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 September 30, 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 Identification No.)
Incorporation or Organization)                   


  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 September 30, 1998
          -----                              ---------------------------------
Common Stock, $.001 par value                        7,216,664 shares



<PAGE>
                                   NUCO2 INC.

                                      Index
                                      -----

PART I.    FINANCIAL INFORMATION

ITEM 1.    CONSOLIDATED FINANCIAL STATEMENTS

           Consolidated Balance Sheets as of September 30, 1998 and           3
                  June 30, 1998

           Consolidated Statements of Operations for the Three Months  
                  Ended September 30, 1998 and September 30, 1997             4

           Consolidated Statement of Shareholders' Equity for the Three
                  Months Ended September 30, 1998                             5

           Consolidated Statements of Cash Flows for the Three Months
                  Ended September 30, 1998 and September 30, 1997             6

           Notes to Consolidated Financial Statements                         7

ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF                           10
                  FINANCIAL CONDITION AND RESULTS OF
                  OPERATIONS

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES                          14
                  ABOUT MARKET RISK

PART II.   OTHER INFORMATION

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K                                  14

SIGNATURES                                                                   15


                                       2
<PAGE>
PART I.     FINANCIAL INFORMATION

ITEM 1.     CONSOLIDATED FINANCIAL STATEMENTS

                                   NUCO2 INC.

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS
                                     ------
<TABLE>
<CAPTION>
                                                                                         September 30, 1998       June 30, 1998
                                                                                         ------------------       -------------
                                                                                              (unaudited)
<S>                                                                                      <C>                    <C>          
Current assets:
    Cash and cash equivalents                                                            $     401,242          $     336,510
    Trade accounts receivable; net of allowance for doubtful
        accounts of $602,747 and $395,491, respectively                                      6,329,439              4,457,505
    Inventories                                                                                217,125                211,027
    Prepaid expenses and other current assets                                                  605,351                262,437
                                                                                         -------------          -------------
           Total current assets                                                              7,553,157              5,267,479
                                                                                         -------------          -------------

Property and equipment, net                                                                 90,417,204             85,435,933
                                                                                         -------------          -------------

Other assets:
    Goodwill, net                                                                           22,574,720             22,891,846
    Deferred charges, net                                                                    1,921,171              2,004,259
    Customer lists, net                                                                      3,676,606              3,963,588
    Restrictive covenants, net                                                               2,194,896              2,275,964
    Deferred lease acquisition costs, net                                                    2,622,542              2,475,139
    Deposits                                                                                   234,451                184,059
                                                                                         -------------          -------------
                                                                                            33,224,386             33,794,855
                                                                                         -------------          -------------

                                                                                         $ 131,194,747          $ 124,498,267
                                                                                         =============          =============

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

Current liabilities:
    Current maturities of long-term debt                                                 $     139,767          $     139,251
    Accounts payable                                                                         8,796,904              6,596,722
    Accrued expenses                                                                           422,266                323,254
    Accrued interest                                                                         1,724,652                844,153
    Accrued payroll                                                                            492,363                476,458
    Other current liabilities                                                                   48,318                  7,179
                                                                                         -------------          -------------
        Total current liabilities                                                           11,624,270              8,387,017

Long-term debt, excluding current maturities                                                34,426,713             29,460,614
Subordinated debt                                                                           29,739,286             29,728,571
Customer deposits                                                                            1,502,682              1,279,178
                                                                                         -------------          -------------
         Total liabilities                                                                  77,292,951             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 September 30, 1998
        and 7,216,664 shares at June 30, 1998                                                    7,217                  7,217
    Additional paid-in capital                                                              63,809,014             63,809,014
    Accumulated deficit                                                                     (9,914,435)            (8,173,344)
                                                                                         -------------          -------------
           Total shareholders' equity                                                       53,901,796             55,642,887
                                                                                         -------------          -------------
                                                                                         $ 131,194,747          $ 124,498,267
                                                                                         =============          =============
</TABLE>
                                       3
<PAGE>
                                   NUCO2 INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                        Three Months Ended
                                                                        ------------------
                                                           September 30, 1998       September 30, 1997
                                                           ------------------       ------------------
<S>                                                         <C>                        <C>         
Net Sales                                                   $ 10,863,493               $  7,114,290

Costs and expenses:
    Cost of products sold                                      5,752,090                  3,582,867
    Selling, general and administrative expenses               2,445,792                  2,000,323
    Depreciation and amortization                              2,845,719                  1,632,897
                                                            ------------               ------------
                                                              11,043,601                  7,216,087
                                                            ------------               ------------

    Operating  (loss)                                           (180,108)                  (101,797)

