the Nasdaq National Market was $8.00 per share. In addition,  in
March 2005,  warrants to purchase  59,329 shares of common stock were  exercised
pursuant to the  cashless  exercise  provisions  contained in the  warrants.  In
connection with this cashless  exercise,  warrants to purchase 140,671 shares of
the Company's common stock were canceled. As of March 31, 2005, 200,000 warrants
to purchase shares of the Company's common stock were outstanding.

            In January 2001, the Company granted to each  non-employee  director
options for 10,000 shares of common stock.  An aggregate of 50,000  options were
granted at an exercise price equal to $7.82.  In March 2003, the Company granted
to each  non-employee  director  options for 6,000 shares of common stock, or an
aggregate of 36,000  options at an exercise price of $4.85.  In September  2003,
the  Company  granted to two of its  non-employee  directors  options for 22,000
shares of common stock,  or an aggregate of 44,000  options at an exercise price
of $8.91.  In  addition,  in March  2004,  the  Company  granted a  non-employee
director  options  for  6,000  shares of common  stock at an  exercise  price of
$16.25.  The exercise price for all grants is equal to the average closing price
of the common stock on the Nasdaq  National Market for the 20 trading days prior
to the grant date.  During the nine months ended March 31, 2005,  36,000 options
to purchase shares of the Company's commons stock were exercised.

            (b)  STOCK OPTION PLANS

            The Board of Directors of the Company  adopted the 1995 Stock Option
Plan (the "1995 Plan").  Under the 1995 Plan, the Company has reserved 2,400,000
shares of common stock for employees of the Company. Under the terms of the 1995
Plan,  options granted may be either  incentive  stock options or  non-qualified
stock options.  The exercise price of incentive  options shall be at least equal
to 100% of the fair market  value of the  Company's  common stock at the date of
the grant,  and the exercise  price of  non-qualified  stock  options  issued to
employees  may not be less than 75% of the fair  market  value of the  Company's
common  stock at the date of the grant.  The maximum term for all options is ten
years.  Options granted to date generally vest in equal annual installments from
one to five years,  though a limited number of grants were  partially  vested at
the grant date.  The  weighted-average  fair value per share of options  granted
during  the nine  months  ended  March 31,  2005 and 2004 was  $5.70 and  $4.02,
respectively.

            The following summarizes the transactions pursuant to the 1995 Plan:

                                       14


                                                   Weighted Average
                                      Options     Exercise Price Per     Options
                                    Outstanding         Option         Exercisable
                                    -----------         ------         -----------
Outstanding at June 30, 2003         1,288,420       $    9.13           640,373
   Granted                             195,200           12.19
   Expired or canceled                 (72,500)          12.35
   Exercised                           (47,642)           9.31
                                    ----------
Outstanding at March 31, 2004        1,363,478       $    9.39           752,376
                                    ==========


Outstanding at June 30, 2004         1,504,523       $   10.56           865,653
   Granted                               1,000           19.41
   Expired or canceled                  (4,703)          18.28
   Exercised                          (267,822)           7.35
                                    ----------
Outstanding at March 31, 2005        1,232,998       $   11.24           803,016
                                    ==========


            The following  table sets forth certain  information as of March 31,
2005:


                                             Options Outstanding                                Options Exercisable
                       ------------------------------------------------------------    -----------------------------------------
 Range of Exercise                             Weighted Average    Weighted Average                             Weighted Average
      Prices           Options Outstanding      Remaining Life      Exercise Price     Options Exercisable       Exercise Price
      ------           -------------------      --------------      ---------------    --------------------     ----------------
$  0.00 - $ 5.00              61,048                 7.06            $   4.80                56,420                 $   4.83
$  5.01 - $10.00             476,721                 6.31                7.69               333,704                     7.54
$ 10.01 - $15.00             514,941                 6.70               12.46               367,820                    12.25
$ 15.01 - $20.00             180,288                 9.24               19.29                45,072                    19.29
                             -------                 ----               -----                ------                    -----
                           1,232,998                 6.94            $  11.24               803,016                 $  10.17
                           =========                 ====            =========              ========                ========

            The Board of Directors of the Company  adopted the Directors'  Stock
Option  Plan  (the   "Directors'   Plan").   Under  the  Directors'  Plan,  each
non-employee  director will receive  options for 6,000 shares of common stock on
the date of his or her first election to the board of directors. In addition, on
the third  anniversary of each  director's  first election to the Board,  and on
each three year anniversary thereafter,  each non-employee director will receive
an  additional  option to purchase  6,000 shares of common  stock.  The exercise
price per share for all options  granted under the Directors' Plan will be equal
to the fair  market  value of the  common  stock  as of the date of  grant.  All
options  vest  in  three  equal  annual  installments  beginning  on  the  first
anniversary of the date of grant. The maximum term for all options is ten years.
The  weighted-average  fair value per share of options  granted  during the nine
months ended March 31, 2005 and 2004 was $5.94 and $4.08, respectively.

            The following summarizes the transactions pursuant to the Directors'
Plan:
                                                                 Weighted Average
                                               Options          Exercise Price Per         Options
                                             Outstanding              Option             Exercisable
                                             -----------              ------             -----------
Outstanding at June 30, 2003                   66,000                 $    9.11             45,997

    Granted                                    24,000                     13.71

    Expired or canceled                          --                         --

    Exercised                                    --                         --
                                        -------------
Outstanding at March 31, 2004                  90,000                 $   10.34             59,994
                                       ==============



Outstanding at June 30, 2004                   79,914                 $   10.54             53,994

    Granted                                     6,000                     22.70

    Expired or canceled                        (3,981)                     7.94

    Exercised                                 (33,933)                     9.09
                                        -------------
Outstanding at March 31, 2005                  48,000                 $   13.32             39,998
                                       ==============

            The following  table sets forth certain  information as of March 31,
2005:

                                       15


                                             Options Outstanding                                Options Exercisable
                       ------------------------------------------------------------    -----------------------------------------
 Range of Exercise                             Weighted Average    Weighted Average                             Weighted Average
      Prices           Options Outstanding      Remaining Life      Exercise Price     Options Exercisable       Exercise Price
      ------           -------------------      --------------      ---------------    --------------------     ----------------
$  5.01 - $10.00              12,000                 2.22           $    7.81                12,000                $    7.81

$ 10.01 - $15.00              18,000                 5.16               12.25                18,000                    12.25

$ 15.01 - $20.00              12,000                 8.94               15.74                 8,000                    15.74

$ 20.01 - $25.00               6,000                 9.71               22.70                 1,998                    22.70
                              ------                 ----           ---------                ------                ---------
                              48,000                 5.94           $   13.32                39,998                $   12.14
                              ======                 ====           =========                ======                =========

            Statement of Financial Accounting Standards No. 123, "ACCOUNTING FOR
STOCK-BASED  COMPENSATION"  ("SFAS  123"),  defines a fair value based method of
accounting for stock  options.  SFAS 123 allows an entity to continue to measure
cost using the accounting method  prescribed by APB Opinion No. 25,  "ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES"  ("APB 25") and to make pro forma  disclosures of
net  income  and  earnings  per  share  as if the fair  value  based  method  of
accounting had been applied. The fair value of each option grant is estimated on
the  date of  grant  using  the  Black-Scholes  option  pricing  model  with the
weighted-average  assumptions,  expected volatility and risk-free interest rate,
as listed in the table below.  The  following  table (in  thousands,  except per
share  amounts)  illustrates  the effect on net income and earnings per share if
the Company had applied  the fair value  recognition  provisions  of SFAS 123 to
stock-based compensation. However, no stock based compensation was recognized in
he  financial  statements  pursuant to APB 25. See Note 2 regarding  SFAS 123-R.

