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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
- --------------------------------------------------------------------------------
FORM 10-Q

X QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended September 30, 2003

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 001-14171

C2, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter.)

Wisconsin 39-1915787
(State of Incorporation) (IRS Employer Identification No.)

700 N. Water Street, Suite 1200, Milwaukee, Wisconsin 53202
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (414) 291-9000
-----------------------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes X No
----- -----

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes No X
----- -----

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


Common Stock $1.00 par value 5,275,864
- ---------------------------- ---------------------------------
(Class) (Outstanding at November 3, 2003)





1






PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
C2, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)




SEPTEMBER 30, DECEMBER 31,
2003 2002
-------------- -------------

ASSETS:
Current Assets:
Cash and cash equivalents $ 3,676,000 $ 4,483,000
Accounts receivable, net 28,546,000 24,224,000
Inventories 10,608,000 10,518,000
Prepaids and other 2,973,000 3,147,000
------------- -------------
Total Current Assets 45,803,000 42,372,000
------------- -------------

Long-Term Assets:
Fixed assets, net 62,552,000 65,971,000
Goodwill 16,162,000 16,191,000
Other assets 2,567,000 2,300,000
------------- -------------
Total Long-Term Assets 81,281,000 84,462,000
------------- -------------
$ 127,084,000 $ 126,834,000
============= =============

LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Current maturities of long-term debt $ 2,640,000 $ 3,285,000
Line of credit 5,949,000 4,470,000
Short-term debt 243,000 448,000
Accounts payable 12,851,000 13,571,000
Accrued liabilities 19,828,000 16,595,000
------------- -------------
Total Current Liabilities 41,511,000 38,369,000
------------- -------------

Long-Term Liabilities:
Long-term debt, less current maturities 46,432,000 52,278,000
Other liabilities 3,371,000 3,196,000
------------- -------------
Total Long-Term Liabilities 49,803,000 55,474,000
------------- -------------
Total Liabilities 91,314,000 93,843,000
------------- -------------

Shareholders' Equity:
Preferred stock, par value $.01 per share, - -
10,000,000 shares authorized, none issued or outstanding
Common stock, par value $.01 per share;
50,000,000 shares authorized, 5,275,864 issued 53,000 53,000
Additional paid-in capital 22,483,000 22,353,000
Deferred compensation (104,000) -
Accumulated other comprehensive loss (838,000) (943,000)
Retained earnings 14,176,000 11,528,000
------------- -------------
Total Shareholders' Equity 35,770,000 32,991,000
------------- -------------
$ 127,084,000 $ 126,834,000
============= =============




See notes to consolidated condensed financial statements.



2

C2, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)





THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------------------------------------
2003 2002 2003 2002
----------------------------------------------------------------

Revenues:
Logistic services $ 53,394,000 $ 50,127,000 $ 152,226,000 $ 148,859,000
Product sales 17,701,000 16,344,000 50,354,000 55,576,000
----------------------------------------------------------------
71,095,000 66,471,000 202,580,000 204,435,000
----------------------------------------------------------------

Costs and Expenses:
Logistic expenses 46,649,000 43,824,000 134,868,000 131,850,000
Cost of product sales 14,120,000 13,137,000 41,307,000 44,448,000
Depreciation and amortization 1,952,000 1,966,000 5,780,000 6,077,000
Selling, general and administrative expenses 4,931,000 4,935,000 13,746,000 13,757,000
----------------------------------------------------------------
67,652,000 63,862,000 195,701,000 196,132,000
----------------------------------------------------------------

Earnings from operations 3,443,000 2,609,000 6,879,000 8,303,000

Other income (expense):
Interest expense, net (707,000) (840,000) (2,222,000) (3,012,000)
Other income (expense) - 121,000 - (18,000)
----------------------------------------------------------------
(707,000) (719,000) (2,222,000) (3,030,000)
----------------------------------------------------------------

Earnings before income taxes
and minority interest 2,736,000 1,890,000 4,657,000 5,273,000

Income tax provision 1,168,000 816,000 2,009,000 2,301,000
----------------------------------------------------------------

Earnings before minority interest 1,568,000 1,074,000 2,648,000 2,972,000

Minority interest - 31,000 - 315,000
----------------------------------------------------------------

Net earnings $ 1,568,000 $ 1,043,000 $ 2,648,000 $ 2,657,000
================================================================

Basic net earnings per share $ 0.30 $ 0.21 $ 0.50 $ 0.52
================================================================

Diluted net earnings per share $ 0.28 $ 0.20 $ 0.48 $ 0.51
================================================================

Average number of shares outstanding 5,275,864 5,081,864 5,273,875 5,081,864
================================================================

Diluted number of shares outstanding 5,509,397 5,253,109 5,523,021 5,258,795
================================================================





See notes to consolidated condensed financial statements.




