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, 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                                           65-010800
(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 /X/ whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days     Yes /X/   No  / /

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


        Class                                      Outstanding at March 31, 1998
        -----                                      -----------------------------
Common Stock, $.001 par value                            7,216,664 shares


<PAGE>
                                   NUCO2 INC.

                                      INDEX


PART I.   FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

          Consolidated Balance Sheets as of March 31, 1998                   3
          and June 30, 1997

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

          Consolidated Statements of Operations for the Nine                 5
          Months Ended March 31, 1998 and
          March 31, 1997

          Consolidated Statement  of Shareholders'                           6
          Equity for the Nine Months Ended
          March 31, 1998

          Consolidated Statements of Cash Flows for the Nine               7-8
          Months Ended March 31, 1998 and
          March 31, 1997

          Notes to Consolidated Financial Statements                       9-13


ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF                         14-19
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT                     19
          MARKET RISK

PART II.  OTHER INFORMATION

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K                                   20

SIGNATURES                                                                   21

                                        2

<PAGE>
PART I.     FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

                            NUCO2 INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS
<TABLE>
<CAPTION>
                                                                              March 31, 1998           June 30, 1997
                                                                              --------------           -------------
                                                                               (unaudited)
Current assets:
<S>                                                                             <C>                     <C>         
   Cash and cash equivalents                                                    $    110,817            $ 11,672,506
   Trade accounts receivable; net of allowance for doubtful
     accounts of $358,948 and $113,054, respectively                               4,460,405               2,120,880
   Inventories                                                                       228,295                  85,601
   Prepaid expenses and other current assets                                         795,089                 276,858
                                                                                ------------            ------------
        Total current assets                                                       5,594,606              14,155,845
                                                                                ------------            ------------

Property and equipment, net                                                       80,065,071              46,803,050
                                                                                ------------            ------------

Other assets:
   Goodwill, net                                                                  22,869,820               7,580,763
   Deferred charges, net                                                           2,248,813                 272,608
   Customer lists, net                                                             4,847,823               1,755,919
   Restrictive covenants, net                                                      2,289,723               1,401,833
   Deferred lease acquisition costs, net                                           2,115,614               1,274,577
   Deposits                                                                          178,046                  99,863
                                                                                ------------            ------------
                                                                                  34,549,839              12,385,563
                                                                                ------------            ------------
                                                                                $120,209,516            $ 73,344,458
                                                                                ============            ============
</TABLE>

<TABLE>
<CAPTION>

                      LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
<S>                                                                            <C>                    <C>          
   Current maturities of long-term debt                                        $     143,365          $   2,180,601
   Accounts payable                                                                5,071,436              1,514,048
   Accrued expenses                                                                2,952,778                961,544
   Other current liabilities                                                         116,443                 22,699
                                                                               -------------          -------------
     Total current liabilities                                                     8,284,022              4,678,892

Long-term debt, excluding current maturities                                      23,487,275              7,365,740
Subordinated debt                                                                 30,000,000                    -
Customer deposits                                                                  1,083,703                598,177
                                                                               -------------          -------------
        Total Liabilities                                                         62,855,000             12,642,809
                                                                               -------------          -------------

Shareholders' equity:
   Common stock; par value $.001 per share; 30,000,000 authorized;
     issued and outstanding 7,216,664 shares at March 31, 1998
     and 7,197,718 shares at June 30, 1997                                             7,217                  7,198
   Additional paid-in capital                                                     63,809,014             63,233,043
   Accumulated deficit                                                            (6,461,715)            (2,538,592)
                                                                               -------------          -------------
        Total shareholders' equity                                                57,354,516             60,701,649

Commitments and contingencies                                                  -------------          -------------
                                                                               $ 120,209,516          $  73,344,458
                                                                               =============          =============
</TABLE>

                                        3
<PAGE>
                            NUCO2 INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                        Three Months Ended
                                                                                        ------------------
                                                                              March 31, 1998          March 31, 1997
                                                                              --------------          --------------


<S>                                                                            <C>                      <C>
Net Sales                                                                      $ 9,463,552              $ 4,668,867

Costs and expenses:
   Cost of products sold                                                         5,161,496                2,166,284
   Selling, general and administrative expenses                                  2,523,072                1,564,630
   Depreciation and amortization                                                 2,506,824                1,070,776
                                                                               -----------              -----------
                                                                                10,191,392                4,801,690
                                                                               -----------              -----------

     Operating  (loss)                                                            (727,840)                (132,823)

Other expenses (income):
   Interest expense (income), net                                                1,208,740                 (157,432)
                                                                               -----------              ----------- 

     Income (loss) before extraordinary item                                    (1,936,580)                  24,609
                                                                               -----------              -----------

Extraordinary item - loss on extinguishment of debt                                  2,084                        -
                                                                               -----------              -----------

   Net  (loss) income                                                          $(1,938,664)             $    24,609
                                                                               ===========              ===========

Basic and Diluted EPS:

   Income (loss) before extraordinary item                                     $      (.27)             $         -
                                                                               -----------              -----------

   Extraordinary item                                                                    -                        -
                                                                               -----------              -----------

   Net income (loss)                                                           $      (.27)             $         -
                                                                               ===========              ===========

   Weighted average number of common and common
      equivalent shares outstanding

     Basic                                                                       7,216,605                7,163,434
                                                                               ===========              ===========

     Diluted                                                                     7,216,605                7,282,921
                                                                               ===========              ===========
</TABLE>


