UNI MARTS INC - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(MARK ONE)

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

FOR THE FISCAL YEAR 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 1-11556

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

DELAWARE 25-1311379
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

477 EAST BEAVER AVENUE, 16801-5690
STATE COLLEGE, PA (Zip Code)
(Address of principal executive offices)

Registrant's telephone number, including area code: (814) 234-6000
Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __

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

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

The aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last business day of the registrant's most recently completed second fiscal
quarter: $8,264,219.

7,196,273 shares of Common Stock were outstanding at December 5, 2003.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement of the registrant for the
registrant's 2004 Annual Meeting of Stockholders, which definitive proxy
statement will be filed with the Securities and Exchange Commission not later
than 120 days after the registrant's fiscal year end of September 30, 2003, are
incorporated by reference into Part III.

TABLE OF CONTENTS

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PART I

ITEM 1. BUSINESS.

COMPANY OVERVIEW

Uni-Marts, Inc. (the "Company" or "Uni-Marts") is an independent operator
of convenience stores and discount tobacco stores. All references in this report
to the Company include its consolidated subsidiaries. At September 30, 2003, the
Company operated 292 convenience stores and Choice Cigarette Discount Outlets
("Choice") in Pennsylvania, New York, Delaware, Maryland and Virginia, of which
237 stores sold gasoline. See "Business -- Merchandising and Marketing." Most of
the stores are located in small towns and rural locations. The Company grew
primarily through acquisitions with some new store construction. Many of the
acquired stores are located in urban and suburban areas and are generally leased
on a long-term basis.

The Company currently purchases gasoline: (a) from BPAmoco, Exxon, Mobil
and Texaco for 75 locations; and (b) from other independent suppliers for 161
locations. Gasoline is sold at one additional location on a commission basis.

The size of the Company's stores generally ranges from approximately 1,200
to 3,300 square feet with newly constructed stores generally having over 3,000
square feet. The Company's largest location is 12,800 square feet in size.
Typically, the convenience stores offer a complete line of over 3,000 popular
consumer items. In addition, the Company offers products designed to increase
store traffic, such as made-to-order proprietary and branded fast foods, as well
as services including lottery tickets and automated teller machines ("ATMs").

The Company commenced its convenience store operations in 1972 and was
incorporated in Delaware in 1977. In 1986, the Company's shares were distributed
in a tax-free spin-off to the holders of the stock of Unico Corporation,
formerly the Company's parent.

The Company's executive offices are located at 477 East Beaver Avenue,
State College, PA 16801-5690, its phone number is (814) 234-6000, and the
website is www.uni-mart.com.

THE CONVENIENCE STORE INDUSTRY

The convenience store industry is a retail, service-oriented industry. It
is distinguished from other retail businesses by its emphasis on location and
convenience and a commitment to customers who need to purchase items quickly
during extended hours. Convenience stores feature a wide variety of items,
including prepared and self-service fast foods, dairy products, tobacco
products, beverages, groceries, and health and beauty aids. In addition, many of
the stores sell gasoline on a self-service basis. The stores are generally
designed with customer parking and quick checkout procedures to maximize
convenience, as well as to encourage impulse buying of high margin items.

The convenience store industry is highly competitive. Currently, many
external forces are exerting pressure on convenience store retailers such as
volatile fuel prices, margin pressures on gasoline and tobacco sales, and
increasing competition. As a result of these forces, there has been substantial
consolidation and an inordinate number of bankruptcy proceedings in the
convenience store industry. The Company, like many other retailers, is facing
intense competitive pressures and liquidity issues. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

Convenience stores compete not only with other convenience stores, but also
gasoline stations, supermarkets, drug stores, discount stores and fast food
operations. To compete for a broader customer base, convenience stores are
increasing the variety and quality of their food service products,

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expanding specialty product lines, adding new services and improving store
layouts to attract new customers. Convenience store operators are also
continuing to focus on the improvement of gasoline dispensing facilities and
increased customer services. In addition, many convenience store operators are
remodeling existing sites and opening new locations.

STRATEGY

In fiscal year 2003, the Company continued to evaluate its strategies to
enhance its operating performance. The Company's key strategies include the
following:

Emphasis on Merchandising and Marketing. The Company has attempted to
improve its category management capabilities to deliver appealing, high-quality,
reasonably-priced packaged products. Food service products are being developed
to lower employee involvement in preparation, ease customer efforts in selection
and reduce transaction time.

Upgrade Business Process Efficiency. The Company is in the process of
updating its business systems and technology as part of an effort to streamline
key business processes. In fiscal year 2004, the Company plans to complete the
first phase of its back office computer system to allow more effective and
efficient store management and provide greater flexibility to respond quickly to
marketplace changes. In addition, the Company is currently implementing an
enhanced financial reporting system for improved efficiencies and synergies in
the Company's financial reporting.

Ongoing Evaluation of Store Locations. The Company continues to evaluate
existing stores based on their historical contribution. The Company will
consider closing underperforming stores or investing in facility upgrades to
enhance their performance. The Company retained financial advisors in fiscal
year 2002, and entered into a new contractual arrangement with one of these
financial advisors in January 2003, to evaluate operating strategies which
include the divestiture of certain stores and non-operating assets. As part of
the Company's plans to divest certain stores, in fiscal year 2003 the Company
reclassified the assets of 130 stores on its balance sheet as discontinued
operations and reclassified the related debt as current maturities. At September
30, 2003, the Company had 128 remaining stores classified as discontinued
operations. Also during fiscal year 2003, the Company completed negotiations
with its lenders and entered into several Master Property Disposition
Agreements, discussed more fully in Footnote F to the Consolidated Financial
Statements, which will facilitate its divestiture plan. Under these agreements,
the lenders will permit release of their security interests in certain real
property and equipment, accept reduced prepayment or yield maintenance
penalties, and forbear certain covenant requirements.

MERCHANDISING AND MARKETING

The Company's merchandising and marketing programs are designed to promote
convenience through store location, hours of operation, parking, customer
service, product selection and checkout procedures. Store hours are intended to
meet customer needs and the characteristics of the community in which each store
is located. Approximately 50% of the Company's convenience stores are open 24
hours per day, while the majority of the remaining stores are open from 5:00
a.m. to 12:30 a.m. To improve speed of service, most of the Company's products
and services are sold on a self-service basis.

Uni-Marts has a merchandising and marketing department which develops and
implements promotional and advertising programs, sometimes in conjunction with
suppliers. The Company utilizes an internet web site, radio, billboard and
newspaper advertising media to generate sales, increase customer traffic and
promote the Company's name and image.

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Convenience Store Merchandise Sales. The Company's convenience stores
offer dry grocery items, health and beauty aids, newspapers and magazines,
novelty items, dairy products, candy, frozen foods, beverages, tobacco products,
fountain drinks and freshly-ground coffee and cappuccino products. Many stores
also offer a variety of prepared and self-service fast foods, including freshly
made sandwiches, roller grill items, pizzas, and thaw and serve baked goods. In
recent years, the Company has added new merchandise products such as prepared
foods and proprietary fast foods, as well as expanded its line of novelty and
specialty store items, as part of an effort to increase sales volume and
customer traffic. In addition, the Company continues to offer a number of
customer services, such as ATMs, prepaid cellular telephones and telephone cards
and lottery ticket and money order sales, all of which are designed to increase
customer traffic.

Convenience Store Gasoline Sales. Convenience store operations are
enhanced by self-service gasoline facilities, which the Company plans to include
in as many new locations as possible. Sales of gasoline products at the
Company's stores are affected by wholesale and retail price volatility,
competition and marketing decisions. At September 30, 2003, the Company had 237
locations offering gasoline, with 140 of these locations also offering kerosene
and 19 offering diesel fuel.

The Company offers BPAmoco gasoline at 34 locations, Exxon gasoline at 24
locations, Mobil gasoline at 9 locations, Texaco gasoline at 8 locations, Citgo
gasoline at one location, Sunoco gasoline at one location and Uni-Mart branded
gasoline at 159 locations. One additional location sells branded gasoline on a
commission basis.

Choice Cigarette Discount Outlets. During fiscal year 2003, the Company
sold one discount tobacco store operating under the name of Choice Cigarette
Discount Outlets. At September 30, 2003, the Company operated 67 Choice stores,
with 50 of these locations offering gasoline. The Company currently has no plans
to convert convenience store locations to Choice Cigarette Discount Outlets.

COMPANY OPERATIONS

Store Management. Each Company-operated store is managed by a store
manager. All Company stores are divided into groups of approximately nine stores
by geographic area. Each group is managed by a store supervisor. A regional
manager is responsible for a number of groups and their group supervisors. The
regional managers report directly to the Executive Vice President of Operations.
Managers, supervisors and regional managers are compensated in part through
incentive programs which provide for quarterly bonuses based primarily on the
achievement of specific financial targets. The number of full-time and part-time
employees per store depends on the sales volume of the store and its hours of
operation.

Franchises. At September 30, 2003, the Company had three franchise stores
which operate under various franchise agreements. Under all franchise
agreements, the franchisee pays a royalty, which varies depending upon the
agreement and whether the Company or the franchisee owns the convenience
food-store equipment. The royalty is based on the store's merchandise sales
volume.

As part of its services to two franchise locations, the Company provides
accounting services, merchandising and advertising assistance, store layout and
design guidance, supplier and product selection and ongoing operational
assistance. These franchisees are required to use the same internal control
systems that the Company uses for the stores it operates. The Company does not
provide these services for one franchise location. The Company has periodically
closed franchised stores and does not intend to grant new or extend its
franchise agreements and plans to sell its existing franchises back to the
current operator where possible.

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Dealers. At September 30, 2003, the Company supplied gasoline to 17
dealers. Sales at these locations represented approximately 4% of the Company's
gasoline volume in fiscal years 2003 and 2002.

SEASONALITY

The Company's business generally has been subject to seasonal influences
with higher sales in the third and fourth quarters of each fiscal year, since
customers tend to purchase more convenience items and gasoline during the warmer
months. Due to adverse weather conditions, merchandise sales for the second
fiscal quarter have generally been lower than other quarters. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Seasonality and Unaudited Quarterly Results."

DISTRIBUTION AND SUPPLY

All stores are scheduled to be serviced at least weekly by vendors. The
Company does not distribute products to its stores itself. The Company utilizes
a single wholesale distributor for most in-store merchandise, pursuant to a
three-year supply agreement that expires in April 2005. The Company believes
that it could replace this distributor with one or more other distributors.
Certain products, such as bakery items, dairy products, snacks, soft drinks,
magazines and perishable products, are distributed by wholesale route
salespeople. As part of the sale of its dairy operation in 1994, the Company
entered into a 10-year supply agreement that expires in March 2004 with the
purchaser which provides for the Company's purchase of dairy products sold at
most of its Pennsylvania stores. The Company is currently negotiating a new
five-year supply agreement with similar pricing and payment terms. In fiscal
year 1998, the Company entered into 10-year gasoline supply agreements with
Exxon and Mobil for stores that sell approximately 26% of the Company's gasoline
volume. As part of the purchase of the OSSI stores, in fiscal year 2000 the
Company entered into agreements with Amoco and Texaco with terms expiring in
years 2008 and 2006, respectively. Sales at these branded locations represented
approximately 25% of the Company's gasoline volume in fiscal year 2003. Gasoline
is purchased for the remaining stores from various suppliers based on price and
availability. Should a gasoline shortage occur, the Company's sales of gasoline
could be adversely affected.

