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

                                    FORM 10-K

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

                  For the fiscal year ended September 30, 1998

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

                        For the transition period from to
                                 ---------------

                         Commission File Number: 0-22026

                                 RENT-WAY, INC.
             (Exact name of registrant as specified in its charter)

                             Pennsylvania 25-1407782
            (State of incorporation) (I.R.S. Employer Identification
                                      No.)

                   One RentWay Place, Erie, Pennsylvania 16505
                    (Address of principal executive offices)

                                  814-455-5378
                           (Issuer's telephone number)

                 Securities registered pursuant to Section 12(b)
                              of the Exchange Act:

                           Common Stock, no par value
                                (Title of class)

        Securities registered pursuant to Section 12(g) of the Act: None

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

Check if there is no disclosure of delinquent filers in response to Items 405 of
Regulation S-K contained  herein,  and no disclosure  will be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

     Based on the closing sales price on December 23, 1998 the aggregate  market
value of stock held by non-affiliates of the issuer was $487,306,054.

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.

       CLASS OUTSTANDING AS OF DECEMBER 23 , 1998 Common Stock 21,125,887
================================================================================
Documents  Incorporated  by Reference  Portions of the  registrant's  definitive
proxy statement for the annual meeting of shareholders to be held March 10, 1999
are incorporated by reference into Part III of this Form 10-K

<PAGE>


                                 RENT-WAY, INC.

                                     PART I

ITEM I BUSINESS

General

    Rent-Way,  Inc.  (the  "Company")  has been  engaged in the  rental-purchase
business  since 1981 and,  as of December  15,  1998,  operates  865 stores that
provide  quality brand name  merchandise  in 34 states.  The Company offers home
entertainment  equipment,  furniture,  major appliances and jewelry to customers
under full-service  rental-purchase agreements that generally allow the customer
to obtain  ownership  of the  merchandise  at the  conclusion  of an agreed upon
rental  period.  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 was formed in 1981 to operate a  rental-purchase  store in Erie,
Pennsylvania.  By 1993, as a result of acquisitions and new store openings,  the
Company was  operating 19 stores in three states and had  completed  its initial
public  offering.  As  of  September  30,  1998,  principally  as  a  result  of
acquisitions, the Company was operating 405 stores in 25 states. On December 10,
1998, the Company  completed its merger with Home Choice  Holdings,  Inc. ("Home
Choice").  Home Choice was one of the largest  operators in the  rental-purchase
industry with 459 stores in 26 states  primarily in the  Southeast,  Midwest and
Southwest  portions of the United  States.  In connection  with the merger,  the
Company  issued  10,024,821  million shares to the  stockholders  of Home Choice
based on an exchange ratio of 0.588 Rent-Way  shares for each Home Choice share.
As a result of the  merger,  the  Company is the second  largest  company in the
rental purchase industry operating 865 stores in 34 states.

    The Company's  principal executive offices are located at One RentWay Place,
Erie, Pennsylvania 16505, and its telephone number is (814) 455-5378.

Fiscal 1998 Acquisitions

    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"). The consideration paid in exchange for the assets
was approximately $25.3 million in cash and the assumption of approximately $0.5
million in liabilities.  Ace Rentals operated 46 rental-purchase stores in South
Carolina and 4 stores in  California  and had annual  revenues of  approximately
$22.0 million.

    On  February  5, 1998,  the  Company  acquired  all of the stock of Champion
Rentals,  Inc. ("Champion") for a purchase price of approximately $69.1 million.
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  $75.0
million.

    On July 21,  1998,  the Company  acquired  the stock of Fast  Rentals,  Inc.
("Fast Rentals") for a purchase price of $2.0 million.  Fast operated a chain of
eight rental-purchase stores in Alabama and Georgia.

    On September  10, 1998,  the Company  completed  the asset  purchase of Cari
Rentals, Inc. ("Cari").  The purchase price was approximately $7.3 million. Cari
operated a 23-store rental purchase chain with stores located in Iowa, Missouri,
Nebraska,  and South  Dakota  and had  annual  revenues  of  approximately  $7.7
million.

The Rental-Purchase Industry

    Begun in the mid-to-late 1960s, the rental-purchase business is a relatively
new segment of the retail industry offering 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 1998 the U.S.  rental-purchase
industry comprised  approximately 7,500 stores providing 6.4 million products to
2.9 million  households.  Management  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 $4.4 billion in
1998.  The  U.S.   rental-purchase   industry  is  highly  fragmented,   but  is
experiencing  increasing  consolidation.  Based  on APRO  estimates,  management
believes that the ten largest industry  participants  account for  approximately
50% of total industry  stores and that the majority of the industry  consists of
operations with fewer than 20 stores. See "--Strategy", "--Competition."

    Management  believes  that  the  rental-purchase  industry  is  experiencing
increasing consolidation due to, among other factors, the recognition by smaller
operators  of  the  increased  operating  efficiencies  and  better  competitive
position achievable by combining with larger operators,  greater availability of
capital for larger operators,  and the willingness of older operators to sell as
a means of resolving business  succession issues.  Management believes that this
trend toward consolidation of operations in the industry presents an opportunity
for well-capitalized rental-purchase operators to continue to acquire additional
stores on favorable terms.

Strategy

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

Acquiring and Opening New Stores

    The Company currently intends to expand its operations by acquiring existing
stores and  opening new stores,  both  within its  present  market  areas and in
geographic regions not currently served by the Company. At present, the majority
of that  expansion  is expected to be  accomplished  through  acquisitions.  The
Company believes that acquisitions can effectively increase the Company's market
share while simultaneously expanding its customer base. In addition, in pursuing
its  growth  strategies,  the  Company  expects to  benefit  from both  enhanced
purchasing  power and the  ability to  exploit  economies  of scale for  certain
operating expenses.

    The Company continually reviews  acquisition  opportunities,  and management
believes that a number of acquisition opportunities currently exist. The Company
presently has no plans,  proposals,  arrangements or understandings with respect
to significant acquisitions. In identifying targets for acquisition, the Company
intends to focus on operations that complement the Company's  existing  markets,
while remaining open to the  possibility of making  acquisitions in other areas.
The Company has not  established  formal  criteria for  potential  acquisitions.
Generally, however, the Company seeks to acquire rental-purchase businesses that
operate  profitably  and are located in geographic  markets that  complement the
Company's  existing  stores or that the Company views as growth  markets for the
rental-purchase  industry.  The  Company  seeks to acquire  such  businesses  at
purchase  prices that will permit the Company a prompt return on its  investment
in the form of increased earnings. The Company has no formal policy with respect
to acquisitions  with related entities.  To date, no related party  acquisitions
have  been  considered  nor  does  the  Company   anticipate   considering  such
acquisitions in the future. Management believes that senior management's ability
and  experience  provides  the  Company  with  a  competitive  advantage  in the
evaluation and consummation of acquisition opportunities.

    Following  consummation of an acquisition,  the Company appoints a dedicated
team to oversee and monitor the  integration of the acquired  stores,  including
determining  staffing,   store  merchandise  and  facility  needs,  budgets  and
performance goals. All acquired stores are promptly evaluated and, if necessary,
remodeled.  Management  seeks to integrate  acquired  stores and the  management
information  system of such  stores  within  one to three  months  following  an
acquisition.

    In  addition,  the Company has formed a dedicated  team to identify and open
new stores in locations that complement the Company's existing stores.

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 include home delivery,  installations,  ordinary maintenance and repair
services and pick-up  during the term of the contract 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.  Personnel of
acquired  stores are also  evaluated  for their ability to operate in accordance
with the Company's customer focused philosophy.



<PAGE>


Expanding the Company's Product Lines

    One of the Company's principal  strategies is to provide the rental-purchase
customer with the  opportunity to obtain  merchandise of higher quality than the
merchandise  available from its  competitors on competitive  terms. To this end,
the Company attempts to maintain a broad selection of products while emphasizing
better  quality,  higher  priced  merchandise.  The Company  intends to continue
expanding its offerings of better quality, higher priced products in all product
areas.  Management  believes that previous  offerings of better quality,  higher
priced  products have succeeded in both  increasing the Company's  profitability
and attracting new customers to the Company's existing stores. In addition,  the
Company selectively tests new merchandise such as personal computers. Management
believes  that  opportunities  exist to provide  additional  or  non-traditional
merchandise to its customers.

Monitoring Store Performance

    Each store is  provided  with a  management  information  system that allows
management 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.  In addition,  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.  Management believes the Company's management  information
system  enhances its ability to monitor and affect the operating  performance of
existing  stores and to integrate and improve the  performance of newly acquired
stores.

Results-Oriented Compensation

    Management  believes  that an important  reason for the  Company's  positive
financial  performance  and  growth  has been the  structure  of its  management
compensation  system,  which provides incentives for regional and store managers
to increase both store revenues and operating profits. A significant  portion of
the Company's  regional and store managers' total compensation is dependent upon
store  performance.  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

    Management  believes  that  well-trained  and empowered  store  managers are
important to the Company's efforts to maximize individual store performance. The
Company employs three full-time  trainers who conduct classroom  programs in the
areas of sales,  store  operations  and  personnel  management.  These  training
programs often continue for several months and culminate in an exam. The Company
requires its managers to attend,  at Company expense,  leadership and management
programs  offered by leading  management and organization  experts.  The Company
empowers its store  managers by permitting  them to make  significant  decisions
involving store  operations  including  personnel,  merchandise,  and collection
decisions.

Operations

Company Stores
<TABLE>
<CAPTION>

    As of December  15,  1998,  the Company  operates 865 stores in 34 states as
follows:

                                    Number of                            Number of                             Number of
            Location                 Stores           Location             Stores         Location              Stores
        ----------------             ------       ----------------         ------     ----------------          ------
<S>                                    <C>                                   <C>                                   <C>
        Texas................          137        Pennsylvania......         25       Iowa...............          8
        Florida..............          103        Tennessee.........         25       West Virginia......          8
        Ohio.................          67         New York..........         20       Nevada.............          7
        South Carolina.......          64         Kentucky..........         19       Oklahoma...........          7
        Georgia..............          42         Colorado..........         13       New Mexico.........          5
        Louisiana............          42         Missouri..........         13       California.........          4
        North Carolina.......          39         Mississippi.......         12       Delaware...........          4
        Arkansas.............          33         Nebraska..........         12       Washington.........          4
        Virginia.............          31         Illinois..........         11       Utah...............          3
        Indiana..............          30         Maryland..........         11       South Dakota.......          2
        Michigan.............          28         Arizona...........         9        Idaho..............          1
        Alabama..............          26
</TABLE>

    The Company's stores average  approximately 3,000 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 three years.

    Product Selection

    The  Company  offers  brand  name  home  entertainment  equipment  (such  as
television sets, VCRs, camcorders and stereos),  furniture, major appliances and
jewelry. Major appliances offered by the Company include refrigerators,  ranges,
washers and dryers.  The Company's  product line currently  includes the Zenith,
RCA, Pioneer,  JVC, Sharp and Panasonic brands in home entertainment  equipment,
the Kenmore,  Crosley and General  Electric  brands in major  appliances and the
Ashley brand in furniture. The Company closely monitors customer rental requests
and adjusts its product mix to offer rental merchandise desired by customers.

    For the year  ended  September  30,  1998,  payments  under  rental-purchase
contracts for home  entertainment  products  accounted for approximately  47.1%,
furniture for 26.3%,  appliances for 22.6%, jewelry for 3.5% and other items for
0.5%  of the  Company's  rental  revenues.  Customers  may  request  either  new
merchandise or previously  rented  merchandise.  Weekly rentals  currently range
from $4.99 to $59.99 for home entertainment equipment,  from $1.99 to $49.99 for
furniture,  from $3.99 to $36.99 for major  appliances  and from $1.99 to $34.99
for jewelry.  Previously  rented  merchandise  is typically  offered at the same
weekly or monthly  rental  rate as is offered for new  merchandise,  but with an
opportunity to obtain ownership of the merchandise after fewer rental payments.

Rental-Purchase Agreements

    Merchandise   is  provided  to  customers   under  written   rental-purchase
agreements  that set  forth the terms and  conditions  of the  transaction.  The
Company uses  standard  form  rental-purchase  agreements  which are reviewed by
legal  counsel  and  customized  to meet the legal  requirements  of the various
states in which they are to be used. Generally, the rental-purchase agreement is
signed  at the  store,  but may be  signed at the  customer's  residence  if the
customer  orders the product by telephone 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, 1998, the Company  believes that the average period of time
during which  customers rent  merchandise is 16 to 17 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.  Each  rental-purchase  transaction  requires  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.

Customer Service

    The  Company  offers  same day  delivery,  installation  and  pick-up of its
merchandise at no additional cost to the customer. The Company also provides any
required service or repair without charge, except for damage in excess of normal
wear and tear. If the product  cannot be repaired at the  customer's  residence,
the  Company  provides  a  temporary  replacement  while  the  product  is being
repaired.  The customer is fully liable for damage,  loss or  destruction of the
merchandise,  unless the customer purchases an optional loss/damage waiver. Most
of the products offered by the Company are covered by a manufacturer's  warranty
for varying periods, which, subject to the terms of the warranty, is transferred
to the  customer  in the  event  that the  customer  obtains  ownership.  Repair
services  are  provided  through  in-house  service   technicians,   independent
contractors or under factory  warranties.  The Company  offers  Rent-Way Plus, a
fee-based  membership  program that provides special loss and damage  protection
and an  additional  one  year  of  service  protection  on  rental  merchandise,
preferred  treatment in the event of involuntary job loss,  accidental death and
dismemberment insurance and discounted emergency roadside assistance, as well as
other discounts on merchandise and services.

    Collections

    Management  believes that effective  collection  procedures are important to
the Company's success in the rental-purchase  business. 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,  use the Company's  computerized  management information
system to monitor cash  collections  on a daily  basis.  In the event a customer
fails to make a rental  payment  when due,  store  management  will  attempt  to
contact  the  customer  to obtain  payment and  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. If an item on rent is not
returned or payment  thereon is not received within 90 days of its due date, the
Company's  policy is to charge off the item.  Charge-offs  due to lost or stolen
merchandise were  approximately  2.6% and 3.0% of the Company's revenues for the
years ended September 30, 1998 and 1997,  respectively.  The charge-off rate for
chains with over 40 stores reporting to APRO in 1998 was 2.8%.

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 and pickups, inventory management,  staffing and
certain marketing  efforts.  A Company store normally employs one store manager,
one assistant  manager,  two account managers,  one full-time office manager 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.

    Each store manager reports to one regional  manager,  each of whom typically
oversees six to eight 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
directors of operations,  located at the Company's headquarters, who monitor the
operations  of their  respective  regions and,  through the  regional  managers,
individual  store  performance.  The directors of operations  report to the Vice
President  -  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 and acquisitions.  Headquarters
personnel  also  evaluate  the  performance  of each store and  conduct  on-site
reviews.

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  irregularities  are addressed the following  business
day.  Each store is  equipped  with a computer  system  that  tracks  individual
components of revenue,  idle items, items on rent, delinquent accounts and other
account  information.  Management  electronically  gathers  each day's  activity
report  through the computer  located at the  headquarters  office.  This system
provides  the  Company's  management  with  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 for each  store  and  every  rental-purchase  transaction.  Utilizing  the
management  information system,  senior management,  regional managers and store
managers can closely monitor the productivity of stores under their  supervision
compared to Company-prescribed  guidelines.  This system has enabled the Company
to expand its  operations  while  maintaining a high degree of control over cash
receipts,  inventory, and merchandise units in repair and customer transactions.
The Company has  successfully  integrated  all of the stores  acquired in fiscal
year 1998 into its management  information system. The integration of the stores
acquired  in the Home  Choice  merger is  currently  ongoing.  While the Company
believes its management information system is adequate to meet its needs for the
foreseeable future, it continues to upgrade the system over time.