                                        4

<PAGE>
                            NUCO2 INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                        Nine Months Ended
                                                                                        -----------------
                                                                              March 31, 1998        March 31, 1997
                                                                              --------------        --------------

<S>                                                                            <C>                      <C>
Net Sales                                                                      $24,655,640              $13,073,052

Costs and expenses:
   Cost of products sold                                                        13,053,990                6,231,148
   Selling, general and administrative expenses                                  6,922,432                4,196,604
   Depreciation and amortization                                                 6,190,822                2,888,417
                                                                               -----------              -----------
                                                                                26,167,244               13,316,169
                                                                               -----------              -----------

     Operating  (loss)                                                          (1,511,604)                (243,117)

Other expenses (income):
   Interest expense (income), net                                                2,224,574                 (675,395)
                                                                               -----------              -----------

     Income (loss) before extraordinary item                                    (3,736,178)                 432,278
                                                                               -----------              -----------

Extraordinary item - loss on extinguishment of debt                                186,945                        -
                                                                               -----------              -----------

   Net  (loss) income                                                          $(3,923,123)             $   432,278
                                                                               ===========              ===========

Basic and Diluted EPS:

   Income (loss) before extraordinary item                                     $     (0.52)             $      0.06
                                                                               -----------              -----------

   Extraordinary item                                                                (0.02)                       -
                                                                               -----------              -----------

   Net income (loss)                                                           $     (0.54)             $      0.06
                                                                               ===========              ===========

   Weighted average number of common and common
       equivalent shares outstanding

     Basic                                                                       7,208,252                7,162,938
                                                                               ===========              ===========

     Diluted                                                                     7,208,252                7,299,360
                                                                               ===========              ===========
</TABLE>


                                        5

<PAGE>
                            NUCO2 INC. AND SUBSIDIARY

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                   (UNAUDITED)

<TABLE>
<CAPTION>

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

<S>                                      <C>              <C>           <C>               <C>              <C>        
Balance, June 30, 1997                   7,197,718        $7,198        $63,233,043       $(2,538,592)     $60,701,649

Issuance of 18,835 shares of
   common stock - asset acquisition         18,835            19            274,972                 -          274,991

Issuance of 111 shares of
  common stock - exercise of options           111             -                999                 -              999

Issuance of warrants                             -             -            300,000                 -          300,000

Net (loss)                                       -             -                  -        (3,923,123)      (3,923,123)
                                     -------------     ---------       ------------       -----------     ------------

Balance, March 31, 1998                  7,216,664        $7,217        $63,809,014       $(6,461,715)    $ 57,354,516
                                     =============     =========       ============       ===========      ===========
</TABLE>


                                        6

<PAGE>
                            NUCO2 INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                         Nine Months Ended
                                                                                         -----------------
                                                                              March 31, 1998         March 31, 1997*
                                                                              --------------         ---------------

<S>                                                                           <C>                     <C>
Net (loss) income before extraordinary item                                   $   (3,736,178)         $       432,278
Extraordinary item - loss on extinguishment of debt                                  186,945                        -
                                                                                 -----------             ------------
Net (loss) income                                                                 (3,923,123)                 432,278

Cash flows from operating activities:
   Adjustments to reconcile  net (loss) income to net cash provided
        by operating activities:
          Depreciation and amortization of property and equipment                  4,179,031                2,156,766
          Amortization of other assets                                             2,011,790                  731,651
          Loss on disposal of property and equipment                                 318,554                   91,065
          Write-off of deferred financing costs                                      186,945                        -
          Changes in operating assets and liabilities:
          Decrease (increase) in:
              Trade accounts receivable                                           (2,322,560)                (439,990)
              Inventories                                                           (142,694)                 (33,276)
              Prepaid expenses and other current assets                             (518,231)                (165,432)
          Increase (decrease) in:
              Accounts payable                                                     3,557,388                 (261,326)
              Accrued expenses                                                     1,991,234                4,025,018
              Other current liabilities                                               93,744                  (45,907)
              Customer deposits                                                      485,526                  177,238
                                                                                 -----------            -------------

              Net cash provided by operating activities                       $    5,917,604          $     6,668,085
                                                                                 -----------            -------------

Cash flows from investing activities:
   Proceeds from disposal of property and equipment                                  337,238                2,011,526
   Purchase of property and equipment                                            (15,173,107)             (18,359,342)
   Acquisition of businesses                                                     (12,270,750)              (3,727,547)
   (Increase) decrease in deposits                                                   (78,183)                 173,235
   Increase in deferred lease acquisition costs                                   (1,256,760)                (618,188)
                                                                                 -----------            -------------
        Net cash (used in) investing activities                                  (28,441,562)             (20,520,316)
                                                                                 -----------            -------------

Cash flows from financing activities:
   Redemption of warrants                                                               -                  (1,143,450)
   Exercise of options                                                                   999                  149,455
   Repayment of long-term debt                                                      (800,634)                (722,458)
   Proceeds from issuance of long-term debt and subordinated debt                 13,831,611                   11,604
   Increase in deferred charges                                                   (2,069,707)                 (29,201)
   Additional expenses - secondary offering                                             -                     (59,100)
                                                                                 -----------            -------------
     Net cash provided by (used in) financing activities                          10,962,269               (1,793,150)
                                                                                 -----------            -------------

Net decrease in cash and cash equivalents                                        (11,561,689)             (15,645,381)
Cash and cash equivalents at the beginning of period                              11,672,506               43,000,676
                                                                                 -----------            -------------
Cash and cash equivalents at the end of period                                $      110,817          $    27,355,295
                                                                                 ===========            =============
</TABLE>


*  Restated to conform to current year's classifications.

