RAINBOW RENTALS INC - 10-Q Quarterly Report

3711 Starr Centre Drive
Canfield, Ohio 44406
(Address of principal executive offices)

(Former name, former address and former fiscal year,
if changed since last report)

Indicate by checkmark 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 checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities and Exchange Act of 1934). Yes [ ] No [x]

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


PART I.		FINANCIAL INFORMATION	Page No.

	Item 1.	Financial Statements

		Balance Sheets	3

		Statements of Income	4

		Statements of Shareholders’ Equity	5

		Statements of Cash Flows	6

		Notes to Financial Statements	7

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	13

	Item 4.	Disclosure Controls and Procedures	13

PART II.		OTHER INFORMATION

	Item 6.	Exhibits and Reports on Form 8-K	14

SIGNATURES			15


					(unaudited)
					September 30,			December 31,
					2003			2002

Assets
Current assets
	Cash and cash equivalents				$	251		$	1,080
	Rental-purchase merchandise, net					38,634			39,342
	Income tax receivable					190			939
	Prepaid expenses and other current assets					2,239			1,926

				Total current assets		41,314			43,287

Property and equipment, net						6,156			5,558
Deferred income taxes						2,124			1,989
Goodwill, net						9,236			9,236
Other assets, net						443			843

				Total assets	$	59,273		$	60,913

Liabilities and Shareholders’ Equity
Current liabilities
	Deferred revenue				$	992		$	1,215
	Accounts payable					2,855			2,175
	Accrued compensation and related costs					2,326			2,402
	Other liabilities and accrued expenses					2,556			2,403
	Deferred income taxes					7,293			6,343

				Total current liabilities		16,022			14,538

Long-term debt						3,500			7,550

				Total liabilities		19,522			22,088

Commitments and contingencies

Shareholders’ equity
	Serial preferred stock, no par value; 2,000,000 shares authorized, none issued					—			—
	Common stock, no par value; 10,000,000 shares authorized,
			6,392,610 issued and 5,929,319 outstanding at
			September 30, 2003 and December 31, 2002			11,039			11,039
	Additional paid-in capital					4			4
	Retained earnings					30,600			29,674
	Treasury stock, at cost, 463,291 shares at
		September 30, 2003 and December 31, 2002				(1,892	)		(1,892	)

		Total shareholders’ equity				39,751			38,825

		Total liabilities and shareholders’ equity			$	59,273		$	60,913

RAINBOW RENTALS, INC.
STATEMENTS OF INCOME
(Dollars in thousands, except per share amount)


				(unaudited)					(unaudited)
				For the three months ended					For the nine months ended
				September 30,					September 30,

				2003		2002			2003		2002

Revenues
	Rental revenue			$	24,017	$	22,921		$	72,474	$	69,523
	Fees				681		699			1,996		2,052
	Merchandise sales				739		724			2,487		2,570

			Total revenues		25,437		24,344			76,957		74,145
Operating expenses
	Merchandise costs				8,347		8,355			25,101		25,562
	Store expenses
		Salaries and related			6,674		6,055			19,801		17,863
		Occupancy			2,481		2,539			7,458		7,090
		Advertising			1,324		1,310			4,800		4,586
		Other expenses			3,875		3,318			10,965		10,123

			Total store expenses		14,354		13,222			43,024		39,662

			Total merchandise costs and store expenses		22,701		21,577			68,125		65,224
	General and administrative expenses				2,138		1,962			6,561		5,794
	Amortization of intangible assets				45		45			135		130

			Total operating expenses		24,884		23,584			74,821		71,148

			Operating income		553		760			2,136		2,997
Interest expense					137		135			434		487
Other expense					57		57			171		171

			Income from continuing operations, before income taxes		359		568			1,531		2,339
Income tax expense					142		207			605		924

			Income from continuing operations		217		361			926		1,415

Discontinued operations
	Loss from operations of discontinued store, net of tax				—		(26	)		—		(76	)

