##### 



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



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FORM 10-Q

|    |  |                                                 
|--- |  | ------------------------------------------------
|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
|    |  | OF THE SECURITIES EXCHANGE ACT OF 1934          

FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 2002

OR

|     |  |                                                  
|---- |  | -------------------------------------------------
|[  ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
|     |  | OF THE SECURITIES EXCHANGE ACT OF 1934           

FOR THE TRANSITION PERIOD FROM _____TO ______

COMMISSION FILE NUMBER: 0-24287

BLUE RHINO CORPORATION
(Exact name of registrant as specified in its charter)

|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|DELAWARE
(State of other jurisdiction of
incorporation or organization) |  | 56-1870472
(I.R.S. Employer
Identification No.)

104 CAMBRIDGE PLAZA DRIVE
WINSTON-SALEM, NORTH CAROLINA 27104
(Address of principal executive offices)

(336) 659-6900
(Registrants telephone number, including area code)

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 [  ]

APPLICABLE ONLY TO CORPORATE ISSUERS

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

|                                        |  |                                 
|--------------------------------------- |  | --------------------------------
|Class                                   |  | Outstanding at November 30, 2002
|                                        |  |                                 
|Common stock, par value $.001 per share |  | 15,617,071 Shares               





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##### 



BLUE RHINO CORPORATION

INDEX

PART I: FINANCIAL INFORMATION

|                           |  |                                                                                                       |  |  |  | 
|-------------------------- |  | ----------------------------------------------------------------------------------------------------- |  |  |  | 
|Item 1:                    |  | Financial Statements (unaudited):                                                                     |  |  |  | 
|                           |  |                                                                                                       |  |  |  | 
|                           |  | Condensed consolidated balance sheets as of
October 31, 2002 and July 31, 2002.                       |  |  |  | 
|                           |  |                                                                                                       |  |  |  | 
|                           |  | Condensed consolidated statements of operations for
the three months ended October 31, 2002 and 2001. |  |  |  | 
|                           |  |                                                                                                       |  |  |  | 
|                           |  | Condensed consolidated statements of cash flows for
the three months ended October 31, 2002 and 2001. |  |  |  | 
|                           |  |                                                                                                       |  |  |  | 
|                           |  | Notes to condensed consolidated financial statements.                                                 |  |  |  | 
|                           |  |                                                                                                       |  |  |  | 
|Item 2:                    |  | Managements Discussion and Analysis of Financial Condition
and Results of Operations.                |  |  |  | 
|                           |  |                                                                                                       |  |  |  | 
|Item 3:                    |  | Quantitative and Qualitative Disclosures about Market Risk.                                           |  |  |  | 
|                           |  |                                                                                                       |  |  |  | 
|Item 4:                    |  | Controls and Procedures                                                                               |  |  |  | 
|                           |  |                                                                                                       |  |  |  | 
|PART II: OTHER INFORMATION
|                           |  |                                                                                                       |  |  |  | 
|Item 2:                    |  | Changes in Securities and Use of Proceeds                                                             |  |  |  | 
|                           |  |                                                                                                       |  |  |  | 
|Item 6:                    |  | Exhibits and Reports on Form 8-K.                                                                     |  |  |  | 
|                           |  |                                                                                                       |  |  |  | 
|SIGNATURES                
|                           |  |                                                                                                       |  |  |  | 
|CERTIFICATIONS            

1



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##### 



PART I

FINANCIAL INFORMATION

Item 1:Condensed Consolidated Financial Statements

BLUE RHINO CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

As of October 31, 2002 and July 31, 2002
(In thousands)


|                                                                      |                                                                                                                                                                            |                                            |        |         |             |  |          |         |         |  | 
|--------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ------- | ----------- |  | -------- | ------- | ------- |  | 
|                                                                      |                                                                                                                                                                            |                                            |        |         | October 31, |  | July 31,
|                                                                      |                                                                                                                                                                            |                                            |        |         | 2002        |  | 2002    
|                                                                      |                                                                                                                                                                            |                                            |        |         |             |  |         
|ASSETS                                                                |                                                                                                                                                                            | (unaudited)                                |        |         |             | 
|                                                                     
|Current assets:                                                       |                                                                                                                                                                            |                                            |        |         |             |  |          |        
|                                                                      | Cash and cash equivalents                                                                                                                                                  |                                            | $      | 1,706   |             |  | $        | 1,563   |        
|                                                                      | Accounts receivable, net                                                                                                                                                   |                                            |        | 18,935  |             |  |          | 25,329  |        
|                                                                      | Inventories                                                                                                                                                                |                                            |        | 15,365  |             |  |          | 11,035  |        
|                                                                      | Prepaid expenses and other current assets                                                                                                                                  |                                            |        | 4,454   |             |  |          | 3,081   |        
|                                                                      |                                                                                                                                                                            |                                            |        |         |             |  |          |        
|                                                                      |                                                                                                                                                                            | Total current assets                       |        |         | 40,460      |  |          |         | 41,008  | 
|Cylinders leased under operating lease agreements, net                |                                                                                                                                                                            |                                            | 35,132 |         |             |  | 37,004   |        
|Property, plant and equipment, net                                    |                                                                                                                                                                            |                                            | 31,313 |         |             |  | 30,477   |        
|Intangibles, net                                                      |                                                                                                                                                                            |                                            | 31,921 |         |             |  | 31,988   |        
|Other assets                                                          |                                                                                                                                                                            |                                            | 5,035  |         |             |  | 2,896    |        
|                                                                      |                                                                                                                                                                            |                                            |        |         |             |  |          |        
|                                                                      |                                                                                                                                                                            | Total assets                               |        | $       | 143,861     |  |          | $       | 143,373 | 
|                                                                      |                                                                                                                                                                            |                                            |        |         |             |  |          |        
|                                                                      |                                                                                                                                                                            |                                            |        |         |             |  |          |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                  |                                                                                                                                                                            |                                            |        |         |             |  |          |        
|                                                                      |                                                                                                                                                                            |                                            |        |         |             |  |          |        
|Current liabilities:                                                  |                                                                                                                                                                            |                                            |        |         |             |  |          |        
|                                                                      | Accounts payable                                                                                                                                                           |                                            | $      | 13,830  |             |  | $        | 19,969  |        
|                                                                      | Current portion of long-term debt and capital lease obligations                                                                                                            |                                            |        | 1,504   |             |  |          | 2,013   |        
|                                                                      | Accrued liabilities                                                                                                                                                        |                                            |        | 3,464   |             |  |          | 3,770   |        
|                                                                      |                                                                                                                                                                            |                                            |        |         |             |  |          |        
|                                                                      |                                                                                                                                                                            | Total current liabilities                  |        |         | 18,798      |  |          |         | 25,752  | 
|Long-term debt and capital lease obligations, less current maturities |                                                                                                                                                                            |                                            | 42,016 |         |             |  | 39,259   |        
|                                                                      |                                                                                                                                                                            |                                            |        |         |             |  |          |        
|                                                                      |                                                                                                                                                                            | Total liabilities                          |        |         | 60,814      |  |          |         | 65,011  | 
|Stockholders equity:                                                 |                                                                                                                                                                            |                                            |        |         |             |  |          |        
|                                                                      | Preferred stock, $0.001 par value, 20,000,000 shares authorized,
no and 1,850,000 shares issued and outstanding at
October 31, 2002 and July 31, 2002, respectively        |                                            |        |        |             |  |          | 2       |        
|                                                                      | Common stock, $0.001 par value, 100,000,000 shares authorized,
14,505,965 and 12,058,542 shares issued and outstanding at
October 31, 2002 and July 31, 2002, respectively |                                            |        | 15      |             |  |          | 12      |        
|                                                                      | Capital in excess of par                                                                                                                                                   |                                            |        | 93,090  |             |  |          | 89,700  |        
|                                                                      | Common stock warrants                                                                                                                                                      |                                            |        | 5,366   |             |  |          | 6,201   |        
|                                                                      | Accumulated deficit                                                                                                                                                        |                                            |        | (16,339 | )           |  |          | (17,527 | )      
|                                                                      | Accumulated other comprehensive income (loss)                                                                                                                              |                                            |        | 915     |             |  |          | (26     | )      
|                                                                      |                                                                                                                                                                            |                                            |        |         |             |  |          |        
|                                                                      |                                                                                                                                                                            | Total stockholders equity                 |        |         | 83,047      |  |          |         | 78,362  | 
|                                                                      |                                                                                                                                                                            |                                            |        |         |             |  |          |        
|                                                                      |                                                                                                                                                                            | Total liabilities and stockholders equity |        | $       | 143,861     |  |          | $       | 143,373 | 
|                                                                      |                                                                                                                                                                            |                                            |        |         |             |  |          |        

The accompanying notes are an integral part of these financial statements.

