SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    --------

                                    FORM 10-K

                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

(Mark One)
/X/      ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
         EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2000

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

For the transaction 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 S.E Market Place, Stuart, Florida                  34997
--------------------------------------------------------------------------------
(Address of Principal Executive Offices)             (Zip Code)

Registrant's telephone number, including area code:  (561) 221-1754

Securities registered pursuant to Section 12(b) of the Act:

                                                          None.

Securities registered pursuant to Section 12(g) of the Act:

                                         Common Stock, $.001 par value
                                         -----------------------------
                                                (Title of Class)

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

            Indicate by check mark if disclosure of delinquent  filers  pursuant
to  Item  405 of  Regulation  S-K is  not  contained  herein,  and  will  not be
contained,  to the  best of  Registrant's  knowledge,  in  definitive  proxy  or
information  statements  incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. / /


                                                           (continued next page)


<PAGE>


            The  aggregate  market value at September  19, 2000 of shares of the
Registrant's  common  stock,  $.001 par value per share  (based upon the closing
price of $7.125 per share of such stock on the  Nasdaq  National  Market on such
date), held by  non-affiliates of the Registrant was approximately  $36,346,000.
Solely for the  purposes  of this  calculation,  shares  held by  directors  and
executive  officers of the Registrant have been excluded.  Such exclusion should
not be  deemed a  determination  or an  admission  by the  Registrant  that such
individuals are, in fact, affiliates of the Registrant.

            At September 19, 2000,  there were  outstanding  7,275,015 shares of
the Registrant's common stock, $.001 par value.

                       DOCUMENTS INCORPORATED BY REFERENCE

            The  information  required by Items 10, 11, 12 and 13 of Part III is
incorporated by reference to the  Registrant's  definitive proxy statement to be
filed not later than October 30, 2000 pursuant to Regulation 14A.


<PAGE>

                                   NUCO2 INC.


                                      Index
                                                                           Page
                                                                           ----

PART I.
Item 1.     Business.                                                        1
Item 2.     Properties.                                                      9
Item 3.     Legal Proceedings.                                               9
Item 4.     Submission of Matters to a Vote of Security Holders.             9

PART II.
Item 5.     Market For Registrant's Common Equity and
            Related Stockholder Matters.                                     9
Item 6.     Selected Financial Data.                                        11
Item 7.     Management's Discussion and Analysis of Financial Condition and
            Results of Operations.                                          12
Item 7A.    Quantitative and Qualitative Disclosures About Market Risk.     18
Item 8      Financial Statements and Supplementary Data.                    18
Item 9.     Changes in and Disagreements With Accountants on Accounting and
            Financial Disclosure.                                           18

PART III.
Item 10.    Directors and Executive Officers of the Registrant.             18
Item 11.    Executive Compensation.                                         18
Item 12.    Security Ownership of Certain Beneficial Owners and Management. 18
Item 13.    Certain Relationships and Related Transactions.                 19

PART IV.
Item 14.    Exhibits, Financial Statement Schedules,
            and Reports on Form 8-K.                                        19

Signatures                                                                  22
Index to Financial Statements                                              F-1


<PAGE>


1.          Business.

General

            NuCo2 Inc. is the largest  supplier in the United States of bulk CO2
systems and bulk CO2 for carbonating and dispensing 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 replacing high pressure CO2 as the beverage
carbonation  system of  choice.  We are the first and only  company to operate a
national network of service  locations with over 99% of fountain  beverage users
in the Continental United States within our current service area.

            Our customers are many of the major national and regional restaurant
and convenience store chains, movie theater operators,  theme parks, resorts and
sports venues, including:
<TABLE>
<CAPTION>

              Quick Serve Restaurants                                              Casual/Dinner Houses
<S>                          <C>                               <C>                                      <C>
 Burger King                 Captain D's                       Applebee's                               Landry's
 Pizza Hut                   Sonic Drive-In                    Outback Steakhouse                       Red Lobster/Olive Garden
 Taco Bell                   White Castle                      Chili's                                  Shoney's
 KFC                         Roy Rogers                        Ryan's Family Steak House                Longhorn Steakhouse
 McDonald's                  Dunkin' Donuts                    Pizzeria Uno                             Ponderosa Steak House
 Wendy's                     Pizza Inn                         Hard Rock Cafe                           Friendly's Restaurant
 Krystal                     Bumpers Drive-In                  Official All Star Cafe                   Ruby Tuesday
 Hardee's                    Checker's                         Spaghetti Warehouse                      Roadhouse Grill
 Churchs Chicken             Steak'n Shake                     Don Pablo's                              Bahama Breeze
 Arby's                      Carl's Jr.                        Chevy's                                  Cooker Bar & Grill
 Schlotzsky's Deli           D'Angelo's Sandwich Shop          Rio Bravo Cantina                        Bertucci's
 Chick-Fil-A                 Sbarro                            Perkins Family Restaurants
 Quizno's Classic Subs       Panera Bread Company              Cheesecake Factory
 Papa Gino's

 Contract Feeders            Wholesale Clubs                              Convenience/Petroleum
 Sodexho Operations          BJ's Wholesale                    7-Eleven                                 Exxon
 Host Marriott               Costco                            Circle K                                 Shell ETD
 Daka International          Sam's Club                        Coastal Mart                             E-Z Serve
 ARAmark                                                       Total Petroleum                          Racetrac Petroleum
 Fine Host                                                     Golden Pantry                            Spectrum Stores
 Sport Services                                                Handy Way                                Sunshine Jr.
                                                               Christy's Market                         Star Enterprises
                                                               Phillips 66                              BP/Amoco
                                                               Conoco                                   Farm Stores
 Sports Venues                                                 Pantry Stores                            Tom Thumb
 Pro Player Stadium
 Madison Square Garden                                                            Movie Theatres
 Georgia Dome                                                  Regal Cinemas                            General Cinema
 Derby Lane                                                    American Multi Cinema                    United Artist Cinemas
 AMF Bowling Centers                                           Sony/Loew's Cinemas                      Wallace Theatres
 Brunswick Recreation Centers                                  Litchfield Cinemas
 Raymond James Stadium
</TABLE>

            We are a  Florida  corporation,  incorporated  in  1990.  Through  a
combination of internal  growth and over 30  acquisitions,  we have expanded our
service area from one service location and 19 customers in Florida to 92 service
locations  and  approximately  73,000 bulk and high pressure CO2 customers in 45
states.  Our customer base has increased by an average of 50% annually from 1996
to 2000.  Today,  the majority of our growth is driven by the conversion of high
pressure CO2 users to bulk CO2 systems.

                                       1

<PAGE>


                                Service Locations








                                [OBJECT OMITTED]


                                 Customer Base




                                [OBJECT OMITTED]


                                       2

<PAGE>


            Our bulk CO2 customer  base is highest in Florida,  Texas,  Georgia,
California and New York.

                Five States With Largest Bulk CO2 Customer Base


                                [OBJECT OMITTED]




            Substantially  all of our revenues have been derived from the rental
of bulk CO2 systems  installed  at  customers'  sites,  the sale of CO2 and high
pressure cylinder revenues.  Revenues have grown from $812,000 in fiscal 1991 to
$58.0  million in fiscal 2000,  with an average  increase of 50%  annually  from
fiscal 1996 to fiscal 2000. We believe that  earnings  before  interest,  taxes,
depreciation and amortization  ("EBITDA") is the principal  financial measure by
which we should be measured as we continue to achieve  national market share and
build  route  density.  EBITDA  has grown from  $15,000 in fiscal  1991 to $16.1
million in fiscal 2000,  with an average  increase of 46%  annually  from fiscal
1996 to fiscal 2000.


                                   Net Sales


                                [OBJECT OMITTED]


                                     EBITDA

                                [OBJECT OMITTED]


                                       3

<PAGE>




Opportunity for Growth

            CO2 is  universally  used  for the  carbonation  and  dispensing  of
fountain beverages.  Unlike high pressure cylinders, which are typically changed
out when empty and transported to the supplier's  depot for refilling,  bulk CO2
systems are  permanently  installed at the customer's site and are filled by the
supplier  from a  specialized  bulk CO2 truck on a constant  "stay fill"  basis.
Advantages  to users of bulk CO2 systems over high  pressure  cylinders  include
enhanced safety,  improved beverage quality and product yields, reduced employee
handling and cylinder  storage  requirements,  and  elimination  of downtime and
product  waste  during high  pressure  cylinder  changeovers.  Consequently,  we
believe  that bulk CO2  systems  will  eventually  displace  most high  pressure
cylinders in the fountain beverage market.

            There are currently approximately 140,000 bulk CO2 beverage users in
the United States. Of these,  approximately 68,000 are already our customers. We
also  currently  service  approximately  5,000 high  pressure CO2  customers and
estimate that there are  approximately  800,000  fountain  beverage users in the
Continental   United  States  and  therefore  the  bulk  CO2  industry  presents
substantial opportunity for growth.


                       Total Beverage CO2 Users (800,000)

                                [OBJECT OMITTED]




                                       4

<PAGE>


Products and Services

            We offer our customers two principal services: (1) a stationary bulk
CO2 system  installed on the customer's site and (2) routine filling of the bulk
CO2 system with bulk CO2 on a four week cycle.  The bulk CO2 system installed at
a customer's site consists of a cryogenic vessel for the storage of bulk CO2 and
related valves,  regulators and gas lines. The cryogenic vessel preserves CO2 in
its liquid  form and then  converts  the liquid  product  to  gaseous  CO2,  the
necessary ingredient for beverage carbonation. We offer bulk CO2 systems ranging
from 50 to 600 lbs. of CO2 capacity. This range of bulk CO2 system sizes permits
us to market our services to a broad range of potential customers.

            Presently,  we typically enter into a six year bulk CO2 system lease
and CO2 supply  agreement with our customers.  Generally,  these  agreements are
classified  as one of two types:  (1) "budget  plan"  service  contracts  or (2)
"rental plus per pound charge" contracts. Under budget plan contracts, customers
pay a fixed monthly  charge for the lease of a bulk CO2 system  installed on the
customer's site and refills of bulk CO2. The bulk CO2 is included in the monthly
rental charge up to a predetermined  maximum annual volume.  This arrangement is
appealing to the customer  since we bear the initial cost of the  equipment  and
installation,  with the customer  only facing a predictable  and modest  monthly
usage fee. If the maximum  annual  volume of CO2 is  exceeded,  the  customer is
charged on a per pound basis for  additional  bulk CO2  delivered.  Under rental
plus  per  pound  charge  contracts,  we also  lease a bulk  CO2  system  to the
customer,  but the  customer  is charged  on a per pound  basis for all bulk CO2
delivered.  Although the bulk CO2 system is typically  owned by us and leased to
the customer, some customers own their own bulk CO2 systems. Even with customers
that own their own their own bulk CO2 systems,  we seek to arrange for long-term
bulk CO2 supply contracts.

            We believe that the use of long-term  contracts provides benefits to
both us and our  customers.  Customers are able to largely  eliminate CO2 supply
interruptions  and the need to  operate  CO2  equipment  themselves,  while  the
contract adds  stability to our revenue  base. In each of fiscal 1998,  1999 and
2000,  less  than 5% of our bulk CO2  systems  in  service  experienced  service
termination.  Service  termination  is typically  caused by restaurant  closure.
After the expiration of the initial term of a contract,  the contract  generally
renews  unless we or the  customer  notifies  the other of intent to cancel.  To
date, our experience has been that  contracts  generally  "roll-over"  without a
significant   portion   terminating   in  any  one  year.   The  largest  number
(approximately 26%) of our current contracts expire in 2003.

            We also supply high pressure gases in cylinder form,  including CO2,
helium and nitrogen.  We estimate that we currently service  approximately 5,000
high pressure CO2 customers,  most of whom are very low volume users. Helium and
nitrogen are supplied  mostly to existing  customers in connection  with filling
balloons and dispensing beer, respectively.

            We have an agreement with The Coca-Cola  Company that  establishes a
framework  to  develop a  strategic  alliance  between us for  providing  Coke's
fountain  customers  in the United  States  with  quality  CO2,  CO2  dispensing
systems, technology and service that are superior to systems available today. If
we  successfully   develop  a  strategic  alliance,   the  agreement  ultimately
contemplates, among other things, that we will be the sole preferred provider of
bulk CO2 to Coke's customers,  that we and Coke will develop  differentiated CO2
sales  and  marketing  programs  to be used  solely  by  Coke's  and  our  sales
associates exclusively for Coke's customers,  and that Coke will not proactively
market CO2 programs of other CO2 suppliers to customers that meet an agreed upon
customer profile.

            We have an agreement with MiCell  Technologies Inc. ("MiCell") to be
the  exclusive  supplier in the United States and Canada of bulk CO2 systems and
bulk CO2 to MiCell's  customers in the dry cleaning  industry that use the MICO2
garment cleaning fluid system technology developed and patented by MiCell. While
perchloroethylele  ("perc")  has  been  used  effectively  in the  dry  cleaning
industry for years,  there are growing concerns that perc may be a health hazard
and  tighter  controls  have been  placed  on its use.  Dry  cleaners  and other
businesses that use perc must dispose of it as hazardous waste. The MICO2 system
is an alternative to perc and uses a combination of CO2 and specialty detergents
as a cleaning solvent.  MiCell believes that the MICO2 system is environmentally
benign,  non-carcinogenic,  safe for  garments and does a better job of cleaning
than any of the alternatives. MiCell completed field testing of the MICO2 system
and began its sale in November  1998. We currently  service 13 MiCell  customers
and expect that number to

                                       5

<PAGE>

increase if MiCell is successful in commercializing  the MICO2 system.  Tests of
the MICO2 system have indicated  that the average dry cleaner  customer will use
approximately 10 times the volume of bulk CO2 that an average fountain  beverage
customer uses.

