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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

Commission File Number 0-24287

BLUE RHINO CORPORATION

104 Cambridge Plaza Drive
Winston-Salem, North Carolina 27104
(336) 659-6900
(Address of principal executive offices)

Securities Registered Pursuant to Section 12(b) of the Act:
None

     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 o

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

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x  No o

     At January 31, 2003, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $217,847,026.

     At September 30, 2003, the number of shares outstanding of registrant’s common stock was 17,846,703.

DOCUMENTS INCORPORATED BY REFERENCE

     Certain portions of the registrant’s proxy statement with respect to the 2003 annual meeting of stockholders of the registrant to be filed with the Securities and Exchange Commission have been incorporated by reference in Part III of this Annual Report on Form 10-K.

FORWARD LOOKING STATEMENTS

     This Annual Report on Form 10-K contains forward-looking statements that relate to our plans, objectives, estimates, goals and future financial performance. Words such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” and variations of such words and similar expressions, identify such 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. Our business is subject to numerous risks and uncertainties, including: that its significant retail relationships are generally nonexclusive and terminable at will; its ability to manage growth; its ability to place Blue Rhino cylinder exchange at additional retail locations; its ability to protect its intellectual property and to strengthen its brand; risks that it will be found to have infringed the intellectual property rights of others; its ability to mitigate the effects of high propane commodity prices; its ability to integrate acquisitions; its ability to manage its distributor operations; its ability to launch new products and services; the effect of safety guidelines on consumer demand for cylinder exchange; contingencies associated with the shareholder class action and shareholder derivative lawsuits recently filed against the Company; and consumer confidence and spending patterns, retailer inventory policies and the price of propane. These and other risks and uncertainties, many of which are addressed in the sections of this report entitled “Business — Additional Factors that may Affect our Business or Future Results” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” or in future filings that we make with the Securities and Exchange Commission, could cause our actual results, performance and developments to be materially different from those expressed or implied by any of these forward-looking statements. To the extent permitted by applicable law, we make no commitment to update any forward-looking statement or to disclose any facts, events or circumstances after the date of this report that may affect the accuracy of any forward-looking statement.

ADDITIONAL INFORMATION REGARDING TRADEMARKS

     The Blue Rhino name and logo, the names RhinoTUFF®, Tri-Safe®, Bison® and Bison design®, Uniflame®, UniGrill®, DuraClay®, GardenArt®, America’s Choice For Grill Gas®, Endless Summer®, Endless Summer Comfort®, Grill Gas® and Grill Gas design®, ShippingSpot® and Spot design®, SkeeterVac®, Grill Aficionado™, Fine Tune™, Harmony™, Spark Something Fun™ and Patriot™ are our registered and pending trademarks. This Annual Report on Form 10-K may also include trademarks of companies other than the registrant.

AVAILABILITY OF REPORTS

     The registrant’s Internet website is www.bluerhino.com. The registrant makes available, free of charge, through its website, via hyperlink to a third party service that maintains filings made with the Securities and Exchange Commission, its annual report on Form 10-K, its quarterly reports on Form 10-Q and its current reports on Form 8-K, and all amendments to such reports, as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC.

BLUE RHINO CORPORATION

INDEX

PART I

Item 1. Business

General

     As used in this section, the terms “we,” “us,” and “our” may, as the context requires, refer together to Blue Rhino Corporation and its wholly owned subsidiaries, Rhino Services, L.L.C., CPD Associates, Inc., USA Leasing, L.L.C., Uniflame Corporation, QuickShip, Inc., Blue Rhino Global Sourcing, LLC, Platinum Propane, L.L.C. (“Platinum”), Ark Holding Company LLC (“Ark”) and Blue Rhino Consumer Products, LLC. As a result of our acquisition of Platinum in November 2002, we increased our ownership interest in R4 Technical Center - North Carolina, LLC (“R4 Tech”) on a consolidated basis by 1% to 50%. We consolidated the results of R4 Tech beginning in the second quarter of fiscal 2003 as a result of our increased ownership and financial control.

     We believe we are the leading national provider of propane cylinder exchange as well as a leading provider of complementary propane and non-propane products to consumers through many of the world’s greatest retailers. Our branded propane cylinder exchange service is offered at more than 28,000 retail locations in 48 states and Puerto Rico at leading home improvement centers, mass merchants, hardware, grocery and convenience stores. Our retail partners include Home Depot, Lowe’s, Wal*Mart, Sears, Kmart, Kroger, Food Lion, Winn-Dixie, SuperAmerica, Circle K and ExxonMobil. Propane cylinder exchange provides consumers with a safe and convenient alternative to traditional propane cylinder refilling.

     Our cylinder exchange segment partners with retailers and distributors to provide consumers with a nationally branded alternative to traditional cylinder refill. We dedicate our efforts and capital to brand development, value-added marketing, customer service, cylinders, displays, account growth, distributor network management and management information systems. Our distributor network is comprised of independent and company-owned distributorships that invest in the vehicles and other operational infrastructure necessary to operate cylinder exchange businesses. In November 2002, we acquired ten distributors whose territories have historically represented approximately 45% of our cylinder exchange revenues. We believe that our distributor network affords us the opportunity to service approximately 90% of the cylinder exchange markets in the United States.

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

Our Market

     Cylinder Exchange. The market for consumer propane cylinder exchange is a large and growing market, which we currently estimate to be a $1 billion annual market opportunity. We believe we can increase our market opportunity by selling new propane appliance products like patio heaters and mosquito elimination devices. Based on the most recently published Barbecue Grill Usage and Attitude Study conducted in 2001 on behalf of the Hearth, Patio and Barbecue Association (“HPBA”), we believe that approximately 49 million United States households own a propane grill. The HPBA reports that, from 1997 to 2001, sales of propane grills exceeded the combined annual sales of charcoal, natural gas and electric grills.

