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, 1999

                                       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
 Incorporation or Organization)                   Identification No.)

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. /X/

                                                           (continued next page)
<PAGE>

            The  aggregate  market value at September  20, 1999 of shares of the
Registrant's  common  stock,  $.001 par value per share  (based upon the closing
price of $7.00 per share of such  stock on the  Nasdaq  National  Market on such
date), held by  non-affiliates of the Registrant was approximately  $38,870,000.
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 20, 1999,  there were  outstanding  7,216,664 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 28, 1999 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.                                     9
Item 7.        Management's  Discussion and  Analysis of
               Financial Condition and Results of Operations.               11
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.              18

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 97% 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

      CONTRACT FEEDERS            WHOLESALE CLUBS                      CONVENIENCE/PETROLEUM
      Sodexho Marriott            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
      SPORTS VENUES                                      Phillips 66                      BP/Amoco
      Pro Player Stadium
      Madison Square Garden                                              MOVIE THEATRES
      Georgia Dome                                       Regal Cinemas                    General Cinema
      Derby Lane                                         American Multi Cinema            Carmike Cinemas
      AMF Bowling Centers                                Sony/Loew's Cinemas              United Artists Cinemas
                                                         Litchfield Cinemas
</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 84 service
locations  and  approximately  65,000 bulk and high pressure CO2 customers in 44
states.  Our customer base has  increased by an average of 78% annually.  Today,
the  majority of our growth is driven by the  conversion  of high  pressure  CO2
users to bulk CO2 systems.

                                       1
<PAGE>




                   [MAP WITH SERVICE AREA AND DEPOT LOCATIONS]

                                 Customer Base

                                Fiscal Year Ended June 30
                      1995     1996      1997      1998      1999

                    10,467    16,184    28,719    55,095    65,000
                                55%       77%       92%       18%


            Our bulk CO2 customer  base is highest in Florida,  Texas,  Georgia
and New York.  We expanded our service area by one state during  fiscal 1999, 13
states during fiscal 1998 and 12 states during fiscal 1997.


                   States with Largest Bulk CO2 Customer Base

               Florida      Texas     Georgia        New York

               11,804       6,081      5,004          2,754

                                       2

<PAGE>
            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
$47.1  million in fiscal 1999, an average  increase of 68% annually.  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 $11.3 million in fiscal 1999,  an average  increase of
72% annually from fiscal 1994 to fiscal 1999.

                                   Net Sales
                                 (in millions)

                            For Fiscal Year Ended June 30
                    1995      1996      1997      1998      1999

                     6.1      12.0     18.9       35.1      47.1
                               97%      58%        85%       34%



                                     EBITDA
                                 (in millions)

                            For Fiscal Year Ended June 30
                    1995      1996      1997      1998      1999

                     2.1       3.7      4.1        7.1      11.3
                               76%      10%        74%       59%






                                       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 120,000 bulk CO2 beverage users in
the United States. Of these,  approximately 59,000 are already our customers. We
also  currently  service  approximately  6,000 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)

          Bulk CO2                 High Pressure       NUCO2 Inc. Market Share
           Users                     CO2 Users            of Bulk CO2 Users
         (120,000)                  (680,000)                 (59,000)
             15%                        85%                      49%

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 three to 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


                                       4

<PAGE>
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 1997,  1998 and
1999,  less  than 5% of our bulk CO2  systems  in  service  experienced  service
terminatiion.  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  terminating in any one year. The largest number (approximately 40%)
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 6,000
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 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 5 MiCell customers and
expect that number to increase if MiCell is  successful in  commercializing  the
MICO2 system. Consequently,  we may eventually have significant revenues outside
of the fountain beverage industry. 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,  1999,  we serviced  approximately  65,000 bulk and high
pressure CO2 customers,  none of which  accounted for more than 5% of our fiscal
1999 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 75 commission only independent  sales  representatives  and 33 salaried sales
personnel.

                                       5
<PAGE>

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  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.

                                       6

<PAGE>
Operations

            At June 30, 1999, we operated 84 service  locations  (69  stationary
depots and 15 mobile  depots)  located  throughout our 44 state service area and
operated 166 specialized  bulk CO2 trucks,  86  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 begun rolling 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.

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  generally  maintain  a 60 day
inventory of bulk CO2 systems to meet expected customer demand.

                                       7

<PAGE>
Employees

            At June 30, 1999, we employed 543 full-time  employees,  178 of whom
were involved in an executive, marketing or administrative capacity, 264 of whom
were route drivers and 101 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, 1999, approximately 6,000 of our bulk CO2 customers were
billed under rental plus per pound charge contracts and  approximately  9,600 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 32,400  square  foot
rented facility in Stuart, Florida that accommodates corporate,  administrative,
marketing,  sales and  warehouse  space.  At June 30,  1999,  we also  rented 69
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  range  of  high  and  low bid
information  for our common stock for each  quarterly  period during fiscal 1998
and 1999, as reported by Nasdaq. Such over-the-counter market quotations reflect
inter-dealer prices,  without retail mark-up,  mark-down or commission,  and may
not necessarily reflect actual transactions.

Calendar 1997               High                    Low
Third Quarter              18 1/4                 14 3/8
Fourth Quarter             16 1/8                 10 1/4

Calendar 1998
First Quarter              13 3/4                 10 1/2
Second Quarter             13 1/4                  9 7/8
Third Quarter              10 3/8                  5 1/2
Fourth Quarter              8 1/2                  5

Calendar 1999
First Quarter               9 7/8                  6 1/8
Second Quarter              9 5/8                  5 1/4

            At June 30, 1999, there were  approximately 219 holders of record of
our common  stock.  This  number  does not  include an  indeterminate  number of
shareholders whose shares are held by brokers in "street name."

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

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.

                                       9
<PAGE>
<TABLE>
<CAPTION>

                                                                                Fiscal Year Ended June 30,
                                                               1999              1998           1997             1996       1995
                                                               ----              ----           ----             ----       ----
                                                     (in thousands, except per share amounts and Operating Data)
Income Statement Data:
<S>                                                     <C>               <C>               <C>               <C>           <C>
Net Sales..........................................     $    47,098       $    35,077       $  18,944         $ 11,966      $ 6,062
Cost of products sold..............................          25,225            18,578           8,992            5,177        2,503
Selling, general and administrative expenses.......          10,554             9,396           5,859            3,066        1,448
Depreciation and amortization......................          12,763             8,912           4,246            2,417        1,380
                                                        -----------       -----------       ---------         --------      -------

Operating income (loss)............................          (1,444)           (1,809)           (153)           1,305          731
Interest expense, net..............................           7,489             3,639            (681)           1,258        1,264
                                                        -----------       -----------       ----------        --------      -------



Income (loss) before extraordinary item............          (8,933)           (5,448)            527               47        (533)
Extraordinary item.................................            -                  187              -               860          -
                                                        -----------       -----------       ---------         --------      -------

Net income (loss)                                            (8,933)           (5,635)            527             (813)       (533)

Dividends on Preferred Stock.......................            -                 -                 -              (111)         -
                                                        -----------       -----------       ---------         --------      -------

Net income (loss)..................................     $    (8,933)      $    (5,635)      $     527         $   (924)     $ (533)
                                                        ===========       ============      =========         =========     =======

