##### Table of Contents



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

FORM 10-Q

|           |  |                                                                                        
|---------- |  | ---------------------------------------------------------------------------------------
|(Mark One)
|           |  |                                                                                        
|x          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2003

OR

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From ____ to ____.

Commission File No. 0-24333

RAINBOW RENTALS, INC.

---

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

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

330-533-5363
(Registrants telephone number)

(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 o

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 o No x

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

|                           |  |                                     
|-------------------------- |  | ------------------------------------
|CLASS                      |  | SHARES OUTSTANDING AT APRIL 30, 2003
|                           |  |                                     
|Common stock, no par value |  | 5,929,319                           





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TABLE OF CONTENTS



|                            |                                                                                               |                                    |  |  |  |  |  | 
|--------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------- |  |  |  |  |  | 
|                            |                                                                                               | BALANCE SHEETS                    
|                            |                                                                                               | STATEMENTS OF INCOME              
|                            |                                                                                               | STATEMENTS OF SHAREHOLDERS EQUITY
|                            |                                                                                               | STATEMENTS OF CASH FLOWS          
|                            |                                                                                               | NOTES TO FINANCIAL STATEMENTS     
|                            | Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
|                            | Item 3: Quantitative and Qualitative Disclosures About Market Risk                           
|                            | Item 4: Disclosure Controls and Procedures                                                   
|PART II  OTHER INFORMATION
|                            | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                 
|Certification              
|Exhibit 99.1               
|Exhibit 99.2               



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##### Table of Contents



RAINBOW RENTALS, INC.
INDEX

|                              |  |         |  |                                                                                       |  |         
|----------------------------- |  | ------- |  | ------------------------------------------------------------------------------------- |  | --------
|                              |  |         |  |                                                                                       |  | Page No.
|                              |  |         |  |                                                                                       |  |         
|PART I                        |  |         |  | FINANCIAL INFORMATION                                                                 |  |         
|                              |  | 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                            |  | 12      
|                              |  | Item 4. |  | Disclosure Controls and Procedures                                                    |  | 12      
|PART II                       |  |         |  | OTHER INFORMATION                                                                     |  |         
|                              |  | Item 6. |  | Exhibits and Reports on Form 8-K                                                      |  | 13      
|SIGNATURES                    |  | 14     
|SARBANES-OXLEY CERTIFICATIONS |  | 15     

2



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RAINBOW RENTALS, INC.
BALANCE SHEETS
(Dollars in thousands)

|                                     |                                                                                                                                              |                                            |       |             |        |              |       |        |        | 
|------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----- | ----------- | ------ | ------------ | ----- | ------ | ------ | 
|                                     |                                                                                                                                              |                                            |       | (unaudited) |        |              |       |       
|                                     |                                                                                                                                              |                                            |       | March 31,   |        | December 31,
|                                     |                                                                                                                                              |                                            |       | 2003        |        | 2002        
|                                     |                                                                                                                                              |                                            |       |             |        |             
|Assets                              
|Current assets                       |                                                                                                                                              |                                            |       |             |        |              |       |       
|                                     | Cash and cash equivalents                                                                                                                    |                                            | $     | 1,182       |        |              | $     | 1,080  |       
|                                     | Rental-purchase merchandise, net                                                                                                             |                                            |       | 38,969      |        |              |       | 39,342 |       
|                                     | Income tax receivable                                                                                                                        |                                            |       | 1,264       |        |              |       | 939    |       
|                                     | Prepaid expenses and other current assets                                                                                                    |                                            |       | 1,976       |        |              |       | 1,843  |       
|                                     |                                                                                                                                              |                                            |       |             |        |              |       |        |       
|                                     |                                                                                                                                              | Total current assets                       |       |             | 43,391 |              |       |        | 43,204 | 
|Property and equipment, net          |                                                                                                                                              |                                            | 5,680 |             |        |              | 5,558 |       
|Deferred income taxes                |                                                                                                                                              |                                            | 2,033 |             |        |              | 1,989 |       
|Goodwill, net                        |                                                                                                                                              |                                            | 9,236 |             |        |              | 9,236 |       
|Other assets, net                    |                                                                                                                                              |                                            | 705   |             |        |              | 843   |       
|                                     |                                                                                                                                              |                                            |       |             |        |              |       |        |       
|                                     |                                                                                                                                              | Total assets                               |       | $           | 61,045 |              |       | $      | 60,830 | 
|                                     |                                                                                                                                              |                                            |       |             |        |              |       |        |       
|Liabilities and Shareholders Equity
|Current liabilities                  |                                                                                                                                              |                                            |       |             |        |              |       |       
|                                     | Deferred revenue                                                                                                                             |                                            | $     | 1,251       |        |              | $     | 1,215  |       
|                                     | Accounts payable                                                                                                                             |                                            |       | 2,681       |        |              |       | 2,175  |       
|                                     | Accrued compensation and related costs                                                                                                       |                                            |       | 1,735       |        |              |       | 2,402  |       
|                                     | Other liabilities and accrued expenses                                                                                                       |                                            |       | 2,526       |        |              |       | 2,320  |       
|                                     | Deferred income taxes                                                                                                                        |                                            |       | 6,926       |        |              |       | 6,343  |       
|                                     |                                                                                                                                              |                                            |       |             |        |              |       |        |       
|                                     |                                                                                                                                              | Total current liabilities                  |       |             | 15,119 |              |       |        | 14,455 | 
|Long-term debt                       |                                                                                                                                              |                                            | 6,700 |             |        |              | 7,550 |       
|                                     |                                                                                                                                              |                                            |       |             |        |              |       |        |       
|                                     |                                                                                                                                              | Total liabilities                          |       |             | 21,819 |              |       |        | 22,005 | 
|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
March 31, 2003 and December 31, 2002 |                                            |       | 11,039      |        |              |       | 11,039 |       
|                                     | Additional paid-in capital                                                                                                                   |                                            |       | 4           |        |              |       | 4      |       
|                                     | Retained earnings                                                                                                                            |                                            |       | 30,075      |        |              |       | 29,674 |       
|                                     | Treasury stock, at cost, 463,291 shares at
March 31, 2003 and December 31, 2002                                                              |                                            |       | (1,892      | )      |              |       | (1,892 | )     
|                                     |                                                                                                                                              |                                            |       |             |        |              |       |        |       
|                                     |                                                                                                                                              | Total shareholders equity                 |       |             | 39,226 |              |       |        | 38,825 | 
|                                     |                                                                                                                                              |                                            |       |             |        |              |       |        |       
|                                     |                                                                                                                                              | Total liabilities and shareholders equity |       | $           | 61,045 |              |       | $      | 60,830 | 
|                                     |                                                                                                                                              |                                            |       |             |        |              |       |        |       