    Interest expense net                                       1,560,983                    209,112
                                                            ------------               ------------

    Net  (loss)                                             $ (1,741,091)              $   (310,909)
                                                            ============               ============

Basic and Diluted EPS:

    Net (loss)                                              $      (0.24)              $      (0.04)
                                                            ============               ============

    Weighted average number of common and common
         equivalent shares outstanding

        Basic and Diluted                                      7,216,664                  7,197,718
                                                            ============               ============


</TABLE>

                                       4
<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)                                    --                --                --          (1,741,091)        (1,741,091)
                                      ------------      ------------      ------------      ------------       ------------

Balance, September 30, 1998              7,216,664      $      7,217      $ 63,809,014      $ (9,914,435)      $ 53,901,796
                                      ============      ============      ============      ============       ============

</TABLE>

                                       5
<PAGE>
                                   NUCO2 INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                                           Three Months Ended
                                                                                                           ------------------
                                                                                           September 30, 1998    September 30, 1997*
                                                                                           ------------------    -------------------
Cash flows from operating activities:

<S>                                                                                         <C>                        <C>          
    Net (loss)                                                                              $ (1,741,091)              $   (310,909)
                                                                                                                 
    Adjustments  to  reconcile  net  (loss) to net cash  provided  by  operating                                 
        activities:                                                                                              
              Depreciation and amortization of property and equipment                          1,937,502                  1,162,138
              Amortization of other assets                                                       908,217                    470,759
              Loss on disposal of property and equipment                                         153,262                     89,413
              Changes in operating assets and liabilities:                                                       
              Decrease (increase) in:                                                                            
                   Trade accounts receivable                                                  (1,871,934)                  (326,725)
                   Inventories                                                                    (6,099)                   (34,807)
                   Prepaid expenses and other current assets                                    (342,913)                  (505,821)
              Increase (decrease) in:                                                                            
                    Accounts payable                                                           2,200,182                  1,770,708
                   Accrued expenses                                                               99,013                    (74,733)
                   Accrued payroll                                                                15,904                    331,768
                   Accrued interest                                                              880,499                     49,809
                   Other current liabilities                                                      41,138                     26,841
                   Customer deposits                                                             223,504                    114,786
                                                                                            ------------               ------------
                                                                                                                 
                   Net cash provided by operating activities                                   2,497,184                  2,763,227
                                                                                            ------------               ------------
                                                                                                                 
Cash flows from investing activities:                                                                            
    Proceeds from disposal of property and equipment                                              26,130                     14,700
    Purchase of property and equipment                                                        (7,069,137)                (4,552,564)
    Acquisition of businesses                                                                     30,500                 (6,089,992)
    (Increase) in deposits                                                                       (50,392)                   (11,318)
    Increase in deferred lease acquisition costs                                                (345,132)                  (398,904)
                                                                                            ------------               ------------
           Net cash (used in) investing activities                                            (7,408,031)               (11,038,078)
                                                                                            ------------               ------------
                                                                                                                 
Cash flows from financing activities:                                                                            
    Repayment of long-term debt                                                                  (22,671)                  (551,557)
    Proceeds from issuance of long-term debt and subordinated debt                             5,000,000                  5,500,000
    Increase in deferred charges                                                                  (1,750)                   (34,181)
                                                                                            ------------               ------------
        Net cash provided by financing activities                                              4,975,579                  4,914,262
                                                                                            ------------               ------------
                                                                                                                 
Net increase (decrease) in cash and cash equivalents                                              64,732                 (3,360,589)
Cash and cash equivalents at the beginning of period                                             336,510                 11,672,506
                                                                                            ------------               ------------
Cash and cash equivalents at the end of period                                              $    401,242               $  8,311,917
                                                                                            ============               ============
Supplemental  disclosure of cash flow  information:
    Cash paid during the period for:
        Interest                                                                            $    678,103               $    270,219
                                                                                            ============               ============
        Income taxes                                                                        $       --                 $       --
                                                                                            ============               ============

Supplemental schedule of noncash investing and financing activities:
    Acquisition of businesses:
        Fair value of assets acquired                                                       $       --                 $  7,050,600
        Cost in excess of net assets of businesses acquired                                         --                    5,724,400
        Liabilities assumed or incurred                                                             --                   (6,750,000)
                                                                                            ------------               ------------
            Cash paid                                                                       $       --                 $  6,025,000
                                                                                            ============               ============

</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.

*  Restated to conform to current year's classifications.

                                       6
<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. 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 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  three  months  ended
September 30, 1998 have been calculated according to the guidelines of Statement
128 and earnings per share of common stock for the three months ended  September
30, 1997 have been restated to conform with Statement 128.

