TABLE OF CONTENTS




|                            |                                                                                               |                                              |  |  |  |  |  | 
|--------------------------- | --------------------------------------------------------------------------------------------- | -------------------------------------------- |  |  |  |  |  | 
|FORM 10-Q                  
|                            |                                                                                               | CONDENSED BALANCE SHEETS                    
|                            |                                                                                               | CONDENSED STATEMENTS OF INCOME              
|                            |                                                                                               | CONDENSED STATEMENTS OF SHAREHOLDERS EQUITY
|                            |                                                                                               | CONDENSED STATEMENTS OF CASH FLOWS          
|                            |                                                                                               | NOTES TO CONDENSED 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                           
|PART II  OTHER INFORMATION
|                            | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                            | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                 



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##### 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 June 30, 2001                                           
|   
|   
|   
|   
|    |  | OR                                                                                     

|      |  |                                                                                         
|----- |  | ----------------------------------------------------------------------------------------
|[   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|     
|     
|     
|     
|      |  | For the Transition Period From ____ to ____.                                            

Commission File No. 0-24333

|                                                      
|------------------------------------------------------
|RAINBOW
RENTALS, INC.                                 
|(Exact name of Registrant as specified in its charter)

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

Indicate 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 JULY 31, 2001
|Common stock, no par value |  | 5,925,735                          

1



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##### Table of Contents



RAINBOW RENTALS, INC.
INDEX

|           |  |  |         |  |  |                                                                                       |  |         
|---------- |  |  | ------- |  |  | ------------------------------------------------------------------------------------- |  | --------
|          
|          
|PART I     |  |  |         |  |  | FINANCIAL INFORMATION                                                                 |  | Page No.
|          
|           |  |  | Item 1. |  |  | Financial Statements                                                                 
|          
|          
|          
|          
|          
|           |  |  |         |  |  | Condensed Balance Sheets                                                              |  | 3       
|          
|          
|          
|          
|          
|           |  |  |         |  |  | Condensed Statements of Income                                                        |  | 4       
|          
|          
|          
|          
|          
|           |  |  |         |  |  | Condensed Statements of Shareholders Equity                                          |  | 5       
|          
|          
|          
|          
|          
|           |  |  |         |  |  | Condensed Statements of Cash Flows                                                    |  | 6       
|          
|          
|          
|          
|          
|           |  |  |         |  |  | Notes to Condensed Financial Statements                                               |  | 7       
|          
|          
|          
|          
|          
|           |  |  | Item 2. |  |  | Managements Discussion and Analysis of Financial Condition
and Results of Operations |  | 8       
|          
|          
|          
|          
|          
|           |  |  | Item 3. |  |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 12      
|          
|          
|          
|          
|          
|PART II    |  |  |         |  |  | OTHER INFORMATION                                                                    
|          
|          
|          
|          
|          
|           |  |  | Item 4. |  |  | Submission of Matters to a Vote of Security Holders                                   |  | 13      
|          
|          
|          
|          
|          
|           |  |  | Item 6. |  |  | Exhibits and Reports on Form 8-K                                                      |  | 13      
|          
|          
|          
|          
|          
|SIGNATURES |  |  |         |  |  |                                                                                       |  | 14      
|          
|          

2



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##### Table of Contents



RAINBOW RENTALS, INC.

CONDENSED BALANCE SHEETS
(Dollars in thousands)


|                            |                                                                                                           |                                            |                                      |        |        |             |        |              |        |  |  | 
|--------------------------- | --------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------------ | ------ | ------ | ----------- | ------ | ------------ | ------ |  |  | 
|                            |                                                                                                           |                                            |                                      |        |        | (unaudited)
|                            |                                                                                                           |                                            |                                      |        |        | June 30,    |        | December 31,
|                            |                                                                                                           |                                            |                                      |        |        | 2001        |        | 2000        
|                            |                                                                                                           |                                            |                                      |        |        |             |        |             
|                           
|                            |                                                                                                           |                                            |                                      | Assets
|                           
|                           
|                           
|                           
|Current assets             
|                           
|                           
|                           
|                           
|                            | Cash                                                                                                      |                                            | $                                    | 1,664  |        |             | $      | 1,426        |       
|                           
|                           
|                           
|                           
|                            | Rental-purchase merchandise, net                                                                          |                                            |                                      | 35,747 |        |             |        | 36,545       |       
|                           
|                           
|                           
|                           
|                            | Income tax receivable                                                                                     |                                            |                                      | 640    |        |             |        | 778          |       
|                           
|                           
|                           
|                           
|                            | Prepaid expenses and other current assets                                                                 |                                            |                                      | 1,877  |        |             |        | 1,709        |       
|                            |                                                                                                           |                                            |                                      |        |        |             |        |             
|                            |                                                                                                           | Total current assets                       |                                      |        | 39,928 |             |        |              | 40,458 | 
|                           
|Property and equipment, net |                                                                                                           |                                            | 5,265                                |        |        |             | 5,259  |             
|                           
|                           
|                           
|                           
|Deferred income taxes       |                                                                                                           |                                            | 1,460                                |        |        |             | 1,460  |             
|                           
|                           
|                           
|                           
|Goodwill, net               |                                                                                                           |                                            | 9,355                                |        |        |             | 9,887  |             
|                           
|                           
|                           
|                           
|Other assets, net           |                                                                                                           |                                            | 1,217                                |        |        |             | 1,365  |             
|                            |                                                                                                           |                                            |                                      |        |        |             |        |             
|                            |                                                                                                           | Total assets                               |                                      | $      | 57,225 |             |        | $            | 58,429 | 
|                            |                                                                                                           |                                            |                                      |        |        |             |        |             
|                           
|                            |                                                                                                           |                                            | Liabilities and Shareholders Equity
|                           
|                           
|                           
|                           
|Current liabilities        
|                           
|                           
|                           
|                           
|                            | Short-term debt                                                                                           |                                            | $                                    | 8,623  |        |             | $      |             |       
|                           
|                           
|                           
|                           
|                            | Accounts payable                                                                                          |                                            |                                      | 3,126  |        |             |        | 2,410        |       
|                           
|                           
|                           
|                           
|                            | Accrued compensation and related costs                                                                    |                                            |                                      | 1,394  |        |             |        | 1,525        |       
|                           
|                           
|                           
|                           
|                            | Other liabilities and accrued expenses                                                                    |                                            |                                      | 3,164  |        |             |        | 2,485        |       
|                           
|                           
|                           
|                           
|                            | Deferred income taxes                                                                                     |                                            |                                      | 3,978  |        |             |        | 3,678        |       
|                            |                                                                                                           |                                            |                                      |        |        |             |        |             
|                            |                                                                                                           | Total current liabilities                  |                                      |        | 20,285 |             |        |              | 10,098 | 
|                           
|Long-term debt              |                                                                                                           |                                            |                                     |        |        |             | 12,340 |             
|                            |                                                                                                           |                                            |                                      |        |        |             |        |             
|                            |                                                                                                           | Total liabilities                          |                                      |        | 20,285 |             |        |              | 22,438 | 
|                           
|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 5,925,735 outstanding |                                            |                                      | 11,039 |        |             |        | 11,039       |       
|                           
|                           
|                           
|                           
|                            | Retained earnings                                                                                         |                                            |                                      | 27,808 |        |             |        | 26,859       |       
|                           
|                           
|                           
|                           
|                            | Treasury stock, 466,875 common shares at cost                                                             |                                            |                                      | (1,907 | )      |             |        | (1,907       | )     
|                            |                                                                                                           |                                            |                                      |        |        |             |        |             
|                            |                                                                                                           | Total shareholders equity                 |                                      |        | 36,940 |             |        |              | 35,991 | 
|                            |                                                                                                           |                                            |                                      |        |        |             |        |             
|                            |                                                                                                           | Total liabilities and shareholders equity |                                      | $      | 57,225 |             |        | $            | 58,429 | 
|                            |                                                                                                           |                                            |                                      |        |        |             |        |             