     The HPBA study estimates that the average propane grill owner uses 1.8 cylinders of propane per year, which results in an estimated 88 million cylinder transactions per year. According to the HPBA study, propane cylinder exchange, as opposed to the traditional refilling of empty cylinders, represented approximately 30% of all cylinder transactions in 2001, up from 25% in 1999 and 21% in 1997. Our growth has primarily resulted from converting consumers from the traditional refilling of empty cylinders to our convenient and safe alternative of propane cylinder exchange.

     Products. Our products group focuses on selling an assortment propane-fueled appliances, including grills, patio heaters and mosquito elimination devices. According to HPBA data, 76% of United States households own a grill, 3 out of 5 barbecue grills are used year round and more than 9 million propane grills were shipped to retailers in 2002. Based on research published by the HPBA, the market for grills and other propane appliances exceeds $1.7 billion annually.

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Our Strategy

     Our objective is to strengthen our position as the leading national provider of propane cylinder exchange by providing the greatest value to consumers and providing a return to our stakeholders. The key elements of our strategy to achieve this objective are: converting refill consumers to exchange, increasing cylinder exchange demand and leveraging our infrastructure.

Converting Refillers to Propane Cylinder Exchange. According to the 2001 HPBA study, propane cylinder exchange as opposed to traditional refilling of empty cylinders represents approximately 30% of all consumer cylinder transactions, up from less than 10% in 1995.

	•		Promote the Blue Rhino Brand and Consumer Awareness of Cylinder Exchange. We have created a distinctive Blue Rhino brand name and logo that we prominently feature on cylinder sleeves and display racks. In addition, we undertake brand marketing and promotional initiatives, including point of purchase displays, print media and cooperative advertising, and engage in cross-marketing promotions with other grilling-related products. We have also selectively placed targeted broadcast and print media advertising campaigns that focus on raising consumer awareness of our cylinder exchange program and are actively involved with consumer, trade and regulatory associations in an effort to promote the growth of cylinder exchange.
	•		Capitalize on Recent Guidelines Requiring Overfill Prevention Device (“OPD”) Valves. Beginning April 1, 2002, National Fire Protection Association (“NFPA”) guidelines require that all propane cylinders refilled be fitted with an OPD valve. As a result of this new safety standard, many of the cylinders that are presented at refill centers are obsolete, forcing the consumer to purchase or exchange for a new cylinder to meet the safety standard. We currently believe that this new safety standard will positively affect the demand for cylinder exchange through our fiscal year 2005 as we estimate that approximately 40% of the cylinders in use still need to be upgraded as of July 31, 2003. While we expect the rate of upgrades to slow during fiscal 2004 and fiscal 2005, we still expect a positive impact on our business as consumers who previously refilled turn to cylinder exchange to upgrade their obsolete cylinders. Our data shows that approximately 80% of those who try cylinder exchange remain with the program.
	•		Develop and Selectively Expand our Retailer Relationships. We target the following four categories of retailers for cylinder exchange: home centers/hardware stores, mass merchants, grocery stores and convenience stores. Our relationships with major retailers such as Home Depot, Lowe’s, Wal*Mart, Sears, Kmart, Kroger, Food Lion, Winn-Dixie, SuperAmerica, Circle K and ExxonMobil allow us to place cylinders in a large number of convenient, high-traffic locations. We seek to develop and selectively expand our relationships with retailers in the following ways:

	•		Expand into New Locations of our Existing Retailers. We work closely with our largest retail accounts to coordinate the rollout of our cylinder exchange service in conjunction with the opening of their new locations and further penetration into locations where we do not have cylinder exchange today.
	•		Selectively Establish Relationships with New Retailers. We believe there are approximately 225,000 potential cylinder exchange locations in our targeted markets, of which we currently service more than 28,000. We establish new retail relationships through direct sales to retailers and by acquisition of other suppliers of cylinder exchange service. We continually review our existing locations to ensure they meet our performance criteria and we de-install non-performing locations and relocate those assets to more suitable locations.

Increasing Demand for Cylinder Exchange. We have the ability to provide the consumer with the initial appliance purchase that uses a cylinder as its fuel source and the necessary, recurring purchase of fuel through propane cylinder exchange.

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Market Propane Appliances that Use Cylinders as Their Fuel Source. We currently offer propane grills, patio heaters, portable patio heaters and mosquito elimination devices that are sold through major retailers such as Home Depot, Lowe’s, Wal*Mart, Sam’s and Sears. These products are manufactured by third parties primarily in Asia. In addition, we expect to identify additional quality-manufactured, propane-fueled products to sell through major retailers, in many instances the same retailers that offer the branded Blue Rhino cylinder exchange service.

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Patio Heaters. We began selling our Endless Summer® patio heaters in December 1998. Our patio heaters use the same cylinders as propane grills, and we believe they will increase the counterseasonal demand for cylinder exchange.

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Mosquito Eliminators. We successfully introduced our SkeeterVac®, a propane-powered mosquito elimination device in March 2003. This product is being sold through major retailers. This product category has begun to receive retail and consumer acceptance and the category has grown significantly in the past few years. These products use propane cylinders to create carbon dioxide that, when combined with other sensory attractants, attracts blood-seeking insects such as mosquitoes, black flies and “no see-ums”. The devices then trap the insects where they dehydrate and die. If operated continuously throughout the mosquito season, we currently expect that mosquito exterminators will use as many as six propane cylinders. We have developed a high performance mosquito exterminator that we believe will help expand market acceptance of this product more quickly and create even greater demand for cylinder exchange. We are developing new models of our SkeeterVac® product that have added features and benefits that we expect to begin selling to retailers for the 2004 season.