MANAGEMENT CONTROLS AND INFORMATION SYSTEMS

In fiscal year 2000 the Company initiated a multi-year program to improve
the efficiency of its operational process and management controls through a
program of process reengineering and investment in information systems. These
systems are designed to improve the timeliness and accuracy of management
information, reduce paperwork and enhance pricing, inventory and cash controls.
At September 30, 2003, the Company had installed this back office system in 225
stores. The Company has budgeted $600,000 in fiscal year 2004 to install the
back office system in the remaining stores. The Company utilizes its current
computer systems for inventory and accounting control, financial record-keeping
and management reporting, allowing management to monitor and evaluate store
operations. The Company's computer systems also are programmed to identify
variances from budgeted amounts by store on a monthly and year-to-date basis. In
addition, profit and loss statements by store compare the current year's results
for the month and year-to-date to the previous year's results.

Store managers are responsible for placing orders for grocery, tobacco,
frozen food and non-food items directly into the central computer system of the
Company's wholesale supplier. Order and receiving reports are reviewed by store
supervisors. Invoices are reviewed and compared to receiving reports by the
Company's accounting personnel and are paid centrally.

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COMPETITION

The convenience store industry is highly competitive. It is characterized
by a few large companies, some medium-sized companies and many small,
independent companies. Several of the Company's competitors are substantially
larger and have greater resources than the Company. The Company's primary
competitors include national chains such as A-Plus and 7-Eleven and regional
chains such as Sheetz, WaWa, Turkey Hill and Co/Go. The Company also competes
with other convenience stores, small supermarkets, grocery stores and major and
independent gasoline distributors. Competition for merchandise sales is based
primarily on location, product selection, speed of service, quality and price.

Competition for gasoline sales is based on price, location and facilities.
The Company competes primarily with other convenience stores, self-service
gasoline stations operated by independent dealers and major oil companies, as
well as hypermarkets. The Company's competitive advantages for gasoline sales at
certain stores include location, pay-at-the pump, well-lit canopies and branded
and unbranded products. The Company faces intense competition in areas where
other retailers have newer stores and offer similar facilities as the Company.
In addition, gasoline retailers in some areas compete for market share through
aggressive pricing strategies that negatively impact the Company's ability to
maintain historical margins and volume.

The Company competes for sales of cigarettes primarily with other
convenience stores, as well as other locations that offer mainly discounted
tobacco products.

ENVIRONMENTAL COMPLIANCE AND REGULATION

The Company's gasoline operations are subject to federal, state and local
environmental laws and regulations primarily relating to the underground storage
tanks. The United States Environmental Protection Agency (the "EPA") has
established standards for owners and operators of underground storage tanks
("USTs") relating to, among other things: (i) maintaining leak detection
systems; (ii) upgrading UST systems; (iii) implementing corrective action in
response to releases; (iv) closing out-of-use USTs to prevent future releases;
(v) maintaining appropriate records; and (vi) maintaining evidence of financial
responsibility for corrective action and compensating third parties for bodily
injury and property damage resulting from UST releases. All states in which the
Company operates also have adopted these regulatory programs.

The Company has spent substantial amounts of money in prior years to
upgrade its underground storage tanks to meet the applicable standards and
requirements. In fiscal year 2004, the Company does not expect expenditures to
maintain environmental compliance at its locations to have a material adverse
effect on the Company's financial position, results of operations or cash flows.
Management believes that the Company is currently in material compliance with
all applicable federal and state environmental laws and regulations.

GOVERNMENTAL REGULATION

In addition to the laws and regulations referred to under "Environmental
Compliance and Regulation," certain other aspects of the Company's business are
governed by federal, state and local statutes. As a franchisor, the Company is
also subject to federal and state laws governing franchising, which include,
among other matters, the commencement and termination of franchises.

A significant portion, approximately 47%, of the Company's merchandise
sales is derived from the sale of cigarettes at its locations. If the government
were to impose significant additional regulations or restrictions on the sale of
tobacco products, it could have a material adverse effect on the Company.

7

Management believes that the Company is currently in material compliance
with all applicable federal and state laws and regulations.

TRADEMARKS

The name "UNI-MART" and the Company's UNI-MART logo were registered with
the U.S. Patent and Trademark Office as of May 13, 1997, and are owned by and
licensed from Uni-Marts of America, Inc., a wholly-owned subsidiary of the
Company.

EMPLOYEES

As of September 30, 2003, the Company had approximately 2,450 employees,
approximately 1,330 of whom were full-time. None of the Company's employees are
covered by a collective bargaining agreement.

ITEM 2. PROPERTIES.

The following table sets forth certain information with respect to
administrative and storage facilities owned or leased by the Company as of
September 30, 2003:

The Company's above-referenced leased administrative offices and storage
facility in State College and Oak Hall, Pennsylvania, respectively, are leased
from HFL Corporation. HFL Corporation is controlled by Henry D. Sahakian, the
Company's Chairman of the Board and Chief Executive Officer, and his brother,
Daniel D. Sahakian, a Director of the Company.

Of the Company's 292 store locations, 168 are owned by the Company, 14 are
leased from affiliated parties and 110 are leased from unaffiliated parties.
Most leases are for initial terms of five to ten years with renewal terms of
five years available at the Company's option. Under most leases, the Company is
responsible for the payment of insurance, taxes and maintenance. If a renewal
option is available and the property continues to be suited to the Company's
needs, the Company will generally renew its leases prior to expiration. Where
renewals are not available or the Company otherwise determines to change
location, the Company is generally able to locate acceptable alternative
facilities.

Of the leased locations, one is subleased to a franchisee. The Company also
owns a gasoline service station, which is leased to an unaffiliated operator. As
of September 30, 2003, the Company had no stores under construction.

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The Company's store leases expire as follows:

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(1) Most of the Company's leases have one or more renewal options at an agreed
upon rental or fair market rental at the end of their initial terms.

ITEM 3. LEGAL PROCEEDINGS.

The Company is involved in litigation and other legal matters which have
arisen in the normal course of business. Although the ultimate results of these
matters are not currently determinable, management does not expect that they
will have a material adverse effect on the Company's consolidated financial
position, results of operations or cash flows.

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 STOCK AND RELATED STOCKHOLDER
MATTERS.

The Company's Common Stock is listed on the American Stock Exchange under
the symbol "UNI." The transfer agent and registrar for shares of the Company's
Common Stock is Mellon Investor Services LLC, Ridgefield Park, New Jersey. As of
December 5, 2003, the Company had 7,196,273 shares of its Common Stock
outstanding.

Set forth below is a table which shows the high and low sale prices as
reflected on the American Stock Exchange and dividends paid on Common Stock for
each quarter in the two most recent fiscal years.

In April 1997, the Company's Board of Directors elected to temporarily
suspend the quarterly dividends on its Common Stock. There can be no assurance
of future dividends because they are dependent not only on future earnings, but
also on the Company's capital requirements, loan covenants and financial
condition. Certain of the Company's debt agreements contain loan covenants that
restrict the payment of dividends without the lender's prior consent or require
the maintenance of minimum net worth levels.

The Company has not sold any unregistered securities during the period
covered by this report.

At December 5, 2003, the Company had approximately 372 stockholders of
record of Common Stock. The Company believes that approximately 44 percent of
its Common Stock is held in street or nominee names.

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EQUITY COMPENSATION PLAN INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table sets forth information concerning shares of common
stock that may be issued upon exercise of options under all equity compensation
plans as of September 30, 2003.

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ITEM 6. SELECTED FINANCIAL DATA.

SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following selected consolidated financial data should be read in
conjunction with the audited consolidated financial statements, related notes,
other financial information and management's discussion and analysis of
financial condition and results of operations included elsewhere in this report.

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ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)

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(1) In April 2000, the Company purchased the operating assets and business of
OSSI, consisting of 43 convenience stores and gasoline dispensing stations.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

RISKS THAT COULD AFFECT FUTURE RESULTS

A number of the matters and subject areas discussed in this Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this report that are not historical or current
facts, including statements regarding the Company's plans and strategies or
future financial performance, deal with potential future circumstances and
developments. These forward-looking statements frequently can be identified by
the use of terminology such as "believes," "expects," "may," "will," "should" or
"anticipates" (or the negative or other variations thereof) or comparable
terminology, or by discussions of strategy that involve risks and uncertainties.
Although the Company believes that its expectations are based on reasonable
assumptions within the bounds of its knowledge, investors and prospective
investors are cautioned that such statements are only projections and that
actual events or results may differ materially from those expressed in any such
forward-looking statements. In addition to other factors described elsewhere in
this report, the Company's actual consolidated quarterly or annual operating
results have been affected in the past, or could be affected in the future, by
factors, including, without limitation, general economic, business and market
conditions; environmental, tax and tobacco legislation or regulation; volatility
of gasoline prices, margins and supplies; competition and ability to maintain
merchandising margins; the ability to successfully consummate the Company's
divestiture program; the sufficiency of cash balances, cash from operations and
cash from asset sales to meet future cash obligations; volume of customer
traffic; weather conditions; labor costs; and the level of capital expenditures.

OVERVIEW

Matters discussed below should be read in conjunction with "Statements of
Operations Data" on the preceding pages.

As part of the Company's plan to divest of stores, in fiscal 2003 the
Company reclassified the assets of 130 stores on its balance sheet as
discontinued operations and reclassified the related debt as current maturities.
At September 30, 2003, the Company had 128 remaining stores classified as
discontinued operations. The Company continues to operate the stores pending
their successful negotiation of sale or sublease. At September 30, 2003, the
Company had 164 stores classified as continuing operations.

The Company's revenues are derived primarily from sales of merchandise and
gasoline at its convenience and discount tobacco stores. In fiscal year 2003,
merchandise sales at continuing operations declined by 2.0% compared to fiscal
2002. Average merchandise sales at continuing operations for stores open two
full years were relatively flat in fiscal year 2003 compared to fiscal year
2002. Seven fewer stores in operation in fiscal 2003 compared to fiscal 2002
contributed to lower merchandise sales. In fiscal year 2002 compared to fiscal
year 2001, average merchandise sales at continuing operations for stores open
two full years increased by 7.6% due partly to higher retail cigarette prices.
On average, cigarette sales represented approximately 47% of total merchandise
sales in each of the last three fiscal years. There has been volatility in
selling prices as a result of competition among cigarette manufacturers. Since
the Company expects this trend to continue, it has sought to increase sales of
other merchandise at its convenience stores to mitigate the volatility.