See accompanying notes to condensed financial statements.

3



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##### Table of Contents



RAINBOW RENTALS, INC.

CONDENSED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)


|                                            |                                                    |                      |                                            |           |                            |        |                          |           |       |        |      |           |       |        |       |           |       |        | 
|------------------------------------------- | -------------------------------------------------- | -------------------- | ------------------------------------------ | --------- | -------------------------- | ------ | ------------------------ | --------- | ----- | ------ | ---- | --------- | ----- | ------ | ----- | --------- | ----- | ------ | 
|                                            |                                                    |                      |                                            |           | (unaudited)                |        | (unaudited)             
|                                            |                                                    |                      |                                            |           | For the three months ended |        | For the six months ended
|                                            |                                                    |                      |                                            |           | June 30,                   |        | June 30,                
|                                            |                                                    |                      |                                            |           |                            |        |                         
|                                            |                                                    |                      |                                            |           | 2001                       |        | 2000                     |           | 2001  |        | 2000
|                                            |                                                    |                      |                                            |           |                            |        |                          |           |       |        |     
|Revenues                                   
|                                           
|                                           
|                                           
|                                           
|                                            | Rental revenue                                     |                      | $                                          | 22,211    |                            |        | $                        | 21,101    |       |        | $    | 44,677    |       |        | $     | 41,863    |      
|                                           
|                                           
|                                           
|                                           
|                                            | Fees                                               |                      |                                            | 698       |                            |        |                          | 693       |       |        |      | 1,383     |       |        |       | 1,364     |      
|                                           
|                                           
|                                           
|                                           
|                                            | Merchandise sales                                  |                      |                                            | 680       |                            |        |                          | 592       |       |        |      | 1,818     |       |        |       | 1,621     |      
|                                            |                                                    |                      |                                            |           |                            |        |                          |           |       |        |      |           |       |        |       |          
|                                            |                                                    |                      | Total revenues                             |           |                            | 23,589 |                          |           |       | 22,386 |      |           |       | 47,878 |       |           |       | 44,848 | 
|                                           
|Operating expenses                         
|                                           
|                                           
|                                           
|                                           
|                                            | Merchandise costs                                  |                      |                                            | 8,041     |                            |        |                          | 7,173     |       |        |      | 16,430    |       |        |       | 14,680    |      
|                                           
|                                           
|                                           
|                                           
|                                            | Store expenses                                     |                     
|                                           
|                                           
|                                           
|                                           
|                                            |                                                    | Salaries and related |                                            | 5,522     |                            |        |                          | 5,215     |       |        |      | 11,232    |       |        |       | 10,350    |      
|                                           
|                                           
|                                           
|                                           
|                                            |                                                    | Occupancy            |                                            |           | 2,069                      |        |                          |           | 1,713 |        |      |           | 4,161 |        |       |           | 3,332 |       
|                                           
|                                           
|                                           
|                                           
|                                            |                                                    | Advertising          |                                            |           | 1,520                      |        |                          |           | 1,015 |        |      |           | 3,043 |        |       |           | 2,061 |       
|                                           
|                                           
|                                           
|                                           
|                                            |                                                    | Other expenses       |                                            |           | 3,145                      |        |                          |           | 2,813 |        |      |           | 6,489 |        |       |           | 5,674 |       
|                                            |                                                    |                      |                                            |           |                            |        |                          |           |       |        |      |           |       |        |       |          
|                                            |                                                    |                      | Total store expenses                       |           |                            | 12,256 |                          |           |       | 10,756 |      |           |       | 24,925 |       |           |       | 21,417 | 
|                                            |                                                    |                      |                                            |           |                            |        |                          |           |       |        |      |           |       |        |       |          
|                                            |                                                    |                      | Total merchandise costs and store expenses |           |                            | 20,297 |                          |           |       | 17,929 |      |           |       | 41,355 |       |           |       | 36,097 | 
|                                           
|                                            | General and administrative expenses                |                      |                                            | 1,965     |                            |        |                          | 1,713     |       |        |      | 3,820     |       |        |       | 3,330     |      
|                                           
|                                           
|                                           
|                                           
|                                            | Amortization of goodwill and noncompete agreements |                      |                                            | 174       |                            |        |                          | 134       |       |        |      | 349       |       |        |       | 266       |      
|                                            |                                                    |                      |                                            |           |                            |        |                          |           |       |        |      |           |       |        |       |          
|                                            |                                                    |                      | Total operating expenses                   |           |                            | 22,436 |                          |           |       | 19,776 |      |           |       | 45,524 |       |           |       | 39,693 | 
|                                            |                                                    |                      |                                            |           |                            |        |                          |           |       |        |      |           |       |        |       |          
|                                            |                                                    |                      | Operating income                           |           |                            | 1,153  |                          |           |       | 2,610  |      |           |       | 2,354  |       |           |       | 5,155  | 
|                                           
|Interest expense                            |                                                    |                      | 188                                        |           |                            |        | 197                      |           |       |        | 413  |           |       |        | 395   |          
|                                           
|                                           
|                                           
|                                           
|Other expense, net                          |                                                    |                      | 262                                        |           |                            |        | 120                      |           |       |        | 347  |           |       |        | 193   |          
|                                            |                                                    |                      |                                            |           |                            |        |                          |           |       |        |      |           |       |        |       |          
|                                            |                                                    |                      | Income before income taxes                 |           |                            | 703    |                          |           |       | 2,293  |      |           |       | 1,594  |       |           |       | 4,567  | 
|                                           
|                                           
|                                           
|                                           
|Income taxes                                |                                                    |                      | 285                                        |           |                            |        | 938                      |           |       |        | 645  |           |       |        | 1,870 |          
|                                            |                                                    |                      |                                            |           |                            |        |                          |           |       |        |      |           |       |        |       |          
|                                            |                                                    |                      | Net income                                 |           | $                          | 418    |                          |           | $     | 1,355  |      |           | $     | 949    |       |           | $     | 2,697  | 
|                                            |                                                    |                      |                                            |           |                            |        |                          |           |       |        |      |           |       |        |       |          
|Earnings per common share:                 
|                                           
|                                           
|                                           
|                                           
|                                            | Basic and diluted earnings per share               |                      | $                                          | 0.07      |                            |        | $                        | 0.23      |       |        | $    | 0.16      |       |        | $     | 0.46      |      
|                                            |                                                    |                      |                                            |           |                            |        |                          |           |       |        |      |           |       |        |       |          
|Weighted average common shares outstanding:
|                                           
|                                           
|                                           
|                                           
|                                            | Basic                                              |                      |                                            | 5,925,735 |                            |        |                          | 5,925,735 |       |        |      | 5,925,735 |       |        |       | 5,925,735 |      
|                                            |                                                    |                      |                                            |           |                            |        |                          |           |       |        |      |           |       |        |       |          
|                                            | Diluted                                            |                      |                                            | 5,932,146 |                            |        |                          | 5,925,735 |       |        |      | 5,934,057 |       |        |       | 5,925,735 |      
|                                            |                                                    |                      |                                            |           |                            |        |                          |           |       |        |      |           |       |        |       |          