Leverage our Infrastructure. In the last five years, we have developed what we believe to be one of the most advanced and efficient direct-store delivery infrastructure servicing retailers. We will continue to invest in distribution and administrative processes and systems to enhance our ability to handle significant growth while minimizing incremental costs.

	•		Leverage National Distributor Network. We have established a network of 51 independent and company-owned distributors and we believe our distributor network covers approximately 90% of the cylinder exchange markets in the United States. In November 2002, we acquired ten distributors whose territories have historically represented approximately 45% of our revenues. We plan to leverage this network by increasing each distributor’s market penetration through increased consumer demand for cylinder exchange and the selective addition of new retail locations. We assist our distributors’ ability to service accounts by providing cylinder and cylinder display leasing, by providing electronic billing systems through handheld terminals, by providing other information technology and by arranging for consolidated propane purchasing, store training and retail merchandising.
	•		Investment in Refilling, Refurbishing and Recertifying Capacity. We have made a significant investment in the specialized equipment required to increase our refilling, refurbishing and recertifying capacity, in an effort to satisfy the expected increase in demand of cylinder exchange and reduce our costs. We operate a refilling, refurbishing and recertifying facility, R4 Technical Center — North Carolina, LLC (“R4 Tech”). We currently believe this facility utilizes the most advanced technology in the industry, and is the only facility of its kind in North America. We will lease three additional plants that are under construction. These three plants will be smaller in scale than our R4 Tech facility, and located in different regions of the country. We expect to begin operations in Chicago, Denver and Los Angeles by the spring of 2004. We expect these facilities to provide cost efficiencies and quality control for refilling and refurbishing cylinders. We are also investing in two mobile filling and refurbishing facilities that will be installed on a semi-permanent basis at company-owned distributors by the spring of 2004. We expect the equipment costs for the three plant facilities and two mobile filling and refurbishing facilities to be approximately $4.4 million.
	•		Utilize Proprietary Management Information Systems (“MIS”) to Enhance Efficiency. We have developed and intend to continue to enhance our sophisticated data and technology infrastructure to streamline our operations. We furnish each distributor with handheld devices that utilize Blue Rhino developed custom software to serve as the data collection point for every delivery. This data is seamlessly integrated with our delivery, imaging and financial databases to allow us to provide the retailer and the distributor with a detailed transactional and inventory history as well as demand forecasts. This system also allows us to bill and collect from retailers through an electronic gateway, thereby eliminating data entry of transactions and the handling of paper documents. The reporting system enables the distributor to better manage inventory and forecast sales volumes and reduces errors and administrative costs for both the retailer and the distributor.
	•		Market Products and Services that Leverage our Infrastructure and Offset our Seasonality. Additional product and services allow us to leverage our existing corporate infrastructure and offset the seasonality of our core propane cylinder exchange business. These include:

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Barbecue grills and fireplace accessories. Our products group currently offers the propane-fueled products described above, as well as non-propane products like charcoal grills and fireplace accessories, that are sold through major retailers such as Home Depot, Lowe’s, Wal*Mart and Sears. These products provide leverage with manufacturers and offset our fixed infrastructure costs.

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Retail Shipping Services. QuickShip, Inc., another of our wholly owned subsidiaries, offers in-store, retail shipping services that provide consumers with a convenient, full-service, in-store postal and parcel shipping depot and retailers with a new revenue source. We are exploring strategic growth alternatives with regard to this business.

Competition

     Cylinder exchange. The consumer propane cylinder refilling industry is highly fragmented and competitive. Competition is based primarily upon convenience, quality of product, service, historical relationships, perceived safety and price. We believe that we are the leading national provider of consumer propane cylinder exchange, but the 2001 HPBA study states that 70% of consumers refill their cylinders rather than exchange them. Accordingly, our primary competition currently comes from the approximately 20,000 bulk refilling stations owned and operated by propane dealers, as well as certain rental outlets, recreational vehicle centers and hardware stores.

     Products. The $1.7 billion barbecue grill and patio heater market is extremely competitive. In the barbecue grill industry, five of our competitors control 90% of the market share. Competition in the direct import products business is primarily based on price, quality and performance of products and product features. We estimate the mosquito elimination market to be approximately $150 million, but rapidly growing at an estimated 40% annual rate. We believe a few competitors dominate the mosquito elimination market today. We entered the mosquito elimination market in fiscal 2003 and believe we have less than 10% market share.

Regulations and Standards

     Cylinder exchange. The storing and dispensing of propane is covered by guidelines published by the National Fire Protection Association in Pamphlets 54 and 58. National Fire Protection Association standards include a requirement that all cylinders refilled after April 1, 2002 must be fitted with an overfill prevention device. Our distributors are also governed by local laws and regulations that vary by municipality and state. Typically, a distributor must obtain permits from a local fire marshal for each propane sales location. We are actively involved with the National Propane Gas Association, an industry association that participates in the drafting of model industry standards designed to promote uniform state and local legislation to provide consumers, retailers and distributors with up-to-date safety regulations. With respect to the transportation of propane by truck, we are subject to regulations promulgated under the Federal Motor Carrier Safety Act. These regulations cover the transportation of hazardous materials and are administered by the United States Department of Transportation.