            Incremental  shares  for  stock  options  and  warrants   calculated
pursuant to the treasury  stock method for the three months ended  September 30,
1998 were  32,961.  These  shares were not  included in diluted EPS because they
would have been antidilutive for such period. Additionally, options and warrants
to purchase  1,073,715  shares,  873,433  shares and 408,436 shares for $14.64 -
$17.00  per  share,  $11.25 - $12.50  per share and  $8.938 - $11.00  per share,
respectively,  were outstanding during the three months ended September 30, 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.

            Incremental  shares  for  stock  options  and  warrants   calculated
pursuant to the treasury  stock method for the three months ended  September 30,
1997 were  178,065.  These  shares were not included in diluted EPS because they
would have been antidilutive for such period. Additionally, options and warrants
to purchase  75,000 shares and 1,000,000  shares for $17.50 per share and $17.00
per  share,  respectively,  were  outstanding  during  the  three  months  ended
September  30,  1997 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 common shares.


                                       7
<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.

            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 $5,770,000 for the three
months ended  September 30, 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").  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 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%.

               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  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.

            A total of $34.0  million was  outstanding  pursuant to the SunTrust
Facility with interest from 8.4% to 8.6% per annum as of September 30, 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 the  Company's  Common
Stock at an  exercise  price of $16.40 per stock  unit.  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  stock  unit.  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.


                                       8
<PAGE>


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
September 30, 1998, options for 105,213 shares are 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                                   343,000               $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              612,426                  $9-$11.28               $10.61
             Granted                                       -0-                        -0-                  -0-
             Expired or canceled                         1,580                  $9-$11.25               $10.57
             Exercised                                     -0-                        -0-                  -0-
                                                  ------------           ----------------         ------------
             Outstanding at September 30, 1998         610,846                  $9-$11.28               $10.61
                                                  ============           ================         ============
</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 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 September 30, 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 and a total of
6,000 shares of Common  Stock at an exercise  price of $8.938 per share had been
issued. Of these options,  12,000 shares at an exercise price of $9.00 per share
are currently exercisable.

NOTE 7.      OPERATING LEASES

             The Company  entered into 29  operating  leases from July 1 through
September 30, 1998.  Two leases were for  warehouse  facilities  with  aggregate
annual rentals of approximately  $47,900 expiring at various dates through 2003.
Twenty-seven   leases  were  for  trucks  with   aggregate   annual  rentals  of
approximately $315,000 expiring at various dates through 2002.

                                       9
<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 September 30, 1998,  the Company  operated 78 service  locations in 44 states
servicing  approximately  58,000 bulk and high pressure CO2 customers consisting
of restaurants,  convenience stores, taverns, theme parks, resorts and stadiums.
Over 96% of potential CO2 beverage  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   50,000  of  the
approximately 110,000 beverage fountain bulk CO2 users in the Continental United
States.  The Company estimates that there are at approximately  800,000 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  during fiscal 1999 is to replicate the business  model
that it has achieved in its more mature  Southeastern  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  mature
Southeastern markets.  Mature market depots have gross margins in the 55% to 65%
range.  New  accounts  are  primarily  being  added to routes for which there is
substantial excess capacity, and therefore, relatively little additional cost is
incurred to service new customers.  New multi-unit placement agreements combined
with  single-unit  placements  will help the Company in achieving route density.
During the three months ended September 30, 1998, the Company reached multi-unit
placement agreements with national and regional chains aggregating approximately
4,500  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 primarily 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 liquid CO2. 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 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.


                                       10
<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
                                                                                                 September 30,
                                                                                                 -------------

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

           <S>                                                                       <C>                    <C>   
            Net sales.......................................................              100.0%                 100.0%
            Cost of products sold...........................................               52.9%                  50.4%
            Selling, general and administrative expenses....................               22.5%                  28.1%
            Depreciation and amortization...................................               26.2%                  23.0%
                                                                                     -------------           ------------
            Operating (loss)................................................               (1.6%)                 (1.5%)
                                                                                     -------------           ------------
            Interest expense, net...........................................               14.4%                   2.9%

            Net income (loss)...............................................              (16.0%)                 (4.4%)
                                                                                     =============           ============

            Other Data:
            Operating income before depreciation and amortization
            (EBITDA).......................................................                24.5%                  21.5%
                                                                                     =============           ============
</TABLE>


THREE MONTHS ENDED  SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED  SEPTEMBER
30, 1997