            We also have an agreement with Geotechnical Instruments,  Inc. to be
the exclusive  distributor  in the United States of  stationary  carbon  dioxide
detectors.  Escaped CO2 in an  enclosed  area  displaces  oxygen and can lead to
asphyxiation.  Our bulk CO2 systems are  typically  installed  in store rooms or
basements at a customer's site.  Municipalities have increasingly been requiring
the use of carbon dioxide detectors as a preventive measure.

Marketing and Customers

            At June 30,  2000,  we serviced  approximately  73,000 bulk and high
pressure CO2 customers,  none of which  accounted for more than 5% of our fiscal
2000 net sales.  We market our bulk CO2 products and services to large customers
such as restaurant and convenience store chains, movie theater operators,  theme
parks,  resorts  and sports  venues.  Our  customers  include  most of the major
national and regional  chains  throughout the United  States.  We approach large
chains on a corporate  or regional  level for  approval to become the  exclusive
supplier  of bulk CO2  products  and  services  on a national  basis or within a
designated territory. We then direct our sales efforts to the managers or owners
of the individual or franchised  operating units. Our  relationships  with chain
customers in one geographic  market frequently help us to establish service with
these same chains when we expand into new  markets.  After  accessing  the chain
accounts in a new market,  we attempt to rapidly  build route density by leasing
bulk CO2 systems to independent  restaurants,  convenience  stores and theaters.
While the large chains  offer  immediate  penetration  on a national or regional
basis,  the  small  operators  are  important   accounts  because  they  provide
geographic  density which optimizes  delivery  efficiency and reduces costs on a
per customer basis. The introduction of smaller bulk CO2 systems (50 and 100 lb.
capacity  vessels),  which we helped develop,  allows us to penetrate the market
for lower volume users of CO2 such as mall-based food courts,  small restaurants
and mass-market  retailers.  Our products and services are sold by a sales force
of 63 commission only independent  sales  representatives  and 27 salaried sales
personnel.

Competition

            We are the largest as well as the sole national supplier of bulk CO2
systems and bulk CO2 for carbonating and dispensing fountain beverages.  In many
of our markets, we are a leading or the dominant supplier of bulk CO2 services.

            Major restaurant and convenience store chains continue to adopt bulk
CO2  technology  and search for qualified  suppliers to install and service bulk
CO2 systems.  With the exception of us, we believe that  qualified  suppliers of
bulk CO2 services do not presently  exist in many regions of the United  States.
Unlike many of our competitors for whom bulk CO2 is a secondary service line, we
have no material  lines of business at present  other than the provision of bulk
CO2 services.  All aspects of our operations are guided by our focus on the bulk
CO2 business, including our selection of operating equipment, design of delivery
routes, location of service locations,  structure of customer contracts, content
of  employee  training  programs  and  design  of  management   information  and
accounting  systems.  By restricting the scope of our activities to the bulk CO2
business,  and largely  avoiding the dilution of  management  time and resources
that would be required by other  service  lines,  we believe that we are able to
maximize the level of service we provide to our bulk CO2 customers.

            We offer a wide range of  innovative  sales,  marketing  and billing
programs. We believe that our ability to compete depends on a number of factors,
including   price,   product  quality,   availability   and  reliability,   name
recognition,  delivery  time and  post-sale  service  and  support.  Despite the
customer-level  advantages of bulk CO2 systems over high pressure cylinders,  we
generally price our services comparably to the price of high pressure cylinders.
This has proved an effective  inducement to cause customers to convert from high
pressure cylinders to bulk CO2 systems. We believe that we enjoy cost advantages
over our competitors due to the density of our route structure,  a lower average
time and distance  traveled between stops and a lower average cost per delivery.
Each bulk CO2 system  serviced by us has a label with a toll-free  help line for
the  customer's  use.  We respond to  service  calls on a 24-hour,  7-day-a-week
basis,  and the

                                       6


<PAGE>

experience  level of our personnel aids in the resolution of equipment  failures
or  other  service  interruptions,  whether  or not  caused  by  our  equipment.
Recognizing the public  visibility of our customers,  we carefully  maintain the
appearance of our vehicles and the professional image of our employees.

            Many  types of  businesses  compete  in the  fountain  beverage  CO2
business and market share is  fragmented.  High pressure  cylinders and bulk CO2
services are most frequently provided by distributors of industrial gases. These
companies generally provide a number of products and services in addition to CO2
and often view bulk CO2 systems as high-service adjuncts to their core business.
Industrial gas distributors  generally have been reluctant to attempt to convert
their high pressure  cylinder  customers to bulk CO2 systems for several reasons
including  the capital  outlays  required  to purchase  bulk CO2 systems and the
idling of existing  high  pressure  cylinders and  associated  equipment.  Other
competitors  in the  fountain  beverage  CO2 business  include  fountain  supply
companies  and  distributors  of restaurant  supplies and  groceries  which vary
greatly in size.  There are also a number of small  companies  that provide bulk
CO2 services that operate on a local or regional geographic scope. While many of
these  suppliers  lack the  capital  necessary  to offer  bulk  CO2  systems  to
customers on lease, or to purchase  additional or replacement  specialized  bulk
CO2  trucks  and  equipment,  suppliers  vary  widely  in size  and  some of our
competitors  have  significantly  greater  financial,   technical  or  marketing
resources than we do.

Operations

            At June 30, 2000, we operated 91 service  locations  (70  stationary
depots and 21 mobile  depots)  located  throughout our 44 state service area and
operated 158 specialized  bulk CO2 trucks,  95  installation  vehicles and seven
high pressure cylinder delivery trucks.  Each specialized bulk CO2 truck refills
bulk CO2  systems  at  customers'  sites on a  regular  cycle  and CO2  delivery
quantities  are measured by flow meters  installed on the bulk CO2 trucks.  Each
stationary  depot is equipped with a storage tank (up to 40 tons) which receives
bulk CO2 from large capacity tanker trucks and from which our  specialized  bulk
CO2  trucks  are  filled  with  bulk  CO2 for  delivery  to  customers.  In most
instances,  the bulk CO2  system at a  customer's  site is  accessible  from the
outside  of the  establishment  and  delivery  of bulk CO2 does  not  cause  any
interference  with the  operations  of the  customer.  All  dispatch and billing
functions are conducted from our corporate headquarters in Stuart, Florida, with
route  drivers,  installers  and service  personnel  operating  from our service
locations.

            We have substantially rolled out a new mobile information system for
use in our field  operations.  The system utilizes a hand held device to provide
field personnel with up to date delivery route and customer account  information
and  also  serves  as  an  input  source  to  record  all  delivery  transaction
information.  At  the  end of  the  driver's  shift,  all  delivery  transaction
information is transmitted electronically to our headquarters in Stuart, Florida
and downloaded into our computer  systems.  We believe that this new system will
revolutionize our route management  system and lead to improved  efficiencies in
virtually all aspects of our operations.  Anticipated  benefits include improved
route efficiencies and monitoring of driver performance,  a reduction in courier
charges for  overnight  shipment of  delivery  tickets and in employee  hours to
manually input delivery  tickets since delivery  information will be transmitted
electronically,   virtual   elimination  of  illegible   delivery   tickets  and
consequently a reduction in billing errors and customer disputes and a reduction
in paperwork as well as telephone calls to and from the field.

            The new mobile  information system is the first phase of our planned
RouteSmart(TM)  leading edge delivery  system.  We anticipate  that the next two
phases of the  RouteSmart(TM)  delivery system,  software-based  forecasting and
route design will be operational by March 31, 2001. The forecasting  application
will analyze  customer CO2 usage and predict when a customer will run out of CO2
enabling  us to  schedule a delivery to prevent  such an  occurrence.  The route
design  software  will produce  efficient  delivery  routes to minimize time and
distance traveled between deliveries.

            The fourth phase of the  RouteSmart(TM)  delivery system will be the
development  of a  monitoring  system  installed at the  customer's  location to
remotely  inspect bulk CO2 tanks. It is anticipated that the system will provide
readings of CO2 pressure,  volume and purity either by automated  telephone call
to the tank or triggered by preset emergency  readings.  We anticipate that this
phase of the  RouteSmart(TM)  delivery  system will be  operational  in the next
couple of years.

                                       7

<PAGE>

            The final  phase of the  fully  integrated  RouteSmart(TM)  delivery
system is expected to be Internet-based customer support. It is anticipated that
when  this  final  phase of the  RouteSmart(TM)  delivery  system  is in  place,
customers will be able to log onto the Internet,  and among other things,  bring
up their accounts, check payment balances as well as scheduled deliveries.

Bulk CO2 Supply

            Bulk CO2 is currently a readily available commodity product which is
processed and sold by various  sources.  In May 1997, we entered into a ten year
bulk CO2 exclusive  requirements contract with The BOC Group, Inc. that provides
high quality CO2 as well as relatively  stable prices at competitive  levels. In
addition,  the  agreement  provides  that if  sufficient  quantities of bulk CO2
become  unavailable  for any reason,  we will  receive  treatment as a preferred
customer.

Bulk CO2 Systems

            We purchase new bulk CO2 systems from their two major  manufacturers
pursuant to purchase agreements and we believe that we are the largest purchaser
of bulk CO2 systems  from these  manufacturers  combined.  We purchase  bulk CO2
systems in six sizes (50,  100,  250,  300, 400 or 600 lbs.  bulk CO2  capacity)
depending on the needs of our customers.  Bulk CO2 systems are vacuum  insulated
containers with extremely high insulation  characteristics  allowing the storage
of CO2, in its liquid form, at very low  temperatures.  Bulk CO2 systems operate
under low pressure, are fully automatic, and require no electricity.  Based upon
manufacturers'  estimates,  the service life of a bulk CO2 system is expected to
exceed 20 years with minimal  maintenance.  We maintain an adequate inventory of
bulk CO2 systems to meet expected customer demand.

Employees

            At June 30, 2000, we employed 545 full-time  employees,  174 of whom
were involved in management,  sales or customer support,  241 of whom were route
drivers  and 130 of  whom  were  in  installation  functions.  We  consider  our
relationship with our employees to be good.

Trademarks

            We market our services using the NuCo2(R)  trademark  which has been
registered by us with the United States Patent and Trademark Office. The current
registration expires in 2007.

Seasonality

            At June 30, 2000, approximately 5,000 of our bulk CO2 customers were
billed under rental plus per pound charge contracts and approximately  10,000 of
our bulk CO2  customers  own their own bulk CO2  systems  and are  billed by the
pound for all bulk CO2  delivered.  Customers who purchase bulk CO2 by the pound
tend to consume less CO2 in the winter months and our revenues to such customers
will be correspondingly lower in times of cold or inclement weather.

Regulatory Matters

            Our business is subject to various federal, state and local laws and
regulations adopted for the protection of the environment, the health and safety
of employees and users of our products.  For example, the transportation of bulk
CO2 is  subject to  regulation  by various  federal,  state and local  agencies,
including the U.S.  Department of  Transportation.  Regulatory  authorities have
broad powers and we are subject to regulatory and  legislative  changes that can
affect the economics of the industry by requiring changes in operating practices
or by  influencing  the demand for,  and the costs of,  providing  services.  We
believe that we are in compliance  in all material  respects with all such laws,
regulations  and  standards  currently in effect and that the cost of compliance
with such laws,  regulations  and  standards has not and is not  anticipated  to
materially adversely effect us.

                                       8

<PAGE>

2.          Properties.

            Our  corporate  headquarters  are  located in a 32,000  square  foot
rented facility in Stuart, Florida that accommodates corporate,  administrative,
marketing,  sales and  warehouse  space.  At June 30,  2000,  we also  rented 70
stationary service locations  throughout 44 states.  These facilities are rented
on terms  consistent with market  conditions  prevailing in the area. We believe
that our  existing  facilities  are  suitable  for our  current  needs  and that
additional or replacement  facilities,  if needed,  are available to meet future
needs.


3.          Legal Proceedings.

            We are  involved  from  time to time in  litigation  arising  in the
ordinary  course  of  business,  none of which is  expected  to have a  material
adverse effect on our financial condition or results of operations.

4.          Submission of Matters to a Vote of Security Holders.

            Not applicable.

5.          Market  For  Registrant's  Common  Equity  and  Related  Stockholder
            Matters.

            Our Common  Stock  trades on the Nasdaq  National  Market  under the
symbol "NUCO".  The following  table  indicates the high and low sale prices for
our Common  Stock for each  quarterly  period  during  fiscal 1999 and 2000,  as
reported by the Nasdaq National Market.

Calendar 1998                                    High                    Low
-------------                                    ----                    ---
Third Quarter                                $  10.500                 $ 5.625
Fourth Quarter                                   8.500                   5.000

Calendar 1999
-------------
First Quarter                                $  10.000                 $ 6.250
Second Quarter                                   9.875                   5.375
Third Quarter                                    9.375                   5.000
Fourth Quarter                                  17.000                   5.500

Calendar 2000
-------------
First Quarter                                $  17.750                 $10.500
Second Quarter                                  13.750                   5.500

             At August 29, 2000, there were  approximately 200 holders of record
of our  Common  Stock,  although  there is a much  larger  number of  beneficial
owners.

             We have never paid cash dividends on our Common Stock and we do not
anticipate  declaring any cash dividends on our Common Stock in the  foreseeable
future.  We intend to retain all future  earnings for use in the  development of
our  business.  In  addition,  the payment of cash  dividends is  restricted  by
financial covenants in our loan agreements.

             On May 4, 1999, in  connection  with and in  consideration  for the
purchase of $10.0 million of our 12% Senior  Subordinated  Promissory  Notes due
2005 by an existing holder of our 12% Senior  Subordinated  Promissory Notes due
2004 and an affiliate of SunTrust Bank, South Florida, National Association,  we
issued  warrants to purchase  372,892  shares of our Common Stock at an exercise
price of $6.65 per share in reliance upon the

                                       9

<PAGE>

exemption provided by Section 4(2) of the Securities Act of 1933, as amended. No
underwriting discounts or commissions were paid.

