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|                                                                              |                                                                                                   | 
|----------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------- | 
|UNITED STATES                                                                
|                                                                              |                                                                                                   | 
|SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549                    
|                                                                              |                                                                                                   | 
|_______________________________                                              
|                                                                              |                                                                                                   | 
|[X]                                                                           | FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|                                                                              |                                                                                                   | 
|FOR THE QUARTERLY PERIOD ENDED APRIL 30, 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 May 31, 2002
|                                        |  |                            
|Common stock, par value $.001 per share |  | 12,017,707 Shares          

1



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TABLE OF CONTENTS



|                                                  |                                                                                               |                                                      |  |  |  |  |  | 
|------------------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I                                           
|                                                  | Item 1: Condensed Consolidated Financial Statements                                          
|                                                  |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                                                  |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                                                  |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                                                  |                                                                                               | 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                           
|PART II  OTHER INFORMATION                      
|                                                  | Item 2. Changes in Securities and Use of Proceeds                                            
|                                                  | Item 6. Exhibits And Reports On Form 8-K                                                     
|SIGNATURES                                       
|Registration Rights Agreement dated as of 4/19/02
|Stock Purchase Agreement dated as of 4/19/02     



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##### Table of Contents



BLUE RHINO CORPORATION

INDEX

PART I: FINANCIAL INFORMATION

|                                                                                               |                                                                                                              | 
|---------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------ | 
|Item 1: Financial Statements (unaudited):                                                     
|                                                                                              
|                                                                                               | Condensed consolidated balance sheets as of
April 30, 2002 and July 31, 2001.                               
|                                                                                              
|                                                                                               | Condensed consolidated statements of operations for
the three and nine months ended April 30, 2002 and 2001.
|                                                                                              
|                                                                                               | Condensed consolidated statements of cash flows for
the nine months ended April 30, 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.                           
|                                                                                              
|PART II: OTHER INFORMATION                                                                    
|                                                                                              
|Item 2: Changes in Securities and Use of Proceeds.                                            
|                                                                                              
|Item 6: Exhibits and Reports on Form 8-K.                                                     
|                                                                                              
|SIGNATURES                                                                                    

2



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##### Table of Contents






PART I

FINANCIAL INFORMATION




Item 1:Condensed Consolidated Financial Statements




BLUE RHINO CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
As of April 30, 2002 and July 31, 2001
(In thousands)

|                                                                      |                                                                 |                                                                                                                                                                                                                      |        |                                                  |         |           |         |          |         |   |         | 
|--------------------------------------------------------------------- | --------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------ | ------------------------------------------------ | ------- | --------- | ------- | -------- | ------- | - | ------- | 
|                                                                      |                                                                 |                                                                                                                                                                                                                      |        |                                                  |         | April 30, |         | July 31,
|                                                                      |                                                                 |                                                                                                                                                                                                                      |        |                                                  |         | 2002      |         | 2001    
|                                                                      |                                                                 |                                                                                                                                                                                                                      |        |                                                  |         |           |         |         
|ASSETS                                                                |                                                                 | (unaudited)                                                                                                                                                                                                          |        |                                                  |         |          
|Current assets:                                                       |                                                                 |                                                                                                                                                                                                                      |        |                                                  |         |           |         |         
|                                                                      | Cash and cash equivalents                                       |                                                                                                                                                                                                                      | $      | 1,715                                            |         |           | $       | 1,044    |        
|                                                                      | Accounts receivable, net                                        |                                                                                                                                                                                                                      |        | 21,862                                           |         |           |         | 19,619   |        
|                                                                      | Inventories                                                     |                                                                                                                                                                                                                      |        | 6,636                                            |         |           |         | 7,960    |        
|                                                                      | Prepaid expenses and other current assets                       |                                                                                                                                                                                                                      |        | 5,639                                            |         |           |         | 9,402    |        
|                                                                      |                                                                 |                                                                                                                                                                                                                      |        |                                                  |         |           |         |         
|                                                                      |                                                                 |                                                                                                                                                                                                                      |        | Total current assets                             |         |           | 35,852  |          |         |   | 38,025  | 
|                                                                     
|Cylinders leased under operating lease agreements, net                |                                                                 |                                                                                                                                                                                                                      | 34,993 |                                                  |         |           | 31,466  |         
|Property, plant, and equipment, net                                   |                                                                 |                                                                                                                                                                                                                      | 30,053 |                                                  |         |           | 23,636  |         
|Intangibles, net                                                      |                                                                 |                                                                                                                                                                                                                      | 32,091 |                                                  |         |           | 32,282  |         
|Other Assets                                                          |                                                                 |                                                                                                                                                                                                                      | 3,509  |                                                  |         |           | 1,935   |         
|                                                                      |                                                                 |                                                                                                                                                                                                                      |        |                                                  |         |           |         |         
|                                                                      |                                                                 |                                                                                                                                                                                                                      |        | Total assets                                     |         | $         | 136,498 |          |         | $ | 127,344 | 
|                                                                      |                                                                 |                                                                                                                                                                                                                      |        |                                                  |         |           |         |          |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                  |                                                                 |                                                                                                                                                                                                                      |        |                                                  |         |          
|Current liabilities:                                                  |                                                                 |                                                                                                                                                                                                                      |        |                                                  |         |           |         |         
|                                                                      | Accounts payable                                                |                                                                                                                                                                                                                      | $      | 20,139                                           |         |           | $       | 13,314   |        
|                                                                      | Current portion of long-term debt and capital lease obligations |                                                                                                                                                                                                                      |        | 1,161                                            |         |           |         | 2,333    |        
|                                                                      | Accrued liabilities                                             |                                                                                                                                                                                                                      |        | 3,759                                            |         |           |         | 3,617    |        
|                                                                      |                                                                 |                                                                                                                                                                                                                      |        |                                                  |         |           |         |         
|                                                                      |                                                                 |                                                                                                                                                                                                                      |        | Current liabilities exclusive of credit facility |         |           | 25,059  |          |         |   | 19,264  | 
|                                                                      | Credit facility                                                 |                                                                                                                                                                                                                      |        | 26,400                                           |         |           |         |         |        
|                                                                      |                                                                 |                                                                                                                                                                                                                      |        |                                                  |         |           |         |         
|                                                                      |                                                                 |                                                                                                                                                                                                                      |        | Total current liabilities                        |         |           | 51,459  |          |         |   | 19,264  | 
|Long-term debt and capital lease obligations, less current maturities |                                                                 |                                                                                                                                                                                                                      | 12,990 |                                                  |         |           | 50,931  |         
|                                                                      |                                                                 |                                                                                                                                                                                                                      |        |                                                  |         |           |         |         
|                                                                      |                                                                 |                                                                                                                                                                                                                      |        | Total liabilities                                |         |           | 64,449  |          |         |   | 70,195  | 
|                                                                     
|Stockholders equity:                                                 |                                                                 |                                                                                                                                                                                                                      |        |                                                  |         |           |         |         
|                                                                      |                                                                 | Common stock, $0.001 par value; 100,000,000 shares authorized, 10,918,672 and 9,221,703
shares issued and outstanding at April 30, 2002 and July 31, 2001, respectively                                              |        |                                                  | 11      |           |         |          | 9       |  
|                                                                      |                                                                 | Preferred stock, $0.001 par value; 20,000,000 shares authorized, 2,840,100 and 2,850,000
shares issued and outstanding at April 30, 2002 and July 31, 2001, respectively;
liquidation value 19,454 at April 30, 2002 |        |                                                  | 3       |           |         |          | 3       |  
|                                                                      |                                                                 | Capital in excess of par                                                                                                                                                                                             |        |                                                  | 89,415  |           |         |          | 77,389  |  
|                                                                      |                                                                 | Common stock warrants                                                                                                                                                                                                |        |                                                  | 6,412   |           |         |          | 6,403   |  
|                                                                      |                                                                 | Accumulated deficit                                                                                                                                                                                                  |        |                                                  | (24,362 | )         |         |          | (25,553 | )
|                                                                      |                                                                 | Accumulated other comprehensive income (loss)                                                                                                                                                                        |        |                                                  | 570     |           |         |          | (1,102  | )
|                                                                      |                                                                 |                                                                                                                                                                                                                      |        |                                                  |         |           |         |         
|                                                                      |                                                                 |                                                                                                                                                                                                                      |        | Total stockholders equity                       |         |           | 72,049  |          |         |   | 57,149  | 
|                                                                      |                                                                 |                                                                                                                                                                                                                      |        |                                                  |         |           |         |         
|                                                                      |                                                                 |                                                                                                                                                                                                                      |        | Total liabilities and stockholders equity       |         | $         | 136,498 |          |         | $ | 127,344 | 
|                                                                      |                                                                 |                                                                                                                                                                                                                      |        |                                                  |         |           |         |         

