# UNITED STATES

# SECURITIES AND
EXCHANGE COMMISSION

# WASHINGTON, D.C. 20549

_________________

# FORM 10-Q

_________________

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED MARCH
31, 2004

OR

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

_________________

Commission File Number
0-22026

# RENT-WAY, INC.

(Exact name of
registrant as specified in its charter)

_________________

|                                               |                                     
|---------------------------------------------- | ------------------------------------
|PENNSYLVANIA                                   | 25-1407782     >                    
|(State or other jurisdiction of incorporation) | (I.R.S. Employer Identification No.)

ONE RENTWAY PLACE,
ERIE, PENNSYLVANIA 16505   (Address of principal
executive offices)

(814) 455-5378

(Registrants
telephone number)

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

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

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

|             |                              
|------------ | -----------------------------
|Class        | Outstanding as of May 5, 2004
|Common Stock | 26,218,776                   

---

# RENT-WAY, INC.

|PART I | FINANCIAL INFORMATION                                                        | PAGE
|------ | ---------------------------------------------------------------------------- | ----
|       |                                                                              |     
|
|       | Condensed Consolidated Balance Sheets as of March 31, 2004 (unaudited) and   |     
|       | September 30, 2003                                                           | 3   
|       | Condensed Consolidated Statements of Operations, three- and six-months ended
|       | March 31, 2004 and 2003 (unaudited)                                          | 4   
|       | Condensed Consolidated Statements of Cash Flows, six months ended March 31, 
|       | 2004 and 2003 (unaudited)                                                    | 5   
|       | Notes to Condensed Consolidated Financial Statements (unaudited)             | 6   
|Item 2 | Management's Discussion and Analysis of Financial Condition and             
|       | Results of Operations                                                        | 25  
|Item 3 | Quantitative and Qualitative Disclosures About Market Risk                   | 33  
|Item 4 | Controls and Procedures                                                      | 34  
|       |                                                                              |     

|PART II    | OTHER INFORMATION                                                                |   
|---------- | -------------------------------------------------------------------------------- | --
|           |                                                                                  |   
|Item 1     | Legal Proceedings                                                                | 35
|Item 2     | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities | 35
|Item 4     | Submission of Matters to Vote of Security Holders                                | 35
|Item 6     | Exhibits and Reports on Form 8-K                                                 | 35
|Signatures |                                                                                  | 36

---

# RENT-WAY, INC.

CONDENSED CONSOLIDATED
BALANCE SHEETS

(All amounts in
thousands, except share data)

|                                            | March 31,
2004 | September 30,
2003
|------------------------------------------- | -------------- | ------------------
|
|
|Cash and cash equivalents                   |                |                   
|Restricted cash                             |                |                   
|Prepaid expenses                            |                |                   
|Income tax receivable                       |                |                   
|Rental merchandise, net                     |                |                   
|Rental merchandise credits due from vendors |                |                   
|Property and equipment, net                 |                |                   
|Goodwill                                    |                |                   
|Deferred financing costs, net               |                |                   
|Intangible assets, net                      |                |                   
|Other assets                                |                |                   
|                                            |                |                   
|Total assets                                |                |                   
|                                            |                |                   

|LIABILITIES AND SHAREHOLDERS' EQUITY                           |  | 
|-------------------------------------------------------------- |  | 
|Liabilities:                                                   |  | 
|Accounts payable                                               |  | 
|Other liabilities                                              |  | 
|Deferred tax liability                                         |  | 
|Debt                                                           |  | 
|                                                               |  | 
|Total liabilities                                              |  | 
|Contingencies                                                  |  | 
|Convertible redeemable preferred stock                         |  | 
|Shareholders' equity:                                          |  | 
|Preferred stock, without par value; 1,000,000 shares           |  | 
|authorized; 1,633 and 1,500 shares issued and outstanding      |  | 
|as Series A convertible preferred shares                       |  | 
|Common stock, without par value; 50,000,000 shares             |  | 
|authorized; 26,202,776 and 26,022,037 shares issued and        |  | 
|outstanding, respectively                                      |  | 
|Common stock warrants; 0 and 100,000 outstanding, respectively |  | 
|                                                               |  | 
|Option to purchase convertible preferred stock                 |  | 
|Accumulated other comprehensive loss                           |  | 
|Accumulated deficit                                            |  | 
|                                                               |  | 
|Total shareholders' equity                                     |  | 
|                                                               |  | 
|Total liabilities and shareholders' equity                     |  | 
|                                                               |  | 

The
accompanying notes are an integral part of these financial statements.

---

# RENT-WAY, INC.

CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (All amounts in
thousands, except per share data) (Unaudited)

|                                                 | Three Months Ended
March 31, | Six Months Ended
March 31,
|------------------------------------------------ | ---------------------------- | --------------------------
|
|REVENUES:                                        |                              |                           
|Rental revenue                                   |                              |                           
|Prepaid phone service revenue                    |                              |                           
|Other revenues                                   |                              |                           
|                                                 |                              |                           
|Total revenues                                   |                              |                           
|COSTS AND OPERATING EXPENSES:                    |                              |                           
|Depreciation and amortization:                   |                              |                           
|Rental merchandise                               |                              |                           
|Property and equipment                           |                              |                           
|Amortization of intangibles                      |                              |                           
|Cost of prepaid phone service                    |                              |                           
|Salaries and wages                               |                              |                           
|Advertising, net                                 |                              |                           
|Occupancy                                        |                              |                           
|Restructuring costs                              |                              |                           
|Other operating expenses                         |                              |                           
|                                                 |                              |                           
|Total costs and operating expenses               |                              |                           
|                                                 |                              |                           
|Operating income                                 |                              |                           
|OTHER INCOME (EXPENSE):                          |                              |                           
|Settlement of class action lawsuit               |                              |                           
|Interest expense                                 |                              |                           
|Interest income                                  |                              |                           
|Amortization and write-off of deferred financing |                              |                           
|costs                                            |                              |                           
|Other income (expense)                           |                              |                           
|                                                 |                              |                           
|Income (loss) before income taxes and            |                              |                           
|discontinued operations                          |                              |                           
|Income tax expense                               |                              |                           
|                                                 |                              |                           
|Income (loss) before discontinued operations     |                              |                           
|Loss from discontinued operations                |                              |                           
|                                                 |                              |                           
|Net income (loss)                                |                              |                           
|Dividend and accretion of preferred stock        |                              |                           
|                                                 |                              |                           
|Net income (loss) allocable to common            |                              |                           
|shareholders                                     |                              |                           
|                                                 |                              |                           
|EARNINGS (LOSS) PER COMMON SHARE (NOTE 4):       |                              |                           
|Basic earnings (loss) per common share:          |                              |                           
|Income (loss) before discontinued operations     |                              |                           
|Net income (loss) allocable to common            |                              |                           
|shareholders                                     |                              |                           
|                                                 |                              |                           
|Diluted earnings (loss) per common share:        |                              |                           
|Income (loss) before discontinued operations     |                              |                           
|Net income (loss) allocable to common            |                              |                           
|shareholders                                     |                              |                           
|                                                 |                              |                           
|Weighted average common shares outstanding:      |                              |                           
|Basic                                            |                              |                           
|                                                 |                              |                           
|Diluted                                          |                              |                           
|                                                 |                              |                           

The
accompanying notes are an integral part of these financial statements.

---

# RENT-WAY, INC.

CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (All amounts in
thousands)(Unaudited)

|                                                                   | Six Months Ended
March 31,
|------------------------------------------------------------------ | --------------------------
|
|OPERATING ACTIVITIES:                                              |                           
|Net income (loss)                                                  |                           
|Adjustments to reconcile net income (loss) to net cash provided by |                           
|(used in) operating activities:                                    |                           
|Loss from discontinued operations                                  |                           
|Depreciation and amortization                                      |                           
|Deferred income taxes                                              |                           
|Market adjustment for interest rate swap derivative                |                           
|Market adjustment for preferred stock conversion option derivative |                           
|Write-off of property and equipment                                |                           
|Gain on sale of assets                                             |                           
|Changes in assets and liabilities:                                 |                           
|Restricted cash                                                    |                           
|Prepaid expenses                                                   |                           
|Rental merchandise                                                 |                           
|Rental merchandise deposits and credits due from vendors           |                           
|Income tax receivable                                              |                           
|Other assets                                                       |                           
|Accounts payable                                                   |                           
|Other liabilities                                                  |                           
|                                                                   |                           
|Net cash provided by (used in) continuing operations               |                           
|Net cash used in discontinued operations                           |                           
|                                                                   |                           
|Net cash provided by (used in) operating activities                |                           
|INVESTING ACTIVITIES:                                              |                           
|Purchase of businesses, net of cash acquired                       |                           
|Purchases of property and equipment                                |                           
|Proceeds from sale of stores and other assets                      |                           
|                                                                   |                           
|Net cash provided by (used in) investing activities                |                           
|FINANCING ACTIVITIES:                                              |                           
|Proceeds from borrowings                                           |                           
|Payments on borrowings                                             |                           
|Payments on note for settlement of class action lawsuit            |                           
|Payments on capital leases                                         |                           
|Book overdraft                                                     |                           
|Issuance of common stock                                           |                           
|Proceeds from convertible preferred stock                          |                           
|Dividends paid                                                     |                           
|Deferred financing costs                                           |                           
|Payment of loans by directors                                      |                           
|                                                                   |                           
|Net cash provided by (used in) financing activities                |                           
|                                                                   |                           
|Increase in cash and cash equivalents                              |                           
|Cash and cash equivalents at beginning of period                   |                           
|                                                                   |                           
|Cash and cash equivalents at end of period                         |                           
|                                                                   |                           

The
accompanying notes are an integral part of these financial statements.

---

# RENT-WAY, INC.

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (All amounts in thousands, except per share data) (Unaudited)

1.    
          SUMMARY OF CRITICAL ACCOUNTING POLICIES:

BUSINESS AND ORGANIZATION. Rent-Way,
Inc. is a corporation organized under the laws of the Commonwealth of Pennsylvania.
The Company operates a chain of stores that rent durable household products such as
home entertainment equipment, furniture, major appliances, computers, and jewelry to
consumers on a weekly or monthly basis in thirty-three states. The stores are
primarily located in the Midwestern, Eastern and Southern regions of the United
States. The Company also provides prepaid local phone service to consumers on a
monthly basis through its majority-owned subsidiary, dPi Teleconnect, LLC
(DPI).

BASIS OF PRESENTATION. The
accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q, and therefore, do not include all
information and notes necessary for a fair presentation of financial position, results of
operations and cash flows in conformity with accounting principles generally accepted in
the United States of America. In the opinion of management, all adjustments have been
made, which, except as discussed herein, consist of normal recurring adjustments and are
necessary for a fair statement of the financial position, results of operations and cash
flows of the Company. The results of operations for the interim periods are not
necessarily indicative of the results for the full year.

The Company presents an unclassified
balance sheet to conform to practice in the industry in which it operates. The
consolidated financial statements include the accounts of the Company and its wholly
owned and majority owned subsidiaries. All significant inter-company transactions and
balances have been eliminated.

These financial statements and the
notes thereto should be read in conjunction with the Companys audited financial
statements included in its Annual Report on Form 10-K for the fiscal year ended September
30, 2003.

ACCOUNTING ESTIMATES. The preparation
of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the dates of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual results could
differ from those estimates.

RESTRICTED CASH. The Company entered
into an agreement settling its securities class action on April 18, 2003, which was
approved by the court on December 23, 2003. The settlement required the Company to pay
$25,000 to the class. The $25,000 payment consisted of $21,000 in cash and $4,000 in
two-year, unsecured subordinated notes payable bearing interest at 6%. Of the $21,000
payable in cash, $11,000 was funded from available insurance proceeds. The remaining
$10,000, which was previously funded into escrow, was reflected as restricted cash on the
condensed consolidated balance sheet at September 30, 2003 and was subsequently paid.

CONVERTIBLE REDEEMABLE PREFERRED
STOCK. On June 2, 2003, the Company sold $15,000 in newly authorized convertible
redeemable preferred stock through a private placement. The proceeds of $14,119, net of
issuance costs of $881, were used to repay the previous senior credit facility.
 The net proceeds are classified outside of permanent equity because of
the mandatory redemption date and other redemption provisions, except for $142 at
September 30, 2003 and $104 at March 31, 2004 classified as option to purchase convertible
preferred stock included in permanent equity (see Note 9). During
March 2004, an option was exercised for the purchase of 133 additional shares in the
amount of $1,330.

STATEMENT OF CASH FLOWS INFORMATION.
Cash and cash equivalents consist of cash on hand and on deposit and represent highly liquid
investments with maturities of three months or less when purchased. Cash equivalents
are stated at cost, which approximates market value. The Company maintains deposits
with several financial institutions. The Federal Deposit Insurance Corporation does
not insure deposits in excess of $100 and mutual funds. Supplemental disclosures of
cash flow information for the six-months ended March 31, 2004 and 2003 are as follows:

|                                          | Six-months ended March 31,
|----------------------------------------- | --------------------------
|
|CASH PAID (RECEIVED) DURING THE YEAR FOR: |                           
|Interest                                  |                           
|Income taxes (refunds)                    |                           
|NONCASH INVESTING ACTIVITIES:             |                           
|Assets acquired under capital lease       |                           
|NONCASH FINANCING ACTIVITIES:             |                           
|Dividends                                 |                           

At March 31, 2004 and September 30,
2003, book overdrafts of $4,821 and $2,703, respectively, were included in accounts
payable in the accompanying Consolidated Balance Sheets.

DEFERRED FINANCING COSTS. Deferred
financing costs consists of bond issuance costs and loan origination costs which were
incurred in connection with the sale of $205,000 of senior secured notes and a new
$60,000 revolving credit facility that was closed June 2, 2003.  The bond issuance costs
of  $6,746 are amortized using the effective interest method over the seven-year term of
the bonds.  The loan origination costs of $2,062 are amortized on a straight-line basis
over the five-year bank credit agreement. Deferred financing cost amortization was $264
and  $738 for the three-month period and $522 and $1,136 for the six-month period ended
March 31, 2004 and 2003, respectively.

COMPANY INSURANCE PROGRAMS. For
fiscal years 2004 and 2003, the Company is primarily self-insured for health insurance.
The self-insurance liability for health costs is determined based on funding factors
determined by cost plus rates for a fully insured plan and monthly headcount. The
contracted rate is determined based on experience, prior claims filed and an estimate of
future claims. A retrospective adjustment for over (under) funding of claims is recorded
when determinable and probable.