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 insure that inventory levels and mix
throughout the store regions 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

    The Company promotes its products and services primarily through direct mail
and, in certain markets, through television advertising and, to a lesser extent,
through radio and secondary print media advertisement. The Company also solicits
business  by  telephoning  former and  prospective  customers.  The  Company has
recently begun dedicating an increasing  percentage of its marketing  dollars to
television  advertising  to  build  brand  recognition  in  markets  where it is
economically  attractive to do so. The Company's print advertisements  emphasize
product and brand name selection, prompt delivery and repair, and the absence of
any  downpayment,  credit  investigation  or long-term  obligation.  Advertising
expense as a  percentage  of revenue for the year ended  September  30, 1998 was
4.8% as a percentage of total revenues. 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.

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's largest industry competitor,
Renter's Choice,  is national in scope and has  significantly  greater financial
and operating resources and name recognition than does the Company.

Personnel

    As of September 30, 1998, the Company had approximately 2,439 employees,  of
whom 101 are located at the corporate office 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-six  states have enacted laws  regulating  or otherwise  impacting the
rental-purchase transaction,  including all of the states in which the Company's
stores are  located.  These  laws  generally  require  certain  contractual  and
advertising  disclosures  concerning  the  nature  of the  transaction  and also
provide varying levels of substantive consumer  protection,  such as requiring a
grace period for late  payments and contract  reinstatement  rights in the event
the agreement is terminated  for  nonpayment.  No federal  legislation  has been
enacted regulating the  rental-purchase  transaction.  The Company instructs its
managers in procedures  required by applicable law through training seminars and
policy  manuals  and  believes  that it has  operated  in  compliance  with  the
requirements  of  applicable  law in all material  respects.  In  addition,  the
Company  provides  its  customers  with a toll-free  number,  1-800-RENTWAY,  to
telephone  corporate  headquarters  to report any  irregularities  in service or
misconduct  by its  employees.  Any such  calls are  reviewed  daily and are the
subject of immediate follow-up investigation by senior management.

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.  The service
mark  "Rent-Way  Because  There's  Really Only One Way" and "RentWay - the Right
Way" and the related  designs  have also been  registered  by the  Company.  The
Company has also prepared  applications to register the following service marks:
"RentWay.  The Right Way.  Right Away.",  "Lifetime  Reinstatement",  and "We're
Changing the Way America Rents". In connection with the Home Choice merger,  the
Company  acquired the "Home Choice" service mark,  which is registered under the
Lanham Act.  Substantially  all of the stores acquired in the Home Choice merger
will initially be operated under the Home Choice name.

Related Party Transactions

    Although  the  Company  has in the past  and may in the  future  enter  into
transactions  with related parties,  the Company has adopted no formal policies,
procedures or controls with respect to such  transactions.  Generally,  however,
the Company requires that any transactions  with related entities be on terms no
less  favorable to the Company than would be available  from an unrelated  third
party.



<PAGE>



ITEM 2 DESCRIPTION OF PROPERTIES

    The Company leases all of its stores 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 in the event the  Company  desires  to open new  stores.  The
Company's   corporate   office  is  in  Erie,   Pennsylvania   and  consists  of
approximately 34,000 square feet. It was acquired in June 1998. The Company also
owns an office building in Erie, Pennsylvania, which is used for storage.

ITEM 3 LEGAL PROCEEDINGS

    From  time to time the  Company  is a party  to  various  legal  proceedings
arising in the ordinary  course of its business.  The Company is not currently a
party to any material litigation,  except litigation to which it succeeded to as
a result of its acquisition of McKenzie  Leasing  Corporation in 1995, for which
it is being  indemnified  and held harmless.  In addition,  the Company has been
sued in an action  brought in New York Supreme Court  requesting  damages in the
amount of $50.0  million  arising  out of an  accident  whereby a Company  truck
struck and injured a child riding a bike.  Such action is being  defended by the
Company's insurance carriers and management believes it has sufficient available
insurance coverage such that this action will not have a material adverse effect
on the Company.

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.



<PAGE>


                                     PART II


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

    The Company's  Common Stock is traded on the New York Stock  Exchange  under
the  symbol  "RWY." The  Company  began  trading on the New York Stock  Exchange
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 sales prices per share of the Common Stock
as reported on the NASDAQ National Market.
<TABLE>
<CAPTION>

                            Year Ended              Year Ended
                           September 30,           September 30,
                               1998                    1997
                      ----------------------  -------------
                         High        Low         High         Low
<S>                      <C>       <C>          <C>         <C>    
      First Quarter.     $20.50    $15.75       $ 12.63     $  8.25
      Second Quarter      24.75     17.31         12.81        8.75
      Third Quarter.      33.63     25.13         14.75        8.63
      Fourth Quarter      32.00     22.00         21.31       12.88
</TABLE>

    Immediately  prior  to  the  Home  Choice  merger,  there  were  127  record
shareholders of the Common Stock.

    The Company has not paid any cash dividends to shareholders. The declaration
of any  cash or  stock  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.  At this time, the Company does not intend to pay any cash dividends in
the foreseeable future.  Management intends to reinvest earnings, if any, in the
development and expansion of the Company's  business for an indefinite period of
time. The Company's credit facility prohibits the payment of dividends.



<PAGE>


ITEM 6 SELECTED FINANCIAL DATA

    The  following  selected  financial  data for the years ended  September 30,
1994,  1995,  1996,  1997 and 1998 were  derived  from the  Company's  financial
statements audited by PricewaterhouseCoopers  LLP, independent accountants.  The
historical financial data are qualified in their entirety by, and should be read
in conjunction with, Management's Discussion and Analysis of Financial Condition
and Results of Operations  and the  financial  statements of the Company and the
notes thereto included elsewhere in this document.
<TABLE>
<CAPTION>

                                                                            Year Ended September 30,
                                                               1994(1)     1995(2)    1996(3)    1997(4)  1998(5)
                  Statement of income data:
                  Revenues:
<S>                                                           <C>         <C>        <C>        <C>       <C>     
                  Rental revenue............................  $ 12,111    $ 24,080   $ 43,891   $77,498   $157,714
                  Other revenue.............................     1,897       4,114      7,280    10,948      19,613
                                                              --------    --------   --------   -------  ----------
                    Total revenues..........................    14,008      28,194     51,171    88,446    177,327
                  Costs and operating expenses:
                  Depreciation and amortization:
                    Rental merchandise......................     4,073       8,312     13,229    20,314     39,236
                    Property and equipment..................       331         525        775     1,530      2,894
                    Amortization of goodwill................       108         334        875     1,926      4,334
                  Salaries and wages........................     4,024       6,909     13,101    22,810     45,182
                  Advertising...............................       540       1,259      2,123     3,899      8,481
                  Occupancy.................................     1,006       1,888      3,269     5,988     11,938
                  Other operating expenses..................     3,256       6,387     11,148    18,193      36,606
                                                              --------    --------   --------   -------  ----------
                    Total costs and operating expenses......    13,338      25,614     44,520    74,660    148,671
                                                              --------    --------   --------   -------  ---------
                    Operating income........................       670       2,580      6,651    13,786     28,656
                  Interest expense..........................      (542)     (1,162)    (1,493)   (3,130)    (6,507)
                  Other income (expense), net...............        89          36         70      (342)
                                                              --------    --------   --------   -------
                                                                                                              (351)
                    Income before income taxes and
                  extraordinary                                    217       1,454      5,228    10,314     21,798
                       item.................................
                  Income tax expense (benefit)..............        --         445      2,381     4,629       9,221
                                                              --------    --------   --------   -------  ----------
                    Income before extraordinary item........       217       1,009      2,847     5,685     12,577
                  Extraordinary item........................        --          --         --      (269)        --
                                                              --------    --------   --------   -------   --------
                    Net income..............................       217       1,009      2,847     5,416     12,577
                  Preferred stock (dividend) /gain on
                      redemption............................        --         (38)      (129)      280         --
                                                              --------    --------   --------   -------   --------
                    Earnings applicable to common shares....  $    217    $    971   $  2,718   $ 5,696    $12,577
                                                              ========    ========   ========   =======   ========
                  Earnings per common share--Diluted........  $   0.06    $   0.22   $   0.46   $   0.75  $    1.08
                                                              ========    ========   ========   ======== ==========
                  Balance sheet data (at end of period):
                    Rental merchandise, net.................  $  7,068    $ 12,593   $ 17,862   $35,132  $   77,953
                    Goodwill, net...........................     4,336      14,893     21,867    43,447    136,399
                    Total assets............................    15,129      36,155     49,974    96,288    250,577
                    Debt....................................     7,255      19,151     12,979    48,156    119,042
                    Total liabilities.......................     9,167      22,545     18,134    55,331    138,286
                    Redeemable preferred stock..............        --       2,750      1,121        --         --
                    Shareholders' equity....................     5,962      10,860     30,719    40,957    112,292
----------
</TABLE>

(1) During  the  year  ended  September  30,  1994,  the  Company   acquired  20
    rental-purchase stores through its acquisition of D.A.M.S.L. Corp on May 18,
    1994,  which  affects  the   comparability   of  the  historical   financial
    information for the periods presented.

(2) During  the  year  ended  September  30,  1995,  the  Company   acquired  50
    rental-purchase  stores,  46 through the  acquisition  of  McKenzie  Leasing
    Corporation  on July  21,  1995,  which  affects  the  comparability  of the
    historical financial information for the periods presented.

(3) During  the  year  ended  September  30,  1996,  the  Company   acquired  32
    rental-purchase  stores in four  separate  transactions,  which  affects the
    comparability  of the  historical  financial  information  for  the  periods
    presented.

(4)  During  the  year  ended  September  30,  1997,  the  Company  acquired  92
     rental-purchase  stores,  15 of which were acquired on January 2, 1997 from
     Bill  Coleman  TV, Inc.  and 70 of which were  acquired on February 6, 1997
     from  Perry  Electronics,   Inc.  d/b/a  Rental  King,  which  affects  the
     comparability  of the  historical  financial  information  for the  periods
     presented.

(5)  During  the year  ended  September  30,  1998,  the  Company  acquired  226
     rental-purchase  stores,  50 of which were acquired on January 7, 1998 from
     Ace Rentals,  145 of which were acquired on February 5, 1998 from Champion,
     eight of which were acquired on July 21, 1998 from Fast Rentals,  and 23 of
     which were  acquired on  September  10, 1998 from Cari,  which  affects the
     comparability  of the  historical  financial  information  for the  periods
     presented.


<PAGE>


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

General

    As of September 30, 1998, the Company  operated 405  rental-purchase  stores
located  in 25  states.  Primarily  through  acquisitions,  the number of stores
operated by the Company has increased from 19 as of September 30, 1993 to 405 as
of September 30, 1998.  The following  table shows the number of stores  opened,
acquired and/or combined during this six-year period.
<TABLE>
<CAPTION>

                                                                        Years Ended September 30,
                                         Stores              1993     1994     1995    1996     1997    1998
                               --------------------------  -------  -------  ------- -------  -------   ----
<S>                                                            <C>      <C>      <C>     <C>     <C>       <C>
                               Open at Beginning of            17       19       40      83      108       184
                               Period....................
                               Opened....................       2        3       --      --       --        13
                               Acquired..................      --       20       50      32       92       226
                               Closed or Combined........      --        2                7       16
                                                           ------   ------   -------- -----    -----
                                                                             7                             18
                                                                             -                             --
                               Open at End of Period.....      19       40       83     108      184
                                                           ======   ======   ======   =====    =====
                                                                                                           405
</TABLE>

    During the year ended  September 30, 1998,  the Company  acquired 226 stores
(the "1998 Acquisitions"). On January 7, 1998, the Company acquired 46 stores in
South  Carolina  and 4 stores in  California  from Ace Rentals (the "Ace Rentals
Acquisition").  On February 5, 1998, the Company  acquired 145 stores located in
Alabama, Arkansas, Florida, Georgia, Kentucky,  Louisiana, North Carolina, Ohio,
South   Carolina,   Tennessee,   and  Virginia  from  Champion  (the   "Champion
Acquisition").  In July 1998, the Company  acquired eight rental purchase stores
in Alabama and Georgia from Fast Rentals (the "Fast  Rentals  Acquisition").  In
September  1998,  the  Company  acquired  23 stores  located in Iowa,  Missouri,
Nebraska,  and South Dakota from Cari Rentals (the "Cari Rentals  Acquisition").
In connection  with these  acquisitions,  as with all of its  acquisitions,  the
Company implemented a strategy to improve the operations of the acquired stores.
As part of this strategy,  the Company  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.

     On December 10,  1998,  the Company  completed  the merger with Home Choice
Holdings,  Inc.  ("Home  Choice") and now operates 865 stores in 34 states.  The
Company is currently the second largest company in the rental-purchase industry.
The Company has begun  integrating the stores acquired from Home Choice into the
Company's  operations,  which  integration  expected to be completed  the second
quarter of fiscal 1999.  The Company has incurred  approximately  $10 million of
expenses in the first quarter of fiscal 1999 relating to the Home Choice merger.
Although the  Company's  goal is to realize cost  savings and  synergies  and to
improve  performance of the Home Choice  stores,  there can be no assurance that
such  goal  will be  realized  or that the  Company  will not  incur  additional
expenses in connection with the integration of the Home Choice stores.

Results of Operations

    As an aid to understanding the Company's  operating  results,  the following
table  expresses  certain  items of the  Company's  Statements of Income for the
years ended September 30, 1998, 1997 and 1996 as a percentage of total revenues.
<TABLE>
<CAPTION>

                                                                               Years ended
                                                                              September 30,
                                                                        1998       1997      1996
                                                                     ---------  --------- -------
                                  Revenues:.........................
<S>                                                                      <C>        <C>       <C>  
                                    Rental revenue..................     88.9%      87.6%     85.8%
                                    Other revenue...................     11.1       12.4      14.2
                                                                     --------   --------  --------
                                       Total revenues...............    100.0      100.0     100.0
                                  Costs and operating expenses:
                                    Depreciation and amortization:
                                       Rental merchandise...........     22.1       23.0      25.9
                                       Property and equipment.......      1.6        1.7       1.5
                                       Amortization of goodwill.....      2.5        2.2       1.7
                                    Salaries and wages..............     25.5       25.8      25.6
                                    Advertising.....................      4.8        4.4       4.1
                                    Occupancy.......................      6.7        6.8       6.4
                                    Other operating expense.........     20.6       20.6      21.8
                                                                     --------   --------  --------
                                       Total costs and operating         83.8       84.5      87.0
                                                                     --------   --------  --------
                                  expenses..........................
                                    Operating income................     16.2       15.5      13.0
                                    Interest expense................     (3.7)      (3.5)     (2.9)
                                    Other income (expenses), net....     (0.2)      (0.4)      0.1
                                                                     --------   --------  --------
                                       Income before income taxes
                                     and        extraordinary item..     12.3       11.6      10.2
                                    Income tax expense..............     (5.2)      (5.2)     (4.6)
                                                                     --------   --------  --------
                                       Income before extraordinary        7.1        6.4       5.6
                                  item..............................
                                    Extraordinary item..............     --         (0.3)      --
                                                                     ------     --------  -------
                                       Net income...................      7.1%       6.1%      5.6%
                                                                     ========   ========  ========

</TABLE>


<PAGE>


Comparison of Years Ended September 30, 1998 and 1997

    For the  year  ended  September  30,  1998 as  compared  to the  year  ended
September  30,  1997,  total  revenues  increased  to $177.3  million from $88.4
million,  or 100.0%.  The  increase  was due to the  inclusion  of a full year's
results  for the  stores  acquired  by the  Company  in fiscal  1997 (the  "1997
Acquisitions"),  a partial year's operations for the stores acquired in the 1998
Acquisitions,  a partial year's operations for the stores opened in fiscal 1998,
and  increased  same  store  revenues.  The  stores  acquired  in  the  Champion
Acquisition,  consummated on February 5, 1998,  accounted for $51.1 million,  or
57.5%,  of the  increase,  the stores  acquired in the Ace Rentals  Acquisition,
consummated on January 7, 1998,  accounted for $15.9 million,  or 17.9%,  of the
increase,  the stores  acquired  in the 1997  Acquisitions  accounted  for $17.8
million, or 20.0%, of the increase, the Company's same stores accounted for $2.0
million,  or 2.3%, of the increase,  other 1998 Acquisitions  accounted for $1.1
million, or 1.2%, of the increase and stores opened in fiscal 1998 accounted for
$1.0 million, or 1.1% of the increase.