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

3



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BLUE RHINO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended April 30, 2002 and 2001
(In thousands, except per share data)

|                                       |         |                                      |                                                |                                    |        |                    |        |                   |        |        |         |        |         |       |         |        |        |        |        |  
|-------------------------------------- | ------- | ------------------------------------ | ---------------------------------------------- | ---------------------------------- | ------ | ------------------ | ------ | ----------------- | ------ | ------ | ------- | ------ | ------- | ----- | ------- | ------ | ------ | ------ | ------ | -
|                                       |         |                                      |                                                |                                    |        | Three months ended |        | Nine months ended
|                                       |         |                                      |                                                |                                    |        | April 30,          |        | April 30,        
|                                       |         |                                      |                                                |                                    |        |                    |        |                  
|                                       |         |                                      |                                                |                                    |        | 2002               |        | 2001              |        | 2002   |         | 2001  
|                                       |         |                                      |                                                |                                    |        |                    |        |                   |        |        |         |       
|                                       |         |                                      |                                                |                                    |        | (Unaudited)        |        | (Unaudited)      
|Net revenues                           |         | $                                    | 58,933                                         |                                    |        | $                  | 31,309 |                   |        | $      | 134,238 |        |         | $     | 96,401  |       
|Operating costs and expenses:          |         |                                      |                                                |                                    |        |                    |        |                   |        |        |         |        |         |       |         |       
|                                       |         | Cost of sales                        |                                                |                                    | 48,091 |                    |        |                   | 24,936 |        |         |        | 105,808 |       |         |        | 76,299 |       
|                                       |         | Selling, general, and administrative |                                                |                                    | 4,975  |                    |        |                   | 4,397  |        |         |        | 14,687  |       |         |        | 13,388 |       
|                                       |         | Depreciation and amortization        |                                                |                                    | 2,021  |                    |        |                   | 2,282  |        |         |        | 5,812   |       |         |        | 6,096  |       
|                                       |         |                                      |                                                |                                    |        |                    |        |                   |        |        |         |        |         |       |         |       
|                                       |         |                                      |                                                | Total operating costs and expenses |        |                    | 55,087 |                   |        |        | 31,615  |        |         |       | 126,307 |        |        |        | 95,783 |  
|                                       |         |                                      |                                                |                                    |        |                    |        |                   |        |        |         |        |         |       |         |       
|                                       |         |                                      |                                                | Income (loss) from operations      |        |                    | 3,846  |                   |        |        | (306    | )      |         |       | 7,931   |        |        |        | 618    |  
|                                      
|Interest and other expenses (income):  |         |                                      |                                                |                                    |        |                    |        |                   |        |        |         |        |         |       |         |       
|                                       |         | Interest expense                     |                                                |                                    | 1,585  |                    |        |                   | 1,357  |        |         |        | 4,736   |       |         |        | 3,671  |       
|                                       |         | Loss on investee                     |                                                |                                    | 11     |                    |        |                   | 526    |        |         |        | 689     |       |         |        | 1,823  |       
|                                       |         | Other, net                           |                                                |                                    | (114   | )                  |        |                   | (96    | )      |         |        | (366    | )     |         |        | (169   | )     
|                                       |         |                                      |                                                |                                    |        |                    |        |                   |        |        |         |        |         |       |         |       
|                                       |         |                                      |                                                | Income (loss) before income taxes  |        |                    | 2,364  |                   |        |        | (2,093  | )      |         |       | 2,872   |        |        |        | (4,707 | )
|                                      
|Income taxes                           |         |                                      | 10                                             |                                    |        |                    | 38     |                   |        |        | 36      |        |         |       | 73      |       
|                                       |         |                                      |                                                |                                    |        |                    |        |                   |        |        |         |        |         |       |         |       
|                                       |         |                                      |                                                | Net income (loss)                  |        | $                  | 2,354  |                   |        | $      | (2,131  | )      |         | $     | 2,836   |        |        | $      | (4,780 | )
|                                      
|Preferred dividends                    |         |                                      | 537                                            |                                    |        |                    | 214    |                   |        |        | 1,644   |        |         |       | 556     |       
|                                       |         |                                      |                                                |                                    |        |                    |        |                   |        |        |         |        |         |       |         |       
|                                       |         |                                      | Income (loss) available to common stockholders |                                    | $      | 1,817              |        |                   | $      | (2,345 | )       |        | $       | 1,192 |         |        | $      | (5,336 | )     
|                                       |         |                                      |                                                |                                    |        |                    |        |                   |        |        |         |        |         |       |         |       
|Earnings (loss) per common share:      |         |                                      |                                                |                                    |        |                    |        |                   |        |        |         |        |         |       |         |       
|                                       | Basic   |                                      | $                                              | 0.15                               |        |                    | $      | (0.19             | )      |        | $       | 0.10   |         |       | $       | (0.46  | )     
|                                       |         |                                      |                                                |                                    |        |                    |        |                   |        |        |         |        |         |       |         |       
|                                       | Diluted |                                      | $                                              | 0.12                               |        |                    | $      | (0.19             | )      |        | $       | 0.09   |         |       | $       | (0.46  | )     
|                                       |         |                                      |                                                |                                    |        |                    |        |                   |        |        |         |        |         |       |         |       
|Shares used in per share calculations: |         |                                      |                                                |                                    |        |                    |        |                   |        |        |         |        |         |       |         |       
|                                       | Basic   |                                      |                                                | 12,431                             |        |                    |        | 12,092            |        |        |         | 12,248 |         |       |         | 11,481 |       
|                                       |         |                                      |                                                |                                    |        |                    |        |                   |        |        |         |        |         |       |         |       
|                                       | Diluted |                                      |                                                | 14,752                             |        |                    |        | 12,092            |        |        |         | 13,731 |         |       |         | 11,481 |       
|                                       |         |                                      |                                                |                                    |        |                    |        |                   |        |        |         |        |         |       |         |       