                                        7

<PAGE>
                            NUCO2 INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Continued)
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                        Nine Months Ended
                                                                                        -----------------
                                                                              March 31, 1998          March 31, 1997
                                                                              --------------          --------------

Supplemental  disclosure of cash flow  information:
  Cash paid during the period for:
<S>                                                                           <C>                       <C>          
     Interest                                                                 $      596,023            $     691,031
                                                                                 ===========            =============
     Income taxes                                                             $            0            $           0
                                                                                 ===========            =============



Supplemental schedule of noncash investing and
   financing activities:
   Acquisition of businesses:
     Fair value of assets acquired                                            $   27,702,406            $           -
     Cost in excess of net assets of businesses acquired                          15,536,887                        -
     Liabilities assumed or incurred                                             (31,072,553)                       -
     Issuance of common stock                                                       (274,991)                       -
                                                                                 -----------            -------------
        Cash paid                                                             $   11,891,749            $           -
                                                                                 ===========            =============
</TABLE>

     In July 1997, the Company wrote-off a restrictive  covenant and the related
liability in the amount of $19,231 due to the employee resigning.

     In  October  1997,  the  Company  repaid  long-term  debt in the  amount of
$20,782,995  with  the  proceeds  of  the  issuance  of  subordinated  debt.  In
connection  therewith,  detachable  warrants  were  issued  and  original  issue
discount in the amount of $300,000 was recorded.


                                        8

<PAGE>
                            NUCO2 INC. AND SUBSIDIARY

                   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 financial  position,  results of  operations  and cash flows in
conformity  with generally  accepted  accounting  principles.  The  accompanying
unaudited  consolidated financial statements are consolidated with the Company's
wholly-owned  subsidiaries,  NuAir Inc. for the periods ended March 31, 1997 and
NuCo2  Acquisition Corp. for the periods ended March 31, 1998. NuCo2 Acquisition
Corp.  owns all of the issued  and  outstanding  shares of common  stock of Koch
Compressed Gases, Inc. (see Note 3).

         The financial  information included in this report has been prepared in
conformity  with  the  accounting  principles  and  methods  of  applying  those
accounting principles, reflected in the financial statements for the fiscal year
ended June 30,  1997  included  in Form  10-KSB  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,  1997.  The  results of  operations  for the
periods  presented are not necessarily  indicative of the results to be expected
for the full fiscal year.


NOTE 2.  NET INCOME OR 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  quarter  and nine  month
periods ended March 31, 1998 have been calculated according to the guidelines of
Statement  128 and  earnings  per share of common stock for the quarter and nine
month periods ended March 31, 1997 have been restated to conform with  Statement
128.

         Basic  earnings per share for the quarter and nine month  periods ended
March  31,  1998  and  1997  has  been   computed  by  dividing   income  before
extraordinary  item,  extraordinary item and net income/loss for each respective
period by the weighted average number of shares of common stock  outstanding for
each  respective  period.  Diluted  earnings  per share for the quarter and nine
month periods  ended March 31, 1997 has been computed by dividing  income before
extraordinary item, extraordinary item and net income for each respective period
by the  weighted  average  number of shares of  common  stock and  common  stock
equivalents outstanding for each respective period, plus the assumed exercise of
stock options and  warrants,  less the number of treasury  shares  assumed to be
purchased from the proceeds of such exercises  using the average market price of
the  Company's  common stock during each  respective  period.  Stock options and
warrants have been excluded from the  calculation of diluted  earnings per share
for the  quarter and nine month  periods  ended  March 31,  1998  because  their
inclusion would be antidilutive.


                                        9

<PAGE>
Note 2.  Net Income or Loss per Common Share - (Continued)

         Following are reconciliations of the numerators and denominators of the
basic and diluted per share  computations for income from continuing  operations
for the respective periods.

<TABLE>
<CAPTION>

                                                                        For the Three Months Ended March 31, 1997
                                                                        -----------------------------------------
                                                                                           Weighted        Per-Share
                                                                      Net Income       Average Shares       Amount
                                                                      ----------       --------------       ------

Basic EPS

<S>                                                                  <C>                  <C>              <C>  
Income available to common stockholders                              $    24,609          7,163,434        $   -
Effect of Dilutive Options and Warrants                                    -                119,487            -
                                                                        --------         ----------          ---

Diluted EPS                                                          $    24,609          7,282,921        $   -
                                                                        ========         ==========          ===
</TABLE>
<TABLE>
<CAPTION>

                                                                          For The Nine Months Ended March 31, 1997
                                                                          ----------------------------------------
                                                                                           Weighted        Per-Share
                                                                      Net Income       Average Shares       Amount
                                                                      ----------       --------------       ------

Basic EPS

<S>                                                                  <C>                  <C>              <C>
Income available to common stockholders                              $   432,278          7,162,938        $   0.06
Effect of Dilutive Options and Warrants                                    -                136,422            -
                                                                        --------         ----------        --------

Diluted EPS                                                          $   432,278          7,299,360        $   0.06
                                                                        ========         ==========           =====
</TABLE>


         Incremental shares for stock options and warrants  calculated  pursuant
to the treasury  stock method for the three and nine months ended March 31, 1998
were  143,760 and  148,726,  respectively.  These  shares  were not  included in
diluted  EPS  because  they  would  have  been  antidilutive  for such  periods.
Additionally,  options and warrants to purchase 75,000 shares, 1,000,000 shares,
655,738  shares (see Note 5) and 30,000 shares (see Note 5) for $17.50,  $17.00,
$16.40 and $14.64, respectively, were outstanding during all or a portion of the
three  and nine  months  ended  March  31,  1998 but  were not  included  in the
computation  of diluted EPS because the options and warrants  exercise price was
greater than the average market price of the common shares.

