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 December 31, 1998

                                       OR

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


 For the transition period from _____________________ to ______________________

                         Commission file number 0-27378

                                   NuCo2 Inc.
             (Exact Name of Registrant as Specified in Its Charter)


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


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

Registrant's Telephone Number, Including Area Code:    (561) 221-1754


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

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

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

           Class                               Outstanding at December 31, 1998
Common Stock, $.001 par value                        7,216,664 shares
<PAGE>

                                   NuCo2 Inc.

                                  Index                                    Page

PART I.      FINANCIAL INFORMATION

ITEM 1.      CONSOLIDATED FINANCIAL STATEMENTS

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

             Consolidated Statements of Operations for the Three Months      
                Ended December 31, 1998 and December 31, 1997                4

             Consolidated Statements of Operations for the Six Months
                Ended December 31, 1998 and December 31, 1997                5

             Consolidated Statement  of Shareholders' Equity for the Six
                Months Ended December 31, 1998                               6

             Consolidated Statements of Cash Flows for the Six Months
                Ended December 31, and December 31, 1997                     7

             Notes to Consolidated Financial Statements                      8

ITEM 2.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF
             FINANCIAL CONDITION AND RESULTS OF
             OPERATIONS                                                     11

ITEM 3.      QUANTITATIVE AND QUALITATIVE DISCLOSURES
             ABOUT MARKET RISK                                              16

PART II.     OTHER INFORMATION

ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF
             SECURITY HOLDERS                                               16

ITEM 6.      EXHIBITS AND REPORTS ON FORM 8-K                               16

             SIGNATURES                                                     17

                                       2
<PAGE>

PART I.           FINANCIAL INFORMATION

ITEM 1.           CONSOLIDATED FINANCIAL STATEMENTS

                                   NuCo2 Inc.

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS
                                     ------
<TABLE>
<CAPTION>


                                                                   December 31, 1998           June 30, 1998
                                                                   -----------------           -------------
                                                                      (unaudited)

Current assets:
<S>                                                                 <C>                        <C>         
  Cash and cash equivalents                                         $     170,935              $    336,510
  Trade accounts receivable; net of allowance for doubtful
    accounts of $758,860 and $395,491, respectively                     6,628,266                 4,457,505
  Inventories                                                             223,777                   211,027
  Prepaid expenses and other current assets                             1,040,181                   262,437
                                                                    -------------              ------------
       Total current assets                                             8,063,159                 5,267,479
                                                                    -------------              ------------

Property and equipment, net                                            94,074,153                85,435,933
                                                                    -------------              ------------

Other assets:
  Goodwill, net                                                        22,277,687                22,891,846
  Deferred charges, net                                                 1,881,752                 2,004,259
  Customer lists, net                                                   3,400,329                 3,963,588
  Restrictive covenants, net                                            2,113,828                 2,275,964
  Deferred lease acquisition costs, net                                 2,898,585                 2,475,139
  Deposits                                                                234,672                   184,059
                                                                    -------------              ------------
                                                                       32,806,853                33,794,855
                                                                    -------------              ------------

                                                                    $ 134,944,165              $124,498,267
                                                                    =============              ============
                      LIABILITIES AND SHAREHOLDERS' EQUITY
                      ------------------------------------
Current liabilities:
  Current maturities of long-term debt                              $     141,652              $    139,251
  Accounts payable                                                      9,988,979                 6,596,722
  Accrued expenses                                                        488,945                   323,254
  Accrued interest                                                        954,675                   844,153
  Accrued payroll                                                         277,816                   476,458
  Other current liabilities                                                33,366                     7,179
                                                                    -------------              ------------
    Total current liabilities                                          11,885,433                 8,387,017

Long-term debt, excluding current maturities                           39,890,812                29,460,614
Subordinated debt                                                      29,750,000                29,728,571
Customer deposits                                                       1,705,063                 1,279,178
                                                                    -------------              ------------
   Total liabilities                                                   83,231,308                68,855,380
                                                                    -------------              ------------
Commitments and contingencies

Shareholders' equity:
  Preferred Stock; no par value; 5,000,000 shares authorized;
    none issued                                                                 -                         -
  Common stock; par value $.001 per share; 30,000,000 authorized;
    issued and outstanding 7,216,664 shares at each date                    7,217                     7,217
  Additional paid-in capital                                           63,809,014                63,809,014
  Accumulated deficit                                                 (12,103,374)               (8,173,344)
                                                                    -------------              ------------
      Total shareholders' equity                                       51,712,857                55,642,887
                                                                    -------------              ------------
                                                                    $ 134,944,165              $124,498,267
                                                                    =============              ============
</TABLE>

                                       3
<PAGE>

                                   NuCo2 Inc.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                              Three Months Ended
                                                              ------------------
                                                     December 31, 1998          December 31, 1997
                                                     -----------------          -----------------

<S>                                                    <C>                        <C>        
Net Sales                                              $ 11,251,659               $ 8,077,798

Costs and expenses:
  Cost of products sold                                   6,070,491                 4,309,627
  Selling, general and administrative expenses            2,452,679                 2,399,037
  Depreciation and amortization                           3,095,290                 2,051,101
                                                       ------------               -----------
                                                         11,618,460                 8,759,765
                                                       ------------               -----------
  Operating  (loss)                                        (366,801)                 (681,967)

  Interest expense, net                                   1,822,138                   806,721
                                                       ------------               -----------
  Net (loss) before extraordinary item                   (2,188,939)               (1,488,688)
                                                       ------------               -----------
Extraordinary item - loss on extinguishment of debt               -                   184,861
                                                       ------------               -----------
  Net (loss)                                           $ (2,188,939)              $(1,673,549)
                                                       ============               ===========
Basic and Diluted EPS:

  Income (loss) before extraordinary item              $       (.30)              $      (.20)
                                                       ------------               -----------
  Extraordinary item                                              -                      (.03)
                                                       ------------               -----------
  Net (loss)                                           $       (.30)              $      (.23)
                                                       ============               ===========
  Weighted average number of common and common
    equivalent shares outstanding

    Basic and Diluted                                     7,216,664                 7,210,616
                                                       ============               ===========

</TABLE>

                                       4
<PAGE>

                                   NuCo2 Inc.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)

<TABLE>
<CAPTION>

                                                               Six Months Ended
                                                               ----------------
                                                     December 31, 1998          December 31, 1997
                                                     -----------------          -----------------

<S>                                                  <C>                         <C>         
Net Sales                                            $ 22,115,152                $ 15,192,088

Costs and expenses:
  Cost of products sold                                11,822,581                   7,892,494
  Selling, general and administrative expenses          4,898,471                   4,399,360
  Depreciation and amortization                         5,941,009                   3,683,998
                                                     ------------                ------------
                                                       22,662,061                  15,975,852
                                                     ------------                ------------

  Operating  (loss)                                      (546,909)                   (783,764)

  Interest expense, net                                 3,383,121                   1,015,834
                                                     ------------                ------------

  Net (loss) before extraordinary item                 (3,930,030)                 (1,799,598)
                                                     ------------                ------------

Extraordinary item - loss on extinguishment of debt             -                     184,861
                                                     ------------                ------------

  Net (loss)                                         $ (3,930,030)               $ (1,984,459)
                                                     ============                ============

Basic and Diluted EPS:

  Net (loss) before extraordinary item               $       (.54)               $       (.25)
                                                     ------------                ------------

  Extraordinary item                                            -                        (.03)
                                                     ------------                ------------

  Net (loss)                                         $       (.54)               $       (.28)
                                                     ============                ============

  Weighted average number of common and common
     equivalent shares outstanding

     Basic and Diluted                                  7,216,664                   7,204,167
                                                     ============                ============

</TABLE>

                                      5

<PAGE>

                                   NuCo2 Inc.

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                  (UNAUDITED)

<TABLE>
<CAPTION>


                                 Common Stock        Additional                           Total
                                 ------------         Paid-in        Accumulated       Shareholders'
                               Shares     Amount      Capital          Deficit           Equity
                               ------     ------      -------          -------           ------


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

Net (loss)                            -         -               -      (3,930,030)       (3,930,030)
                              ---------   -------     -----------     -----------       -----------

Balance, December 31, 1998    7,216,664   $ 7,217     $63,809,014    $(12,103,374)      $51,712,857
                              =========   =======     ===========     ===========       ===========
</TABLE>


                                       6
<PAGE>

                                   NuCo2 Inc.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)

<TABLE>
<CAPTION>

                                                                       Six Months Ended
                                                                       ----------------
                                                             December 31, 1998          December 31, 1997
                                                             -----------------          -----------------

<S>                                                           <C>                        <C>          
Net (loss) before extraordinary item                          $  (3,930,030)             $ (1,799,598)
Extraordinary item - loss on extinguishment of debt                       -                   184,861
                                                              -------------              ------------
Net (loss)                                                       (3,930,030)               (1,984,459)

Cash flows from operating activities:
  Adjustments to reconcile  net (loss) to net cash
    provided by operating activities:
      Depreciation and amortization of property and equipment     4,097,039                 2,550,038
      Amortization of other assets                                1,865,399                 1,133,960
      Loss on disposal of property and equipment                    343,037                   238,659
      Write-off of deferred financing costs                               -                   184,861
      Changes in operating assets and liabilities:
      Decrease (increase) in:
         Trade accounts receivable                               (2,170,761)               (1,364,506)
         Inventories                                                (12,750)                 (103,012)
         Prepaid expenses and other current assets                 (777,744)                 (518,601)
      Increase (decrease) in:
         Accounts payable                                         3,392,257                 3,631,849
         Accrued expenses                                           165,691                    49,303
         Accrued payroll                                           (198,643)                  311,731
         Accrued interest                                           110,523                   623,024
         Other current liabilities                                   26,187                     9,696
         Customer deposits                                          425,887                   340,398
                                                              -------------              ------------

         Net cash provided by operating activities                3,336,092                 5,102,941
                                                             --------------             -------------
Cash flows from investing activities:
  Proceeds from disposal of property and equipment                   65,880                    75,714
  Purchase of property and equipment                            (13,086,381)                9,626,455)
  Acquisition of businesses                                          30,500               (12,132,122)
  (Increase) in deposits                                            (50,613)                  (62,275)
  Increase in deferred lease acquisition costs                     (840,799)                 (789,336)
                                                              -------------              ------------
        Net cash (used in) investing activities                 (13,881,413)              (22,534,474)
                                                              -------------              ------------

Cash flows from financing activities:
  Repayment of long-term debt                                       (67,402)                  757,964)
  Proceeds from issuance of long-term debt and subordinated debt 10,500,000                 9,689,190
  Increase in deferred charges                                      (52,852)               (2,081,302)
                                                              -------------              ------------
    Net cash provided by financing activities                    10,379,746                 6,849,924
                                                              -------------              ------------

Net increase (decrease) in cash and cash equivalents               (165,575)              (10,581,609)
Cash and cash equivalents at the beginning of period                336,510                11,672,506
                                                              -------------              ------------
Cash and cash equivalents at the end of period                  $   170,935              $  1,090,897
                                                              =============              ============

Supplemental disclosure of cash flow information:
  Cash paid during the period for:
    Interest                                                    $ 3,283,464              $    408,926
                                                              =============              ============
    Income taxes                                                $         0              $          0
                                                              =============              ============