Total gasoline sales at continuing operations in fiscal year 2003 increased
by 31.7%, or 31.9 cents per gallon, as a result of an increase in the average
reported retail price per gallon of petroleum sold at the Company's locations.
The 31.9 cent per gallon price increase includes the effect of the change in the
Company's payment method for Pennsylvania gasoline taxes that became effective
in June 2003.

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Gross profits on gasoline sales in fiscal year 2003 increased by 6.2% compared
to fiscal year 2002. Gasoline margin per gallon sold in fiscal year 2003
increased by 5.4% in comparison to fiscal year 2002. Average gallons of gasoline
sold at continuing operations for the Company's stores open two full years
increased by 1.0% in fiscal year 2003 compared to fiscal year 2002 and declined
by 1.1% in fiscal year 2002 compared to fiscal year 2001.

The Company sells gasoline at 237 locations, including one location where
gasoline is sold on a commission basis. The Company purchases petroleum from a
variety of competing sources. Branded gasoline is purchased under supply
agreements for 75 locations and branded and unbranded gasoline is purchased from
various sources for 161 locations. Gasoline margins have historically been
volatile and there can be no assurance that the Company's gasoline margins will
be maintained or enhanced by purchasing from these sources.

In fiscal year 2003, the Company continued with its divestiture strategy
and sold or closed seven locations. In fiscal 2004, the Company intends to
continue to evaluate all of its strategic alternatives to enhance stockholder
value, which includes the divestiture of store locations. If the disposition of
assets is successful and is in excess of certain amounts, certain of the
Company's executive officers will be eligible to receive bonuses pursuant to a
Transaction Success Bonus Plan adopted by the Company. The aggregate amount of
such bonuses will be based upon the total consideration received for such
assets.

If the Company is unsuccessful in consummating its accelerated disposition
strategy, the Company could encounter liquidity problems during fiscal year
2004. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."

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RESULTS OF OPERATIONS

The following table sets forth the percentage relationship of certain
expense items to total revenues. It should be noted that the primary factors
influencing the percentage relationship of cost of sales to revenues are the
volatility of gasoline prices and gross profits, and the number of stores
selling gasoline. On a percentage basis, the gross profit on gasoline sales is
significantly less than the gross profit on merchandise sold in the convenience
stores.

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FISCAL YEAR 2003 COMPARED TO FISCAL YEAR 2002

At September 30, 2003, the Company operated 292 stores, which were
comprised of 225 Uni-Mart convenience stores and 67 Choice Cigarette Discount
Outlets ("Choice"). Of these locations, three were franchised and 237 offered
self-service gasoline. The Company closed two convenience stores, and sold four
convenience stores, one Choice store and one non-operating location in fiscal
year 2003 as part of its divestiture plan.

In fiscal 2003, the Company announced plans to divest 130 stores and
reclassified the assets relating to these stores as discontinued operations and
reclassified the related debt of $34.4 million as current maturities. At
September 30, 2003, the Company had 128 remaining stores classified as
properties held for sale on its balance sheet with a net book value of $41.0
million. The income and expense relating to these stores is classified as
discontinued operations. The Company intends to continue to operate these stores
pending successful negotiation of their sale or sub-lease.

CONTINUING OPERATIONS

Revenues from continuing operations of 164 stores for fiscal year 2003 were
$296.0 million, an increase of $34.0 million, or 13.0%, compared to revenues of
$262.0 million in fiscal year 2002. This increase is primarily the result of a
31.7%, or 31.9 cent per gallon, increase in gasoline sales at continuing
operations as a result of an increase in the average reported retail price per
gallon of petroleum sold at the Company's locations in fiscal year 2003. The
31.9 cent per gallon price increase includes the effect of the change in the
Company's payment method for Pennsylvania gasoline taxes of 25.9 cents per
gallon that became effective in June 2003. As reported in the Company's Form
10-Q filed for the period ended July 3, 2003, in June 2003, the Company changed
its payment method for gasoline taxes for its Pennsylvania stores and now
includes the gasoline taxes in its average reported retail price per gallon and
its cost of sales. This change in payment method has no effect on gross profits.

Gasoline sales in fiscal year 2003 were $154.1 million, compared to $117.0
million in fiscal year 2002, an increase of $37.1 million. The gasoline sales
increase in fiscal year 2003 includes approximately $7.1 million for gasoline
taxes for the Company's Pennsylvania stores reported in the fourth quarter of
fiscal year 2003, which was not included in gasoline sales in fiscal year 2002.

In fiscal year 2003, merchandise sales were $140.5 million, a decline of
$2.8 million, or 2.0%, compared to merchandise sales of $143.3 million in fiscal
year 2002. At comparable stores, merchandise sales from continuing operations
were relatively flat, while gasoline gallons sold from continuing operations
increased by 1.0% from fiscal 2002 levels. The Company had seven fewer stores,
two of which sold gasoline, in operation in fiscal year 2003 compared to fiscal
year 2002, contributing to lower merchandise sales levels. Other income declined
by 12.9% to $1.4 million, from $1.7 million in fiscal year 2002, primarily as a
result of decreased interest, dividend, royalty and rental income.

Gross profits on merchandise sales declined by $1.0 million, or 2.2%, to
$42.3 million, compared to merchandise gross profits of $43.3 million for fiscal
year 2002. Fewer stores in operation in fiscal year 2003 and a 0.7% lower
merchandise gross profit rate contributed to the decline in merchandise gross
margins in fiscal year 2003 compared to fiscal year 2002.

Gross profits on gasoline sales in fiscal year 2003 increased by $722,000,
or 6.2%, to $12.5 million compared to gasoline gross profits of $11.7 million in
fiscal year 2002. Gasoline gross margins increased primarily due to a 0.8%
increase in gasoline gallons sold at the Company's locations in fiscal year 2003
compared to fiscal year 2002.

17

Selling expenses increased by $500,000, or 1.4%, to $40.3 million, compared
to $39.8 million in fiscal year 2002 due primarily to increases in credit card
fees resulting from higher retail petroleum prices, offset by fewer stores in
operation. General and administrative expenses declined by $400,000, or 5.1%, to
$7.6 million from $8.0 million in fiscal year 2002 due to a reduction in the
number of employees, lower advertising and supplies expenses, offset by higher
legal and audit fees. Depreciation and amortization expense declined by
$300,000, or 5.8%, to $4.4 million as the result of the adoption of Statement of
Financial Accounting Standard No. 142 ("SFAS No. 142"), lower levels of capital
expenditures and fewer stores in operation in fiscal year 2003. Lower borrowing
levels and lower interest rates resulted in a $100,000, or 3.3%, decline in
interest expense in fiscal year 2003 to $3.6 million from $3.7 million in the
prior fiscal year.

Earnings from continuing operations in fiscal year 2003, before income
taxes and change in accounting principle, were $217,000, compared to earnings
from continuing operations, before income taxes and change in accounting
principle, of $424,000 in fiscal year 2002. The Company recorded a provision for
income taxes of $6,000, compared to an income tax provision of $179,000 in
fiscal year 2002. Net earnings from continuing operations before a change in
accounting principle were $211,000, or $0.03 per share, for fiscal year 2003,
compared to net earnings from continuing operations before a change in
accounting principle of $245,000, or $0.03 per share, for fiscal year 2002.

DISCONTINUED OPERATIONS

The loss from discontinued operations for fiscal year 2003 was $2.3
million, compared to a loss of $2.7 million in fiscal year 2002. The decrease in
loss from discontinued operations was primarily the result of reductions in
depreciation and amortization and interest expenses and higher gasoline gross
margins, offset by lower merchandise gross profits, increased credit card fees
resulting from higher retail petroleum prices and higher levels of store
maintenance. In fiscal year 2003, the loss on disposal of discontinued
operations was $720,000 in comparison to no loss in fiscal year 2002. The
Company recorded an income tax benefit of $88,000 for the loss on discontinued
operations in fiscal year 2003, compared to an income tax benefit of $1.1
million for the prior fiscal year. The net loss from discontinued operations for
fiscal year 2003 was $2.9 million, or $0.41 per share, compared to a net loss of
$1.6 million, or $0.22 per share, in fiscal year 2002.

OTHER

The loss from change in accounting principle in fiscal year 2003 was a
one-time, non-cash charge of $5.5 million, or $0.78 per share, due to the
adoption of SFAS 142 and the write-off of the Company's goodwill.

During fiscal year 2003, the Company increased its valuation allowance
against the deferred tax asset because it was determined that it is more likely
than not that the Company will not be able to fully utilize the net operating
loss ("NOL") carryforward. This increase in the reserve has resulted in a 4.5%
tax benefit in comparison to a 42.2% tax benefit in fiscal year 2002.

Total net losses for the fiscal year ended September 30, 2003 for continued
and discontinued operations were $8.3 million, or $1.16 per share, compared to
total net losses of $1.3 million, or $0.19 per share, in fiscal year 2002.

FISCAL YEAR 2002 COMPARED TO FISCAL YEAR 2001

At September 30, 2002, the Company operated 299 stores, which were
comprised of 231 Uni-Mart convenience stores and 68 Choice Cigarette Discount
Outlets. Of these locations, four were

18

franchised and 239 offered self-service gasoline. The Company had one less store
in operation in fiscal year 2002 compared to fiscal year 2001.

CONTINUING OPERATIONS

Revenues from continuing operations of 169 stores in fiscal year 2002 were
$262.0 million, a decline of $13.3 million, or 4.8%, compared to revenues of
$275.3 million in fiscal year 2001. This decline is the net result of a $26.2
million decline in gasoline sales, offset by a $13.0 million increase in
merchandise sales. Merchandise sales increased to $143.3 million, or 10.0%, from
$130.3 million in fiscal year 2001. Higher comparable store sales levels, as
well as contributions from higher retail cigarette prices in the fourth quarter
of fiscal year 2002 contributed to the merchandise sales growth. Gasoline sales
declined to $117.0 million, or 18.3%, from $143.2 million in fiscal year 2001,
primarily due to a 19.9 cent per gallon decline in the average reported retail
price per gallon of petroleum sold at the Company's locations. At comparable
stores, merchandise sales from continuing operations increased by 7.6%, while
gasoline gallons sold from continuing operations declined by 1.1% from fiscal
year 2001 levels. Other income in fiscal year 2002 declined by $18,000 to $1.7
million.

Gross profits on merchandise sales increased by $1.4 million, or 3.5%, to
$43.3 million in fiscal year 2002, compared to merchandise gross profit margins
of $41.9 million in fiscal year 2001. Merchandise gross profits increased,
despite a 1.9% decline in the merchandise gross profit rate for the comparable
periods.

Gross profits on gasoline sales declined by $3.1 million, or 20.8%, to
$11.7 million in fiscal year 2002 compared to $14.8 million in fiscal year 2001.
A 2.7% decline in gasoline gallons sold and an 18.5% decline in gross profits
per gallon sold contributed to the decline in gasoline gross margins in fiscal
year 2002 compared to fiscal year 2001. Instability of the petroleum wholesale
markets and increased retail competition resulted in lower gasoline gross profit
margins in fiscal year 2002 when compared to fiscal year 2001.