2



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##### 



BLUE RHINO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended October 31, 2002 and 2001
(In thousands, except per share data)


|                                       |                                      |                                         |        |                    |        |      |        |        |        | 
|-------------------------------------- | ------------------------------------ | --------------------------------------- | ------ | ------------------ | ------ | ---- | ------ | ------ | ------ | 
|                                       |                                      |                                         |        | Three months ended
|                                       |                                      |                                         |        | October 31,       
|                                       |                                      |                                         |        |                   
|                                       |                                      |                                         |        | 2002               |        | 2001
|                                       |                                      |                                         |        |                    |        |     
|                                       |                                      |                                         |        | (Unaudited)       
|                                      
|Net revenues                           |                                      | $                                       | 54,815 |                    |        | $    | 36,546 |       
|                                       |                                      |                                         |        |                    |        |      |        |       
|Operating costs and expenses:          |                                      |                                         |        |                    |        |      |        |       
|                                       | Cost of sales                        |                                         |        | 41,351             |        |      |        | 26,803 |       
|                                       | Selling, general, and administrative |                                         |        | 8,393              |        |      |        | 5,516  |       
|                                       | Depreciation and amortization        |                                         |        | 2,157              |        |      |        | 1,836  |       
|                                       |                                      |                                         |        |                    |        |      |        |       
|                                       |                                      | Total operating costs and expenses      |        |                    | 51,901 |      |        |        | 34,155 | 
|                                       |                                      |                                         |        |                    |        |      |        |       
|                                       |                                      | Income from operations                  |        |                    | 2,914  |      |        |        | 2,391  | 
|                                       |                                      |                                         |        |                    |        |      |        |       
|Interest and other expenses (income):  |                                      |                                         |        |                    |        |      |        |       
|                                       | Interest expense                     |                                         |        | 1,256              |        |      |        | 1,653  |       
|                                       | Loss on investee                     |                                         |        | 455                |        |      |        | 338    |       
|                                       | Other, net                           |                                         |        | (71                | )      |      |        | (186   | )     
|                                       |                                      |                                         |        |                    |        |      |        |       
|                                       |                                      | Income before income taxes              |        |                    | 1,274  |      |        |        | 586    | 
|                                       |                                      |                                         |        |                    |        |      |        |       
|Income taxes                           |                                      |                                         | 15     |                    |        |      | 13     |       
|                                       |                                      |                                         |        |                    |        |      |        |       
|                                       |                                      | Net income                              |        |                    | 1,259  |      |        |        | 573    | 
|                                       |                                      |                                         |        |                    |        |      |        |       
|Preferred dividends                    |                                      |                                         | 71     |                    |        |      | 466    |       
|                                       |                                      |                                         |        |                    |        |      |        |       
|                                       |                                      | Income available to common
stockholders |        | $                  | 1,188  |      |        | $      | 107    | 
|                                       |                                      |                                         |        |                    |        |      |        |       
|                                       |                                      |                                         |        |                    |        |      |        |       
|Earnings per common share:             |                                      |                                         |        |                    |        |      |        |       
|                                       | Basic                                |                                         | $      | 0.08               |        |      | $      | 0.01   |       
|                                       |                                      |                                         |        |                    |        |      |        |       
|                                       | Diluted                              |                                         | $      | 0.07               |        |      | $      | 0.01   |       
|                                       |                                      |                                         |        |                    |        |      |        |       
|                                       |                                      |                                         |        |                    |        |      |        |       
|Shares used in per share calculations: |                                      |                                         |        |                    |        |      |        |       
|                                       | Basic                                |                                         |        | 14,121             |        |      |        | 12,137 |       
|                                       |                                      |                                         |        |                    |        |      |        |       
|                                       | Diluted                              |                                         |        | 17,701             |        |      |        | 12,556 |       
|                                       |                                      |                                         |        |                    |        |      |        |       

The accompanying notes are an integral part of the consolidated financial statements.

3



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BLUE RHINO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended October 31, 2002 and 2001
(In thousands)


|                                                 |                                                                                   |                                                                            |                                          |                                                     |       |                    |        |      |       |        |        |  
|------------------------------------------------ | --------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | ---------------------------------------- | --------------------------------------------------- | ----- | ------------------ | ------ | ---- | ----- | ------ | ------ | -
|                                                 |                                                                                   |                                                                            |                                          |                                                     |       | Three Months Ended
|                                                 |                                                                                   |                                                                            |                                          |                                                     |       | October 31,       
|                                                 |                                                                                   |                                                                            |                                          |                                                     |       |                   
|                                                 |                                                                                   |                                                                            |                                          |                                                     |       | 2002               |        | 2001
|                                                 |                                                                                   |                                                                            |                                          |                                                     |       |                    |        |     
|                                                 |                                                                                   |                                                                            |                                          |                                                     |       | (unaudited)       
|Cash flows from operating activities:            |                                                                                   |                                                                            |                                          |                                                     |       |                    |        |     
|                                                 | Net income                                                                        |                                                                            | $                                        | 1,259                                               |       |                    | $      | 573  |      
|                                                 | Adjustments to reconcile net income to net cash provided by
operating activities: |                                                                            |                                          |                                                     |       |                    |        |      |      
|                                                 |                                                                                   | Depreciation and amortization                                              |                                          |                                                     | 2,157 |                    |        |      | 1,836 |       
|                                                 |                                                                                   | Loss on investee                                                           |                                          |                                                     | 455   |                    |        |      | 338   |       
|                                                 |                                                                                   | Accretion of the discount on notes                                         |                                          |                                                     | 172   |                    |        |      | 172   |       
|                                                 |                                                                                   | Other non-cash expenses                                                    |                                          |                                                     | 241   |                    |        |      | 89    |       
|                                                 |                                                                                   | Changes in operating assets and liabilities, net of business
acquisitions: |                                          |                                                     |       |                    |        |      |       |       
|                                                 |                                                                                   |                                                                            | Accounts receivable                      |                                                     |       | 6,394              |        |      |       | 5,945  |       
|                                                 |                                                                                   |                                                                            | Inventories                              |                                                     |       | (3,185             | )      |      |       | 844    |       
|                                                 |                                                                                   |                                                                            | Other current assets                     |                                                     |       | 309                |        |      |       | (201   | )     
|                                                 |                                                                                   |                                                                            | Accounts payable and accrued liabilities |                                                     |       | (6,406             | )      |      |       | (6,815 | )     
|                                                 |                                                                                   |                                                                            |                                          |                                                     |       |                    |        |     
|                                                 |                                                                                   |                                                                            |                                          | Net cash provided by operating activities           |       |                    | 1,396  |      |       |        | 2,781  |  
|                                                 |                                                                                   |                                                                            |                                          |                                                     |       |                    |        |     
|                                                 |                                                                                   |                                                                            |                                          |                                                     |       |                    |        |     
|Cash flows from investing activities:            |                                                                                   |                                                                            |                                          |                                                     |       |                    |        |     
|                                                 | Business acquisitions                                                             |                                                                            |                                          |                                                    |       |                    |        | (197 | )    
|                                                 | Purchases of property, plant, and equipment                                       |                                                                            |                                          | (2,412                                              | )     |                    |        | (810 | )    
|                                                 | Net advances to and investment in joint venture                                   |                                                                            |                                          | (1,086                                              | )     |                    |        | (775 | )    
|                                                 | Purchases of cylinders held under operating leases, net                           |                                                                            |                                          | 107                                                 |       |                    |        | (293 | )    
|                                                 | (Issuance of) collections on notes receivable and advances to
distributors        |                                                                            |                                          | (2,437                                              | )     |                    |        | 19   |      
|                                                 |                                                                                   |                                                                            |                                          |                                                     |       |                    |        |     
|                                                 |                                                                                   |                                                                            |                                          | Net cash used in investing activities               |       |                    | (5,828 | )    |       |        | (2,056 | )
|                                                 |                                                                                   |                                                                            |                                          |                                                     |       |                    |        |     
|                                                 |                                                                                   |                                                                            |                                          |                                                     |       |                    |        |     
|Cash flows from financing activities:            |                                                                                   |                                                                            |                                          |                                                     |       |                    |        |     
|                                                 | Proceeds from credit facility, net                                                |                                                                            |                                          | 2,576                                               |       |                    |        | 700  |      
|                                                 | Proceeds from issuance of equity, net of expenses                                 |                                                                            |                                          | 2,395                                               |       |                    |        | 36   |      
|                                                 | Payments on long-term debt and capital lease obligations                          |                                                                            |                                          | (396                                                | )     |                    |        | (963 | )    
|                                                 |                                                                                   |                                                                            |                                          |                                                     |       |                    |        |     
|                                                 |                                                                                   |                                                                            |                                          | Net cash provided by (used in) financing activities |       |                    | 4,575  |      |       |        | (227   | )
|                                                 |                                                                                   |                                                                            |                                          |                                                     |       |                    |        |     
|                                                 |                                                                                   |                                                                            |                                          |                                                     |       |                    |        |     
|Net increase in cash and cash equivalents        |                                                                                   |                                                                            | 143                                      |                                                     |       |                    | 498    |     
|Cash and cash equivalents at beginning of period |                                                                                   |                                                                            | 1,563                                    |                                                     |       |                    | 1,044  |     
|                                                 |                                                                                   |                                                                            |                                          |                                                     |       |                    |        |     
|                                                 |                                                                                   |                                                                            |                                          | Cash and cash equivalents at end of period          |       | $                  | 1,706  |      |       | $      | 1,542  |  
|                                                 |                                                                                   |                                                                            |                                          |                                                     |       |                    |        |     

The accompanying notes are an integral part of these financial statements.