DISCONTINUED OPERATIONS. On February
8, 2003, the Company sold rental merchandise and related contracts of 295 stores to
Rent-A-Center, Inc.  Rent-A-Center, Inc. purchased certain fixed assets and assumed
related store leases of 125 of these stores. Accordingly, for financial statement
purposes, the assets, liabilities, results of operations and cash flows of this component
have been segregated from those of continuing operations and are presented in the
Company's financial statements as discontinued operations (see Note 2).

RECLASSIFICATIONS. Certain amounts
in the condensed consolidated balance sheet for September 30, 2003, the condensed
consolidated statement of operations for the three- and six-months ended March 31, 2003
and the condensed consolidated statement of cash flows for the six-months ended March 31,
2003, were reclassified to conform to the March 31, 2004 presentation.

2.  DISCONTINUED OPERATIONS:

On December 17, 2002, the Company
entered into a definitive purchase agreement to sell rental merchandise and related
contracts of 295 stores to Rent-A-Center, Inc. for approximately $101,500.  These stores
were all included in the household rental segment. Rent-A-Center, Inc. purchased certain
fixed assets and assumed related store leases of 125 of these stores. The transaction
closed on February 8, 2003.  The final purchase price for the stores was approximately
$100,400.  As required under the Company's credit agreement, all proceeds of the sale,
net of transaction costs, store closing and similar expenses, were used to pay existing
bank debt.  Of the approximate $100,400 purchase price, $10,000 was held back by
Rent-A-Center, Inc. to secure the Company's indemnification obligations, $5,000 for 90
days following closing, which was refunded to the Company in May 2003, and an additional
$5,000 for 18 months following closing.  The Company recorded a receivable for this based
upon its ability to fully satisfy the indemnification obligations of the agreement.  The
$5,000 held back by Rent-A-Center, Inc. for 18 months was discounted by $820 and recorded
at its present value.  The $820 discount will be amortized into income over the 18-month
hold back period.  Also, there was a $24,500 escrow held by National City Bank, which was
used to pay transaction costs, store closing and similar expenses.  The balance of this
escrow, approximately $3,000, was used to pay down debt at the closing of the refinancing
on June 2, 2003.  The assets sold included rental merchandise, vehicles under capital
leases and certain fixed assets.  Vehicle lease obligations were paid by the Company out
of the proceeds from the sale.

The asset group is distinguishable
as a component of the Company and classified as held for sale in accordance with
Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for the
Impairment on Disposal of Long-Lived Assets."  Direct costs to transact the sale were
comprised of, but not limited to, broker commissions, legal and title transfer fees and
closing costs.

In connection with the sale of the
stores, the Company has and will continue to incur additional direct costs related to the
sale and exit costs related to these discontinued operations.  Costs associated with an
exit activity include, but are not limited to termination benefits, costs to terminate a
contract that is not a capital lease and costs to consolidate facilities or relocate
employees, in accordance with Statement of Financial Accounting Standards No. 146 ("SFAS
146"), "Accounting for Costs Associated with Exit or Disposal Activities."  There was a
transition period as defined in the asset purchase agreement comprised of a period of
thirty days from the date immediately following the closing date.  During this transition
period, the Company was liable for certain exit costs attributable to the operation and
transition of the purchased stores, including, but not limited to, rent, utilities, costs
applicable to office equipment, costs associated with vehicles, employee payroll, health
and other employee benefits, workers compensation claims, health care claims and all
other costs related to transition personnel.  The Company accrued employee separation
costs as costs were incurred in accordance with SFAS 146.  These costs are included in
the results of discontinued operations in accordance with SFAS 144.

Related operating results have been
reported as discontinued operations in accordance with SFAS 144.  The Company has
reclassified the results of operations of the component to be disposed for the prior
period in accordance with provisions of SFAS 144.  There have been no corporate expenses
(including advertising expense) included in expenses from discontinued operations.
 Interest on debt that was required to be repaid as a result of the disposal transaction
was allocated to income (loss) from discontinued operations.  The effective interest rate
on the outstanding debt of the Company at the end of the period reported is applied to
the $68,643 estimated debt pay-down from the proceeds.  The amount of interest
reclassified to loss from discontinued operations is $0 and $964 for the three-month
period and $0 and $3,036 for the six-month period ended March 31, 2004 and 2003,
respectively. Revenues and net income (loss) from the discontinued operations were as
follows:

|                                         | Three Months Ended March 31, | Six Months Ended March 31,
|---------------------------------------- | ---------------------------- | --------------------------
|
|Operating revenues                       |                              |                           
|Operating expenses from discontinued     |                              |                           
|operations (including exit costs) (1)    |                              |                           
|Rental merchandise fair value adjustment |                              |                           
|Reserve for present value of future      |                              |                           
|minimum lease payments on vacated stores |                              |                           
|(1)                                      |                              |                           
|Loss on sale of stores                   |                              |                           
|Interest expense                         |                              |                           
|                                         |                              |                           
|Net loss from discontinued operations    |                              |                           
|                                         |                              |                           

|(1) |  | The Company recorded exit costs associated with the operation and transition of
               the stores to Rent-A-Center, Inc. for 30 days after closing, and monthly rent
               and common area maintenance charges until leases are terminated or expired, in
               accordance with SFAS 146. This includes $1,027 of a write-off of leasehold
               improvements for the six-months ended March 31, 2004.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

There were no assets or liabilities
held for sale included in the Consolidated Balance Sheet as of March 31, 2004 and
September 30, 2003.

3.    
          BUSINESS RATIONALIZATION:

The Company periodically closes
under-performing stores and takes other actions to maximize its overall profitability. In
connection with the closing of stores and taking other actions, it incurs employee
severance, fixed asset write offs, lease termination costs and other direct exit costs
related to these activities. Employee severance costs related to the closing of
under-performing stores were immaterial in each of the periods reported below. The
net amount of these costs were as follows:

|                               | Fixed
Asset
Write Offs | Lease
Termination
Costs | Total
|------------------------------ | ---------------------- | ----------------------- | -----
|Balance at September 30, 2002  |                        |                         | $    
|                               |                        |                         |      
|Fiscal 2003 Provision          |                        |                         |      
|Amount utilized in fiscal 2003 |                        |                         |      
|                               |                        |                         |      
|Balance at September 30, 2003  |                        |                         |      
|Fiscal 2004 Provision          |                        |                         |      
|Amount utilized in Fiscal 2004 |                        |                         |      
|                               |                        |                         |      
|Balance at March 31, 2004      |                        |                         | $    
|                               |                        |                         |      

Lease termination costs will be paid
according to the contract terms.

During the second quarter of fiscal
year 2003, the Company formulated a plan to restructure the corporate office through
reductions in the corporate workforce to rationalize corporate costs for the remaining
stores and to sublease, assign or terminate operating leases that the Company would no
longer operate as a rent-to-own business activity subsequent to the sale to Rent-A-Center,
Inc. There was $0 and $2,215 of restructuring costs for the three months ended March 31,
2004 and 2003, respectively. There was $48 and $2,215 of restructuring costs for the six
months ended March 31, 2004 and 2003, respectively.

4.    
          EARNINGS (LOSS) PER COMMON SHARE:

Basic earnings (loss) per common
share is computed using income (loss) allocable to common shareholders divided by the
weighted average number of common shares outstanding. Diluted earnings (loss) per common
share is computed using income (loss) allocable to common shareholders and the weighted
average number of shares outstanding adjusted for the potential impact of options,
warrants, conversion of convertible redeemable preferred stock, convertible preferred
stock conversion derivative, dividends on convertible preferred stock and accretion of
convertible preferred stock discount where the effects are dilutive. Because operating
results were a loss for the three-and six-months ended March 31, 2003, basic and diluted
loss per common share were the same.

The following table discloses the
reconciliation of numerators and denominators of the basic and diluted earnings
(loss) per share computation:

|                                                         | Three Months Ended March 31, | Six Months Ended March 31,
|-------------------------------------------------------- | ---------------------------- | --------------------------
|
|COMPUTATION OF EARNINGS (LOSS) PER SHARE:                |                              |                           
|BASIC                                                    |                              |                           
|Income (loss) before discontinued operations             |                              |                           
|Loss from discontinued operations                        |                              |                           
|                                                         |                              |                           
|Net income (loss)                                        |                              |                           
|Dividend and accretion of preferred stock                |                              |                           
|                                                         |                              |                           
|Net income (loss) allocable to common shareholders       |                              |                           
|                                                         |                              |                           
|Weighted average common shares outstanding               |                              |                           
|                                                         |                              |                           
|Earnings (loss) per share:                               |                              |                           
|Income (loss) before discontinued operations             |                              |                           
|Loss from discontinued operations                        |                              |                           
|Dividend and accretion of preferred stock                |                              |                           
|                                                         |                              |                           
|                                                         |                              |                           
|Net income (loss) allocable to common shareholders       |                              |                           
|                                                         |                              |                           
|DILUTED                                                  |                              |                           
|Net income (loss) allocable to common shareholders for   |                              |                           
|basic earnings (loss) per share                          |                              |                           
|Plus:  Income impact of assumed conversion:              |                              |                           
|Conversion derivative market value adjustment (2)        |                              |                           
|Dividends on 8% convertible preferred stock (2)          |                              |                           
|Accretion to preferred stock redemption amount (2)       |                              |                           
|                                                         |                              |                           
|Net income (loss) allocable to common shareholders for   |                              |                           
|diluted earnings (loss) per share and assumed conversion |                              |                           
|                                                         |                              |                           
|Weighted average common shares used in calculating basic |                              |                           
|earnings (loss) per share                                |                              |                           
|Add incremental shares representing:                     |                              |                           
|Shares issuable upon exercise of stock options and       |                              |                           
|warrants (1)                                             |                              |                           
|Contingent shares issuable upon the exercise of warrants |                              |                           
|to purchase 8% convertible preferred stock (2)           |                              |                           
|Shares issuable upon conversion of 8% convertible        |                              |                           
|preferred stock (2)                                      |                              |                           
|                                                         |                              |                           
|Weighted average number of shares used in calculation of |                              |                           
|diluted earnings (loss) per share                        |                              |                           
|                                                         |                              |                           
|Earnings (loss) per share:                               |                              |                           
|Income (loss) before discontinued operations             |                              |                           
|Loss from discontinued operations                        |                              |                           
|Accretion to preferred stock redemption amount           |                              |                           
|                                                         |                              |                           
|Net income (loss) allocable to common shareholders       |                              |                           
|                                                         |                              |                           

|(1) |  | Including the effects of these items for the three- and six-months ended March
               31, 2003 would be anti-dilutive. Therefore 4,189 and 4,188 of anti-dilutive
               common shares are excluded from consideration in the calculation of diluted loss
               per share for the three- and six-months ended March 31, 2003, respectively.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Including the effects of these items for the six-month period ended March 31,
               2004 would be anti-dilutive. Therefore, 736 contingent shares issuable upon
               exercise of warrants to purchase 8% convertible preferred stock and 2,516 shares
               issuable upon conversion of 8% convertible preferred stock are excluded from
               consideration in the calculation of diluted earnings (loss) per share for the
               six-months ended March 31, 2004. There were conversion derivative market value
               adjustments of $5,702, dividends on convertible preferred stock of $604 and
               accretion to preferred stock redemption in the amount of $194 which were not
               added back to net income allocable to common shareholders for basic earnings per
               share on the diluted earnings per share because including the effects of these
               items would be anti-dilutive.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5.                 GOODWILLADOPTION
OF STATEMENT 142:

Effective October 1, 2001, the
Company adopted Statement of Financial Accounting Standards No. 142 (SFAS
142), Goodwill and Other Intangible Assets. SFAS 142 requires that
intangible assets not subject to amortization and goodwill be tested for impairment
annually, or more frequently if events or changes in circumstances indicate that the
carrying value may not be recoverable. SFAS 142 prescribes a two-phase process for
impairment testing of goodwill. The first phase screens for impairment while the
second phase, if necessary, measures the impairment. Amortization of goodwill and
intangible assets with indefinite lives, including such assets recorded in past
business combinations, ceased upon adoption. Thus, no amortization for such goodwill
and indefinite lived intangibles was recognized in the accompanying condensed consolidated
statements of operations for the three-and six-months ended March 31, 2004 and 2003. On an
annual basis and when there is reason to suspect that their values have been diminished or
impaired, these assets must be tested for impairment, and a write down may be necessary.

The Rent-A-Center transaction (see
Note 2) was an event that triggered an impairment assessment under the provisions of SFAS
142. The Company performed an impairment test of the carrying value of goodwill remaining
after allocation of the fair value of goodwill to the assets held for sale as set forth in
the Rent-A-Center purchase agreement as of December 17, 2002, the date of the agreement.
There was no impairment of goodwill as a result of this assessment.

The following table shows the net
carrying value of goodwill as of March 31, 2004, and September 30, 2003, for the
Companys segments:

|         | Household
Rental Segment | Prepaid
Telephone
Service Segment | Total
Segments
|-------- | ------------------------ | --------------------------------- | --------------
|
|Goodwill |                          |                                   | $             

The following tables reflect the
components of amortizable intangible assets at March 31, 2004 and September 30, 2003:

|Balance at March 31, 2004:     | Purchase
Amount | Cumulative
Amortization | Net
Carrying
Amount
|------------------------------ | --------------- | ----------------------- | -------------------
|Amortizable intangible assets: |                 |                         |                    
|Non-compete agreements         |                 |                         | $                  
|Customer contracts             |                 |                         |                    
|                               |                 |                         |                    
|                               |                 |                         | $                  
|                               |                 |                         |                    

|Balance at September 30, 2003: | Purchase
Amount | Cumulative
Amortization | Net
Carrying
Amount
|------------------------------ | --------------- | ----------------------- | -------------------
|Amortizable intangible assets: |                 |                         |                    
|Non-compete agreements         |                 |                         | $                  
|Customer contracts             |                 |                         |                    
|Exclusivity agreement          |                 |                         |                    
|                               |                 |                         |                    
|                               |                 |                         | $                  
|                               |                 |                         |                    

At
March 31, 2004, future aggregate annual amortization of amortizable intangible assets is
as follows:

|Fiscal Year    | Amount
|-------------- | ------
|Remaining 2004 |       
|2005           |       
|2006           |       
|               |       
|               |       
|               |       

There were no changes to the
amortization methods and lives of the amortizable intangible assets.