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

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BLUE RHINO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended April 30, 2002 and 2001
(In thousands)

|                                                 |                                                                                          |                                                                            |       |                                                     |       |                   |         |         |       |  |         |  
|------------------------------------------------ | ---------------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | ----- | --------------------------------------------------- | ----- | ----------------- | ------- | ------- | ----- |  | ------- | -
|                                                 |                                                                                          |                                                                            |       |                                                     |       | Nine Months Ended
|                                                 |                                                                                          |                                                                            |       |                                                     |       | April 30,        
|                                                 |                                                                                          |                                                                            |       |                                                     |       |                  
|                                                 |                                                                                          |                                                                            |       |                                                     |       | 2002              |         | 2001   
|                                                 |                                                                                          |                                                                            |       |                                                     |       |                   |         |        
|                                                 |                                                                                          |                                                                            |       |                                                     |       | (unaudited)      
|Cash flows from operating activities:            |                                                                                          |                                                                            |       |                                                     |       |                   |         |        
|                                                 | Net income (loss)                                                                        |                                                                            | $     | 2,836                                               |       |                   | $       | (4,780  | )    
|                                                 | Adjustments to reconcile net income (loss) to net cash provided by operating
activities: |                                                                            |       |                                                     |       |                   |         |         |      
|                                                 |                                                                                          | Depreciation and amortization                                              |       |                                                     | 5,812 |                   |         |         | 6,096 | 
|                                                 |                                                                                          | Loss on investee                                                           |       |                                                     | 689   |                   |         |         | 1,823 | 
|                                                 |                                                                                          | Other non-cash expenses                                                    |       |                                                     | 797   |                   |         |         | 264   | 
|                                                 |                                                                                          | Changes in operating assets and liabilities, net of business acquisitions: |       |                                                     |       |                   |         |         |       | 
|                                                 |                                                                                          |                                                                            |       | Accounts receivable                                 |       |                   | (2,244  | )       |       |  | 6,156   |  
|                                                 |                                                                                          |                                                                            |       | Inventories                                         |       |                   | 1,611   |         |       |  | 2,030   |  
|                                                 |                                                                                          |                                                                            |       | Other current assets                                |       |                   | (1,604  | )       |       |  | (2,240  | )
|                                                 |                                                                                          |                                                                            |       | Accounts payable and accrued liabilities            |       |                   | 6,161   |         |       |  | (6,807  | )
|                                                 |                                                                                          |                                                                            |       |                                                     |       |                   |         |        
|                                                 |                                                                                          |                                                                            |       | Net cash provided by operating activities           |       |                   | 14,058  |         |       |  | 2,542   |  
|                                                 |                                                                                          |                                                                            |       |                                                     |       |                   |         |        
|Cash flows from investing activities:            |                                                                                          |                                                                            |       |                                                     |       |                   |         |        
|                                                 | Business acquisitions                                                                    |                                                                            |       | (207                                                | )     |                   |         | (1,351  | )    
|                                                 | Purchases of property, plant, and equipment                                              |                                                                            |       | (2,972                                              | )     |                   |         | (3,934  | )    
|                                                 | Net advances to joint venture                                                            |                                                                            |       | (1,850                                              | )     |                   |         | (3,395  | )    
|                                                 | Purchases of cylinders held under operating leases, net                                  |                                                                            |       | (5,318                                              | )     |                   |         | (2,925  | )    
|                                                 | Collections on (issuance of) notes receivable                                            |                                                                            |       | (491                                                | )     |                   |         | 361     |      
|                                                 |                                                                                          |                                                                            |       |                                                     |       |                   |         |        
|                                                 |                                                                                          |                                                                            |       | Net cash used in investing activities               |       |                   | (10,838 | )       |       |  | (11,244 | )
|                                                 |                                                                                          |                                                                            |       |                                                     |       |                   |         |        
|Cash flows from financing activities:            |                                                                                          |                                                                            |       |                                                     |       |                   |         |        
|                                                 | Proceeds from issuance of equity, net of expenses                                        |                                                                            |       | 10,392                                              |       |                   |         | 9,662   |      
|                                                 | Proceeds from notes payable to bank                                                      |                                                                            |       | 54,188                                              |       |                   |         | 20,586  |      
|                                                 | Payments on notes payable to bank                                                        |                                                                            |       | (65,408                                             | )     |                   |         | (19,811 | )    
|                                                 | Payments on long-term debt and capital lease obligations                                 |                                                                            |       | (1,721                                              | )     |                   |         | (1,493  | )    
|                                                 |                                                                                          |                                                                            |       |                                                     |       |                   |         |        
|                                                 |                                                                                          |                                                                            |       | Net cash (used in) provided by financing activities |       |                   | (2,549  | )       |       |  | 8,944   |  
|                                                 |                                                                                          |                                                                            |       |                                                     |       |                   |         |        
|Net increase in cash and cash equivalents        |                                                                                          |                                                                            | 671   |                                                     |       |                   | 242     |        
|Cash and cash equivalents at beginning of period |                                                                                          |                                                                            | 1,044 |                                                     |       |                   | 1,079   |        
|                                                 |                                                                                          |                                                                            |       |                                                     |       |                   |         |        
|Cash and cash equivalents at end of period       |                                                                                          | $                                                                          | 1,715 |                                                     |       | $                 | 1,321   |        
|                                                 |                                                                                          |                                                                            |       |                                                     |       |                   |         |        

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

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BLUE RHINO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 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: Rhino
Services, L.L.C.; CPD Associates, Inc.; USA Leasing, L.L.C.; Uniflame
Corporation (Uniflame) and QuickShip, Inc. (QuickShip). 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- and nine-month periods ended April
30, 2002 are not necessarily indicative of the results that may be expected for
the year ending July 31, 2002 or for any other period.

The balance sheet at July 31, 2001 has been derived from the audited
financial statements of the Company as of July 31, 2001 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, 2001.

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 and nine months ended April 30,
2002 and 2001 is presented below:

|                                                             |  |                              |        |                             |  |      |     |      |  |   |        |   |  |   |     |  
|------------------------------------------------------------ |  | ---------------------------- | ------ | --------------------------- |  | ---- | --- | ---- |  | - | ------ | - |  | - | --- | -
|                                                             |  | Three months ended April 30, |        | Nine months ended April 30,
|                                                             |  |                              |        |                            
|                                                             |  | 2002                         |        | 2001                        |  | 2002 |     | 2001
|                                                             |  |                              |        |                             |  |      |     |     
|Beginning balance deferred in OCI                            |  | $                            | 3,126  |                             |  | $    | 515 |      |  | $ | 1,102  |   |  | $ | 131 |  
|Net change associated with current period hedge transactions |  |                              | (3,040 | )                           |  |      | 83  |      |  |   | 621    |   |  |   | 505 |  
|Net amount reclassified into earnings during the period      |  |                              | (656   | )                           |  |      | (42 | )    |  |   | (2,293 | ) |  |   | (80 | )
|                                                             |  |                              |        |                             |  |      |     |      |  |   |        |   |  |   |     |  
|Ending balance deferred in OCI                               |  | $                            | (570   | )                           |  | $    | 556 |      |  | $ | (570   | ) |  | $ | 556 |  
|                                                             |  |                              |        |                             |  |      |     |      |  |   |        |   |  |   |     |  

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Total comprehensive income for the three and nine months ended April 30,
2002 was $6,050 and $4,508, respectively. Total comprehensive loss for the
three and nine months ended April 30, 2001 was ($2,172) and ($5,336),
respectively.

3. Investment in Joint Venture

The Company has a 49% ownership interest in a joint venture, R4 Technical
Center North Carolina, LLC (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 is being accounted for under
the equity method of accounting. The Company recognized its portion of the
loss in the joint venture for the three and nine months ended April 30, 2002 of
$11 and $689, respectively. For the three and nine months ended April 30,
2001, the Company recognized its portion of the loss in the joint venture of
$526 and $1,823, respectively. During the nine months ended April 30, 2002 and
April 30, 2001, the Company provided net advances to R4 Tech of $1,850 and
$3,395, respectively. At April 30, 2002, the Company had advances outstanding
of $942 to R4 Tech and payables to R4 Tech of $1,269.

Effective September 30, 2001, the Company entered into a sale and
leaseback transaction with R4 Tech. The Company purchased all of the land,
buildings and equipment associated with the propane bottling and cylinder
refurbishing operation for $7,599. The purchase price was used by R4 Tech to
repay outstanding advances made by the Company. Contemporaneously with the
sale, R4 Tech leased back the land, buildings and equipment from the Company
under the terms of a three-year operating lease agreement. The Company does
not currently expect the sale and leaseback transaction to have a material
impact on its consolidated results of operations or financial position.