3








C2, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2003
(Unaudited)




Accumulated Current
Additional Other Year
($000) Common Paid-In Deferred Retained Comprehensive Comprehensive
Stock Capital Compensation Earnings Gain (Loss) Income
--------------------------------------------------------------------------------------

Balance, December 31, 2002 $ 53 $ 22,353 $ 11,528 $ (943)

Stock Options Exercises 16

Restricted Stock Issued 114 $ (114)

Vesting of Restricted Stock 10

Unrealized Gains on Interest Rate
Swaps for the Nine Months Ended
September 30, 2003, net of tax 105 105

Net Earnings for the Nine Months
ended September 30, 2003 2,648 2,648
---------

Total Comprehensive Income $ 2,753
=========

-------------------------------------------------------------------
Balance, September 30, 2003 $ 53 $ 22,483 $ (104) $ 14,176 $ (838)
===================================================================





See notes to consolidated condensed financial statements.



4






C2, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)



NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2003 2002
------------ -----------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 2,648,000 $ 2,657,000
Adjustments to reconcile net earnings to net
cash (used in) provided by operating activities:
Depreciation and amortization 5,780,000 6,077,000
Gain on sale of fixed assets (95,000) (160,000)
Minority interest in consolidated income of subsidiaries - 315,000
Other 85,000 67,000
Changes in assets and liabilities:
Increase in accounts receivable (4,322,000) (2,895,000)
Decrease in other assets 287,000 2,250,000
Increase in accounts payable, accrued
liabilities and other liabilities 2,569,000 227,000
------------ ------------

Net cash provided by operating activities 6,952,000 8,538,000

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (2,853,000) (4,404,000)
Proceeds from sale of assets 510,000 10,420,000
Other investment (145,000) -
------------ ------------

Net cash (used in) provided by investing activities (2,488,000) 6,016,000

CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on credit lines 1,479,000 1,362,000
Borrowings on notes and loans payable 4,234,000
Payments on notes and loans payable (11,000,000) (13,736,000)
Proceeds issuance of stock 16,000 -
------------ ------------

Net cash used in financing activities (5,271,000) (12,374,000)
------------ ------------

NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (807,000) 2,180,000

BEGINNING CASH AND CASH EQUIVALENTS 4,483,000 2,539,000
------------ ------------

ENDING CASH AND CASH EQUIVALENTS $ 3,676,000 $ 4,719,000
============ ============

Supplemental disclosures of cash flow information:
Interest paid $ 2,344,000 $ 3,160,000
Income taxes paid $ 1,049,000 $ 1,420,000
Non-cash transaction:
Payment-in-kind interest $ 70,000 $ 67,000





See notes to consolidated condensed financial statements.



5





C2, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited consolidated condensed financial statements have been
prepared by the Company in accordance with accounting principles generally
accepted in the United States of America ("US GAAP") without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements,
prepared in accordance with accounting principles generally accepted in the
United States of America, have been condensed or omitted pursuant to such rules
and regulations. These condensed statements should be read in conjunction with
the financial statements and the notes thereto included in the Company's 2002
Annual Report on Form 10-K.

In the opinion of management, the aforementioned statements reflect all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the results for the interim periods. Results for the nine
months ended September 30, 2003 are not necessarily indicative of results that
may be expected for the year ending December 31, 2003.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION: Logistic service revenues are recognized when goods are
delivered to the customer or when services are provided. Costs and related
expenses are recorded as incurred. Revenues and costs related to product sales
are recognized when risk of loss and title are transferred, when there is
evidence of agreement and collectibility of consideration to be received is
probable which is generally when products are shipped to customers.