6.    
          OTHER ASSETS:

Other
assets consist of the following:

|                                      | March 31,
2004 | September 30,
2003
|------------------------------------- | -------------- | ------------------
|Receivable from insurance proceeds    |                |                   
|Receivable from sale to Rent-A-Center |                |                   
|Other receivables                     |                |                   
|Deposits                              |                |                   
|Prepaid tax                           |                |                   
|Other                                 |                |                   
|                                      |                |                   
|Other assets                          |                |                   
|                                      |                |                   

7.    
          OTHER LIABILITIES:

Other
liabilities consist of the following:

|                                               | March 31,

2004 | September
30,
2003
|---------------------------------------------- | --------------- | ------------------
|Accrual for settlement of class action lawsuit |                 |                   
|Accrued salaries, wages, tax and benefits      |                 |                   
|Capital lease obligations                      |                 |                   
|Accrued preferred dividend and interest        |                 |                   
|Vacant facility lease obligations              |                 |                   
|Swap liability                                 |                 |                   
|Accrued property taxes                         |                 |                   
|Accrued vacation                               |                 |                   
|Accrued sales and use tax                      |                 |                   
|Other                                          |                 |                   
|                                               |                 |                   
|Other liabilities                              |                 |                   
|                                               |                 |                   

8.    
          DEBT:

Debt
consists of the following:

|                                 | March 31,
2004 | September 30,
2003
|-------------------------------- | -------------- | ------------------
|Senior secured notes             |                |                   
|Revolving credit facility        |                |                   
|Notes payable lawsuit settlement |                |                   
|Note payable                     |                |                   
|                                 |                |                   
|                                 |                |                   
|                                 |                |                   

The Companys senior secured
notes have the following material terms. The $205,000 principal amount of senior secured
notes bears interest at 11.875%. The interest on the secured notes is payable semiannually
on June 15 and December 15. The secured notes are guaranteed on a senior basis by all
existing and future domestic restricted subsidiaries of the Company other than DPI, which
is an unrestricted subsidiary. The Company may redeem the secured notes, in whole or in
part, at any time prior to June 15, 2010, at a redemption price equal to the greater of:

|a) |  | 100% of the principal amount of the notes to be redeemed; and
|-- |  | -------------------------------------------------------------

|b) |  | the sum of the present values of (i) 100% of the principal amount of the notes
               to be redeemed at June 15, 2010, and (ii) the remaining scheduled payments of
               interest from the redemption date through June 15, 2010, but excluding accrued
               and unpaid interest to the redemption date, discounted to the redemption date at
               the treasury rate plus 175 basis points;
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

plus, in either case, accrued and
unpaid interest to the redemption date.

In addition, at any time prior to June
15, 2006, up to 25% of the aggregate principal amount of the secured notes may be redeemed
at the Companys option, within 75 days of certain public equity offerings, at a
redemption price of 111.875% of the principal amount, together with accrued and unpaid
interest. Such redemption can occur provided that after giving effect to any such
redemption, at least 75% of the original aggregate principal amount of the notes issued
(including any notes issued in future permitted issuances) remains outstanding.

The secured notes were offered at a
discount of $3,583, which is being amortized using the effective interest method, over the
term of the secured notes. Amortization of the discount was $89 and $169 for the three-and
six-month period ending March 31, 2004, respectively, and is recorded as interest expense.
Costs representing underwriting fees and other professional fees of $6,746 are being
amortized over the seven-year term of the bonds using the effective interest method of
amortization. The secured notes rank senior in right to all of the Companys existing
and future subordinated debt, have a lien position ranking second to the bank revolving
credit facility and effectively junior in right of payment to all existing and future debt
and other liabilities of the Companys subsidiaries that are not subsidiary
guarantors. The secured notes contain covenants that will, among other things, limit the
Companys ability to incur additional debt, make restricted payments, incur any
additional liens, sell certain assets, pay dividend distributions from restricted
subsidiaries, transact with affiliates, conduct certain sale and leaseback transactions
and use excess cash flow.

The Company is in compliance with
covenants at March 31, 2004, and expects to comply with covenants based upon its fiscal
2004 projections.

The Companys bank revolving
credit facility has the following material terms. The facility is with Harris Trust and
Savings Bank, acting as administrative agent, and Bank of Montreal as lead arranger, and
provides for National City Bank to act as syndication agent and provides for senior
secured revolving loans of up to $60,000 including a $15,000 sub-limit for standby and
commercial letters of credit and a $5,000 swingline sub-limit. The credit facility will
expire five years from closing (June 2, 2008). The balance outstanding at March 31, 2004
was $22,000 with $32,280 available at March 31, 2004. Deferred financing costs of $2,062
are being amortized over the 5-year term of the bank agreement. The credit facility is
guaranteed by all of the wholly owned domestic subsidiaries and collateralized by first
priority liens on substantially all of the Companys and subsidiary guarantors
assets, including rental contracts and the stock held in domestic subsidiaries. The
Company may elect that each borrowing of revolving loans be either base rate loans or
Eurodollar loans. The Eurodollar loans bear interest at a rate per annum equal to an
applicable margin plus LIBOR adjusted for a reserve percentage. Under the base rate
option, the Company will borrow money based on the greater of (a) the prime interest rate
or (b) the federal funds rate plus 0.50%, plus, in each case, a specified margin. A 0.50%
commitment fee will be payable quarterly on the unused amount of the revolving credit
facility. Upon a default, interest will accrue at 2% over the applicable rate. The Company
will be required to make specified mandatory prepayments upon subsequent debt or equity
offerings and asset dispositions.

The Companys note payable for
lawsuit settlement was agreed to in the settlement of the class action lawsuit. The note
payable was a $4,000 unsecured subordinated note, which bears interest at 6% annually and
payable in four equal installments over two years on June 30 and December 31. The first
$1,000 was paid on December 31, 2003 and the second payment will be made on June 30, 2004.
The balance at March 31, 2004 was $3,000.

9.    
          CONVERTIBLE REDEEMABLE PREFERRED STOCK:

On June 2, 2003, the Company issued
1,500 shares of its Series A convertible preferred stock, for $10,000 per share (the
convertible preferred stock) and granted a one-year option to purchase an
additional 500 shares of convertible preferred stock (the additional preferred
shares). The net proceeds from the sale of the convertible preferred stock were used
to repay the senior credit facility. The net proceeds of $14,119 from the issuance of the
convertible preferred stock are net of issuance costs of $881, and are classified outside
of permanent equity because of the redemption date and other redemption provisions except
for $142 at September 30, 2003 classified as an option to purchase convertible preferred
stock included in permanent equity. During March 2004, an option was exercised for the
purchase of 133 additional shares in the amount of $1,330. The value of the option to
purchase convertible preferred stock was reduced by $38 as a result of the March 2004
exercise. The convertible preferred stock is being accreted to its maximum redemption
amount possible pursuant to Topic D-98, Classification and Measurement of Redeemable
Securities, using the effective interest method from the issuance date to the 7-year
redemption date.

The terms of the convertible
preferred stock include a number of conversion and redemption provisions that represent
derivative financial instruments under Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities, (SFAS
133) (See Note 12). Certain features of the convertible preferred stock are
accounted for as embedded derivative financial instruments. The Company has determined
that the option to purchase additional preferred shares is an embedded derivative
financial instrument that qualifies for scope exemption under the provisions of EITF
00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Companys Own Stock (EITF 00-19). As such, this
derivative was initially required to be bifurcated and recorded at fair value upon
issuance but does not require mark to market accounting. The carrying value of this
derivative financial instrument is $104 at March 31, 2004 due to the March 2004 exercise
of an option and is recorded as option to purchase convertible preferred stock in the
equity section of the consolidated balance sheet. The Company also has determined the
convertible feature of the convertible preferred stock is a derivative financial
instrument that does not qualify for scope exemption under EITF 00-19, and, is required to
be bifurcated, recorded at fair value, and marked to market. The market value of this
derivative financial instrument is $17,452 at March 31, 2004, and is recorded in
convertible redeemable preferred stock in the consolidated balance sheet. The fair values
of the derivatives were determined with the assistance of an independent valuation firm.

Dividends.    
          Dividends will accrue daily at a rate of 8.0% per annum. Dividends on the
          preferred stock will be payable on the first day of each calendar quarter in
          cash or in shares of Company common stock at the Companys option,
          provided, however, that if the Company elects to pay dividends in shares of
          common stock, (i) a registration statement must be effective with respect to
          such shares of common stock and (ii) the payment would be at 95% of the
          arithmetic average of the daily volume weighted average prices of the common
          stock for the five trading days immediately preceding the second trading day
          prior to the applicable dividend payment date. The Company is required to pay
          dividends in cash if a triggering event occurs. Dividends not paid within five
          business days of the dividend payment date bear interest at 15.0% per annum
          until paid in full. During the period commencing upon the occurrence of a share
          liquidity event and ending when such event is cured, the dividend rate shall
          increase to 15% per annum. Preferred dividends of $304 were accrued and charged
          to accumulated deficit for the three-month period ending March 31, 2004.

10.    
          STOCK OPTIONS:

The Company accounts for stock based
compensation issued to its employees and directors in accordance with APB No. 25, and has
elected to adopt the disclosure only provisions of SFAS No. 148,
Accounting for Stock-Based Compensation  Transition and Disclosure. SFAS
148 amends SFAS No. 123, Accounting for Stock-Based Compensation, to
provide alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, SFAS 148
amends the disclosure requirements of SFAS 123 to require new prominent disclosures
in both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported results.

For SFAS No. 148 purposes, the fair
value of each option granted under the 1992 Plan, the 1995 Plan, and the 1999 Plan is
estimated as of the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for options granted in fiscal years 2000
through 2004: expected volatility ranging from 47.41% to 99.61%, risk-free interest rates
between 2.91% and 6.81%, and an expected life of five years.

If the Company had elected to
recognize the compensation cost of its stock option plans based on the fair value of the
awards under those plans in accordance with SFAS No. 148, net loss and loss per common
share would have been increased to the pro-forma amounts below:

|                                                    | For the Six-Month Period Ended March 31,
|--------------------------------------------------- | ----------------------------------------
|
|Net income (loss) before discontinued operations:   |                                         
|As reported                                         |                                         
|Compensation expense                                |                                         
|                                                    |                                         
|Pro-forma                                           |                                         
|                                                    |                                         
|Net income (loss) allocable to common shareholders: |                                         
|As reported                                         |                                         
|Compensation expense                                |                                         
|                                                    |                                         
|Pro-forma                                           |                                         
|                                                    |                                         
|Diluted income (loss) per common share:             |                                         
|Net loss before discontinued operations:            |                                         
|As reported                                         |                                         
|                                                    |                                         
|Pro-forma                                           |                                         
|                                                    |                                         
|Net income (loss) allocable to common shareholders: |                                         
|As reported                                         |                                         
|                                                    |                                         
|Pro-forma                                           |                                         
|                                                    |                                         

There were 80 options granted during
fiscal year 2004 through March 31, 2004; 45 granted October 1, with a grant price of
$5.34, expiring in 2008 and 35 granted October 29, with a grant price of $5.80, expiring
in 2009.

11.    
          SHAREHOLDERS EQUITY:

On April 18, 2002, the Company sold
1.0 million restricted common shares and warrants to receive 100,000 common shares to Calm
Waters Partnership and two other investors (the Investors) for $6,000. The
warrants had an exercise price of $9.35 per share, which was reduced to $4.90 per share
pursuant to anti-dilution adjustments. The Company re-measured the value of the warrants
in accordance with the arrangement and reclassified the change to common stock from
warrants. These warrants were exercised in November 2003.

12.    
          DERIVATIVE FINANCIAL INSTRUMENTS:

On June 2, 2003, the Company issued
1,500 shares of convertible redeemable preferred stock (see Note 9). The terms of this
preferred stock include a number of conversion and redemption provisions that represent
derivatives under SFAS No. 133. The Company has determined that the option to purchase
additional preferred shares is an embedded derivative financial instrument that qualifies
for SFAS 133 scope exemption under the provisions of EITF 00-19. As such this derivative
was initially bifurcated and recorded in shareholders equity. This derivative does
not require mark to market accounting.

The Company also has determined the
convertible feature of the convertible redeemable preferred stock is a derivative
financial instrument that does not qualify for SFAS 133 scope exemption under EITF 00-19.
It was bifurcated and recorded in the temporary equity classification on the balance
sheet. The change in the fair market value of the convertible feature was $1 and $5,703 for
the three months and six months ended March 31, 2004, respectively.

At March 31, 2004, the Company had
interest rate swaps on a notional debt amount of $50,700 and a fair market value of
($3,238). The variable pay interest rate ranges from 6.73% to 6.97%. The maturity dates
run through August 2005.

The Companys interest rate
swaps do not meet the qualifications for hedge accounting treatment under SFAS No. 133.
The Companys positive change in the fair market value of the interest rate swap
portfolio was $605 and $1,898 for the three- and six-months ended March 31, 2004. This was
recorded to other income in the Companys condensed consolidated statements of
operations.

13.    
          COMPREHENSIVE INCOME:

Comprehensive income encompasses net
income and changes in the components of accumulated other comprehensive income not
reflected in the Companys condensed consolidated statements of operations during the
periods presented. Accumulated other comprehensive income consists of the transition asset
recorded at the time of adoption of SFAS No. 133.

|                                     | Other Comprehensive
Income (Loss) For the Six Monthsended March 31,2004 | Other Comprehensive
Income (Loss) for the Six Months EndedMarch 31, 2003
|------------------------------------ | ----------------------------------------------------------------------- | ------------------------------------------------------------------------
|Net income (loss) for the six months |                                                                         |                                                                         
|                                     |                                                                         |                                                                         
|Amortization of SFAS 133             |                                                                         |                                                                         
|Transition amount                    |                                                                         |                                                                         
|                                     |                                                                         |                                                                         
|Other comprehensive income (loss)    |                                                                         |                                                                         
|                                     |                                                                         |                                                                         
|                                     |                                                                         |                                                                         

|                                                          | Accumulated Other Comprehensive
Income (Loss) at March 31,2004 | Accumulated Other Comprehensive
Income (Loss) at September 30, 2003
|--------------------------------------------------------- | -------------------------------------------------------------- | -------------------------------------------------------------------
|Balance at October 1                                      |                                                                |                                                                    
|                                                          |                                                                |                                                                    
|Amortization of SFAS 133                                  |                                                                |                                                                    
|Transition amount                                         |                                                                |                                                                    
|                                                          |                                                                |                                                                    
|Accumulated other comprehensive income (loss) at March 31 |                                                                |                                                                    
|                                                          |                                                                |                                                                    
|                                                          |                                                                |                                                                    

14.    
          CONTINGENCIES:

As previously reported, the Company,
its former independent accountants, and certain of its current and former officers were
named in a consolidated class action complaint filed in the U.S. District Court for the
Western District of Pennsylvania alleging violations of the securities laws and seeking
damages in unspecified amounts purportedly on behalf of a class of shareholders. On April
18, 2003, the Company entered into an agreement settling the class action. The settlement
required the Company to pay the class the sum of $25,000, with $21,000 in cash and $4,000
in 6% unsecured subordinated notes payable in four equal installments over two years
commencing December 31, 2003. Of the $21,000 payable in cash, $11,000 has been funded from
available insurance proceeds; the remaining $10,000 was funded into escrow and was
classified as restricted cash on the consolidated balance sheet at September 30, 2003. The
settlement agreement provided for the release of the Company and all other defendants
except the Companys former controller and the Companys former independent
accountants. The settlement received court approval and became final by virtue of an order
dated December 22, 2003.