    For the  year  ended  September  30,  1998 as  compared  to the  year  ended
September  30,  1997,  total costs and  operating  expenses  increased to $148.7
million  from  $74.7  million  principally  as a result of costs  and  operating
expenses associated with the 1997 Acquisitions, the Ace Rentals Acquisition, and
the Champion  Acquisition,  but decreased to 83.8% from 84.5% of total revenues.
This  resulted  principally  from  a  decrease  in  depreciation  expense  as  a
percentage  of total  revenues and  salaries and wages as a percentage  of total
revenues.  Depreciation expense related to rental merchandise increased to $39.2
million from $20.3 million,  but decreased to 22.1% from 23.0% of total revenues
principally  due to increases in weekly rental rates,  lower  purchase  costs of
rental  merchandise  due  to  increased  volume,  and  improved  realization  of
collectible rent.  Amortization of goodwill increased to 2.5% from 2.2% of total
revenues  principally  because of the  increase in  goodwill  related to the Ace
Rentals Acquisition and the Champion  Acquisition.  Salaries and wages increased
by $22.4  million to $45.2  million from $22.8  million  principally  due to the
addition of 318 new stores and  additions  to corporate  personnel.  The 318 new
stores from recent  acquisitions  produced additional store and regional manager
payroll costs of $16.1 million and $1.8 million,  respectively. The additions to
corporate  personnel resulted in additional  salaries and wages of $3.7 million.
Same  store  payroll  increased  $0.3  million.   New  store  openings  produced
additional  payroll expense of $0.5 million.  Salaries and wages as a percentage
of total  revenues  decreased  0.3% to 25.5%  from  25.8%.  Advertising  expense
increased to $8.5 million from $3.9 million  principally  due to the addition of
stores associated with the Ace Rentals Acquisition and the Champion Acquisition.
Advertising  expense  increased to 4.8% from 4.4% of total  revenues.  Occupancy
expense  increased to $11.9  million from $6.0  million  principally  due to the
addition of stores associated with the Ace Rentals  Acquisition and the Champion
Acquisition,  but decreased to 6.7% from 6.8% of total revenues. Other operating
expenses  increased to $36.6  million from $18.2  million  primarily  due to the
addition of the stores acquired in the Ace Rentals  Acquisition and the Champion
Acquisition.  Other operating  expense as a percentage of total revenue remained
constant at 20.6%.

    For the  year  ended  September  30,  1998 as  compared  to the  year  ended
September  30, 1997,  operating  income  increased  to $28.7  million from $13.8
million,  or 107.9%,  and increased to 16.2% from 15.5% of total  revenues.  The
$14.9  million  increase in operating  income and the 0.7% increase in operating
income as a percentage of total  revenues  occurred  principally  because of the
successful  integration  and  conversion  of the  stores  acquired  in the  1997
Acquisitions,  the Ace Rentals Acquisition,  and the Champion  Acquisition,  the
increase in same-store revenues, and the other factors discussed above.

    For the  year  ended  September  30,  1998 as  compared  to the  year  ended
September  30,  1997,  interest  expense  increased  to $6.5  million  from $3.1
million, and increased to 3.7% from 3.5% of total revenues due to an increase in
debt to $119.0  million from $48.2  million.  This increase is  principally  the
result of the Champion  Acquisition and the  extinguishment of its existing debt
with $81.0 million in funds drawn on the Company's senior credit facility.

    For the  year  ended  September  30,  1998 as  compared  to the  year  ended
September  30,  1997,  income tax expense  increased  to $9.2  million from $4.6
million  principally  because the Company generated greater taxable income.  The
Company is recording income tax expense based on an effective tax rate of 42.3%,
which is higher than the statutory tax rates,  principally because  amortization
expense related to goodwill incurred in connection with certain  acquisitions is
not deductible for tax purposes.

    For the  year  ended  September  30,  1998 as  compared  to the  year  ended
September 30, 1997, net income increased to $12.6 million from $5.4 million,  or
132.2%. The increase,  which resulted in net income increasing to 7.1% from 6.1%
of total revenues, was due to the factors discussed above.

Comparison of Years Ended September 30, 1997 and 1996

    For the  year  ended  September  30,  1997 as  compared  to the  year  ended
September  30,  1996,  total  revenues  increased  to $88.4  million  from $51.2
million,  or 72.8%.  The  increase  was due to the  inclusion  of a full  year's
results  for the  stores  acquired  by the  Company  in fiscal  1996 (the  "1996
Acquisitions"),  a partial year's operations for the stores acquired in the 1997
Acquisitions,  and increased  same store  revenues.  The stores  acquired in the
Company's acquisition of Perry Electronics, Inc. d/b/a/ Rental King (the "Rental
King  Acquisition"),  consummated  on  February  6,  1997,  accounted  for $16.8
million,  or 45.2%,  of the  increase,  the  stores  acquired  in the  Company's
acquisition of Bill Coleman TV, Inc. (the "Coleman Acquisition"), consummated on
January 2, 1997,  accounted for $6.1  million,  or 16.4%,  of the increase,  the
stores acquired in the 1996 Acquisitions  accounted for $11.2 million, or 30.1%,
of the increase,  the Company's same stores accounted for $2.4 million, or 6.5%,
of the increase,  and other 1997  Acquisitions  accounted  for $0.7 million,  or
1.8%, of the increase.

    For the  year  ended  September  30,  1997 as  compared  to the  year  ended
September  30,  1996,  total costs and  operating  expenses  increased  to $74.7
million  from  $44.5  million  principally  as a result of costs  and  operating
expenses associated with the 1996 Acquisitions, the Coleman Acquisition, and the
Rental King  Acquisition,  but decreased to 84.5% from 87.0% of total  revenues.
This  resulted  principally  from  a  decrease  in  depreciation  expense  as  a
percentage  of total  revenues and other  operating  expenses as a percentage of
total revenues.  Depreciation expense related to rental merchandise increased to
$20.3  million from $13.2  million,  but  decreased to 23.0% from 25.9% of total
revenues  principally  due to increases in weekly rental rates,  lower  purchase
costs of rental merchandise due to increased volume, and improved realization of
collectible rent.  Amortization of goodwill increased to 2.2% from 1.7% of total
revenues  principally because of the increase in goodwill related to the Coleman
Acquisition  and the Rental King  Acquisition.  Salaries and wages  increased to
$22.8  million from $13.1 million  principally  due to the addition of the store
personnel associated with the 1996 Acquisitions,  the Coleman  Acquisition,  the
Rental King Acquisition, and the addition of several key management personnel in
the Company's operations, human resource, marketing, accounting, and information
systems  departments.  Salaries and wages were 25.8% and 25.6% of total revenues
for the years  ended  September  30,  1997 and 1996,  respectively.  Advertising
expense  increased  to $3.9 million  from $2.1  million  principally  due to the
addition of stores  associated with the Coleman  Acquisition and the Rental King
Acquisition.  Advertising expense increased to 4.4% from 4.1% of total revenues.
Occupancy expense increased to $6.0 million from $3.3 million principally due to
the addition of stores  associated  with the Coleman  Acquisition and the Rental
King  Acquisition,  and  increased  to 6.8% from 6.4% of total  revenues.  Other
operating expenses increased to $18.2 million from $11.1 million principally due
to the addition of the stores acquired in the Coleman Acquisition and the Rental
King Acquisition, but decreased to 20.6% from 21.8% of total revenues.

    For the  year  ended  September  30,  1997 as  compared  to the  year  ended
September  30,  1996,  operating  income  increased  to $13.8  million from $6.7
million,  or 107.3%,  and increased to 15.5% from 13.0% of total  revenues.  The
$7.1  million  increase in operating  income and the 2.5%  increase in operating
income as a percentage of total  revenues  occurred  principally  because of the
successful  integration  and  conversion  of the  stores  acquired  in the  1996
Acquisitions,  the  Coleman  Acquisition  in January  1997,  and the Rental King
Acquisition in February 1997, the increase in same-store revenues, and the other
factors discussed above.

    For the  year  ended  September  30,  1997 as  compared  to the  year  ended
September  30,  1996,  interest  expense  increased  to $3.1  million  from $1.5
million,  and increased to 3.5% from 2.9% of total revenues  principally  due to
borrowings drawn on the Company's credit facility in connection with the Coleman
Acquisition  and the issuance by the Company of $20.0 million of 7%  Convertible
Subordinated  Debentures  due 2007 (the  "Debentures")  in  connection  with the
Rental King Acquisition.

    For the  year  ended  September  30,  1997 as  compared  to the  year  ended
September  30,  1996,  income tax expense  increased  to $4.6  million from $2.4
million  principally  because the Company  generated  greater taxable income and
because of the  decrease in the  Company's  net  deferred tax asset for the year
ended September 30, 1997. The decrease in the deferred tax asset of $0.4 million
was  comprised  of the deferred tax  provision of $1.2  million,  offset by $0.8
million  of  deferred  tax  asset  recorded  in  connection   with  the  Coleman
Acquisition.  Sufficient  taxable  income  exists in the  carryback  periods  to
recognize the deferred tax asset,  accordingly,  no valuation allowance has been
recognized.  The Company is recording  income tax expense  based on an effective
tax rate of 44.9%,  which is higher than the  statutory  tax rates,  principally
because  amortization  expense  related to goodwill  incurred in connection with
certain acquisitions is not deductible for tax purposes.

    For the  year  ended  September  30,  1997 as  compared  to the  year  ended
September 30, 1996, net income  increased to $5.4 million from $2.8 million,  or
90.2%. The increase,  which resulted in net income  increasing to 6.1% from 5.6%
of total revenues, was due to the factors discussed above.

Liquidity and Capital Resources

    On December 10, 1998 the Company entered into a new collateralized term loan
and revolving credit facility (the "New Facility") with a syndicate of banks led
by National City Bank of Pennsylvania ("National City Bank"), NationsBank,  N.A.
("NationsBank") and Harris Trust and Savings Bank ("Harris Trust") providing for
term loans of  approximately  $115.0 million and revolving  loans and letters of
credit of up to approximately $92.0 million (subject to an initial  availability
of $87.0  million and,  thereafter,  to  formula-based  availability),  with the
ability to add other banks to the syndicate  during the first 90 days of the New
Facility to increase the term loans to $125.0  million and the maximum amount of
the  revolving  loans and  letters of credit to $100.0  million.  The  syndicate
consists of eight banks,  with National City Bank,  NationsBank and Harris Trust
each  committed  for a ratable  share of  16.86746%,  Star Bank  committed for a
ratable share of 12.04819%,  LaSalle National Bank committed for a ratable share
of 10.84337%,  each of Sun Trust Bank, Central Florida, National Association and
Manufacturers  Traders Trust  Company  committed for a ratable share of 9.63855%
and  Mercantile  Bank of St.  Louis,  N.A.  committed  for a  ratable  share  of
7.22891%.  Of the approximately $202.0 million initially available under the New
Facility, approximately $111.0 million was used to refinance previously existing
senior   indebtedness  of  the  Company  and  $71.0  million  was  used  to  pay
indebtedness of Home Choice assumed in connection with the Home Choice merger.

    The New  Facility  requires  the Company to comply with  certain  covenants,
including  financial  covenants.  These covenants generally restrict the Company
from incurring additional indebtedness, granting additional liens on its assets,
making  dividends  or  distributions,  disposing  of  assets  other  than in the
ordinary course,  issuing  additional stock,  making additional  acquisitions or
making capital expenditures,  in each case subject to certain exceptions.  Under
the  New  Facility,   the  Company  is  restricted  from  incurring   additional
indebtedness   except  additional  purchase  money  indebtedness  not  exceeding
$100,000,  subordinated  intercompany  indebtedness,  indebtedness  incurred  in
connection with certain acquisitions  permitted under the New Facility,  certain
capitalized leases or purchases of fixed assets with payments that do not exceed
$10 million in the aggregate in any fiscal year,  and any other lease,  which is
not a  capitalized  lease,  or the rental of any real or  personal  property  of
another  entity with payments that do not (other than for leases of retail store
sites and motor  vehicles)  exceed $250,000 in the aggregate in any fiscal year.
The Company is also required to comply with the following  financial  covenants:
maintain a maximum  leverage  ratio with  respect to total funded debt of 4.0 to
1.0  (decreasing  periodically  until  reaching  2.5 to 1.0 by  July  1,  2002),
maintain  a  minimum   interest   coverage  ratio  of  3.0  to  1.0  (increasing
periodically until reaching 5.0 to 1.0 by April 1, 2002), maintain a minimum net
worth of $217 million (increasing with earnings and acquisitions) and maintain a
minimum fixed charge coverage ratio of 1.2 to 1.0.

    On June 1, 1998,  the Company  purchased a 34,000 square foot building to be
used as its new corporate  headquarters.  The purchase price of the building was
$3.7 million.  The Company paid $2.0 million in cash at the time of closing, and
delivered  a one year,  non-interest  bearing  secured  promissory  note for the
remainder of the purchase price.

    On February 5, 1998,  the Company  amended its then  existing  senior credit
facility  with a syndicate of banks led by National  City Bank of  Pennsylvania.
The amended facility (the "Amended  Facility"),  co-led by National City Bank of
Pennsylvania,  acting as syndication and administrative  agent, and NationsBank,
N.A.  as  documentation  agent,  provided  for loans and letters of credit up to
$120.0  million.  Of the $120.0 million  available  under the Amended  Facility,
approximately  $7.0 million was  outstanding  at the date of the  amendment  and
approximately  $81.0  million was used for the  acquisition  of Champion and the
extinguishment of its existing debt (see Note 4 to Financial Statements).

    On December 2, 1997,  the Company  completed a public  offering of 2,587,250
shares of Common  Stock.  Of the  2,587,250  shares  of  Common  Stock  offered,
2,500,000  shares were offered by the Company and 87,250 were offered by certain
selling  shareholders.  The Company also granted the  underwriters  an option to
purchase an additional 388,088 shares of Common Stock to cover  over-allotments.
On December 30, 1997, the  underwriters  exercised this option.  The shares were
offered at a price of $17.25 per share.  The Company received net proceeds (less
underwriters  discount and selling expenses) of $47.0 million.  The Company used
these  proceeds  to repay  outstanding  borrowings  of $23.0  million  under the
Company's then existing credit agreement (see note 7 to Financial Statements).