ACQUISITIONS: On February 5, 2002, Zero Zone, Inc. ("Zero Zone") acquired the
assets and assumed certain liabilities of Systematic Refrigeration, Inc.
Additional consideration is contingent upon Systematic achieving certain future
performance targets through 2006. Systematic, located in Ramsey, Minnesota, is a
supplier of refrigeration control systems to the retail grocery industry and
various industrial markets. Systematic was an independent producer of
refrigeration systems with annual revenues of approximately $10,000,000. The
company is now operated under the trade name Zero Zone Refrigeration. Results of
operations have been included in the accompanying statements of operations since
the acquisition date and are not material to the Company on a pro forma basis.
The purchase price, acquisition expenses of $130,000 and the assumption of
liabilities of $6,214,000 was allocated as follows:





Cash $ 6,000
Receivables 530,000
Inventory 1,338,000
Other Assets 432,000
Goodwill 31,000
PP&E 4,007,000
----------
$6,344,000
==========



On December 31, 2002, C2, Inc. acquired the remaining 29.4% of Zero Zone, Inc.
that it did not previously own. The consideration paid to the minority interest
holders, all of whom are current members of Zero Zone's management team, was
190,000 shares of C2, Inc. common stock valued at approximately $2,561,000 based
on the average closing price of C2 for the five business days prior to the
transaction date


6






of December 31, 2002. The Company has allocated $579,000 to fixed assets,
$29,000 to finished goods inventory, and the remainder of the purchase price
over minority interest is recorded as goodwill.

During the quarter, TLC acquired a 45% ownership interest through the purchase
of common shares of Integrated Logistics, LLC (ITLX), a certified Minority
Business Enterprise. The consideration for these shares was $145,000. ITLX,
based in Flint, Michigan, provides transportation and logistics services
primarily to Tier 1 and Tier 2 automotive suppliers. Annual revenues are
approximately $3,500,000.

INVENTORIES: Inventories at Total Logistic Control, LLC ("TLC") consist of
repair parts and commodities and other food products held for distribution under
an exclusive logistic contract. These items are carried at their lower of FIFO
(first-in, first-out) cost or market value. At Zero Zone, inventories are stated
at the lower of FIFO cost or market value and include raw materials and
materials, labor and manufacturing overhead for finished goods and work in
process. As of September 30, 2003 and December 31, 2002, inventories are
comprised of the following:



SEPTEMBER 30, DECEMBER 31,
2003 2002
------------- ------------

Repair parts $ 167,000 $ 173,000
Commodities and other 1,617,000 1,651,000
Raw materials and work in process 6,031,000 5,682,000
Finished goods 2,793,000 3,012,000
----------- -----------
$10,608,000 $10,518,000
=========== ===========



GOODWILL: Prior to 2002, goodwill was amortized on a straight-line basis over 40
years. Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill
and Other Intangible Assets." SFAS No. 142 requires goodwill to be tested for
impairment annually, or more frequently under certain circumstances, and written
down when impaired, rather than being amortized as previous standards required.
Changes in the carrying amount of goodwill by reportable segment for the nine
months ended September 30, 2003 are as follows:





LOGISTIC PRODUCT
SERVICES SALES TOTAL
------------ ------------ ------------

Balance as of December 31, 2002 $ 4,882,000 $ 11,309,000 $ 16,191,000

Adjustment to Purchase Price Allocation for Zero Zone - (29,000) (29,000)
------------ ------------ ------------

Balance as of September 30, 2003 $ 4,882,000 $ 11,280,000 $ 16,162,000
============ ============ ============



RECLASSIFICATIONS: Certain reclassifications have been made in the 2002
statements to conform with 2003 presentation.


7







NOTE 3 - EARNINGS PER SHARE

The following is a reconciliation of basic and diluted earnings per share for
the three months and nine months ended September 30, 2003 and 2002.





THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30
----------------------------------------------------------
2003 2002 2003 2002
----------------------------------------------------------

Basic Net Earnings per Share:
Net earnings available to common shareholders $1,568,000 $1,043,000 $2,648,000 $2,657,000
Average Shares of common stock outstanding 5,275,864 5,081,864 5,273,875 5,081,864
----------------------------------------------------------
Basic net earnings per share $ 0.30 $ 0.21 $ 0.50 $ 0.52
==========================================================

Diluted Net Earnings per Share:
Average shares of common stock outstanding 5,275,864 5,081,864 5,273,875 5,081,864
Incremental common shares applicable to
common stock options 232,479 171,245 247,223 176,931
Restricted stock 1,054 - 1,923 -
----------------------------------------------------------
Average common shares assuming full dilution 5,509,397 5,253,109 5,523,021 5,258,795
----------------------------------------------------------
Diluted net earnings per share $ 0.28 $ 0.20 $ 0.48 $ 0.51
==========================================================




NOTE 4 - SEGMENT INFORMATION

C2, Inc. is divided into two discrete segments -- Logistic Services and Product
Sales. C2, Inc.'s subsidiary, TLC, operates increasingly as a fully integrated
third-party logistics provider. TLC's integrated Logistic Services include
providing warehousing, transportation operations and management services, supply
chain management, dedicated third-party facility and operations management,
fulfillment services, packaging and food processing. C2, Inc.'s Product Sales
operating segment includes the purchase for resale of certain food products by
TLC and open and glass-door refrigerated and frozen display cases and
refrigeration control systems manufactured and sold by Zero Zone. Products
within this segment are sold primarily to grocery, municipal school districts,
and convenience and drug store chains throughout the United States. These
operating segments are determined based upon the primary services and product
lines provided to customers.

Financial information by business segment is as follows:





THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2003
--------------------------------- ---------------------------------
2003 2002 2003 2002
------------- ------------- ------------- -------------

Revenues:
Logistic services $ 53,394,000 $ 50,127,000 $ 152,226,000 $ 148,859,000
Product sales 17,701,000 16,344,000 50,354,000 55,576,000
------------- ------------- ------------- -------------
$ 71,095,000 $ 66,471,000 $ 202,580,000 $ 204,435,000
============= ============= ============= =============

Earnings from Operations:
Logistic services $ 2,882,000 $ 2,651,000 $ 6,770,000 $ 6,318,000
Product sales 837,000 275,000 1,006,000 2,880,000
Corporate (276,000) (317,000) (897,000) (895,000)
------------- ------------- ------------- -------------
$ 3,443,000 $ 2,609,000 $ 6,879,000 $ 8,303,000
============= ============= ============= =============






8








NOTE 5 - DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES


The Company has limited involvement with derivative financial instruments and
does not use them for trading purposes. As of September 30, 2003, interest rate
swaps are the only derivative financial instruments held by the Company. The
interest rate swaps were established during 2001 in an effort to manage certain
interest rate risks. The interest rate swaps, designated as cash flow hedging
relationships, were entered in an effort to mitigate the risk of rising interest
rates in future periods by converting certain floating rate debt instruments
into fixed rate debt. As these interest rate swaps are deemed to be highly
effective, gains and losses on these instruments are deferred in other
comprehensive income and recognized in interest expense over the period in which
the Company pays interest expense on the related debt instruments.

Unrealized losses on these Swap transactions at September 30, 2003 were
$838,000, net of tax.

NOTE 6 - COMPREHENSIVE INCOME





THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------------- ----------------------------
2003 2002 2003 2002
---------------------------- ----------------------------


Unrealized gain (loss) on cash flow hedges $ 211,000 $ (734,000) $ 105,000 $(1,306,000)
Net earnings 1,568,000 1,043,000 2,648,000 2,657,000
---------------------------------------------------------------
Total Comprehensive Income $ 1,779,000 $ 309,000 $ 2,753,000 $ 1,351,000
===============================================================







9






NOTE 7 - STOCK-BASED EMPLOYEE COMPENSATION PLANS

The Company's stock-based employee compensation plan, which is described more
fully in Note E to the Notes to Consolidated Financial Statements of the
Company's Annual Report on Form 10-K for the year ended December 31, 2002. The
Company accounts for this stock-based plan under the recognition and measurement
principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related Interpretations. No stock-based employee compensation cost was
reflected in previously reported results for any period, as all options granted
under this plan had an exercise price equal to the market value of the
underlying Common Stock on the measurement date. The following table illustrates
the effect on net earnings and earnings per share if the Company had applied the
fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure," to stock-based employee compensation.