4



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BLUE RHINO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2002 (Unaudited)
(In thousands, except share and per share data)

1. Basis of Presentation

The condensed consolidated financial statements of Blue Rhino Corporation
(the Company) include the accounts of its wholly owned subsidiaries: Uniflame
Corporation (Uniflame); QuickShip, Inc. (QuickShip); Rhino Services,
L.L.C., CPD Associates, Inc.; USA Leasing, L.L.C.; Uniflame, L.L.C.; and Blue
Rhino Consumer Products, L.L.C.  Investments in affiliates in which the
Company owns less than 50% of the voting stock and has
significant influence are accounted for using
the equity method.  All material intercompany transactions and
balances have been eliminated in consolidation.

The accompanying unaudited interim condensed consolidated financial
statements of the Company have been prepared by the Company in accordance with
the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and,
accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of items of a normal
recurring nature) considered necessary for a fair presentation have been
included. Operating results for the three-month period ended October 31, 2002
are not necessarily indicative of the results that may be expected for the year
ending July 31, 2003 or for any other period.

The balance sheet at July 31, 2002 has been derived from the audited
financial statements of the Company as of July 31, 2002 but does not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements.

These financial statements should be read in conjunction with the audited
consolidated financial statements of Blue Rhino Corporation as of and for the
year ended July 31, 2002.

2. Derivative Instruments

The Company accounts for derivative instruments in accordance with
Statement of Financial Accounting Standard No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement specifies that all
derivatives, whether designated in hedging relationships or not, are required
to be recorded on the balance sheet at fair value. If the derivative is
designated as a cash flow hedge, the effective portions of changes in the fair
value of the derivative are recorded in other comprehensive income (OCI) and
are recognized in the income statement when the hedged item affects earnings.
Ineffective portions of changes in the fair value of cash flow hedges are
recognized in earnings.

The Company uses derivative instruments, which are designated as cash flow
hedges, to manage exposure to interest rate fluctuations and wholesale propane
price volatility. The Companys objective for holding derivatives is to
minimize risks by using the most effective methods to eliminate or reduce the
impacts of these exposures.

The net derivative income (loss) recorded in OCI will be reclassified into
earnings over the term of the underlying cash flow hedges. The amount that
will be reclassified into earnings will vary depending upon the movement of the
underlying interest rates and propane prices. As interest rates and propane
prices decrease, the charge to earnings will increase. Conversely, as interest
rates and propane prices increase, the charge to earnings will decrease.

A summary of changes in OCI for the three months ended October 31, 2002
and 2001 is presented below:

|                                                             |  |                    |       |      |  |   |        |  
|------------------------------------------------------------ |  | ------------------ | ----- | ---- |  | - | ------ | -
|                                                             |  | Three Months Ended
|                                                             |  | October 31,       
|                                                             |  |                   
|                                                             |  | 2002               |       | 2001
|                                                             |  |                    |       |     
|Beginning balance deferred in OCI                            |  | $                  | (26   | )    |  | $ | (1,102 | )
|Net change associated with current period
hedge transactions |  |                    | 1,074 |      |  |   | (1,659 | )
|Net amount reclassified into earnings during
the year        |  |                    | (133  | )    |  |   | 442    |  
|                                                             |  |                    |       |      |  |   |        |  
|Ending balance deferred in OCI                               |  | $                  | 915   |      |  | $ | (2,319 | )
|                                                             |  |                    |       |      |  |   |        |  



5



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##### 



Total comprehensive income (loss) for the three months ended October 31,
2002 and 2001 was $2,200 and ($644), respectively.

3. Earnings Per Share

The following table sets forth a reconciliation of the numerators and
denominators in computing earnings per common share in accordance with
Statement of Financial Accounting Standards No. 128.

|                                                                       |                       |   |                    |       |      |   |        |     | 
|---------------------------------------------------------------------- | --------------------- | - | ------------------ | ----- | ---- | - | ------ | --- | 
|                                                                       |                       |   | Three Months Ended
|                                                                       |                       |   | October 31,       
|                                                                       |                       |   |                   
|                                                                       |                       |   | 2002               |       | 2001
|                                                                       |                       |   |                    |       |     
|Net income                                                             |                       | $ | 1,259              |       |      | $ | 573    |    
|Less: Preferred stock dividends                                        |                       |   | 71                 |       |      |   | 466    |    
|                                                                       |                       |   |                    |       |      |   |        |    
|Income applicable to common stockholders                               |                       | $ | 1,188              |       |      | $ | 107    |    
|                                                                       |                       |   |                    |       |      |   |        |    
|                                                                       |                       |   |                    |       |      |   |        |    
|Income applicable to common stockholders                               |                       | $ | 1,188              |       |      | $ | 107    |    
|Weighted average number of common shares
outstanding (in thousands)    |                       |   | 14,121             |       |      |   | 12,137 |    
|                                                                       |                       |   |                    |       |      |   |        |    
|Basic earnings per common share                                        |                       | $ | 0.08               |       |      | $ | 0.01   |    
|                                                                       |                       |   |                    |       |      |   |        |    
|                                                                       |                       |   |                    |       |      |   |        |    
|Income applicable to common stockholders                               |                       | $ | 1,188              |       |      | $ | 107    |    
|Weighted average number of common shares
outstanding (in thousands)    |                       |   | 14,121             |       |      |   | 12,137 |    
|Effect of potentially dilutive securities:                             |                       |   |                    |       |      |   |        |    
|                                                                       | Common stock options  |   |                    | 1,748 |      |   |        | 419 | 
|                                                                       | Common stock warrants |   |                    | 1,832 |      |   |        |    | 
|                                                                       |                       |   |                    |       |      |   |        |    
|Weighted average number of common shares
outstanding assuming dilution |                       |   | 17,701             |       |      |   | 12,556 |    
|                                                                       |                       |   |                    |       |      |   |        |    
|Diluted earnings per common share                                      |                       | $ | 0.07               |       |      | $ | 0.01   |    
|                                                                       |                       |   |                    |       |      |   |        |    

Common stock options and common stock warrants listed below for the three
months ended October 31, 2002 and 2001 were not included in the computation of
diluted earnings per share because the exercise prices are greater than the
average market price of the Companys common stock during those periods such
that the effect would be anti-dilutive.

|                      |  |                    |        |      |  |  |           | 
|--------------------- |  | ------------------ | ------ | ---- |  |  | --------- | 
|                      |  | Three months ended
|                      |  | October 31,       
|                      |  |                   
|                      |  | 2002               |        | 2001
|                      |  |                    |        |     
|Common stock options  |  |                    | 48,500 |      |  |  | 1,441,845 | 
|Common stock warrants |  |                    |       |      |  |  | 2,935,704 | 

4. Subsequent Event  New Credit Facility

On November 20, 2002, the Company completed the syndication of a new and
expanded bank credit facility (the Credit Facility). The Credit Facility
consists of a $45,000 revolving line of credit and a $15,000 term loan, both
for general corporate purposes, inclusive of payments made under letters of
credit. The Credit Facility has a maturity date of November 30, 2005.
Advances under the Credit Facility are collateralized by a lien on
substantially all of the Companys assets.