Supplemental schedule of noncash investing and
  financing activities:
  Acquisition of businesses:
    Fair value of assets acquired                               $         -               $19,759,698
    Cost in excess of net assets of businesses acquired                   -                12,136,387
    Liabilities assumed or incurred                                       -               (19,729,345)
    Issuance of common stock                                              -                  (274,991)
                                                              -------------              ------------
        Cash paid                                               $         -               $11,891,749
                                                              =============              ============

</TABLE>

                                       7
<PAGE>

                                   NuCo2 Inc.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

Note 1.  BASIS OF PRESENTATION

         The accompanying  unaudited consolidated financial statements have been
prepared in  accordance  with the  instructions  to Form 10-Q used for quarterly
reports under Section 13 or 15 (d) of the  Securities  Exchange Act of 1934, and
therefore,  do not include all  information  and footnotes  necessary for a fair
presentation of consolidated financial position,  results of operations and cash
flows  in  conformity  with  generally  accepted  accounting   principles.   The
accompanying unaudited consolidated financial statements include the accounts of
NuCo2 Inc. (the "Company") and its wholly-owned  subsidiary,  NuCo2  Acquisition
Corp.  which was formed during the year ended June 30, 1998 to acquire the stock
of Koch  Compressed  Gases,  Inc. in October  1997.  All  material  intercompany
accounts and transactions have been eliminated.

         The financial  information included in this report has been prepared in
conformity  with  the  accounting  principles  and  methods  of  applying  those
accounting  principles,  reflected in the consolidated  financial statements for
the  fiscal  year  ended  June 30,  1998  included  in Form 10-K  filed with the
Securities and Exchange Commission.

         All  adjustments  necessary for a fair statement of the results for the
interim periods presented have been recorded. This quarterly report on Form 10-Q
should be read in conjunction with the Company's  audited  financial  statements
for the fiscal year ended June 30, 1998. The consolidated  results of operations
for the periods  presented are not  necessarily  indicative of the results to be
expected for the full fiscal year.

Note 2.  NET LOSS PER COMMON SHARE

         In February 1997, the FASB issued Statement 128,  "Earnings Per Share".
Statement 128 supersedes APB Opinion No. 15,  "Earnings Per Share" and specifies
the computation, presentation and disclosure requirements for earnings per share
("EPS") for entities with publicly held Common Stock or potential  Common Stock.
It replaces the  presentation of primary EPS with the  presentation of basic EPS
and  replaces  fully  diluted  EPS  with  diluted  EPS.  It also  requires  dual
presentation of basic and diluted EPS on the face of the statement of operations
for all entities with complex capital  structures and requires a  reconciliation
of the numerator and  denominator of the basic EPS  computation to the numerator
and denominator of the diluted EPS  computation.  Statement 128 is effective for
financial  statements  for both interim and annual periods ending after December
15, 1997.

         Earnings  per share of Common  Stock for the three and six months ended
December 31, 1998 and 1997 have been  calculated  according to the guidelines of
Statement 128.

         Incremental shares for stock options and warrants  calculated  pursuant
to the treasury  stock  method for the three and six months  ended  December 31,
1998 were 31,517 and 27,269,  respectively.  These  shares were not  included in
diluted  EPS  because  they  would  have  been  antidilutive  for such  periods.
Additionally,  options and warrants to purchase 1,073,715 shares, 872,333 shares
and 443,166 shares for $14.64 - $17.00 per share,  $11.25 - $12.50 per share and
$7.00 - $11.00 per share, respectively, were outstanding during all or a portion
of the three and six months ended December 31, 1998 but were not included in the
computation  of diluted  EPS  because  the  exercise  price of the  options  and
warrants was greater than the average market price of the Common Stock.

         Incremental shares for stock options and warrants  calculated  pursuant
to the treasury  stock  method for the three and six months  ended  December 31,
1997 were 128,115 and 153,090,  respectively.  These shares were not included in
diluted  EPS  because  they  would  have  been  antidilutive  for such  periods.
Additionally,  options and warrants to purchase 1,000,000 shares, 655,738 shares
(see Note 5) and 30,000  shares  (see Note 5) for  $17.00 per share,  $16.40 per
share and $14.64  per  share,  respectively,  were  outstanding  during all or a
portion  of the  three  and six  months  ended  December  31,  1997 but were not
included in the  computation  of diluted EPS because the  exercise  price of the
options and warrants was greater than the average market price of Common Stock.

                                       8
<PAGE>
 Note 3. ACQUISITIONS

         Effective July 15, 1997, the Company purchased substantially all of the
assets of a bulk CO2  company  operating  in  Colorado  for a purchase  price of
$675,000.  The purchase price was funded through a borrowing under the Company's
credit facility.

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

         In September 1997, the Company  purchased  certain assets of a bulk CO2
company  with  operations  in  Arizona  for  an  aggregate   purchase  price  of
$1,084,250.  The Company funded $1,075,000  through a borrowing under its credit
facility and paid cash for the balance.

         Effective  October 1, 1997, a newly formed  wholly-owned  subsidiary of
the Company  purchased all of the issued and outstanding  shares of common stock
of Koch Compressed Gases, Inc., ("Koch") for an aggregate purchase price of $5.0
million.  Koch operated a bulk CO2 business as well as provided  carbon  dioxide
and other gases in high  pressure  cylinders  throughout  the tri-state New York
metropolitan  area. The purchase price was funded through a borrowing  under the
Company's credit facility.

         In November 1997, the Company purchased substantially all of the assets
of a bulk CO2 company  operating in Texas for a purchase price of $949,240.  The
Company paid  $674,249  cash and issued 18,835 shares of Common Stock at market,
for a value of $274,991.