See accompanying notes to financial
statements.

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

|                                            |                                                        |                      |                                                        |           |                            |        |      |           |       |        | 
|------------------------------------------- | ------------------------------------------------------ | -------------------- | ------------------------------------------------------ | --------- | -------------------------- | ------ | ---- | --------- | ----- | ------ | 
|                                            |                                                        |                      |                                                        |           | (unaudited)               
|                                            |                                                        |                      |                                                        |           | For the three months ended
|                                            |                                                        |                      |                                                        |           | March 31,                 
|                                            |                                                        |                      |                                                        |           | 2003                       |        | 2002
|                                            |                                                        |                      |                                                        |           |                            |        |     
|Revenues                                    |                                                        |                      |                                                        |           |                            |        |      |          
|                                            | Rental revenue                                         |                      | $                                                      | 24,014    |                            |        | $    | 23,146    |      
|                                            | Fees                                                   |                      |                                                        | 638       |                            |        |      | 638       |      
|                                            | Merchandise sales                                      |                      |                                                        | 1,093     |                            |        |      | 1,181     |      
|                                            |                                                        |                      |                                                        |           |                            |        |      |           |      
|                                            |                                                        |                      | Total revenues                                         |           |                            | 25,745 |      |           |       | 24,965 | 
|Operating expenses                          |                                                        |                      |                                                        |           |                            |        |      |          
|                                            | Merchandise costs                                      |                      |                                                        | 8,777     |                            |        |      | 8,827     |      
|                                            | Store expenses                                         |                      |                                                        |           |                            |        |      |           |      
|                                            |                                                        | Salaries and related |                                                        |           | 6,394                      |        |      |           | 6,024 |       
|                                            |                                                        | Occupancy            |                                                        |           | 2,576                      |        |      |           | 2,322 |       
|                                            |                                                        | Advertising          |                                                        |           | 1,579                      |        |      |           | 1,586 |       
|                                            |                                                        | Other expenses       |                                                        |           | 3,486                      |        |      |           | 3,317 |       
|                                            |                                                        |                      |                                                        |           |                            |        |      |           |      
|                                            |                                                        |                      | Total store expenses                                   |           |                            | 14,035 |      |           |       | 13,249 | 
|                                            |                                                        |                      |                                                        |           |                            |        |      |           |      
|                                            |                                                        |                      | Total merchandise costs and store expenses             |           |                            | 22,812 |      |           |       | 22,076 | 
|                                            | General and administrative expenses                    |                      |                                                        | 2,025     |                            |        |      | 1,715     |      
|                                            | Amortization of intangible assets                      |                      |                                                        | 45        |                            |        |      | 41        |      
|                                            |                                                        |                      |                                                        |           |                            |        |      |           |      
|                                            |                                                        |                      | Total operating expenses                               |           |                            | 24,882 |      |           |       | 23,832 | 
|                                            |                                                        |                      |                                                        |           |                            |        |      |           |      
|                                            |                                                        |                      | Operating income                                       |           |                            | 863    |      |           |       | 1,133  | 
|Interest expense                            |                                                        |                      | 143                                                    |           |                            |        | 185  |          
|Other expense, net                          |                                                        |                      | 57                                                     |           |                            |        | 57   |          
|                                            |                                                        |                      |                                                        |           |                            |        |      |           |      
|                                            |                                                        |                      | Income from continuing operations,
before income taxes |           |                            | 663    |      |           |       | 891    | 
|Income tax expense                          |                                                        |                      | 262                                                    |           |                            |        | 360  |          
|                                            |                                                        |                      |                                                        |           |                            |        |      |           |      
|                                            |                                                        |                      | Income from continuing operations                      |           |                            | 401    |      |           |       | 531    | 
|Discontinued operations                     |                                                        |                      |                                                        |           |                            |        |      |          
|                                            | Loss from operations of discontinued store, net of tax |                      |                                                        |          |                            |        |      | (2        | )    
|                                            |                                                        |                      |                                                        |           |                            |        |      |           |      
|                                            |                                                        |                      | Net income                                             |           | $                          | 401    |      |           | $     | 529    | 
|                                            |                                                        |                      |                                                        |           |                            |        |      |           |      
|Basic earnings per common share:            |                                                        |                      |                                                        |           |                            |        |      |          
|                                            | Basic earnings per share from continuing operations    |                      | $                                                      | 0.07      |                            |        | $    | 0.09      |      
|                                            | Basic loss per share from discontinued operations      |                      |                                                        |          |                            |        |      |          |      
|                                            |                                                        |                      |                                                        |           |                            |        |      |           |      
|                                            |                                                        |                      | Basic earnings per share                               |           | $                          | 0.07   |      |           | $     | 0.09   | 
|                                            |                                                        |                      |                                                        |           |                            |        |      |           |      
|Diluted earnings per common share:          |                                                        |                      |                                                        |           |                            |        |      |          
|                                            | Diluted earnings per share from continuing operations  |                      | $                                                      | 0.07      |                            |        | $    | 0.09      |      
|                                            | Diluted loss per share from discontinued operations    |                      |                                                        |          |                            |        |      |          |      
|                                            |                                                        |                      |                                                        |           |                            |        |      |           |      
|                                            |                                                        |                      | Diluted earnings per share                             |           | $                          | 0.07   |      |           | $     | 0.09   | 
|                                            |                                                        |                      |                                                        |           |                            |        |      |           |      
|Weighted average common shares outstanding: |                                                        |                      |                                                        |           |                            |        |      |          
|                                            | Basic                                                  |                      |                                                        | 5,929,319 |                            |        |      | 5,925,735 |      
|                                            |                                                        |                      |                                                        |           |                            |        |      |           |      
|                                            | Diluted                                                |                      |                                                        | 5,930,063 |                            |        |      | 5,947,262 |      
|                                            |                                                        |                      |                                                        |           |                            |        |      |           |      