             On May  15,  2000,  we  sold  5,000  shares  of  our 8%  Cumulative
Convertible  Preferred  Stock to Chase  Capital  Investments,  L.P.,  a Delaware
limited partnership,  for an aggregate consideration of $5.0 million in reliance
upon the exemption  provided by Section 4(2) of the  Securities  Act of 1933, as
amended.  Shares  of  the  8%  Cumulative  Convertible  Preferred  Stock  may be
converted  into shares of our Common Stock at any time at a conversion  price of
$9.47 per share,  which represents a 20% premium to the average closing price of
the Common Stock on the Nasdaq  National Market for the 20 trading days prior to
May 12, 2000. No underwriting discounts or commissions were paid.



                                       10

<PAGE>

6.           Selected Financial Data.

             The Selected  Financial Data set forth below reflect our historical
results of  operations,  financial  condition and operating data for the periods
indicated  and should be read in  conjunction  with the  consolidated  financial
statements  and notes  thereto  and  Management's  Discussion  and  Analysis  of
Financial  Condition and Results of Operations  included  elsewhere in this Form
10-K.

<TABLE>
<CAPTION>

                                                              Fiscal Year Ended June 30,
                                                              --------------------------
                                                     2000        1999         1998        1997          1996
                                                     ----        ----         ----        ----          ----
                                                      (in thousands, except per share amounts and Operating Data)
Income Statement Data:
<S>                                              <C>          <C>          <C>          <C>          <C>
Net sales                                        $  57,951    $  47,098    $  35,077    $  18,944    $  11,966
Cost of products sold                               28,931       25,225       18,578        8,992        5,177
Selling, general and administrative expenses        12,887       10,554        9,396        5,859        3,067
Depreciation and amortization                       15,501       12,763        8,912        4,246        2,417
                                                 ---------    ---------    ---------    ---------    ---------

Operating income (loss)                                632       (1,444)      (1,809)        (153)       1,305
Interest expense, net                               10,015        7,489        3,639         (680)       1,258
                                                 ---------    ---------    ---------    ---------    ---------

Income (loss) before extraordinary item             (9,383)      (8,933)      (5,448)         527           47
Extraordinary item                                    --           --            187         --            860
                                                 ---------    ---------    ---------    ---------    ---------

Net income (loss)                                $  (9,383)   $  (8,933)   $  (5,635)   $     527    $    (813)
                                                 =========    =========    =========    =========    =========

Income (loss) per common share before
     extraordinary item                          $   (1.30)   $   (1.24)   $   (0.75)   $     .07    $    (.02)
Extraordinary item                                    --           --          (0.03)        --           (.19)
                                                 ---------    ---------    ---------    ---------    ---------
Net income (loss) per common share               $   (1.30)   $   (1.24)   $   (0.78)   $     .07    $    (.21)

Weighted average shares outstanding                  7,238        7,217        7,210        7,318        4,500

Other Data:
EBITDA (1)                                       $  16,133    $  11,319    $   7,103    $   4,093    $   3,722

Operating Data:
Company owned bulk CO2 systems serviced
     Beginning of period                            50,395       39,295       21,919       12,884        7,967
     New installations, net                          7,605       11,100        9,446        5,817        3,337
     Acquisitions                                     --           --          7,930        3,218        1,580
                                                 ---------    ---------    ---------    ---------    ---------
Total Company owned bulk CO2 systems serviced:      58,000       50,395       39,295       21,919       12,884
Customer owned bulk CO2 systems serviced            10,000        8,605        6,800        4,800        2,900
                                                 ---------    ---------    ---------    ---------    ---------
Total bulk CO2 systems serviced                     68,000       59,000       46,095       26,719       15,784
Total high pressure CO2 customers                    5,000        6,000        9,000        2,000          400
                                                 ---------    ---------    ---------    ---------    ---------
Total customers                                     73,000       65,000       55,095       28,719       16,184
Stationary depots                                       70           69           63           38           24
Mobile depots                                           21           15            2            0            0
Bulk CO2 trucks                                        158          166          150           83           49
Installation vehicles                                   95           86           76           36           19
High pressure cylinder delivery trucks                   7            7           17            1            1


Balance Sheet Data:
Cash and cash equivalents                        $     279    $   1,579    $     337    $  11,673    $  43,001
Total assets                                       148,549      141,630      124,498       73,344       74,633
Total debt (including short-term debt)              92,082       82,461       59,328        9,546       10,844
Redeemable Preferred Stock                           5,050         --           --           --           --
Total shareholders' equity                          38,240       47,733       55,643       60,702       60,684
</TABLE>

--------------------
(1)     EBITDA   represents   operating  income  (loss)  plus  depreciation  and
        amortization.  Information  regarding EBITDA is presented because of its
        use by  certain  investors  as one  measure  of an  issuer's  ability to
        generate

                                       11

<PAGE>

        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 an issuer's operating performance.

7.      Management's  Discussion and Analysis of Financial Condition and Results
        of Operations.

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

Overview

            We are the largest supplier in the United States of bulk CO2 systems
and bulk CO2 for carbonating and dispensing fountain  beverages.  As of June 30,
2000,  we  operated a national  network  of 91  service  locations  in 44 states
servicing approximately 73,000 bulk and high pressure customers.  Currently, 99%
of  fountain  beverage  users in the  Continental  United  States are within our
current service area.

            Growth in our customer  base has averaged 50% annually  from 1996 to
2000.  Our rapid  growth has been due to a  combination  of internal  growth and
acquisitions.  Today,  the majority of our growth is driven by the conversion of
high  pressure  CO2 users to bulk CO2  systems.  Our success in  conversions  is
demonstrated  in the Florida market where we continue to add new bulk CO2 system
installations, even after actively marketing in the state since 1990.

            Substantially  all of our revenues have been derived from the rental
of bulk CO2 systems  installed  at  customers'  sites,  the sale of CO2 and high
pressure  cylinder  revenues.  Revenues  have grown from $12.0 million in fiscal
1996 to $58.0  million in fiscal 2000, an average  increase of 50% annually.  We
believe  that our  revenue  base is stable  due to the  existence  of  long-term
contracts with our customers  which  generally  roll-over  without a significant
portion  expiring  without renewal in any one year. In each of fiscal 1998, 1999
and 2000,  less than 5% of our bulk CO2 systems in service  experienced  service
termination.  Service  termination  is typically  caused by restaurant  closure.
Affected bulk CO2 systems are either removed and reconditioned, or left in place
when prospects for a new restaurant at the same location appear likely.  Revenue
growth  is  largely  dependent  on both  (1) the  rate of new  bulk  CO2  system
installations,  (2) the growth in bulk CO2 sales at (i)  customers on the rental
plus per pound charge  contracts and (ii)  customers that own their own bulk CO2
systems and (3) price  increases.  During  fiscal  2000,  we  installed a net of
approximately 700 bulk CO2 systems monthly.

            Cost of  products  sold is  comprised  of  purchased  CO2 and labor,
vehicle and service  location costs  associated with the storage and delivery of
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 nature of our business, we incur significant  depreciation and
amortization expenses. These stem from the depreciation of our bulk CO2 systems;
depreciation   and   amortization  of  bulk  CO2  system   installation   costs;
amortization  of sales  commissions;  and  amortization  of  goodwill,  deferred
financing costs and other intangible assets.

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

            Since 1990,  we have  devoted  significant  resources  to building a
sales and marketing organization, adding administrative personnel and developing
a  national  infrastructure  to  support  the rapid  growth in the number of our
installed  base  of bulk  CO2  systems.  The  cost  of  this  expansion  and the
significant  depreciation  expense of our  installed  network  have  resulted in
significant operating losses to date and accumulated net losses of $26.5 million
at June 30, 2000.

                                       12

<PAGE>

            We believe that our future revenue growth, gains in gross margin and
profitability  will  be  dependent  upon  increases  in  route  density  and the
expansion and penetration of bulk CO2 system  installations  in existing and new
market regions resulting from successful ongoing marketing. Our route density is
highest in Florida and is less  developed  in the other areas where we presently
have operations.  New multi-unit  placement agreements combined with single-unit
placements  will help us in  achieving  route  density.  Our success in reaching
multi-placement agreements is due in part to our national delivery system.

             Our  experience  has been that as our  depots  mature  their  gross
profit margins  improve as volume grows and fixed costs remain  essentially  the
same.  For example,  at the end of fiscal  2000,  depots open greater than three
years  averaged a 56.8% gross  margin.  Many of these depots have gross  margins
greater  than 60% and  continue to improve.  These same depots  averaged a 54.0%
gross margin at the end of fiscal 1999. Since our new depot openings have slowed
drastically over the last 24 months, on a weighted average basis, we expect that
gross  margins  at  our  mature  depots  will  accelerate.   Additionally,   new
technologies  continue to enhance  improvements in gross margins and we continue
to  investigate  non-techological  improvements  in gross  margins as well.  New
service  locations  typically  operate at low or negative  gross  margins in the
early stages and detract from our highly profitable  service locations in mature
markets.

            We  believe  that  optimal  route  density is  achieved  at over 400
accounts  serviced per bulk CO2 truck and we  typically  employ  targeted  sales
efforts to build density within an existing  delivery  route. We maintain a "hub
and spoke" route structure and establish additional  stationary bulk CO2 service
locations as a service area expands through  geographic  growth.  Our entry into
many states was accomplished  largely through business  acquisitions with thinly
developed route networks. We expect to benefit from route efficiencies and other
economies  of scale as we  build  our  customer  base in  these  states  through
intensive marketing  initiatives.  Greater scale may also lead to better vehicle
and fixed asset utilization as well as the ability to spread fixed marketing and
administrative costs over a broader revenue base.

            We believe that earnings before  interest,  taxes,  depreciation and
amortization ("EBITDA") is the principal financial measure by which we should be
measured as we continue to achieve  national  market presence and to build route
density.  Our revolving  credit facility  utilizes EBITDA for its calculation of
financial  leverage,  affecting  the amount of funds  available to us to borrow.
Information  regarding  EBITDA  is  presented  because  of its  use  by  certain
investors  as one  measure of a  corporation's  ability to  generate  cash flow.
EBITDA should not be considered as an alternative to, or more  meaningful  than,
operating  income or cash flows from  operating  activities as an indicator of a
corporation's operating performance.  EBITDA excludes significant costs of doing
business and should not be considered in isolation  from GAAP  measures.  EBITDA
has grown from $3.7 million in fiscal 1996 to $16.1  million in fiscal 2000,  an
average of 46% annually from fiscal 1996 to fiscal 2000.

Results of Operations

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

                                                                  Fiscal Year Ended June 30,
                                                          2000                1999                1998
                                                          ----                ----                ----
Income Statement Data:
<S>                                                       <C>                 <C>                <C>
Net sales............................................     100.0%              100.0%             100.0%
Cost of products sold................................      49.9                53.6               53.0
Selling, general and administrative expenses.........      22.2                22.4               26.8
Depreciation and amortization........................      26.8                27.1               25.4
                                                        -------             -------          ---------
Operating income (loss)..............................       1.1                (3.1)              (5.2)
Interest expense, net................................      17.3                15.9               10.4
                                                        -------             -------          ---------
Loss before extraordinary item.......................     (16.2)              (19.0)             (15.6)
Extraordinary item...................................       -                   -                   .5
                                                        -------             -------          ---------
Net income (loss)....................................     (16.2)%             (19.0)%            (16.1)%
                                                        =========           =========        ===========
Other Data:
   EBITDA............................................      27.8%               24.0%              20.3%
                                                       =========            =========        ===========
</TABLE>

                                       13

<PAGE>

Fiscal Year Ended June 30, 2000 Compared to Fiscal Year Ended June 30, 1999

            Net Sales

            Net sales increased $10.9 million,  or 23.0%,  from $47.1 million in
1999 to $58.0  million in 2000.  The increase in net sales was  primarily due to
internal  growth in the  number of  Company  owned and  customer  owned bulk CO2
systems  serviced.  At June 30, 2000,  there were  approximately  58,000 Company
owned and 10,000  customer  owned bulk CO2  systems in  service,  an increase of
9,000,  or 15%, over the  approximately  50,000 Company owned and 9,000 customer
owned bulk CO2 systems in service at the end of 1999. Increases in net sales due
to price increases were immaterial.

            Cost of Products Sold

            Cost of products  sold  increased by $3.7  million,  or 14.7%,  from
$25.2 million in 1999 to $28.9 million in 2000, and decreased as a percentage of
net  sales  from  53.6%  in 1999 to  49.9%  in  2000.  The  dollar  increase  is
attributable  to our continued  growth and the percentage  decrease is primarily
attributable to our increased route densities.  Bulk CO2 purchases  increased by
$0.8 million from $6.3 million in 1999 to $7.1 million in 2000 and  decreased as
a  percentage  of net sales  from 13.4% to 12.2%.  Fully  loaded  route  drivers
increased  by $1.5 million from $8.2 million in 1999 to $9.7 million in 2000 and
decreased  as a  percentage  of net sales  from  17.5% to 16.8%.  Auto and truck
expense  increased  by $1.1 million from $4.2 million in 1999 to $5.3 million in
2000 and increased as a percentage of net sales from 9.0% to 9.1%. Depot expense
increased  by $0.1  from  $2.2  million  in 1999 to  $2.3  million  in 2000  and
decreased as a percentage of net sales from 4.7% to 3.9%.