Income (loss) per common share before
     extraordinary item............................     $     (1.24)      $     (0.75)      $     .07         $   (.02)     $ (.17)
Extraordinary item.................................            -                (0.03)            -               (.19)         -
                                                        ------------      -----------       ---------         --------      -------
Net income (loss) per common share                      $     (1.24)      $     (0.78)      $     .07         $   (.21)     $ (.17)

Weighted average shares outstanding................           7,217             7,210           7,318            4,500       3,379

Other Data:
EBITDA (1).........................................     $    11,319       $     7,103       $   4,093         $  3,722      $2,111

Operating Data:
Company owned bulk CO2 systems serviced:
     Beginning of period...........................          39,295            21,919          12,884            7,967       4,237
     New installations, net........................          11,100             9,446           5,817            3,337       1,703
     Acquisitions                                              -                7,930           3,218            1,580       2,027
                                                        -----------       -----------       ---------         --------      -------
Total Company owned bulk CO2 systems serviced:               50,395            39,295          21,919           12,884       7,967
Customer owned bulk CO2 systems serviced...........           8,605             6,800           4,800            2,900       2,300
                                                        -----------       -----------       ---------         --------      -------

Total bulk CO2 systems serviced....................          59,000            46,095          26,719           15,784      10,267
Total high pressure CO2 customers..................           6,000             9,000           2,000              400         200
                                                        -----------       -----------       ---------         --------      -------
Total customers....................................          65,000            55,095          28,719           16,184      10,467
Stationary depots..................................              69                63              38               24          15
Mobile depots......................................              15                 2               0                0           0
Bulk CO2 trucks....................................             166               150              83               49          30
Installation vehicles..............................              86                76              36               19          18
High pressure cylinder delivery trucks.............               7                17               1                1           1


Balance Sheet Data:
Cash and cash equivalents..........................     $     1,579       $       337       $  11,673         $ 43,001     $   562
Total assets.......................................         141,630           124,498          73,344           74,633      21,143
Total debt (including short-term debt).............          82,460            59,328           9,546           10,844      17,391
Total shareholders' equity.........................     $    47,733       $    55,643       $  60,702         $ 60,684     $   743
</TABLE>


                                       10
<PAGE>

--------------------
(1)     EBITDA  represents  operating income 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  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,  YEAR  2000  ISSUES  AND  AVAILABILITY  OF  MANAGERIAL
PERSONNEL.

Overview

            We are the largest supplier in the United States of bulk CO2 systems
and bulk CO2 for carbonating  and dispensing  fountain  beverages.  We currently
operate a  national  network  of 84  service  locations  in 44 states  servicing
approximately  65,000  bulk and high  pressure  customers.  Over 97% of fountain
beverage users in the  Continental  United States are within our current service
area.

            Growth in our customer  base has averaged  78%  annually.  Our rapid
growth  has  been  due  to  a  combination  of  internal   growth  and  over  30
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 rapidly 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 $812,000 in fiscal 1991 to
$47.1  million in fiscal 1999, an average  increase of 68% 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 1997,  1998 and 1999,  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 and
(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.  During
fiscal 1999, we installed a net of 925 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 $17.1 million
at June 30, 1999.

                                       11
<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  experience  has been that gross  margins at service  locations
have generally increased with the length of time that the service location is in
operation.  Gross margins in our mature  markets are generally in the 55% to 65%
range.  For the  quarter  ended June 30,  1999,  36% of our  stationary  service
locations were open over three years and averaged a 58% gross margin, 19% of our
stationary  service locations were open between two and three years and averaged
a 54% gross margin,  42% of our stationary  service  locations were open between
one and two  years and  averaged  a 35% gross  margin  and 3% of our  stationary
service  locations  were open under one year and  averaged  a 39% gross  margin.
Additionally,  we operate 15 mobile service  locations with an average 43% gross
margin for the quarter  ended June 30,  1999.  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.  Increases in gross
margins at service  locations are directly related to increases in the number of
customers serviced. New accounts are being added to newer depots for which there
is substantial excess capacity, and therefore, relatively little additional cost
is  incurred to service  new  customers.  New  multi-unit  placement  agreements
combined with  single-unit  placements  will help us in achieving route density.
During fiscal 1999, we reached multi-unit placement agreements with national and
regional  chains  aggregating  approximately  7,000  locations.  Our  success in
reaching  these  multi-placement  agreements  is due  in  part  to our  national
delivery  system.  As our  customer  base  increases,  we  anticipate  that  our
financial performance on a sequential basis will improve at an accelerated rate.
Our route density is highest in Florida and is less developed in the other areas
where we presently have operations.

            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  $15,000 in fiscal  1991 to $11.3  million  in fiscal  1999,  an
average increase of 72% annually from fiscal 1994 to fiscal 1999.

                                       12
<PAGE>
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,
                                                          1999                1998               1997
                                                          ----                ----               ----
Income Statement Data:
<S>                                                       <C>                 <C>               <C>
Net sales.........................................        100.0%              100.0%            100.0%
Cost of products sold.............................         53.6                53.0              47.5
Selling, general and administrative expenses......         22.4                26.8              30.9
Depreciation and amortization.....................         27.1                25.4              22.4
                                                        -------           ---------           -------
Operating loss....................................         (3.1)               (5.2)              (.8)
Interest expense (income).........................         15.9                10.4              (3.6)
                                                        -------           ----------          --------
Income (loss) before extraordinary item...........        (19.0)              (15.6)              2.8
Extraordinary item................................          -                    .5                -
                                                        -------           ---------             ------
Net income (loss).................................        (19.0%)             (16.1%)             2.8%
                                                        ========          ==========            ======
Other Data:
   EBITDA.........................................         24.0%               20.3%             21.6%
                                                        ========          ===========           ======
</TABLE>

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
fiscal 1998 to $47.1  million in fiscal 1999.  Approximately  $3.6  million,  or
30.2%, of the increase  represented net sales from fifteen  acquisitions  during
fiscal 1998 which are  included  for the full year in fiscal 1999 as compared to
from their dates of acquisition in fiscal 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  50,400 Company owned and 8,600 customer owned bulk CO2 systems in
service,  an increase of 12,900, or 28%, over the  approximately  39,300 Company
owned and 6,800  customer owned bulk CO2 systems in service at the end of fiscal
1998. Increases in net sales due to price increase were insignificant.

            Cost of Products Sold

            Cost of products  sold  increased by $6.6  million,  or 35.8%,  from
$18.6 million in fiscal 1998 to $25.2 million in fiscal 1999, and increased as a
percentage  of net sales from 53.0% in fiscal 1998 to 53.6% in fiscal 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
fiscal 1998 to $6.3 million in fiscal 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 fiscal 1998 to $8.2 million in fiscal 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 fiscal 1998 to $4.2 million in fiscal 1999
and  decreased as a  percentage  of net sales from 9.2% to 9.0%.  Depot  expense
increased by $476,000 from $1.7 million in fiscal 1998 to $2.2 million in fiscal
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 fiscal 1998 to $10.6 million in fiscal
1999,  and  decreased as a percentage  of net sales from 26.8% in fiscal 1998 to
22.4% in fiscal 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 fiscal 1998 to $6.7  million in fiscal  1999,  and
decreased  as a  percentage  of net sales from 16.1% in fiscal  1998 to 14.2% in
fiscal 1999. At June 30, 1999,  we had  operations in 44 states and employed 178
marketing,  administrative  and  executive

                                       13
<PAGE>

personnel,  and at the end of fiscal 1998,  we had  operations  in 43 states and
employed 146 marketing, administrative and executive personnel.

