<PAGE>   1

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                    U. S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                  FORM 10-K/A

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

                  FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000

[   ]  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)

<Table>
<S>                       <C>
      PENNSYLVANIA                      25-1407782
(STATE OF INCORPORATION)   (I.R.S. EMPLOYER IDENTIFICATION NO.)
</Table>

                  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:

<Table>
<Caption>
      TITLE OF CLASS        NAME OF EXCHANGE ON WHICH REGISTERED
      --------------        ------------------------------------
<S>                         <C>
Common Stock, No Par Value     New York Stock Exchange, Inc.
</Table>

       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 [   ] No [ X ].

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 June 25, 2001, the aggregate market value of
stock held by non-affiliates of the registrant is $202,207,327.

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

<Table>
<S>                  <C>
       CLASS                  OUTSTANDING AS OF AUGUST 21, 2001
   Common Stock                          24,509,979
</Table>

This amendment on Form 10-K/A amends Items 6, 7, 8 and 12 of the Annual Report
of Rent-Way, Inc. (the "Company") on Form 10-K previously filed for the year
ended September 30, 2000. This amendment includes the financial information
required by Rule 302(a) of Regulation S-K and minor financial statement
reclassifications. All other information contained in this Annual Report on Form
10-K/A is as of the date referenced for such information in the original filing
or, if no date is referenced for such information in the original filing, as of
the date of such filing.

                   DOCUMENTS INCORPORATED BY REFERENCE:  NONE

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                                 RENT-WAY, INC.

                               TABLE OF CONTENTS

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

PART I
           Item 1.   Business....................................................    2
           Item 2.   Description of Properties...................................   12
           Item 3.   Legal Proceedings...........................................   12
           Item 4.   Submission of Matters to a Vote of Security Holders.........   13

PART II
           Item 5.   Market for Registrant's Common Equity and Related
                     Stockholder Matters.........................................   14
           Item 6.   Selected Financial Data.....................................   14
           Item 7.   Management's Discussion and Analysis of Financial Condition
                     and Results of Operations...................................   16
           Item 7A.  Quantitative and Qualitative Disclosures About Market
                     Risk........................................................   24
           Item 8.   Financial Statements and Supplementary Data.................   25
           Item 9.   Changes in and Disagreements with Accountants on Accounting
                     and Financial Disclosure....................................   61

PART III
           Item 10.  Directors and Executive Officers of the Company.............   62
           Item 11.  Executive Compensation......................................   64
           Item 12.  Security Ownership of Certain Beneficial Owners and
                     Management..................................................   67
           Item 13.  Certain Relationships and Related Transactions..............   68
           Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form
                     8-K.........................................................   68

Signatures.......................................................................   69
</Table>
<PAGE>   3

                                 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. See particularly statements
appearing in Item 1, "Business--Accounting Investigation and Related
Developments" and Item 7, "Management's Discussion and Analysis of Financial
Condition," among others. These statements may be identified by terms and
phrases such as "anticipate", "believe", "intend", "estimate", "expect",
"continue", "should", "could", "may", "plan", "project", "predict", "will" and
similar expressions and relate to future events and occurrences. These forward-
looking statements are subject to uncertainties and other factors that could
cause actual results to differ materially from such statements. Factors that
could cause actual results to differ materially from those expressed or implied
in such statements include but are not limited to:

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

        Rent-Way's ability to make principal and interest payments on its
        high-level of outstanding bank debt.

        Rent-Way's ability to negotiate an amendment to its existing senior
        credit facility, under which it is currently in default, or to refinance
        the debt thereunder.

        The outcome of any 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
        transaction and prepaid local phone service transaction.

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

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

     Given these factors, undue reliance should not be placed on any
forward-looking statements, including statements regarding Rent-Way's future
prospects. Such statements speak only as of the date made. Rent-Way undertakes
no obligation to update or revise any such statements whether as a result of new
information, the occurrence of future events, or otherwise.
<PAGE>   4

                                     PART I

ITEM 1.  BUSINESS

GENERAL

     Rent-Way, Inc. (the "Company" or "Rent-Way") is the second largest operator
in the rental-purchase industry with 1,134 stores in 42 states as of June 1,
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, affecting its
financial results for fiscal 2000 and that based on its preliminary
investigation it expected these matters to have a negative, non-cash impact of
between $25.0 and $35.0 million on its estimated fiscal 2000 pre-tax earnings.
These matters were discovered by management prior to completion of preparation
of the Company's fiscal 2000 audited financial statements. The Audit Committee
of the Board of Directors immediately instituted an investigation of the these
matters with the assistance of the Company's outside counsel, Hodgson Russ LLP,
special counsel to the Audit Committee, Ross & Hardies, and a special
investigative team from PricewaterhouseCoopers LLP, Rent-Way's independent
auditors. The Audit Committee and Rent-Way's bank lenders also jointly retained
Ernst & Young LLP, to assist in the investigation and to review the
investigation conducted by PricewaterhouseCoopers LLP. On the discovery of these
matters, Matthew J. Marini, the Company's Controller and Chief Accounting
Officer, was suspended; Jeffrey A. Conway, the Company's President and Chief
Operating Officer, was asked to relinquish his operating responsibilities.

     On December 12, 2000, the Company announced that based on its investigation
to that date it expected the accounting matters to have a negative, non-cash
impact of between $65.0 and $75.0 million on its estimated fiscal 2000 pre-tax
earnings and possibly require revision of its fiscal 1999 audited financial
statements. Also on December 12, 2000, the employment of Mr. Marini was
terminated. At the request of the Board of Directors, Mr. Conway resigned
effective December 31, 2000. Mr. Conway also resigned from the Board of
Directors. As a result of information developed in the investigation, the scope
of the fiscal 2000 audit was expanded, additional auditing procedures were
conducted, and the Company undertook an expanded review of its financial
reporting matters.

     On May 24, 2001, the Company announced that it expected the accounting
matters to have an aggregate negative, non-cash impact of approximately $127.0
million on estimated fiscal 2000 and audited fiscal 1999 pre-tax earnings. The
Company also announced that it was examining its fiscal 1998 audited financial
statements for possible revision.

     Results of Investigation and Audit

     After evaluating information revealed in the investigation and in
preparation of its fiscal 2000 year-end financial statements, the Company has
determined that improper accounting entries were made in fiscal 2000, 1999 and
1998 that overstated assets and income and understated liabilities and expense.
These entries were made

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<PAGE>   5

by or at the direction of the Company's former Controller. The entries were
numerous, involved several different accounts, were often in relatively small
amounts, and had the effect of overstating operating income. There were several
techniques used to hide these improprieties including preparing false monthly
management reports for review by senior management, instructing lower-level
employees to manipulate the Company's management information system in order to
support the improper entries, requesting third-party vendors to issue documents
used to support the improper entries and misleading the Company's independent
auditors regarding the existence and results of internal inventories of Company
assets, among others. The total amount of adjustments relating to these improper
entries affecting pre-tax operating income in fiscal 2000, 1999 and 1998 is
$74.3 million, $21.0 million and $2.3 million, respectively. Additional
adjustments in fiscal 2000 totaling $24.5 million consist of (1) year-end audit
adjustments, including increases in expense accruals and reserves, $4.0 million,
write-offs of unrealizable or non-existent balance sheet assets, including cash,
accounts receivable, idle and missing rental merchandise and prepaid items, $7.5
million, and updates and reconciliations of asset and liability account
balances, $9.5 million, (2) adjustments necessary to give effect to the
operations of DPI, $2.7 million and (3) adjustments relating to changes in
accounting method or adoption of new accounting policies, $0.8 million. With
respect to fiscal 1999 and 1998, the Company has also made adjustments to
conform the application of certain accounting principles for all periods
presented. The total amount of adjustments relating to these changes in
accounting principles affecting pre-tax operating income in fiscal 1999 and 1998
is $2.6 million and $0.6 million, respectively. In addition, the Company has
also decided to record certain previously unrecorded recurring adjustments that
were initially identified in its preparation of its fiscal 1999 and 1998
financial statements. The Company had previously decided not to record these
adjustments on the basis of immateriality. The Company has now decided to give
effect to these adjustments in fiscal 1999 and 1998 as appropriate. The total
amount of these adjustments affecting pre-tax operating income in fiscal 1999
and 1998 are ($0.7 million) and $3.4 million, respectively.

     As a result, the Company has determined to restate its previously reported
fiscal 1999 and 1998 financial statements and its fiscal 2000 unaudited
quarterly financial statements. The restated fiscal 1999 and 1998 financial
statements are included with the financial statements contained in this report.
The fiscal 2000 year-end financial statements included in this report give
effect to the required restatements to the Company's previously reported fiscal
2000 unaudited quarterly financial results. The Company will file amended Form
10-Qs for the fiscal 2000 quarters ended June 30, and March 31, 2000, and
December 31, 1999, as soon as practicable.

     Nature of the Improprieties

     For the year ended September 30, 2000, the improper accounting entries
primarily required adjustments to the following asset accounts: rental
merchandise and accumulated depreciation, $36.8 million; advertising rebates
receivable, $3.0 million; prepaid expenses, $3.7 million; construction
inventory, $2.9 million; and fixed assets, $11.7 million. In addition, expense
accruals were improperly reduced or eliminated, aggregating $2.4 million; and
certain operating expenses were not recorded in the period in which they were
incurred, primarily vendor invoices and other payables, aggregating $6.7
million. In addition, improper purchase accounting entries were made that
charged expenses to goodwill related to the Company's acquisitions of
RentaVision, Inc., and America's Rent-to-Own, Inc., totaling $7.1 million.

     For the year ended September 30, 1999, the improper accounting entries
primarily required adjustments to the following asset accounts: rental
merchandise and accumulated depreciation, $6.1 million; advertising rebates
receivable, $5.7 million; parts inventory, $1.1 million; and fixed assets, $2.0
million. In addition, certain operating expenses were not recorded in the period
in which they were incurred, primarily vendor invoices and other payables, which
aggregated $6.1 million. After adjusting for all matters arising in the
investigation and audit, the Company recalculated its income tax provision
reducing income tax expense by $8.0 million. The impact of these matters in
fiscal 1999 was to overstate income before taxes by $23.4 million and net income
by $15.4 million.

     For the year ended September 30, 1998, the improper accounting entries
required adjustments to rental merchandise of $0.9 million and to prepaid
advertising of $.2 million. In addition, an advertising expense accrual of $1.0
million and an accrual for customer deposits of $.2 million were not recorded.
After adjusting for all matters, the Company recalculated its income tax
provision reducing income tax expense by $2.6 million. The
                                        3
<PAGE>   6

impact of these matters in fiscal 1998 was to overstate income before taxes by
$6.5 million and net income by $4.0 million.

     For additional information regarding adjustments to the Company's financial
results, see "Item 7--Management's Discussion and Analysis of Financial
Condition and Results of Operation" and Notes 1 and 19 of the "Notes to the
Consolidated Financial Statements" included in Item 8.

     As a result of these accounting matters, the Company is in default of its
credit facility. The Company is currently operating under a forbearance
agreement with its bank lenders, which expires on July 31, 2001. See "Item
7--Management's Discussion and Analysis--Liquidity and Capital Resources."

     Following the announcement of the investigation, twelve purported class
action lawsuits were filed against the Company and its officers. A lawsuit was
also filed as a purported shareholder derivative action against the Company, its
officers and certain directors. In addition, the Securities and Exchange
Commission and the United States Attorney for the Western District of
Pennsylvania are conducting investigations. See "Item 3--Legal Proceedings."

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.

FISCAL 2000 DEVELOPMENTS

     New Stores

     During fiscal 2000, the Company entered into several transactions in which
it acquired 24 stores. On March 22, 2000, the Company acquired 10 stores in
Alabama and Tennessee from ABC Television d/b/a Prime Time Rentals. On June 13,
2000, the Company acquired one store in Bartlesville, OK, from Go Leasing, Inc.
On August 16, 2000, the Company acquired a store in Crossville, TN, from
Rent-A-Center, Inc. On September 1, 2000, the Company acquired one store in
Easley, SC, from Delta Electronics, Inc. On September 14, 2000, the Company
acquired 8 stores in North Carolina from eight separate corporations doing
business as Rent City. On September 21, 2000, the Company acquired 3 stores in
Oregon from Family Rent to Own, Inc. In connection with acquisitions, the
Company implements a strategy to improve the operations of the acquired stores.
As part of this strategy, the Company generally purchases new merchandise,
upgrades the appearance of the stores, increases the amount of advertising
utilized per store, and implements a training program for store employees.
During fiscal 2000, the Company also opened 68 new stores in 31 states.

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<PAGE>   7

     Agreement with Gateway

     The Company entered into a three-year agreement with Gateway Companies,
Inc. in April 2000 to be an authorized supplier of Gateway personal computers
and related peripherals in the rental-purchase industry. Subject to Rent-Way
meeting purchase volume requirements, Gateway has agreed not to enter into any
similar arrangement with any of Rent-Way's largest industry competitors,
including Rent-A-Center, Aaron Rents and Rainbow Rentals. As part of this
transaction, Gateway invested $7.0 million for 348,910 shares of Rent-Way common
stock. Under this agreement, the Company offers Gateway personal computers and
prepaid, unlimited Internet access to our customers under a rental-purchase
contract at between $19.99 and $29.99 per week, depending on configuration.

     Investment in dPi Teleconnect LLC

     Rent-Way acquired a 49% interest in DPI in January 2000 and an additional
21% interest in May 2000 and now owns 70% of the company. DPI offers prepaid
local phone service and targets its services to customers whose local phone
service has been disconnected. The service is paid for in advance and requires
no long-term obligation on the part of the customer. As of June 1, 2001, DPI
offered its services in 780 of the Company's stores and approximately 1,600
locations of independent agents. The number of DPI customers has grown from
14,000 at December 31, 1999, to 55,000 as of June 1, 2001.

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 1999 the U.S.
rental-purchase industry comprised approximately 8,000 stores providing 6.9
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 $5.0 billion in 1999. 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 44
percent of total industry stores.

STRATEGY

     Management believes that the Company's continued success depends on
successful implementation of the following business strategies:

     Improving Existing Store Performance

     In fiscal 2001 the Company has focused and 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.

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     Reducing Corporate Overhead

     The Company is currently evaluating its corporate-level processes,
procedures and staffing levels and hopes to achieve increased corporate-level
efficiency and a reduction of corporate expenditures as a result of this
evaluation.

     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 the institution of a toll-free
1-800-RENTWAY complaint and comment 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 empowered,
encouraged and trained to make decisions regarding store operations subject only
to certain Company-wide operating guidelines and general policies.

     Enhancing the Company's Product Lines--Leveraging Distribution Channel

     One of the Company's principal strategies is to provide the rental-purchase
customer with the opportunity to obtain high quality, state-of-the-art
merchandise. The Company attempts to maintain 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 other products and services not traditionally
offered to the rental-purchase customer.

     Monitoring Store Performance

     The Company's management information system allows each store manager 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.
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 launched an
internal audit program. The audit program includes the inspection of a store's
cash, fixed assets, and rental merchandise agreements. In addition, the 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 percent of a store
manager's pay. Regional and store

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<PAGE>   9

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 (CBT) initiative in the fourth quarter of fiscal 2001.
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 June 1, 2001, the Company operates 1,134 stores in 42 states as
follows:

<Table>
<Caption>
                                   NUMBER OF
            LOCATION                STORES
            --------               ---------
<S>                                <C>
Texas............................     122
Florida..........................      89
New York.........................      76
Ohio.............................      62
Pennsylvania.....................      62
South Carolina...................      62
North Carolina...................      55
Indiana..........................      42
Louisiana........................      41
Tennessee........................      41
Georgia..........................      40
Illinois.........................      40
Kentucky.........................      37
Virginia.........................      36
Arkansas.........................      34
Michigan.........................      30
Alabama..........................      28
Arizona..........................      18
Kansas...........................      18
Missouri.........................      18
Oklahoma.........................      16
</Table>

<Table>
<Caption>
                                   NUMBER OF
            LOCATION                STORES
            --------               ---------
<S>                                <C>
Maryland.........................      16
Mississippi......................      15
Maine............................      13
Massachusetts....................      13
Nebraska.........................      13
Colorado.........................      11
Washington.......................      10
Iowa.............................       9
New Hampshire....................       9
New Mexico.......................       9
West Virginia....................       8
Vermont..........................       7
Nevada...........................       6
Oregon...........................       6
Delaware.........................       5
California.......................       4
Utah.............................       4
Connecticut......................       3
Rhode Island.....................       2
South Dakota.....................       2
Idaho............................       2
</Table>

     The Company's stores average approximately 3,500 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.

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     Product Selection

     The Company offers brand name computers, home entertainment equipment,
furniture, major appliances and jewelry. Home entertainment equipment includes
television sets, VCRs, camcorders and stereos. Major appliances offered by the
Company include refrigerators, ranges, washers and dryers. The Company's product
line currently includes the Zenith, RCA, JVC, Phillips and Panasonic brands in
home entertainment equipment, the Amana, Crosley, General Electric, and Kenmore
brands in major appliances and the Ashley, Bassett, Howard Miller, and New
England Corsair brands in furniture. In June 2000, the Company added Gateway
computers to its product line. The Company closely monitors customer rental
requests and adjusts its product mix accordingly.

     For the year ended September 30, 2000, payments under rental-purchase
contracts for home entertainment products including computers accounted for
approximately 47.1%, furniture for 28.2%, appliances for 19.8%, jewelry for
4.9%, and other items for 0.1% 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 with Internet access are
offered as low as $19.99 per week. 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 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, 2000, 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 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

                                        8
<PAGE>   11

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 such law in its collection
procedures. Charge-offs due to lost or stolen merchandise and discards were
approximately 3.9%, 3.5% and 3.5% of the Company's revenues for the years ended
September 30, 2000, 1999, and 1998, respectively. The charge-off rate for chains
with over 40 stores reporting to APRO in 1999 was 3.6%.

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
divisional vice presidents, who monitor the operations of their divisions and,
through their regional managers, individual store performance. The divisional
vice presidents report to one of two Executive Vice Presidents who monitor the
overall operations of their assigned geographic area. The Executive Vice
Presidents report to the corporate-level 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, since December 2000, the Company has hired a new
Vice President-Controller and Chief Accounting Officer and a new Vice President
of Marketing. The Company 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

     The Company, in order to strengthen its internal controls, has engaged
Scott C. King, of King Capital Group, to assist in evaluating existing
accounting policies and procedures. Mr. King has 25 years of public company
accounting experience. In addition, Shaffner, Knight and Minnaugh, CPAs, Erie,
Pennsylvania, has

                                        9
<PAGE>   12

been engaged 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 and each rental-purchase
agreement. The Company's system also includes extensive management software and
report generating capabilities. 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, delinquent accounts and other account 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.