     Products. Propane grills are tested and designed to standards determined by the American National Standards Institute. Patio heaters are tested and designed to standards determined by the Canadian Standards Association. Electric grills are listed with Underwriters’ Laboratories and designed to standards determined by Underwriters’ Laboratories. Octenol used in conjunction with the SkeeterVac® as a sensory attractant is registered with the Environmental Protection Agency and is classified as a pesticide.

Proprietary Rights

     We have invested substantial time, effort and capital in establishing the Blue Rhino brand and believe that our trademarks are an important part of our business strategy. The Blue Rhino name and logo, the names RhinoTUFF®, Tri-Safe®, Bison® and Bison design®, Uniflame®, UniGrill®, DuraClay®, GardenArt®, America’s Choice For Grill Gas®, Endless Summer®, Endless Summer Comfort®, Grill Gas® and Grill Gas design®, ShippingSpot® and Spot design®, SkeeterVac®, Grill Aficionado™, Fine Tune™, Harmony™, Spark Something Fun™ and Patriot™ are our registered and pending trademarks. In addition, we have patents issued for an Overflow Protection Valve Assembly and a Method for Reconditioning a Propane Gas Tank, which expire in 2018 and 2017, respectively, as well as certain other patents and patent applications pending. The protection afforded by our patents is critical to our ability to provide our cylinder exchange service cost-effectively and to maintain our competitive advantage. In particular, we expect our Overflow Protection Valve Assembly patent to help enable us to capitalize on the NFPA guidelines that became effective April 1, 2002.

     While we may apply for additional trademarks, patents or copyrights in the future, we cannot be sure that any trademark, patent or copyright will be issued, that any of our trademarks, patents or copyrights will be held valid if subsequently challenged or that others will not claim rights in or ownership of our intellectual property or other proprietary rights.

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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 historically 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 achieves 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, our 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.

Employees

     As of September 30, 2003, we had 355 employees, of whom 224 were engaged in distributor operations, 69 in administration and finance, 28 in sales and marketing, 14 in information systems, and 20 in product warehouse functions. We have not experienced any work stoppages and believe we generally have good relations with our employees.

Financial Information About Segments and Geographic Areas

     In fiscal 2003, approximately $170.9 million, or 66.2%, of our revenues were derived from cylinder transactions and approximately $87.3 million, or 33.8%, of our revenues were derived from product sales. In fiscal 2002, approximately $128.0 million, or 62.2%, of our revenues were derived from cylinder transactions and approximately $77.6 million, or 37.8%, of our revenues were derived from product sales. In fiscal 2001, approximately $85.7 million, or 62.1%, of our revenues were derived from cylinder transactions and approximately $52.3 million, or 37.9%, of our revenues were derived from product sales. For additional financial information regarding our individual business segments, see Note 20 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. In fiscal 2003, 2002 and 2001, respectively, approximately $255.0 million (98.8%), approximately $203.4 million (98.9%) and approximately $134.3 million (97.3%) of our revenues were derived from customers in the United States. For each year, the balance of our revenues was derived from customers located in other countries, primarily Canada and the United Kingdom. At July 31, 2003 and 2002, approximately $151,000 and $400,000 of our long-lived assets were located in countries other than the United States.

Availability of Information

     Our Internet website is www.bluerhino.com. We make available, free of charge, through our website, via hyperlink to a third party service that maintains filings made with the Securities and Exchange Commission, our annual report on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K, and all amendments to such reports, as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC.

Additional Factors that may Affect our Business or Future Results

     Our revenues are concentrated with a limited number of retailers under nonexclusive arrangements that may be terminated at will. If one or more of these retailers were to materially reduce or terminate its business with us, our revenues may suffer. For fiscal 2003, Wal*Mart, Home Depot, and Lowe’s represented approximately 36%, 18% and 11% of our net revenues, respectively. None of our significant retail accounts are contractually bound to offer our cylinder exchange service or products. Therefore, retailers can discontinue our cylinder exchange service or sales of our products at any time and offer a competitor’s cylinder exchange service or products or none at all. Continued relations with a retailer depend upon various factors, including price, customer service, consumer demand, and competition. In addition, certain of our retailers have multiple vendor policies and may seek to offer a competitor’s cylinder exchange program or products competitive with our products at new or existing locations. If any significant retailer materially reduces, terminates or is unwilling to expand its relationship with us, or requires price reductions or other adverse modifications in our selling terms, our revenues may suffer.

     If our distributors do not perform to our retailers’ expectations, if we encounter difficulties in managing our distributor operations, or if we or our distributors are not able to manage growth effectively, our retail relationships may be adversely impacted and our cylinder exchange business may suffer. We rely exclusively on our distributors to deliver our cylinder exchange service to retailers. Accordingly, our success depends on our ability to maintain and manage distributor relationships and operations and on the distributors’ ability to set up and adequately service retail accounts. Many of our distributors are independent as of the date hereof, and we exercise only limited influence over the resources that they devote to cylinder exchange. Our retailers impose demanding

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service requirements on us, and we could suffer a loss of consumer or retailer goodwill if our distributors do not adhere to our quality control and service guidelines or fail to ensure an adequate and timely supply of cylinders at retail locations. The poor performance of a single distributor to a national retailer could jeopardize our entire relationship with that retailer and cause our cylinder exchange business to suffer. In addition, the number of retail locations offering Blue Rhino cylinder exchange and our corresponding sales, have grown significantly over the past several years along with the creation of our distributor network. Accordingly, our distributors must be able to adequately service an increasing number of retail accounts. Certain distributors have experienced service problems in the past, particularly during peak demand periods such as holiday weekends. We must implement and improve operational and financial systems and train and manage our employee base in order to manage our expanding retailer and distributor relationships. If we or our distributors fail to manage our growth effectively, our cylinder exchange business may suffer.