			Net income	$	217	$	335		$	926	$	1,339


Basic earnings per common share:
	Basic earnings per share from continuing operations			$	0.04		0.06		$	0.16	$	0.24
	Basic loss per share from discontinued operations				—		—			—		(0.01	)

			Basic earnings per share	$	0.04	$	0.06		$	0.16	$	0.23


Diluted earnings per common share:
	Diluted earnings per share from continuing operations			$	0.04	$	0.06		$	0.16	$	0.24
	Diluted loss per share from discontinued operations				—		—			—		(0.01	)

			Diluted earnings per share	$	0.04	$	0.06		$	0.16	$	0.23


Weighted average common shares outstanding:
	Basic				5,929,319		5,929,319			5,929,319		5,927,564

	Diluted				5,938,185		5,932,648			5,933,255		5,944,081

See accompanying notes to financial statements

RAINBOW RENTALS, INC.
STATEMENTS OF SHAREHOLDERS’ EQUITY
(Dollars in thousands)


													Total
		Common Stock				Additional		Retained		Treasury			Shareholders’
		Shares		Cost		Paid-in Capital		Earnings		Stock			Equity

Balance at December 31, 2001			5,925,735	$	11,039	$	—	$	28,033	$	(1,907	)	$	37,165
	Exercise of stock options		3,584		—		4		—		15			19
	Net income		—		—		—		1,641		—			1,641

Balance at December 31, 2002			5,929,319		11,039		4		29,674		(1,892	)		38,825
	Net income (unaudited)		—		—		—		926		—			926

Balance at September 30, 2003 (unaudited)			5,929,319	$	11,039	$	4	$	30,600	$	(1,892	)	$	39,751

See accompanying notes to financial statements


				(unaudited)
				For the nine months ended
				September 30,
				2003			2002

Cash flows from operating activities
	Income from continuing operations			$	926		$	1,415
	Reconciliation of income from continuing operations to net cash provided by operating activities of continuing operations
			Depreciation of property and equipment and amortization of intangibles		1,845			1,844
			Depreciation and write-down of rental-purchase merchandise		20,058			20,674
			Purchases of rental-purchase merchandise		(24,579	)		(22,117	)
			Rental-purchase merchandise disposed, net		5,230			4,969
			Deferred income taxes		815			2,677
			Loss on disposal of property and equipment		6			60
			(Increase) decrease in Income tax receivable		749			(2,009	)
			Prepaid expenses and other assets		(305	)		363
			Increase (decrease) in Accounts payable		680			(1,107	)
			Accrued income taxes		—			(306	)
			Accrued compensation and related costs		(76	)		(310	)
			Deferred revenue and other liabilities and accrued expenses		(70	)		170

			Net cash provided by operating activities of continuing operations		5,279			6,323
			Net cash used in operating activities of discontinued operations		—			(128	)

			Net cash provided by operating activities		5,279			6,195

Cash flows from investing activities
	Purchase of property and equipment				(2,079	)		(1,881	)
	Proceeds from the sale of property and equipment				21			37
	Acquisitions				—			(315	)

			Net cash used in investing activities of continuing operations		(2,058	)		(2,159	)
			Net cash used in investing activities of discontinued operations		—			(64	)

			Net cash used in investing activities		(2,058	)		(2,223	)

Cash flows from financing activities
	Proceeds from long-term debt				20,950			25,464
	Current installments and repayments of long-term debt				(25,000	)		(29,404	)
	Proceeds from stock options exercised				—			19
	Loan fees paid				—			(316	)

			Net cash used in financing activities		(4,050	)		(4,237	)

Net decrease in cash					(829	)		(265	)
Cash at beginning of period					1,080			1,839

Cash at end of period				$	251		$	1,574

Supplemental cash flow information
	Net cash paid (refunded) during the period for Interest			$	371		$	389
		Income taxes			(833	)		639

	See accompanying notes to financial statements

RAINBOW RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)

Rainbow Rentals, Inc. (the “Company”) is engaged in the rental and sale of home electronics, furniture, appliances and computers to the general public. At September 30, 2003 the Company operated 125 stores in 15 states: Connecticut, Georgia, Indiana, Kentucky, Maryland, Massachusetts, Michigan, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee and Virginia. The Company’s corporate office is located in Canfield, Ohio.