Summary financial information for R4 Tech for the three and nine months
ended April 30, 2002 and April 30, 2001 is as follows:

|             |  |                    |       |                   |  |      |        |      |  |   |        |   |  |   |        |  
|------------ |  | ------------------ | ----- | ----------------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|             |  | Three months ended |       | Nine months ended
|             |  | April 30,          |       | April 30,        
|             |  |                    |       |                  
|             |  | 2002               |       | 2001              |  | 2002 |        | 2001
|             |  |                    |       |                   |  |      |        |     
|Net revenues |  | $                  | 2,821 |                   |  | $    | 2,349  |      |  | $ | 7,220  |   |  | $ | 6,417  |  
|Gross (loss) |  |                    | (176  | )                 |  |      | (804   | )    |  |   | (484   | ) |  |   | (2,900 | )
|Net loss     |  |                    | (23   | )                 |  |      | (1,073 | )    |  |   | (1,397 | ) |  |   | (3,720 | )

4. Goodwill and Other Intangible Assets

In June 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill (and intangible assets
deemed to have indefinite lives) will no longer be amortized but will be
subject to impairment tests on at least an annual basis (and more often in
certain circumstances) in accordance with the Statements. Other intangible
assets will continue to be amortized over their useful lives. Application of
the nonamortization provisions of the Statements is expected to result in an
increase in net income of approximately $2.6 million in fiscal 2002. At April
30, 2002, the Company had unamortized intangibles of $30.7 million that were
subject to the transition provisions of the Statements.

The Company applied the new rules for accounting for goodwill and other
intangible assets beginning in the first quarter of fiscal 2002. In accordance
with the requirements of SFAS 142, the Company has identified three reporting
units: the cylinder exchange segment, Uniflame, and QuickShip. The forecasts,
valuations and impairment analyses under the Statement were made at these
reporting unit levels. The fair values of the cylinder exchange segment and
Uniflame were based on discounted cash flow projections over ten fiscal years.
The Company projected positive cash flows for cylinder exchange and Uniflame in
all periods. The valuations indicated that the fair value of the reporting
units exceeded the carrying value of the reporting units by a substantial
margin.

Negative indicators currently exist for QuickShip, including operating
losses and negative cash flows. As a result, management deemed it appropriate
to obtain an independent valuation of QuickShip to determine if goodwill
impairment existed as of August 1, 2001. The valuation is based on projected
cash flows over ten fiscal years with significant growth in the number of
locations and revenue assumed in years three through seven. Capital
expenditures range from $100 to $750 each year. The Company projected negative
cash flows in years one and two and steadily increasing positive cash flows in
years three through ten. The valuation uses a discount rate of 25%. The
independent valuation concluded that the fair value of QuickShip exceeded its
carrying value at August 1, 2001.

7



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Based on the foregoing, the Company determined there to be no impairment
of goodwill upon adoption of SFAS 142. Future goodwill impairment tests may,
however, result in a charge to earnings.

The following table presents the impact of SFAS 142 on net income (loss)
and net income (loss) per share for the three and nine months ended April 30,
2002 and, assuming SFAS 142 had then been in effect, for the three and nine
months ended April 30, 2001 (in thousands, except per share amounts):

|                                                        |                          |   |                              |   |                             |   |        |     |      |   |       |   |  |   |        |       | 
|------------------------------------------------------- | ------------------------ | - | ---------------------------- | - | --------------------------- | - | ------ | --- | ---- | - | ----- | - |  | - | ------ | ----- | 
|                                                        |                          |   | Three months ended April 30, |   | Nine months ended April 30,
|                                                        |                          |   |                              |   |                            
|                                                        |                          |   | 2002                         |   | 2001                        |   | 2002   |     | 2001
|                                                        |                          |   |                              |   |                             |   |        |     |     
|                                                        |                          |   | (unaudited)                  |   | (unaudited)                
|                                                        |                          |   |                              |   |                            
|Reported income (loss) available to
common shareholders |                          | $ | 1,817                        |   |                             | $ | (2,345 | )   |      | $ | 1,192 |   |  | $ | (5,336 | )    
|Adjustments:                                            |                          |   |                              |   |                             |   |        |     |      |   |       |   |  |   |        |      
|                                                        | Amortization of goodwill |   |                              |  |                             |   |        | 656 |      |   |       |  |  |   |        | 1,594 | 
|                                                        |                          |   |                              |   |                             |   |        |     |      |   |       |   |  |   |        |      
|Adjusted income (loss) available to
common shareholders |                          | $ | 1,817                        |   |                             | $ | (1,689 | )   |      | $ | 1,192 |   |  | $ | (3,742 | )    
|                                                        |                          |   |                              |   |                             |   |        |     |      |   |       |   |  |   |        |      
|                                                       
|Reported basic income (loss) per
common share           |                          | $ | 0.15                         |   |                             | $ | (0.19  | )   |      | $ | (0.10 | ) |  | $ | (0.46  | )    
|                                                        |                          |   |                              |   |                             |   |        |     |      |   |       |   |  |   |        |      
|Reported diluted income (loss) per
common share         |                          | $ | 0.12                         |   |                             | $ | (0.19  | )   |      | $ | (0.09 | ) |  | $ | (0.46  | )    
|                                                        |                          |   |                              |   |                             |   |        |     |      |   |       |   |  |   |        |      
|                                                       
|Adjusted basic income (loss) per
common share           |                          | $ | 0.15                         |   |                             | $ | (0.14  | )   |      | $ | (0.10 | ) |  | $ | (0.33  | )    
|                                                        |                          |   |                              |   |                             |   |        |     |      |   |       |   |  |   |        |      
|Adjusted diluted income (loss) per
common share         |                          | $ | 0.12                         |   |                             | $ | (0.14  | )   |      | $ | (0.09 | ) |  | $ | (0.33  | )    
|                                                        |                          |   |                              |   |                             |   |        |     |      |   |       |   |  |   |        |      

5. Cooperative Advertising

Effective February 1, 2002, the Company adopted the Emerging Issues Task
Forces Issue No. 00-14, Accounting for Certain Sales Incentives,which
addresses the recognition, measurement and income statement classification for
certain sales incentives, including rebates, coupons and free products or
services. As provided in EITF No. 00-14, certain cooperative advertising costs
historically included by the Company in selling, general and administrative
expenses are now classified as reductions of net revenues. Prior period
amounts have been reclassified for comparative purposes.

6. Common Stock

On April 19, 2002, the Company completed the sale of 1.5 million shares of
common stock for $10,875 in a private placement through SunTrust Robinson
Humphrey Capital Markets, as Placement Agent, to selected institutional and
individual investors at a price of $7.25 per share.