Advances under the Credit Facility may be made as either base rate (prime
rate) loans or London Interbank Offered Rate (LIBOR) loans at the Companys
election. Applicable interest rates are based upon either the LIBOR or prime
rate plus an applicable margin dependent upon a total leverage ratio. The
applicable LIBOR margins range from 200 to 300 basis points, and the applicable
prime rate margins range from 50 to 150 basis points. On November 20, 2002,
interest rates payable upon advances were based upon either an initial rate of
LIBOR plus 275 basis points or the prime rate plus 125 basis points. On
November 20, 2002 the Company borrowed $30,000 (including the full $15,000 term
loan) at an interest rate of 4.13% and borrowed $1,900 at an interest rate of
5.50%. The Company incurred fees of approximately $1,000 in connection with
the Credit Facility. The fees will be amortized over the life of the Credit
Facility, through November 30, 2005. The Company incurred a charge of $96 in
November 2002 resulting from unamortized fees related to its prior credit
facility.

Principal payments on the outstanding term loan begin on December 31, 2002
and continue quarterly until September 30, 2005. The initial principal
payments will be $1,000 per calendar quarter beginning December 31, 2002, will
increase to $1,250 per calendar quarter beginning December 31, 2003 and will
further increase to $1,500 per calendar quarter beginning December 31, 2004.
The Credit Facility includes a .50% commitment fee on the average daily unused
amount for each fiscal quarter. The Credit Facility requires the Company to
meet certain covenants, including minimum net worth and cash flow requirements,
restricts the payment of cash dividends and permits early extinguishment of up
to $15,000 in subordinated debt.

6



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##### 



The Credit Facility stipulates that, by May 31, 2003, the Company must
enter into swap agreements with respect to interest rate exposure under the
Credit Facility with durations covering the remaining term of the Credit
Facility and with an aggregate notional principal amount equal to at least
two-thirds of the outstanding principal amount of the term loan. The Company
is currently party to an interest rate swap agreement with a notional amount of
$10,000. Under the existing swap agreement, which expires in July 2003, the
Company pays a fixed rate of 7.36% and receives a rate equivalent to the
thirty-day LIBOR, adjusted quarterly.

5. Subsequent Event  Platinum Propane and Ark Acquisitions

On November 22, 2002, the Company acquired Platinum Propane, L.L.C.
(Platinum) and Ark Holding Company LLC (Ark) and their respective
subsidiaries, representing ten of the Companys 46 distributors. Platinums
five subsidiary distributors operate in Southern California, including Los
Angeles and San Diego, Chicago, the Carolinas, Georgia and Florida. Arks five
subsidiary distributors operate in New Jersey, Seattle, Kansas City, Denver and
Salt Lake City. Collectively, the territories served by the acquired
distributors represent approximately 45% of the Companys cylinder exchange
revenues.

The aggregate purchase price for the two acquisitions was preliminarily
determined to be approximately $32,000. The consideration paid by the Company
in the two acquisitions consisted of approximately 1.1 million restricted
shares of common stock valued, based on the closing price of the Companys
common stock on the Nasdaq National Market on November 22, 2002, at
approximately $19,000, $3,300 in assumed debt satisfied at closing, $4,900 in
advances, and $4,800 in liabilities assumed. On a preliminary basis,
approximately $28,000 of the purchase price was allocated to goodwill, with the
balance allocated to equipment, vehicles and other assets.

As a result of the acquisition of Platinum, the Company increased its
ownership interest in R4 Technical Center North Carolina, LLC (R4 Tech) on a
consolidated basis by 1% to 50%. The Company will consolidate the results of
R4 Tech beginning in the second quarter of fiscal 2003 (Note 6).

The following unaudited pro forma summary presents the financial
information as if the acquisition of Platinum and Ark had occurred on August 1,
2001. These pro forma results have been prepared for comparative purposes and
do not purport to be indicative of what would have occurred had the acquisition
been made on August 1, 2001, nor are they indicative of future results. See
Managements Discussion and Analysis of Financial Condition and Results of
Operations.

|                                            |  |                                |        |      |  |   |        |  
|------------------------------------------- |  | ------------------------------ | ------ | ---- |  | - | ------ | -
|                                            |  | Three Months Ended October 31,
|                                            |  |                               
|                                            |  | 2002                           |        | 2001
|                                            |  |                                |        |     
|Net revenues                                |  | $                              | 51,296 |      |  | $ | 37,049 |  
|                                            |  |                                |        |      |  |   |        |  
|                                            |  |                                |        |      |  |   |        |  
|Net (loss)                                  |  | $                              | (1,305 | )    |  | $ | (140   | )
|                                            |  |                                |        |      |  |   |        |  
|                                            |  |                                |        |      |  |   |        |  
|Net (loss) available to common
stockholders |  | $                              | (1,376 | )    |  | $ | (606   | )
|                                            |  |                                |        |      |  |   |        |  
|                                            |  |                                |        |      |  |   |        |  
|Basic (loss) per common share               |  | $                              | (0.09  | )    |  | $ | (0.02  | )
|                                            |  |                                |        |      |  |   |        |  
|                                            |  |                                |        |      |  |   |        |  
|Diluted (loss) per common share             |  | $                              | (0.09  | )    |  | $ | (0.02  | )
|                                            |  |                                |        |      |  |   |        |  

6. Investment in Joint Venture

As of October 31, 2002, the Company had a 49% ownership interest in a
joint venture, R4 Tech. R4 Tech was established in April 2000 to operate and
manage an automated propane bottling and cylinder refurbishing plant. R4 Tech
began operations in May 2000 and has been accounted for under the equity method
of accounting. The Company recognized its portion of the loss in the joint
venture for the three months ended October 31, 2002 and 2001 of
$455 and $338,
respectively. During the first quarter of fiscal 2003, the Company
recognized 100% of the loss of R4 Tech as a result of advances made
without a corresponding advance from the other joint venture partners.
During the three months ended October 31, 2002 and 2001, the
Company provided net advances to R4 Tech of $1,086 and $775, respectively. At
October 31, 2002 and July 31, 2002, the Company had advances outstanding to R4 Tech of
$1,227 and $141, respectively, and payables to R4 Tech of $305 and
$1,755,
respectively.



7



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##### 



Summary financial information for R4 Tech for the three months ended
October 31, 2002 and 2001 is as follows:

|                    |  |                                |       |      |  |   |       |  
|------------------- |  | ------------------------------ | ----- | ---- |  | - | ----- | -
|                    |  | Three Months Ended October 31,
|                    |  |                               
|                    |  | 2002                           |       | 2001
|                    |  |                                |       |     
|Net revenues        |  | $                              | 2,871 |      |  | $ | 2,699 |  
|                    |  |                                |       |      |  |   |       |  
|Gross profit/(loss) |  |                                | (179  | )    |  |   | (149  | )
|                    |  |                                |       |      |  |   |       |  
|Net loss            |  |                                | (455  | )    |  |   | (681  | )

Summary financial information for R4 Tech as of
October 31, 2002 and July 31, 2002 is as follows:

|                              |  |                 |       |               |  |   |       | 
|----------------------------- |  | --------------- | ----- | ------------- |  | - | ----- | 
|                              |  | October 31,2002 |       | July 31, 2002
|                              |  |                 |       |              
|Current assets                |  | $               | 2,258 |               |  | $ | 2,323 | 
|                              |  |                 |       |               |  |   |       | 
|Property, plant and equipment |  |                 | 1     |               |  |   | 1     | 
|                              |  |                 |       |               |  |   |       | 
|Current liabilities           |  |                 | 3,285 |               |  |   | 2,895 | 

7. Segment Information

The Company has two reportable segments: cylinder exchange and products
and other. The cylinder exchange segment relates to cylinder exchange
transactions and lease income from cylinders and cylinder displays. The
products and other segment includes the activities required to sell patio
heaters, grills and other complementary propane products, fireplace accessories
and garden products. In addition, financial information related to QuickShip,
a retail shipping service company acquired in October 2000, is included within
the products and other segment as it is not currently material on a stand-alone
basis. For the three months ended October 31, 2002 and 2001, QuickShip had a
loss before interest, taxes, depreciation and amortization of ($322) and
($325), respectively.

The Company evaluates performance and allocates resources based on several
factors, of which the primary financial measure is business segment operating
income, defined as earnings before interest, taxes, depreciation and
amortization before other non-operating expenses (EBITDA). Management of the
Company believes that EBITDA is an appropriate measure of operating performance
at a segment level because the impact of certain financing and accounting
decisions is eliminated. EBITDA as presented may not be comparable to
similarly titled measures used by other entities. EBITDA should not be
considered in isolation from, or as a substitute for, net income or cash flows
from operating activities prepared in accordance with generally accepted
accounting principles as an indicator of operating performance or as a measure
of liquidity.