The financial statements have been prepared in accordance with the instructions to Form 10-Q. Therefore, certain information and disclosures, normally required with financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted. In the opinion of management, the financial statements contain all adjustments (consisting only of normal, recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows of the Company. The results of operations for the periods presented are not necessarily indicative of the results for the entire year. It is suggested these financial statements be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

Certain reclassifications have been made to prior year financial data in order to conform to the 2003 presentation.

The Company entered into a revolving financing agreement (the “Credit Facility”) in January 2002 that matures in January 2005. The agreement allows the Company to borrow up to $25.0 million; however, borrowings are limited to 32% of the Company’s net rental purchase merchandise, less outstanding letters of credit, which totaled $2.9 million at September 30, 2003. Excess availability at September 30, 2003 was approximately $6.0 million. The Company’s tangible assets, primarily rental purchase merchandise, serve as the security for the debt. The Company can elect interest to be charged on a portion of the outstanding debt balance at the London Interbank Offering Rate (LIBOR) plus a range of 250 – 325 basis points and the remaining debt balance, if any, would be at the prime rate plus a range of 50 – 125 basis points. In addition, the Company must pay a commitment fee equal to a range of 37.5 to 50 basis points per annum on the unused portion of the loan commitment. The interest rate ranges above are all dependent on the Company’s most recent quarterly leverage ratio. Borrowings under the Credit Facility mature three years after the date of the loan. At September 30, 2003, the outstanding loan balance totaled $3.5 million with a weighted average interest rate of 7.03%.

The Credit Facility requires the Company to meet certain quarterly financial covenants and ratios including maximum leverage, minimum interest coverage, minimum net worth, fixed charge coverage and rental merchandise usage ratios. The Credit Facility contains non-financial covenants that limit actions of the Company with respect to additional indebtedness, certain loans and investments, payment of dividends, acquisitions, mergers and consolidations, dispositions of assets or subsidiaries, issuance of capital stock, capital expenditures and leases. At September 30, 2003, the Company was in compliance with the covenants and financial reporting requirements.

Basic earnings per common share are computed using net income available to common shareholders divided by the weighted average number of common shares outstanding. For computation of diluted earnings per share, the weighted average number of common shares outstanding is increased to give effect to stock options considered to be common stock equivalents.


		For the three months ended				For the nine months ended
		September 30,				September 30,

		2003		2002		2003		2002

Numerator:
	Net income available to common shareholders	$	217	$	335	$	926	$	1,339
Denominator:
	Basic weighted average shares		5,929,319		5,929,319		5,929,319		5,927,564
	Effect of dilutive stock options		8,866		3,329		3,936		16,517

	Diluted weighted average shares		5,938,185		5,932,648		5,933,255		5,944,081

Basic earnings per share		$	0.04	$	0.06	$	0.16	$	0.23

Diluted earnings per share		$	0.04	$	0.06	$	0.16	$	0.23

Stock options of 437,548 and 388,700 shares for the three months ended September 30, 2003 and 2002, respectively, were not included in diluted earnings per share because their effects were anti-dilutive. For the nine months ended September 30, 2003 and 2002, stock options of 432,483 and 329,067, respectively, were not included in diluted earnings per share because their effects were anti-dilutive.

The Company sponsors a stock option and incentive plan for the benefit of its employees. In December 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, which amended SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 148 requires companies electing not to expense stock options to provide the pro forma net income and earnings per share information not only annually, but also on a quarterly basis. No stock-based compensation costs are reflected in net income since all stock options were granted with an exercise price equal to the market price on the date of grant, consistent with the provisions of Accounting Principles Board (APB) 25.