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. All purchase orders are executed through regional managers
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, spot and national television advertising and, to a lesser extent, through
radio and secondary print media advertisement. The Company also solicits
business to 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, 2000, 1999 and 1998 were 3.4%, 4.8% and 5.2%, respectively. In
addition to the Company's national advertising efforts, a good deal of emphasis
has been placed on the 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,

                                        10
<PAGE>   13

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 June 1, 2001, the Company had approximately 5,417 employees, 275 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.
In connection with the Home Choice merger, the Company acquired the "Home
Choice" service mark, which is registered under the Lanham Act.

BUSINESS OF DPI TELECONNECT LLC

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

     DPI was formed in late 1998. 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

                                        11
<PAGE>   14

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
such 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 June 2001, DPI had 55,000 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.

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. Also, as previously
discussed, the law firms of Hodgson Russ LLP and Ross & Hardies are conducting
an independent investigation of financial reporting issues. A joint interim
attorneys' report regarding this investigation dated June 19, 2001, has been
conveyed to the board of directors and to management and was considered in
connection with the preparation of the Company's financial statements and this
report. The investigations are ongoing and the Company cannot predict their
outcomes. If Rent-Way were 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 and financial condition.

     Securities Litigation

     As of June 1, 2001, Rent-Way has been served with twelve complaints in
purported class action lawsuits filed in or transferred to the U.S. District
Court for the Western District of Pennsylvania. The complaints allege 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 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 January 18, 2000, and October 30,
2000. The District

                                        12
<PAGE>   15

Court has ordered that the actions be consolidated and on March 9, 2001,
appointed Cramer Rosenthal McGlynn, LLC, an investment advisor that purchased
the Company's common stock for the accounts of its clients, to serve as lead
plaintiff and the firm of Gold, Bennett, Cera & Sidener LLP to serve as lead
counsel. The lead plaintiff must file a consolidated complaint within 20 days of
the filing of this report. Rent-Way is currently evaluating these claims and
possible defenses thereto. Additional purported class action lawsuits similar to
those described above may be filed, and the existing complaints may be amended
to increase the purported class.

     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 lawsuits.

     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, these
matters. Management believes that these matters could have a material adverse
impact on the Company's financial position and results of operations.

     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
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 or results of
operations.

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

     No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.

                                        13
<PAGE>   16

                                    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 Company's common stock began trading on the New York Stock
Exchange on October 8, 1998. The Company's common stock was previously traded on
the NASDAQ National Market under the symbol "RWAY". The following table sets
forth, for the periods indicated, the high and low bid information per share of
the common stock as reported on the NASDAQ National Market for the period prior
to October 8, 1998, and the high and low sales prices per share of the common
stock as reported on New York Stock Exchange for the period on and after October
8, 1998.

<Table>
<Caption>
                                                   YEAR ENDED              YEAR ENDED
                                               SEPTEMBER 30, 2000      SEPTEMBER 30, 1999
                                               ------------------      ------------------
                                                HIGH        LOW         HIGH        LOW
                                               -------    -------      -------    -------
<S>                                            <C>        <C>          <C>        <C>
First Quarter................................  $20.25     $13.9375     $28.00     $17.50
Second Quarter...............................   21.00      15.25        27.88      21.38
Third Quarter................................   30.375     19.50        29.44      20.50
Fourth Quarter...............................   32.25      20.00        25.06      19.00
</Table>

     As of June 1, 2001, there were 232 record shareholders 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.

     On September 14, 2000, the Company issued 1,943 shares of its common stock
as partial consideration in connection with its acquisition of Rent City. The
shares bear restrictions on transfer. The issuance of the shares was exempt from
registration under Section 4 (2) of the Securities Act of 1933, as amended.

ITEM 6.  SELECTED FINANCIAL DATA

     The following selected financial data for the years ended September 30,
1996, 1997, 1998, 1999 and 2000 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
years ended September 30, 1998 and 1999, have been restated to reflect
adjustments described in Note 19 to the financial statements included in this
report. The historical financial data are qualified in their entirety by, and
should be read in conjunction with,

                                        14
<PAGE>   17

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,
                                           ------------------------------------------------------------------
                                           1996(1)(2)   1997(1)(3)    1998(1)(4)        1999(5)      2000(6)
                                           ----------   ----------   -------------   -------------   --------
                                                                     (AS RESTATED)   (AS RESTATED)
                                                      (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S>                                        <C>          <C>          <C>             <C>             <C>
Statement of Operations Data:
  Total revenues.........................   $175,333     $320,330      $436,031        $494,352      $592,686
  Operating profit.......................      8,710       10,998         8,589          24,674           596
  Income (loss) before extraordinary
     item................................      3,945        1,566        (5,819)           (246)      (28,041)
  Net income (loss)......................      3,945        1,297        (5,819)           (765)      (28,041)
  Earnings (loss) applicable to common
     shares..............................      3,816        1,577        (5,819)           (765)      (28,041)
  Basic:
     Income (loss) before extraordinary
       item..............................   $   0.34     $   0.11      $  (0.29)       $  (0.01)     $  (1.20)
     Net income (loss)...................   $   0.34     $   0.09      $  (0.29)       $  (0.04)     $  (1.20)
  Diluted:
     Income (loss) before extraordinary
       item..............................   $   0.32     $   0.11      $  (0.29)       $  (0.01)     $  (1.20)
     Net income (loss)...................   $   0.32     $   0.09      $  (0.29)       $  (0.04)     $  (1.20)
  Weighted average shares outstanding (in
     thousands):
     Basic...............................     11,954       16,653        20,283          21,341        23,314
     Diluted.............................     12,089       16,653        20,283          21,341        23,314
Balance Sheet Data:
  Rental merchandise, net................   $ 76,586     $132,393      $175,085        $196,510      $282,052
  Total assets...........................    219,105      319,849       487,536         609,658       766,311
  Debt...................................     19,751       96,318       179,603         288,130       387,852
  Shareholders' equity...................    177,063      183,968       244,090         258,487       267,822
</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
   years ended September 30, 1997, and 1996, reflect 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, 1996, the Company acquired 190
   rental-purchase stores, 102 through the acquisition of Action TV & Appliance
   Rental, Inc., which affects the comparability of the historical financial
   information for the periods presented.

3) 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.

4) 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.

5) 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.

6) 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.

                                        15
<PAGE>   18

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

     The Company has determined that its unaudited financial statements as of
and for the periods ended June 30, 2000, March 31, 2000, and December 31, 1999,
and its audited financial statements as of and for the years ended September 30,
1999 and 1998, were inaccurate and require restatement. These inaccuracies and
required restatements are discussed at "Business--Accounting Investigation and
Related Developments" and at Notes 1 and 19 of the notes to the Company's
financial statements included in this report. This Management's Discussion and
Analysis of Financial Condition and Results of Operations for the years ended
September 30, 2000 and 1999 reflects the restatement of the Company's previously
reported financial results for the year ended September 30, 1999 and 1998.

OVERVIEW

     Rent-Way is the second largest operator in the rental-purchase industry
with 1,134 in 42 states as of June 1, 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 18 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
the 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 597 as of September 30, 1997 to 1,138 as of September
30, 2000. The following table shows the number of stores opened, acquired and/or
combined during this three-year period. Since September 30, 2000, the Company
has closed or combined 38 stores and opened or acquired 34 stores.

<Table>
<Caption>
                                                      YEARS ENDED SEPTEMBER 30,
                                                     ---------------------------
                      STORES                         1998       1999       2000
                      ------                         -----     ------     ------
<S>                                                  <C>       <C>        <C>
Open at Beginning of Period........................   597        869      1,114
Opened.............................................    65         12         68
Acquired...........................................   250        275         24
Locations Sold.....................................    (8)        --         (4)
Closed or Combined.................................   (35)       (42)       (64)
                                                      ---      -----      -----
Open at End of Period..............................   869      1,114      1,138
                                                      ===      =====      =====
</Table>

     Fiscal 2000 Acquisitions

     On September 21, 2000, the Company acquired from Family Rent-to-Own, Inc.,
three stores located in Oregon with annual revenues of approximately $2.3
million in exchange for consideration of $1.2 million in cash. On September 14,
2000, the Company acquired one store each from eight companies all doing
business as RentCity, with combined annual revenues of approximately $3.4
million. Total consideration for the acquisition was $2.0 million in cash and
$50,000 in common stock. On June 13, 2000, the Company acquired one store in
Bartlesville, OK, from Go Leasing, Inc. On August 16, 2000, the Company acquired
one store in Crossville, TN, from Rent-A-Center, Inc. On September 1, 2000, the
Company acquired one store in Easley, SC, from Delta Electronics, Inc.

     On March 22, 2000, the Company purchased the rental merchandise and rental
contracts of ABC Television and Appliance Rental, Inc., doing business as Prime
Time Rentals ("Prime Time"). The Company purchased the assets of ten stores
located in Alabama and Tennessee with annual revenues of approximately $3.8
million in exchange for consideration of $3.1 million in cash. The acquisition
was accounted for using the purchase method

                                        16
<PAGE>   19

of accounting. The acquired assets were recorded at their fair values at the
date of the acquisition. The excess of the fair value of net assets acquired
("goodwill") of $2.0 million is being amortized over 20 years on a straight-
line basis. The total cost of net assets acquired was $3.1 million and consisted
of assets of $3.1 million less acquisition costs of $8,000. Assets acquired at
estimated fair value, other than goodwill, include rental merchandise of $1.1
million and a non-compete agreement of $60,000.

     On October 19, 2000, the Company acquired 4 stores in Kentucky, North
Carolina, and Tennessee from Paradise Valley Holdings, Inc. d/b/a Ace Rentals.

     Fiscal 2000 Store Openings. During the year ended September 30, 2000, the
Company opened 68 stores in 31 states. The Company opened 12 more stores during
the first quarter of fiscal 2001.

     Acquisition of dPi Teleconnect

     On January 4, 2000, the Company acquired a 49% interest in DPI. The Company
acquired an additional 21% interest in June 2000. In addition to its ownership
interest, the Company acts as an agent for DPI. The Company currently offers
DPI's services at 780 of its stores. See "Business of dPi Teleconnect" elsewhere
in this report.

     Gateway Agreement

     In April 2000 the Company entered into an agreement with Gateway under
which the Company became an authorized supplier of Gateway computers and
peripherals. Under the agreement, which calls for an initial term of three
years, Rent-Way will offer Gateway computers, complete with Internet access,
exclusively to customers on a rental-purchase basis. The agreement provides that
subject to certain conditions, Gateway will not enter into any similar
arrangements with the Company's large industry competitors. Also as part of the
agreement, Gateway purchased 348,910 shares of Rent-Way's common stock for
approximately $7.0 million.

     Other Events

     On February 6, 2000, the Company's $20.0 million subordinated convertible
debentures were converted at a conversion price of $13.37 per share into
1,495,986 shares of common stock.

                                        17
<PAGE>   20

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, 2000, 1999 and 1998 as a percentage
of total revenues.

<Table>
<Caption>
                                                           YEARS ENDED SEPTEMBER 30,
                                                   -----------------------------------------
                                                   2000          1999              1998
                                                   -----     -------------     -------------
                                                             (AS RESTATED)     (AS RESTATED)
<S>                                                <C>       <C>               <C>
Revenues:
  Rental.........................................   84.2%         86.4%             88.1%
     Prepaid phone service.......................    1.5            --                --
     Other.......................................   14.3          13.6              11.9
                                                   -----         -----             -----
       Total revenues............................  100.0         100.0             100.0
Costs and operating expenses:
  Depreciation and amortization:
     Rental merchandise..........................   26.5          25.3              25.0
     Property and equipment......................    4.3           3.9               2.4
     Amortization of goodwill....................    2.3           2.0               2.6
  Cost of prepaid phone service..................    1.0            --                --
  Salaries and wages.............................   25.5          26.3              27.7
  Advertising, net...............................    3.4           4.9               5.2
  Occupancy......................................    7.7           6.6               7.0
  Name change expense............................     --            --               0.4
  Business combination costs.....................     --           3.6               2.6
  Other operating expense........................   29.1          22.5              25.1
                                                   -----         -----             -----
       Total costs and operating expenses........  100.0          95.0              98.0
                                                   -----         -----             -----
  Operating income...............................    .00           5.0               2.0
  Interest expense...............................   (5.0)         (3.5)             (2.7)
  Equity in loss of subsidiary...................   (0.1)           --                --
  Other income (expenses), net...................    0.3          (0.1)               --
                                                   -----         -----             -----
     Income (loss) before income taxes and
       extraordinary item........................   (4.8)          1.4              (0.7)
  Income tax expense (benefit)...................   (0.1)          1.5              (0.5)
                                                   -----         -----             -----
  (Loss) before extraordinary item...............   (4.7)         (0.1)             (1.3)
  Extraordinary item.............................     --          (0.1)               --
                                                   -----         -----             -----
       Net (loss)................................   (4.7%)        (0.2%)            (1.3%)
                                                   =====         =====             =====
</Table>

FISCAL 2000 COMPARED TO FISCAL 1999 (AS RESTATED)

     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

                                        18
<PAGE>   21

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. The Company expects
increased same store revenues in fiscal 2001 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 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 inventory 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. Management is developing a plan to reduce these operating
costs in fiscal 2001.

     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.

                                        19
<PAGE>   22

     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 $.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
some of 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.

FISCAL 1999 (AS RESTATED) COMPARED TO FISCAL 1998 (AS RESTATED)

     Total Revenue

     Total revenues increased $58.4 million, or 13.4%, to $494.4 million from
$436.0 million. The increase is attributable to the inclusion of a full year's
results for the stores acquired in fiscal 1998, a partial year's operations for
the stores acquired and opened in fiscal 1999, and increased same store
revenues. The stores acquired in the Champion acquisition, consummated on
February 5, 1998, accounted for $29.5 million, or 50.5%, of the increase. The
stores acquired in the Ace Rentals acquisition, consummated on January 7, 1998,
accounted for $5.0 million, or 8.6%, of the increase. The stores acquired in
other 1998 acquisitions accounted for $12.2 million, or 20.9%, of the increase.
The stores acquired in 1999 acquisitions accounted for $3.4 million, or 5.8%, of
the increase. The stores opened in fiscal 1999 accounted for $2.7 million, or
4.6%, of the increase. The Company's same stores accounted for $5.6 million, or
9.6%, of the increase. Appliance rentals and merchandise sales remained
unchanged as a percentage of total revenues. During the third quarter of fiscal
1999, the Company added Compaq personal computers to its product line. In
addition, the Company began to act as an agent to provide prepaid phone service
through a third party. This program was tested on a limited basis. Management
believes that opportunities exist to provide additional non-traditional
merchandise to its customers.

     Depreciation and Amortization

     Depreciation expense related to rental merchandise increased slightly to
25.3% as a percentage of total revenues from 25.0%. This increase is primarily
due to the depreciation expense related to the new Compaq computers. These
computers, added to the Company's product line in June 1999, are depreciated on
the straight-line basis.

     Depreciation expense related to property and equipment increased to 3.9% as
a percentage of total revenues from 2.4%. This increase is principally due to
the restatement of transportation equipment previously treated as operating
leases that are now capitalized, the new corporate building purchased in June
1998, new store signage and remodels associated with the Home Choice stores, and
the computer and software costs associated with the Company's implementation of
a PeopleSoft software package in January 1999.

     Amortization of goodwill decreased to 2.0% as a percentage of total
revenues from 2.6%. This is attributable to the reduced amortization expense of
1996 and 1997 purchase acquisitions primarily for customer rental agreements,
which are amortized on an accelerated method over an estimated useful life of 18
months.

                                        20
<PAGE>   23

     Salaries and Wages

     Salaries and wages increased by $9.5 million to $130.2 million from $120.7
million principally due to the addition of 526 new stores and additions to
corporate personnel. Salaries and wages decreased to 26.3% as a percentage of
total revenues from 27.7%. This decrease is due to the Company's ability to
spread corporate and regional managers' payroll over an increased store revenue
base. This decrease is also attributable to the Company bringing Home Choice
payroll and store personnel levels within the Company's standards. Also, this
expense was restated in fiscal 1998 primarily to record compensation expense on
the exercise of stock options and in fiscal 1999 to accrue for vacation pay.

     Advertising

     Advertising expense increased to $24.0 million from $22.7 million and as a
percentage of total revenues decreased to 4.8% from 5.2%. This decrease is
principally due to the Company's ability to focus advertising efforts in cluster
markets. It is also due to the Company's participation in co-operative
advertising programs with its vendors. As part of these co-operative programs,
the Company is able to recoup a portion of its advertising costs from its
vendors in the form of rebates for advertising their products in Rent-Way ads.

     Occupancy

     Occupancy expense increased to $32.8 million from $30.5 million principally
due to the addition of the stores opened and acquired in fiscal 1998 and 1999.

     Business Combination Costs

     In conjunction with the Merger, the Company incurred $18.2 million in costs
which included investment banker fees of $6.5 million, proxy preparation,
printing, and other professional fees of $1.3 million, employee severance and
stay-put arrangement costs of $4.5 million, due diligence and other costs of
$0.9 million, costs related to closing or disposing of duplicate corporate
headquarters, equipment and stores in overlapping markets of $3.5 million, and
the write-off of prepaid assets which could not be used of $1.5 million. In
addition, during fiscal 1999, $0.4 million of unutilized costs associated with
the Alrenco, Inc. and Rent-to-Own, Inc. merger were included as a reduction to
business combination costs. In fiscal 1998, the Company incurred $11.2 million
in business combination costs associated with Home Choice's predecessor's merger
with Alrenco, Inc. in February 1998. These costs included investment banker
fees, proxy preparation, printing, and other professional fees, employee
severance and other costs associated with relocating the corporate headquarters
from Indiana to Texas, costs related to closing and merging stores in the same
markets, amortization expense of stock awards which vested fully upon the
merger, and costs associated with terminating certain leases.

     Name Change Expense

     Name change expense decreased to $0.1 million from $1.8 million. In 1997,
Home Choice launched a program to change the name of all of its stores from the
various trade names acquired to "HomeChoice Lease or Own". In connection with
this program, Home Choice incurred nonrecurring costs which included the
write-off of the net carrying values of old signs and branded supplies and the
expensing of new vehicle decals. The Company currently operates under both the
RentWay and HomeChoice trade names.

     Other Operating Expenses

     Other operating expenses increased to $111.0 million from $109.8 million
and decreased to 22.5% as a percentage of total revenue from 25.1%. The drop in
percentage of total revenue is a result of the higher revenues in 1999. The
increase in the operating expenses in 1999 includes health and disability
insurance, losses of merchandise, telephone, write-off of fixed assets and
increase in Club Plan Expense (customer insurance).