Selling expenses declined by 0.3% to $39.8 million in fiscal year 2002,
compared to $39.9 million in fiscal year 2001. General and administrative
expense increased by $800,000, or 10.5%, to $8.0 million from $7.2 million in
fiscal year 2001 due principally to increased legal, professional and audit
fees. These increased fees relate primarily to changes in corporate governance
and corporate securities adopted at the Annual Meeting of Stockholders in
February 2002, as well as the hiring of financial advisors in April 2002 and
higher audit fees. Higher salary levels also affected the general and
administrative expense category. Depreciation and amortization expense declined
in fiscal year 2002 to $4.7 million from $4.9 million due to lower levels of
capital expenditures in fiscal year 2002. Lower borrowing levels and lower
interest rates resulted in a $800,000, or 18.4%, decline in interest expense in
fiscal year 2002 to $3.7 million from $4.5 million in the prior fiscal year. The
Company recorded a $54,000 provision for asset impairment in fiscal year 2001.

Earnings from continuing operations in fiscal year 2002, before income
taxes and change in accounting principle, were $424,000, compared to earnings
from continuing operations, before income taxes and change in accounting
principle, of $1.6 million in fiscal year 2001. The Company recorded a provision
for income taxes of $179,000 in fiscal year 2002, compared to an income tax
provision of $651,000 in fiscal year 2001. Net earnings from continuing
operations before a change in accounting principle were $245,000, or $0.03 per
share, for fiscal year 2002, compared to net earnings from continuing operations
before the change in accounting principle of $989,000, or $0.14 per share, for
fiscal year 2001.

19

DISCONTINUED OPERATIONS

The loss from discontinued operations for fiscal year 2002 was $2.7
million, compared to a loss of $892,000 in fiscal year 2001. This increase in
loss from discontinued operations in fiscal year 2002 was primarily the result
of lower gasoline gross profits, increased credit card fees resulting from
higher retail petroleum prices and higher levels of store maintenance, offset by
higher merchandise gross margins and reductions in depreciation and amortization
and interest expenses. There was no loss on the disposal of discontinued
operations for fiscal year 2002 and fiscal year 2001, respectively. The Company
recorded an income tax benefit of $1.1 million for the loss on discontinued
operations in fiscal year 2002, compared to an income tax benefit of $354,000
for the prior fiscal year. The net loss from discontinued operations for fiscal
year 2002 was $1.6 million, or $0.22 per share, compared to a net loss of
$538,000, or $0.08 per share, in fiscal year 2001.

OTHER

In 2002, Pennsylvania extended the net operating loss ("NOL") carryforward
period from 10 to 20 years which resulted in a higher effective tax benefit for
fiscal year 2002. This change resulted in a 42.2% tax benefit in fiscal year
2002 in comparison to a 39.7% tax benefit in fiscal year 2001.

Total net losses for the fiscal year ended September 30, 2002 for continued
and discontinued operations were $1.3 million, or $0.19 per share, compared to
total net earnings of $451,000, or $0.06 per share, in fiscal year 2001.

20

SEASONALITY AND UNAUDITED QUARTERLY RESULTS

The Company's business generally has been subject to seasonal influences
with higher sales in the third and fourth quarters of each fiscal year, since
customers tend to purchase more convenience items, such as ice, beverages and
fast food, and more gasoline during the warmer months. Due to adverse weather
conditions, merchandise sales for the second fiscal quarter generally have been
lower than other quarters. In addition, because of price volatility, gasoline
profit margins fluctuate significantly throughout the year.

21

LIQUIDITY AND CAPITAL RESOURCES

Most of the Company's sales are for cash and its inventory turns over
rapidly. From time to time, the Company utilizes portions of its cash to acquire
and construct new stores and renovate existing locations.

As of April 1, 2003, the Company amended its revolving credit agreement
(the "Agreement") to extend the maturity date to December 31, 2004 and revise
covenants relating to interest and fixed-charge coverage ratios. As of September
30, 2003, the Company entered into an agreement with its revolving credit lender
to provide a $4.0 million sub-limit under its existing revolving credit
agreement as discussed more fully in Footnotes F and G to the Consolidated
Financial Statements. At September 30, 2003, $5.8 million (including the $2.0
million seasonal borrowing increase that expires on April 30, 2004) was
available for borrowing under this Agreement for general working capital and
prepayment of debt. In addition, the Company's liquid fuels tax bond expired in
the third fiscal quarter of 2003. Due to the expiration of the bond, the Company
pays the liquid fuels tax on purchases directly to the vendors within its normal
payment terms. The Company utilizes its working capital credit facility to
mitigate the cash flow impact of the liquid fuels tax bond expiration.

Capital requirements for debt service and capital leases for fiscal year
2004 are approximately $42.8 million, which includes $34.4 million related to
the Company's divestiture plan and $5.7 million in revolving credit that have
been classified as current. However, $33.5 million becomes due only when sales
of these locations are consummated and the remaining $0.9 million are regularly
scheduled payments. The Company anticipates capital expenditures in fiscal year
2004 of $2.0 million, funded from cash flows from operations. These capital
expenditures include normal replacement of store equipment and
gasoline-dispensing equipment and upgrading of the Company's in-store and
corporate data processing systems.

Management believes that cash from operations, available credit facilities
and asset sales will be sufficient to meet the Company's obligations for the
foreseeable future. In the event that the Company cannot consummate proposed
asset sales, there is a risk that the Company will not be able to meet future
cash obligations.

CONTRACTUAL OBLIGATIONS

Below is a summarized list of the Company's contractual obligations
relating to long-term debt, capitalized leases, noncancellable operating leases
and gasoline supply agreements at September 30, 2003 (in thousands):

- ---------------

(1) The Company has agreements with four gasoline suppliers with terms
ranging from 6 to 15 years. These agreements obligate the Company to
purchase specified quantities of gasoline at market prices from the
various suppliers over the life of the contracts. On an annualized
basis, the minimum required purchases under these agreements total
approximately 96.5 mil-

22

lion gallons. The estimated minimum purchase obligations reflected in
the table above are calculated based on the gallon purchase
requirements remaining under the contracts at a current market price of
$1.39 per gallon. Although the Company did not meet the minimum
purchase requirements in fiscal year 2003, the agreements provide
various remedies for the renegotiation of minimum purchase requirements
as necessary. (See Footnote K to the Consolidated Financial Statements)

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion and analysis of the Company's financial condition and
results of operations are based upon its consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires the Company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues, and expenses, and related disclosure
of contingent assets and liabilities. On an on-going basis, the Company
evaluates its estimates, including those related to self-insured liabilities,
impairment of long-lived assets and income taxes. The Company bases its
estimates on historical experience, current and anticipated business conditions,
the condition of the financial markets, and various other assumptions that are
believed to be reasonable under existing conditions. Actual results may differ
from these estimates.

The Company believes that the following critical accounting policies affect
its more significant judgments and estimates used in the preparation of its
consolidated financial statements:

Self-insurance liabilities -- The Company records estimates for
self-insured worker's compensation and general liability insurance coverage.
Should a greater amount of claims occur compared to what was estimated, or costs
increase beyond what was anticipated, reserves recorded may not be sufficient,
and additional expense may be recorded.

Impairment -- The Company evaluates long-lived assets, including stores,
for impairment quarterly, or whenever events or changes in circumstances
indicate that the assets may not be recoverable. The impairment is measured by
calculating the estimated future cash flows expected to be generated by the
store, and comparing this amount to the carrying value of the store's assets.
Cash flows are calculated utilizing individual store forecasts and total company
projections for the remaining estimated lease lives of the stores being
analyzed. Should actual results differ from those forecasted and projected, the
Company may be subject to future impairment charges related to these facilities.

During the first quarter of fiscal year 2003, the Company adopted Statement
of Financial Accounting Standards ("SFAS") Nos. 142 and 144. SFAS No. 142
requires that assets with indefinite lives not be amortized but tested annually
for impairment and provides specific guidance for such testing. SFAS No. 144
provides additional guidance for impairment testing and determination of when an
asset is considered to be for sale. The Company completed its impairment test
during the second quarter of fiscal 2003 and the adoption of SFAS No. 142
resulted in the write-off of goodwill in the amount of $5,857,000. Furthermore,
in accordance with SFAS No. 144, at September 30, 2003 the Company had
reclassified as assets of discontinued operations $41.0 million in assets
relating to 128 remaining stores that the Company plans to sell or sublet,
reclassified the related debt totaling $34.4 million as current maturities, and
classified the income and expense of such stores as discontinued operations. In
addition, the Company recognized a $654,000 loss relating to the future disposal
of certain locations. The Company cannot be certain that sales of assets will
occur at the time or for the values that the Company estimates.

Income taxes -- The Company currently has net operating loss ("NOL")
carryforwards that can be utilized to offset future income for federal and state
tax purposes. These NOL's generate a

23

significant deferred tax asset. However, the Company has recorded a valuation
allowance against this deferred tax asset as it has determined that it is more
likely than not that it will not be able to fully utilize the NOL's. Should the
Company's assumptions regarding the utilization of these NOL's change, it may
reduce some or all of this valuation allowance, which would result in the
recording of an income tax benefit.

IMPACT OF INFLATION

The Company believes that inflation has not had a material effect on its
results of operations in recent years. Generally, increases in the Company's
cost of merchandise can be quickly reflected in higher prices of goods sold.
However, any upward movement of gasoline costs may have short-term negative
effects on profit margins, since the Company's ability to raise gasoline prices
can be limited due to competition from other self-service gasoline outlets. In
addition, fluctuation of gasoline prices can limit the ability of the Company to
maintain stable gross margins.

24

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company uses its revolving credit facility and its mortgage and
equipment loans to finance a significant portion of its operations. These
on-balance sheet financial instruments, to the extent they provide for variable
rates of interest, expose the Company to interest rate risk resulting from
changes in the LIBOR or prime rate.

To the extent that the Company's financial instruments expose the Company
to interest rate risk, they are presented in the table below. The table presents
principal cash flows and related interest rates by year of maturity for the
Company's revolving credit facility, mortgage loans and equipment loans at
September 30, 2003.

The carrying amounts of cash and short-term debt approximate fair value.
The Company estimates the fair value of its long-term, fixed-rate debt generally
using discounted cash flow analysis based on the Company's current borrowing
rates for debt with similar maturities. The Company estimates the fair value of
its long-term, variable-rate debt based on carrying amounts plus unamortized
loan fees associated with the debt.

25

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Uni-Marts, Inc.
State College, Pennsylvania

We have audited the accompanying consolidated balance sheets of Uni-Marts,
Inc. and subsidiaries (the "Company") as of September 30, 2003 and 2002, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended September 30, 2003. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Uni-Marts, Inc. and
subsidiaries as of September 30, 2003 and 2002, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 2003, in conformity with accounting principles generally accepted
in the United States of America.