         Effective  December 2, 1997, the Company  purchased certain assets from
four related carbonic gas distributors, Miller Carbonic Systems Co. Inc., Miller
Carbonic, Inc., Carbonic National Systems, Inc., and Carbonic Gas Service, Inc.,
operating  primarily  in  Illinois,  Indiana,  Wisconsin  and  Michigan  for  an
aggregate  purchase  price  of  $11,150,000.   The  Company  paid  approximately
$4,650,000  cash and funded  $6,500,000  through a borrowing under the Company's
credit facility.

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

         These  acquisitions  were  accounted  for by  the  purchase  method  of
accounting  and,  accordingly,  the  purchase  prices  and  direct  costs of the
acquisitions have been allocated to the respective assets and liabilities of the
acquired companies based upon their estimated fair market values at the dates of
acquisition.  This resulted in goodwill of approximately $12,640,000 for the six
months  ended  December 31, 1997,  which is being  amortized on a  straight-line
basis over twenty years. The results of operations of the acquired companies are
included in the Company's financial  statements since the effective dates of the
acquisitions.

Note 4.  LONG-TERM DEBT

         The Company has a $50.0 million  syndicated  bank  facility  ("SunTrust
Facility") lead managed by SunTrust Bank,  South Florida,  National  Association
("SunTrust").  Pursuant to the SunTrust Facility,  upon the achievement of $15.0
million annualized one quarter EBITDA pro-formaed for acquisitions,  the Company
shall  automatically  request  that the  SunTrust  Facility be  increased  by an
additional  $50.0 million to a total of $100.0  million.  The SunTrust  Facility
contains  interest  rates and an  unused  facility  fee based on a pricing  grid
calculated quarterly on senior funded debt to annualized EBITDA.

         The  Company  is  entitled  to  select  the Base  Rate or  LIBOR,  plus
applicable margin, for principal drawings under the SunTrust Facility. Base Rate
is defined as the higher of the prime  lending  rate of  SunTrust or the Federal
Funds rate plus one-half of one percent (1/2%) per annum.  The applicable  LIBOR
margin  pursuant to the pricing grid ranges from 1.25% to 2.75%,  the applicable
unused  facility  fee  pursuant to the pricing grid ranges from 0.1875% to 0.50%
and the  applicable  Base Rate margin  pursuant to the pricing  grid ranges from
0.00% to 0.50%.  Interest only is payable  periodically  until the expiration of
the SunTrust  Facility at which time all  outstanding  principal and interest is
due. The SunTrust Facility expires on October 31, 2000;  however,  it contains a
two year renewal option subject to approval.  Additionally, it is collateralized
by substantially all of the assets of the Company. The Company is precluded from
declaring or paying any  dividends  and is required to meet certain  affirmative
and negative covenants including, but not limited to financial covenants.


                                       9
<PAGE>
         A total of $39.5  million  was  outstanding  pursuant  to the  SunTrust
Facility with interest from 7.84% to 8.57% per annum as of December 31, 1998.

Note 5.  SUBORDINATED DEBT

         Represents  unsecured  Senior  Subordinated  Promissory Notes ("Notes")
with  interest  only at 12% per  annum  payable  semi-annually  on  April 30 and
October 31, due October 31, 2004. The Notes were sold with detachable seven year
warrants  to  purchase  an  aggregate  of 655,738  shares of Common  Stock at an
exercise price of $16.40 per share. In July 1998, the Note agreement was amended
to adjust certain financial covenants as of June 30, 1998 and prospectively.  In
exchange for the amendment,  the exercise price for 612,023 warrants was reduced
to $12.40 per share. Additionally,  NationsBanc Montgomery Securities, Inc., the
placement agent, received a warrant to purchase an aggregate of 30,000 shares of
Common Stock at an exercise  price of $14.64 per share which  expires on October
31, 2004.

Note 6.  STOCK OPTION PLAN

         In 1995,  the  Company  adopted  the 1995 Stock  Option Plan (the "1995
Plan").  Under the 1995 Plan, the Company has reserved  850,000 shares of Common
Stock for  employees of the Company.  Under the terms of the 1995 Plan,  options
granted may be either  incentive stock options or  non-qualified  stock options.
The exercise price of incentive stock options shall be at least equal to 100% of
the fair  market  value of the Common  Stock at the date of the  grant,  and the
exercise  price of  non-qualified  stock options may not be less than 75% of the
fair market value of the Common Stock at the date of the grant. The maximum term
for all options is 10 years.  Options granted to date vest in two, three or four
installments  commencing  one year from the date of grant.  As of  December  31,
1998, options for 307,360 shares were exercisable.

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

<TABLE>
<CAPTION>
                                                                                     Weighted-Average
                                                      Shares       Exercise Price     Exercise Price
                                                      ------       --------------     --------------

<S>                                                  <C>              <C>                 <C>   
         Outstanding at June 30, 1997                346,604          $9-$17.50           $12.28
         Granted                                     341,500       $10.25-$11.28          $10.43
         Expired or canceled                          77,067           $9-$17.50          $17.29
         Exercised                                       111                  $9              $9
                                                     -------       -------------          ------
         Outstanding at June 30, 1998                610,926           $9-$11.28          $10.61
         Granted                                      74,500         $5.50-$7.00           $6.20
         Expired or canceled                           2,950           $9-$11.25          $10.68
         Exercised                                       -0-                 -0-             -0-
                                                     -------       -------------          ------
         Outstanding at December 31, 1998            682,476        $5.50-$11.28          $10.13
                                                     -------       -------------          ------
</TABLE>

         In 1995,  the Company  adopted the  Directors'  Stock  Option Plan (the
"Directors'  Plan").  Under the Directors' Plan, the Company has reserved 60,000
shares of Common Stock. Under the terms of the Directors' Plan each non-employee
director  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 at the date of grant.  All options vest in
three equal annual  installments  beginning on the first anniversary of the date
of grant. As of December 31, 1998,  options to purchase a total of 14,000 shares
of Common Stock at an exercise price of $9.00 per share, a total of 6,000 shares
of Common  Stock at an  exercise  price of $12.50  per  share,  a total of 6,000
shares of Common  Stock at an exercise  price of $8.938 per share and a total of
6,000 shares of Common  Stock at an exercise  price of $6.625 per share had been
issued.  Of these  options,  as of December 31, 1998 options to purchase  14,000
shares of Common Stock at an exercise price of $9.00 per share were exercisable.