See accompanying notes to condensed financial statements.

4



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##### Table of Contents



RAINBOW RENTALS, INC.

CONDENSED STATEMENTS OF SHAREHOLDERS EQUITY

(Dollars in thousands)


|                                     |                        |  |              |   |          |   |          |   |               |   |        |       |       |   |        |   |  |   |        |       | 
|------------------------------------ | ---------------------- |  | ------------ | - | -------- | - | -------- | - | ------------- | - | ------ | ----- | ----- | - | ------ | - |  | - | ------ | ----- | 
|                                     |                        |  | Common Stock |   |          |   |          |   |               |   |        |       | Total
|                                     |                        |  |              |   | Retained |   | Treasury |   | Shareholders'
|                                     |                        |  | Shares       |   | Cost     |   | Earnings |   | Stock         |   | Equity
|                                     |                        |  |              |   |          |   |          |   |               |   |       
|                                    
|Balance at December 31, 1999         |                        |  | 5,925,735    |   |          | $ | 11,039   |   |               | $ | 22,754 |       |       | $ | (1,907 | ) |  | $ | 31,886 |      
|                                    
|                                    
|                                    
|                                    
|                                     | Net income             |  |              |  |          |   |          |  |               |   |        | 4,105 |       |   |        |  |  |   |        | 4,105 | 
|                                     |                        |  |              |   |          |   |          |   |               |   |        |       |       |   |        |   |  |   |        |      
|Balance at December 31, 2000         |                        |  | 5,925,735    |   |          |   | 11,039   |   |               |   | 26,859 |       |       |   | (1,907 | ) |  |   | 35,991 |      
|                                    
|                                    
|                                    
|                                    
|                                     | Net income (unaudited) |  |              |  |          |   |          |  |               |   |        | 949   |       |   |        |  |  |   |        | 949   | 
|                                     |                        |  |              |   |          |   |          |   |               |   |        |       |       |   |        |   |  |   |        |      
|Balance at June 30, 2001 (unaudited) |                        |  | 5,925,735    |   |          | $ | 11,039   |   |               | $ | 27,808 |       |       | $ | (1,907 | ) |  | $ | 36,940 |      
|                                     |                        |  |              |   |          |   |          |   |               |   |        |       |       |   |        |   |  |   |        |      
|                                    

See accompanying notes to condensed financial statements.

5



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##### Table of Contents



RAINBOW RENTALS, INC.

CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)


|                                     |                                                       |              |                                                   |                                           |     |                          |        |         |       |         |        |  
|------------------------------------ | ----------------------------------------------------- | ------------ | ------------------------------------------------- | ----------------------------------------- | --- | ------------------------ | ------ | ------- | ----- | ------- | ------ | -
|                                     |                                                       |              |                                                   |                                           |     | (unaudited)             
|                                     |                                                       |              |                                                   |                                           |     | For the six months ended
|                                     |                                                       |              |                                                   |                                           |     | June 30,                
|                                     |                                                       |              |                                                   |                                           |     |                         
|                                     |                                                       |              |                                                   |                                           |     | 2001                     |        | 2000   
|                                     |                                                       |              |                                                   |                                           |     |                          |        |        
|Cash flows from operating activities
|                                    
|                                    
|                                    
|                                    
|                                     | Net income                                            |              | $                                                 | 949                                       |     |                          | $      | 2,697   |      
|                                    
|                                    
|                                    
|                                    
|                                     | Reconciliation of net income to net cash provided    
|                                    
|                                    
|                                    
|                                    
|                                     | by operating activities                              
|                                    
|                                    
|                                    
|                                    
|                                     |                                                       |              | Depreciation of property and equipment and       
|                                    
|                                    
|                                    
|                                    
|                                     |                                                       |              | amortization of intangibles                       |                                           |     | 1,473                    |        |         |       | 1,400   |       
|                                    
|                                    
|                                    
|                                    
|                                     |                                                       |              | Depreciation of rental-purchase merchandise       |                                           |     | 13,293                   |        |         |       | 11,708  |       
|                                    
|                                    
|                                    
|                                    
|                                     |                                                       |              | Loss on write-down of rental purchase merchandise |                                           |     | 46                       |        |         |       |        |       
|                                    
|                                    
|                                    
|                                    
|                                     |                                                       |              | Write-off of goodwill from sale of store          |                                           |     | 260                      |        |         |       |        |       
|                                    
|                                    
|                                    
|                                    
|                                     |                                                       |              | Deferred income taxes                             |                                           |     | 300                      |        |         |       | 300     |       
|                                    
|                                    
|                                    
|                                    
|                                     |                                                       |              | (Gain) loss on disposal of property and equipment |                                           |     | 11                       |        |         |       | (97     | )     
|                                    
|                                    
|                                    
|                                    
|                                     |                                                       |              | Gain on sale of store assets                      |                                           |     | (110                     | )      |         |       |        |       
|                                    
|                                    
|                                    
|                                    
|                                     |                                                       |              | Purchases of rental-purchase merchandise          |                                           |     | (15,716                  | )      |         |       | (15,225 | )     
|                                    
|                                    
|                                    
|                                    
|                                     |                                                       |              | Rental-purchase merchandise disposed, net         |                                           |     | 3,155                    |        |         |       | 2,900   |       
|                                    
|                                    
|                                    
|                                    
|                                     |                                                       |              | Increase (decrease) in                           
|                                    
|                                    
|                                    
|                                    
|                                     |                                                       |              |                                                   | Income tax receivable                     |     |                          | 138    |         |       |         |       |  
|                                    
|                                    
|                                    
|                                    
|                                     |                                                       |              |                                                   | Prepaid expenses and other current assets |     |                          | (168   | )       |       |         | (177   | )
|                                    
|                                    
|                                    
|                                    
|                                     |                                                       |              |                                                   | Accounts payable                          |     |                          | 814    |         |       |         | (253   | )
|                                    
|                                    
|                                    
|                                    
|                                     |                                                       |              |                                                   | Accrued compensation and related costs    |     |                          | (131   | )       |       |         | (184   | )
|                                    
|                                    
|                                    
|                                    
|                                     |                                                       |              |                                                   | Other liabilities and accrued expenses    |     |                          | 679    |         |       |         | (89    | )
|                                     |                                                       |              |                                                   |                                           |     |                          |        |        
|                                     |                                                       |              |                                                   | Net cash provided by operating activities |     |                          | 4,993  |         |       |         | 2,980  |  
|                                     |                                                       |              |                                                   |                                           |     |                          |        |        
|Cash flows from investing activities
|                                    
|                                    
|                                    
|                                    
|                                     | Purchase of property and equipment, net               |              |                                                   | (1,046                                    | )   |                          |        | (1,565  | )    
|                                    
|                                    
|                                    
|                                    
|                                     | Proceeds from sale of property and equipment          |              |                                                   | 31                                        |     |                          |        | 176     |      
|                                    
|                                    
|                                    
|                                    
|                                     | Proceeds from sale of store assets                    |              |                                                   | 272                                       |     |                          |        |        |      
|                                    
|                                    
|                                    
|                                    
|                                     | Acquisitions                                          |              |                                                   | (245                                      | )   |                          |        | (351    | )    
|                                     |                                                       |              |                                                   |                                           |     |                          |        |        
|                                     |                                                       |              |                                                   | Net cash used in investing activities     |     |                          | (988   | )       |       |         | (1,740 | )
|                                     |                                                       |              |                                                   |                                           |     |                          |        |        
|Cash flows from financing activities
|                                    
|                                    
|                                    
|                                    
|                                     | Proceeds from long-term debt                          |              |                                                   | 11,225                                    |     |                          |        | 15,367  |      
|                                    
|                                    
|                                    
|                                    
|                                     | Current installments and repayments of long-term debt |              |                                                   | (14,942                                   | )   |                          |        | (16,493 | )    
|                                    
|                                    
|                                    
|                                    
|                                     | Loan origination fees paid                            |              |                                                   | (50                                       | )   |                          |        |        |      
|                                    
|                                    
|                                    
|                                    
|                                     | Principal payments under capital lease obligations    |              |                                                   |                                          |     |                          |        | (118    | )    
|                                     |                                                       |              |                                                   |                                           |     |                          |        |        
|                                     |                                                       |              |                                                   | Net cash used in financing activities     |     |                          | (3,767 | )       |       |         | (1,244 | )
|                                     |                                                       |              |                                                   |                                           |     |                          |        |        
|Net increase (decrease) in cash      |                                                       |              | 238                                               |                                           |     |                          | (4     | )      
|                                    
|                                    
|                                    
|                                    
|Cash at beginning of period          |                                                       |              | 1,426                                             |                                           |     |                          | 440    |        
|                                     |                                                       |              |                                                   |                                           |     |                          |        |        
|Cash at end of period                |                                                       | $            | 1,664                                             |                                           |     | $                        | 436    |        
|                                     |                                                       |              |                                                   |                                           |     |                          |        |        
|Supplemental cash flow information  
|                                    
|                                    
|                                    
|                                    
|                                     | Net cash paid during the period for                  
|                                    
|                                    
|                                    
|                                    
|                                     |                                                       | Interest     |                                                   |                                           | 449 |                          |        |         | 393   |        
|                                    
|                                    
|                                    
|                                    
|                                     |                                                       | Income taxes |                                                   |                                           | 278 |                          |        |         | 1,956 |        