    On October 8, 1997, the Company exercised its right to convert $7,000,000 in
subordinated  convertible notes ("the Notes") held by Massachusetts  Mutual Life
Insurance  Company.  The  Indebture  governing  the Notes allowed the Company to
force  conversion  when the market price of the Company's  common stock exceeded
$16.50 per share for a twenty  consecutive day period.  The Notes converted into
704,223 shares of the Company's common stock, at a conversion price of $9.94 per
share.

    For the year ended  September  30, 1998,  the Company's net cash provided by
operating  activities  increased  to $4.1 million from $0.7 million for the year
ended  September  30, 1997.  This  increase was primarily due to a $22.8 million
increase in non-cash  depreciation and amortization,  a $7.2 million increase in
net income,  and a $3.4  million  increase in deferred  income taxes offset by a
$29.9  million  increase  in rental  merchandise  purchases  and a $1.8  million
increase in prepaid expenses.  The increase in depreciation and amortization and
rental merchandise  resulted primarily from the Ace Rentals  Acquisition and the
Champion Acquisition, which significantly increased the size of the Company.

    For the  year  ended  September  30,  1998 as  compared  to the  year  ended
September  30,  1997,  the  Company's  net  cash  used in  investing  activities
increased to $119.0 million from $30.6 million. The increase in net cash used in
investing  activities  was  principally  due to the  1998  Acquisitions  and the
remodeling costs and computer hardware costs incurred in connection with the Ace
Rentals Acquisition and the Champion Acquisition.

    For the year  ended  September  30,  1998,  as  compared  to the year  ended
September 30, 1997,  the  Company's  net cash  provided by financing  activities
increased  to $115.5  million  from $30.4  million.  This  increase  in net cash
provided by financing  activities was principally due to funds received from the
Company's public stock offering and funds drawn on the Company's credit facility
in  connection  with  the  Champion   Acquisition   (see  Note  4  to  Financial
Statements).  Historically,  the  Company's  growth  has been  financed  through
internally  generated  working  capital,  borrowings  under its available credit
facilities and, in connection with acquisitions,  issuances of its Common Stock,
Preferred  Stock  and  Convertible  Debt.  During  fiscal  1998,  the  Company's
acquisitions  were financed by a combination  of cash generated by the Company's
public stock offering and borrowings under the Amended Facility.

    The Company's primary  requirements for capital (other than those related to
acquisitions)  consist of purchasing additional rental merchandise and replacing
rental  merchandise  that has been sold or is no longer  suitable for rent.  The
Company intends to increase the number of stores it operates  primarily  through
acquisitions.  Such acquisitions will vary in size and the Company will consider
large  acquisitions  that could be  material  to the  Company.  To  provide  any
additional funds necessary for the continued  pursuit of its growth  strategies,
the Company may incur, from time-to-time, additional short and long-term bank or
other   institutional   indebtedness   and  may  issue,  in  public  or  private
transactions,  its equity and debt  securities,  the  availability of which will
depend upon market and other  conditions.  There can be no  assurance  that such
additional financing will be available on terms acceptable to the Company.

Quantitative and Qualitative Disclosures About Market Risk

    The  Company's  major  market  risk  exposure is  primarily  due to possible
fluctuations in interest rates.  The Company's policy is to manage interest rate
risk by  utilizing  interest  rate swap  agreements  to convert a portion of the
floating  interest rate debt to fixed interest rates. 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.

    The  following  table  presents   information  about  the  Company's  market
sensitive  financial  instruments.  The  table  illustrates  the  principle  and
notional amounts,  as well as the date of maturity,  actual and weighted average
pay and receive rates for all  significant  financial and  derivative  financial
instruments in effect as of September 30, 1998:



<PAGE>

<TABLE>
<CAPTION>

                            Expected Maturity Dates (1)
                              (dollars in millions):          1998   1999    2001     2002    2003   Thereafter
                      -------------------------------------- ----------------------  --------------- ----------
                      Debt:
<S>                                                                                        <C>        <C>
                        Existing credit facility, Base                                     $17.3
                      rate option...........................
                       --Actual floating rate...............                               8.750%
                        Existing credit facility, Euro-rate option..                       $80.0
                       --Actual floating rate...............                               7.594%
                        Convertible Subordinated Debentures.                                            $20.0
                       --Actual fixed interest rate.........                                              7.0%
                      Interest rate swap agreements:
                        National City Bank, notional amount.                               $30.0
                        --Actual fixed interest rate pay                                    5.965%
                      rate..................................
                        --Actual variable interest rate
                         receive rate, (based on 3 month                                   5.594%
                         LIBOR)..............................
                        NationsBank, notional amount........                               $20.0
                       --Actual fixed interest rate pay                                    5.760%
                      rate..................................
                        --Actual variable interest rate
                         receive rate, (based on 3 month                                   5.594%
                         LIBOR)..............................
                        Manufacturers and Traders Trust,
                        notional amount.....................                               $10.0
                       --Actual fixed interest rate pay                                    5.925%
                      rate..................................
                        --Actual variable interest rate
                         receive rate, (based on 3 month                                   5.594%
                         LIBOR)..............................
                      (1) reflects the terms of the current financing
</TABLE>

Inflation

    During the year ended  September 30, 1998,  the cost 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.

                                  OTHER MATTERS

    In March 1997,  the FASB issued SFAS No.  129,  "Disclosure  of  Information
about Capital Structure" effective for fiscal years beginning after December 15,
1997. The Company adopted this standard in fiscal 1998. The adoption of SFAS No.
129 had no impact on the Company's financial statements.

    In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
effective for fiscal years  beginning  after  December 15, 1997.  This Statement
establishes  standards for reporting and display of comprehensive income and its
components in a full set of general-purpose  financial  statements.  The Company
has had no items of other comprehensive income.

    In June 1997, the FASB issued SFAS No. 131,  "Disclosures  about Segments of
an Enterprise  and Related  Information"  effective  for fiscal years  beginning
after  December  15,  1997.   This  Statement   requires  that  public  business
enterprises  report certain  information about operating  segments in annual and
interim financial statements.  It also requires that public business enterprises
report certain  information  about their  products and services,  the geographic
areas in which they operate, and their major customers. The Company is currently
evaluating the provisions of this statement.

    In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure about
Pensions and Other Postretirement Benefits" effective for fiscal years beginning
after December 15, 1997. The adoption of SFAS No. 132 will have no impact on the
Company's financial statements.

    In June 1998,  the FASB  issued  SFAS No. 133,  "Accounting  for  Derivative
Instruments and Hedging Activities"  effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. This Statement  establishes  accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments   embedded  in  other  contracts,   (collectively   referred  to  as
derivatives)  and for hedging  activities.  It requires that an entity recognize
all  derivatives  as either assets or  liabilities in the statement of financial
position and measure those  instruments at fair value.  The Company is currently
evaluating the provisions of this statement.

    The Accounting  Standards  Executive  Committee  Statement of Position 98-1,
"Accounting  for the  Costs of  Computer  Software  Developed  or  Obtained  for
Internal Use" ("SOP 98-1"),  issued in March 1998 and effective for fiscal years
beginning after December 15, 1998 with earlier application  permitted,  provides
guidance on accounting for the costs of computer software  developed or obtained
for internal  use. The Company is currently  evaluating  the  provisions of this
statement.

     The Accounting  Standards  Executive  Committee Statement of Position 98-5,
"Accounting for the Costs of Start-up Activities" ("SOP 98-5"),  issued in April
1998 and  effective  for fiscal  years  beginning  after  December 15, 1998 with
earlier application permitted, provides guidance on financial reporting of start
up costs and  organization  costs.  The  Company  is  currently  evaluating  the
provisions of this statement.

                                YEAR 2000 ISSUES

    The Company utilizes management  information systems and software technology
that may be affected  by Year 2000  issues  throughout  its  operations.  During
fiscal  1998 the  Company  began to  implement  plans to  ensure  those  systems
continue to meet its  internal  and  external  requirements.  All the  Company's
remote locations operate on an internally  developed point of sale system.  This
system  utilizes a peer to peer,  Windows 95 local area network.  Communications
between remote locations and the corporate office are handled via e-mail through
the internet.  After completion of testing,  the Company has determined that its
point of sale  system  is Year  2000  compliant.  As a result  of the  Company's
growth,  a decision  was made to upgrade  information  systems at the  corporate
office. The installation and implementation of a Year 2000 compliant  PeopleSoft
software  package will be complete by January 1, 1999. This package  encompasses
all accounting functions,  payroll,  human resources and benefit  administration
requirements.  The system will operate in an n-tier  environment on a Windows NT
platform. The cost of all hardware,  software, training and implementation costs
is expected to be approximately $1.5 million, the majority of which was incurred
in  fiscal  1998.  In  addition  to  the  PeopleSoft  package,  the  Company  is
implementing a Year 2000 compliant J. Driscoll Package for cash management. This
package will operate on the same platform as the PeopleSoft package.

    The  Company  has  developed  questionnaires  and  contacted  key  suppliers
regarding  their Year 2000 compliance to determine any impact on its operations.
In general,  the  suppliers  have  developed or are in the process of developing
plans to address  Year 2000  issues.  The Company  will  continue to monitor and
evaluate the progress of its suppliers on this critical  matter.  The Company is
also reviewing its non-information technology systems to determine the extent of
any  changes  that may be  necessary  and  believes  that  there will be minimal
changes required for compliance.

    Based on the  progress  the  Company  has made in  addressing  its Year 2000
issues and the Company's plan and timeline to complete its  compliance  program,
the Company does not foresee  significant  risks  associated  with its Year 2000
compliance  at this time. As the  Company's  plan is to address its  significant
Year  2000  issues  prior to being  affected  by them,  it has not  developed  a
comprehensive  contingency plan. However, if the Company identifies  significant
risks  related to its Year 2000  compliance  or its progress  deviates  from the
anticipated  timeline,  the Company  will  develop  contingency  plans as deemed
necessary at that time.

                              CAUTIONARY STATEMENT

    This  Report  on Form 10-K and the  foregoing  Management's  Discussion  and
Analysis of  Financial  Condition  and Results of  Operations  contains  various
"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. The Company's Annual Report to Shareholders, any Report on Form 10-Q
or Current Report on Form 8-K or any other written or oral statements made by or
on behalf of the Company may include forward looking statements. Forward-looking
statements  represent the Company's  expectations or beliefs  concerning  future
events. Any  forward-looking  statements made by or on behalf of the Company are
subject to  uncertainties  and other factors that could cause actual  results to
differ  materially from such statements.  These  uncertainties and other factors
include,  but are not  limited  to, (i) the  ability  of the  Company to acquire
additional  rental-purchase  stores on favorable terms,  (ii) the ability of the
Company to improve the performance of such acquired stores and to integrate such
acquired stores into the Company's operations, and (iii) the impact of state and
federal laws regulating or otherwise affecting the rental-purchase transaction.

    Undo reliance should not be placed on any forward-looking statements made by
or on behalf of the Company as such  statements  speak only as of the date made.
The  Company   undertakes  no  obligation  to  publicly  update  or  revise  any
forward-looking  statement,   whether  as  a  result  of  new  information,  the
occurrence of future events or otherwise.




<PAGE>

<TABLE>
<CAPTION>

ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                                                                                     Page
<S>                                                                                                    <C>
                            Index to Financial Statements.........................................     17
                              Report of Independent Accountants...................................     18
                              Financial Statements:
                                Balance Sheets, September 30, 1998 and 1997.......................     19
                                Statements of Income, Years Ended September 30, 1998, 1997 and         20
                                1996..............................................................
                                Statements of Shareholders' Equity, Years Ended September 30,
                                1998, 1997 and 1996...............................................     21
                                Statements of Cash Flows, Years Ended September 30, 1998, 1997         22
                                and 1996..........................................................
                                Notes to Financial Statements.....................................     23

</TABLE>

<PAGE>


                                 RENT-WAY, INC.

                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Shareholders of Rent-Way, Inc.:

    In our opinion,  the accompanying  balance sheets and the related statements
of  income,  shareholders'  equity  and of cash  flows  present  fairly,  in all
material  respects,  the financial  position of Rent-Way,  Inc. at September 30,
1998 and 1997,  and the results of its operations and its cash flows for each of
the three years in the period ended  September  30,  1998,  in  conformity  with
generally accepted  accounting  principles.  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  generally  accepted  auditing
standards 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 the opinion expressed above.



                                                   PricewaterhouseCoopers LLP



Cleveland, Ohio
December 10, 1998


<PAGE>

<TABLE>
<CAPTION>

                                                           RENT-WAY, INC.

                                                           BALANCE SHEETS

                                                                                         September 30,
                                                                                      1998          1997
                                                                                  ------------  ------------                        
                         Assets
<S>                                                                               <C>              <C>         
                         Cash.................................................... $  1,175,378   $   598,664
                         Prepaid expenses........................................    4,777,638     1,452,265
                         Income tax refund.......................................      168,669         --
                         Rental merchandise, net.................................   77,953,003    35,132,316
                         Deferred income taxes...................................        --        1,071,927
                         Property and equipment, net.............................   19,637,086     8,518,222
                         Goodwill, net of accumulated amortization of
                          $7,583,499 and$3,249,684, respectively.................  136,399,925    43,446,776
                         Deferred financing costs, net of accumulated
                          amortization of $571,375 and $231,225, respectively....    1,574,675     1,475,088
                         Non-compete agreements and prepaid consulting fees,net..    3,059,529     1,743,514
                         Other assets............................................    5,831,516     2,849,166
                                                                                  ------------   -----------
                                                                                  $250,577,419   $96,287,938
                                                                                  ============   ===========
                         Liabilities and Shareholders' Equity
                         Liabilities:
                         Accounts payable........................................ $ 10,582,419   $ 3,067,294
                         Other liabilities.......................................    5,141,683     3,411,605
                         Income taxes payable....................................           --       695,743
                         Deferred income taxes...................................    3,519,585            --
                         Debt....................................................  119,042,134    48,156,426
                                                                                  ------------   -----------
                                                                                   138,285,821    55,331,068
                         Commitments and contingencies (Note 9)..................           --            --

                         Shareholders' equity:
                         Preferred stock, without par value; 1,000,000 shares
                          authorized;no shares issued and outstanding at
                          September 30,1998 and 1997, respectively...............           --            --
                          
                         Common stock, without par value; 20,000,000 shares
                          authorized; 11,049,569 and 7,059,451 shares issued and
                          outstanding at September 30, 1998 and 1997,
                          respectively...........................................   91,516,893    32,759,595
                          
                         Retained earnings.......................................   20,774,705     8,197,275
                                                                                  ------------   -----------
                           Total shareholders' equity............................  112,291,598    40,956,870
                                                                                  ------------   -----------
                                                                                  $250,577,419   $96,287,938
                                                                                  ============   ===========

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

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                                           RENT-WAY, INC.