NOTE 3.  ACQUISITIONS

         In August 1996,  the Company  acquired the bulk CO2  operations  of two
affiliated  companies  operating in Ohio,  Kentucky and Indiana for an aggregate
purchase  price of  approximately  $1,350,000.  The Company  paid cash for these
transactions.

         In March 1997, the Company  acquired  certain assets of three unrelated
companies  operating in Texas for an aggregate  purchase price of  approximately
$2,875,000. The Company paid cash for these transactions.

         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
NationsBank credit facility (see Note 4).

         Effective July 31, 1997, the Company  purchased  certain assets from CC
Acquisition  Corp.  (Carbo Co.) for an aggregate  purchase price of $11,000,000.
Carbo Co. had operations in Nebraska, Kansas, Oklahoma, Iowa, Missouri, Arkansas
and South Dakota.  The Company funded  $5,000,000  through a borrowing under its
$30  million  NationsBank  credit  facility  (see  Note 4) 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
NationsBank credit facility (see Note 4) and paid cash for the balance.


                                       10

<PAGE>
Note 3.  Acquisitions - (Continued)

         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
$5,500,000 subject to adjustments.  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 NationsBank credit facility (see Note 4).

         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  approximately  $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 $11,500,000.  The Company paid approximately
$5,000,000  cash and funded  $6,500,000  through a borrowing under the Company's
SunTrust Facility (see Note 4).

         Effective  December 2, 1997, the Company  purchased certain assets of a
bulk CO2 company with  operations in Kansas for a purchase  price of $1,000,000.
The purchase price was funded through a borrowing  under the Company's  SunTrust
Facility (see Note 4).

         Effective January 23, 1998, the Company purchased  substantially all of
the assets of a bulk CO2 company operating in California for a purchase price of
$4,500,000.  The  purchase  price  was  funded  through  a  borrowing  under the
Company's SunTrust Facility (see Note 4).

         Effective  March 2, 1998,  the Company  purchased  certain  assets from
Florida  Carbonic  Distributor,  Inc., a carbonic gas  distributor  operating in
Florida  for a  purchase  price of  $6,425,000.  The  purchase  price was funded
through a borrowing under the Company's SunTrust Facility (see Note 4).

         In  March  1998,  the  Company  purchased  certain  assets  from  three
unrelated  carbonic gas distributors with operations in Texas, Maine and Alabama
for an aggregate  purchase  price of $406,208.  The purchase  prices were funded
through a borrowing under the Company's SunTrust Facility (see Note 4).

         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 $16,000,000 for the nine
months ended March 31, 1998,  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

         On October 31,  1997,  the Company  finalized  a $50.0  million  senior
secured  revolving credit facility with SunTrust Bank,  South Florida,  National
Association ("SunTrust Facility").  The SunTrust Facility replaced the Company's
prior facility with NationsBank of Florida, N.A.  ("NationsBank").  The SunTrust
Facility contains a mechanism to increase it by an additional $50.0 million to a
total of $100.0 million upon the achievement of annualized one quarter EBITDA on
a  pro-forma  basis for  acquisitions  of $15.0  million or upon  request by the
Company.  Additionally,  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 pricing grid is as follows:

<TABLE>
<CAPTION>

<S>   <C>                                               <C>               <C>      <C>     <C>                 <C> 
      Senior Funded Debt to Annualized EBITDA           Under 1.50        1.50 and 2.25    2.25 and 3.00       Over 3.00

      Commitment Fee                                     0.1875%             0.25%             0.375%            0.50%

      Applicable LIBOR Margin                            1.25%               1.75%             2.25%             2.75%

      Applicable Base Rate Margin                        0.00%               0.00%             0.00%             0.50%
</TABLE>

                                       11
<PAGE>
         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.  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.  Additionally,
it is collateralized by substantially all of the assets of the Company.  A total
of $23,000,000 was outstanding  pursuant to the SunTrust  Facility with interest
at 6.9% as of March 31, 1998. In December 1997, SunTrust syndicated the SunTrust
Facility with three additional banks.

Extraordinary item - loss on extinguishment of debt

         For the nine months  ended March 31, 1998,  the Company  incurred a one
time  extraordinary  charge of $186,945 for the write-off of deferred  financing
costs  and a  prepayment  penalty  in  connection  with  the  repayment  of  the
NationsBank credit facility.

NOTE 5.  SUBORDINATED DEBT

         Represents 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 the  Company's  Common Stock at an
exercise  price  of  $16.40  per  share.  Additionally,  NationsBanc  Montgomery
Securities,  Inc.,  the  placement  agent,  received  a warrant to  purchase  an
aggregate of 30,000 shares of the Company's 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  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 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 10 years.  Options  granted to date vest in
three or four  installments  commencing  one year from the date of grant.  As of
March 31, 1998, options for 105,431 shares are exercisable.