An amendment to the Company's 1998 Stock Incentive Plan was approved by the
shareholders at the Company's 2003 Annual Meeting of Shareholders on April 22,
2003. The amendment replaced the automatic grant of stock options to
non-employee directors of the Company upon election or appointment to the Board
with automatic grants of restricted stock to non-employee directors on an annual
basis on the date of the annual meeting of shareholders each year. In accordance
with this amendment, four non-employee directors of the Company were each
awarded 2,088 shares of restricted stock and one non-employee director was
awarded 2,373 shares of restricted stock. The stock has a five year cliff
vesting.





------------------------------ ------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
2003 2002 2003 2002
------------------------------ ------------------------------

Net income, as reported $ 1,568,000 $ 1,043,000 $ 2,648,000 $ 2,657,000

Deferred compensation expense 6,000 - 10,000 -


Employee compensation expense determined under fair
value based method for all awards,
net of related tax effects (34,000) (32,000) (94,000) (96,000)

------------- ------------- ------------- -------------
Pro forma net income $ 1,540,000 $ 1,011,000 $ 2,564,000 $ 2,561,000
============= ============= ============= =============

Basic earnings per share:
As reported $ 0.30 $ 0.21 $ 0.50 $ 0.52
Pro forma 0.29 0.20 0.49 0.50

Diluted earnings per share:
As reported $ 0.28 $ 0.20 $ 0.48 $ 0.51
Pro forma 0.28 0.19 0.46 0.49





NOTE 8 - AMENDMENT TO DEBT AGREEMENT

Zero Zone has a financing package with a major commercial bank which contains
two bond issues and a demand line of credit. Zero Zone had $12,390,000 in
outstanding borrowings under these facilities at December 31, 2002. Due to lower
operating income in the second quarter at Zero Zone, certain financial
covenants, Minimum Fixed Charge Coverage and Maximum Funded Debt to EBITDA (a
defined earnings


10






level), were not achieved. The Company received waivers from its bank related to
the non-compliance and negotiated amended covenants for which future compliance
is expected. Interest cost spreads over LIBOR or prime on Zero Zone's line of
credit increase by 50 basis points when the ratio of senior funded debt to
EBITDA is greater than or equal to 4 times. Similarly, Zero Zone's letters of
credit fee increases by 50 basis points when the ratio of senior funded
indebtedness to EBITDA is greater than or equal to 4 times. In both cases, the
prior incentive grid pricing remains intact and available as the ratio declines.
In connection with the amended covenants, C2 corporate made a 6% unsecured,
subordinated loan to Zero Zone in the amount of $1,500,000. Interest is payable
quarterly if compliance with the amended covenants is maintained. At September
30, 2003, Zero Zone was in compliance with all amended covenants.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

General Business

The Company is comprised of two operating companies, TLC and Zero Zone. TLC,
based in Zeeland, Michigan, is a national provider of integrated third-party
logistic services which include refrigerated and dry warehousing, transportation
operations and management services, supply chain management, dedicated
third-party facility and operations management, food distribution, fulfillment
services, packaging and food processing. Operations are conducted through a
network of 41 logistic centers with 36.3 million cubic feet of refrigerated
capacity and more than 3 million square feet of dry warehouse space. TLC
operates a fleet of over 425 tractors with over 700 refrigerated and dry
trailers.

Zero Zone, based in North Prairie, Wisconsin, manufactures open and glass-door
refrigerated and freezer reach-in display cases used in grocery, convenience and
drug store chains for retail merchandising of food, beverage and floral
products. In 2002, Zero Zone acquired a manufacturer of refrigeration control
systems located in Ramsey, Minnesota. Now known as Zero Zone Refrigeration, this
company manufactures refrigeration houses and racks used to power and control
the refrigeration systems, electrical panels, air conditioning and stand-by
power for supermarkets, convenience stores and industrial applications.

Results of Operations

The Company's revenues for the quarter ended September 30, 2003 increased 7.0%
to $71,095,000 from $66,471,000 reported for the same period last year. Revenues
from logistic services for the third quarter were $53,394,000, approximately
$3,300,000 higher than last year's comparable period due primarily to additional
term contracts for dedicated facility management projects as well as improved
utilization in warehousing and growth in transportation operations. Revenues
from product sales totaled $17,701,000, an increase of 8.3% over the $16,344,000
reported for last year's third quarter. Increased commitments by Zero Zone's
customers in capital spending in retail infrastructure contributed to the higher
volume as well as Zero Zone's refrigeration systems and controls business which
has grown significantly since its acquisition in February 2002.