See accompanying notes to condensed financial statements.

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##### Table of Contents



RAINBOW RENTALS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS  (Dollars in thousands, except per share amounts)


1. Basis of Presentation

Rainbow Rentals, Inc. (Rainbow or Company) is engaged in the rental
and sale of home electronics, furniture, appliances and computers to the
general public. Rainbow currently operates 109 stores in eleven states:
Connecticut, Massachusetts, Michigan, New York, North Carolina, Ohio,
Pennsylvania, Rhode Island, South Carolina, Tennessee and Virginia. Rainbows
corporate headquarters 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 for
fiscal year ended December 31, 2000.

2. 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. Dollars are in thousands, except per share amounts.

|                           |                                             |   |                            |           |                          |   |      |           |      |   |      |           |  |   |      |           | 
|-------------------------- | ------------------------------------------- | - | -------------------------- | --------- | ------------------------ | - | ---- | --------- | ---- | - | ---- | --------- |  | - | ---- | --------- | 
|                           |                                             |   | For the three months ended |           | For the six months ended
|                           |                                             |   | June 30,                   |           | June 30,                
|                           |                                             |   |                            |           |                         
|                           |                                             |   | 2001                       |           | 2000                     |   | 2001 |           | 2000
|                           |                                             |   |                            |           |                          |   |      |           |     
|Numerator:                
|                          
|                          
|                          
|                          
|                           | Net income available to common shareholders |   | $                          | 418       |                          |   | $    | 1,355     |      |   | $    | 949       |  |   | $    | 2,697     | 
|                          
|                          
|                          
|                          
|Denominator:              
|                          
|                          
|                          
|                          
|                           | Basic weighted average shares               |   |                            | 5,925,735 |                          |   |      | 5,925,735 |      |   |      | 5,925,735 |  |   |      | 5,925,735 | 
|                          
|                          
|                          
|                          
|                           | Effect of diluted stock options             |   |                            | 6,411     |                          |   |      |          |      |   |      | 8,322     |  |   |      |          | 
|                           |                                             |   |                            |           |                          |   |      |           |      |   |      |           |  |   |      |          
|                           | Diluted weighted average shares             |   |                            | 5,932,146 |                          |   |      | 5,925,735 |      |   |      | 5,934,057 |  |   |      | 5,925,735 | 
|                           |                                             |   |                            |           |                          |   |      |           |      |   |      |           |  |   |      |          
|Basic earnings per share   |                                             | $ | 0.07                       |           |                          | $ | 0.23 |           |      | $ | 0.16 |           |  | $ | 0.46 |          
|                           |                                             |   |                            |           |                          |   |      |           |      |   |      |           |  |   |      |          
|Diluted earnings per share |                                             | $ | 0.07                       |           |                          | $ | 0.23 |           |      | $ | 0.16 |           |  | $ | 0.46 |          
|                           |                                             |   |                            |           |                          |   |      |           |      |   |      |           |  |   |      |          

3. Acquisitions

The Company has recently made acquisitions of stores, rental purchase
merchandise and rental purchase agreements. All acquisitions made were
accounted for using the purchase method of accounting. Accordingly, all
identifiable assets were recorded at their estimated fair market value at the
date of acquisition. The excess of the acquisition cost over the estimated
fair value of the net assets acquired (goodwill) is being amortized on a
straight-line basis over periods ranging from 18 to 20 years. Assets acquired,
other than goodwill, consisted primarily of rental-purchase merchandise,
property and equipment

7



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##### Table of Contents



and non-compete agreements. The aggregate purchase
price of acquisitions for the six months ended June 30, 2001 and the year ended
December 31, 2000 were $245 and $3,385, respectively.




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

General

Generally, 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 (ranging from 12 to 24 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.

During the current second quarter, Rainbow closed two stores and
consolidated them into other nearby Rainbow locations. In addition, Rainbow
sold an under-performing store to a competitor and recorded a net loss of
$89,000, or $.02 per diluted share. The net loss was the result of writing off
the unamortized goodwill associated with the sold store. At June 30, 2001,
Rainbow operated 109 stores compared to 101 stores at June 30, 2000.

New Store Openings

Rainbows primary method of growth is through the opening of new store
locations. New store openings are dilutive to earnings generally for the first
nine to twelve months as they build a customer base and develop a recurring
revenue stream. Generally, new stores have a maturation period of
approximately three years. The timing of new store openings and the number of
stores in various stages of the three-year maturation process will have an
effect on quarterly comparisons. Currently, Rainbow is planning four new store
openings by the end of the next quarter.