Note 7.  OPERATING LEASES

         The Company entered into fifty-one  operating  leases from July 1, 1998
through  December 31,  1998.  Three leases were for  warehouse  facilities  with
aggregate  annual  rentals of  approximately  $79,100  expiring at various dates
through 2003.  Forty-eight  leases were for trucks with aggregate annual rentals
of approximately $487,000 expiring at various dates through 2005.
                                       10

<PAGE>

ITEM 2.

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

         THIS  MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND
RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES.  THE COMPANY'S ACTUAL RESULTS COULD DIFFER  MATERIALLY FROM THOSE
ANTICIPATED  IN THESE  FORWARD-LOOKING  STATEMENTS.  FACTORS THAT MAY CAUSE SUCH
DIFFERENCES  INCLUDE,  BUT ARE NOT LIMITED TO, THE COMPANY'S  EXPANSION INTO NEW
MARKETS, COMPETITION,  TECHNOLOGICAL ADVANCES, YEAR 2000 ISSUES AND AVAILABILITY
OF MANAGERIAL PERSONNEL.

OVERVIEW

         The  Company is the  largest as well as the sole  national  supplier of
bulk CO2 systems and bulk CO2 for carbonating and dispensing fountain beverages.
At December 31,  1998,  the Company  operated 78 service  locations in 44 states
servicing  over 60,000 bulk and high  pressure CO2 fountain  beverage  customers
consisting primarily of restaurants,  convenience stores,  taverns, theme parks,
resorts and stadiums.  Over 96% of potential  fountain beverage CO2 users in the
Continental United States are located within the Company's current service area.

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

         The   Company   currently   services   approximately   55,000   of  the
approximately 110,000 fountain beverage bulk CO2 users in the Continental United
States.  The Company  estimates that there are  approximately  800,000  fountain
beverage CO2 users in the Continental United States, presenting the Company with
significant long-term growth potential.

         In fiscal 1998, the Company achieved its objective of becoming the sole
national  supplier of bulk CO2 systems and bulk CO2 to beverage  CO2 users.  The
Company's  objective in fiscal 1999 is to replicate  the business  model that it
has achieved in its more mature markets by building route density throughout the
country.  New depots operate at negative  EBITDA margins in the early stages and
detract from the Company's highly profitable depots in mature markets. Depots in
mature markets have gross margins generally in the 55% to 65% range. For the six
months ended December 31, 1998, 24% of the Company's depots were open over three
years and averaged a 57% gross  margin,  27% of depots were open between two and
three years and averaged a 47% gross margin, 29% of depots were open between one
and two years and averaged a 37% gross margin, and 20% of depots were open under
one year and averaged a 15% gross margin. New accounts are primarily being added
to newer depots for which there is substantial  excess capacity,  and therefore,
relatively  little  additional  cost  is  incurred  to  service  new  customers.
Increases in gross  margins are  directly  related to increases in the number of
accounts serviced. New multi-unit placement agreements combined with single-unit
placements  will help the Company in  achieving  route  density.  During the six
months  ended  December  31,  1998,  the Company  reached  multi-unit  placement
agreements with national and regional  chains  aggregating  approximately  6,100
locations. The Company's success in reaching these multi-placement agreements is
due  in  part  to the  Company's  national  delivery  system.  As the  Company's
installation rate for new customers  accelerates,  the Company  anticipates that
its  financial  performance  on a  sequential  basis  will  also  improve  at an
accelerated rate.

GENERAL

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

         Cost of products sold is comprised of purchased CO2 and labor,  vehicle
and depot costs  associated with the Company's  delivery and storage of bulk CO2
to customers.  Selling, general and administrative expenses consist of salaries,
dispatch and  communications  costs,  and expenses  associated  with  marketing,
administration,  accounting and employee  training.  Consistent with the capital
intensive character of its business, the Company incurs significant depreciation
and  amortization  expenses.  These stem from the  depreciation of Company owned
bulk CO2 systems;  depreciation and amortization of bulk CO2 system installation
costs; amortization of sales commissions, and amortization of goodwill, deferred
financing costs and other intangible assets.

                                       11
<PAGE>
         With respect to bulk CO2 systems,  the Company only  capitalizes  costs
that are  associated  with specific  successful  placements of such systems with
customers under  noncancelable  contracts and which would not be incurred by the
Company  but for a  successful  placement.  All  other  service,  marketing  and
administrative costs are expensed as incurred.

         The  Company  believes  EBITDA is useful  as a means of  measuring  the
growth and earning power of its  business.  In addition,  the SunTrust  Facility
utilizes EBITDA for its formal calculation of financial leverage,  affecting the
amount of funds  available  and rates to the  Company for  borrowing  under such
credit  facility.  EBITDA  represents  operating  income plus  depreciation  and
amortization.  Information  regarding EBITDA is presented  because of its use by
certain  investors as one measure of a  corporation's  ability to generate  cash
flow.  EBITDA  should not be considered an  alternative  to, or more  meaningful
than,  operating income or cash flows from operating  activities as an indicator
of a corporation's  operating performance.  EBITDA excludes significant costs of
doing business and should not be considered in isolation from GAAP measures.

