# UNITED STATES

# U. S. SECURITIES AND
EXCHANGE COMMISSION

# WASHINGTON, D.C. 20549

_________________

# FORM 10-K

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

FOR THE FISCAL YEAR
ENDED SEPTEMBER 30, 2003

                             [  ]      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, including area code)

SECURITIES REGISTERED
PURSUANT TO SECTION 12(b) OF THE ACT:

|                           |                                     
|-------------------------- | ------------------------------------
|
|TITLE OF CLASS             | NAME OF EXCHANGE ON WHICH REGISTERED
|COMMON STOCK, NO PAR VALUE | NEW YORK STOCK EXCHANGE             

SECURITIES
REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

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

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

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

The aggregate market value of common
stock held by non-affiliates of the registrant as of March 31, 2003, was $72,736,937.

The number of shares outstanding of
the registrants common stock as of November 12, 2003 was 26,035,337.

DOCUMENTS INCORPORATED
BY REFERENCE:

Portions
of the registrants definitive proxy statement for its 2003 Annual Meeting of
Shareholders are incorporated by reference into Part III of this report.

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RENT-WAY, INC.

TABLE OF CONTENTS

|                                                                                                | PAGE
|----------------------------------------------------------------------------------------------- | ----
|CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND FUTURE PROSPECTS                  |     
|PART I                                                                                          |     
|Item 1.   Business                                                                              |     
|Item 2.   Description of Properties                                                             |     
|Item 3.   Legal Proceedings                                                                     |     
|Item 4.   Submission of Matters to a Vote of Security Holders                                   |     
|PART II                                                                                         |     
|Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters                 |     
|Item 6.   Selected Financial Data                                                               |     
|Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations |     
|Item 7A.   Quantitative and Qualitative Disclosures About Market Risk                           |     
|Item 8.   Financial Statements and Supplementary Data                                           |     
|Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |     
|Item 9A.   Controls and Procedures                                                              |     
|PART III                                                                                        |     
|Item 10.   Directors and Executive Officers of the Registrant                                   |     
|Item 11.   Executive Compensation                                                               |     
|Item 12.   Security Ownership of Certain Beneficial Owners and Management                       |     
|Item 13.   Certain Relationships and Related Transactions                                       |     
|Item 14.   Principal Accountant Fees and Services                                               |     
|Item 15.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K                     |     
|SIGNATURES                                                                                      |     

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RENT-WAY, INC.

CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS AND FUTURE PROSPECTS

This
Annual Report on Form 10-K 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, including statements regarding Rent-Way's future
prospects.  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 forward-looking 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 make principal and interest payments on its high-level of outstanding bank 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 and prepaid local phone service transactions.

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

Rent-Way's ability
to offer new products and services and 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,
including statements regarding Rent-Way's future prospects. These statements speak only
as of the date made. Rent-Way undertakes no obligation to update or revise any
forward-looking statements whether as a result of new information, the occurrence of
future events, or otherwise.

---

PART I

ITEM I.       BUSINESS

GENERAL

Rent-Way,
Inc. (the "Company" or "Rent-Way") operates 753 rental-purchase stores located in 33
states, the second largest number of stores in the rental-purchase industry, as of
September 30, 2003. 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 Teleconnect LLC
("DPI"), its 70%-owned subsidiary. DPI is a non-facilities based provider of local phone
service.  The Company operates in two segments: in the rental-purchase industry and,
through DPI, in the prepaid local phone service industry.

The
Company's principal executive offices are located at One RentWay Place, Erie,
Pennsylvania 16505; and its telephone number is (814) 455-5378. The Company's Internet
address is http://www.rentway.com.  Rent-Way makes available at no cost through the
Investor Relations section of its internet website its annual report on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 as soon as reasonably practicable after this material is filed with or
furnished to the SEC.  The Company's corporate governance guidelines, its board committee
charters, and its codes of conduct will also be available through the investor relations
section of its internet website where they may be accessed without charge.  The Company
will mail any of the foregoing documents without charge to any shareholder on request.
 Requests for mailings should be made to Deborah Peterson, Investor Relations
Coordinator, at the telephone number above.

BUSINESS HISTORY

William
Morgenstern, the Chief Executive Officer and Chairman of the Board, co-founded the
Company in 1981 to operate a rental-purchase store in Erie, Pennsylvania. By 1993, the
Company was operating 19 stores in three states and had completed its initial public
offering. Concurrent with the initial public offering, the Company began implementing a
strategy of aggressive store expansion driven primarily by acquisitions and facilitated
by the consolidation trend in the rent-to-own market.  From 1993 to 1998, the Company
acquired 420 stores in various transactions.  In fiscal 1999, the Company became the
second largest company in the rental-purchase industry based on number of stores as a
result of a merger with Home Choice Holdings, Inc., in which 458 stores were acquired,
and the acquisition of 250 stores from Rentavision, Inc. and 21 stores from America's
Rent-to-Own Center, Inc.  In November 2000, the Company operated 1,147 stores, which was
the largest number of stores the Company has operated in its history.  In 2000, the
Company acquired a 70% interest in DPI for $7.5 million.

On
October 30, 2000, the Company announced that it was investigating certain accounting
matters, including potential accounting improprieties.  The improprieties had the effect
of overstating operating income primarily though the manipulation of asset and operating
expense accounts.  The improprieties did not relate to revenues.  As a result of the
investigation into these matters, the Company restated its previously reported fiscal
1998 and 1999 financial statements and the fiscal 2000 unaudited quarterly financial
statements.  In December 2000, the Company terminated the employment of the Controller
and Chief Accounting Officer and other junior personnel in the accounting department, and
the Board of Directors requested that the President and Chief Operating Officer resign.
 In response to the accounting improprieties, a new Controller and Chief Accounting
Officer was hired, the personnel in the accounting department were upgraded, a
third-party outside auditing firm was engaged to perform the internal audit function, a
board member with significant public accounting experience was added and the Company's
corporate governance practices were strengthened.  As a result of the accounting
improprieties, several of the Company's current and former officers and directors, the
Company  and the Company's independent accountants were named in a consolidated class
action complaint filed in the U.S. District Court for the Western District of
Pennsylvania.  The Company agreed to settle the class action in April 2003 on payment of
$25.0 million, $21 million in cash and $4 million in two year, unsecured notes bearing
interest at 6%.  Of the cash amount, $11 million is funded from insurance proceeds.  The
settlement provides for the release of the Company and all other defendants except the
Company's former Controller and independent accountants.  A fairness hearing on the
settlement has been conducted by the Court and the motion to approve the settlement is
pending before the Court.  As a further result of the accounting improprieties, the SEC
and the U.S. Department of Justice conducted investigations of possible civil and
criminal violations.  On July 22, 2003, the SEC announced that it had reached a
settlement with the Company under which the Company consented to the entry of a final
judgment in the U. S. District for the Western District of Pennsylvania that permanently
enjoins it from violations of the reporting and books and records provisions of the
Securities Exchange Act.  In determining to accept the settlement, the SEC considered
that the Company undertook remedial actions and cooperated with the SEC staff.  The Court
entered the final consent judgment on July 23, 2003.  The SEC did not seek any financial
penalty against the Company, its current officers or directors.  The Department of
Justice did not bring any charges against the Company or current officers and directors.
 Based on public statements from the SEC staff and representatives of the Department of
Justice, the Company believes the government's investigations into its past accounting
improprieties are concluded and that no action will be taken against any current Company
employee or director.

Following
the discovery of the accounting improprieties, management concentrated on addressing the
business performance problems that had been masked by the improper accounting, managing
the litigation and governmental investigations arising from the improprieties and
refinancing its outstanding bank debt.  In 2001, management developed and implemented a
plan to increase gross margins, reduce debt and close or combine under-performing stores.
 In November 2002, management identified these 295 under-performing stores that would
have required a significant amount of capital investment to meet company performance
targets and in which the Company was not willing to invest at that time.  On December 17,
2002, the Company entered into a definitive purchase agreement to sell rental merchandise
and related contracts of these 295 stores to Rent-A-Center, Inc.  Rent-A-Center purchased
certain fixed assets and assumed related store leases of 125 of these stores. The
transaction closed on February 8, 2003 for approximately $100.4 million.  Of the sale
price, $14.7 million was paid for transaction, store closing and similar expenses.
Rent-A-Center held back $10.0 million to secure the indemnification obligations in the
sale.  As required by the purchase agreement, Rent-A-Center released $5.0 million of the
holdback on May 8, 2003 and unless Rent-A-Center has indemnification claims against the
Company, it is required to release the remaining $5.0 million to the Company on August 8,
2004.   The net sale proceeds were used to reduce outstanding bank debt.  During the
second quarter of fiscal 2003, management formulated a plan to restructure the corporate
office through workforce reductions to rationalize corporate costs subsequent to the sale
to Rent-A-Center.  These restructuring activities were completed during the fiscal
quarter ended March 31, 2003.

On
June 2, 2003, the Company completed the sale of $205.0 million of senior secured notes,
closed a new $60.0 million revolving line of credit facility and sold $15.0 million in
newly authorized 8% redeemable convertible preferred stock through a private placement.
 The net proceeds of the offerings, together with borrowing under the new revolving
credit facility and the net proceeds of the sale of the redeemable convertible preferred
stock repaid all amounts outstanding under the Company's previous senior bank credit
facility.  As a result of the completion of the refinancing, the Company's corporate
credit rating was raised by Standard & Poor's Rating Services from `CCC' to `B+'.

THE RENTAL-PURCHASE
INDUSTRY

Begun
in the mid- to late-1960s, the rental-purchase business offers an alternative to
traditional retail installment sales and generally serves customers that have annual
household incomes ranging from $20,000 to $40,000.  The Association of Progressive Rental
Organizations ("APRO"), the industry's trade association, estimated that at the end of
2002 the industry comprised approximately 8,300 stores providing 6.6 million products to
2.9 million households. Based on estimates from APRO, the rental-purchase industry
generated gross revenues of $6.0 billion in 2002 from these transactions.  The
rental-purchase industry has grown consistently over the past seven years despite
significant fluctuations in the U.S. economy.  From 1995 to 2002, revenues generated by
the industry have increased with no year in the period reflecting growth less than 5.1%.
 Over the past five years, the industry has experienced significant consolidation. The
four largest national rental-purchase chains operated approximately 56% of the stores in
the industry as of December 31, 2002.

STRATEGY

The
significant matters on which management has concentrated since October 2000 have been
resolved and management believes the Company can now pursue its long-term business plan
of becoming the preferred destination for rent-to-own customers.  The strategic
priorities in 2004 will be to focus on returning the Company to profitability and
identifying opportunities to leverage existing infrastructure and management.  Management
believes the Company's ability to fulfill its long-term plan and its ability to achieve
profitability in 2004 and thereafter, depends on the following business strategies:

|o | Focus
on Our Customers.  Competition in the rental-purchase industry is based on customer
service. Company research has                   identified three specific drivers of
customer satisfaction:  dealing with a trusted name; being treated with
                  respect; and following through on promises.  The Company believes that
its "Welcome, Wanted and Important"                   customer service philosophy
addresses these drivers and will result in new and repeat customers and a higher
                  number of rental agreements and revenues. The Company also believes
that the "Welcome, Wanted and Important"                   philosophy results in a store
atmosphere and shopping experience conducive to customer loyalty. The Company
                  encourages its store managers to build relationships with its
customers, to treat them with respect and to work                   with them on
merchandise selection and payment terms. Because its store employees are the most
important link to                   its customers, the Company also extends its "Welcome,
Wanted and Important" philosophy to its employees. The                   Company seeks to
be the "employer of choice" in the rental-purchase industry.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|o | Increase
Store Revenues, Profits and Cash Flow.  The Company seeks to maximize its profitability
by increasing its same                   store sales performance, adjusting its
merchandise mix to consist of products its customers want that also
                  provide an appropriate return, improving collections, and controlling
overhead costs to reduce operating expenses                   at the store and corporate
level. The Company will also seek to better align its monthly and quarterly store and
                  regional manager incentive programs with annual expectations and actual
performance.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|o | Increase
Brand Awareness and Marketing Efforts.  The Company's advertising strategy is designed to
attract customers to                   its stores, motivate its store employees, build
Rent-Way brand awareness and develop a distinctive brand                   personality.
In fiscal 2003, the Company launched a marketing program that emphasizes its "Welcome,
Wanted and                   Important" culture. The Company's television and print
advertising features Rent-Way employees and highlights the                   brand
identity it wishes to communicate by incorporating the popular song, "We Are Family." The
Company will also                   continue to conduct customer surveys that provide it
with insight into consumer perceptions of the Rent-Way brand                   and its
performance relative to its competitors. Recent results of outside research surveys in
the markets where                   its stores are located indicate that the "We Are
Family" ad campaign is now the most recognized rental-purchase                   business
ad in those markets.  The Company intends to continue this ad campaign in 2004.  The
Company also plans                   to double the number of printed ad flyers
distributed in its store markets versus 2003.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company believes that its branding and marketing strategies and its customer-focused
philosophy have already produced positive results.  Recent customer satisfaction surveys
indicate a significant shift in the percentage of the customers who identify themselves
as "extremely satisfied."  In 2003, the percentage increased to 29% from approximately
21% in past years.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|o | Open
New Stores.  The Company expects to selectively open new stores in existing markets to
leverage its existing                   management and corporate infrastructure and
advertising budgets. More stores will provide the Company's customers
                  greater access to its products.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

OPERATIONS

Store
Locations.  The Company uses a variety of information sources to identify store locations
that are readily accessible to low and middle income customers.  An ideal location for
the stores is in high traffic and high visibility area, such as neighborhood shopping
centers that include a supermarket.  The Company believes this type of location is
convenient for its customers and enables customers to visit the stores on a more frequent
basis.

The
Company's stores average approximately 3,700 square feet in floor space and are generally
uniform in interior appearance and design and display of available merchandise. The
stores have separate storage areas, but generally do not use warehouse facilities.
 Generally, the Company refurbishes its stores every three to five years.

Company
Stores. As of September 30, 2003, the Company operated 753 stores in 33 states as follows:

|LOCATION       | NUMBER OF STORES | LOCATION | NUMBER OF STORES | LOCATION      | NUMBER OF STORES
|-------------- | ---------------- | -------- | ---------------- | ------------- | ----------------
|Florida        |                  | 67       |                  | Indiana       |                 
|New York       |                  | 67       |                  | Arkansas      |                 
|Texas          |                  | 61       |                  | Georgia       |                 
|Pennsylvania   |                  | 53       |                  | Alabama       |                 
|South Carolina |                  | 53       |                  | Michigan      |                 
|Ohio           |                  | 51       |                  | Illinois      |                 
|North Carolina |                  | 45       |                  | Arizona       |                 
|Kentucky       |                  | 32       |                  | Massachusetts |                 
|Virginia       |                  | 30       |                  | Nebraska      |                 
|Louisiana      |                  | 29       |                  | Mississippi   |                 
|Tennessee      |                  | 26       |                  | Maryland      |                 

Product
Selection. The Company offers home entertainment equipment, furniture, personal computers,
major appliances and jewelry. Home entertainment equipment includes television sets, DVDs,
camcorders and stereos. Major appliances include refrigerators, ranges, washers and
dryers. The Companys product line currently includes the Sharp, Sony, RCA, JVC,
Phillips and Panasonic brands of home entertainment equipment; the Ashley, Bassett,
Catnapper, Progressive and England Corsair brands of furniture; the Gateway brand of
personal computers; and, the Amana, Crosley, Maytag, Sears Kenmore and General Electric
brands of major appliances. The Company closely monitors inventory levels and customer
rental requests and adjusts its product mix accordingly. Prepaid local phone service is
also provided through DPI.

For
the fiscal year ended September 30, 2003, payments under rental-purchase contracts for
home entertainment products, furniture, personal computers, major appliances and jewelry
accounted for approximately 33.2%, 27.4%, 18.5%, 17.7%, and 3.3% of the Companys
rental revenues, respectively. Customers may rent either new merchandise or previously
rented merchandise. As of September 30, 2003, weekly rentals currently range from $7.99 to
$49.99 for home entertainment equipment, from $6.99 to $41.99 for furniture, from $14.99
to $44.99 for personal computers, from $9.99 to $31.99 for major appliances and from $9.99
to $25.99 for jewelry. Previously rented merchandise is typically offered at the same
weekly or monthly rental rate as is offered for new merchandise but with an opportunity to
obtain ownership of the merchandise after fewer rental payments.

Rental-Purchase
Agreements. Merchandise is provided to customers under written rental-purchase agreements
that set forth the terms and conditions of the transaction. The Company uses standard form
rental-purchase agreements, which are reviewed by legal counsel and customized to meet the
legal requirements of the various states in which they are to be used. Generally, the
rental-purchase agreement is signed at the store, but may be signed at the customers
residence if the customer orders the product by telephone. Customers rent merchandise on a
week-to-week and, to a lesser extent, on a month-to-month basis with rent payable in
advance. At the end of the initial and each subsequent rental period, the customer retains
the merchandise for an additional week or month by paying the required rent or may
terminate the agreement without further obligation. If the customer decides to terminate
the agreement, the merchandise is returned to the store and is then available for rent to
another customer. The Company retains title to the merchandise during the term of the
rental-purchase agreement. If a customer rents merchandise for a sufficient period of
time, usually 12 to 24 months, ownership is transferred to the customer without further
payments being required, except in North Carolina where a final purchase option payment is
required. Rental payments are typically made in cash or by check or money order. The
Company does not extend credit. See Government Regulation.

Product
Turnover. Generally, a minimum rental term of between 12 and 24 months is required to
obtain ownership of new merchandise. An item of rental merchandise typically remains in
the Companys store inventory for about 26 months. During this period, the Company
ordinarily rents the item to three to five different customers. If a customer returns the
product, and if the product continues to meet the quality standards, the Company will
continue to rent the item. If the item no longer satisfies the rental standards, the item
is sold or discarded. Based upon merchandise returns for the year ended September 30,
2003, the Company believes that the average period of time during which customers rent
merchandise is 16 to 18 weeks. However, turnover varies significantly based on the type of
merchandise being rented, with certain consumer electronic products, such DVD players,
generally being rented for shorter periods, while computers, appliances and furniture are
generally rented for longer periods. Most rental-purchase transactions require delivery
and pickup of the product, weekly or monthly payment processing and, in some cases, repair
and refurbishment of the product. Rental-purchase agreements require larger aggregate
payments than are generally charged under installment purchase or credit plans for similar
merchandise, primarily to cover the operating expenses generated by greater product
turnover.

Customer
Service. The Company offers same-day delivery, installation and pick-up of its
merchandise. The Company also provides any required service or repair without charge,
except for damage in excess of normal wear and tear. If the product cannot be repaired at
the customers residence, the Company provides a temporary replacement while the
product is being repaired. The customer is fully liable for damage, loss or destruction of
the merchandise, unless the customer purchases an optional loss/damage waiver or chooses
to participate in the Preferred Customer Club program. Most of the products offered by the
Company are covered by a manufacturers warranty for varying periods, which, subject
to the terms of the warranty, is transferred to the customer in the event that the
customer obtains ownership. Repair services are provided through in-house service
technicians, independent contractors or under factory warranties. The Company offers
Preferred Customer Club, a fee-based membership program that provides special loss and
damage protection and, at a discounted rate, an additional one year of service protection
plan on rental merchandise purchased by the customer, preferred treatment in the event of
involuntary job loss, accidental death and dismemberment insurance and discounted
emergency roadside assistance, as well as other discounts on merchandise and services.

COLLECTIONS

Management
believes that effective collection procedures are important to the Companys success.
The Companys collection procedures increase the revenue per product, decrease the
likelihood of default and reduce charge-offs. Senior management and store managers use the
Companys computerized management information system to monitor cash collections on a
daily basis. In the event a customer fails to make a rental payment when due, store
management will attempt to contact the customer to obtain payment and re-instate the
contract or will terminate the account and arrange to regain possession of the
merchandise. However, store managers are given latitude to determine the appropriate
collection action to be pursued based on individual circumstances. Depending on state
regulatory requirements, the Company charges for the reinstatement of terminated accounts
or collects a delinquent account fee. Such fees are standard in the industry and may be
subject to state law limitations. See   Government Regulation. Despite
the fact that the Company is not subject to the federal Fair Debt Collection Practices
Act, it is the Companys policy in the collection procedures to generally abide by
the primary restrictions of this law, which contains specific restrictions regarding
communication with consumers designed to prohibit abusive debt collection practices.
Charge-offs due to lost or stolen merchandise and discards were approximately 3.1%, 4.3%
and 5.8 % of the Companys revenues for the years ended September 30, 2003, 2002, and
2001, respectively. The charge-off rate for chains with over 40 stores reporting to APRO
in 2003 was 3.2%.