             Net sales increased by $3.7 million, or 52.7%, from $7.1 million in
the 1997 period to $10.9 million in the 1998 period.  Approximately $2.1 million
of the increase  represented net sales resulting from 15 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 $2.2 million,  from $3.6 million
in the 1997  period  to $5.8  million  in the 1998  period  and  increased  as a
percentage  of  net  sales  from  50.4%  to  52.9%.   The  dollar  increase  was
attributable  to  the  expansion  of  the  Company  into  new  territories.  The
percentage  increase was primarily  attributable to an increase in personnel and
depot  expenses.  Fully loaded  route  drivers  increased by $795,000  from $1.2
million in the 1997 period to $2.0 million in the 1998 period and increased as a
percentage  of net  sales  from  16.9% to 18.4%.  Depot  expenses  increased  by
$280,000  from  $279,000  in the 1997  period to $558,000 in the 1998 period and
increased as a percentage  of net sales from 3.9% to 5.1%.  The number of depots
operated by the Company at September 30, 1998 increased to 68, compared to 45 at
September  30,  1997.  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.  At September 30, 1998, the Company serviced over 350
bulk CO2 customers per delivery vehicle from 35% of its depots.

             Selling,  general and administrative expenses increased by $445,000
from $2.0  million in the 1997  period to $2.4  million  in the 1998  period and
decreased as a percentage of net sales from 28.1% to 22.5%.  The dollar increase
was   primarily   attributable   to  growth  in  the  number  of  marketing  and
administrative  personnel and their associated 


                                       11
<PAGE>

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
September  30,  1997,  the Company had  operations  in 36 states and employed 75
marketing  personnel and at September 30, 1998, the Company had operations in 44
states and employed 106 marketing personnel.

              Depreciation and amortization  increased by $1.2 million from $1.6
million in the 1997 period to $2.8 million in the 1998  period.  As a percentage
of net sales, such expenses  increased from 23.0% in the 1997 period to 26.2% in
the 1998 period. Depreciation expense increased by $775,000 from $1.2 million in
the 1997  period  to $1.9  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 16.3% in the 1997 period to 17.8% in
the 1998 period. Amortization expense increased by $437,000 from $471,000 in the
1997 period to $908,000 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 6.6% to 8.4%,
respectively.

             Net interest  increased  by $1.4 million from  $209,000 in the 1997
period to 1.6 million in the 1998 period and  increased as a  percentage  of net
sales from 2.9% to 14.4%.  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 $1.1 million,  or 74%,
from $1.5  million in the 1997  period to $2.7  million  in the 1998  period and
increased as a percentage  of net sales from 21.5% to 24.5%,  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 $15.0
million  to $25.0  million  during the  remaining  nine  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  $50.00  million to a total of $100.0 million (the
"Additional  SunTrust Facility").  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.

             During the three months ended  September  30, 1998,  the  Company's
capital  resources  included cash flows from operations and available  borrowing
capacity under the SunTrust Facility.

             As of September 30, 1998, a total of $34.0 million was  outstanding
under the SunTrust  Facility  with  interest at two hundred  seventy-five  basis
points above the 90-day London InterBank  Offering Rate ("LIBOR") (8.4 % to 8.6%
at September 30, 1998).

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

                                       12

<PAGE>


             Working Capital.  At June 30, 1998 the Company had negative working
capital of $3.1 million. At September 30, 1998, the Company had negative working
capital of $4.1 million.

             Cash Flows from  Operating  Activities.  For the three months ended
September  30, 1997 and  September  30,  1998,  net cash  provided by  operating
activities  was $2.8 million and $2.5 million,  respectively.  The decrease from
the 1997 period to the 1998 period of $266,000 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 three months ended
September 30, 1997 and September 30, 1998, net cash used in investing activities
was $11.0 million and $7.4 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,  the cash  expended in  connection
with the asset acquisitions.

             Cash Flows from  Financing  Activities.  For the three months ended
September  30, 1997 and  September  30, 1998,  cash flows  provided by financing
activities  were $4.9  million  and $5.0  million,  respectively.  For the three
months ended  September 30, 1997 and  September  30, 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 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.

                                       13

<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 September 30, 1998, a total of $34.0 million was outstanding  under
the SunTrust  Facility  with interest at two hundred  seventy-five  basis points
above the 90 day LIBOR rate (8.4% to 8.6% at  September  30,  1998).  Based upon
$34.0 million outstanding under the SunTrust Facility at September 30, 1998, the
Company's  annual  interest cost under the SunTrust  Facility  would increase by
$340,000 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 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
September 30, 1998.


                                       14
<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:  November 13, 1998                    By:    /s/ Joann Sabatino
                                                    ------------------
                                                    Joann Sabatino
                                                    Chief Financial Officer


                                       15