As discussed in Note A to the consolidated financial statements, in fiscal
year 2003 the Company changed its method of accounting for intangible and other
assets to conform to Statement of Financial Accounting Standards No. 142.

/s/ Deloitte & Touche LLP

Deloitte & Touche LLP
Philadelphia, Pennsylvania
December 16, 2003

26

UNI-MARTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

See notes to consolidated financial statements

27

UNI-MARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

See notes to consolidated financial statements

28

UNI-MARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

See notes to consolidated financial statements

29

UNI-MARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

See notes to consolidated financial statements

30

UNI-MARTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2003, 2002 AND 2001

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The Company is an independent operator of convenience stores and discount
tobacco stores located in Pennsylvania, New York, Delaware, Maryland and
Virginia.

(1) Principles of Consolidation -- The consolidated financial statements
include the accounts of Uni-Marts, Inc. and its wholly-owned
subsidiaries (the "Company"). All material intercompany balances and
transactions have been eliminated.

(2) Reclassifications -- Certain prior year balances have been classified
to conform to the current year presentation.

(3) Future Operations -- The Company continues to evaluate existing stores
based on their historical contribution. The Company will consider
closing underperforming stores or investing in facility upgrades to
enhance their performance. The Company retained financial advisors in
fiscal year 2002 to evaluate operating strategies which included the
potential divestiture of certain store locations and non-operating
assets. As a result of its analysis with its financial advisors, the
Company intends to continue with its divestiture strategy.

Management believes that cash from operations, available credit
facilities and asset sales will be sufficient to meet the Company's
obligations for the foreseeable future. In the event that the Company
is unable to consummate its divestiture strategy, there is a risk that
the Company will not be able to meet future cash obligations.

(4) Inventories -- The Company values its merchandise inventories at the
lower of cost (first-in, first-out method) or market, as determined by
the retail inventory method. Gasoline inventories are valued at the
lower of cost (first-in, first-out method) or market (See Footnote B).

(5) Property, Equipment and Improvements -- Depreciation and amortization
are calculated using the straight-line method over the useful lives of
the related assets. Amortization of improvements to leased properties
is based on the remaining terms of the leases or the estimated useful
lives of such improvements, whichever is shorter. Interest costs
incurred on borrowed funds during the period of construction of capital
assets are capitalized as a component of the cost of acquiring those
assets.

(6) Asset Impairment -- Long-lived assets and certain identifiable
intangibles are reviewed for impairment quarterly, or whenever events
or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability is assessed based on the
future cash flows expected to result from the use of the asset and its
eventual disposition. If the sum of the undiscounted cash flows is less
than the carrying value of the asset, an impairment loss is recognized.
Any impairment loss, if indicated, is measured as the amount by which
the carrying amount of the asset exceeds the estimated fair value of
the asset.

(7) Self-Insurance Reserves -- The Company assumes the risks for general
liability and workers' compensation insurance exposures up to certain
loss thresholds set forth in separate insurance contracts. The Company
has established self-insurance reserves for these risks, which are
recorded on a present value basis using a risk-free discount rate of
5.0% in 2003 and 2002, respectively, using actuarial valuations
provided by an independent company. At September 30, 2003 and 2002, the
Company had self-insurance reserves totaling $3,083,400 and

31

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

$2,800,800, respectively. These reserves are included in accrued
expenses in the Company's consolidated balance sheets.

(8) Income Taxes -- The Company recognizes deferred tax assets and
liabilities for temporary differences between the financial statement
and tax basis of assets and liabilities using enacted tax rates
adjusted for valuation allowances.

(9) Earnings Per Share -- Earnings per share are calculated based on the
weighted-average number of shares of common stock outstanding. Diluted
earnings per share were calculated in fiscal year 2001. Although there
were potentially dilutive stock options for 1,161,333 and 1,219,833
shares outstanding in fiscal years 2003 and 2002, respectively, they
were not included as the effect would have been anti-dilutive because
the exercise price exceeded the market price.

(10) Revenue Recognition -- The Company recognizes revenue from the sale of
merchandise and gasoline at the time it is sold. Return activity is
immaterial to revenues and operations in all periods presented.

(11) Vendor Rebates and Allowances -- Rebates and allowances from vendors
that are dependent on purchases are initially deferred (See Footnote
I) and recognized as a reduction of cost of goods sold when related
inventory is sold. Rebates not tied directly to purchases are
recognized as reduction of selling, general and administrative
expenses when earned.

(12) Advertising Costs -- The Company expenses advertising costs in the
period in which they are incurred. The Company incurred advertising
costs of $309,000, $783,200 and $841,800 in fiscal years 2003, 2002
and 2001, respectively, of which $110,900, $280,200 and $285,900, in
fiscal years 2003, 2002 and 2001, respectively, related to stores
included in discontinued operations and was reclassified accordingly.

(13) Estimates -- The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from
those estimates and assumptions.

(14) Segment Disclosures -- The Company has only one reportable segment.

(15) Recent Accounting Pronouncements -- In June 2001, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 142, "Goodwill and
Other Intangible Assets," which requires that such assets with
indefinite lives not be amortized but be tested annually for
impairment and provides specific guidance for such testing. If the
carrying amount of goodwill exceeds its fair value an impairment loss
must be recognized in an amount equal to that excess. Once an
impairment is recognized, the adjusted carrying amount of goodwill
will be its new basis of accounting. This statement also requires
disclosure of information regarding goodwill and other assets that was
previously not required. In accordance with SFAS No. 142, the Company
has discontinued the amortization of goodwill as of October 1, 2002
and completed its impairment test, using a discounted cash flow
approach, during the 2003 second fiscal quarter. As a result, the
Company wrote-off its total goodwill balance of $5,857,000. (See
Footnote E)

The Company adopted SFAS No. 143, "Accounting for Asset Retirement
Obligations," effective for the fiscal year ending September 30, 2003.
Under the statement's provisions,

32

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

(1) entities must record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred, (2) when
the liability is initially recorded, the entity must capitalize a cost
by increasing the carrying amount of the related long-lived asset, (3)
over time, the liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful life of the
related asset and (4) upon settlement of the liability, the entity
either settles the obligation for its recorded amount or incurs a gain
or loss upon settlement. There was no material impact on the Company's
consolidated financial position or results of operations as a result of
the adoption of SFAS No. 143.

The Company adopted SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," effective October 1, 2002. SFAS No. 144
addressed the financial accounting and reporting for the impairment or
disposal of long-lived assets. The Company recognized a $654,000 loss
on disposal of certain locations in fiscal year 2003.

The Company adopted SFAS No. 145, "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections," effective October 1, 2002. SFAS No. 145 rescinds SFAS No.
4, "Reporting Gains and Losses from Extinguishment of Debt," and an
amendment of that Statement, and SFAS No. 64, "Accounting for Leases,"
to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain
lease modifications that have economic effects that are similar to
sale-leaseback transactions. SFAS No. 145 also amends other existing
authoritative pronouncements to make various technical corrections,
clarify meanings, or describe their applicability under changed
conditions. There was no impact on the Company's consolidated financial
position or results of operations as a result of the adoption of SFAS
No. 145.

The Company adopted SFAS No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities," effective January 1, 2003. SFAS No. 146
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Previous accounting guidance
was provided by Emerging Issues Task Force ("EITF") No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)," which required that a liability for costs associated
with an exit plan or disposal activity be recognized at the date of an
entity's commitment to an exit plan. There was no impact on the
Company's consolidated financial position or results of operations as a
result of the adoption of SFAS No. 146.

In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation -- Transition and Disclosure -- an Amendment
of FASB Statement No. 123." SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative
methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirements of SFAS No.
123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported
results. The disclosure requirements apply to all companies for fiscal
years ending after December 15, 2002. The interim disclosure provisions
are effective for financial reports containing financial statements for
interim periods beginning after December 15, 2002. The

33

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

adoption of SFAS No. 148 had an impact on the Company's disclosure
requirements, but had no impact on the Company's consolidated financial
statements.

The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees", and related interpretations for all periods represented.
Accordingly, compensation cost for stock options is measured as the
excess, if any, of the fair value of the Company's common stock at the
date of the grant over the amount an employee must pay to acquire the
stock. The following table illustrates the effect on net loss and net
loss per share if the Company had applied the fair value recognition
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation",
to stock-based employee compensation (in thousands, except per share
data):

In November 2002, the EITF reached a consensus on Issue No. 02-16,
"Accounting by a Reseller for Cash Consideration Received from a
Vendor." Issue 02-16 provides guidance on when to classify
consideration received from a vendor as a reduction of the price of the
vendor's products, a reimbursement of costs incurred or as revenue. In
addition, Issue 02-16 provides guidance on when to recognize rebates or
refunds of a specified amount of cash consideration from a vendor that
are based on the achievement of a specified cumulative level of
purchases or are based on the customer purchasing from the vendor for a
specified period of time. The guidance in Issue 02-16 has been adopted
by the Company in the second quarter of fiscal year 2003 and there was
no impact on the Company's consolidated financial position or results
of operations.

In November of 2002, the FASB issued FASB Interpretation No. 45 ("FIN
45"), "Guarantor's Accounting and Disclosure Requirements for
Guarantees Including Indirect Guarantees of Indebtedness of Others."
FIN 45 requires entities to establish liabilities for certain types of
guarantees, and expands financial statement disclosures for others. The
accounting requirements of FIN 45 are effective for guarantees issued
or modified after December 31, 2002, and the disclosure requirements
are effective for financial statements of interim or annual periods
ending after December 15, 2002. There was no impact on the Company's
consolidated financial position or results of operations as a result of
the adoption of FIN 45.

The FASB issued Interpretation No. 46, "Consolidation of Variable
Interest Entities" ("FIN 46"). FIN 46 applies immediately to variable
interest entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after

34

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

that date. For variable interest entities created before February 1,
2003, it becomes applicable for the first annual period beginning after
June 15, 2003.

In October 2003, the FASB (the "Board") deferred the effective date for
applying the provisions of FIN 46 to the first interim or annual period
ending after December 15, 2003 for interests held by public companies
in variable interest entities or potential variable interest entities
created before February 1, 2003. The Board considered comments received
on the Exposure Draft of the proposed modifications of FIN 46 and, on
December 10, 2003, the Board redeliberated certain proposed
modifications. Based on management's assessment as of the date of this
report, management has determined that adoption of FIN 46 has not had
an impact on the Company's financial position or results of operations.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
No. 133 on Derivative Instruments and Hedging Activities." This
Statement amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments
embedded in other contracts. This Statement clarifies under what
circumstances a contract with an initial net investment meets the
characteristic of a derivative, clarifies when a derivative contains a
financing component, amends the definition of an underlying to conform
it to language used in FASB Interpretation FIN 45, and amends certain
other existing pronouncements. SFAS No. 149 is effective for contracts
entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. All provisions of the
Statement, except those related to forward purchases or sales of "when-
issued" securities, should be applied prospectively. The Company
currently has no instruments that meet the definition of a derivative,
and therefore, the adoption of this Statement has had no impact on the
Company's financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity." This Statement establishes standards for the classification
and measurement of certain financial instruments with characteristics
of both liabilities and equity. This Statement is effective for
financial instruments entered into or modified after May 31, 2003, and
otherwise effective for most provisions, except certain mandatorily
redeemable non-controlling interests deferred indefinitely, at the
beginning of the first interim period beginning after June 15, 2003.
The Company has not entered into or modified any financial instruments
after May 31, 2003. The adoption of this Statement has had no impact on
the Company's financial position or results of operations.