See accompanying notes to financial statements.

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

|                                      |                           |   |              |       |            |   |                 |   |          |   |               |   |        |   |        |       |       |   |        |    |  |   |        |       | 
|------------------------------------- | ------------------------- | - | ------------ | ----- | ---------- | - | --------------- | - | -------- | - | ------------- | - | ------ | - | ------ | ----- | ----- | - | ------ | -- |  | - | ------ | ----- | 
|                                      |                           |   | Common Stock |       |            |   |                 |   |          |   |               |   |        |   |        |       | Total
|                                      |                           |   |              |       | 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)    |   |              |      |            |   |                 |  |          |   |               |  |        |   |        | 401   |       |   |        |   |  |   |        | 401   | 
|                                      |                           |   |              |       |            |   |                 |   |          |   |               |   |        |   |        |       |       |   |        |    |  |   |        |      
|Balance at March 31, 2003 (unaudited) |                           |   | 5,929,319    |       |            | $ | 11,039          |   |          | $ | 4             |   |        | $ | 30,075 |       |       | $ | (1,892 | )  |  | $ | 39,226 |      
|                                      |                           |   |              |       |            |   |                 |   |          |   |               |   |        |   |        |       |       |   |        |    |  |   |        |      

See accompanying notes to financial statements.

5



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RAINBOW RENTALS, INC.
STATEMENTS OF CASH FLOWS
(Dollars in thousands)

|                                     |                                                                                                                           |              |                                                                        |                                                                    |     |                            |       |         |     |        |        |  
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------- | ------------ | ---------------------------------------------------------------------- | ------------------------------------------------------------------ | --- | -------------------------- | ----- | ------- | --- | ------ | ------ | -
|                                     |                                                                                                                           |              |                                                                        |                                                                    |     | (unaudited)               
|                                     |                                                                                                                           |              |                                                                        |                                                                    |     | For the three months ended
|                                     |                                                                                                                           |              |                                                                        |                                                                    |     | March 31,                 
|                                     |                                                                                                                           |              |                                                                        |                                                                    |     | 2003                       |       | 2002   
|                                     |                                                                                                                           |              |                                                                        |                                                                    |     |                            |       |        
|Cash flows from operating activities |                                                                                                                           |              |                                                                        |                                                                    |     |                            |       |        
|                                     | Income from continuing operations                                                                                         |              | $                                                                      | 401                                                                |     |                            | $     | 531     |    
|                                     | 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 |                                                                    |     | 637                        |       |         |     | 629    |       
|                                     |                                                                                                                           |              | Depreciation and write-down of rental-purchase merchandise             |                                                                    |     | 6,918                      |       |         |     | 7,045  |       
|                                     |                                                                                                                           |              | Purchases of rental-purchase merchandise                               |                                                                    |     | (8,483                     | )     |         |     | (8,306 | )     
|                                     |                                                                                                                           |              | Rental-purchase merchandise disposed, net                              |                                                                    |     | 1,938                      |       |         |     | 1,797  |       
|                                     |                                                                                                                           |              | Deferred income taxes                                                  |                                                                    |     | 539                        |       |         |     | 1,729  |       
|                                     |                                                                                                                           |              | Loss on disposal of property and equipment                             |                                                                    |     | 8                          |       |         |     | 24     |       
|                                     |                                                                                                                           |              | Increase in                                                            |                                                                    |     |                            |       |         |     |        |       
|                                     |                                                                                                                           |              |                                                                        | Income tax receivable                                              |     |                            | (325  | )       |     |        | (1,275 | )
|                                     |                                                                                                                           |              |                                                                        | Prepaid expenses and other assets                                  |     |                            | (127  | )       |     |        | (240   | )
|                                     |                                                                                                                           |              | Increase (decrease) in                                                 |                                                                    |     |                            |       |         |     |        |       
|                                     |                                                                                                                           |              |                                                                        | Accounts payable                                                   |     |                            | 506   |         |     |        | (867   | )
|                                     |                                                                                                                           |              |                                                                        | Accrued income taxes                                               |     |                            |      |         |     |        | (306   | )
|                                     |                                                                                                                           |              |                                                                        | Accrued compensation and related costs                             |     |                            | (667  | )       |     |        | (584   | )
|                                     |                                                                                                                           |              |                                                                        | Deferred revenue and other liabilities and accrued expenses        |     |                            | 242   |         |     |        | (38    | )