The following table illustrates the effect on net income and earnings per share had compensation costs for stock options been measured using SFAS No. 123:

Statements made in this Form 10-Q, other than those concerning historical information, or, in future filings by Rainbow Rentals, Inc. with the Securities and Exchange Commission (SEC), in the Company’s press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, constitute “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, and are made pursuant to the “safe harbor” provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements use such words as “may”, “will”, “should”, “expects”, “plans”, “anticipates”, “estimates”, “believes”, “thinks”, “continues”, “indicates”, “outlook”, “looks”, “goals”, “initiatives”, “projects”, or variations thereof. Forward-looking statements are based on management’s current beliefs and assumptions regarding future events and operating performance and speak only as of the date made. These statements are likely to address the Company’s growth strategy, future financial performance (including sales and earnings), strategic initiatives, marketing and expansion plans and the impact of operating initiatives. Forward-looking statements are subject to a number of risks, uncertainties and other factors, many of which are outside the control of the Company that could cause the Company’s actual results to differ materially from those expressed or implied in such statements. These risks and uncertainties include the following: risks associated with general economic conditions; failure to adequately execute plans and unforeseen circumstances beyond the Company’s control in connection with development, implementation and execution of new business processes, procedures and programs; greater than expected expenses associated with the Company’s activities; the effects of new accounting standards; and other risks and uncertainties described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, and in other reports and exhibits to reports filed with the SEC. You are strongly urged to review such filings for a more detailed discussion of such risks and uncertainties. The Company’s SEC filings are available, at no charge, at www.sec.gov and through the Company’s web site at www.rainbowrentals.com. The foregoing list of important factors is not exclusive. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

Rental-purchase merchandise is rented to individuals under flexible agreements that allow customers to own the merchandise after making a specified number of rental payments, which generally occur over a period ranging from 12 to 30 months. Customers have the option to return the merchandise at any time without further obligation, and also have the option to purchase the merchandise at any time during the rental term.

The Company’s primary method of growth is through the opening of new store locations. New stores have a maturation period of approximately three years and generally are dilutive to earnings during the first year of operation as they build a customer base and develop a recurring revenue stream. The timing and performance of new store openings and the number of stores in various stages of the three-year maturation process will have an affect on quarterly comparisons. During the first nine months of 2003, the Company opened six stores (including two in the current quarter) and closed three stores, which were consolidated into existing Rainbow locations. There are no additional store openings planned for the remainder of 2003.

The following table sets forth, for the periods indicated, certain Statements of Income data as a percentage of total revenues.


				(unaudited)						(unaudited)
				For the three months ended						For the nine months ended
				September 30,						September 30,
				2003			2002			2003			2002

Revenues
	Rental revenue				94.4	%		94.1	%		94.2	%		93.7	%
	Fees				2.7			2.9			2.6			2.8
	Merchandise sales				2.9			3.0			3.2			3.5

			Total revenues		100.0			100.0			100.0			100.0
Operating expenses
	Merchandise costs				32.8			34.3			32.6			34.5
	Store expenses
		Salaries and related			26.2			24.9			25.7			24.1
		Occupancy			9.8			10.4			9.7			9.6
		Advertising			5.2			5.4			6.2			6.2
		Other expenses			15.2			13.6			14.3			13.6

			Total store expenses		56.4			54.3			55.9			53.5

			Total merchandise costs and store expenses		89.2			88.6			88.5			88.0
	General and administrative expenses				8.4			8.1			8.5			7.8
	Amortization of intangible assets				0.2			0.2			0.2			0.2

			Total operating expenses		97.8			96.9			97.2			96.0

			Operating income		2.2			3.1			2.8			4.0
Interest expense					0.5			0.6			0.6			0.7
Other expense, net					0.2			0.2			0.2			0.2