The Company is subject to legal
proceedings and claims in the ordinary course of its business that have not been finally
adjudicated. Certain of these cases, exclusive of the class action mentioned above, have
resulted in initial claims totaling $6,423. However, all but $122 of such claims are, in
the opinion of management, covered by insurance policies or indemnification agreements, or
create only remote potential of any liability exposure to the Company and therefore should
not have a material effect on the Companys financial position, results of operations
or cash flows. Additionally, threatened claims exist for which management is not yet able
to reasonably estimate a potential loss. In managements opinion, none of these
threatened claims will have a material adverse effect on the Companys financial
position, results of operations or cash flows.

The Company is primarily self-insured
for health insurance. The self-insurance liability for health costs is
determined based on funding factors determined by cost plus rates for a fully insured plan
and monthly headcounts. The contracted rate is determined based on experience, prior
claims filed and an estimate of future claims. A retrospective adjustment for over (under)
funding of claims is recorded when determinable and probable.

15.    
          INCOME TAXES:

During the first six months of fiscal
2004, the Company recorded income tax expense and a deferred tax liability of $2,790
because the Company can no longer look to the reversal of the deferred tax liability
associated with tax-deductible goodwill to offset a portion of its deferred tax asset,
following the adoption of SFAS 142. The deferred tax asset, net of liabilities excluding
goodwill, decreased from $73,095 at September 30, 2003 to $71,887 at March 31, 2004. This
decrease of $1,208 for the six months ended March 31, 2004, is the tax effect of income
before income taxes. A full valuation allowance has been provided against the net deferred
tax asset.

16.    
          SEGMENT INFORMATION:

Rent-Way is a national
rental-purchase chain that provides a variety of services to its customers including
rental of household items and prepaid local telephone service on a week-by-week or a
month-by-month basis. The Company has determined that its reportable segments are those
that are based on the Companys method of internal reporting, which disaggregates its
business by product category. The Companys reportable segments are household rentals
and prepaid telephone service. Its household rental segment rents name brand merchandise
such as furniture, appliances, electronics and computers on a weekly, biweekly,
semimonthly or bimonthly basis. Its prepaid telephone service segment provides a local
dial tone on a month-by-month basis.

The financial results of the
Companys segments follow the same accounting policies as described in Summary
of Significant Accounting Policies (see Note 1).

|For the three months ended March 31, 2004 | Household
Rental Segment | Prepaid Telephone
Service Segment | Inter-segment
Activity | Total Segments
|----------------------------------------- | ------------------------ | --------------------------------- | ---------------------- | --------------
|Total revenue                             |                          |                                   | $                      | 128,382       
|                                          |                          |                                   |                        |               
|Operating income (loss)                   |                          |                                   | $                      | 16,776        
|                                          |                          |                                   |                        |               
|Net income (loss)                         |                          |                                   | $                      | 8,316         
|                                          |                          |                                   |                        |               
|Total Assets                              |                          |                                   | $                      | 443,254       
|                                          |                          |                                   |                        |               

|For the six months ended March 31, 2004 | Household
Rental Segment | Prepaid Telephone
Service Segment | Inter-segment
Activity | Total Segments
|--------------------------------------- | ------------------------ | --------------------------------- | ---------------------- | --------------
|Total revenue                           |                          |                                   | $                      | 245,985       
|                                        |                          |                                   |                        |               
|Operating income (loss)                 |                          |                                   | $                      | 25,873        
|                                        |                          |                                   |                        |               
|Net income (loss)                       |                          |                                   | $                      | 3,133         
|                                        |                          |                                   |                        |               
|Total Assets                            |                          |                                   | $                      | 443,254       
|                                        |                          |                                   |                        |               

|For the three months ended March 31, 2003 | Household
Rental Segment | Prepaid Telephone
Service Segment | Inter-segment
Activity | Total Segments
|----------------------------------------- | ------------------------ | --------------------------------- | ---------------------- | --------------
|Total revenue                             |                          |                                   | $                      | 120,687       
|                                          |                          |                                   |                        |               
|Operating income (loss)                   |                          |                                   | $                      | 7,542         
|                                          |                          |                                   |                        |               
|Net income (loss)                         |                          |                                   | $                      | (27,834       
|                                          |                          |                                   |                        |               
|Total Assets                              |                          |                                   | $                      | 461,842       
|                                          |                          |                                   |                        |               

|For the six months ended March 31, 2003 | Household
Rental Segment | Prepaid Telephone
Service Segment | Inter-segment
Activity | Total Segments
|--------------------------------------- | ------------------------ | --------------------------------- | ---------------------- | --------------
|Total revenue                           |                          |                                   | $                      | 231,675       
|                                        |                          |                                   |                        |               
|Operating income (loss)                 |                          |                                   | $                      | 12,221        
|                                        |                          |                                   |                        |               
|Net income (loss)                       |                          |                                   | $                      | (32,938       
|                                        |                          |                                   |                        |               
|Total Assets                            |                          |                                   | $                      | 461,842       
|                                        |                          |                                   |                        |               

17.     SUBSEQUENT
EVENT

On April 7,
2004, the Company purchased 100 shares of DPI Holdings, Inc. from the former Chief
Operating Officer of DPI Teleconnet, LLC for $350. DPI Holdings, Inc. owns 16.5% interest
in DPI Teleconnect, LLC and the Company owns 83.5% interest in DPI Teleconnect, LLC after
the acquisition of these shares.

18.    
          GUARANTOR AND NON-GUARANTOR SUBSIDIARIES:

The 11 7/8% senior secured notes
issued by Rent-Way, Inc. (Parent) have been guaranteed by each of its
restricted subsidiaries (Guarantor Subsidiaries). The Guarantor Subsidiaries
are 100% owned subsidiaries of the Parent. The guarantees of the Subsidiary Guarantors are
full, unconditional and joint and several. Separate financial statements of the Parent and
Guarantor Subsidiaries are not presented in accordance with the exception provided by Rule
3-10 of Regulation S-X.

The following schedules set forth the
condensed consolidating balance sheets as of March 31, 2004 and September 30, 2003 and
condensed consolidating statements of operations for the three- and six-months ended March
31, 2004 and 2003, and condensed consolidating statements of cash flows for the six-months
ended March 31, 2004 and 2003. In the following schedules, Parent refers to
Rent-Way, Inc., Guarantor Subsidiaries refers to Rent-Ways wholly owned
subsidiaries, and Non-Guarantor Subsidiaries refers to dPi, the Companys
70% owned subsidiary. Eliminations represent the adjustments necessary to
eliminate inter-company investment in subsidiaries.

---

RENT-WAY, INC.

CONDENSED CONSOLIDATED
BALANCE SHEET

MARCH 31, 2004

(All dollars in
thousands)

|                                               | Parent
Issuer | Guarantor
Subsidiaries | Non-Guarantor
Subsidiary | Eliminations | Rent-Way
Consolidated
|---------------------------------------------- | ------------- | ---------------------- | ------------------------ | ------------ | ---------------------
|ASSETS                                         |               |                        |                          |              |                      
|Cash and cash equivalents                      |               |                        | $                        | 3,852        |                      
|Prepaid expenses                               |               |                        |                          | 9,172        |                      
|Income tax receivable                          |               |                        |                          | 22           |                      
|Rental merchandise, net                        |               |                        |                          | 142,807      |                      
|Rental merchandise credits due from vendors    |               |                        |                          | 2,934        |                      
|Property and equipment, net                    |               |                        |                          | 33,065       |                      
|Goodwill                                       |               |                        |                          | 124,457      |                      
|Deferred financing costs, net                  |               |                        |                          | 7,965        |                      
|Intangible assets, net                         |               |                        |                          | 278          |                      
|Other assets                                   |               |                        |                          | 6,616        |                      
|Investment in subsidiaries                     |               |                        |                          | 62,459       |                      
|                                               |               |                        |                          |              |                      
|Total assets                                   |               |                        | $                        | 393,627      |                      
|                                               |               |                        |                          |              |                      
|LIABILITES AND SHAREHOLDERS' EQUITY            |               |                       
|Liabilities:                                   |               |                       
|Accounts payable                               |               |                        | $                        | 14,109       |                      
|Other liabilities                              |               |                        |                          | 44,942       |                      
|Inter-company                                  |               |                        |                          | (30,708      | )                    
|Deferred tax liability                         |               |                        |                          | 7,705        |                      
|Debt                                           |               |                        |                          | 226,753      |                      
|                                               |               |                        |                          |              |                      
|Total liabilities                              |               |                        |                          | 262,801      |                      
|Convertible redeemable preferred stock         |               |                        |                          | 23,253       |                      
|SHAREHOLDERS' EQUITY:                          |               |                       
|Common stock                                   |               |                        |                          | 304,178      |                      
|Option to purchase convertible preferred stock |               |                        |                          | 104          |                      
|Accumulated other comprehensive income         |               |                        |                          | (159         | )                    
|Retained earnings (accumulated deficit)        |               |                        |                          | (196,550     | )                    
|                                               |               |                        |                          |              |                      
|Total shareholders' equity                     |               |                        |                          | 107,573      |                      
|                                               |               |                        |                          |              |                      
|Total liabilities and shareholders' equity     |               |                        | $                        | 393,627      |                      
|                                               |               |                        |                          |              |                      

---

RENT-WAY, INC.

CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS
ENDED MARCH 31, 2004

(All dollars in
thousands)

|                                                              | Parent
Issuer | Guarantor
Subsidiaries | Non-Guarantor
Subsidiary | Eliminations | Rent-Way
Consolidated
|------------------------------------------------------------- | ------------- | ---------------------- | ------------------------ | ------------ | ---------------------
|REVENUES:                                                     |               |                        |                          |              |                      
|Rental revenues                                               |               |                        | $                        | 89,033       |                      
|Prepaid phone service                                         |               |                        |                          | --           |                      
|Other revenues                                                |               |                        |                          | 13,909       |                      
|                                                              |               |                        |                          |              |                      
|Total revenues                                                |               |                        |                          | 102,942      |                      
|COSTS AND OPERATING EXPENSES:                                 |               |                       
|Depreciation and amortization:                                |               |                       
|Rental                                                        |               |                       
|merchandise                                                   |               |                        |                          | 29,664       |                      
|Property and equipment                                        |               |                        |                          | 2,882        |                      
|Amortization of goodwill and other intangibles                |               |                        |                          | 83           |                      
|Cost of prepaid phone service                                 |               |                        |                          | --           |                      
|Salaries and wages                                            |               |                        |                          | 26,532       |                      
|Advertising, net                                              |               |                        |                          | 3,793        |                      
|Occupancy                                                     |               |                        |                          | 6,679        |                      
|Other operating expenses                                      |               |                        |                          | 21,496       |                      
|                                                              |               |                        |                          |              |                      
|Total costs and operating expenses                            |               |                        |                          | 91,129       |                      
|                                                              |               |                        |                          |              |                      
|Operating income (loss)                                       |               |                        |                          | 11,813       |                      
|OTHER INCOME (EXPENSE):                                       |               |                       
|Interest                                                      |               |                       
|expense                                                       |               |                        |                          | (8,034       | )                    
|Interest                                                      |               |                       
|income                                                        |               |                        |                          | 13           |                      
|Amortization - deferred financial costs                       |               |                        |                          | (264         | )                    
|Other income (expense), net                                   |               |                        |                          | 1,170        |                      
|Equity in net income of subsidiaries                          |               |                        |                          | 3,753        |                      
|                                                              |               |                        |                          |              |                      
|Income (loss) before income taxes and discontinued operations |               |                        |                          | 8,451        |                      
|Income tax expense                                            |               |                        |                          | 1,395        |                      
|                                                              |               |                        |                          |              |                      
|Income (loss) before discontinued operations                  |               |                        |                          | 7,056        |                      
|Loss from discontinued operations                             |               |                        |                          | (330         | )                    
|                                                              |               |                        |                          |              |                      
|Net income (loss)                                             |               |                        | $                        | 6,726        |                      
|                                                              |               |                        |                          |              |                      

---

RENT-WAY, INC.

CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS

FOR THE SIX MONTHS
ENDED MARCH 31, 2004

(All dollars in
thousands)

|                                                   | Parent
Issuer | Guarantor
Subsidiaries | Non-Guarantor
Subsidiary | Eliminations | Rent-Way
Consolidated
|-------------------------------------------------- | ------------- | ---------------------- | ------------------------ | ------------ | ---------------------
|REVENUES:                                          |               |                        |                          |              |                      
|Rental revenues                                    |               |                        | $                        | 170,896      |                      
|Prepaid phone service                              |               |                        |                          | --           |                      
|Other revenues                                     |               |                        |                          | 26,220       |                      
|                                                   |               |                        |                          |              |                      
|Total revenues                                     |               |                        |                          | 197,116      |                      
|COSTS AND OPERATING EXPENSES:                      |               |                       
|Depreciation and amortization:                     |               |                       
|Rental                                             |               |                       
|merchandise                                        |               |                        |                          | 55,826       |                      
|Property and equipment                             |               |                        |                          | 5,917        |                      
|Amortization of goodwill and other intangibles     |               |                        |                          | 168          |                      
|Cost of prepaid phone service                      |               |                        |                          | --           |                      
|Salaries and wages                                 |               |                        |                          | 52,837       |                      
|Advertising, net                                   |               |                        |                          | 9,388        |                      
|Occupancy                                          |               |                        |                          | 13,125       |                      
|Restructuring costs                                |               |                        |                          | 36           |                      
|Other operating expenses                           |               |                        |                          | 41,459       |                      
|                                                   |               |                        |                          |              |                      
|Total costs and operating expenses                 |               |                        |                          | 178,756      |                      
|                                                   |               |                        |                          |              |                      
|Operating income (loss)                            |               |                        |                          | 18,360       |                      
|OTHER INCOME (EXPENSE):                            |               |                       
|Interest                                           |               |                       
|expense                                            |               |                        |                          | (16,203      | )                    
|Interest                                           |               |                       
|income                                             |               |                        |                          | 782          |                      
|Amortization - deferred financial costs            |               |                        |                          | (522         | )                    
|Other income (expense), net                        |               |                        |                          | (3,187       | )                    
|Equity in net income of subsidiaries               |               |                        |                          | 5,458        |                      
|                                                   |               |                        |                          |              |                      
|Income (loss) before income taxes and discontinued |               |                       
|operations                                         |               |                        |                          | 4,688        |                      
|Income tax expense                                 |               |                        |                          | 2,790        |                      
|                                                   |               |                        |                          |              |                      
|Income (loss) before discontinued operations       |               |                        |                          | 1,898        |                      
|Loss from discontinued operations                  |               |                        |                          | (990         | )                    
|                                                   |               |                        |                          |              |                      
|Net income (loss)                                  |               |                        | $                        | 908          |                      
|                                                   |               |                        |                          |              |                      

---

RENT-WAY, INC.

CONDENSED CONSOLIDATED
STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS
ENDED MARCH 31, 2004

(All dollars in
thousands)

|                                                        | Parent
Issuer | Guarantor
Subsidiaries | Non-Guarantor
Subsidiaries | Eliminations | Rent-Way
Consolidated
|------------------------------------------------------- | ------------- | ---------------------- | -------------------------- | ------------ | ---------------------
|OPERATING ACTIVITIES:                                   |               |                        |                            |              |                      
|Net cash provided by (used in) operating activities     |               |                        | $                          | 359          |                      
|INVESTING ACTIVITIES:                                   |               |                       
|Purchases of property and equipment                     |               |                        |                            | (2,646       | )                    
|                                                        |               |                        |                            |              |                      
|Net cash used in investing activities                   |               |                        |                            | (2,646       | )                    
|FINANCING ACTIVITIES:                                   |               |                       
|Proceeds from borrowings                                |               |                        |                            | 78,000       |                      
|Payments on borrowings                                  |               |                        |                            | (69,009      | )                    
|Payments on note for settlement of class action lawsuit |               |                        |                            | (1,000       | )                    
|Payments on capital leases                              |               |                        |                            | (3,029       | )                    
|Book overdraft                                          |               |                        |                            | (2,118       | )                    
|Deferred financing costs                                |               |                        |                            | (35          | )                    
|Issuance of common stock                                |               |                        |                            | 802          |                      
|Proceeds from convertible preferred stock               |               |                        |                            | 1,330        |                      
|Dividends paid                                          |               |                        |                            | (605         | )                    
|                                                        |               |                        |                            |              |                      
|Net cash provided by (used in) financing activities     |               |                        |                            | 4,336        |                      
|                                                        |               |                        |                            |              |                      
|Increase (decrease) in cash and cash equivalents        |               |                        |                            | 2,049        |                      
|                                                        |               |                        |                            |              |                      
|Cash and cash equivalents at beginning of year          |               |                        |                            | 1,803        |                      
|                                                        |               |                        |                            |              |                      
|                                                        |               |                        |                            |              |                      
|Cash and cash equivalents at end of year                |               |                        | $                          | 3,582        |                      
|                                                        |               |                        |                            |              |                      

---

RENT-WAY, INC.

CONDENSED CONSOLIDATED
BALANCE SHEET

SEPTEMBER 30, 2003

(All dollars in
thousands)

|                                               | Parent
Issuer | Guarantor
Subsidiaries | Non-Guarantor
Subsidiary | Eliminations | Rent-Way
Consolidated
|---------------------------------------------- | ------------- | ---------------------- | ------------------------ | ------------ | ---------------------
|ASSETS                                         |               |                        |                          |              |                      
|Cash and cash equivalents                      |               |                        | $                        | 1,803        |                      
|Restricted cash                                |               |                        |                          | 10,000       |                      
|Prepaid expenses                               |               |                        |                          | 6,476        |                      
|Income tax                                     |               |                       
|receivable                                     |               |                        |                          | 3,461        |                      
|Rental merchandise,                            |               |                       
|net                                            |               |                        |                          | 136,797      |                      
|Rental merchandise credits due from vendors    |               |                        |                          | 3,507        |                      
|Property and equipment, net                    |               |                        |                          | 31,053       |                      
|Goodwill                                       |               |                        |                          | 124,457      |                      
|Deferred financing costs,                      |               |                       
|net                                            |               |                        |                          | 8,316        |                      
|Intangible assets, net                         |               |                        |                          | 503          |                      
|Other assets                                   |               |                        |                          | 17,970       |                      
|Investment in subsidiaries                     |               |                        |                          | 57,001       |                      
|                                               |               |                        |                          |              |                      
|Total assets                                   |               |                        | $                        | 401,344      |                      
|                                               |               |                        |                          |              |                      
|LIABILITES AND SHAREHOLDERS' EQUITY            |               |                       
|Liabilities:                                   |               |                       
|Accounts payable                               |               |                        | $                        | 23,992       |                      
|Other liabilities                              |               |                        |                          | 69,507       |                      
|Inter-company                                  |               |                        |                          | (33,262      | )                    
|Deferred tax liability                         |               |                        |                          | 3,735        |                      
|Debt                                           |               |                        |                          | 214,592      |                      
|                                               |               |                        |                          |              |                      
|Total liabilities                              |               |                        |                          | 278,564      |                      
|Convertible redeemable preferred stock         |               |                        |                          | 15,991       |                      
|SHAREHOLDERS' EQUITY:                          |               |                       
|Common stock                                   |               |                        |                          | 303,220      |                      
|Common stock warrants                          |               |                        |                          | 156          |                      
|Option to purchase convertible preferred stock |               |                        |                          | 142          |                      
|Accumulated other comprehensive income         |               |                        |                          | (69          | )                    
|Retained earnings (accumulated deficit)        |               |                        |                          | (196,660     | )                    
|                                               |               |                        |                          |              |                      
|Total shareholders' equity                     |               |                        |                          | 106,789      |                      
|                                               |               |                        |                          |              |                      
|Total liabilities and shareholders' equity     |               |                        | $                        | 401,344      |                      
|                                               |               |                        |                          |              |                      

---

RENT-WAY, INC.

CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS
ENDED MARCH 31, 2003

(All dollars in
thousands)

|                                                   | Parent
Issuer | Guarantor
Subsidiaries | Non-Guarantor
Subsidiary | Eliminations | Rent-Way
Consolidated
|-------------------------------------------------- | ------------- | ---------------------- | ------------------------ | ------------ | ---------------------
|REVENUES:                                          |               |                        |                          |              |                      
|Rental revenues                                    |               |                        | $                        | 78,621       |                      
|Prepaid phone service                              |               |                        |                          | --           |                      
|Other revenues                                     |               |                        |                          | 12,234       |                      
|                                                   |               |                        |                          |              |                      
|Total revenues                                     |               |                        |                          | 90,855       |                      
|COSTS AND OPERATING EXPENSES:                      |               |                       
|Depreciation and amortization:                     |               |                       
|Rental merchandise                                 |               |                        |                          | 24,948       |                      
|Property and equipment                             |               |                        |                          | 4,581        |                      
|Amortization of intangibles                        |               |                        |                          | 321          |                      
|Cost of prepaid phone service                      |               |                        |                          | --           |                      
|Salaries and wages                                 |               |                        |                          | 22,532       |                      
|Advertising, net                                   |               |                        |                          | 3,918        |                      
|Occupancy                                          |               |                        |                          | 5,217        |                      
|Restructuring costs                                |               |                        |                          | 2,215        |                      
|Other operating expenses                           |               |                        |                          | 20,533       |                      
|                                                   |               |                        |                          |              |                      
|Total costs and operating expenses                 |               |                        |                          | 84,265       |                      
|                                                   |               |                        |                          |              |                      
|Operating income                                   |               |                        |                          | 6,590        |                      
|OTHER INCOME (EXPENSE):                            |               |                       
|Interest expense                                   |               |                        |                          | (8,886       | )                    
|Interest income                                    |               |                        |                          | 42           |                      
|Class action settlement                            |               |                        |                          | (14,000      | )                    
|Amortization and write-off of deferred financial   |               |                       
|costs                                              |               |                        |                          | (738         | )                    
|Other income, net                                  |               |                        |                          | 1,795        |                      
|Equity in losses of subsidiaries                   |               |                        |                          | (3,454       | )                    
|                                                   |               |                        |                          |              |                      
|Income (loss) before income taxes and discontinued |               |                        |                          | (18,651      | )                    
|operations                                         |               |                       
|Income tax expense                                 |               |                        |                          | 672          |                      
|                                                   |               |                        |                          |              |                      
|Income (loss) before discontinued operations       |               |                        |                          | (19,323      | )                    
|Loss from discontinued operations                  |               |                        |                          | (8,595       | )                    
|                                                   |               |                        |                          |              |                      
|Net income (loss)                                  |               |                        | $                        | (27,918      | )                    
|                                                   |               |                        |                          |              |                      

---

RENT-WAY, INC.

CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS

FOR THE SIX MONTHS
ENDED MARCH 31, 2003

(All dollars in
thousands)

|                                                   | Parent
Issuer | Guarantor
Subsidiaries | Non-Guarantor
Subsidiary | Eliminations | Rent-Way
Consolidated
|-------------------------------------------------- | ------------- | ---------------------- | ------------------------ | ------------ | ---------------------
|REVENUES:                                          |               |                        |                          |              |                      
|Rental revenues                                    |               |                        | $                        | 145,533      |                      
|Prepaid phone service                              |               |                        |                          | --           |                      
|Other revenues                                     |               |                        |                          | 21,887       |                      
|                                                   |               |                        |                          |              |                      
|Total revenues                                     |               |                        |                          | 167,420      |                      
|COSTS AND OPERATING EXPENSES:                      |               |                       
|Depreciation and amortization:                     |               |                       
|Rental merchandise                                 |               |                        |                          | 44,404       |                      
|Property and equipment                             |               |                        |                          | 9,353        |                      
|Amortization of intangibles                        |               |                        |                          | 727          |                      
|Cost of prepaid phone service                      |               |                        |                          | --           |                      
|Salaries and wages                                 |               |                        |                          | 45,134       |                      
|Advertising, net                                   |               |                        |                          | 11,702       |                      
|Occupancy                                          |               |                        |                          | 9,262        |                      
|Restructuring costs                                |               |                        |                          | 2,215        |                      
|Other operating expenses                           |               |                        |                          | 38,020       |                      
|                                                   |               |                        |                          |              |                      
|Total costs and operating expenses                 |               |                        |                          | 160,817      |                      
|                                                   |               |                        |                          |              |                      
|Operating income                                   |               |                        |                          | 6,603        |                      
|OTHER INCOME (EXPENSE):                            |               |                       
|Interest expense                                   |               |                        |                          | (18,595      | )                    
|Interest income                                    |               |                        |                          | 50           |                      
|Class action settlement                            |               |                        |                          | (14,000      | )                    
|Amortization and write-off of deferred financial   |               |                       
|costs                                              |               |                        |                          | (398         | )                    
|Other income, net                                  |               |                        |                          | 3,167        |                      
|Equity in losses of subsidiaries                   |               |                        |                          | 955          |                      
|                                                   |               |                        |                          |              |                      
|Income (loss) before income taxes and discontinued |               |                       
|operations                                         |               |                        |                          | (22,218      | )                    
|Income tax expense                                 |               |                        |                          | 2,102        |                      
|                                                   |               |                        |                          |              |                      
|Income (loss) before discontinued operations       |               |                        |                          | (24,320      | )                    
|Loss from discontinued operations                  |               |                        |                          | (8,958       | )                    
|                                                   |               |                        |                          |              |                      
|Net income (loss)                                  |               |                        | $                        | (33,278      | )                    
|                                                   |               |                        |                          |              |                      

---

RENT-WAY, INC.

CONDENSED CONSOLIDATED
STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS
ENDED MARCH 31, 2003

(All dollars in
thousands)

|                                                    | Parent
Issuer | Guarantor
Subsidiaries | Non-Guarantor
Subsidiaries | Eliminations | Rent-Way
Consolidated |  
|--------------------------------------------------- | ------------- | ---------------------- | -------------------------- | ------------ | --------------------- | -
|OPERATING ACTIVITIES:                               |               |                        |                            |              |                       |  
|Net cash provided by (used in) operating activities |               |                        | $                          | (5,818       | )                     | $
|INVESTING ACTIVITIES:                               |               |                       
|Purchase of businesses, net of cash acquired        |               |                        |                            | (259         | )                     |  
|Purchases of property and equipment                 |               |                        |                            | (3,365       | )                     |  
|Proceeds from sale of stores and other assets       |               |                        |                            | 72,208       |                       |  
|                                                    |               |                        |                            |              |                       |  
|Net cash used in investing activities               |               |                        |                            | 68,584       |                       |  
|FINANCING ACTIVITIES:                               |               |                       
|Proceeds from borrowings                            |               |                        |                            | 336,007      |                       |  
|Payments on borrowings                              |               |                        |                            | (399,254     | )                     |  
|Payments on capital leases                          |               |                        |                            | (3,775       | )                     |  
|Book overdraft                                      |               |                        |                            | 8,073        |                       |  
|Deferred financing costs                            |               |                        |                            | (734         | )                     |  
|Interest on shareholder loans                       |               |                        |                            | (3           | )                     |  
|Payment of loans by directors/shareholders          |               |                        |                            | 285          |                       |  
|                                                    |               |                        |                            |              |                       |  
|Net cash provided by (used in) financing activities |               |                        |                            | (59,401      | )                     |  
|                                                    |               |                        |                            |              |                       |  
|Increase (decrease) in cash and cash equivalents    |               |                        |                            | 3,365        |                       |  
|Cash and cash equivalents at beginning of year      |               |                        |                            | 4,702        |                       |  
|                                                    |               |                        |                            |              |                       |  
|Cash and cash equivalents at end of year            |               |                        | $                          | 8,067        |                       | $
|                                                    |               |                        |                            |              |                       |  

18.    
          RECENT ACCOUNTING PRONOUNCEMENTS:

In
May 2003, the FASB issued Statement of Financial Accounting Standards No. 150,
Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity (SFAS 150). SFAS 150 establishes standards for
how an issuer classifies and measures certain financial instruments with characteristics
of both liabilities and equity. It requires that an issuer classify a financial instrument
that is within its scope as a liability (or an asset in some circumstances). This
Statement is effective for financial instruments entered into or modified after May 31,
2003, and otherwise effective at the beginning of the first interim period beginning after
June 15, 2003. The Company has adopted the provisions of this Statement. The
classification and measurement provisions in paragraphs 9, 10 and 22 of FAS 150 are
deferred for an indefinite period for certain mandatory, redeemable, non-controlling
interests with finite-lived subsidiaries.