                                                                      Three Months Ended March 31,     Nine Months Ended March 31,
                                                                      ----------------------------     ---------------------------
                                                                        2005              2004              2005             2004
                                                                        -----             ----              -----            ----
Net income, as reported                                              $   2,710          $ 1,072           $ 7,001           $   427
Less:
   Stock-based compensation
       - fair value measurement                                           (324)            (419)           (1,021)             (891)
                                                                     ---------          -------           -------           -------
Net income (loss), pro forma                                             2,386              653             5,980              (464)
Preferred stock dividends                                                 --               (193)             (182)             (566)
                                                                     ---------          -------           -------           -------
Net income (loss) available to
       common shareholders - pro forma                               $   2,386          $   460           $ 5,798           $(1,030)
                                                                     =========          =======           =======           =======

Basic income (loss) per share - reported                             $    0.21          $  0.08           $  0.57           $ (0.01)
                                                                     =========          =======           =======           =======
Basic income (loss) per share - pro forma                            $    0.19          $  0.04           $  0.48           $ (0.10)
                                                                     =========          =======           =======           =======

Diluted income (loss) per share - reported                           $    0.20          $  0.07           $  0.51           $ (0.01)
                                                                     =========          =======           =======           =======
Diluted income (loss) per share - pro forma                          $    0.17          $  0.04           $  0.43           $ (0.10)
                                                                     =========          =======           =======           =======

Expected volatility                                                     28-40%           37-40%            28-40%             37-40%
Risk free interest rate                                               2.6-6.6%         2.6-6.6%          2.6-6.6%           2.6-6.6%
Expected dividend yield                                                  0%               0%                 0%                0%
Expected lives                                                        3-5 years        3-5 years        3-5 years          3-5 years

NOTE 8.     ACQUISITION

            On October 1, 2004,  the  Company  purchased  the bulk CO2  beverage
carbonation business of privately owned Pain Enterprises,  Inc., of Bloomington,
Indiana,  for total cash  consideration  of $15.7 million.  The Company acquired
approximately  9,000 net customer  accounts,  including  6,300 tanks in service,
vehicles,  parts, and supplies.  The acquisition of Pain  Enterprises'  bulk CO2
beverage carbonation business,  which operated in 12 Midwestern and Southeastern
states: Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Michigan, Missouri,
Minnesota,  Ohio,  Tennessee and Wisconsin,  provides  further  penetration  and
increased operating efficiencies in markets in which the Company operates.

            The purchase price was allocated between tangible assets, intangible
assets, and goodwill as follows:  $6.7 million for tangible assets, $6.2 million
for intangible  assets and $2.8 million for goodwill.  Tangible assets are being
depreciated over a weighted average life of 10 years,  while intangible  assets,
excluding  goodwill,  are being amortized over a weighted  average life of eight
years.

                                       16


            Goodwill  was  recorded  as the  purchase  price of the  acquisition
exceeded the fair market value of the tangible and  intangible  assets  acquired
and is a direct  result of  synergies  arising  from the  transaction.  Both the
purchase  price  allocation  and the  useful  lives of  purchased  tangible  and
intangible  assets were derived with the assistance of an independent  valuation
consultant and other independent sources as appropriate.  The valuation analysis
provided by the  independent  valuation  consultant is subject to  finalization,
which  should  occur prior to June 30,  2005.  As such,  the  allocation  of the
purchase  price is subject to change  pending the final outcome of the valuation
analysis.  However,  based on information currently available,  the Company does
not anticipate significant changes to the purchase price allocation.

            In conjunction with this transaction, the Senior Credit Facility was
amended to, among other  things,  increase the B Term Loan from $10.0 million to
$23.0 million and to modify certain covenants.

            The results of operations  for the  acquisition  are included in the
statements  of  operations  for the period of October 1, 2004 through  March 31,
2005. However, the following unaudited pro forma results of operations have been
prepared  assuming  the  acquisition  described  above  had  occurred  as of the
beginning  of the  periods  presented  in  the  Company's  historical  financial
statements,  including  adjustments  to the financial  statements for additional
depreciation  of  tangible  assets,   amortization  of  intangible  assets,  and
increased  interest on borrowings to finance the acquisition.  The unaudited pro
forma operating results are not necessarily indicative of operating results that
would have occurred had this acquisition been consummated as of the beginning of
the periods  presented,  or of future operating  results.  In certain cases, the
operating  results  for  periods  prior  to the  acquisition  are  based  on (a)
unaudited  financial data provided by the seller or (b) an estimate of revenues,
cost of revenues and/or selling,  general and  administrative  expenses based on
information  provided  by the  seller or  otherwise  available  to the  Company.
Inasmuch as the Company acquired customer accounts,  tanks at customer sites and
other assets related to the beverage carbonation  business,  certain operational
and support costs provided for by the seller are not applicable to the Company's
cost of servicing these customers and were therefore  eliminated;  however,  the
Company  incurred  approximately  $500,000  in  non-recurring  costs  during the
integration phase that are included in the unaudited pro forma results presented
below.

Unaudited Pro Forma:
                                       Three Months Ended March 31,     Nine Months Ended March 31,
                                       ----------------------------     ---------------------------
                                         2005              2004              2005             2004
                                         -----             ----              -----            ----
Total Revenues                         $ 24,611          $ 22,508          $ 73,608       $ 67,109
Operating Income                          4,881             4,057            14,374         10,611

Net income                                2,710             1,636             7,533          1,766

Preferred stock dividends                  --                (193)             (182)          (566)
                                       --------          --------          --------       --------

Net income available to
       common shareholders             $  2,710          $  1,443          $  7,351       $  1,200
                                       ========          ========          ========       ========

Basic income per share                 $   0.21          $   0.14          $   0.61       $   0.11
                                       ========          ========          ========       ========
Diluted income per share               $   0.20          $   0.12          $   0.55       $   0.10
                                       ========          ========          ========       ========

NOTE 9.     COMPREHENSIVE INCOME

            The  components  of  comprehensive  income  are as  follows  for the
periods presented (in thousands):

                                                        Three Months Ended March 31,     Nine Months Ended March 31,
                                                        ----------------------------     ---------------------------
                                                          2005                 2004        2005                 2004
                                                        -------              -------     -------               -----
        Net income                                      $ 2,710              $ 1,072     $ 7,001              $  427
        Interest rate swap transaction (Note 4)               5                    -          28                 129
                                                        -------              -------     -------              ------

        Comprehensive income                            $ 2,715              $ 1,072     $ 7,029              $  556
                                                        =======              =======     =======              ======

NOTE 10.    INCOME TAXES

            As  of  March  31,  2005,   the  Company  had  net  operating   loss
carryforwards for federal income tax purposes of approximately  $100 million and
for state  purposes in varying  amounts,  which are  available to offset  future
federal  taxable  income,  if any, in varying  amounts  through June 2024. 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

                                       17





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. In
addition,  a  portion  of  the  Company's  taxable  income  is  subject  to  the
alternative  minimum  tax  ("AMT"),  which  is  reflected  in its  statement  of
operations for fiscal 2005 along with a provision for state income taxes.

            The Company  continues to evaluate the deferred tax asset  valuation
allowance.  Deferred  income  taxes  reflect  the net tax  effects of  temporary
differences between the carrying amounts of assets and liabilities for financial
reporting  purposes and the amounts used for income tax purposes.  Substantially
all of  the  Company's  deferred  tax  assets  represent  the  benefit  of  loss
carryforwards   that  arose  prior  to  fiscal  year  2004.   In  assessing  the
realizability of deferred tax assets,  the Company  considers whether it is more
likely than not that some  portion or all of the deferred tax assets will not be
realized.  Among other matters,  realization of the entire deferred tax asset is
dependent on the Company's ability to generate  sufficient  taxable income prior
to the expiration of the carryforwards. While the Company attained profitability
during  fiscal year 2004,  based on the  available  objective  evidence  and the
recent  history of losses,  the Company  cannot  conclude that it is more likely
than not that the net deferred tax assets will be fully realizable. Accordingly,
the Company has  recorded a valuation  allowance  equal to the amount of its net
deferred tax assets.