MANAGEMENT

The
Companys stores are organized geographically with several levels of management. At
the individual store level, each store manager is responsible for customer relations,
deliveries, pick-ups, inventory management, staffing and local marketing efforts. A
Company store normally employs one store manager, one assistant manager, two account
managers, and one full-time delivery or installation technician. The staffing of a store
depends on the number of rental-purchase contracts serviced by the store.

Each
store manager reports to one regional manager, who typically oversees seven to ten stores.
Regional managers are primarily responsible for monitoring individual store performance
and inventory levels within their respective regions. The Companys regional managers
report to divisional vice-presidents, who monitor the operations of their divisions and,
through their regional managers, individual store performance. The divisional
vice-presidents report to one of two executive vice-presidents, who monitor the overall
operations of their assigned geographic area. The executive vice-presidents report to the
corporate-level senior vice-president of operations, who is responsible for overall
Company-wide store operations. Senior management at the Companys headquarters
directs and coordinates purchasing, financial planning and controls, management
information systems, employee training, personnel matters, advertising, and acquisitions.
Personnel at the corporate headquarters also evaluate the performance of each store.

MANAGEMENT INFORMATION
SYSTEM

The
Company uses an integrated computerized management information and control system to
track units of merchandise, rental-purchase agreements and customers. The system also
includes management software that provides extensive report generating capabilities
specifically tailored to the Companys operating procedures. Each store has
the ability to track individual components of revenue, idle items, items on rent,
product on order, delinquent accounts and other account and customer information.
Management electronically gathers each days activity report and has access to
operating and financial information about any store location or region in which the
Company operates. Management reports are generated on a daily, weekly, month-to-date and
year-to-date basis. Utilizing the management information system, senior management,
regional managers and store managers can closely monitor the productivity of stores
under their supervision.

PURCHASING AND
DISTRIBUTION

The
Companys general product mix is determined by senior management based on an
analysis of customer rental patterns and introduction of new products on a test
basis. Individual store managers are responsible for determining the particular
product selection for their store from a list of products approved by senior
management. Store managers order products on-line using the Companys Intranet. These
electronic purchase orders are reviewed, approved and executed through regional
managers, divisional vice presidents and the Companys purchasing department to
ensure that inventory levels and mix at the store level are appropriate. Merchandise
is generally shipped by vendors directly to each store and held for rental at the
individual locations. The Company purchases its merchandise directly from manufacturers or
distributors. The Company believes that its size enables it to purchase large volumes of
inventory from the suppliers at favorable terms. The Company generally does not enter
into written contracts with its suppliers. Although the Company currently expects to
continue its existing relationships, management believes there are numerous sources
of products available to the Company and does not believe that the success of the
Company is dependent on any one or more of its current suppliers.

INVENTORY MANAGEMENT

Because
inventory management is critical to the business, the Company has developed numerous
controls and management tools to optimize inventory use. The Company uses an online
inventory management system to monitor the inventory down to the store level on a daily
basis. For each store, the Company has developed optimum, or par, levels of
inventory in each category based on that stores showroom size and volume of
rental-purchase agreements. These par levels and actual levels are updated through the
internal software program and are automatically refreshed as inventory changes in the
store.

Operations
management, from regional managers to executive management, can review the inventory at
each of the stores on a continuous basis to ensure both the proper level and mix of
inventory. The Company considers it part of a regional managers daily responsibility
to ensure that his or her stores are properly merchandised. Rental products are actively
transferred from one store or region to another whenever store stocks are out of balance.
The Company has implemented additional controls that prohibit a store from ordering
additional inventory if existing par inventory levels are exceeded.

The
operations and corporate management meet weekly to discuss whether the stores are
overstocked or under stocked based on utilization rates and merchandise needed for
promotions and seasonality. In addition, the Company performs a quarterly obsolescence
review of the rental and service history of the key product categories, as well as, idle
and age parameters of the merchandise. If a product category has been identified as not
meeting the expectations for gross margins or if a product has had higher than average
service problems throughout its life cycle, the stores are notified to accelerate the
product through the system by either selling it or renting it at a discount. Whatever
merchandise in that category remains unsold or not on rent at the end of the quarter is
written off. The Company believes that the inventory management policies ensure that the
highest quality of inventory is available to the customer.

MARKETING AND ADVERTISING

The
Company promotes its products and services through direct mail, network radio and
television advertising and, to a lesser extent, through local broadcast and secondary
print media advertisement. The Company also solicits via telemarketing. The
advertisements emphasize product and brand name selection, prompt delivery
and repair, and the absence of any down payment, credit investigation or
long-term obligation. Advertising expense as a percentage of revenue for the years
ended September 30, 2003, 2002 and 2001 were 4.5%, 5.5% and 3.9%, respectively.
In addition to the national advertising efforts, the Company manages a local
store-marketing plan to allow the stores to leverage market-specific knowledge. The
local store marketing effort plays an active role in the communities in which it operates
and targets the customer base through direct mail promotions. As the Company obtains new
stores in its existing markets, the advertising expenses of each store in the market
is reduced by listing all stores in the same market-wide advertisement.

COMPETITION

The
Company is one of the largest operators of stores in the rental-purchase industry;
however, the rental-purchase industry is highly competitive. The Company
competes with other rental-purchase businesses and, to a lesser extent, with
rental stores that do not offer their customers a purchase option. Competition is
based primarily on customer service, although it is also based on rental rates and
terms, product selection and product availability. With respect to consumers who are able
to purchase a product for cash or on credit, the Company also competes with
department stores, discount stores and retail outlets that offer an installment sales
program or offer comparable products and prices. Rent-A-Center, the largest industry
operator, has significantly greater financial and operating resources and name
recognition than does the Company.

PERSONNEL

As
of September 30, 2003, the Company had 3,751 employees, 178 of whom are corporate
employees located at the corporate headquarters in Erie, Pennsylvania. None of
the Companys employees are represented by a labor union. The Company believes
that the relationship with employees is good. This belief is supported by annual internal
employee surveys.

GOVERNMENT REGULATION

Forty-seven
states have enacted legislation for the express purpose of regulating rental-purchase
transactions. All of these state laws, with the exception of those in Alaska and Montana,
were enacted five or more years ago and have no material amendments. These laws
generally require certain contractual and advertising disclosures concerning the
nature of the rental-purchase transaction and also provide varying levels of
substantive consumer protection, such as requiring a grace period for late payments,
limiting certain fees or the total amount of rental payments that may be charged, and
providing contract reinstatement rights in the event a rental-purchase agreement is
terminated for non-payment. No federal legislation has been enacted regulating the
rental-purchase transaction, although industry supported legislation has been introduced
in Congress from time to time and is again under consideration.

All
of the states in which the Company operates, except North Carolina, impose some type
of statutory disclosure requirements either in rental-purchase agreements or in
advertising or both. Rental-purchase legislation or other statutes in the majority of
these states distinguish rental-purchase transactions from credit sales. Court
decisions in the remaining states in which the Company operates have characterized
rental-purchase transactions as leases rather than credit sales. Court decisions in
Minnesota, New Jersey and Wisconsin, states where the Company has no operations, have
characterized rental-purchase transactions as credit sales subject to consumer lending
requirements and accordingly have created a regulatory environment in those states that is
prohibitive to traditional rental-purchase transactions.

The
Company instructs operations personnel in procedures required by applicable laws
through policy manuals and on-the-job training. Management believes that the
Companys operations and point-of-sale systems are in compliance with the
requirements of applicable laws in all material respects.

Management
believes that the potential for new or amendatory state or federal legislation
re-characterizing rental-purchase transactions as credit sales is remote.
The Company, in conjunction with the rental-purchase industrys trade
association, closely monitors legislative and judicial activity and is working
to legislatively resolve issues created by unfavorable court decisions
in Minnesota, New Jersey and Wisconsin.

SERVICE MARKS

The
Company has registered the Rent-Way service mark and related designs under the
Lanham Act. The Company believes that these marks have acquired significant market
recognition and goodwill in the communities in which its stores are located.

BUSINESS OF dPi
TELECONNECT LLC

DPI
provides local prepaid telephone service on a month-to-month basis to subscribers who
have been disconnected by the local telephone company. Generally, this is because
they have previously failed to pay a local or long distance phone bill or, due to
poor credit, are asked to remit a deposit to their local telephone company, which
they are unable to do. Because DPI does not require credit checks or deposits, it is
an attractive alternative to these customers.

DPI
was formed in late 1998. The Telecommunications Act of 1996, which encouraged the
establishment of competitive local exchange carriers, or CLECs, made this business
possible. DPI currently operates in a niche segment of the CLEC industry. CLECs
compete with the regional Bell operating companies or incumbent local telephone service
providers, or ILECs. The market for DPIs prepaid local telephone services is
principally consumers whose credit rating or whose prior payment history with the
ILEC is poor. Although not identical, the Company believes DPIs potential
customer base overlaps significantly with the Companys customer base.

In
order to conduct its business, DPI is required to obtain governmental authorization
in each state in which it provides local telephone service. At the present time, DPI
has obtained or has pending such authorization in 41 states. DPIs licenses must
be renewed on a periodic basis. In addition to governmental approval, DPI must enter
into a resale contract with an ILEC to purchase service for resale. Under applicable
federal law, all ILECs are required to negotiate these contracts with CLECs. At the
present time, DPI has resale agreements in place with all existing major ILECs and is
moving forward on agreements with several smaller regional ILECs. DPI markets and
sells its services through a network of agents. As of September 30, 2003, the Company
had 590 stores offering the service and was DPIs largest agent based on
revenues. Customers generally pay the Company and other agents of DPI between $30.00
and $65.00 per month for prepaid local telephone services, depending on area retail
pricing and additional feature services. Under the contract with DPI, the Company is
entitled to retain 10% of the customers payments as its agents fee, which
is consistent with the fees retained by DPIs other agents. As of September 30,
2003, DPI had approximately 37,000 customers.

The
Company owns 70% of DPI. The holder of the remaining 30% interest in DPI, DPI Holdings,
Inc., has the right in January 2005 to require DPI to purchase its 30% interest at a price
equal to the fair market value of the interest. Under applicable GAAP rules, the Company
currently records 100% of DPI losses and will record 100% of the income until losses are
recovered, based upon contracted agreement with DPI Holdings, Inc., at such time the
minority interest will be recognized and income/loss will be recorded based on percentage
of ownership of DPI.

ITEM 2.       DESCRIPTION OF
PROPERTIES

The
Company leases substantially all of its store facilities under operating leases that
generally have terms of three to five years and requires the payment of real estate taxes,
utilities and maintenance. There are optional renewal privileges on most of the
leases for additional periods ranging from three to five years at rental rates
generally adjusted for increases in the cost of living. There is no assurance that
the Company can renew the leases that do not contain renewal options or that if it
can renew them, the terms will be favorable to the Company. Management believes that
suitable store space is generally available for lease and that the stores would be
able to relocate without significant difficulty should a particular lease be unable
to be renewed. Management also expects that additional space will be
readily available at competitive rates for new store openings.

The
Company owns the corporate headquarters located in Erie, Pennsylvania, which
comprises 74,000 square feet. The Company also owns an office building in Erie,
Pennsylvania, which is used for record retention and comprises approximately 8,200
square feet.

---

ITEM 3.       LEGAL PROCEEDINGS

As
previously reported, following the discovery of accounting improprieties in October 2000,
the Company, its 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 requires the Company to pay the class the sum of $25.0 million, with $21.0
million in cash and $4.0 million in 6% unsecured subordinated notes payable in four equal
installments over two years commencing December 31, 2003. Of the $21.0 million payable in
cash, $11.0 million has been funded from available insurance proceeds. The settlement
agreement provides for the release of the Company and all other defendants except the
Companys former controller and the Companys independent accountants. The
settlement remains subject to Court approval. On September 9, 2003, the Court granted a
motion certifying a class and appointing the lead plaintiff, Cramer Rosenthal McGlynn LLC,
as class representative. On September 12, 2003, the Court conducted a fairness hearing
regarding the settlement. The lead plaintiffs motion for the Courts approval
of the settlement is pending.

As
a further result of the accounting improprieties, the SEC and the U.S. Department of
Justice conducted investigations of possible civil and criminal violations. On July 22,
2003, the SEC announced that it had reached a settlement with the Company under which the
Company consented to the entry of a final judgment in the U. S. District for the Western
District of Pennsylvania that permanently enjoins it from violations of the reporting and
books and records provisions of the Securities Exchange Act. In determining to accept the
settlement, the SEC considered that the Company undertook remedial actions and cooperated
with the SEC staff. The Court entered the final consent judgment on July 23, 2003. The SEC
did not seek any financial penalty against the Company, its current officers or directors.
The Department of Justice did not bring any charges against the Company or current
officers and directors. Based on public statements from the SEC staff and representatives
of the Department of Justice, the Company believes the governments investigations
into its past accounting improprieties are concluded and that no action will be taken
against any current Company employee or director.

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

ITEM 4.       SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS

---

RENT-WAY, INC.

PART II

ITEM 5.       MARKET FOR
REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The
Companys common stock is traded on the New York Stock Exchange under the symbol
RWY. The following table sets forth, for the periods indicated, the high
and low sales prices per share of the common stock as reported on New York Stock
Exchange.

|               | YEAR ENDED
SEPTEMBER 30, 2003 | YEAR ENDED
SEPTEMBER 30, 2002
|-------------- | ----------------------------- | -----------------------------
|
|First Quarter  |                               |                              
|Second Quarter |                               |                              
|Third Quarter  |                               |                              
|Fourth Quarter |                               |                              

As
of September 30, 2003, there were 335 shareholders of record of
Rent-Ways common stock.

The
Company has not paid any cash dividends to common stock shareholders. The
declaration of any common stock cash dividends will be at the discretion of the Board
of Directors and will depend upon earnings, capital requirements and the financial
position of the Company, general economic conditions and other pertinent factors.
The Company does not intend to pay any common stock cash dividends in the foreseeable
future. Management intends to use earnings, if any, to repay bank debt and, to
the extent permitted by the Companys bank lenders, to develop and expand
the Companys business. The Companys bank credit facility prohibits the
payment of common stock dividends.

The
Company paid cash dividends of $99 to preferred stock shareholders. Dividends are accruing
daily at a rate of 8.0% per annum and are payable in the first day of each calendar
quarter as required by the agreement on which the Company issued 1,500 shares of
convertible preferred stock used to repay the previous senior credit facility.

The
Company maintains the 1992, 1995, and 1999 Stock Option Plans. The Company also has
options to acquire its common stock outstanding under stock option plans assumed in
connection with the Companys acquisition of Home Choice Holdings, Inc. in
December 1998. The Company also has individual option award agreements outside of
these plans with three employees covering an aggregate of 60,000 options to acquire
shares of common stock. These non-plan options are evidenced by written agreements
and have the following terms: expiration is five years from option grant date (June 13,
2002), vesting is one-half on grant date, one-half on first anniversary of grant
date; the options terminate immediately on termination of employment except in the
event of death, disability or involuntary termination, in which case they
are exercisable (to the extent exercisable at termination) for an additional
three months.

|Plan category                                  | Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a) | Weighted-average
exercise price of
outstanding options,
warrants and rights
(b) | Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c)
|---------------------------------------------- | ----------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------
|Rent Way, Inc. equity compensation plans       |                                                                                                 |                                                                                 |                                                                                                                                                
|approved by security holders                   |                                                                                                 |                                                                                 |                                                                                                                                                
|Home Choice Holdings, Inc. equity compensation |                                                                                                 |                                                                                
|plans approved by security holders             |                                                                                                 |                                                                                 |                                                                                                                                                
|Individual compensation arrangements           |                                                                                                 |                                                                                 |                                                                                                                                                
|Total                                          |                                                                                                 |                                                                                 |                                                                                                                                                

---

ITEM 6.       SELECTED
FINANCIAL DATA

The
following selected financial data for the years ended September 30, 1999, 2000, 2001,
2002 and 2003 were derived from the audited financial statements of the Company for
those periods. The historical financial data are qualified in their entirety by, and
should be read in conjunction with, Managements Discussion and Analysis of
Financial Condition and Results of Operations and the financial statements of the
Company and notes thereto included elsewhere in this report.

|                                                                                            | YEAR ENDED SEPTEMBER 30,
|------------------------------------------------------------------------------------------- | ------------------------
|
|
|STATEMENT OF OPERATIONS DATA:                                                               |                         
|Total revenues                                                                              |                         
|Operating profit (loss)                                                                     |                         
|                                                                                            |                         
|Loss before cumulative effect of change in accounting principle and discontinued operations |                         
|Cumulative effect of change in accounting principle                                         |                         
|Income (loss) from discontinued operations (1)                                              |                         
|Net loss                                                                                    |                         
|Amortization of deemed dividend and accretion of preferred stock                            |                         
|                                                                                            |                         
|Net loss allocable to common shareholders                                                   |                         
|Adjusted net income (loss) (2)                                                              |                         
|Basic loss per common share:                                                                |                         
|                                                                                            |                         
|Loss before cumulative effect of change in accounting principle and discontinued operations |                         
|Net loss                                                                                    |                         
|Net loss allocable to common shareholders                                                   |                         
|Adjusted net income (loss) (2)                                                              |                         
|Diluted loss per common share:                                                              |                         
|                                                                                            |                         
|Loss before cumulative effect of change in accounting principle and discontinued operations |                         
|Net loss                                                                                    |                         
|Net loss allocable to common shareholders                                                   |                         
|Adjusted net income (loss) (2)                                                              |                         
|Weighted average shares outstanding (in thousands):                                         |                         
|Basic                                                                                       |                         
|Diluted                                                                                     |                         
|BALANCE SHEET DATA:                                                                         |                         
|Rental merchandise, net                                                                     |                         
|Total assets                                                                                |                         
|Debt                                                                                        |                         
|Shareholders' equity                                                                        |                         

|(1) | On February 8, 2003, the company sold 295 stores. As a result of such sale, the
          Company recast the consolidated financial statements to reflect the sale and to
          treat the operating results of such stores as discontinued operations as
          required by SFAS 144.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The adjusted net income (loss) reflects previously reported net loss adjusted to
          exclude goodwill amortization as if Statement of Financial Accounting Standards
          No. 142, Goodwill and Other Intangible Assets (SFAS No.142)had been adopted in
          fiscal years 1999, 2000 and 2001.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | During the year ended September 30, 2000, the Company acquired a 70% interest in
          DPI, which affects the comparability of the historical information for the
          periods presented.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

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

OVERVIEW

Rent-Way
currently operates 753 rental-purchase stores located in 33 states, 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
insurance fees, liability damage waiver premiums, Preferred Customer Club fees and
revenues from the sale of merchandise.

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.

The
Company considers the rental-purchase business and prepaid telephone services to be two
separate business units. Separate business unit information is presented in Note 21 of the
notes to the consolidated financial statements. Separate information in this discussion
regarding the prepaid telephone service business is not presented except in the discussion
of total revenues and cost of prepaid phone service. The Company believes that other items
for the prepaid telephone service business are immaterial.

Through
sales, closures and combinations, the number of stores operated by the Company has
decreased from 1,138 as of September 30, 2000, to 753 as of September 30, 2003. The
following table shows the number of stores opened, acquired, sold, closed and/or
combined during this three-year period.

|                            | YEARS ENDED SEPTEMBER 30,
|--------------------------- | -------------------------
|
|Open at Beginning of Period |                          
|Opened                      |                          
|Acquired                    |                          
|Locations Sold              |                          
|Closed or Combined          |                          
|                            |                          
|Open at End of Period       |                          
|                            |                          

USE OF ESTIMATES IN
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,
valuation of deferred taxes, liability for self-insurance, impairment of goodwill,
other intangibles and lease obligations, based on currently available
information. Changes in facts and circumstances may result in revised estimates.

SIGNIFICANT 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, obsolescence and losses due to excessive wear and tear of
merchandise 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 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 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.

Insurance
Programs. For fiscal years 2003, 2002 and 2001, the Company is primarily self-insured
for health insurance. The self-insurance liability for health costs is determined based on
a contracted rate and monthly employee 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.