8



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##### Table of Contents



Results of Operations

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

|                   |                                                    |                      |                                            |      |                            |       |                          |      |      |       |      |      |      |       |     |      |      |       |  
|------------------ | -------------------------------------------------- | -------------------- | ------------------------------------------ | ---- | -------------------------- | ----- | ------------------------ | ---- | ---- | ----- | ---- | ---- | ---- | ----- | --- | ---- | ---- | ----- | -
|                   |                                                    |                      |                                            |      | (unaudited)                |       | (unaudited)             
|                   |                                                    |                      |                                            |      | For the three months ended |       | For the six months ended
|                   |                                                    |                      |                                            |      | June 30,                   |       | June 30,                
|                   |                                                    |                      |                                            |      |                            |       |                         
|                   |                                                    |                      |                                            |      | 2001                       |       | 2000                     |      | 2001 |       | 2000
|                   |                                                    |                      |                                            |      |                            |       |                          |      |      |       |     
|Revenues          
|                  
|                  
|                  
|                  
|                   | Rental revenue                                     |                      |                                            | 94.2 | %                          |       |                          | 94.3 | %    |       |      | 93.3 | %    |       |     | 93.3 | %   
|                  
|                  
|                  
|                  
|                   | Fees                                               |                      |                                            | 2.9  |                            |       |                          | 3.1  |      |       |      | 2.9  |      |       |     | 3.1  |     
|                  
|                  
|                  
|                  
|                   | Merchandise sales                                  |                      |                                            | 2.9  |                            |       |                          | 2.6  |      |       |      | 3.8  |      |       |     | 3.6  |     
|                   |                                                    |                      |                                            |      |                            |       |                          |      |      |       |      |      |      |       |     |     
|                   |                                                    |                      | Total revenues                             |      |                            | 100.0 |                          |      |      | 100.0 |      |      |      | 100.0 |     |      |      | 100.0 |  
|                  
|                  
|                  
|                  
|Operating expenses
|                  
|                  
|                  
|                  
|                   | Merchandise costs                                  |                      |                                            | 34.1 |                            |       |                          | 32.1 |      |       |      | 34.3 |      |       |     | 32.7 |     
|                  
|                  
|                  
|                  
|                   | Store expenses                                    
|                  
|                  
|                  
|                  
|                   |                                                    | Salaries and related |                                            |      | 23.4                       |       |                          |      | 23.3 |       |      |      | 23.4 |       |     |      | 23.1 |      
|                  
|                  
|                  
|                  
|                   |                                                    | Occupancy            |                                            |      | 8.8                        |       |                          |      | 7.6  |       |      |      | 8.7  |       |     |      | 7.4  |      
|                  
|                  
|                  
|                  
|                   |                                                    | Advertising          |                                            |      | 6.5                        |       |                          |      | 4.5  |       |      |      | 6.4  |       |     |      | 4.6  |      
|                  
|                  
|                  
|                  
|                   |                                                    | Other expenses       |                                            |      | 13.3                       |       |                          |      | 12.6 |       |      |      | 13.6 |       |     |      | 12.7 |      
|                   |                                                    |                      |                                            |      |                            |       |                          |      |      |       |      |      |      |       |     |     
|                   |                                                    |                      | Total store expenses                       |      |                            | 52.0  |                          |      |      | 48.0  |      |      |      | 52.1  |     |      |      | 47.8  |  
|                   |                                                    |                      |                                            |      |                            |       |                          |      |      |       |      |      |      |       |     |     
|                   |                                                    |                      | Total merchandise costs and store expenses |      |                            | 86.1  |                          |      |      | 80.1  |      |      |      | 86.4  |     |      |      | 80.5  |  
|                  
|                  
|                  
|                  
|                   | General and administrative expenses                |                      |                                            | 8.3  |                            |       |                          | 7.7  |      |       |      | 8.0  |      |       |     | 7.4  |     
|                  
|                  
|                  
|                  
|                   | Amortization of goodwill and noncompete agreements |                      |                                            | 0.7  |                            |       |                          | 0.5  |      |       |      | 0.7  |      |       |     | 0.6  |     
|                   |                                                    |                      |                                            |      |                            |       |                          |      |      |       |      |      |      |       |     |     
|                  
|                  
|                  
|                  
|                   |                                                    |                      | Total operating expenses                   |      |                            | 95.1  |                          |      |      | 88.3  |      |      |      | 95.1  |     |      |      | 88.5  |  
|                   |                                                    |                      |                                            |      |                            |       |                          |      |      |       |      |      |      |       |     |     
|                   |                                                    |                      | Operating income                           |      |                            | 4.9   |                          |      |      | 11.7  |      |      |      | 4.9   |     |      |      | 11.5  |  
|                  
|                  
|                  
|                  
|Interest expense   |                                                    |                      | 0.8                                        |      |                            |       | 0.9                      |      |      |       | 0.9  |      |      |       | 0.9 |     
|                  
|                  
|                  
|                  
|Other expense, net |                                                    |                      | 1.1                                        |      |                            |       | 0.5                      |      |      |       | 0.7  |      |      |       | 0.4 |     
|                   |                                                    |                      |                                            |      |                            |       |                          |      |      |       |      |      |      |       |     |     
|                   |                                                    |                      | Income before income taxes                 |      |                            | 3.0   |                          |      |      | 10.3  |      |      |      | 3.3   |     |      |      | 10.2  |  
|                  
|                  
|                  
|                  
|Income taxes       |                                                    |                      | 1.2                                        |      |                            |       | 4.2                      |      |      |       | 1.3  |      |      |       | 4.2 |     
|                   |                                                    |                      |                                            |      |                            |       |                          |      |      |       |      |      |      |       |     |     
|                   |                                                    |                      | Net income                                 |      |                            | 1.8   | %                        |      |      | 6.1   | %    |      |      | 2.0   | %   |      |      | 6.0   | %
|                   |                                                    |                      |                                            |      |                            |       |                          |      |      |       |      |      |      |       |     |     