     If we experience problems associated with the R4 Technical Center, our distributors may not be able to service our retail accounts and our cylinder exchange business may suffer. R4 Technical Center — North Carolina, LLC (“R4 Tech”), is a joint venture in which we own a 49% ownership interest, Platinum Propane, L.L.C., our wholly owned subsidiary, owns a 1% ownership interest, and Manchester Tank & Equipment Co. (“Manchester”) owns a 50% interest. R4 Tech operates an automated propane bottling and cylinder refurbishing plant in North Carolina. Certain of our company-owned and independent distributors rely on R4 Tech for their required supplies of refilled and refurbished cylinders. We effectively share management of R4 Tech with Manchester. If R4 Tech experiences problems, whether operational, caused by management disagreements or otherwise, it may be unable to meet production goals, achieve targeted production costs or otherwise satisfy our distributors’ needs in which event the ability of our distributors to service our retail accounts may be adversely impacted and cause our cylinder exchange business to suffer. Furthermore, based on our ownership interest, we currently recognize up to 100% of R4 Tech’s net earnings or losses. For the years ended July 31, 2003, 2002 and 2001, R4 Tech incurred net losses of $597,000, $1,449,000 and $5,250,000, respectively. If R4 Tech is unable to generate earnings, our business, financial condition and results of operations may suffer.

     If we are unable to manage the impact of recent overfill prevention device valve guidelines, our cylinder exchange business may suffer. Guidelines published by the NFPA in the current form of Pamphlet 58 and adopted in many states require that all cylinders refilled after April 1, 2002 must be fitted with an overfill prevention device valve. If we or our distributors cannot satisfy the demand for compliant cylinders such that our retailers maintain an adequate supply, our retailer relationships and our cylinder exchange business may suffer. In addition, for certain customers we have fixed in advance the price per cylinder exchange unit charged to our retailers. When pricing, we make certain assumptions with regard to the number of cylinders that will already have an overfill prevention device valve when presented for exchange, on which our margins will be greater, and the number of cylinders that will need an overfill prevention device valve. If our actual experience is inconsistent with our assumptions, our margins on sales to that retailer may be lower than expected, which may have an adverse effect on our financial condition and results of operations.

     Weather conditions can adversely affect our sales volume. Our cylinder exchange segment experiences higher revenues and operating income in the spring and summer, which includes the majority of the grilling season. Sustained periods of poor weather, particularly in the grilling season, can negatively affect our revenues. Poor weather may reduce consumers’ propensity to purchase and use grills and other propane-fueled appliances thereby reducing demand for cylinder exchange and our outdoor products.

     We face competition from major propane providers and other cylinder exchange providers. Major propane providers, such as AmeriGas Propane Partners, L.P., Ferrellgas Propane Partners, L.P., Heritage Propane Partners, L.P. and Suburban Propane Partners, L.P., could establish new cylinder exchange businesses or expand their existing cylinder exchange businesses nationally. These major propane providers have greater resources than we do and may be able to undertake more extensive marketing campaigns and adopt more aggressive pricing policies than we can. We also compete with numerous regional cylinder exchange providers, which typically have operations in a few states, and with local cylinder exchange providers. If these competitors expand their cylinder exchange programs or new competitors enter the market or grow to compete with us on a national scale, our market share and gross margins could decrease.

     We are exposed to the inherent market risks associated with new product introductions, including uncertainties about trade and consumer acceptance. We plan to introduce a number of new products in fiscal 2004, including new models of our mosquito elimination devices. If these or other new or recently introduced products have shortcomings related to performance, reliability, quality or other factors, such products could fail to achieve adequate market acceptance. The failure of our new or existing products to achieve or enjoy market acceptance, whether for these or other reasons, could cause us to experience reduced orders and/or high product returns, which could have an adverse effect on our financial condition and results of operations.

     Our business and our ability to provide our products and services may be impaired by claims that we infringe intellectual property of others. Vigorous protection and pursuit of intellectual property rights characterize the consumer products industry. These

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traits can result in significant, protracted and expensive litigation. For example, on August 8, 2003, American Biophysics Corporation (“ABC”) filed a patent infringement suit against the Company in federal court in Rhode Island alleging that the SkeeterVac® product infringes certain patents of ABC. ABC also filed a complaint with the International Trade Commission seeking to bar further import of the SkeeterVac® product on the basis of the alleged infringement. Litigation to determine the validity of patents or claims by third parties of infringement of patents or other intellectual property rights could result in significant expense and divert the efforts of our research and development personnel and management, even if the litigation results in a determination favorable to us. In the event of an adverse result in such litigation, we could be required to: (i) pay substantial damages; (ii) indemnify our customers, business partners or others; (iii) stop the manufacture, use, import, distribution or sale of products or services found to be infringing; (iv) discontinue the use of processes found to be infringing; (v) expend significant resources to develop non-infringing products, services and processes; and/or (vi) obtain a license to use third party intellectual property rights.