The Companys reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology and operational strategies. The
Companys selected segment information as of and for the three months ended
October 31, 2002 and 2001 is as follows:

|                              |                    |   |                                |         |      |   |         |        | 
|----------------------------- | ------------------ | - | ------------------------------ | ------- | ---- | - | ------- | ------ | 
|                              |                    |   | Three Months Ended October 31,
|                              |                    |   |                               
|                              |                    |   | 2002                           |         | 2001
|                              |                    |   |                                |         |     
|Net revenues:                 |                    |   |                                |         |      |   |         |       
|                              | Cylinder exchange  |   | $                              | 36,949  |      |   | $       | 21,131 | 
|                              | Products and other |   |                                | 17,866  |      |   |         | 15,415 | 
|                              |                    |   |                                |         |      |   |         |       
|                              |                    | $ | 54,815                         |         |      | $ | 36,546  |       
|                              |                    |   |                                |         |      |   |         |       
|Segment EBITDA:               |                    |   |                                |         |      |   |         |       
|                              | Cylinder exchange  |   | $                              | 5,550   |      |   | $       | 2,926  | 
|                              | Products and other |   |                                | (479    | )    |   |         | 1,301  | 
|                              |                    |   |                                |         |      |   |         |       
|                              |                    | $ | 5,071                          |         |      | $ | 4,227   |       
|                              |                    |   |                                |         |      |   |         |       
|Depreciation and amortization |                    |   | 2,157                          |         |      |   | 1,836   |       
|Interest expense              |                    |   | 1,256                          |         |      |   | 1,653   |       
|Loss on investee              |                    |   | 455                            |         |      |   | 338     |       
|Other, net                    |                    |   | (71                            | )       |      |   | (186    | )     
|Income taxes                  |                    |   | 15                             |         |      |   | 13      |       
|                              |                    |   |                                |         |      |   |         |       
|Net income                    |                    | $ | 1,259                          |         |      | $ | 573     |       
|                              |                    |   |                                |         |      |   |         |       
|                             
|                              |                    |   | As of October 31,             
|                              |                    |   |                               
|                              |                    |   | 2002                           |         | 2001
|                              |                    |   |                                |         |     
|Total assets:                 |                    |   |                                |         |      |   |         |       
|                              | Cylinder exchange  |   | $                              | 103,062 |      |   | $       | 88,483 | 
|                              | Products and other |   |                                | 40,799  |      |   |         | 34,228 | 
|                              |                    |   |                                |         |      |   |         |       
|                              |                    | $ | 143,861                        |         |      | $ | 122,711 |       
|                              |                    |   |                                |         |      |   |         |       

8



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##### 



Item 2.Managements Discussion and Analysis of Financial Condition and
Results of Operations

Certain statements in this section and elsewhere in this Quarterly Report
on Form 10-Q are forward-looking in nature and relate to the Companys plans,
objectives, estimates, goals and future financial performance. The terms
may, will, should, expects, intends, plans, anticipates,
believes, estimates, projects, predicts, potential, continue and
similar words or expressions are intended to identify forward-looking
statements. These statements are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995 and speak only as of
the date of this report. The Companys business is subject to numerous risks
and uncertainties including, in particular: that its significant retail
relationships are generally nonexclusive and terminable at will; that it relies
on a limited number of distributors; its ability to manage growth; its ability
to place Blue Rhino cylinder exchange at additional retail locations; its
ability to protect its intellectual property and to strengthen its brand; its
ability to maintain an adequate supply of cylinders that comply with applicable
guidelines; its ability to mitigate the effects of high propane commodity
prices; its ability to integrate its distributor acquisitions; its ability to
launch new products and services; and the effect of new safety guidelines on
consumer demand for cylinder exchange. These and other risks and
uncertainties, including those detailed in the Companys Registration Statement
on Form S-3 dated November 27, 2002 and in its most recent Annual Report on
Form 10-K and other filings with the Securities and Exchange Commission, could
cause actual results and experience to be materially different from those
expressed or implied by any of these forward-looking statements. To the extent
permitted by law, the Company makes no commitment to update any forward-looking
statement or to disclose any facts, events, or circumstances after the date
hereof that may affect the accuracy of any forward-looking statement.

Overview

The following discussion and analysis should be read in conjunction with
the accompanying Condensed Consolidated Financial Statements and related notes
of Blue Rhino Corporation and its wholly owned subsidiaries, Rhino Services,
L.L.C., CPD Associates, Inc., USA Leasing, L.L.C., Uniflame Corporation,
QuickShip, Inc., Uniflame, L.L.C. and Blue Rhino Consumer Products, L.L.C
(collectively, the Company, Blue Rhino, us or we), and with our audited
consolidated financial statements as of and for the fiscal year ended July 31,
2002, on file with the Securities and Exchange Commission. The results of
operations for the three-month period ended October 31, 2002 are not
necessarily indicative of results that may be expected for the fiscal year
ending July 31, 2003 or any other period, in part due to the seasonality of our
business.

Blue Rhino was founded in March 1994. We believe we have become the
leading national provider of propane grill cylinder exchange and a leading
provider of complementary propane and non-propane products to consumers through
many of the worlds greatest retailers. Our branded propane grill cylinder
exchange service is offered at more than 26,000 retail locations in 48 states
and Puerto Rico, including leading home improvement centers, mass merchants,
hardware, grocery and convenience stores. Our retail partners include Home
Depot, Lowes, Wal#Mart, Sears, Kroger, Food Lion, Winn-Dixie,
SuperAmerica, Circle K and ExxonMobil. Propane grill cylinder exchange
provides consumers with a safe and convenient alternative to traditional
propane tank refilling.

Our cylinder exchange segment partners with retailers and distributors to
provide consumers with a nationally-branded alternative to traditional grill
cylinder refill. We dedicate our efforts and capital to brand development,
value-added marketing, customer service, cylinders, displays, account growth,
distributor network development and management information systems. Our 46
distributors invest in the vehicles and other operational infrastructure
necessary to operate cylinder exchange businesses. On November 22, 2002, we
acquired ten distributors whose territories represent approximately forty-five
percent of our revenues. We believe that our distributor network affords us
the opportunity to service approximately 90% of the cylinder exchange markets
in the United States.

Our products and other segment includes the design and import of consumer
products sold through mass retailers. The segments revenues are derived from
products that use propane cylinders as their fuel source, principally patio
heaters and grills, and non-propane products such as charcoal grills, fireplace
accessories and garden products. The segments revenues have historically been
strongest in the fall and winter months, which is counterseasonal to the
strongest months for our cylinder exchange segment. QuickShip, Inc., a retail
shipping services company that we acquired in October 2000, is included within
the products and other segment as it is not currently significant on a
stand-alone basis.

9



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##### 



Results of Operations

Comparison of the three months ended October 31, 2002 with the three months
ended October 31, 2001

Net revenues.Net revenues increased 50.0% to $54.8 million for the three
months ended October 31, 2002 from $36.5 million for the three months ended
October 31, 2001. Net revenues consisted of $36.9 million from cylinder
exchange and $17.9 million from the products and other segment. Cylinder
exchange revenues increased 74.9%, with approximately one-third of the increase
due to price increases to retailers, enabled by a higher mix of upgrade
transactions, and approximately two-thirds of the increase due to an
approximately 46% increase in the number of total cylinder transactions to 2.3
million units for the first quarter of fiscal 2003 from 1.5 million units for
the first quarter of fiscal 2002. This increase reflects the positive trend
toward consumer acceptance of cylinder exchange versus refill and the impact of
the new National Fire Protection Association (NFPA) guidelines adopted by
many states that mandate that all propane cylinders refilled after April 1,
2002 be fitted with an overfill prevention device (OPD). Product revenues
increased 15.9% due principally to an increase in the number of grills sold.
We currently anticipate double-digit revenue growth for both our cylinder
exchange and products and other segments for the remainder of fiscal year 2003
and we currently expect the new NFPA guidelines to continue to contribute to
our cylinder exchange revenue growth through at least the end of fiscal 2004.

Gross margin. Our overall gross margin decreased to 24.6% for the first
quarter of fiscal 2002 from 26.7% for the first quarter of fiscal 2001. Gross
margin percentage decreased 85 basis points in cylinder exchange to 28.3% for
the three months ended October 31, 2002 from 29.1% for the three months ended
October 31, 2001 due primarily to a restructured payment plan to distributors
implemented in 2002 to reflect the cost of installing OPD valves partially
offset by price increases to retailers. The products and other segment gross
margin decreased to 16.9% for the first quarter of fiscal 2003 from 23.3% for
the first quarter of fiscal 2002 due primarily to lower margins on products
that use propane cylinders as their fuel source, which represented
approximately 60% of the products and other segment revenues in the quarter.