                                        21
<PAGE>   24

     Operating Income

     Operating income increased to 5.0% from 2.0% due to the factors discussed
above. In connection with the Merger, 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 the
other operating expenses in the Consolidated Statement of Operations for the
year ended September 30, 1999 was approximately $1.1 million. Excluding these
write-offs and the business combination costs described above, operating income
increased to 8.6% from 5.0%.

     Interest Expense

     Interest expense increased to 3.5% from 2.7% as a percentage of total
revenues. This increase is mainly due to a full year of interest accruing on the
$81.0 million in funds drawn on the Company's senior credit facility to
consummate the Champion acquisition compared to a partial year of interest
accruing in fiscal 1998.

     Income Tax Expense

     Tax expense of $7.2 million and $2.2 million has been reflected for fiscal
1999 and fiscal 1998, respectively. The Company has generated tax losses in
fiscal 1999 and fiscal 1998 and intends to file amended returns and carryback
these net operating losses against taxable income in prior years to the fullest
extent possible. The tax expense in fiscal 1999 and fiscal 1998 is higher than
the statutory rate primarily due to nondeductible acquisition costs and
nondeductible goodwill.

     Extraordinary Item

     In connection with the Merger, the Company entered into a new syndicated
credit facility. As a result of this refinancing, the Company wrote off the
remainder of deferred financing costs associated with its and Home Choice's
previous credit facilities. The amount of the remaining deferred financing costs
was $0.9 million, $0.5 million net of tax benefit.

     Net Loss

     Net loss was reduced to $0.7 million from a net loss of $5.8 million due to
the factors discussed 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. 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 is now operating under a forbearance agreement
with its bank lenders which expires on July 31, 2001. Currently, the Company's
ability to borrow funds is limited. The Company is in negotiations with its bank
lenders to obtain an amended credit facility that will provide the Company with
sufficient borrowing capacity and revised loan covenants. There can be no
assurance that the Company will be successful in negotiating an amended credit
facility. If the Company cannot obtain an amended credit facility on acceptable
terms, its financial condition and results of operations would be materially
adversely affected.

     Net cash used in operating activities increased to $66.2 million for fiscal
2000 from cash provided of $21.1 million for fiscal 1999. This increase is
principally due to a $28.0 million net loss, a $108.3 million increase in rental
merchandise purchases, a $33.3 million increase in rental merchandise deposits
and credits due from vendors, and a $15.6 million increase in income tax
receivable offset by a $38.2 million increase in accounts payable and a $27.8
million increase in other liabilities.

                                        22
<PAGE>   25

     Net cash used in investing activities decreased $40.0 million to $48.8
million in fiscal 2000 compared to $88.8 million in fiscal 1999. 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. Capital expenditures in fiscal
1999 included the purchase of 21 stores from America's Rent-To-Own in June 1999
and 250 stores from RentaVision in September 1999. It also included the purchase
of new store signage and store remodeling costs associated with the stores
obtained in the Home Choice merger.

     Net cash provided by financing activities increased to $117.0 million in
fiscal 2000 from $70.9 million in fiscal 1999. Cash flows from financing
activities were used to purchase rental merchandise and fund operations.

     On June 28, 2000, 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 $435.0 million consisting of revolving loans and letters of credit of $114.4
million, and two term loans designated as Term Loan A for $143.1 million and
Term Loan B for $177.5 million. Borrowings under the credit facility bear
interest at the Company's option either at a base rate or a euro-rate. Under the
euro-rate option, the Company borrows money based on the London Interbank
Offered Rate plus 175-350 basis points. The actual basis points are determined
by the ratio of debt to cash flow generated from operations. Under the base rate
option, the Company borrows money based on the prime interest rate plus 0.25% to
2.0%. The actual spread is determined by the ratio of debt to cash flow
generated from operations. 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.

     The Company is currently in default of its credit facility. Until the
credit facility can be amended to relieve such defaults, all of the Company's
senior debt is classified as current. Because the Company is in default under
its credit facility, it is paying a default rate of interest, which is the base
rate plus 225-300 basis points. In addition, the Company's independent
accountants have included a going concern paragraph in their report on the
Company's financial statements. As a result, certain vendors may no longer ship
to the Company on favorable credit terms, and the Company could experience cash
flow problems or the inability to obtain merchandise and services when required.
In addition, vendors may require cash in advance or deposits.

     The Company is currently operating under a forbearance agreement with its
bank lenders, under which the Company may only borrow a maximum of $76.1 million
under the revolving portion of the credit facility. The Company's borrowings
under this portion of the facility at May 31, 2001 were $55.6 million.

     In connection with the restatement of its financial statements, the
Company's lease obligations for vehicles under a master lease agreement that had
been previously classified as operating leases have now been classified as
capital leases. As a result of this classification, the Company's property and
equipment and capital leases have been increased by $22.6 million at September
30, 2000. This change will result in a reclassification of rent expense to
depreciation, interest and other operating expenses with no effect on results of
operations. For tax purposes, the vehicle leases remain classified as operating
leases.

     The Company has also incurred substantial costs in fiscal 2001 in
connection with the process of reviewing financial reporting matters, the
investigation of accounting matters and the preparation of its audited financial
statements. The Company anticipates that it will continue to incur significant
legal and other expenses in connection with the ongoing litigation and
investigations to which it is subject.

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

                                        23
<PAGE>   26

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, 2000, 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

     Statement of Position ("SOP") 98-5 "Reporting on the Costs of Start-Up
Activities" is effective for financial statements for fiscal years beginning
after December 15, 1998. The Company adopted SOP 98-5 on October 1, 1999, and
the adoption did not have a significant effect on the Company's consolidated
financial position and results of operations.

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
No. 101"). SAB No. 101 provides guidance on the recognition, presentation and
disclosure of revenues in financial statements and requires adoption no later
than the fourth quarter of fiscal years beginning after December 31, 1999, which
in the case of the Company is its fourth quarter of fiscal 2001. The Company has
evaluated SAB No. 101 and its related interpretations and has determined there
will be no effect on the Company's consolidated financial position and results
of operations.

     In June 1998, the Financial Accounting Standards Board ("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 will adopt SFAS No. 133 and the corresponding
amendments under SFAS No. 138 effective as of October 1, 2000. As a result of
the adoption, the Company will recognize 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
$4,200 for the three months ended December 31, 2000 and $4,560 for the three
months ended March 31, 2001, will be charged to the Company's Consolidated
Statements of Operations.

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, 2000, the Company had $387.7
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, 2000, the Company has $204.4 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 $204.4 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 $183.0 million, or 47.2% 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 $1.8 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.

                                        24
<PAGE>   27

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<Table>
<Caption>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Index to Financial Statements
  Report of Independent Accountants.........................   26

  Financial Statements:
     Consolidated Balance Sheets, September 30, 2000 and
      1999..................................................   27
     Consolidated Statements of Operations, Years Ended
      September 30, 2000, 1999, 1998........................   28
     Consolidated Statements of Shareholders' Equity, Years
      Ended September 30, 2000, 1999, 1998..................   29
     Consolidated Statements of Cash Flows, Years Ended
      September 30, 2000, 1999, 1998........................   30
     Notes to Consolidated Financial Statements.............   31
</Table>

                                        25
<PAGE>   28

                                 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 14(a)(1) on page 68 present fairly, in all material
respects, the financial position of Rent-Way, Inc. and its subsidiaries at
September 30, 2000 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended September 30, 2000 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.

     The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company violated certain debt covenants
and is now operating under a forbearance agreement with its bank lenders, which
expires on July 31, 2001. The Company's ability to borrow additional funds is
limited. The Company is in active negotiations with its banks to eliminate the
forbearance agreement and to obtain an amended credit facility that will provide
the Company with sufficient liquidity. There can be no assurance that the
Company will be successful in negotiating an amendment with the banks. These
matters raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 2 to the consolidated financial statements. The financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.

     As discussed in Notes 1 and 19 to the consolidated financial statements,
the Company restated its September 30, 1999 and 1998 consolidated financial
statements.

                                          PricewaterhouseCoopers LLP

Cleveland, Ohio
June 27, 2001

                                        26
<PAGE>   29

                                 RENT-WAY, INC.

                          CONSOLIDATED BALANCE SHEETS
                           (ALL DOLLARS IN THOUSANDS)

<Table>
<Caption>
                                                                     SEPTEMBER 30,
                                                              ----------------------------
                                                                2000            1999
                                                              --------    ----------------
                                                                            AS RESTATED
                                                                          (NOTES 1 AND 19)
<S>                                                           <C>         <C>
ASSETS
Cash and cash equivalents...................................  $ 10,654        $  8,646
Prepaid expenses............................................    13,997           7,129
Income tax receivable.......................................    20,607           4,968
Rental merchandise, net.....................................   282,052         196,510
Rental merchandise deposits and credits due from vendors....    33,289              --
Deferred income taxes, net of valuation allowance of $10,050
  in 2000...................................................        --              98
Property and equipment, net.................................    78,408          70,071
Goodwill, net of accumulated amortization of $39,982 and
  $26,464, respectively.....................................   307,690         307,381
Deferred financing costs, net of accumulated amortization of
  $853 and $487, respectively...............................     5,068           3,732
Non-compete agreements and prepaid consulting fees, net of
  accumulated amortization of $10,304 and $6,687,
  respectively..............................................     3,236           5,561
Other assets................................................    11,310           5,562
                                                              --------        --------
                                                              $766,311        $609,658
                                                              ========        ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable............................................  $ 42,750        $ 15,861
Other liabilities...........................................    67,887          47,180
Debt........................................................   387,852         288,130
                                                              --------        --------
                                                               498,489         351,171
Commitments and contingencies (Note 11).....................        --              --

Shareholders' equity:
Preferred stock, without par value; 1,000,000 shares
  authorized; no shares issued and outstanding at September
  30, 2000 and 1999, respectively...........................        --              --
Common stock, without par value; 50,000,000 shares
  authorized; 24,459,573 and 21,976,401 shares issued and
  outstanding at September 30, 2000 and 1999,
  respectively..............................................   295,185         257,481
Loans to shareholders.......................................      (690)           (362)
Retained earnings (accumulated deficit).....................   (26,673)          1,368
                                                              --------        --------
     Total shareholders' equity.............................   267,822         258,487
                                                              --------        --------
                                                              $766,311        $609,658
                                                              ========        ========
</Table>

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

                                        27
<PAGE>   30

                                 RENT-WAY, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<Table>
<Caption>
                                                            FOR THE YEARS ENDED SEPTEMBER 30,
                                                     ------------------------------------------------
                                                       2000            1999                1998
                                                     --------    ----------------    ----------------
                                                                   AS RESTATED         AS RESTATED
                                                                 (NOTES 1 AND 19)    (NOTES 1 AND 19)
<S>                                                  <C>         <C>                 <C>
REVENUES:
Rental.............................................  $498,876        $427,094            $377,918
Prepaid phone service..............................     9,244              --                  --
Other revenues.....................................    84,566          67,258              58,113
                                                     --------        --------            --------
     Total revenues................................   592,686         494,352             436,031
Costs and Operating Expenses:
Depreciation and amortization:
     Rental merchandise............................   157,278         124,957             109,207
     Property and equipment........................    25,660          19,035              10,331
     Amortization of goodwill......................    13,855           9,837              11,248
Cost of prepaid phone service......................     5,988              --                  --
Salaries and wages.................................   150,933         130,194             120,688
Advertising, net...................................    20,075          24,023              22,687
Occupancy..........................................    45,787          32,790              30,482
Name change expense................................        --              86               1,770
Business combination costs.........................        --          17,726              11,210
Other operating expenses...........................   172,514         111,030             109,819
                                                     --------        --------            --------
     Total costs and operating expenses............   592,090         469,678             427,442
                                                     --------        --------            --------
       Operating income............................       596          24,674               8,589

OTHER INCOME (EXPENSE):
Interest expense...................................   (29,439)        (16,921)            (11,544)
Equity in loss of subsidiary.......................      (573)             --                  --
Amortization--deferred financing costs.............      (654)           (422)               (358)
Interest income....................................       126              38                 251
Other income (expense), net........................     1,703            (396)               (540)
                                                     --------        --------            --------
       Income (loss) before income taxes and
          extraordinary item.......................   (28,241)          6,973              (3,602)
Income tax expense (benefit) (Notes 5 and 12)......      (200)          7,219               2,217
                                                     --------        --------            --------
       Loss before extraordinary item..............   (28,041)           (246)             (5,819)
Extraordinary item (Notes 3 and 9).................        --            (519)                 --
                                                     --------        --------            --------
       Net loss....................................  $(28,041)       $   (765)           $ (5,819)
                                                     ========        ========            ========
LOSS PER COMMON SHARE:
Basic loss per share Loss before extraordinary
  item.............................................  $  (1.20)       $  (0.01)           $  (0.29)
                                                     ========        ========            ========
       Net loss....................................  $  (1.20)       $  (0.04)           $  (0.29)
                                                     ========        ========            ========
  Diluted loss per share Loss before extraordinary
     item..........................................  $  (1.20)       $  (0.01)           $  (0.29)
                                                     ========        ========            ========
       Net loss....................................  $  (1.20)       $  (0.04)           $  (0.29)
                                                     ========        ========            ========
Weighted average number of shares outstanding (in
  thousands):
       Basic.......................................    23,314          21,341              20,283
                                                     ========        ========            ========
       Diluted.....................................    23,314          21,341              20,283
                                                     ========        ========            ========
</Table>

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

                                        28
<PAGE>   31

                                 RENT-WAY, INC.

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
             FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
                     (ALL DOLLARS AND SHARES IN THOUSANDS)

<Table>
<Caption>
                                                                                  RETAINED
                                               COMMON STOCK                       EARNINGS          TOTAL
                                             -----------------     LOANS TO     (ACCUMULATED    SHAREHOLDERS'
                                             SHARES    AMOUNT    SHAREHOLDERS     DEFICIT)         EQUITY
                                             ------   --------   ------------   -------------   -------------
<S>                                          <C>      <C>        <C>            <C>             <C>
Balance at September 30, 1997..............  17,030   $181,157      $  --         $  2,808        $183,965
  Net loss (as Restated, Notes 1 and 19)...      --         --         --           (5,819)         (5,819)
  Home Choice net income for the three
     months ended December 31, 1997 due to
     merger and resulting change in fiscal
     year-end (Note 5).....................      --         --         --            5,144           5,144
  Public stock offering, net of expenses...   2,888     47,053         --               --          47,053
  Conversion of convertible debt (Note
     9)....................................     704      7,000         --               --           7,000
  Write-off deferred financing costs on
     convertible debt (Note 9).............      --        (25)        --               --             (25)
  Purchase of business (Note 5)............      16        425         --               --             425
  Issuance of common stock to 401(k) Plan
     (Note 16).............................      18        383         --               --             383
  Issuance of common stock under stock
     option plans including tax benefit
     (Note 14).............................     404      4,976         --               --           4,976
  Amortization of stock awards.............      --        988         --               --             988
                                             ------   --------      -----         --------        --------
Balance at September 30, 1998
(as Restated, Notes 1 and 19)..............  21,060    241,957         --            2,133         244,090
                                             ------   --------      -----         --------        --------
  Net loss (as Restated, Notes 1 and 19)...      --         --         --             (765)           (765)
  Purchases of business (Note 5)...........     503     10,102         --               --          10,102
  Issuance of common stock to 401(k) Plan
     (Note 16).............................      18        351         --               --             351
  Issuance of common stock under stock
     option plans including tax benefit
     (Note 14).............................     395      5,071       (354)              --           4,717
  Interest on loans to directors (Note
     13)...................................      --         --         (8)              --              (8)
                                             ------   --------      -----         --------        --------
Balance at September 30, 1999
     (as Restated, Notes 1 and 19).........  21,976    257,481       (362)           1,368         258,487
                                             ------   --------      -----         --------        --------
  Net loss.................................      --         --         --          (28,041)        (28,041)
  Issuance of common stock to 401(k) plan
     (Note 16).............................      46      1,025         --               --           1,025
  Issuance of common stock under stock
     option plans including tax benefit
     (Note 14).............................     621      8,400       (902)              --           7,498
  Payment of loans by directors (Note
     13)...................................     (25)        --        649               --             649
  Interest on loans to directors (Note
     13)...................................      --         --        (75)              --             (75)
  Conversion of convertible debt (Note
     9)....................................   1,495     20,000         --               --          20,000
  Write-off deferred financing cost on
     convertible debt (Note 9).............      --       (715)        --               --            (715)
  Issuance of common stock to Gateway (Note
     15)...................................     349      9,038         --               --           9,038
  Purchase of business (Note 5)............       2         50         --               --              50
  Repurchase of common stock (Note 13).....      (5)       (94)        --               --             (94)
                                             ------   --------      -----         --------        --------
Balance at September 30, 2000..............  24,459   $295,185      $(690)        $(26,673)       $267,822
                                             ======   ========      =====         ========        ========
</Table>

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

                                        29
<PAGE>   32

                                 RENT-WAY, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (ALL DOLLARS IN THOUSANDS)

<Table>
<Caption>
                                                            FOR THE YEARS ENDED SEPTEMBER 30,
                                                     ------------------------------------------------
                                                       2000            1999              1998 (A)
                                                     --------    ----------------    ----------------
                                                                  (AS RESTATED)       (AS RESTATED)
                                                                 (NOTES 1 AND 19)    (NOTES 1 AND 19)
<S>                                                  <C>         <C>                 <C>
OPERATING ACTIVITIES:
Net loss...........................................  $(28,041)      $    (765)          $  (5,819)
Adjustments to Reconcile Net Income (Loss) to Net
  Cash Provided by (Used In) Operating Activities:
     Depreciation and amortization.................   197,447         154,250             131,144
     Deferred income taxes.........................        98           6,330              (1,540)
     Deferred financing costs write-off............        --             865                 682
     Issuance of common stock to 401(k) plan.......     1,025             351                 383
     Write-off of property and equipment...........    12,896           2,265                 596
     Other.........................................       (64)             --               1,023
CHANGES IN ASSETS AND LIABILITIES:
     Prepaid expenses..............................    (6,868)            324              (1,303)
     Rental merchandise............................  (240,829)       (132,552)           (140,946)
     Rental merchandise deposits and credits due
       from vendors................................   (33,289)             --                  --
     Income tax receivable.........................   (15,639)           (663)             (1,376)
     Other assets..................................    (3,242)          6,578              (3,265)
     Accounts payable..............................    27,996         (10,259)             10,406
     Income taxes payable..........................        --            (119)             (2,266)
     Other liabilities.............................    22,322          (5,439)              2,719
                                                     --------       ---------           ---------
       Net cash provided by (used in) operating
          activities...............................   (66,188)         21,166              (9,562)
                                                     --------       ---------           ---------
INVESTING ACTIVITIES:
     Purchase of businesses, net of cash
       acquired....................................   (14,484)        (69,598)           (113,561)
     Purchases of property and equipment...........   (34,276)        (19,139)            (26,335)
     Other.........................................        --              --               3,553
                                                     --------       ---------           ---------
       Net cash used in investing activities.......   (48,760)        (88,737)           (136,343)
                                                     --------       ---------           ---------
FINANCING ACTIVITIES:
     Book overdraft................................    (1,107)         (4,808)              7,802
     Proceeds from borrowings......................   132,431         575,264             287,590
     Payments on borrowings........................   (26,952)       (500,834)           (201,194)
     Deferred financing costs......................    (2,705)         (3,444)               (457)
     Issuance of common stock......................     8,243           4,713              51,883
     Issuance of common stock to Gateway...........     7,000              --                  --
     Purchase of common stock......................       (94)             --                  --
     Payment of loans by directors.................       140              --                  --
                                                     --------       ---------           ---------
       Net cash provided by financing activities...   116,956          70,891             145,624
                                                     --------       ---------           ---------
       Increase (decrease) in cash and cash
          equivalents..............................     2,008           3,320                (281)
Cash and cash equivalents at beginning of year.....     8,646           5,326               5,607
                                                     --------       ---------           ---------
Cash and cash equivalents at end of year...........  $ 10,654       $   8,646           $   5,326
                                                     ========       =========           =========
</Table>

---------------

(A) See Note 3 for cash flow information related to the three months ended
    December 31, 1997.