                                                        STATEMENTS OF INCOME

                                                                                For the Years Ended September 30,
                                                                              1998            1997            1996
                                                                         --------------  --------------  -------------
                            Revenues:
<S>                                                                      <C>               <C>             <C>        
                            Rental revenue.............................. $ 157,714,104     $77,498,328     $43,890,708
                            Other revenue...............................    19,612,726      10,947,965       7,280,629
                                                                         -------------     -----------     -----------
                                                                            
                              Total revenues............................   177,326,830      88,446,293      51,171,337
                            Costs and operating expenses:
                            Depreciation and amortization:
                              Rental merchandise........................    39,236,049      20,314,482      13,229,173
                              Property and equipment....................     2,893,365       1,530,133         775,169
                              Amortization of goodwill..................     4,333,816       1,926,287         874,668
                            Salaries and wages..........................    45,182,116      22,809,722      13,100,891
                            Advertising.................................     8,481,269       3,898,610       2,123,324
                            Occupancy...................................    11,938,305       5,987,604       3,269,406
                            Other operating expenses....................    36,605,705      18,193,294      11,147,645
                                                                         -------------     -----------     -----------
                                                                            
                            Total costs and operating expenses..........    148,670,625     74,660,132      44,520,276
                                                                         --------------    -----------     -----------
                                 Operating income.......................    28,656,205      13,786,161       6,651,061
                            Other income (expense):
                            Interest expense............................    (6,507,275)     (3,129,894)     (1,493,143)
                            Amortization--deferred financing costs......      (357,672)       (239,086)        (93,649)
                            Interest income.............................       109,655             920          60,267
                            Other income (expense), net.................      (102,941)       (103,681)        103,838
                                                                         -------------     -----------     -----------
                                                                             
                                 Income before income taxes and
                                 extraordinary item.....................    21,797,972      10,314,420       5,228,374
                                   
                            Income tax expense..........................     9,220,542       4,629,477       2,381,062
                                                                         -------------     -----------     -----------
                                                                             
                                 Income before extraordinary item.......    12,577,430       5,684,943       2,847,312
                            Extraordinary item (Notes 1 and 7)..........            --        (269,017)             --
                                                                           -----------     -----------     -----------
                                 Net income.............................    12,577,430       5,415,926       2,847,312
                            Preferred stock (dividend) / gain on
                            redemption (Note 10)........................            --         280,175        (128,969)
                                                                           -----------     -----------     -----------
                            Earnings applicable to common shares........ $  12,577,430     $ 5,696,101     $ 2,718,343
                                                                         =============     ===========     ===========
                            Earnings per common share:
                            Basic earnings per share (adjusted to give
                              effect to any preferred stock(dividend)/
                              gain on redemption):
                                 Income before extraordinary item....... $       1.22      $      0.89     $      0.51
                                                                         ==============    ===========     ===========
                                                                                 
                                 Net income............................. $       1.22      $      0.85     $      0.51
                                                                         ==============    ===========     ===========
                                                                                 
                             Diluted earnings per share (adjusted to
                               give effect to any preferred stock
                               (dividend)/gain on redemption):
                                 Income before extraordinary item....... $       1.08      $      0.78     $      0.46
                                                                         =============     ===========     ===========
                                                                                  
                                 Net income............................. $       1.08      $      0.75     $      0.46
                                                                         =============     ===========     ===========
                                                                                  
                            Weighted average number of shares outstanding:
                                 Basic..................................    10,317,338       6,692,008       5,345,878
                                                                          ============     ===========     ===========
                                 Diluted................................    12,458,279       8,921,515       5,960,506
                                                                          ============     ===========     ===========

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

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                                                           RENT-WAY, INC.

                                                 STATEMENTS OF SHAREHOLDERS' EQUITY
                                       For the Years Ended September 30, 1998, 1997 and 1996

                                                                  Common Stock                            Total
                                                                                          Retained    Shareholders'
                                                              Shares         Amount       Earnings       Equity
<S>                                     <C> <C>              <C>          <C>            <C>          <C>        
                   Balance at September 30, 1995.........    4,424,984    $10,749,051    $  111,290   $10,860,341
                                                                                                     
                     Net income..........................           --             --     2,847,312     2,847,312
                     Public stock offering ..............    2,185,812     16,760,056            --    16,760,056
                     Common stock returned to treasury
                        (Note 4).........................      (14,578)            --            --            --
                     Exercise of "put" right to principle
                        shareholder (Note 12)............       (8,600)      (381,748)           --      (381,748)
                     Repayment of loan to related party
                        (Note 12)........................      (10,800)       134,578            --       134,578
                     Purchases of business (Note 4)......       20,358        187,500            --       187,500
                     Issuance of common stock under stock
                        option plans (Note 13)...........       49,025        309,279            --       309,279
                     Issuance of common stock to 401(k)
                        Plan (Note 15)...................       12,979        148,509            --       148,509
                     Preferred stock dividends (Note 10).           --             --      (147,150)     (147,150)
                                                            ----------    -----------    ----------   -----------
                   Balance at September 30, 1996.........    6,659,180     27,907,225     2,811,452    30,718,677
                                                            ----------    -----------    ----------   -----------
                     Net income..........................           --             --     5,415,926     5,415,926
                     Common stock returned to treasury
                        (Note 4).........................      (65,657)            --            --            --
                     Purchases of business (Note 4)......           --        107,500            --       107,500
                     Issuance of common stock under stock
                        option plans including tax benefit      
                        (Note 13)........................      443,610      4,192,401            --     4,192,401
                     Issuance of common stock to 401(k)
                        Plan (Note 15)...................       22,318        272,294            --       272,294
                     Preferred stock (dividends)/gain on
                        redemption (Note 10).............           --        280,175       (30,103)      250,072
                                                            ----------    -----------    ----------   -----------
                   Balance at September 30, 1997.........    7,059,451     32,759,595     8,197,275    40,956,870
                                                            ----------    -----------     ---------    ----------
                     Net income..........................           --             --    12,577,430    12,577,430
                     Public stock offering,
                      net of expenses (Note 3)...........    2,888,088     47,053,064            --    47,053,064
                     Conversion of Mass Mutual debt            
                      (Note 7)...........................      704,223      7,000,000            --     7,000,000
                     Write-off deferred finance costs on
                       convertible debt (Note7)..........           --        (24,933)           --       (24,933)
                     Purchase of business (Note 4).......       15,620        424,989            --       424,989
                     Issuance of common stock to 401(k)
                       Plan (Note 15)....................       17,826        383,283            --       383,283
                     Issuance of common stock under
                       stock option plans including tax        
                       benefit (Note 13).................      364,361      3,920,895            --     3,920,895 
                                                           -----------      ---------   -----------  ------------
                                                            11,049,569   $ 91,516,893   $20,774,705  $112,291,598
                                                           ===========   ============   ===========  ============


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


<PAGE>

<TABLE>
<CAPTION>

                                                           RENT-WAY, INC.

                                                      STATEMENTS OF CASH FLOWS

                                                                          For the Years Ended September 30,
                                                                        1998            1997            1996
                                                                   --------------  --------------  ---------
                    Operating activities:
<S>                                                                <C>              <C>             <C>         
                    Net income.................................... $  12,577,430    $  5,415,926    $  2,847,312
                    Adjustments to reconcile net income to net
                    cash provided by (used in) operating activities:
                      Depreciation and amortization...............    46,820,902      24,009,988      14,879,010
                      Deferred income taxes.......................     4,591,512       1,189,082         681,490
                      Deferred financing costs write-off..........            --         323,772              --
                      Issuance of common stock to 401(k) plan.....       383,283         272,294         148,509
                    Changes in assets and liabilities:
                      Prepaid expenses............................    (1,874,996)        (41,640)       (235,413)
                      Rental merchandise..........................   (57,519,645)    (27,613,433)    (20,448,195)
                      Income tax refund...........................      (168,670)             --              --
                      Other assets................................    (2,321,174)       (653,249)       (710,547)
                      Accounts payable............................     3,561,442        (884,788)       (406,871)
                      Income taxes payable........................      (695,743)       (530,847)      1,400,937
                      Other liabilities...........................    (1,287,063)       (836,883)        616,281
                                                                   -------------     ------------    ------------
                                                                      
                         Net cash provided by (used in) operating
                           activities.............................     4,067,278         650,222      (1,227,487)
                                                                   -------------     ------------    ------------
                    Investing activities:
                      Purchase of businesses, net of cash
                         acquired of $2,282,221in 1998, $60,132 
                         in 1997, $38,759 in 1996.................  (105,997,187)    (25,949,875)     (8,601,764)
                         
                      Purchases of property and equipment.........   (12,982,979)     (5,122,164)     (2,053,245)
                      Proceeds from the sale of property and
                         equipment and land and building lots.....            --         476,786           9,680
                                                                   -------------    ------------    ------------
                                                                        
                         Net cash used in investing activities....  (118,980,166)    (30,595,253)    (10,645,329)
                                                                   -------------    ------------    ------------
                    Financing activities:
                      Principal payments on capital lease          
                         obligation...............................            --              --          (6,638)
                      Proceeds from borrowings....................   195,547,020      41,022,110      23,866,711
                      Payments on borrowings......................  (130,574,118)    (12,318,899)    (28,195,016)
                      Deferred financing costs....................      (457,259)     (1,660,714)             --
                      Issuance of common stock....................    50,973,959       4,192,401      17,069,335
                      Preferred stock dividend....................            --         (30,103)       (147,150)
                      Preferred stock redemption..................            --        (840,525)     (1,629,300)
                      Loan to related party.......................            --              --         134,578
                                                                    ------------    ------------    ------------
                         Net cash provided by financing
                         activities..............................    115,489,602      30,364,270      11,092,520
                                                                    ------------    ------------    ------------
                         Increase (decrease) in cash..............       576,714         419,239        (780,296)
                    Cash at beginning of year.....................       598,664         179,425         959,721
                                                                    ------------    ------------    ------------
                    Cash at end of year........................... $ 1,175,378      $    598,664    $    179,425
                                                                    ============    ============    ============
                    Supplemental disclosures of cash flow
                      information:
                    Cash paid during the year for:
                         Interest................................. $  6,234,480     $  2,747,871    $  1,537,317
                         Income taxes............................. $  3,273,575     $  1,936,924    $    307,841
                                                                      

    In addition,  the Company entered into various  transactions during the year which involved non-cash investing and financing  
activities (Notes 4, 7, 10, 13,
14 and 15).

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

</TABLE>


<PAGE>


                                 RENT-WAY, INC.

                          NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

    Business and Organization--Rent-Way, Inc. (the "Company" or "Rent-Way") 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  and  jewelry  to
consumers on a weekly or monthly  basis in  twenty-five  states.  The stores are
primarily located in the Midwestern,  Eastern and Southern regions of the United
States.

    Basis of Presentation--The Company presents an unclassified balance sheet to
conform to practice in the industry in which it operates.

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

    The Company uses the units of activity  depreciation method. Under the units
of activity method,  rental  merchandise is depreciated as revenue is collected.
Rental  merchandise is not depreciated during periods when it is not on rent and
therefore not generating rental revenue.

    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.

    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 a 40 year term 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  basis.
Leasehold  improvements are amortized over the shorter of the useful life of the
asset or the term of the lease and renewal period, if applicable.

    The Company reviews the recoverability of the carrying value of goodwill and
other long-term assets using an undiscounted cash flow method.

    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. 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  with the  carrying  value of the
related  goodwill.  At September 30, 1998 and 1997,  the Company  concluded that
there was no impairment of goodwill. Deferred financing costs are stated at cost
less  amortization  calculated  on a  straight-line  basis  over the term of the
related debt agreements,

<PAGE>





                                 RENT-WAY, INC.

                    NOTES TO FINANCIAL STATEMENTS (Continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued:

which  range  from  four to ten  years.  Non-compete  agreements  and a  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--External costs incurred in producing media advertising
are expensed the first time the advertising takes place.

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

    Earnings Per Common Share--In March 1997, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial  Accounting  Standards ("SFAS") No.
128, "Earnings per Share", effective for periods ending after December 15, 1997.
The Company adopted this standard during fiscal 1998, and all prior periods have
been restated to reflect the impact of this statement. Basic earnings per common
share is computed using income available to common  shareholders  divided by the
weighted  average  number of common  shares  outstanding.  Diluted  earnings per
common share is computed using income 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.

    Fair Value Disclosures--Fair  values of fixed interest debt instruments have
been  determined  through a combination of management's  estimates,  information
obtained from independent third parties, and discounted cash flow analysis. Fair
values of other  assets and  liabilities  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 Amended Facility (see Notes 7 and 8). 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 November 1996, the Company incurred an extraordinary  charge, net of
tax benefit,  of $269,017.  The extraordinary  charge was composed of a $124,590
($74,754 net of tax benefit) prepayment penalty for early retirement of debt and
a $323,772  ($194,263  net of tax benefit)  write-off of deferred  finance costs
associated with the refinanced debt (See Note 7).

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

    Reclassifications--Certain  amounts  in the  September  30,  1996 and  1997,
financial  statements  were  reclassified  to conform to the September 30, 1998,
presentation.

2. NEW ACCOUNTING STANDARDS:

     In March 1997,  the FASB issued SFAS No. 129,  "Disclosure  of  Information
about Capital Structure" effective for fiscal years beginning after December 15,
1997. The Company adopted this standard in fiscal 1998. The adoption of SFAS No.
129 had no impact on the Company's financial statements.

    In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
effective for fiscal years  beginning  after  December 15, 1997.  This Statement
establishes  standards for reporting and display of comprehensive income and its
components in a full set of general-purpose  financial  statements.  The Company
has had no items of other comprehensive income.

    In June 1997, the FASB issued SFAS No. 131,  "Disclosures  about Segments of
an Enterprise  and Related  Information"  effective  for fiscal years  beginning
after  December  15,  1997.   This  Statement   requires  that  public  business
enterprises  report certain  information about operating  segments in annual and
interim financial statements.  It also requires that public business enterprises
report certain  information  about their  products and services,  the geographic
areas in which they operate, and their major customers. The Company is currently
evaluating the provisions of this statement.
                                 RENT-WAY, INC.

                    NOTES TO FINANCIAL STATEMENTS (Continued)

2. NEW ACCOUNTING STANDARDS, Continued:

    In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure about
Pensions and Other Postretirement Benefits" effective for fiscal years beginning
after December 15, 1997. The adoption of SFAS No. 132 will have no impact on the
Company's financial statements.

    In June 1998,  the FASB  issued  SFAS No. 133,  "Accounting  for  Derivative
Instruments and Hedging Activities"  effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. This Statement  establishes  accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments   embedded  in  other  contracts,   (collectively   referred  to  as
derivatives)  and for hedging  activities.  It requires that an entity recognize
all  derivatives  as either assets or  liabilities in the statement of financial
position and measure those  instruments at fair value.  The Company is currently
evaluating the provisions of this statement.

    The Accounting  Standards  Executive  Committee  Statement of Position 98-1,
"Accounting  for the  Costs of  Computer  Software  Developed  or  Obtained  for
Internal Use" ("SOP 98-1"),  issued in March 1998 and effective for fiscal years
beginning after December 15, 1998 with earlier application  permitted,  provides
guidance on accounting for the costs of computer software  developed or obtained
for internal  use. The Company is currently  evaluating  the  provisions of this
statement.

     The Accounting  Standards  Executive  Committee Statement of Position 98-5,
"Accounting for the Costs of Start-up Activities" ("SOP 98-5"),  issued in April
1998 and  effective  for fiscal  years  beginning  after  December 15, 1998 with
earlier application permitted, provides guidance on financial reporting of start
up costs and  organization  costs.  The  Company  is  currently  evaluating  the
provisions of this statement.