B. INVENTORIES:

The following is a summary of inventories at September 30 (in thousands):

35

C. PROPERTY AND EQUIPMENT HELD FOR SALE:

Property and equipment held for sale is carried at the lower of cost or net
realizable value and are classified as current assets because the Company
expects them to be sold within the next fiscal year. The properties are the
assets of the stores classified as discontinued operations, undeveloped land,
rental properties, store equipment and closed convenience stores. In accordance
with the Company's plan to pursue a divestiture strategy, the Company plans to
sell or sublet assets of 130 stores. At September 30, 2003, the Company had 128
remaining stores classified as discontinued operations on its balance sheet with
a net book value of $41.0 million.

D. PROPERTY, EQUIPMENT AND IMPROVEMENTS -- AT COST (IN THOUSANDS):

Depreciation expense (including the amortization of capitalized property and
equipment leases) in fiscal years 2003, 2002 and 2001 was $6,880,700, $7,795,300
and $7,677,100, respectively, of which $2,438,300, $3,302,900 and $3,024,100 in
fiscal years 2003, 2002 and 2001, respectively, related to stores included in
discontinued operations and was reclassified accordingly.

36

E. INTANGIBLE AND OTHER ASSETS:

Intangible and other assets consist of the following (in thousands):

Goodwill represented the excess of cost over the fair value of net assets
acquired in business combinations. The Company completed an impairment analysis
during the second fiscal quarter of fiscal year 2003 in connection with the
adoption of SFAS No. 142, resulting in a write-off of goodwill in the amount of
$5.8 million. Lease acquisition costs are the bargain element of acquired leases
and are being amortized on a straight-line basis over the related lease terms.
Amortization expense was $67,400 (2003), $461,800 (2002) and $462,600 (2001) of
which $27,600 (2003), $195,500 (2002) and $199,000 (2001) related to stores
included in discontinued operations and was reclassified accordingly.

Amortization expense for the next five years is as follows (in thousands):

September 30,
2004................................................... $290
2005................................................... 70
2006................................................... 9
2007................................................... 6
2008................................................... 4
Thereafter............................................. 6
----
$385
====

The Company's adoption of SFAS No. 142 eliminates the requirement to amortize
goodwill beginning in the first quarter of fiscal 2003 (see Footnote
A -- "Summary of Significant Accounting Policies -- Recent Accounting
Pronouncements"). Goodwill amortization in fiscal years 2002 and 2001 was
$388,600, or $0.05 per share, and $388,600, or $0.06 per share, respectively.
The following table

37

E. INTANGIBLE AND OTHER ASSETS (CONTINUED):

adjusts net earnings (loss) and net earnings (loss) per share for the adoption
of SFAS No. 142 (in thousands, except per share data):

F. REVOLVING CREDIT AGREEMENT:

On April 20, 2000, the Company executed a 3-year secured $10.0 million revolving
loan agreement (the "Agreement") with $3.5 million available for letters of
credit. Provisions of the Agreement require the maintenance of certain covenants
relating to minimum tangible net worth, interest and fixed-charge coverage
ratios, as measured on a quarterly basis. In addition, the Agreement places
limitations on capital expenditures, additional debt and payment of dividends.
During fiscal years 2001 and 2002, the Agreement was amended to increase the
total credit line, extend the maturity date, revise covenants relating to fixed
charge coverage ratios, and provide for additional borrowing on a seasonal
basis. At September 30, 2003, the total credit line available for borrowings was
$15.0 million, with $3.5 million available for letters of credit and $4.0
million available for the prepayment of debt in connection with the sale of
stores (as discussed below and in Footnote G). Effective April 1, 2003, the
Company amended the Agreement to extend the maturity date to December 31, 2004,
extend the $2.0 million seasonal borrowing increase to April 30, 2004, and
revise certain financial covenants. The Company was in compliance with these
covenants as of September 30, 2003. Borrowings of $5.7 million and letters of
credit of $3.5 million were outstanding under the Agreement at September 30,
2003. This facility bears interest at the Company's option based on a rate of
either prime plus 1.0% or LIBOR plus 3.0%. The blended interest rate at
September 30, 2003 was 4.27%. The Agreement is collateralized by substantially
all of the Company's inventories, receivables, other personal property and
selected real properties. At September 30, 2003, the net book value of these
selected real properties that are pledged as collateral was $2.4 million. As
discussed more fully in Footnote G, in connection with the negotiation of Master
Property Disposition Agreements relating to certain of the Company's term loans,
as of September 30, 2003, the Company entered into an agreement with its
revolving credit lender to provide a $4.0 million sub-limit under the revolving
credit agreement. This sub-limit may be utilized under certain conditions to pay
off term debt associated with stores that are sold. These agreements create a
subordinated interest in the several cross-escrow accounts created pursuant to
the Master Property Disposition Agreements and continue the lien on working
capital assets and certain real property assets created by the original
revolving credit agreement. At September 30, 2003, $5.8 million (including the
$2.0 million seasonal borrowing increase that expires on April 30, 2004) was
available under the Agreement for general working capital purposes and
prepayment of debt.

38

G. LONG-TERM DEBT:

The mortgage loans are collateralized by $65,531,000 of property, at net book
value, of which $25,721,600 relates to stores classified as discontinued
operations. The equipment loans are collateralized by $4,345,100 of equipment,
at net book value, of which $2,362,000 relates to stores classified as
discontinued operations.

The Company has classified $34.4 million as current maturities relating to
its divestiture plan. However, $33.5 million becomes due only when sales of
store locations classified as discontinued operations are consummated and the
remaining $0.9 million are regularly scheduled payments.

39

G. LONG-TERM DEBT (CONTINUED):

Aggregate maturities of long-term debt (net of loan fee amortization) during the
next five years are as follows (in thousands):

September 30,
2004................................................... $42,639
2005................................................... 1,836
2006................................................... 1,972
2007................................................... 2,113
2008................................................... 2,270
Thereafter............................................. 26,167
-------
$76,997
=======

In April and September 2000, the Company, through special purpose consolidated
entities with GE Capital Franchise Finance Corporation, (formerly Franchise
Finance Corporation of America), ("FFCA") completed 20-year mortgage loans
totaling $32.5 million and 10-year equipment loans totaling $11.0 million to
finance the purchase of assets from Orloski Service Station, Inc. ("OSSI"). In
fiscal year 2001, the Company completed a 20-year mortgage loan totaling $3.5
million and a 10-year equipment loan to finance the construction of one
additional store location with FFCA.

As of September 30, 2003, the Company entered into several Master Property
Disposition Agreements that amended, through October 31, 2004, certain terms of
the various loan agreements originated with and now serviced by FFCA. Under
these agreements the lenders will permit the disposition and release of their
security interest on certain real property and equipment assets that are part of
the Company's strategic disposition program. In addition, the lenders will
accept reduced prepayment penalties or yield maintenance payments, and forbear
from enforcing any property fixed charge ratio covenants, corporate fixed charge
ratio covenants, or net worth covenants for the duration of the agreements. The
agreements also establish several cross-escrow accounts, create liens against
these accounts, and continue the liens on certain real property and equipment
assets that were part of the original loan. Simultaneously, the Company entered
into an agreement with its revolving credit lender to provide a $4.0 million
sub-limit under its existing revolving credit agreement. (See Footnote F)

H. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:

The carrying amounts of cash and short-term debt approximates fair value. The
Company estimates the fair value of its long-term, fixed-rate debt generally
using discounted cash flow analysis based on the Company's current borrowing
rates for debt with similar maturities. The Company estimates the fair value of
its long-term, variable-rate debt based on carrying rates offered for similar
security, terms and maturity.

Fair value of capital lease obligations is estimated based on current rates
offered to the Company for similar debt.

40

H. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED):

The estimated fair values of the Company's financial instrument liabilities are
as follows (in thousands):

I. DEFERRED REVENUE AND OTHER LIABILITIES:

The Company generally records revenues when products are sold or services
rendered. In certain instances, the Company receives advance payments for
purchase commitments or other services and records revenue from such payments in
accordance with the terms of the related contractual arrangements.

Deferred revenue and other liabilities includes the following (in thousands):

J. DISCONTINUED OPERATIONS:

During fiscal year 2003, the Company announced plans to divest 130 stores and
reclassified the assets relating to these stores as discontinued operations in
accordance with the adoption of SFAS 144 and reclassified the related debt of
$34.4 million as current maturities. At September 30, 2003, the Company had 128
remaining stores classified as property held for sale on its balance sheet with
a net book value of $41.0 million. The income and expense relating to these
stores is reported as discontinued operations for all periods presented in the
accompanying financial statements and are reported separately from the results
of continuing operations. In addition, the Company recognized a $66,000 loss
from the sale of five stores and one non-operating location during fiscal year
2003 and a $654,000 loss relating to the future disposal of certain locations.
The Company cannot be certain that sales of assets will occur at the time or for
the values that the Company estimates. The Company intends continue to operate
these stores pending successful negotiation of their sale or sub-lease.

41

J. DISCONTINUED OPERATIONS (CONTINUED):

The following is a summary of the operating results and net loss of discontinued
operations (in thousands, except per share data):

K. COMMITMENTS AND CONTINGENCIES:

(1) Leases -- The Company leases its corporate headquarters, 124 of its store
locations and certain equipment. Future minimum lease payments under capital
leases and noncancellable operating leases with initial or remaining terms
in excess of one year at September 30, 2003 are shown below. Some of the
leases provide for additional rentals when sales exceed a specified amount
and contain variable renewal options and escalation clauses. Rental income
in connection with the leases of certain properties is also provided. Such
rental income was $819,600 (2003), $849,900 (2002) and $876,300 (2001) of
which $198,900 (2003), $212,800 (2002) and $214,500 (2001) related to stores
included in discontinued operations and was reclassified accordingly (in
thousands):

Rental expense under operating leases was as follows (in thousands):

The table above includes rental expense for stores classified as
discontinued operations of $1,208,300 (2003), $1,211,100 (2002) and
$1,140,700 (2001) and was reclassified accordingly.

42

K. COMMITMENTS AND CONTINGENCIES (CONTINUED):

(2) Change of Control Agreements -- The Company has change of control agreements
with its four executive officers pursuant to which each executive officer
will receive remuneration of 2.99 times his base compensation if his
employment is terminated due to a change of control as defined in the
agreements. Remuneration which might be payable under these agreements has
not been accrued in the consolidated financial statements as a change of
control has not occurred.