            Selling, General and Administrative Expenses

            Selling,  general  and  administrative  expenses  increased  by $2.3
million,  or 22.1%,  from $10.6  million in 1999 to $12.9  million in 2000,  and
decreased as a percentage of net sales from 22.4% in 1999 to 22.2% in 2000.  The
dollar  increase  is  primarily  attributable  to (1)  growth  in the  number of
marketing and  administrative  personnel  and their related  expenses and (2) an
increase in  telephone  expense.  Fully  loaded  marketing,  administrative  and
executive  personnel increased by $1.0 million from $6.7 million in 1999 to $7.7
million in 2000,  and  decreased as a percentage of net sales from 14.2% in 1999
to  13.2%  in  2000.  The  percentage  decrease  is  attributable  to  increased
efficiencies. Telephone expense increased $0.4 million from $0.8 million in 1999
to $1.2 million in 2000 and is attributable to the  introduction of a new mobile
information system for use in our field operations.

            Depreciation and Amortization

            Depreciation and  amortization  increased by $2.7 million from $12.8
million in 1999 to $15.5  million in 2000.  As a percentage  of net sales,  such
expense  decreased  from 27.1% in 1999 to 26.8 % in 2000.  Depreciation  expense
increased by $2.1  million  from $8.7  million in 1999 to $10.8  million in 2000
principally  due to the increase in bulk CO2 systems  leased to customers.  As a
percentage of net sales,  depreciation  expense  increased from 18.6% in 1999 to
18.7% in 2000.  Amortization expense increased by $0.6 million from $4.1 million
in 1999 to $4.7 million in 2000 primarily due to the increase in amortization of
deferred lease acquisition  costs and deferred  charges.  As a percentage of net
sales, amortization expense decreased from 8.5% in 1999 to 8.0% in 2000.

            Operating Income (Loss)

            For the reasons described above,  operating income was $0.6 million,
or 1.1% of net sales,  in 2000 compared to an operating  (loss) of $1.4 million,
or 3.1% of net sales, in 1999.

            Interest Expense

            Net interest expense  increased by $2.5 million from $7.5 million in
1999 to $10.0  million in 2000,  and increased as a percentage of net sales from
15.9% in 1999 to 17.3% in 2000.  This increase is attributable to both increased
levels of long-term and subordinated  debt and increased  interest rates in 2000
as compared to 1999.

                                       14

<PAGE>

            Net Loss

            For the reasons described above, net loss increased by $0.5 million,
or 5.0%,  from $8.9  million in 1999 to $9.4 million in 2000.  No provision  for
income tax  expense in either 1999 or 2000 has been made due to  historical  net
losses.  At June 30, 2000, we had net operating loss  carryforwards  for federal
income tax  purposes  of $64.8 million,  which are  available  to offset  future
federal taxable income through 2020.

            EBITDA

            For the reasons described above, EBITDA increased from $11.3 million
in 1999 to $16.1 million in 2000, or 42.5%, and increased as a percentage of net
sales from 24.0% to 27.8%.

 Fiscal Year Ended June 30, 1999 Compared to Fiscal Year Ended June 30, 1998

            Net Sales

            Net sales increased $12.0 million,  or 34.3%,  from $35.1 million in
1998 to $47.1  million in 1999.  Approximately  $3.6 million,  or 30.2%,  of the
increase  represented net sales from fifteen  acquisitions during 1998 which are
included  for the  full  year  in  1999 as  compared  to  from  their  dates  of
acquisition  in 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.  At June 30, 1999, there were approximately 50,000 Company
owned and 9,000  customer  owned bulk CO2  systems in  service,  an  increase of
13,000, or 28%, over the  approximately  39,000 Company owned and 7,000 customer
owned bulk CO2 systems in service at the end of 1998. Increases in net sales due
to price increase were immaterial.

            Cost of Products Sold

            Cost of products  sold  increased by $6.6  million,  or 35.8%,  from
$18.6 million in 1998 to $25.2 million in 1999, and increased as a percentage of
net  sales  from  53.0%  in 1998 to  53.6%  in  1999.  The  dollar  increase  is
attributable  to our  continued  growth.  The  percentage  increase  is  largely
attributable  to an increase in bulk CO2 purchases as a percentage of net sales.
Bulk CO2  purchases  increased by $2.1 million from $4.2 million in 1998 to $6.3
million in 1999 and  increased as a percentage of net sales from 12.1% to 13.4%.
Fully loaded route  drivers  increased by $2.0 million from $6.2 million in 1998
to $8.2 million in 1999 and decreased as a percentage of net sales from 17.7% to
17.5%.  Auto and truck  expense  increased  by $1.0 million from $3.2 million in
1998 to $4.2 million in 1999 and  decreased  as a  percentage  of net sales from
9.2% to 9.0%. Depot expense  increased by $0.5 million from $1.7 million in 1998
to $2.2 million in 1999 and  decreased as a percentage of net sales from 4.9% to
4.7%.

            Selling, General and Administrative Expenses

            Selling,  general  and  administrative  expenses  increased  by $1.2
million,  or 12.3%,  from $9.4  million in 1998 to $10.6  million  in 1999,  and
decreased as a percentage of net sales from 26.8% in 1998 to 22.4% in 1999.  The
dollar  increase is primarily  attributable to growth in the number of marketing
and  administrative  personnel and their  associated  expenses.  The  percentage
decrease  is  attributable  to  economies  of  scale.  Fully  loaded  marketing,
administrative  and  executive  personnel  increased  by $1.1  million from $5.6
million in 1998 to $6.7 million in 1999,  and  decreased as a percentage  of net
sales from 16.1% in 1998 to 14.2% in 1999.

            Depreciation and Amortization

            Depreciation  and  amortization  increased by $3.9 million from $8.9
million in 1998 to $12.8  million in 1999.  As a percentage  of net sales,  such
expense  increased  from  25.4% in 1998 to 27.1% in 1999.  Depreciation  expense
increased  by $2.7  million  from $6.0  million in 1998 to $8.7  million in 1999
principally  due to the increase in bulk CO2 systems  leased to customers.  As a
percentage of net sales,  depreciation  expense  increased from 17.2% in 1998 to
18.6% in 1999.  Amortization expense increased by $1.2 million from $2.9 million
in 1998 to $4.0 million in 1999 primarily due to the increase in amortization of
deferred lease  acquisition  costs,  deferred  charges

                                       15

<PAGE>

and goodwill and customer lists resulting from acquisitions.  As a percentage of
net sales, amortization expense increased from 8.2% in 1998 to 8.5% in 1999.

            Operating Loss

            For the reasons  described  above,  operating loss decreased by $0.4
million,  or 20.2%,  from $1.8  million  in 1998 to $1.4  million  in 1999,  and
decreased as a percentage of net sales from 5.2% in 1998 to 3.1% in 1999.

            Interest Expense

            Net interest expense  increased by $3.9 million from $3.6 million in
1998 to $7.5 million in 1999,  and  increased as a percentage  of net sales from
10.4% in 1998 to 15.9% in 1999.  This increase is  attributable to the increased
level of long-term and subordinated debt in 1999 as compared to 1998.

            During 1998,  $0.2 million of deferred  financing  costs relating to
our prior credit facility was written off.

            Net Loss

            For the reasons described above, net loss increased by $3.3 million,
or 58.5%,  from $5.6 million in 1998 to $8.9 million in 1999.  No provision  for
income tax  expense in either 1998 or 1999 has been made due to  historical  net
losses.  At June 30, 1999, we had net operating loss  carryforwards  for federal
income tax  purposes of $45.6  million,  which are  available  to offset  future
federal taxable income through 2019.


            EBITDA

            For the reasons described above,  EBITDA increased from $7.1 million
in 1998 to $11.3 million in 1999, or 59.3%, and increased as a percentage of net
sales from 20.3% to 24.0%.

Liquidity and Capital Resources

            Our  cash   requirements   consist   principally   of  (1)   capital
expenditures  associated  with  purchasing and placing new bulk CO2 systems into
service  at  customers'   sites;   (2)  payments  of  interest  on   outstanding
indebtedness;  and (3) working capital. Whenever possible, we seek to obtain the
use of vehicles,  land, buildings,  and other office and service equipment under
operating  leases as a means of  conserving  capital.  As of June 30,  2000,  we
anticipated making cash capital  expenditures of at least $10.0 million to $30.0
million  during  each of 2001 and  2002,  primarily  for  purchases  of bulk CO2
systems that we expect to place into  service.  Once bulk CO2 systems are placed
into service,  we generally  experience positive cash flows on a per-unit basis,
as there are minimal  additional  capital  expenditures  required  for  ordinary
operations.  In addition to capital  expenditures related to internal growth, we
review  opportunities  to acquire bulk CO2 service  businesses,  and may require
cash in an amount  dictated  by the  scale  and  terms of any such  transactions
successfully concluded.

            In May 2000, we sold 5,000 shares of our 8%  Cumulative  Convertible
Preferred Stock, no par value (the "Convertible  Preferred  Stock"),  for $1,000
per share (the  "Liquidation  Preference").  Cumulative  dividends  are  payable
quarterly  in  arrears  at the  rate  of  8.0%  per  annum  on  the  Liquidation
Preference,  and,  to the  extent  not  paid  in  cash,  will  be  added  to the
Liquidation  Preference.  Shares  of  the  Convertible  Preferred  Stock  may be
converted into shares of Common Stock at any time at a conversion price of $9.47
per share,  which  represents a 20% premium to the average  closing price of the
Common Stock on the Nasdaq  National Market for the 20 trading days prior to May
12, 2000. Additionally,  we must redeem the Convertible Preferred Stock upon the
occurrence of a change in control of the Company.

            During fiscal 2000, our capital  resources  included cash flows from
operations,  available borrowing capacity under our credit facility and proceeds
from the issuance of our Convertible Preferred Stock.

             On May 4,  1999,  we  entered  into a  $75.0  million  amended  and
restated  revolving  credit  facility  with a syndicate of banks led by SunTrust
Bank, South Florida,  National Association  ("Amended SunTrust  Facility").  The
Amended  SunTrust  Facility  contains  interest rates and an unused facility fee
based on a pricing grid calculated quarterly on senior funded debt to annualized
EBITDA.  We are  entitled  to select  the Base Rate or  LIBOR,  plus

                                       16

<PAGE>

applicable  margin,  for principal drawings under the Amended SunTrust Facility.
The  applicable  LIBOR margin  pursuant to the pricing grid ranges from 1.75% to
3.5%,  the  applicable  unused  facility fee pursuant to the pricing grid ranges
from .375% to .50% and the applicable  Base Rate margin  pursuant to the pricing
grid ranges from 0.25% to 2.00%. Interest only is payable periodically until the
expiration  of the Amended  SunTrust  Facility.  The Amended  SunTrust  Facility
expires May 4, 2002,  however,  it contains a two year renewal option subject to
approval. Additionally, it is collateralized by substantially all of our assets.
Drawings  pursuant to the Amended SunTrust  Facility are limited to availability
under a formula  predicated  upon  multiples of EBITDA.  We are  precluded  from
declaring  or  paying  any  cash  dividends  and are  required  to meet  certain
affirmative  and  negative  covenants,  including  but not limited to  financial
covenants.  At  various  dates in the past we have been  unable to meet  certain
covenants  and have had to obtain  waivers  or  modifications  of terms from our
lenders.  Although  we believe  that we will be able to comply  with the current
provisions of our borrowing arrangements, circumstances may result in our having
to obtain  waivers or further  modifications  in the future.  We believe that we
have an excellent relationship with our lenders.

             Simultaneously  with the Amended SunTrust  Facility,  we sold $10.0
million of our 2005 Notes.  Except for their October 31, 2005 maturity date, the
2005 Notes are substantially identical to our 12% Senior Subordinated Promissory
Notes due 2004 (the "2004  Notes").  The 2005  Notes  were sold with  detachable
6-1/2 year  warrants to purchase an  aggregate  of 372,892  shares of our Common
Stock at an exercise price of $6.65 per stock unit. In connection  with the sale
of the 2005 Notes,  certain financial covenants governing the 2004 Notes and the
2005 Notes were adjusted as of March 31, 1999 and prospectively and the exercise
price for 612,023  warrants issued in connection with the sale of the 2004 Notes
was reduced from $12.40 per share to $6.65 per stock unit.

            As of June 30, 2000, a total of $52.8 million was outstanding  under
the Amended SunTrust Facility with interest at three hundred  seventy-five basis
points above the 180-day London  InterBank  Offering Rate  ("LIBOR")  (10.02% to
10.61% at June 30, 2000).

            Working  Capital.  At June 30, 2000, we had negative working capital
of $0.6  million.  At June 30,  1999,  we had negative  working  capital of $0.5
million.

            Cash Flows from Operating Activities. During 2000 and 1999, net cash
provided  by  operating   activities   was  $6.6   million  and  $4.2   million,
respectively.  Cash flows from  operating  activities  increased by $2.4 million
during  2000  compared  to 1999  primarily  due to an  increase in the change in
accounts  payable  and an  increase in  depreciation.  The  increase in accounts
payable in 2000 was $1.4 million and in 1999 was $0.1 million.  Depreciation and
amortization of property and equipment  increased $2.1 million from $8.7 million
in 1999 to $10.8 million in 2000.

            Cash Flows from Investing Activities.  During 2000 and 1999, we made
net  capital  expenditures  of $19.2  million and $24.0  million,  respectively,
primarily for purchases of new bulk CO2 systems and associated  installation and
direct placement costs.

            Cash Flows from Financing Activities. During 2000 and 1999, net cash
provided  by  financing   activities   was  $12.8  million  and  $22.6  million,
respectively.  For 2000 and 1999,  cash flows  provided by financing  activities
were  primarily from the issuance of  subordinated  debt,  borrowings  under our
revolving credit facility and the issuance of the Convertible Preferred Stock.

            We  believe  that  cash  from  operating  activities  and  available
borrowings  under the  Amended  SunTrust  Facility  will be  sufficient  to fund
proposed  operations for at least the next 12 months at our anticipated  rate of
growth.

Year 2000

            Our computer and other business operating systems were unaffected by
the "Year 2000" problem,  having  successfully rolled over from 1999 to 2000. We
are also  unaware  of any Year  2000  issues  affecting  any of our  significant
business partners, suppliers or customers.