For
fiscal years 2003,2002 and 2001, the self-insurance liability for workers
compensation, automobile and general liability costs are determined actuarially based
on claims filed and company experience. Losses in the workers compensation,
automobile and general liability programs are pre-funded based on the insurance
companys loss estimates. Loss estimates will be adjusted for developed incurred
losses at 18 months following policy inception and every 12 months thereafter.
Retrospective adjustments to loss estimates are recorded when determinable and
probable.

For
fiscal years 2000 and 1998, the Company was insured under deductible programs with
aggregate stop loss coverage on major claims. Claims exceeding the insured deductible
limits that were less than stop loss aggregates, were funded as claims developed using AM
Best loss development factors and not exceeding policy aggregate. The fiscal 1999 workers
compensation insurance had no aggregate retention and was funded as claims developed
using AM Best loss development factors. Reserves were developed by independent actuaries
and totaled $1.5 million and $2.3 million at September 30, 2003 and 2002, respectively.

Income
Taxes. Deferred income taxes are recorded to reflect the tax consequences on future
years of differences between the tax and financial statement basis of assets and
liabilities at year end using income tax rates under existing legislation expected to
be in effect at the date the temporary differences are expected to reverse. A
valuation allowance is provided for deferred tax assets if it is more likely than not
that these items may expire before the Company is able to realize their benefit, or
that future deductibility is uncertain. Deferred income taxes are adjusted for tax
rate changes as they occur.  The Company has provided a valuation allowance for
all deferred tax assets.

Goodwill.           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. 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 Consolidated Statements of Operations
for fiscal year ended           September 30, 2003 and 2002, but did recognize $12.7 million
of           amortization for the fiscal year ended September 30, 2001. During the
quarter           ended September 30, 2002, the Company calculated an impairment to
goodwill           of $58.9 million, recorded in Cumulative Effect of Change
in           Accounting Principle in the amount of $41.5 million (net of $17.4
          million in income taxes). For the year ended September 30, 2003, there was no
          impairment of goodwill.

RESULTS OF OPERATIONS

On
February 8, 2003, the Company completed the sale of 295 stores. Accordingly, the financial
statements for all periods presented have been recast to report the results of these
stores as discontinued operations. As an aid to understanding the Companys operating
results, the following table expresses certain items of the Companys
consolidated statements of operations for the years ended September 30, 2003, 2002
and 2001 as a percentage of total revenues.

|                                                      | YEARS ENDED SEPTEMBER 30,
|----------------------------------------------------- | -------------------------
|
|Revenues:                                             |                          
|Rental                                                |                          
|Prepaid phone service                                 |                          
|Other                                                 |                          
|                                                      |                          
|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, net                                      |                          
|Occupancy                                             |                          
|Restructuring costs                                   |                          
|Other operating expense                               |                          
|                                                      |                          
|Total costs and operating expenses                    |                          
|Operating income (loss)                               |                          
|Settlement of class action lawsuit                    |                          
|Interest expense                                      |                          
|Interest income                                       |                          
|Amortization--deferred financing costs                |                          
|Other income (expenses), net                          |                          
|                                                      |                          
|Loss before income taxes, cumulative effect of change |                          
|in accounting principle and discontinued operations   |                          
|Income tax expense (benefit)                          |                          
|                                                      |                          
|Loss before cumulative effect of change in accounting |                          
|principle and discontinued operations                 |                          
|Cumulative effect of change in accounting principle   |                          
|Income (loss) from discontinued operations            |                          
|                                                      |                          
|Net income (loss)                                     |                          
|                                                      |                          

FISCAL 2003 COMPARED TO
FISCAL 2002

Total
Revenues. Total revenues decreased $2.1 million or 0.4%, to $491.3 million from
$493.4 million. This decrease is attributable to a decrease in revenues of $2.3
million in the prepaid telephone service segment offset by an increase in revenues of
$0.3 million in the household rental segment. The $2.4 million decrease in the prepaid
telephone service segment is due to a decrease in customers due to an increase in
competition. The $0.3 million increase in revenue in the household rental segment is
due to a 0.8% 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 fifteen months and have had no changes affecting operations
during that time, i.e. mergers, dispositions or acquisitions. The increase in same store
revenues was due to an increase in same store rental revenues and early purchase option
sales revenues offset by a decrease in same store fee revenues. Same store rental revenues
increased 0.4% as compared to the same period last year. This increase is primarily
due to improved collections for the year ended September 30, 2003, as compared to the same
period last year. Early purchase option and sales revenue increased 21.0% as compared to
the same period last year. This increase is primarily due to more customers exercising the
early purchase option as a result of an 120 days same as cash promotion that
offered customers the opportunity to purchase rented merchandise at a discount. In
addition, the increase was due to an increase in sales and early purchases of computers
prior to the expiration of computer rental-purchase agreements. Fee revenues decreased by
5.5% as compared to the same period last year. This decrease is primarily attributable to
fewer rental-purchase agreements in the portfolio and reductions in liability damage
waiver fees due to customers shifting to the Preferred Customer Club program. The
Preferred Customer Club program is a fee-based membership program that provides special
loss and damage protection and, at a discounted rate, an additional one year of service
protection on rental merchandise, preferred treatment in the event of involuntary job loss
and accidental death and dismemberment insurance.

Depreciation
and Amortization. Depreciation expense related to rental merchandise decreased to
24.9% as a percentage of total revenues from 27.0%. In fiscal 2002, the Company took
steps to increase gross profit margins on rental contracts. These steps included
introducing higher-end, higher-margin merchandise to the stores, increasing rental
rates on certain core products to competitive market rates, and increasing weekly
rental rates of personal computers to competitive market rates. The Company continued
these efforts in fiscal 2003. The Company expects depreciation expense as a
percentage of total revenues to continue decreasing as product margins improve due to
enhanced rental rates and turns as a result of the factors discussed above.

Amortization
of other intangibles decreased to 0.3% as a percentage of total revenues from 0.5%.
This is due to the expiration of the amortization periods for certain non-compete
agreements and customer contracts. Amortization expense decreased $0.9 million as compared
to the same period last year. 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
must then be tested for impairment at least annually. Such testing for fiscal 2003
resulted in no impairment. Such testing for fiscal 2002 resulted in an impairment to
goodwill in the household rental segment. A goodwill impairment charge was recorded in
Cumulative Effect of Change in Accounting Principle in the Consolidated
Statement of Operations in the amount of $41.5 million (net of $17.4 million in income
taxes).

Cost
of Prepaid Phone Service. The cost of prepaid phone service decreased to $21.9
million from $23.7 million. Cost of prepaid phone service, as a percentage of prepaid
phone service revenues, decreased to 61.8% from 62.8%. This decrease is due to a general
decrease in the customer base and a decrease in new customers year over year. This
decrease in new customers results in a decrease in activation costs in relation to the
revenues recognized.

Salaries
and Wages. Salaries and wages increased by $9.5 to $130.7 million from $121.2 million. The
Company initiated an employee upgrade program directed at attracting and keeping better
talent. This resulted in higher salaries in 2003. Salaries and wages increased to 26.6% as
a percentage of total revenues from 24.6%.

Advertising.           Advertising
expense decreased $4.8 million, from $27.1 million in 2002 to           $22.3
million in 2003. This decrease is primarily due to a decrease in           television
production and local store marketing expenses and the sale of 295           stores to
Rent-A-Center, Inc.

Occupancy.           Occupancy
expense increased to $32.8 million from $31.7 million, or to 6.7% as a
          percentage of total revenues from 6.4%. The increase is attributable to general
          rent increases, which approximate 2% per year for new leases entered into with
          higher rates.

Restructuring
Costs. During the second quarter of fiscal 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. As a result of this plan, the Company recorded total pre-tax restructuring
charges of $3.0 million in 2003. The restructuring costs include $1.0 million of employee
severance and termination benefits and $2.0 million of fixed asset write-offs in the
household rental segment.

Other
Operating Expense. Other operating expense decreased by $5.2 million to $100.7
million as of September 30, 2003, from $106.0 million and decreased to 20.5% as a
percentage of total revenues from 21.5%. This decrease is principally due to income of
$4.6 million for an adjustment of ultimate and incurred losses, which was recorded in
insurance costs in other operating expense, a $1.5 million downward adjustment to the
Companys personal property tax accruals was recorded as a result of the receipt of
finalized actual tax assessments and a reversal of a $1.8 million provision established in
prior years related to rental merchandise was determined to be no longer required. These
items were offset by $2.7 million of legal and professional and consulting fees, as
discussed below.

During
2002, there was a recovery of accounting and legal fees related to the investigation and
shareholder litigation in the amount of $1.9 million, which offset $1.3 million of fees
for the year. During 2003, there was a recovery of accounting and legal fees related to
the investigation and shareholder litigation in the amount of $0.8 million, which offsets
$3.5 million of fees for the year.

Settlement
of Class Action Lawsuit. The Company reached an agreement to settle the
consolidated class action pending against the Company in the U.S. District Court for the
Western District of Pennsylvania. Under the settlement, the Company will pay $25.0 million
to the class, consisting of $4.0 million in two-year 6% subordinated unsecured notes and
$21.0 million in cash, of which $11.0 million is to be funded from available insurance
proceeds. The $10.0 million in cash to be funded by the Company is held in escrow and is
classified as restricted cash on the balance sheet at September 30, 2003. The net $14.0
million was expensed in the second quarter of fiscal 2003. The Company has funded $10.0
million in cash and the insurance carrier has funded $11.0 million in cash into escrow as
of July 1, 2003; the Company has also issued the unsecured notes into escrow.

Interest
Expense. Interest expense decreased $6.1 million to $33.1 million from $39.2 million or
from 8.0% to 6.7% of total revenues. This decrease is primarily due to a $62.6
million decrease in debt from $277.2 million as of September 30, 2002, to $214.6 million
as of September 30, 2003. On June 2, 2003, the Company completed the sale of $205.0
million of senior secured notes, closed a new $60.0 million revolving line of credit and
sold $15.0 million in 8% convertible preferred stock though a private placement. The
proceeds from these transactions were used to repay all amounts outstanding under the
Companys previous credit facility. See Note 10 and 11 to the Companys
consolidated financial statements appearing at Item 8 of this report.

Amortization
and Write-Off of Deferred Financing Costs. Amortization of deferred financing costs
decreased to $3.1 million from $5.2 million. This decrease is mainly due to the write-off
of $1.1 million in bank fees associated with refinancing the Companys previous
credit facility in fiscal 2003 versus a $3.8 million write-off of deferred financing costs
in fiscal 2002. This decrease is partially offset by increased amortization related to an
increase in deferred financing costs as a result of the refinancing. Deferred financing
cost amortization, excluding write-offs, was $1.9 million and $1.4 million for the years
ended September 30, 2003 and 2002, respectively. See Note 10 to the Companys
consolidated financial statements appearing at Item 8 of this report.

Other
Income (Expense), Net. Other income was $4.0 million in 2003 compared to $2.4 million
in 2002. This change is primarily due to an increase in the positive change in the
fair market value of the interest rate swap portfolio, which resulted in income of
$4.6 million for 2003, compared to income of $0.6 million for 2002. Other income for 2003
also includes gains on the sale of vehicles under capital leases of $1.2 million. These
income items for 2003 were offset by a charge of $1.9 million to record the convertible
option derivative liability for the convertible preferred stock at its fair market value
as of September 30, 2003. Other income for fiscal 2002 includes a gain on the sale of
stores. The Company entered into several small transactions to sell 15
under-performing stores. The Company recognized a net gain of $0.9 million on these
store sale transactions.

Income
Tax Expense. For 2003, the Company recorded income tax expense of $4.0 million.
Deferred tax expense of $4.9 million as a result of the impact of applying SFAS 142 was
offset by a tax benefit of $0.9 million primarily as a result of changes in net operating
loss carryback rules. SFAS 142 stops the amortization of goodwill for book purposes, but
for tax purposes it continues to be deductible and amortizable in accordance with current
tax laws. The income tax expense for fiscal 2003 attributable to the impact of SFAS 142
adoption results from an increase to the valuation allowance because the Company can no
longer look to the reversal of the deferred tax liability associated with the tax
deductible goodwill to offset its deferred tax assets in accordance with SFAS 109
Accounting for Income Taxes. The impact of the continued tax-deductible
goodwill will result in tax expense in future years to the extent the Company has a full
valuation allowance. The Company recorded no income tax benefit for fiscal 2003 and 2002
related to the operating losses due to the uncertainty of their realization. There are
approximately $11.1 million of net operating losses that expire during fiscal years 2005
through 2018. Net operating losses approximating $42.6 million, $36.3 million, $48.1
million, $28.2 million and $41.3 million expire during fiscal years 2019, 2020, 2021, 2022
and 2023 respectively. The net deferred tax asset after adjustment for tax deductible goodwill
is $73.1 million for fiscal 2003 and the net deferred tax asset of $66.0 million for
fiscal 2002 has been fully offset by a valuation allowance based on managements
determination that their realization is uncertain. The Companys federal and state
tax benefit for fiscal 2003 and fiscal 2002 is lower than the statutory rate primarily due
to the deferred tax valuation allowance and nondeductible goodwill.

Cumulative
Effect of Change in Accounting Principle. Effective October 1, 2001, the Company
adopted SFAS 142. Thus, no amortization for goodwill and indefinite-lived intangibles
was recognized in the accompanying consolidated statements of operations for fiscal
years 2003 and 2002. During the year ended September 30, 2002 the Company calculated an
impairment to goodwill of $58.9 million, recorded in cumulative effect of
change in accounting principle in the amount of $41.5 million (net of $17.4
million in income taxes). Testing for fiscal 2003 resulted in no impairment.

Income
(Loss) From Discontinued Operations.Loss from discontinued operations was $15.8
million as a result of the sale in 2003, as compared to $0.1 million in 2002. This
decrease is mainly due to a $8.4 million charge for lease obligations related to vacated
stores, a $7.3 million decrease in operating income of the stores due to transition period
costs and interest expense of $3.0 recorded as a result of the sale in 2003.

Net
Income (Loss). The Company generated a net loss of $29.4 million in 2003 as a result of
the factors described above compared to a net loss of $76.5 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. See
Note 11 to the Companys consolidated financial statements appearing at Item 8 of
this report.  The preferred stock dividends and accretion totaled $0.5 million and
are charged to accumulated deficit, but reduce net income (loss) allocable to common
stockholders.

FISCAL 2002 COMPARED TO
FISCAL 2001

Total
Revenues. Total revenues decreased $21.9 million or 4.3%, to $493.4 million from
$515.3 million. This decrease is attributable to a decrease in revenues of $24.9
million in the household rental segment offset by an increase in revenues of $3.0
million in the prepaid telephone service segment. The $24.9 million decrease in
revenue in the household rental segment is due to a 0.5% decrease in same store
revenues and the closing or selling of 25 under-performing stores in fiscal 2002.

The
0.5% decrease in same store revenues is attributable to an increase of 0.9% in same store
rental revenues offset by a 7.5% decrease in same store processing and insurance fee
revenue and a 5.2% decrease in same store early purchase option and sales revenues
compared to 2001. The increase in same store rental revenue is primarily due to improved
collections and deliveries made in 2002, having better revenue potential than the lower
margin items delivered in the past. The decrease in same store processing and insurance
revenue is attributed to a reduction in the Companys collection of liability damage
waiver and processing fees. The same store early purchase option and sales revenue
decrease is attributed to a significant amount of product sales to eliminate lower-end,
lower-margin merchandise from the Companys product mix in the 2001 fiscal year. The
Company lowered cash purchase prices on merchandise identified as generating margins lower
than industry norms.

Depreciation
and Amortization. Depreciation expense related to rental merchandise decreased to
27.0% as a percentage of total revenues from 30.1%. In 2002, the Company took steps
to increase gross profit margins on rental contracts. These steps included
introducing higher-end, higher-margin merchandise to the stores, increasing rental
rates on certain core products to competitive market rates, increasing weekly rental
rates of personal computers to competitive market rates, and implementing a program
to eliminate free Internet service by replacing it with a prepaid, unlimited Internet
product.

Amortization
of goodwill and other intangibles decreased to 0.5% as a percentage of total revenues
from 3.0%. This decrease was due to the adoption of SFAS No. 142. SFAS No. 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 must then be tested for impairment at least annually. The Company
completed step one, the transitional goodwill impairment test and determined that
goodwill was impaired in the household rental segment. Such testing resulted in a
goodwill impairment charge recorded in cumulative effect of change in
accounting principle in the consolidated statement of operations as a loss of
$41.5 million (net of $17.4 million in income taxes).

Cost
of Prepaid Phone Service. The cost of prepaid phone service increased to $23.7
million, or 4.8% of total revenues, from $20.0 million, or 3.9% as a percentage of
total revenues. Cost of prepaid phone service, as a percentage of prepaid phone
service revenues, increased to 62.8% from 57.5%. This increase is primarily due to
the growth in the number of customer lines serviced and an increase in the mix of new
customers to the total customer base. The increase in new customers resulted in
higher costs due to ILEC activation fees. This increase is also the result of the FCC
allowing the ILECs to increase end user communication line, or EUCL, monthly charges for
residential lines during mid-year calendar 2001. The Company has reacted to the EUCL
increases by adjusting retail prices to the customer based on targeted margins. These
price increases were implemented in the first quarter of fiscal 2002.

Salaries
and Wages. Salaries and wages decreased by $5.8 million due to the Companys
continued efforts to better manage store staffing levels and overtime and the result
of a reduction of corporate staffing levels.

Advertising. Advertising
expense increased $6.8 million, from $20.3 million in 2001 to           $27.1
million in 2002. Included in this increase is an additional expense for
          air-time, distribution costs, consisting primarily of postage, and the
          advertising campaign titled Fall Kickoff Extravaganza. In
          addition, there was a reduction in advertising rebates resulting in an
          increase of net advertising. Offsetting this increase was a decrease in
          production costs.

Occupancy.           Occupancy
expense decreased to $31.7 million from $39.4 million, or to 6.4% as a
          percentage of total revenues from 7.7%. The decrease is primarily attributable
          to closing or selling of 25 under-performing stores in 2002. The Company also
          closed or sold 83 under-performing stores in 2001, 43 of which were in the
month           of September.

Other
Operating Expenses. Other operating expense decreased by $24.9 million to $106.0
million from $130.9 million. This decrease is primarily due to lowered rental
merchandise losses, lowered service costs, lowered telephone costs, lowered training
and conference costs, lowered utilities costs, lowered Club Plan expense,
lowered accounting fees and lowered legal and professional fees. For fiscal 2002 and
2001, accounting fees, legal fees and consulting fees related to the fiscal 2000
audit and investigation were $1.3 and $7.9 million, respectively. During fiscal 2002,
the Company was reimbursed $1.9 million as a result of an insurance recovery.

The
decrease in other operating expense was partially offset by a charge of $4.6 million
against income consisting of a $3.6 million retrospective upward adjustment of the
Companys fiscal 2001 property/casualty insurance premium and a $1.0 million
upward adjustment of the Companys pre-2001 property/casualty insurance premium
reserves.

Interest
Expense. Interest expense increased $7.3 million from 6.9% to 8.7% of total revenues.
The Companys former credit facility required the Company to accrue additional
payment-in-kind interest at a rate of 200 to 500 basis points that was due and
payable on the maturity date of the term loans made under the facility. This
payment-in-kind interest amounted to $15.0 million in 2002. Offsetting this increase
is a decrease in other interest expense of $6.2 million. This decrease was due to
a lower effective interest rate.

Other
Income (Expense), Net. Other income was $2.4 million in 2002 compared to other
expense of $10.8 million in 2001. This change is primarily due to a positive change
in the fair market value of the interest rate swap portfolio, which resulted in
income of $0.5 million for 2002, compared to an adverse change of $12.6 million for
2001. Other income for fiscal 2002 includes gain on the sale of stores. The
Company also entered into several small transactions to sell fifteen under-performing
stores. The Company recognized a net gain of $0.9 million on these store
sale transactions.

Income
Tax Expense. For 2002, the Company recorded income tax expense of $16.5 million in
connection with the adoption of SFAS 142 and recording local income taxes. The net
deferred tax asset of $66.0 million for 2002 and the net deferred tax asset of $34.2
million for 2001 have been fully offset by a valuation allowance based on
managements determination that it is more likely than not that the deferred tax
assets may not be realized. The Companys federal and state tax benefit for 2002
and 2001 is lower than the statutory rate primarily due to the deferred
tax valuation allowance and nondeductible goodwill.