Logistic expenses as a percent of logistic service revenues were 87.4% for the
third quarter ended September 30, 2003, which is level with that reported for
the same period in 2002. Cost of product sales represented 79.8% of product
sales, a 0.6 percentage point improvement in margin compared to 80.4% reported
for the same period last year. Higher volume in product sales of refrigeration
control systems was the principal factor associated with the increase in margin
generated by this segment.

Selling, general and administrative expenses were 6.9% of total revenues for the
quarter, an improvement in margin of 0.5% compared to 7.4% reported for the same
period last year. Both TLC and


11






Zero Zone incurred lower SG&A expense in this year's third quarter when compared
to the same period last year, reflecting aggressive cost management and
reduction initiatives.

Consolidated earnings from operations for the third quarter of 2003 were
$3,443,000 compared to $2,609,000 for the same period in the previous year, an
increase of 32%. The increase in operating earnings for the quarter was
primarily attributable to additional term contracts for dedicated facility
management, improved utilization of warehousing and transportation operations
and higher volume of product sales as previously noted.

Interest expense, net for the quarter of $707,000 decreased 15.8% compared to
the same period last year, reflecting primarily a reduced level of debt at TLC.

The effective income tax rate for the three months ended September 30, 2003 was
42.7% compared to 43.2% for the same period in the previous year.

Net earnings for the three months ended September 30, 2003, totaled $1,568,000,
or $0.28 per diluted share and represent an increase of 50.3% compared to
$1,043,000, or $0.20 per diluted share, reported for the same period last year.
The increase in net earnings reported for the quarter resulted from higher
increased operating income from both logistic services and product sales and
lower interest expense.

For the nine months ended September 30, 2003, consolidated revenues decreased
0.9% to $202,580,000 compared to $204,435,000 reported for the same period last
year. Revenues attributable to logistic services increased by 2.3% compared to
the same period last year. Revenues from product sales declined 9.4% to
$50,354,000 compared to the same period last year, reflecting the deferral of
capital spending by retailers and lower volume in food distribution services to
Michigan school districts.

Consolidated earnings from operations for the nine month period were $6,879,000
compared to $8,303,000 for the previous year's nine month period, a decrease of
17.2% attributable primarily to lower volume in product sales and increased
product service related expenses.

Interest expense, net for the nine months declined 26.2% to $2,222,000 compared
to the same period last year, reflecting primarily a reduced level of debt at
TLC.

The effective income tax rate for the nine months ended September 30, 2003 was
43.1% compared to 43.6% reported for the same period last year.

Net earnings for the nine months ended September 30, 2003 totaled $2,648,000, or
$0.48 per diluted share, a slight decline compared to $2,657,000, or $0.51 per
diluted share, reported for the same period last year. Growth in logistic
services at TLC in both revenues and earnings were offset by lower volume and
earnings from product sales.

Liquidity and Capital Resources

The Company's ongoing liquidity requirements arise primarily from its need to
service debt, fund working capital, service lease commitments, maintain and
improve warehouses, transportation and manufacturing facilities and equipment,
and make other investments. The Company is active in the acquisition, leasing or
new construction of warehouse facilities, particularly refrigerated facilities,
transportation operations, and product lines related to Zero Zone's operations.
Historically, bank financing, leasing and internally generated cash have
provided funding for these activities. With the acquisition of ProSource, Inc.
in 2000, TLC has developed the ability to grow in dedicated facility management
services which typically do not require the Company's direct investment in new
facilities. These facilities are generally owned by a third-


12






party and leased to the Company's customer, or are owned by the customer and
made available to the Company. To the extent that acquisitions or new facility
development exceed historical funding sources, the Company may consider issuing
equity securities in an underwritten stock offering, a rights offering or in
private placement transactions. Currently, the Company has significant
subsidiary level credit facilities with three major commercial banks and a
corporate level line of credit. At September 30, 2003, the Company's operating
subsidiaries had outstanding debt of $55,021,000, all of which is borrowed under
various facilities with these banks. At September 30, 2003, unused borrowing
capacity under existing credit facilities totaled approximately $29,642,000.