|                                     |                                                                                                                           |              |                                                                        |                                                                    |     |                            |       |         |    
|                                     |                                                                                                                           |              |                                                                        | Net cash provided by operating activities of continuing operations |     |                            | 1,587 |         |     |        | 139    |  
|                                     |                                                                                                                           |              |                                                                        | Net cash used in operating activities of discontinued operations   |     |                            |      |         |     |        | (2     | )
|                                     |                                                                                                                           |              |                                                                        |                                                                    |     |                            |       |         |    
|                                     |                                                                                                                           |              |                                                                        | Net cash provided by operating activities                          |     |                            | 1,587 |         |     |        | 137    |  
|                                     |                                                                                                                           |              |                                                                        |                                                                    |     |                            |       |         |    
|Cash flows from investing activities |                                                                                                                           |              |                                                                        |                                                                    |     |                            |       |        
|                                     | Purchase of property and equipment, net                                                                                   |              |                                                                        | (635                                                               | )   |                            |       | (617    | )  
|                                     | Proceeds from the sale of property and equipment                                                                          |              |                                                                        |                                                                   |     |                            |       | 1       |    
|                                     |                                                                                                                           |              |                                                                        |                                                                    |     |                            |       |         |    
|                                     |                                                                                                                           |              |                                                                        | Net cash used in investing activities                              |     |                            | (635  | )       |     |        | (616   | )
|                                     |                                                                                                                           |              |                                                                        |                                                                    |     |                            |       |         |    
|Cash flows from financing activities |                                                                                                                           |              |                                                                        |                                                                    |     |                            |       |        
|                                     | Proceeds from long-term debt                                                                                              |              |                                                                        | 9,400                                                              |     |                            |       | 19,814  |    
|                                     | Current installments and repayments of long-term debt                                                                     |              |                                                                        | (10,250                                                            | )   |                            |       | (19,454 | )  
|                                     | Loan fees paid                                                                                                            |              |                                                                        |                                                                   |     |                            |       | (301    | )  
|                                     |                                                                                                                           |              |                                                                        |                                                                    |     |                            |       |         |    
|                                     |                                                                                                                           |              |                                                                        | Net cash provided by (used in) financing activities                |     |                            | (850  | )       |     |        | 59     |  
|                                     |                                                                                                                           |              |                                                                        |                                                                    |     |                            |       |         |    
|Net increase (decrease) in cash      |                                                                                                                           |              | 102                                                                    |                                                                    |     |                            | (420  | )      
|Cash at beginning of period          |                                                                                                                           |              | 1,080                                                                  |                                                                    |     |                            | 1,839 |        
|                                     |                                                                                                                           |              |                                                                        |                                                                    |     |                            |       |         |    
|Cash at end of period                |                                                                                                                           | $            | 1,182                                                                  |                                                                    |     | $                          | 1,419 |        
|                                     |                                                                                                                           |              |                                                                        |                                                                    |     |                            |       |         |    
|Supplemental cash flow information   |                                                                                                                           |              |                                                                        |                                                                    |     |                            |       |        
|                                     | Net cash paid during the period for                                                                                       |              |                                                                        |                                                                    |     |                            |       |         |    
|                                     |                                                                                                                           | Interest     |                                                                        | $                                                                  | 113 |                            |       | $       | 120 |       
|                                     |                                                                                                                           | Income taxes |                                                                        |                                                                    | 90  |                            |       |         | 254 |       