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

                                                   SHARES       EXERCISE PRICE

          Outstanding at June 30, 1995                  -0-               -0-
          Granted                                   130,991         $9-$17.50
          Expired or canceled                           340                $9
          Exercised                                     -0-               -0-
                                                  ---------     -------------
          Outstanding at June 30, 1996              130,651         $9-$17.50
          Granted                                   222,500            $11.25
          Expired or canceled                         6,225         $9-$11.25
          Exercised                                     322                $9
                                                  ---------     -------------
          Outstanding at June 30, 1997              346,604         $9-$17.50
          Granted                                   341,500      $10.25-11.28
          Expired or canceled                         1,407         $9-$11.25
          Exercised                                     111                $9
                                                  ---------     -------------
          Outstanding at March 31, 1998             686,586         $9-$17.50
                                                  =========     =============

         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 as of the date of grant.  All options vest
in three equal annual  installments  beginning on the first  anniversary  of the
date of grant.  As of March 31,  1998,  options  to  purchase  a total of 18,000
shares of Common  Stock at an  exercise  price of $9.00 per share and a total of
6,000 shares of Common  Stock at an exercise  price of $12.50 per share had been
issued. Of these options,  14,000 shares at an exercise price of $9.00 per share
are currently exercisable.


                                       12

<PAGE>
NOTE 7.  OPERATING LEASES

         The Company entered into 91 operating  leases from July 1, 1997 through
March 31, 1998.  Twenty-nine leases were for warehouse facilities with aggregate
annual rentals of approximately $916,000 expiring at various dates through 2003.
Sixty-two  leases were for trucks with aggregate annual rentals of approximately
$708,000 expiring at various dates through 2004.

NOTE 8.  CONTINGENCIES

         Carbonic Designs,  Inc. v. MVE, Inc., The  Taylor-Wharton Gas Equipment
Division of Harsco  Corporation,  Welders Supply Co. and NuCo2 Inc., filed on or
about March 31, 1997, asserted claims for violation of the Texas Free Enterprise
and AntiTrust Act of 1983, business  disparagement,  tortious  interference with
contract,  tortious  interference with prospective  business relations and civil
conspiracy.  The Company settled this lawsuit in December 1997 for an immaterial
amount.

NOTE 9.  SUBSEQUENT EVENTS

         Effective  April  13,  1998,  the  Company  entered  into a three  year
consulting  agreement with the former president of the Company.  Pursuant to the
terms of the agreement, the Consultant shall receive $50,000 per annum and shall
not compete with the Company for a period of two years after the  expiration  of
the contract. Simultaneously,  options to purchase 75,000 shares of Common Stock
were canceled.



                                       13

<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 AND  AVAILABILITY  OF MANAGERIAL
PERSONNEL.

OVERVIEW

         During the quarter ended March 31, 1998,  the Company  achieved a major
goal and became the  national  supplier of bulk CO2  systems  and liquid  carbon
dioxide to the  restaurant  and  convenience  store  industries  in the U.S.  In
January 1998, the Company  purchased the assets of a bulk CO2 company  operating
in the greater Los Angeles metropolitan area.  Additionally,  in March 1998, the
Company  acquired the bulk CO2 assets of four  separate  companies  operating in
Florida,  Maine,  Alabama  and Texas.  As of March 31,  1998,  the  Company  was
operating  from 62 depots in 42 states.  Acquisitions  during the quarter  added
approximately  3,700 bulk CO2  customers  and  approximately  300 high  pressure
customers  while new internally  generated bulk CO2 systems  placements  totaled
2,432.  Additionally,  during the  quarter  ended  March 31,  1998,  the Company
reached  multi-unit  placement  agreements  with  Dairy  Mart,  Discovery  Zone,
7-Eleven and Kentucky Fried Chicken.

         At March 31, 1998,  the Company  leased  approximately  36,500 bulk CO2
systems to its customers,  principally pursuant to five year noncancelable lease
contracts.  These customers include restaurants,  convenience stores,  theaters,
taverns and other businesses  which dispense  carbonated  beverages.  Generally,
these contracts are classified as one of two types:  "budget-plan" contracts and
"rental plus per pound  charge"  contracts.  Pursuant to budget plan  contracts,
customers pay a fixed  monthly  charge for the lease of a Company owned bulk CO2
system  on the  customer's  premises  and  refills  of bulk CO2  according  to a
predetermined schedule. The bulk CO2 is included in the monthly rental charge up
to a  predetermined  maximum  annual  volume.  If the maximum  annual  volume is
exceeded, the customer is charged for additional bulk CO2 delivered. Pursuant to
rental  plus per pound  charge  contracts,  the  Company  also leases a bulk CO2
system to the customer, but the customer is charged on a per pound basis for all
bulk  CO2  delivered.  The  Company's  contracts  generally  provide  for  price
increases based upon increases in the consumer price index.

         The Company  provides  some  services  besides  those offered under the
above two types of contracts.  As of March 31, 1998, the Company  provided "fill
only" service to approximately 6,800 customers where it supplies only CO2 refill
services and the customer is charged on a per pound basis for all CO2 delivered.

         As of March 31, 1998, approximately 15,000 of the Company's 43,300 bulk
CO2 customers were billed on a per pound basis which varies with the quantity of
bulk CO2 delivered.  These customers will tend to consume less CO2 in the winter
months,  and this may cause the  Company's  revenues and earnings for its fiscal
quarters ending in December and March to be relatively  lower than for its other
quarters.  As of March 31, 1998,  approximately  28,300 of the Company's  43,300
bulk customers were billed at a flat monthly rate which does not vary throughout
the year.  Additionally,  the  Company  has  approximately  9,500 high  pressure
customers.