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>

                                                             Three Months Ended               Six Months Ended
                                                                 December 31,                   December 31,
                                                                 ------------                   ------------

                                                               1998          1997          1998          1997
                                                               ----          ----          ----          ----
         Income Statement Data:

<S>                                                            <C>           <C>          <C>           <C>   
         Net sales                                             100.0%        100.0%       100.0%        100.0%
         Cost of products sold                                  54.0%         53.3%        53.5%         52.0%
         Selling, general and administrative expenses           21.8%         29.7%        22.1%         29.0%
         Depreciation and amortization                          27.5%         25.4%        26.9%         24.2%
                                                                -----         -----        -----         -----
         Operating (loss)                                       (3.3%)        (8.4%)       (2.5%)        (5.2%)
                                                                -----         -----        -----         -----
         Interest expense, net                                  16.2%         10.0%        15.3%          6.7%
         Extraordinary item - loss on extinguishment of debt       -           2.3%            -          1.2%
                                                                -----         -----        -----         -----

         Net income (loss)                                     (19.5%)       (20.7%)      (17.8%)       (13.1%)
                                                                =====         =====        =====         =====

         Other Data:
         Operating income before depreciation and amortization
         (EBITDA)                                               24.2%         16.9%        24.4%         19.1%
                                                                =====         =====        =====         =====

</TABLE>


THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1997

         Net sales increased by $3.2 million, or 39.3%, from $8.1 million in the
1997 period to $11.3 million in the 1998 period.  Approximately  $2.3 million of
the increase  represented  net sales  resulting from 14  acquisitions  completed
during the fiscal year ended June 30, 1998. The remainder of the increase in net
sales was  primarily  due to internal  growth in the number of Company owned and
customer  owned bulk CO2 systems  serviced.  Increases in net sales due to price
increases were insignificant.

         Cost of products sold  increased by $1.8 million,  from $4.3 million in
the 1997 period to $6.1 million in the 1998 period and increased as a percentage
of net sales from 53.3% to 54.0%. The increase was attributable to the expansion
of the Company into new  territories.  Fully loaded route  drivers  increased by
$647,000 from $1.5 million in the 1997 period to $2.1 million in the 1998 period
and  increased  as a percentage  of net sales from 18.1% to 18.7%.  Fully loaded
truck expense increased by $331,000 from $664,000 in the 1997 period to $994,000
in the 1998 period and increased as a percentage of net sales from 8.2% to 8.8%.
Purchases of bulk CO2  increased by $483,000 from $984,000 in the 1997 period to
$1.5 million in the 1998 period and  increased as a percentage of net sales from
12.2% to 13.0%.  Depot expenses  increased by $128,000 from $410,000 in the 1997
period to $538,000 in the 1998 period and decreased as a percentage of net sales
from 5.1% to 4.8%.  The number of service  locations  operated by the Company at
December 31, 1998 increased to 78, compared to 53 at December 31, 1997. When the
Company opens new service  locations and expands into new markets,  higher costs
expressed  as a  percentage  of net sales are  incurred  until route  density is
achieved. At December 31, 1998, the Company serviced over 400 bulk CO2 customers
per delivery vehicle from 31% of its depots.

                                       12
<PAGE>

         Selling,  general and administrative expenses increased by $54,000 from
$2.4 million in the 1997 period to $2.5 million in the 1998 period and decreased
as a  percentage  of net sales from  29.7% to 21.8%.  The  dollar  increase  was
primarily  attributable to growth in the number of marketing and  administrative
personnel and their associated expenses. The percentage decrease is attributable
to economies of scale. This quarter  represented the fourth sequential  decrease
in selling, general and administrative expenses expressed as a percentage of net
sales.  At  December  31,  1997,  the Company  had  operations  in 39 states and
employed 117  marketing and  administrative  employees and at December 31, 1998,
the  Company  had  operations  in 44  states  and  employed  157  marketing  and
administrative employees.

          Depreciation  and  amortization  increased  by $1.0  million from $2.1
million in the 1997 period to $3.1 million in the 1998  period.  As a percentage
of net sales, such expenses  increased from 25.4% in the 1997 period to 27.5% in
the 1998 period. Depreciation expense increased by $772,000 from $1.4 million in
the 1997  period  to $2.2  million  in the 1998  period  principally  due to the
increase in bulk CO2 systems leased to customers. Expressed as percentage of net
sales,  depreciation expense increased from 17.2% in the 1997 period to 19.2% in
the 1998 period. Amortization expense increased by $273,000 from $663,000 in the
1997 period to $936,000 in the 1998  period  primarily  due to the  amortization
related to deferred charges, restrictive covenants, goodwill and customer lists.
As a percentage of net sales, amortization expense increased from 8.2% to 8.3%.

         Net interest increased by $1.0 million from $807,000 in the 1997 period
to $1.8 million in the 1998 period and  increased  as a percentage  of net sales
from 10.0% to 16.2%.  This increase was  attributable  to the decreased level of
cash  and  cash  equivalents  and the  increased  level  of  long-term  debt and
subordinated debt in the 1998 period as compared to the 1997 period.

         For the reasons described above, EBITDA,  representing operating income
plus  depreciation and amortization,  increased by $1.4 million,  or 99.3%, from
$1.4 million in the 1997 period to $2.7 million in the 1998 period and increased
as a  percentage  of net sales from 16.9% to 24.2%,  respectively.  The  Company
believes  EBITDA is useful as a means of measuring  the growth and earning power
of its  business.  In addition,  the Company uses EBITDA to measure how well the
Company is generating cash flow.  EBITDA excludes  significant  costs and should
not be considered in isolation from GAAP measures.