                                       18






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.  As of March 31, 2005,  we operated a
national  network  of  114  service  locations  servicing  approximately  96,000
customer  locations in 45 states.  Currently,  virtually  all fountain  beverage
users in the  continental  United States are within our present service area. On
October 1, 2004, we purchased the bulk CO2 beverage carbonation business of Pain
Enterprises,  Inc. The  transaction  involved the  acquisition of  approximately
9,000  customer  accounts,  including  approximately  6,500  tanks  in  service,
vehicles,  parts, and supplies.  The acquisition of Pain  Enterprises'  bulk CO2
beverage carbonation business in 12 Midwestern and Southeastern states: Florida,
Georgia, Illinois, Indiana, Iowa, Kentucky, Michigan, Missouri, Minnesota, Ohio,
Tennessee and Wisconsin,  provides further  penetration into markets in which we
operate.

            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 build route density by leasing bulk CO2 systems to  independent  restaurants,
convenience stores and theaters.

            We  have  entered  into  master  service  agreements  with 32 of the
largest 100  restaurant  and  convenience  store  chains 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  34,000 chain and
franchise  locations  with  chains  that have  signed  existing  master  service
agreements.  We are actively  working on expanding the number of master  service
agreements  with  numerous  restaurant  chains,  including  some of the  largest
operators.

            We believe that our future revenue growth, gains in gross margin and
profitability  will be  dependent  upon (i)  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,  (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.  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 customer  accounts from  businesses  that had 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.

                                       19





            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.  During the last
two years, we have experienced a significant  improvement in gross margin due to
net new customer activations and operating improvements,  including efficiencies
in  delivery  of  product  to our  customers.  We have  achieved  reductions  in
unscheduled  deliveries,  total miles  driven,  miles driven  between  stops and
improvements  to our  safety  record.  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.  We continue to focus on improving operating  effectiveness,
increasing  prices  for  our  services  and  strengthening  our  workforce,  and
anticipate that these initiatives will contribute positively to all areas of our
company.

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 $58.0  million in
fiscal 2000 to $80.8 million in fiscal 2004. 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. Cost of
equipment  rentals is  comprised of costs  associated  with  customer  equipment
leases.  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 expenses stem from the depreciation of our bulk CO2
systems  and  related   installation  costs,   amortization  of  deferred  lease
acquisition  costs,  and  amortization  of  deferred  financing  costs and other
intangible assets. With respect to bulk CO2 systems, we capitalize  installation
costs  based on a  standard  amount per  installation  that is  associated  with
specific  installations  of such systems  with  customers  under  non-cancelable
contracts and which would not be incurred but for a successful placement.  Costs
incurred in excess of the standard amount per installation, if any, are expensed
in the statement of operations.  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 accumulated net losses of $48.7 million at March 31, 2005.

                                       20





RESULTS OF OPERATIONS


                                                           Three Months Ended March 31         Nine Months Ended March 31,
                                                           ---------------------------         ---------------------------
Income Statement Data:                                       2005               2004            2005              2004
                                                             ----               ----            ----              ----

Product sales                                                  63.3%            61.6%            62.8%            61.2%
Equipment rentals                                              36.7             38.4             37.2             38.8
                                                            -------          -------          -------          --------
Total revenues                                                100.0            100.0            100.0            100.0

Cost of products sold, excluding
    depreciation and amortization                              42.7             41.7             42.1             42.5
Cost of equipment rentals, excluding
    depreciation and amortization                               2.9              3.1              2.6              3.0
Selling, general and administrative expenses                   16.5             18.7             17.9             19.3
Depreciation and amortization                                  17.4             18.8             17.2             19.2
Loss on asset disposal                                          0.7              1.6              1.2              1.8
                                                            -------          -------          -------          --------
Operating income                                               19.8             16.1             19.0             14.2
Loss on early extinguishment of debt                            -                -                -                3.3
Unrealized loss on financial instrument                         -                0.9              -                0.3
Interest expense                                                8.8              9.9              9.0              9.9
                                                            -------          -------          -------          --------

Income before provision for income taxes                       11.0              5.3             10.0              0.7
Provision for income taxes                                      -                -                0.2              -
                                                            -------          -------          -------          --------
Net income                                                     11.0%             5.3%             9.8%             0.7%
                                                            =======          =======          =======          ========

THREE MONTHS ENDED MARCH 31, 2005 COMPARED TO THREE MONTHS ENDED MARCH 31, 2004

TOTAL REVENUES

            Total  revenues  increased  by $4.5  million,  or 22.6%,  from $20.1
million in 2004 to $24.6  million in 2005.  Revenues  derived  from our bulk CO2
service  plans  increased by $3.8  million,  of which $3.6 million was due to an
increase in the number of customer  locations and $0.2 million was primarily due
to an increase  in CO2 sold to the average  customer.  During the  quarter,  the
number of customer  locations  utilizing our bulk CO2 services  increased from a
period  average  of 77,000  customers  in 2004 to 94,000 in 2005,  due to strong
organic growth and the purchase of approximately  9,000 customer  locations from
Pain Enterprises,  Inc.  effective  October 1, 2004 which generated  revenues of
$2.3  million  in 2005.  In  addition,  revenues  derived  from the sale of high
pressure cylinder  products,  fuel surcharges,  and other revenues  increased by
$0.7 million.

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

                                                  Three Months Ended March 31,
                                                  ----------------------------
     Service Plan                                       2005           2004
                                                        ----           ----
         Bulk budget plan(1)                            55.7%          60.7%
         Equipment lease/product purchase plan(2)       15.8           12.3
         Product purchase plan(3)                       10.3            9.0
         High pressure cylinder(4)                       5.8            6.1
         Other revenues(5)                              12.4           11.9
                                                       -----         ------
                                                       100.0%         100.0%
                                                       ======        =======

        (1) Combined fee for bulk CO2 tank and bulk CO2.
        (2) Fee for bulk CO2 tank and, separately, bulk CO2 usage.
        (3) Bulk CO2 only.
        (4) High pressure CO2 cylinders and non-CO2 gases.
        (5) Surcharges and other charges.

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

                                       21





            PRODUCT  SALES - Revenues  derived from the product sales portion of
our service  plans  increased by $3.2 million,  or 26.0%,  from $12.4 million in
2004 to $15.6  million in 2005.  The increase in revenues is primarily  due to a
21.4% increase in the average  number of customer  locations  serviced  combined
with an increase in CO2 sold to the average customer. In addition,  the sales of
products and services other than bulk CO2 increased by $0.7 million due in large
part to an increase in revenues derived from cylinder products,  fuel surcharges
and other revenues.

            EQUIPMENT  RENTALS - Revenues  derived from the lease portion of our
service plans increased by $1.3 million,  or 17.1%, from $7.7 million in 2004 to
$9.0 million in 2005, primarily due to a 19.9% increase in the average number of
customer   locations  leasing  equipment  from  us  and  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 average
number of customer  locations renting equipment from us increased from 66,000 in
2004 to 79,000 in 2005,  6,300 of which were acquired as part of the transaction
with Pain Enterprises, Inc. effective on October 1, 2004.

COST OF PRODUCTS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION

            Cost of products  sold,  excluding  depreciation  and  amortization,
increased from $8.4 million in 2004 to $10.5 million in 2005,  while  decreasing
as a percentage  of product  sales  revenue from 67.7% to 67.4%.  Product  costs
increased by $0.7 million from $2.9 million in 2004 to $3.6 million in 2005. The
base price with our primary  supplier of CO2  increased  by the  Producer  Price
Index, while the volume of CO2 sold by us increased by 28.0%, primarily due to a
21.4%  increase in our  average  customer  base and a 5.1%  increase in CO2 sold
these customers.

            Operational  costs,  primarily wages and benefits related to cost of
products  sold,  increased  from $3.4  million in 2004 to $4.3  million in 2005,
primarily due to an increase in route driver costs  associated with an increased
customer  base.  As of March 31, 2005,  we had 326 drivers as compared to 271 at
the same point last year.

            Truck delivery expenses  increased from $1.3 million in 2004 to $1.7
million in 2005 primarily due to the increased  customer base and fuel costs. We
have been able 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. While total miles driven increased by 13.6% on
an average  customer  base that  increased  by 21.4%,  miles  driven per average
customer decreased 6.7%.