                                       17

<PAGE>

Inflation

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

            Our bulk CO2 requirements contract with The BOC Group, Inc. provides
for annual  adjustments  in the purchase price for bulk CO2 based upon increases
or decreases in the Producer Price Index for Chemical and Allied Products or the
average percentage increase in the selling price of bulk merchant carbon dioxide
purchased  by BOC's  large,  multi-location  beverage  customers  in the  United
States, however, such increases are limited to 3% annually until June 2002.

7A.         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 June 30, 2000, a total of $52.8 million was  outstanding  under the
Amended  SunTrust  Facility with interest at three  hundred  seventy-five  basis
points above the 180 day LIBOR rate (10.02% to 10.61% at June 30,  2000).  Based
upon $52.8 million  outstanding  under the Amended SunTrust Facility at June 30,
2000,  our  annual  interest  cost under the  Amended  SunTrust  Facility  would
increase by $0.5 million for each one percent increase in LIBOR (i.e., from 8.0%
to 9.0%).

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

8.          Financial Statements and Supplementary Data.

            See page F-1.

9.          Changes in and  Disagreements  With  Accountants  on Accounting  and
            Financial Disclosure.

            Not applicable.

10.         Directors and Executive Officers of the Registrant.

            The information  required by Item 10 is incorporated by reference to
our  definitive  proxy  statement to be filed with the  Securities  and Exchange
Commission no later than October 30, 2000 pursuant to Regulation 14A.

11.         Executive Compensation.

            The information  required by Item 11 is incorporated by reference to
our  definitive  proxy  statement to be filed with the  Securities  and Exchange
Commission no later than October 30, 2000 pursuant to Regulation 14A.

12.         Security Ownership of Certain Beneficial Owners and Management.

            The information  required by Item 12 is incorporated by reference to
our  definitive  proxy  statement to be filed with the  Securities  and Exchange
Commission no later than October 30, 2000 pursuant to Regulation 14A.

                                       18

<PAGE>

13.         Certain Relationships and Related Transactions.

            The information  required by Item 13 is incorporated by reference to
our  definitive  proxy  statement to be filed with the  Securities  and Exchange
Commission no later than October 30, 2000 pursuant to Regulation 14A.


14.            Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

            (a)         The  following  documents  are  filed  as  part  of this
                        report:

            (1)         Financial statements.

                        See Index to Financial  Statements which appears on page
                        F-1 herein.

            (2)         Financial Statement Schedules

                        II - Valuation and Qualifying Accounts.

            (3)         Exhibits:

            Exhibit No.              Exhibit

            3.1     --    Amended and Restated  Articles of Incorporation of the
                          Company. (2)

            3.2     --    Articles of Amendment to the Articles of Incorporation
                          of the Company, dated December 18, 1995. (5)

            3.3     --    Articles of Amendment to the Articles of Incorporation
                          of the Company, dated December 17, 1996. (5)

            3.4     --    Articles of Amendment to the Articles of Incorporation
                          of the Company, dated May 10, 2000. (1)

            3.5     --    Bylaws of the Company. (2)

            10.1    --    1995 Stock Option Plan. (1)

            10.2    --    Directors' Stock Option Plan. (2)

            10.3    --    Noncompetition   Agreement  between  the  Company  and
                          Edward M. Sellian, dated November 30, 1995. (2)

            10.4    --    Lease  for  2528  North  Tamiami  Trail,   Ft.  Myers,
                          Florida,  between the  Company and Edward M.  Sellian.
                          (2)

            10.5    --    Lease for 2800 Southeast Market Place, Stuart, Florida
                          between the Company and Edward M. Sellian. (3)

            10.6    --    Lease for 2820 Southeast Market Place, Stuart, Florida
                          between the Company and Edward M. Sellian  dated as of
                          February 1, 1998. (5)

            10.7    --    Amended  and  Restated   Revolving   Credit  Agreement
                          ("Amended and Restated  Revolving Credit  Agreement"),
                          dated  as of May 4,  1999 by and  among  the  Company,
                          SunTrust Bank,  South Florida,  National  Association,
                          Bank Austria  Creditanstalt  Corporate Finance,  Inc.,
                          The Provident Bank and Bank Leumi  Le-Israel B.M. (the
                          "Lenders") and SunTrust Bank, South Florida,  National
                          Association,  as agent for the Lenders (the  "Agent").
                          (6)

                                       19

<PAGE>

            10.8    --    First  Amendment  to Amended  and  Restated  Revolving
                          Credit Agreement dated as of June 16, 1999. (6)

            10.9    --    Second  Amendment  and Waiver to Amended and  Restated
                          Revolving  Credit  Agreement  dated as of  February 7,
                          2000.(1)

            10.10   --    Third  Amendment  to Amended  and  Restated  Revolving
                          Credit Agreement dated as of May 12, 2000. (1)

            10.11   --    Senior  Subordinated Note Purchase  Agreement ("Senior
                          Subordinated  Note Purchase  Agreement"),  dated as of
                          October 31, 1997 between the Company,  the  Subsidiary
                          Guarantors and the Investors. (5)

            10.12   --    Amendment No. 1 to Senior  Subordinated  Note Purchase
                          Agreement dated as of November 14, 1997. (5)

            10.13   --    Amendment No. 2 to Senior  Subordinated  Note Purchase
                          Agreement dated as of June 30, 1998. (5)

            10.14   --    Amendment No. 3 to Senior  Subordinated  Note Purchase
                          Agreement dated as of May 4, 1999. (6)

            10.15   --    Amendment No. 4 to Senior  Subordinated  Note Purchase
                          Agreement dated as of January __, 2000. (1)

            10.16   --    Amendment No. 5 to Senior  Subordinated  Note Purchase
                          Agreement dated as of May 12, 2000. (1)

            10.17   --    Preferred  Stock Purchase  Agreement,  dated as of May
                          15, 2000 by and between the Company and Chase  Capital
                          Investments, L.P. (1)

            10.18   --    Warrant  Agreement  ("Warrant  Agreement") dated as of
                          October  31,  1997 among the  Company  and the Initial
                          Holders. (5)

            10.19   --    Amendment  No.  1 to  Warrant  Agreement  dated  as of
                          November 14, 1997. (5)

            10.20   --    Amendment No. 2 to Warrant  Agreement  dated as of May
                          4, 1999. (6)

            10.21   --    Employment  Agreement  between the Company and Michael
                          DeDomenico, dated as of June 2, 2000. (1)

            21      --    Subsidiaries (5)

            23      --    Consent  of  Margolin,   Winer  &  Evens  LLP  to  the
                          incorporation    by   reference   to   the   Company's
                          Registration Statement on Form S-8 (No. 333-06705) and
                          (No. 333- 30042) of the independent  auditors'  report
                          included herein. (1)

            27      --    Financial Data Schedule. (1)

            (b)   Reports on Form 8-K

                  None.

---------------------------
(1)         Included herein.
(2)         Incorporated by reference to the Company's Registration Statement on
            Form SB-2, filed with the Commission on November 7, 1995 (Commission
            File No. 33-99078), as amended.
(3)         Incorporated by reference to the Company's Registration Statement on
            Form SB-2,  filed with the  Commission  on June 7, 1996  (Commission
            File No. 333-3352).

                                       20

<PAGE>


(4)         Incorporated  by reference to the Company's Form 10-KSB for the year
            ended June 30, 1997.
(5)         Incorporated  by reference to the  Company's  Form 10-K for the year
            ended June 30, 1998.
(6)         Incorporated  by reference to the  Company's  Form 10-K for the year
            ended June 30, 1999.








                                       21

<PAGE>

                                   SIGNATURES

            Pursuant  to  the  requirements  of  Section  13  or  15(d)  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:  September 28, 2000                    /s/ Edward M. Sellian
                                              ----------------------------------
                                              Edward M. Sellian,
                                              Chairman  of the Board

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated.

Signature                           Title                   Date


/s/ Craig L. Burr                   Director                  September 28, 2000
---------------------------
Craig L. Burr


/s/ Michael E. DeDomenico           Director,                 September 28, 2000
---------------------------         Chief Executive Officer
Michael E. DeDomenico


/s/ Robert L. Frome                 Director                  September 28, 2000
---------------------------
Robert L. Frome


/s/ Robert Ranieri                  Director                  September 28, 2000
---------------------------
Robert Ranieri


                                    Director
---------------------------
Daniel Raynor


/s/ Edward M. Sellian
---------------------------         Director                  September 28, 2000
Edward M. Sellian


/s/ Richard D. Waters, Jr.          Director                  September 28, 2000
---------------------------
Richard D. Waters, Jr.


                                    Director
---------------------------
John E. Wilson


/s/ Joann Schirripa                 Chief Financial Officer September 28, 2000
---------------------------
Joann Schirripa

                                       22

<PAGE>
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                                                                                                              Page No.
                                                                                                              --------

                                   NUCO2 INC.

<S>                                                                                                              <C>
Report of Independent Auditors ..................................................................................F-2

Consolidated Financial Statements:

  Consolidated Balance Sheets as of June 30, 2000 and 1999.......................................................F-3

  Consolidated Statements of Operations for the Fiscal Years Ended June 30, 2000, 1999 and
      1998.......................................................................................................F-4

  Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended June 30, 2000,
       1999, 1998 and 1997.......................................................................................F-5

  Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 2000, 1999 and
      1998.......................................................................................................F-6

Notes to Consolidated Financial Statements.......................................................................F-8

Schedule II - Valuation and Qualifying Accounts for the Fiscal Years Ended June 30, 2000,
        1999 and 1998............................................................................................F-19
</TABLE>




                                       F-1

<PAGE>

                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Shareholders
NuCo2 Inc.
Stuart, Florida

We have audited the accompanying consolidated balance sheets of NuCo2 Inc. as of
June 30, 2000 and 1999, and the related  consolidated  statements of operations,
shareholders'  equity,  and cash flows for each of the three years in the period
ended June 30,  2000.  We have also  audited the  financial  statement  schedule
listed in the accompanying  index.  These financial  statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated  financial position of NuCo2
Inc.  as of June  30,  2000  and  1999,  and  the  consolidated  results  of its
operations  and its cash flows for each of the three  years in the period  ended
June 30, 2000 in conformity with generally accepted accounting principles. Also,
in our opinion,  the related  financial  statement  schedule when  considered in
relation to the basic financial statement taken as a whole,  presents fairly, in
all material respects, the information set forth herein.


                                              /s/  MARGOLIN, WINER & EVENS LLP
                                              --------------------------------
                                                   MARGOLIN, WINER & EVENS LLP

Garden City, New York
August 18, 2000

                                      F-2

<PAGE>

                                   NUCO2 INC.
                           CONSOLIDATED BALANCE SHEETS
                      (In thousands, except share amounts)
                                     ASSETS
                                    (NOTE 5)
<TABLE>
<CAPTION>

                                                                                       June 30,
                                                                                       --------
                                                                                    2000        1999
                                                                                 ----------   --------
Current assets:
<S>                                                                              <C>          <C>
    Cash and cash equivalents                                                    $     279    $   1,579
    Trade accounts receivable; net of allowance for doubtful
        accounts of $622 and $558, respectively                                      8,862        6,768
    Inventories                                                                        222          214
    Prepaid expenses and other current assets                                          912          593
                                                                                 ---------    ---------
        Total current assets                                                        10,275        9,154
                                                                                 ---------    ---------

Property and equipment, net (Note 3)                                               107,120       99,665
                                                                                 ---------    ---------

Other assets:
    Goodwill, net                                                                   20,434       21,645
    Deferred charges, net                                                            3,425        2,915
    Customer lists, net                                                              1,871        2,898
    Restrictive covenants, net                                                       1,567        1,929
    Deferred lease acquisition costs, net                                            3,685        3,237
    Deposits                                                                           172          187
                                                                                 ---------    ---------
                                                                                    31,154       32,811
                                                                                 ---------    ---------
                                                                                 $ 148,549    $ 141,630
                                                                                 =========    =========


                      LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Current maturities of long-term debt (Note 5)                                $      33    $      97
    Accounts payable                                                                 8,120        6,702
    Accrued expenses                                                                   582          747
    Accrued interest                                                                 1,485        1,474
    Accrued payroll                                                                    376          544
    Other current liabilities                                                          263           45
                                                                                 ---------    ---------
        Total current liabilities                                                   10,859        9,609

Long-term debt, excluding current maturities (Note 5)                               53,080       43,615
Subordinated debt (Note 6)                                                          38,969       38,749
Customer deposits                                                                    2,351        1,924
                                                                                 ---------    ---------
        Total Liabilities                                                          105,259       93,897
                                                                                 ---------    ---------

Commitments and contingencies (Note 14)
Redeemable Preferred Stock (Note 7)                                                  5,050         --
                                                                                 ---------    ---------

Shareholders' equity (Note 8):
    Preferred Stock; no par value; 5,000,000 shares authorized;
        5,000 issued and outstanding (Note 7)                                         --           --
    Common Stock; par value $.001 per share; 30,000,000 shares authorized;
        issued and outstanding 7,275,015 shares at June 30, 2000 and 7,216,664
        at June 30, 1999                                                                 7            7
    Additional paid-in capital                                                      64,722       64,832
    Accumulated deficit                                                            (26,489)     (17,106)
                                                                                 ---------    ---------
        Total shareholders' equity                                                  38,240       47,733
                                                                                 ---------    ---------
                                                                                 $ 148,549    $ 141,630
                                                                                 =========    =========
</TABLE>


See accompanying notes to consolidated financial statements.