Cumulative
Effect of Change in Accounting Principle. Effective October 1, 2001, the Company
adopted SFAS 142. Thus, no amortization for goodwill and indefinite-lived intangibles
was recognized in the accompanying consolidated statements of operations for 2002,
compared to $12.7 million for 2001. At September 30, 2002 the Company calculated an
impairment to goodwill of $58.9 million, recorded in cumulative effect of
change in accounting principle in the amount of $41.5 million (net of $17.4
million in income taxes).

Income
(Loss) From Discontinued Operations. Loss from discontinued operations was $0.1 million
for 2002, as compared to income from discontinued operations of $5.7 million for 2001.
This $5.8 million decrease in income from discontinued operations was primarily due to
reduced operating revenues from discontinued operations of $6.3 million, offset by an
increase in expenses from discontinued operations of $0.5 million.

Net
Income (Loss). The Company generated a net loss of $76.5 million for 2002, as a result of
the factors described above compared to a net loss of $63.6 million for 2001.

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
fiscal 2003, operations used $28.8 million of cash flow compared to operations providing
$48.7 million for fiscal 2002. The increase in cash used in operating activities is
primarily attributable to an increase in restricted cash, other assets, rental
merchandise, cash used in discontinued operations and loss from discontinued operations.
The $10.0 million increase in restricted cash relates to the Companys funding of its portion
of the settlement of the shareholder class action into escrow. The $24.4 million increase
in rental merchandise during fiscal 2003 is a result of a planned increase in store
inventory levels to fuel the agreement growth achieved in fiscal 2003 and anticipated for
fiscal 2004. The $3.2 million increase in rental merchandise deposits and credits due from
vendors during fiscal 2003 is related to a jewelry return program. The Company returned
jewelry with a value exceeding $4.0 million to the vendor for cash and credits to be
applied to future purchases. The income tax receivable is subject to an IRS joint
committee of taxation audit, which was completed in the first quarter of fiscal 2004. The
$15.8 million increase in other assets during fiscal 2003 is attributable to an $11.0
million receivable from insurance proceeds related to the settlement of the class action
lawsuit and a $4.5 million receivable from Rent-A-Center holdback. The change in other
liabilities was the result of a $25.0 million liability recorded for the settlement of the
class action lawsuit, and a $3.6 million increase in vacant facility lease obligations,
offset by payments of interest accruals from the re-financing totaling $7.1 million, an
increase in the interest rate swap market value of $4.6 million, $1.8 million reversal of
a rental merchandise reserve and a $4.6 million reduction to the vehicle capital lease
obligation resulting from the sale of vehicles remaining from the Rent-A-Center sale.
Portions of interest accrual payments and vacant facility lease obligations are shown as
cash used in discontinued operations. Cash used in discontinued operations of $8.9 million
relates to transitional payroll and operating expenses for the stores sold to
Rent-A-Center. The loss from discontinued operations was $15.8 million, which relates to
the operating loss from the 295 stores sold to Rent-A-Center, lease obligations and
interest expense. These uses of cash are partially offset by an increase in accounts
payable of $10.2 million related to an increase in rental merchandise purchases in the
fourth quarter year over year.

Net
cash provided by investing activities was $87.2 million for 2003, compared to $10.3
million used in investing activities for 2002. On February 8, 2003, the Company sold 295
stores to Rent-A-Center for net proceeds of $100.4 million. Of the $100.4 million, $10.0
million was being held back by Rent-A-Center to secure the Companys indemnification
obligations; $5.0 million for 90 days following the closing, which the Company received,
and $5.0 million for 18 months following the closing. In fiscal 2003, the purchase of
property and equipment accounted for $9.6 million. In fiscal 2002 period, the purchase of
property and equipment accounted for $11.4 million.

For
fiscal 2003, financing activities used $62.4 million as compared to $41.6 million in 2002.
In fiscal 2003, the Company borrowed $667.4 million and repaid $730.1 million. This net
repayment resulted from the sale proceeds following the sale of the 295 stores to
Rent-A-Center. In fiscal 2002, the borrowings were $664.0 million and repayments were
$693.4 million. The Company incurred $8.6 million and $2.9 million in deferred financing
costs during fiscal fiscal 2003 and 2002, respectively. The Company received net proceeds
from the sale of the convertible preferred stock in fiscal 2003 of $14.1 million.

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.

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 additional notes) remains outstanding.

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 $0.01 million for 2003. Costs representing underwriting fees and other
professional fees of $6.9 million are being amortized, using the straight-line 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.

Under
the indenture for the secured notes, if the Company (a) has any excess cash flow or
amounts on deposit in the excess cash flow collateral account, (b) has a leverage ratio
equal to or greater than 2.50 to 1.00 or a rent-adjusted leverage ratio equal or greater
than 4.00 to 1.00, and (c) has cash and cash equivalents of more than $10.0 million, the
Company must repay debt (if any) outstanding under the revolving credit facility in an
amount equal to the remainder (if positive) of (1) the amount of such cash and cash
equivalents minus (2) the sum of $10.0 million plus such excess cash flow. Thereafter, if
the Company (a) has any excess cash flow with respect to such fiscal year plus amounts on
deposit in the excess cash flow collateral account of at least $1.0 million in the
aggregate and (b) the coverage ratio is equal to or greater than 2.50 to 1.00 or the
rent-adjusted leverage ratio is equal to or greater than 4.00 to 1.00, then the Company
either must use the excess cash flow plus such amounts on deposit to repay debt (if any)
outstanding under the revolving credit facility or, subject to limitations, must use 75%
of any excess cash flow plus such amounts on deposit remaining after repayment of debt
outstanding under the revolving credit facility to make an offer to purchase notes at a
purchase price equal to 104.25% of the aggregate principal amount thereof, plus accrued
and unpaid interest to the purchase date. The Company must deposit in the excess cash flow
collateral account all of the portion of the 75% of such remaining excess cash flow not
used to purchase notes. The Company may use 25% of the excess cash flow remaining with
respect to such fiscal year after repayment of debt outstanding under the revolving credit
facility. All of the Companys obligations to use excess cash flow as described above
terminate upon the first fiscal year end of the Company at which both (a) the leverage
ratio is less than 2.50 to 1.00 and (b) the rent-adjusted leverage ratio is less than 4.00
to 1.00. Under the indenture, excess cash flow means for any fiscal year,
EBITDA for the Company and its consolidated restricted subsidiaries for such year,
adjusted for certain items. Excess cash collateral account is an account
maintained by the collateral agent in which the Company deposits all of the portion of the
75% of the excess cash flow remaining after payment of debt outstanding under the
revolving credit facility. The Company is in compliance with all covenants at September
30, 2003, and will be able to comply with covenants based upon its fiscal 2004
projections.

The
Companys Series A convertible preferred stock has the following material terms. The
preferred stock bears dividends at a rate per annum of eight percent of stated value,
payable at the Companys option either in cash or, under specified circumstances,
shares of common stock. The preferred stock matures June 2, 2011 and is convertible into
shares of common stock at any time at the option of the holders. The initial conversion
price of the preferred stock is $6.00 per share, subject to anti-dilution and other
adjustments that could result in the issuance of additional shares of common stock. If
several conditions are met, the preferred stock will be redeemable at the Companys
option at its stated value plus accumulated but unpaid dividends after June 2, 2008. The
holders may require the Company to repurchase the preferred stock at its stated value plus
accumulated but unpaid dividends at any time after the six-month anniversary of the date
when none of the secured notes and no indebtedness under the new revolving credit facility
is outstanding. The holders may also require the Company to repurchase the preferred stock
at a premium, subject to the restricted payment limitations imposed by the indenture for
the notes, and require any unredeemed preferred stock to accrue dividends at 15.0% per
annum, upon the failure of the common stock to be listed on the NYSE or the NASDAQ
National Market or upon a change of control. The Company has the right to repurchase the
preferred stock at a premium upon a change of control. In the event the Company fails to
redeem the preferred stock on notice from the investors, or to convert the preferred stock
on a timely basis, in whole or in part, when required, the holders have the option of
voiding the related redemption or conversion notice and receiving a downward adjustment,
if appropriate, to then applicable conversion price based on the weighted average trading
price of common stock in the periods prior to the voiding of the notice. The holders 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 11 to the
Companys consolidated financial statements set forth at Item 8 of this report for
more information regarding the convertible preferred stock.

The
Companys new 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 $60.0 million including a
$15.0 million sublimit for standby and commercial letters of credit and a $5.0 million
swing line sublimit. The credit facility will expire five years from closing (June 2,
2008). The credit facility is guaranteed by all of the wholly owned domestic subsidiaries
and secured 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
financial covenants required under the credit facility are as follows:

| | The
leverage ratio is total funded debt less an amount on deposit in excess cash flow escrow
account to EBITDA for the four fiscal quarters then ended. The leverage ratio cannot
exceed 5.00 to 1.00 through March 31, 2004, 4.75 to 1.00 from April 1, 2004 though June
30, 2004, 4.50 to 1.00 from July 1, 2004 through September 30, 2004, 4.00 to 1.00 from
October 1, 2004 through September 30, 2005, 3.75 to 1.00 from October 1, 2005 though
September 30, 2006, 3.25 to 1.00 from October 1, 2006 through September 30, 2007, 2.75 to
1.00 from October 1, 2007 thereafter.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
fixed charge coverage ratio is EBITDA for the four fiscal quarters then ended less
capital expenditures not financed by capital leases to fixed charges for the same four
fiscal quarters then ended. EBITDA does not include depreciation of rental merchandise
and is adjusted for one-time non-cash charges. Fixed charges are the sum of all principal
payments made on indebtedness, but excluding payments on revolving credit, plus interest
expense, restricted payments, all prepayments on senior notes and income taxes paid or
payable. The fixed charge coverage ratio cannot be less 1.20 to 1.00 from October 1, 2003
through March 31, 2004 and 1.25 to 1.00 from April 1, 2004 through June 2, 2008.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company cannot allow the book value of rental merchandise under lease to be less than 74%
of the total value of rental merchandise held for rent at the end of each calendar month
ending September 30, October 31 and November 30 in each fiscal year and 77% for all other
calendar months in each fiscal year. The value of jewelry cannot exceed 7.5% of the total
value of rental merchandise as measured at the end of each calendar month commencing June
30, 2003.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company cannot incur capital expenditures in an amount in excess of $20.0 million in the
aggregate during any fiscal year. The $20.0 million maximum is increased for the unused
permitted amount in any preceding year, not to exceed $22.5 million in any fiscal year.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Consolidated
net worth shall not be less than $85.0 million plus 75% of positive net income with no
deduction for losses (for each quarter of each fiscal year ending on or after September
30, 2003), and 90% of any subsequent incremental issuance of new equity securities, other
than equities issues in connection with the exercise of employee stock options and
capital stock issued to the seller of an acquired business in connection with a permitted
acquisition.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
Company cannot permit EBITDA for the twelve consecutive calendar months then ended to be
less than:

|For the month ending:            | Minimum EBITDA:
|-------------------------------- | ---------------
|June 2003                        |                
|July 2003                        |                
|August2003                       |                
|September 2003                   |                
|October 2003                     |                
|November 2003                    |                
|December 2003                    |                
|January 2004                     |                
|February 2004                    |                
|March 2004                       |                
|April 2004                       |                
|May 2004                         |                
|June 2004                        |                
|July 2004                        |                
|August 2004                      |                
|September 2004                   |                
|October 2004                     |                
|November 2004                    |                
|December 2004                    |                
|January 2005                     |                
|February 2005                    |                
|March 2005                       |                
|April 2005 through February 2006 |                
|March 2006 through December 2006 |                
|January 2007 and thereafter      |                

The
Company is in compliance with all covenants at September 30, 2003, and expects be able to
comply with covenants based upon its fiscal 2004 projections.

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 have 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. The Company also agreed to issue
warrants to purchase additional shares of common stock to the investors if the Company
failed to achieve aggregate EBITDA of $80.0 million or more for the 12-month period
commencing on April 1, 2002. The warrant exercise price per share was based upon the
EBITDA for such period. The Company did not meet this EBITDA target and issued 332,999
additional warrants at an exercise price per share of $1.50 in April 2003, which were
subsequently exercised for cash of $0.5 million in June 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 September 30, 2003:

|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)                               |       |                           | $                | 214,521          |                  
|Capital lease obligations              |       |                           |                  | 12,303           |                  
|Operating leases                       |       |                           |                  | 141,335          |                  
|Notes payable                          |       |                           |                  | 71               |                  
|Settlement of class action lawsuit (2) |       |                           |                  | 14,000           |                  
|                                       |       |                           |                  |                  |                  
|Total cash obligations                 |       |                           | $                | 382,230          |                  
|                                       |       |                           |                  |                  |                  

*Excludes the 401(k) restorative
payments program as well as contingent liabilities that cannot be estimated (See Notes 19
and 14, respectively).

|(1) | Consists of senior secured notes, net of discount, and outstanding revolving
                    loans. (2) Net of insurance proceeds funded by the insurance carrier.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                             | Amount of Commitment Expiration Per Period
|---------------------------- | ------------------------------------------
|
|Lines of credit              |                                           
|Standby letters of credit    |                                           
|Guarantees                   |                                           
|                             |                                           
|Total commercial commitments |                                           
|                             |                                           

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. 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 year ended September 30, 2003, the costs of rental merchandise, store lease
rental expense and salaries and wages 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 Financial Accounting Standards Board (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 mandatorily redeemable non-controlling interests with finite-lived subsidiaries.

On
April 30, 2003, FASB issued Statement of Financial Accounting Standards No. 149,
Amendment of Statement 133 on Derivative Instruments and Hedging Activities
(SFAS 149). SFAS 149 improves financial reporting by requiring that contracts
with comparable characteristics be accounted for similarly. SFAS 149 clarifies 1) the
circumstances in which a contract with an initial net investment meets the characteristics
of a derivative, 2) when a derivative contains a financing component and amends certain
other existing pronouncements. This Statement is effective for contracts entered into or
modified after June 30, 2003. The Company has adopted the provisions of this Statement.

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 October 9, 2003. The Company has no variable interest
entities that are not currently consolidated.

On
November 25, 2002, the FASB issued FIN 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, An Interpretation of FASB Statements No. 5, 57 and 107 and Rescission of FASB
Interpretation No.34". The Interpretation requires that upon issuance of a guarantee,
the entity must recognize a liability for the fair value of the obligation it assumes
under that obligation. The Company has evaluated the provisions of this Interpretation and
determined it did not have an impact on these financial statements upon its adoption.

ITEM 7A.  QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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
September 30, 2003, the Company had swap agreements with total notional principal amounts
of $101.4 million, which effectively fixed the interest rate on obligations in the
notional amount of $13.0 million of debt under the $60.0 million revolving credit
facility. The swap agreements lock in a LIBOR rate ranging from 5.09% to 6.97% and have
maturities ranging from 2003 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 $5.1 million at September
30, 2003. A 1% adverse change in the interest rates on variable rate obligations would
affect pre-tax earnings by approximately $0.9 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 $13.0 million was outstanding at September 30, 2003. The Company will
reduce its interest rate swap position as they mature through August 2005 because of the
current cost to terminate those agreements.

---

ITEM 8.  FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA

|                                                             | PAGE
|------------------------------------------------------------ | ----
|
|Report of Independent Auditors                               |     
|Financial Statements:                                        |     
|Consolidated Balance Sheets, Years Ended                     |     
|September 30, 2003 and 2002                                  |     
|Consolidated Statements of Operations, Years Ended           |     
|September 30, 2003, 2002, 2001                               |     
|Consolidated Statements of Shareholders' Equity, Years Ended |     
|September 30, 2003, 2002, 2001                               |     
|Consolidated Statements of Cash Flows, Years Ended           |     
|September 30, 2003, 2002, 2001                               |     
|Notes to Consolidated Financial Statements                   |     

---

RENT-WAY, INC.

REPORT OF INDEPENDENT
AUDITORS

TO THE BOARD OF DIRECTORS AND
SHAREHOLDERS OF RENT-WAY, INC.:

In
our opinion, the consolidated financial statements listed in the index appearing under
Item 15(a)(1) on page 58 present fairly, in all material respects, the financial position
of Rent-Way, Inc. and its subsidiaries at September 30, 2003 and 2002, and the results of
their operations and their cash flows for each of the three years in the period ended
September 30, 2003 in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of the
Companys management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United States of America, which require
that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

As
discussed in Note 2 to the consolidated financial statements, the Company adopted
Statement of Financial Accounting Standards No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, effective October 1, 2002, as discussed in Note 5
to the consolidated financial statements, the Company adopted Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets effective
October 1, 2001, and as discussed in Note 12 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities, effective October 1, 2000.

PricewaterhouseCoopers LLP

Cleveland, OhioNovember
19, 2003

---

RENT-WAY, INC.

CONSOLIDATED BALANCE
SHEETS

(all dollars in
thousands, except per share and share data)

|                                                                       | September 30,
|---------------------------------------------------------------------- | -------------
|
|ASSETS                                                                 |              
|Cash and cash equivalents                                              |              
|Restricted cash (Note 1)                                               |              
|Prepaid expenses                                                       |              
|Income tax receivable                                                  |              
|Rental merchandise, net (Note 6)                                       |              
|Rental merchandise credits due from vendors (Note 7)                   |              
|Deferred income taxes, net of valuation allowance of                   |              
|$73,095 and $65,862, respectively (Note 15)                            |              
|Property and equipment, net (Note 6)                                   |              
|Goodwill (Note 5)                                                      |              
|Deferred financing costs, net of accumulated amortization of $457 and  |              
|$1,816, respectively                                                   |              
|Intangible assets, net of accumulated amortization of $5,342 and       |              
|$3,981, respectively (Note 5)                                          |              
|Other assets (Note 8)                                                  |              
|Assets held for sale (Note 2)                                          |              
|                                                                       |              
|Total assets                                                           |              
|                                                                       |              
|LIABILITIES AND SHAREHOLDERS' EQUITY                                   |              
|Liabilities:                                                           |              
|Accounts payable                                                       |              
|Liabilities related to assets held for sale (Note 2)                   |              
|Other liabilities (Note 9)                                             |              
|Deferred tax liability (Note 16)                                       |              
|Debt (Note 10)                                                         |              
|                                                                       |              
|Total liabilities                                                      |              
|Contingencies (Note 14)                                                |              
|Convertible redeemable preferred stock (Note 11)                       |              
|Shareholders' equity:                                                  |              
|Preferred stock, without par value; 1,000,000 shares authorized; 1,500 |              
|and 0 shares were issued and outstanding as Series A convertible       |              
|preferred shares at September 30, 2003 and 2002, respectively          |              
|Common stock, without par value; 50,000,000 shares authorized;         |              
|26,022,037 and 25,685,538 shares issued and outstanding, respectively  |              
|                                                                       |              
|Common stock warrants; 100,000 outstanding                             |              
|Option to purchase convertible preferred stock                         |              
|Loans to shareholders                                                  |              
|Accumulated other comprehensive income (loss)                          |              
|Retained earnings (accumulated deficit)                                |              
|                                                                       |              
|Total shareholders' equity                                             |              
|                                                                       |              
|Total liabilities and shareholders' equity                             |              
|                                                                       |              

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

RENT-WAY, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

(all dollars in
thousands, except per share data)

|                                                       | For the Years Ended September 30,
|------------------------------------------------------ | ---------------------------------
|
|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 (loss)                                |                                  
|OTHER INCOME (EXPENSE):                                |                                  
|Settlement of class action lawsuit                     |                                  
|Interest expense                                       |                                  
|Interest income                                        |                                  
|Amortization and write-off of deferred financing costs |                                  
|Other income (expense), net                            |                                  
|                                                       |                                  
|Loss before income taxes, cumulative effect of change  |                                  
|in accounting principle and discontinued operations    |                                  
|Income tax expense                                     |                                  
|                                                       |                                  
|Loss before cumulative effect of change in accounting  |                                  
|principle and discontinued operations                  |                                  
|Cumulative effect of change in accounting principle    |                                  
|Income (loss) from discontinued operations             |                                  
|                                                       |                                  
|Net loss                                               |                                  
|                                                       |                                  
|Amortization of deemed dividend and accretion of       |                                  
|preferred stock                                        |                                  
|                                                       |                                  
|Net loss allocable to common shareholders              |                                  
|                                                       |                                  
|LOSS PER COMMON SHARE:                                 |                                  
|Basic loss per common share:                           |                                  
|Loss before cumulative effect of change in             |                                  
|accounting principle and discontinued operations       |                                  
|                                                       |                                  
|Net loss allocable to common shareholders              |                                  
|                                                       |                                  
|Diluted loss per common share:                         |                                  
|Loss before cumulative effect of change in             |                                  
|accounting principle and discontinued operations       |                                  
|                                                       |                                  
|Net loss allocable to common shareholders              |                                  
|                                                       |                                  
|Weighted average number of shares outstanding:         |                                  
|Basic                                                  |                                  
|                                                       |                                  
|Diluted                                                |                                  
|                                                       |                                  

The accompanying
notes are an integral part of these financial statements

---

RENT-WAY, INC.