7. Earnings (Loss) Per Share

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

8



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|                                                                    |                       |   |                 |       |                   |   |        |   |      |   |        |     |  |   |        |   | 
|------------------------------------------------------------------- | --------------------- | - | --------------- | ----- | ----------------- | - | ------ | - | ---- | - | ------ | --- |  | - | ------ | - | 
|                                                                    |                       |   | Three months    |       | Nine months ended
|                                                                    |                       |   | ended April 30, |       | April 30,        
|                                                                    |                       |   |                 |       |                  
|                                                                    |                       |   | 2002            |       | 2001              |   | 2002   |   | 2001
|                                                                    |                       |   |                 |       |                   |   |        |   |     
|                                                                    |                       |   | (Unaudited)     |       | (Unaudited)      
|Net income (loss)                                                   |                       | $ | 2,354           |       |                   | $ | (2,131 | ) |      | $ | 2,836  |     |  | $ | (4,780 | )
|Less: Preferred stock dividends                                     |                       |   | 537             |       |                   |   | 214    |   |      |   | 1,644  |     |  |   | 556    |  
|                                                                    |                       |   |                 |       |                   |   |        |   |      |   |        |     |  |   |        |  
|Income (loss) applicable to common
stockholders                     |                       | $ | 1,817           |       |                   | $ | (2,345 | ) |      | $ | 1,192  |     |  | $ | (5,336 | )
|                                                                    |                       |   |                 |       |                   |   |        |   |      |   |        |     |  |   |        |  
|Income (loss) applicable to common
stockholders                     |                       | $ | 1,817           |       |                   | $ | (2,345 | ) |      | $ | 1,192  |     |  | $ | (5,336 | )
|Weighted average number of common shares
outstanding (in thousands  |                       |   | 12,431          |       |                   |   | 12,092 |   |      |   | 12,248 |     |  |   | 11,481 |  
|                                                                    |                       |   |                 |       |                   |   |        |   |      |   |        |     |  |   |        |  
|Basic earnings (loss) per common share                              |                       | $ | 0.15            |       |                   | $ | (0.19  | ) |      | $ | 0.10   |     |  | $ | (0.46  | )
|                                                                    |                       |   |                 |       |                   |   |        |   |      |   |        |     |  |   |        |  
|Income (loss) applicable to common
stockholders                     |                       | $ | 1,817           |       |                   | $ | (2,345 | ) |      | $ | 1,192  |     |  | $ | (5,336 | )
|Weighted average number of common shares
outstanding (in thousands) |                       |   | 12,431          |       |                   |   | 12,092 |   |      |   | 12,248 |     |  |   | 11,481 |  
|Effect of potentially dilutive securities
(in thousands):           |                       |   |                 |       |                   |   |        |   |      |   |        |     |  |   |        |  
|                                                                    | Common stock options  |   |                 | 1,058 |                   |   |        |  |      |   |        | 666 |  |   |        |  | 
|                                                                    | Common stock warrants |   |                 | 1,263 |                   |   |        |  |      |   |        | 817 |  |   |        |  | 
|                                                                    |                       |   |                 |       |                   |   |        |   |      |   |        |     |  |   |        |  
|Weighted average number of common shares                            |                       |   |                 |       |                   |   |       |   |      |   |        |     |  |   |       |  
|outstanding assuming dilution                                       |                       |   | 14,752          |       |                   |   | 12,092 |   |      |   | 13,731 |     |  |   | 11,481 |  
|                                                                    |                       |   |                 |       |                   |   |        |   |      |   |        |     |  |   |        |  
|Diluted earnings (loss) per common share                            |                       | $ | 0.12            |       |                   | $ | (0.19  | ) |      | $ | 0.09   |     |  | $ | (0.46  | )
|                                                                    |                       |   |                 |       |                   |   |        |   |      |   |        |     |  |   |        |  

Common stock options and common stock warrants listed below for the three
and nine months ended April 30, 2002 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 and the effect would be
anti-dilutive. Common stock options and common stock warrants listed below for
the three months and nine months ended April 30, 2001 have been excluded from
the computation of diluted loss per share because they were anti-dilutive.

|                      |  |                    |         |                   |  |      |           |      |  |  |           |  |  |  |           | 
|--------------------- |  | ------------------ | ------- | ----------------- |  | ---- | --------- | ---- |  |  | --------- |  |  |  | --------- | 
|                      |  | Three months ended |         | Nine months ended
|                      |  | April 30,          |         | April 30,        
|                      |  |                    |         |                  
|                      |  | 2002               |         | 2001              |  | 2002 |           | 2001
|                      |  |                    |         |                   |  |      |           |     
|                      |  | (Unaudited)        |         | (Unaudited)      
|Common stock options  |  |                    | 744,547 |                   |  |      | 2,470,162 |      |  |  | 1,294,427 |  |  |  | 2,470,162 | 
|Common stock warrants |  |                    | 343,383 |                   |  |      | 1,563,663 |      |  |  | 560,050   |  |  |  | 1,563,663 | 

8. 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, fireplace accessories and garden products. In addition, the
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 and nine
months ended April 30, 2002, QuickShip had a loss before interest, taxes,
depreciation and amortization of ($357) and ($1,044), 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). 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 and nine months
ended April 30, 2002 and April 30, 2001 is as follows:

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|                            |                    |   |                    |        |                   |   |        |        |      |   |         |        |  |   |        |        | 
|--------------------------- | ------------------ | - | ------------------ | ------ | ----------------- | - | ------ | ------ | ---- | - | ------- | ------ |  | - | ------ | ------ | 
|                            |                    |   | Three Months Ended |        | Nine Months Ended
|                            |                    |   | April 30,          |        | April 30,        
|                            |                    |   |                    |        |                  
|                            |                    |   | 2002               |        | 2001              |   | 2002   |        | 2001
|                            |                    |   |                    |        |                   |   |        |        |     
|Net revenues:               |                    |   |                    |        |                   |   |        |        |      |   |         |        |  |   |        |       
|                            | Cylinder exchange  |   | $                  | 27,283 |                   |   | $      | 18,912 |      |   | $       | 67,325 |  |   | $      | 52,234 | 
|                            | Products and other |   |                    | 31,650 |                   |   |        | 12,397 |      |   |         | 66,913 |  |   |        | 44,167 | 
|                            |                    |   |                    |        |                   |   |        |        |      |   |         |        |  |   |        |       
|                            |                    | $ | 58,933             |        |                   | $ | 31,309 |        |      | $ | 134,238 |        |  | $ | 96,401 |       
|                            |                    |   |                    |        |                   |   |        |        |      |   |         |        |  |   |        |        | 
|Segment EBITDA:             |                    |   |                    |        |                   |   |        |        |      |   |         |        |  |   |        |       
|                            | Cylinder exchange  |   | $                  | 4,060  |                   |   | $      | 2,075  |      |   | $       | 9,510  |  |   | $      | 3,563  | 
|                            | Products and other |   |                    | 1,807  |                   |   |        | (99    | )    |   |         | 4,233  |  |   |        | 3,151  | 
|                            |                    |   |                    |        |                   |   |        |        |      |   |         |        |  |   |        |       
|                            |                    | $ | 5,867              |        |                   | $ | 1,976  |        |      | $ | 13,743  |        |  | $ | 6,714  |       
|                           
|Depreciation & amortization |                    |   | 2,021              |        |                   |   | 2,282  |        |      |   | 5,812   |        |  |   | 6,096  |       
|Interest expense            |                    |   | 1,585              |        |                   |   | 1,357  |        |      |   | 4,736   |        |  |   | 3,671  |       
|Loss on investee            |                    |   | 11                 |        |                   |   | 526    |        |      |   | 689     |        |  |   | 1,823  |       
|Other, net                  |                    |   | (114               | )      |                   |   | (96    | )      |      |   | (366    | )      |  |   | (169   | )     
|Income taxes                |                    |   | 10                 |        |                   |   | 38     |        |      |   | 36      |        |  |   | 73     |       
|                            |                    |   |                    |        |                   |   |        |        |      |   |         |        |  |   |        |       
|Net income (loss)           |                    | $ | 2,354              |        |                   | $ | (2,131 | )      |      | $ | 2,836   |        |  | $ | (4,780 | )     
|                            |                    |   |                    |        |                   |   |        |        |      |   |         |        |  |   |        |       

|              |                    |   |                 |         |      |   |         |        | 
|------------- | ------------------ | - | --------------- | ------- | ---- | - | ------- | ------ | 
|              |                    |   | As of April 30,
|              |                    |   |                
|              |                    |   | 2002            |         | 2001
|              |                    |   |                 |         |     
|Total assets: |                    |   |                 |         |      |   |         |       
|              | Cylinder exchange  |   | $               | 101,391 |      |   | $       | 84,545 | 
|              | Products and other |   |                 | 35,107  |      |   |         | 29,703 | 
|              |                    |   |                 |         |      |   |         |       
|              |                    | $ | 136,498         |         |      | $ | 114,248 |       
|              |                    |   |                 |         |      |   |         |       

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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, predicts, potential, continue and similar words
or expressions are intended to identify forward-looking statements. Such
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 statements are based on current expectations, are inherently
uncertain and subject to risks, and should be viewed with caution. The
Companys business is subject to numerous risks and uncertainties including, in
particular, the Companys ability to place Blue Rhino cylinder exchange at
additional retail locations, to integrate acquisitions, to launch new products
and services and to mitigate the effects of high propane commodity prices
successfully. These and other risks and uncertainties, including those
detailed in the Companys Registration Statement on Form S-3 dated April 23,
2002 and its most recent Annual Report on Form 10-K filed with the Securities
and Exchange Commission, could cause actual results, performance and
developments to be materially different from those expressed or implied by any
of these forward-looking statements. 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 and
QuickShip, Inc. (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, 2001, on file with the Securities and Exchange Commission.
The results of operations for the three- and nine-month periods ended April 30,
2002 are not necessarily indicative of results that may be expected for the
fiscal year ending July 31, 2002 or any other period, in part due to the
seasonality of our business.