Selling, general and administrative expenses. Selling, general and
administrative (SG&A) expenses increased 52.2% to
$8.4 million for the three
months ended October 31, 2002 from $5.5 million for the three months ended
October 31, 2001 and, as a percentage of net revenues, increased
to 15.3% for
the first quarter of fiscal 2003 from 15.1% for the first quarter of fiscal
2002. SG&A expenses in the cylinder exchange segment increased
51.7% to $4.9
million for the first quarter of fiscal 2003 from $3.2 million for the first
quarter of fiscal 2002 primarily due to increased personnel costs associated
with managing distributor operations and increased professional fees. SG&A
expenses in the products and other segment increased 52.8% to $3.5 million from
$2.3 million in the same period in the prior year primarily due to special
charges, consisting primarily of relocation expenses associated with
consolidating many products segment employees based in Zion, Illinois with the
cylinder exchange employee base in Winston-Salem, North Carolina, and start-up
costs related to the introduction of new products. We currently expect SG&A
expenses for the remainder of fiscal 2003 to decrease as a percentage of net
revenues as compared to the first quarter.

Depreciation and amortization. Depreciation and amortization increased to
$2.2 million for the first quarter of fiscal 2003 from $1.8 million for the
first quarter of fiscal 2002 due primarily to the increase in depreciation
expense resulting from an increase in cylinders used in operations and from our
acquisition, effective September 30, 2001, of machinery and equipment from R4
Technical Center North Carolina, LLC, the Companys joint venture that manages
the automated propane bottling and cylinder refurbishing plant (R4 Tech).

Interest expense.Interest expense decreased to $1.3 million in the first
quarter of fiscal 2003 from $1.7 million in the first quarter of fiscal 2002
due to both lower interest rates and reduced borrowings on our revolving line
of credit.

Loss on investee.Loss on investee increased to $455,000 in the first
quarter of fiscal 2003 from $338,000 in the first quarter of fiscal 2002. This
charge represents our share of the loss related to our 49% ownership interest
in R4 Tech, which has since increased to 50% as a result of our acquisition of
Platinum Propane, L.L.C. on November 22, 2002. We recognized
100% of the loss of R4 Tech in the first quarter of fiscal 2003 as a
result of advances made without a corresponding advance from the
other joint venture partners. We currently expect R4 Techs
revenues and operating income to be highest in our third and fourth fiscal
quarters, which include the majority of the grilling season, and lowest in our
first and second fiscal quarters.

Other, net. Other, net decreased to $71,000 in the first quarter of fiscal
2003 from $186,000 in the first quarter of fiscal 2002. Other income consists
primarily of interest income from advances made to R4 Tech and distributors.

Preferred dividends.Preferred dividends accrued on outstanding Series A
Preferred Stock decreased to $71,000 for the three months ended October 31,
2002 from $466,000 for the three months ended October 31, 2001 due to the
conversion of the outstanding shares of Series A Convertible preferred stock to
shares of common stock in March, April, May and September 2002.

10



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##### 



Liquidity and Capital Resources

Our primary sources of funds have been the incurrence of debt, the
issuance of stock, and cash flow from operations.

Net cash provided by operations was $1.4 million for the three months
ended October 31, 2002 and $2.8 million for the three months ended October 31,
2001. The decrease in cash provided by operations for the first quarter of
fiscal 2003 over the first quarter of fiscal 2002 was primarily due to the
increase in inventory in the products and other segment.

Net cash used in investing activities was $5.8 million for the three
months ended October 31, 2002 and $2.1 million for the three months ended
October 31, 2001. The primary components of cash used in investing activities
for both periods included investments in property, plant and equipment and
advances to R4 Tech and, in the case of the three months ended October 31,
2002, advances to distributors. During the three months ended October 31, 2002
and October 31, 2001, we provided net advances of $1.1 million and $775,000,
respectively, to R4 Tech. At October 31, 2002 and July 31, 2002, we had advances
outstanding to R4 Tech of $1.2 million and $141,000, respectively, and payables to R4
Tech of $305,000 and $1.8 million, respectively. As a result of the
acquisitions of Platinum Propane, L.L.C. (Platinum) and Ark Holding Company
LLC (Ark) on November 22, 2002 and the consolidation of R4 Tech resulting
from the acquisition of Platinum (Note 5 of Notes to Condensed Consolidated
Financial Statements), advances to R4 Tech, Platinum and Ark will affect
working capital and be reflected in net cash (used in)/provided by operations
in future quarters.

Net cash provided by financing activities was $4.6 million for the three
months ended October 31, 2002, while cash used in financing activities was
$227,000 for the three months ended October 31, 2001. Cash provided by
financing activities for the three months ended October 31, 2002 included net
proceeds from our credit facility and net proceeds from exercises of warrants
and stock options. Cash used in financing activities for the three months
ended October 31, 2001 included payments on long-term debt and capital lease
obligations that were partially offset by net proceeds from our credit
facility.

On November 20, 2002, we completed the syndication of a new and expanded
bank credit facility (the Credit Facility). The Credit Facility consists of
a $45 million revolving line of credit and a $15 million term loan, both for
general corporate purposes, inclusive of payments made under letters of credit.
The Credit Facility has a maturity date of November 30, 2005. Advances under
the Credit Facility are collateralized by a lien on substantially all of our
assets.

Advances under the Credit Facility may be made as either base rate (prime
rate) loans or London Interbank Offered Rate (LIBOR) loans at our election.
Applicable interest rates are based upon either the LIBOR or prime rate plus an
applicable margin dependent upon a total leverage ratio. The applicable LIBOR
margins range from 200 to 300 basis points, and the applicable prime rate
margins range from 50 to 150 basis points. On November 20, 2002, interest
rates payable upon advances were based upon either an initial rate of LIBOR
plus 275 basis points or the prime rate plus 125 basis points. On November 20,
2002 we borrowed $30 million (including the full $15 million term loan) at an
interest rate of 4.13% and borrowed $1.9 million at an interest rate of 5.50%.
We incurred fees of approximately $1 million in connection with the Credit
Facility. The fees will be amortized over the life of the agreement through
November 30, 2005. We incurred a charge of $96,000 in November 2002 resulting
from unamortized fees related to our prior credit facility.

Principal payments on the outstanding term loan begin on December 31, 2002
and continue quarterly until September 30, 2005. The initial principal
payments will be $1 million per calendar quarter beginning December 31, 2002,
will increase to $1.25 million per calendar quarter beginning December 31, 2003
and will further increase to $1.5 million per calendar quarter beginning
December 31, 2004. The Credit Facility includes a .50% commitment fee on the
average daily unused amount for each fiscal quarter. The Credit Facility
requires us to meet certain covenants, including minimum net worth and cash
flow requirements, restricts the payment of cash dividends and permits early
extinguishment of up to $15 million in subordinated debt.

The Credit Facility stipulates that by May 31, 2003, we must enter into
swap agreements with respect to interest rate exposure under the Credit
Facility with durations covering the remaining term of the Credit Facility and
with an aggregate notional principal amount equal to at least two-thirds of the
outstanding principal amount of the term loan. We are currently party to an
interest rate swap agreement with a notional amount of $10 million. Under the
existing swap agreement, which expires in July 2003, we pay a fixed rate of
7.36% and receives a rate equivalent to the thirty-day LIBOR, adjusted
quarterly.

On June 15, 2001, we completed a $15 million private placement of
subordinated debt to an institutional investor. The agreement requires us to
meet certain cash flow and other covenants and contains restrictions on capital
expenditures and the payment of cash dividends. At October 31, 2002, we were
in compliance with all covenants. The debenture bears interest at the annual
rate of 13%, payable quarterly. The principal balance matures on August 31,
2006. In conjunction with the subordinated debt, we issued a

11



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##### 



warrant to the investor to purchase 1,372,071 shares of common stock, with
an exercise price of $3.8685 per share (subject to adjustment for organic
changes in our common stock and for certain future issuances below the
then-existing exercise price). The warrant can be exercised at the holders
discretion in whole or in part any time until the later of June 15, 2011 or
five years after payment of all amounts due under the debenture.

On November 22, 2002, we acquired Platinum and Ark and their respective
subsidiaries, representing ten of the Companys 46 distributors. Collectively,
the territories served by the acquired distributors represent approximately 45%
of our cylinder exchange revenues.

