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, 2001

          [ ] 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 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)

           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, INC.

        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. [ ]

Based on the closing sales price on December 14, 2001, the aggregate market
value of stock held by non-affiliates of the registrant is $148,315,623.

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

          CLASS                         OUTSTANDING AS OF DECEMBER 14, 2001
       Common Stock                                    24,514,979

                 DOCUMENTS INCORPORATED BY REFERENCE:

    Portions of the registrant's  definitive proxy statement for its 2002 Annual
Meeting of  Shareholders  are  incorporated  by reference  into Part III of this
report.




<PAGE>



                                                           RENT-WAY, INC.

                                                         TABLE OF CONTENTS


<TABLE>
<CAPTION>


                                                                                                                     PAGE


<S>                                                                                                                  <C>
         CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND FUTURE PROSPECTS...............................1


         PART I

                  Item 1.   Business.............................................................................     2
                  Item 2.   Description of Properties............................................................     8
                  Item 3.   Legal Proceedings....................................................................     9
                  Item 4.   Submission of Matters to a Vote of Security Holders..................................     9

         PART II

                  Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters................     10
                  Item 6.   Selected Financial Data..............................................................     10
                  Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations     12
                  Item 7A.  Quantitative and Qualitative Disclosures About Market Risk...........................     16
                  Item 8.   Financial Statements and Supplementary Data..........................................     18
                  Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.     38

         PART III

                  Item 10.  Directors and Executive Officers of the Registrant...................................     39
                  Item 11.  Executive Compensation...............................................................     39
                  Item 12.  Security Ownership of Certain Beneficial Owners and Management.......................     39
                  Item 13.  Certain Relationships and Related Transactions.......................................     39

         PART IV

                  Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.....................     40


                  Signatures.....................................................................................     41

</TABLE>


<PAGE>




                                 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.

    The outcome of the class action and derivative  lawsuits  commenced  against
Rent-Way and its officers and directors and any  proceedings  or  investigations
involving  Rent-Way  commenced  by  governmental   authorities,   including  the
Securities and Exchange Commission and the United States Department of Justice.

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

    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.


<PAGE>


                                     PART I

    ITEM I.  BUSINESS

GENERAL

    Rent-Way, Inc. (the "Company" or "Rent-Way") is the second largest operator
in the rental-purchase industry with 1,087 stores in 42 states as of September
30, 2001. The Company offers quality brand name computers, home entertainment
equipment, furniture, 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. Management
believes that these rental-purchase arrangements appeal to a wide variety of
customers by allowing them to obtain merchandise that they might otherwise be
unable or unwilling to obtain due to insufficient cash resources or lack of
access to credit or because they have a temporary, short-term need for the
merchandise or a desire to rent rather than purchase the merchandise. 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.

ACCOUNTING INVESTIGATION AND RELATED DEVELOPMENTS

    Background. On October 30, 2000, Rent-Way announced that it was
investigating certain accounting matters, including potential accounting
improprieties. The investigation was conducted by outside counsel to the Company
and special counsel to the Audit Committee of the Board with the assistance of
forensic accountants from PricewaterhouseCoopers LLP. After evaluating
information revealed in the investigation and in the preparation of its fiscal
2000 year end financial statements, the Company restated its previously reported
fiscal 1998 and 1999 financial statements and its fiscal 2000 unaudited
quarterly financial statements.

    In response to the situation, the Company took the following actions in
fiscal 2001:

o        Reduced operating expenses by:

         --  Eliminating certain corporate office expenses;
         --  Reorganizing the store management structure resulting in the
             elimination of approximately 35-40 management positions;
         --  Establishing and enforcing store staffing levels based on number of
             accounts and sales volume;

o        Sold, closed or merged 85 under-performing stores;

o        Took steps to increase gross profit margins on rental contracts by:

         --  Increasing weekly rental rates of personal computers to
             competitive market rates;
         --  Implementing a program to eliminate free Internet service and, over
             time, replace it with a pre-paid, unlimited Internet product;
         --  Increasing rental rates on certain core products to competitive
             market rates;
         --  Identifying low end, low margin merchandise and eliminating them
             from current inventory by authorizing store managers to lower the
             cash price or normal rental rate and term;
         --  Identifying merchandise that, because of its age and or condition,
             could not generate normal industry margins and authorizing store
             managers to lower the cash price or normal rental rate and terms;
         --  Introducing higher end, higher margin merchandise to the stores;

o       Developed and implemented a plan to improve accounting systems and
        controls, including retaining an outside auditing firm to manage the
        Company's internal audit function;

o       Hired John A. Lombardi, a certified public accountant with public
        company accounting experience, as the Company's new Vice
        President-Controller and Chief Accounting Officer;

o       Reduced debt by $77.5 million from $384.5 at December 31, 2000, to
        $307.0 million at September 30, 2001;

o       Negotiated and entered into an amended credit agreement with its bank
        lenders on October 5, 2001 that provides the Company with sufficient
        borrowing capacity and revised loan covenants.



BUSINESS HISTORY

    Rent-Way was founded in 1981 to operate a rental-purchase store in Erie,
Pennsylvania. In fiscal 1993, the Company was operating 19 stores in three
states and had completed its initial public offering. In fiscal 1994, the
Company acquired 20 rental-purchase stores through its acquisition of D.A.M.S.L.
Corporation. In fiscal 1995, the Company acquired 50 rental-purchase stores, 46
through the acquisition of McKenzie Leasing Corporation. In fiscal 1996, the
Company acquired 32 rental-purchase stores in four separate transactions. In
fiscal 1997, the Company acquired 92 rental-purchase stores, 70 of which were
acquired from Perry Electronics, Inc. d/b/a Rental King. In fiscal 1998, the
Company acquired 226 rental-purchase stores, 50 of which were acquired from Ace
Rentals and 145 of which were acquired from Champion Rentals, Inc. The Company
also opened 13 new stores in fiscal 1998.

    On December 10, 1998, the Company completed a merger (the "Merger") with
Home Choice Holdings, Inc. ("HMCH" or "Home Choice"). The Merger, as per the
terms of the agreement, was recorded as a pooling of interests, in accordance
with Accounting Principles Board ("APB") Opinion No. 16. Under the terms of the
agreement the Company issued 0.588 shares of common stock for each outstanding
share of HMCH common stock. The Merger increased the outstanding shares of the
Company by approximately 10,025,000 shares. HMCH, at the time of the Merger,
operated 458 stores in 26 states, primarily in the southeastern, midwestern, and
southwestern portions of the United States, with annual revenues of
approximately $260 million. As a result of the Merger, the Company became the
second largest company in the rental-purchase industry. Also in fiscal 1999, the
Company acquired 275 rental-purchase stores, 250 of which were acquired from
RentaVision, Inc. in September 1999 and 21 of which were acquired from America's
Rent-to-Own Center, Inc. in June 1999. The Company also opened 12 new stores in
fiscal 1999.

    In fiscal 2000, the Company acquired 24 stores, 10 of which were acquired
from ABC Television and Appliance Rental, Inc., d/b/a Prime Time Rentals in
March 2000 and eight of which were acquired from eight separate corporations
d/b/a Rent City. The Company also opened 68 new stores in 31 states. In
addition, the Company entered into a three-year agreement with Gateway
Companies, Inc. in April 2000 to be the exclusive authorized supplier of Gateway
personal computers and related peripherals in the rental-purchase industry. As
part of this transaction, Gateway invested $7.0 million for 348,910 shares of
Rent-Way common stock. In January 2000, the Company acquired a 49% interest in
DPI and an additional 21% interest in May 2000 and now owns 70% of the company.
DPI offers prepaid local phone service and offers its services to customers
whose local phone service has been disconnected. The number of DPI customers has
grown from 14,000 at December 31, 1999, to 55,642 as of November 30, 2001.

    In fiscal 2001, the Company acquired two stores from Paradise Valley
Holdings, Inc. The Company also opened 32 new stores in 21 states. The Company
sold 39 stores in several small transactions and closed or combined 46
underperforming stores.

THE RENTAL-PURCHASE INDUSTRY

    Begun in the mid- to late-1960s, the rental-purchase business offers an
alternative to traditional retail installment sales. The rental-purchase
industry provides brand name merchandise to customers generally on a
week-to-week or month-to-month basis under a full service rental agreement,
which in most cases includes a purchase option. The customer may cancel the
rental agreement at any time without further obligation by returning the product
to the rental-purchase operator.

    The Association of Progressive Rental Organizations ("APRO"), the industry's
trade association, estimated that at the end of 2000 the U.S. rental-purchase
industry comprised approximately 8,000 stores providing 7.0 million products to
3.1 million households. The Company believes that its customers generally have
annual household incomes ranging from $20,000 to $40,000. Based on APRO
estimates, the rental-purchase industry had gross revenues of $5.3 billion in
2000. Until recently, the rental-purchase industry was highly fragmented. Over
the past five years, the industry has experienced significant consolidation and
maturation. The two largest national rental-purchase chains, Rent-A-Center and
Rent-Way, now operate approximately 42% of total industry stores.

STRATEGY

    The Company's immediate goal is to return to profitability in fiscal 2002,
which is the year ending September 30, 2002. Management believes that returning
to profitability in fiscal 2002 is a necessary first step in order to position
the Company for growth in fiscal 2003 and beyond. In general, the Company
intends to continue to implement strategies to achieve 10-12% operating income
and an EBITDA run rate of over $85-$95 million by the end of fiscal 2002.
EBITDA, as calculated by the Company, includes depreciation of property and
equipment, but excludes depreciation of rental merchandise. Management believes
that achieving these objectives, among other things, will allow it to obtain
more attractive, lower cost financing that will support its future growth.

    Management believes that the Company's success and its ability to achieve
profitability in fiscal 2002 depends on successful execution of the following
business strategies:

    Customer-Focused Philosophy. Management believes that through the continued
adherence to its "Welcome, Wanted and Important" business philosophy, it should
be able to increase its new and repeat customer base, and thus the number of
units it has on rent, thereby increasing revenues and net income. The "Welcome,
Wanted and Important" philosophy is a method by which the Company seeks to
create a store atmosphere conducive to customer loyalty. The Company attempts to
create this atmosphere through the effective use of advertising and
merchandising strategies, by maintaining the clean and well-stocked appearance
of its stores and by providing a high level of customer service (such as its
toll-free 1-800-RENTWAY comment and complaint line). The Company's advertising
emphasizes brand name merchandise from leading manufacturers. In addition,
merchandise selection within each product category is periodically updated to
incorporate the latest offerings from suppliers. Services provided by the
Company to the customer during the term of the contract include home delivery,
installation, ordinary maintenance and repair services and pick-up at no
additional charge. Store managers also work closely with each customer in
choosing merchandise, setting delivery dates and arranging a suitable payment
schedule. As part of the "Welcome, Wanted and Important" philosophy, store
managers are encouraged and trained to make decisions regarding store operations
subject to certain Company-wide operating guidelines and general policies.

    Enhance Branding and Marketing Efforts. The Company is in the process of
causing all its stores to operate under the "Rentway" name. This process is
expected to be completed by the end of February 2002. Management is also
developing a marketing plan aimed at creating dramatic brand differentiation
between the Company and its competitors.

    Enhancing the Company's Product Lines--Leveraging Distribution Channel. The
Company seeks to provide the rental-purchase customer with the opportunity to
obtain high quality, state-of-the-art merchandise by maintaining a broad
selection of products representing the latest in technology and style. The
Company also believes it has a unique distribution channel to a consumer that is
underserved. Accordingly, the Company intends to leverage this distribution
channel by identifying opportunities to offer additional higher margin products
and services not traditionally offered to the rental-purchase customer.

    Improving Existing Store Performance. The Company intends to continue to
focus on improving store operating margins and cash flow by increasing existing
rental merchandise usage, controlling expenditures for new rental merchandise
and operating expenses and making competitive price increases. The improved cash
flow will be used to pay down existing debt. Rental merchandise levels in the
stores will be closely monitored. Store managers will encounter greater scrutiny
at the regional and corporate level of orders placed for rental merchandise.
Before orders are placed, inventory levels will be reviewed against pre-approved
standards to prevent the purchase of excess inventory. In order to better
control operating expenses, a greater focus will be placed on payroll and store
staffing levels. Store staffing level guidelines have been developed to ensure
the stores have adequate numbers of employees during peak business hours while
minimizing overtime and excess payroll.

    Controlling Corporate Overhead. The Company evaluates, on an ongoing basis,
its corporate-level processes, procedures and staffing levels and attempts to
achieve increased corporate-level efficiency. As a result of these evaluations,
the Company anticipates a reduction of corporate expenditures.

    Monitoring Store Performance. The Company's management information system
allows store, regional and corporate-level managers to track rental and
collection activity on a daily basis. The system generates detailed reports that
track inventory movement by piece and by product category and the number and
frequency of past due accounts and other collection activity. Significant
upgrades to the store reporting systems were made during fiscal 2001. Timely
reports are now generated at the store, regional and corporate level to monitor
pricing and gross margin. Payroll reports are monitored on a weekly basis to
ensure compliance with mandated store staffing levels.

    In fiscal 2002, the Company intends to upgrade its point of sale software
system. This upgrade includes the implementation of a Windows-based program that
will allow the Company's stores to take full advantage of the Company's
Intranet. In addition, the Company is in final stages of negotiations with two
companies regarding the installation of satellite communication technology for
its stores. Management believes that, because of the remote locations of some of
the Company's stores, satellite connectivity is the best solution for broadband
communications. Implementation of this system will facilitate the full use and
monitoring of the Company's new computer-based training programs.

    Physical inventories are regularly conducted at each store to ensure the
accuracy of the management information system data. Senior management monitors
this information to ensure adherence to established operating guidelines. In
addition, each store is provided with a monthly profit and loss statement to
track store performance. Management believes the Company's management and
accounting information systems enhance its ability to monitor and affect the
operating performance of existing stores and to integrate and improve the
performance of newly acquired stores. In fiscal 2000, the Company enhanced its
internal audit program. This program is now under the supervision of an outside
auditing firm, Shaffner, Knight & Minnaugh of Erie, Pennsylvania. The internal
audit program includes the inspection of a store's cash, fixed assets, and
rental merchandise agreements. In addition, the internal auditors ensure
compliance of certain Company policies and procedures. Upon the completion of a
store audit, a report is generated and circulated to appropriate management
personnel. Follow up responses and visits are scheduled as appropriate.

    Results-Oriented Compensation. Management believes that an important reason
for the Company's positive store-level financial performance and growth has been
the structure of its management compensation system. A significant portion of
the Company's regional and store managers' total compensation is dependent upon
store performance. Profit incentives when earned can count for as much as 30% of
a store manager's pay. Regional and store managers earn incentives by increasing
both store revenues and operating profits. As further incentive, the Company
grants managers stock options. Management believes that the Company's emphasis
on incentive-based compensation is instrumental in the Company's ability to
attract, retain, and motivate its regional and store managers.

    Manager Training and Empowerment. The Company constantly updates its
training materials and procedures to reflect changing policies, products and
services. The Company will launch a new computer based training, or CBT,
initiative in early fiscal 2002. The advantage of the CBT format is easy access
through the Company intranet and the ease of keeping training materials up to
date. All store personnel will be required to complete a variety of job
appropriate training programs. Tests will be given at the completion of each
stage of training to ensure that the employee comprehends the material.

OPERATIONS

    Company Stores.  As of September 30, 2001, the Company operated 1,087 stores
in 42 states as follows:
<TABLE>
<CAPTION>


                                    NUMBER OF                        NUMBER OF                          NUMBER OF
                 LOCATION            STORES          LOCATION         STORES           LOCATION          STORES
                 --------            ------          --------         ------           --------          ------
<S>                                    <C>                              <C>                                 <C>
           Texas                       117       Arkansas               34        Iowa                      8
           Florida                     88        Alabama                28        New Mexico                8
           New York                    75        Michigan               27        West Virginia             8
           South Carolina              61        Kansas                 18        Nevada                    6
           Pennsylvania                60        Missouri               18        Vermont                   6
           Ohio                        58        Arizona                17        Delaware                  5
           North Carolina              54        Oklahoma               16        California                4
           Tennessee                   41        Maryland               15        Utah                      4
           Louisiana                   40        Mississippi            15        Washington                4
           Georgia                     39        Maine                  13        Connecticut               3
           Indiana                     37        Massachusetts          13        Oregon                    3
           Illinois                    37        Nebraska               12        Idaho                     2
           Kentucky                    36        New Hampshire           9        Rhode Island              2
           Virginia                    36        Colorado                8        South Dakota              2


</TABLE>

    The Company's stores average approximately 3,900 square feet in floor space
and are generally located in strip shopping centers in or near low to middle
income neighborhoods. Often, such shopping centers offer convenient free parking
to the Company's customers. The Company's stores 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. In
selecting store locations, the Company uses a variety of market information
sources to locate areas of a town or city that are readily accessible to low and
middle income consumers. The Company believes that within these areas, the best
locations are in neighborhood shopping centers that include a supermarket. The
Company believes this type of location makes frequent rental payments at its
stores more convenient for its customers. Generally, the Company refurbishes its
stores every two to five years.