See accompanying notes to financial statements.

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

1. Basis of Presentation

Rainbow Rentals, Inc. (the Company) is engaged in the rental and sale of
home electronics, furniture, appliances and computers to the general public.
At March 31, 2003 the Company operated 120 stores in 13 states: Connecticut,
Georgia, 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 fiscal year ended December 31, 2002.

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

2. Goodwill

Goodwill is the cost in excess of the fair value of net assets of acquired
businesses. These assets are stated at cost and, effective January 1, 2002, are
no longer amortized, but evaluated at least annually for impairment, in
accordance with Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets. SFAS No. 142 establishes accounting and
reporting standards for acquired goodwill and other intangible assets in that
goodwill and other intangible assets that have indefinite useful lives will not
be amortized but rather will be tested at least annually for impairment.
Intangible assets that have finite useful lives will continue to be amortized
over their useful lives.

Under SFAS No. 142, the Company was required to test all existing goodwill
for impairment as of January 1, 2002, on a reporting unit basis. A fair
value approach is used to test goodwill for impairment. An impairment charge is
recognized for the amount, if any, by which the carrying amount of goodwill
exceeds its implied fair value. The fair value of a reporting unit and the
related implied fair value of the respective goodwill were established using
comparative market multiples.

In January 2002, the Company completed the transitional goodwill
impairment test in accordance with SFAS No. 142, which resulted in no
impairment charge. The Company performed the annual impairment test as of
November 30, 2002 resulting in no impairment. The annual impairment test for
2003 will be done as of November 30, 2003; however, if circumstances indicate
potential impairment, the Company will test for impairment more frequently.

There were no changes in the carrying amount of goodwill for the three months
ended March 31, 2003 and 2002.

3. Long-Term Debt

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 March 31, 2003. Excess availability
at March 31, 2003 was approximately $2.9 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 March 31, 2003, the outstanding loan balance totaled $6.7
million with a weighted average interest rate of 5.94%.

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

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Credit Facility contains non-financial covenants that limits
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 March 31, 2003, the Company was in
compliance with the covenants and financial reporting requirements.

4. Earnings Per Share

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.

The following table shows the amounts used in computing earnings per
share.

|             |                                             |  |                            |           |      |  |   |           | 
|------------ | ------------------------------------------- |  | -------------------------- | --------- | ---- |  | - | --------- | 
|             |                                             |  | For the three months ended
|             |                                             |  | March 31,                 
|             |                                             |  | 2003                       |           | 2002
|             |                                             |  |                            |           |     
|Numerator:   |                                             |  |                            |           |      |  |   |          
|             | Net income available to common shareholders |  | $                          | 401       |      |  | $ | 529       | 
|Denominator: |                                             |  |                            |           |      |  |   |          
|             | Basic weighted average shares               |  |                            | 5,929,319 |      |  |   | 5,925,735 | 
|             | Effect of dilutive stock options            |  |                            | 744       |      |  |   | 21,527    | 
|             |                                             |  |                            |           |      |  |   |          
|             | Diluted weighted average shares             |  |                            | 5,930,063 |      |  |   | 5,947,262 | 
|             |                                             |  |                            |           |      |  |   |          
|             | Basic earnings per share                    |  | $                          | 0.07      |      |  | $ | 0.09      | 
|             |                                             |  |                            |           |      |  |   |          
|             | Diluted earnings per share                  |  | $                          | 0.07      |      |  | $ | 0.09      | 
|             |                                             |  |                            |           |      |  |   |          

Stock options of 451,200 and 309,500 shares for the three months ended
March 31, 2003 and 2002, respectively, were not included in diluted earnings
per share because their effects were anti-dilutive.