3. PUBLIC STOCK OFFERING:

     On  December  2,  1997,  the  Company  completed  a public  stock  offering
consisting of 2,500,000 shares of common stock offered by the Company and 87,250
shares of common stock offered by certain selling shareholders.  In addition, on
December  30,  1997,  the  underwriters  exercised  a 30 day option to  purchase
388,088 shares of common stock to cover over-allotments. The shares were offered
at a price of  $17.25  per  share.  The  Company  received  net  proceeds  (less
underwriters  discount  and  selling  expenses)  of  $47,053,064  including  the
underwriters  exercise of the  over-allotment  option.  The  Company  used these
proceeds to repay  outstanding  borrowings  of  $23,022,110  under the Company's
credit  agreement  (see Note 7) and to fund the asset purchase of South Carolina
Rentals,  Inc.,  Paradise  Valley  Holdings,  Inc. and L & B Rents,  Inc.  ("Ace
Rentals") (see Note 4).

4. ACQUISITIONS:

    On September  10, 1998,  the Company  purchased the rental  merchandise  and
rental  contracts of Cari Rentals,  Inc.  ("Cari"),  a privately  owned chain of
twenty-three  rental  purchase  stores located in Iowa,  Missouri,  Nebraska and
South Dakota, with annual revenues of approximately $7.7 million in exchange for
consideration of $7,325,000  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  $6,900,011 in cash.  Pursuant to the terms of
the acquisition,  $500,000 of the purchase price was placed in escrow subject to
the terms and conditions of the escrow agreement.  The escrow agreement provides
for the  release of escrow  pending  the  completion  of a  financial  audit and
resolution of any purchase price adjustments.  The acquisition was accounted for
using the purchase  method of accounting.  Cari Rentals' assets were recorded at
their  fair  values  as of  the  date  of the  acquisition.  The  excess  of the
acquisition cost over the fair values of the net assets  acquired,  ("goodwill")
of $5,934,013 is being amortized on a straight line basis over thirty years. The
total cost of the net assets  acquired was $7,325,000  ($424,989 in common stock
and $6,900,011 in cash) and consisted of assets of $7,384,241  less  acquisition
costs of $59,241.  Assets acquired (at fair value) other than goodwill consisted
primarily of rental  merchandise  of $1,400,228  and a non-compete  agreement of
$50,000.  The Statement of Income for the year ended September 30, 1998 includes
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 $3.6
million in exchange for  consideration  of $2,047,449  in cash.  Pursuant to the
terms of the  acquisition,  $200,000 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  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 values of the net
assets acquired  ("goodwill") of $2,265,911 is being amortized over thirty years
on a  straight  line  basis.  The  total  cost of the net  assets  acquired  was
$2,047,449  and consisted of assets of $3,005,809  less  liabilities  assumed of
$857,830  and  acquisition  costs of $100,530.  Assets  acquired (at fair value)
other than  goodwill  consisted  primarily  of rental  merchandise  of $619,542,
prepaid expenses of $33,272, other


<PAGE>


                                 RENT-WAY, INC.

                   NOTES TO FINANCIAL STATEMENTS (Continued)

4. ACQUISITIONS, Continued:

assets of $12,084 and a non-compete  agreement of $75,000.  Liabilities  assumed
(at fair value)  consisted  primarily  of trade  payables  of  $28,940,  accrued
liabilities  of $42,842 and debt of  $786,048.  The  Statement of Income for the
year ended September 30, 1998 includes 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 $75.0 million.  The
consideration  paid in exchange for all the  outstanding  shares of Champion was
$69,050,000 in cash. Pursuant to terms of the purchase agreement $2.5 million 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.  Per the terms of the escrow  agreement,  $1,500,000  of the
escrowed amount was released in September  1998,  following the completion of an
audit of  Champion's  closing  date  financial  statements.  As a result of this
audit, $900,000 of the released amount was given to the sellers with the balance
being returned to the Company.  The balance of $1,000,000 will be held for a one
year period from the date of the closing.  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 values of the net assets  acquired,  ("goodwill")
of  $66,998,681  is being  amortized on a straight line basis over thirty years.
The total costs of net assets  acquired was  $69,050,000 and consisted of assets
of $91,098,829 less liabilities  assumed of $18,407,607and  acquisition costs of
$3,641,222.  The acquisition of Champion was funded with borrowings drawn on the
Company's existing senior credit facility (see Note 7). Assets acquired (at fair
value),  other  than  goodwill  consisted  primarily  of rental  merchandise  of
$18,133,867,  property and  equipment of $780,000,  other assets of  $3,218,161,
prepaid expenses of $508,120,  non-compete  agreement of $1,000,000 and customer
contracts of $460,000.  Liabilities  assumed (at fair value) consisted primarily
of trade payables of $3,924,743,  accrued  liabilities of $2,356,106 and debt of
$12,126,758.  The  Statement  of Income for the year ended  September  30,  1998
includes  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 fifty rental-purchase stores located in California and South
Carolina with annual revenues of approximately $22.0 million.  The consideration
paid in exchange for the assets of Ace Rentals was $25,348,514 in cash. Pursuant
to the terms of the  purchase  agreement,  $750,000  of the  purchase  price was
placed in  escrow,  subject  to the terms of the  escrow  agreement  to  satisfy
seller's  representations and warranties and any purchase price adjustments.  In
May 1998,  $375,000 of the $750,000  escrow was released in accordance  with the
terms and  conditions  of the escrow  agreement  with the balance to be released
pending  resolution of certain  issues.  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  values  of  the  net  assets  acquired,
("goodwill")  of  $21,494,612  is being  amortized on a straight line basis over
thirty  years.  The total  costs of net  assets  acquired  was  $25,348,514  and
consisted  of assets of  $26,767,315  less a liability  assumed of $477,851  and
acquisition  costs of $940,950.  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 (see Note 7). Assets acquired (at fair value) other than
goodwill consisted  primarily of rental merchandise of $4,383,453,  property and
equipment  of  $249,250,  non-compete  agreement  of  $500,000  and  $140,000 in
customer  contracts.  The  liability  assumed  (at fair  value) was  $477,851 of
vehicle  related debt. The Statement of Income for the year ended  September 30,
1998 includes the results of operations of Ace Rentals since January 1, 1998.

    On January 24, 1997, the Company signed a definitive  purchase  agreement to
acquire all the outstanding shares of Perry Electronics,  Inc. d/b/a Rental King
("Rental  King").  On February 6, 1997, the Company  consummated the transaction
and  acquired all the  outstanding  shares of Rental  King,  assuming  effective
control of the results of  operations  as of  February  1, 1997.  At the time of
acquisition,  Rental King operated a chain of seventy  rental-purchase stores in
Colorado,  Florida,  Indiana,  Kentucky,  Michigan,  Ohio and West Virginia with
annual  revenues of  approximately  $24.0  million.  The  consideration  paid in
exchange for all the outstanding  shares of Rental King was $17,284,618 in cash.
Pursuant to the terms of the  purchase  agreement,  $2.0 million of the purchase
price was placed in escrow,  subject  to the terms of the  escrow  agreement  to
satisfy  seller's   representations   and  warranties  and  any  purchase  price
adjustments.  In June 1997,  the full amount of the escrow account was released.
The  acquisition  was  accounted  for using the purchase  method of  accounting.
Rental King's assets and  liabilities  were recorded at their fair values at the
time of the acquisition. The excess of the acquisition cost over the fair values
of the net assets acquired,  ("goodwill") of $17,311,831 is being amortized on a
straight  line  basis  over  twenty  years.  The total  costs of the net  assets
acquired was $17,284,618 and consisted of assets of $25,289,547 less liabilities
assumed of $6,337,325 and  acquisition  costs of $1,667,604.  The acquisition of
Rental  King was  primarily  funded by the net  proceeds  received  on a private
placement of $20.0 million in subordinated  convertible debentures (see Note 7).
The  balance of the cash paid on closing was drawn upon the  Company's  existing
line of credit (see Note 7). Assets acquired (at fair value) other than


<PAGE>


                                 RENT-WAY, INC.

                    NOTES TO FINANCIAL STATEMENTS (Continued)

4. ACQUISITIONS, Continued:

goodwill consisted  primarily of rental merchandise of $6,386,000,  property and
equipment of $744,615,  other assets of $347,101 and  non-compete  agreements of
$500,000.  Liabilities  assumed (at fair  value)  consisted  primarily  of trade
payables of $488,561, accrued liabilities of $2,085,270, bank debt of $2,939,494
and notes  payable of  $824,000.  The  Statements  of Income for the years ended
September  30, 1998 and 1997  include the results of  operations  of Rental King
since the date of the acquisition.

    On January 2, 1997, the Company acquired all the outstanding  shares of Bill
Coleman   TV,   Inc.,   ("Coleman"),   a   privately   owned  chain  of  fifteen
rental-purchase   stores   operating  in  Michigan   with  annual   revenues  of
approximately  $7.5  million,  in  exchange  for  consideration   consisting  of
$2,679,921  in cash and an option to  purchase  25,000  shares of the  Company's
common  stock at an exercise  price of $8.875 per share with a fair market value
of $107,500. The 25,000 stock options are 100% exercisable and expire five years
from the date of the grant. The acquisition was accounted for using the purchase
method of accounting.  Coleman's  assets and liabilities  were recorded at their
fair values as of the acquisition  date. The excess of the acquisition cost over
the fair values of the net assets acquired,  ("goodwill") of $3,796,670 is being
amortized on a straight line basis over twenty years.  The total cost of the net
assets  acquired  was  $2,787,421  ($2,679,921  in cash  and  $107,500  in stock
options)  and  consisted of assets of  $7,991,676  less  liabilities  assumed of
$4,548,836 and  acquisition  costs of $655,419.  Assets acquired (at fair value)
other than goodwill,  consisted  primarily of rental  merchandise of $2,401,000,
property and equipment of $42,000, a note receivable of $506,368,  a non-compete
agreement of $300,000 and other assets of $945,638. Liabilities assumed (at fair
value)  consisted  primarily of trade accounts  payable of  $1,838,190,  debt of
$2,474,155 and note payable of $236,491.  The Statements of Income for the years
ended  September  30, 1998 and 1997 include the  operations of Coleman since the
date of the acquisition.

    In July and September 1997, the Company purchased the rental merchandise and
rental-purchase   contracts   of  seven   rental-purchase   stores   located  in
Pennsylvania,   Maryland,  and  Virginia,   with  combined  annual  revenues  of
approximately $4.3 million. The Company paid cash in exchange for the assets and
each  acquisition  was recorded  using the purchase  method of  accounting.  The
acquired  assets were recorded at their fair values at the date of  acquisition.
The excess of the acquisition  cost over the fair values of the assets acquired,
("goodwill")  of  $2,747,754  is being  amortized on a straight  line basis over
twenty  years.  The total cost of the net assets  acquired  was  $3,809,878  and
consisted  primarily of assets of $3,978,369 less acquisition costs of $168,491.
The Statements of Income for the years ended September 30, 1998 and 1997 include
the  operating   results  for  these  stores  since  the  respective   dates  of
acquisition.

    On July 25, 1996, the Company acquired all the outstanding shares of Diamond
Leasing Corporation  ("DLC"); a chain of 11 rental-purchase  stores operating in
Delaware,  Maryland and Pennsylvania with annual revenues of approximately  $7.0
million in exchange for consideration  consisting of 20,358 (unregistered shares
subject to the provisions of Rule 144 of the Securities and Exchange Act) shares
of the Company's  common stock and $4,102,296 in cash.  Pursuant to the terms of
the acquisition,  $325,000 of the purchase price was placed in escrow subject to
the terms of the escrow  agreement.  Based on the terms of the escrow  agreement
$175,000 was released upon completion of the financial  statement audit with the
remaining  $150,000 being held for a three year period from the date of closing.
The acquisition was accounted for using the purchase method of accounting. DLC's
assets and liabilities  were recorded at their fair values as of the acquisition
date. The excess of the acquisition  cost over the fair values of the net assets
acquired  ("goodwill") of $4,437,772 is being amortized on a straight-line basis
over twenty  years.  The total cost of the net assets  acquired  was  $4,289,796
($187,500 in common  stock and  $4,102,296  in cash) and  consisted of assets of
$7,250,676  less  liabilities  assumed of $2,363,136  and  acquisition  costs of
$597,744.  Assets  acquired  (at  fair  value)  other  than  goodwill  consisted
primarily  of rental  merchandise  of  $1,359,808,  property  and  equipment  of
$310,850,  non-compete  agreements  of $300,000  and other  assets of  $842,236.
Liabilities  assumed  (at fair  value)  consisted  primarily  of trade  accounts
payable of $582,693, other liabilities of $334,205 and bank debt of  $1,446,238.
The  Statements of Income for the years ended September 30, 1998, 1997 and 1996,
include the operations of DLC since the date of the acquisition.

    During 1996, the Company also purchased from 5 separate  entities the rental
merchandise and contracts of 21  rental-purchase  stores in Maryland,  New York,
Pennsylvania,  Virginia  and the  District  of  Columbia  with  combined  annual
revenues of  approximately  $4.2 million.  The Company paid cash in exchange for
the  assets and each  acquisition  was  recorded  using the  purchase  method of
accounting.  The acquired  assets were recorded at their fair values at the date
of acquisition.  The excess of the acquisition  cost over the fair values of the
net assets acquired  ("goodwill") of $3,028,796 is being amortized on a straight
line basis over  twenty  years.  The total cost of the net assets  acquired  was
$3,763,250  and consisted of assets of $3,893,796  less  liabilities  assumed of
$44,814 and acquisition costs of $85,732. The Statements of Income for the years
ended September 30, 1998, 1997 and 1996 include the operating  results for these
stores since the respective dates of acquisition.



<PAGE>


                                 RENT-WAY, INC.

                    NOTES TO FINANCIAL STATEMENTS (Continued)

4. ACQUISITIONS, Continued:

    The following  are  unaudited pro forma results of operations  for the years
ended September 30, 1998 and 1997 assuming the  acquisitions of Coleman,  Rental
King,  Ace Rentals and Champion  had  occurred on October 1, 1997 and 1996.  The
unaudited  pro forma  information  does not include the results of operations of
the seven  rental-purchase  stores  acquired in July and September of 1997,  the
Fast  Rentals  Acquisition  in July  1998 and the Cari  Rentals  Acquisition  in
September  1998,  which were not  significant.  The results are not  necessarily
indicative of future operations or what would have occurred had the acquisitions
been consummated as of October 1, 1997 and 1996.
<TABLE>
<CAPTION>

                                                                                    Unaudited Pro Forma
                                                                                        Information
                                                                                 Years Ended September 30,
                                                                                   1998           1997
                                                                              -------------- ---------
<S>                                                                           <C>              <C>         
                          Total revenues..................................... $ 203,614,690    $181,522,421
                          Net income.........................................    12,504,573       5,617,163
                                                                                
                          Diluted earnings per common share (adjusted to
                          give effect to any preferred stock
                          (dividend)/gain on redemption):....................
                               Income before extraordinary item.............. $       1.07     $      0.80
                                                                              ===============  ===========
                                Net income....................................$       1.07     $      0.77
                                                                              ===============  ===========
                                                                                       
</TABLE>

5. RENTAL MERCHANDISE AND PROPERTY AND EQUIPMENT:

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

                                                                                     September 30,
                                                                                   1998           1997
                                                                              -------------    -----------
<S>                                                                           <C>              <C>        
                          Cost..............................................  $111,211,614     $51,848,007
                          Less accumulated depreciation.....................    33,258,611      16,715,691
                                                                              -------------    -----------
                                                                              $ 77,953,003     $35,132,316
                                                                              =============    ===========
</TABLE>

    The Company uses a direct-ship policy from their vendors to the stores. As a
result,  the  Company  has  eliminated  the need for  internal  warehousing  and
distribution.  This policy has minimized 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,
                                                                                  1998            1997
                                                                              ------------     -----------
<S>                                                                           <C>              <C>        
                          On-rent merchandise, net..........................  $ 53,816,812     $29,587,990
                          Held for rent merchandise, net....................    24,136,191       5,544,326
                                                                              ------------     -----------
                                                                              $ 77,953,003     $35,132,316
                                                                              ============     ===========
</TABLE>

     The Company uses the direct  write-off method in accounting for losses (see
Note 1). Losses during fiscal 1998, 1997 and 1996 were incurred as follows:

<TABLE>
<CAPTION>
                                                                                               September 30,
                                                                                  1998            1997           1996
                                                                              -----------     -----------    -----------
<S>                                                                           <C>              <C>            <C>       
                          Lost merchandise..................................  $   400,916      $  284,312     $  175,843
                          Stolen merchandise................................    3,824,019       2,133,604      1,153,856
                          Discarded merchandise.............................      438,698         254,987         75,915
                                                                              -----------     -----------    -----------
                                                                             $  4,663,633     $2,672,903     $1,405,614
                                                                              ============     ==========     ==========
</TABLE>

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

                                                                                     September 30,
                                                                                  1998            1997
                                                                              ------------    ------------
<S>                                                                           <C>             <C>         
                            Signs...........................................  $  2,365,034    $  1,014,564
                            Vehicles........................................     2,296,085       1,524,848
                            Furniture and fixtures..........................     6,177,533       2,417,396
                            Leasehold improvements..........................     8,944,974       4,657,039
                            Building........................................     5,797,355       2,021,852
                                                                              ------------    ------------
                                                                                25,580,981      11,635,699
                          Less accumulated depreciation and amortization....     5,943,895       3,117,477
                                                                              ------------    ------------
                                                                              $ 19,637,086    $  8,518,222
                                                                              ============    ============

</TABLE>


<PAGE>
<TABLE>
<CAPTION>


                                                           RENT-WAY, INC.