Comparison of the Three and Six Months Ended June 30, 2001 and 2000

Total revenues increased $1.2 million, or 5.4%, to $23.6 million for the
three months ended June 30, 2001 compared to $22.4 million for the three months
ended June 30, 2000. For the six months ended June 30, 2001, total revenues
increased $3.0 million, or 6.8%, to $47.9 million compared to $44.9 million for
the six months ended June 30, 2000. Revenues from stores opened and acquired
in 2000 increased $2.0 million comparing the three months ended June 30, 2001
and 2000, and $4.6 million comparing the six months ended June 30, 2001 and
2000. However, partially offsetting these increases were declines in revenues
of comparable stores (excluding divestitures) totaling $0.8 million comparing
the three months ended June 30, 2001 and 2000, and $1.6 million comparing the
six months ended June 30, 2001 and 2000. Comparable store revenue totaled
$21.4 million and $22.2 million, respectively, for the three months ended June
30, 2001 and 2000, and $42.7 million and $44.3 million, respectively, for the
six months ended June 30, 2001 and 2000. The decrease in comparable store
revenue for the three- and six-month periods was due to a decline in the number
of customers per store. Management believes the decline in customers was due to
increased competition and other market factors.

9



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Merchandise costs increased $0.9 million, or 12.1%, to $8.0 million for
the three months ended June 30, 2001 compared to $7.1 million for the three
months ended June 30, 2000. For the six months ended June 30, 2001,
merchandise costs increased $1.7 million, or 11.9%, to $16.4 million compared
to $14.7 million for the six months ended June 30, 2000. The increase in
merchandise costs comparing the three- and six-month periods was primarily
attributable to new stores opened and acquired in 2000. Merchandise costs
totaled 34.1% and 32.1% of revenues, respectively, for the three months ended
June 30, 2001 and 2000, and 34.3% and 32.7% of revenues, respectively, for the
six months ended June 30, 2001 and 2000. The increases in merchandise costs as
a percentage of revenue comparing the three- and six-month periods were
primarily due to increased rentals of older, pre-rented merchandise at reduced
rental rates in order to decrease the amount of pre-rented merchandise
accumulated during 2000. To a lesser extent, promotional merchandise and
special offers contributed to the increased merchandise costs as a percentage
of revenues.

Store expenses increased $1.5 million, or 13.9%, to $12.3 million for the
three months ended June 30, 2001 compared to $10.8 million for the three months
ended June 30, 2000. For the six months ended June 30, 2001, store expenses
increased $3.5 million, or 16.4%, to $24.9 million compared to $21.4 million
for the six months ended June 30, 2000. Approximately 80% of the increases in
store expenses for the comparable three- and six-month periods were
attributable to stores opened and acquired during 2000. Store expenses totaled
52.0% and 48.0% of revenues, respectively, for the three months ended June 30,
2001 and 2000, and 52.1% and 47.8% of revenues, respectively, for the six
months ended June 30, 2001 and 2000. The increases in store expenses as a
percentage of revenue comparing the three- and six- month periods were
primarily attributable to the decline in comparable store revenue mentioned
above in addition to an increased number of store openings in 2000 when
compared to 1999.

General and administrative expenses increased $0.3 million, or 14.7% to
$2.0 million for the three months ended June 30, 2001 compared to $1.7 million
for the three months ended June 30, 2000. For the six months ended June 30,
2001, general and administrative expenses increased $0.5 million, or 14.7%, to
$3.8 million compared to $3.3 million for the six months ended June 30, 2000.
The increases in general and administrative expenses comparing the three- and
six-month periods were primarily due to expanding the Companys regional
management team, adding key support personnel and increased consulting fees in
an effort to facilitate the Companys anticipated growth.

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 six months ended June 30, 2001 and 2000, purchases of rental
merchandise (excluding acquired inventory) amounted to $15.7 million and $15.2
million, respectively.

For the six months ended June 30, 2001, cash provided by operations
totaled $5.0 million compared to $3.0 million for the six months ended June 30,
2000. Cash used in investing activities decreased $0.7 million and totaled
$1.0 million and $1.7 million, respectively, for the six months ended June 30,
2001 and 2000. The decrease was primarily due to a decline in property and
equipment purchases as a result of less store openings in 2001 compared to
2000. Cash used in financing activities increased $2.6 million and totaled
$3.8 million and $1.2 million, respectively, for the six months ended June 30,
2001 and 2000. Due to the decline in the number of store openings in 2001
compared to 2000, the Company used cash to reduce its debt.

The Company currently has a $14.0 million revolving loan agreement with a
lending institution (the Credit Facility) with a maturity date of March 1,
2002. The Credit Facility includes certain cash flow, net worth and idle
inventory requirements, as well as covenants which limit the ability of the
Company to incur additional indebtedness, grant liens, transfer assets outside
the ordinary course of business, pay dividends, engage in certain acquisition
transactions and make capital expenditures (excluding the purchase of rental
merchandise) in excess of specified amounts. Availability under the Companys
Credit Facility as of August 10, 2001 was approximately $7.0 million. The
Company is seeking new long-term debt financing with other institutional
lenders to replace its current Credit Facility and management expects such
financing will be obtained before the maturity of the current Credit Facility.

The Company plans to open approximately four stores during the next
quarter. 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

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Company. To provide any additional funds necessary for the continued pursuit of its growth
strategies, the Company may use cash flow from operations, seek to obtain
additional debt or equity financing, 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 on terms
acceptable to the Company.

New Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 141, Business Combinations,and Statement No. 142, Goodwill and
Other Intangible Assets.Statement 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001
as well as all purchase method business combinations completed after June 30,
2001. Statement 141 also specifies criteria intangible assets acquired and
reported apart from goodwill, noting that any purchase price allocable to an
assembled workforce may not be accounted for separately. Statement 142 will
require that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead tested for impairment at least annually in
accordance with the provisions of Statement 142. Statement 142 will also
require that intangible assets with definite useful lives be amortized over
their respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of.