(3) Gasoline Supply Agreements -- Pursuant to agreements with four gasoline
suppliers, with terms of 6-15 years, the Company receives from the suppliers
partial funding of the cost of the above-ground gasoline equipment and
rebates for the purchase of gasoline. As of September 30, 2003, the total
funding subject to these arrangements is $7,115,900. If the Company
terminates these agreements before the expiration of the contract terms,
part of this funding, in addition to the funding previously made to OSSI,
must be repaid to the suppliers. The expiration dates range from 2006 to
2013.

(4) Litigation -- The Company is involved in litigation and other legal matters
which have arisen in the normal course of business. Although the ultimate
results of these matters are not currently determinable, management does not
expect that they will have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.

L. CHANGES IN SECURITIES:

During fiscal year 2003, the Uni-Marts, Inc. Retirement Savings and Incentive
Plan purchased 33,319 shares of the Company's treasury stock for $175,816 to
fund its 401(k) retirement plan, resulting in a decrease of additional paid-in
capital of $133,460. Also during fiscal year 2003, the Company issued 31,000
shares of common stock to its non-employee directors, as part of their annual
retainer, issued 500 shares of its common stock upon exercise of a stock option,
and issued 1,524 shares of common stock to the Company's employee stock purchase
plan. The issuance of these shares resulted in an increase of $39,417 to
additional paid-in capital. The net effect of these transactions in fiscal year
2003 was a decrease to additional paid-in capital of $94,043.

43

M. INCOME TAXES:

The provision for income taxes includes the following (in thousands):

Deferred tax liabilities (assets) are comprised of the following at September 30
(in thousands):

The financial statements include noncurrent deferred tax liabilities of $0
(2003) and $1,796,900 (2002) and current deferred tax assets of $0 (2003) and
$1,400,300 (2002) which are included in prepaid and current deferred taxes.

The valuation allowances as of September 30, 2003, 2002 and 2001, were
$1,245,000, $48,000 and $45,000, respectively, and principally apply to NOL and
tax credit carryforwards. The Company believes that it is more likely than not
that those carryforwards will not be realized.

As of September 30, 2003, the Company had available state and federal net
operating loss carryforwards of $11,233,300 which expire in fiscal years 2018
through 2023.

44

M. INCOME TAXES (CONTINUED):

A reconciliation of the provision for income taxes to an amount determined by
application of the statutory federal income tax rate follows (in thousands):

N. RELATED PARTY TRANSACTIONS:

During fiscal year 1997, the Company granted a loan of $800,000 to an officer of
the Company. In January 1999, the interest rate on the loan was changed to the
brokerage call rate plus 0.5% (4.0% at September 30, 2002). The loan required
payments of $60,000 plus interest on November 1, 1999, 2000, 2001, 2002, 2003
and a final payment of $300,000 on November 1, 2004. The loan was collateralized
by 303,397 shares of the Company's Common Stock. The balance of the loan was
repaid in full during the third quarter of fiscal year 2003.

Certain directors and officers of the Company are also directors, officers or
controlling shareholders of other entities from which the Company leases its
corporate headquarters and various store and other locations under agreements
classified as operating leases. In addition, the Company leases store locations
from entities controlled by, or from persons related to, certain directors and
officers of the Company. The following is a summary of significant transactions
with these entities:

(1) The Company leases its corporate headquarters and various store and
other locations under agreements classified as operating leases.
Aggregate rentals in connection with all such leases were $1,491,000
(2003), $1,255,500 (2002), and $698,800 (2001).

(2) The Company charges an affiliate for general and administrative
services provided. Such charges amounted to $11,200 (2003), $11,200
(2002), and $11,200 (2001).

During fiscal years 2003, 2002 and 2001, the Company made payments of $0,
$79,300 and $79,200, respectively, to a director of the Company for consulting
fees and reimbursement of expenses.

O. RETIREMENT SAVINGS AND INCENTIVE PLAN:

The Company has a contributory retirement savings plan covering all employees
meeting minimum age and service requirements. The Company will match one-half of
employee contributions up to 3% of the employee's compensation. The Company's
contributions are invested in the Company's Common Stock. The Board of Directors
may elect to make additional contributions to be allocated among all eligible
employees in accordance with provisions of the plan. The retirement savings plan
expense, which is funded currently, was $87,500 (2003), $98,400 (2002) and
$108,300 (2001).

45

P. DEFERRED COMPENSATION PLAN:

The Company had a nonqualified deferred compensation plan which was terminated
in January 2002 and the assets distributed to the beneficiaries. The deferred
compensation plan permitted key executives to elect annually (via individual
contracts) to defer a portion of their compensation until their retirement,
death or disability. The Company made a 50% matching contribution not exceeding
$5,000 annually per executive. The deferred compensation expense was $0,
$13,200, and $16,200 for the years ended September 30, 2003, 2002 and 2001,
respectively.

Q. EQUITY COMPENSATION PLANS:

The Company has an Equity Compensation Plan, pursuant to which no additional
stock options may be granted, and a 1996 Equity Compensation Plan, which became
effective November 1, 1996. The Company has reserved 38,250 shares of common
stock which can be issued upon exercise of outstanding stock options in
accordance with the terms of the Equity Compensation Plan and 1,633,637 shares
of common stock which can be issued upon exercise of outstanding options or
options that may be granted in the future in accordance with the terms of the
1996 Equity Compensation Plan.

Both the Equity Compensation Plan and the 1996 Equity Compensation Plan are
collectively discussed as the "Plans" below.

A committee of the Board of Directors has authority to administer the Plans, and
the committee may grant qualified and nonqualified incentive stock options to
employees of the Company, including officers, whether or not they are directors.
The Plans also provide that all nonemployee directors will receive annual
nonqualified stock option grants for 2,000 shares of common stock plus 500
shares for each full year the director has served as a member of the board, up
to a maximum of 4,000 shares per grant, on the date of each annual meeting.
These options generally have a vesting period of one year. In addition, newly
appointed or elected nonemployee directors receive an initial grant for 5,000
shares. Nonemployee directors will also receive grants of stock equal in value
to and in lieu of two-thirds of the retainer due to such director. The Company
granted options to purchase 31,500, 30,000 and 32,500 shares of common stock to
nonemployee directors under the Plans during fiscal years 2003, 2002, and 2001,
respectively. The Company also issued 31,000, 15,680 and 19,850 shares of common
stock to nonemployee directors during fiscal years 2003, 2002 and 2001,
respectively, as part of their annual retainer.

The exercise price of all options granted under the Plans may not be less than
the fair market value of the common stock on the date of grant, and the maximum
allowable term of each option is ten years. For qualified stock options granted
to any person who holds more than 10% of the voting power of the outstanding
stock, the exercise price may not be less than 110% of the fair market value,
and the maximum allowable term is five years. Options granted under the Plans
generally have vesting periods of up to three years.

Information regarding outstanding options is presented below. All options
outstanding are exercisable according to their vesting schedule.

46

Q. EQUITY COMPENSATION PLANS (CONTINUED):

Outstanding Options for Shares of Common Stock (in thousands, except per share
data) are as follows:

The weighted average fair value of the stock options granted during fiscal years
2003, 2002 and 2001 were $0.91, $1.21 and $1.84, respectively. The fair value of
each stock option granted is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants in the years ended September 30, (dollars in
thousands):

R. EMPLOYEE STOCK PURCHASE PLAN:

In February 1999, the Company's stockholders approved a stock purchase plan.
Under the stock purchase plan, eligible employees may purchase common stock in
quarterly offering periods through payroll deductions of up to 25% of
compensation. The price per share is 90% of the average market price throughout
the quarter but not less than 90% of the lower of the market price at the
beginning or end of the market period. The stock purchase plan provides for
purchases by employees of up to an aggregate of 500,000 shares. Effective
January 1, 2003 the employee stock purchase plan was frozen and the shares held
by the plan were distributed to the participants. During fiscal years 2003, 2002
and 2001, employees purchased 1,524, 6,763, and 7,110 shares, respectively,
pursuant to the stock purchase plan.

47

SUPPLEMENTARY FINANCIAL INFORMATION
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
(IN THOUSANDS, EXCEPT PER SHARE DATA)

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES.

CEO and CFO Certifications. Appearing as Exhibits 31.1 and Exhibit 31.2 of
this Annual Report are two certifications, one by each of our Chief Executive
Officer and our Chief Financial Officer (the "Section 302 Certifications"). This
Item 9A of our Annual Report contains information concerning the evaluation of
the Company's disclosure controls and procedures and matters regarding our
internal controls that are referred to in the Section 302 Certifications. This
information should be read in conjunction with the Section 302 Certifications
for a more complete understanding of the topics referred to in the Section 302
Certifications.

Evaluation of Our Disclosure Controls and Procedures. The Securities and
Exchange Commission (the "SEC") requires that as of the end of the period
covered by this Annual Report, the CEO and

48

the CFO must evaluate the effectiveness of the design and operation of our
disclosure controls and procedures and report on the effectiveness of the design
and operation of our disclosure controls and procedures.

"Disclosure controls and procedures" mean the controls and other procedures
that are designed with the objective of ensuring that information required to be
disclosed in our reports filed under the Securities Exchange Act of 1934 (the
"Exchange Act"), such as this Annual Report, is recorded, processed, summarized
and reported within the time periods specified in the rules and forms
promulgated by the Securities and Exchange Commission (the "SEC"). Disclosure
controls and procedures are also designed with the objective of ensuring that
such information is accumulated and communicated to our management, including
the CEO and CFO, as appropriate to allow timely decisions regarding required
disclosure.

Evaluation of Our Internal Control Over Financial Reporting. The SEC also
requires that the CEO and CFO certify certain matters regarding our internal
control over financial reporting.

"Internal control over financial reporting" means the process designed by,
or under the supervision of, our CEO and CFO, and implemented by management and
other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that: (i) pertain to the maintenance of
records that in reasonable detail accurately and fairly reflect the transactions
and dispositions of the assets of the issuer; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the issuer are being made only in accordance with
authorizations of management and directors of the issuer; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the issuer's assets that could have a
material effect on the financial statements.

Among the matters our CEO and CFO must certify in the Section 302
Certifications are whether all "significant deficiencies" or "material weakness"
in the design or operation of our internal control over financial reporting that
are likely to adversely affect our ability to record, process, summarize and
report financial information have been disclosed to our auditors and the Audit
Committee of our Board of Directors. "Significant deficiencies" has the same
meaning as the term "reportable conditions" in auditing literature. Both terms
represent deficiencies in the design or operation of internal control over
financial reporting that could adversely affect a company's ability to record,
process, summarize and report financial data consistent with the assertions of
management in a company's financial statements. A "material weakness" is defined
in the auditing literature as a particularly serious reportable condition where
the design or operation of one or more internal control over financial reporting
components does not reduce to a relatively low level the risk that misstatements
caused by error or fraud may occur in amounts that would be material in relation
to the financial statements and not be detected within a timely period by
employees in the normal course of performing their assigned functions. A
"material weakness" constitutes a greater deficiency than a "significant
deficiency, but an aggregation of significant deficiencies may constitute a
material weakness in a company's internal control over financial reporting.