                                             NOTES TO FINANCIAL STATEMENTS (Continued)

6. OTHER LIABILITIES:

    Other liabilities consist of the following:

                                                                                    September 30,
                                                                                   1998           1997
                                                                              --------------  --------
<S>                                                                           <C>              <C>       
                          Accrued salaries, wages and payroll taxes.........  $  1,579,215     $1,120,408
                          Accrued property taxes............................       717,620        310,773
                          Sales taxes payable...............................     1,067,183        434,841
                          Accrued interest..................................       852,013        579,218
                          Accrued bonuses...................................       189,777        275,000
                          Other.............................................       735,875        691,365
                                                                              ------------     ----------
                                                                              $  5,141,683     $3,411,605

                                                                              ============     ==========
</TABLE>
7. DEBT:

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

                                                                                     September 30,
                                                                                  1998            1997
                                                                              ------------    --------
<S>                                                                           <C>             <C>         
                          Senior Credit Facility............................  $  97,264,165   $ 21,022,110
                          Convertible Subordinated Debentures...............     20,000,000     20,000,000
                          Notes Payable.....................................      1,777,969        134,316
                          Convertible Subordinated Notes....................            --       7,000,000
                                                                              -------------    ------------
                                                                              $ 119,042,134   $ 48,156,426
</TABLE>

    On February 5, 1998, the Company amended its existing senior credit facility
with a  syndicate  of banks  led by  National  City  Bank of  Pennsylvania  (the
"Amended  Facility").  The Amended  Facility,  co-led by  National  City Bank of
Pennsylvania,  acting as syndication and administrative  agent, and NationsBank,
N.A.  as  documentation  agent,  provides  for loans and letters of credit up to
$120.0  million.  The  syndicate  members and their ratable share of the Amended
Facility are as follows:
<TABLE>
<CAPTION>

<S>                                                                                     <C>     
                                     National City Bank of Pennsylvania.............    15.0000%
                                     NationsBank, N.A...............................    14.1670%
                                     Harris Trust and Savings Bank..................    14.1670%
                                     LaSalle National Bank..........................    14.1670%
                                     Sun Trust Bank, Central Florida, National           
                                     Association....................................     7.0825%
                                     Manufacturers and Traders Trust Company........    14.1670%
                                     CoreStates Bank, N.A...........................     7.0825%
                                     Star Bank, N.A.................................    14.1670%
</TABLE>

    Of the $120.0 million  available under the Amended  Facility,  approximately
$7.0 million was  outstanding  at the date of the  amendment  and  approximately
$81.0 million was used for the acquisition of Champion and the extinguishment of
Champion's  acquired debt (see Note 4). The Amended  Facility expires on May 31,
2003.

    Under the Amended  Facility,  the Company may borrow funds under a base rate
option  plan or  euro-rate  option  plan.  Under the base rate  option  plan the
Company may borrow funds based on a spread of prime-rate  plus 0.0% to 0.5%. The
actual  spread  is  determined  based  on the  ratio of debt to cash  flow  from
operations during the period. Under the euro-rate option, the Company may borrow
funds based on a spread of the London  Interbank Offer Rate,  ("LIBOR") plus 100
to 200 basis points.  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 $250,000 and not
less than  $1,000,000  in total.  Commitment  fees  associated  with the Amended
Facility are equal to 0.125% for each banks'  commitment  which existed prior to
this  amendment and 0.25% for each banks'  commitment  starting with the date of
this  amendment.  The Amended  Facility  requires  the  Company to meet  certain
financial  covenants and ratios  including  maximum  leverage,  minimum interest
coverage and minimum  tangible net worth ratios.  In addition,  the Company must
meet requirements  regarding monthly,  quarterly and annual financial reporting.
The Amended  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 above in connection with the selection of the euro-rate
option. As of September 30, 1998, the Company had $80.0 million of floating rate
debt under the  euro-rate  option and $17.3  million of floating rate debt under
the base rate option, with interest rates of 7.594% and 8.750% respectively.  As
of  September  30,  1998,  the  Company  was in  compliance  with all  covenants
contained in the Amended Facility.



<PAGE>


                                 RENT-WAY, INC.

                    NOTES TO FINANCIAL STATEMENTS (Continued)

7. DEBT, Continued:

    The Senior Credit Facility (the "Facility")  prior to amendment,  was with a
syndicate of banks led by National City Bank of Pennsylvania, provided for loans
or letters of credit up to $40.0  million and was signed on November  22,  1996.
The  syndicate  was  composed  of  four  banks,   with  National  City  Bank  of
Pennsylvania, LaSalle National Bank, and Harris Trust and Savings Bank committed
for an equal ratable share of 27.25%, of the Facility and Heller Financial, Inc.
committed for an 18.25% ratable share.  The Facility  provided for borrowings at
the  prime  rate  plus  0.5%  or  borrowings   under  an  euro-rate  option  and
availability  based on a multiple of average  monthly  revenues.  The  euro-rate
option allowed the Company to borrow at the LIBOR rate plus 275 basis points for
a fixed interest  period.  As of September 30, 1997,  there was $21.0 million in
outstanding borrowings under the Facility.  This balance was comprised of a $9.0
million euro-rate tranche at 8.49% interest, a $9.0 million euro-rate tranche at
8.382% interest and working  capital debt of $3.0 million at 9.0% interest.  The
Facility  required the Company to meet certain  financial  covenants  and ratios
including maximum  leverage,  minimum interest coverage and minimum tangible net
worth  ratios.  In  addition,  the  Company was  required  to meet  requirements
regarding monthly,  quarterly and annual financial reporting.  The Facility also
contained  covenants which prohibited the 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
was permitted, at any time, to repay outstanding  borrowings,  in whole or part,
without premium or penalty, except with respect to restrictions on the selection
of the euro-rate interest option.

    The   Company's   $20.0   million   Convertible    Subordinated   Debentures
("Debentures") due February 1, 2007 are convertible, at any time, into shares of
common stock,  without par value, of the Company at a conversion price of $13.37
per share. The Debentures are subject to redemption at the option of the Company
on February 5, 2000 at a price of 103%. The redemption  price will decrease at a
rate of 1% per year,  reaching a price of 100% in the year 2003 and remain fixed
until the date of maturity.  The  indebtedness  evidenced by the  Debentures  is
subordinated  and junior in right of payment  to all  senior  indebtedness.  The
Debentures  bear an annual  interest  rate of 7% with  semi-annual  payments  in
August  and  February,  beginning  August 1, 1997.  The terms of the  Debentures
require the Company to meet certain annual financial reporting  obligations.  In
addition,  the  Company  must  deliver to the  trustee  compliance  certificates
representing  management's  compliance  to all  conditions  and covenants in the
indenture  governing  the  Debentures.   In  addition,  the  Debentures  contain
covenants  which  prohibit  the Company with respect to the payment of dividends
and other distributions.

    Notes payable includes the promissory note ("the Note"), entered into by the
Company on June 1, 1998,  to pay Zurn  Industries,  Inc.  $1,650,000  on June 1,
1999. The Note  represents the remaining  balance to be paid for the purchase of
the  Company's  new corporate  headquarters.  Notes payable also includes  other
amounts  due in monthly  installments  of $2,500,  including  interest  at 18.0%
through December 2006.

    The Company's  Convertible  Subordinated  Notes  ("Notes") were due July 15,
2002 bearing interest at the rate of 10% per annum payable  quarterly on October
15,  January  15,  April 15 and July 15.  The Notes  were  convertible  into the
Company's common stock at a conversion price of $9.94 per share. The Company was
given the right to mandatorily  require the  noteholders to convert the Notes to
common stock if the market price exceeded  $16.50 per share for 20 days during a
30 day consecutive  period.  In addition,  the noteholders  received  detachable
warrants to purchase  105,000 shares of the Company's  common stock at $9.94 per
share.  The stock purchase  warrants  expire on July 15, 2002. The  subordinated
note agreement  prohibited the payment of dividends and required the maintenance
of certain financial covenants related to fixed charge coverage and consolidated
net worth.  On October 8, 1997,  the Company  exercised its right to convert the
Notes.  The Company was able to exercise this right when the market price of the
Company's common stock remained above $16.50 per share for a twenty  consecutive
day period.  The Notes  converted  into 704,223  shares of the Company's  common
stock, at a conversion price of $9.94 per share.

     The Company's weighted average interest rate was 7.784%, 8.517%, and 9.570%
for the years ended September 30, 1998, 1997 and 1996, respectively.

    At September 30, 1998, the carrying  values and the estimated fair values of
the Company's significant fixed interest debt instruments are as follows:
<TABLE>
<CAPTION>

                                                                             September 30, 1998
                                                                          Carrying       Estimated
                                                                           Values       Fair Values
                                 Convertible Subordinated Debentures     $20,000,000    $21,403,924
                                                                          ----------     ----------
<S>                              <C>                                     <C>            <C>        
                                 7%..................................    $20,000,000    $21,403,924

</TABLE>


<PAGE>


                                 RENT-WAY, INC.

                    NOTES TO FINANCIAL STATEMENTS (Continued)

7. DEBT, Continued:

    At September 30, 1998, aggregate annual maturities of debt are as follows:
<TABLE>
<CAPTION>

                                                                               September 30, 1998
                                
<S>                              <C>                                              <C>                      
                                 1999.......................................      $    1,657,579           
                                 2000.......................................               9,061
                                 2001.......................................              10,834
                                 2002.......................................              12,953
                                 2003.......................................          97,279,652
                                 Thereafter.................................          20,072,055
                                                                                  --------------
                                                                                  $  119,042,134   
                                                                                  ==============
</TABLE>

8.  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 Amended
Facility  (see Note 7). The  Company  does not enter into  derivative  financial
instruments for trading or speculative  purposes.  As of September 30, 1998, the
Company had in place three  interest rate swaps,  under which the Company agreed
with counterparties to exchange,  at quarterly  intervals,  interest payments on
the Company's  variable pay rate of the three-month LIBOR and the counterparties
fixed pay rate for the notional amount of the interest rate swap agreements. The
Company actively evaluates the  creditworthiness  of the financial  institutions
which are  counterparties  to  interest  rate swap  agreements,  and it does not
appear that any counterparty will fail to meet their  obligation.  The following
table illustrates the notional amounts outstanding, maturity dates and the fixed
pay and variable  receive rates of each of the interest rate swap  agreements at
September 30, 1998:
<TABLE>
<CAPTION>

                                                                                             Fixed   Variable
                                                                    Notional    Maturity      Pay     Receive
                                                                     Amount       Date       Rate      Rate

                        Interest rate swap, National City Bank
<S>                                                               <C>              <C>       <C>       <C>   
                          of Pennsylvania.......................  $30,000,000  May 2003      5.965%    5.594%
                        Interest rate swap, NationsBank, N.A....   20,000,000  May 2003      5.760     5.594
                        Interest rate swap, Manufacturers' and
                          Traders Trust Company.................   10,000,000  May 2003      5.925     5.594
</TABLE>

     The fair value of the interest  rate swap  agreements  based on  settlement
cost as estimated by a dealer as of September 30, 1998 are as follows:
<TABLE>
<CAPTION>

                                                                    Notional       Fair
                                                                     Amount        Value
                        Interest rate swap, National City Bank
<S>                                                               <C>          <C>          
                          of Pennsylvania.......................  $30,000,000  $ (1,025,000)
                        Interest rate swap, NationsBank, N.A....   20,000,000      (637,598)
                        Interest rate swap, Manufacturers' and
                          Traders Trust Company.................   10,000,000      (284,629)
</TABLE>


9. 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.  At September 30, 1998,  future
minimum rental payments under non-cancelable operating leases are as follows:
<TABLE>
<CAPTION>

                                                                               September 30, 1998

<S>                              <C>                                               <C>        
                                 1999.......................................       $10,264,336
                                 2000.......................................         7,607,072
                                 2001.......................................         4,696,939
                                 2002.......................................         2,400,915
                                 Thereafter.................................         2,056,227
                                                                                   -----------
                                 Total minimum payments required............       $27,025,489
                                                                                   ===========


    Rent expense under  operating  leases for the years ended  September 30, 1998,  1997,  and 1996 was  $9,213,516,  $4,497,073 and
$2,508,545, respectively.
</TABLE>

                                 RENT-WAY, INC.

                    NOTES TO FINANCIAL STATEMENTS (Continued)

9. COMMITMENTS AND CONTINGENCIES, Continued:

    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  contingent  liabilities  ranging  from  $2,800,000  to
$5,700,000.  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 financial  position,  results of operations or
cash flows of the Company.

    Additional  claims  exist in the range of  $325,000  to  $500,000  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 management's
opinion,  each  of  these  claims  will  either  be  indemnified  by the  former
shareholders  of companies it has acquired or covered by insurance  policies and
therefore will not have a material effect on the financial position,  results of
operations or cash flows of the Company.

10. REDEEMABLE PREFERRED STOCK:

    On July 21, 1995, in connection  with the  acquisition  of McKenzie  Leasing
Corporation,  the Company issued 27,500 shares of Series A Redeemable  Preferred
Stock ("Preferred  Stock").  In preference to shares of common stock, each share
was entitled to receive  annual  cumulative  cash  dividends in the amount of 7%
payable in quarterly  installments on the first day of January,  April, July and
October.  During 1997 and 1996 the Company declared and paid dividends  totaling
$30,103 and $147,150  respectively.  At September 30, 1996, dividends in arrears
totaled $19,792.  Holders of the Preferred Stock had no voting rights;  however,
there were certain  exceptions  including  the right to eight votes per share if
the Company failed to pay dividends for two quarters.