CONSOLIDATED STATEMENTS
OF SHAREHOLDERS EQUITY

FOR THE YEARS ENDED
SEPTEMBER 30, 2003, 2002 AND 2001

(all dollars and shares
in thousands)

|                                                  | Common Stock | Common Stock Warrants | Option to Purchase |        | Accumulated
Other | Other | Retained Earnings | Total
|------------------------------------------------- | ------------ | --------------------- | ------------------ | ------ | ----------------- | ----- | ----------------- | -----
|
|Balance at September 30, 2000                     |              |                       |                    | 24,459 |                   | $     | 295,185           |      
|                                                  |              |                       |                    |        |                   |       |                   |      
|Net loss                                          |              |                       |                    | --     |                   |       | --                |      
|Issuance of common stock to 401(k) plan (Note 19) |              |                       |                    | 45     |                   |       | 299               |      
|Issuance of common stock under stock option plans |              |                      
|including tax benefit (Note 17)                   |              |                       |                    | 6      |                   |       | 126               |      
|Recording of swap transitional asset (Note 12)    |              |                       |                    | --     |                   |       | --                |      
|Amortization of swap transitional asset (Note 1)  |              |                       |                    | --     |                   |       | --                |      
|Issuance of loans to directors to exercise stock  |              |                      
|options (Note 16)                                 |              |                       |                    | --     |                   |       | --                |      
|Payment of loans by directors (Note 16)           |              |                       |                    | --     |                   |       | --                |      
|Interest on loans to directors (Note 16)          |              |                       |                    | --     |                   |       | --                |      
|Total comprehensive income (loss)                 |              |                       |                    | --     |                   |       | --                |      
|                                                  |              |                       |                    |        |                   |       |                   |      
|Balance at September 30, 2001                     |              |                       |                    | 24,510 |                   |       | 295,610           |      
|                                                  |              |                       |                    |        |                   |       |                   |      
|Net loss                                          |              |                       |                    | --     |                   |       | --                |      
|Amortization of transitional asset (Note 12)      |              |                       |                    | --     |                   |       | --                |      
|Issuance of common stock under stock option plans |              |                      
|including tax benefit (Note 17)                   |              |                       |                    | 62     |                   |       | 251               |      
|Issuance of common stock to Calm Waters           |              |                      
|Partnership (Note 18)                             |              |                       |                    | 1,000  |                   |       | 5,356             |      
|Issuance of stock warrants to Calm Waters         |              |                      
|Partnership (Note 18)                             |              |                       |                    | --     |                   |       | --                |      
|Option to purchase convertible preferred stock    |              |                       |                    | 114    |                   |       | 1,107             |      
|Costs associated to private placement of          |              |                      
|securities                                        |              |                       |                    | --     |                   |       | (106              | )    
|Payment of loans by directors (Note 16)           |              |                       |                    | --     |                   |       | --                |      
|Interest on loans to directors (Note 16)          |              |                       |                    | --     |                   |       | --                |      
|Total comprehensive income (loss)                 |              |                       |                    | --     |                   |       | --                |      
|                                                  |              |                       |                    |        |                   |       |                   |      
|                                                  |              |                       |                    |        |                   |       |                   |      
|Balance at September 30, 2002                     |              |                       |                    | 25,686 |                   |       | 302,218           |      
|                                                  |              |                       |                    |        |                   |       |                   |      
|Net loss                                          |              |                       |                    | --     |                   |       | --                |      
|Amortization of transitional asset (Note 12)      |              |                       |                    | --     |                   |       | --                |      
|Issuance of common stock under stock option plans |              |                      
|including tax benefit (Note 17)                   |              |                       |                    | 3      |                   |       | 14                |      
|Issuance of common stock to Calm Waters           |              |                      
|Partnership (Note 18)                             |              |                       |                    | 333    |                   |       | 500               |      
|Option to purchase convertible preferred stock    |              |                       |                    | --     |                   |       | --                |      
|Revaluation of stock warrants (Note18)            |              |                       |                    | --     |                   |       | 488               |      
|Payment of loans by directors (Note 16)           |              |                       |                    | --     |                   |       | --                |      
|Interest on loans to directors (Note 16)          |              |                       |                    | --     |                   |       | --                |      
|Amortization of deemed dividend                   |              |                       |                    | --     |                   |       | --                |      
|Accretion of preferred stock                      |              |                       |                    | --     |                   |       | --                |      
|Total comprehensive income (loss)                 |              |                       |                    | --     |                   |       | --                |      
|                                                  |              |                       |                    |        |                   |       |                   |      
|Balance at September 30, 2003                     |              |                       |                    | 26,022 |                   | $     | 303,220           |      
|                                                  |              |                       |                    |        |                   |       |                   |      

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

---

RENT-WAY, INC.

CONSOLIDATED STATEMENTS
OF CASH FLOWS

(all dollars in
thousands, except share and per share data)

|                                                          | For the Years Ended September 30,
|--------------------------------------------------------- | ---------------------------------
|
|OPERATING ACTIVITIES:                                     |                                  
|Net loss                                                  |                                  
|Adjustments to reconcile net loss to net cash provided by |                                  
|(used in) operating activities:                           |                                  
|(Income) loss from discontinued operations                |                                  
|Depreciation and amortization                             |                                  
|Deferred income taxes                                     |                                  
|Write-off of deferred financing costs                     |                                  
|Goodwill impairment                                       |                                  
|Market adjustment for interest rate swap derivative       |                                  
|Market adjustment for preferred stock conversion option   |                                  
|derivative                                                |                                  
|Issuance of common stock to 401(k) plan                   |                                  
|Write-off of property and equipment                       |                                  
|Gain on sale of assets                                    |                                  
|Changes in assets and liabilities:                        |                                  
|Increase in 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 provided by (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 capital leases                                |                                  
|Book overdraft                                            |                                  
|Proceeds from convertible preferred stock                 |                                  
|Deferred financing costs                                  |                                  
|Issuance of common stock                                  |                                  
|Dividends paid                                            |                                  
|Loans to shareholders                                     |                                  
|Interest on shareholder loans                             |                                  
|Payment of loans by directors/shareholders                |                                  
|                                                          |                                  
|Net cash used in financing activities                     |                                  
|                                                          |                                  
|Decrease in cash and cash equivalents                     |                                  
|Cash and cash equivalents at beginning of year            |                                  
|                                                          |                                  
|Cash and cash equivalents at end of year                  |                                  
|                                                          |                                  

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

RENT-WAY, INC.

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (all dollars in
thousands, except share and per share data)

1.    
          SUMMARY OF SIGNIFICANT 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. Commencing January 1, 2000, 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 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.

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 the class action, entered into on April 18, 2003. The settlement
requires the Company to pay $25,000 to the class. The $25,000 payment consists 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 is to be funded from available insurance
proceeds. The remaining $10,000, which has been funded into escrow, has been reflected as
restricted cash on the Consolidated Balance Sheet at September 30, 2003 (see Note 14).

RENTAL
MERCHANDISE, RENTAL REVENUE AND DEPRECIATION. 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. Rental revenue is
recognized as collected, 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 was recognized over the weekly, biweekly, semi-monthly or monthly
rental term. At the end of each rental period, the customer can renew the rental
agreement.

Merchandise
rented to customers or available for rent is classified in the consolidated balance
sheet as rental merchandise and is valued at cost on a specific identification
method. Write-offs of rental merchandise arising from customers failure to
return merchandise and losses due to excessive wear and tear of merchandise are
recognized using the direct write-off method, which is materially consistent with the
results that would be recognized under the allowance method.

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. This rental merchandise is not depreciated during periods when
it is not on rent and therefore not generating rental revenue. Computers, added to
the Companys product line in June 1999, are principally depreciated on
the straight-line basis over 12 months to 24 months, depending on the type
of computer. Computer games are depreciated on the straight-line basis over 12 months.

VOLUME
REBATES. The Company participates in volume rebate programs with some of its rental
merchandise suppliers. On an annual basis, management calculates the amount of the
rebate and submits a request for payment. Upon receipt of the rebate, the Company
records deferred income. The rebate is amortized on a straight-line basis over 18 to
20 months, the average life of the underlying rental merchandise, commencing on the
date cash is received and is recorded as an offset to rental merchandise depreciation
expense.

PREPAID
PHONE SERVICE. Prepaid phone service is provided to customers on a 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 Statement of Operations.
Activation revenues and costs are recognized on a straight-line basis over the
estimated average life of the customer relationship.

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 classified as
option to purchase convertible preferred stock included in permanent equity (see Note 11).

OTHER
REVENUE. Other revenue includes revenue from various services and charges to rental
customers, including late fees, liability waiver fees, processing fees, sales of used
merchandise and preferred Customer Club membership fees. Other revenue is

recognized
as collected. This method of revenue recognition does not produce materially
different results than if other revenue was recognized when earned.

COMPREHENSIVE
INCOME (LOSS). Comprehensive income (loss) encompasses net income and changes in the
components of accumulated other comprehensive income not reflected in the
Companys Consolidated Statements of Operations during the periods presented.
Accumulated other comprehensive income (loss) consists of the transition asset
recorded at the time of adoption of SFAS No. 133.

STATEMENT
OF CASH FLOWS INFORMATION. Cash and cash equivalents consist of cash on hand and on
deposit and 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 years ended September 30, 2003, 2002, and
2001, are as follows:

|                                                    | Year Ended September 30,
|--------------------------------------------------- | ------------------------
|
|CASH PAID (RECEIVED) DURING THE YEAR FOR:           |                         
|Interest                                            |                         
|Income taxes (refunds)                              |                         
|NONCASH INVESTING ACTIVITIES:                       |                         
|Assets acquired under capital lease (Note 14)       |                         
|NONCASH FINANCING ACTIVITIES:                       |                         
|Issuances of common stock to 401(k) plans (Note 19) |                         
|Dividends                                           |                         

At September 30, 2003 and 2002, book
overdrafts of $2,703 and $306, respectively, were included in accounts payable in the
accompanying Consolidated Balance Sheets.

PROPERTY
AND EQUIPMENT AND RELATED DEPRECIATION AND AMORTIZATION. Property and equipment are
stated at cost. Additions and improvements that significantly extend the lives of
depreciable assets are capitalized. Upon sale or other retirement of depreciable
property, the cost and accumulated depreciation are removed from the related accounts
and any gain or loss is reflected in the results of operations. The Companys
corporate headquarters and other buildings are depreciated over periods ranging from
20 to 40 years on a straight-line basis. Depreciation of furniture and fixtures,
signs and vehicles is provided over the estimated useful lives of the respective
assets (three to five years) on a straight-line or an accelerated basis. Leasehold
improvements are amortized over the shorter of the useful life of the asset or the
effective term of the lease. Property under capital leases is amortized over the
respective lease term on a straight-line basis (see Note 14). The Company incurs
repairs and maintenance costs and costs for signage applied to its owned and
leased vehicles. The Company has determined that the cost to account for
capitalization of certain of these costs is not cost beneficial.

The
Company reviews the recoverability of the carrying value of long-term assets using an
undiscounted cash flow method. The Company performed a detailed analysis of its
property and equipment, and as a result of this analysis, the Company has written-off
through an adjustment to other operating expenses, property and equipment of $4,415
for the year ended September 30, 2001. During fiscal 2003 and 2002, the Company
believes that no additional impairment of long-lived assets has occurred, and that no
reduction of the estimated useful lives is warranted other than the write-offs that
occur in the normal course of business.

INCOME
TAXES. Deferred income taxes are recorded to reflect the tax consequences on future
years of differences between the tax and financial statement basis of assets and
liabilities at year end using income tax rates under existing legislation expected to
be in effect at the date such temporary differences are expected to reverse. A
valuation allowance is provided for deferred tax assets if it is more likely than not
that these items will expire before the Company is able to realize their benefit, or
that future deductibility is uncertain. Deferred income taxes are adjusted for tax
rate changes as they occur.

GOODWILL.           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. 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 fiscal           years ended September 30, 2003 and 2002, compared to $13,986 of
amortization for           the year ended September 30, 2001. The Company calculated an
impairment           to goodwill of $58,935, recorded in Cumulative Effect of
Change           in Accounting Principle in the amount of $41,527 (net of
$17,408           in income taxes) for the fiscal year ended September 30, 2002 (see
Note 5).

INTANGIBLE
ASSETS. Customer contracts are stated at cost less amortization calculated on a
straight-line basis over 18 months. Product exclusivity agreements are stated at cost
less amortization calculated on a straight-line basis over 36 months. Deferred
financing costs are stated at cost less amortization calculated on a straight-line
basis over the term of the related debt agreements, which range from four to ten
years. Non-compete agreements and prepaid consulting fees are stated at cost less
amortization calculated on a straight-line basis over the terms of the related
agreements, which range from two to seven years.

ADVERTISING
EXPENSE. The Company incurs three types of advertising costs: production and
printing, distribution, consisting primarily of postage, and communication.
Advertising costs for production and printing are generally expensed when incurred.
Advertising costs for distribution, consisting primarily of postage, are expensed as
incurred over the period covered by the promotion. Cost of communicating is expensed as
the communication occurs as advertisements.

LEGAL
EXPENDITURES. Legal costs are recorded as incurred. The Companys experience with
outside legal counsel is that services rendered are billed within 30 days of the close of
the month the work was performed. Legal contingencies are recorded when they are estimable
and probable in accordance with SFAS 5, Accounting for Contingencies.

The
Company executed an interim agreement for reimbursement and advancement of defense costs
with its insurance carrier related to the shareholder class action lawsuit. The insurance
carrier reimburses the Company for claim defense costs, claim investigative costs, and
settlement costs incurred by the Company, its directors and officers. The Company offsets
current legal costs with reimbursements when they have been agreed in principle with the
insurance carrier.

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 $6,711 are amortized on a straight-line basis over the seven
year term of the bonds. The loan origination costs of $2,040 are amortized on a
straight-line basis over the five year bank credit agreement. Deferred financing cost
amortization was $1,918 and $1,395 for the years ended September 30, 2003 and 2002,
respectively. There was $1,143 of net deferred financing costs written off from the
previous credit facility charged to deferred financing costs amortization during June
2003.

COMPANY
INSURANCE PROGRAMS. For fiscal years 2003, 2002 and 2001, the Company is primarily
self-insured for health insurance. The self-insurance liability for health costs is
determined based on a contracted rate 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.

For
fiscal years 2003, 2002 and 2001, the self-insurance liability for workers
compensation, automobile and general liability costs are determined actuarially based
on claims filed and company experience. Losses in the workers compensation,
automobile and general liability programs are pre-funded based on the insurance
companys loss estimates. Loss estimates will be adjusted for developed incurred
losses at 18 months following policy inception and every 12 months thereafter.
Retrospective adjustments to loss estimates are recorded when determinable and
probable. For fiscal years 2000 and 1998, the Company was insured under deductible
programs with aggregate stop loss coverage on major claims. Claims exceeding the insured
deductible limits that were less than stop loss aggregates, were funded as claims
developed using AM Best loss development factors and not exceeding policy aggregate. The
fiscal 1999 workers compensation insurance had no aggregate retention and was funded
as claims developed using AM Best loss development factors. Reserves were developed by
independent actuaries and totaled $1,500 and $2,300 at September 30, 2003 and
2002, respectively.

LOSS
PER COMMON SHARE. Basic loss per common share is computed using losses allocable to
common shareholders divided by the weighted average number of common shares
outstanding. Diluted loss per common share is computed using losses allocable to
common shareholders adjusted for anticipated interest savings, net of related taxes, for
convertible subordinated notes and debentures, convert derivative market value
adjustment, and the weighted average number of shares outstanding is adjusted for the
potential impact of options, warrants and convertible subordinated notes and
debentures where the effects are dilutive.

FAIR
VALUE DISCLOSURE. Fair values of the Companys interest rate swap agreements have
been determined from information obtained from independent third parties. Fair values
of other assets and liabilities including letters of credit, debt and accounts
payable are estimated to approximate their carrying values.

DERIVATIVE
FINANCIAL INSTRUMENTS. The Company uses derivative financial instruments to reduce
the impact on interest expense of fluctuations in interest rates on a portion of its
credit facility (see Notes 10 and 12). The Company does not enter into derivative
financial instruments for trading or speculative purposes.

STOCK-BASED
COMPENSATION. The Company accounts for stock based compensation issued to its employees
and directors in accordance with Accounting Principle Board No. 25 and has elected to
adopt the disclosure only provisions of SFAS 123 as amended by provisions of
SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure. SFAS 148 amends SFAS 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 compensation. In addition, SFAS
148 amends the disclosure requirements of SFAS 123 to require new permanent disclosure in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used in 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 2003, 2002 and 2001: expected volatility ranging from 47.41% to 99.98%,
risk-free interest rates between 2.87% and 6.81%, and an expected life of five and six
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 Year Ended September 30,
|---------------------------------------------- | --------------------------------
|
|Net loss before cumulative effect of change in |                                 
|accounting principle and discontinued          |                                 
|operations:                                    |                                 
|As reported                                    |                                 
|Pro-forma                                      |                                 
|Net loss:                                      |                                 
|As reported                                    |                                 
|Pro-forma                                      |                                 
|Diluted loss per common share:                 |                                 
|Net loss before cumulative effect of change in |                                 
|accounting principle and discontinued          |                                 
|operations:                                    |                                 
|As reported                                    |                                 
|                                              
|Pro-forma                                      |                                 
|                                              
|Net loss                                       |                                 
|As reported                                    |                                 
|                                              
|Pro-forma                                      |                                 
|                                              

---

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).

RECLASSIFICATIONS.           Certain
amounts in the September 30, 2001 and 2002 consolidated financial
          statements were reclassified to conform to the September 30, 2003
          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 are 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 being 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 to record at the 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 include 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 is required to be repaid as a result of the
disposal transaction is 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 income (loss) from discontinued operations is $3,036, $8,587
and $5,951 for the periods ended September 30, 2003, 2002 and 2001, respectively. Revenues
and net income (loss) from the discontinued operations were as follows:

|                                               | Year Ended September 30,
|---------------------------------------------- | ------------------------
|
|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 (2)           |                         
|Loss on sale of stores                         |                         
|Interest expense                               |                         
|Income tax benefit                             |                         
|                                               |                         
|Net income (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.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | The reserve for future lease payments on vacated stores relates to the 170
               stores for which Rent-A-Center, Inc. did not assume the leases. These costs are
               associated with the exit activity related to the sale of the 295 stores to
               Rent-A-Center, Inc., and are recorded in accordance with SFAS 146.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Assets
and liabilities of the stores held for sale included in the Consolidated Balance Sheet are
as follows:

|                            | Year Ended September 30,
|--------------------------- | ------------------------
|
|Assets:                     |                         
|Rental Merchandise, net     |                         
|Goodwill                    |                         
|Property and equipment, net |                         
|Costs of sale               |                         
|Utility Deposits            |                         
|                            |                         
|                            |                         
|                            |                         
|Liabilities:                |                         
|Vehicle lease obligation    |                         
|Customer deposits           |                         
|                            |                         
|                            |                         
|                            |                         

Property
and equipment held for sale was comprised of the following:

|                            | Year Ended September 30,
|--------------------------- | ------------------------
|
|Leasehold improvements      |                         
|Computer equipment          |                         
|Furniture and fixtures      |                         
|Vehicles                    |                         
|Accumulated depreciation    |                         
|                            |                         
|Property and equipment, net |                         
|                            |                         

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, net of sublease revenue, 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 charged to income were as follows:

|                               | Fixed Asset
Write-Offs | Lease
Termination Costs | Total
|------------------------------ | ---------------------- | ----------------------- | -----
|Balance at September 30, 2000  |                        |                         | $    
|Fiscal 2001 Provision          |                        |                         |      
|Amount utilized in fiscal 2001 |                        |                         |      
|                               |                        |                         |      
|Balance at September 30, 2001  |                        |                         |      
|                               |                        |                         |      
|Fiscal 2002 Provision          |                        |                         |      
|Amount utilized in fiscal 2002 |                        |                         |      
|                               |                        |                         |      
|Balance at September 30, 2002  |                        |                         |      
|                               |                        |                         |      
|Fiscal 2003 Provision          |                        |                         |      
|Amount utilized in fiscal 2003 |                        |                         |      
|                               |                        |                         |      
|Balance at September 30, 2003  |                        |                         | $    
|                               |                        |                         |      

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. The restructuring costs for year ended September 30, 2003,
includes $981 of employee severance and termination benefits and $2,065 of fixed asset
write-offs, all of which were incurred in fiscal year 2003.