            Depreciation and Amortization

            Depreciation  and  amortization  increased by $3.9 million from $8.9
million in fiscal 1998 to $12.8  million in fiscal 1999.  As a percentage of net
sales, such expense increased from 25.4% in fiscal 1998 to 27.1% in fiscal 1999.
Depreciation  expense increased by $2.7 million from $6.0 million in fiscal 1998
to $8.7  million in fiscal  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  fiscal  1998 to 18.6% in  fiscal  1999.  Amortization
expense  increased  by $1.2  million  from $2.9  million in fiscal  1998 to $4.0
million in fiscal 1999 primarily due to the increase in amortization of deferred
lease  acquisition  costs,  deferred  charges and goodwill  and  customer  lists
resulting from acquisitions.  As a percentage of net sales, amortization expense
increased from 8.2% in fiscal 1998 to 8.5% in fiscal 1999.

            Operating Loss

            For  the  reasons  described  above,  operating  loss  decreased  by
$365,000,  or 20.2%,  from $1.8 million in fiscal 1998 to $1.4 million in fiscal
1999,  and  decreased as a  percentage  of net sales from 5.2% in fiscal 1998 to
3.1% in fiscal 1999.

            Interest Expense

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

            During fiscal 1998, $187,000 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 fiscal 1998 to $8.9  million in fiscal 1999.  No
provision  for income tax expense in either  fiscal 1998 or fiscal 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 2014.

            EBITDA

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

Fiscal Year Ended June 30, 1998 Compared to Fiscal Year Ended June 30, 1997


            Net Sales

            Net sales increased $16.1 million,  or 85.2%,  from $18.9 million in
fiscal 1997 to $35.1 million in fiscal 1998.  Approximately  $6.1 million of the
increase  represented net sales resulting from 15 acquisitions during the fiscal
year  ended  June 30,  1998.  In  addition,  approximately  $2.9  million of the
increase  represented net sales from nine acquisitions  during fiscal 1997 which
are included for the full year in fiscal 1998 as compared to from their dates of
acquisition in fiscal 1997. At June 30, 1998,  there were  approximately  39,300
Company  owned  bulk  systems  in  service,  an  increase  of  17,400  over  the
approximately  21,900 Company owned bulk systems in service at the end of fiscal
1997.  Of such  increase,  approximately  7,900  resulted from  acquisitions  of
businesses  completed  during fiscal 1998 and the remaining  9,500 resulted from
internal marketing  efforts.  Increases in net sales due to price increases were
insignificant.


                                       14
<PAGE>
            Cost of Products Sold

            Cost of products  sold  increased by $9.6 million,  or 106.6%,  from
$9.0 million in fiscal 1997 to $18.6 million in fiscal 1998,  and increased as a
percentage of net sales from 47.5% in fiscal 1997 to 53.0% in fiscal 1998.  This
increase was  attributable to our expansion into new  territories.  Fully loaded
route drivers increased by $3.2 million from $3.0 million in fiscal 1997 to $6.2
million in fiscal 1998, and increased as a percentage of net sales from 16.0% to
17.7%.  The  number of depots we  operated  at June 30,  1998  increased  to 65,
compared to 38 at June 30,  1997.  Depot  expense  increased  by  $956,000  from
$775,000 in fiscal  1997 to $1.7  million in fiscal  1998,  and  increased  as a
percentage of net sales from 4.1% to 4.9%.  Auto and truck expense  increased by
$1.7 million from $1.5 million in fiscal 1997 to $3.2 million in fiscal 1998 and
increased  as a  percentage  of net sales  from  8.2% to 9.2%.  When we open new
depots and expand into new markets,  higher costs  expressed as a percentage  of
net sales are incurred  until route  density is achieved.  We typically  service
approximately  350  customers  per delivery  vehicle in mature  markets.  In new
territories, a delivery vehicle can initially service as few as 100 customers.

            Selling, General and Administrative Expenses

            Selling,  general  and  administrative  expenses  increased  by $3.5
million,  or 60.4%,  from $5.9  million in fiscal 1997 to $9.4 million in fiscal
1998,  and  decreased as a percentage  of net sales from 30.9% in fiscal 1997 to
26.8% in fiscal 1998. The dollar  increase was primarily  attributable to growth
in the number of marketing and  administrative  personnel  and their  associated
expenses,  as well as the costs of expanding  our  geographic  areas of service.
Fully loaded marketing, administrative and executive personnel increased by $2.4
million from $3.2  million in fiscal 1997 to $5.6  million in fiscal  1998,  and
decreased  as a  percentage  of net sales from 16.9% in fiscal  1997 to 16.1% in
fiscal 1998. The percentage  decrease is  attributable to economies of scale. At
June 30, 1997, we had  operations in 30 states and at the end of fiscal 1998, we
had operations in 43 states.

            Depreciation and Amortization

            Depreciation  and  amortization  increased by $4.7 million from $4.2
million in fiscal 1997 to $8.9  million in fiscal 1998.  As a percentage  of net
sales, such expense increased from 22.4% in fiscal 1997 to 25.4% in fiscal 1998.
Depreciation  expense increased by $2.9 million from $3.1 million in fiscal 1997
to $6.0  million in fiscal  1998  principally  due to the  increase  in bulk CO2
systems leased to customers. As a percentage of net sales,  depreciation expense
increased  from  16.5% in  fiscal  1997 to 17.2% in  fiscal  1998.  Amortization
expense  increased  by $1.8  million  from $1.1  million in fiscal  1997 to $2.9
million in fiscal 1998 primarily due to the increase in amortization of deferred
lease   acquisition  costs  and  goodwill  and  customer  lists  resulting  from
acquisitions.  As a percentage of net sales, amortization expense increased from
5.9% in fiscal 1997 to 8.2% in fiscal 1998.

            Operating Loss

            For the reasons  described  above,  operating loss increased by $1.7
million,  from  $153,000  in fiscal  1997 to $1.8  million in fiscal  1998,  and
increased  as a  percentage  of net sales  from  0.8% in fiscal  1997 to 5.2% in
fiscal 1999.

            Interest Expense

            Net  interest  income in fiscal  1997 was  $681,000  compared to net
interest expense in fiscal 1998 of $3.6 million.  This change is attributable to
the decreased  level of cash and cash  equivalents  and the  increased  level of
long-term and subordinated debt in fiscal 1998 as compared to fiscal 1997.

            During fiscal 1998, $187,000 of deferred financing costs relating to
our prior credit facility was written off.

            Net Income/Loss

            For the  reasons  described  above,  net  income in fiscal  1997 was
$527,000 compared to a net loss of $5.6 million in fiscal 1998. No provision for
income tax  expense in either  fiscal  1997 or fiscal  1998 has been made due to
historical net losses. At June 30, 1998, we had net operating loss carryforwards
for federal income tax purposes of $26.2 million,  which are available to offset
future federal taxable income through 2013.


                                       15
<PAGE>
            EBITDA

            For the reasons described above,  EBITDA increased from $4.1 million
in fiscal 1997 to $7.1  million in fiscal  1998,  or 73.6%,  but  decreased as a
percentage of net sales from 21.6% to 20.3%.

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,  1999,  we
anticipated making cash capital  expenditures of at least $20.0 million to $40.0
million  during each of fiscal 2000 and fiscal 2001,  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.