     If we are unable to protect our intellectual property, we may lose assets or require costly litigation to protect our rights. We consider our patents, copyrights and trademarks, particularly the Blue Rhino logo and name, and the design of our product packaging, to be valuable to our business and the establishment of our national branded cylinder exchange program. We rely on a combination of patent, copyright and trademark laws and other arrangements to protect our proprietary rights and could incur substantial expense to enforce our rights under such laws. The requirement to change any of our trademarks, service marks or trade names could entail significant expense and result in the loss of any goodwill associated with that trademark, service mark or trade name, and adversely impact our ability to apply for copyrights and additional trademarks in the future. While we intend to file patent applications, where appropriate, and to pursue such applications with U.S. and foreign patent authorities, we cannot be sure that patents will be issued on such applications or that our existing or future patents will not be successfully contested by third parties. Also, since issuance of a valid patent does not prevent other companies from using alternative, non-infringing technology, we cannot be sure that any of our patents (or patents issued to others and licensed to us) will provide significant commercial protection, especially as new competitors enter the market. In addition to patent protection, we also rely on trade secrets and other non-patented proprietary information relating to our product development and operating activities. We try to protect this information through appropriate efforts to maintain its secrecy, including confidentiality agreements. We cannot be sure that these efforts will be successful or that confidentiality agreements will not be breached. We also cannot be sure that we would have adequate remedies for any breach of such agreements or other misappropriation of our trade secrets, or that our trade secrets and proprietary know-how will not otherwise become known or be independently discovered by others. Where necessary, we may initiate litigation to enforce our patent or other intellectual property rights. Any such litigation may require us to spend a substantial amount of time and money and could distract management from our day-to-day operations. Moreover, there is no assurance that we will be successful in any such litigation or that such litigation will not result in successful counterclaims or challenges to the validity of our intellectual property rights.

     Propane supplies and costs are unpredictable and propane price increases could adversely impact our profit margins. Our independent and company-owned distributors purchase propane from natural gas providers and oil refineries that produce propane as a by-product of the refining process. R4 Tech also purchases propane. The supply and price of propane fluctuates depending upon underlying natural gas and oil prices and the ability of suppliers to deliver propane. A substantial increase in propane prices could lead to decreased profit margins for us or our distributors and could impact our distributors’ ability or, in the case of our independent distributors, desire, to service our retail accounts which could negatively affect our business.

     Propane is a volatile product and we face potential product liability. Propane is a gas which, if exposed to flame or high pressure, may ignite or explode, potentially causing significant property damage and bodily harm. In the past, fires and other incidents have occurred at refurbishing and refilling facilities operated by our distributors that resulted in bodily injuries and substantial property damage. Because of the volatility of propane, accidents may occur during the refurbishing, refilling, transport, storage, exchange, use or disposal of cylinders. Because we own certain distributors that perform these activities and, even with respect to our independent distributors, because the Blue Rhino name and logo are prominently displayed on all cylinders and cylinder displays, we could be subjected to damage claims. In addition, we offer propane-fueled appliances like grills, patio heaters and mosquito exterminators that use propane cylinders as their fuel source. Accidents may occur while using the appliances due to misuse or malfunction, resulting in property damage and bodily harm. We also sell an overfill protection device (OPD) valve for use in propane cylinders. Accidents may occur while using propane cylinders fitted with this valve due to misuse or failure, resulting in property damage or bodily harm. Because we have offered these propane appliances and OPD valves to consumers, we could be subject to damage claims. We could also be subject to claims related to manufacturing defects or workplace accidents that may occur at R4 Tech and at the production facilities of our company-owned distributors. If an accident happens, we could incur substantial expense, receive adverse publicity and suffer a loss of sales. We cannot be sure that insurance will provide sufficient coverage in any particular case or that we or our distributors will be able to continue to obtain desired insurance coverage at an acceptable cost.

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     In addition to damage claims, any cylinder-related accident (or intentional wrongdoing) involving personal injury could adversely affect our reputation and the perceived benefits of cylinder exchange and, particularly if the accident were to trigger adverse publicity, could affect the willingness of retailers to continue to offer, or consumers to continue to use, cylinder exchange, any of which may cause our business, financial condition and results of operations to suffer.

     Adverse changes in the prevailing political or economic climates in China or negative ramifications resulting from a spread of the outbreak of Severe Acute Respiratory Syndrome (SARS) could reduce the supply of products available to us to import for sale or require us to incur substantial additional expense to import products for sale. We rely on the products segment of our business for a significant percentage of our net sales. We currently import a substantial percentage of our products from companies based in China. As a result, we may be adversely affected by changes in the prevailing political or economic climates in China. In addition, if China were to lose its “most favored nation” trade status with the United States, there would likely be an increase in duty for our products, which may cause our business, financial condition and results of operations to suffer. There have recently been proposals in the United States to impose significant duties on Chinese imports as a result of an undervaluation of the Chinese currency.

     Litigation matters could adversely affect our operating results and financial condition. On May 19, 2003, a securities class action was filed against the Company in federal court in Los Angeles, California. The plaintiff alleges violations of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder, and Section 20(a) of the Exchange Act. In particular, the plaintiff has alleged that we and certain individual officers and directors violated the federal securities laws by, among other things, making materially false and misleading statements and/or failing to disclose material facts related to our financial performance, the impact of overfill prevention device regulations on our business, the financial position of distributors Ark and Platinum, and our acquisition of Ark and Platinum. The complaint seeks unspecified damages, plus reasonable costs and expenses, including attorneys’ fees and experts’ fees. Two shareholder derivative actions, as well as several tag-along class actions that were subsequently consolidated with the original class action complaint, followed, all arising out of substantially the same alleged facts and circumstances. Defending against securities class actions and other litigation matters will likely require significant attention and resources and, regardless of the outcome, result in significant legal expenses, which will adversely affect our results unless covered by insurance proceeds. If our defenses are ultimately unsuccessful, or if we are unable to achieve a favorable resolution, we could be liable for damage awards that could materially adversely affect our results of operations and financial condition.