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

                                        30
<PAGE>   33

                                 RENT-WAY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1.  ACCOUNTING INVESTIGATION:

     Prior to the issuance of Rent-Way, Inc. and subsidiaries (the "Company" or
"Rent-Way") consolidated financial statements as of and for the year ended
September 30, 2000, it was determined that the results reported in the Company's
unaudited interim financial statements as of and for the periods ended December
31, 1999, March 31, 2000 and June 30, 2000 were misstated. The Audit Committee
of the Board of Directors immediately instituted an investigation with the
assistance of legal counsel and an accounting investigative team.

     After evaluating information revealed in the investigation and in
preparation of its fiscal 2000 year-end financial statements, the Company has
determined that accounting improprieties occurred in fiscal 2000, 1999 and 1998
that overstated assets and income and understated liabilities and expense. As a
result, the Company has determined to restate its previously reported fiscal
1999 and 1998 financial statements, and its fiscal 2000 unaudited quarterly
financial statements. The restated fiscal 1999 and 1998 year-end financial
statements are included with the financial statements contained in this report.
The fiscal 2000 year-end financial statements included in this report give
effect to the restatements required to the Company's previously reported fiscal
2000 unaudited quarterly financial results.

     A summary of the effects of the restatements as of September 30, 1999 and
for the years ended September 30, 1999 and 1998 are set forth in Note 19.

2.  LIQUIDITY:

     The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. 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 (see Note 1), 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 fifth amendment to the forbearance agreement, which expires on July 31,
2001, limits the maximum borrowing under the Company's revolving portion of the
credit facility to $76,128.

     The Company is in negotiations with its lenders to amend its credit
facility such that it will provide the Company with sufficient borrowing
capacity and revised loan covenants. There can be no assurance that the Company
will be successful in negotiating an amended credit facility.

     The Company's ability to operate as a going concern is largely dependent on
its ability to successfully negotiate with its bank lenders an amendment to the
Company's existing credit facility (see Note 9).

3.  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").

     On January 1, 1999, the Company formed four wholly-owned subsidiaries:
Rent-Way TTIG, L.P., an Indiana limited partnership, Rent-Way of Tomorrow, Inc.,
Rent-Way of Michigan, Inc., and Rent-Way

                                        31
<PAGE>   34
                                 RENT-WAY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

Developments, Inc., all Delaware corporations (collectively referred to herein
as the "Company" or "Rent-Way").

     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
intercompany transactions and balances have been eliminated.

     On December 10, 1998, Rent-Way completed a merger with Home Choice
Holdings, Inc. ("Home Choice") (see Note 5). Prior to the merger, Home Choice's
year end was December 31. As a result of the merger accounted for as a pooling
of interests, 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. As a result of Rent-Way and Home Choice having
different fiscal years and the subsequent merger of Home Choice into Rent-Way,
Home Choice's results of operations and cash flows for the three months ended
December 31, 1997 have been included in both fiscal years 1998 and 1997 results
and, therefore have been reflected as an adjustment to the Company's retained
earnings at October 1, 1997. Home Choice had total revenues, costs and operating
expenses and a net loss of $61,242, $67,915, and $5,144, respectively, for the
three months ended December 31, 1997. Cash flows provided by (used in) operating
activities, investing activities and financing activities were $(10,768),
$(3,085), and $13,132, respectively, for the three months ended December 31,
1997.

     On February 26, 1998, RTO, Inc. ("RTO") completed a merger with Alrenco,
Inc. ("Alrenco"), with Alrenco being the surviving corporation in the merger
(see Note 5). Alrenco subsequently changed its name to Home Choice. As a result
of the merger accounted for as a pooling of interests, Alrenco's financial
statements were restated to retroactively combine Alrenco with RTO 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 5) 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.

                                        32
<PAGE>   35
                                 RENT-WAY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

     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 over 12 months
to 24 months, depending on the type of computer.

     PREPAID PHONE SERVICE. Prepaid phone service is provided to customers on
only 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. The Company has no items of other comprehensive
income.

     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.

                                        33
<PAGE>   36
                                 RENT-WAY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

     Supplemental disclosures of cash flow information for the three years ended
September 30, 2000, are as follows:

<Table>
<Caption>
                                                           2000          1999              1998
                                                          -------   ---------------   ---------------
                                                                     (AS RESTATED      (AS RESTATED
                                                                    NOTES 1 AND 19)   NOTES 1 AND 19)
<S>                                                       <C>       <C>               <C>
CASH PAID DURING THE YEAR FOR:
  Interest..............................................  $27,272       $16,019           $10,240
  Income taxes, net of refunds..........................   14,451           718             5,274
NONCASH INVESTING ACTIVITIES:
  Assets acquired by assumption of liabilities in
     purchase business combinations (Note 5)............  $   368       $ 6,272           $19,744
  Assets acquired under capital lease (Note 11).........   12,620        21,899             9,200
NONCASH FINANCING ACTIVITIES:
  Common stock issued in purchase business combinations
     (Note 5)...........................................  $    50       $10,102           $   425
  Settlement of notes payable with common stock (Notes 9
     and 13)............................................       --            --             7,000
  Issuances of common stock to 401(k) plans (Note 15)...    1,025           351               383
  Loans to directors for exercise of stock options (Note
     13)................................................      902           354                --
  Receipt of stock for repayment of directors loans.....      488            --                --
  Conversion of convertible debt, net of deferred
     financing costs (Note 9)...........................   19,285            --                --
  Gateway exclusively 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 Notes 11 and 19). 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 (see Note 19).

     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 $8,237 and $2,404 for the years ended
September 30, 2000 and 1999, respectively (see Note 19). 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

                                        34
<PAGE>   37
                                 RENT-WAY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

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, 2000 and 1999, 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, which range from four to ten years.
Non-compete agreements and prepaid consulting fees are stated at cost less
amortization calculated on a straight-line basis over the 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 9 and 10). 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, 1999 and 1998
consolidated financial statements were reclassified to conform to the September
30, 2000 presentation.

                                        35
<PAGE>   38
                                 RENT-WAY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

4.  NEW ACCOUNTING STANDARDS:

     Statement of Position ("SOP") 98-5 "Reporting on the Costs of Start-Up
Activities" is effective for financial statements for fiscal years beginning
after December 15, 1998. The Company adopted SOP 98-5 on October 1, 1999, and
the adoption did not have a significant effect on the Company's consolidated
financial position and results of operations.

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
No. 101"). SAB No. 101 provides guidance on the recognition, presentation and
disclosure of revenues in financial statements and requires adoption no later
than the fourth quarter of fiscal years beginning after December 31, 1999, which
in the case of the Company is its fourth quarter of fiscal 2001. The Company has
evaluated SAB No. 101 and its related interpretations and has determined there
will be no effect on the Company's consolidated financial position and results
of operations.

     In June 1998, the Financial Accounting Standards Board ("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 will adopt SFAS No. 133 and the corresponding
amendments under SFAS No. 138 effective as of October 1, 2000. As a result of
the adoption, the Company will recognize 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
$4,200 for the three months ended December 31, 2000, and $4,560 for the three
months ended March 31, 2001, will be charged to the Company's Consolidated
Statements of Operations.

5.  MERGERS AND ACQUISITIONS:

     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 (as Restated, see Note 19) 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 (as Restated, see Note 19) 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 $502 and $732 at September 30, 2000 and 1999,
respectively, representing unpaid lease obligations. In conjunction with the
merger, the Company entered into a new syndicated credit facility (see Note 9).

     On February 26, 1998, Home Choice (formerly Alrenco, Inc.) completed a
merger with RTO, Inc. 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, Alrenco issued 0.898 shares of common stock for each
outstanding share of RTO common stock. The merger increased the outstanding
shares of Alrenco by approximately 12,280,000
                                        36
<PAGE>   39
                                 RENT-WAY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

5.  MERGERS AND ACQUISITIONS, CONTINUED:

shares. In conjunction with the merger, certain costs were incurred which were
recorded by the Company during the year ended September 30, 1998. These costs
aggregated $11,210 and included (i) investment banker fees, proxy preparation,
printing, and other professional fees, (ii) employee severance and other costs
associated with relocating the corporate headquarters from Indiana to Texas,
(iii) costs related to closing and merging stores in the same markets following
the merger, (iv) amortization expense of stock awards which vested fully upon
the merger, and (v) costs associated with terminating certain leases. In
addition, Home Choice initiated a program in 1997 to change the name of its
stores to "HomeChoice Lease or Own" from the various trade names it acquired. In
the year ended September 30, 1999, $429 of these costs were not utilized and are
included as a reduction of business combination costs. In connection with this
program, Home Choice incurred nonrecurring costs which included the write-off of
the net carrying values of old signs and branded supplies and the expensing of
new vehicles decals. The amount of these nonrecurring costs included in name
change expense in the Consolidated Statement of Operations for the year ended
September 30, 1999 was approximately and $86.

     Separate unaudited results of the pooled entities prior to each date of the
merger for the years ended 1999 and 1998 are as follows:

<Table>
<Caption>
                                                                 YEAR ENDED SEPTEMBER 30, 1999
                                                             -------------------------------------
                                                                        EXTRAORDINARY   NET INCOME
                                                             REVENUES       ITEM          (LOSS)
                                                             --------   -------------   ----------
                                                                 (AS RESTATED, NOTES 1 AND 19)
<S>                                                          <C>        <C>             <C>
Rent-Way October 1, 1998 to 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>

<Table>
<Caption>
                                                                 YEAR ENDED SEPTEMBER 30, 1998
                                                             -------------------------------------
                                                                        EXTRAORDINARY   NET INCOME
                                                             REVENUES       ITEM          (LOSS)
                                                             --------   -------------   ----------
                                                                 (AS RESTATED, NOTES 1 AND 19)
<S>                                                          <C>        <C>             <C>
Rent-Way...................................................  $177,327       $  --        $  8,596
Home Choice................................................   258,704          --         (14,415)
                                                             --------       -----        --------
     Total.................................................  $436,031       $  --        $ (5,819)
                                                             ========       =====        ========
</Table>

     The restatement adjustments for 1999 (see Note 19) were all included in the
Rent-Way and Home Choice December 1, 1998 to September 30, 1999 caption in the
table above. In addition, the restatement adjustments for 1998 (see Note 19)
were all included in the Rent-Way results for September 30, 1998 in the table
above.

     PURCHASE ACQUISITIONS. On September 21, 2000, the Company acquired from
Family Rent-to-Own, Inc., three stores located in Oregon with annual revenues of
approximately $2,300 in exchange for consideration of $1,200 in cash. Pursuant
to terms of the purchase agreement, $120 of the purchase price was placed in
escrow, subject to the terms of the escrow agreement to satisfy sellers
representations and warranties and any purchase price adjustments. The
acquisition was accounted for using purchase accounting. The acquired assets and
liabilities were recorded at their fair values at the date of the acquisition.
The excess of the acquisition cost over the fair value of the assets acquired,
("goodwill") of $551 is being amortized over 20 years on a straight-line basis.
The total cost of the net assets acquired was $1,200 and consisted of assets of
$1,201 and acquisition costs of $1. Assets acquired (at fair value) other than
goodwill consisted of rental merchandise of $600 and a non-compete agreement of
$50. The Consolidated Statements of Operations for the year ended September 30,
2000, include the results of operations for Family Rent-to-Own since the date of
acquisition.

                                        37
<PAGE>   40
                                 RENT-WAY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

5.  MERGERS AND ACQUISITIONS, CONTINUED:

     On September 14, 2000, the Company acquired from Rent City eight stores,
each a separate corporation, with annual revenues of approximately $3,400 for
the consideration of $2,000 in cash and $50 in common stock. Pursuant to the
terms of the purchase agreement, $150 of the purchase price was placed in
escrow, subject to the terms of the escrow agreement to satisfy the seller's
representations and warranties and any purchase price adjustments. The
acquisition was accounted for using the purchase method of accounting. The
acquired assets, which were recorded at fair value and certain store and vehicle
leases were assumed. The excess of the acquisition cost over the fair value of
net asset acquired, ("goodwill") of $1,501 is being amortized over 20 years on a
straight-line basis. The total cost of the net assets acquired was $2,050 and
consisted of assets of $2,051 less acquisition costs of $1. Assets acquired (at
fair value) other than goodwill consisted primarily of rental merchandise of
$479 and non-compete agreements of $71. The Consolidated Statements of
Operations for the year ended September 30, 2000, include the results of
operations for Rent City since the date of acquisition.

     On March 22, 2000, the Company purchased the rental merchandise and rental
contracts of ABC Television and Appliance Rental, Inc., doing business as Prime
Time Rentals ("Prime Time"). The Company purchased the assets of ten stores
located in Alabama and Tennessee with annual revenues of approximately $3,800 in
exchange for consideration of $3,100 in cash. Pursuant to the terms of the
purchase agreement, $400 of the purchase price was placed in escrow, subject to
the terms of the escrow agreement to satisfy the seller's representations and
warranties and any purchase price adjustments. The acquisition was accounted for
using the purchase method of accounting. Prime Time's assets were recorded at
their estimated fair values at the date of the acquisition. The excess of the
fair value of net assets acquired, ("goodwill") of $2,026 is being amortized
over 20 years on a straight-line basis. The total cost of net assets acquired
was $3,100 and consisted of assets of $3,181 less liabilities assumed of $73 and
acquisition costs of $8. Assets acquired at estimated fair value, other than
goodwill include rental merchandise of $1,095 and a non-compete agreement of
$60. The Consolidated Statements of Operations for the year ended September 30,
2000, include the results of operations for Prime Time since the date of
acquisition.

     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.

     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

                                        38
<PAGE>   41
                                 RENT-WAY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

5.  MERGERS AND ACQUISITIONS, CONTINUED:

$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 for the years ended
September 30, 2000, and 1999, include 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 Company is in the process of finalizing the purchase price
allocation. The Consolidated Statement of Operations for the years ended
September 30, 2000 and 1999, includes the results of operations of America's
Rent-To-Own since the date of acquisition.

     In March, April, May, and August 1999, the Company purchased the rental
merchandise and rental-purchase contracts of six rental-purchase stores located
in Pennsylvania, North Carolina, Indiana, and Texas, respectively, with combined
annual revenues of approximately $1,550. The Company paid cash in exchange for
the assets and each acquisition was accounted for using the purchase method of
accounting. The acquired assets were recorded at their estimated fair values at
the date of acquisition. The excess of the acquisition cost over the fair value
of net assets acquired, ("goodwill") of $602 is being amortized on a
straight-line basis over 20 years. The total cost of the net assets acquired was
$602. The Consolidated Statements of Operations for the years ended September
30, 2000 and 1999, includes the results of operations for these stores from the
date of acquisition.

     On September 10, 1998, the Company purchased the rental merchandise and
rental contracts of Cari Rentals, Inc. ("Cari") a privately owned chain of 23
stores located in Iowa, Missouri, Nebraska and South Dakota, with annual
revenues of approximately $7,700 in exchange for consideration of $7,325
consisting of 15,620 shares of the Company's common stock (unregistered shares
subject to the provisions of Rule 144 of the Securities and Exchange Act) and
$6,900 in cash. The acquisition was accounted for using the purchase method of
accounting. Cari's assets were recorded at their fair values as of the date of
the acquisition. The excess of the acquisition cost over the fair value of net
assets acquired, ("goodwill") of $6,110 is being amortized on a straight-line
basis over 30 years. The total cost of the net assets acquired was $7,325 and
consisted of assets of $7,560 less acquisition costs of $235. Assets acquired
(at fair value) other than goodwill consisted primarily of rental merchandise of
$1,400 and a non-compete agreement of $50. The Consolidated Statements of
Operations for the years ended September 30, 2000, 1999 and 1998 include the
results of operations of Cari since the date of the acquisition.

     On July 21, 1998, the Company acquired all the outstanding shares of Fast
Rentals, Inc. ("Fast Rentals"), a privately owned chain of eight rental-purchase
stores located in Alabama and Georgia with annual revenues of approximately
$3,600 in exchange for consideration of $2,047 in cash. The acquisition was
accounted for using the purchase method of accounting. Fast Rentals' assets and
liabilities were recorded at their fair values as of the date of the
acquisition. The excess of the acquisition cost over the fair value of net
assets acquired, ("goodwill") of $2,321 is being amortized over 30 years on a
straight-line basis. The total cost of the net assets acquired was
                                        39
<PAGE>   42
                                 RENT-WAY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

5.  MERGERS AND ACQUISITIONS, CONTINUED:

$2,047 and consisted of assets of $3,061 less liabilities assumed of $858 and
acquisition costs of $156. Assets acquired (at fair value) other than goodwill
consisted primarily of rental merchandise of $620, prepaid expenses of $33,
other assets of $12 and a non-compete agreement of $75. Liabilities assumed (at
fair value) consisted primarily of trade payables of $29, accrued liabilities of
$43 and debt of $786. The Consolidated Statements of Operations for the years
ended September 30, 2000, 1999, and 1998 include the results of operations of
Fast Rentals since the date of the acquisition.