            During fiscal 1999, our capital  resources  included cash flows from
operations,  available borrowing capacity under our credit facility and proceeds
from the sale of our 12%  Senior  Subordinated  Promissory  Notes  due 2005 (the
"2005 Notes").

             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  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.  Additionally,
effective May 4, 1999,  the interest rate on the original $30.0 million of Notes
increased to 14% per annum and will continue at 14% per annum during any quarter
during which certain financial ratios are not met.

            As of June 30, 1999, a total of $43.3 million was outstanding  under
the Amended SunTrust  Facility with interest at three hundred fifty basis points
above the 180-day London  InterBank  Offering Rate ("LIBOR")  (8.88% at June 30,
1999).

            Working  Capital.  At June 30, 1998, we had negative working capital
of $3.1 million. At June 30, 1999, we had negative working capital of $455,000.

                                       16
<PAGE>
            Cash Flows from Operating Activities.  During fiscal 1998 and fiscal
1999,  net cash  provided  by  operating  activities  was $7.4  million and $4.2
million,  respectively.  Cash flows from operating  activities decreased by $3.2
million  during fiscal 1999 compared to fiscal 1998 primarily due to an increase
in net loss and a decrease in the change in accounts payable. Net loss increased
by $3.3 million from $5.6 million in fiscal 1998 to $8.9 million in fiscal 1999.
The  increase in accounts  payable in fiscal 1998 was $4.5 million and in fiscal
1999 was $105,000.

            Cash Flows from Investing Activities.  During fiscal 1999 and fiscal
1998,  we made net capital  expenditures  of $24.0  million  and $23.5  million,
respectively,  primarily  for  purchases of new bulk CO2 systems and  associated
installation  and direct  placement  costs. In addition,  during fiscal 1998, we
made 15 acquisitions and expended cash of $12.4 million.

            Cash Flows from Financing Activities.  During fiscal 1999 and fiscal
1998,  net cash  provided by financing  activities  was $22.7  million and $18.6
million,  respectively.  For fiscal 1999 and fiscal 1998, cash flows provided by
financing  activities were primarily from the issuance of subordinated  debt and
borrowings under our revolving credit facility.

            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

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

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

            Because we are unaware of any material Year 2000 compliance  issues,
we lack a Year  2000-specific  contingency  plan. If Year 2000 compliance issues
are  discovered,  we will  evaluate the need for one or more  contingency  plans
relating to such issues.  If we are unable to develop and implement  appropriate
contingency  plans, as needed,  in a timely manner, we may experience delays in,
or increased costs  associated  with,  implementation  of changes to address any
such issues, which could have material adverse effect on our business, operating
results or financial condition.

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.

                                       17
<PAGE>

            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, 1999, a total of $43.3 million was  outstanding  under the
Amended  SunTrust  Facility  with  interest at three  hundred fifty basis points
above the 180 day LIBOR rate (8.88% at June 30, 1999).  Based upon $43.3 million
outstanding  under the Amended  SunTrust  Facility at June 30, 1999,  our annual
interest cost under the Amended SunTrust Facility would increase by $433,000 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 June 9, 1998 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 2, 1998 and it  terminates  on September 5, 2000.  Pursuant to
the Swap, we pay a fixed interest rate of 6% 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 6% 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 28, 1999 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 28, 1999 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 28, 1999 pursuant to Regulation 14A.

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 28, 1999 pursuant to Regulation 14A.


                                       18
<PAGE>

Item 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:


                                       19
<PAGE>
            Exhibit No.         Exhibit
            -----------         -------

            **3.1       --      Amended and Restated  Articles of  Incorporation
                                of the Company.

            *****3.2    --      Articles  of   Amendment   to  the  Articles  of
                                Incorporation of the Company, dated December 18,
                                1995.

            *****3.3    --      Articles  of   Amendment   to  the  Articles  of
                                Incorporation of the Company, dated December 17,
                                1996.

            **3.4       --      Bylaws of the Company.

            *****10.1   --      1995 Stock Option Plan.

            **10.2      --      Directors' Stock Option Plan.

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

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

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

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

            ****10.7    --      Employment  agreement  between  the  Company and
                                Joann Sabatino, dated October 16, 1996.

            *10.8       --      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").

            *10.9       --      First  Amendment to Amended and Restated  Credit
                                Agreement dated as of June 16, 1999 by and among
                                the Company, the Lenders and the Agent.

            *****10.10  --      Senior  Subordinated  Note  Purchase  Agreement,
                                dated  as  of  October  31,  1997   between  the
                                Company,  the  Subsidiary   Guarantors  and  the
                                Investors.

            *****10.11  --      Amendment  No.  1 to  Senior  Subordinated  Note
                                Purchase Agreement dated as of November 14, 1997
                                between the Company,  the Subsidiary  Guarantors
                                and the Investors.

            *****10.12  --      Amendment  No.  2 to  Senior  Subordinated  Note
                                Purchase  Agreement  dated as of June  30,  1998
                                between the Company,  the Subsidiary  Guarantors
                                and the Investors.

            *10.13      --      Amendment  No.  3 to  Senior  Subordinated  Note
                                Purchase  Agreement  dated  as of  May  4,  1999
                                between the Company,  the Subsidiary  Guarantors
                                and the Investors.

            *****10.14  --      Warrant  Agreement  dated as of October 31, 1997
                                among the Company and the Initial Holders.


                                       20
<PAGE>
            *****10.15  --      Amendment No. 1 to Warrant Agreement dated as of
                                November 14,  1997,  between the Company and the
                                Initial Holders.

            *10.16      --      Amendment No. 2 to Warrant Agreement dated as of
                                May 4, 1999 between the Company and the Holders.

            *****21     --      Subsidiaries

            *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) of the independent  auditors'  report
                                included herein.

            *27         --      Financial Data Schedule.

            (b)         Reports on Form 8-K

            The Company  filed a Form 8-K dated May 4, 1999  reporting an Item 5
event.

---------------------------
*           Included herein.
**          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.
***         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).
****        Incorporated  by  reference  to the  Company's  Form  10-KSB for the
            fiscal year ended June 30, 1997.
*****       Incorporated  by reference to the Company's Form 10-K for the fiscal
            year ended June 30, 1998.


                                       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, 1999                      /s/ Edward M. Sellian
                                                ------------------------
                                                Edward M. Sellian,
                                                Chairman   of  the  Board  and
                                                Chief Executive Officer

            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, 1999
   ------------------------
   Craig L. Burr


   /s/ Robert L. Frome              Director             September 28,1999
   ------------------------
   Robert L. Frome


   /s/ John A. Kerney               Director             September 28, 1999
   ------------------------
   John A. Kerney


   /s/ Robert Ranieri               Director             September 28, 1999
   ------------------------
   Robert Ranieri


   /s/ Daniel Raynor                Director             September 28, 1999
   ------------------------
   Daniel Raynor


   /s/ Edward M. Sellian            Director             September 28, 1999
   ------------------------
   Edward M. Sellian


   /s/ Joann Sabatino               Chief Financial      September 28, 1999
   ------------------------         Officer
   Joann Sabatino


                                       22
<PAGE>
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                        Page No.

                                   NuCo2 Inc.