            Occupancy and shop costs related to cost of products sold  increased
from $0.8 million in 2004 to $0.9 million in 2005.

COST OF EQUIPMENT RENTALS, EXCLUDING DEPRECIATION AND AMORTIZATION

            Cost of equipment rentals,  excluding depreciation and amortization,
increased from $0.6 million in 2004 to $0.7 million in 2005 while  decreasing as
a percentage of equipment rentals revenue from 8.1% to 8.0%.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

            Selling,  general  and  administrative  expenses  increased  by $0.4
million from $3.7 million in 2004 to $4.1 million in 2005, while decreasing as a
percentage of total revenues from 18.7% in 2004 to 16.5% in 2005.

            Selling  related  expenses  increased  by $0.2  million,  from  $0.7
million in 2004 to $0.9 million in 2005,  primarily the result of an increase in
expenses directed towards training, marketing and growth opportunities.

            General and administrative  expenses  increased by $0.2 million,  or
7.4%,  from $3.0 million in 2004 to $3.2 million in 2005.  This increase was the
result of acquisition  integration,  incentive plans, wage increases,  provision
for doubtful  accounts,  and an increase in public company expense due primarily
to the increase in shares outstanding.

DEPRECIATION AND AMORTIZATION

            Depreciation and amortization increased from $3.8 million in 2004 to
$4.3  million in 2005.  As a  percentage  of total  revenues,  depreciation  and
amortization expense decreased from 18.8% in 2004 to 17.4% in 2005.

            Depreciation  expense  increased  from $3.3  million in 2004 to $3.5
million in 2005. Depreciation increased by approximately $0.2 million due to the
purchase of tanks and equipment from Pain  Enterprises,  Inc.,  offset by a $0.1

                                       22





million decrease in depreciation  associated with the shortened lives of certain
small tanks that were  partially  impaired and scheduled to be phased out over a
three to four year period commencing June 30, 2002.

            Amortization  expense  increased  from $0.5  million in 2004 to $0.8
million in 2005.  This increase is due in large part to a $0.2 million  increase
in amortization  associated with the acquisition of customer  accounts and other
intangible assets associated with the Pain Enterprises, Inc. transaction.

LOSS ON ASSET DISPOSAL

            Loss on asset  disposal  decreased from $0.3 million in 2004 to $0.2
million in 2005, decreasing as a percentage of total revenues from 1.6% to
0.7%.

OPERATING INCOME

            For the reasons previously discussed,  operating income increased by
$1.7 million from $3.2 million in 2004 to $4.9 million in 2005.  As a percentage
of total  revenues,  operating  income  improved  from 16.1% in 2004 to 19.8% in
2005.

UNREALIZED LOSS ON FINANCIAL INSTRUMENT

            In order to reduce our exposure to increases in Eurodollar  interest
rates, and consequently to increases in interest  payments,  on October 2, 2003,
we entered into an interest rate swap  transaction (the "Swap") in the amount of
$20.0 million (the "Notional  Amount") with an effective date of March 15, 2004.
Pursuant  to the  Swap,  we pay a fixed  interest  rate of 2.12%  per  annum and
receive  a  Eurodollar-based  floating  rate.  The  effect  of  the  Swap  is to
neutralize any changes in Eurodollar rates on the Notional  Amount.  As the Swap
was not effective until March 15, 2004 and no cash flows were exchanged prior to
that date,  the Swap did not meet the  requirements  to be  designated as a cash
flow hedge.  As such, an unrealized  loss of $0.2 million was  recognized in our
results of operations for the three months ended March 31, 2004,  reflecting the
change in fair value of the Swap from  inception to the  effective  date.  As of
March 31, 2004,  the Swap met the  requirements  to be designated as a cash flow
hedge and is deemed a highly effective transaction.

INTEREST EXPENSE

            Interest expense increased from $2.0 million in 2004 to $2.2 million
in 2005, while decreasing as a percentage of total revenues from 9.9% in 2004 to
8.8% in 2005.  The effective  interest rate of our debt  decreased from 11.3% to
11.0% per annum. See "Liquidity and Capital Resources."

INCOME BEFORE PROVISION FOR INCOME TAXES

            See discussion of Net Income.

PROVISION FOR INCOME TAXES

            As of March 31, 2005, we had net operating  loss  carryforwards  for
federal income tax purposes of approximately $100 million and for state purposes
in varying amounts, which are available to offset future federal taxable income,
if any, in varying  amounts  through  June 2024.  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. In addition,  a portion of our taxable income is subject to
the  alternative  minimum tax ("AMT"),  which is reflected in our  statements of
operations for 2005 along with a provision for state income taxes.  Based on our
taxable income subject to the AMT, no provision was recorded for income taxes in
either 2004 or 2005.

            We continue to evaluate the deferred tax asset valuation  allowance.
Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes.  Substantially all of our
deferred tax assets represent the benefit of loss carryforwards that arose prior
to fiscal year 2004. In assessing the  realizability of deferred tax assets,  we
consider  whether  it is more  likely  than not that some  portion or all of the
deferred tax assets will not be realized.  Among other  matters,  realization of
the entire deferred tax asset is dependent on our ability to generate sufficient
taxable income prior to the expiration of the  carryforwards.  While we attained

                                       23





profitability during fiscal year 2004, based on the available objective evidence
and the recent history of losses, we cannot conclude that it is more likely than
not that the net deferred tax assets will be fully realizable.  Accordingly,  we
have recorded a valuation  allowance equal to the amount of our net deferred tax
assets.

NET INCOME

            For the reasons described above, net income improved by $1.6 million
from $1.1 million in 2004 to $2.7 million in 2005.

EBITDA

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

            EBITDA, as set forth in the table below (in thousands), increased by
$2.2  million,  or 30.7%,  from $7.0 million in 2004 to $9.2 million in 2005 and
increased as a percentage of total revenues from 34.9% to 37.2%.

                                            Three Months Ended March 31,
                                            ----------------------------
                                             2005                  2004
                                           -------               -------
     Net income                            $ 2,710               $ 1,072
     Interest expense                        2,171                 1,980
     Depreciation and amortization           4,276                 3,776
     Unrealized loss on financial
         instrument                            -                     177
                                           -------               -------
     EBITDA                                $ 9,157               $ 7,005
                                           =======               =======

     Cash flows provided by (used in):
       Operating activities                $ 8,865               $ 6,897
       Investing activities                $(5,677)              $(4,048)
       Financing activities                $35,168               $(2,759)

NINE MONTHS ENDED MARCH 31, 2005 COMPARED TO NINE MONTHS ENDED MARCH 31, 2004

TOTAL REVENUES

            Total  revenues  increased by $11.4  million,  or 19.1%,  from $59.8
million in 2004 to $71.2  million in 2005.  Revenues  derived  from our bulk CO2
service  plans  increased by $9.6  million,  of which $8.4 million was due to an
increase in the number of customer  locations and $1.2 million was primarily due
to an increase in CO2 sold to the average customer.  During the year, the number
of customer  locations  utilizing our bulk CO2 services  increased from a period
average of 76,000  customers  in 2004 to 89,000 in 2005,  due to strong  organic
growth and the purchase of  approximately  9,000  customer  locations  from Pain
Enterprises, Inc. on October 1, 2004 which generated revenues of $4.9 million in
2005.  In addition,  revenues  derived from the sale of high  pressure  cylinder
products, fuel surcharges, and other revenues increased by $1.8 million.

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

                                       24



                                                 Nine Months Ended March 31,
                                                 ---------------------------
 Service Plan                                        2005       2004
                                                     ----       -----
     Bulk budget plan(1)                             57.4%      61.7%
     Equipment lease/product purchase plan(2)        15.0       11.9
     Product purchase plan(3)                         9.7        8.8
     High pressure cylinder(4)                        5.8        6.1
     Other revenues(5)                               12.1       11.5
                                                  -------    -------
                                                    100.0%     100.0%
                                                  =======    =======

             (1) Combined fee for bulk CO2 tank and bulk CO2.
             (2) Fee for bulk CO2 tank and, separately, bulk CO2 usage.
             (3) Bulk CO2 only.
             (4) High pressure CO2 cylinders and non-CO2 gases.
             (5) Surcharges and other charges.