5. Stock-Based Compensation

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 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:

|                                            |             |  |                                 |      |      |  |   |      | 
|------------------------------------------- | ----------- |  | ------------------------------- | ---- | ---- |  | - | ---- | 
|                                            |             |  | For the quarter ended March 31,
|                                            |             |  | 2003                            |      | 2002
|                                            |             |  |                                 |      |     
|Net income                                  |             |  |                                 |      |      |  |   |     
|                                            | As reported |  | $                               | 401  |      |  | $ | 529  | 
|                                            | Pro forma   |  |                                 | 368  |      |  |   | 498  | 
|Basic and diluted earnings per common share |             |  |                                 |      |      |  |   |     
|                                            | As reported |  |                                 | 0.07 |      |  |   | 0.09 | 
|                                            | Pro forma   |  |                                 | 0.06 |      |  |   | 0.08 | 

6. Subsequent Events

On May
7, 2003, the Company announced the departure of its Chief Operating
Officer (COO), who also served as a director. The Company entered
into a severance agreement with its former COO that will pay him $322
in salary and other compensation. Current accounting pronouncements require the Company to
expense the fair value of the severance agreement

8



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during the second
quarter of 2003. The Company estimates that the negative impact to
earnings, net of tax, for the second quarter of 2003 will be $0.03 per diluted
share.

Forward-Looking Statements

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

General

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.

New Store Openings

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 quarter 2003, the Company closed two stores and
consolidated them into existing Rainbow locations. The Company also closed and
consolidated one additional store in April 2003. The Company plans to open
approximately 10 stores during 2003.

9



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Results of Operations

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

|                                            |                                                |                      |                                                        |      |                                      |       |      |      |      |       |  
|------------------------------------------- | ---------------------------------------------- | -------------------- | ------------------------------------------------------ | ---- | ------------------------------------ | ----- | ---- | ---- | ---- | ----- | -
|                                            |                                                |                      |                                                        |      | (unaudited)                         
|                                            |                                                |                      |                                                        |      | For the three months ended March 31,
|                                            |                                                |                      |                                                        |      | 2003                                 |       | 2002
|                                            |                                                |                      |                                                        |      |                                      |       |     
|Revenues                                    |                                                |                      |                                                        |      |                                      |       |      |     
|                                            | Rental revenue                                 |                      |                                                        | 93.3 | %                                    |       |      | 92.7 | %   
|                                            | Fees                                           |                      |                                                        | 2.5  |                                      |       |      | 2.6  |     
|                                            | Merchandise sales                              |                      |                                                        | 4.2  |                                      |       |      | 4.7  |     
|                                            |                                                |                      |                                                        |      |                                      |       |      |     
|                                            |                                                |                      | Total revenues                                         |      |                                      | 100.0 |      |      |      | 100.0 |  
|Operating expenses                          |                                                |                      |                                                        |      |                                      |       |      |     
|                                            | Merchandise costs                              |                      |                                                        | 34.1 |                                      |       |      | 35.4 |     
|                                            | Store expenses                                 |                      |                                                        |      |                                      |       |      |      |     
|                                            |                                                | Salaries and related |                                                        |      | 24.8                                 |       |      |      | 24.1 |      
|                                            |                                                | Occupancy            |                                                        |      | 10.0                                 |       |      |      | 9.3  |      
|                                            |                                                | Advertising          |                                                        |      | 6.1                                  |       |      |      | 6.3  |      
|                                            |                                                | Other expenses       |                                                        |      | 13.6                                 |       |      |      | 13.3 |      
|                                            |                                                |                      |                                                        |      |                                      |       |      |     
|                                            |                                                |                      | Total store expenses                                   |      |                                      | 54.5  |      |      |      | 53.0  |  
|                                            |                                                |                      |                                                        |      |                                      |       |      |     
|                                            |                                                |                      | Total merchandise costs and store expenses             |      |                                      | 88.6  |      |      |      | 88.4  |  
|                                            | General and administrative expenses            |                      |                                                        | 7.9  |                                      |       |      | 6.9  |     
|                                            | Amortization of identifiable intangible assets |                      |                                                        | 0.2  |                                      |       |      | 0.2  |     
|                                            |                                                |                      |                                                        |      |                                      |       |      |     
|                                            |                                                |                      | Total operating expenses                               |      |                                      | 96.7  |      |      |      | 95.5  |  
|                                            |                                                |                      |                                                        |      |                                      |       |      |     
|                                            |                                                |                      | Operating income                                       |      |                                      | 3.3   |      |      |      | 4.5   |  
|Interest expense                            |                                                |                      | 0.5                                                    |      |                                      |       | 0.8  |     
|Other expense, net                          |                                                |                      | 0.2                                                    |      |                                      |       | 0.2  |     
|                                            |                                                |                      |                                                        |      |                                      |       |      |     
|                                            |                                                |                      | Income from continuing operations,
before income taxes |      |                                      | 2.6   |      |      |      | 3.5   |  
|Income tax expense                          |                                                |                      | 1.0                                                    |      |                                      |       | 1.4  |     
|                                            |                                                |                      |                                                        |      |                                      |       |      |     
|                                            |                                                |                      | Income from continuing operations                      |      |                                      | 1.6   |      |      |      | 2.1   |  
|Loss on discontinued operations, net of tax |                                                |                      |                                                       |      |                                      |       |     |     
|                                            |                                                |                      |                                                        |      |                                      |       |      |     
|                                            |                                                |                      | Net income                                             |      |                                      | 1.6   | %    |      |      | 2.1   | %
|                                            |                                                |                      |                                                        |      |                                      |       |      |     