Report of Independent Auditors ...........................................F-2

Consolidated Financial Statements:

        Consolidated Balance Sheets as of June 30, 1998 and 1999..........F-3

        Consolidated Statements of Operations for the Fiscal
            Years Ended June 30, 1997, 1998 and 1999......................F-4

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

        Consolidated Statements of Cash Flows for the Fiscal
            Years Ended June 30, 1997, 1998 and 1999......................F-6

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

Schedule II - Valuation and Qualifying Accounts for the Fiscal
        Years Ended June 30, 1997, 1998 and 1999..........................F-19


                                      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, 1998 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,  1999.  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,  1998  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, 1999 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.


                                                     MARGOLIN, WINER & EVENS LLP


Garden City, New York
August 20, 1999

                                      F-2
<PAGE>
                                   NuCo2 Inc.
                           CONSOLIDATED BALANCE SHEETS

                                                               ASSETS
                                                              (NOTE 5)

<TABLE>
<CAPTION>
                                                                                                June 30,
                                                                                                --------
                                                                                        1998*           1999
                                                                                     -----------    ------------
Current assets:
<S>                                                                                <C>              <C>
    Cash and cash equivalents                                                      $     336,510    $   1,579,191
    Trade accounts receivable; net of allowance for doubtful
        accounts of $395,491 and $557,592, respectively                                4,285,158        6,767,716
    Inventories                                                                          211,027          213,605
    Prepaid expenses and other current assets                                            434,784          593,487
                                                                                   -------------    -------------
        Total current assets                                                           5,267,479        9,153,999
                                                                                   -------------    -------------

Property and equipment, net (Note 3)                                                  85,435,933       99,664,890
                                                                                   -------------    -------------

Other assets:
    Goodwill, net                                                                     22,891,846       21,645,293
    Deferred charges, net                                                              2,004,259        2,915,167
    Customer lists, net                                                                3,963,588        2,897,638
    Restrictive covenants, net                                                         2,275,964        1,928,700
    Deferred lease acquisition costs, net                                              2,475,139        3,236,919
    Deposits                                                                             184,059          187,595
                                                                                   -------------    -------------
                                                                                      33,794,855       32,811,312
                                                                                   -------------    -------------
                                                                                   $ 124,498,267    $ 141,630,201
                                                                                   =============    =============


                                                 LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Current maturities of long-term debt (Note 5)                                  $     139,251    $      96,748
    Accounts payable                                                                   6,596,722        6,701,695
    Accrued expenses                                                                     323,254          747,631
    Accrued interest                                                                     844,153        1,473,704
    Accrued payroll                                                                      476,458          543,924
    Other current liabilities                                                              7,179           45,570
                                                                                   -------------    -------------
        Total current liabilities                                                      8,387,017        9,609,272

Long-term debt, excluding current maturities (Note 5)                                 29,460,614       43,615,025
Subordinated debt (Note 6)                                                            29,728,571       38,748,695
Customer deposits                                                                      1,279,178        1,924,528
                                                                                   -------------    -------------
        Total Liabilities                                                             68,855,380       93,897,520
                                                                                   -------------    -------------

Commitments and contingencies (Note 13)

Shareholders' equity (Note 7):
    Preferred Stock; no par value; 5,000,000 shares authorized;
        none issued                                                                         --               --
    Common Stock; par value $.001 per share; 30,000,000 shares authorized;
        issued and outstanding 7,216,664 shares at June 30, 1998 and 1999                  7,217            7,217
    Additional paid-in capital                                                        63,809,014       64,831,748
    Accumulated deficit                                                               (8,173,344)     (17,106,284)
                                                                                   -------------    -------------
        Total shareholders' equity                                                    55,642,887       47,732,681
                                                                                   -------------    -------------
                                                                                   $ 124,498,267    $ 141,630,201
                                                                                   =============    =============
</TABLE>

*Restated to conform to current year's classifications

See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>

                                   NuCo2 Inc.
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                            Years Ended June 30,
                                                                   1997            1998            1999
                                                                   ----            ----            ----

<S>                                                            <C>             <C>             <C>
Net sales                                                      $ 18,943,569    $ 35,077,361    $ 47,097,670
                                                               ------------    ------------    ------------

Costs and expenses:
    Cost of products sold                                         8,991,823      18,578,063      25,224,746
    Selling, general and administrative expenses                  5,858,934       9,396,003      10,554,146
    Depreciation and amortization                                 4,246,035       8,912,124      12,762,707
                                                               ------------    ------------    ------------
                                                                 19,096,792      36,886,190      48,541,599
                                                               ------------    ------------    ------------

    Operating  (loss)                                              (153,223)     (1,808,829)     (1,443,929)

Other expenses (income):
    Interest expense                                                884,627       3,809,138       7,524,966
    Interest (income)                                            (1,565,289)       (170,160)        (35,955)
                                                               ------------    ------------    ------------

    Income (loss) before extraordinary item                         527,439      (5,447,807)     (8,932,940)
                                                               ------------    ------------    ------------

Extraordinary item - loss on extinguishment of debt (Note 5)           --           186,945            --
                                                               ------------    ------------    ------------

    Net income (loss)                                          $    527,439    $ (5,634,752)   $ (8,932,940)
                                                               ============    ============    ============



Basic and Diluted EPS

    Income (loss) before extraordinary item                    $       0.07    $      (0.75)   $      (1.24)

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

    Net income (loss)                                          $       0.07    $      (0.78)   $      (1.24)
                                                               ============    ============    ============

    Weighted average number of common and common
      equivalent shares outstanding

          Basic                                                   7,164,924       7,210,350       7,216,664
                                                               ============    ============    ============

          Diluted                                                 7,317,926       7,210,350       7,216,664
                                                               ============    ============    ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>
                                   NuCo2 Inc.

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>

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

<S>                                          <C>         <C>            <C>             <C>             <C>
Balance,  June 30, 1996                      7,129,467   $      7,129   $ 63,743,312    $ (3,066,031)   $ 60,684,410
Issuance of 34,289 share's of
    common stock  - exercise of options         34,289             34        152,319            --           152,353
Redemption of warrant                             --             --       (1,143,450)           --        (1,143,450)
Additional expense - secondary
    offering                                      --             --          (59,100)           --           (59,100)
Issuance of 33,962 shares of common
    stock - asset acquisition                   33,962             35        539,962            --           539,997
Net income                                        --             --             --           527,439         527,439
                                          ------------   ------------   ------------    ------------    ------------
Balance, June 30, 1997                       7,197,718          7,198     63,233,043      (2,538,592)     60,701,649
Issuance of 18,835 shares of common
    stock - asset acquisition                   18,835             19        274,972            --           274,991
Issuance of 111 shares of common
    stock - exercise of options                    111           --              999            --               999
Issuance of warrants                              --             --          300,000            --           300,000
Net (loss)                                        --             --             --        (5,634,752)     (5,634,752)
                                          ------------   ------------   ------------    ------------    ------------
Balance , June 30, 1998                      7,216,664          7,217     63,809,014      (8,173,344)     55,642,887
Issuance and repricing of warrants                --             --        1,022,734            --         1,022,734
Net (loss)                                        --             --             --        (8,932,940)     (8,932,940)
                                          ------------   ------------   ------------    ------------    ------------
Balance, June 30, 1999                       7,216,664   $      7,217   $ 64,831,748    $(17,106,284)   $ 47,732,681
                                          ============   ============   ============    ============    ============
</TABLE>


See accompanying notes to consolidated financial statements.