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

            PRODUCT  SALES - Revenues  derived from the product sales portion of
our service  plans  increased by $8.1 million,  or 22.3%,  from $36.6 million in
2004 to $44.7  million in 2005.  The increase in revenues is primarily  due to a
16.8% increase in the average  number of customer  locations  serviced  combined
with an increase in CO2 sold to the average customer. In addition,  the sales of
products and services other than bulk CO2 increased by $1.8 million due in large
part to an increase in revenues derived from cylinder products,  fuel surcharges
and other revenues.

            EQUIPMENT  RENTALS - Revenues  derived from the lease portion of our
service plans increased by $3.3 million, or 14.1%, from $23.2 million in 2004 to
$26.5 million in 2005,  primarily due to a 16.0%  increase in the average number
of  customer  locations  leasing  equipment  from us and  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 average
number of customer  locations renting equipment from us increased from 65,000 in
2004 to 75,000  in 2005,  due to  strong  organic  growth  and the  purchase  of
approximately  6,300 customer  locations  utilizing  equipment rental plans from
Pain Enterprises, Inc. on October 1, 2004.

COST OF PRODUCTS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION

            Cost of products  sold,  excluding  depreciation  and  amortization,
increased from $25.4 million in 2004 to $30.0 million in 2005,  while decreasing
as a percentage  of product  sales  revenue from 69.4% to 67.0%.  Product  costs
increased by $1.9  million  from $9.1 million in 2004 to $11.0  million in 2005.
The base price with our primary  supplier of CO2 increased by the Producer Price
Index,  while the volume of CO2 sold by us increased  23.8%,  primarily due to a
16.8%  increase in our  average  customer  base and a 5.7%  increase in CO2 sold
these customers.

            Operational  costs,  primarily wages and benefits related to cost of
products  sold,  increased  from $10.1 million in 2004 to $11.8 million in 2005,
primarily due to an increase in route driver costs  associated with an increased
customer  base.  As of March 31, 2005,  we had 326 drivers as compared to 271 at
the same point last year. However, some of the headcount increase in drivers was
offset by a reduction in depot and regional management headcount.

            Truck delivery expenses  increased from $3.8 million in 2004 to $4.6
million in 2005 primarily due to the increased  customer base and fuel costs. We
have been able 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. While total miles driven increased by 12.0% on
an average  customer  base that  increased  by 16.8%,  miles  driven per average
customer decreased 4.6%.

            Occupancy and shop costs related to cost of products sold  increased
from $2.3 million in 2004 to $2.5 million in 2005.

                                       25





COST OF EQUIPMENT RENTALS, EXCLUDING DEPRECIATION AND AMORTIZATION

            Cost of equipment rentals,  excluding depreciation and amortization,
remained  constant at $1.8 million in both 2004 and 2005 while  decreasing  as a
percentage of equipment rentals revenue from 7.9% to 7.0%. The reduction in cost
of  equipment  rentals  reflected in expense is  primarily  attributable  to the
increased  efficiency  of  our  technical  installers  and  the  number  of  new
activations.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

            Selling,  general  and  administrative  expenses  increased  by $1.3
million from $11.5 million in 2004 to $12.8 million in 2005, while decreasing as
a percentage of total revenues from 19.3% in 2004 to 17.9% in 2005.

            Selling  related  expenses  increased  by $0.4  million,  from  $2.3
million  in 2004 to $2.7  million  in 2005,  primarily  the  result of  expenses
directed towards training, marketing and growth opportunities.

            General and administrative  expenses  increased by $0.9 million,  or
9.4%,  from $9.2 million in 2004 to $10.1 million in 2005. This increase was the
result of acquisition  integration,  incentive plans, wage increases,  provision
for doubtful accounts,  public company expense and expenses  associated with the
four  hurricanes  that  impacted the  southeastern  United  States in August and
September.

DEPRECIATION AND AMORTIZATION

            Depreciation and  amortization  increased from $11.5 million in 2004
to $12.2 million in 2005. As a percentage of total  revenues,  depreciation  and
amortization expense decreased from 19.2% in 2004 to 17.2% in 2005.

            Depreciation  expense  increased from $10.0 million in 2004 to $10.2
million in 2005. An increase of  approximately  $0.4 million due to the purchase
of tanks and equipment from Pain Enterprises, Inc., was offset by a $0.3 million
decrease in  depreciation  associated  with the shortened lives of certain small
tanks that were  partially  impaired and scheduled to be phased out over a three
to your year period commencing June 30, 2002.

            Amortization  expense  increased  from $1.5  million in 2004 to $2.0
million in 2005.  This increase is due in large part to a $0.4 million  increase
in amortization  associated with the acquisition of customer  accounts and other
intangible assets associated with the Pain Enterprises, Inc. transaction.

LOSS ON ASSET DISPOSAL

            Loss on asset  disposal  decreased from $1.0 million in 2004 to $0.8
million in 2005, decreasing as a percentage of total revenues from 1.8% to
1.2%.

OPERATING INCOME

            For the reasons previously discussed,  operating income increased by
$5.1 million from $8.5 million in 2004 to $13.5 million in 2005. As a percentage
of total  revenues,  operating  income  improved  from 14.2% in 2004 to 19.0% in
2005.

LOSS ON EARLY EXTINGUISHMENT OF DEBT

            In 2004, we accelerated  the recognition of $1.5 million in deferred
financing  costs  associated  with the  refinancing  of our  long-term  debt. In
addition,  we  accelerated  the  recognition of the  unamortized  portion of the
original issue discount associated with our 12% Senior  Subordinated  Promissory
Notes,  $0.4  million,  and paid  $0.1  million  in  conjunction  with the early
termination of an interest rate swap agreement.

UNREALIZED LOSS ON FINANCIAL INSTRUMENT

            In order to reduce our exposure to increases in Eurodollar  interest
rates, and consequently to increases in interest  payments,  on October 2, 2003,
we entered into an interest rate swap  transaction (the "Swap") in the amount of
$20.0 million (the "Notional  Amount") with an effective date of March 15, 2004.
Pursuant  to the  Swap,  we pay a fixed  interest  rate of 2.12%  per  annum and
receive  a  Eurodollar-based  floating  rate.  The  effect  of  the  Swap  is to
neutralize any changes in Eurodollar rates on the Notional  Amount.  As the Swap
was not effective until March 15, 2004 and no cash flows were exchanged prior to
that date,  the Swap did not meet the  requirements  to be  designated as a cash

                                       26





flow hedge.  As such, an unrealized  loss of $0.2 million was  recognized in our
results of operations for the three months ended March 31, 2004,  reflecting the
change in fair value of the Swap from  inception to the  effective  date.  As of
March 31, 2004,  the Swap met the  requirements  to be designated as a cash flow
hedge and is deemed a highly effective transaction.

INTEREST EXPENSE

            Interest expense increased from $5.9 million in 2004 to $6.4 million
in 2005, while decreasing as a percentage of total revenues from 9.9% in 2004 to
9.0% in 2005.  The effective  interest rate of our debt  increased from 11.1% to
11.3% per annum. See "Liquidity and Capital Resources."

INCOME BEFORE PROVISION FOR INCOME TAXES

            See discussion of Net Income.

PROVISION FOR INCOME TAXES

            As of March 31, 2005, we had net operating  loss  carryforwards  for
federal income tax purposes of approximately $100 million and for state purposes
in varying amounts, which are available to offset future federal taxable income,
if any, in varying  amounts  through  June 2024.  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. In addition,  a portion of our taxable income is subject to
the  alternative  minimum tax ("AMT"),  which is reflected in our  statements of
operations for 2005 along with a provision for state income taxes. Our provision
for income  taxes was $0.1 million in 2005.  No  provision  for income taxes was
recorded in 2004.