                                      F-3
<PAGE>


                                   NUCO2 INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)
<TABLE>
<CAPTION>

                                                                      Years Ended June 30,
                                                                 2000         1999       1998
                                                                --------   ----------  -------


<S>                                                            <C>         <C>         <C>
Net sales                                                      $ 57,951    $ 47,098    $ 35,077
                                                               --------    --------    --------

Costs and expenses:
    Cost of products sold                                        28,931      25,225      18,578
    Selling, general and administrative expenses                 12,887      10,554       9,396
    Depreciation and amortization                                15,501      12,763       8,912
                                                               --------    --------    --------
                                                                 57,319      48,542      36,886
                                                               --------    --------    --------

    Operating  Income (loss)                                        632      (1,444)     (1,809)

Other expenses (income):
    Interest expense                                             10,019       7,525       3,809
    Interest (income)                                                (4)        (36)       (170)
                                                               --------    --------    --------

    (Loss) before extraordinary item                             (9,383)     (8,933)     (5,448)
                                                               --------    --------    --------

Extraordinary item - loss on extinguishment of debt (Note 5)       --          --           187
                                                               --------    --------    --------

    Net (loss)                                                 $ (9,383)   $ (8,933)   $ (5,635)
                                                               ========    ========    ========

Basic and Diluted EPS

    (Loss) before extraordinary item                           $  (1.30)   $  (1.24)   $  (0.75)

    Extraordinary item                                             --          --         (0.03)
                                                               --------    --------    --------

    Net (loss)                                                 $  (1.30)   $  (1.24)   $  (0.78)
                                                               ========    ========    ========

    Weighted average number of common and common
      equivalent shares outstanding

          Basic and Diluted                                       7,238       7,217       7,210
                                                               ========    ========    ========
</TABLE>





See accompanying notes to consolidated financial statements.

                                      F-4

<PAGE>

                                   NUCO2 INC.
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                      (In thousands, except share amounts)

<TABLE>
<CAPTION>

                                                   Common Stock                                     Total
                                                   ------------         Additional   Accumulated Shareholders'
                                                Shares      Amount   Paid-In Capital  Deficit       Equity
                                                ------      ------   ---------------  -------       ------
<S>                                            <C>         <C>         <C>          <C>          <C>
Balance, June 30, 1997                         7,197,718   $       7   $  63,233    $  (2,538)   $  60,702
Issuance of 18,835 shares of common
    stock - asset acquisition                     18,835        --           275         --            275
Issuance of 111 shares of common
    stock - exercise of options                      111        --             1         --              1
Issuance of warrants                                --          --           300         --            300
Net (loss)                                          --          --          --         (5,635)      (5,635)
                                               ---------   ---------   ---------    ---------    ---------
Balance, June 30, 1998                         7,216,664           7      63,809       (8,173)      55,643
Issuance and repricing of warrants                  --          --         1,023         --          1,023
Net (loss)                                          --          --          --         (8,933)      (8,933)
                                               ---------   ---------   ---------    ---------    ---------
Balance, June 30, 1999                         7,216,664           7      64,832      (17,106)      47,733

Issuance of 5,000 shares of
    redeemable preferred stock  (Note 7)            --          --           (65)        --            (65)
Redeemable preferred stock dividend (Note 7)        --          --           (50)        --            (50)
Issuance of 966 shares of common
    stock  - exercise of options                     966        --             5         --              5
Issuance of 57,385 shares of common stock -
    exercise of warrants                          57,385        --          --           --           --
Net (loss)                                          --          --          --         (9,383)      (9,383)
                                               ---------   ---------   ---------    ---------    ---------
Balance,  June 30, 2000                        7,275,015   $       7   $  64,722    $ (26,489)   $  38,240
                                               =========   =========   =========    =========    =========
</TABLE>






See accompanying notes to consolidated financial statements.

                                       F-5

<PAGE>


                                   NUCO2 INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>

                                                                                          Years Ended June 30,
                                                                                          --------------------
                                                                                     2000         1999        1998
                                                                                   ---------    --------    --------


<S>                                                                                <C>         <C>         <C>
(Loss) before extraordinary item                                                   $ (9,383)   $ (8,933)   $ (5,448)
Extraordinary item - loss on extinguishment of debt                                    --          --          (187)
                                                                                   --------    --------    --------
Net (loss)                                                                           (9,383)     (8,933)     (5,635)
Cash flows from operating activities:
   Adjustments  to  reconcile  net  (loss)  to net cash
      provided  by  operating activities:
          Depreciation and amortization of property and equipment                    10,841       8,743       6,046
          Amortization of other assets                                                4,660       4,020       2,866
          Amortization of original issue discount                                       220          43        --
          Loss on disposal of property and equipment                                    909       1,110         500
          Write-off of deferred financing costs                                        --          --           187
          Changes in operating assets and liabilities:
          Decrease (increase) in:
              Trade accounts receivable                                              (2,094)     (2,482)     (2,017)
              Inventories                                                                (8)         (2)       (116)
              Prepaid expenses and other current assets                                (319)       (159)       (158)
          Increase (decrease) in:
              Accounts payable                                                        1,418         105       4,543
              Accrued expenses                                                         (165)        424        (396)
              Accrued payroll                                                          (168)         67         244
              Accrued interest                                                           11         630         825
              Other current liabilities                                                 218          38         (41)
              Customer deposits                                                         427         645         590
                                                                                   --------    --------    --------

              Net cash provided by operating activities                               6,567       4,249       7,438
                                                                                   --------    --------    --------

Cash flows from investing activities:
   Proceeds from disposal of property and equipment                                      55         104         411
   Purchase of property and equipment                                               (19,162)    (24,048)    (23,456)
   Acquisition of businesses                                                           --            45     (12,407)
   Increase in deferred lease acquisition costs                                      (1,610)     (1,718)     (1,806)
   (Increase) decrease in deposits                                                       15          (3)        (80)
                                                                                   --------    --------    --------

              Net cash used in investing activities                                $(20,702)   $(25,620)   $(37,338)
                                                                                   --------    --------    --------
</TABLE>



See accompanying notes to consolidated financial statements.

                                      F-6

<PAGE>

                                   NUCO2 INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (Continued)
<TABLE>
<CAPTION>

                                                                        Years Ended June 30,
                                                                        --------------------
                                                                 2000         1999              1998
                                                                --------    ----------        -------


Cash flows from financing activities:
<S>                                                         <C>             <C>             <C>
   Proceeds from issuance of redeemable preferred stock     $      4,935    $       --      $       --
   Net proceeds from issuance of long-term debt
      and subordinated debt                                        9,500          24,250          21,611
   Repayment of long-term debt                                       (99)           (138)           (831)
   Increase in deferred charges                                   (1,506)         (1,498)         (2,217)
   Exercise of warrants and options                                    5            --                 1
                                                            ------------    ------------    ------------

              Net cash provided by financing activities           12,835          22,614          18,564
                                                            ------------    ------------    ------------

Increase (decrease) in cash and cash equivalents                  (1,300)          1,243         (11,336)
Cash and cash equivalents, beginning of year                       1,579             336          11,672
                                                            ------------    ------------    ------------

Cash and cash equivalents, end of year                      $        279    $      1,579    $        336
                                                            ============    ============    ============

Supplemental disclosure of cash flow information:
 Cash paid during the year for:

      Interest                                              $      9,788    $      6,871    $      2,967
                                                            ============    ============    ============

      Income taxes                                          $       --      $       --      $       --
                                                            ============    ============    ============

Supplemental schedule of noncash investing and
   financing activities: Acquisition of businesses:
      Fair value of assets acquired                         $       --      $       --      $     26,426
      Cost in excess of net assets of businesses acquired           --              --            16,257
      Liabilities assumed or incurred                               --              --           (30,001)
      Issuance of common stock                                      --              --              (275)
                                                            ------------    ------------    ------------
             Cash paid                                      $       --      $       --      $     12,407
                                                            ============    ============    ============
</TABLE>


      In 1998,  the Company  wrote-off a  restrictive  covenant  and the related
liability in the amount of $19 due to the employee resigning.

      In 1998, the Company  repaid  long-term debt in the amount of $20,783 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 was recorded.

      In 1999,  the Company  repaid  long-term debt in the amount of $5,000 with
the proceeds of the issuance of  subordinated  debt.  In  connection  therewith,
detachable  warrants  were issued and original  issue  discount in the amount of
$549  was  recorded.  Additionally,  in  connection  with the  repricing  of the
Company's  2004  warrants,  original  issue  discount  in the amount of $473 was
recorded.

      In 2000,  the Company  increased  the  carrying  amount of the  redeemable
preferred  stock by $50 for  dividends  that have not been paid and  accordingly
reduced additional paid-in capital by a like amount.





See accompanying notes to consolidated financial statements.

                                       F-7

<PAGE>

                                   NUCO2 INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (In thousands, except per share amounts)

Note 1     -   Description  of Business  and Summary of  Significant  Accounting
               Policies


           (a)     Basis of Presentation

           The 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. (see Note 2). All material  intercompany  accounts and transactions
have been eliminated.

           (b)     Description of Business

           The Company is a supplier of bulk CO2 dispensing systems to customers
in the food, beverage, lodging and recreational industries in the United States.

           (c)     Cash and Cash Equivalents

           The Company  considers all highly liquid debt  instruments  purchased
with an original maturity of three months or less to be cash equivalents.

           (d)     Inventories

           Inventories,  consisting  primarily of carbon dioxide gas, are stated
at the lower of cost or market.  Cost is determined  by the first-in,  first-out
method.

           (e)     Property and Equipment

           Property  and  equipment  are stated at cost.  The  Company  does not
depreciate bulk systems held for  installation  until the systems are in service
and leased to customers.  Upon  installation,  the systems,  component parts and
direct costs  associated  with the  installation  are  transferred to the leased
equipment account. These costs are associated with successful placements of such
systems with  customers  under  noncancelable  contracts  and which would not be
incurred by the  Company  but for a  successful  placement.  Upon early  service
termination,  the  unamortized  portion  of  direct  costs  associated  with the
installation are charged to cost of products sold. Depreciation and amortization
is computed using the  straight-line  method over the estimated  useful lives of
the respective assets or the lease terms for leasehold  improvements,  whichever
is shorter.

               The depreciable lives of property and equipment are as follows:

                                                          Estimated Life
                                                          --------------
                   Leased equipment                       5-20 years
                   Equipment and cylinders                3-20 years
                   Vehicles                               3-5 years
                   Computer equipment                     3-7 years
                   Office furniture and fixtures          5-7 years
                   Leasehold improvements                 lease term


                                      F-8

<PAGE>

                                   NUCO2 INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (In thousands, except per share amounts)

Note 1 -   Description  of  Business  and  Summary  of  Significant   Accounting
           Policies - (continued)

           (f)      Other Assets

           Goodwill, Net

           Goodwill, net, represents costs in excess of net assets of businesses
acquired and is being  amortized  on a  straight-line  basis over twenty  years.
Accumulated  amortization of goodwill was $3,794 and $2,582 at June 30, 2000 and
1999, respectively.  The Company periodically assesses the recoverability of the
cost of its  goodwill,  as well as of its other  intangible  assets,  based on a
review of projected  undiscounted  cash flows of the related  operating  assets.
These cash flows are prepared and reviewed by management in connection  with the
Company's annual long range planning process.

           Deferred Charges, Net

           Deferred  charges,   net,  consist  of  the  unamortized  portion  of
financing  costs  which  are  being  amortized  over  the  term  of the  related
indebtedness,   ranging  from  thirty-six  to  eighty-four  months.  Accumulated
amortization  of  deferred  charges  was $1,679 and $1,005 at June 30,  2000 and
1999,  respectively.  Included in the consolidated  statements of operations for
the year ended June 30, 1998 are extraordinary  write-offs of deferred financing
fees in connection with the reduction of certain indebtedness.

           Customer Lists, Net

           Customer lists,  net, consist of the unamortized  portion of customer
lists acquired in connection with asset  acquisitions  which are being amortized
over five years, the average life of customer leases.  Accumulated  amortization
of customer lists was $3,464 and $2,436 at June 30, 2000 and 1999, respectively.
The Company's  policy is to value customer lists based on the estimated value of
future cash flows over the life of the customer lease.

           Restrictive Covenants, Net

           Restrictive  covenants,  net,  consist  of  covenants  not to compete
arising in connection  with asset  acquisitions  which are being  amortized over
their  contractual  lives ranging from thirty to one hundred and twenty  months.
Accumulated  amortization  of restrictive  covenants was $1,063 and $701 at June
30, 2000 and 1999,  respectively.  The Company's policy is to value  restrictive
covenants based on the negotiated  contractual value of the restrictive covenant
or a third party appraisal.

           Deferred Lease Acquisition Costs, Net

           Deferred  lease  acquisition   costs,  net,  consist  of  commissions
associated  with the  acquisition of new leases and are being amortized over the
life  of  the  related  leases,   generally  five  to  six  years.   Accumulated
amortization of deferred lease  acquisition  costs was $2,898 and $1,932 at June
30, 2000 and 1999, respectively. Upon early service termination, the unamortized
portion of deferred lease acquisition costs are charged to selling,  general and
administrative expenses.

           (g) Revenue Recognition

           The Company  earns its  revenues  from the leasing of CO2 systems and
related gas sales. The Company,  as lessor,  recognizes  revenue from leasing of
CO2 systems on a straight-line  basis over the life of the related  leases.  The
majority  of CO2  system  leases  generally  include  payments  for  leasing  of
equipment and a continuous  supply of CO2 until usage  reaches a  pre-determined
maximum  annual  level,  beyond which the  customer  pays for CO2 on a per pound
basis. Other CO2 and gas sales are recorded upon delivery to the customer.

                                      F-9

<PAGE>

                                   NUCO2 INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (In thousands, except per share amounts)


Note 1 -   Description  of  Business  and  Summary  of  Significant   Accounting
           Policies - (continued)

           (h) Income Taxes

           Income taxes are accounted for under Financial  Accounting  Standards
Board Statement No. 109, Accounting for Income Taxes. Statement No. 109 requires
recognition of deferred tax assets and  liabilities  for the expected future tax
consequences  of events that have been included in the  financial  statements or
tax  returns.  Under  this  method,  deferred  tax assets  and  liabilities  are
determined based on the difference between the financial statement and tax bases
of assets  and  liabilities  using  enacted  tax rates in effect for the year in
which the  differences  are expected to reverse.  Under  Statement  No. 109, the
effect  on  deferred  tax  assets  and  liabilities  of a change in tax rates is
recognized in income in the period that includes the enactment date.