                                      F-5
<PAGE>
                                   NuCo2 Inc.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                               Years Ended June 30,
                                                                               --------------------
                                                                         1997            1998*           1999
                                                                         ----            -----           ----

<S>                                                                 <C>             <C>             <C>
Income (loss) before extraordinary item                             $    527,439    $ (5,447,807)   $ (8,932,940)
Extraordinary item - loss on extinguishment of debt                         --          (186,945)           --
                                                                    ------------    ------------    ------------

Net income (loss)                                                        527,439      (5,634,752)     (8,932,940)
Cash flows from operating activities:
   Adjustments to reconcile  net income (loss) to net
       cash provided by operating activities:
          Depreciation and amortization of property and equipment      3,130,022       6,045,652       8,743,134
          Amortization of other assets                                 1,116,013       2,866,471       4,019,574
          Loss on disposal of property and equipment                     294,411         499,704       1,109,738
          Write-off of deferred financing costs                             --           186,945            --
          Changes in operating assets and liabilities:
          Decrease (increase) in:
              Trade accounts receivable                                 (735,238)     (2,017,485)     (2,482,558)
              Inventories                                                (33,176)       (115,968)         (2,578)
              Prepaid expenses and other current assets                  108,090        (157,926)       (158,703)
          Increase (decrease) in:
              Accounts payable                                          (712,747)      4,542,532         104,973
              Accrued expenses                                           363,361        (395,794)        424,377
              Accrued payroll                                            (93,592)        243,989          67,466
              Accrued interest                                           193,800         824,585         629,551
              Other current liabilities                                  (50,830)        (41,061)         38,391
              Customer deposits                                          236,392         591,296         645,350
                                                                    ------------    ------------    ------------

              Net cash provided by operating activities                4,343,945       7,438,188       4,205,775
                                                                    ------------    ------------    ------------

Cash flows from investing activities:
   Proceeds from disposal of property and equipment                    2,133,776         410,868         104,173
   Purchase of property and equipment                                (16,945,522)    (23,456,104)    (24,048,318)
   Acquisition of businesses                                         (17,692,662)    (12,406,907)         45,460
   Increase in deferred lease acquisition costs                         (914,999)     (1,805,874)     (1,717,579)
   (Increase) decrease in deposits                                       160,500         (79,661)         (3,536)
                                                                    ------------    ------------    ------------

              Net cash used in investing activities                 $(33,258,907)   $(37,337,678)   $(25,619,800)
                                                                    ------------    ------------    ------------
</TABLE>


* Restated to conform to current year's classifications.

See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>
                                   NuCo2 Inc.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (Continued)
<TABLE>
<CAPTION>

                                                                                Years Ended June 30,
                                                                                --------------------
                                                                         1997            1998           1999
                                                                         ----            ----           ----

Cash flows from financing activities:
<S>                                                                 <C>             <C>             <C>
   Proceeds from issuance of Common Stock                           $    (59,100)   $       --      $       --
   Net proceeds from issuance of long-term debt
      and subordinated debt                                                 --        21,610,820      24,292,857
   Repayment of long-term debt                                        (1,309,704)       (831,409)       (138,092)
   Increase in deferred charges                                          (53,307)     (2,216,916)     (1,498,059)
   Exercise of warrants and options                                      152,353             999            --
   Redemption of warrant                                              (1,143,450)           --              --
                                                                    ------------    ------------    ------------

              Net cash provided by (used in) financing activities     (2,413,208)     18,563,494      22,656,706
                                                                    ------------    ------------    ------------

Increase (decrease) in cash and cash equivalents                     (31,328,170)    (11,335,996)      1,242,681
Cash and cash equivalents, beginning of year                          43,000,676      11,672,506         336,510
                                                                    ------------    ------------    ------------
Cash and cash equivalents, end of year                              $ 11,672,506    $    336,510    $  1,579,191
                                                                    ============    ============    ============

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

      Interest                                                      $    903,729    $  2,966,659    $  6,870,822
                                                                    ============    ============    ============

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

Supplemental schedule of noncash investing and
      financing activities:
   Acquisition of businesses:
      Fair value of assets acquired                                 $  1,098,718    $ 26,426,234    $       --

      Cost in excess of net assets of businesses acquired                244,000      16,256,879            --

      Liabilities assumed or incurred                                    (56,250)    (30,001,215)           --

      Issuance of Common Stock                                          (539,996)       (274,991)           --
                                                                    ------------    ------------    ------------

             Cash paid                                              $    746,472    $ 12,406,907    $       --
                                                                    ============    ============    ============
</TABLE>

      In 1997, the Company  purchased  equipment and incurred debt in the amount
of $11,604.

      In 1998,  the Company  wrote-off a  restrictive  covenant  and the related
liability in the amount of $19,231 due to the employee resigning.

      In 1998,  the Company  repaid  long-term debt in the amount of $20,782,995
with the proceeds of the issuance of subordinated debt. In connection therewith,
detachable  warrants  were issued and original  issue  discount in the amount of
$300,000 was recorded.

      In 1999,  the Company  repaid  long-term  debt in the amount of $5,000,000
with the proceeds of the issuance of subordinated debt. In connection therewith,
detachable  warrants  were issued and original  issue  discount in the amount of
$549,032 was recorded.  Additionally,  in  connection  with the repricing of the
Company's 2004  warrants,  original issue discount in the amount of $473,702 was
recorded.

See accompanying notes to consolidated financial statements.

                                      F-7
<PAGE>
                                   NuCo2 Inc.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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


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  $1,370,779 and $2,582,372 at
June 30, 1998 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 $417,646 and  $1,004,797 at June 30, 1998
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  $1,380,411 and $2,435,861 at June 30, 1998
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 $353,993 and $701,257 at
June  30,  1998  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 years.  Accumulated  amortization of
deferred lease  acquisition costs was $1,197,756 and $1,932,060 at June 30, 1998
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

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 Income or Loss Per Common Share

               Net income or 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

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

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

               In April  1997,  the  Company  acquired  certain  assets of Texas
Oxygen,  Inc./Texas CO2, Inc. for an aggregate  purchase price of  approximately
$3,925,000. The Company paid cash for these transactions.

               In May  1997,  the  Company  acquired  certain  assets  from  two
companies,  City Carbonic  Company,  Inc., and the BOC Group, Inc. City Carbonic
Company, Inc. operating in Oklahoma, Kansas, Texas and Arkansas, sold assets for
an aggregate  purchase price of approximately  $3,290,000.  The BOC Group,  Inc.
beverage bulk CO2 operations  were located in  Massachusetts,  Pennsylvania  and
Tennessee and were  acquired for an aggregate  purchase  price of  approximately
$5,233,000. The Company paid cash for these transactions.

               In June 1997, the Company  acquired  certain assets of a business
operating  in Georgia  for a purchase  price of  $1,350,000.  The  Company  paid
approximately  $750,000 cash, incurred  liabilities of $60,000 and issued 33,962
shares of Common Stock at market, for a value of $540,000.


                                      F-10
<PAGE>
                                   NuCo2 Inc.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 2 -       Acquisitions (continued)


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

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

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

               Effective October 1, 1997, a newly formed wholly-owned subsidiary
of the  Company  purchased  all of the issued and  outstanding  shares of Common
Stock of Koch Compressed Gases, Inc. ("Koch") for an aggregate purchase price of
approximately $5,000,000.  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.