    Product Selection. The Company offers brand name computers, home
entertainment equipment, furniture, major appliances and jewelry. Home
entertainment equipment includes television sets, DVDs, VCRs, camcorders and
stereos. Major appliances offered by the Company include refrigerators, ranges,
washers and dryers. The Company's product line currently includes the Toshiba,
Sony, Zenith, RCA, JVC, Phillips and Panasonic brands in home entertainment
equipment, the Amana, Crosley, and General Electric brands in major appliances
and the Ashley, Bassett, Howard Miller, Catnapper, Progressive and England
brands in furniture. The Company closely monitors customer rental requests and
adjusts its product mix accordingly.

    For the year ended September 30, 2001, payments under rental-purchase
contracts for home entertainment products including computers accounted for
approximately 53.5%, furniture for 26.4%, appliances for 15.6%, and jewelry for
4.5% of the Company's rental revenues. Customers may rent either new merchandise
or previously rented merchandise. Weekly rentals currently range from $7.99 to
$44.99 for home entertainment equipment, from $6.99 to $41.99 for furniture,
from $10.99 to $31.99 for major appliances and from $9.99 to $25.99 for jewelry.
Gateway computers are offered as low as $19.99 per week. Prepaid Internet access
is offered at $10.00 for 10 hours. 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 and
requests home delivery. Customers rent merchandise primarily 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. 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. Based upon
merchandise returns for the year ended September 30, 2001, the Company believes
that the average period of time during which customers rent merchandise is 17 to
18 weeks. However, turnover varies significantly based on the type of
merchandise being rented, with certain consumer electronic products, such as
camcorders and VCRs, 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. In order to cover the relatively high operating
expenses generated by greater product turnover, rental-purchase agreements
require larger aggregate payments than are generally charged under installment
purchase or credit plans for similar merchandise.

    Customer Service. The Company offers same-day delivery, installation and
pick-up of its merchandise at no additional cost to the customer. 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. 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 Rent-Way
Plus, a fee-based membership program that provides special loss and damage
protection and an additional one year of service protection on rental
merchandise, 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 with minimal associated costs, decrease the likelihood of default
and reduce charge-offs. Senior management, as well as store managers, uses 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
reinstate 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 to abide by the restrictions of this law in its collection
procedures. Charge-offs due to lost or stolen merchandise and discards were
approximately 4.6%, 3.9% and 3.5% of the Company's revenues for the years ended
September 30, 2001, 2000, and 1999, respectively. The charge-off rate for chains
with over 40 stores reporting to APRO in 2000 was 4.4%.

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
certain marketing efforts. A Company store normally employs one store manager,
one assistant manager, two account managers, and one full-time delivery and
installation technician. The staffing of a store depends on the number of
rental-purchase contracts serviced by the store.

    In December 2000, the Company reorganized its field management structure.
Each store manager reports to one regional manager, each of whom typically
oversees six 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, in turn, report to either a
divisional vice president or a regional director who monitor the operations of
their divisions and, through their regional managers, individual store
performance. The divisional vice presidents and regional directors 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 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. Headquarters personnel also evaluate the performance of each
store.

    At the corporate level in fiscal 2001, the Company hired a new Vice
President-Controller and Chief Accounting Officer and a new Vice President of
Marketing. The Company also promoted an employee to be the new Vice President of
Purchasing and promoted an employee to be the new Assistant Controller.



DEVELOPMENT AND IMPLEMENTATION OF EFFECTIVE
INTERNAL ACCOUNTING SYSTEMS AND CONTROLS

    In order to strengthen its internal controls, the Company engaged the firm
Shaffner, Knight & Minnaugh, CPAs, Erie, Pennsylvania, in fiscal 2001 to oversee
the Company's internal audit function and to monitor compliance with financial
reporting and internal controls.

MANAGEMENT INFORMATION SYSTEM

    The Company believes that its proprietary management information system
provides it with a competitive advantage over many small rental-purchase
operations. The Company uses an integrated computerized management information
and control system to track each unit of merchandise, each rental-purchase
agreement, and each customer. The Company's system also includes extensive
management software and report generating capabilities specifically tailored to
the Company's operating procedures. Reports for all stores are reviewed daily by
senior management and any issues are addressed the following business day. 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. Company management has access to operating and financial information
about any store location or region in which the Company operates and generates
management reports 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 as compared to Company-prescribed guidelines. While the
Company believes its management information system is competitive to meet its
needs for the foreseeable future, the Company is currently developing a new
enhanced store-level point of sale system to better leverage changes in
technology.

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, where it is held for rental. The Company purchases its merchandise
directly from manufacturers or distributors. 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's operations is dependent on any one or more of its
present suppliers.

MARKETING AND ADVERTISING

    The Company promotes its products and services through targeted direct mail,
network radio and television advertising and, to a lesser extent, through local
radio and secondary print media advertisement. The Company also solicits
business from former and prospective customers via telemarketing. The Company's
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, 2001, 2000 and 1999 were 3.2%, 3.4% and 4.8%, respectively. In
addition to the Company's national advertising efforts, the Company has begun
development of a local store-marketing plan to allow the stores to leverage
market specific knowledge. As the Company obtains new stores in its existing
markets, the advertising expenses of each store in the market can be reduced by
listing all stores in the same market-wide advertisement. In addition, the
Company participates in cooperative advertising programs with many of its major
vendors.

COMPETITION

    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 rental rates and terms, product selection and availability, and
customer service. 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. The Company is the second largest operator
in the rental-purchase industry, second only to Rent-A-Center. Rent-A-Center has
significantly greater financial and operating resources and name recognition
than does the Company.

PERSONNEL

    As of December 5, 2001, the Company had approximately 5,399 employees, 266
of which are located at the corporate headquarters in Erie, Pennsylvania. None
of the Company's employees are represented by a labor union. Management believes
its relations with its employees are good.
GOVERNMENT REGULATION

    Forty-seven states have enacted legislation for the purpose of regulating
rental-purchase transactions. All of these state laws other than Alaska, Hawaii
and Montana were enacted five or more years ago. 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 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.

    All of the states in which the Company operates 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 (with exception of Minnesota, New
Jersey and Wisconsin) have characterized rental-purchase transactions as leases
rather than credit sales. Court decisions in Minnesota, New Jersey and Wisconsin
have created a regulatory environment in those states that is prohibitive to
traditional rental-purchase transactions. The Company does not operate in those
states.

    The Company instructs its 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 there is little likelihood of state or federal
legislation or additional court decisions re-characterizing rental-purchase
transactions as credit sales. 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 under the Lanham Act.
The Company believes that this mark has acquired significant market recognition
and goodwill in the communities in which its stores are located. Related designs
have also been registered by the Company under the Lanham Act.

BUSINESS OF dPi TELECONNECT LLC

    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. This business was made possible by the
Telecommunications Act of 1996, which encouraged the establishment of
competitive local exchange carriers, or CLECs. DPI currently operates in a niche
segment of the CLEC industry. CLECs compete with the regional Bell operating
companies or their established, 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 Rent-Way'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 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. The Company, with 780 stores now offering the service, is
DPI's largest agent. 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
Company's 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 November 30, 2001, DPI had 55,642
customers.

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 require the Company
to pay real estate taxes, utilities and maintenance. The Company has optional
renewal privileges on most of its 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, that the terms will
be favorable to the Company. Management believes that suitable store space is
generally available for lease and that the Company would be able to relocate any
of its stores without significant difficulty should it be unable to renew a
particular lease. Management also expects that additional space will be readily
available at competitive rates for new store openings. The Company owns its
corporate headquarters located in Erie, Pennsylvania, which comprises 74,000
square feet. The Company owns an office building in Erie, Pennsylvania, which
was a satellite office of its former headquarters and is now listed for sale.
The Company also owns an office building in Erie, Pennsylvania, which is used
for record retention and comprises approximately 8,200 square feet. This
building is also listed for sale.

ITEM 3.  LEGAL PROCEEDINGS

    Investigations. There are currently pending federal governmental
investigations by the SEC and the United States Attorney involving the Company's
financial reporting. Rent-Way is cooperating fully in these investigations. The
investigations are ongoing and the Company cannot predict their outcomes. If
Rent-Way is convicted of any crime or subjected to sanctions, or if substantial
penalties, damages or other monetary remedies are assessed against Rent-Way,
this could have a material adverse effect on the Company's results of
operations, financial condition, and cash flows.

    Securities Litigation. Rent-Way and certain of its current and former
officers have been served with a consolidated class action complaint filed in
the U.S. District Court for the Western District of Pennsylvania. The complaint
alleges that, among other things, as a result of accounting improprieties, the
Company's previously issued financial statements were materially false and
misleading thus constituting violations of federal securities laws by the
Company, by its auditors and by certain officers. The actions allege that the
defendants violated Sections 10(b) and/or Section 20(a) of the Securities
Exchange Act and Rule 10b-5 promulgated thereunder. The actions seek damages in
unspecified amounts. The actions purport to be brought on behalf of purchasers
of the Company's common stock during various periods, all of which fall between
December 10, 1998, and October 27, 2000. Rent-Way has filed a motion to dismiss
the complaint and continues to evaluate the complaint and possible defenses
thereto. Pending determination of the motion to dismiss, the Company's
obligation to answer the complaint is stayed.

    Certain of Rent-Way's officers and directors and Rent-Way, as nominal
defendant, have been sued in a shareholder derivative action brought on behalf
of Rent-Way in the U.S. District Court for the Western District of Pennsylvania.
The derivative complaint purports to assert claims on behalf of Rent-Way against
the defendants for violation of duties asserted to be owed by the defendants to
Rent-Way and which relate to the events which gave rise to the purported class
actions described above. All proceedings in the derivative case have been stayed
pending the resolution of the class action lawsuit.

    Rent-Way is presently unable to predict or determine the final outcome of,
or to estimate the amounts or potential range of loss with respect to, the
investigations and the securities litigation described above. Management
believes that an adverse outcome with respect to such proceedings could have a
material adverse impact on the Company's financial position, results of
operations or cash flows.

    Pursuant to its bylaws, Rent-Way is obligated to indemnify its officers and
directors under certain circumstances against claims made in the lawsuits.
Rent-Way may also be obligated to indemnify certain of its officers and
directors for the costs they incur as a result of the investigations and
lawsuits.

    Rent-Way is also subject to litigation in the ordinary course of business.
In the opinion of management, the ultimate outcome of any existing litigation,
other than the investigations and the lawsuits described above, would not have a
material adverse effect on the Company's financial condition, results of
operations, or cash flows.

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

    The 2000 Annual Meeting of Shareholders of the Company was held on September
28, 2001, at the Company's headquarters, One Rentway Place, Erie, Pennsylvania.
The only matter voted on at the meeting was the election of two (2) Class I
directors of the Corporation to serve until the 2004 Annual Meeting of
Shareholders. The results of the vote was as follows:
<TABLE>
<CAPTION>

           Name                  Class         Votes For        Votes Against          Abstentions

<S>                                            <C>                <C>                   <C>
William Morgenstern                I           19,854,187         1,183,223             3,472,569
Vincent Carrino                    I           20,784,063           253,347             3,472,569
</TABLE>




    On November 20, 2001,  Vincent  Carrino  resigned as a director for personal
reasons.  The Board of Directors  elected John W. Higbee, a retired former audit
partner of Arthur  Andersen  LLP, to fill the vacancy  created by Mr.  Carrino's
resignation.  Mr.  Higbee will be a Class I director of the Company  with a term
expiring  in 2004.  Mr.  Higbee  will also serve on the Audit  Committee  of the
Board.

<PAGE>




                                     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.

<TABLE>
<CAPTION>

                                                            YEAR ENDED             YEAR ENDED
                                                           SEPTEMBER 30,          SEPTEMBER 30,
                                                               2001                   2000
                                                     ---------------------      ---------------
                                                      HIGH           LOW       HIGH           LOW
<S>                                               <C>           <C>          <C>           <C>
                              First Quarter.      $   30.25     $  2.6875    $  20.25      $ 13.9375
                              Second Quarter           8.27          4.00       21.00          15.25
                              Third Quarter.          10.90          5.01      30.375          19.50
                              Fourth Quarter           9.60          5.25       32.25          20.00
</TABLE>

    As of December 14, 2001, there were 242 shareholders of record of Rent-Way's
common stock.

    The Company has not paid any cash dividends to shareholders. The declaration
of any 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 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
dividends.

ITEM 6.  SELECTED FINANCIAL DATA

    The following selected financial data for the years ended September 30,
1997, 1998, 1999, 2000, and 2001, were derived from the audited financial
statements of the Company for those periods. All periods prior to the year ended
September 30, 1999, have been restated to reflect the Company's merger with Home
Choice in December 1998, which was accounted for as a pooling of interests. 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.

<TABLE>
<CAPTION>


                                                                               YEAR ENDED SEPTEMBER 30,
                                                       --------------------------------------------------------------------
                                                       1997(1)(2)    1998(1)(3)      1999(4)        2000(5)         2001(6)
                                                       ----------    ----------      -------        -------         -------

                                                                    (Dollars in thousands, except per share data)
     STATEMENT OF OPERATIONS DATA:
<S>                                                       <C>          <C>            <C>            <C>            <C>
       Total revenues...............................      $320,330     $436,031       $494,352       $592,686       $654,618
       Operating profit (loss)......................        10,998        8,589         24,674            596        (10,237)
       Income (loss) before extraordinary item......         1,566       (5,819)          (246)       (28,041)       (63,625)
       Net income (loss)............................         1,297       (5,819)          (765)       (28,041)       (63,625)
       Earnings (loss) applicable to common shares..         1,577       (5,819)          (765)       (28,041)       (63,625)
       Basic Earnings Per Share:
         Income (loss) before extraordinary item....      $   0.11    $   (0.29)     $   (0.01)     $   (1.20)     $   (2.60)
         Net income (loss)..........................      $   0.09    $   (0.29)     $   (0.04)     $   (1.20)     $   (2.60)

       Diluted Earnings Per Share:
         Income (loss) before extraordinary item....      $   0.11    $   (0.29)     $   (0.01)     $   (1.20)     $   (2.60)
         Net income (loss)..........................      $   0.09    $   (0.29)     $   (0.04)     $   (1.20)     $   (2.60)
       Weighted average shares outstanding (in thousands):
         Basic......................................        16,653       20,283         21,341         23,314         24,501
         Diluted....................................        16,653       20,283         21,341         23,314         24,501

     BALANCE SHEET DATA:
       Rental merchandise, net......................      $132,393     $175,085       $196,510       $282,052       $218,973
       Total assets.................................       319,849      487,536        609,658        766,311        628,177
       Debt.........................................        96,318      179,603        288,130        387,852        307,009
       Shareholders' equity.........................       183,968      244,090        258,487        267,822        206,042

</TABLE>

1)  The year ended September 30, 1998 reflects the combination of the preceding
    twelve-month financial periods for each of Rent- Way and Home Choice. The
    year ended September 30, 1997 reflects the combination of twelve months
    ended September 30 for Rent-Way and twelve months ended December 31 for Home
    Choice.

2)  During the year ended September 30, 1997, the Company acquired 214
    rental-purchase stores, 70 of which were acquired in February 1997 from
    Perry Electronics, Inc. d/b/a Rental King, which affects the comparability
    of the historical financial information for the periods presented.

3)  During the year ended September 30, 1998, the Company acquired 250
    rental-purchase stores, 50 of which were acquired in January 1998 from Ace
    Rentals and 145 of which were acquired in February 1998 from Champion, which
    affects the comparability of the historical financial information for the
    periods presented.

4)  During the year ended September 30, 1999, the Company acquired 275
    rental-purchase stores, 250 of which were acquired in September 1999 from
    RentaVision, which affects the comparability of the historical financial
    information for the periods presented.

5)  During the year ended September 30, 2000, the Company acquired 24
    rental-purchase stores and a 70% interest in DPI, which affects the
    comparability of the historical financial information for the periods
    presented.

6)  During the year ended September 30, 2001, the Company closed, combined or
    sold 85 stores, which affects the comparability of the historical financial
    information for the periods presented. In addition, the Company incurred
    substantial accounting and legal fees in connection with the accounting
    improprieties investigation, significant default interest and forbearance
    fees expense, a non-cash expense as a result of adverse changes in the fair
    value of its interest rate swap portfolio, and the less than historical
    margins received on the disposition of low margin rental merchandise.