			Income from continuing operations, before income taxes		1.5			2.3			2.0			3.1
Income tax expense					0.6			0.8			0.8			1.2

			Income from continuing operations		0.9			1.5			1.2			1.9
Loss on discontinued operations, net of tax					—			(0.1	)		—			(0.1	)

	Net income				0.9	%		1.4	%		1.2	%		1.8	%

Total revenues from continuing operations increased $1.10 million, or 4.5%, to $25.44 million for the three months ended September 30, 2003, compared to $24.34 million for the comparable 2002 period. Revenue from comparable stores, or stores in operation the entire three month periods ended September 30, 2003 and 2002, increased $257,000, or 1.1%. The increase in comparable store revenue was primarily affected by the five stores opened during the first half of 2002 as these stores continued build their customer base. Comparable store revenue at stores opened prior to 2002 remained flat. The Company experienced an increase in average rental rates, primarily due to changes in product mix, which was partially offset by a decline in units on rent, namely air conditioners and discontinued accessory items. Revenue from the 11 stores opened after July 1, 2002 accounted for the remaining increase in revenue from continuing operations.

Merchandise costs from continuing operations for the three months ended September 30, 2003 were flat at approximately $8.35 million compared to the prior year period; however, as a percentage of revenue, costs declined to 32.8% from 34.3% for the three months ended September 30, 2003 and 2002, respectively. The decrease was primarily the result of increased rental rates, lower costs of new merchandise and changes in product mix.

Store expenses from continuing operations increased $1.13 million, or 8.6%, to $14.35 million for the three months ended September 30, 2003 compared to $13.22 million for the three months ended September 30, 2002. Store expenses associated with stores opened after July 1, 2002 (non-comparable stores) accounted for nearly 64%, or $721,000 of the increase. Comparable store salaries and related expenses increased $276,000, primarily due to increased wages as a result of additional store staffing and higher pay rates. Comparable other store expenses increased $416,000, which was attributable to increased inventory parts and repairs, and to a lesser extent, an increase in insurance expense due to higher premiums and increased vehicle claims. Comparable occupancy expense declined $219,000 due mainly to a lease buy-out and asset write-offs recorded during the third quarter of 2002 associated with the consolidation of a store. Comparable advertising expenses declined $62,000 due mainly to management’s decision during the second quarter of 2003 to utilize advertising spending that was earmarked for the third quarter of 2003. Store expenses from continuing operations totaled 56.4% and 54.3% of total revenue from continuing operations for the three months ended September 30, 2003 and 2002, respectively. Comparable store expenses as a percentage of comparable store revenue totaled 54.1% and 53.0% for the three months ended September 30, 2003 and 2002, respectively.

General and administrative expenses increased $176,000, or 9.0% to $2.14 million for the three months ended September 30, 2003 compared to $1.96 million for the three months ended September 30, 2002. The increase in general and administrative expenses was primarily attributable to increased legal fees, corporate payroll and consulting fees totaling $45,000, $46,000 and $56,000, respectively. General and administrative expenses totaled 8.4% and 8.1% of total revenues from continuing operations for the three months ended September 30, 2003 and 2002, respectively.

Income tax expense from continuing operations decreased $65,000 to $142,000 for the three months ended September 30, 2003, from $207,000 for the three months ended September 30, 2002, and was attributable to a decline in income from continuing operations.

Total revenues from continuing operations increased $2.81 million, or 3.8%, to $76.96 million for the nine months ended September 30, 2003, compared to $74.15 million for the nine months ended September 30, 2002. Revenue increased $3.38 million from the 17 store openings since 2002, or the non-comparable stores. This was partially offset by a $589,000, or 0.8%, decline in revenue from comparable stores, or stores in operation the entire nine-month periods ended September 30, 2003 and 2002. The decline in comparable store revenue was mainly attributable to a decline in units on rent, which was largely offset by an increase in average rental rates, partly attributable to changes in product mix.