Blue Rhino was founded in March 1994 and we believe we have become the
leading national provider of gas grill cylinder exchange and a leading provider
of other branded products and services to retailers, with Blue Rhino cylinder
displays at more than 26,000 retail locations in 46 states and Puerto Rico.
Cylinder exchange provides consumers with a convenient means to exchange empty
grill cylinders for clean, safe, precision-filled cylinders. We offer our
cylinder exchange at many major home improvement centers, mass merchants,
hardware, grocery and convenience stores, including Home Depot, Lowes,
Wal#Mart, Sears, Kmart, Kroger, Food Lion, Winn-Dixie, SuperAmerica, Circle K
and ExxonMobil. The number of retail locations we report in any period is net
of any retail locations at which we have discontinued our cylinder exchange
service, whether due to closings, relocations, poor performance, competitive,
regulatory or other factors.

We partner with retailers and independent 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, distributor network
development and management information systems. Our 44 independent
distributors invest in the vehicles and other operational infrastructure
necessary to operate cylinder exchange businesses. We believe that our
distributor network affords us the opportunity to service approximately 90% of
the cylinder exchange markets in the United States.

Uniflame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 majority of Uniflames sales occur in the fall and winter months, which is
counterseasonal to our cylinder exchange segment. QuickShip, Inc., 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.

11



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##### Table of Contents



Results of Operations

Comparison of the three months ended April 30, 2002 with the three months ended April 30, 2001

Net revenues.Net revenues increased 88% to $58.9 million for the three
months ended April 30, 2002 from $31.3 million for the three months ended April
30, 2001. Net revenues consisted of $27.3 million from cylinder exchange and
$31.6 million from the products and other segment. Cylinder exchange revenues
increased 44% due primarily to an approximately 29% increase in the number of
cylinder transactions to 1.7 million units in the three months ended April 30,
2002 from 1.3 million units during the same period in the prior year,
reflecting the positive trend in consumer acceptance of cylinder exchange over
refill and the impact of the new National Fire Protection Association (NFPA)
guidelines requiring that all propane cylinders refilled after April 1, 2002 be
fitted with an overfill prevention device (OPD). Approximately one-third of
the increase in cylinder exchange revenues was due to price increases to
retailers and approximately two-thirds was due to increases in the number of
cylinder transactions. Product revenues increased 155% due principally to
increased grill sales and a shift in the timing of shipments to retailers from
our second fiscal quarter to the third quarter. We currently anticipate
double-digit revenue growth for both our cylinder exchange and products and
other segments for fiscal years 2002 and 2003 and expect the new NFPA
guidelines to continue to contribute to our cylinder exchange revenue growth
through at least the end of fiscal 2003.

Gross margin.Our overall gross margin percentage decreased to 18.4% in
the third quarter of fiscal 2002 from 20.4% in the third quarter of fiscal 2001
due primarily to the increase in lower-margin product sales as a percentage of
net revenues. Cylinder exchange represented 46% of net revenue, compared with
60% in last years third quarter, while products and other revenue represented
54% of net revenue, compared with 40% last year. Gross margin percentage
increased 80 basis points in cylinder exchange to 26.8% from 26.0% in the same
period of the prior year due primarily to price increases to retailers
partially offset by our restructured payment plan to distributors to reflect
the cost of installing OPD valves. We currently believe that our propane
hedges and modified distributor payment structure will protect our future
cylinder exchange gross margin from exposure to volatility in propane prices.
The products and other segment gross margin decreased slightly to 11.1% from
11.7% compared to the same period in the prior year.

Selling, general and administrative expenses. Selling, general and
administrative (SG&A) expenses increased to $5.0 million for the three months
ended April 30, 2002 from $4.4 million for the three months ended April 30,
2001 and, as a percentage of net revenues, decreased to 8.4% for the three
months ended April 30, 2002 from 14.0% for the three months ended April 30,
2001. The decrease in SG&A expenses as a percentage of net revenues was due
primarily to the fact that a significant portion of such expenses are fixed and
increased at a slower rate than did net revenues. SG&A expenses in the
cylinder exchange segment increased to $3.3 million from $2.9 million in the
same period in the prior year primarily due to increased personnel costs to
support growth and increased professional fees, partially offset by a decrease
in marketing costs. SG&A expenses in the products and other segment increased
to $1.7 million from $1.5 million in the same period in the prior year
primarily due to increased personnel costs to support growth at Uniflame.

Depreciation and amortization. Depreciation and amortization decreased to
$2.0 million for the third quarter of fiscal 2002 from $2.3 million for the
third quarter of fiscal 2001. This decrease was primarily due to a reduction
in amortization expense to $74,000 in the third quarter of fiscal 2002 from
$772,000 in the third quarter of fiscal 2001 as a result of the elimination of
goodwill amortization from the implementation of SFAS No. 142, Goodwill and
Other Intangible Assets. The decrease was partially offset by an increase in
depreciation expense resulting from an increase in the number of cylinders held
under operating lease agreements and from our acquisition, effective September
30, 2001, of machinery and equipment from R4 Technical Center North Carolina,
LLC, the Companys joint venture (R4 Tech).

Interest expense.Interest expense increased to $1.6 million in the third
quarter of fiscal 2002 from $1.4 million in the third quarter of fiscal 2001
primarily due to $15 million of subordinated debt that we obtained on June 15,
2001.

Loss on investee.Loss on investee decreased to $11,000 in the third
quarter of fiscal 2002 from $526,000 in the third quarter of fiscal 2001 due
primarily to increased revenue and improved gross margins. This charge
represents our share of the loss related to our 49% ownership interest in R4
Tech. We currently expect R4 Tech to break even or be slightly profitable in
the fourth quarter of fiscal 2002 and to break even for fiscal 2003 and
anticipate R4 Techs revenues to be the highest in our third and fourth
quarters, which include the majority of the grilling season, and lowest in our
first and second quarters.

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Other, net. Other, net increased to $114,000 of income for the three
months ended April 30, 2002 from $96,000 of income for the three months ended
April 30, 2001. 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 increased to $537,000 in the third quarter of fiscal 2002 from
$214,000 in the third quarter of fiscal 2001. The Series A Preferred Stock
accrues a cumulative dividend based on an annual rate of: 5% through September
7, 2003; 12% from September 8, 2003 through September 7, 2004; and 15%
thereafter. The annual dividend rate increased to 15% from September 7, 2001
through April 7, 2002 because a registration statement covering the shares of
common stock into which the Series A Preferred Stock is convertible was not yet
effective.