            We continue to evaluate the deferred tax asset valuation  allowance.
Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes.  Substantially all of our
deferred tax assets represent the benefit of loss carryforwards that arose prior
to fiscal year 2004. In assessing the  realizability of deferred tax assets,  we
consider  whether  it is more  likely  than not that some  portion or all of the
deferred tax assets will not be realized.  Among other  matters,  realization of
the entire deferred tax asset is dependent on our ability to generate sufficient
taxable income prior to the expiration of the  carryforwards.  While we attained
profitability during fiscal year 2004, based on the available objective evidence
and the recent history of losses, we cannot conclude that it is more likely than
not that the net deferred tax assets will be fully realizable.  Accordingly,  we
have recorded a valuation  allowance equal to the amount of our net deferred tax
assets.

NET INCOME

            For the reasons described above, net income improved by $6.6 million
from $0.4 million in 2004 to $7.0 million in 2005.

EBITDA

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

            EBITDA, as set forth in the table below (in thousands), increased by
$5.8 million,  or 28.9%, from $20.0 million in 2004 to $25.8 million in 2005 and
increased as a percentage of total revenues from 33.4 % to 36.2%.

                                       27





                                                           Nine Months Ended March 31
                                                         -----------------------------
                                                           2005                2004
                                                         --------           ----------
Net income                                               $  7,001           $    427
Interest expense                                            6,439              5,927
Depreciation and amortization                              12,213             11,481
Provision for income taxes                                    106                -
Unrealized loss on financial instrument                       -                  177
Loss on early extinguishment of debt                          -                1,964
                                                         --------           --------
EBITDA                                                   $ 25,759           $ 19,976
                                                         ========           ========

Cash flows provided by (used in):
  Operating activities                                   $ 18,794           $ 14,289
  Investing activities                                   $(30,379)          $(11,733)
  Financing activities                                   $ 49,485           $ (2,719)

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  $24.0 million for internal
growth over the next twelve months,  primarily for purchases of bulk CO2 systems
for new customers,  the  replacement  with larger bulk CO2 systems of 50 and 100
lb. bulk CO2 systems in service at existing  customers and replacement units for
our truck fleet.  In June 2002,  we adopted a plan to replace all 50 and 100 lb.
bulk CO2 systems in service at customers over a three to four year period. While
this decision may not increase  revenues  generated from these customers,  it is
expected to improve  operating  efficiencies,  gross margins and  profitability.
Once bulk CO2 systems are placed into service, we generally  experience positive
cash  flows on a per  unit  basis,  as  there  are  minimal  additional  capital
expenditures required for ordinary operations.

            In addition to capital  expenditures  related to internal growth, we
review opportunities to acquire bulk CO2 service accounts,  and may require cash
in an  amount  dictated  by the scale  and  terms of any such  transactions.  On
October 1, 2004,  we  purchased  the bulk CO2 beverage  carbonation  business of
privately-owned Pain Enterprises, Inc., of Bloomington,  Indiana, for total cash
consideration  of $15.7 million.  The  transaction  involved the  acquisition of
approximately  9,000  customer  accounts,  including  6,300  tanks  in  service,
vehicles,  parts, and supplies.  Pain Enterprises' bulk CO2 beverage carbonation
business operated in 12 Midwestern and Southeastern  states:  Florida,  Georgia,
Illinois,  Indiana,  Iowa,  Kentucky,  Michigan,   Missouri,   Minnesota,  Ohio,
Tennessee and Wisconsin.

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

            On August 25, 2003, we terminated  the Amended  Credit  Facility and
entered into a $50.0 million  senior  credit  facility with a syndicate of banks
(the "Senior Credit Facility").  The Senior Credit Facility initially  consisted
of a $30.0 million A term loan  facility (the "A Term Loan"),  a $10.0 million B
term loan  facility  (the "B Term Loan"),  and a $10.0  million  revolving  loan
facility (the  "Revolving  Loan  Facility").  On October 1, 2004, in conjunction
with the Pain  Enterprises,  Inc.  transaction,  the Senior Credit  Facility was
amended to, among other things, increase the B Term Loan to $23.0 million and to
modify certain financial covenants.  The A Term Loan and Revolving Loan Facility
mature on August 25, 2007,  while the B Term Loan matures on August 25, 2008. We

                                       28





are entitled to select either  Eurodollar  Loans (as defined) or Base Rate Loans
(as defined),  plus applicable margin, for principal borrowings under the Senior
Credit Facility.  Applicable margin is determined by a pricing grid based on our
Consolidated Total Leverage Ratio (as defined) as follows:

                                  A Term                                                                      B Term     Revolving
                                  Loans          B Term            Revolving               A Term              Loans       Loans
                Consolidated    maintained        Loans              Loans                 Loans           maintained    maintained
                  Total             as         maintained         maintained as         maintained as           as           as
                 Leverage       Base Rate     as Base Rate         Base Rate             Eurodollar        Eurodollar    Eurodollar
Level             Ratio           Loans           Loans               Loans                Loans             Loans         Loans
-----           ------------    ----------    ------------        -------------         -------------      ----------    ----------

              Less than
  1           2.50:1.00           2.50%           2.75%                2.50%              3.50%              3.75%         3.50%

              Greater than or
              equal to
              2.50:1.00 but
              less than
  2           3.00:1.00           2.75%           3.00%                2.75%              3.75%              4.00%         3.75%
              Greater than or
              equal to
  3           3.00:1.00           3.00%           3.25%                3.00%              4.00%              4.25%         4.00%


            Interest  is payable  periodically  on  borrowings  under the Senior
Credit Facility.  In addition,  on December 31, 2003 and on the last day of each
quarter thereafter,  we are required to make principal  repayments of the A Term
Loan in increasing  amounts and on December 31, 2004 and on the last day of each
quarter  thereafter,  we are required to make  principal  payments on the B Term
Loan in the amount of $57,500  until August 25, 2008 when we will be required to
make  a  final  payment  of   $22,137,500.   The  Senior   Credit   Facility  is
collateralized  by all of  our  assets.  Additionally,  we  are  precluded  from
declaring or paying any cash dividends.

            We are  also  required  to meet  certain  affirmative  and  negative
covenants,  including but not limited to financial covenants. We are required to
assess our compliance  with these  financial  covenants  under the Senior 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 Senior  Credit  Facility  to  immediately  become due and
payable.  We were in  compliance  with all  covenants  under the  Senior  Credit
Facility  as of  September  30,  2003  and  all  subsequent  quarters  up to and
including March 31, 2005.

            In connection with the  termination of the Amended Credit  Facility,
during the first  quarter of fiscal 2004,  we  recognized a loss of $0.9 million
from the write-off of unamortized  financing  costs  associated with the Amended
Credit Facility and recorded $2.2 million in financing costs associated with the
Senior  Credit  Facility.  Such costs are being  amortized  over the life of the
Senior Credit Facility.

            On March 30, 2005, we sold  2,041,713  shares of our common stock in
an underwritten  public  offering.  Based on the public offering price of $24.17
per  share and after  deducting  underwriting  discounts  and  commissions,  net
proceeds were  approximately  $46.6  million.  On March 31, 2005, we reduced the
outstanding  principal amount of the Senior Credit Facility by $11.2 million and
on April 4, 2005, we used  approximately  $34.3 million of the net proceeds from
the offering to redeem all of the New Notes (see  below).  As of March 31, 2005,
$14.9  million  was  outstanding  under the A Term Loan and  $22.9  million  was
outstanding  under the B Term Loan with a weighted average interest rate of 6.6%
per annum. No amounts were  outstanding  under the Revolving Loan Facility as of
March 31, 2005.

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

                                       29





amended to adjust  certain  financial  covenants  for the quarter ended June 30,
2002, and prospectively. As of December 31, 2002, we were in compliance with all
of the financial  covenants  under the 1997 Notes and 1999 Notes. On February 7,
2003, the interest  coverage  ratio  governing the 1997 Notes and 1999 Notes was
amended for the quarter ending March 31, 2003 and prospectively. As of March 31,
2003  and  June  30,  2003,  we were in  compliance  with  all of the  financial
covenants under the 1997 Notes and 1999 Notes.