           (i) Net Loss Per Common Share

           Net loss per common share is presented  in  accordance  with SFAS No.
128,  "Earnings per Share." Basic  earnings per common share are computed  using
the weighted  average  number of common  shares  outstanding  during the period.
Diluted  earnings per common share  incorporate the incremental  shares issuable
upon the assumed  exercise of stock  options and warrants to the extent they are
not anti-dilutive.

           (j) Use Of Estimates

           The preparation of financial  statements in conformity with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

           (k) Employee Benefit Plan

           On June 1, 1996,  the Company  adopted a deferred  compensation  plan
under  Section  401(K) of the  Internal  Revenue  Code which covers all eligible
employees.  Under the  provisions  of the plan,  eligible  employees may defer a
percentage of their compensation subject to the Internal Revenue Service limits.
Contributions to the plan are made only by employees.


Note 2 -   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.  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 $11,000.  Carbo
Co. had operations in Nebraska,  Kansas, Oklahoma, Iowa, Missouri,  Arkansas and
South Dakota.  The Company  funded $5,000  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.
The Company funded $1,075 through a borrowing under its credit facility and paid
cash for the balance.

           Effective October 1, 1997, a newly formed wholly-owned  subsidiary of
the Company  purchased all of the issued and outstanding  shares of Common Stock
of Koch  Compressed  Gases,  Inc.  ("Koch") for an aggregate  purchase  price of
approximately  $5,000.  Koch  operated a bulk CO2  business  as well as provided
carbon  dioxide  and  other  gases in  high-pressure  cylinders  throughout  the
tri-state New York  metropolitan  area.  The purchase price was funded through a
borrowing under the Company's credit facility.

                                      F-10

<PAGE>

                                   NUCO2 INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (In thousands, except per share amounts)


           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.
The Company paid $674 cash and issued  18,835  shares of Common Stock at market,
for a value of $275.

           Effective December 2, 1997, the Company purchased certain assets from
four related carbonic gas distributors, Miller Carbonic Systems Co. Inc., Miller
Carbonic, Inc., Carbonic National Systems, Inc., and Carbonic Gas Service, Inc.,
operating  primarily  in  Illinois,  Indiana,  Wisconsin  and  Michigan  for  an
aggregate purchase price of $11,150.  The Company paid approximately $4,650 cash
and funded $6,500 through a borrowing under the Company's SunTrust Facility (see
Note 5).

           Effective December 2, 1997, the Company purchased certain assets of a
bulk CO2 company with operations in Kansas for a purchase price of approximately
$990.  The purchase  price was funded  through a borrowing  under the  Company's
SunTrust Facility (see Note 5).

           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. The purchase price was funded through a borrowing under the Company's
SunTrust Facility (see Note 5).

           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 $6,300.  The purchase price was funded through a
borrowing under the Company's SunTrust Facility (see Note 5).

           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.  The  Company  paid  cash for  these
transactions.

           The  Company did not  consumate  any  acquisitions  during the fiscal
years ended June 30, 2000 and 1999.

           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 date of
acquisition.  This  resulted in goodwill  of  approximately  $16,257 in the year
ended June 30,  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  consolidated  financial statements since the effective date of
the acquisitions.

           The following summarized,  unaudited, pro forma results of operations
for the year ended June 30, 1998 assumes that the  acquisitions  described above
occurred as of the beginning of the year:



Net sales                                               $   39,079
(Loss) before extraordinary item                            (6,134)
Net (loss)                                                  (6,321)
Net (loss) per common share                                 (0.88)


                                      F-11

<PAGE>


                                   NUCO2 INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (In thousands, except per share amounts)


Note 3 -   Property and Equipment, Net

           Property and equipment, net consists of the following:

                                                      June 30,
                                                      --------
                                                   2000       1999
                                                 --------   --------
Leased equipment                                 $112,427   $ 95,925
Equipment and cylinders                            15,061     13,940
Systems held for installation                       4,757      5,151
Vehicles                                              412        448
Computer equipment                                  2,454      2,063
Office furniture and fixtures                       1,382      1,216
Leasehold improvements                              1,613      1,485
                                                 --------   --------
                                                  138,106    120,228
Less accumulated depreciation and amortization     30,986     20,563
                                                 --------   --------

                                                 $107,120   $ 99,665
                                                 ========   ========

           Capitalized   component  parts  and  direct  costs   associated  with
installation  of equipment  leased to others  included in leased  equipment  was
$26,265  and  $19,418  at June 30,  2000  and  1999,  respectively.  Accumulated
depreciation and amortization of these costs were $10,324 and $6,332 at June 30,
2000 and 1999, respectively.

           Depreciation  and amortization of property and equipment was $10,841,
$8,743  and  $6,046  for  the  years  ended  June  30,  2000,  1999,  and  1998,
respectively.

Note 4 -   Leases

           The Company leases equipment to its customers  generally  pursuant to
five-year  or six year  noncancelable  operating  leases which expire on varying
dates  through June 2006.  At June 30,  2000,  future  minimum  rentals due from
customers which includes, where applicable, a continuous supply of CO2 (see Note
1(g)), are approximately as follows:

                 Year Ending June 30,
                 --------------------

                        2001                        $ 38,179
                        2002                          34,531
                        2003                          27,140
                        2004                          18,895
                        2005                          14,834
                        Thereafter                     5,520
                                                    --------
                                                    $139,099
                                                    ========






                                      F-12

<PAGE>

                                   NUCO2 INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (In thousands, except per share amounts)


Note 5 -   Long-Term Debt

           Long-term debt consists of the following:
<TABLE>
<CAPTION>

                                                                                                   June 30,
                                                                                                   --------
                                                                                               2000        1999
                                                                                               ----        ----
<S>                                                                                         <C>          <C>
Note payable to bank under credit facility. Drawings at June 30, 2000 are at LIBOR rates
   plus 3.75% (10.0213% to 10.6125%).  Drawings at June 30, 1999 are at LIBOR
   rates plus 3.5% (8.8831%).  (a)                                                          $  52,750    $ 43,250
Various notes payable                                                                             363         462
                                                                                            ---------    --------
                                                                                               53,113      43,712
Less current maturities of long-term debt                                                          33          97
                                                                                            ---------    --------
       Long-term debt, excluding current maturities                                         $  53,080    $ 43,615
                                                                                            =========    ========
</TABLE>

           (a) On May 4, 1999, the Company  entered into a $75.0 million amended
and restated revolving credit facility with a syndicate of banks led by SunTrust
Bank, South Florida,  N.A. ("Amended SunTrust  Facility").  The Amended SunTrust
Facility  amended and restated the Company's  existing $50.0 million  syndicated
facility  which had been  entered  into in October  1997.  As of June 30,  2000,
$22.25 million is available  under the Amended  SunTrust  Facility.  The Amended
SunTrust  Facility contains interest rates and an unused facility fee based on a
pricing grid calculated quarterly on senior funded debt to annualized EBITDA (as
defined).  The  Company  is  entitled  to select  the Base  Rate or LIBOR,  plus
applicable  margin,  for principal drawings under the Amended SunTrust Facility.
The  applicable  LIBOR margin  pursuant to the pricing grid ranges from 1.75% to
3.5%.  The  applicable  unused  facility fee pursuant to the pricing grid ranges
from .375% to .50%.  Interest only is payable  periodically until the expiration
of the Amended SunTrust  Facility on May 4, 2002; there is, however,  a two year
renewal  option  subject  to  approval.   The  Amended   SunTrust   Facility  is
collateralized by substantially all of the assets of the Company. The Company is
precluded  from declaring or paying any cash  dividends,  except the Company may
accrue and cumulate, but not pay, cash dividends on the 8% convertible preferred
stock.  The Company is also  required to meet certain  affirmative  and negative
covenants including,  but not limited to, financial  covenants.  Pursuant to the
Amended SunTrust Facility,  drawings are limited to availability under a formula
predicated upon multiples of EBITDA.

           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 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 aggregate maturities of long-term debt for each of the five years
subsequent to June 30, 2000 are as follows:

                      Year Ending June 30,
                      --------------------
                             2001                      $     33
                             2002                        52,787
                             2003                            40
                             2004                            44
                             2005                            48
                             Thereafter                     161
                                                        -------
                                                       $ 53,113
                                                        =======

Extraordinary item - loss on extinguishment of debt

           During  the year  ended  June  30,  1998,  the  Company  incurred  an
extraordinary  charge of $187, for the write-off of deferred  financing costs in
connection with the early repayment of debt.

                                      F-13

<PAGE>

                                   NUCO2 INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (In thousands, except per share amounts)

Note 6 -   Subordinated Debt

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

           On May 4, 1999,  the Company sold an additional  $10.0 million of its
12% Senior Subordinated  Promissory Notes ("Additional Notes"). Except for their
October 31, 2005 maturity date, the Additional Notes are substantially identical
to the Notes  described  above.  The Additional  Notes were sold with detachable
6-1/2 year  warrants to purchase an aggregate of 372,892  shares of Common Stock
at an  exercise  price of $6.65 per share.  In  connection  with the sale of the
Additional  Notes,  certain  financial  covenants  governing  the  Notes and the
Additional  Notes were adjusted as of March 31, 1999 and  prospectively  and the
exercise price of 612,023 of the warrants  issued in connection with the sale of
the Notes was reduced to $6.65 per share.  The effective  rate of the Additional
Notes is 13.57%  per  annum  after  giving  effect  to the  amortization  of the
original issue discount.  Additionally,  from May 4, 1999 to September 30, 1999,
the interest rate on the original  $30.0 million of Notes  increased to 14% from
12% per  annum.  Interest  will  increase  from 12% to 14% per annum  during any
quarter in which certain financial ratios are not met.

Note 7 -   Redeemable Preferred Stock

           In May 2000,  the  Company  sold  5,000  shares of its 8%  Cumulative
Convertible  Preferred Stock, no par value (the "Convertible  Preferred Stock"),
for  $1,000  per  share  (the  initial  "Liquidation  Preference").   Cumulative
dividends  are payable  quarterly  in arrears at the rate of 8% per annum on the
Liquidation  Preference,  and, to the extent not paid in cash,  are added to the
Liquidation Preference. During the year ended June 30, 2000, the carrying amount
(and Liquidation Preference) of the Convertible Preferred Stock was increased by
$50 for dividends  accrued.  Shares of the  Convertible  Preferred  Stock may be
converted into shares of Common Stock at any time at a conversion price of $9.47
per share,  which  represents a 20% premium to the average  closing price of the
Common Stock on the Nasdaq  National Market for the 20 trading days prior to May
12, 2000. In connection  with the sale,  costs in the amount of $65 were charged
to paid in  capital.  The  convertible  Preferred  Stock  shall  be  mandatorily
redeemed by the Company within 30 days after a Change in Control (as defined) of
the Company (the date of such redemption being the "Mandatory  Redemption Date")
at an amount equal to the then effective Liquidation Preference plus accrued and
unpaid  dividends  thereon from the last dividend  payment date to the Mandatory
Redemption  Date,  plus if the Mandatory  Redemption  Date is on or prior to the
fourth  anniversary  of the issuance of the stock,  the amount of any  dividends
that would have accrued and been payable on the Convertible Preferred Stock from
the Mandatory Redemption Date through the fourth anniversary date.

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

Note 8  -  Shareholders' Equity

           (a) Non-Qualified Stock Options and Warrants

               In June 1995, the Company  granted a ten year warrant to purchase
84,917 shares of Common Stock at $5.00 per share to the  Company's  then current
lending institution in connection with a refinancing.  On February 14, 2000, the
lending institution exercised warrants to purchase 57,385 shares of Common Stock
pursuant to the cashless exercise contained in the warrants.  In connection with
the cashless  exercise,  warrants to purchase 27,532 shares of Common Stock were
cancelled.

               In  connection  with the  Company's  Initial  Public  Offering in
December 1995,  representatives of the Underwriter received warrants to purchase
up to an  aggregate  of  33,000  shares  of  Common  Stock.  Such  warrants  are
exercisable  for a period of five  years,  at an  exercise  price of $10.80  per
share. As of June 30, 2000 the warrants are outstanding.

               In May 1997, the Company granted a warrant to purchase  1,000,000
shares of Common  Stock to BOC pursuant to the supply  agreement  (see Note 14).
The warrant is exercisable  from May 1, 1999 to May 1, 2002 at an exercise price
of $17 per share and from May 1, 2002 until April 30, 2007 at an exercise  price
of $20 per share. As of June 30, 2000 the warrant is outstanding.


                                      F-14
<PAGE>

                                   NUCO2 INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (In thousands, except per share amounts)

(b)     Stock Option Plans

        The board of directors  adopted the 1995 Option Plan (the "1995  Plan").
Under the 1995 Plan, the Company has reserved  1,550,000  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,  or both.
The exercise  price of incentive  options shall be at least equal to 100% of the
fair market value of the  Company's  Common Stock at the date of the grant,  and
the exercise price of non-qualified stock options issued to employees may not be
less than 75% of the fair market value of the Company's Common Stock at the date
of the grant.  The maximum term for all options is 10 years.  Options granted to
date  vest in  three  to five  installments  over  periods  of three to four and
one-half years. As of June 30, 1998, 1999 and 2000,  options for 105,900 shares,
277,307  shares  and  481,808  shares  were   exercisable,   respectively.   The
weighted-average  fair value per share of options granted during the years ended
June 30, 1998, 1999 and 2000 were $2.81,  $2.20 and $3.06,  respectively.  As of
June 30,  2000,  the  weighted-average  remaining  life of the  options was 6.98
years.