<PAGE>


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

OVERVIEW

    Rent-Way is the second largest operator in the rental-purchase industry with
1,087 stores in 42 states as of September 30, 2001. The Company offers quality
brand name home entertainment equipment, furniture, appliances, computers, 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. Segment
information for the Company is presented in Note 17 of the notes to the
financial statements included in this report. The Company has not presented
separate information in this Item 7 regarding its prepaid telephone service
segment except in the discussion of total revenues and operating income. The
Company believes that other items for its prepaid telephone service segment are
immaterial.

    Rental-Purchase Acquisitions and Store Openings. Primarily through
acquisitions, the number of stores operated by the Company has increased from
869 as of September 30, 1998, to 1,087 as of September 30, 2001. The following
table shows the number of stores opened, acquired and/or combined during this
three-year period.

<TABLE>
<CAPTION>

                                                                    YEARS ENDED SEPTEMBER 30,
                                       STORES                  1999           2000           2001
                             --------------------------   -------------  -------------  ---------
<S>                                                             <C>          <C>            <C>
                             Open at Beginning of Period        869          1,114          1,138
                             Opened....................          12             68             32
                             Acquired..................         275             24              2
                             Locations Sold............          --             (4)           (39)
                             Closed or Combined........         (42)           (64)           (46)
                                                          ----------      ---------     ----------
                             Open at End of Period.....        1,114          1,138          1,087
                             =====================        ==========      =========     ==========
</TABLE>

    Fiscal 2001 Acquisitions. On October 19, 2000, the Company acquired from
Paradise Valley Holdings, Inc. d/b/a Ace Rentals, two stores, one located in
Kentucky and one located in North Carolina with annual revenues of approximately
$0.8 million in exchange for consideration of $0.3 million in cash.

    Fiscal 2001 Store Sales, Swaps and Closures or Combinations. On September
24, 2001, the Company sold 27 rental-purchase stores to Rent-A-Center, Inc.
("Rent-A-Center") in exchange for $5.0 million in cash. Pursuant to the terms of
the sales agreement, $0.3 million of the sales price was placed in escrow,
subject to the terms of the escrow agreement to satisfy sellers' representations
and warranties and any sales price adjustments. The Company recognized a gain of
$1.9 million as a result of the transaction with Rent-A-Center.

    In April and May 2001, the Company entered into asset purchase and exchange
agreements whereby the Company exchanged three stores for two stores and
approximately $0.1 in cash. The Company recognized a gain of approximately $0.1
million as a result of these transactions. The Company exchanged assets with a
net book value of $0.3 million for assets with a fair value of $0.3 million.

    During 2001, the Company sold nine stores in several transactions in
exchange for $0.9 in cash. In connection with these transactions, the Company
sold assets with a net book value of $0.8 million and recorded a gain of $0.1
million.

    In addition to the store information discussed above, the following matters
should be considered in connection with the discussion of results of operations
and financial condition:

o       The Company incurred substantial accounting and legal fees and expenses
        in fiscal 2001 in connection with its accounting investigation and
        fiscal 2000 audit. The Company incurred $7.9 million of these expenses
        in fiscal 2001. The Company anticipates incurring additional significant
        legal and other expenses in connection with the class action litigation
        and governmental investigations which are ongoing.

o       The Company took actions in fiscal 2001 which had the effect of
        significantly reducing operating income but which management believes
        were necessary. Among the actions taken were (1) identifying and
        disposing of store merchandise that did not generate normal industry
        margins by lowering cash purchase prices or rental rates and terms, (2)
        writing off store merchandise that could not be sold or rented on these
        lower terms or met certain age or condition criteria of approximately
        $2.1 million and (3) closing or combining 46 stores which resulted in
        charges for early termination of store leases and fixed asset write-offs
        of approximately $4.3 million.

o       The Company paid approximately $13.2 million to its bank lenders in
        fiscal 2001 in the form of default interest and forbearance fees.

o       The Company incurred a non-cash expense of $12.6 million as a result of
        adverse changes in the fair value of its interest rate swap portfolio in
        accordance with Statement of Financial Standard No. 133 (See Note 9).

RESULTS OF 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, 2001, 2000 and 1999 as a percentage
of total revenues.

<TABLE>
<CAPTION>

                                                                  YEARS ENDED SEPTEMBER 30,

                                                              2001            2000          1999
                                                          ------------    ------------  --------

                   Revenues:
<S>                                                             <C>             <C>           <C>
                    Rental.............................         80.8%           84.2%         86.4%
                     Prepaid phone service.............          5.3             1.5           --
                     Other.............................         13.9            14.3          13.6
                                                          ----------      ----------    ----------
                        Total revenues.................        100.0           100.0         100.0
                   Costs and operating expenses:
                     Depreciation and amortization:
                       Rental merchandise..............         30.7            26.5          25.3
                       Property and equipment..........          4.8             4.3           3.9
                       Amortization of goodwill........          2.2             2.3           2.0
                     Cost of prepaid phone service.....          3.1             1.0           --
                     Salaries and wages................         24.3            25.5          26.3
                     Advertising, net..................          3.2             3.4           4.9
                     Occupancy.........................          7.8             7.7           6.6
                     Business combination costs........          --              --            3.6
                     Other operating expense...........         25.5            29.1          22.5
                                                          ----------      ----------    ----------
                        Total costs and operating              101.6            99.8          95.1
                          expenses.....................
                     Operating income (loss)...........         (1.6)            --            5.0
                     Interest expense..................         (6.5)           (5.0)         (3.5)
                     Equity in loss of subsidiary......          --             (0.1)          --
                     Other income (expenses), net......         (1.6)            0.3          (0.1)
                                                          -----------     ----------    -----------
                      Income (loss) before income taxes
                        and extraordinary item.........         (9.7)           (4.8)          1.4

                     Income tax expense (benefit)......           --            (0.1)          1.5
                                                          ----------      -----------   ----------
                     (Loss) before extraordinary item..         (9.7)           (4.7)         (0.1)
                     Extraordinary item................           --              --          (0.1)
                                                          ----------      ----------    -----------
                        Net (loss).....................         (9.7%)          (4.7%)        (0.2%)
                                                          ============    ============  ============

</TABLE>


FISCAL 2001 COMPARED TO FISCAL 2000

    Total Revenues. Total revenues increased $61.9 million, or 10.4%, to $654.6
million from $592.7 million. The increase is attributable to the inclusion of a
full year's results for the stores acquired and opened in fiscal 2000, a partial
year's operations for the stores acquired and opened in fiscal 2001, a full
year's results for DPI, and increased revenues in the Company's core stores
offset by the revenue lost from stores closed or merged. DPI revenue accounted
for $25.5 million, or 41.2%, of the increase. Stores acquired in fiscal 2000
acquisitions accounted for $5.7 million, or 9.2%, of the increase. Stores opened
in fiscal 2000 and 2001 accounted for $30.3 million, or 48.9%, of the increase.
Stores acquired in fiscal 2001 accounted for $0.7 million, or 1.1%, of the
increase. The Company's core stores accounted for $13.7 million, or 22.1%, of
the increase. These increases were offset by a loss of $14.0 million in revenue
that resulted from closed, combined, and sold stores. Same store revenues
increased 2.0%. This increase in same store revenues is primarily due to
increased computer revenues, prepaid phone service revenues, and merchandise
sales revenue. The Company expects increased same store revenues in fiscal 2002
due to, among many other factors, the addition of new products and services.
Management believes that opportunities exist to provide additional
non-traditional merchandise and services to its customers.

    Depreciation and Amortization. Depreciation expense related to rental
merchandise increased to 30.7% as a percentage of total revenues from 26.5%.
This increase is primarily due to the depreciation expense related to computers
and the merchandise reduction initiatives undertaken by the Company. Computers
(Gateway computers were added to the Company's product line in June 2000) are
depreciated on a straight-line basis over 12 to 24 months, depending on the type
of computer. In late fiscal 2001, the Company undertook merchandise reduction
sales initiatives to rid the system of lower margin merchandise. As a result of
this initiative, the margin on merchandise sales decreased. In fiscal 2001, the
Company recorded merchandise sales of $14.2 million with a remaining value on
items sold of $18.4 million, or a margin of ($4.2 million). In fiscal 2000, the
Company recorded sales of $12.3 million with a remaining value of $10.9 million,
or a margin of $1.4 million. The remaining value of merchandise sold is included
in depreciation expense. The Company expects depreciation expense as a
percentage of total revenues to decrease in fiscal 2002 as product margins
improve due to enhanced rental rates and turns.

    Depreciation expense related to property and equipment increased to 4.8% as
a percentage of total revenues from 4.3%. This increase is due to the build-outs
for new stores and remodels for stores acquired since June 2000.


    Amortization of goodwill decreased to 2.2% as a percentage of total revenues
from 2.3%. This decrease is due to the amortization of a relatively fixed
goodwill amount over an increased revenue base.

    Salaries And Wages. Salaries and wages increased by $8.0 million to $158.9
million from $150.9 million primarily due to the addition of a full year's
salaries and wages for stores opened and acquired in 2000. Salaries and wages
decreased to 24.3% as a percentage of total revenues from 25.5%. This decrease
is due to the Company's efforts to better manage store staffing levels and
overtime. It is also the result of a reduction in corporate staffing levels.

    Advertising. Advertising expense increased from $20.1 million in 2000 to
$20.8 million in 2001, but decreased from 3.4% as a percentage of total revenues
to 3.2%. This decrease as a percentage of total revenues is due to the Company's
ability to spread these costs over a greater revenue base.

    Occupancy. Occupancy expense increased to $51.3 million from $45.8 million
primarily due to the addition of the stores opened and acquired in fiscal 2000
and 2001. This increase is also due to $3.0 million recorded in association with
lease terminations for the stores closed, combined or sold.

    Other Operating Expenses. Other operating expenses decreased by $5.7 million
and decreased to 25.5% as a percentage of total revenue from 29.1%. The decrease
in other operating expenses includes decreases in write-offs of property and
equipment, payroll taxes, office supplies, state and local taxes, travel and
entertainment expenses, bank charges, moving expenses, training and conference
expenses, and postage. After the discovery of the accounting improprieties,
management began examining and evaluating all processes and costs to eliminate
redundancies, inefficiencies, and any unnecessary costs. Management plans to
continue these efforts in fiscal 2002 to further reduce these operating costs.
Offsetting these reductions in other operating expenses are increased
accounting, legal and professional fees. The Company has incurred greater fees
for these services as a result of the investigations into the accounting
improprieties. These accounting and legal fees amounted to $7.9 million.
Included in other operating expenses is $2.1 million for the write-off of rental
merchandise due to age or condition in fiscal 2001.

    Operating Income (Loss). Operating income declined to a loss of $10.2
million in 2001 as compared to operating income of $0.6 million in 2000. The
rental-purchase rental segment had an operating loss of $14.0 million while the
prepaid telephone service segment had an operating income of $3.8 million. The
decrease is the result of the factors discussed above.

    Interest Expense. Interest expense increased to 6.5% from 5.0% of total
revenues. $10.6 million of this increase is due to a higher effective interest
rate charged during the period the Company was in default under its bank credit
facility and forbearance fees expense of $2.6 million.

    Other Income (Expense), Net. Other expense was $10.8 million in fiscal 2001
compared to income of $1.7 million in fiscal 2000. In fiscal 2001, the Company
adopted SFAS No. 133. Under SFAS No. 133, the Company was required to record the
fair value of its interest rate swaps as an asset. On October 1, 2000, an asset
was recorded in the amount of $2.5 million. An adverse change in fair value of
the interest rate swap portfolio amounting to $12.6 million for the year ended
September 30, 2001, was charged to other expense. Offsetting this amount are
gains on the sale of stores. The Company entered into several small transactions
to sell 39 under-performing stores. The Company recognized a net gain of $2.1
million on these store sale transactions.

    Income Tax Expense. In fiscal 2001, the tax benefit for losses has been
fully offset by the valuation allowance. There is no tax benefit since all
opportunities for loss carrybacks have been previously utilized. In fiscal 2000,
a tax benefit of $.2 million was recorded. The net deferred tax asset of $34.2
million for fiscal 2001 and the net deferred tax asset of $10.0 million for
fiscal 2000 have been fully offset by a valuation allowance based on
management's determination that it is more likely than not that the net deferred
tax assets may not be realized. The Company's federal and state tax benefit in
fiscal 2001 and fiscal 2000 is lower than the statutory rate primarily due to
the deferred tax valuation allowance and nondeductible goodwill.

    Net Loss.  Net loss  increased  by $35.6  million as a result of the factors
described above.

FISCAL 2000 COMPARED TO FISCAL 1999

    Total Revenues. Total revenues increased $98.3 million, or 19.9%, to $592.7
million from $494.4 million. The increase is attributable to the inclusion of a
full year's results for the stores acquired and opened in fiscal 1999, a partial
year's operations for the stores acquired and opened in fiscal 2000, the
addition of DPI revenue, and increased same store revenues offset by the revenue
lost from stores closed or merged. The stores acquired in the RentaVision
acquisition accounted for $83.5 million, or 85.0%, of the increase. The
America's Rent-to-Own acquisition accounted for $6.7 million, or 6.8%, of the
increase. The Prime Time acquisition accounted for $1.6 million, or 1.6%, of the
increase. Other 2000 acquisitions accounted for $0.2 million, or 0.2%, of the
increase. DPI revenue accounted for $9.2 million, or 9.4%, of the increase.
Stores opened in fiscal 1999 and 2000 accounted for $11.0 million, or 11.1% of
the increase. The Company's same stores accounted for $14.8 million, or 15.0%,
of the increase. These increases were offset by a $28.6 million loss in revenue
that resulted from stores closed or merged. Same store revenues increased 3.2%
to $476.2 million from $461.6 million. This increase in same store revenues is
due in part to Gateway computers and prepaid phone service added to the
Company's line of products and services during fiscal 2000. Gateway computers
accounted for $4.8 million of the increase. Prepaid phone service accounted for
$0.8 million of the increase.

    Depreciation and Amortization. Depreciation expense related to rental
merchandise increased to 26.5% as a percentage of total revenues from 25.3%.
This increase is primarily due to the depreciation expense related to the new
Gateway computers along with the depreciation expense related to the Compaq
computers. These computers, added to the Company's product line in June 2000 and
June 1999, respectively, are depreciated on a straight-line basis.

    Depreciation expense related to property and equipment increased to 4.3% as
a percentage of total revenues from 3.9%. This increase is due to increased
depreciation for transportation equipment offset by the write-off of assets
written off in 1999 and 2000.

    Amortization of goodwill increased to 2.3% as a percentage of total revenues
from 2.0%. The increase in amortization expense in 2000 is primarily due to the
RentaVision acquisition.

    Salaries And Wages. Salaries and wages increased by $20.7 million to $150.9
million from $130.2 million primarily due to the addition of a full year's
salaries and wages for stores acquired in 1999 as well as additions to corporate
personnel. Salaries and wages decreased to 25.5% as a percentage of total
revenues from 26.3%. This decrease is due to the Company's ability to spread
corporate and regional managers' payroll over an increased store revenue base.

    Advertising. Advertising expense decreased from $24.0 million in 1999 to
$20.1 million in 2000. The decrease in advertising was due to the advertising in
1999 related to the Home Choice acquisition, not repeated in 2000.

    Occupancy.  Occupancy  expense increased to $45.8 million from $32.8 million
primarily  due to the addition of the stores  opened and acquired in fiscal 1999
and 2000.

    Other Operating Expenses. Other operating expenses increased by $61.5
million and increased to 29.1% as a percentage of total revenue from 22.5%. The
increase in other operating expenses includes increases in rental merchandise
losses, automotive expenses, payroll taxes, service repairs, write-offs of
property and equipment, health and disability insurance, utilities, and state
and local taxes. Included in other operating expenses is $2.8 million for the
write-off of rental merchandise that was over 365 days idle as of December 31,
2000. The increase in other operating costs is the result of the significant
increase in the number of stores in 2000 combined with the accounting
improprieties, which hid from management the true increase in these cost areas.

    Operating Income. Operating income declined to $0.6 million in 2000 as
compared to operating income of $24.7 million in 1999, which was after business
combination costs of $18.2 million. The rental-purchase rental segment had
operating income of $4.5 million while the prepaid telephone service segment had
an operating loss of $3.9 million. The decrease is the result of the factors
discussed above.

    Interest  Expense.  Interest  expense  increased  to 5.0% from 3.5% of total
revenues. The increase is due to the increased borrowings by the Company for the
RentaVision acquisition and to fund operations during 2000.