Merchandise costs from continuing operations decreased $461,000, or 1.8%, to $25.10 million for the nine months ended September 30, 2003 compared to $25.56 million for the nine months ended September 30, 2002. As a percentage of revenue, merchandise costs declined to 32.6% from 34.5% for the nine months ended September 30, 2003 and 2002, respectively. The decrease was primarily the result of increased rental rates and lower costs of new merchandise.

Store expenses from continuing operations increased $3.36 million, or 8.5%, to $43.02 million for the nine months ended September 30, 2003 compared to $39.66 million for the nine months ended September 30, 2002. Store expenses associated with stores opened after January 1, 2002 (non-comparable stores) accounted for $2.45 million of the increase. Store expenses were also affected by an increase in comparable store salaries and related expenses totaling $806,000, which was due to increased staffing, wages and higher workers’ compensation premium costs. Comparable other store expenses increased $374,000, which was attributable to increased inventory parts and repairs, and to a lesser extent, an increase in insurance expense due to higher premiums and increased vehicle claims. A $170,000 decline in comparable occupancy expense partially offset the aforementioned increases and was mainly attributable to higher store closing costs during 2002, namely lease buy-outs and asset write-offs. Comparable advertising expenses modestly declined during 2003 compared to the previous year. Store expense from continuing operations totaled 55.9% and 53.5% of total revenue from continuing operations for the nine months ended September 30, 2003 and 2002, respectively. Comparable store expenses as a percentage of comparable store revenue totaled 54.0% and 52.2%, respectively, for the nine months ended September 30, 2003 and 2002.

General and administrative expenses increased $767,000, or 13.2%, to $6.56 million for the nine months ended September 30, 2003 compared to $5.79 million for the nine months ended September 30, 2002. The increase in general and administrative expenses was partially attributable to $329,000 in severance costs associated with the departure of the Company’s Chief Operating Officer in May 2003, as well as costs related to reorganizing and training the Company’s regional and store managers, higher corporate payroll due mainly to additional personnel, and an increase in consulting fees. General and administrative expenses totaled 8.5% and 7.8% of total revenues from continuing operations for the nine months ended September 30, 2003 and 2002, respectively.

Interest expense decreased $53,000 comparing the nine months ended September 30, 2003 and 2002 due to lower average outstanding debt.

Income tax expense from continuing operations decreased $319,000 to $605,000 for the nine months ended September 30, 2003, from $924,000 for the nine months ended September 30, 2002, and was attributable to a decline in income from continuing operations. The Company’s effective tax rate was 39.5% for both the nine months ended September 30, 2003 and 2002.

The Company’s primary requirements for capital consist of purchasing additional and/or replacement rental-purchase merchandise, expenditures related to new store openings, acquisitions and working capital requirements for new and existing stores. The primary sources of liquidity and capital are from operations and borrowings.

For the nine months ended September 30, 2003 and 2002, cash provided by operating activities totaled $5.28 million and $6.20 million, respectively. The decrease in cash provided by operations was primarily affected by increased purchases of rental purchase merchandise and a decline in income from operations, which was partially offset by changes in accounts payable (due mainly to the timing of inventory purchases) and federal tax refunds. Cash used in investing activities totaled $2.06 million and $2.22 million for the nine months ended September 30, 2003 and 2002, respectively. The decrease in cash used in investing activities was primarily due to acquisitions of customer accounts in 2002, which was partially offset by an increase in property and equipment purchases in 2003. Cash used in financing activities totaled $4.05 million and $4.24 million for the nine months ended September 30, 2003 and 2002, respectively. This change was mainly attributable to loan fees paid during 2002, partially offset by higher reductions in debt during 2003 compared to 2002.