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

                                                               Weighted-Average
                                 Shares    Exercise Price       Exercise Price
                                 ------    --------------       --------------
Outstanding at June 30, 1997     346,604       $9-$17.50           $12.28
Granted                          341,500   $10.25-$11.28           $10.43
Expired or canceled               77,067       $9-$17.50           $17.29
Exercised                            111              $9               $9
                               ---------   -------------         --------
Outstanding at June 30, 1998     610,926       $9-$11.28           $10.61
Granted                          214,500        $5.50-$7            $5.74
Expired or canceled               21,200       $9-$11.25           $10.40
                               ---------   -------------         --------
Outstanding at June 30, 1999     804,226    $5.50-$11.28            $9.32
Granted                          315,000     $6.75-$7.50            $6.79
Expired or canceled               26,526    $5.50-$11.25            $9.85
Exercised                            966           $5.50            $5.50
                               ---------   -------------         --------
Outstanding at June 30, 2000   1,091,734    $5.50-$11.28            $8.58
                               =========   =============         ========

        The board of  directors  of the  Company  adopted the  Directors'  Stock
Option  Plan  (the   "Directors'   Plan").   Under  the  Directors'  Plan,  each
non-employee  director will receive  options for 6,000 shares of Common Stock on
the date of his or her first election to the board of directors. In addition, on
the third  anniversary of each  director's  first election to the Board,  and on
each three year anniversary thereafter,  each non-employee director will receive
an  additional  option to purchase  6,000 shares of Common  Stock.  The exercise
price per share for all options  granted under the Directors' Plan will be equal
to the fair  market  value of the  Common  Stock  as of the date of  grant.  All
options  vest  in  three  equal  annual  installments  beginning  on  the  first
anniversary of the date of grant. The maximum term for all options is ten years.
As of June 30, 1998,  1999 and 2000 options for 14,000 shares,  8,000 shares and
16,000 shares were  exercisable,  respectively.  No options have been  exercised
under the Directors' Plan. The weighted-average  fair value per share of options
granted  during the years ended June 30, 1998,  1999 and 2000 were $4.11,  $2.58
and $2.37 respectively. As of June 30, 2000, the weighted-average remaining life
of the options was 7.51 years.

                                                         Weighted-Average
                               Shares   Exercise Price    Exercise Price
                               ------   --------------    --------------
Outstanding at June 30, 1997   24,000           $9.00          $9.00
Granted                         6,000          $12.50         $12.50
Expired or canceled             8,000           $9.00          $9.00
                               ------   -------------         ------
Outstanding at June 30, 1998   22,000    $9.00-$12.50          $9.95
Granted                        18,000     $6.06-$8.94          $7.21
Expired or canceled            10,000           $9.00          $9.00
                               ------   -------------         ------
Outstanding at June 30, 1999   30,000    $6.06-$12.50          $8.63
Granted                         6,000           $7.00          $7.00
Expired or canceled             4,000           $8.94          $8.94
                               ------   -------------         ------
Outstanding at June 30, 2000   32,000    $6.06-$12.50          $8.28
                               ======   =============         ======

                                      F-15

<PAGE>
                                   NUCO2 INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (In thousands, except per share amounts)

Statement of Financial  Accounting Standards No. 123, Accounting for Stock-Based
Compensation, defines a fair value based method of accounting for stock options.
The Statement  allows an entity to continue to measure cost using the accounting
method  prescribed  by APB  Opinion  No.  25,  Accounting  for  Stock  Issued to
Employees,  and to make pro forma  disclosures  of net income and  earnings  per
share as if the fair value based method of accounting had been applied. The fair
value  of each  option  grant  is  estimated  on the  date of  grant  using  the
Black-Scholes   option   pricing  model  with  the  following   weighted-average
assumptions used for grants in fiscal 1998, 1999 and 2000;  expected  volatility
of 39% to 40%, risk-free interest rate of 4.3% to 6.6%,  expected dividend yield
of 0% and  expected  lives  of one to  five  years.  The  Company  presents  the
following pro forma disclosures for employee stock options:

<TABLE>
<CAPTION>
                                                            Years Ended June 30,
                                                            --------------------

                                                       2000           1999        1998
                                                       ----           ----        ----

<S>                                                <C>           <C>          <C>
   Net (loss) available to common shareholders     $   (9,766)   $   (9,463)  $   (5,975)

   Net (loss) per common share                     $    (1.35)   $    (1.31)  $    (0.83)
                                                   ==========    ==========   ==========

   Weighted average number of common and
     common equivalent shares outstanding               7.238         7.217        7.210
                                                   ==========    ==========   ==========
</TABLE>

           The pro forma  adjustment  for stock based  compensation  costs under
SFAS 123 for the years ending 1998,  1999 and 2000 is  approximately  $340, $530
and $333,  respectively.  No stock  based  compensation  was  recognized  in the
financial statements pursuant to APB Opinion No. 25.


Note 9 -    Earnings per Share

           Basic (loss) per common  share has been  computed by dividing the net
(loss),  after  giving  effect to  preferred  stock  dividends,  by the weighted
average number of common shares  outstanding  during the period.  Diluted (loss)
per  share has been  computed  on the basis of the  weighted  average  number of
common and, if dilutive, common equivalent shares outstanding during the period.
Common equivalent shares for stock options and warrants  calculated  pursuant to
the treasury stock method for the years ended June 30, 2000,  1999 and 1998 were
438,131  shares,  52,668 shares and 136,972 shares,  respectively.  These shares
were not  included  in diluted  EPS  because they would have been  antidilutive.
Additionally,  options  and  warrants to  purchase  1,000,000  shares and 43,715
shares for $17.00 per share and $16.40 per share, respectively, were outstanding
during  the year  ended June 30,  2000 and  options  and  warrants  to  purchase
1,075,000 shares,  655,738 shares and 36,000 shares for $17.00-$17.50 per share,
$16.40 per share and  $12.50-$14.64  per share,  respectively,  and  options and
warrants to purchase  1,043,715  shares,  321,810  shares and 350,416 shares for
$16.40-$17.00  per share,  $11.00-$14.64  per share and  $8.94-$10.80 per share,
respectively,  were outstanding  during all or a portion of the years ended June
30, 1998 and 1999,  respectively,  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. Also, not included in the computation
of diluted EPS for the year ended June 30, 2000,  were 533,262  shares of Common
Stock issuable upon  conversion of 5,000 shares of Convertible  Preferred  Stock
issued  during  the year  ended  June 30,  2000,  because  the  effect  would be
antidilutive.

<TABLE>
<CAPTION>

                                                                      Years Ended June 30,
                                                                      --------------------
                                                                  2000       1999       1998
                                                                  ----       ----       ----

<S>                                                             <C>        <C>        <C>
(Loss) before extraordinary item                                $(9,383)   $(8,933)   $(5,448)
Extraordinary item - loss on extinguishments of debt (Note 5)      --         --          187
                                                                -------    -------    -------
Net Loss                                                         (9,383)    (8,933)    (5,635)
Preferred Stock dividends                                           (50)      --         --
                                                                -------    -------    -------
Net (loss) available for common shareholders                    $(9,433)   $(8,933)   $(5,635)
                                                                =======    =======    =======
Weighted Average outstanding shares of Common Stock               7,238      7,217      7,210
Loss per share - Basic and Diluted
   Loss before extraordinary item                               $ (1.30)   $ (1.24)   $ (0.75)
   Extraordinary item                                              --         --        (0.03)
                                                                -------    -------    -------
Net loss                                                        $ (1.30)   $ (1.24)   $ (0.78)
                                                                =======    =======    =======
</TABLE>


                                      F-16

<PAGE>

                                   NUCO2 INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (In thousands, except per share amounts)


Note 10 -   Income Taxes

                The tax  effects  of  temporary  differences  that  give rise to
significant  portions of deferred tax assets and deferred tax liabilities are as
follows:

                                                           June 30,
                                                           --------
                                                       2000         1999
                                                       ----         ----
 Deferred tax assets:
        Allowance for doubtful accounts              $    234    $    210
        Amortization expense                              730         512
        Other                                              10          11
        Net operating loss carryforwards               24,368      17,143
                                                     --------    --------
              Total gross deferred tax assets          25,342      17,876
 Less valuation allowance                              (9,796)     (6,236)
                                                     --------    --------
        Net deferred tax assets                        15,546      11,640
                                                     --------    --------
 Deferred tax liabilities:
        Depreciation expense                          (15,546)    (11,640)
                                                     --------    --------
              Total gross deferred tax liabilities    (15,546)    (11,640)
                                                     --------    --------
Net deferred taxes                                   $   --      $   --
                                                     ========    ========


        At June 30, 2000, the Company had net operating loss  carryforwards  for
Federal  income tax purposes of  approximately  $64,800,  which are available to
offset future Federal  taxable  income,  if any, in varying amounts through June
2020. The net change in the total  valuation  allowance for the years ended June
30, 2000 and 1999 was an increase of $3,560 and $3,470 respectively.


Note 11 -   Related Party Transactions

            The Company  entered  into leases with the chairman of the board and
chief executive officer for certain  warehouse/depots and office facilities with
future annual rentals of approximately:

                   Year Ending June 30,
                   --------------------
                            2001               $ 235
                            2002                 109
                            2003                  60
                                                ----
                                               $ 404
                                                ====

            Rental  expense  was  $305,  $275 and $247 in 2000,  1999 and  1998,
respectively, under these leases.

Note 12 -   Lease Commitments

            The Company leases office equipment,  trucks and warehouse/depot and
office  facilities under operating leases (including  related party leases,  see
Note 11) that expire at various  dates  through June 2006.  Primarily all of the
leases contain renewal  options and  escalations  for real estate taxes,  common
charges, etc. Future minimum lease payments under noncancelable operating leases
(that  have  initial  noncancelable  lease  terms in  excess of one year) are as
follows:

                   Year Ending June 30,
                   --------------------
                            2001                $ 4,466
                            2002                  4,094
                            2003                  2,846
                            2004                  1,416
                            2005                    409
                            Thereafter               63
                                                 ------
                                                $13,294
                                                 ======

            Total  rental  costs  under   noncancelable   operating  leases  was
approximately $4,670, $4,386 and $3,284 in 2000, 1999 and 1998, respectively.

                                      F-17

<PAGE>

                                   NUCO2 INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (In thousands, except per share amounts)

Note 13 -   Concentration of Credit and Business Risks

            The Company's business activity is with customers located within the
United  States.  For each of the years  ended June 30,  2000,  1999 and 1998 the
Company's   sales  to  customers  in  the  food  and  beverage   industry   were
approximately 99%.

            There were no customers  that accounted for greater than 5% of total
sales for the three years ended June 30, 2000, nor were there any customers that
accounted for greater than 5% of total  accounts  receivable at June 30, 2000 or
1999.

            The  Company  purchases  new bulk  CO2  systems  from the two  major
manufacturers  of  such  systems.  The  inability  of both or  either  of  these
manufacturers  to deliver new systems to the Company  could cause a delay in the
Company's  ability to fulfill the demand for its services and a possible loss of
sales, which could affect operating results adversely.


Note 14 -   Commitments and Contingencies

            In May 1997, the Company  entered into an exclusive  ten-year carbon
dioxide supply agreement with The BOC Group, Inc. ("BOC"). The agreement ensures
readily  available  high quality CO2 as well as relatively  stable liquid carbon
dioxide prices. Pursuant to the agreement,  the Company must purchase all of its
liquid CO2 requirements from BOC. The agreement contains annual adjustments over
the prior  contract year for an increase or decrease in the Producer Price Index
for Chemical and Allied Products ("PPI") or the average  percentage  increase in
the selling  price of bulk  merchant  carbon  dioxide  purchased by BOC's large,
multi-location  beverage customers in the United States. However, such increases
shall not exceed 3% per year in the first five contract years.

            The  Company is a  defendant  in legal  actions  which  arise in the
normal course of business.  In the opinion of  management,  the outcome of these
matters will not have a material effect on the Company's  financial  position or
results of operations.

 Note 15 -  Disclosures about Fair Value of Financial Instruments

            The following methods and assumptions were used to estimate the fair
value of each class of financial instruments.

            (a) Cash and cash equivalents

            The  carrying  amount  approximates  fair  value  due to  the  short
maturity of these instruments.

            (b) Long-term debt

            The fair value of the Company's  long-term  debt has been  estimated
based on the current rates offered to the Company for debt of the same remaining
maturities.

            The  carrying  amounts  and fair values of the  Company's  financial
instruments are as follows:

                                                                June 30,
                                                                --------
                                                             2000       1999
                                                            -------    -------

            Cash and cash equivalents                      $   279     $ 1,579
            Long-term debt, including current maturities    53,113      43,712
            Subordinated debt                               38,969      38,749

            As of June  30,  2000 and  1999,  the  fair  value of the  Company's
interest rate swap (see Note 5) was not material.

                                      F-18

<PAGE>

                                   NUCO2 INC.
                                   Schedule II
                        Valuation and Qualifying Accounts
                                  In Thousands
<TABLE>
<CAPTION>

                                          Column B        Column C - Additions         Column D            Column E
                                          --------        --------------------         --------            --------
                                         Balance at     Charge to
                                        beginning of    costs and      Charged to                         Balance at
                                            period      expenses      other accounts   Deductions        end of period
                                            ------      --------      --------------   ----------        -------------
Year ended June 30, 1998
<S>                                     <C>             <C>           <C>    <C>       <C>               <C>
   Allowance for doubtful accounts      $    113        $    451      $   43 (1)       $     212         $     395
Year ended June 30, 1999
   Allowance for doubtful accounts      $    395        $    665      $   -            $     502         $     558

Year ended June 30, 2000
   Allowance for doubtful accounts      $    558        $    445      $   -            $     381         $     622
</TABLE>





(1) Initial reserve of acquired company.


                                      F-19