    Income Tax Expense. A tax benefit of $0.2 million and tax expense of $7.2
million has been reflected for fiscal 2000 and fiscal 1999, respectively. The
net deferred tax asset of $10.0 million in fiscal 2000 has been fully offset by
a valuation allowance based on management's determination that is more likely
than not that the deferred tax assets will not be realized. The Company has
generated tax losses in fiscal 2000 and fiscal 1999 and intends to file amended
returns and carryback these net operating losses against taxable income in prior
years to the fullest extent possible. The Company's tax benefit in fiscal 2000
is lower than the statutory rate primarily due to the deferred tax valuation
allowance and nondeductible goodwill. The tax expense in fiscal 1999 is higher
than the statutory rate primarily due to nondeductible acquisition costs and
nondeductible goodwill.

    Net Loss.  Net loss  increased  by $27.3  million as a result of the factors
described above.

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. During early fiscal 2001, as a result of the
accounting matters described above, the Company became in default of several of
the covenants contained in its bank credit facility including, without
limitation, the covenants regarding maximum leverage ratio, minimum interest
coverage ratio, minimum net worth, fixed charge coverage ratio, and rental
merchandise usage and the covenants regarding delivery of monthly, quarterly and
annual financial statements of the Company and operated under forbearance
agreements with its bank lenders through October 5, 2001. The Company's ability
to borrow funds under these forbearance agreements was limited. The Company
obtained an amended credit facility on October 5, 2001, that provides the
Company with sufficient borrowing capacity and revised loan covenants. The
Company projects it will be in compliance with these revised loan covenants
throughout fiscal year 2002. As a result of the new amendment, the Company will
incur a non-cash charge of $3.8 million, in the first quarter of fiscal year
2002 related to the write off of a portion of the bank fees associated with
previous amendments to the facility.

    The Company generated $94.6 million in cash from operating activities in
fiscal 2001 compared to $66.2 million in cash used in operating activities in
fiscal 2000. This increase is principally due to a $99.0 million decrease in
rental merchandise purchases, a $49.8 million increase in depreciation and
amortization, a $30.8 million decrease in rental merchandise deposits and
credits due from vendors, a $12.4 million decrease in income tax receivable, and
a $22.1 million increase in other liabilities offset by a $35.6 million increase
in net loss and a $22.1 million decrease in accounts payable.

    Net cash used in investing activities decreased $ 46.9 million to $1.9
million in fiscal 2001 compared to $48.8 million in fiscal 2000. Capital
expenditures in fiscal 2001 included the acquisition of 2 stores and opening of
21 stores. The Company also sold 39 stores in several transactions. Capital
expenditures in fiscal 2000 included the acquisition of 24 stores in six
separate transactions and opening of 68 new stores. The Company also purchased a
70% interest in DPI for $7.5 million. The Company also completed a 40,000 square
foot addition to its current corporate headquarters facility on October 15,
2000. The cost was approximately $2.7 million. The Company funded this project
with borrowings on its senior credit facility.

    The Company used $92.8 million in cash in financing activities in fiscal
2001 compared to $117.0 million in cash provided by financing activities in
fiscal 2000. The Company used improved cash flow to pay down debt.

    On October 5, 2001, the Company amended its credit facility with a syndicate
of banks led by National City Bank of Pennsylvania.  The credit facility, co-led
by National City Bank,  acting as administrative  agent, Bank of America,  N.A.,
acting as documentation agent, and Bank of Montreal and Harris Trust and Savings
Bank, acting as syndication agents,  provided for loans and letters of credit up
to $363.6 million consisting of revolving loans and letters of credit of up to a
maximum of $75.0 million and varying  based on the  applicable  period,  and two
term  loans  designated  as Term Loan A for $117.6  million  and Term Loan B for
$171.0  million.  Borrowings  under the credit  facility  bear  interest  at the
Company's  option  either at a base rate or a  euro-rate.  The  credit  facility
expires December 31, 2003. Under the euro-rate option, the Company borrows money
based on the London Interbank Offered Rate plus 550-600 basis points.  Under the
base rate option,  the Company  borrows  money based on the prime  interest rate
plus 4.5% to 5.5%. In addition, payment-in-kind interest at a rate of 200 to 500
basis  points per annum is due and payable in cash on the  maturity  date of the
term loans. The payment-in-kind  margin is determined based on the ratio of debt
to cash flows from operations  during the period.  The credit facility  requires
the Company to meet certain  financial  covenants and ratios  including  maximum
leverage,  minimum interest  coverage,  minimum tangible net worth, fixed charge
coverage,  and rental  merchandise usage ratios. In addition,  in the event that
the leverage  ratio as measured at June 30, 2003,  for the four fiscal  quarters
then ended,  is equal to or greater  than 2.25 to 1.00,  the Company  will issue
warrants to the lenders for the  purchase of the  Company's  common  stock.  The
shares of common  stock which will be obtained by the lenders  upon the exercise
of the warrants shall equal 15% of the total outstanding voting power of all the
outstanding  shares of the  Company  immediately  prior to the  exercise  of the
warrants.

    The Company has also incurred costs of $7.9 million in fiscal 2001 in
connection with the process of reviewing its financial reporting matters, the
investigations of the accounting improprieties and the preparation of its
audited financial statements. In addition, the Company incurred $2.6 million in
forbearance fees expense during the period the Company was in default under its
bank credit facility. The Company anticipates that it will continue to incur
significant legal and other expenses in connection with the ongoing
investigations and litigation to which it is subject.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    The Company's major market risk exposure is primarily due to possible
fluctuations in interest rates. As of September 30, 2001, the Company had $306.4
million in loans with floating interest rates indexed to current LIBOR and prime
rates. Because the floating rates expose the Company to the risk of increased
interest cost if interest rates rise, the Company began a policy in 1998 of
managing interest rate risk by utilizing interest rate swap agreements to
convert a portion of the floating interest rate loans to fixed interest rates.
As of September 30, 2001, the Company has $183.6 million in interest rate swap
agreements that fix in a LIBOR rate ranging from 5.09% to 6.97%. This
effectively fixes the interest rate on $183.6 million of loans, thus hedging
this risk. These interest rate swap agreements have maturities ranging from 2002
to 2005.

    Given the Company's current capital structure, including interest rate swap
agreements, there is $122.8 million, or 40.1% of the Company's total debt, in
floating rate loans. A hypothetical 100 basis point change in the LIBOR rate
would affect pre-tax earnings by approximately $1.2 million.

    The Company does not enter into derivative financial instruments for trading
or speculative purposes. The interest rate swap agreements are entered into with
major financial institutions thereby minimizing the risk of credit loss.

SEASONALITY AND INFLATION

    Management believes that operating results may be subject to seasonality. In
particular, the fourth quarter generally exhibits a slight tightening of
customer spending habits commensurate with summer vacations, back-to-school
needs and other factors. Conversely, the first quarter typically has a greater
percentage of rentals because of traditional holiday shopping patterns.
Management plans for these seasonal variances and takes particular advantage of
the first quarter with product promotions, marketing campaigns, and employee
incentives. 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.

    During the year ended September 30, 2001, 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 August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. This statement is effective for financial statements issued
for fiscal years beginning after December 15, 2001. The Company is currently
evaluating the provisions of this statement.

    In June 2001,  FASB issued  Statement of financial  Accounting  Standard No.
143, "Accounting for Asset Retirement Obligations ("SFAS No. 143"). SFAS No. 143
addresses financial accounting and reporting for obligations associated with the
retirement of tangible  long-lived  assets and the associated  asset  retirement
costs.  This statement is effective for financial  statements  issued for fiscal
years  beginning  after June 15, 2002.  The Company is currently  evaluating the
provisions of this statement.

    In June 2001, FASB issued  Statement of Financial  Accounting  Standards No.
142,  "Goodwill  and Other  Intangible  Assets"  (SFAS No.  142").  SFAS No. 142
requires the cessation of  amortization  of goodwill and other  indefinite-lived
intangibles on the balance sheet.  Goodwill on the balance sheet must instead be
tested for impairment at least annually. The Company expects to early adopt SFAS
No. 142  effective  October 1, 2001,  and is in the  process of  evaluating  the
impact of adopting this statement.

    In June 2001, FASB issued  Statement of Financial  Accounting  Standards No.
141, "Business  Combinations" ("SFAS No. 141"). SFAS No. 141 addresses financial
accounting  and reporting for business  combinations  and supersedes APB Opinion
No. 16, "Business  Combinations" and SFAS No. 38 "Accounting for  Preacquisition
Contingencies of Purchased  Enterprises." All business combinations in the scope
of this statement are to be accounted for using one method, the purchase method.
The provisions of this statement  apply to all business  combinations  initiated
after June 30, 2001. The Company is currently  evaluating the provisions of this
statement.

    In June 1998, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS No. 133"). SFAS No. 133 requires the recognition of the fair value of all
derivative instruments on the balance sheet. The Company adopted SFAS No. 133
and the corresponding amendments under SFAS No. 138 effective October 1, 2000.
As a result of the adoption, the Company recognized the fair value of its
interest rate swap portfolio on its balance sheet as an asset amounting to $2.5
million. Subsequent adverse changes in fair value of the interest rate swap
portfolio amounting to $12.6 million for the year ended September 30, 2001, was
charged to the Company's Consolidated Statements of Operations (See Note 9.)


<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>

                                                                                             PAGE
                           Index to Financial Statements
<S>                                                                                           <C>
                                  Report of Independent Accountants......................     19
                                  Financial Statements:
                                    Consolidated Balance Sheets, September 30, 2001 and
                                            2000.........................................     20
                                    Consolidated Statements of Operations, Years Ended
                                      September 30, 2001, 2000, 1999.....................     21
                                    Consolidated Statements of Shareholders' Equity,
                                      Years Ended September 30, 2001, 2000, 1999.........     22
                                    Consolidated Statements of Cash Flows, Years Ended
                                      September 30, 2001, 2000, 1999.....................     23
                                    Notes to Consolidated Financial Statements...........     24

</TABLE>

<PAGE>


                                 RENT-WAY, INC.

                        REPORT OF INDEPENDENT ACCOUNTANTS

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 8 on page 18 present fairly, in all material respects, the
financial position of Rent-Way, Inc. and its subsidiaries at September 30, 2001
and 2000, and the results of their operations and their cash flows for each of
the three years in the period ended September 30, 2001 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 the Note 9 to the consolidated financial statements, the
Company adopted the Statement of Financial Accounting Standards No. 133,
"Accounting for Derivatives Instruments and Hedging Activities," effective
October 1, 2000.


    PricewaterhouseCoopers LLP

    Cleveland, Ohio
    December 20, 2001


<PAGE>
<TABLE>


                                                                  RENT-WAY, INC.

                                                          CONSOLIDATED BALANCE SHEETS
                                                 (all dollars in thousands, except share data)


                                                                                           SEPTEMBER 30,
                                                                                      2001             2000


                 ASSETS
<S>                                                                                 <C>              <C>
                 Cash and cash equivalents..................................        $  10,515        $  10,654
                 Prepaid expenses...........................................           13,534           13,997
                 Income tax receivable......................................            8,239           20,607
                 Rental merchandise, net....................................          218,973          282,052
                 Rental merchandise deposits and credits due from vendors...            2,486           33,289
                 Deferred income taxes, net of valuation allowance of $34,198
                   and $10,050 in 2001 and 2000, respectively...............               --               --
                 Property and equipment, net................................           68,792           78,408
                 Goodwill, net of accumulated amortization of $53,356 and
                   $39,982,respectively.....................................          293,166          307,690
                 Deferred financing costs, net of accumulated amortization of
                   $1,816 and $853, respectively..............................          4,136            5,068
                 Non-compete agreements and prepaid consulting fees, net of
                   accumulated amortization of $12,057 and $10,304,
                      respectively............................................          1,693            3,236
                 Other assets...............................................            6,643           11,310
                                                                                    ---------        ---------
                                                                                    $ 628,177        $ 766,311
                                                                                    =========        =========

                 LIABILITIES AND SHAREHOLDERS' EQUITY
                 Liabilities:
                 Accounts payable...........................................        $  24,212        $  42,750
                 Other liabilities..........................................           90,914           67,887
                 Debt.......................................................          307,009          387,852
                                                                                    ---------        ---------
                                                                                      422,135          498,489
                 Commitments and contingencies (Note 10)....................               --               --

                 Shareholders' equity:
                 Preferred stock, without par value; 1,000,000 shares
                 authorized; no shares issued and outstanding at
                   September 30, 2001 and 2000, respectively................               --               --
                 Common stock, without par value; 50,000,000 shares
                 authorized; 24,509,978 and 24,459,573 shares issued and
                   outstanding at September 30, 2001 and 2000, respectively.          295,610          295,185
                 Loans to shareholders......................................             (924)            (690)
                 Accumulated other comprehensive income.....................            1,654               --
                 Retained earnings (accumulated deficit)....................          (90,298)         (26,673)
                                                                                    ---------        ---------
                   Total shareholders' equity...............................          206,042          267,822
                                                                                    ---------        ---------
                                                                                    $ 628,177        $ 766,311
                                                                                    =========        =========

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

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                                                         RENT-WAY, INC.

                                           CONSOLIDATED STATEMENTS OF OPERATIONS
                                      (all dollars in thousands, except per share data)

                                                                              FOR THE YEARS ENDED SEPTEMBER 30,
                                                               ----------------------------------------------------------
                                                                       2001                  2000                 1999
                                                               --------------------  --------------------    ------------

     REVENUES:
<S>                                                                  <C>                   <C>                  <C>
     Rental................................................          $528,995              $498,876             $427,094
     Prepaid phone service.................................            34,739                 9,244                   --
     Other revenues........................................            90,884                84,566               67,258
                                                                     --------              --------             --------
       Total revenues......................................           654,618               592,686              494,352
     COSTS AND OPERATING EXPENSES:
     Depreciation and amortization:
       Rental merchandise..................................           201,233               157,278              124,957
       Property and equipment..............................            31,066                25,660               19,035
       Amortization of goodwill............................            14,669                13,855                9,837
     Cost of prepaid phone service.........................            19,976                 5,988                   --
     Salaries and wages....................................           158,898               150,933              130,194
     Advertising, net......................................            20,846                20,075               24,023
     Occupancy.............................................            51,348                45,787               32,790
     Business combination costs............................                --                    --               17,726
     Other operating expenses..............................           166,819               172,514              111,116
                                                                     --------              --------             --------
     Total costs and operating expenses....................           664,855               592,090              469,678
                                                                     --------              --------             --------
          Operating income (loss)..........................           (10,237)                  596               24,674

     OTHER INCOME (EXPENSE):
     Interest expense......................................           (41,738)              (29,439)             (16,921)
     Equity in loss of subsidiary..........................                --                  (573)                  --
     Amortization--deferred financing costs................            (1,115)                 (654)                (422)
     Interest income.......................................               259                   126                   38
     Other income (expense), net...........................           (10,794)                1,703                 (396)
                                                                     ---------             --------             --------
     Income (loss) before income taxes and
      extraordinary item...................................           (63,625)              (28,241)               6,973
     Income tax expense (benefit) (Note 11)................                --                  (200)               7,219
                                                                     --------              --------             --------
     Loss before extraordinary item........................           (63,625)              (28,041)                (246)
     Extraordinary item (Note 1)...........................                --                    --                 (519)
                                                                     --------              --------             --------
          Net loss.........................................          $(63,625)             $(28,041)            $   (765)
                                                                     ========              ========             ========
     LOSS PER COMMON SHARE:
     Basic loss per share
          Loss before extraordinary item...................          $   (2.60)            $   (1.20)           $   (0.01)
                                                                     =========             =========            =========
          Net loss.........................................          $   (2.60)            $   (1.20)           $   (0.04)
                                                                     =========             =========            =========

      Diluted loss per share
          Loss before extraordinary item...................          $   (2.60)            $   (1.20)           $   (0.01)
                                                                     =========             =========            =========
          Net loss.........................................          $   (2.60)            $   (1.20)           $   (0.04)
                                                                     =========             =========            =========
     Weighted average number of shares outstanding (in thousands):
          Basic............................................             24,501                23,314               21,341
                                                                     =========             =========            =========
          Diluted..........................................             24,501                23,314               21,341
                                                                     =========             =========            =========

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

</TABLE>

<PAGE>


                                                                 RENT-WAY, INC.
<TABLE>
<CAPTION>

                                             CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                          FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999
                                               (all dollars and shares in thousands)


                                                           COMMON STOCK             ACCUMULATED     RETAINED
                                                                                       OTHER        EARNINGS               TOTAL
                                                                       LOANS TO    COMPREHENSIVE   (ACCUMULATED       SHAREHOLDERS'
                                                   SHARES   AMOUNT   SHAREHOLDERS      INCOME        DEFICIT)             EQUITY
                                                 --------  --------  ------------  -------------   -----------        -------------