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

               Effective  December 2, 1997, the Company purchased certain assets
from four related carbonic gas  distributors,  Miller Carbonic Systems Co. Inc.,
Miller  Carbonic,  Inc.,  Carbonic  National  Systems,  Inc.,  and  Carbonic Gas
Service, Inc., operating primarily in Illinois,  Indiana, Wisconsin and Michigan
for an aggregate  purchase price of $11,150,000.  The Company paid approximately
$4,650,000  cash and funded  $6,500,000  through a borrowing under the Company's
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  $990,000. 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 $4,500,000. 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  $6,300,000.  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  $406,000.  The Company paid cash for these
transactions.

               The Company did not consumate any acquisitions  during the fiscal
year ended June 30, 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   $4,732,000  and
$16,257,000 in the two years ended June 30, 1998,  respectively,  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.


                                      F-11
<PAGE>

                                   NuCo2 Inc.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 -   Acquisitions (continued)

               The  following  summarized,   unaudited,  pro  forma  results  of
operations  assume  that the  acquisitions  described  above  occurred as of the
beginning of the earliest year presented:

                                                        Year Ended June 30,
                                                        -------------------
                                                     1997              1998
                                                     ----              ----

Net sales                                      $  33,104,161       $ 39,078,542
(Loss) before extraordinary item                  (1,751,557)        (6,133,862)
Net (loss)                                        (1,751,557)        (6,320,807)
Net (loss) per common share                            (0.24)             (0.88)


Note 3 -   Property and Equipment, Net

           Property and equipment, net consists of the following:

                                                         June 30,
                                                         --------
                                                   1998              1999
                                                   ----              ----
           Leased equipment                  $ 77,378,765       $  95,925,286
           Equipment and cylinders             12,126,813          13,939,944
           Systems held for installation        3,925,539           5,150,513
           Vehicles                               622,092             448,363
           Computer equipment                   1,516,153           2,062,704
           Office furniture and fixtures          997,142           1,216,246
           Leasehold improvements               1,039,442           1,484,856
           Construction in progress               221,999                --
                                             ------------      --------------
-                                              97,827,945         120,227,912
           Less accumulated depreciation
           and amortization                    12,392,012          20,563,022
                                             ------------     ---------------

                                             $ 85,435,933       $  99,664,890
                                             ============     ===============

               Capitalized  component  parts and direct  costs  associated  with
installation  of equipment  leased to others  included in leased  equipment  was
$12,429,913 and $19,417,952 at June 30, 1998 and 1999, respectively. Accumulated
depreciation  and  amortization of these costs were $3,525,574 and $6,332,121 at
June 30, 1998 and 1999, respectively.

               Depreciation  and  amortization  of property  and  equipment  was
$3,130,022,  $6,045,652 and $8,743,134 for the years ended June 30, 1997,  1998,
and 1999, respectively.

Note 4 -   Leases

               The Company leases equipment to its customers  generally pursuant
to  five-year  noncancelable  operating  leases  which  expire on varying  dates
through June 2005. At June 30, 1999,  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,

                     2000                       $   31,935,000
                     2001                           28,932,000
                     2002                           24,973,000
                     2003                           17,226,000
                     2004                            9,064,000
                     Thereafter                      5,295,000
                                                --------------
                                                $  117,425,000
                                                ==============

                                      F-12

<PAGE>
                                   NuCo2 Inc.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 5 -   Long-Term Debt

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

                                                                                              June 30,
                                                                                         1998            1999
<S>                                                                                  <C>              <C>
Note payable to bank under credit  facility.  Drawings at June 30, 1999 are at
     LIBOR rates plus 3.5% (8.8831%). Drawings at June 30, 1998 are at 6 month
     LIBOR rates plus 2.25%. (7.875% to 8.00%) (a)                                   $ 29,000,000     $ 43,250,000
Note payable  assumed in connection  with the acquisition of the stock of Koch
     of $388,082, principal and interest (9%) payments of $4,413 through April
     2003 and $5,405 from May 2003 through April 2008.                                    375,741          355,788
Various notes payable                                                                     224,124          105,985
                                                                                     ------------     ------------
                                                                                       29,599,865       43,711,773
Less current maturities of long-term debt                                                 139,251           96,748
                                                                                     ------------     ------------
     Long-term debt, excluding current maturities                                    $ 29,460,614     $ 43,615,025
                                                                                     ============     ============
</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,
1999,  $31.75  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 and is 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, 1999 are as follows:

                       Year Ending June 30,
                                   2000                     $         96,748
                                   2001                               33,495
                                   2002                           43,286,638
                                   2003                               40,073
                                   2004                               43,826
                                   Thereafter                        210,993
                                                            ----------------
                                                            $     43,711,773
                                                            ================
Extraordinary item - loss on extinguishment of debt

                During the year ended June 30,  1998,  the  Company  incurred an
extraordinary charge of $186,945,  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

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,  effective May 4, 1999, the interest
rate on the original  $30.0 million of Notes  increased to 14% and will continue
at 14% during any quarter which certain financial ratios are not met.

Note 7  -   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.  As of June 30, 1999 the
warrant is  outstanding.

                In June 1995,  the Company  granted  options to purchase  67,934
shares of Common Stock at $4.40 per share to certain officers and employees.  In
June and July 1996,  these options were exercised.  Proceeds to the Company from
the exercise of these stock options in fiscal 1997 aggregated $149,455.

                In connection  with the  Company's  Initial  Public  Offering in
December 1995, representatives of the Underwriters received warrants to purchase
up to an  aggregate  of  110,000  shares  of Common  Stock.  Such  warrants  are
exercisable  for a period of five  years,  at an  exercise  price of $10.80  per
share.  In July 1996, the Company  redeemed and canceled a warrant issued to one
of the  representatives  of the underwriters to purchase 77,000 shares of Common
Stock for $1,143,450.  This amount  represented the approximate  market value of
such warrant on the date of redemption.

                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 13c).
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.

                (b)      Stock Option Plans

                The board of  directors  adopted the 1995 Option Plan (the "1995
Plan").  Under the 1995 Plan, the Company has reserved  850,000 shares of Common
Stock for  employees of the Company.  Under the terms of the 1995 Plan,  options
granted may be either incentive stock options or non-qualified stock options, 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,  1997,  1998 and 1999,  options for 41,437
shares,  105,900 shares and 277,307 shares are  exercisable,  respectively.  The
weighted-average  fair value per share of options granted during the years ended
June 30, 1997, 1998 and 1999 were $2.93,  $2.81 and $2.20,  respectively.  As of
June 30, 1999, the weighted-average remaining life of the options was 6.9 years.

                                      F-14
<PAGE>
                                   NuCo2 Inc.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 7  -   Shareholders' Equity (continued)


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

<TABLE>
<CAPTION>

                                                                             Weighted-Average
                                                 Shares       Exercise Price  Exercise Price
                                                 ------       --------------  --------------
<S>                                             <C>              <C>            <C>
        Outstanding at June 30, 1996            130,651          $9-$17.50      $13.88
        Granted                                 222,500             $11.25      $11.25
        Expired or canceled                       6,225           $9-11.25       $9.31
        Exercised                                   322                 $9          $9
                                                -------      -------------    --------
        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
                                                =======      =============    ========
</TABLE>

        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, 1997,  1998 and 1999 options for 8,000 shares,  14,000 shares and
8,000 shares were currently  exercisable  and options for 24,000 shares,  22,000
shares and 30,000 shares were outstanding.  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 and 1999 were $4.11 and $2.58,
respectively.  During  the fiscal  years  ended  June 30,  1998 and 1999,  6,000
options and 18,000 options were granted,  respectively.  No options were granted
during the year ended June 30, 1997. As of June 30, 1999,  the  weighted-average
remaining life of the options was 8.7 years.