Comparison of Three Months Ended March 31, 2003 and 2002

Total revenues from continuing operations increased $780,000, or 3.1%, to
$25.75 million for the three months ended March 31, 2003, compared to $24.97
million for the three months ended March 31, 2002. Revenue from the 11 stores
opened in 2002 increased $1.15 million comparing the three months ended March
31, 2003 and 2002 as these stores continue to build a customer base and develop
a recurring revenue stream. Revenue from comparable stores (stores in
operation on January 1, 2002) declined $350,000, or 1.4%, and was mainly
attributable to a comparable quarter decline in units on rent, which was
partially offset by an increase in average rental rates and changes in product
mix.

Merchandise costs from continuing operations decreased $50,000, or 0.6%,
to $8.78 million for the three months ended March 31, 2003 compared to $8.83
million for the three months ended March 31, 2002. Merchandise costs totaled
34.1% and 35.4% of total revenues for the three months ended March 31, 2003 and
2002, respectively. The decrease in merchandise

10



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costs from continuing
operations as a percentage of total revenue from continuing operations was
primarily the result of increased rental rates and improved buying of new
merchandise. During mid-2001, the Company lowered rental rates in order to
move
older, pre-rented merchandise. The Company began raising rental rates
during the second quarter of 2002 towards historical levels as the quality of
older, pre-rented merchandise improved.

Store expenses from continuing operations increased $787,000, or 5.9%, to
$14.04 million for the three months ended March 31, 2003 compared to $13.25
million for the three months ended March 31, 2002. The increase was mainly
attributable to the 11 stores opened in 2002, which was partially offset by a
0.8% decrease in comparable store expenses, primarily driven by advertising
expense reductions. Comparable occupancy expense increased 1.6% due primarily
to lease buy-outs associated with the two underperforming stores that were
closed during the first quarter of 2003, but was offset by a 0.5% decline in
comparable salaries and related expenses. Other comparable store expenses
increased only 0.3%. Comparable store expenses as a percentage of comparable
store revenue totaled 52.8% and 52.5%, respectively, for the three months ended
March 31, 2003 and 2002. This slight increase was due to a decline in
comparable store revenue and lease buy-out costs for two underperforming stores
closed in January 2003. Store expense from continuing operations totaled 54.5%
and 53.0% of total revenue from continuing operations for the three months
ended March 31, 2003 and 2002, respectively.

General and administrative expenses increased $310,000, or 18.1%, to $2.03
million for the three months ended March 31, 2003 compared to $1.72 million for
the three months ended March 31, 2002. The increase in general and
administrative expenses was attributable to a number of factors including
expenses related to reorganizing the Companys regional management team,
increased expenses related to associate benefit programs, and training costs
primarily associated with enhancing store associates and regional managers
skills and preparing potential managers for future store openings and
replacements. General and administrative expenses totaled 7.9% and 6.9% of
total revenues from continuing operations, respectively, for the three months
ended March 31, 2003 and 2002. This increase was due to the aforementioned
increased expenses in addition to slower revenue growth than anticipated.

Interest expense decreased $42,000 comparing the three months ended March
31, 2003 and 2002 primarily due to lower average outstanding debt.

Income tax expense from continuing operations decreased $99,000 to
$262,000 for the three months ended March 31, 2003, from $361,000 for the three
months ended March 31, 2002. This decrease was attributable to a decline in
income from continuing operations as well as a decline in the Companys
effective tax rate to 39.5% for the three months ended March 31, 2003 from
40.5% for the three months ended March 31, 2002.

Liquidity and Capital Resources

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 three months ended March 31, 2003 and 2002, cash provided by
operations of continuing operations totaled $1.59 million and $137,000,
respectively. The $1.45 million increase in cash provided by operations was
primarily from changes in accounts payable, which was the result of the timing
of purchases of rental purchase merchandise, which were higher during the
fourth quarter 2001 compared to the fourth quarter 2002, as such payments were
made in the subsequent quarterly period. Purchases of rental purchase
merchandise totaled $8.48 million and $8.31 million, respectively, for the
three months ended March 31, 2003 and 2002. Cash used in investing activities
remained relatively consistent at $635,000 and $616,000, respectively, for the
three months ended March 31, 2003 and 2002. Cash used in financing activities
totaled $850,000 for the three months ended March 31, 2003 as the Company
reduced its debt. The Companys debt remained flat during the three months
ended March 31, 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 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 March 31, 2003. Excess
availability was approximately $2.9 million at March 31, 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

11



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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 plans to open 10 new stores during 2003 with cash provided by
operations. 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.

New Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board 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 is not expected to have
a material effect on the Companys financial position or results of operations.




Item 3: Quantitative and Qualitative Disclosures About Market Risk

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




Item 4: Disclosure Controls and Procedures

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 timely made 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 within the 90-day period prior to the filing of this
Quarterly Report on Form 10-Q. 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 or other factors that could
significantly affect these controls subsequent to the date of their evaluation.

12



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##### Table of Contents






PART II  OTHER INFORMATION
RAINBOW RENTALS, INC.
MARCH 31, 2003




Item 6. Exhibits and Reports on Form 8-K

|                        |      |  |      |  |  |   |  |                                                                                             
|----------------------- | ---- |  | ---- |  |  | - |  | --------------------------------------------------------------------------------------------
|A. Exhibits:            |      |  | 99.1 |  |  |  |  | Certification of Principal Executive Officer (Section 906 of the Sarbanes-Oxley Act of 2002)
|                        |      |  | 99.2 |  |  |  |  | Certification of Principal Financial Officer (Section 906 of the Sarbanes-Oxley Act of 2002)
|                        |      |  |      |  |  |   |  |                                                                                             
|B. Reports
on Form 8-K: | None

13



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##### Table of Contents






SIGNATURES

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



|                                                                                                                                  
|----------------------------------------------------------------------------------------------------------------------------------
|RAINBOW RENTALS, INC.
(Registrant)                                                                                                
|                                                                                                                                  
|/s/ Wayland J. RussellWayland J. Russell, Chairman and
Chief Executive Officer
(Principal Executive Officer)
Date:  May 14, 2003  
|                                                                                                                                  
|/s/ Michael A. PecchiaMichael A. Pecchia,
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date:  May 14, 2003

14



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Certification of the Principal Executive Officer

Pursuant to 15 U.S.C. 78m(a) or 78o(d)

(Section 302 of the Sarbanes-Oxley Act of 2002)

I, Wayland J. Russell, the Chairman and Chief Executive Officer of Rainbow
Rentals, Inc. (the Company), certify that:



| |                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) I have reviewed this quarterly report on Form 10-Q of the Company;                                                                                                                                                                                                                                                            
|
| | (2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
|
| | (3) Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present
in all material respects the financial condition, results of operations
and cash flows of the Company as of, and for, the periods presented in
this quarterly report;                      
|
| | (4) The Companys other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and we
have:                                                                                                            



| |                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) designed such disclosure controls and procedures to ensure
that material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
|
| | (b) evaluated the effectiveness of the Companys disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | (c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;                                                                                                                     



| |                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (5) The Companys other certifying officer and I have disclosed, based
on our most recent evaluation, to the Companys auditors and the audit
committee of Companys board of directors (or persons performing the
equivalent function):



| |                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Companys
ability to record, process, summarize and report financial data
and have identified for the Companys auditors any material
weaknesses in internal controls; and
|
| | (b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the Companys
internal controls; and                                                                                                                                     



| |                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (6) The Companys other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

|                                                                             
|-----------------------------------------------------------------------------
|/s/ Wayland J. Russell                                                       
|                                                                             
|Wayland J. Russell
Rainbow Rentals, Inc.
Chairman and Chief Executive Officer
|                                                                             
|May 14, 2003                                                                 

15



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Certification of the Principal Financial Officer

Pursuant to 15 U.S.C. 78m(a) or 78o(d)

(Section 302 of the Sarbanes-Oxley Act of 2002)

I, Michael A. Pecchia, the Chief Financial Officer of Rainbow Rentals, Inc.
(the Company), certify that:



| |                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) I have reviewed this quarterly report on Form 10-Q of the Company;                                                                                                                                                                                                                                                            
|
| | (2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
|
| | (3) Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present
in all material respects the financial condition, results of operations
and cash flows of the Company as of, and for, the periods presented in
this quarterly report;                      
|
| | (4) The Companys other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and we
have:                                                                                                            



| |                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) designed such disclosure controls and procedures to ensure
that material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
|
| | (b) evaluated the effectiveness of the Companys disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | (c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;                                                                                                                     



| |                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (5) The Companys other certifying officer and I have disclosed, based
on our most recent evaluation, to the Companys auditors and the audit
committee of Companys board of directors (or persons performing the
equivalent function):



| |                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Companys
ability to record, process, summarize and report financial data
and have identified for the Companys auditors any material
weaknesses in internal controls; and
|
| | (b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the Companys
internal controls; and                                                                                                                                     



| |                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (6) The Companys other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

|                                                                                      
|--------------------------------------------------------------------------------------
|/s/ Michael A. PecchiaMichael A. Pecchia
Rainbow Rentals, Inc.
Chief Financial Officer
|                                                                                      
|May 14, 2003                                                                          

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