Comparison of the nine months ended April 30, 2002 with the nine months ended April 30, 2001

Net revenues.Net revenues increased 39% to $134.2 million for the nine
months ended April 30, 2002 from $96.4 million for the nine months ended April
30, 2001. Net revenues consisted of $67.3 million from cylinder exchange and
$66.9 million from the products and other segment. Cylinder exchange revenue
increased 29% due primarily to a 20% increase in cylinder transactions to 4.5
million for the nine months ended April 30, 2002 from 3.7 million in the nine
months ended April 30, 2001, reflecting the positive trend in consumer
acceptance of cylinder exchange over refill and, to a lesser extent, the impact
of the new NFPA guidelines requiring that all propane cylinders refilled after
April 1, 2002 be fitted with an OPD. Approximately one-third of the increase
in cylinder exchange revenues was due to price increases to retailers and
approximately two-thirds was due to increases in the number of cylinder
transactions. Product revenues increased 51% due principally to an increase in
the number of grills sold and, to a lesser degree, the number of Endless
Summer® patio heaters sold.

Gross margin.Our overall gross margin increased to 21.2% for the first
nine months of fiscal 2002 from 20.9% for the first nine months of fiscal 2001.
Gross margin percentage increased 323 basis points in cylinder exchange to
27.7% from 24.5% in the same period of the prior year due primarily to price
increases to retailers. We currently believe that our propane hedges and
modified distributor payment structure will protect our future cylinder
exchange gross margin from exposure to volatility in propane prices. The
products and other segment gross margin decreased to 14.6% from 16.5% for the
nine months ended April 30, 2001 due primarily to a shift in sales mix to
products that carry a lower margin.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased 10% to $14.7 million for the nine months
ended April 30, 2002 from $13.4 million for the nine months ended April 30,
2001. SG&A expenses as a percentage of net revenues decreased to 10.9% for the
nine months ended April 30, 2002 from 13.9% for the nine months ended April 30,
2001. The decrease in SG&A expenses as a percentage of net revenues was due
primarily to the fact that a significant portion of such expenses are fixed and
increased at a slower rate than did net revenues. In our cylinder exchange
segment, SG&A expenses remained flat at $9.2 million. In our products and
other segment, SG&A expenses increased to $5.5 million from $4.2 million in the
same period in the prior year, primarily due to increased personnel costs to
support growth at Uniflame and increased costs related to QuickShip, which was
acquired in October 2000.

Depreciation and amortization.Depreciation and amortization decreased to
$5.8 million for the first nine months of fiscal 2002 from $6.1 million for the
first nine months of fiscal 2001. Depreciation expense increased primarily due
to the increase in the number of installed cylinder displays, the increase in
the number of cylinders held under operating lease agreements, and the
acquisition, effective September 30, 2001, of machinery and equipment from R4
Tech. Amortization expense decreased to $235,000 from $1.9 million due to the
elimination of goodwill amortization related to the implementation of SFAS No.
142, Goodwill and Other Intangible Assets.

Interest expense.Interest expense increased to $4.7 million in the nine
months ended April 30, 2002 from $3.7 million in the nine months ended April
30, 2001 primarily due to $15 million of subordinated debt that we obtained on
June 15, 2001.

Loss on investee.Loss on investee decreased to $689,000 in the nine
months ended April 30, 2002 from $1.8 million in the nine months ended April
30, 2001 due primarily to increased revenue and improved gross margins. This
charge represents our share of the loss related to our 49% ownership interest
in R4 Tech.

Other, net. Other, net increased to $366,000 of income in the nine months
ended April 30, 2002 from $169,000 of income in the nine months ended April 30,
2001. Other income consists primarily of interest income from advances made to
R4 Tech and distributors.

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Preferred dividends.Preferred dividends accrued on outstanding Series A
Preferred Stock increased to $1.6 million for the nine months ended April 30,
2002 from $556,000 for the nine months ended April 30, 2001. The Series A
Preferred Stock accrues a cumulative dividend based on an annual rate of: 5%
through September 7, 2003; 12% from September 8, 2003 through September 7,
2004; and 15% thereafter. The annual dividend rate increased to 15% from
September 7, 2001 through April 7, 2002 because a registration statement
covering the shares of common stock into which the Series A Preferred Stock is
convertible was not yet effective.

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 $14.1 million for the nine months
ended April 30, 2002 compared to $2.5 million for the nine months ended April
30, 2001. The increase in cash provided by operations is primarily due to the
$7.6 million increase in net income and $4.8 million decrease in working
capital needs.

Net cash used in investing activities was $10.8 million for the nine
months ended April 30, 2002 and $11.2 million for the nine months ended April
30, 2001. The decrease is principally due to reduced cash used for
acquisitions, net advances to joint venture, and property, plant, and
equipment, which was partially offset by the increase in cash used for
cylinders held under operating leases.

Net cash used in financing activities was $2.5 million for the nine months
ended April 30, 2002 while net cash provided by financing activities was $8.9
million for the nine months ended April 30, 2001. Cash used in financing
activities for the nine months ended April 30, 2002 included net payments on
notes payable to our bank and payments on long-term debt and capital lease
obligations partially offset by net proceeds of $10.4 million from the sale of
common stock. Cash provided by financing activities for the nine months ended
April 30, 2001 included net proceeds of $9.7 million from a preferred stock
private placement.

On April 28, 2000, we entered into a joint venture agreement to operate
and manage the automated propane bottling and cylinder refurbishing plant in
North Carolina then owned by R4 Tech, which began operations in May 2000. We
received a 49% ownership interest in the joint venture in exchange for our net
contribution of approximately $3.4 million. The joint venture is being
accounted for using the equity method of accounting. Effective September 30,
2001, we entered into a sale and leaseback transaction with R4 Tech. We
purchased all of the land, buildings and equipment associated with the propane
bottling and cylinder refurbishing operation for $7.6 million. The purchase
price was used by R4 Tech to repay outstanding advances made by us.
Contemporaneously with the sale, R4 Tech leased back the land, buildings and
equipment from us under the terms of a three-year operating lease agreement.
We do not currently expect the sale and leaseback transaction to have a
material impact on our consolidated results of operations or financial
position. During the nine months ended April 30, 2002 and April 30, 2001, we
provided net advances of $1.9 million and $3.4 million, respectively, to R4
Tech. At April 30, 2002, we had advances outstanding of $942,000 to R4 Tech
and payables to R4 Tech of $1.3 million.

On September 7, 2000, we completed a private placement of 1,716,667 shares
of our Series A Convertible Preferred Stock to two institutional investors
under common management and three individuals, including Billy D. Prim, our
Chairman, Chief Executive Officer and President, and Andrew J. Filipowski, our
Vice Chairman, for an aggregate purchase price of approximately $10.3 million.
The Series A Convertible Preferred Stock accrues a cumulative dividend on the
20th day of December, March, June, and September of each year based on an
annual rate of 5% through September 7, 2003; 12% from September 8, 2003 through
September 7, 2004; and 15% thereafter. Effective September 7, 2001, the annual
dividend rate increased to 15% because a registration statement covering the
shares of common stock into which the Series A Convertible Preferred Stock is
convertible was not yet effective. The 15% rate continued until the
registration statement became effective on April 8, 2002. At our election, the
dividend may be satisfied in cash, in shares of common stock, or a combination
of cash and shares of common stock. If we elect to satisfy the dividend in
shares of common stock, the shares will be valued based on a 30-day trailing
average ending three business days prior to the date the shares are authorized
to be issued. As of April 30, 2002, we had accrued dividends on the
outstanding shares of Series A Convertible Preferred Stock of $2.4 million. We
currently intend to satisfy the accrued dividends in shares of common stock.