         The  Company  intends to  continue  to grow  through a  combination  of
internal growth and opportunistic acquisitions. The Company requires significant
capital to purchase and install bulk CO2 systems at customers'  locations and to
grow its  network of service  and supply  depots and  specialized  CO2  delivery
vehicles required to service these installations. Once installed, however, there
are minimal additional capital requirements for bulk CO2 systems in service, and
the Company  has  generally  experienced  significant  positive  cash flows on a
per-unit basis.  These cash flows stem from per-unit  operating  income combined
with per-unit  non-cash charges for depreciation and  amortization.  The Company
believes its current installed base of bulk CO2 systems is stable, partly due to
the existence of long-term contracts with its customers.  In fiscal 1997 and the
nine months ended March 31, 1998, less than 5% of Company owned bulk CO2 systems
experienced  service  termination.  Service  termination is typically  caused by
restaurant   closure.   Affected  bulk  CO2  systems  are  either   removed  and
reconditioned for use with other customers,  or left in place when prospects for
a new restaurant in the same location are deemed favorable.

                                       14

<PAGE>
GENERAL

         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 liquid CO2. On customer  invoices,  the Company  does not  separate
charges for equipment use from charges for liquid CO2  delivered;  customers are
presented  with a single  amount  payable.  Customers  are  invoiced  monthly in
advance of services  rendered.  For  customers  on rental plus per pound  charge
contracts,  invoices are broken down into the two respective services,  with the
charge for liquid CO2 supply  varying with the amount  delivered.  The Company's
net sales also include  revenues  received  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 system  installation
costs; amortization of sales commissions, and amortization of goodwill, deferred
financing costs and other intangible assets.

         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.  Capitalized  component parts and
direct  costs  associated  with  installation  of bulk CO2  equipment  leased to
customers was approximately  $5.4 million and $10.6 million as of March 31, 1997
and  1998,  respectively.  Depreciation  and  amortization  expense  related  to
capitalized  component parts and direct costs  associated with  installation was
approximately $636,000 and $1.2 million for the nine months ended March 31, 1997
and 1998, respectively.

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

                                                                    1997             1998              1997          1998
                                                                    ----             ----              ----          ----
         Income Statement Data:
<S>                                                                 <C>             <C>               <C>           <C>
         Net sales.....................................             100.0%          100.0%            100.0%        100.0%
         Cost of products sold.........................              46.4%           54.5%             47.7%         52.9%
         Selling, general and administrative expenses..              33.5%           26.7%             32.1%         28.1%
         Depreciation and amortization.................              22.9%           26.5%             22.1%         25.1%
                                                                   -------         -------           -------       -------
         Operating (loss)..............................              (2.8%)          (7.7%)            (1.9%)        (6.1%)
                                                                   -------         -------           -------       -------
         Interest (income) expense, net................              (3.3%)          12.8%             (5.2%)         9.0%
         Extraordinary item - loss on extinguishment of debt          -                -                 -            0.8%
                                                                   -------         -------           -------       -------

         Net income (loss).............................                .5%          (20.5%)             3.3%        (15.9%)
                                                                   =======         =======           =======       =======

         Other Data:
         Operating income before depreciation and amortization
         (EBITDA)                                                     20.1%          18.8%             20.2%         19.0%
                                                                   ========        =======           =======       =======
</TABLE>

                                       15
<PAGE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997

         Net sales  increased by $4.8 million,  or 102.7%,  from $4.7 million in
the 1997 period to $9.5  million in the 1998 period.  Approximately  $291,000 of
the increase  represented net sales  resulting from the May 1997  acquisition of
certain assets of The BOC Group, Inc., $440,000 of the increase  represented net
sales resulting from the July 1997  acquisition of CC Acquisition  Corp.  (Carbo
Co.), $303,000 of the increase  represented net sales resulting from the October
1997 acquisition of Koch Compressed  Gases,  Inc. and $583,000 from the December
1997  acquisitions of the four related  companies  operating in the midwest.  In
addition,  approximately  $442,000 and $635,000  represented net sales from five
acquisitions  during the fourth  quarter of the fiscal  year ended June 30, 1997
and ten acquisitions during the nine months ended March 31, 1998,  respectively.
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.

         Cost of products sold  increased by $3.0 million,  from $2.2 million in
the 1997 period to $5.2 million in the 1998 period and increased as a percentage
of net sales from 46.4% to 54.5%. The increase was attributable to the expansion
of the Company into new  territories,  an increase in fully loaded route drivers
and an increase in high pressure cylinder  business.  Fully loaded route drivers
increased by $1.1  million  from  $737,000 in the 1997 period to $1.8 million in
the 1998 period and  increased as a percentage of net sales from 15.8% to 18.9%.
Overtime  increased  by $274,000  from  $90,000 in the 1997  period  compared to
$364,000 in the 1998 period and increased as a percentage of net sales from 1.9%
in the 1997 period to 3.8% in the 1998  period.  The  increase  in overtime  was
attributable to the acquisitions  during the 1998 period.  Additionally,  helium
and nitrogen  purchases and high pressure cylinder rent and testing increased by
$239,000  from  $107,000  in the 1997  period  compared  to $346,000 in the 1998
period and  increased as a percentage  of net sales from 2.3% in the 1997 period
to 3.7% in the 1998 period.  During the three  months ended March 31, 1998,  the
Company acquired approximately 300 high pressure customers. The number of depots
operated by the Company at March 31, 1998,  increased  to 62,  compared to 36 at
March 31,  1997.  In  addition,  as of March 31,  1998,  two more depots were at
various  stages of being set up. When the  Company  opens new depots and expands
into new  markets,  higher  costs  expressed  as a  percentage  of net sales are
incurred  until  route  density is  achieved.  The  Company  typically  services
approximately  350 customers per delivery vehicle in its mature markets.  In new
territories, a delivery vehicle can initially service as few as 100 customers.