On January 15, 2003, the FASB issued
FIN 46, Consolidation of Variable Interest Entities. The objective of this
interpretation is to improve financial reporting by enterprises involved with variable
interest entities. This interpretation is effective for financial statements issued after
March 15, 2004. The application of FIN 46 did not have a material impact on the financial
statements for the Company.

---

# RENT-WAY, INC.

OVERVIEW

Rent-Way currently operates 753
rental-purchase stores located in 33 states, which is the second largest number of stores
in the rental-purchase industry. The Company offers quality brand name home
entertainment equipment, furniture, computers, major appliances, and jewelry to
customers under full-service rental-purchase agreements that generally allow the
customer to obtain ownership of the merchandise at the conclusion of an agreed upon
rental period. The Company also provides prepaid local phone service to consumers on
a monthly basis through DPI. DPI is a non-facilities based provider of local phone
service.

Since late 2000, the Company has
focused on improving gross margins, decreasing operating expenses, and reducing debt. To
accomplish these objectives, the Company has significantly upgraded its merchandise mix,
implemented higher rental rates, and closed, combined, or sold under-performing stores. On
June 2, 2003, the Company closed a refinancing of its bank credit facility through the
issuance of $205.0 million of senior secured notes, borrowings under a new $60.0 million
bank revolving credit facility and the sale of $15.0 million of convertible preferred
stock.

The Company generates revenues from
three categories: rental revenue, prepaid phone service revenue, and other revenue. The
household rental business revenues include both rental revenue and other revenue. Rental
revenue consists of revenues derived from rental-purchase agreements. Prepaid phone
service revenue represents revenues from DPI. Other revenue includes revenues related to
services offered that complement the rental-purchase agreements and the sale of rental
merchandise. These revenues include liability damage waiver premiums,
Preferred Customer Club fees and revenues from the sale of merchandise. The Company
considers the rental-purchase business and prepaid telephone services to be two separate
business units.

While there is constant turnover
within the portfolio of rental agreements, the total number of rental agreements in a
store does not change significantly. This stability in the number of rental agreements
facilitates revenue forecasting. The typical store experiences a slight decrease in the
number of agreements during the summer months while, on balance, the rest of the year
demonstrates growth in agreements.

The major components of the
Companys cost structure are the cost of rental merchandise and personnel and, to a
lesser extent, sales and marketing expense and general and administrative costs. Costs
associated with rental merchandise are driven by the need to purchase merchandise to
maintain the quality and availability of the product mix and to maximize inventory
utilization rates. Compensation, incentives, and employee benefits are the main components
of personnel costs. Sales and marketing expenses are driven primarily by advertising
costs, business development activities, and the development of new service offerings.
Other operating expenses include general and administrative costs, which primarily include
corporate overhead expenses, costs associated with the information technology
infrastructure, and other store related expenses.

USE OF ESTIMATES IN OUR
FINANCIAL STATEMENTS

The preparation of the consolidated
financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates. On an ongoing basis, management reviews its estimates, including those related
to litigation, liability for self-insurance, impairment of goodwill and other intangibles,
based on currently available information. Changes in facts and circumstances may result in
revised estimates.

CRITICAL ACCOUNTING
POLICIES

Revenue.    
          Rental merchandise is rented to customers pursuant to rental agreements,
          which provide for either weekly, biweekly, semi-monthly or monthly rental
          payments collected in advance. Revenue is recognized as collected, not over
          the rental term, since at the time of collection the rental merchandise
          has been placed in service and costs of installation and delivery have
          been incurred. This method of revenue recognition does not produce
          materially different results than if rental revenue were recognized over
          the weekly, biweekly, semi-monthly or monthly rental term.

Rental Merchandise
Depreciation. The Company uses the units of activity depreciation
method for all rental merchandise except computers and computer games. Under the
units of activity method, rental merchandise is depreciated as revenue is collected
or earned during free-rent promotions. Thus, rental merchandise is not
depreciated during periods when it is not on rent and therefore not generating
rental revenue. Personal computers, added to the Companys product line in June
1999, are principally depreciated on the straight-line basis beginning on
acquisition date over 12 months to 24 months, depending on the type of computer.
Write-offs of rental merchandise arising from customers failure to return
merchandise, losses due to excessive wear and tear of merchandise and obsolescence
are recognized using the direct write-off method, which is materially consistent with
the results that would be recognized under the allowance method. The rental merchandise
write-offs approximate 3% of revenue from month to month over the prior 2 fiscal years.
The Company reviews this analysis on a monthly basis.

Prepaid Phone Service. Prepaid
phone service is provided to customers on a prepaid month-to-month basis. Prepaid
phone service revenues are comprised of monthly service revenues and activation
revenues. Monthly service revenues are recognized on a straight-line basis over the
related monthly service period, commencing when the service period begins. The cost
of monthly service is also recognized over the monthly service period and is included
in cost of prepaid phone service in the condensed consolidated statement
of operations. Activation revenues and costs are recognized on a straight-line basis
over the average estimated life of the customer relationship. The Company reviews the
average estimated life of the customer relationship from time to time in making this
determination of average estimated life.

Convertible Redeemable Preferred
Stock. The Companys sale of convertible preferred stock in June 2003 resulted in
proceeds of $14.1 million, net of issuance costs of $0.9 million, which were used to
refinance the previous senior credit facility. The net proceeds are classified outside of
permanent equity because of the redemption date and other redemption provisions of the
preferred stock, except for $0.1 million classified as an option to purchase additional
convertible preferred stock which is included in permanent equity. The Company has
determined that the conversion feature of the convertible redeemable preferred stock is a
derivative financial instrument that was bifurcated and recorded in temporary equity
classification on the balance sheet. This derivative financial instrument is marked to
market through other income (expense) in the Companys condensed consolidated
statements of operations.

Closed Store Reserves. From
time to time, the Company closes or consolidates stores. An estimate is recorded of the
future obligation related to closed stores based upon the present value of the future
lease payments and related lease commitments, net of estimated sublease income. If
the estimates related to sublease income are not correct, the actual liability may be
more or less than the liability recorded, and the Company adjusts the liability
accordingly.

Company Insurance Programs.
For fiscal years 2004 and 2003, the Company is primarily self-insured for health
insurance. The self-insurance liability for health costs is determined based on funding
factors determined by cost plus rates for a fully insured plan and monthly headcount. The
contracted rate is determined based on experience, prior claims filed and an estimate of
future claims. A retrospective adjustment for over (under) funding of claims is recorded
when determinable and probable.

Discontinued Operations.On
February 8, 2003, the Company completed the definitive purchase agreement and sold rental
merchandise and related contracts of 295 stores to Rent-A-Center, Inc. Rent-A-Center, Inc.
purchased certain fixed assets and assumed related store leases of 125 of these stores.
Accordingly, for financial statement purposes, the assets, liabilities, results of
operations and cash flows of this component have been segregated from those of continuing
operations and are presented in the Companys financial statements as discontinued
operations (see Note 2 to the condensed consolidated financial statements).

Deferred Financing Costs.
Deferred financing costs consists of bond issuance costs and loan origination costs
incurred in connection with the sale of $205.0 million of senior secured notes and a new
$60.0 million revolving credit facility that closed June 2, 2003. The bond issuance costs
of $6.7 million are being amortized using the effective interest method over the
seven-year term of the bonds. The loan origination costs of $2.1 million are being
amortized on a straight-line basis over the five-year bank credit agreement. Deferred
financing costs amortization was $0.3 million and $0.7 million for the three-month periods
and $0.5 million and $1.1 million for the six-month periods ended March 31, 2004 and 2003,
respectively.

RESULTS OF OPERATIONS

The following table sets forth, for
the periods indicated, certain items from the Companys unaudited condensed
consolidated statements of operations, expressed as a percentage of revenues.

|                                           | Three Months Ended
March 31, | Six Months Ended
March 31,
|------------------------------------------ | ---------------------------- | --------------------------
|
|REVENUES:                                  |                              |                           
|Rental revenue                             |                              |                           
|Prepaid phone service revenue              |                              |                           
|Other revenue                              |                              |                           
|                                           |                              |                           
|Total revenues                             |                              |                           
|COSTS AND OPERATING EXPENSES:              |                              |                           
|Depreciation and amortization              |                              |                           
|Rental merchandise                         |                              |                           
|Property and equipment                     |                              |                           
|Amortization of intangibles                |                              |                           
|                                           |                              |                           
|Total depreciation and amortization        |                              |                           
|Cost of prepaid phone service              |                              |                           
|Salaries and wages                         |                              |                           
|Advertising                                |                              |                           
|Occupancy                                  |                              |                           
|Restructuring costs                        |                              |                           
|Other operating expenses                   |                              |                           
|                                           |                              |                           
|Total costs and operating expenses         |                              |                           
|                                           |                              |                           
|Operating income                           |                              |                           
|Settlement of class action lawsuit         |                              |                           
|Interest expense                           |                              |                           
|Interest income                            |                              |                           
|Amortization--deferred financing costs     |                              |                           
|Other income (expense)                     |                              |                           
|                                           |                              |                           
|Loss before income taxes and discontinued  |                              |                           
|operations                                 |                              |                           
|Income tax expense                         |                              |                           
|                                           |                              |                           
|Loss before discontinued operations        |                              |                           
|Income (loss) from discontinued operations |                              |                           
|                                           |                              |                           
|Net loss                                   |                              |                           
|                                           |                              |                           

COMPARISON OF THREE
MONTHS ENDED MARCH 31, 2004 AND 2003

Total revenues. Total revenues
increased $4.8 million, or 3.7% to $135.0 million from $130.2 million. The increase is
attributable to an increase in revenues of $7.8 million in the household rental segment
offset by a $3.0 million decrease in the prepaid telephone service segment. The $3.0
million decrease in the prepaid telephone service segment is due to a decrease in
customers attributed to an increase in competition. The $7.8 million increase in revenue
in the household rental segment is due a 6.9% increase in same store revenues.

Same store revenues consists of
revenues from stores in the household rental segment that have been operating for more
than 15 months and have had no changes affecting operations during that time,
specifically, mergers, dispositions or acquisitions. The increase in the same store
revenues was due to an increase in same store rental revenues, early purchase option,
sales revenues and fee revenues. Same store rental revenues increased 6.5% as compared to
the same period last year. This increase is primarily attributable to more rental-purchase
agreements in the portfolio and improved collections in the three-month period ended March
31, 2004 as compared to the same period last year. Early purchase options and sales
revenues increased 15.6% as compared to the same period last year. This increase is
principally due to changes to the
120 days same as cash promotion which resulted in fewer number of early purchase
options with higher revenues. Fee revenues increased by 2.6% as compared to
the same period last year. This increase is mainly attributable to an increase in
customers, and customers choosing liabillity damage waiver and preferred customer club.

Depreciation Amortization.
Depreciation expense related to rental merchandise increased to 27.5% as a percentage of
total revenues from 25.6%. This increase is primarily due to the Company adding game
systems to the product line. These items are depreciated on a straight-line basis. Also,
the Company ran a promotion on big screen televisions that resulted in a higher percentage
of depreciation expense to revenues for the quarter ended March 31, 2004. In addition, the
Companys computer portfolio contains newer items than in the prior year, which
resulted in greater straight-line depreciation in the three months ended March 31, 2004 as
compared to the same period in the prior year.

Depreciation expense related to
property and equipment decreased to 2.7% as a percentage of total revenues from 3.9%. This
decrease is primarily due to reduced capital spending and assets becoming fully
depreciated.

Amortization of other intangibles
decreased to 0.1% from 0.4% as a percentage of total revenues. This is due to the
expiration of the amortization periods for certain non-compete agreements and customer
contracts. On October 1, 2001, the Company adopted SFAS 142. SFAS 142 requires the
cessation of amortization of goodwill and other indefinite-lived intangibles on the
balance sheet. Goodwill and other indefinite lived intangibles on the balance sheet are
tested for impairment at least annually.

Cost of Prepaid Phone Service.
The cost of prepaid phone service decreased to $5.0 million or 3.7% of total revenues from
$6.0 million, or 4.6% as a percentage of total revenues. This decrease of $1.0 million is
primarily due to the decrease in the number of customers. The cost of prepaid phone
service as a percentage of prepaid phone service revenue increased to 71.9% from 60.5%.
This increase of 11.4% is primarily due to reduced prepaid phone service revenue as a
result of the decrease in the number of customers.

Salaries and Wages. Salaries
and wages increased to $33.6 million from $32.6 million, and decreased to 24.9% as a
percentage of total revenues from 25.0%. Last fiscal year, the company initiated an
employee upgrade program directed at attracting and keeping better talent resulting in an
increase of $1.0 million. The Company believes the initiative is paying off as
demonstrated by a decrease in this expense as a percentage of total revenues.

Advertising.    
          Advertising expense decreased from $4.7 million to $4.3 million. This decrease
          is primarily due to the sale of 295 stores to Rent-A-Center. The Company
          continues to run a more balanced and efficient media strategy.

Occupancy.    
          Occupancy expense increased to $8.5 million from $8.4 million primarily due to
          general rent increases and an increase in maintenance expense. The increase in
          maintenance expense is the result of a strategic initiative to improve the
          appearance and consistency of the Companys stores.

Restructuring Costs.During
the second quarter of fiscal year 2003, the Company formulated a plan to restructure the
corporate office through reductions in the corporate workforce to rationalize corporate
costs for the stores remaining subsequent to the sale to Rent-A-Center, Inc. As a result
of this plan, the Company recorded total pre-tax restructuring charges of $2.2 million in
the three-month period ended March 31, 2003. The restructuring costs include $0.7 million
of employee severance and termination benefits and $1.5 million of fixed asset write-offs
in the household rental segment. These restructuring activities were completed during the
fiscal quarter ended March 31, 2003. There were no restructuring charges for the
three-month period ended March 31, 2004.