On October 26, 2000, we completed the acquisition of QuickShip, Inc., a
retail shipping service company and our wholly owned subsidiary. QuickShip,
which currently offers its service at over 300 retail locations in 31 states,
provides consumers with a convenient, full-service, in-store postal and parcel
shipping depot and provides retailers with an additional revenue source. The
aggregate purchase price, including certain acquisition costs, was
approximately $9.8 million, comprised of approximately $1.0 million in cash and
deferred payments, $86,000 in a five-year warrant to purchase 100,000 shares of
common stock with an exercise price of $6.00 per share, $2.0 million in
liabilities assumed and $6.8 million paid in the form of 1,133,333 shares of
Series A

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Convertible Preferred Stock valued at $6.00 per share. We currently
project QuickShip to be dilutive to earnings before interest, taxes,
depreciation, and amortization (EBITDA) by approximately $1.5 million and $1.0
million in fiscal 2002 and 2003, respectively, and to be further dilutive to
earnings as a result of expected depreciation and amortization expense.

Each share of Series A Convertible Preferred Stock is currently
convertible into common stock at the option of the holder. During April and
May 2002, the holders of 1,000,000 shares of Series A Convertible Preferred
Stock converted such shares into common stock. We may convert the Series A
Convertible Preferred Stock into common stock at any time after September 7,
2002 if the average of the closing prices of our common stock over a ten
trading day period ending shortly before we give notice of conversion exceeds
$9.60. The Series A Convertible Preferred Stock has a liquidation preference
over our common stock.

In June 2001, we amended and extended our existing bank credit facility
(the Credit Facility). The amended Credit Facility consists of two separate
facilities a $38 million revolving line of credit for general corporate
purposes, inclusive of payments made under letters of credit issued for the
benefit of the Company, and a $3.247 million seasonal line for general
corporate purposes. No further borrowings may be made against the seasonal
line. The Credit Facility requires us to meet certain covenants, including
minimum net worth and cash flow requirements. The Credit Facility is
collateralized by a lien on substantially all of our assets. The Credit
Facility bears interest at the prime rate plus 3% per annum. The Credit
Facility matures on December 31, 2002. At April 30, 2002 the interest rate on
both the revolving line of credit and seasonal line was 7.75%. At April 30,
2002, the balance on the Credit Facility was $26.4 million, and we were in
compliance with all covenants. We currently expect to replace the Credit
Facility before its maturity date.

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 April 30, 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.

On April 19, 2002, we completed the sale of 1.5 million shares of our
common stock for $10.875 million in a private placement through SunTrust
Robinson Humphrey Capital Markets, as Placement Agent, to selected
institutional and individual investors at a price of $7.25 per share. The net
proceeds from the financing were used to pay down the Credit Facility.

We do not have any material capital commitments outstanding. We currently
anticipate that our total capital expenditures for fiscal 2002, excluding
acquisitions, will be approximately $10.0 million, and will include primarily
cylinders, cylinder displays and computer technology. Our capital expenditure
and working capital requirements in the foreseeable future will change
depending on the rate of our expansion, our operating results and any other
adjustments in our operating plan as needed 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 currently anticipated capital
expenditure and working capital requirements through fiscal 2002. However, we
may seek or require additional capital in the future as a result of expansion,
to refinance our existing debt, or otherwise, and such additional capital may
not be available on terms that are not dilutive to our stockholders or at all.

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.

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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 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 our customers.

Impact of New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill (and intangible assets
deemed to have indefinite lives) will no longer be amortized but will be
subject to annual impairment tests in accordance with the Statements. Other
intangible assets will continue to be amortized over their useful lives.

We applied the new rules on accounting for goodwill and other intangible
assets beginning in the first quarter of fiscal year 2002. Application of the
nonamortization provisions of the Statements is expected to result in an
increase in net income of approximately $2.6 million in fiscal 2002.

At April 30, 2002, we had unamortized intangibles of $30.7 million that
were subject to the transition provisions of the Statements. There was no
impairment of goodwill upon adoption of SFAS 142. We are required to perform
goodwill impairment tests on an annual basis and between annual tests in
certain circumstances. There can be no assurance that future goodwill
impairment tests will not result in a charge to earnings.

Effective February 1, 2002, we adopted the Emerging Issues Task Forces
Issue No. 00-14, Accounting for Certain Sales Incentives,which addresses the
recognition, measurement and income statement classification for certain sales
incentives, including rebates, coupons and free products or services. As
provided in EITF No. 00-14, certain cooperative advertising costs historically
included by us in selling, general and administrative expenses are now
classified as reductions of net revenues. Prior period amounts have been
reclassified for comparative purposes.

In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard 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. The Statement is effective for fiscal years beginning after June 15,
2002. We do not currently expect the adoption of SFAS No. 143 to 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. The Credit Facility bears interest based
on the prime rate and is collateralized by cylinders held under operating
leases with our independent distributors. The operating leases currently yield
1% of the cylinder value monthly (approximately 12% annually) and continue
until either party terminates upon 60 days written notice to the other party.
Upon any significant increase in the prime rate, we would attempt to
renegotiate the operating leases with our independent distributors with the
intent of mitigating our interest rate exposure on the Credit Facility.
However, in such event, we may not be successful in such renegotiations or be
able to mitigate any or all of the interest rate risk. To quantify our
exposure to interest rate risk, a 100 basis point increase in interest rates
would have increased interest expense for the nine months ended April 30, 2002
and 2001 by approximately $199,000 and $266,000, respectively. Actual changes
in interest rates may differ materially from the hypothetical assumptions used
in computing this exposure.

We use derivative financial instruments to manage exposure to fluctuations
in interest rates on our Credit Facility. 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

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rate equivalent to the one-month LIBOR. In February 2001, the interest
rate on the Credit Facility was changed to a rate based on the prime rate and
was no longer based on the benchmark interest rate of LIBOR. However, for the
nine-month period ending April 30, 2002, the interest rate swap was still 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 to retailers, a $.01 increase in the
price per gallon of propane would reduce the gross margin in our cylinder
exchange segment by approximately .2% or 20 basis points. Actual changes in
margins may differ materially from 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.

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.




PART II  OTHER INFORMATION




Item 2.Changes in Securities and Use of Proceeds

On April 19, 2002, we completed a private placement of 1,500,000 shares of
our common stock to selected institutional and individual investors for gross
proceeds of $10,875,000. We issued the common stock in reliance on the
exemption from the registration requirements of the Securities Act of 1933, as
amended, provided by Section 4(2) of the Securities Act and Rule 506
promulgated thereunder based on representations received from the purchasers
with regard to their status as accredited investors. We have filed a
registration statement on Form S-3 covering the resale by such purchasers of
the shares of common stock sold in the private placement and such registration
statement has been declared effective by the Securities and Exchange
Commission.




Item 6.Exhibits And Reports On Form 8-K

(a)  Exhibits:

4.1     Registration Rights Agreement dated as of April 19, 2002 by and among
Blue Rhino Corporation and those purchasers named on Schedule 1 thereto.

10.1     Stock Purchase Agreement dated as of April 19, 2002 by and among Blue
Rhino Corporation and those purchasers named on Schedule 1 thereto.

(b)  Reports on Form 8-K filed in the third quarter of fiscal 2002:

|     |  |        |  |            |  |                                                                                                                                                              
|---- |  | ------ |  | ---------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|Form |  | Type   |  | Date Filed |  | Reporting Purpose                                                                                                                                            
|     |  |        |  |            |  |                                                                                                                                                              
|8-K  |  | Item 5 |  | 4/23/02    |  | To report the private placement of
1,500,000 shares of our common stock to
selected institutional and individual
investors for gross proceeds of
$10,875,000.

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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 hereunto duly authorized.

|      |  |               |  |                        |  |                                                                 
|----- |  | ------------- |  | ---------------------- |  | ----------------------------------------------------------------
|      |  |               |  | Blue Rhino Corporation
|     
|Date: |  | June 14, 2002 |  | By:                    |  | /s/ Billy D. PrimChairman, President and Chief Executive Officer
|     
|      |  |               |  |                        |  |                                                                 
|     
|Date: |  | June 14, 2002 |  | By:                    |  | /s/ Mark CastanedaChief Financial Officer                       

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