SIX MONTHS  ENDED  DECEMBER 31, 1998  COMPARED TO SIX MONTHS ENDED  DECEMBER 31,
1997

         Net sales  increased by $6.9 million,  or 45.6%,  from $15.2 million in
the 1997 period to $22.1 million in the 1998 period.  Approximately $4.4 million
of the increase  represented net sales resulting from 14 acquisitions  completed
during the fiscal year ended June 30, 1998. The remainder of the increase in net
sales was  primarily  due to internal  growth in the number of Company owned and
customer owned bulk CO2 systems in service.  Increases in net sales due to price
increases were insignificant.

         Cost of products sold  increased by $3.9 million,  from $7.9 million in
the 1997  period  to  $11.8  million  in the  1998  period  and  increased  as a
percentage of net sales from 52.0% to 53.5%.  The increase was  attributable  to
the  continued  expansion  of the  Company,  an increase in fully  loaded  route
drivers and an increase in high pressure  cylinder rental expense.  Fully loaded
route drivers  increased by $1.4 million from $2.7 million in the 1997 period to
$4.1 million in the 1998 period and  increased as a percentage of net sales from
17.7% to 18.6%. As of December 31, 1997, the Company  employed 176 route drivers
and at December 31, 1998, the Company employed 255 route drivers.  High pressure
cylinder rent expense  increased by $157,000 from $148,000 in the 1997 period to
$305,000 in the 1998 period and increased as a percentage of net sales from 1.0%
in the 1997 period to 1.4% in the 1998  period.  The  increase in high  pressure
cylinder rent was attributable to the acquisitions  during the 1997 period.  The
number of service  locations  operated  by the  Company at  December  31,  1998,
increased to 78, compared to 53 at December 31, 1997. When the Company opens new
service  locations  and expands  into new markets,  higher costs  expressed as a
percentage  of net sales are  incurred  until  route  density  is  achieved.  At
December 31, 1998, the Company serviced over 400 bulk CO2 customers per delivery
vehicle from 31% of its depots.

         Selling, general and administrative expenses increased by $499,000 from
$4.4 million in the 1997 period to $4.9 million in the 1998 period and decreased
as a  percentage  of net sales from  29.0% to 22.1%.  The  dollar  increase  was
primarily  attributable to growth in the number of marketing and  administrative
employees and their associated expenses. The percentage decrease is attributable
to economies of scale.  At December 31, 1997,  the Company had  operations in 39
states and employed 117 marketing and  administrative  employees and at December
31, 1998, the Company had operations in 44 states and employed 157 marketing and
administrative employees.


                                      -13-

<PAGE>
          Depreciation  and  amortization  increased  by $2.3  million from $3.7
million in the 1997 period to $5.9 million in the 1998  period.  As a percentage
of net sales, such expenses  increased from 24.2% in the 1997 period to 26.9% in
the 1998  period.  Depreciation  expense  increased  by $1.5  million  from $2.6
million in the 1997 period to $4.1 million in the 1998 period principally due to
the increase in bulk CO2 systems leased to customers.  Expressed as a percentage
of net sales,  depreciation  expense  increased from 16.8% in the 1997 period to
18.5% in the 1998 period.  Amortization  expense increased by $731,000 from $1.1
million in the 1997 period to $1.9 million in the 1998 period  primarily  due to
the amortization related to restrictive covenants,  goodwill and customer lists.
As a percentage of net sales, amortization expense increased from 7.5% to 8.4%.

         Net interest income in the 1997 period was $1.0 million compared to net
interest expense in the 1998 period of $3.4 million. This change is attributable
to the decreased  level of cash and cash  equivalents and the increased level of
long-term debt and subordinated  debt in the 1998 period as compared to the 1997
period.

         During the 1998  period,  the  Company  wrote-off  $185,000 of deferred
financing costs related to its NationsBank  Facility which was replaced by a new
syndicated bank group facility led by SunTrust Bank.

         For the reasons described above, EBITDA,  representing operating income
plus depreciation and amortization, increased by $2.5 million, or 86%, from $2.9
million in the 1997 period to $5.4 million in the 1998 period and increased as a
percentage of net sales from 19.1% to 24.4%, respectively.  The Company believes
EBITDA is useful as a means of  measuring  the growth and  earning  power of its
business.  In addition,  the Company uses EBITDA to measure how well the Company
is generating  cash flow.  EBITDA excludes  significant  costs and should not be
considered in isolation from GAAP measures.

LIQUIDITY AND CAPITAL RESOURCES

         The  Company's  cash  requirements   consist   principally  of  capital
expenditures  associated  with  placing  new bulk CO2  systems  into  service at
customers'  locations;  payments of interest  on its  outstanding  indebtedness;
payments for acquired businesses;  and working capital.  Whenever possible,  the
Company seeks to obtain the use of vehicles,  land, buildings,  and other office
and service  equipment under operating leases as a means of conserving  capital.
The Company anticipates making cash capital  expenditures of approximately $13.0
million  to $20.0  million  during  the  remaining  six  months of fiscal  1999,
primarily  for the  purchases  of bulk CO2 systems that it expects to place into
service  during this time.  Once bulk CO2 systems are placed into  service,  the
Company has generally experienced  significant positive cash flows on a per-unit
basis,  as there  are  minimal  additional  capital  expenditures  required  for
ordinary operations. In addition to the capital expenditures related to internal
growth,   the  Company  reviews   opportunities  to  acquire  bulk  CO2  service
businesses, and may require cash in an amount dictated by the scale and terms of
any such transactions successfully concluded.