On June 8, 2001, TLC entered into an amended and restated credit agreement with
its bank group, which included a $40 million, 5-year reducing revolving credit
agreement and a $25 million, 5-year term loan. At September 30, 2003,
outstanding borrowings under these facilities were $36,267,000. The interest
rate on these facilities are LIBOR or prime rate based, at TLC's option, and
vary pursuant to a pricing grid based on the ratio of TLC's funded debt to
EBITDA, as defined in the credit agreement. At September 30, 2003, borrowings
under these facilities carried an average interest rate of LIBOR plus 1.75%, or
2.9375%. As of September 30, 2003, TLC was in compliance with all required
covenants under the credit agreement. Short-term debt in the amount of $243,000
at September 30, 2003 represents TLC's election to finance a portion of its
insurance contracts.

Zero Zone completed a financing package August 31, 1999 with a major commercial
bank. The package contains two bond issues and a demand line of credit. Both
bonds are secured by Letters of Credit issued by a major commercial bank. The
interest rate on the line of credit, which is secured by Zero Zone's assets, is
based on LIBOR plus an amount that varies according to a pricing grid determined
by the ratio of funded debt to EBITDA. At September 30, 2003, Zero Zone had
$5,949,000 in outstanding borrowings under its $7,500,000 line of credit. The
interest rate at September 30, 2003 was 3.865%. Due to lower operating income
generated in the second quarter of fiscal 2003 at Zero Zone, certain financial
covenants, Minimum Fixed Charge Coverage and Maximum Funded Debt to EBITDA, were
not achieved. The Company received waivers from its bank related to the
non-compliance and negotiated amended covenants for which future compliance is
expected. Interest cost spreads over LIBOR or prime on Zero Zone's line of
credit increase by 50 basis points when the ratio of senior funded debt to
EBITDA (a defined earnings level) is greater than or equal to 4 times.
Similarly, Zero Zone's letters of credit fee increases by 50 basis points when
the ratio of senior funded indebtedness to EBITDA is greater than or equal to 4
times. In both cases, the prior incentive grid pricing remains intact and
available as the ratio declines. In connection with the amended covenants, C2
corporate made a 6% unsecured, subordinated loan to Zero Zone in the amount of
$1,500,000. Interest is payable quarterly if compliance with the amended
covenants is maintained. As of September 30, 2003, Zero Zone was in compliance
with all required covenants under the credit agreement.

As part of the acquisition of Zero Zone Refrigeration on February 5, 2002, two
notes were assumed. The first is a tax-free bond for $3,100,000, issued by the
State of Minnesota. The bond issue date was April 1, 2000 and has a 20-year life
with annual principal payments of $85,000 in 2002, increasing to $285,000 by
2020. The interest rate on the bond began at 5.25% and increases to 7.25%. The
second is an Equipment Note from the City of Ramsey for $300,000. This note has
a 10-year life with annual amortization of $34,766 of principal and interest.
The interest rate on this note is 3%.

Zero Zone has unsecured senior subordinated indebtedness in the amount of
$350,000 to former and existing shareholders. The interest rate on this debt is
8% and the final payment of $350,000 is due March 12, 2004. Zero Zone also has
$3,000,000 of unsecured junior subordinated indebtedness to existing
shareholders. The interest rate is 8.5% of which 3.4% is paid in cash and 5.1%
is payment-in-kind. Payment of $1,000,000 per year is due beginning December 31,
2005.




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At September 30, 2003, C2, Inc. corporate had available an unsecured line of
credit in the amount of $15,000,000. No borrowings were outstanding under this
facility during fiscal 2003 to date.

As of September 30, 2003, the Company had cash and cash equivalents on hand of
$3,676,000 compared to $4,483,000 at December 31, 2002.

Cash flows provided by operations for nine months ended September 30, 2003
totaled $6,952,000 compared to $8,538,000 in the prior year period. The decrease
in comparative cash flows from operating activities was primarily attributable
to an increase in accounts receivable offset by an increase in accrued
liabilities.

Cash flows used in investing activities in the period totaled $2,488,000
compared to $6,016,000 provided in the same period last year. In the nine months
ended September 30, 2003, cash used was primarily related to routine capital
expenditures, but at a reduced level compared to the same period last year. Cash
provided by investing activities in the prior year included proceeds from the
sale of assets, the single largest item was the sale of a refrigerated warehouse
in the amount of $9,800,000.