In
addition to lease termination costs incurred in normal operating activities summarized in
the table above, the Company incurred an additional lease obligation for the leases of the
170 stores that Rent-A-Center, Inc. did not assume in the sale. The total original gross
obligation was $13,491 on February 8, 2003 and was reduced for estimated sublease income
of $3,834 and further reduced by $1,286 to reflect the present value of that obligation in
accordance with Statement of Financial Accounting Standards No. 146, Accounting for
Costs Associated with Exit or Disposal Activities. At September 30, 2003, the net
obligation is $4,500.

4.    
          NEW ACCOUNTING STANDARDS:

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 mandatorily redeemable non-controlling
interests with finite-lived subsidiaries.

On
April 30, 2003, the FASB issued Statement of Financial Accounting Standards No. 149,
Amendment of Statement 133 on Derivative Instruments and Hedging Activities
(SFAS 149). SFAS 149 improves financial reporting by requiring that contracts
with comparable characteristics be accounted for similarly. SFAS 149 clarifies 1) the
circumstances in which a contract with an initial net investment meets the characteristics
of a derivative, 2) when a derivative contains a financing component and amends certain
other existing pronouncements. This Statement is effective for contracts entered into or
modified after June 30, 2003. The Company has adopted the provision of this Statement.

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 October 9, 2003. The Company has no variable interest
entities that are not currently consolidated.

On
November 25, 2002, the FASB issued FIN 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, An Interpretation of FASB Statements No. 5, 57 and 107 and Rescission of FASB
Interpretation No.34". The Interpretation requires than upon issuance of a guarantee,
the entity must recognize a liability for the fair value of the obligation it assumes
under that obligation. The Company has evaluated the provisions of this Interpretation and
determined it did not have an impact on these financial statements upon its adoption.

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 Consolidated Statements of Operations for fiscal years ended September
30, 2003 and 2002, compared to $13,986 for the year ended September 30, 2001.

In
accordance with the provisions of SFAS 142, the Company completed, with the
assistance of an independent valuation firm, phase one of the impairment test
consisting of a comparison of the fair value with the carrying amount for goodwill
and indefinite lived intangibles that existed on the Companys balance sheet at
the date of its adoption. Based upon its analysis from the phase one impairment test,
the Company identified indicators of possible impairment resulting from a reduction
of forecasted cash flows related to the household rental segment. The total
enterprise value, as determined by independent valuation experts, represents a
combination of the market multiple, discounted cash flow and comparable transaction
approaches.

During
the quarter ended September 30, 2002, the Company performed, with the assistance of
an independent valuation firm, the phase two impairment test of the carrying value to
determine the amount of the write down. This assessment resulted in an impairment
write-down of $58,935 recorded in Cumulative Effect of Change in
Accounting Principle in the amount of $41,527 (net of $17,408 in
income taxes). In accordance with the transitional implementation guidance of SFAS
142, the write down was recorded retroactive to the Companys first quarter
results of operations. A reconciliation of the previously reported net loss and loss
per share as if SFAS 142 had been adopted as of October 1, 2000, is presented as
follows:

|                                 | Year Ended September 30,
|-------------------------------- | ------------------------
|
|Reported net loss                |                         
|Add back:  Goodwill amortization |                         
|                                 |                         
|Adjusted net loss                |                         
|                                 |                         
|Basic loss per share             |                         
|Reported basic loss per share    |                         
|Goodwill amortization            |                         
|                                 |                         
|Adjusted basic loss per share    |                         
|                                 |                         
|Diluted loss per share:          |                         
|Reported diluted loss per share  |                         
|Goodwill amortization            |                         
|                                 |                         
|Adjusted diluted loss per share  |                         
|                                 |                         

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

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

The
following table reflects the components of amortizable intangible assets at September 30,
2003:

|                               | Purchase
Amount | Cumulative
Amortization | Net
Carrying
Amount
|------------------------------ | --------------- | ----------------------- | -------------------
|Amortizable intangible assets: |                 |                         |                    
|Non-compete agreements         |                 |                         | $                  
|Customer contracts             |                 |                         |                    
|Exclusivity agreement          |                 |                         |                    
|                               |                 |                         |                    
|                               |                 |                         | $                  
|                               |                 |                         |                    

At
September 30, 2003, future aggregate annual amortization of amortizable intangible assets
is as follows:

|Fiscal Year | Amount
|----------- | ------
|2004        |       
|2005        |       
|2006        |       
|2007        |       
|            |       
|            |       
|            |       

Amortization
expense of amortizable intangible assets for the year ended September 30, 2003, was
$1,361.

The
changes in the carrying amount of goodwill for the fiscal years ended September 30 were as
follows:

|                              | Household
Rental Segment | Prepaid Telephone
Service Segment | Total
|----------------------------- | ------------------------ | --------------------------------- | -----
|Balance of September 30,2000  |                          |                                   | $    
|Additions                     |                          |                                   |      
|Amortization                  |                          |                                   |      
|                              |                          |                                   |      
|Balance of September 30,2001  |                          |                                   |      
|Impairment                    |                          |                                   |      
|Other (1)                     |                          |                                   |      
|                              |                          |                                   |      
|Balance of September 30,2002  |                          |                                   |      
|Additions                     |                          |                                   |      
|Disposal (2)                  |                          |                                   |      
|                              |                          |                                   |      
|Balance of September 30, 2003 |                          |                                   | $    
|                              |                          |                                   |      

|(1) | Reversal of an income tax contingency established as a part of purchase
          accounting in prior years, which was determined to be no longer needed during
          the fourth quarter of 2002.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Disposal of 295 stores to Rent-A-Center on February 8, 2003. (3) Includes
          goodwill held for sale of $41,291
|--- | ---------------------------------------------------------------------------------------------------------------------

6.    
          RENTAL MERCHANDISE AND PROPERTY AND EQUIPMENT:

Cost
and accumulated depreciation of rental merchandise consists of the following:

|                                          | Year Ended September 30,
|----------------------------------------- | ------------------------
|
|Cost                                      |                         
|Less accumulated depreciation             |                         
|Less deferred credits                     |                         
|                                          |                         
|                                          |                         
|Less rental merchandise held for sale     |                         
|                                          |                         
|Rental merchandise, continuing operations |                         
|                                          |                         

The
Company uses a direct-ship policy from their vendors to the stores. As a result, the
Company has eliminated the need for internal warehousing and distribution. This policy
reduces the amount of rental merchandise not on rent. On-rent and held for rent levels of
net rental merchandise consists of the following:

|                          | Year Ended September 30,
|------------------------- | ------------------------
|
|On-rent merchandise       |                         
|Held for rent merchandise |                         
|                          |                         
|                          |                         
|                          |                         

The
Company uses the direct write-off method in accounting for losses (see Note 1). These
losses are recorded in other operating expenses and were incurred as follows:

|                                         | Year Ended September 30,
|---------------------------------------- | ------------------------
|
|Lost merchandise                         |                         
|Stolen merchandise                       |                         
|Discarded merchandise                    |                         
|                                         |                         
|                                         |                         
|Less losses included in discontinued     |                         
|operations                               |                         
|                                         |                         
|Losses included in continuing operations |                         
|                                         |                         

Property
and equipment consists of the following:

|                                               | Year Ended September 30,
|---------------------------------------------- | ------------------------
|
|Transportation equipment                       |                         
|Furniture and fixtures                         |                         
|Leasehold improvements                         |                         
|Signs                                          |                         
|Buildings                                      |                         
|Land                                           |                         
|                                               |                         
|                                               |                         
|Less accumulated depreciation and amortization |                         
|                                               |                         
|                                               |                         
|Less property and equipment held for sale      |                         
|Property and equipment, continuing operations  |                         
|                                               |                         

7.    
          RENTAL MERCHANDISE CREDITS DUE FROM VENDORS:

The
Company had credits due from vendors for the return of merchandise in the amount of
$4,156, $995, and $1,642 as of September 30, 2003, 2002 and 2001, respectively. The
credits are reduced when the Company purchases additional products from the vendors.

8.    
          OTHER ASSETS:

Other
assets consist of the following:

|                                      | Year Ended September 30,
|------------------------------------- | ------------------------
|
|Receivable from insurance proceeds    |                         
|Receivable from sale to Rent-A-Center |                         
|Other receivables                     |                         
|Other inventory                       |                         
|Deposits                              |                         
|Receivable from vendors               |                         
|Prepaid tax                           |                         
|Other                                 |                         
|                                      |                         
|                                      |                         
|Less other assets held for sale       |                         
|                                      |                         
|Other assets, continuing operations   |                         
|                                      |                         

9.    
          OTHER LIABILITIES:

Other
liabilities consist of the following:

|                                               | Year Ended September 30,
|---------------------------------------------- | ------------------------
|
|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                         |                         
|Other                                          |                         
|                                               |                         
|                                               |                         
|Less other liabilities held for sale           |                         
|                                               |                         
|Other liabilities, continuing operations       |                         
|                                               |                         

10.    
          DEBT:

|                          | Year Ended September 30,
|------------------------- | ------------------------
|
|Senior credit facility    |                         
|Senior secured notes      |                         
|Revolving credit facility |                         
|Note payable              |                         
|                          |                         
|                          |                         
|                          |                         

The
Companys senior secured notes have the following important terms. The $205,000
principal amount 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.

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 $104 for 2003 and is recorded as interest expense. Costs representing
underwriting fees and other professional fees of $6,711 are being amortized, using the
straight-line 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.

Under
the indenture for the secured notes, if the Company (a) has any excess cash flow or
amounts on deposit in the excess cash flow collateral account, (b) has a leverage ratio
equal to or greater than 2.50 to 1.00 or a rent-adjusted leverage ratio equal or greater
than 4.00 to 1.00, and (c) has cash and cash equivalents of more than $10,000, the Company
must repay debt (if any) outstanding under the revolving credit facility in an amount
equal to the remainder (if positive) of (1) the amount of such cash and cash equivalents
minus (2) the sum of $10,000 plus such excess cash flow. Thereafter, if the Company (a)
has any excess cash flow with respect to such fiscal year plus amounts on deposit in the
excess cash flow collateral account of at least $1,000 in the aggregate and (b) the
coverage ratio is equal to or greater than 2.50 to 1.00 or the rent-adjusted leverage
ratio is equal to or greater than 4.00 to 1.00, then the Company either must use the
excess cash flow plus such amounts on deposit to repay debt (if any) outstanding under the
revolving credit facility or, subject to limitations, must use 75% of any excess cash flow
plus such amounts on deposit remaining after repayment of debt outstanding under the
revolving credit facility to make an offer to purchase notes at a purchase price equal to
104.25% of the aggregate principal amount thereof, plus accrued and unpaid interest to the
purchase date. The Company must deposit in the excess cash flow collateral account all of
the portion of the 75% of such remaining excess cash flow not used to purchase notes. The
Company may use 25% of the excess cash flow remaining with respect to such fiscal year
after repayment of debt outstanding under the revolving credit facility. All of the
Companys obligations to use excess cash flow as described above terminate upon the
first fiscal year end of the Company at which both (a) the leverage ratio is less than
2.50 to 1.00 and (b) the rent-adjusted leverage ratio is less than 4.00 to 1.00. (Under the
indenture, excess cash flow means for any fiscal year, EBITDA for the Company
and its consolidated restricted subsidiaries for such year, adjusted for certain items.
Excess cash collateral account is an account maintained by the collateral
agent in which the Company deposits all of the portion of the 75% of the excess cash flow
remaining after payment of debt outstanding under the revolving credit facility.) The
Company is in compliance with all covenants at September 30, 2003, and expects to comply
with covenants based upon its fiscal 2004 projections.

The
Companys new 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 September 30, 2003 was $13,000 with $38,300 available at September 30,
2003. Deferred financing costs of $2,027 are being amortized, on a straight-line basis,
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
financial covenants required under the credit facility are as follows:

| | The
leverage ratio is total funded debt less an amount on deposit in the excess cash flow
escrow account to EBITDA for the four fiscal quarters then ended. The leverage ratio
cannot exceed 5.00 to 1.00 through March 31, 2004, 4.75 to 1.00 from April 1, 2004 though
June 30, 2004, 4.50 to 1.00 from July 1, 2004 through September 30, 2004, 4.00 to 1.00
from October 1, 2004 through September 30, 2005, 3.75 to 1.00 from October 1, 2005 though
September 30, 2006, 3.25 to 1.00 from October 1, 2006 through September 30, 2007, 2.75 to
1.00 from October 1, 2007 thereafter.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
fixed charge coverage ratio is EBITDA for the four fiscal quarters then ended less
capital expenditures not financed by capital leases to fixed charges for the same four
fiscal quarters then ended. EBITDA does not include depreciation of rental merchandise
and is adjusted for one-time non-cash charges. Fixed charges are the sum of all principal
payments made on indebtedness, but excluding payments on revolving credit, plus interest
expense, restricted payments, all prepayments on senior notes and income taxes paid or
payable. The fixed charge coverage ratio shall not be less than 1.20 to 1.00 from October
1, 2003 through March 31, 2004 and 1.25 to 1.00 from April 1, 2004 through June 2, 2008.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company cannot allow the book value of rental merchandise under lease to be less than 74%
of the total value of rental merchandise held for rent at the end of each calendar month
ending September 30, October 31 and November 30 in each fiscal year and 77% for all other
calendar months in each fiscal year. The value of jewelry cannot exceed 7.5% of the total
value of rental merchandise as measured at the end of each calendar month, commencing
June 30, 2003.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company cannot incur capital expenditures in an amount in excess of $20,000 in the
aggregate during any fiscal year. The $20,000 maximum is increased for any unused
preceding year permitted amount not to exceed $22,500 in a fiscal year
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Consolidated
net worth shall not be less than $85,000 plus 75% of positive net income with no
deduction for losses (for each quarter of each fiscal year ending on or after September
30, 2003), and 90% of any subsequent incremental issuance of new equity securities, other
than equities issues in connection with the exercise of employee stock options and
capital stock issued to the seller of an acquired business in connection with a permitted
acquisition.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
Company cannot permit EBITDA for the twelve consecutive calendar months then ended to be
less than:

|                                 | 
|-------------------------------- | 
|
|For the month ending:            | 
|June 2003                        | 
|July 2003                        | 
|August2003                       | 
|September 2003                   | 
|October 2003                     | 
|November 2003                    | 
|December 2003                    | 
|January 2004                     | 
|February 2004                    | 
|March 2004                       | 
|April 2004                       | 
|May 2004                         | 
|June 2004                        | 
|July 2004                        | 
|August 2004                      | 
|September 2004                   | 
|October 2004                     | 
|November 2004                    | 
|December 2004                    | 
|January 2005                     | 
|February 2005                    | 
|March 2005                       | 
|April 2005 through February 2006 | 
|March 2006 through December 2006 | 
|January 2007 and thereafter      | 

The
Company is in compliance with all covenants at September 30, 2003, and expects to be able
to comply with covenants based upon its fiscal 2004 projections.

11.    
          CONVERTIBLE 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 (see Note 10.).
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 classified as option to
purchase convertible preferred stock included in permanent equity. 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-0019).
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 market value of
this derivative financial instrument is $142 and is recorded as options 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 $10,509 at September 30, 2003,
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.

Below
is a description of the material terms of the convertible preferred stock.

Dividends.           Dividends
will accrue daily at a rate of 8.0% per annum. Dividends on the           preferred stock
will be payable beginning July 1, 2003, and 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 $399 were           accrued and
charged to accumulated deficit for the year ended September 30,           2003.

Conversion
provisions. Subject to certain limitations, each share of preferred stock is convertible
at the holders option. Preferred stock is convertible in the Companys common
stock by dividing the stated value of such shares by the conversion price. The conversion
price is $6.00 per share for preferred stock issued at the initial closing and $6.65 per
share for any additional preferred shares issued, subject to certain anti-dilution
adjustments.

Limitation
on beneficial ownership. The Company has no obligation to effect any conversion, and no
holder of preferred shares has the right to convert any preferred shares, to the extent
that after giving effect to such conversion, the beneficial ownership of a number of
shares exceeds 4.99% of the number of shares of common stock outstanding immediately after
giving effect to such conversion.

Mandatory
redemption at maturity. If any preferred shares remain outstanding on the maturity date
(June 2, 2011), the Company shall redeem in cash such shares at a redemption price equal
to the stated value of such shares plus accrued but unpaid dividends.

Purchase
rights. If at any time the Company grants, issues or sells any options, convertible
securities or rights to purchase stock, warrants, securities or other property pro rata to
the record holders of any class of common stock, then the holders of preferred shares will
be entitled to acquire, upon the terms applicable to such purchase rights, the aggregate
purchase rights which such holder would have acquired if such holder had held the number
of shares of common stock acquirable upon complete conversion of the preferred shares.

Re-organization,
reclassification, consolidation, merger or sale. Prior to the sale of all or substantially
all of the Companys assets following which the Company is not a surviving entity,
the Company will secure from the person purchasing such assets or the successor, a written
agreement to deliver to each holder of preferred shares in exchange for such shares, a
security of the acquiring entity similar in form and substance to the preferred shares,
including, without limitation, having a stated value and liquidation preference equal to
the stated value and liquidation preference of the preferred shares.

Companys
Redemption Provisions. On the date the Company publicly discloses a change of control, the
Company has the right, in its sole discretion, to require that all, but not less than all,
of the outstanding preferred shares be redeemed at a price per preferred share equal to
the applicable change of control redemption price discussed below.

Subject
to certain requirements, the Company can redeem the preferred stock at any time from and
after June 2, 2008, in whole or in part, for an amount in cash equal to the conversion
amount of the preferred shares selected for redemption.

Holders
Redemption Provisions. Upon a change of control each holder of preferred shares has the
option to require the Company to redeem all or a portion of the preferred shares held in
cash at a premium determined as follows.

The
change of control redemption price is determined as follows:

|1) |  | If the acquiring entity is a publicly-traded entity, the redemption price is the
               greater of (A) the product of (i) the change of control redemption percentage
               (discussed below) and (ii) the conversion amount; or (B) the sum of (i) the
               stated value and (ii) a Black-Scholes valuation amount,
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2) |  | If the acquiring entity is not a publicly-traded entity, the redemption price is
               the product of (i) the change of control redemption percentage and (ii) the
               conversion amount.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
change of control redemption percentage is:

|1) |  | 125% for the period commencing on the initial issuance date and ending on the
               second anniversary of the initial issuance date,
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------

|2) |  | 120% for the period commencing on the day after the second anniversary and
               ending on the third anniversary of the initial issuance date,
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

|3) |  | 115% for the period commencing on the date after the third anniversary of the
               initial issuance date and ending on the maturity date.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

At
any time on and after the six month anniversary of the repayment, redemption or retirement
of all of the senior secured notes and all amounts outstanding under the senior credit
facility, each holder has the option to require the Company to redeem at any time all or a
portion of such holders preferred shares at a price per preferred share equal to the
conversion amount.

Voting
rights. Holders of preferred shares have no voting rights, except as required by law.

Liquidation.           In
the event of any liquidation, dissolution or winding up of the Company, the
          holders of the preferred shares are entitled to receive cash in an amount equal
          to its stated value plus accrued but unpaid dividends before any amount shall
be           paid to common stock holders.

Restriction
on redemption and cash dividends. Unless all of the preferred shares have been converted
or redeemed, the Company shall not, directly or indirectly, redeem, or declare or pay any
cash dividend or distribution on its capital stock.