<S>                  <C> <C>                     <C>       <C>       <C>           <C>            <C>                    <C>
Balance at September 30, 1998..................  $ 21,060  $241,957  $     --      $        --    $       2,133          $ 244,090
                                                 --------  --------  --------      -----------    -------------           --------
  Net loss.....................................        --        --        --               --             (765)              (765)
  Purchases of business (Note 4)...............       503    10,102        --               --               --             10,102
  Issuance of common stock to 401(k) Plan
      (Note 15)................................        18       351        --               --               --                351
  Issuance of common stock under stock
     Option plans including tax benefit(Note 13)      395     5,071      (354)              --               --              4,717
  Interest on loans to directors  (Note 12)....        --        --        (8)              --               --                 (8)
                                                 --------  --------  --------      -----------    -------------          ---------


Balance at September 30, 1999..................    21,976   257,481      (362)              --            1,368            258,487
                                                 --------  --------  --------      -----------    -------------          ---------
  Net loss.....................................        --        --        --               --          (28,041)           (28,041)
  Issuance of common stock to 401(k) plan
       (Note 15)                                       46     1,025        --               --               --              1,025
  Issuance of common stock under stock
    Option plans (Note 13).....................       621     8,400      (902)              --               --              7,498
  Payment of loans by directors (Note 12)......       (25)       --       649               --               --                649
  Interest on loans to directors  (Note 12)....        --        --       (75)              --               --                (75)
  Conversion  of convertible debt .............     1,495    20,000        --               --               --             20,000
  Write-off deferred financing cost on
    convertible debt...........................        --      (715)       --               --               --               (715)
  Issuance of common stock to Gateway (Note 14)       349     9,038        --               --               --              9,038
  Purchase of business (Note 4)................         2        50        --               --               --                 50
  Repurchase of common stock  .................        (5)      (94)       --               --               --                (94)
                                                 --------  --------  --------      -----------    -------------          ---------

Balance at September 30, 2000..................    24,459   295,185      (690)              --           (26,673)          267,822
  Comprehensive income:
    Net loss...................................        --        --        --               --          (63,625)           (63,625)
    Recording of swap transitional asset(Note 9)       --        --        --            2,510               --              2,510
    Amortization of swap transitional asset
       (Note 1).................................       --        --        --             (856)              --               (856)
  Issuance of common stock to 401(k) plan(Note 15)     45       299        --               --               --                299
  Issuance of common stock under stock
    option plans (Note 13).....................         6       126        --               --               --                126
  Issuance of loans to directors to exercise
     stock options (Note 12)...................        --        --      (159)              --               --               (159)
  Payment of loans by directors (Note 12)......        --        --         2               --               --                  2
  Interest on loans to directors  (Note 12)....        --        --       (77)              --               --                (77)
                                                ---------  --------  --------      -----------    -------------     ---------------
Balance at September 30, 2001..................    24,510  $295,610  $   (924)     $     1,654    $     (90,298)    $      206,042
                                                =========  ========  ========      ===========    =============     ==============




                               The accompanying notes are an integral part ofthese financial statements.
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

                                                                RENT-WAY, INC.

                                                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                         (all dollars in thousands)

                                                                              FOR THE YEARS ENDED SEPTEMBER 30,
                                                                    ------------------------------------------------
                                                                       2001                  2000                   1999
                                                               --------------------  --------------------      ------------

     OPERATING ACTIVITIES:
<S>                                                                 <C>                   <C>                  <C>
     Net loss...............................................        $  (63,625)           $  (28,041)          $     (765)
     ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY
       (USED IN) OPERATING ACTIVITIES:
       Depreciation and amortization........................           247,227               197,447              154,250
       Deferred income taxes................................                --                    98                6,330
       Deferred financing costs write-off...................                --                    --                  865
       Issuance of common stock to 401(k) plan..............               299                 1,025                  351
       Write-off of property and equipment..................             4,454                12,896                2,265
       Gain on sale of assets...............................            (2,172)                   --                   --
       Other................................................                --                   (64)                  --
     CHANGES IN ASSETS AND LIABILITIES:
       Prepaid expenses.....................................               463                (6,868)                 324
       Rental merchandise...................................          (141,858)             (240,829)            (132,552)
       Rental merchandise deposits and credits due
         from vendors.......................................            30,803               (33,289)                  --
       Income tax receivable................................            12,368               (15,639)                (663)
       Other assets.........................................             6,677                (3,242)               6,578
       Accounts payable.....................................           (22,105)               27,996              (10,259)
       Income taxes payable.................................                --                    --                 (119)
       Other liabilities....................................            22,088                22,322               (5,439)
                                                                    ----------            ----------           ----------
          Net cash provided by (used in) operating
            activities......................................            94,619               (66,188)              21,166
                                                                    ----------            ----------           ----------
     INVESTING ACTIVITIES:
       Purchase of businesses, net of cash acquired.........              (658)              (14,484)             (69,598)
       Purchases of property and equipment..................            (9,802)              (34,276)             (19,139)
       Proceeds from sale of assets.........................             8,512                    --                   --
                                                                    ----------            ----------           ----------
          Net cash used in investing activities.............            (1,948)              (48,760)             (88,737)
                                                                    ----------            ----------           ----------
     FINANCING ACTIVITIES:
       Book overdraft.......................................             3,567                (1,107)              (4,808)
       Proceeds from borrowings.............................           506,720               132,431              575,264
       Payments on borrowings...............................          (602,806)              (26,952)            (500,834)
       Deferred financing costs.............................              (183)               (2,705)              (3,444)
       Issuance of common stock.............................               126                 8,243                4,713
       Issuance of common stock to Gateway..................                --                 7,000                   --
       Purchase of common stock.............................                --                   (94)                  --
       Loans to shareholders................................              (234)                   --                   --
       Payment of loans by directors........................                --                   140                   --
                                                                    ----------            ----------           ----------
          Net cash provided by (used in) financing activities          (92,810)              116,956               70,891
                                                                    ----------            ----------           ----------
          Increase (decrease) in cash and cash equivalents                (139)                2,008                3,320
     Cash and cash equivalents at beginning of year.........            10,654                 8,646                5,326
                                                                    ----------            ----------           ----------
     Cash and cash equivalents at end of year...............        $   10,515            $   10,654           $    8,646
                                                                    ==========            ==========           ==========


                               The accompanying notes are an integral part of these financial statements.
</TABLE>


<PAGE>


                                 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 forty-two 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.

    On December 10, 1998, Rent-Way completed a merger with Home Choice Holdings,
Inc. ("Home Choice") (see Note 4). Prior to the merger, Home Choice's year end
was December 31. As a result of the merger, accounted for as a pooling of
interest, Rent-Way's financial statements were restated to retroactively combine
Rent-Way with Home Choice as if the merger had occurred at the beginning of the
earliest period presented.

    These consolidated financial statements include the combination of Rent-Way
and Home Choice, the purchase acquisitions and the pooling acquisitions (as
described in Note 4) as required by Accounting Principles Board Opinion ("APB")
No. 16.

    ACCOUNTING ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles 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.

    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. Under the units of activity method, rental
merchandise is depreciated as revenue is collected. 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 beginning on
acquisition date over 12 months to 24 months, depending on the type of computer.

    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 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
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 Statement of Operations. Activation revenues are
recognized on a straight-line basis over the average life of the customer
relationship. Activation costs are expensed as incurred and are included in
"cost of prepaid phone service" in the Statement of Operations.

    OTHER REVENUE. Other revenue includes revenue from various services and
charges to rental customers, including late fees, liability waiver fees,
processing fees, and sales of used merchandise. 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. Comprehensive income 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 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. Deposits in excess of $100 and mutual funds are not insured by the
Federal Deposit Insurance Corporation.

    Supplemental disclosures of cash flow information for the years ended
September 30, 2001, 2000, and 1999, are as follows:
<TABLE>
<CAPTION>

                                                                       2001              2000            1999
                                                                  -------------    ---------------    ----------


           CASH PAID DURING THE YEAR FOR:
<S>                                                                  <C>              <C>              <C>
             Interest.........................................       $ 30,847         $ 27,272         $16,019
             Income taxes, net of refunds.....................        (12,368)          14,451             718


           NONCASH INVESTING ACTIVITIES:
             Assets acquired by assumption of liabilities in
               purchase business combinations (Note 4)........       $     --         $    368         $ 6,272
             Assets acquired under capital lease (Note 10)....         18,692           12,620          21,899
           NONCASH FINANCING ACTIVITIES:
             Common stock issued in purchase business
               combinations (Note 4).........................        $     --         $     50         $10,102

             Issuances of common stock to 401(k) plans (Note 15)          299            1,025             351
             Loans to directors for exercise of stock options              --              902             354
               (Note 12)
             Receipt of stock for repayment of directors loans             --              488              --
             Conversion of convertible debt, net of deferred
              financing costs (Note 8)........................             --           19,285              --
             Gateway exclusivity arrangement..................             --            2,038              --

</TABLE>


    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 10). 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. Therefore, effective October
1, 1997, these costs are expensed as incurred by the Company.

    The Company reviews the recoverability of the carrying value of goodwill and
other long-term assets using an undiscounted cash flow method. The Company
performed a detailed analysis of its property and equipment. As a result of this
analysis, the Company has written-off through an adjustment to other operating
expenses, property and equipment of $4,415, $8,237 and $2,404 for the years
ended September 30, 2001, 2000 and 1999, respectively. At this time, the Company
believes that no additional impairment of long-lived assets has occurred, and
that no reduction of the estimated useful lives is warranted.


    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.

    INTANGIBLE  ASSETS.   Goodwill  is  stated  at  cost.  Each  acquisition  is
independently  evaluated to determine the appropriate period for amortization of
the resulting goodwill.  Currently,  amortization of goodwill is calculated on a
straight-line basis over periods ranging from ten to thirty years. Periodically,
the Company will determine if there has been permanent impairment of goodwill by
comparing  anticipated   undiscounted  future  net  cash  flows  from  operating
activities  of the  acquired  store  locations by major market with the carrying
value of the related  goodwill.  At  September  30,  2001 and 2000,  the Company
concluded  that there was no  impairment  of goodwill.  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,  or 2 years  under  the  current  credit
facility.  Non-compete agreements and prepaid consulting fees are stated at cost
less  amortization  calculated  on a  straight-line  basis  over the term of the
related agreements, which range from two to seven years.

    ADVERTISING  EXPENSE.  Advertising  costs,  net  of  co-op  recoveries  from
vendors, are expensed the first time the advertising occurs.

    ADVERTISING REBATES. The Company participates in vendor advertising rebate
programs (co-op recoveries) with the majority of its rental merchandise
suppliers. Rebates are recognized in the period earned. On a monthly basis,
management calculates the amount of the rebate and either submits a request for
payment or credits the balance due the respective vendor.

    LOSS PER COMMON 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 adjusted for anticipated interest
savings, net of related taxes, for convertible subordinated notes and debentures
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, 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 8 and 9). The Company does
not enter into derivative financial instruments for trading or speculative
purposes.

    EXTRAORDINARY ITEM. As a result of the refinancing of its senior credit
facility in December 1998, the Company wrote off the remainder of deferred
financing costs associated with its previous credit facilities, which totaled
$865 ($519 net of tax benefit) at the time of refinancing.

    STOCK-BASED COMPENSATION.  The Company accounts for stock based compensation
issued to its employees and  non-employee  directors in accordance  with APB No.
25,  "Accounting  For Stock  Issued to  Employees"  and has elected to adopt the
"disclosure  only"  provisions  of Statement of Financial  Accounting  Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation."

    RECLASSIFICATIONS.  Certain  amounts  in the  September  30,  2000  and 1999
consolidated  financial statements were reclassified to conform to the September
30, 2001 presentation.

2. BUSINESS RATIONALIZATION:

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

<TABLE>
<CAPTION>


                                                                                 Lease
                                                             Fixed Asset     Termination
                                                              Write Offs         Costs             Total
                                                             -----------      ----------        -----------
<S>                    <C>                                    <C>             <C>                <C>
                Fiscal 1999 Provision...................      $   2,544       $   3,095          $  5,639
                Amount utilized in fiscal 1999..........         (2,544)           (822)           (3,366)
                                                              ---------       ---------          --------
                Balance September 30, 1999..............             --           2,273             2,273
                                                              ---------       ---------          --------

                Fiscal 2000 Provision...................            885           2,185             3,070
                Amount utilized in fiscal 2000..........           (885)         (2,028)           (2,913)
                                                              ---------       ---------          --------
                Balance September 30, 2000..............             --           2,430             2,430
                                                              ---------       ---------          --------
                Fiscal 2001 Provision...................          1,646           5,043             6,689
                Amount utilized in fiscal 2001..........         (1,646)         (2,389)            (4,035)
                                                              ---------       ---------          --------
                Balance September 30, 2001..............      $      --       $   5,084          $  5,084
                                                              =========       =========          ========
</TABLE>

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

3. NEW ACCOUNTING STANDARDS:

    In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. This statement is effective for financial statements issued
for fiscal years beginning after December 15, 2001. The Company is currently
evaluating the provisions of this statement.

    In June 2001,  FASB issued  Statement of Financial  Accounting  Standard No.
143, "Accounting for Asset Retirement Obligations ("SFAS No. 143"). SFAS No. 143
addresses financial accounting and reporting for obligations associated with the
retirement of tangible  long-lived  assets and the associated  asset  retirement
costs.  This statement is effective for financial  statements  issued for fiscal
years  beginning  after June 15, 2002.  The Company is currently  evaluating the
provisions of this statement.

    In June 2001, FASB issued  Statement of Financial  Accounting  Standards No.
142,  "Goodwill  and Other  Intangible  Assets"  (SFAS No.  142").  SFAS No. 142
requires the cessation of  amortization  of goodwill and other  indefinite-lived
intangibles  on its balance  sheet.  Goodwill on the balance  sheet must then be
tested for impairment at least annually. The company expects to early adopt SFAS
142 effective October 1, 2001, and is in the process of  evaluating  the impact
of adopting this statement.

    In June 2001, FASB issued  Statement of Financial  Accounting  Standards No.
141, "Business  Combinations" ("SFAS No. 141"). SFAS No. 141 addresses financial
accounting  and reporting for business  combinations  and supersedes APB Opinion
No. 16, "Business  Combinations" and SFAS No. 38 "Accounting for  Preacquisition
Contingencies of Purchased  Enterprises." All business combinations in the scope
of this statement are to be accounted for using one method, the purchase method.
The provisions of this statement  apply to all business  combinations  initiated
after June 30, 2001. The Company is currently  evaluating the provisions of this
statement.

    In June 1998, the FASB issued  Statement of Financial  Accounting  Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS No. 133"). SFAS No. 133 requires the recognition of the fair value of all
derivative  instruments on the balance sheet.  The Company  adopted SFAS No. 133
and the  corresponding  amendments under SFAS No. 138 effective October 1, 2000.
As a result  of the  adoption,  the  Company  recognized  the fair  value of its
interest  rate swap  portfolio  on its balance  sheet as an asset  amounting  to
$2,510.  Subsequent  adverse  changes  in fair value of the  interest  rate swap
portfolio  amounting  to $12,642  for the year ended  September  30,  2001,  was
charged to the Company's Consolidated Statements of Operations (See Note 9).

4. MERGERS, ACQUISITIONS, AND DISPOSALS:

    POOLING ACQUISITIONS. On December 10, 1998, the Company completed a merger
with Home Choice. The merger, as per the terms of the agreement, was recorded as
a pooling of interests, in accordance with APB No. 16. Under the terms of the
agreement the Company issued 0.588 shares of common stock for each outstanding
share of Home Choice common stock. The merger increased the outstanding shares
of the Company by approximately 10,025,000 shares. The corporate offices of the
combined Company are located in Erie, Pennsylvania. None of Home Choice's Board
of Directors or executive officers retained a position with the combined
Company. In conjunction with the merger, certain costs were incurred which were
recorded by the Company during the year ended September 30, 1999. These costs
aggregated $18,155 and included (i) investment banker fees of $6,476, (ii) proxy
preparation, printing and other professional fees of $1,341, (iii) employee
severance and stay-put arrangement costs of $4,516, (iv) due diligence and other
costs of $874, (v) costs related to closing or disposing of duplicate corporate
headquarters, equipment and stores in overlapping markets of $3,495 and (iv)
write-off of prepaid assets which could not be used of $1,453. In addition, the
Company identified a large number of rental merchandise items which failed to
meet the accepted quality standards of the Company's operating procedures.
Accordingly, the Company experienced an excessive amount of inventory deletions
during the three month period ended December 31, 1998. The amount of excessive
inventory write-offs included in other operating expenses in the Consolidated
Statement of Operations for the year ended September 30, 1999 was approximately
$1,100. The Company had accrued business combination costs of $374, $502 and
$732 at September 30, 2001, 2000 and 1999, respectively, representing unpaid
lease obligations.