         The  Company   maintains  a  $50.0  million  senior  secured  revolving
syndicated   credit  facility  with  SunTrust  Bank,  South  Florida,   National
Association (the "SunTrust Facility").  Pursuant to the SunTrust Facility,  upon
the achievement of $15.0 million  annualized one quarter EBITDA  pro-formaed for
acquisitions, the Company shall automatically request that the SunTrust Facility
be increased by an additional  $50.0  million to a total of $100.0  million (the
"Additional SunTrust Facility").  The SunTrust Facility contains interest and an
unused  facility  fee based on a pricing  grid  calculated  quarterly  on senior
funded debt to annualized  EBITDA.  The SunTrust Facility expires on October 31,
2000;  however,  it contains a two year renewal option.  It is collateralized by
substantially all of the assets of the Company.

         During the six months ended  December 31, 1998,  the Company's  capital
resources  included cash flows from operations and available  borrowing capacity
under the SunTrust Facility.

         As of December 31, 1998, a total of $39.5 million was outstanding under
the SunTrust  Facility  with interest at two hundred  seventy-five  basis points
above the applicable London InterBank Offering Rate ("LIBOR") (7.84% to 8.57% at
December 31, 1998).

         Although the Company has not achieved $15.0 million  annualized EDITDA,
the Company  has  requested  the  Additional  SunTrust  Facility.  The  SunTrust
Facility lenders have proposed,  subject to various conditions,  to increase the
SunTrust Facility by an additional $25.0 million.  The Company  anticipates that
the closing of the increase in the SunTrust  Facility will occur  simultaneously
with the sale by the Company of an additional $15.0 million  principal amount of
12% senior subordinated  promissory notes (the "Additional  Notes"). The Company
anticipates  that the closings  will occur prior to March 31, 1999.  The Company
has  received  an  indication  from one  holder  of its  outstnding  12%  Senior
Subordinated  Promissory  Notes due 2004 (the "12% Notes") that it is willing to
purchase the Additional Notes on substantially  the same terms and conditions as
the 12% Notes.

                                      -14-
<PAGE>

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

         Working  Capital.  At June 30, 1998 the Company  had  negative  working
capital of $3.1 million.  At December 31, 1998, the Company had negative working
capital of $3.8 million.

         Cash Flows from Operating Activities. For the six months ended December
31, 1997 and December 31, 1998,  net cash provided by operating  activities  was
$5.1 million and $3.3 million,  respectively.  The decrease from the 1997 period
to the 1998 period of $1.8  million is  primarily  due to an increase in the net
loss of the Company and an increase in accounts receivable.

         Cash Flows from Investing Activities. For the six months ended December
31, 1997 and December 31, 1998, net cash used in investing  activities was $22.5
million  and  $13.9  million,  respectively.  These  investing  activities  were
attributable to the  installation  and direct placement costs and acquisition of
bulk CO2 systems,  and in the 1997 period,  cash expended in connection with the
asset acquisitions.

         Cash Flows from Financing Activities. For the six months ended December
31, 1997 and December 31, 1998, cash flows provided by financing activities were
$6.8 million and $10.4 million,  respectively. For the six months ended December
31, 1997 and December 31, 1998,  net cash provided by financing  activities  was
primarily from the issuance of long-term debt.

YEAR 2000

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

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

         In case the Company  does  experience  severe Year 2000  financial  and
operating  problems,  notwithstanding  its efforts to avoid or mitigate problems
inherent  in its own  computer  systems  or the  adverse  effects  of Year  2000
problems  experienced by third parties on whom it is substantially  reliant, the
Company has begun development of contingency plans.

INFLATION

         The modest levels of inflation in the general economy since the Company
began   business  in  1990  have  not  affected   its  results  of   operations.
Additionally,  the Company's  contracts with its customers  generally contain an
annual lease rate adjustment  clause based on any increase in the consumer price
index.  The Company  believes that  inflation  will not have a material  adverse
effect on its future results of operations.

                                       15
<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.

         As discussed under  "Management's  Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources" above, as
of  December  31,  1998,  a total of $39.5  million  was  outstanding  under the
SunTrust Facility with interest at two hundred  seventy-five  basis points above
the  applicable  LIBOR rate (7.84% to 8.57% at December  31,  1998).  Based upon
$39.5 million  outstanding under the SunTrust Facility at December 31, 1998, the
Company's  annual  interest cost under the SunTrust  Facility  would increase by
$395,000 for each one percent increase in LIBOR (i.e., from 8.0% to 9.0%).

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


PART II.  OTHER INFORMATION

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         (a) The Company's  Annual meeting of Shareholders  was held on December
15, 1998 (the "Annual Meeting").

         (b) Edward M. Sellian,  Robert Ranieri, Robert L. Frome, John A. Kerney
and Daniel  Raynor were  elected as  directors of the Company to serve until the
next annual meeting of the  shareholders  or until their  successors are elected
and qualified.  No other  director's  term of office  continued after the Annual
Meeting.

         (c) (1) Election of Directors:

                           Number of         Number of
                           Votes For      Votes Against
                           ---------      -------------

Edward M. Sellian          6,875,400        30,494
Robert Ranieri             6,877,140        28,814
Robert L. Frome            6,875,769        30,185
John A. Kerney             6,875,569        30,385
Daniel Raynor              6,874,069        31,885


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

         (a)       Exhibit 27 - Financial Data Schedule.

         (b)       Reports on Form 8-K.

                   (1) No  reports on Form 8-K were  filed  during  the  quarter
                   ended December 31, 1998.


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<PAGE>

                                   SIGNATURES

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


                                                 NuCo2 Inc.


Dated:  February 12, 1999                        By: /s/ Joann Sabatino
                                                     ----------------------
                                                     Joann Sabatino
                                                     Chief Financial Officer

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