     On February 5, 1998, the Company acquired all the outstanding shares of
Champion Rentals, Inc. ("Champion"). At the time of the acquisition, Champion
operated a chain of 145 rental-purchase stores located in Alabama, Arkansas,
Florida, Georgia, Kentucky, Louisiana, North Carolina, Ohio, South Carolina,
Tennessee and Virginia with annual revenues of approximately $75,000. The
consideration paid in exchange for all the outstanding shares of Champion was
$69,050 in cash. The acquisition was accounted for using the purchase method of
accounting. Champion's assets and liabilities were recorded at their fair values
at the date of the acquisition. The excess of the acquisition cost over the fair
value of net assets acquired, ("goodwill") of $67,550 is being amortized on a
straight-line basis over 30 years. The total costs of net assets acquired was
$69,050 and consisted of assets of $91,030 less liabilities assumed of $18,408
and acquisition costs of $3,572. The acquisition of Champion was funded with
borrowings drawn on the Company's existing senior credit facility. Assets
acquired (at fair value), other than goodwill consisted primarily of rental
merchandise of $18,134, property and equipment of $159, other assets of $3,219,
prepaid expenses of $508, non-compete agreement of $1,000 and customer contracts
of $460. Liabilities assumed (at fair value) consisted primarily of trade
payables of $3,925, accrued liabilities of $2,356 and debt of $12,127. The
Consolidated Statements of Operations for the years ended September 30, 2000,
1999, and 1998, include the results of operations of Champion since the date of
the acquisition.

     On January 7, 1998, the Company completed the asset purchase of South
Carolina Rentals, Inc., Paradise Valley Holdings, Inc., and L & B Rents, Inc.,
(collectively, "Ace Rentals"), assuming effective control of the results of
operations as of January 1, 1998. At the time of the acquisition, Ace Rentals
operated a chain of 50 rental-purchase stores located in California and South
Carolina with annual revenues of approximately $22,000. The consideration paid
in exchange for the assets of Ace Rentals was $25,348 in cash. The acquisition
was accounted for using the purchase method of accounting. Ace Rentals' assets
and certain liabilities were recorded at their fair values at the date of the
acquisition. The excess of the acquisition cost over the fair value of net
assets acquired, ("goodwill") of $21,495 is being amortized on a straight-line
basis over 30 years. The total costs of net assets acquired was $25,348 and
consisted of assets of $26,767 less a liability assumed of $478 and acquisition
costs of $941. The acquisition of Ace Rentals was primarily funded with proceeds
received in connection with the Company's public stock offering (see Note 3)
with the balance being drawn on the Company's existing senior credit facility.
Assets acquired (at fair value) other than goodwill consisted primarily of
rental merchandise of $4,383, property and equipment of $249, non-compete
agreement of $500 and $140 in customer contracts. The liability assumed (at fair
value) was $478 of vehicle related debt. The Consolidated Statements of
Operations for the years ended September 30, 2000, 1999, and 1998, include the
results of operations of Ace Rentals since January 1, 1998.

     The following are unaudited pro forma results of operations for the year
ended September 30, 1999, assuming the acquisitions of Ace Rentals, Champion,
and RentaVision had occurred on October 1, 1998. The unaudited pro forma
information does not include the results of operations of the Fast Rentals
Acquisition in July 1998, the Cari acquisition in September 1998, America's
Rent-To-Own acquisition in June 1999, and DPI in January and June 2000, which
were not significant. The results are not necessarily indicative of future
operations

                                        40
<PAGE>   43
                                 RENT-WAY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

5.  MERGERS AND ACQUISITIONS, CONTINUED:

or what would have occurred had the acquisitions been consummated as of October
1, 1998. In 2000, the acquisitions were not significant and no pro forma
information is presented.

<Table>
<Caption>
                                                 UNAUDITED PRO FORMA
                                                     INFORMATION
                                            YEARS ENDED SEPTEMBER 30, 1999
                                            ------------------------------
                                            (AS RESTATED, NOTES 1 AND 19)
<S>                                         <C>
Total revenues............................             $569,905
                                                       ========
Net loss..................................             $   (717)
                                                       ========
Diluted loss per common share:
  Loss before extraordinary item..........             $  (0.01)
                                                       ========
  Net loss................................             $  (0.03)
                                                       ========
</Table>

6.  RENTAL MERCHANDISE AND PROPERTY AND EQUIPMENT:

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

<Table>
<Caption>
                                                     SEPTEMBER 30,
                                              ---------------------------
                                                2000           1999
                                              --------   ----------------
                                                           AS RESTATED
                                                         (NOTES 1 AND 19)
<S>                                           <C>        <C>
Cost........................................  $421,123       $305,334
Less accumulated depreciation...............   137,799        108,599
Less deferred credits.......................     1,272            225
                                              --------       --------
                                              $282,052       $196,510
                                              ========       ========
</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. The Company has acquired various entities, including Home Choice
and RentaVision, that used internal warehousing and distribution. The Company
has eliminated these warehouses and has applied direct-ship policies to these
stores.

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,
                                              ---------------------------
                                                2000           1999
                                              --------   ----------------
                                                           AS RESTATED
                                                         (NOTES 1 AND 19)
<S>                                           <C>        <C>
On-rent merchandise.........................   302,662       $225,103
Held for rent merchandise...................   118,461         80,231
                                              --------       --------
                                              $421,123       $305,334
                                              ========       ========
</Table>

     At September 30, 2000, there exists a difference in rental merchandise cost
between the Company's perpetual records and its general ledger in the amount of
$2,362. The Company has deferred recognition of potential income pending further
review.

                                        41
<PAGE>   44
                                 RENT-WAY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

6.  RENTAL MERCHANDISE AND PROPERTY AND EQUIPMENT, CONTINUED:

     The Company uses the direct write-off method in accounting for losses (see
Note 3). These losses are recorded in other operating expenses and were incurred
as follows:

<Table>
<Caption>
                                           YEARS ENDED SEPTEMBER 30,
                                 ---------------------------------------------
                                  2000           1999               1998
                                 -------   ----------------   ----------------
                                             AS RESTATED        AS RESTATED
                                           (NOTES 1 AND 19)   (NOTES 1 AND 19)
<S>                              <C>       <C>                <C>
Lost merchandise...............  $ 2,380       $ 2,048            $ 1,380
Stolen merchandise.............   14,668        12,079             12,168
Discarded merchandise..........    6,252         3,240              1,682
                                 -------       -------            -------
                                 $23,300       $17,367            $15,230
                                 =======       =======            =======
</Table>

     Property and equipment consists of the following:

<Table>
<Caption>
                                                                     SEPTEMBER 30,
                                                              ---------------------------
                                                                2000           1999
                                                              --------   ----------------
                                                                           AS RESTATED
                                                                         (NOTES 1 AND 19)
<S>                                                           <C>        <C>
Signs.......................................................  $  6,938       $  7,213
Transportation equipment....................................    46,890         38,492
Furniture and fixtures......................................    32,315         24,752
Leasehold improvements......................................    30,324         25,552
Buildings...................................................     4,168          6,160
Construction in progress....................................     2,283            436
Land........................................................     2,307            115
                                                              --------       --------
                                                               125,225        102,720
Less accumulated depreciation and amortization..............   (46,817)       (32,649)
                                                              --------       --------
                                                              $ 78,408       $ 70,071
                                                              ========       ========
</Table>

     The Company has buildings and aircraft held for sale with net book values
of $1,634 and $1,503, respectively, at September 30, 2000.

7.  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, 2000, $8,383 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 has credits due from vendors for the return of merchandise in
the amount of $2,672. The credits are reduced when the Company purchases
additional products from the vendors.

                                        42
<PAGE>   45
                                 RENT-WAY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

8.  OTHER LIABILITIES:

     Other liabilities consist of the following:

<Table>
<Caption>
                                                2000           1999
                                               -------   ----------------
                                                           AS RESTATED
                                                         (NOTES 1 AND 19)
<S>                                            <C>       <C>
Capital lease obligation.....................  $22,598       $23,280
Accrued workers' compensation................    3,424           483
Accrued vacation.............................    1,895         1,447
Accrued bonuses..............................      139           344
Accrued interest.............................      948           639
Sales and use tax payable....................    2,845         2,878
Accrued property taxes.......................    3,950         1,536
Deferred income..............................    2,340           284
Deferred credit-rental merchandise (Note
  6).........................................    2,362            --
Accrued salaries, wages, and tax.............    6,761         3,902
Accrued health insurance and benefits........    2,937         2,142
Accrued vehicle insurance....................    2,226           249
Accrued franchise and other tax..............    1,539            74
Vacant facility lease obligations............    2,486         2,291
Accrued professional fees....................      625         2,667
Accrued bank fees............................      878            --
Accrued taxes................................    4,914         1,614
DPI-deferred revenue.........................    2,054            --
Other........................................    2,966         3,350
                                               -------       -------
                                               $67,887       $47,180
                                               =======       =======
</Table>

9.  DEBT:

     Debt consists of the following:

<Table>
<Caption>
                                                     SEPTEMBER 30,
                                                  -------------------
                                                    2000       1999
                                                  --------   --------
<S>                                               <C>        <C>
Senior credit facility..........................  $387,708   $268,000
Convertible Subordinated Debentures.............        --     20,000
Notes Payable...................................       144        130
                                                  --------   --------
                                                  $387,852   $288,130
                                                  ========   ========
</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

                                        43
<PAGE>   46
                                 RENT-WAY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

9.  DEBT, CONTINUED:

adjustments resulting from the accounting matters under investigation (see Note
1), 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 Fifth
Amendment to the forbearance agreement, which expires on July 31, 2001, limits
the maximum borrowings under the revolving portion of the credit facility to
$76,128. The Company is negotiating with its banks to amend its credit facility
(see Note 2).

     The following disclosures with respect to the credit facility are as of
September 30, 2000, and do not reflect the effect of the forbearance agreement
referred to above.

     Under the credit facility, the Company may borrow funds under a base rate
option plan or euro-rate option plan. Under the base rate option plan, the
Company may borrow funds based on a spread of prime rate plus 0.250% to 2.00%
(prime rate at September 30, 2000 of 9.5%). The actual spread 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 the London Interbank Offered Rate, ("LIBOR") plus 175 to 350 basis points
(LIBOR at September 30, 2000 of 6.66%). The actual spread is determined based on
the ratio of debt to cash flow generated 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 credit facility are in a range
from 0.375% to 0.500% for each banks' unused commitment.

     As of September 30, 2000, the Company's debt under both the euro-rate
option and base-rate option plans were as follows:

<Table>
<Caption>
               BORROWING OPTION PLAN                  AMOUNT    RATE
               ---------------------                 --------   -----
<S>                                                  <C>        <C>
Euro-rate tranche..................................  $138,764    9.41%
Euro-rate tranche..................................   176,344   10.16%
Euro-rate tranche..................................    66,000    9.37%
Base-rate..........................................     6,600    9.50%
                                                     --------
                                                     $387,708    9.80%
                                                     ========
</Table>

     The principal amount of the Term Notes A under the credit facility (with
borrowings of $138,764 outstanding at September 30, 2000) is payable in
quarterly payments due on the last day of each December, March, June, and
September, beginning with the quarter ended December 31, 2000, as follows:

<Table>
<Caption>
  QUARTER(S) ENDING ON FOLLOWING DATE OR    PERCENTAGE OF PRINCIPAL OF TERM A
   COMMITMENTS IN THE FOLLOWING PERIOD          DUE ON EACH PAYMENT DATE
  --------------------------------------    ---------------------------------
<S>                                         <C>
9-30-00 through 6-30-01...................                 3.0%
9-30-01 through 6-30-02...................                 4.0%
9-30-02 through 6-30-03...................                 5.0%
9-30-03 through 6-30-04...................                 6.0%
9-30-04 through 6-30-05...................                 7.0%
</Table>

The principal amount of each of the Term Notes B under the credit facility (with
borrowings of $176,344 outstanding at September 30, 2000) is payable as follows:
(i) seventeen quarterly payments due on the last day of each September,
December, March, and June, beginning with the quarter ended September 30, 2000,
and continuing through the quarter ending September 30, 2004, each payment equal
to one fourth of one percent

                                        44
<PAGE>   47
                                 RENT-WAY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

9.  DEBT, CONTINUED:

(1/4%) of the Term Loan B Commitments. (ii) one payment on September 30, 2005,
in an amount equal to forty-seven and one-half percent (47 1/2%) of the Term
Loan B Commitments, and (iii) a final payment on September 30, 2006, of the
remaining principal balance of the Term Loan B.

     At September 30, 2000, the Company had $72,600 principal amount of the
revolving Credit Facility outstanding under the credit facility and $6,124 in
letters of credit outstanding. At September 30, 2000, there was $35,720 of
unused revolving notes and letters of credit available under the credit
facility.

     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, 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.

     As a result of entering into its credit facility in September 1999, the
Company wrote off the remaining balance of deferred financing costs associated
with Rent-Way's and Home Choice's previous credit facilities. The amount of
deferred finance costs, $865 ($519 net of 40% tax) is shown as an extraordinary
item on the Company's Consolidated Statement of Operations for the year ended
September 30, 1999.

     By notice to the holders thereof dated December 10, 1999, the Company
called on a mandatory redemption of its $20 million 7% Convertible Subordinated
Debentures due 2007. The Company had the right to redeem the debentures on
February 5, 2000, at a price of 103%. On February 6, 2000, $20 million of 7%
Subordinated Convertible Debentures converted into 1,495,986 shares of the
Company's common stock. The debentures were convertible into shares of common
stock, without par value, at a conversion price of $13.37 per share at the
option of the shareholders at any time on notice therefrom. Unamortized deferred
financing costs in the amount of $715 were charged to equity in connection with
the conversion.

     The Company's Notes Payable consists of the following:

<Table>
<Caption>
                                                     SEPTEMBER 30,
                                                     --------------
                                                     2000      1999
                                                     ----      ----
<S>                                                  <C>       <C>
Note payable to an individual with an interest rate
  of 18.0% payable in monthly installments of $3
  through December 2006............................  $109      $120
Vehicle and other notes payable....................    35        10
                                                     ----      ----
                                                     $144      $130
                                                     ====      ====
</Table>

     The Company's weighted average interest rate was 8.912%, 7.732%, and 7.784%
for the years ended September 30, 2000, 1999 and 1998, respectively.

     At September 30, 1999, the carrying values and the estimated fair values of
the Company's significant fixed interest debt instruments are as follows:

<Table>
<Caption>
                                                    SEPTEMBER 30, 1999
                                                  ----------------------
                                                  CARRYING    ESTIMATED
                                                   VALUES    FAIR VALUES
                                                  --------   -----------
<S>                                               <C>        <C>
Convertible Subordinated Debentures 7%..........  $20,000      $21,516
                                                  =======      =======
</Table>

                                        45
<PAGE>   48
                                 RENT-WAY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

9.  DEBT, CONTINUED:

     At September 30, 2000, aggregate annual maturities of debt are as follows:

<Table>
<Caption>
                                                      SEPTEMBER 30, 2000
                                                      ------------------
<S>                                                   <C>
2001................................................       $ 20,372
2002................................................         26,095
2003................................................         31,817
2004................................................         37,539
2005................................................        114,354
Thereafter..........................................        157,531
                                                           --------
                                                           $387,708
                                                           ========
</Table>

     At September 30, 2000 and 1999, book overdrafts of $1,887 and $2,994
respectively, were included in accounts payable in the accompanying Consolidated
Balance Sheets.

10.  DERIVATIVE FINANCIAL INSTRUMENTS:

     At September 30, 2000, the Company had interest rate swaps in the notional
amount of $204,400, and a fair market value of $2,510. 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. Upon adoption of SFAS No. 133 on
October 1, 2000, the fair value of the swaps will be recorded as an asset in the
amount of $2,510 on October 1, 2000, with the offset to other comprehensive
income. Subsequent adverse changes in fair value of the interest rate swap
portfolio amounting to $4,200 for the three months ended December 31, 2000, and
$4,600 for the three months ended March 31, 2001, will be charged to the
Company's Consolidated Statements of Operations.

11.  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 (see Note 19) and, to a lesser
extent, operating leases, under arrangements that expire over the next 5 years.
At September 30, 2000, future minimum rental payments under non-cancelable
capital and operating leases are as follows:

<Table>
<Caption>
                                           CAPITAL LEASES   OPERATING LEASES
                                           --------------   ----------------
<S>                                        <C>              <C>
2001.....................................     $13,261           $ 33,223
2002.....................................      10,393             27,089
2003.....................................       7,786             19,545
2004.....................................       6,115             12,858
Thereafter...............................         969             11,107
                                              -------           --------
     Total minimum payments required.....      38,524           $103,822
                                                                ========
Amount representing interest obligations
  under capital leases...................      15,926
                                              -------
                                              $22,598
                                              =======
</Table>

                                        46
<PAGE>   49
                                 RENT-WAY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

11.  COMMITMENTS AND CONTINGENCIES, CONTINUED:

     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
was as follows:

<Table>
<Caption>
                                                     2000      1999
                                                    -------   -------
<S>                                                 <C>       <C>
Transportation Equipment..........................  $45,113   $36,080
Less accumulated amortization.....................   22,515    12,800
                                                    -------   -------
Net transportation equipment under capital
  lease...........................................  $22,598   $23,280
                                                    =======   =======
</Table>

     Rent expense under operating leases for the years ended September 30, 2000,
1999, and 1998 was $36,444, $25,755, and $25,737, respectively.

     As of June 1, 2001, Rent-Way has been served with twelve complaints in
purported class action lawsuits filed in or transferred to the U.S. District
Court for the Western District of Pennsylvania. The complaints allege 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 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 January 18, 2000, and October 30,
2000. The District Court has ordered that the actions be consolidated. Rent-Way
is currently evaluating these claims and possible defenses thereunto. Additional
purported class action lawsuits similar to those described above may be filed,
and the existing lawsuits may be amended to increase the purported class.

     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 securities actions. Rent-Way cannot
predict the outcome of the litigation.

     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
lawsuits.

     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 and results of operations.

     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 ranging from $38,057 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. Additional claims exist of approximately $150 for which
management believes it has meritorious defenses but for which the likelihood of
an unfavorable outcome is currently not determinable. Additionally, claims exist
for which management is not able to estimate a potential loss. In

                                        47
<PAGE>   50
                                 RENT-WAY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

11.  COMMITMENTS AND CONTINGENCIES, CONTINUED:

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 $890 recorded as deposits held for customers.
The Company may have the right of offset for $305 of these amounts and is
currently investigating its offset rights.

     Also, see Note 13 for related party commitments.