    Separate unaudited results of the pooled entities prior to the date of the
merger for the year ended 1999 are as follows:

<TABLE>
<CAPTION>

                                                        YEAR ENDED SEPTEMBER 30, 1999
                                                                             EXTRAORDINARY        NET INCOME
                                                            REVENUES             ITEM               (LOSS)
                      Rent-Way October 1, 1998 to
<S>                              <C> <C>                   <C>                  <C>                <C>
                        November 30, 1998..........        $  37,172            $   --             $ 2,231
                      Home Choice October 1, 1998 to
                        November 30, 1998..........           44,270                --                (230)
                      Rent-Way and Home Choice
                        December 1, 1998 to
                        September 30, 1999.........          412,910              (519)             (2,766)
                                                           ---------            ------             -------
                           Total...................        $ 494,352            $ (519)            $  (765)
                                                           =========            ======             =======
</TABLE>

    PURCHASE  ACQUISITIONS.   During  fiscal  2001,  the  Company  acquired  two
rental-purchase  stores.  The addition of these two stores is  immaterial to the
Company's revenues, operating profits, and net assets.

    On January 4, 2000, the Company acquired a 49% interest in dPi Teleconnect,
LLC ("DPI"), a privately held provider of prepaid local phone service. In
exchange for the 49% interest, the Company paid consideration of $6,400 in cash.
The Company on May 22, 2000, after receiving regulatory approval, exercised an
option to acquire an additional 21% interest for $1,100 to bring its total
interest to 70%. In addition to the option to increase its ownership interest,
the Company has agreed to fund working capital requirements for DPI over the
next three years, for a maximum amount of $3,000 at the higher of the prime rate
plus 200 basis points or the rate at which the Company is able to borrow funds.
The excess of the acquisition costs over the estimated fair value of net assets
acquired ("goodwill") of $7,958 is being amortized on a straight-line basis over
10 years. Liabilities acquired were $400 with acquisition costs of $58. For the
period January 1, 2000 to March 31, 2000, DPI was accounted for under the equity
method and since March 31, 2000, is consolidated. The Company has recorded 100%
of the losses of DPI. The Company will record 100% of the income of DPI until
the accumulated deficit is absorbed.

    On September 23, 1999, the Company acquired all of the outstanding shares of
RentaVision, Inc. ("RentaVision"), a rental-purchase chain located in 16 states
with annual revenues of approximately $75,000. The consideration paid in
exchange for all the outstanding shares of RentaVision was $73,874 consisting of
$68,774 in cash and 278,801 shares of the Company's common stock (unregistered
shares subject to the provisions of Rule 144 of the Securities and Exchange
Act). The acquisition was accounted for using the purchase method of accounting.
RentaVision's assets and liabilities were recorded at their fair values as of
the date of the acquisition. The excess of the acquisition cost over the
estimated fair value of the net assets acquired ("goodwill") of $85,944 is being
amortized on a straight-line basis over 30 years. The total cost of the net
assets acquired was $74,403 and consisted of assets of $101,461 less liabilities
assumed of $26,877 and acquisition costs of $181. Assets acquired (at fair
value) other than goodwill consisted primarily of rental merchandise of $12,267,
non-compete agreement of $1,000, customer contracts of $1,200, cash of $725, and
other assets of $325. Liabilities assumed (at fair value) consisted primarily of
debt of $21,527, accrued liabilities of $4,392, and trade accounts payable of
$958. The Consolidated Statements of Operations includes the results of
operations of RentaVision since the date of acquisition.

    On June 30, 1999, the Company acquired all the outstanding shares of
America's Rent-To-Own Center, Inc., ("America's Rent-To-Own"). At the time of
the acquisition, America's Rent-To-Own operated a chain of 21 rental-purchase
stores located in Arkansas, Kansas, Missouri, and Oklahoma with annual revenues
of approximately $8,000. The consideration paid in exchange for all the
outstanding shares of America's Rent-To-Own consisted of 231,140 shares of the
Company's common stock (unregistered shares subject to the provisions of Rule
144 of the Securities and Exchange Act). The acquisition was accounted for using
the purchase method of accounting. America's Rent-To-Own assets and liabilities
were recorded at their fair value at the date of the acquisition. The excess of
the acquisition cost over the fair value of net assets acquired, ("goodwill") of
$4,504 is being amortized on a straight-line basis over 30 years. The total cost
of the net assets acquired was $4,478 and consisted of assets of $6,885 less
liabilities assumed of $2,149 and acquisition costs of $258. Assets acquired,
other than goodwill (at fair value) consisted of rental merchandise of $1,269,
receivables of $632, prepaid and other assets of $65, a deferred tax asset of
$350, and a non-compete agreement of $70. Liabilities assumed (at fair value)
consisted of debt of $1,295, accrued liabilities of $474 and trade accounts
payables of $380. The Consolidated Statement of Operations includes the results
of operations of America's Rent-To-Own since the date of acquisition.

    DISPOSALS. On September 24, 2001, the Company sold 27 rental-purchase stores
to Rent-A-Center, Inc. ("Rent-A-Center") in exchange for $4,983 in cash.
Pursuant to the terms of the sales agreement, $250 of the sales price was placed
in escrow, subject to the terms of the escrow agreement to satisfy sellers'
representations and warranties and any sales price adjustments. The Company
recognized a gain of $1,871 as a result of the transaction with Rent-A-Center.

    In April and May 2001, the Company entered into asset purchase and exchange
agreements whereby the Company exchanged three stores for two stores and
approximately $77 in cash. The Company recognized a gain of approximately $136
as a result of these transactions. The Company exchanged assets with a net book
value of $289 for assets with a fair value of $348.

    During 2001, the Company sold nine stores in several transactions in
exchange for $886 in cash. In connection with these transactions, the Company
sold assets with a net book value of $755 and recorded a gain of $131.

5. RENTAL MERCHANDISE AND PROPERTY AND EQUIPMENT:

    Cost and accumulated depreciation of rental merchandise consists of the
following:
<TABLE>
<CAPTION>

                                                                  SEPTEMBER 30,
                                                            2001               2000
                                                         ----------        ----------


<S>                                                       <C>               <C>
                       Cost.......................        $ 396,004         $ 421,123
                       Less accumulated depreciation        175,830           137,799
                       Less deferred credits......            1,201             1,272
                                                          ---------         ---------
                                                          $ 218,973         $ 282,052
                                                          =========         =========

</TABLE>

    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:
<TABLE>
<CAPTION>

                                                                          SEPTEMBER 30,
                                                                     2001             2000
                                                                  ----------      ----------

<S>                                                                 <C>              <C>
                                   On-rent merchandise....          325,778          302,662
                                   Held for rent merchandise         70,226          118,461
                                                                   --------         --------
                                                                   $396,004         $421,123
                                                                   ========         ========
</TABLE>

    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:
<TABLE>
<CAPTION>

                                                                  YEARS ENDED SEPTEMBER 30,
                                                          2001              2000               1999
                                                   ----------------- -----------------    -----------

<S>                                                     <C>               <C>                <C>
                           Lost merchandise.....        $ 3,026           $ 2,380            $ 2,048
                           Stolen merchandise...         17,864            14,668             12,079
                           Discarded merchandise          8,988             6,252              3,240
                                                        -------           -------            -------
                                                        $29,878           $23,300            $17,367
                                                        =======           =======            =======
</TABLE>

    Property and equipment consists of the following:
<TABLE>
<CAPTION>

                                                                                  SEPTEMBER 30,
                                                                             2001             2000
                                                                          ----------       ----------
<S>                                                                        <C>             <C>
                           Signs....................................       $   5,959       $   6,938
                           Transportation equipment.................          53,099          46,890
                           Furniture and fixtures...................          31,272          32,315
                           Leasehold improvements...................          31,328          30,324
                           Buildings................................           6,434           4,168
                           Construction in progress.................              24           2,283
                           Land.....................................           2,004           2,307
                                                                           ---------       ---------
                                                                             130,120         125,225
                           Less accumulated depreciation and                  61,328          46,817
                           amortization.............................       ---------       ---------

                                                                           $  68,792       $  78,408
                                                                           =========       =========
</TABLE>

6. RENTAL MERCHANDISE DEPOSITS AND CREDITS DUE FROM VENDORS:

    On August 31, 2000, the Company prepaid for $39,000 of rental merchandise,
and in return, received an $ 825 prepayment discount in the form of cash from
the vendors. The vendors were prepaid; and as the Company places orders, the
vendors reduce their respective prepaid balance. As of September 30, 2001, and
2000, $38,156 and $8,383, respectively of rental merchandise had been received
against the prepayment. The prepayment discount has been deferred and is being
recognized as a reduction of rental merchandise depreciation expense over the
life of the rental merchandise.

    The Company had credits due from vendors for the return of merchandise in
the amount of $1,642 and $2,672 as of September 30, 2001 and 2000, respectively.
The credits are reduced when the Company purchases additional products from the
vendors.


<PAGE>


7. OTHER LIABILITIES:

    Other liabilities consist of the following:
<TABLE>
<CAPTION>

                                                                               2001       2000
                                                                              -------   -------
<S>                                                                           <C>      <C>
                                Capital lease obligation..............        $26,048  $ 22,598
                                Swap liability........................         10,191        --
                                Accrued workers' compensation.........          3,127     3,424
                                Accrued vacation......................          2,736     1,895
                                Accrued bonuses.......................          1,534       139
                                Accrued interest......................          8,046       948
                                Sales and use tax payable.............          2,237     2,845
                                Accrued property taxes................          4,833     3,950
                                Deferred income.......................          1,457     2,340
                                Deferred credit-rental merchandise ...            246     2,362
                                Accrued salaries, wages, and tax......          6,926     6,761
                                Accrued health insurance and benefits.          4,274     2,937
                                Accrued vehicle insurance.............          1,215     2,226
                                Accrued franchise and other tax.......          1,017     1,539
                                Vacant facility lease obligations.....          5,329     2,486
                                Accrued professional fees.............          1,061       625
                                Accrued bank fees.....................            579       878
                                Accrued taxes.........................          5,881     4,914
                                DPI - deferred revenue................          1,286     2,054
                                Other.................................          2,891     2,966
                                                                              -------  --------
                                                                              $90,914  $ 67,887
                                                                              =======  ========
</TABLE>

8. DEBT:

    Debt consists of the following:
<TABLE>
<CAPTION>

                                                                              SEPTEMBER 30,
                                                                          2001           2000
                                                                        --------       ---------
<S>                                                                     <C>            <C>
                                Senior credit facility..........        $ 306,421      $ 387,708
                                Notes Payable...................              588            144
                                                                        ---------      ---------
                                                                        $ 307,009      $ 387,852
                                                                        =========      =========
</TABLE>

    The Company's credit facility with a syndicate of banks was amended on June
28, 2000. The credit facility, co-led by National City Bank of Pennsylvania,
acting as administrative agent, Bank of America, N.A., acting as documentation
agent, and Bank of Montreal and Harris Trust and Savings Bank, acting as
syndication agents, provides for loans and letters of credit of up to $435,000
(revolving notes and letters of credit $114,444, Term Loans A $143,056 and Term
Loans B $177,500). The amendment amended the Company's credit facility dated
September 23, 1999, as amended November 17, 1999, December 6, 1999, and December
7, 1999.

    In November 2000 absent a waiver the Company would have failed to meet
certain covenants in its bank credit facility including financial covenants,
monthly and quarterly financial reporting requirements and record keeping
requirements. The Company obtained a waiver of these requirements conditioned on
the non-occurrence of certain events. As a result of the Company's announcement
in December 2000 of an increase in the total adjustments resulting from the
accounting matters under investigation, the waiver expired by its terms, and the
Company and its bank lenders entered into a forbearance agreement dated December
18, 2000. The forbearance agreement limited revolving credit loans and letters
of credit to $91,124. The forbearance agreement was subsequently amended several
times. The Sixth Amendment to the forbearance agreement, which expired on
October 5, 2001, limited the maximum borrowings under the revolving portion of
the credit facility to $61,128. The Company amended its credit facility October
5, 2001.

    On October 5, 2001, the Company amended its credit facility with a syndicate
of banks. The credit facility, co-led by National City Bank of Pennsylvania,
acting as administrative agent, Bank of America, N.A., acting as documentation
agent, and Bank of Montreal and Harris Trust and Savings Bank, acting as
syndication agents, provides for loans and letters of credit of up to a maximum
of $363,548 (revolving notes and letters of credit up to a maximum of $75,000
and varying based on the applicable period, Term Loans A $117,567, and Term
Loans B $170,981). The amendment amended the Company's credit facility dated
September 23, 1999, as amended November 17, 1999; December 6, 1999; December 7,
1999; and June 28, 2000.

    Under the amended facility, the Company may borrow funds under a base rate
option plan or euro-rate option plan. Under the base rate option, the Company
may borrow funds based on a spread of prime rate plus 450 to 500 basis points.
In addition, payment-in-kind interest at a rate of 200 to 500 basis points per
annum shall be due and payable in cash on the maturity date of the term loans.
The payment-in-kind margin is determined based on the ratio of debt to cash
flows from operations during the period.

    Under the euro-rate option, the Company may borrow funds based on a spread
of LIBOR plus 550 to 600 basis points. In addition, payment-in-kind interest at
a rate of 200 to 500 basis points per annum shall be due and payable in cash on
the maturity date of the term loans. The payment-in-kind margin is determined
based on the ratio of debt to cash flows from operations during the period.
Borrowings under the euro-rate option require the Company to select a fixed
interest period during which the euro-rate is applicable with the borrowed
amount not to be repaid prior to the last day of the selected interest period.
In addition, borrowing tranches under the euro-rate option must be in multiples
of $1,000. Commitment fees associated with the amended credit facility are in a
range from 0.375% to 0.500% for each bank's unused commitment.

    The principal amount of Term Notes A under the amended facility is payable
in quarterly payments due on the last day of each December, March, June, and
September, beginning with the quarter ended December 31, 2001, as follows:
<TABLE>
<CAPTION>

                       Quarters ending on following date       Amount of principal payment due on payment date
                       ---------------------------------       -----------------------------------------------
<S>                        <C>   <C>        <C>  <C>                                   <C>
                           12/31/01 through 6/30/02                                    $5,722
                             9/30/02 through 6/30/03                                   $7,153
                                    9/30/03                                            $8,583
                                   12/31/03                            remaining principal balance outstanding
</TABLE>

    The principal amount of Term Notes B under the amended facility is payable
in eight quarterly payments due on the last day of each December, March, June,
and September beginning with the quarter ended December 31, 2001, and continuing
through the quarter ending September 30, 2003, each payment equal to $444. The
remaining principal balance is due on December 31, 2003.

    The aggregate amount of all the Revolving Credit Loans and Letters of Credit
shall not exceed the lender's revolving credit ratable share of the following
amounts during the following applicable period of time:
<TABLE>
<CAPTION>

                                                                  Maximum available for Revolving Credit Loans and
                               Applicable period                                  Letters of Credit
                               -----------------                                  -----------------
<S>                                           <C>   <C>                                <C>
                         Closing date through 12/24/01                                 $61,128
                           12/25/01 through 2/28/02                                    $75,000
                            3/01/02 through 6/30/02                                    $61,128
                            7/01/02 through 9/30/02                                    $55,000
                       10/01/02 through Expiration date                                $50,000
</TABLE>


    The credit facility requires the Company to meet certain financial covenants
and ratios including maximum leverage, minimum interest coverage, minimum net
worth, fixed charge coverage, and rental merchandise usage ratios. In addition,
the Company must meet requirements regarding monthly, quarterly, and annual
financial reporting. The credit facility also contains non-financial covenants,
which restrict actions of the Company with respect to the payment of dividends,
acquisitions, mergers, disposition of assets or subsidiaries, issuance of
capital stock, and capital expenditures. The Company may at any time repay
outstanding borrowings, in whole or part, without premium or penalty, except
with respect to restrictions identified with the selection of the euro rate
option.

    In the event that the leverage ratio as measured at June 30, 2003, for the
four fiscal quarters then ended, is equal to or greater than 2.25 to 1.00, the
Company will issue to the lenders warrants (the "Lender Warrants") for the
purchase of the Company's common stock and will deliver the Registration Rights
Agreement in the form provided for in the Lender Warrants. The shares of common
stock which will be obtained by the lenders upon the exercise of the Lender
Warrants shall equal 15% of the total outstanding voting power of all the
outstanding shares of the Company immediately prior to the exercise of the
Lender Warrants. The Lender Warrants shall be allocated to the lenders based
upon each lender's ratable share. The Company shall at all times maintain a
sufficient number of authorized shares of its common stock to permit the
exercise by the lenders of the conversion of the Lender Warrants into shares of
the Company's common stock.