            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 1997, 1998 and 1999;  expected  volatility
of 39% to 40%, risk-free interest rate of 4.3% to 6.5%,  expected dividend yield
of 0% and expected lives of one to five years.  The Company  adopted SFAS 123 in
fiscal year ended June 30, 1997 and presents the following pro forma disclosures
rather than change its present method of accounting for employee stock options:

<TABLE>
<CAPTION>

                                                                          Year Ended June 30,
                                                                          -------------------
                                                                     1997        1998              1999
                                                                     ----        ----              ----
<S>                                                              <C>         <C>              <C>
        Net income (loss) available to common shareholders       $  27,439   $ (5,974,752)    $   (9,462,940)

                Net income (loss) per common share               $    0.01   $      (0.83)    $        (1.31)
                                                                 =========   ============     ===============

                Weighted average number of common and
                    common equivalent shares outstanding         7,302,662      7,210,350          7,216,664
                                                                ==========   ============     ==============
</TABLE>

                The pro forma  adjustment  for stock  based  compensation  costs
under  SFAS 123 for the  years  ending  1997,  1998  and  1999 is  approximately
$500,000, $340,000 and $530,000,  respectively.  No stock based compensation was
recognized in the financial statements pursuant to APB Opinion No. 25.


                                      F-15
<PAGE>

                                   NuCo2 Inc.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 8 -    Earnings per Share

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

        Earnings  per share of Common Stock for the year ended June 30, 1997 has
been restated to conform to the guidelines of Statement 128.


        Following is a  reconciliation  of the numerator and  denominator of the
basic and diluted per share  computations for income from continuing  operations
for the year ended June 30, 1997.

<TABLE>
<CAPTION>

                                                            Weighted          Per-Share
                                              Net Income    Average Shares     Amount
                                              ----------    --------------     ------

Basic EPS

<S>                                          <C>              <C>             <C>
Income available to common shareholders      $   527,439      7,164,924       $  0.07
Effect of dilutive options and warrants             -           153,002           -
                                             -----------      ---------       -------
Diluted EPS                                  $   527,439      7,317,926       $  0.07
                                             ===========      =========       =======
</TABLE>

                Incremental  shares for stock  options and  warrants  calculated
pursuant to the treasury stock method for the years ended June 30, 1998 and 1999
were  136,972  shares and 52,668  shares,  respectively.  These  shares were not
included in diluted EPS because they would have been antidilutive. Additionally,
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.

Note 9 -    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:

<TABLE>
<CAPTION>

                                                                                   June 30,
                                                                       1998                 1999
                 Deferred tax assets:
<S>                                                                  <C>               <C>
                        Allowance for doubtful accounts              $   111,000       $   209,600
                        Amortization expense                             269,900           512,500
                        Other                                              4,200            10,900
                        Net operating loss carryforwards               9,862,700        17,143,400
                                                                     -----------        ----------
                              Total gross deferred tax assets         10,247,800        17,876,400
                 Less valuation allowance                             (2,766,200)       (6,236,400)
                                                                     -----------       -----------
                        Net deferred tax assets                        7,481,600        11,640,000
                                                                     -----------       -----------
                 Deferred tax liabilities:
                        Depreciation expense                          (7,481,600)      (11,640,000)
                                                                     -----------       -----------
                              Total gross deferred tax liabilities    (7,481,600)      (11,640,000)
                                                                     -----------       -----------
                Net deferred taxes                                   $      -         $       -
                                                                     ===========       ===========
</TABLE>


                                      F-16
<PAGE>
                                   NuCo2 Inc.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 9 -    Income Taxes  (continued)


        At June 30, 1999, the Company had net operating loss  carryforwards  for
Federal income tax purposes of approximately  $45,600,000 which are available to
offset future Federal  taxable  income,  if any, in varying amounts through June
2014. The net change in the total  valuation  allowance for the years ended June
30, 1998 and 1999 was an increase of $2,129,800 and $3,470,200, respectively.


Note 10 -   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 annual rentals of approximately:


                          Year Ending June 30,
                                   2000                  $         276,000
                                   2001                            235,000
                                   2002                            109,000
                                   2003                             60,000
                                   2004                               -
                                                            --------------
                                                         $         681,000
                                                            ==============

                Rental expense was $166,549, $246,551 and $274,711 in 1997, 1998
and 1999, respectively, under these leases.

Note 11 -   Lease Commitments

                The Company leases office equipment,  trucks and warehouse/depot
and office  facilities under operating leases  (including  related party leases,
see Note 10) 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,
                                   2000                  $         4,293,000
                                   2001                            3,954,000
                                   2002                            3,559,000
                                   2003                            2,412,000
                                   2004                            1,115,000
                                   Thereafter                        257,000
                                                            ----------------
                                                         $        15,590,000
                                                            ================

                Total rental expense under  noncancelable  operating  leases was
approximately  $1,413,000,  $3,284,000  and  $4,386,142 in 1997,  1998 and 1999,
respectively.

Note 12 -   Concentration of Credit and Business Risks

                The Company's business activity is with customers located within
the  United  States.  For the  years  ended  June  30,  1997,  1998 and 1999 the
Company's   sales  to  customers  in  the  food  and  beverage   industry   were
approximately 98%, 99% and 99%, respectively.

                There were no customers  that  accounted  for greater than 5% of
total  sales  for the  three  years  ended  June 30,  1999,  nor were  there any
customers  that  accounted for greater than 5% of total  accounts  receivable at
June 30, 1998 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.


                                      F-17
<PAGE>
                                   NuCo2 Inc.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13 -   Commitments and Contingencies

                (a)      Employment Agreement

                The Company has an employment  agreement  with an officer of the
Company that currently provides minimum annual compensation of $150,000 per year
through October 1999. The contract  provides for additional  compensation in the
form of bonuses to be  determined  by the board of directors  and  incentive and
non-qualified  stock options  pursuant to the Company's 1995 Plan to purchase up
to 100,000 shares of the Company's  Common Stock. The agreement also calls for a
covenant against  competition which extends one year beyond  termination for any
reason.

                (b)      Consulting Agreement

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

                (c)      Supply Agreement

                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 14 -  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:
<TABLE>
<CAPTION>

                                                                      June 30,
                                                                      --------
                                                              1998               1999
                                                            -------            --------

                                                            Carrying Amount   Carrying Amount
                                                            and Fair Value    and Fair Value
                                                            --------------    --------------

<S>                                                          <C>              <C>
             Cash and cash equivalents                       $   336,510      $ 1,579,191
             Long-term debt, including current maturities     29,599,865       43,711,773
             Subordinated debt                                29,728,571       38,748,695
</TABLE>

                   As of June 30, 1998 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

<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, 1997
<S>                                  <C>        <C>        <C>               <C>             <C>
   Allowance for doubtful accounts   $210,629   $143,210   $   --            $240,785        $113,054
Year ended June 30, 1998
   Allowance for doubtful accounts   $113,054   $450,871   $ 43,276(1)       $211,710        $395,491
Year ended June 30, 1999
   Allowance for doubtful accounts   $395,491   $665,219   $   --            $503,118        $557,592
</TABLE>


(1) Initial reserve of acquired company


                                      F-19