The aggregate purchase price for the two acquisitions was preliminarily
determined to be approximately $32 million. The consideration paid by Blue
Rhino in the acquisitions consisted of approximately 1.1 million restricted
shares of common stock valued, based on the closing price of our common stock
on the Nasdaq National Market on November 22, 2002, at approximately $19
million, $3.3 million in assumed debt satisfied at closing, $4.9 million in
advances, and $4.8 million in liabilities assumed. On a preliminary basis,
approximately $28 million of the purchase price was allocated to goodwill, with
the balance allocated to equipment, vehicles and other assets.

We do not have any material capital commitments outstanding. We currently
anticipate that our total capital expenditures for fiscal 2003, excluding
acquisitions, will be approximately $13.0 million, and will relate primarily to
cylinders, cylinder displays, computer technology and distribution
infrastructure. Our capital expenditure and working capital requirements in
the foreseeable future will change depending on many factors including, but not
limited to, the rate of our expansion, our operating results and any other
adjustments in our operating plan made in response to competition, acquisition
opportunities or unexpected events. We believe that our existing borrowing
capacity under the Credit Facility, together with cash provided by operations,
will be sufficient to meet our capital expenditure and working capital
requirements through fiscal 2003. However, if we perceive conditions to enable
us to obtain equity financing on favorable terms, we may pursue such equity
financing and use some or all of the proceeds to retire our subordinated debt.
Moreover, if we experience an unexpected decrease in demand for our cylinder
exchange service or our products, we may need additional funds to meet our
capital requirements and, in that event, we may seek additional debt or equity
financing. We cannot be sure that any additional equity or debt financing will
be available on favorable terms or on terms that are not dilutive to our
stockholders.

Contractual Obligations

The following table summarizes our contractual payment obligations and other
commercial commitments at October 31, 2002 (in thousands):

|                                   |  |                                                   |       |      |  |      |     |      |  |      |     |            |  |       |        |  |  |   |        |  |  |   |    |  |  |   |        | 
|---------------------------------- |  | ------------------------------------------------- | ----- | ---- |  | ---- | --- | ---- |  | ---- | --- | ---------- |  | ----- | ------ |  |  | - | ------ |  |  | - | -- |  |  | - | ------ | 
|                                   |  | Payment obligations by fiscal year ended July 31,
|                                   |  |                                                  
|Contractual obligations            |  | 2003                                              |       | 2004 |  | 2005 |     | 2006 |  | 2007 |     | Thereafter |  | Total
|                                   |  |                                                   |       |      |  |      |     |      |  |      |     |            |  |      
|Long-term debt                     |  | $                                                 | 1,451 |      |  | $    | 250 |      |  | $    |    |            |  | $     |       |  |  | $ | 12,506 |  |  | $ | 21 |  |  | $ | 14,228 | 
|Capital lease obligations          |  |                                                   | 51    |      |  |      | 20  |      |  |      |    |            |  |       |       |  |  |   |       |  |  |   |   |  |  |   | 71     | 
|Operating leases                   |  |                                                   | 787   |      |  |      | 564 |      |  |      | 333 |            |  |       | 163    |  |  |   | 33     |  |  |   |   |  |  |   | 1,880  | 
|                                   |  |                                                   |       |      |  |      |     |      |  |      |     |            |  |       |        |  |  |   |        |  |  |   |    |  |  |   |        | 
|                                   |  |                                                   |       |      |  |      |     |      |  |      |     |            |  |       |        |  |  |   |        |  |  |   |    |  |  |   |        | 
|Total contractual cash obligations |  | $                                                 | 2,289 |      |  | $    | 834 |      |  | $    | 333 |            |  | $     | 163    |  |  | $ | 12,539 |  |  | $ | 21 |  |  | $ | 16,179 | 
|                                   |  |                                                   |       |      |  |      |     |      |  |      |     |            |  |       |        |  |  |   |        |  |  |   |    |  |  |   |        | 
|                                  
|Other commercial
commitments       |  | 2003                                              |       | 2004 |  | 2005 |     | 2006 |  | 2007 |     | Thereafter |  | Total
|                                   |  |                                                   |       |      |  |      |     |      |  |      |     |            |  |      
|Line of credit                     |  | $                                                 |      |      |  | $    |    |      |  | $    |    |            |  | $     | 29,221 |  |  | $ |       |  |  | $ |   |  |  | $ | 29,221 | 
|Standby letters of credit          |  |                                                   | 833   |      |  |      |    |      |  |      |    |            |  |       |       |  |  |   |       |  |  |   |   |  |  |   | 833    | 
|                                   |  |                                                   |       |      |  |      |     |      |  |      |     |            |  |       |        |  |  |   |        |  |  |   |    |  |  |   |        | 
|                                   |  |                                                   |       |      |  |      |     |      |  |      |     |            |  |       |        |  |  |   |        |  |  |   |    |  |  |   |        | 
|Total commercial commitments       |  | $                                                 | 833   |      |  | $    |    |      |  | $    |    |            |  | $     | 29,221 |  |  | $ |       |  |  | $ |   |  |  | $ | 30,054 | 
|                                   |  |                                                   |       |      |  |      |     |      |  |      |     |            |  |       |        |  |  |   |        |  |  |   |    |  |  |   |        | 

Related Party Transactions

Blue Rhino Corporation and Quickship, Inc. lease their respective
facilities from Rhino Real Estate, LLC, a company affiliated with Billy D.
Prim, our Chairman and Chief Executive Officer, and Andrew J. Filipowski, our
Vice Chairman. The leases expire on December 31, 2002 and April 30, 2003,
respectively. Blue Rhinos rent expense for the three months ended October 31,
2002 and October 31, 2001 was $80,000 and $53,000, respectively, and
QuickShips rent expense for the three months ended October 31, 2002 and
October 31, 2001 was $7,000 and $5,000, respectively. Blue Rhino currently
expects to exercise its option to renew the lease for an additional one-year
term. Uniflame Corporation leases its facility from H & M Enterprises, LLC, a
company affiliated with Mac

12



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McQuilkin, the president of Uniflame. The lease terminates on March 31,
2005. Uniflames rent expense for the three months ended October 31, 2002 and
October 31, 2001 was $77,000 and $77,000, respectively. Management of the
Company believes that the terms of these leases are comparable to those that
could have been obtained from unrelated third parties.

During the three months ended October 31, 2002 and 2001, Blue Rhino paid
fees for software development and Internet hosting services provided by divine,
inc. in the amount of $198,000 and $0, respectively. Andrew J. Filipowski is
the Chairman of divine, inc. and our Vice Chairman.

Seasonality

We have experienced and currently expect to continue to experience
seasonal fluctuations in our revenues and operating income. Our revenues and
operating income have been highest in the spring and summer, which includes the
majority of the grilling season, and lowest in the fall and winter. Our
cylinder exchange segment, which generally enjoys higher margins than our
products and other segment, experiences higher revenues and operating income in
the spring and summer. Conversely, our products and other segment experiences
higher revenues and operating income in the fall and winter. Sustained periods
of poor weather, particularly in the spring and summer, can negatively impact
our revenues. Accordingly, the results of operations in any quarter will not
necessarily be indicative of the results that we may achieve for a full fiscal
year or any future quarter.

Inflation

We do not believe that inflation has had a material adverse effect on our
revenues, cost of sales or our results of operations. There can be no assurance
that our business will not be materially adversely affected by inflation in the
future.

Price of Propane

During the fiscal year ended July 31, 2001, there were dramatic increases
in fuel costs and propane reached unusually high levels. During the fourth
quarter of fiscal 2001 and continuing through the first quarter of fiscal 2002,
propane prices returned to a range more consistent with historical levels. On
March 1, 2001, we initiated a propane price hedging strategy that has reduced,
and we currently believe will continue to reduce, our gross margin risk
resulting from fluctuations in the price of propane. Our strategy is designed
to reduce exposure to the fuel cost component of a significant portion of our
total cylinder exchange volume. If propane costs rise for an extended period
and our hedging strategy is unsuccessful, our gross margins and results of
operations could be negatively affected due to additional costs that may not be
fully recovered through an increase in our price to retailers.

Off-Balance Sheet Arrangements

We do not have any transactions, obligations or relationships
that could be considered off-balance sheet arrangements.

Impact of New Accounting Pronouncements

In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS) No. 143, Accounting for Asset
Retirement Obligations.The Statement requires entities to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. As required by SFAS No. 143, we have adopted this new
accounting standard for fiscal year 2003. The adoption of SFAS No. 143 did not
have a material impact on our consolidated results of operations or financial
position.