12.  INCOME TAXES:

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

<Table>
<Caption>
                                                FOR THE YEARS ENDED SEPTEMBER 30,
                                            -----------------------------------------
                                            2000         1999              1998
                                            -----   ---------------   ---------------
                                                     (AS RESTATED      (AS RESTATED
                                                    NOTES 1 AND 19)   NOTES 1 AND 19)
<S>                                         <C>     <C>               <C>
Current expense(benefit):
  Federal.................................  $(297)      $  755            $2,765
  State and local.........................     --          131               992
                                            -----       ------            ------
                                             (297)         886             3,757
Deferred expense (benefit):
  Federal.................................     78        4,909            (1,213)
  State and local.........................     19        1,424              (327)
                                            -----       ------            ------
                                               97        6,333            (1,540)
                                            -----       ------            ------
Income tax expense (benefit)..............  $(200)      $7,219            $2,217
                                            =====       ======            ======
</Table>

                                        48
<PAGE>   51
                                 RENT-WAY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

12.  INCOME TAXES, CONTINUED:

     A reconciliation of the income tax expense (benefit) compared with the
amount at the U.S. statutory tax rate of 35% (34% for 1998) is shown below:

<Table>
<Caption>
                                               FOR THE YEARS ENDED SEPTEMBER 30,
                                          -------------------------------------------
                                           2000          1999              1998
                                          -------   ---------------   ---------------
                                                     (AS RESTATED      (AS RESTATED
                                                    NOTES 1 AND 19)   NOTES 1 AND 19)
<S>                                       <C>       <C>               <C>
Tax provision at U.S. statutory rate....  $(9,884)      $2,598            $(1,156)
State and local income taxes, net of
  federal benefit.......................   (1,607)       1,011                438
Nondeductible goodwill and purchase
  contracts.............................    1,355          943              1,003
Nondeductible acquisition costs.........       --        2,571              1,917
Deferred tax valuation allowance........    9,033           --                 --
Limitation on loss based on tax
  ownership of LLC......................      425           --                 --
Other...................................      478           96                 15
                                          -------       ------            -------
Income tax expense (benefit)............  $  (200)      $7,219            $ 2,217
                                          =======       ======            =======
</Table>

     At September 30, 2000, and 1999, the components of the net deferred tax
asset (liability) are as follows:

<Table>
<Caption>
                                               2000           1999
                                             --------    ---------------
                                                          (AS RESTATED
                                                         NOTES 1 AND 19)
<S>                                          <C>         <C>
Rental merchandise.........................  $(27,229)      $(22,266)
Property and equipment.....................     1,280            776
Operating loss carry forwards..............    34,923         21,066
Intangibles................................    (3,383)        (1,051)
Accrued expenses...........................     4,042            798
Other......................................       211            255
Tax credits................................       206            520
Deferred tax valuation allowance...........   (10,050)            --
                                             --------       --------
Net deferred tax asset (liability).........  $     --       $     98
                                             ========       ========
</Table>

     A valuation allowance of $10,050 was established at September 30, 2000.
This amount represents the full net deferred tax asset. Approximately $3,000 of
the operating loss carry forwards will result in a credit to shareholders'
equity when it is determined they can be utilized.

     In 1999, a net deferred tax asset of approximately $179 was established
upon the acquisition of America's Rent-To-Own for the difference in the tax and
book basis of the net assets acquired.

     As of September 30, 2000, the Company has net operating loss carry-forwards
of approximately $90,713 for income tax purposes, expiring in years through
fiscal 2020. A portion of these losses are 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 $206.

13.  RELATED PARTY TRANSACTIONS:

     During fiscal years ended September 30, 2000, 1999, and 1998 the Company
leased one location in 2000 and two locations in 1999 and 1998 from a principal
shareholder or a company controlled by a principal shareholder. Rent paid during
these years related to these leases was $49, $76, and $87, respectively.

                                        49
<PAGE>   52
                                 RENT-WAY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

13.  RELATED PARTY TRANSACTIONS, CONTINUED:

     During fiscal 2000 and 1999 the Company held notes aggregating $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. Subsequent to September 30, 2000, the Company also held a note
receivable with a balance of $159 from a director of the Company related to a
personal loan. The note is a full recourse promissory note and bears interest at
10% per annum. 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, 2000 and 1999, the Company held notes receivable
which were due within one year and unpaid interest thereon of $690 and $362,
respectively and interest income was $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.

     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 date
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 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 2000 and
1999, respectively.

14.  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

                                        50
<PAGE>   53
                                 RENT-WAY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

14.  STOCK OPTIONS, CONTINUED:

the parameters set forth in the 1999 Plan. As of September 30, 2000, 2,057,350
options at an exercise price ranging from $15.875 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.

     On November 8, 1995, Alrenco approved a stock incentive plan (the "Alrenco
Plan") under which 450,000 common shares were reserved. Under the Alrenco Plan,
Alrenco was entitled to grant its employees incentive stock options or
nonqualified stock options to purchase a specified number of shares of common
stock at a price not less than fair market value on the date of grant and for a
term not to exceed 10 years. In addition to the stock options, Alrenco was
entitled to grant stock appreciation rights ("SAR"), restricted stock awards and
options to directors. SARs and options to directors were required to be granted
at a minimum of fair market value at the date of grant and restricted stock
awards at a price to be determined by the Alrenco Board of Directors'
compensation committee. Directors who were not involved in day-to-day management
of Alrenco were initially entitled to a grant of 5,000 shares and, on each of
their next five anniversaries, an automatic 1,000 share grant. On January 23,
1996, Alrenco granted 105,000 shares of restricted stock to two key employees,
which vested at the earlier of a change in control or at the end of seven years.
As a result of the merger with RTO, Inc. ("RTO"), these shares automatically
vested on February 26, 1998. Compensation expense of $988 and $194 was recorded
related to Alrenco Plan for the years ended September 30, 1999 and 1998.

     RTO adopted the 1996 Employee Stock Option Plan (the "RTO Plan") to attract
and retain employees. Under the RTO Plan, RTO was entitled to grant options to
purchase a total of not more than 1,027,973 shares of common stock, subject to
anti-dilution and other adjustment provisions provided, however, that the
maximum number of shares subject to all options granted to an individual under
the Plan would not exceed 50% of the shares of common stock authorized for
issuance. No options could be granted under the RTO Plan after the tenth
anniversary of the RTO Plan. The options vest over a four-year period and expire
on the tenth anniversary following the date of grant. RTO also adopted the 1996
Stock Option Plan for Non-Employee Directors (the "Director's Plan") that
provided for the granting to non-employee directors of stock options to purchase
up to 448,975 shares of RTO's common stock.

     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.

                                        51
<PAGE>   54
                                 RENT-WAY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

14.  STOCK OPTIONS, CONTINUED:

     The following is a summary of activity of the Company's stock options
during the years ended September 30, 2000, 1999 and 1998, 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
                 STOCK OPTIONS                     SHARES     PER SHARE
                 -------------                    ---------   ---------
<S>                                               <C>         <C>
September 30, 1997..............................  1,992,794    $13.65
  Granted.......................................  1,070,831    $23.48
  Exercised.....................................   (299,417)   $10.27
  Forfeited.....................................   (443,702)   $19.92
                                                  ---------
September 30, 1998..............................  2,320,506    $17.42
                                                  ---------
  Granted.......................................  1,364,263    $25.90
  Exercised.....................................   (403,610)   $14.07
  Forfeited.....................................   (125,950)   $25.29
                                                  ---------
September 30, 1999..............................  3,155,209    $21.21
                                                  ---------
  Granted.......................................  1,588,700    $18.45
  Exercised.....................................   (594,550)   $14.23
  Cancelled.....................................   (133,720)   $21.66
                                                  ---------
September 30, 2000..............................  4,015,639    $21.07
                                                  =========
</Table>

     At September 30, 2000, stock options representing 1,532,927 shares are
exercisable at prices ranging from $8.00 to $33.63 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 2000 and 1999: expected
volatility of 47.41%, risk-free interest rates between 6.85% and 5.91%, and an
expected life of five years.

                                        52
<PAGE>   55
                                 RENT-WAY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

14.  STOCK OPTIONS, CONTINUED:

     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,
                                         --------------------------------------------
                                                         1999              1998
                                                     (AS RESTATED      (AS RESTATED
                                           2000     NOTES 1 AND 19)   NOTES 1 AND 19)
                                         --------   ---------------   ---------------
<S>                                      <C>        <C>               <C>
Net loss before extraordinary item:
  As reported..........................  $(28,041)      $  (246)          $(5,819)
  Pro-forma............................   (35,811)       (6,074)           (8,224)
Net loss:
  As reported..........................  $(28,041)      $  (765)          $(5,819)
  Pro-forma............................   (35,811)       (6,593)           (8,224)
Diluted loss per common share:
Net loss before extraordinary item
  As reported..........................  $  (1.20)      $ (0.01)          $ (0.29)
                                         ========       =======           =======
  Pro-forma............................  $  (1.54)      $ (0.28)          $ (0.41)
                                         ========       =======           =======
Net loss As reported...................  $  (1.20)      $ (0.04)          $ (0.29)
                                         ========       =======           =======
  Pro-forma............................  $  (1.54)      $ (0.31)          $ (0.41)
                                         ========       =======           =======
</Table>

15.  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 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 will amortize
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.

     In September 1995, Rent-Way issued warrants to purchase 37,500 shares of
common stock at $10.00 per share. The warrants are exercisable at any time for a
period of five 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.

                                        53
<PAGE>   56
                                 RENT-WAY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

15.  SHAREHOLDERS' EQUITY, CONTINUED:

     The following warrants were outstanding at September 30, 2000, or exercised
during fiscal 2000:

<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
September 1995.........    37,500     $10.00    September 2000    37,500           --
</Table>

16.  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 $1,025, $351, and $383 (in the form of the Company's
common stock) for the years ended September 30, 2000, 1999 and 1998,
respectively.

     On February 5, 2001, and as a result of the significant price drop in
Rent-Way stock following disclosure of the accounting investigation (see Note
1), 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.

     At September 30, 2000, the Company had two other active 401(k) retirement
savings plans: the America's Sales & Leasing 401(k) Plan (the "America's Plan"),
and the RentaVision, Inc. 401(k) Plan (the "RentaVision Plan"). The Company
incurred $4 and $6 of expense related to the America's Plan during fiscal 2000
and 1999 respectively. No expenses were incurred related to the RentaVision
Plan. The Company contributed $460 and $515 to the Home Choice Plan for the
years ended September 30, 1999 and 1998, respectively. Each plan is available to
all Company employees who meet the necessary service criteria as defined in the
plan agreements. Company contributions to the plans are based on a percentage of
the employees' contributions. The Home Choice Plan was merged on January 1,
2000; and the America's Plan and RentaVision Plan were merged in January 2001
into the Rent-Way Inc., Plan.

     The Company also has a frozen 401(k) retirement savings plan: the Amigo TV
Rentals, Inc. 401(K) Plan. The Company is working to dissolve this plan. There
were no expenses incurred for this plan during fiscal 1999 and 1998.

17.  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 5).

                                        54
<PAGE>   57
                                 RENT-WAY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

17.  LOSS PER SHARE, CONTINUED:

     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,
                                                        ----------------------------------------------
                                                                         1999               1998
                                                                    (AS RESTATED)      (AS RESTATED)
            COMPUTATION OF LOSS PER SHARE                 2000     (NOTES 1 AND 19)   (NOTES 1 AND 19)
            -----------------------------               --------   ----------------   ----------------
<S>                                                     <C>        <C>                <C>
BASIC
Loss applicable to common shares for basic earnings
  per share...........................................  $(28,041)      $  (765)           $(5,819)
                                                        ========       =======            =======
Weighted average common shares outstanding............    23,314        21,341             20,283
                                                        ========       =======            =======
Loss per common share:
  Loss before extraordinary item......................  $  (1.20)      $ (0.01)           $ (0.29)
                                                        ========       =======            =======
  Loss applicable to common shares....................  $  (1.20)      $ (0.04)           $ (0.29)
                                                        ========       =======            =======
DILUTED
Loss applicable to common shares for basic earnings
  per share...........................................  $(28,041)      $  (765)           $(5,819)
Interest on 7% convertible debentures (net of tax)
  (1).................................................        --            --                 --
                                                        --------       -------            -------
Loss applicable to common shares for diluted loss per
  share...............................................   (28,041)      $  (765)           $(5,819)
                                                        ========       =======            =======
Weighted average common shares used in calculating
  basic loss per share................................    23,314        21,341             20,283
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)................    23,314        21,341             20,283
                                                        ========       =======            =======
Loss per common share:
  Loss before extraordinary item......................  $  (1.20)      $ (0.01)           $ (0.29)
                                                        ========       =======            =======
  Loss applicable to common shares....................  $  (1.20)      $ (0.04)           $ (0.29)
                                                        ========       =======            =======
</Table>

---------------
(1) Including the effects of these items for the years ended 1998, 1999 and 2000
    would be anti-dilutive. Therefore, 1,123; 2,004; and 2,141 of antidilutive
    common shares are excluded from consideration in the calculation of diluted
    loss per share for the years ended September 30, 2000, 1999, and 1998,
    respectively.

18.  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.

                                        55
<PAGE>   58
                                 RENT-WAY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

18.  SEGMENT INFORMATION, CONTINUED:

     The financial results of the Company's segments follow the same accounting
policies as described in "Summary of Significant Accounting Policies" (see Note
3). The information presented below does not include the results of the prepaid
telephone service segment prior to January 4, 2000 (see Note 5).

<Table>
<Caption>
                                                      PREPAID
                                         HOUSEHOLD   TELEPHONE
                                          RENTAL      SERVICE     TOTAL
 FOR THE YEAR ENDED SEPTEMBER 30, 2000    SEGMENT     SEGMENT    SEGMENTS
 -------------------------------------   ---------   ---------   --------
<S>                                      <C>         <C>         <C>
Total revenues.........................  $583,443     $ 9,243    $592,686
                                         ========     =======    ========
Operating income.......................  $  4,535     $(3,939)   $    596
                                         ========     =======    ========
Net loss...............................  $(23,994)    $(4,047)   $(28,041)
                                         ========     =======    ========
Total Assets...........................  $762,237     $ 4,074    $766,311
                                         ========     =======    ========
</Table>

19.  RESTATEMENT:

     After evaluating information revealed in the investigation (see Note 1) and
in preparation of its fiscal 2000 financial statements, the Company has
determined that improper accounting entries were made in fiscal 2000, 1999 and
1998 that overstated assets and income and understated liabilities and expenses.
The total amount of adjustments relating to these improper entries affecting
pre-tax operating income in fiscal 1999 and 1998 is $21.0 million and $2.3
million, respectively. The Company has also made adjustments to fiscal 1999 and
1998 to conform the application of certain accounting principles for all periods
presented. In addition, the Company has also determined to record certain
previously unrecorded recurring adjustments that were initially identified in
its preparation of its fiscal 1999 and 1998 financial statements. The Company
had previously decided not to record these adjustments on the basis of
immateriality. The Company has now decided to give effect to these adjustments
in fiscal 1999 and 1998 as appropriate by restating its previously issued
financial statements for such periods.

     Management believes that it has made all of the adjustments considered
necessary as a result of the accounting investigation and the year-end audit.
Management further believes that the Company's financial statements as of
September 30, 1999, and for the years ended September 30, 1999 and 1998, as
restated, include all adjustments necessary for a fair presentation of the
Company's consolidated financial position and results of operation for such
periods.

     The significant effects of, and principal reasons for, the Company's
restatement of its fiscal 1999 and 1998 financial statements from amounts
previously reported are set forth below.

     The restated financial statements reflect adjustments related to accounting
improprieties principally related to the following accounts:

     Prepaid Expenses

     Prepaid advertising was overstated at September 30, 1999 in reliance on an
invoice altered to reflect improper advertising dates.

     Rental Merchandise

     Improper manual journal entries overstated rental merchandise and
understated various expenses including rental merchandise depreciation expense,
rental merchandise losses, advertising expense and miscellaneous operating
expenses. The reporting of losses resulting from missing rental merchandise at
year end was improperly

                                        56
<PAGE>   59
                                 RENT-WAY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

19.  RESTATEMENTS, CONTINUED:

deferred. Depreciation on rental merchandise related to the RentaVision acquired
stores was inappropriately reversed through a manual journal entry.

     Spare Parts Inventories

     The results of a physical inventory of spare parts at September 30, 1999
was disregarded and not reflected in the inventories thereby overstating the
account balance.

     Vendor Rebates

     Amounts due to the Company in connection with rebates from rental
merchandise vendors were overstated.

     Accounts Payable

     Accounts payable for rental merchandise and property and equipment
purchases and services were not recorded in the Company's accounts payable and
general ledger system resulting in understated accounts payable, rental
merchandise, property and equipment, occupancy costs, advertising expense and
other operating expenses.

     Costs Associated with Lease Termination

     Adjustments are necessary to write-off leasehold improvements and to record
liabilities for future rental payments and other costs associated with leases
terminated early related to vacant facilities.

     The restated financial statements also reflect adjustments necessary to
conform the application of certain accounting principles for all periods
presented. These changes principally relate to vehicle repairs and maintenance
and signage, vehicle lease classification, and accrued vacation.

     The restated financial statements also reflect adjustments that were
identified during the preparation of the Company's financial statements as of
September 30, 1999, and for the years ended September 30, 1999 and 1998, which
the Company elected not to record in those periods on the basis of
immateriality; but which the Company has subsequently decided to record.