Other Operating Expense. Other
operating expense decreased by $2.3 million and decreased to 20.3% as a percentage of
total revenues from 22.9%. This decrease is due to decreases in telecom expenses, state
and local taxes, automotive insurance and legal, consulting and professional fees. Legal,
consulting and professional fees for the three months ended March 31, 2003, included fees
associated with the settlement of the class action lawsuit and the refinancing of the
Companys previous senior credit facility.

Settlement of Class Action
Lawsuit.The Company reached an agreement settling the consolidated class action
lawsuit against the Company in the U.S. District Court for the Western District of
Pennsylvania. Under the settlement, the Company paid $25.0 million to the class, of which
$11.0 million was to be funded from available insurance proceeds. The net $14.0 million
was expensed in the second quarter of fiscal 2003.

Interest Expense. Interest
expense decreased from 6.5% to 5.7% as a percentage of total revenues. This decrease is
primarily due to the refinancing of debt resulting in lower interest rates.

Other Income (Expense), Net.
Other income was $1.8 million for the three months ended March 31, 2003, compared to $1.2
million for the three months ended March 31, 2004. This change is primarily due to the
change in the fair market value of the interest rate swap portfolio, which resulted in
income of $1.4 million for the three months ended March 31, 2003 compared to $0.6 million
for the same period ended March 31, 2004.

Income Tax Expense. During the
second quarter of fiscal 2004, the Company recorded income tax expense of $1.4 million due
to the Companys inability to look to the reversal of the deferred tax liability
associated with tax deductible goodwill to offset a portion of its deferred tax asset
following the adoption of SFAS 142. During the second quarter of fiscal 2003, The Company
recorded income tax expense of $1.3 million due the Companys inability to look to
the reversal of the deferred tax liability associated with tax deductible goodwill to
offset a portion of its deferred tax asset following the adoption of SFAS 142. Also during
the second quarter of fiscal 2003, a tax benefit of $0.6 million was recorded as a result
of carrying back AMT net operating losses. The net expense for the quarter was $0.7
million.

Loss From Discontinued
Operations. The loss from discontinued operations was $0.4 million for the three
months ended March 31, 2004 as compared to $13.4 million for the same period ended March
31, 2003. This change is mainly due to a $7.9 million charge for lease obligations related
to vacated stores and a $3.6 million decrease in operating income of the stores due to
transition period costs recorded in the three-month period ended March 31, 2003. On
December 17, 2002, the Company entered into a definitive purchase agreement to sell 295
stores to Rent-A-Center, Inc. for approximately $101.5 million, which transaction closed
on February 8, 2003. These stores were all included in the household rental segment.
Related operating results, in accordance with SFAS 144, have been reported as discontinued
operations (see Note 2 to the condensed consolidated financial statements).

Net Income (Loss). The Company
generated net income of $6.7 million in the period as a result of the factors described
above compared to a net loss of $27.9 million in the same period last year.

Net Income (Loss) Allocable To
Common Shareholders. On June 2, 2003, the Company issued 1,500 shares of convertible
redeemable preferred stock for $10,000 per share and a one-year option to purchase an
additional 500 shares of convertible redeemable preferred stock. During March 2004, an
option was exercised for the purchase of 133 additional shares. The amortization of the
dividend and the accretion of preferred stock totaled $0.4 million and were charged to the
accumulated deficit, and reduce net income allocable to common shareholders.

COMPARISON OF SIX MONTHS
ENDED MARCH 31, 2004 AND 2003

Total revenues. Total revenues
increased $8.6 million, or 3.4% to $258.7 million from $250.1 million. The increase is
attributable to an increase in revenues of $14.7 million in the household rental segment
offset by a $6.1 million decrease in the prepaid telephone service segment. The $6.1
million decrease in the prepaid telephone service segment is due to a decrease in
customers attributed to an increase in competition. The $14.7 million increase in revenue
in the household rental segment is due a 6.8% increase in same store revenues.

Same store revenues consists of
revenues from stores in the household rental segment that have been operating for more
than 15 months and have had no changes affecting operations during that time,
specifically, mergers, dispositions or acquisitions. The increase in the same store
revenues was due to an increase in same store rental revenues, early purchase option,
sales revenues and fee revenues. Same store rental revenues increased 6.3% as compared to
the same period last year. This increase is primarily attributable to more rental-purchase
agreements in the portfolio and improved collections in the six-month period ended March
31, 2004 as compared to the same period last year. Early purchase options and sales
revenues increased 19.4% as compared to the same period last year. This increase is
principally due to changes to the
120 days same as cash promotion which resulted in fewer number of early purchase options
with higher revenues. Fee revenues increased by 2.4% as compared to
the same period last year. This increase is mainly attributable to an increase in
customers, and customers choosing liability damage waiver and preferred customer club.

Depreciation and Amortization.
Depreciation expense related to rental merchandise increased to 27.1% as a percentage of
total revenues from 24.8%. This increase is primarily due to the Company adding game
systems to the product line. These items are depreciated on a straight-line basis. Also,
the Company ran a promotion on big screen televisions, which resulted in an increase in
depreciation expense as a percentage of total revenues for the six months ended March 31,
2004. In addition, the Companys computer portfolio contains newer items than the
same period in the prior year. This resulted in an increase in straight-line depreciation
in the six months ended March 31, 2004 as compared to the same period in the prior year.

Depreciation expense related to
property and equipment decreased to 3.0% as a percentage of total revenues from 4.3%. This
decrease is primarily due to reduced capital spending and assets becoming fully
depreciated.

Amortization of other intangibles
decreased to 0.1% from 0.4% as a percentage of total revenues. This is due to the
expiration of the amortization periods for certain non-compete agreements and customer
contracts. On October 1, 2001, the Company adopted SFAS 142. SFAS 142 requires the
cessation of amortization of goodwill and other indefinite-lived intangibles on the
balance sheet. Goodwill and other indefinite lived intangibles on the balance sheet are
tested for impairment at least annually.

Cost of Prepaid Phone Service.
The cost of prepaid phone service decreased to $8.9 million or 3.5% of total revenues from
$11.7 million, or 4.7% as a percentage of total revenues. This decrease of $2.8 million is
primarily due to the decrease in the number of customers. The cost of prepaid phone
service as a percentage of prepaid phone service revenue increased to 68.3% from 61.2%.
This increase of 7.1% is primarily due to reduced prepaid phone service revenue as a
result of the decrease in the number of customers.

Salaries and Wages. Salaries
and wages increased to $67.2 million from $66.3 million, and decreased to 26.0% as a
percentage of total revenues from 26.5%. Last fiscal year, the company initiated an
employee upgrade program directed at attracting and keeping better talent resulting in an
increase of $0.9 million for the six months ended March 31, 2004 as compared to the same
period for the prior year. The Company believes this initiative is paying off as
demonstrated by the decrease in this expense as a percentage of total revenues.

Advertising.    
          Advertising expense decreased from $13.5 million to $10.4 million. This decrease
          is primarily due to the sale of 295 stores to Rent-A-Center. The Company
          continues to run a more balanced and efficient media strategy.

Occupancy.    
          Occupancy expense increased to $17.2 million from $16.1 million primarily due to
          general rent increases and an increase in maintenance expense. The increase in
          maintenance expense is the result of a strategic initiative to improve the
          appearance and consistency of the Companys stores.

Restructuring Costs.During
the second quarter of fiscal year 2003, the Company formulated a plan to restructure the
corporate office through reductions in the corporate workforce to rationalize corporate
costs for the stores remaining subsequent to the sale to Rent-A-Center, Inc. As a result
of this plan, the Company recorded total pre-tax restructuring charges of $2.2 million in
the six-month period ending March 31, 2003. The restructuring costs include $0.7 million
of employee severance and termination benefits and $1.5 million of fixed asset write-offs
in the household rental segment. These restructuring activities were completed during the
fiscal quarter ended March 31, 2003. There was $0.1 million in restructuring charges for
the same period ended March 31, 2004.

Other Operating Expense. Other
operating expense decreased by $1.3 million and decreased to 20.5% as a percentage of
total revenues from 21.8%. This decrease is due to decreases in telecom expenses, state
and local taxes, and legal and professional fees. Legal and professional fees for the six
months ended March 31, 2003 included fees associated with the settlement of the class
action lawsuit and the refinancing of the Companys previous senior credit facility.

Settlement of Class Action
Lawsuit.The Company reached an agreement to settle the consolidated class action
lawsuit pending against the Company in the U.S. District Court for the Western District of
Pennsylvania. Under the settlement, the Company paid $25.0 million to the class, of which
$11.0 million was funded from available insurance proceeds. The net $14.0 million was
expensed in the second quarter of fiscal 2003.

Interest Expense. Interest
expense decreased from 6.9% to 6.0% as a percentage of total revenues. This decrease is
primarily due to the refinancing of debt resulting in lower interest rates.

Other Income (Expense), Net.
Other income was $3.3 million for the six months ended March 31, 2003, compared to $3.1
million in expense for six months ended March 31, 2004. This change is primarily due to a
$5.7 million charge to record the convertible option derivative liability for the
convertible preferred stock at its fair market value for the six months ended March 31,
2004. Other income (expense) also includes the positive change in the fair market value of
the interest rate swap portfolio, which resulted in income of $2.6 million for the six
months ended March 31, 2003 compared to $1.9 million for the same period this year.

Income Tax Expense. During the
first six months of fiscal 2004, the Company recorded income tax expense of $2.8 million
due to the Companys inability to look to the reversal of the deferred tax liability
associated with tax deductible goodwill to offset a portion of its deferred tax asset
following the adoption of SFAS 142. During the first six months of fiscal 2003, the
Company recorded income tax expense of $3.0 million due to the Companys inability to
look to the reversal of the deferred tax liability associated with tax deductible goodwill
to offset a portion of its deferred tax asset following the adoption of SFAS 142. Also
during the first six months of fiscal 2003, a tax benefit of $0.9 million was recorded as
a result of carrying back AMT net operating losses. The net expense for the six months was
$2.1 million.

Loss From Discontinued Operations.The loss from discontinued operations for the six months ended March 31, 2004 was $1.7
million, of which $1.0 million relates to the evaluation and write-off of leasehold
improvements related to the stores sold to Rent-A-Center. The loss from discontinued
operations was $14.2 million in the six months ending March 31, 2003 and was mainly due to
a $7.9 million charge for lease obligations related to vacated stores and a $3.4 million
decrease in operating income of the stores due to transition period costs. On December 17,
2002, the Company entered into a definitive purchase agreement to sell 295 stores to
Rent-A-Center, Inc. for approximately $101.5 million, which transaction closed on February
8, 2003. These stores are all included in the household rental segment. Related operating
results, in accordance with SFAS 144, have been reported as discontinued operations (see
Note 2 to the condensed consolidated financial statements).

Net Income (Loss). The Company
generated net income of $0.9 million in the six-month period ended March 31, 2004 as a
result of the factors described above as compared to a net loss of $33.3 million in the
same period last year.

Net Income (Loss) Allocable To
Common Shareholders. On June 2, 2003, the Company issued 1,500 shares of convertible
redeemable preferred stock for $10,000 per share and a one-year option to purchase an
additional 500 shares of convertible redeemable preferred stock. During March 2004, an
option was exercised for the purchase of 133 additional shares. The amortization of the
dividend and the accretion of the preferred stock totaled $0.8 million and are charged to
accumulated deficit, but reduce net income allocable to common stockholders.

LIQUIDITY AND CAPITAL
RESOURCES

The Companys capital
requirements relate primarily to purchasing additional rental merchandise and replacing
rental merchandise that has been sold or is no longer suitable for rent. The
Companys principal sources of liquidity are cash flows from operations, debt
capacity available under its revolving credit facility and available cash reserves.

For the six months ended March 31,
2004, operations provided $1.7 million of cash compared to $22.5 million cash used by
operating activities for the same period one year ago. The increase in cash provided by
operating activities is primarily attributable to the decrease in rental merchandise
purchases, an increase to net income, a decrease in cash used in discontinued operations,
offset by a decrease in accounts payable.

Net cash used in investing activities
was $3.7 million for the purchase of property and equipment for the six months ended March
31, 2004. Net cash provided by investing activities was $86.1 million from the sale of
stores to Rent-A-Center, Inc. for the six months ended March 31, 2003.

For the six months ended March 31,
2004, financing activities provided $3.5 million as compared to net cash used of $60.7
million for the same period in 2003. The Company drew a net $9.0 million from its
revolving credit facility for the six months ended March 31, 2004 versus repaying a net
$63.2 million in the same period a year ago.

The Companys senior secured
notes have the following material terms. The $205.0 million of senior secured notes bear
interest at 11.875%. The interest on the secured notes is payable semiannually on June 15
and December 15 beginning December 15, 2003. The secured notes are guaranteed on a senior
basis by all existing and future domestic restricted subsidiaries of the Company other
than DPI, which is an unrestricted subsidiary. The Company may redeem the secured notes,
in whole or in part, at any time prior to June 15, 2010, at a redemption price equal to
the greater of:

|a) |  | 100% of the principal amount of the notes to be redeemed; and
|-- |  | -------------------------------------------------------------

|b) |  | the sum of the present values of (i) 100% of the principal amount of the notes
               to be redeemed at June 15, 2010, and (ii) the remaining scheduled payments of
               interest from the redemption date through June 15, 2010, but excluding accrued
               and unpaid interest to the redemption date, discounted to the redemption date at
               the treasury rate plus 175 basis points;
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

plus, in either case, accrued and
unpaid interest to the redemption date.

The secured notes were offered at a
discount of $3.6 million, which is being amortized using the effective interest method
over the term of the secured notes. Amortization of the discount was $0.2 million for the
six months ended March 31, 2004. Costs representing underwriting fees and other
professional fees of $6.7 million are being amortized, using the effective interest
method, over the term of the secured notes. The secured notes rank senior in right to all
of the Companys existing and future subordinated debt, have a lien position ranking
second to the bank revolving credit facility and effectively junior in right of payment to
all existing and future debt and other liabilities of the Companys subsidiaries that
are not subsidiary guarantors. The secured notes contain covenants that will, among other
things, limit the Companys ability to incur additional debt, make restricted
payments, incur any additional liens, sell certain assets, pay dividend distributions from
restricted subsidiaries, transact with affiliates, conduct certain sale and leaseback
transactions and use excess cash flow. The Company is in compliance with all covenants at
March 31, 2004, and expects to be able to comply with covenants based upon its fiscal 2004
projections.