Limitations on the Effectiveness of Controls. The Company's management,
including the CEO and CFO, does not expect that our disclosure controls and
procedures or our internal controls will prevent all error and all fraud. A
control system, no matter how well conceived and operated, can provide only
reasonable, as opposed to absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must reflect the fact
that there are resource constraints, and

49

the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within an entity have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the control. The design of any system of
controls also is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions; over time,
control may become inadequate because of changes in conditions, or the degree of
compliance with the policies or procedures may deteriorate. Because of the
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected.

CEO/CFO Conclusions about the Effectiveness of the Disclosure Controls and
Procedures. As required by Rule 13a-15(b), the Company's management, including
our CEO and CFO, conducted an evaluation as of the end of the period covered by
this report, of the effectiveness of the Company's disclosure controls and
procedures. Based on that evaluation, the CEO and CFO concluded that, subject to
the limitations noted above, our disclosure controls and procedures are
effective to provide reasonable assurance that the disclosure controls and
procedures will meet their objectives.

Changes in Internal control over financial reporting. As required by Rule
13a-15(d), the Company's management, including the CEO and CFO conducted an
evaluation of the Company's internal control over financial reporting to
determine whether any changes occurred during the period covered by this report
that have materially affected, or are reasonably likely to materially affect,
the Company's internal control over financial reporting. Based on that
evaluation, there has been no such change during the period covered by this
report.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The Company has adopted a code of ethics (as that term is defined in Item
406 of Regulation S-K) (the "Code of Ethics") that applies to the registrant's
principal executive officer, principal financial officer, principal accounting
officer or controller, and other employees of the Company. A copy of the Code of
Ethics is filed as an exhibit to this Annual Report.

In accordance with Instruction G(3), the balance of information called for
by ITEMS 10, 11, 12, 13 AND 14 are incorporated by reference from the
Registrant's Definitive Proxy Statement pursuant to Regulation 14A, to be filed
with the Commission not later than 120 days after September 30, 2003, the end of
the fiscal year covered by this report.

50

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.

(A) FINANCIAL STATEMENTS AND SCHEDULE

The Financial Statements listed below are filed as part of this Annual Report on
Form 10-K.

(1) FINANCIAL STATEMENTS

(2) FINANCIAL STATEMENT SCHEDULE

The following financial statement schedule should be read in conjunction with
the audited consolidated financial statements and notes thereto included in this
report. Schedules not included below have been omitted because they are not
applicable or required or because the required information is not material or is
included in the audited consolidated financial statements or notes thereto.

The following schedule for the years ended September 30, 2003, 2002 and 2001 is
included in this report:

(B) REPORTS ON FORM 8-K

The Company filed a report on Form 8-K with the Securities and Exchange
Commission on July 31, 2003, announcing its financial results for the fiscal
2003 third quarter, ended July 3, 2003.

(C) EXHIBITS

3.1 Amended and Restated Certificate of Incorporation of the
Company (Filed as Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the period ended April 4, 2002, File
No. 0-15164, and incorporated herein by reference thereto).
3.2 Amended and Restated By-Laws of the Company (Filed as
Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q
for the period ended April 4, 2002, File No. 0-15164, and
incorporated herein by reference thereto).
4.1 Form of the Company's Common Stock Certificate (Filed as
Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q
for the period ended April 1, 1993, File No. 1-11556, and
incorporated herein by reference thereto).

51

4.2 Rights Agreement (Filed as Exhibit 4(ii) to the Company's
Registration Statement on Form 8-A/A, filed February 14,
2002, File No. 1-11556, and incorporated herein by reference
thereto).
10.1 Uni-Marts, Inc. Amended and Restated Equity Compensation
Plan (Filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the period ended March 30, 1995 and
incorporated herein by reference thereto).
10.2 Amendment 1998-1 to the Uni-Marts, Inc. Equity Compensation
Plan (Filed as Exhibit 10.10 to the Annual Report of
Uni-Marts, Inc. on Form 10-K for the year ended September
30, 1998 and incorporated herein by reference thereto).
10.3 Uni-Marts, Inc. Deferred Compensation Plan (Filed as Exhibit
10.8 to the Annual Report of Uni-Marts, Inc. on Form 10-K
for the year ended September 30, 1990, File No. 0-15164, and
incorporated herein by reference thereto).
10.4 Uni-Marts, Inc. 1996 Equity Compensation Plan (Filed as
Exhibit A to the Company's Definitive Proxy Statement for
the February 22, 1996 Annual Meeting of Stockholders and
incorporated herein by reference thereto).
10.5 Amendment 2001-1 to the Uni-Marts, Inc. 1996 Equity
Compensation Plan (Filed as Appendix A to the Company's
Definitive Proxy Statement for the February 21, 2002 Annual
Meeting of Stockholders and incorporated herein by reference
thereto).
10.6 Form of Indemnification Agreement between Uni-Marts, Inc.
and each of its Directors (Filed as Exhibit A to the
Company's Definitive Proxy Statement for the February 25,
1988 Annual Meeting of Stockholders, File No. 0-15164, and
incorporated herein by reference thereto).
10.7 Composite copy of Change of Control Agreement between
Uni-Marts, Inc. and its executive officers dated March 13,
2002. The Senior Vice President, Operations is also a party
to a Change of Control Agreement with the Company dated
March 13, 2002 which is substantially identical to the
agreement between the Company and each of its executive
officers. (Filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the period ended April 4, 2002 and
incorporated herein by reference thereto).
10.8 Composite copy of Change of Control Agreement between the
Company and its Senior Vice President, Facilities
Development and its Senior Vice President, Budgeting and
Planning dated May 28, 2002 (Filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the period ended
July 4, 2002 and incorporated herein by reference thereto).
10.9 Amended and Restated Note between Henry D. Sahakian and
Uni-Marts, Inc. dated January 25, 1999 (Filed as Exhibit
10.10 to the Company's Quarterly Report on Form 10-Q for the
period ended April 1, 1999 and incorporated herein by
reference thereto).
10.10 Loan Agreement between FFCA Acquisition Corporation and
Uni-Marts, Inc. dated June 30, 1998 (Filed as Exhibit 10.10
to the Company's Quarterly Report on Form 10-Q for the
period ended July 2, 1998 and incorporated herein by
reference thereto).
10.11 Loan Agreement between FFCA Acquisition Corporation and Uni
Realty of Wilkes Barre, L.P. dated April 21, 2000 (Filed as
Exhibit 20.1 to the Company's Form 8-K filed on May 8, 2000
and incorporated herein by reference thereto).
10.12 Loan Agreement between FFCA Funding Corporation and Uni
Realty of Luzerne, L.P. dated April 21, 2000 (Filed as
Exhibit 20.2 to the Company's Form 8-K filed on May 8, 2000
and incorporated herein by reference thereto).

52

10.13 Equipment Loan Agreement between FFCA Acquisition
Corporation and Uni-Marts, Inc. dated April 21, 2000 (Filed
as Exhibit 20.3 to the Company's Form 8-K filed on May 8,
2000 and incorporated herein by reference thereto).
10.14 Equipment Loan Agreement between FFCA Funding Corporation
and Uni-Marts, Inc. dated April 21, 2000 (Filed as Exhibit
20.4 to the Company's Form 8-K filed on May 8, 2000 and
incorporated herein by reference thereto).
10.15 Revolving Credit Loan Agreement between Provident Bank and
Uni-Marts, Inc. dated April 20, 2000 (Filed as Exhibit 10.15
to the Company's Quarterly Report on Form 10-Q for the
period ended June 29, 2000 and incorporated herein by
reference thereto).
10.16 Amendment to the Revolving Credit Loan Agreement between
Provident Bank and Uni-Marts, Inc. dated January 16, 2001
(Filed as Exhibit 10.17 to the Company's Quarterly Report on
Form 10-Q for the period ended April 5, 2001 and
incorporated herein by reference thereto).
10.17 Amendment to the Revolving Credit Loan Agreement between
Provident Bank and Uni-Marts, Inc. dated March 31, 2001
(Filed as Exhibit 10.18 to the Company's Quarterly Report on
Form 10-Q for the period ended April 5, 2001 and
incorporated herein by reference thereto).
10.18 Third Amendment to the Revolving Credit Loan Agreement
between Provident Bank and Uni-Marts, Inc. dated December
21, 2001 (Filed as Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the period ended January 3, 2002 and
incorporated herein by reference thereto).
10.19 Fourth Amendment to the Revolving Credit Loan Agreement
between Provident Bank and Uni-Marts, Inc. dated September
30, 2002. (Filed as Exhibit 10.22 to the Company's Annual
Report on Form 10-K for the period ended September 30, 2002
and incorporated herein by reference thereto).
10.20 Fifth Amendment to Loan Agreement between Provident Bank and
Uni-Marts, Inc. effective as of April 1, 2003 (Filed as
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the period ended April 3, 2003 and incorporated herein
by reference thereto).
10.21 Shortfall Loan Agreement between Provident Bank and
Uni-Marts, Inc. dated as of September 30, 2003.
10.22 Master Property Disposition Agreement effective as of
September 30, 2003 by and among Washington Mutual Bank, FA,
Uni-Marts, Inc., and Uni Realty of Luzerne, L.P.
10.23 Master Property Disposition Agreement effective as of
September 30, 2003 by and between LaSalle Bank National
Association as Indenture Trustee pursuant to that certain
Indenture dated as of April 1, 1999, and Uni-Marts, Inc.
10.24 Master Property Disposition Agreement effective as of
September 30, 2003 by and among LaSalle Bank National
Association as Indenture Trustee pursuant to that certain
Indenture dated as of November 1, 2000, Uni-Marts, Inc., and
Uni Realty of Wilkes-Barre, L.P.
10.25 Amended and Restated Transaction Success Bonus Plan dated
October 11, 2002. (Filed as Exhibit 10.23 to the Company's
Annual Report on Form 10-K for the period ended September
30, 2002 and incorporated herein by reference thereto).
11 Statement regarding computation of per share earnings
(loss).
14 Code of Ethics.
21 Subsidiaries of the registrant.

53

23 Consent of Deloitte & Touche LLP.
31.1 Certification of the Chairman and Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chairman and Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of the Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.1 Report on Form 11-K.

(D) SCHEDULE

The schedule listed in Item 15(A)(2) is filed as part of this Annual Report on
Form 10-K.

54

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

UNI-MARTS, INC.
(Registrant)

By: /s/ HENRY D. SAHAKIAN
------------------------------------
Henry D. Sahakian
Chairman of the Board
(Principal Executive Officer)

By: /s/ N. GREGORY PETRICK
------------------------------------
N. Gregory Petrick
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
(Principal Financial Officer)

Dated: December 22, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated:

55

UNI-MARTS, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

- ---------------

(1) Specific account or note receivable written off to allowance.

56

UNI-MARTS, INC. AND SUBSIDIARIES
EXHIBIT INDEX