In October 2001, the Financial Accounting Standards Board issued SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets. This
Statement establishes a single accounting model for the impairment or disposal
of long-lived assets. As required by SFAS No. 144, we have adopted this new
accounting standard for fiscal year 2003. The adoption of SFAS No. 144 did not
have a material impact on our consolidated results of operations or financial
position.

In April 2002, the Financial Accounting Standards Board issued SFAS No.
145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections. This statement eliminates an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions and establishes that
gains and losses from extinguishment of debt should be classified as
extraordinary items only if they meet the criteria for treatment as
extraordinary. We have adopted this standard for fiscal

13



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year 2003. The adoption of SFAS No. 145 did not have a material impact on
our consolidated results of operations or financial position.

In June 2002, the Financial Accounting Standards Board issued SFAS No.
146, Accounting for Costs Associated with Exit or Disposal Activities. This
Statement requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred. SFAS No. 146
also establishes that fair value is the objective for initial measurement of
the liability. We have adopted this standard for fiscal year 2003. The
adoption of SFAS No. 146 did not have a material impact on our consolidated
results of operations or financial position.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk related to changes in interest rates on
borrowings under our Credit Facility. To quantify our exposure to interest
rate risk, a 100 basis point increase in interest rates would have increased
interest expense for the three months ended October 31, 2002 and 2001 by
approximately $46,000 and $70,000, respectively. Actual changes in interest
expense may differ materially from those based on hypothetical assumptions used
in computing this exposure.

We use derivative financial instruments to manage exposure to fluctuations
in interest rates on our Credit Facility (Note 2 of Notes to Condensed
Consolidated Financial Statements). These derivative financial instruments,
which are generally swap agreements, are not entered into for trading purposes.
A swap agreement is a contract to exchange a floating rate for a fixed rate
without the exchange of the underlying notional amount. In fiscal 2000, we
entered into an interest rate swap agreement with a notional amount of $10
million as a hedge of our variable interest rate debt represented by the Credit
Facility. Under the swap agreement, which expires in July 2003, we pay a fixed
rate of 7.36% and receive a rate equivalent to the thirty-day LIBOR, adjusted
quarterly. In July 2002, the interest rate on the Credit Facility was changed
to a rate based on the thirty-day LIBOR, adjusted monthly. At October 31,
2002, the interest rate swap was an effective cash flow hedge.

We are exposed to commodity price risk related to changes in the price of
propane. If propane prices rise for an extended period, our gross margins and
results of operations could be negatively affected due to additional costs that
may not be fully recovered through an increase in our price to retailers.
Assuming that propane prices are not hedged and any increase cannot be
recovered through an increase in our price, a $.01 increase in the price per
gallon of propane would reduce the gross margin in our cylinder exchange
segment by approximately .3% or 30 basis points. Actual changes in cylinder
exchange margins may differ materially from that based on the hypothetical
assumptions used in computing this exposure. We have restructured our payment
obligations to distributors and entered into a series of monthly option
contracts that are designed to reduce exposure to the propane cost component of
a significant portion of our total cylinder exchange volume (Note 2 of Notes to
Condensed Consolidated Financial Statements).

We invest our cash and cash equivalents in investment grade, highly liquid
investments consisting of money market instruments, bank certificates of
deposit and overnight investments in commercial paper. All of our transactions
are conducted and accounts are denominated in U.S. dollars, and, as such, we do
not currently have exposure to foreign currency risk.

Item 4. Controls and Procedures

Within 90 days prior to the date of this report, the Companys Chief
Executive Officer and the Chief Financial Officer evaluated the effectiveness
of the Companys disclosure controls and procedures (as defined in Rules
13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended
(the Exchange Act) in accordance with Rule 13a-14 under the Exchange Act.
The Chief Executive Officer and the Chief Financial Officer concluded that, as
of the date of evaluation, the Companys disclosure controls and procedures
were effective to enable the Company to record, process, summarize and report
in a timely manner the information that the Company is required to disclose in
its Exchange Act reports.

There were no significant changes in the Companys internal controls or,
to the Companys knowledge, in other factors that could significantly affect
these internal controls subsequent to the date of the evaluation referred to
above.

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PART II  OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds

Effective September 5, 2002, we issued 100,000 shares of our common stock upon
exercise of a warrant to purchase common stock at an exercise price of $6.00
per share by a single warrant holder whom we believe to be an accredited
investor. We issued the shares in reliance on Section 4(2) of the Securities
Act of 1933, as amended, based on the isolated nature of the transaction and
the warrant holders access to material information and knowledge and
experience in business and financial matters.

Effective September 12, 2002, we issued 49,966 shares of our common stock
upon the conversion of a warrant to purchase 100,000 shares of our common stock
at an exercise price of $7.40 per share by a single warrant holder that we
believe to be an accredited investor. We issued the shares in reliance on
Section 3(a)(9) of the Securities Act as securities exchanged with an existing
security holder exclusively where no commission or other remuneration is paid
or given, directly or indirectly, for soliciting such exchange.

Effective September 24, 2002, we issued an aggregate of 1,850,000 shares
of our common stock upon the conversion of an aggregate of 1,850,000 shares of
our Series A Convertible Preferred Stock as permitted under our Second Amended
and Restated Certificate of Incorporation, as amended. We issued the shares
in reliance on Section 3(a)(9) of the Securities Act as securities exchanged
with existing security holders exclusively where no commission or other
remuneration is paid or given, directly or indirectly, for soliciting such
exchange. In conjunction with this conversion, we also issued an aggregate of
137,079 shares of our common stock in satisfaction of the accrued dividend
payable upon conversion of such shares of Series A Convertible Preferred Stock.

Effective September 27, 2002, we issued 10,100 shares of our common stock
upon the conversion of a warrant to purchase 16,667 shares of our common stock
at an exercise price of $6.00 per share by a single warrant holder that we
believe to be an accredited investor. We issued the shares in reliance on
Section 3(a)(9) of the Securities Act as securities exchanged with an existing
security holder exclusively where no commission or other remuneration is paid
or given, directly or indirectly, for soliciting such exchange.

Effective September 30, 2002 and October 11, 2002, we issued an aggregate of
47,457 shares of our common stock upon exercise of warrants to purchase common
stock at an exercise price of $8.48 per share by two warrant holders that we
believe to be accredited investors. We issued the shares in reliance on
Section 4(2) of the Securities Act of 1933, as amended, based on the isolated
nature of the transactions and the warrant holders access to material
information and knowledge and experience in business and financial matters.

Effective October 18, 2002, we issued 170,269 shares of our common stock upon
exercise of warrants to purchase common stock at a weighted-average exercise
price of $5.15 per share by a single warrant holder whom we believe
to be an accredited investor. We issued the shares in reliance on Section 4(2) of the Securities Act of
1933, as amended, based on the isolated nature of the transaction and the
warrant holders access to material information and knowledge and experience in
business and financial matters.

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Item 6.Exhibits And Reports On Form 8-K

(a)  Exhibits:

| |  |  |      |  |  |                                                                                                                                                       
| |  |  | ---- |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | 99.1 |  |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley
Act of 2002.
| |  |  |      |  |  |                                                                                                                                                       
| |  |  | 99.2 |  |  | Certification of the Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of The
Sarbanes-Oxley Act of 2002.

(b)  Reports on Form 8-K filed in the first quarter of fiscal 2003:



| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | The Company did not file any reports on Form 8-K during the three
months ended October 31, 2002.

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SIGNATURES

Pursuant to the requirement 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.

|      |  |                   |  |                        |  |                                     
|----- |  | ----------------- |  | ---------------------- |  | ------------------------------------
|      |  |                   |  | Blue Rhino Corporation
|      |  |                   |  |                        |  |                                     
|Date: |  | December 16, 2002 |  | By:                    |  | /s/ Billy D. Prim                   
|      |  |                   |  |                        |  | Chairman and Chief Executive Officer
|      |  |                   |  |                        |  |                                     
|Date: |  | December 16, 2002 |  | By:                    |  | /s/ Mark Castaneda                  
|      |  |                   |  |                        |  | Chief Financial Officer             

17



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CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Billy D. Prim, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Blue Rhino
Corporation;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: December 16, 2002

| |  |                                     
| |  | ------------------------------------
| |  | /s/ Billy D. Prim                   
| |  |                                     
| |  | Billy D. Prim                       
| |  | Chairman and Chief Executive Officer

18



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##### 



CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Mark Castaneda, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Blue Rhino
Corporation;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report; and

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: December 16, 2002

| |  |                        
| |  | -----------------------
| |  | /s/ Mark Castaneda     
| |  |                        
| |  | Mark Castaneda         
| |  | Chief Financial Officer

19