Restriction
of Additional Preferred Stock. Without the consent of the holders of the Series A
preferred shares, the Company may not issue any other preferred shares that would rank
senior to or pari passu with the Series A preferred with respect to payments of dividends
or on liquidation.

Registration
rights. The Company has filed a registration statement on Form S-3 covering the shares of
common stock issuable upon conversion of the preferred stock acquired in the initial
closing, which became effective on July 11, 2003. In the event the holders acquire
additional shares of preferred stock, the Company is required to file a registration
statement on Form S-3 covering the common stock issuable on conversion of the preferred
stock so acquired within 30 days of such acquisition and to cause the registration
statement to become effective within 90 days thereafter. The Company will pay cash
liquidated damages to the holders of the preferred stock in the event the Company does not
meet these requirements, and also in the event the registration statement becomes
unavailable to the holders for periods beyond specified grace periods.

12.    
          DERIVATIVE FINANCIAL INSTRUMENTS:

On
June 2, 2003, the Company issued 1,500 shares of convertible redeemable preferred stock
(see Note 11). 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 and
is accreted into convertible redeemable preferred stock over the one-year option period.

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 positive change in the fair market value of the
convertible feature from issuance on June 2, 2003 to September 30, 2003 was $1,899, which
was recorded as an expense to other income (expense) in the Companys Consolidated
Statements of Operations.

At
September 30, 2003, the Company had interest rate swaps on a notional debt amount of
$101,400 and a fair market value of ($5,597). The variable pay interest rate ranges from
5.09% 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 $4,910 for the year ended September 30, 2003. This
was recorded to other income in the Companys Consolidated Statements of Operations.

13.    
          INSURANCE CHARGE AND RECOVERY

In
fiscal 2003, the Company recorded income of $4,618 for ultimate and incurred losses
related to the Companys revised estimates for retrospective self-insurance programs,
which offset insurance costs included in other operating expense. The adjustment was
comprised of income in the amount of $3,597 and $1,055 for the policy years ended December
31, 2002 and 2001, respectively, and, an expense of $34 for the policy year ended December
31, 2000.

The
Company recorded in income as a reduction of other operating expense, a reimbursement
of defense costs related to the derivative and class action lawsuits in the amount of
$800 and $1,900 for the 2003 and 2002 fiscal years respectively. In fiscal 2002 the
Company also recorded an expense of $4,600, which consisted of upward adjustments to
various of the Companys retrospective and other insurance programs based upon a
change in estimate.

14.    
          COMMITMENTS AND CONTINGENCIES:

The
Company leases substantially all of its retail stores under non-cancelable agreements
generally for initial periods ranging from three to five years. The store leases
generally contain renewal options for one or more periods of three to five years.
Most leases require the payment of taxes, insurance, and maintenance costs by the
Company. The Company leases certain transportation and satellite equipment under
capital leases and, to a lesser extent, operating leases, under arrangements that
expire over the next 5 years. At September 30, 2003, future minimum rental payments
under non-cancelable capital and operating leases are as follows:

|                                                       | Capital Leases | Operating Leases
|------------------------------------------------------ | -------------- | ----------------
|2004                                                   |                |                 
|2005                                                   |                |                 
|2006                                                   |                |                 
|2007                                                   |                |                 
|Thereafter                                             |                |                 
|                                                       |                |                 
|Total minimum payments required                        |                |                 
|Amount representing interest obligations under capital |                |                 
|lease                                                  |                |                 
|                                                       |                |                 
|                                                       |                |                 
|                                                       |                |                 

The
capital lease agreements have a minimum lease term of one year and permit monthly
renewal options and contain residual lease guarantees. The Company has retained the
leased vehicles an average of 48 months which represents the period through which
renewal of the leases have historically been probable as a result of continuously
decreasing costs of operation.

The
Companys investment in equipment under capital leases was as follows:

|                                  | Year Ended September 30,
|--------------------------------- | ------------------------
|
|Transportation equipment          |                         
|Satellite equipment               |                         
|Less accumulated amortization     |                         
|                                  |                         
|Net equipment under capital lease |                         
|                                  |                         

Rent
expense under operating leases for the years ended September 30, 2003, 2002, and 2001 was
$23,973, $33,970 and $39,140, respectively.

As
previously reported, the Company, its 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 requires 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 has been
funded into escrow and is classified as restricted cash on the consolidated balance sheet.
The settlement agreement provides for the release of the Company and all other defendants
except the Companys former controller and the Companys independent
accountants. The settlement remains subject to Court approval. On September 9, 2003, the
Court granted a motion certifying a class and appointing the lead plaintiff, Cramer
Rosenthal McGlynn LLC, as class representative. On September 12, 2003, the Court conducted
a fairness hearing regarding the settlement. The lead plaintiffs motion for the
Courts approval of the settlement is pending.

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 $8,253. However, all but
$1,773 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.

For
fiscal years 2003, 2002 and 2001, the Company is primarily self-insured for health.
The self-insurance liability for health costs is determined based on a contracted
rate and monthly employee 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.

For
fiscal years 2003, 2002 and 2001, the self-insurance liability for workers
compensation, automobile and general liability costs are determined actuarially based
on claims filed and company experience. Losses in the workers compensation,
automobile and general liability programs are pre-funded based on the insurance
companys loss estimates. Loss estimates will be adjusted for developed incurred
losses at 18 months following policy inception and every 12 months thereafter.
Retrospective adjustments to loss estimates are recorded when determinable and
probable. For fiscal years 2000 and 1998, the Company was insured under deductible
programs with aggregate stop loss coverage on major claims. Claims exceeding the insured
deductible limits that were less than stop loss aggregates, were funded as claims
developed using AM Best loss development factors and not exceeding policy aggregate. The
fiscal 1999 workers compensation insurance had no aggregate retention and was funded
as claims developed using AM Best loss development factors. Reserves were developed by
independent actuaries and totaled $1,500 and $2,300 at September 30, 2003 and
2002, respectively. The Company has obtained letters of credit of $5,950 to guarantee the
payment of future claims.

The
Company has approximately $466 recorded as deposits held for customers, recorded in other
liabilities.

Also,
see Note 16 for related party commitments.

15.    
          INCOME TAXES:

The
Companys income tax expense (benefit) consists of the following components:

|                             | For The Year Ended September 30,
|---------------------------- | --------------------------------
|
|Current expense (benefit):   |                                 
|Federal                      |                                 
|State and local              |                                 
|                             |                                 
|                             |                                 
|Deferred expense (benefit):  |                                 
|Federal                      |                                 
|State and local              |                                 
|                             |                                 
|                             |                                 
|                             |                                 
|Income tax expense (benefit) |                                 
|                             |                                 

A
reconciliation of the income tax expense (benefit) compared with the amount at the U.S.
statutory tax rate of 35% is shown below:

|                                              | For The Year Ended September 30,
|--------------------------------------------- | --------------------------------
|
|Tax provision at U.S. statutory rate          |                                 
|State and local income taxes, net of federal  |                                 
|benefit                                       |                                 
|Nondeductible goodwill and purchase contracts |                                 
|Deferred tax valuation allowance              |                                 
|Other                                         |                                 
|                                              |                                 
|Income tax expense (benefit)                  |                                 
|                                              |                                 

At
September 30, 2003 and 2002, the components of the net deferred tax asset (liability) are
as follows:

|                                   | Year Ended September 30,
|---------------------------------- | ------------------------
|
|Rental merchandise                 |                         
|Property and equipment             |                         
|Operating loss carryforwards       |                         
|Intangibles                        |                         
|Goodwill                           |                         
|Accrued expenses                   |                         
|Other                              |                         
|Tax credits                        |                         
|Swap agreements                    |                         
|Deferred tax valuation allowance   |                         
|                                   |                         
|Net deferred tax asset (liability) |                         
|                                   |                         

As
of September 30, 2003, the Company has net operating loss carryforwards of
approximately $208,000 for income tax purposes, the majority of which expire in fiscal
years 2018 through 2023. Additionally, as of September 30, 2003, the Company has
alternative minimum tax credits of $147.

At
September 30, 2002, the valuation allowance was $65,862. At September 30, 2003, the
net increase was $7,233, of which $347 is the tax benefit of the transitional swap
amount recorded to equity. A portion of this increase was a result of a modification
to the operating loss carryforwards based on actual filed tax returns.
 Approximately $3,499 of the operating loss carryforwards will result in a
credit to shareholders equity when it is determined they can be utilized.

16.    
          RELATED PARTY TRANSACTIONS:

During
fiscal years ended September 30, 2003, 2002, and 2001, the Company leased one
location from a company controlled by a principal shareholder. Rent paid during these
years related to this lease was $49.

During
fiscal 2003, 2002 and 2001 the Company executed notes receivable aggregating $0, $0
and $159, respectively from directors of the Company resulting from the exercise of
stock options. The notes are full recourse promissory notes bearing interest at 10%
per annum. On November 1, 2000, the Company received a note receivable with a balance
of $159 from a director of the Company related to a personal loan. The note is a full
recourse promissory note and bears interest at 10% per annum. At September 30, 2003,
2002 and 2000 the Company held notes receivable which were due within one year and
unpaid interest thereon of $0, $282 and $924, respectively and interest income was
$3, $41 and $77, respectively for the years then ended. The notes are reflected as a
reduction to shareholders equity in the Companys Consolidated Balance
Sheet.

The
Company has entered into a consulting agreement with a director of the Company that
provides for the payment of $100 per year for 10 years commencing October 1, 1999.

17.    
          STOCK OPTIONS:

In
March 1999, the Board of Directors of the Company adopted, and the shareholders
approved, the Rent-Way, Inc. 1999 Stock Option Plan (the 1999 Plan) which
authorizes the issuance of up to 2,500,000 shares of common stock pursuant to stock
options granted to officers, directors, key employees, consultants, and advisors of the
Company. The option exercise price will be at least equal to the fair market value of the
Companys common stock on the grant date. The 1999 Plan will expire in March
2009 unless terminated earlier by the Board of Directors. The authorized number of
shares, the exercise price of outstanding options, and the number of shares under
option are subject to appropriate adjustment for stock dividends, stock splits,
reverse stock splits, recapitalizations, and similar transactions. The 1999 Plan is
administered by the Compensation Committee of the Board of Directors who select the
optionees and determine the terms and provisions of each option grant within
the parameters set forth in the 1999 Plan.

The
Board of Directors of the Company also adopted, and the shareholders have approved
the Rent-Way, Inc. 1995 Stock Option Plan (the 1995 Plan),
which authorizes the issuance of up to 2,000,000 shares of common stock pursuant
to stock options granted to officers, directors, and key employees of the
Company. The 1995 Plan is administered by the Compensation Committee of the Board
of Directors and contains terms and provisions substantially identical to
those contained in the 1992 Plan.

In
June 1992, the Board of Directors of the Company adopted, and the shareholders have
approved, the Rent-Way, Inc. Stock Option Plan of 1992 (the "1992 Plan)
which authorizes the issuance of up to 600,000 shares of common stock pursuant to
stock options granted to officers, directors, key employees, consultants, and
advisors of the Company. The option exercise price will be at least equal to the fair
market value of the Companys common stock on the grant date. The 1992 Plan
expired in June 2002. The authorized number of shares, the exercise price
of outstanding options and the number of shares under option are subject
to appropriate adjustment for stock dividends, stock splits, reverse stock
splits, recapitalizations and similar transactions. The 1992 Plan is administered by
the Compensation Committee of the Board of Directors who select the optionees
and determine the terms and provisions of each option grant within the
parameters set forth in the 1992 Plan.

Pursuant
to the terms of the merger agreement between Rent-Way and Home Choice, each Home
Choice stock option which was outstanding and unexercised at the date of the merger
was converted into an option to purchase Rent-Ways common stock. Home Choice
options were converted into Rent-Way options from various plans on November 12, 1999. The
number of shares subject to the Home Choice options was equal to the product of the
number of shares of Home Choice common stock subject to Home Choice options and
0.588, the exchange ratio.

On
June 13, 2002, option holders of the Company (other than officers and directors) were
issued new options in replacement of options previously cancelled pursuant to the
Companys exchange offer. The new options were issuable on the date six months
and one day after the date of cancellation. The exercise price of the new options is
$11.67 per share, which was the closing price of the Companys common stock on
the New York Stock Exchange on June 13, 2002. On December 11, 2001 (the expiration
date of the Companys offer), 1,109,580 options to acquire common stock were
cancelled pursuant to the offer. On June 13, 2002, options covering 1,008,272 shares
were issued in replacement thereof.

The
following is a summary of activity of the Companys stock options during the
years ended September 30, 2003, 2002 and 2001:

|STOCK OPTIONS      | SHARES | WEIGHTED AVERAGE
PRICE PER SHARE
|------------------ | ------ | --------------------------------
|September 30, 2000 |        |                                 
|                   |        |                                 
|Granted            |        |                                 
|Exercised          |        |                                 
|Cancelled          |        |                                 
|                   |        |                                 
|September 30, 2001 |        |                                 
|                   |        |                                 
|Granted            |        |                                 
|Exercised          |        |                                 
|Cancelled          |        |                                 
|                   |        |                                 
|September 30, 2002 |        |                                 
|                   |        |                                 
|Granted            |        |                                 
|Exercised          |        |                                 
|Cancelled          |        |                                 
|                   |        |                                 
|September 30, 2003 |        |                                 
|                   |        |                                 

At
September 30, 2003, stock options representing 2,504,475 shares are exercisable at prices
ranging from $2.33 to $33.63 per share and grant dates ranging from July 15, 1995, to
August 11, 2003. The weighted-average grant date fair value of options granted during the
year ranges from $3.54 to $4.02.

At
September 30, 2003, the Company has individual option award agreements outside of these
plans with three employees covering an aggregate of 60,000 options to acquire shares of
common stock.

For
various price ranges, outstanding stock options at September 30, 2003 were as follows:

|Range of
Exercise Price | Shares of
Outstanding Options | Shares of
Exercisable Options
|----------------------- | ----------------------------- | -----------------------------
|$                       | 2                             | .33-                         
|$                       | 10                            | .01-                         
|$                       | 15                            | .01-                         
|$                       | 20                            | .01-                         
|$                       | 25                            | .01-                         
|$                       | 30                            | .01-                         
|                        |                               |                              
|                        |                               |                              

18.    
          SHAREHOLDERS EQUITY:

On
April 18, 2002, the Company sold 1.0 million restricted common shares and warrants to
acquire 100,000 common shares to Calm Waters Partnership and two other investors for
$6,000. The warrants have an exercise price of $9.35 per share, subject to adjustment. The
Company re-measured the value of the warrants because the agreement with Calm Waters
Partnership contained a clause that the warrants granted to Calm Waters Partnership would
be re-measured to any subsequent option grants in which the grant price was below the
original $9.35 exercise price of the warrants granted to Calm Waters Partnership. The
change in value was reclassified to common stock from warrants. The Company also agreed to issue
warrants to purchase additional shares of common stock to the investors if the Company
failed to achieve aggregate EBITDA of $80,000 or more for the 12-month period
commencing on April 1, 2002. The warrant exercise price per share was based upon the
EBITDA for such period. The Company did not meet this EBITDA target and issued 332,999
additional warrants at an exercise price per share of $1.50 in April 2003, which were
subsequently exercised for cash of $500 in June 2003.

On
April 28, 2000, the Company entered into a three-year agreement with Gateway
Companies, Inc. (Gateway) to be an authorized supplier of
Gateway personal computers and related peripherals in the rental purchase
industry. Gateway agreed not to enter into any similar arrangements with any of
the Companys largest industry competitors, but had the option to cancel
the exclusivity provisions of the agreement if the Company did not meet
specified purchase volume requirements. Although the Company did not meet the
purchase volume requirements under the agreement, Gateway has continued to abide by
the exclusivity provisions of the agreement. As part of this transaction,
Gateway invested $7,000 for 348,910 shares of the Companys common stock with a
fair value of $9,038. In accordance with ETIF 96-18, Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction
with Selling Goods or Services, the Company recorded an intangible asset in the
amount of $2,038 for the value of the exclusivity agreement, which is fully amortized
as of September 30, 2003.

In
July 1995, in connection with the Companys acquisition of McKenzie Leasing
Corporation and the issuance of its 10% Convertible Subordinated Notes due 2002,
Rent-Way issued warrants to purchase 105,000 shares of common stock at $9.94 per
share to Massachusetts Mutual Life Insurance Company and its affiliates. The warrants
are exercisable at any time for a period of seven years from their issue dates and
were subject to anti-dilution provisions providing for appropriate adjustment in the
event of any reclassification, stock dividend, stock split, or similar transactions,
and stock issuances below the warrant exercise price. On July 15, 2002, the warrants
were exercised.

19.    
          EMPLOYEE BENEFIT PLANS:

Effective
January 1, 1994, Rent-Way established the Rent-Way, Inc. 401(k) Retirement Savings
Plan (the RentWay Plan). Participation in the Plan is available to all
Company employees who meet the necessary service criteria as defined in the Plan
agreement. Company contributions to the Plan are based on a percentage of the
employees contributions, as determined by the Board of Directors, and amounted
to $0, $0, and $344, in the form of the Companys common stock for the years
ended September 30, 2003, 2002 and 2001, respectively. The Company contributed cash
of $1,011 and $1,105, which includes $595 of forfeitures, for the years ended
September 30, 2003 and 2002, respectively.

As
a result of the significant price drop in Rent-Way stock following disclosure of the
accounting investigation, the Company made additional cash contributions of $478,
$255 and $366 to the Rent-Way Plan in order to restore a portion of the loss in value
of Rent-Way stock held in participant accounts under the plan for the years ended
September 30, 2003, 2002 and 2001, respectively. The Company also committed to make
an additional contribution in fiscal 2004 to the extent the Rent-Way stock price does
not reach certain levels. The Company has also amended the plan to limit the amount
of a participants contribution that can be invested in Rent-Way common stock.