     The following tables set forth the adjustments made to the Company's
previously issued fiscal 1999 and 1998 financial statements:

                                        57
<PAGE>   60
                                 RENT-WAY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

                      CONSOLIDATED STATEMENT OF OPERATIONS

<Table>
<Caption>
                                             FOR THE YEAR ENDED                          FOR THE YEAR ENDED
                                             SEPTEMBER 30, 1999                          SEPTEMBER 30, 1998
                                  -----------------------------------------   -----------------------------------------
                                  AS PREVIOUSLY                               AS PREVIOUSLY
                                    REPORTED      ADJUSTMENTS   AS RESTATED     REPORTED      ADJUSTMENTS   AS RESTATED
                                  -------------   -----------   -----------   -------------   -----------   -----------
<S>                               <C>             <C>           <C>           <C>             <C>           <C>
Revenues:
  Rental........................    $427,094                     $427,094       $377,918                     $377,918
  Other revenues................      67,258                       67,258         58,113                       58,113
                                    --------       --------      --------       --------        -------      --------
Total revenues..................     494,352                      494,352        436,031                      436,031
Costs and operating expenses
  Depreciation and amortization;
    Rental merchandise..........     123,512       $  1,445       124,957        108,367        $   840       109,207
  Property and equipment........       9,603          9,432        19,035          7,238          3,093        10,331
  Amortization of goodwill......       9,784             53         9,837         11,248             --        11,248
Salaries and wages..............     128,525          1,669       130,194        120,296            392       120,688
Advertising, net................      23,352            671        24,023         23,613           (926)       22,687
Occupancy.......................      33,016           (226)       32,790         29,974            508        30,482
Name change expense.............          86             --            86          1,770             --         1,770
Business combination expense....      16,800            926        17,726         11,210             --        11,210
Other operating expenses........     102,959          8,071       111,030        107,786          2,033       109,819
                                    --------       --------      --------       --------        -------      --------
Total costs and operating
  expenses......................     447,637         22,041       469,678        421,502          5,940       427,442
                                    --------       --------      --------       --------        -------      --------
  Operating income..............      46,715        (22,041)       24,674         14,529         (5,940)        8,589
Other income (expense):
Interest expense................     (15,581)        (1,340)       16,921        (10,949)          (595)      (11,544)
Amortization--deferred financing
  costs.........................        (422)            --          (422)          (358)            --          (358)
Interest income.................          29              9            38            251             --           251
Other income (expense), net.....        (405)             9          (396)          (540)            --          (540)
                                    --------       --------      --------       --------        -------      --------
  Income (loss) before income
    taxes and extraordinary
    item........................      30,336        (23,363)        6,973          2,933         (6,535)       (3,602)
Income tax expense..............      15,234         (8,015)        7,219          4,771         (2,554)        2,217
                                    --------       --------      --------       --------        -------      --------
  Income (loss) before
    extraordinary item..........      15,102        (15,348)         (246)        (1,838)        (3,981)       (5,819)
Extraordinary item..............        (519)            --          (519)            --             --            --
                                    --------       --------      --------       --------        -------      --------
  Net income (loss).............    $ 14,583       $(15,348)     $   (765)      $ (1,838)       $(3,981)       (5,819)
                                    ========       ========      ========       ========        =======      ========
Basic earnings (loss) per share:
  Income (loss) before
    extraordinary item..........    $   0.71                        (0.01)         (0.09)                       (0.29)
                                    ========                     ========       ========                     ========
  Net income (loss).............    $    .68                        (0.04)         (0.09)                       (0.29)
                                    ========                     ========       ========                     ========
Diluted earnings (loss) per
  share:
  Income (loss) before
    extraordinary item..........    $   0.68                        (0.01)         (0.09)                       (0.29)
                                    ========                     ========       ========                     ========
  Net income (loss).............    $   0.66                        (0.04)         (0.09)                       (0.29)
                                    ========                     ========       ========                     ========
</Table>

                                        58
<PAGE>   61
                                 RENT-WAY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

                           CONSOLIDATED BALANCE SHEET

<Table>
<Caption>
                                                                       SEPTEMBER 30, 1999
                                                            -----------------------------------------
                                                            AS PREVIOUSLY
                                                              REPORTED      ADJUSTMENTS   AS RESTATED
                                                            -------------   -----------   -----------
<S>                                                         <C>             <C>           <C>
ASSETS
Cash and cash equivalents.................................    $  8,646             --      $  8,646
Prepaid expenses..........................................       9,610         (2,481)        7,129
Income tax receivable.....................................          --          4,968         4,968
Rental merchandise, net...................................     202,145         (5,635)      196,510
Deferred income taxes.....................................          --             98            98
Property and equipment, net...............................      50,578         19,493        70,071
Goodwill, net of accumulated amortization of $26,464......     305,900          1,481       307,381
Deferred financing costs, net of accumulated amortization
  of $487.................................................       3,688             44         3,732
Non-compete agreements and prepaid consulting fees, net of
  accumulated amortization of $6,687......................       5,494             67         5,561
Other assets..............................................      11,333         (5,771)        5,562
                                                              --------       --------      --------
                                                              $597,394       $ 12,264      $609,658
                                                              ========       ========      ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable..........................................    $  8,417       $  7,444        15,861
Other liabilities.........................................      15,861         31,319        47,180
Income taxes payable......................................       2,316         (2,316)           --
Deferred income taxes.....................................       5,218         (5,218)           --
Debt......................................................     288,130             --       288,130
                                                              --------       --------      --------
                                                               319,942         31,229       351,171
Commitments and contingencies.............................          --             --            --
Shareholders' equity:
  Preferred stock, without par value; 1,000,000 shares
     authorized; no shares issued and outstanding at
     September 30, 1999...................................          --             --            --
  Common stock, without par value; 50,000,000 shares
     authorized; 21,976,401 shares issued and
     outstanding..........................................     256,755            726       257,481
  Loans to shareholders...................................          --           (362)         (362)
  Retained earnings.......................................      20,697        (19,329)        1,368
                                                              --------       --------      --------
     Total shareholders' equity...........................     277,452        (18,965)      258,487
                                                              --------       --------      --------
                                                              $597,394       $ 12,264      $609,658
                                                              ========       ========      ========
</Table>

                                        59
<PAGE>   62
                                 RENT-WAY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

20.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):

<Table>
<Caption>
                                              FOR THE QUARTER ENDED                  FOR THE QUARTER ENDED
                                                SEPTEMBER 30, 1999                       JUNE 30, 1999
                                       ------------------------------------   ------------------------------------
                                       AS REPORTED   ADJUSTMENTS   RESTATED   AS REPORTED   ADJUSTMENTS   RESTATED
FISCAL YEAR 1999                       -----------   -----------   --------   -----------   -----------   --------
<S>                                    <C>           <C>           <C>        <C>           <C>           <C>
Total revenues.......................   $122,692      $     --     $122,692    $121,951       $    --     $121,951
Operating income.....................     19,784       (11,723)       8,061      17,666        (4,963)      12,703
Income (loss) before extraordinary
  item...............................      9,395        (7,442)       1,953       8,123        (3,521)       4,602
Net income (loss)....................      9,395        (7,442)       1,953       8,123        (3,521)       4,602
Earnings (loss) applicable to
  common shares......................      9,395        (7,442)       1,953       8,123        (3,521)       4,602
Earnings (loss) per common share:
Basic
  Income (loss) before extraordinary
    item.............................   $   0.43                   $   0.09    $   0.38                   $   0.22
  Net income (loss)..................       0.43                       0.09        0.38                       0.22
Diluted
  Income (loss) before extraordinary
    item.............................       0.41                       0.09        0.36                       0.20
  Net income (loss)..................       0.41                       0.09        0.36                       0.20
Weighted average shares outstanding
  Basic..............................     21,771                     21,771      21,335                     21,335
  Diluted............................     23,678                     21,771      23,378                     23,378
</Table>

<Table>
<Caption>
                                              FOR THE QUARTER ENDED                  FOR THE QUARTER ENDED
                                                  MARCH 31, 1999                       DECEMBER 31, 1998
                                       ------------------------------------   ------------------------------------
                                       AS REPORTED   ADJUSTMENTS   RESTATED   AS REPORTED   ADJUSTMENTS   RESTATED
                                       -----------   -----------   --------   -----------   -----------   --------
<S>                                    <C>           <C>           <C>        <C>           <C>           <C>
Total revenues.......................   $125,750      $     --     $125,750    $123,959       $    --     $123,959
Operating income.....................     16,353        (1,189)      15,164      (7,088)       (4,166)     (11,254)
Income (loss) before extraordinary
  item...............................      7,115        (1,202)       5,913      (9,531)       (3,183)     (12,714)
Net income (loss)....................      7,115        (1,202)       5,913     (10,050)       (3,183)     (13,233)
Earnings (loss) applicable to
  common shares......................      7,115        (1,202)       5,913     (10,050)       (3,183)     (13,233)
Earnings (loss) per common share:
Basic
  Income (loss) before extraordinary
    item.............................   $   0.34                   $   0.28    $  (0.45)                  $  (0.60)
  Net income (loss)..................       0.34                       0.28       (0.48)                     (0.63)
Diluted
  Income (loss) before extraordinary
    item.............................       0.32                       0.26       (0.45)                     (0.60)
  Net income (loss)..................       0.32                       0.26       (0.48)                     (0.63)
Weighted average shares outstanding
  Basic..............................     21,125                     21,125      21,088                     21,088
  Diluted............................     23,142                     23,142      21,088                     21,088
</Table>

                                        60
<PAGE>   63
                                 RENT-WAY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<Table>
<Caption>
                                                                                     FOR THE QUARTER ENDED
                                              FOR THE QUARTER ENDED                      JUNE 30, 2000
                                              SEPTEMBER 30, 2000(A)           ------------------------------------
                                       ------------------------------------   AS REPORTED   ADJUSTMENTS   RESTATED
FISCAL YEAR 2000                                                              -----------   -----------   --------
<S>                                    <C>           <C>           <C>        <C>           <C>           <C>
Total revenues.......................   $151,974                               $152,086       $(1,174)    $150,912
Operating income (loss)..............    (27,326)                                25,223       (18,357)       6,866
Income (loss) before extraordinary
  item...............................    (31,727)                                11,577       (11,888)        (311)
Net income (loss)....................    (31,727)                                11,577       (11,888)        (311)
Earnings (loss) applicable to
  common shares......................    (31,727)                                11,577       (11,888)        (311)
Earnings (loss) per common share:
Basic
  Income (loss) before extraordinary
    item.............................   $  (1.30)                              $   0.48                   $  (0.01)
  Net income (loss)..................      (1.30)                                  0.48                      (0.01)
Diluted
  Income (loss) before extraordinary
    item.............................      (1.30)                                  0.47                      (0.01)
  Net income (loss)..................      (1.30)                                  0.47                      (0.01)
Weighted average shares outstanding
  Basic..............................     24,411                                 23,984                     23,984
  Diluted............................     24,411                                 24,860                     23,984
</Table>

(A) With respect to the selected quarterly financial data for the period ended
    September 30, 2000, those results reflect the effects of certain year-end
    adjustments including write-off of fixed assets and construction inventory,
    rental merchandise disposals, increase in self-insurance reserves, and cash
    reconciliations, offset by a gain on disposal of computers, aggregating
    approximately $14 million.

<Table>
<Caption>
                                              FOR THE QUARTER ENDED                  FOR THE QUARTER ENDED
                                                  MARCH 31, 2000                       DECEMBER 31, 1999
                                       ------------------------------------   ------------------------------------
                                       AS REPORTED   ADJUSTMENTS   RESTATED   AS REPORTED   ADJUSTMENTS   RESTATED
                                       -----------   -----------   --------   -----------   -----------   --------
<S>                                    <C>           <C>           <C>        <C>           <C>           <C>
Total revenues.......................   $148,889      $     --     $148,889    $140,911       $    --     $140,911
Operating income.....................     25,227       (17,710)       7,517      22,564        (9,025)      13,539
Income (loss) before extraordinary
  item...............................     10,926       (11,252)        (326)     10,128        (5,805)       4,323
Net income (loss)....................     10,926       (11,252)        (326)     10,128        (5,805)       4,323
Earnings (loss) applicable to
  common shares......................     10,926       (11,252)        (326)     10,128        (5,805)       4,323
Earnings (loss) per common share:
Basic
  Income (loss) before extraordinary
    item.............................   $   0.48                   $  (0.01)   $   0.46                   $   0.20
  Net income (loss)..................       0.48                      (0.01)       0.46                       0.20
Diluted
  Income (loss) before extraordinary
    item.............................       0.46                      (0.01)       0.43                       0.19
  Net income (loss)..................       0.46                      (0.01)       0.43                       0.19
Weighted average shares outstanding
  Basic..............................     22,673                     22,673      21,982                     21,982
  Diluted............................     22,673                     22,673      23,762                     23,762
</Table>

     The restated unaudited selected quarterly financial data reflect
adjustments related to accounting improprieties, conforming the application of
certain accounting principles for all periods presented and to record recurring
adjustments that were identified during the preparation of the Company's
financial statements for the respective periods and which the Company elected
not to record in those periods on the basis of immateriality but which the
Company has subsequently decided to record (see notes 1 and 19).

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

     None.
                                        61
<PAGE>   64

                                 RENT-WAY, INC.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

     Certain information regarding the directors and executive officers of the
Company is set forth below.

<Table>
<Caption>
                   NAME                     AGE                    POSITION
                   ----                     ---                    --------
<S>                                         <C>   <C>
William E. Morgenstern....................  42    Chairman of the Board, Chief Executive
                                                  Officer and Director
Gerald A. Ryan............................  65    Chairman Emeritus and Director
William Lerner............................  65    Corporate Secretary and Director
Vincent A. Carrino........................  45    Director
Robert B. Fagenson........................  52    Director
Marc W. Joseffer..........................  52    Director
Jacqueline E. Woods.......................  53    Director
William A. McDonnell......................  39    Vice President and Chief Financial Officer
Ronald D. DeMoss..........................  50    Vice President and General Counsel
Jeffrey K. Underwood......................  44    Vice President of Operations
John A. Lombardi..........................  36    Vice President, Corporate Controller and
                                                  Chief Accounting Officer
</Table>

     WILLIAM E. MORGENSTERN, a founder of the Company, has served as its
President and Chief Executive Officer and as a director since its formation in
1981. In October 1999, Mr. Morgenstern was elected Chairman of the Board of the
Company. From 1981 to January 2000, Mr. Morgenstern also served as the Company's
President. Mr. Morgenstern began his rental-purchase industry career with
Rent-A-Center in 1979 in Ft. Worth, Texas. While employed by Rent-A-Center, he
held the positions of store manager and district manager for Pennsylvania and
New York. Mr. Morgenstern is a former President of the Pennsylvania Association
of Rental Dealers, a trade association that monitors activities in the state
legislature that affect the rental-purchase industry. From 1986 to 1988, he
served on the Board of Directors of APRO, the rental-purchase industry's
national trade association. Mr. Morgenstern is a Class III director whose term
expires in 2001.

     GERALD A. RYAN, a founder of the Company, served as Chairman of the Board
of the Company from 1981 to October 1999 and as a director since its formation
in 1981. Mr. Ryan currently serves as Chairman Emeritus of the Board and as a
consultant to the Company. Mr. Ryan has also been instrumental in the formation
of several other companies, including Spectrum Control, Inc., a company quoted
on the NASDAQ National Market, which produces electronic components. He
presently serves as Chairman of the Board of Spectrum Control, Inc. Mr. Ryan is
also a director of Intrenet, Inc., a company listed on the OTC Bulletin Board
and engaged in the trucking business and now operating subject to Chapter 11 of
the U.S. Bankruptcy Code. Mr. Ryan is a Class I director whose term expires in
2002.

     WILLIAM LERNER has been a director of the Company since November 1992 and
its Secretary since January 1993. Mr. Lerner is a practicing attorney in New
York since 1961 and in Pennsylvania since 1990. Mr. Lerner is also a director of
Seitel, Inc., a company listed on the New York Stock Exchange ("NYSE") that
develops and maintains a seismic data bank for the oil and gas industry, Helm
Resources, Inc., a company traded on the OTC Bulletin Board that provides
management, financial and asset based lending services, Micros-to-Mainframes,
Inc., a company quoted on the NASDAQ National Market that is a provider and
systems integrator of advanced technology communications products and Internet
services, and Cortland Trust, Inc., a money market mutual fund distributed
primarily through securities brokerage firms and commercial banks. Mr. Lerner is
a Class II director whose term expires in 2003.

     ROBERT B. FAGENSON has been a director since August 1993. He has, for more
than the past five years, been President and a director of Fagenson & Co., Inc.,
a NYSE member firm, and a director of Starr Securities, Inc., a registered
broker-dealer and member of the NYSE. Since June 2000 Mr. Fagenson, has served
as Vice Chairman of the Management Committee of Van der Moolen Specialists USA,
LLC, a NYSE specialist firm. Mr. Fagenson

                                        62
<PAGE>   65

is also a director of Cash Technologies, Inc., a company listed on the American
Stock Exchange that provides coin processing machines and financial processing
software, United Diagnostics, a company quoted on the OTC Bulletin Board engaged
in medical research and treatment of cancer; and Intrenet, Inc. Mr. Fagenson is
a Class I director of the Company whose term expires in 2002.

     VINCENT A. CARRINO has been a director since January 1995. Mr. Carrino
founded Brookhaven Capital Management, Inc., an investment management company
headquartered in Menlo Park, California, in 1986 and has been its President
since that date. Mr. Carrino is also a director of Cash Technologies, Inc., and
of Intrenet, Inc. Mr. Carrino is a Class III director whose term expires in
2001.

     MARC W. JOSEFFER has been a director of the Company since May 1994 and was
employed by the Company in various management positions from May 1994 through
October 1996. For more than five years prior thereto, he was Vice President and
a principal shareholder of D.A.M.S.L. Corp., a privately owned company engaged
in the rental-purchase industry. D.A.M.S.L. Corp. was acquired by the Company in
May 1994. Mr. Joseffer is a Class II director whose term expires in 2003.

     JACQUELINE E. WOODS has been a director of the Company since March 1999.
Ms. Woods is a nationally recognized educator and specialist in adult education,
community colleges and on educational public policy issues and has recently
accepted the position of Executive Director of the American Association of
University Women. AAUW is comprised of three corporations that address the
education and equity issues of girls and women nationwide. Ms. Woods has been
actively involved in a number of other non-profit and policy associations
throughout her career. In 1996 she was appointed by President Clinton as the
Liaison for Community Colleges from the United States Department of Education.
Prior to that, from 1993 to 1996, Ms. Woods served as Vice Chancellor for
External Affairs for the City Colleges of Chicago. Ms. Woods also served as the
Vice President for Institutional Advancement at the Community College of
Philadelphia from 1991 to 1993 and, earlier in her career, held positions at
various colleges across the country. Ms. Woods is a Class II director whose term
expires in 2003.

     WILLIAM A. MCDONNELL was hired by the Company on February 1, 2000 as Vice
President and Chief Financial Officer. Prior to his employment with Rent-Way,
Mr. McDonnell was a director in the Global Distribution Group for the Bank of
Montreal, one of the Company's lenders, from 1996-1999. Prior to that position,
Mr. McDonnell was Vice President and Relationship Manager in the Emerging Majors
Group for Harris Bank. Harris Bank is a wholly owned subsidiary of the Bank of
Montreal.

     RONALD D. DEMOSS was elected Vice President and General Counsel of the
Company in February 1996. From June 1990 through November 1995, Mr. DeMoss was
employed as a corporate counsel for Rent-A-Center and, in such capacity, was
involved in the enactment of rental-purchase legislation in 11 states. During
1995, Mr. DeMoss also served as Rent-A-Center's Director of Government
Relations. Mr. DeMoss became a member of the Board of Directors of APRO in 1996
and currently serves on its executive committee. Mr. DeMoss also serves on
APRO's Government Relations Committee. From 1981 through 1990, Mr. DeMoss was a
practicing attorney in Wichita, Kansas.