The Company is required to adopt the provisions of Statement 141
immediately and Statement 142 effective January 1, 2002. Furthermore, any
goodwill and any intangible asset determined to have an indefinite useful life
that are acquired in a purchase business combination completed after June 30,
2001 will not be amortized, but will continue to be evaluated for impairment in
accordance with the appropriate pre-Statement 142 accounting literature.
Goodwill and intangible assets acquired in business combinations completed
before July 1, 2001 will continue to be amortized prior to adoption of
Statement 142.

Statement 141 will require upon adoption of Statement 142, that the
Company evaluate its existing intangible assets and goodwill that were acquired
in a prior purchase business combination, and to make any necessary
reclassifications in order to conform with the new criteria in Statement 141
for recognition apart from goodwill. Upon adoption of Statement 142, the
Company will be required to reassess the useful lives and residual values of
all intangible assets acquired in purchase business combinations, and make any
necessary amortization period adjustments by the end of the first interim
period after the adoption. In addition, to the extent an intangible asset is
identified as having an indefinite useful life, the Company will be required to
test the intangible asset for impairment in accordance with the provisions of
Statement 142 within the first interim period. Any impairment loss will be
measured as of the date of adoption and recognized as the cumulative effect of
a change in accounting principle in the first interim period.

In connection with the transitional goodwill impairment evaluation, Statement
142 will require the Company to perform an assessment of whether there is an
indication that goodwill [and equity method goodwill] is impaired as of the
date of adoption. To accomplish this, the Company must identify its reporting
units and determine the carrying value of each reporting unit by assigning the
assets and liabilities, including the existing goodwill and intangible assets,
to those reporting units as of the date of adoption.

As of the date of the adoption, the Company expects to have unamortized
goodwill in the amount of $9.1 million all of which will be subject to the
transition provisions of Statements 141 and 142. Amortization expense related
to goodwill was $486,000 and $267,000 for the year ended December 31, 2000 and
the six months ended June 30, 2001, respectively. Non-compete agreements and
the related amortization are not subject to the provisions of Statements 141
and 142.

Forward-Looking Statements

When used in this Form 10-Q, or, in future filings by Rainbow Rentals,
Inc. with the Securities and Exchange Commission, 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, the words or phrases
will likely result, are expected to, will continue, is anticipated,
estimate, project or similar expressions are intended to identify
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks
and uncertainties including, but not limited to, (i) the ability of the Company
to execute effectively its expansion program, (ii) the ability to attract and
retain quality store personnel, (iii) the ability of the Company to obtain
additional financing and (iv) changes in the governments regulation of the
industry, that could cause actual results to differ materially from historical

11



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##### Table of Contents



earnings and those presently anticipated or projected. The Company wishes to
caution readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made. The Company wishes to advise
readers that the factors listed above and other factors could affect the
Companys financial performance and could cause the Companys actual results
for future periods to differ materially from any opinions or statements
expressed with respect to future periods in any current statements. For
further information, please refer to the Companys filings with the Securities
and Exchange Commission, including specifically the Risk Factors contained in
the Companys prospectus dated June 4, 1998.

The Company does not undertake, and specifically disclaims any obligation,
to publicly release the result of any revisions, which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.




Item 3: Quantitative and Qualitative Disclosures About Market Risk

There were no material changes in information about market risk from that
provided in the 2000 Annual Report to Shareholders.

12



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##### Table of Contents






PART II  OTHER INFORMATIONRAINBOW RENTALS, INC.
JUNE 30, 2001




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

|    |  |                                                                                                                                                                                                                                                                              
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | The Companys annual meeting of shareholders was held on May
17, 2001.                                                                                                                                                                                                       
|   
|   
|   
|   
|   
|(b) |  | At the annual meeting, the Companys shareholders elected
Wayland J. Russell, Lawrence S. Hendricks, Michael J. Viveiros, Brian
L. Burton, Ivan J. Winfield and Robert A. Glick as directors for a
one-year term which expires at the annual meeting of shareholders in
2002.
|   
|    |  | The following tabulation represents voting for the directors:                                                                                                                                                                                                                

|                      |  |     |           |                    |  |  |         | 
|--------------------- |  | --- | --------- | ------------------ |  |  | ------- | 
|                      |  | For |           | Withheld Authority
|                      |  |     |           |                   
|Wayland J. Russell    |  |     | 5,543,015 |                    |  |  | 352,175 | 
|                     
|                     
|                     
|                     
|Lawrence S. Hendricks |  |     | 5,892,660 |                    |  |  | 2,530   | 
|                     
|                     
|                     
|                     
|Michael J. Viveiros   |  |     | 5,892,660 |                    |  |  | 2,530   | 
|                     
|                     
|                     
|                     
|Brian L. Burton       |  |     | 5,892,660 |                    |  |  | 2,530   | 
|                     
|                     
|                     
|                     
|Ivan J. Winfield      |  |     | 5,892,660 |                    |  |  | 2,530   | 
|                     
|                     
|                     
|                     
|Robert A. Glick       |  |     | 5,892,660 |                    |  |  | 2,530   | 

|    |  |                                                                                                                                                                                                                                                                                                     
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(c) |  | At the annual meeting, the Companys shareholders ratified the
appointment of KPMG LLP as auditors of the Company for 2001. The
holders of 5,892,190 shares of the Companys common stock voted to
ratify the appointment. No shares were voted against the
ratification and 3,000 shares abstained.




Item 6. Exhibits and Reports on Form 8-K

|   |  |                            
|-- |  | ---------------------------
|A. |  | Exhibits: None             
|  
|  
|  
|  
|  
|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. RUSSELL
Wayland J. Russell, Chairman and
Chief Executive Officer
(Principal Executive Officer)
Date: August 10, 2001  
|
|
| |  | /s/ MICHAEL A. PECCHIA
Michael A. Pecchia,
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: August 10, 2001

14