     We depend on our management information systems to manage all aspects of our business effectively. We depend on our management information systems (“MIS”) to process orders, manage inventory and accounts receivable collections, maintain distributor and customer information, maintain cost-efficient operations and assist distributors in delivering products on a timely basis. In addition, our staff of MIS professionals relies heavily on the support of several key consultants. Any disruption in the operation of our MIS, loss of employees knowledgeable about such systems, termination of our relationship with one or more of these key consultants or failure to continue to modify such systems effectively as our business expands could negatively affect our business.

     Changes in accounting requirements could impact the reporting of our financial results or financial position. From time to time, the Financial Accounting Standards Board (“FASB”) issues statements and interpretations that may impact the reporting of the Company’s consolidated results of operations or its financial position. It is possible that any one or more of these pronouncements could cause the Company to report lower net income (or a greater net loss) than it would have under existing accounting requirements or could cause the Company to have to record reductions in the value of goodwill or other balance sheet items. For example, the FASB has issued Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities, which addresses the consolidation of business enterprises (variable interest entities), to which the usual condition of consolidation, a controlling financial interest, does not apply. We have goodwill associated with previous acquisitions that may be affected by FIN 46.

     Failure to comply with the regulations applicable to propane may subject us to fines, penalties or injunctions that may negatively affect our cylinder exchange business. Federal, state and local authorities regulate the transportation, handling, storage and sale of propane in order to protect consumers, employees, property and the environment. The handling of propane in many regions of the United States is subject to guidelines published by the NFPA in the current form of Pamphlet 58. These guidelines require that all cylinders produced or recertified after September 30, 1998 and all cylinders refilled after April 1, 2002 must be fitted with an OPD valve. Failure of our company-owned or independent distributors to comply with any of these regulations could subject us to potential remedial action for violation of such regulations, which could result in fines, penalties and/or injunctions.

     Potential retail partners may not be able to obtain necessary permits or may be substantially delayed in obtaining necessary permits, which may adversely impact our ability to grow our cylinder exchange retail locations. Local ordinances, which vary from jurisdiction to jurisdiction, generally require retailers to obtain permits to store and sell propane cylinders. These ordinances influence

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retailers’ acceptance of cylinder exchange, distribution methods, cylinder packaging and storage. The ability and time required to obtain permits varies by jurisdiction. Delays in obtaining permits have from time to time significantly delayed the installation of new retail locations. Some jurisdictions have refused to issue the necessary permits, which has prevented some installations. Certain jurisdictions may also impose additional restrictions on our ability to market and our distributors’ ability to transport cylinders or otherwise maintain our cylinder exchange program. Violations of current or future regulations by us or our distributors, may cause our cylinder exchange business to suffer.

Item 2. Properties

     We lease our Winston-Salem, North Carolina headquarters and warehouse space from Rhino Real Estate, LLC, a company affiliated with Billy D. Prim, our Chairman and Chief Executive Officer, and Andrew J. Filipowski, our Vice Chairman. Pursuant to the lease terms, we pay aggregate annual rent of $505,000, plus our allocable share of all taxes, utilities and maintenance. The lease for the majority of the space terminates on December 31, 2003, and the leases for the balance of the space terminate on May 1, 2004 and October 31, 2007. We currently anticipate renewing the leases or entering into similar leases for our headquarters at least through the end of calendar year 2005.

     Uniflame Corporation, our wholly owned subsidiary, leases an office/warehouse facility located in Zion, Illinois from H & M Enterprises, LLC, a company affiliated with the president of Uniflame. Pursuant to the terms of the lease, Uniflame pays annual rent of $324,000, plus its allocable share of all taxes, utilities and maintenance. The lease terminates on March 31, 2005. This facility is used by Uniflame in the conduct of our products business segment.

     We own the land, buildings and equipment used by R4 Tech in Hamptonville, North Carolina. The land consists of approximately 17 acres and the buildings consist of: (i) the office building containing approximately 4,930 square feet, (ii) the production building containing approximately 23,900 square feet, (iii) the warehouse building containing approximately 17,955 square feet, and (iv) the service building containing approximately 4,800 square feet.

     Platinum and Ark lease real estate and buildings in North Carolina, Virginia, South Carolina, Georgia, Florida, Tennessee, New Jersey, Illinois, Minnesota, Colorado, Nevada, Kansas, Utah, California and Washington under non-cancelable operating leases with initial terms expiring between 2004 and 2008. Substantially all of these real estate leases contain renewal options upon expiration of the initial lease terms.

     In the opinion of our management, our properties have been well maintained, are in sound operating condition and contain all equipment and facilities necessary for us to operate at present levels.

Item 3. Legal Proceedings

Patent Lawsuit and Related Proceedings

     On August 8, 2003, American Biophysics Corporation (“ABC”) filed a patent infringement suit against us in the U.S. District Court for the District of Rhode Island. ABC alleges that the SkeeterVac® mosquito elimination product infringes certain patents of ABC. The complaint seeks treble damages and attorneys’ fees. Also on August 8, 2003, ABC filed a complaint against us with the United States International Trade Commission (“ITC”) pursuant to Section 337 of the Tariff Act of 1930, as amended (“Section 337”). That complaint requests that the ITC institute an investigation regarding alleged violations of Section 337 based upon the importation into the United States by us and/or the offer for sale and sale within the United States after importation of SkeeterVac® products that allegedly infringe certain ABC patents. ABC also requested that the ITC issue a permanent exclusion order pursuant to Section 337, which would exclude further entry into the United States of the allegedly infringing products, and a permanent cease and desist order under Section 337, which would prohibit the importation into the United States, the sale for importation, and/or sale within the United States after importation, of allegedly infringing products. On August 13, 2003, our subsidiary, Blue Rhino Consumer Products, LLC (“BRCP”), filed suit against ABC in the U.S. District Court for the Middle District of North Carolina seeking a declaration that BRCP’s SkeeterVac® product does not infringe ABC’s patents. On August 14, 2003, BRCP and another one of our subsidiaries, CPD Associates, Inc. (“CPD”), filed a lawsuit in the Superior Court of North Carolina, Forsyth County, against ABC asserting unfair and deceptive trade practices, unfair competition under North Carolina common law, tortious interference with business relations and prospective economic advantage, violations of Section 43(a) of the Lanham Act, and violation of the Anticybersquatting Consumer Protection Act. The complaint seeks, among other relief against ABC, a permanent injunction, treble damages, punitive damages, attorneys’ fees and other costs and expenses. This case has been removed to the U.S. District Court for the Middle District of North Carolina. We believe that ABC’s claims against us are without merit and intend to vigorously defend ourselves.