     JEFFREY K. UNDERWOOD was hired by the Company in February 1998 and served
in various positions until appointed Vice President of Operations in September
1999. From January 1989 to February 1998, he was employed by Champion Rentals
where he served in various positions, including store manager, Regional Manager,
Director of Operations, and Vice President of Operations. Prior to Champion
Rentals, Mr. Underwood was employed by JC Penney for 16 years, reaching the
position of Senior Merchandising Manager.

     JOHN A. LOMBARDI was hired by the Company in April 2001 as Vice President,
Corporate Controller and Chief Accounting Officer. From August 1997 until he
joined the Company, Mr. Lombardi served as the Chief Financial Officer and
Treasurer at Community Rehab Centers, Inc., Boston, Massachusetts. During 1996
to and 1997, he served as Executive Vice President, Chief Financial Officer and
Treasurer of Northstar Health Services, Inc. From 1986 to 1996, Mr. Lombardi
worked in the specialty consulting services and in the audit and business
advisory services practice of Arthur Andersen LLP. Mr. Lombardi is a certified
public accountant, a certified insolvency and reorganization accountant, and a
certified fraud examiner.

                                        63
<PAGE>   66

ITEM 11.  EXECUTIVE COMPENSATION

     The following table disclosed compensation for the years ended September
30, 2000, 1999 and 1998, received by those executive officers who served as such
at the close of the fiscal year ended September 30, 2000.

<Table>
<Caption>
                                                                           LONG-TERM
                                                                          COMPENSATION
                                                                             AWARDS
                                             ANNUAL COMPENSATION(1)        SECURITIES
                                         ------------------------------    UNDERLYING
           NAME AND POSITION             YEAR   SALARY($)   BONUS($)(2)    OPTIONS(#)    COMPENSATION ($)
           -----------------             ----   ---------   -----------   ------------   ----------------
<S>                                      <C>    <C>         <C>           <C>            <C>
William E. Morgenstern.................  2000    450,000      375,000        70,000         368,161(3)
  Chairman and Chief Executive           1999    298,107      200,000       440,000         214,179(3)
  Officer                                1998    240,000      269,926            --
Jeffrey A. Conway (4)..................  2000    275,000      150,000        50,000
  President and Chief Operating          1999    178,156      120,000       220,000
  Officer                                1998    120,000      144,000
William A. McDonnell(5)................  2000    120,000           --        30,000
  Vice President and Chief Financial
     Officer
Jeffrey K. Underwood...................  2000    200,000       30,000         3,000
  Senior Vice President of Operations    1999    141,157       10,000        85,000
Ronald D. DeMoss.......................  2000    171,346       25,000        17,500
  Vice President and General             1999    141,091       10,000         2,500
  Counsel                                1998    100,700       10,000         5,000
</Table>

(1) Except as set forth above, the Named Executive Officers did not receive any
    annual compensation not properly characterized as salary or bonus, except
    for certain prerequisites or other benefits the aggregate incremental cost
    of which to the Company did not exceed the lesser of $50,000 or 10% of the
    total annual salary and bonus reported for each such officer. The Company
    has a medical and health benefits plan and provides term life insurance for
    its employees; however, such plans do not discriminate in scope, terms or
    operation in favor of executive officers or directors and are generally
    available to all salaried employees. The Company has a 401(k) plan but does
    not have any other pension plan or any long-term incentive plan.

(2) Represents payments made in fiscal year shown for bonuses earned in the
    prior fiscal year.

(3) Represents loans made to Mr. Morgenstern to fund the exercise of stock
    options. Also includes, in fiscal 2000, $94,100 paid to Mr. Morgenstern for
    withholding taxes due on an option exercise. Mr. Morgenstern surrendered
    5,881 shares to the Company in return.

(4) Mr. Conway resigned effective December 31, 2000.

(5) Began employment on February 1, 2000.

EMPLOYMENT AGREEMENTS

     During fiscal 2000, Mr. Morgenstern served as Chairman of the Board and
Chief Executive Officer under an employment agreement with the Company for a
term that commenced October 1, 1998, and continues to September 30, 2001, unless
earlier terminated in accordance with its terms. The term of the employment
agreement is automatically extended for rolling two-year periods beginning on
the date which is one year prior to September 30, 2001, and each anniversary of
such date, unless either party gives notice at least 60 days prior to any such
date that the term shall not be extended. Under the employment agreement, Mr.
Morgenstern receives an annual salary and is eligible to receive annual bonuses
in amounts determined by the Board of Directors. Mr. Morgenstern's salary is
subject to annual review by the Compensation Committee of the Board of Directors
and, following the third year of the employment agreement, is subject to annual
cost of living increases. Mr. Morgenstern is also eligible to participate in the
Company's employee benefit plans and to receive fringe benefits made generally
available to senior management. Mr. Morgenstern and the Company are currently
negotiating a new employment agreement.

                                        64
<PAGE>   67

     Effective December 31, 2000, Mr. Conway resigned as the Company's
President, Chief Operating Officer and as a director upon the request of the
Board of Directors. Mr. Conway's employment agreement has been terminated;
effective December 31, 2000, the Company and Mr. Conway entered into a severance
agreement pursuant to which he receives continuing salary and benefits for one
year.

     From February 1, 2000, Mr. McDonnell has served as the Company's full-time
Vice President and Chief Financial Officer under an employment agreement with
the Company for a term continuing to February 1, 2003, unless earlier terminated
in accordance with its terms. The term of the employment agreement is
automatically extended for rolling two-year periods beginning on the date which
one year prior to February 1, 2003, and each anniversary of such date, unless
either party gives notice at least 60 days prior to any such date that the term
shall not be extended. Under the agreement, Mr. McDonnell receives an annual
salary of $190,000 for the first year of the agreement, which amount will
increase by the equivalent of 4% of base salary for the second and third years
of the agreement. Mr. McDonnell's salary is also subject to annual review by the
Compensation Committee of the Board of Directors and, following the third year
of the employment agreement, is subject to annual cost of living increases. Mr.
McDonnell is also eligible to participate in the Company's employee benefit
plans and to receive fringe benefits made generally available to senior
management.

     The Company has an employment agreement with Mr. DeMoss pursuant to which
he is employed full time as the Vice President and the General Counsel of the
Company for a term that commenced on January 15, 1998. Mr. DeMoss' employment
continues on a revolving 12-month basis, such 12-month period commencing on the
first day of the month next succeeding January 15, 1998, and continuing
thereafter commencing on the first day of each succeeding month, until
terminated. Under the employment agreement, Mr. DeMoss receives an annual salary
and is eligible to receive an annual bonus in an amount determined by the Board
of Directors. As of January 1, 2001, Mr. DeMoss' annual salary under the
employment agreement was increased by the Board of Directors to $200,000. Mr.
DeMoss is also eligible to participate in the Company's employee benefit plans
in accordance with the terms of such plans.

     The Company has an employment agreement with Mr. Underwood pursuant to
which he is employed full time as the Vice President of Operations of the
Company for a term that commenced on September 13, 1999. The term of Mr.
Underwood's employment agreement continues until September 30, 2002, or until
terminated as provided in the agreement. However, beginning on September 30,
2002, and every two-year anniversary of this date, the agreement will be
automatically extended for an additional two years, unless terminated at least
60 days prior to any such two-year anniversary date. Pursuant to the terms of
the agreement, should the Company choose not to renew the agreement, Mr.
Underwood will be entitled to continue to receive payments of base salary at the
rate then in effect for a period of 24 months. Mr. Underwood receives an annual
base salary of $200,000, is eligible for reimbursement of certain expenses and
is eligible to receive an annual bonus in an amount determined by the Chief
Executive Officer on the basis of corporate performance. Mr. Underwood is also
eligible to participate in the Company's employee benefit plans in accordance
with the terms of such plans.

     The Company has an employment agreement with Mr. Lombardi pursuant to which
he is employed full time as the Vice President, Corporate Controller and Chief
Accounting Officer a term that commenced in April 2001 and continues until April
2004 or until earlier terminated as provided in the agreement. The term is
automatically extended for one-year periods, unless either party provides a
termination notice at least 60 days prior to the expiration of any one-year
period. Under the agreement, Mr. Lombardi receives an annual base salary of
$165,000 and is eligible for an annual bonus, in an amount determined by the
Chief Executive Officer on the basis of corporate performance. Mr. Lombardi is
also entitled to participate in the Company's employee benefit plans in
accordance with the terms of those plans.

                                        65
<PAGE>   68

STOCK OPTIONS

     The following table sets forth information concerning stock option grants
made to the Named Executive Officers in the fiscal year ended September 30,
2000:

<Table>
<Caption>
                                                                                             POTENTIAL REALIZABLE
                                             OPTION GRANTS IN FISCAL 2000                      VALUE AT ASSUMED
                            --------------------------------------------------------------      ANNUAL RATES OF
                                                    % OF TOTAL                                    STOCK PRICE
                                                     OPTIONS                                   APPRECIATION FOR
                            NUMBER OF SECURITIES    GRANTED TO     EXERCISE                     OPTION TERM ($)
                             UNDERLYING OPTIONS    EMPLOYEES IN      PRICE      EXPIRATION   ---------------------
           NAME                 GRANTED (#)        FISCAL YEAR    ($ / SHARE)      DATE         5%          10%
           ----             --------------------   ------------   -----------   ----------   ---------   ---------
<S>                         <C>                    <C>            <C>           <C>          <C>         <C>
William E. Morgenstern....         70,000               4%           16.06       2/23/05      314,776     517,132
Jeffrey A. Conway.........         50,000               3%           16.06       2/23/05      225,000     369,380
William A. McDonnell......         30,000               2%           19.75       1/06/05      165,900     272,550
Ronald D. DeMoss..........         17,500               1%           25.38       5/03/05      124,362     204,225
Jeffrey K. Underwood......          3,000               *            16.06       2/23/05       12,150      22,170
</Table>

---------------
* Represents less than 1% of the total options granted to employees in fiscal
  year 2000

     The following table sets forth information concerning stock option
exercises by the Named Executive Officers during the fiscal year ended September
30, 2000, and the number of shares and the value of options outstanding as of
September 30, 2000, for each such officer:

<Table>
<Caption>
                                    AGGREGATE OPTION EXERCISES AND OPTION VALUES AS OF SEPTEMBER 30, 2000
                         --------------------------------------------------------------------------------------------
                                                               NUMBER OF SECURITIES          VALUE OF UNEXERCISED
                                                              UNDERLYING UNEXERCISED         IN-THE-MONEY OPTIONS
                                                              OPTIONS AT 9/30/00 (#)           AT 9/30/00 ($)(1)
                         SHARES ACQUIRED   VALUE REALIZED   ---------------------------   ---------------------------
         NAME            ON EXERCISE (#)        ($)         EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
         ----            ---------------   --------------   -----------   -------------   -----------   -------------
<S>                      <C>               <C>              <C>           <C>             <C>           <C>
William E.
  Morgenstern..........      35,364           291,753         240,831        324,169       2,333,610      2,248,696
Jeffrey A. Conway(2)...       2,330            19,223         127,831        169,169       1,057,947        912,323
William A. McDonnell...           0                --               0         30,000              --        318,900
Ronald D. DeMoss.......      18,900           135,469          11,125         66,875         107,021      1,367,213
Jeffrey K. Underwood...           0                --          44,083        113,917         369,437      1,712,573
</Table>

---------------
(1) Based on the closing sales price of the Common Stock on the New York Stock
    Exchange of $30.38 per share on September 30, 2000, less the exercise price.

(2) All of Mr. Conway's unexercised options have since expired in accordance
    with their terms.

                                        66
<PAGE>   69

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth information concerning the shares of Common
Stock of the Company beneficially owned by (i) each beneficial owner of more
than 5% of the outstanding shares of Common Stock, (ii) each director of the
Company, (iii) the Named Executive Officers of the Company and (iv) the
directors and executive officers of the Company as a group. This information is
presented as of May 23, 2001. Except as otherwise noted, the Company believes
that the persons listed below have sole investment and voting power with respect
to the shares of Common Stock beneficially owned by them.

<Table>
<Caption>
                                                              SHARES BENEFICIALLY
                NAME OF BENEFICIAL OWNER(1)                        OWNED(2)         PERCENT OF CLASS
                ---------------------------                   -------------------   ----------------
<S>                                                           <C>                   <C>
William E. Morgenstern(3)...................................         795,102               3.2
William Lerner..............................................          77,000                 *
Vincent A. Carrino..........................................          53,250                 *
Robert B. Fagenson (4)......................................         318,000               1.3
Marc W. Joseffer............................................         119,942                 *
Gerald A. Ryan (5)..........................................         406,248               1.7
Jacqueline Woods............................................           1,250                 *
William A. McDonnell........................................          13,999                 *
Ronald D. DeMoss (6)........................................          22,546                 *
Jeffrey K. Underwood........................................          54,832                 *
John A. Lombardi............................................               0                 *
Directors/Executive Officers as a group (11 persons)........       1,862,169               7.3
Safeco Asset Management Company and affiliates (7)..........       3,712,400              15.1
     601 Union Street
     Suite 2500
     Seattle, WA 98101
David L. Babson & Company, Inc. (8).........................       1,520,847               6.2
     One Memorial Drive
     Cambridge, MA 02142
</Table>

---------------
* less than 1%

(1) Unless otherwise indicated, the address for all persons listed above is c/o
    Rent-Way, Inc., One RentWay Place, Erie, Pennsylvania 16505.

(2) Includes the following shares issuable upon exercise of stock options which
    are currently exercisable or which will become exercisable within 60 days:
    Morgenstern--404,997; Lerner--64,500; Carrino--53,250; Fagenson--64,500;
    Joseffer--64,000; Ryan--109,500; Woods--1,250; McDonnell--9,999; DeMoss--
    18,416; and Underwood--54,832.

(3) Includes 50,000 shares to which Mr. Morgenstern disclaims beneficial
    ownership, as 25,000 shares are held in the William E. Morgenstern Grantor
    Annuity Trust and 25,000 are held in the Shelley E. Morgenstern Retained
    Annuity Trust. Mr. Morgenstern is the sole trustee of each of these trusts.

(4) Includes 2,500 shares owned by the Fagenson & Co., Inc. Employee Pension
    Plan and Trust, of which Mr. Fagenson is a co-trustee and 10,000 shares held
    in a family foundation.

(5) Includes 50,000 shares owned by the Ryan Children's Trust of 1993, of which
    Mr. Ryan is sole trustee.

(6) Includes 4,130 shares held under the Company's 401(k) plan.

(7) Safeco Asset Management Company, Safeco Common Stock Trust ("Safeco Trust")
    and Safeco Corporation have filed a Schedule 13G with respect to the
    Company's Common Stock owned either directly or indirectly by each entity.
    The beneficial ownership information presented is based solely on the
    Schedule 13G, as amended.

                                        67
<PAGE>   70

(8) David L. Babson & Company, Inc. has filed a Schedule 13G as, in its capacity
    as an investment advisor, it may be deemed to be the beneficial owner of the
    Company's Common Stock which are owned by in vestment advisory Clients. The
    beneficial ownership information presented is based solely on the schedule
    13G

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     In May 1999, the Company made a loan to Mr. Lerner in the amount of
$139,500, the proceeds of which were used to pay the exercise price of a stock
option. The loan is evidenced by a full recourse promissory note bearing
interest at 10% per annum. In August 1999, the Company made a loan to Mr.
Morgenstern in the amount of $214,179, the proceeds of which were used to pay
the exercise price of a stock option. The loan is evidenced by a full recourse
promissory note bearing interest at 10%. In February 2000, the Company made
loans to each of Messrs. Morgenstern, Ryan, and Fagenson, the proceeds of which
were used to pay the exercise price of stock options. The loans were evidenced
by full recourse promissory notes bearing interest at 10% in the following
amounts: Morgenstern $274,071; Ryan $488,250; and Fagenson $139,500. The loans
to Messrs. Ryan and Fagenson have been paid in full.

     The Company leases one store location from Mr. Joseffer or a company
controlled by him. The company paid $49,000 in rent and related amounts under
such leases for the year ended September 30, 2000. The Company believes the
lease rate and terms, which include the Company's obligation to pay real estate
taxes, are similar to those obtainable on an arm's-length basis.

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

     (b) Reports on Form 8-K:

     The Company filed the following reports on Form 8-K during quarter ended
September 30, 2000:

          (1) On September 26, 2000, the Company filed a Current Report on Form
              8-K, which reported the issuance of a press release, announcing
              its first annual analyst and investor meeting.

          (2) On August 25, 2000, the Company filed a Current Report on Form
              8-K, which reported the issuance of a press release regarding the
              Company's response to the sudden drop in the price of its stock on
              August 24, 2000.

          (3) On July 11, 2000, the Company filed a Current Report on Form 8-K,
              which reported the issuance of a press release on July 11, 2000
              announcing an amendment to its credit facility.

                                        68
<PAGE>   71

                                 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
    ------------------------------------------------
    Chairman of the Board and
    Chief Executive Officer
    (Principal Executive Officer)

    Date: August 23, 2001

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

        Date: August 23, 2001
        By: /s/ WILLIAM A. MCDONNELL
            --------------------------------------------------------
            Vice President and Chief
            Financial Officer

            Date: August 23, 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>
<Caption>
                  SIGNATURE                     TITLE         DATE
                  ---------                     -----         ----
<S>                                            <C>       <C>

/s/ GERALD A. RYAN                             Director  August 23, 2001
---------------------------------------------
Gerald A. Ryan

/s/ WILLIAM E. MORGENSTERN                     Director  August 23, 2001
---------------------------------------------
William E. Morgenstern

/s/ VINCENT CARRINO                            Director  August 23, 2001
---------------------------------------------
Vincent Carrino

/s/ ROBERT B. FAGENSON                         Director  August 23, 2001
---------------------------------------------
Robert B. Fagenson

/s/ MARC W. JOSEFFER                           Director  August 23, 2001
---------------------------------------------
Marc W. Joseffer

/s/ WILLIAM LERNER                             Director  August 23, 2001
---------------------------------------------
William Lerner

/s/ JACQUELINE E. WOODS                        Director  August 23, 2001
---------------------------------------------
Jacqueline E. Woods
</Table>

                                        69
<PAGE>   72

                                 EXHIBIT INDEX

<Table>
<Caption>
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.
10.4(12)       Employment Agreement between William E. Morgenstern and the
               Company, dated October 1, 1998.
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.
</Table>

                                        70
<PAGE>   73

<Table>
<Caption>
EXHIBIT NO.                            DESCRIPTION
-----------                            -----------
<S>            <C>
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(14)      Forbearance Agreement, as amended, between the Company and
               the lenders party thereto
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(14)         Subsidiaries of the Company
23*            Consent of PricewaterhouseCoopers LLP.
</Table>

---------------
* Filed herewith

 (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.

                                        71