Cash flows used in financing activities for the first nine months of 2003
totaled $5,271,000 compared to $12,374,000 for the same period last year. In the
first nine months of fiscal 2003, cash flows used in financing activities were
related to net reductions in and scheduled debt payments. In the same period in
2002, the Company used proceeds from asset sales and cash flow from operating
and investing activities to reduce outstanding indebtedness. Also in the same
period, the Company acquired Zero Zone Refrigeration which required additional
borrowings to fund assumed liabilities.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has incurred no additional market risk beyond that disclosed in the
Form 10K for the year ended December 31, 2002.



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ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. The Company's
management, with the participation of the Company's Chief Executive
Officer ("CEO") and Chief Financial Officer ("CFO"), has evaluated the
effectiveness of the Company's disclosure controls and procedures (as such
term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities and
Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of
the period covered by this report. Based on that evaluation, the CEO and
CFO have concluded that, as of the end of such period, the Company's
disclosure controls and procedures are effective in recording, processing,
summarizing and reporting on a timely basis, information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act.

(b) Changes in Internal Controls. There have not been any changes in the
Company's internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during
the fiscal quarter to which this report relates that have materially
affected, or are reasonably likely to materially affect, the Company's
internal control over financial reporting.

Forward-Looking Statements

This Form 10-Q contains forward-looking statements and other statements that are
not historical facts. Actual results may differ materially from management's
expectations. The forward-looking statements involve risks and uncertainties,
including but not limited to:

o Demand for and profitability of warehousing, transportation, logistic
services and refrigerated systems and display cases may be adversely
affected by increases in interest rates, adverse economic conditions,
increased energy costs, weather or market conditions which adversely affect
vegetable and fruit crop yields, loss of a material customer or other
factors.

o Growth in volume of services or products may be adversely affected by
reduced ability to identify and hire qualified employees, cancellation or
non-renewal of supply or service agreement with customers.

o The Company's profitability may be adversely affected by increases in
interest rates because a significant portion of the Company's capital
structure is debt, a portion of which bears interest at variable interest
rates.

o The Company's profitability may be adversely affected by performance which
does not meet standards established in contractual agreements relating to
transportation operations, logistics management, dedicated facility
operations and product manufacturing.

o Consolidations within the food industry, food retailers or drug and
convenience store chains could impact the Company's customers.

o Company's market share may be adversely affected as a result of new or
increased competitive conditions in warehousing, transportation or
refrigeration systems and product manufacturing.

Additional information about risks and uncertainties discussed above, as well as
additional material risks in the Company's business may be found in the
Company's annual report on Form 10-K for the year 2002 and other filings made by
the Company from time-to-time with the Securities and Exchange Commission.


15






PART II - OTHER INFORMATION


Item 6. Exhibits and Reports on Form 8-K

a. Exhibit 31.1 Certification of Chief Executive Officer Pursuant to
Rule 13a - 14(a)

Exhibit 31.2 Certification of Chief Financial Officer Pursuant to
Rule 13a - 14(a)

Exhibit 32.1 Written Statement of Chief Executive Officer and
Chief Financial Officer Pursuant to 18 U.S.C. Section 1350

b. Report on Form 8-K was filed July 23, 2003, furnishing under
Item 12 the Company's press release announcing Results of
Operations for the three months ended June 30, 2003.



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SIGNATURES:

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



C2, Inc.
(Registrant)


Date: November 3, 2003 /s/ William T. Donovan
---------------- ---------------------------------------
William T. Donovan
President and Chief Executive Officer




Date: November 3, 2003 /s/ Sheldon B. Lubar
---------------- ---------------------------------------
Sheldon B. Lubar
Chairman




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C2, INC.

EXHIBIT INDEX TO FORM 10-Q




EXHIBIT NUMBER DESCRIPTION

10.8 Amendment to Demand Line of Credit Agreement and Demand Line of
Credit Note Between Zero Zone, Inc. and U.S. Bank, N.A.

31.1 Exhibit 31.1 Certification of Chief Executive Officer Pursuant
to Rule 13a - 14(a)

31.2 Exhibit 31.2 Certification of Chief Financial Officer Pursuant
to Rule 13a - 14(a)

32.1 Exhibit 32.1 Written Statement of Chief Executive Officer and
Chief Financial Officer Pursuant to 18 U.S.C. Section 1350





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