    The principal amount of Term Notes A and B are payable in quarterly payments
due on the last day of each December, March, June and September, beginning with
the quarter ended December 31, 2001. At September 30, 2001, aggregate annual
maturities of debt are as follows:



<TABLE>
<CAPTION>

                                                        Senior Credit
                                                            Facility      Notes Payable          Total
                                                        -------------     -------------       -----------
                       Fiscal Year
<S>                                         <C>          <C>                <C>               <C>
                                            2002         $    32,260        $     501         $    32,761
                                            2003              31,817               16              31,833
                                            2004             242,344               19             242,363
                                            2005                  --               22                  22
                                            2006                  --               27                  27
                                         Thereafter               --                3                   3
                                                         -----------        ---------         -----------
                                                         $   306,421        $     588         $   307,009
                                                         ===========        =========         ===========

</TABLE>

    The Company's weighted average interest rate was 11.224%, 8.912%, and
7.732%, for the years ended September 30, 2001, 2000 and 1999, respectively.

    At  September  30,  2001 and 2000,  book  overdrafts  of $5,454 and  $1,887,
respectively, were included in accounts payable in the accompanying Consolidated
Balance Sheets.

9.   DERIVATIVE FINANCIAL INSTRUMENTS:

    At September 30, 2001, the Company had interest rate swaps in the notional
amount of $183,600, and a fair market value of $10,191, which is a liability in
the consolidated financial statements. 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 adopted of SFAS No. 133 on
October 1, 2000. The fair value of the swaps was recorded as an asset in the
amount of $2,510 on October 1, 2000, with the offset to other comprehensive
income. An adverse change in fair value of the interest rate swap portfolio
amounting to $12,642 for the year ended September 30, 2001, was charged to other
income/expenses on the Company's Consolidated Statements of Operations.

10.  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 equipment under capital leases and, to a lesser extent, operating
leases, under arrangements that expire over the next 5 years. At September 30,
2001, future minimum rental payments under non-cancelable capital and operating
leases are as follows:
<TABLE>
<CAPTION>

                                                                           CAPITAL LEASES       OPERATING LEASES
                                                                           --------------       ----------------
<S>              <C>                                                           <C>                  <C>
                 2002................................................          $ 2,474              $ 33,707
                 2003................................................           11,058                28,564
                 2004................................................            8,510                21,351
                 2005................................................            6,047                14,257
                 Thereafter..........................................              417                 6,548
                                                                               -------              --------
                 Total minimum payments required.....................           28,506              $104,427
                 Amount representing interest obligations under capital leases   2,458              ========
                                                                               -------
                                                                               $26,048
                                                                               =======
</TABLE>

    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 transportation equipment under capital leases
are as follows:

                                 2001      2000
Transportation Equipment...     $52,990  $ 45,113
Less accumulated amortization    26,942    22,515
                               --------  --------
Net transportation equipment
  under capital lease......     $26,048  $ 22,598
                                =======  ========



    Rent expense under operating leases for the years ended September 30, 2001,
2000, and 1999 was $39,140, $36,444, and $25,755, respectively.

    Rent-Way and certain of its current and former officers were served with a
consolidated class action complaint filed in the U.S. District Court for the
Western District of Pennsylvania. The complaint alleges that, among other
things, as a result of accounting irregularities, the Company's previously
issued financial statements were materially false and misleading thus
constituting violations of federal securities laws by the Company, by its
auditors and by certain officers. The actions allege that the defendants
violated Sections 10(b) and/or Section 20(a) of the Securities Exchange Act and
Rule 10b-5 promulgated thereunder. The actions seek damages in unspecified
amounts. The actions purport to be brought on behalf of purchasers of the
Company's common stock during various periods, all of which fall between
December 10, 1998, and October 27, 2000. Rent-Way has filed a motion to dismiss
the complaint and continues to evaluate the complaint and possible defenses
thereto. Pending determination of the motion to dismiss, the Company's
obligation to answer the complaint is stayed.

    Certain of Rent-Way's officers and directors and Rent-Way, as nominal
defendant, have been sued in a shareholder derivative action brought on behalf
of Rent-Way in the U.S. District Court for the Western District of Pennsylvania.
The derivative complaint purports to assert claims on behalf of Rent-Way against
the defendants for violation of duties asserted to be owed by the defendants to
Rent-Way and which relate to the events which gave rise to the purported class
actions described above. All proceedings in the derivative case have been stayed
pending the resolution of the class action lawsuit.

    Pursuant to its bylaws, Rent-Way is obligated to indemnify its officers and
directors under certain circumstances against claims within the lawsuits.
Rent-Way may also be obligated to indemnify certain of its officers and
directors for the costs they incur as a result of the investigations and
lawsuit.

    While it is not feasible to predict or determine the final outcome of these
or similar proceedings, or to estimate the amounts or potential range of loss
with respect to these matters, management believes that an adverse outcome with
respect to such proceedings could have a material adverse impact on the
Company's financial position, results of operations, or cash flows.

    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 have resulted in possible claims up to $38,258. The majority of such
claims are, in the opinion of management, covered by insurance policies or
indemnification agreements and therefore should not have a material effect on
the consolidated financial position, results of operations or cash flows of the
Company. Additionally, claims exist for which management is not able to estimate
a potential loss. In management's opinion, none of these claims will have a
material adverse affect on the financial position, results of operations or cash
flows of the Company.

    The Company is self-insured for certain losses related to workers'
compensation, employee medical and employee dental claims, vehicle and general
liability.

    The Company has purchased stop-loss coverage in order to limit its exposure
to any significant levels of claims. Self-insurance reserves are accrued based
upon the Company's estimates of the aggregate liability for uninsured claims
incurred using certain actuarial assumptions followed in the insurance industry
and the Company's historical experience. The Company has obtained letters of
credit of $6,000 to guarantee the payment of future claims.

    The Company has approximately $451 recorded as deposits held for customers.

    Also, see Note 12 for related party commitments.

11.  INCOME TAXES:

    The Company's income tax expense (benefit) consists of the following
components:
<TABLE>
<CAPTION>

                                                                FOR THE YEARS ENDED SEPTEMBER 30,
                                                             2001             2000                1999
                                                         -----------      ------------        -----------


                      Current expense(benefit):
<S>                                                       <C>                <C>                <C>
                        Federal.................          $       --         $    (297)         $     755
                        State and local.........                  --                --                131
                                                          ----------         ---------          ---------
                                                                  --              (297)               886
                      Deferred expense (benefit):
                        Federal.................                  --                78              4,909
                        State and local.........                  --                19              1,424
                                                          ----------         ---------          ---------
                                                                  --                97              6,333
                                                          ----------         ---------          ---------
                      Income tax expense (benefit)        $       --         $    (200)         $   7,219
                                                          ==========         =========          =========
</TABLE>

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

<TABLE>
<CAPTION>

                                                                          FOR THE YEARS ENDED SEPTEMBER 30,
                                                                    2001               2000                1999
                                                                  ---------          --------            --------
<S>                                                                <C>                <C>                 <C>
             Tax provision at U.S. statutory rate........         $(22,269)          $(9,884)             $ 2,598
             State and local income taxes, net of federal
               benefit...................................           (2,717)           (1,607)               1,011
             Nondeductible goodwill and purchase contracts           1,337             1,355                  943
             Nondeductible acquisition costs.............               --                --                2,571
             Deferred tax valuation allowance............           23,486             9,033                   --
             Limitation on loss based on tax ownership of LLC           --               425                   --
             Other.......................................              163               478                   96
                                                                   -------            ------              -------
             Income tax expense (benefit)................          $    --            $ (200)             $ 7,219
                                                                   =======            ======              =======
</TABLE>

    At September 30, 2001, and 2000, the components of the net deferred tax
asset (liability) are as follows:
<TABLE>
<CAPTION>


                                                                          2001       2000
                                                                       ---------   ---------

<S>                                                                    <C>        <C>
                                    Rental merchandise...........      $ (25,502) $ (27,229)
                                    Property and equipment.......          4,918      1,280
                                    Operating loss carry forwards         50,334     34,923
                                    Intangibles..................         (5,994)    (3,383)
                                    Accrued expenses.............          5,485      4,042
                                    Other........................            438        211
                                    Tax credits..................          1,143        206
                                    Swap agreements..............          3,376         --
                                    Deferred tax valuation  allowance    (34,198)   (10,050)
                                                                       ---------  ---------
                                    Net deferred tax asset(liability)  $      --  $      --
                                                                       =========  =========

</TABLE>

    A valuation  allowance of $10,050 was established at September 30, 2000, and
increased by $24,148 at September  30, 2001, of which $662 is the tax benefit of
the transitional swap amount recorded to equity. This amount represents the full
net  deferred  tax  asset.  Approximately  $3,050 of the  operating  loss  carry
forwards will result in a credit to  shareholders'  equity when it is determined
they can be utilized.

    As of September 30, 2001, the Company has net operating loss carry-forwards
of approximately $128,551 for income tax purposes, expiring in years through
fiscal 2021. A portion of these losses is subject to annual limitations under
Internal Revenue Code Section 382 due to prior ownership changes. Additionally,
as of September 30, 2000, the Company has alternative minimum tax credits of
approximately $1,027.

12.  RELATED PARTY TRANSACTIONS:

    During fiscal years ended September 30, 2001, 2000, and 1999, the Company
leased one location in 2001 and 2000 and two locations in 1999 from a principal
shareholder or a company controlled by a principal shareholder. Rent paid during
these years related to these leases was $49, $49 and $76 respectively.

    During fiscal 2001, 2000 and 1999 the Company held notes  aggregating  $159,
$902 and $354,  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.  During fiscal 2000,  $140 of the notes was repaid in
cash and $488 was paid by the return of common  stock of the Company  related to
option  exercises.  At September 30, 2001, 2000 and 1999, the Company held notes
receivable  which were due within one year and unpaid interest  thereon of $924,
$690  and  $362,   respectively  and  interest  income  was  $77,  $75  and  $8,
respectively for the years then ended. The notes are reflected as a reduction to
shareholders' equity in the Company's Consolidated Balance Sheet.  Subsequent to
September 30, 2001, directors repaid in cash $351 of the notes.

    In fiscal 2000, the Company paid cash of $94 to a director of the Company
for the repurchase of common stock shortly after the issuance of common stock
through exercise of a stock option. Therefore, the Company recorded compensation
expense of $49 related to this transaction.

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

    In connection with the acquisition of D.A.M.S.L. Corp. ("DAMSL") in fiscal
1994, the Company entered into consulting and non-compete agreements with the
former shareholders including Marc W. Joseffer, a director of the Company. Mr.
Joseffer receives payments from the Company under a consulting agreement dated
May 18, 1994, for a period of five years commencing May 18, 1996. Annual
payments to Mr. Joseffer for each year of the consulting agreement are $132;
$120; $144; $132; and $192 respectively. Under the terms of a non-compete
agreement entered into by Mr. Joseffer, he received monthly payments from the
Company of $2. The non-compete agreement expired on May 18, 2001.

    In connection with the acquisition of McKenzie Leasing Corporation ("MLC")
in fiscal 1995, the Company entered into consulting and non-compete agreements
with McKenzie Development Corporation ("MDC"), an affiliate of MLC and the
principal shareholders of MDC, the former owners of MLC. The consulting and
non-compete agreements are for seven years and have payment terms of $1,250 on
July 21, 1995 and $200 per year for each of the following seven years.

    In connection with the merger of Alrenco and RTO Inc., Alrenco entered into
a non-compete agreement and consulting agreement dated February 26, 1998 with
Michael D. Walts, the Chairman, President and principal shareholder of Alrenco.
The Company assumed this agreement on its merger with Home Choice. The
consulting and non-compete agreement is for a term of five years and has payment
terms in the amount of $400 for each of the next five, twelve- month periods.
The Company paid $400 per year on this agreement during fiscal 2001, 2000 and
1999, respectively.

13.  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 Stock Option 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. As of September 30, 2001, 2,262,050
options at an exercise price ranging from $4.063 to $31.625 were granted under
the 1999 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 will expire in June 2002 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 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.

    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.

    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. 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.

<PAGE>


    The following is a summary of activity of the Company's stock options during
the years ended September 30, 2001, 2000 and 1999, and has been restated to
include the activity of Home Choice's stock options based on an exchange ratio
of 0.588:
<TABLE>
<CAPTION>

                                                                              WEIGHTED
                                                                               AVERAGE        PRICE PER
                                                                                PRICE           SHARE
                                               STOCK OPTIONS       SHARES     PER SHARE         AVERAGE
                                           -------------------   ---------  ------------   -------------
<S>                                                  <C> <C>     <C>           <C>          <C>   <C>
                                           September 30, 1998    2,320,506     $ 17.42      $4.67-33.625
                                                                 ---------
                                             Granted..........   1,364,263     $ 25.90     $19.00-29.4375
                                             Exercised........    (403,610)    $ 14.07      $4.67-25.63
                                             Forfeited........    (125,950)    $ 25.29      $5.83-27.48
                                                                 ---------
                                           September 30, 1999    3,155,209     $ 21.21      $5.83-33.625
                                                                 ---------
                                             Granted..........   1,588,700     $ 18.45     $15.875-31.625
                                             Exercised........    (594,550)    $ 14.23      $5.83-27.875
                                             Cancelled........    (133,720)    $ 21.66      $7.75-32.00
                                                                 ---------
                                           September 30, 2000    4,015,639     $ 21.07      $8.00-33.625
                                                                 ---------
                                             Granted..........     617,565     $  5.67      $4.063-30.25
                                             Exercised........      (6,214)    $ 20.24      $9.13-28.125
                                             Cancelled........    (459,382)    $ 20.06      $9.25-33.625
                                                                 ---------
                                           September 30, 2001    4,167,608                  $4.063-32.75
                                                                 =========
</TABLE>

    At September 30, 2001, vested stock options representing 2,510,618 shares
are exercisable at prices ranging from $5.70 to $32.75 per share.

    The Company  accounts for stock based  compensation  issued to its employees
and  directors  in  accordance  with APB No.  25 and has  elected  to adopt  the
"disclosure only" provisions of SFAS No. 123.

    For SFAS No. 123 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 2001, 2000 and 1999: expected
volatility of 88.18%, risk-free interest rates between 4.62% and 5.86%, and an
expected life of five years.


<PAGE>


    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. 123, net loss and loss per common share would have been
increased to the pro-forma amounts below:
<TABLE>
<CAPTION>


                                                                   FOR THE YEARS ENDED SEPTEMBER 30,
                                                               2001               2000               1999
                                                          ---------------    ---------------     -----------
                   Net loss before extraordinary item:
<S>                                                        <C>                 <C>                 <C>
                     As reported..................         $(63,625)           $(28,041)           $  (246)
                     Pro-forma....................         $(73,047)           $(35,811)           $(6,074)

                   Net loss:
                     As reported..................         $(63,625)           $(28,041)           $  (765)
                     Pro-forma....................         $(73,047)           $(35,811)           $(6,593)

                   Diluted loss per common share:
                   Net loss before extraordinary
                   item                                    $   (2.60)          $   (1.20)          $ (0.01)
                                                           ==========          =========           =======
                     As reported..................
                     Pro-forma....................         $   (2.98)          $   (1.54)          $ (0.28)
                                                           ==========          =========           =======

                   Net loss
                     As reported..................         $   (2.60)          $   (1.20)          $ (0.04)
                                                           ==========          =========           =======
                     Pro-forma....................         $   (2.98)          $   (1.54)          $ (0.31)
                                                           ==========          =========           =======
</TABLE>

    On November 13, 2001, the Company offered to its option holders (other than
its officers and directors) the right to exchange for cancellation all
outstanding options in return for new options. The new options are issuable on
the date which is six months and one day after the date of cancellation at an
exercise price equal to the closing price of the Company's common stock on the
New York Stock Exchange on that date. As of December 10, 2001 (the expiration
date of the Company's offer), 1,109,580 options to acquire common stock were
exchanged for cancellation. The expected issuance date of the new options is
June 13, 2002.

14.  SHAREHOLDERS' EQUITY:

    On May 1, 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. Subject to
the Company meeting purchase volume requirements, Gateway has agreed not to
enter into any similar arrangements with any of the Company's largest industry
competitors. As of October 2001, the Company has not met the purchase volume
requirements under the agreement. The Company and Gateway are in negotiations
regarding continuing the Company's rights of exclusivity. 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 has recorded an intangible asset in the amount
of $2,038 for the value of the exclusivity agreement. The Company is amortizing
this amount over a 36-month period.