            On August  25,  2003,  concurrently  with the  closing of the Senior
Credit  Facility,  we prepaid  the 1997  Notes and 1999  Notes and issued  $30.0
million of our 16.3% Senior  Subordinated  Notes Due February 27, 2009 (the "New
Notes") with interest only payable  quarterly in arrears on February 28, May 31,
August 31 and November 30 of each year,  commencing  November 30, 2003. Interest
on the New Notes was 12% per annum  payable  in cash and 4.3% per annum  payable
"in kind" by adding the amount of such interest to the  principal  amount of the
New Notes then  outstanding.  Ten year  warrants  to purchase  an  aggregate  of
425,000  shares of our common stock at an exercise price of $8.79 per share were
issued in connection with the New Notes.  Utilizing the Black-Scholes Model, the
warrants  issued  in  connection  with the New  Notes  were  valued at $3.70 per
warrant, or an aggregate value of $1,573,000.  In addition, the maturity date of
665,403  existing  warrants,  335,101  due to expire in 2004 and  330,302 due to
expire in 2005, was extended to February 2009,  resulting in additional value of
$1.31 and $0.97 per warrant, respectively, or an aggregate value of $760,090. At
the date of issuance,  in accordance  with APB 14,  "ACCOUNTING  FOR CONVERTIBLE
DEBT AND DEBT ISSUED WITH  PURCHASE  WARRANTS,"  we allocated  proceeds of $27.7
million  to the  debt and  $2.3  million  to the  warrants,  with the  resulting
discount on the debt referred to as the original  issue  discount.  The original
issue  discount  was being  amortized  as interest  expense over the life of the
debt.  As with the Senior  Credit  Facility,  we were  required to meet  certain
affirmative  and  negative  covenants  under the New  Notes,  including  but not
limited to financial  covenants.  We were in compliance with all covenants under
the New Notes as of  September  30, 2003 and all  subsequent  quarters up to and
including March 31, 2005.

            In  connection  with the early  repayment of the 1997 Notes and 1999
Notes,  during the first  quarter of fiscal 2004,  we  recognized a loss of $1.0
million  attributable  to the  unamortized  financing  costs and original  issue
discount  associated  with the 1997  Notes and 1999  Notes,  and  recorded  $0.6
million of  financing  costs and original  issue  discount  associated  with New
Notes.  Such fees  were  being  amortized  over the life of the New  Notes.  The
weighted  average  effective  interest  rate of the  New  Notes,  including  the
amortization of deferred financing costs and original issue discount,  was 18.0%
per annum.

            On April 4, 2005, we used $34.3 million of the net proceeds form the
sale of 2,041,713 shares of our common stock in an underwritten  public offering
in March 2005 to redeem the New Notes at 106% of the original  principal  amount
plus accrued interest. In addition,  during the quarter ending June 30, 2005, we
will recognize a loss on the early  termination of debt  associated with the New
Notes of  approximately  $4.1 million,  which includes the  prepayment  penalty,
unamortized fees and the amortized portion of the original issue discount.

            In May  2000,  we  sold  5,000  shares  of  Series  A 8%  Cumulative
Convertible  Preferred Stock, no par value (the "Series A Preferred Stock"), for
$1,000 per share.  Shares of the Series A Preferred Stock were  convertible into
shares of common stock at any time at a conversion  price of $9.28 per share. In
addition,  in  November  2001,  we sold 2,500  shares of Series B 8%  Cumulative
Convertible  Preferred Stock, no par value (the "Series B Preferred Stock"), for
$1,000 per share.  Shares of the Series B Preferred Stock were  convertible into
shares of common  stock at any time at a  conversion  price of $12.92 per share.
Effective  August 18, 2004, the holder of the Series A Preferred Stock converted
its shares into 754,982 shares of our common stock.  Effective December 7, 2004,
the holder of the Series B Preferred  Stock  converted  its shares into  247,420
shares of our common stock.

            During the nine months ended March 31, 2005,  our capital  resources
included cash flows from  operations,  the net proceeds of the sale of 2,041,713
shares of our common stock in March 2005, and available borrowing capacity under
the Senior  Credit  Facility.  We believe  that cash flows from  operations  and
available borrowings under the Senior Credit Facility will be sufficient to fund
proposed operations for at least the next twelve months.

            The table below sets forth our  contractual  obligations as of March
31, 2005 (in thousands):

                                       30




                                                       Less than
Contractual obligations                  Total            1 Year          2-3 Years        4-5 Years      Thereafter
-----------------------              -------------------------------------------------------------------------------
Senior Credit Facility
   Principal                            $37,825          $ 5,615          $10,015          $22,195        $   -
   Interest                               5,886            2,168            3,199              519            -
                                        -------          -------          -------          -------          ----
Total Senior Credit Facility             43,711            7,783           13,214           22,714            -
                                        -------          -------          -------          -------          ----

Subordinated debt
   Principal                             30,000           30,000              -                -              -
   Interest*                              4,299            4,299              -                -              -
                                        -------          -------          -------          -------          ----
Total subordinated debt                  34,299           34,299              -                -              -
                                        -------          -------          -------          -------          ----

Other debt, including interest              200               65              130                5            -
Employment agreements                     1,656              950              706              -              -
Operating leases                         17,114            4,761            7,475            4,167           711
                                        -------          -------          -------          -------        ------
Total obligations                       $96,980          $47,858          $21,525          $26,886        $  711
                                        =======          =======          =======          =======        ======

*INCLUDES  PAID-IN-KIND  INTEREST  AND A  PREPAYMENT  PENALTY  PAID  UPON LOAN
TERMINATION EFFECTIVE APRIL 4, 2005.

            As previously  discussed,  on October 1, 2004, we purchased the bulk
CO2  beverage   carbonation   business  of  Pain  Enterprises,   Inc.  for  cash
consideration of $15.7 million. Concurrent with the acquisition, the B Term Loan
of our Senior Credit  Facility was increased by $13.0 million from $10.0 million
to $23.0 million.

            In  addition,  in May 1997 we  entered  into an  exclusive  bulk CO2
requirements contract with The BOC Group, Inc.

            WORKING CAPITAL. At March 31, 2005 and June 30, 2004, we had working
capital  of  $5.6  million  and a  working  capital  deficit  of  $4.6  million,
respectively.

            CASH  FLOWS  FROM  OPERATING  ACTIVITIES.  Cash  flows  provided  by
operations increased by $4.5 million from $14.3 million in 2004 to $18.8 million
in 2005. The improvement derived from net income (excluding non-cash charges) of
$5.2  million was offset by a $0.7 million  reduction  in cash  generated by the
working  capital  components  of our  balance  sheet.

            CASH FLOWS FROM INVESTING ACTIVITIES. During 2005 and 2004, net cash
used in investing activities was $30.4 million and $11.7 million,  respectively.
Investing  activities in 2005 included $15.7 million paid for the acquisition of
the bulk CO2 beverage carbonation business of Pain Enterprises, Inc. and related
acquisition  expenses.  Such purchase price was allocated among tangible assets,
intangible  assets,  and goodwill as follows:  $6.7 million for tangible assets,
$6.2 million for intangible  assets and $2.8 million for goodwill.  Exclusive of
acquisition  purchases,  investing activities are primarily  attributable to the
acquisition, installation and direct placement costs of bulk CO2 systems.

            CASH FLOWS FROM FINANCING ACTIVITIES. During fiscal 2005, cash flows
provided by financing activities was $49.5 million compared to $2.7 million used
in financing activities in 2004.

            During fiscal 2005,  concurrent with the acquisition of the bulk CO2
beverage carbonation business of Pain Enterprises,  Inc., the B Term Loan of our
Senior  Credit  Facility was  increased by $13.0  million from $10.0  million to
$23.0 million.  In addition,  on March 30, 2005, we sold 2,041,713 shares of our
common stock in an underwritten  public  offering.  Based on the public offering
price of  $24.17  per  share  and after  deducting  underwriting  discounts  and
commissions, net proceeds were approximately $46.6 million.