The holders of the Companys
convertible preferred stock have the option to acquire an additional $5.0 million of
preferred stock, having an initial conversion price of $6.65 per share, exercisable until
June 2, 2004. See Note 9 to the Companys consolidated financial statements set forth
at Part I, Item 1of this report for more information regarding the convertible preferred
stock.

In March 2004, a holder of the
Companys Series A convertible preferred stock exercised an option to purchase an
additional 133 shares for $10,000 per share. The convertible preferred stock is classified
outside of permanent equity because of the redemption date and other redemption
provisions. The convertible feature of the convertible preferred stock is a derivative
financial instrument that is recorded at fair value and marked to market. The market value
of this derivative was $17.5 million at March 31, 2004 and is recorded in convertible
redeemable preferred stock in the consolidated balance sheet.

During the six months ended March 31,
2004, the Company settled its outstanding class action lawsuit by paying $21.0 million in
cash and delivering $4.0 million in 6% unsecured subordinated notes. Of the $21.0 million
in cash, $11.0 million was funded from available insurance proceeds, the remaining $10.0
million was funded by the Company and classified as restricted cash on the consolidated
balance sheet at September 30, 2003. The $25.0 million was recorded as an accrual in other
liabilities, $11.0 million was recorded as a receivable in other assets and $4.0 million
was recorded as debt in the consolidated balance sheet at September 30, 2003.

In April 2002, the Company sold one
million shares of common stock and warrants to acquire another 100,000 shares of common
stock in a private placement to Calm Waters Partnership and two other investors for $6.0
million. The warrants had an exercise price of $9.35 per share, which was reduced to $4.90
per share pursuant to anti-dilution adjustments. The Company re-measured the value of the
warrants in accordance with the arrangement and reclassified the change to common stock
from warrants. These warrants were exercised in November 2003.

OFF-BALANCE SHEET
ARRANGEMENTS

The Company is not subject to any
off-balance sheet arrangements within the meaning of Rule 303(a)(4) of Regulation S-K.

CONTRACTUAL OBLIGATIONS

The following table presents
obligations and commitments to make future payments under contracts and contingent
commitments at March 31, 2004:

|Contractual Cash Obligations           | Total | Due in less
than one year | Due in
1-3 years | Due in
4-5 years | Due after
5 years
|-------------------------------------- | ----- | ------------------------- | ---------------- | ---------------- | -----------------
|Debt (1)                               |       |                           | $                | 223,691          |                  
|Capital lease obligations              |       |                           |                  | 16,208           |                  
|Operating leases                       |       |                           |                  | 77,679           |                  
|Notes payable                          |       |                           |                  | 62               |                  
|Settlement of class action lawsuit (2) |       |                           |                  | 3,000            |                  
|                                       |       |                           |                  |                  |                  
|Total cash obligations                 |       |                           | $                | 320,640          |                  
|                                       |       |                           |                  |                  |                  

(1)     Consists
of outstanding revolving loans and senior secured notes, net of discount.     (2)
Consists of unsecured, subordinated note payable to the class of the class action lawsuit.

Amount of Commitment Expiration Per
Period

|Other Commercial Commitments | Total Amounts
Committed | Less than
One year | 1-3 years | 4-5 years | Over
5 years
|---------------------------- | ----------------------- | ------------------ | --------- | --------- | ------------
|Lines of credit              |                         |                    | $         | --        |             
|Standby letters of credit    |                         |                    |           | 5,720     |             
|Guarantees                   |                         |                    |           | --        |             
|                             |                         |                    |           |           |             
|Total commercial commitments |                         |                    | $         | 5,720     |             
|                             |                         |                    |           |           |             

SEASONALITY AND INFLATION

The Companys operating results
are subject to seasonality. The first quarter typically has a greater number of
rental-purchase agreements entered into because of traditional holiday shopping patterns.
The second quarter has typically a flat to slightly negative change in the number of
rental-purchase agreements and customer accounts and also, fewer deliveries. The third
quarter has typically flat to slightly positive results and the fourth quarter again
experiences a decrease in deliveries. Management plans for these seasonal variances and
takes particular advantage of the first quarter with product promotions and marketing
campaigns. Because many of the Companys expenses do not fluctuate with seasonal
revenue changes, such revenue changes may cause fluctuations in the Companys
quarterly earnings.

In the event of a prolonged
recession, the Company acknowledges the possibility of a decrease in demand, particularly
for higher-end products.

During the quarter ended March 31,
2004, the costs of rental merchandise and store lease rental expense have increased
modestly. These increases have not had a significant effect on the Companys
results of operations because the Company has been able to charge commensurately
higher rental for its merchandise. This trend is expected to continue in
the foreseeable future.

RECENT ACCOUNTING
PRONOUNCEMENTS

In May 2003, the FASB issued
Statement of Financial Accounting Standards No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity
(SFAS 150). SFAS 150 establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances). This Statement is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise effective
at the beginning of the first interim period beginning after June 15, 2003. The Company
has adopted the provisions of this Statement. The classification and measurement
provisions in paragraphs 9, 10 and 22 of FAS 150 are deferred for an indefinite period for
certain mandatory, redeemable, non-controlling interests with finite-lived subsidiaries.

On January 15, 2003, the FASB issued
FIN 46, Consolidation of Variable Interest Entities. The objective of this
interpretation is to improve financial reporting by enterprises involved with variable
interest entities. This interpretation is effective for financial statements issued after
March 15, 2004. The application of FIN 46 did not have a material impact on the financial
statements for the Company.

CAUTIONARY STATEMENT

This report includes forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. See particularly Item
2, Managements Discussion and Analysis of Financial Condition, among
others. These statements may be identified by terms and phrases such as
anticipate, believe, intend, estimate,
expect, continue, should, could,
may, plan, project, predict,
will and similar expressions and relate to future events and occurrences.
These statements are subject to uncertainties and other factors that could cause actual
results to differ materially from such statements. Factors that could cause actual results
to differ materially from those expressed or implied in such statements include but are
not limited to:

Rent-Ways ability to control
and normalize operating expenses and to continue to realize operating efficiencies.

Rent-Ways ability to service its
high-level of outstanding debt.

Rent-Ways ability to develop,
implement, and maintain reliable and adequate internal accounting systems and controls.

Rent-Ways ability to retain
existing senior management and attract additional management employees.

General economic, business, and
demographic conditions, including demand for Rent-Ways products and services.

General conditions relating to the
rental-purchase industry and the prepaid local phone service industry, including the
impact of state and federal laws regulating or otherwise affecting the rental-purchase
transaction and prepaid local phone service transaction.

Competition in the rental-purchase
industry and prepaid local phone service industry, including competition with traditional
retailers.

Rent-Ways ability to enter into
and to maintain relationships with vendors of its rental merchandise including its ability
to obtain goods and services on favorable credit terms.

Rent-Ways ability to open new
rental-purchase stores and to operate them profitably.

Given these factors, undue reliance should
not be placed on any forward-looking statements and statements regarding Rent-Ways
future prospects and performance. Such statements speak only as of the date made. Rent-Way
undertakes no obligation to update or revise any such statements whether as a result of
new information, the occurrence of future events, or otherwise.

The Companys major market risk
exposure is primarily due to fluctuations in interest rates. The Company manages its
exposure to changes in short-term interest rates, particularly to reduce the impact on
floating-rate borrowings under its revolving credit facility, by entering into interest
rate swap agreements. These swap agreements involve the receipt of amounts by the Company
when floating rates exceed fixed rates and the payment of amounts by the Company to the
counter parties when fixed rates exceed the floating rates in the agreements over their
term. The Company accrues the differential as interest rates change, and recognizes it as
an adjustment to the floating rate interest expense related to the debt. The
counter-parties to these contracts are high credit quality commercial banks, which the
Company believes minimizes the risk of counter party default, to a large extent.

At March 31, 2004, the Company had
swap agreements with total notional principal amounts of $50.7 million, which effectively
fixed the interest rate on obligations in the notional amount of $22.0 million of debt
under the $60.0 million revolving credit facility. The swap agreements lock in a LIBOR
rate ranging from 6.73% to 6.97% and have maturities ranging from 2004 to 2005. Falling
interest rates and/or a flattening of the yield curve will negatively impact the market
value of the interest rate swaps. Changes in the valuation of such swap agreements are
recorded directly to earnings. The face value of interest rate swap agreements was a
liability of approximately $3.2 million at March 31, 2004. A 1% adverse change in the
interest rates on variable rate obligations would affect pre-tax earnings by approximately
$0.3 million.

The Company does not enter into
derivative financial instruments for trading or speculative purposes. As of June 2, 2003,
the Company is over-hedged because of the refinancing. The existing interest rate swaps
hedged a portion of the previous LIBOR debt. As a result of the refinancing, the only
LIBOR debt the Company has is the $60.0 million revolver credit facility, of which $22.0
million was outstanding at March 31, 2004. The Company will reduce its interest rate swap
position as they mature through August 2005 because of the current cost to terminate those
agreements.

|A. |  | Disclosure Controls and Procedures. The Company carried out an evaluation,
          under the supervision and with the participation of the
          Companys management, including the Companys Chief Executive
          Officer and Chief Financial Officer, of the effectiveness of the design and
          operation of the Companys disclosure controls and procedures pursuant
          to Exchange Act Rule 13a-15. Based upon the evaluation, the Companys
          Chief Executive Officer and Chief Financial Officer concluded that, as of
          March 31, 2004, the Companys disclosure controls and procedures are
          effective to ensure that information required to be disclosed in Company reports
          filed or submitted under the Exchange Act is made known to them on a timely
          basis, and that this information is recorded, processed, summarized and
          reported within the time periods specified in the Securities and Exchange
          Commissions rules and forms.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|B. |  | Changes in Internal Control over Financial Reporting. There has not been any
          change in the Companys internal control over financial reporting that
          occurred during the last fiscal quarter that has materially affected, or is
          reasonably likely to materially affect, the Companys internal control over
          financial reporting.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

# PART II  OTHER
INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

The
Company is subject to litigation in the ordinary course of business. The Company believes
the ultimate outcome of any existing litigation would not have a material adverse effect
on the financial condition, results of operation or cash flows of the Company.

ITEM 2.  CHANGES IN SECURITIES, USE
OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES

During
the quarter ended March 31, 2004, the Company sold 133 shares of Series A Convertible
Preferred Stock to Mainfield Enterprises, Inc. for $1.3 million in cash. The Series A
preferred shares are convertible into shares of common stock at a conversion price of
$6.65 per share, subject to anti-dilution adjustments. The issuance of and sale of the
Series A preferred shares described above was exempt from the registration requirements of
the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof.

ITEM 4.  SUBMISSION OF MATTERS TO
VOTE OF SECURITY HOLDERS

The
2004 Annual Meeting of Shareholders was held on March 10, 2004, at the Bel-Aire Clarion
Hotel, Erie, Pennsylvania. The matters voted on at the Annual Meeting were as follows.

|(1) | The election of two (2) Class III directors to serve until the 2007 Annual
          Meeting of Shareholders. The result of the vote was as follows:
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------

|Name of Director       | Class | Votes For | Withheld Authority
|---------------------- | ----- | --------- | ------------------
|William E. Morgenstern |       |           | III               
|John W. Higbee         |       |           | III               

William
Lerner, Jacqueline E. Woods, Gerald A. Ryan, Marc W. Joseffer and Robert B. Fagenson are
the other directors of the Company whose terms of office continue after the Annual
Meeting.

(2)    
          Approval of the 2004 Stock Option Plan. The result of the vote was as follows:

|        | 
|------- | 
|For     | 
|Against | 
|Abstain | 

ITEM 6.  EXHIBITS AND REPORTS ON
FORM 8-K

a.       
          EXHIBITS

See
exhibit index.

b.       
          REPORTS ON FORM 8-K

The
Company filed the following reports on Form 8-K in the quarter ended March 31, 2004:

|(1) |  | On January 29, 2004, the Company filed a Current Report on Form 8-K, which
               reported the issuance of a news release announcing the completion of the
               Companys exchange for its Senior Secured Notes.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | On February 4, 2004, the company filed a Current Report on Form 8-K, which
               reported the issuance of a news release announcing the financial results for the
               first quarter ended December 31, 2003.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | On February 9, 2004, the Company filed a Current Report on Form 8-K, which
               reported the Company received from the trustee of the Rent-Way, Inc. Retirement
               Savings Plan a notice regarding a blackout period.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | On March 4, 2004, the Company filed a Current Report on Form 8-K, which reported
               the Company amended its 2004 Stock Option Plan to reduce the authorized number
               of shares of its common stock issuable pursuant to the exercise of stock options
               granted thereunder.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

# RENT-WAY, INC.

SIGNATURES

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

Rent-Way, Inc.

(Registrant)

|                                                   | 
|-------------------------------------------------- | 
|By:                                                | 
|May 7, 2004               /S/ WILLIAM A. MCDONNELL | 
|Date                          (Signature)          | 
|William A. McDonnell                              
|Vice President and Chief Financial Officer        
|By:                                               
|May 7, 2004              /S/ JOHN A. LOMBARDI      | 
|Date                          (Signature)          | 
|John A. Lombardi                                  
|Chief Accounting Officer and Controller           

---

# EXHIBIT INDEX

No.                 Exhibit
Name

3.1             Articles
of Incorporation of Rent-Way,  Inc., as amended (incorporated by reference to Exhibit 3.1
        to the Company's  Annual Report on Form 10-K for the year ended September 30,
1997, filed November         6, 1997.)
 3.2                 Statement with Respect to Shares of Series
A Convertible  Preferred Stock of the Company dated May         30,  2003  (incorporated
 by  reference  to  exhibit  3.1 to  Amendment  No.  5 to  the  Company's
        registration statement on Form S-3, No. 333-102525 filed on June 25, 2003).
3.3            
    Bylaws of Rent-Way,  Inc., as amended  (incorporated  by reference to Exhibit 3.2 to
the Company's         Annual Report on Form 10-K for the year ended September 30, 2000,
filed July 2, 2001.)
12.1*          Ratio of Earnings to Fixed Charges Calculation
31.1*         Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act
of 2002
 31.2*          Certification of Chief Financial Officer pursuant to Section 302 of
Sarbanes-Oxley Act of 2002
32.1*          Certification pursuant to Section 906 of
Sarbanes-Oxley Action of 2002

_________________

*Filed herewith.