    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 are 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.

    The following warrants were outstanding at September 30, 2001:
<TABLE>
<CAPTION>


                                             NUMBER OF     EXERCISE    EXPIRATION       SHARES         SHARES
                       WARRANT DATE           SHARES         PRICE        DATE         EXERCISED      REMAINING
                   -------------------    -------------  ----------- --------------  ------------  ------------
<S>                     <C>                  <C>           <C>            <C>                         <C>
                   July 1995                 105,000       $  9.94   July 2002              --        105,000
</TABLE>

15.  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 $299, $1,025, and $351, in the form of the Company's
common stock for the years ended September 30, 2001, 2000 and 1999, respectively
and $494 in cash for the year ended September 30, 2001.

    On February 5, 2001, and as a result of the significant price drop in
Rent-Way stock following disclosure of the accounting investigation, the Company
made an additional cash contribution of $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. The Company also committed to make additional
contributions in future years 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.

16.  LOSS PER SHARE:

    Basic loss per common share is computed using losses available to common
shareholders divided by weighted average number of common shares outstanding.
Diluted loss per common share is computed using losses available to common
shareholders adjusted for anticipated interest savings, net of related taxes, on
conversion of the Company's convertible subordinated debentures and the weighted
average number of shares outstanding is adjusted for the potential impact of
options, warrants, and the convertible subordinated debentures where the effects
are dilutive. The weighted average shares outstanding prior to December 10, 1998
include the historical weighted average shares of Home Choice, adjusted for the
exchange ratio of 0.588 (see Note 4).

    The following table discloses the reconciliation of numerators and
denominators of the basic and diluted loss per share computation:
<TABLE>
<CAPTION>

                                                                        FOR THE YEARS ENDED SEPTEMBER 30,
                                                                  2001               2000                1999
                                                                 ------             ------              ------
                  COMPUTATION OF LOSS PER SHARE

              BASIC
              Loss applicable to common shares for basic
<S>                                                            <C>                 <C>                 <C>
                 earnings per share......................      $ (63,625)          $ (28,041)          $   (765)
                                                               =========           =========           ========
              Weighted average common shares outstanding          24,501              23,314             21,341
                                                               =========           =========           ========
              Loss per common share:
                Loss before extraordinary item........         $   (2.60)          $   (1.20)          $  (0.01)
                                                               =========           =========           ========
                Loss applicable to common shares......         $   (2.60)          $   (1.20)          $  (0.04)
                                                               =========           =========           ========
              DILUTED
              Loss applicable to common shares for basic
              earnings per share......................         $ (63,625)          $ (28,041)          $   (765)
                                                               =========           =========           ========
              Interest on 7% convertible debentures
               (net of tax) (1).......................                --                  --                 --
                                                               ---------           ---------            -------
              Loss applicable to common shares for
              diluted loss per share..................         $ (63,625)          $  (28,041)          $  (765)
                                                               =========           ==========           =======

              Weighted average common shares used in
              calculating basic loss per share........            24,501              23,314             21,341
              Add-incremental shares representing:
                shares issuable upon exercise of stock
                options, stock warrants and escrowed shares(1)        --                  --                 --
              Shares issued on conversion of 7%
                convertible debentures (1)..............              --                  --                 --
                                                               ---------           ---------            -------
              Weighted average number of shares used in
              calculation of diluted loss per share (in  000's)   24,501              23,314             21,341
                                                               =========           =========            =======
              Loss per common share:
                Loss before extraordinary item........         $   (2.60)          $   (1.20)           $  (0.01)
                                                               =========           =========            ========
                Loss applicable to common shares......         $   (2.60)          $   (1.20)           $  (0.04)
                                                               =========           =========            ========
</TABLE>

(1) Including the effects of these items for the years ended 1999, 2000 and 2001
    would be anti-dilutive. Therefore, 135; 1,123; and 2,004 of antidilutive
    common shares are excluded from consideration in the calculation of diluted
    loss per share for the years ended September 30, 2001, 2000 and 1999,
    respectively.

17.  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 on either a basis. The Company has determined that its
reportable segments are those that are based on the Company's method of internal
reporting, which disaggregates its business by product category. The Company's
reportable segments are household rentals and prepaid telephone service. Its
household rental segment rents name brand merchandise such as furniture,
appliances, electronics and computers on 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).
<TABLE>
<CAPTION>

                                                                                   Prepaid
                                                                       Household  Telephone
                                                                        Rental     Service     Total
                              For the year ended September 30, 2001     Segment    Segment   Segments
                             --------------------------------------------------- ---------- ---------
<S>                                                                    <C>        <C>        <C>
                             Total revenues.......................     $619,879   $ 34,739   $654,618
                                                                      =========  =========  =========
                             Intersegment activity                     $  2,514   $ (2,514)  $      -
                                                                      =========  =========  =========
                             Operating income (loss)..............     $(13,977)  $ $3,740   $(10,237)
                                                                      =========  =========  =========
                             Net income (loss)....................     $(67,342)  $  3,717   $(63,625)
                                                                      =========  =========  =========
                             Total Assets.........................     $621,886   $  6,291   $628,177
                                                                      =========  =========  =========
</TABLE>

18.        SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>

                                                                              For the Quarter Ended

                     Fiscal Year 2001                September 30, 2001  June 30,2001     March 31, 2001  December 31, 2000
                                                     ------------------  ------------     --------------  -----------------

<S>                                                       <C>            <C>          <C>             <C>
           Total revenues                                 $  155,934     $   164,979  $   174,968     $   158,737
           Operating income (loss)...............            (13,574)          2,381       11,630         (10,674)
           Net loss..............................            (25,152)         (8,697)      (4,025)        (25,751)
           Loss applicable to common shares......            (25,152)         (8,697)      (4,025)        (25,751)


           Loss per common share:
             Basic loss per share................         $    (1.03)    $     (0.35)  $    (0.16)    $     (1.05)
             Diluted loss per share                       $    (1.03)    $     (0.35)  $    (0.16)    $     (1.05)


           Weighted average shares outstanding
             Basic...............................             24,510          24,510       24,509          24,475
             Diluted.............................             24,510          24,510       24,509          24,475


</TABLE>

<TABLE>
<CAPTION>

                                                           For the Quarter Ended

                      Fiscal Year 2000               September 30, 2000    June 30, 2000      March 31, 2000  December 31, 1999
                                                     ------------------    -------------      --------------  -----------------

<S>                                                    <C>                   <C>           <C>             <C>
           Total revenues                              $ 151,974             $ 150,912     $ 148,889       $ 140,911
           Operating income (loss)...............        (27,326)                6,866         7,517          13,539
           Net loss..............................        (31,727)                 (311)         (326)          4,323
           Loss applicable to common shares......        (31,727)                 (311)         (326)          4,323


           Loss per common share:
             Basic loss per share................      $   (1.30)            $   (0.01)    $   (0.01)      $    0.20
             Diluted loss per share..............      $   (1.30)            $   (0.01)    $   (0.01)      $    0.19

           Weighted average shares outstanding
             Basic...............................         24,411                23,984        22,673           21,982
             Diluted.............................         24,411                23,984        22,673           23,762
</TABLE>


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

    None.


<PAGE>


                                 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 2002 Annual Meeting of
Shareholders to be held March 12, 2002. The Company intends to file the
definitive Proxy Statement not later than 120 days after September 30, 2001.

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 2002 Annual Meeting of
Shareholders to be held March 12, 2002. The Company intends to file the
definitive Proxy Statement not later than 120 days after September 30, 2001.

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 2002 Annual Meeting of
Shareholders to be held March 12, 2002. The Company intends to file the
definitive Proxy Statement not later than 120 days after September 30, 2001.

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 2002 Annual Meeting of
Shareholders to be held March 12, 2002. The Company intends to file the
definitive Proxy Statement not later 120 days after September 30, 2001.



<PAGE>


                                 RENT-WAY, INC.

PART IV

ITEM 14.  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


<PAGE>


                                 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.

Registrant: RENT-WAY, INC.


   By: /s/ WILLIAM E. MORGENSTERN
       --------------------------
           William E. Morgenstern
           Chairman of the Board and Chief Executive Officer
          (Principal Executive Officer)

       Date:  December 28, 2001

   By: /s/ WILLIAM A. McDONNELL
       ------------------------
           William A. McDonnell
           Vice President and Chief Financial Officer

       Date:  December 28, 2001

   By: /s/ JOHN A. LOMBARDI
       --------------------
           John A. Lombardi
           Vice President, Corporate Controller and
           Chief Accounting Officer
          (Principal Accounting Officer)

       Date:   December 28, 2001



    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.
<TABLE>

                              SIGNATURE TITLE DATE
<S>                                                                                              <C>
                                        /s/  GERALD A. RYAN                Director December 28, 2001
                                        --------------------------------

                                             Gerald A. Ryan


                                        /s/  WILLIAM E. MORGENSTERN        Director December 28, 2001
                                        --------------------------------

                                             William E. Morgenstern

                                        /s/  JOHN W. HIGBEE                Director December 28, 2001
                                        ------------------------

                                             John W. Higbee

                                        /s/  ROBERT FAGENSON               Director December 28, 2001
                                        -------------------------

                                             Robert Fagenson

                                        /s/  MARC W. JOSEFFER              Director December 28, 2001
                                        --------------------------

                                             Marc W. Joseffer

                                        /s/  WILLIAM LERNER                Director December 28, 2001
                                        ------------------------

                                             William Lerner

                                        /s/  JACQUELINE E. WOODS           Director December 28, 2001
                                        -----------------------------

                                             Jacqueline E. Woods

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                  EXHIBIT INDEX

              EXHIBIT NO.      DESCRIPTION
           ---------------   ----------------------------------------------------
                  <S>        <C>
                  2.2(2)     Agreement and Plan of Merger among the Company, McKenzie Leasing
                             Corporation, Steve A. McKenzie, Brenda G. McKenzie and others, dated June 9, 1995.

                  2.3(4)     Stock Purchase Agreement by and among the Company, Diamond Leasing
                             Corporation, Kenneth H. Moye and Lee Brady, dated July 20, 1996.

                  2.4(6)     Stock Purchase Agreement by and among the Company, Bill Coleman TV, Inc. and
                             David Coleman, dated January 2, 1997.

                  2.5(5)     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.

                  2.6(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.

                  2.7(7)     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.

                  2.8(8)     Stock Purchase Agreement by and among the Company, Champion Rentals, Inc.,
                             Bill C. Ogle, Sr. and others, dated as of January 30, 1998.

                  2.9(9)     Agreement and Plan of Merger dated September 1, 1998 between the Company and Home Choice
                             Holdings, Inc.

                  2.10(11)   Stock Purchase Agreement between the Company, RentaVision, Inc. and Robert
                             Natoli dated September 15, 1999.

                  3.1(10)    Articles of Incorporation of the Company, as amended.

                  3.2(14)   (By-Laws of the Company, as amended.

                 10.1(1)     Company's Stock Option Plan of 1992.

                 10.2(3)     Company's 1995 Stock Option Plan.

                 10.3(1)     Form of Non-Plan Stock Option Agreement.

                 10.4(13)    Company's 1999 Stock Option Plan.

                 10.5*       Employment Agreement between William E. Morgenstern and the Company, dated
                             October 1, 2001.

                 10.6(12)    Engagement Agreement between Gerald A. Ryan and the Company, dated October 1, 1999.

                 10.9(3)     Consulting Agreement between the Company and McKenzie Development Corporation, dated July
                             21, 1995.

                10.10(3)     Non-Competition Agreement between the Company and Steve A. McKenzie, dated
                             July 21, 1995.

                10.11(3)     Non-Competition Agreement between the Company and Brenda G. McKenzie, dated
                             July 21, 1995.

                10.12(2)     Subordinated Note Agreement among the Company and MassMutual, dated July 15,
                             1995.

                10.13(3)     Form of MassMutual Subordinated Note, dated July 15, 1995.

                10.14(3)     Form of MassMutual Warrant, dated July 15, 1995.

                10.15(9)     Non Competition Agreement between the Company and George D. Johnson, Jr.
                             dated September 1, 1998.

                10.16(13)    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.


                10.19(10)    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.

                10.22(14)    Amendment No. 2 to Credit Agreement dated as of December 6, 1999.

                10.23(14)    Amendment No. 3 to Credit Agreement dated as of December 7, 1999.

               10.24(14)     Amendment No. 4 to Credit Agreement dated as of June 28,2000.

               10.25(14)     Amendment No. 5 to Credit Agreement dated November 16, 2000.

                   10.26*    Amendment No. 6 to Credit Agreement dated October 5, 2001.

               10.27(14)     Purchasing Agreement between Gateway Companies, Inc. and the Company dated
                             April 28, 2000

               10.28(14)     Common Stock Purchase Agreement made as of May 1, 2000, between Gateway
                             Companies, Inc. and the Company

               10.29(14)     Employment Agreement between William McDonnell and the Company dated
                             February 1, 2000

               10.30(14)     Separation Agreement between Jeffrey A. Conway and the Company dated as of
                             December 28, 2000.

                   21*       Subsidiaries of the Company

                   23*       Consent of PricewaterhouseCoopers LLP.
----------
* Filed herewith
</TABLE>

    (1) Previously filed, as of December 8, 1992, as an exhibit to the Company's
Registration Statement on Form S-18 (No. 33-55562-NY).

    (2) Previously  filed, as of August 15, 1995, as an exhibit to the Company's
Current Report on Form 8-K.

    (3)  Previously  filed,  as of January 5, 1996,  pursuant  to the  Company's
Registration Statement on Form SB-2 (No. 333-116).

    (4) Previously  filed,  as of August 8, 1996, as an exhibit to the Company's
Current Report on Form 8-K.

    (5)  Previously  filed,  as of  February  21,  1997,  as an  exhibit  to the
Company's Current Report on Form 8-K.

    (6) Previously filed, as of November 6, 1997, as an exhibit to the Company's
Annual Report on Form 10-K.

    (7) Previously filed, as of January 20, 1998, as an exhibit to the Company's
Current Report on Form 8-K.

    (8)  Previously  filed,  as of  February  19,  1998,  as an  exhibit  to the
Company's Current Report on Form 8-K.

    (9)  Previously  filed,  as of November 6, 1998,  pursuant to the  Company's
Registration Statement on Form S-4 (No. 333-66955).

    (10)  Previously  filed,  as of  December  29,  1998,  as an  exhibit to the
Company's Annual Report on Form 10-K.

    (11)  Previously  filed,  as of  October  12,  1999,  as an  exhibit  to the
Company's Current Report on Form 8-K.

    (12)  Previously  filed,  as of  December  22,1999,  as an  exhibit  to  the
Company's Annual Report on Form 10-K.

    (13)  Previously  filed,  as of  February  12,  1999,  as  Exhibit  A to the
Company's Proxy Statement on Schedule 14A

(14) Previously filed as of July 2, 2001, as an exhibit to the Company's Annual
Report on Form 10-K.

(b) Reports on Form 8-K:

    The Company filed the following reports on Form 8-K during quarter ended
September 30, 2001:

(1)     On September 19, 2001, the Company filed a Current Report on Form 8-K,
        which reported the issuance of a press release announcing that it had
        rescheduled its annual shareholders' meeting to September 28, 2001.
(2)     On September 13, 2001, the Company filed a Current Report on Form 8-K,
        which reported the issuance of a press release announcing the delay of
        its annual shareholders' meeting due to the September 11, 2001, attacks
        on the United States.
(3)     On August 30, 2001, the Company filed a Current Report on Form 8-K,
        which reported the issuance of a press release announcing it had
        selected a new marketing communications agency, Hitchcock Fleming &
        Associates.
(4)     On August 28, 2001, the Company filed a Current Report on Form 8-K,
        which reported the issuance of a press release regarding its
        third-quarter financial results.
(5)     On August 14, 2001, the Company filed a Current Report on Form 8-K,
        which reported the issuance of a press release announcing the expected
        date for filing its Form 10-Qs for the first three quarters of fiscal
        2001.
(6)     On August 3, 2001, the Company filed a Current Report on Form 8-K, which
        reported the issuance of a press release announcing its bank lenders
        agreed to amend its forbearance agreement.
(7)     On July 2,  2001,  the  Company  filed a  Current  Report on Form 8-K,
        which  reported  the  issuance  of a press  release announcing its final
        fiscal 2000 financial results.
(8)     On July 2, 2001, the Company filed a Current  Report on Form 8-K, which
        reported the issuance of a press release  regarding the expected date
        for filing its fiscal 2000 Form 10-K.