            During fiscal 2004, we refinanced our debt, as previously discussed,
receiving proceeds of $73.2 million, paying fees associated with the refinancing
of  $2.7  million,  while  simultaneously  paying  off  our  previous  financing
facilities.

                                       31



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.

RECENT ACCOUNTING PRONOUNCEMENTS

            On  July  1,  2003,  we  adopted  EITF  Issue  No.  00-21,  "REVENUE
ARRANGEMENTS WITH MULTIPLE  DELIVERABLES"  ("EITF 00-21").  EITF 00-21 addresses
certain aspects of the accounting by a vendor for  arrangements  under which the
vendor will perform  multiple  revenue  generating  activities.  As of March 31,
2005,  approximately  63,000 of our customer locations utilized a plan agreement
that provides for a fixed monthly  payment to cover the use of a bulk CO2 system
and a predetermined  maximum quantity of CO2 ("budget  plan").  Prior to July 1,
2003,  as lessor,  we recognized  revenue under our budget plan  agreements on a
straight-line  basis over the life of the related  leases.  We have  developed a
methodology  for the purpose of separating the aggregate  revenue stream between
the rental of the  equipment  and the sale of the CO2.  Effective  July 1, 2003,
revenue attributable to the lease of equipment, including equipment leased under
the budget plan, is recorded on a straight-line basis over the term of the lease
and revenue  attributable  to the supply of CO2 and other gases,  including  CO2
provided under the budget plan, is recorded upon delivery to the customer.

            We have elected to apply EITF 00-21 retroactively to all budget plan
agreements in existence as of July 1, 2003. Based on our analysis, the aggregate
amount of CO2 actually  delivered  under  budget plans during the quarter  ended
June 30, 2003 was not materially different than the corresponding portion of the
fixed charges attributable to CO2. Accordingly, we believe the cumulative effect
of the adoption of EITF 00-21 as of July 1, 2003 was not significant.

            Under the budget plan,  each  customer  has a maximum CO2  allowance
that is measured and reset on the contract anniversary date. At that date, it is
appropriate to record revenue for actual deliveries of CO2 in excess of contract
billings. Because of the large number of customers under the budget plan and the
fact that the anniversary  dates for determining  maximum  quantities are spread
throughout  the  year,  our  methodology  involves  the  use  of  estimates  and
assumptions  to separate the aggregate  revenue  stream  derived from  equipment
rentals to budget plan  customers,  and also to approximate  the  recognition of
revenue from CO2 sales to budget plan customers  upon delivery.  We believe that
the adoption of EITF 00-21 has the most impact on the  recognition of revenue on
a quarterly basis as CO2 usage fluctuates  during a fiscal year based on factors
such as weather, and traditional summer and holiday periods. Over a twelve-month
period, we believe that the effect is less significant since seasonal variations
are largely  eliminated  and CO2  allowances  under budget plan  agreements  are
measured and reset annually.

            In December 2003, the Financial  Accounting Standards Board ("FASB")
revised  FASB  Interpretation  No.  46,   "CONSOLIDATION  OF  VARIABLE  INTEREST
ENTITIES."  Application of FASB Interpretation No. 46 is required in a company's
financial  statements  for  interests  in variable  interest  entities  that are
considered special-purpose entities for reporting periods ending after March 15,
2004. FASB Interpretation No. 46 did not affect our financial position,  results
of operations, or cash flows.

                                       32


            In  December  2003,  the  FASB  revised  SFAS  No.  132,   "EMPLOYER
DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS" (SFAS 132-R). SFAS
132-R requires additional  disclosures regarding the assets,  obligations,  cash
flows,  and net periodic benefit cost of defined benefit plans and other defined
benefit  postretirement  plans.  SFAS 132-R  requires that this  information  be
provided  separately for pension plans and other  postretirement  benefit plans.
The adoption of the revised SFAS No. 132-R,  effective  January 1, 2004, did not
affect our financial position, results of operations, or cash flows.

            In December  2004,  the FASB revised SFAS No. 123,  "ACCOUNTING  FOR
STOCK-BASED  COMPENSATION" ("SFAS 123-R"). SFAS 123-R supersedes APB Opinion No.
25,  "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES," and its related  implementation
guidance.  SFAS 123-R requires all share-based payments to employees,  including
grants  of  employee  stock  options,  to be  recognized  in  the  statement  of
operations based on their fair value and vesting schedule.  However,  SFAS 123-R
does not change the accounting  guidance for  share-based  payment  transactions
with parties other than employees  provided in SFAS 123 as originally issued and
EITF Issue No.  96-18,  "ACCOUNTING  FOR EQUITY  INSTRUMENTS  THAT ARE ISSUED TO
OTHER THAN EMPLOYEES FOR ACQUIRING,  OR IN  CONJUNCTION  WITH SELLING,  GOODS OR
SERVICES." We will adopt SFAS 123-R effective with the fiscal quarter  beginning
July 1, 2005, at which time, pro forma disclosure of net income and earnings per
share as provided in Note 7, will no longer be an  alternative to recognition in
our statement of operations.

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, 2005, a total of $37.8 million was outstanding  under the
Senior Credit Facility with a weighted  average interest rate of 6.6% per annum.
Based upon the $37.8 million  outstanding  under the Senior  Credit  Facility at
March 31, 2005, our annual  interest cost under the Senior Credit Facility would
increase by $0.4 million for each 1% increase in Eurodollar interest rates.

            In order to reduce our exposure to increases in Eurodollar  interest
rates, and consequently to increases in interest  payments,  on October 2, 2003,
we entered into an interest rate swap  transaction (the "Swap") in the amount of
$20.0 million (the "Notional  Amount") with an effective date of March 15, 2004.
Pursuant  to the  Swap,  we pay a fixed  interest  rate of 2.12%  per  annum and
receive  a  Eurodollar-based  floating  rate.  The  effect  of  the  Swap  is to
neutralize any changes in Eurodollar rates on the Notional Amount. We do not, on
a routine basis,  enter into  speculative  derivative  transactions or leveraged
swap  transactions,  except as disclosed.  As the Swap was not  effective  until
March 15, 2004 and no cash flows were exchanged prior to that date, the Swap did
not meet the  requirements  to be designated  as a cash flow hedge.  As such, an
unrealized  loss of $177,000 was recognized in our results of operations for the
fiscal year ended June 30, 2004, reflecting the change in fair value of the Swap
from  inception to the effective  date.  As of March 15, 2004,  the Swap met the
requirements  to be  designated  as a cash  flow  hedge  and is  deemed a highly
effective transaction. Accordingly, we recorded $264,000 representing the change
in fair value of the Swap from March 15, 2004 through  June 30,  2004,  as other
comprehensive income. The fair value of the Swap increased by $28,000 during the
first nine months of fiscal 2005 to $115,000.

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 was no
 change in our internal control over financial reporting during our third fiscal
 quarter that has  materially  affected,  or is reasonably  likely to materially
 affect, our internal control over financial reporting.

PART II.    OTHER INFORMATION.

ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

            On March 14, 2005, RBS Equity Corporation, the holder of warrants to
purchase 100,000 shares of our common stock,  pursuant to the cashless  exercise
provision  contained in the warrants,  exercised such warrants in their entirety
for 62,020 shares of our common stock without  registration under the Securities
Act of 1933, as amended  ("Securities Act"), in reliance upon the exemption from
registration  provided by Section 4(2) of the Securities Act. In connection with
the cashless  exercise,  warrants to purchase  37,980 shares of our common stock
were cancelled.

            On March 23, 2005,  The BOC Group,  Inc.,  the holder of warrants to
purchase 400,000 shares of our common stock,  pursuant to the cashless  exercise
provision  contained in the  warrants,  exercised  one-half of such warrants for
59,329 shares of our common stock without registration under the Securities Act,
in reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act. In connection with the cashless  exercise,  warrants to purchase
140,671 shares of our common stock were cancelled.

                                       33



ITEM 6.     EXHIBITS.

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

            31.1        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.

                                       34






                                   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 10, 2005                        By: /s/ Robert R. Galvin
                                                --------------------------------
                                                Robert R. Galvin
                                                Chief Financial Officer`