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Securities Class Actions and Shareholder Derivative Actions

     On May 19, 2003, George Schober filed a shareholder securities class action lawsuit in the United States District Court for the Central District of California, naming us, along with four of our officers and directors, as defendants. The plaintiff seeks to represent a class of investors who purchased our publicly-traded securities between August 2002 and February 2003. The plaintiff alleges violations of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder, and Section 20(a) of the Exchange Act. In particular, the plaintiff has alleged that we and the individual defendants violated the federal securities laws by, among other things, making materially false and misleading statements and/or failing to disclose material facts related to our financial performance, the impact of overfill prevention device regulations on our business, the financial position of distributors Ark and Platinum, and our acquisition of Ark and Platinum. The complaint seeks unspecified damages, plus reasonable costs and expenses, including attorneys’ fees and experts’ fees. Six tag-along securities class actions arising out of the same alleged facts and circumstances as the original action were subsequently filed in the same court. The cases have been consolidated into a single action and Andy Lee, Charles Anderberg and Steven Lendeman have been designated as lead plaintiffs. On May 22, 2003, Richard Marcoux filed a shareholder derivative action in the Superior Court of California, Los Angeles County, naming all of our directors and certain of our officers as individual defendants and us as a nominal defendant. On June 19, 2003, Randy Gish filed a substantially similar derivative action in the same court. Both the Marcoux and Gish actions were removed to the U.S. District Court for the Central District of California. The Marcoux case was subsequently remanded to Los Angeles Superior Court, but motions are pending to dismiss or stay that matter. The derivative actions arise out of substantially similar facts and circumstances as the securities class actions, and allege violations of the California Corporations Code, breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment. We believe that all of the foregoing securities class actions and derivative actions are without merit and intend to vigorously defend ourselves against these actions.

Settlement of Lawsuit with Former Independent Auditor

     On March 7, 2003, pursuant to a negotiated settlement agreement, we dismissed our lawsuit against PricewaterhouseCoopers (“PwC”) by filing a Voluntary Dismissal with Prejudice in the Superior Court of Forsyth County, North Carolina. This lawsuit had alleged violations of professional standards by PwC and failure to comply with contractual obligations during PwC’s engagement as our auditor. The net proceeds to us in the settlement were recognized in our fiscal third quarter and, after attorneys’ fees and other third quarter litigation expenses, were approximately $2.5 million. The specific terms of the settlement are confidential.

Other Litigation

     We are also a party to other litigation which we consider routine and incidental to our business. We do not expect the results of any of these other actions to have a material adverse effect on our business, results of operation or financial condition.

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

     Not applicable.

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PART II

Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters

     Our common stock is traded on The Nasdaq Stock Market under the symbol “RINO.” The table below shows the high and low per share sales prices of our common stock for the periods indicated, as reported by The Nasdaq Stock Market. As of September 30, 2003, there were 140 record holders of our common stock.

     We have never declared nor paid any cash dividends on shares of our common stock. We currently intend to retain all earnings for future growth and, therefore, do not anticipate paying any cash dividends in the foreseeable future. Payments of cash dividends are prohibited by certain of our existing financing agreements and may be prohibited in the future under then existing financing agreements. Even if not prohibited by our financing agreements, the payment of cash dividends in the future will be at the discretion of the Board of Directors and subject to applicable law, and there can be no assurance that we will pay any dividends in the future.

     Effective May 29, 2003, we issued 4,541 shares of our common stock upon the conversion of a warrant to purchase 11,864 shares of our common stock at an exercise price of $8.48 per share by a single warrant holder that we believe to be an accredited investor. We issued the shares in reliance on Section 3(a)(9) of the Securities Act as securities exchanged with an existing security holder exclusively where no commission or other remuneration is paid or given, directly or indirectly, for soliciting such exchange.

     Effective June 2, 2003, we issued 8,080 shares of our common stock upon the conversion of a warrant to purchase 23,728 shares of our common stock at an exercise price of $8.48 per share by a single warrant holder that we believe to be an accredited investor. We issued the shares in reliance on Section 3(a)(9) of the Securities Act as securities exchanged with an existing security holder exclusively where no commission or other remuneration is paid or given, directly or indirectly, for soliciting such exchange.

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Item 6. Selected Consolidated Financial Data

     The following selected consolidated statements of operations and balance sheet data of the Company as of and for the periods ended July 31, 2003, 2002, 2001, 2000 and 1999 have been derived from our audited consolidated financial statements. The financial data set forth below should be read in conjunction with “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8 — Financial Statements and Supplementary Data — Consolidated Financial Statements of the Company and Related Notes Thereto” included elsewhere herein.