         Selling, general and administrative expenses increased by $958,000 from
$1.6 million in the 1997 period to $2.5 million in the 1998 period and decreased
as a  percentage  of net sales from  33.5% to 26.7%.  The  dollar  increase  was
primarily  attributable to growth in the number of marketing and  administrative
personnel and their associated  expenses,  as well as the costs of expanding the
Company's  geographic areas of service.  The percentage decrease is attributable
to  economies  of scale.  At March 31, 1997,  the Company had  operations  in 24
states and employed 53 marketing  personnel  and at March 31, 1998,  the Company
had operations in 42 states and employed 94 marketing personnel.

          Depreciation  and  amortization  increased  by $1.4  million from $1.1
million in the 1997 period to $2.5 million in the 1998  period.  As a percentage
of net sales, such expenses  increased from 22.9% in the 1997 period to 26.5% in
the 1998 period. Depreciation expense increased by $822,000 from $807,000 in the
1997 period to $1.6 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  decreased  from 17.3% in the 1997  period to 17.2% in the
1998 period.  Amortization  expense  increased by $614,000  from $264,000 in the
1997 period to $878,000 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 5.7% to 9.3%, respectively.

         Net  interest  income in the 1997 period was  $157,000  compared to net
interest expense in the 1998 period of $1.2 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.

         For the reasons described above, EBITDA,  representing operating income
plus  depreciation  and  amortization,  increased  by $841,000,  or 89.7%,  from
$938,000 in the 1997 period to $1.8 million in the 1998 period and  decreased as
a  percentage  of net sales  from  20.1% to  18.8%,  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.


                                       16

<PAGE>
NINE MONTHS ENDED MARCH 31, 1998 COMPARED TO NINE MONTHS ENDED MARCH 31, 1997

         Net sales increased by $11.6 million,  or 88.6%,  from $13.1 million in
the 1997 period to $24.7 million in the 1998 period.  Approximately $1.0 million
of the increase represented net sales resulting from the May 1997 acquisition of
certain assets of The BOC Group, Inc., $1.3 million of the increase  represented
net sales  resulting  from the July 1997  acquisition  of CC  Acquisition  Corp.
(Carbo Co.),  $626,000 of the increase  represented net sales resulting from the
October 1997  acquisition of Koch Compressed  Gases,  Inc. and $766,000 from the
December  1997  acquisitions  of the four  related  companies  operating  in the
midwest.  In addition,  approximately $1.4 million and $909,000  represented net
sales from five acquisitions  during the fourth quarter of the fiscal year ended
June 30, 1997 and ten acquisitions  during the nine months ended March 31, 1998,
respectively.  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.

         Cost of products sold  increased by $6.8 million,  from $6.2 million in
the 1997  period  to  $13.1  million  in the  1998  period  and  increased  as a
percentage of net sales from 47.7% to 52.9%.  The increase was  attributable  to
the expansion of the Company into new  territories,  an increase in fully loaded
route drivers and an increase in high pressure cylinder  business.  Fully loaded
route drivers  increased by $2.4 million from $2.1 million in the 1997 period to
$4.5 million in the 1998 period and  increased as a percentage of net sales from
16.2% to 18.2%.  Overtime increased by $559,000 from $288,000 in the 1997 period
compared to $847,000 in the 1998 period and  increased  as a  percentage  of net
sales from 2.2% in the 1997 period to 3.4% in the 1998  period.  The increase in
overtime  was  attributable  to  the   acquisitions   during  the  1998  period.
Additionally,  helium and nitrogen and high  pressure  cylinder rent and testing
increased by $514,000  from  $306,000 in the 1997 period to $820,000 in the 1998
period and  increased as a percentage  of net sales from 2.3% in the 1997 period
to 3.3% in the 1998 period.  During the nine months  ended March 31,  1998,  the
Company  acquired  approximately  9,000 high pressure  customers.  The number of
depots  operated by the Company at March 31, 1998,  increased to 62, compared to
36 at March 31,  1997.  As of March 31,  1998,  two  additional  depots  were at
various  stages of being set up. When the  Company  opens new depots and expands
into new  markets,  higher  costs  expressed  as a  percentage  of net sales are
incurred  until  route  density is  achieved.  The  Company  typically  services
approximately  350 customers per delivery vehicle in its mature markets.  In new
territories, a delivery vehicle can initially service as few as 100 customers.

         Selling,  general and administrative expenses increased by $2.7 million
from $4.2  million in the 1997  period to $6.9  million  in the 1998  period and
decreased as a percentage of net sales from 32.1% to 28.1%.  The dollar increase
was   primarily   attributable   to  growth  in  the  number  of  marketing  and
administrative  personnel and their associated expenses, as well as the costs of
expanding the Company's  geographic areas of service. The percentage decrease is
attributable  to  economies  of  scale.  At March  31,  1997,  the  Company  had
operations  in 24 states and  employed 53 marketing  personnel  and at March 31,
1998,  the  Company  had  operations  in 42 states  and  employed  94  marketing
personnel.

          Depreciation  and  amortization  increased  by $3.3  million from $2.9
million in the 1997 period to $6.2 million in the 1998  period.  As a percentage
of net sales, such expenses  increased from 22.1% in the 1997 period to 25.1% in
the 1998  period.  Depreciation  expense  increased  by $2.0  million  from $2.2
million in the 1997 period to $4.2 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 16.5% in the 1997 period to
16.9% in the 1998 period.  Amortization  expense  increased by $1.3 million from
$732,000 in the 1997 period to $2.0 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 5.6% to 8.2%,
respectively.