In January 2002, the Company refinanced its debt with a $25.0 million revolving loan agreement (the “Credit Facility”) that matures in January 2005. A borrowing base ($12.4 million at September 30, 2003) measured against rental purchase merchandise limits borrowings under the Credit Facility to 32% of rental purchase inventory, less outstanding letters of credit, which totaled $2.9 million at September 30, 2003. Excess availability was approximately $6.0 million at September 30, 2003. The agreement requires the Company to meet certain quarterly financial covenants and ratios including maximum leverage, minimum interest coverage, minimum net worth, fixed charge coverage and rental merchandise usage ratios. In addition, the Company must meet requirements regarding monthly, quarterly and annual financial reporting. The agreement also contains non-financial covenants that limit actions of the Company with respect to additional indebtedness, certain loans and investments, payment of dividends, acquisitions, mergers and consolidations, dispositions of assets or subsidiaries, issuance of capital stock, capital expenditures and leases.

The Company opened six stores (two stores each in three new markets) during 2003. The Company does not plan to open additional stores during the remainder of 2003. The Company believes it will continue to have the opportunity to increase the number of its stores and rental-purchase agreements through selective acquisitions. Potential acquisitions may vary in size and the Company may consider larger acquisitions that could be material to the Company. To provide any additional funds necessary for the continued pursuit of its growth strategies, the Company may use cash flow from operations, borrow additional amounts under its Credit Facility, or use its own equity securities, the availability of which will depend upon market and other conditions. There can be no assurance that such additional financing will be available to the Company.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51. This Interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The application of this Interpretation does not presently have an effect on the Company’s financial position or results of operations.

In April 2003, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, which amends and clarifies accounting for derivative instruments and hedging

activities under SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities. SFAS No. 149 provides guidance relating to decisions made (a) as part of the Derivatives Implementation Group process, (b) in connection with other FASB projects dealing with financial instruments and (c) regarding implementation issues raised in the application of the definition of a derivative and the characteristics of a derivative that contains financing components. SFAS No. 149 is effective for contracts entered into or modified and for hedging relationships designated after June 30, 2003. The application of this Statement does not have an effect on the Company’s financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments and Characteristics of both Liabilities and Equity, which requires freestanding financial instruments such as mandatorily redeemable shares, forward purchase contracts, written put options to be reported as liabilities by their issuers as well as related new disclosure requirements. The provisions of SFAS No. 150 are effective for instruments entered into or modified after May 31, 2003 and pre-existing instruments as of the beginning of the first interim period that commences after June 15, 2003. The application of this Statement does not presently have an effect on the Company’s financial position or results of operations.

There were no material changes in information about market risk from that provided in the 2002 Annual Report on Form 10-K.

The Company evaluated the design and operation of its disclosure controls and procedures to determine whether they are effective in ensuring that the disclosure of required information is made timely in accordance with the Exchange Act and the rules and forms of the Securities and Exchange Commission. This evaluation was made under the supervision and with the participation of management, including the Company’s principal executive officer and principal financial officer for the quarter ended September 30, 2003. The principal executive officer and principal financial officer have concluded, based on their review, that the Company’s disclosure controls and procedures, as defined at Exchange Act Rules 13a-14(c) and 15d-14(c), are effective to ensure that information required to be disclosed by the Company in reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. No significant changes were made to the Company’s internal controls over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

Exhibit 31.1 – CEO certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2 – CFO certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32 – CEO and CFO certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Report on Form 8-K dated July 30, 2003 to report the results of operations for the three and six months ended June 30, 2003.

In accordance with the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

/s/ WAYLAND J. RUSSELL
Wayland J. Russell, Chairman and
Chief Executive Officer
(Principal Executive Officer)
Date: November 13, 2003

/s/ MICHAEL A. PECCHIA
Michael A. Pecchia,
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: November 13, 2003


[X]		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period 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 ____.


Ohio (State of Incorporation)		34-1512520 (IRS Employer Identification No.)


CLASS Common stock, no par value		SHARES OUTSTANDING AT OCTOBER 31, 2003 5,929,319