---

20.    
          LOSS PER SHARE:

Basic
loss per common share is computed using losses available to common shareholders
divided by the weighted average number of common shares outstanding. Diluted loss per
common share is computed using losses available to common shareholders and the
weighted average number of shares outstanding adjusted for the potential impact of
options and warrants where the effects are dilutive. Because operating results were
at a loss for the years ended September 30, 2003, 2002 and 2001, 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 loss per share computation:

|                                                                      | For The Year Ended September 30,
|--------------------------------------------------------------------- | --------------------------------
|
|COMPUTATION OF EARNINGS (LOSS) PER SHARE:                             |                                 
|BASIC                                                                 |                                 
|Loss before cumulative effect of change in accounting principle and   |                                 
|discontinued operations                                               |                                 
|Cumulative effect of change in accounting principle                   |                                 
|Income (loss) from discontinued operations                            |                                 
|                                                                      |                                 
|Net loss                                                              |                                 
|Accrued deemed dividend and accretion of preferred stock              |                                 
|                                                                      |                                 
|Net loss allocable to common shareholders                             |                                 
|                                                                      |                                 
|Weighted average common shares outstanding                            |                                 
|Loss per share:                                                       |                                 
|Loss before cumulative effect of change in accounting principle and   |                                 
|discontinued operations                                               |                                 
|Cumulative effect of change in accounting principle                   |                                 
|Income (loss) from discontinued operations                            |                                 
|Accretion to preferred stock redemption amount (2)                    |                                 
|                                                                      |                                 
|Net loss allocable to common shareholders                             |                                 
|                                                                      |                                 
|DILUTED                                                               |                                 
|Net loss available 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 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, warrants and escrowed |                                 
|shares (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 loss |                                 
|                                                                      |                                 
|per share                                                             |                                 
|Loss per share:                                                       |                                 
|Loss before cumulative effect of change in accounting principle and   |                                 
|discontinued operations                                               |                                 
|Cumulative effect of change in accounting principle                   |                                 
|Income (loss) from discontinued operations                            |                                 
|Accretion to preferred stock redemption amount (2)                    |                                 
|                                                                      |                                 
|Net loss allocable to common shareholders                             |                                 
|                                                                      |                                 

|(1) |  | For the years ended September 30, 2003, 2002 and 2001, the number of options
                    that were outstanding but not included in the computation of diluted earnings
                    per common share because their exercise price was greater than the average
                    market price of common stock, and therefore anti-dilutive, was 2,817, 7,843 and
                    4,167, respectively. The number of stock options that were outstanding but not
                    included in the computation of diluted earnings per common share in which their
                    exercise price was less than the average market price of common stock was 3 for
                    the year ended September 30, 2003. There were also 4,186 contingent warrants not
                    included in the computation of diluted earnings per common share because they
                    were anti-dilutive for the year ended September 30, 2002.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Including the effects of these items for the year ended September 30, 2003 would
                    be anti-dilutive. Therefore, 752 contingent shares issuable upon exercise of
                    warrants to purchase 8% convertible preferred stock and 2,500 shares issuable
                    upon conversion of 8% convertible preferred stock are excluded from
                    consideration in the calculation of diluted earnings (loss) per share for the
                    year ended September 30, 2003. There were conversion derivative market value
                    adjustments of $1,899, dividends on convertible preferred stock of $399 and
                    accretion to preferred stock redemption in the amount of $113 which were not
                    added back to net income (loss) allocable to common shareholders for basic
                    earnings (loss) per share on the diluted earnings (loss) per share because
                    including the effects of these items would be anti-dilutive.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

21.                          SEGMENT
INFORMATION:

Rent-Way
is a national rental-purchase chain, which provides a variety of services to its customers
including rental of household items and prepaid local telephone service. 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 either a weekly, biweekly, semimonthly or monthly 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).

|                                      | Household
Rental Segment | Prepaid Telephone
Service Segment | Total Segments
|------------------------------------- | ------------------------ | --------------------------------- | --------------
|For the year ended September 30, 2003 |                          |                                   |               
|Total revenues                        |                          |                                   | $             
|Operating income                      |                          |                                   |               
|Net income (loss)                     |                          |                                   |               
|Total Assets                          |                          |                                   |               
|For the year ended September 30, 2002 |                          |                                  
|Total revenues                        |                          |                                   | $             
|Operating income (loss)               |                          |                                   |               
|Net income (loss)                     |                          |                                   |               
|Total Assets                          |                          |                                   |               
|For the year ended September 30, 2001 |                          |                                  
|Total revenues                        |                          |                                   | $             
|Operating income (loss)               |                          |                                   |               
|Net income (loss)                     |                          |                                   |               
|Total Assets                          |                          |                                   |               

22.    
          SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):

Fiscal
Year 2003:

|                                                           | For the Quarter Ended
|---------------------------------------------------------- | ---------------------
|
|Total revenues                                             |                      
|Operating income                                           |                      
|Net income (loss) before cumulative effect of change in    |                      
|accounting principle and discontinued operations           |                      
|Net income (loss)                                          |                      
|Amortization of deemed dividend and accretion of preferred |                      
|stock                                                      |                      
|Income (loss) available to common shareholders             |                      
|Basic:                                                     |                      
|Earnings (loss) before cumulative effect of change in      |                      
|accounting principle and discontinued operations           |                      
|Net earnings (loss)                                        |                      
|                                                           |                      
|Net loss available to common shareholders                  |                      
|                                                           |                      
|Diluted:                                                   |                      
|Earnings (loss) before cumulative effect of change in      |                      
|accounting principle and discontinued operations           |                      
|                                                           |                      
|Net loss                                                   |                      
|                                                           |                      
|Net loss available to common shareholders                  |                      
|                                                           |                      
|Weighted average shares outstanding                        |                      
|Basic                                                      |                      
|Diluted                                                    |                      

Fiscal Year 2002:

|                                                        | For the Quarter Ended
|------------------------------------------------------- | ---------------------
|
|Total revenues                                          |                      
|Operating income (loss)                                 |                      
|Net income (loss) before cumulative effect of change in |                      
|accounting principle and discontinued operations        |                      
|Net income (loss)                                       |                      
|Income (loss) applicable to common shares               |                      
|Basic:                                                  |                      
|Earnings (loss) before cumulative effect of change in   |                      
|accounting principle and discontinued operations        |                      
|Net Loss                                                |                      
|Diluted:                                                |                      
|Earnings (loss) before cumulative effect of change in   |                      
|accounting principle and discontinued operations        |                      
|Net loss                                                |                      
|Weighted average shares outstanding                     |                      
|Basic                                                   |                      
|Diluted                                                 |                      

---

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

None.

ITEM 9A.    CONTROLS AND
PROCEDURES

|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
                    September 30, 2003, 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.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

RENT-WAY, INC.

PART III

ITEM 10.    DIRECTORS AND
EXECUTIVE OFFICERS OF THE COMPANY

Information
in response to this Part III is incorporated herein by reference to the
Companys definitive proxy statement for the 2003 Annual Meeting
of Shareholders. The Company intends to file the definitive Proxy Statement
not later than 120 days after September 30, 2003.

ITEM 11.    EXECUTIVE
COMPENSATION

Information
in response to this Part III is incorporated herein by reference to the
Companys definitive proxy statement for the 2003 Annual Meeting
of Shareholders. The Company intends to file the definitive Proxy Statement
not later than 120 days after September 30, 2003.

ITEM 12.    SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information
in response to this Part III is incorporated herein by reference to the
Companys definitive proxy statement for the 2003 Annual Meeting
of Shareholders. The Company intends to file the definitive Proxy Statement
not later than 120 days after September 30, 2003.

ITEM 13.    CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS

Information
in response to this Part III is incorporated herein by reference to the
Companys definitive proxy statement for the 2003 Annual Meeting
of Shareholders. The Company intends to file the definitive Proxy Statement
not later 120 days after September 30, 2003.

ITEM 14.    PRINCIPAL
ACCOUNTANT FEES AND SERVICES.

Information
in response to this Part III is incorporated herein by reference to the
Companys definitive proxy statement for the 2003 Annual Meeting
of Shareholders. The Company intends to file the definitive Proxy Statement
not later 120 days after September 30, 2003.

---

RENT-WAY, INC.

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

(a)(1)Financial
Statements.

See
Index to Financial Statements appearing at Item 8 of this Report.

(a)(2)
Financial Statement Schedules

| | Financial
Statement schedules have been omitted because they are inapplicable or the information is
included in the Companys financial statements and notes thereto.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

(a)(3)
Exhibits

See
Exhibit Index

(b)                 Reports
on Form 8-K:

The
Company filed the following reports on Form 8-K during the quarter ended September 30,
2003:

| | On
August 14, 2003, the Company furnished a Current Report on Form 8-K, which reported the
issuance of a press release announcing its financial results for the third quarter ended
June 30, 2003.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

RENT-WAY, INC.

SIGNATURES

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

RENT-WAY, INC.

|                                           | 
|------------------------------------------ | 
|By:    /s/ William E. Morgenstern          | 
|                                           | 
|Chairman of the Board and                 
|Chief Executive Officer                   
|(Principal Executive Officer)             
|Date: November 25, 2003                   
|By:    /s/ William A. McDonnell            | 
|                                           | 
|Vice President and Chief Financial Officer
|(Principal Financial Officer)             
|                                           | 
|                                           | 
|Date: November 25, 2003                   
|By:    /s/ John A. Lombardi                | 
|                                           | 
|Vice President, Corporate Controller and  
|Chief Accounting Officer                  
|(Principal Accounting Officer)            
|Date: November 25, 2003                   

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

|SIGNATURE                  | TITLE    | DATE             
|-------------------------- | -------- | -----------------
|/s/ Gerald A. Ryan         | Director | November 25, 2003
|                           |          |                  
|;Gerald A. Ryan           
|/s/ William E. Morgenstern | Director | November 25, 2003
|                           |          |                  
|William E. Morgenstern     |         
|/s/ John W. Higbee         | Director | November 25, 2003
|                           |          |                  
|John W. Higbee            
|/s/ Robert B. Fagenson     | Director | November 25, 2003
|                           |          |                  
|Robert B. Fagenson         |         
|/s/ Marc W. Joseffer       | Director | November 25, 2003
|                           |          |                  
|Marc W. Joseffer          
|/s/ William Lerner         | Director | November 25, 2003
|                           |          |                  
|William Lerner            
|/s/ Jacqueline E. Woods    | Director | November 25, 2003
|                           |          |                  
|Jacqueline E. Woods        |         

---

# EXHIBIT INDEX

EXHIBIT NO.                   
                                               DESCRIPTION

| |  | 
| |  | 

|2.1 |  | Agreement
and Plan of Merger among the Company, McKenzie Leasing Corporation, Steve A. McKenzie,
                  Brenda G. McKenzie and others, dated June 9, 1995 (incorporated by
reference to an exhibit to the                   Company's Current Report on Form 8-K
filed on August 15, 1995).
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.2 |  | Stock
Purchase Agreement by and among the Company, Diamond Leasing Corporation, Kenneth H. Moye
                  and Lee Brady, dated July 20, 1996 (incorporated by reference to
exhibit 2.5 to the Company's                   Current Report on Form 8-K filed on August
8, 1996).
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.3 |  | Stock
Purchase Agreement by and among the Company, Bill Coleman TV, Inc. and David Coleman,
dated                   January 2, 1997 (incorporated by reference to exhibit 2.4 to the
Company's Annual Report on Form                   10-K for the fiscal year ended
September 30, 1997 filed on November 6, 1997).
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.4 |  | Stock
Purchase Agreement by and among the Company, Perry Electronics, Inc., Robert L. Thomas,
                  Norma J. Thomas, Randall D. Snyder and Niki L. Snyder, dated January
24, 1997 (incorporated by                   reference to exhibit 2.7 to the Company's
Current Report on Form 8-K filed on February 21, 1997).
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.5 |  | Closing
Letter Agreement dated February 6, 1997 amending Stock Purchase Agreement by and among
                  the Company, Perry Electronics, Inc., Robert L. Thomas, Norma J.
Thomas, Randall D. Snyder and                   Niki L. Snyder (incorporated by reference
to exhibit 2.8 to the Company's Current Report on Form                   8-K filed on
February 21, 1997).
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.6 |  | Asset
Purchase Agreement by and among the Company, South Carolina Rentals, Inc., Paradise
Valley                   Holdings, Inc., L & B Rents, Inc. and James S. Archer, dated
November 21, 1997 (incorporated by                   reference to exhibit 2.1 of the
Company's Current Report on Form 8-K filed on January 20, 1998).
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.7 |  | Stock
Purchase Agreement by and among the Company, Champion Rentals, Inc., Bill C. Ogle, Sr.
and                   others, dated as of January 30, 1998 (incorporated by reference to
exhibit 2.3 to the Company's                   Current Report on Form 8-K filed on
February 19, 1998).
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.8 |  | Agreement
and Plan of Merger dated September 1, 1998 between the Company and Home Choice
                  Holdings, Inc. (incorporated by reference to exhibit 2.1 to the
Company's Registration Statement                   on Form S-4 (No. 333-66955) filed on
November 6, 1998).
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.9 |  | Stock
Purchase Agreement between the Company, Rentavision, Inc. and Robert Natoli dated
September                   15, 1999 (incorporated by reference to an exhibit to the
Company's Current Report on Form 8-K                   filed on October 12, 1999).
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.10 |  | Asset
Purchase Agreement between the Company, Rent-Way of Michigan, Inc., and Rent-Way of TTIG,
                  L.P., and Rent-A-Center, Inc., dated December 17, 2002 (incorporated by
reference to Exhibit 2.11                   to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 2002 filed on                   December 30,
2002).
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.11 |  | Amendment
No. 1 to the Asset Purchase Agreement between the Company, Rent-Way of Michigan, Inc.,
                  and Rent-Way of TTIG, L.P., and Rent-A-Center, Inc., dated December 21,
2002 (incorporated by                   reference to Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended                   December 21, 2003
filed on February 14, 2003).
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.12 |  | Amendment
No. 2 to the Asset Purchase Agreement between the Company, Rent-Way of Michigan, Inc.,
                  and Rent-Way of TTIG, L.P., and Rent-A-Center, Inc., dated  January 7,
2003 (incorporated by                   reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended                   December 21, 2003
filed on February 14, 2003).
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.13 |  | Amendment
No. 3 to the Asset Purchase Agreement between the Company, Rent-Way of Michigan, Inc.,
                  and Rent-Way of TTIG, L.P., and Rent-A-Center, Inc., dated  February 7,
2003 (incorporated by                   reference to Exhibit 10.5 to the Company's
Quarterly Report on Form 10-Q for the quarter ended                   December 21, 2003
filed on February 14, 2003)
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.14 |  | Amendment
No. 4 to the Asset Purchase Agreement between the Company, Rent-Way of Michigan, Inc.,
                  and Rent-Way of TTIG, L.P., and Rent-A-Center, Inc., dated  February
10, 2003 (incorporated by                   reference to Exhibit 10.6 to the Company's
Quarterly Report on Form 10-Q for the quarter ended                   December 21, 2003
filed on February 14, 2003)
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.1 |  | Articles
of Incorporation of the Company, 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 on 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 |  | By-Laws
of the Company, as amended (incorporated by reference to Exhibit 3.2 to the Company's
                  Annual Report on Form 10-K for the fiscal year ended September 20, 2002
filed on July 2, 2001).
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.1 |  | Indenture
dated June 2, 2003 among the Company, the subsidiary guarantors (as defined therein)
                  and Manufacturers and Traders Trust Company, as trustee (incorporated
by reference to Exhibit 4.1                   to the Company's Current Report on Form 8-K
filed June 3, 2003).
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.2 |  | Form
of 11 7/8% Senior Secured Note (incorporated by reference to Exhibit A to the Indenture
dated                   June 2, 2003 among the Company, the subsidiary guarantors (as
defined therein) and Manufacturers                   and Traders Trust Company, as
trustee, filed as Exhibit 4.1 to the Company's Current Report on                   Form
8-K on June 3, 2003).
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.1 |  | Company's
1995 Stock Option Plan (incorporated by reference to an exhibit to the Company's
                  Registration Statement on Form SB-2 (No. 333-116) filed on January 5,
1996).
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.2 |  | Form
of Non-Plan Stock Option Agreement (incorporated by reference to an exhibit to the
Company's                   Registration Statement on  Form S-18 (No. 33-55562-NY) filed
on December 8, 1992).
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.3 |  | Company's
1999 Stock Option Plan (incorporated by reference to the Company's Proxy Statement on
                  Schedule 14A filed on February 12, 1999).
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|10.4 |  | Employment
Agreement between William E. Morgenstern and the Company, dated October 1, 2001
                  (incorporated by reference to exhibit 10.5 of the Company's Annual
Report on Form 10-K for the                   fiscal year ended September 30, 2001 filed
on December 28, 2001).
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.5 |  | Engagement
Agreement between Gerald A. Ryan and the Company, dated October 1, 1999 (incorporated
                  by reference to exhibit 10.6 of the Company's Annual Report on Form
10-K filed on December 22,                   1999).
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.6 |  | Consulting
Agreement between the Company and McKenzie Development Corporation, dated July 21,
                  1995 (incorporated by reference to an exhibit 10.6 to the Company's
Registration Statement on                   Form SB-2 (No. 333-116) filed on January 5,
1996).
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.7 |  | Non-Competition
Agreement between the Company and Steve A. McKenzie, dated July 21, 1995
                  (incorporated by reference to an exhibit to the Company's Registration
Statement on Form SB-2                   (No. 333-116) filed on January 5, 1996).
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.8 |  | Non-Competition
Agreement between the Company and Brenda G. McKenzie, dated July 21, 1995
                  (incorporated by reference to an exhibit to the Company's Registration
Statement on Form SB-2                   (No. 333-116) filed on January 5, 1996).
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.9 |  | Non
Competition Agreement between the Company and George D. Johnson, Jr. dated September 1,
1998                   (incorporated by reference to exhibit 10.1 to the Company's
Registration Statement on Form S-4                   (No. 333-66955) filed on November 6,
1998).
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.10 |  | Credit
Agreement dated September 23, 1999 by and among the Company, the lenders party thereto
and                   National City Bank of Pennsylvania, as administrative agent, Bank
of America, as documentation                   agent and Bank of Montreal and Harris
Bank, as syndication agents ("Credit Agreement"), as                   amended by
Amendment No. 1 dated November 19, 1999 (incorporated by reference to the Company's
                  Proxy Statement on Schedule 14A filed on February 12, 1999)
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.11 |  | Non-Compete
Agreement between the Company, South Carolina Rentals, Inc. Paradise Valley Holdings,
                  Inc., L & B Rents, Inc. and James S. Archer, dated January 7, 1998
(incorporated by reference to                   exhibit 10.19 of the Company's Annual
Report on Form 10-K for the fiscal year ended  September                   30, 1998 filed
December 30, 1998)
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.17 |  | Purchasing
Agreement between Gateway Companies, Inc. and the Company dated April 28, 2000
                  (incorporated by reference to exhibit 10.27 to the Company's Annual
Report on Form 10-K for the                   fiscal year ended September 30, 2000 filed
on July 2, 2001).
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.18 |  | Common
Stock Purchase Agreement made as of May 1, 2000, between Gateway Companies, Inc. and the
                  Company (incorporated by reference to exhibit 10.28 to the Company's
Annual Report on Form 10-K                   for the fiscal year ended September 30, 2000
filed on July 2, 2001).
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.19 |  | Employment
Agreement between William McDonnell and the Company dated February 1, 2000
                  (incorporated by reference to exhibit 10.29 to the Company's Annual
Report on Form 10-K for the                   fiscal year ended September 30, 2000 filed
on July 2, 2001).
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.20 |  | Separation
Agreement between Jeffrey A. Conway and the Company dated as of December 28, 2000
                  (incorporated by reference to exhibit 10.30 to the Company's Annual
Report on Form 10-K for the                   fiscal year ended September 30, 2000 filed
on July 2, 2001).
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.21 |  | Employment
Agreement between William Short and the Company dated as of July 1, 2002 (incorporated
                  by reference to exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended                   December 31, 2002 filed on February 14,
2003).
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.23 |  | Common
Stock and Warrant Purchase Agreement among the Company and Calm Waters Partnership,
Walter                   H. Morris and Charles A. Paquelet  (with form of warrant
attached) (incorporated by reference to                   exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2002
                  filed on May 14, 2003 ).
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.24 |  | Registration
Rights Agreement between the Company and Calm Waters Partnership, Walter H. Morris
                  and Charles A. Paquelet (incorporated by reference to exhibit 10.2 to
the Company's Quarterly                   Report on Form 10-Q for the quarter ended March
31, 2002 filed on May 14, 2002)
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.27 |  | Credit
Agreement dated as of June 2, 2003 among the Company, the guarantors from time to time
                  parties thereto, the lenders from time to time parties thereto and
Harris Trust and Savings Bank,                   as administrative agent, National City
Bank of Pennsylvania, as syndication agent, and BMO Nesbit                   Burns, as
lead arranger (incorporated by reference to exhibit 10.2 to the Company's Current
                  Report on Form 8-K filed June 3, 2003).
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.28 |  | Inter-creditor
Agreement dated as of June 2, 2003 among Harris Trust and Savings Bank, as senior
                  agent, Manufacturers and Traders Trust Company, as trustee and
collateral agent under the                   Indenture, and the Company (incorporated by
reference to exhibit 10.3 to the Company's Current                   Report on Form 8-K
filed June 3, 2003).
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.29 |  | Registration
Rights Agreement dated May 23, 2003 among the Company, Citigroup Global Markets,
                  Inc., as the initial purchaser, and the subsidiary guarantors signatory
thereto (incorporated by                   reference to exhibit 10.1 to the Company's
Current Report on Form 8-K filed June 3, 2003).
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.30 |  | Securities
Purchase Agreement dated June 2, 2003 among the Company and the investors listed on
                  the schedule of buyers attached thereto (incorporated by reference to
exhibit 10.1 to the                   Company's Current Report on Form 8-K filed June 3,
2003).
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.31 |  | Registration
Rights Agreement dated June 2, 2003 among the Company and the buyers of the Series A
                  Convertible Preferred Stock (incorporated by reference to exhibit 10.2
to the Company's Current                   Report on Form 8-K filed June 3, 2003).
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.32 |  | First
Omnibus Amendment to Credit and Security Agreement dated July 2 2003 (incorporated by
                  reference to exhibit 10.1 of the Company's Quarterly Report on Form
10-Q for the quarter ended                   June 30, 2003 filed on August 14, 2003).
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|21.1 |  | Subsidiaries
of the Company (incorporated by reference to the exhibit 21.1 to the Company's
                  Annual Report on Form 10-K for the fiscal year ended September 30, 2001
filed on December 28,                   2001).
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|23.1* |  | Consent
of PricewaterhouseCoopers LLP.
|----- |  | --------------------------------------

|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