         Net  interest  income in the 1997 period was  $675,000  compared to net
interest expense in the 1998 period of $2.2 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  $187,000 of deferred
financing costs related to its NationsBank credit 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 $2.0 million,  or 76.9%, from
$2.6 million in the 1997 period to $4.7 million in the 1998 period and decreased
as a  percentage  of net sales from 20.2% to 19.0%,  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.


                                       17

<PAGE>
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 principal  and  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  $6.0 million to $9.0 million during the remaining three months of
fiscal 1998,  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  continually  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.

         During the nine months  ended March 31,  1998,  the  Company's  capital
resources  included cash flows from  operations,  available  borrowing  capacity
under the Company's  credit  facilities  (NationsBank  credit  facility  through
October 1997 and SunTrust Facility thereafter) and proceeds from the sale of its
12% Senior  Subordinated  Promissory  Notes due 2004 (the "Notes").  In July and
September of 1997,  certain  assets,  primarily  consisting of bulk CO2 systems,
were acquired for $6.0 million in cash and $6.8 million in borrowings  under the
Company's NationsBank credit facility. Effective October 1, 1997, a newly formed
wholly-owned  subsidiary  of  the  Company  purchased  all  of  the  issued  and
outstanding  share  of  common  stock  of Koch  Compressed  Gases,  Inc.  for an
aggregate  purchase  price of $5.5 million which was funded  through a borrowing
under the NationsBank  credit facility.  On October 31, 1997, the Company repaid
its outstanding indebtedness under the NationsBank credit facility which totaled
approximately  $21.0  million with a portion of the  proceeds of the Notes.  The
Notes  which  aggregated  $30.0  million  were sold with seven year  warrants to
purchase an aggregate of 655,738  shares of Common Stock at an exercise price of
$16.40 per share.  Additionally,  NationsBanc Montgomery  Securities,  Inc., the
placement  agent for the Notes,  received a warrant to purchase an  aggregate of
30,000  shares of Common  Stock at an  exercise  price of $14.64 per share which
expires on October 31, 2004.

         On October 31,  1997,  the Company  finalized  a $50.0  million  senior
secured  revolving credit facility with SunTrust Bank,  South Florida,  National
Association ("SunTrust Facility"). The SunTrust Facility contains a mechanism to
increase it by an additional $50.0 million to a total of $100.0 million upon the
achievement  of  annualized  one  quarter  EBITDA  on  a  pro-forma   basis  for
acquisitions of $15.0 million or upon request by the Company.  Additionally, 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. Additionally,  it is collateralized by substantially all of
the assets of the Company. In December 1997, SunTrust closed on a syndication of
the SunTrust Facility with three additional banks.

         For the period November 1997 through March 1998, the Company  purchased
assets from various carbonic gas distributors  consisting  primarily of bulk CO2
and high pressure  assets for $6.0 million cash,  $23.0 million  borrowing under
the  Company's  SunTrust  Facility and the  issuance of 18,835  shares of Common
Stock at market for a value of $275,000.

         As of March 31, 1998, a total of $23.0  million was  outstanding  under
the SunTrust  Facility  with  interest at one hundred  twenty-five  basis points
above the 90-day London  InterBank  Offering Rate  ("LIBOR")  (6.9% at March 31,
1998).

         The Company believes that cash from operating  activities and available
borrowings  under the SunTrust  Facility  will be  sufficient  to fund  proposed
operations for at least the next twelve months.

         Working  Capital.  At June 30, 1997 the Company had working  capital of
$9.5 million.  At March 31, 1998,  the Company had negative  working  capital of
$2.7 million.

         Cash Flows from Operating  Activities.  For the nine months ended March
31, 1997 and March 31, 1998, net cash provided by operating  activities was $6.7
million and $5.9 million, respectively. The decrease from the 1997 period to the
1998 period of $750,000 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 nine months ended March
31, 1997 and March 31,  1998,  net cash used in investing  activities  was $20.5
million  and  $28.4  million,  respectively.  These  investing  activities  were
attributable to the  installation  and direct placement costs and acquisition of
bulk  CO2  systems,   and  the  cash  expended  in  connection  with  the  asset
acquisitions.


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<PAGE>
         Cash Flows from Financing  Activities.  For the nine months ended March
31, 1997,  cash flows used in financing  activities  were $1.8 million.  For the
nine months ended March 31, 1998,  cash flows  provided by financing  activities
were $11.0  million.  For the nine months ended March 31, 1997, net cash used in
financing  activities are primarily from the  redemption and  cancellation  of a
warrant issued to a representative  of the underwriters in the Company's initial
public  offering in December 1995. For the nine months ended March 31, 1998, net
cash  provided  by  financing  activities  was  primarily  from the  issuance of
long-term debt and subordinated debt.

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 contain an annual lease
rate  adjustment  clause based on an increase in the consumer  price index.  The
Company  believes that inflation will not have a material  adverse effect on its
future results of operations.


ITEM 2.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         Not applicable.



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<PAGE>
PART II.  OTHER INFORMATION


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

                  (a)       Exhibit 27 - Financial Data Schedule.

                  (b)       Reports on Form 8-K.

                            (1) The Company  filed a Form 8-K/A  dated  February
                                12, 1998  amending a Form 8-K dated  December 9,
                                1997 reporting an Item 2 event.







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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:  May 14, 1998                            By: /S/ JOANN SABATINO
                                                    ------------------
                                                    Joann Sabatino
                                                    Chief Financial Officer



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