    The Company was required to redeem all  outstanding  Preferred Stock on June
30,  2006 at a  redemption  price of $100 per share  plus any  accrued or unpaid
dividends.  The Company had the right to redeem the Preferred  Stock at any time
at the rate of $100 per share plus any accrued or unpaid dividends.  The Company
also  entered into option  agreements  with the holders of the  Preferred  Stock
which provided the holders with  mandatory  redemption  rights.  During 1996 the
following  redemptions  of the Series A Preferred  Stock were made:  $429,400 in
January,  1996,  $67,700 in February,  1996, and  $1,132,200 in April,  1996. In
addition,  on November  26, 1996,  the Company  redeemed  the  remaining  11,207
outstanding shares. These shares were redeemed at a twenty-five percent discount
for an aggregate  purchase  price of $840,525 and have  reinstated the status of
authorized and unissued preferred shares  undesignated as to series. As a result
of  redemption on a discounted  basis,  a net gain on redemption of $280,175 was
recognized.
This amount is added to net income in the calculation of earnings per share.

11. INCOME TAXES:

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

                                                                                      For the Years Ended September 30,
                                                                                ----------------------------------------------
                                                                                    1998            1997           1996
                                                                                    ----            ----           ----
                       Current expense:
<S>                                                                             <C>              <C>           <C>         
                         Federal.............................................   $  3,829,560     $2,617,964    $  1,291,972
                         State and local.....................................        799,470        822,431         407,600
                                                                                --------------   ----------    -------------
                                                                                   4,629,030      3,440,395       1,699,572
                       Deferred expense:
                         Federal.............................................      3,326,488        971,154         527,950
                         State and local.....................................      1,265,024        217,928         153,540
                                                                                ------------     ----------    -------------
                                                                                   4,591,512      1,189,082         681,490
                                                                                ------------     ----------    -------------
                       Income tax expense....................................   $  9,220,542     $4,629,477    $  2,381,062
                                                                                ============     ==========    =============

    A  reconciliation  of the income tax expense compared with the amount at the
U.S. statutory tax rate of 34% is shown below:

                                                                                      For the Years Ended September 30,
                                                                                ----------------------------------------------
                                                                                    1998            1997           1996
                                                                                    ----            ----           ----
                       Tax provision at U.S. statutory rate...................    $7,411,310     $ 3,506,902    $ 1,777,647
                       State and local income taxes, net of federal benefit...     1,362,566         686,637        370,352
                       Amortization of goodwill...............................       387,889         382,821        280,702
                       Other..................................................        58,777          53,117        (47,639)
                                                                                -------------    -----------   ------------
                       Income tax expense.....................................    $9,220,542     $ 4,629,477   $  2,381,062
                                                                                  ==========     ===========   ============

</TABLE>


<PAGE>


                                 RENT-WAY, INC.

                    NOTES TO FINANCIAL STATEMENTS (Continued)

11. INCOME TAXES, Continued:


    At September 30, 1998 and 1997, the components of the net deferred tax asset
(liability) are as follows:
<TABLE>
<CAPTION>

                                                                                                    1998           1997
                                                                                                -----------    --------
<S>                                                                                             <C>            <C>        
                        Rental merchandise...................................................   $(6,443,013)  $   142,151
                        Property and equipment...............................................       617,081       650,182
                        Operating loss carry forwards........................................       949,807       626,030
                        Amortization of goodwill, loan fees, non-compete fees and severance
                          payments...........................................................    (1,512,646)     (346,436)
                        Tax credits..........................................................     2,869,186           --
                                                                                                ------------   -----------
                        Net deferred tax asset(liability)....................................   ($3,519,585)   $1,071,927
                                                                                                ============   ===========
</TABLE>

12. RELATED PARTY TRANSACTIONS:

    During fiscal years ended  September 30, 1998,  and 1997 the Company  leased
two  locations  from  a  principal  shareholder  or a  company  controlled  by a
principal shareholder.  Rent paid during these years related to these leases was
$87,191 and  $92,238,  respectively.  The Company  leased six  locations  from a
principal  shareholder or a company controlled by a principal shareholder during
fiscal 1996.  The Company paid $238,634 in rent during the year ended  September
30, 1996 related to these leases. The leases have average remaining lives of one
year and require the Company to pay real estate taxes.

    On May 21, 1996, the Company was paid in full for a loan made to a principal
shareholder.  The loan carried an annual  interest  rate of 7.6% and the balance
including  accrued  interest  as of May 21,  1996  was  $311,310.  The  loan was
satisfied  by the  surrender  to the  Company of 10,800  shares of Common  Stock
valued at $15.00 per share, with the balance paid in cash.

    The Company was in  possession  of land and building lots acquired from Erie
Business  Management   Corporation  ("EBMC"),  a  corporation  controlled  by  a
principal  shareholder of the Company. The Company obtained the right to require
EBMC to repurchase  any or all of the remaining  land and building lots during a
period of 30 days  commencing  May 31, 1996.  Upon exercise of this "put" right,
EBMC  would have the option of paying  the  purchase  price in cash,  marketable
securities  (including common stock of the Company) or a combination of both. On
June 4, 1996,  the Company  exercised  its right to "put" the land and  building
lots to EBMC. The total amount due from EBMC was $946,450, comprised of the land
and building lots, carrying costs, accrued interest,  the difference between the
dividend paid in 1993 to the principle  shareholder and any profit recognized by
the Company and any sales of the land or building  lots prior to the exercise of
the "put" option. The repurchase was satisfied in full by a combination of cash,
common stock of the Company,  the  surrender  for  cancellation  of 52,500 stock
options held by the principal shareholder and the conveyance to the Company of a
building and related mortgage owned by the principal  shareholder,  in which the
Company had a 15 year capital  lease.  There was no gain or loss recorded by the
Company as a result of the exercise of the "put".

    The Company has entered into employment contracts with certain directors and
executive officers.  The agreements are for a three year term commencing October
1, 1995.  The Company paid  $1,281,950,  $881,600 and $393,600  related to these
agreements for the years ended September 30, 1998, 1997 and 1996, respectively.

     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 of DAMSL. The remaining payment terms for the consulting and
non-compete   agreements   are   $267,428   and  $319,428  for  1999  and  2000,
respectively.

    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 $1,250,000
on July 21, 1995 and $200,000 per year for each of the following seven years.

13. STOCK OPTIONS:

    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


<PAGE>


                                 RENT-WAY, INC.

                    NOTES TO FINANCIAL STATEMENTS (Continued)

13. STOCK OPTIONS, Continued:

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 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. The following is a summary of activity of the Company's stock options
during the years ended September 30, 1998, 1997 and 1996:
<TABLE>
<CAPTION>

                                                                                Average
                                                                                 Price
                                                Stock Options       Shares     Per Share
<S>                                                    <C> <C>       <C>          <C>  
                                             September 30, 1995      898,035      $6.05
                                               Granted.........      156,000       9.18
                                               Exercised.......      (52,300)      6.56
                                               Forfeited.......      (56,325)      2.62
                                                                 ------------
                                             September 30, 1996      945,410       6.74
                                               Granted.........      724,500      10.39
                                               Exercised.......     (296,860)      5.80
                                               Forfeited.......      (78,156)      8.45
                                                                 ------------
                                             September 30, 1997    1,294,894       8.97
                                               Granted.........      571,410      22.66
                                               Exercised.......     (253,461)      8.44
                                               Forfeited.......      (67,136)      9.84
                                                                 -----------
                                             September 30, 1998    1,545,707      14.08
                                                                 ===========     ======
</TABLE>
                                                                   

     At September  30,  1998,  stock  options  representing  809,509  shares are
exercisable at prices ranging from $4.67 to $33.63 per share.

     The Company accounts for stock based  compensation  issued to its employees
and  non-employee  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 both
the 1992 Plan and the 1995 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  1998  and  1997:  expected
volatility of 40.91%,  risk-free  interest rates between 6.06% and 4.52%, and an
expected life of five years.

    If the Company had elected to recognize the  compensation  cost of its stock
option  plans  based  on the fair  value  of the  awards  under  those  plans in
accordance  with SFAS No. 123,  net income and  earnings  per common share would
have been reduced to the pro-forma amounts below:
<TABLE>
<CAPTION>

                                                                                 September 30,
                                                                               1998         1997
                                  Net income:
<S>                                                                         <C>          <C>       
                                                               As reported  $12,577,430  $5,415,926
                                                               Pro-forma      8,569,673   3,467,832
                                 Diluted  earnings per common share (adjusted to
                                 give    effect   to   any    preferred    stock
                                 (dividend)/gain on redemption):

                                      Income before extraordinary item
                                                               As reported  $     1.08   $      0.78
                                                                            ============ ===========
                                                                                  
                                                               Pro-forma    $     0.76   $      0.53
                                                                            ============ ===========
                                                                                
                                      Net income
                                                               As reported  $     1.08   $      0.75
                                                                            ============ ===========
                                                                                   
                                                               Pro-forma    $      0.76  $      0.50
                                                                            ============ ===========
</TABLE>
                             



<PAGE>


                                 RENT-WAY, INC.

                    NOTES TO FINANCIAL STATEMENTS (Continued)

14. STOCK PURCHASE WARRANTS:

    During  October,  November and December 1992, the Company issued warrants to
purchase up to 112,500  shares of common stock at $4.67 per share.  The warrants
are  exercisable  at any time for a period of five years  from their  respective
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  transaction,  and stock  issuances  below the warrant
exercise price.  The agreements will expire five years from the respective dates
on which the warrants  were issued,  subject to earlier  termination  in certain
circumstances.

    Upon the closing of the Company's initial public offering in August 1993 the
underwriters  received  warrants to purchase 105,000 shares of common stock at a
price of $6.77 per share  exercisable for a period of four years  commencing one
year from the date of the offering.

    In  July1995,  the Company  issued  warrants to purchase  105,000  shares of
common stock at $9.94 per share.  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, the Company 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.

    At September 30, 1998, the following warrants were outstanding:
<TABLE>
<CAPTION>

                                               Number of  Exercise   Expiration      Shares     Shares
                               Warrant Date     shares      Price       Date        Exercised  Remaining
                             ---------------  ----------  -------- --------------  ---------------------
<S>                                  <C>          <C>      <C>             <C>        <C>              
                             October 1992         37,500   $  4.67 October 1997       37,500         --
                             November 1992        37,500   $  4.67 November 1997      37,500         --
                             December 1992        37,500   $  4.67 December 1997      37,500         --
                             August 1993         105,000   $  6.76 August 1998       105,000         --
                             July 1995           105,000   $  9.94 July 2002              --    105,000
                             September 1995       37,500   $ 10.00 September 2000     37,500         --
</TABLE>

15. EMPLOYEE BENEFIT PLAN:

    Effective January 1, 1994, the Company established the Rent-Way, Inc. 401(k)
Retirement Savings Plan (the "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 $383,283, $272,294 and $148,509 (in the form of the Company's common
stock) for the years ended September 30, 1998, 1997 and 1996, respectively.



<PAGE>


                                 RENT-WAY, INC.

                    NOTES TO FINANCIAL STATEMENTS (Continued)

16.   EARNINGS PER SHARE:

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

                                                                                               September 30,
                                                                        ------------------------------------------------------------
COMPUTATION OF EARNINGS PER SHARE                                             1998                1997                 1996

BASIC
<S>                                                                     <C>                <C>                    <C>           
Net income                                                              $      12,577,430  $        5,415,926     $    2,847,312
Preferred stock (dividend) / gain on redemption                                        --             280,175           (128,969)
                                                                        -----------------  ------------------     --------------
Earnings applicable to common shares for basic earnings per share       $      12,577,430  $        5,696,101     $    2,718,343
                                                                        =================  ==================     ==============
Weighted average of common shares outstanding                                  10,317,338           6,692,008          5,345,878
                                                                        =================  ==================     ==============
                                                                               
Earnings per  common  share  (adjusted  to give  effect to any  preferred  stock
     (dividend) / gain on redemption):
     Income before extraordinary item                                   $            1.22  $            0.89     $          0.51
                                                                        =================  =================     ===============
                                                                                                
     Earnings applicable to common shares                               $            1.22  $            0.85     $          0.51
                                                                        =================  =================     ===============
                                                                                                     
DILUTED
Earnings applicable to common shares for basic earnings per share       $      12,577,430   $       5,696,101     $    2,718,343
     Interest on 10% convertible notes (net of tax)                                    --             420,700                 --
     Interest on 7% convertible debentures (net of tax)                           845,000             549,632                 -- 
                                                                        -----------------   -------------------   --------------
                                                                                                                      
Earnings applicable to common shares for diluted earnings per share      $     13,422,430   $       6,666,433     $    2,718,343
                                                                         ================   =================     ==============
Weighted average common shares used in calculating basic earnings per          10,317,338           6,692,008          5,345,878
     share
Add - incremental shares representing:
Shares issuable upon exercise of stock options, stock warrants and
     escrowed shares included in basic calculation above                          645,055             558,440            614,628
Shares issued on conversion of 10% convertible notes                                  --              704,225                 --
Shares issued on conversion of 7% convertible debentures                        1,495,886             966,842                 --
                                                                        -----------------   -----------------     --------------
                                                                                
Weighted average number of shares used in calculation of diluted
     earnings per share                                                        12,458,279           8,921,515          5,960,506
                                                                        =================  ==================    ===============
Earnings per common share (adjusted to give effect to any
        preferred stock (dividend) / gain on redemption):
     Income before extraordinary item                                   $           1.08    $            0.78     $         0.46
                                                                        =================  ==================    ================
                                                            
     Earnings applicable to common shares                               $           1.08    $            0.75     $         0.46
                                                                        =================  ==================    ================
                                                                              
 </TABLE>
       


<PAGE>


                                 RENT-WAY, INC.

                    NOTES TO FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>

17. SELECTED QUARTERLY FINANCIAL DATA (unaudited):

------------------------------------------- ------------------- ------------------ ------------------ ------------------
Quarter Ended                               September 30(1)(2)      June 30 (1)         March 31 (1)       December 31
------------------------------------------- ------------------- ------------------ ------------------ ------------------
1998:
                           
<S>                                         <C>                 <C>                <C>               <C>             
Total revenues                              $      52,266,802   $    52,491,456    $     45,902,429  $     26,666,143
Gross profit                                       8,893,304          8,403,355           6,993,447         4,276,009
Income before extraordinary item                   3,819,999          3,636,913           3,085,851         2,034,667
Net income                                         3,819,999          3,636,913           3,085,851         2,034,667
Earnings applicable to common shares               3,819,999          3,636,913           3,085,851         2,034,667
Earnings per common share
Basic
  Income before extraordinary item (7)     $           0.36     $          0.34    $           0.29   $          0.24
  Net income (7)                                       0.36                0.34                0.29              0.24
Diluted
  Income before extraordinary item         $           0.31     $          0.30    $           0.26   $          0.21
  Net income                                           0.31                0.30                0.26              0.21
Weighted average shares outstanding
  Basic                                           10,728,669         10,700,594          10,727,843         8,535,945
  Diluted                                         12,875,305         12,964,863          12,848,310        10,790,233
------------------------------------------- ------------------- ------------------ ------------------ ------------------
Quarter Ended                               September30(5)(6)      June 30 (5)        March 31 (5)       December 31
------------------------------------------- ------------------- ------------------ ------------------ ------------------
1997:
             
Total revenues                              $     25,111,368      $  24,968,205    $     22,545,381    $   15,663,898
Gross profit                                       4,183,969          4,130,915           3,333,791         2,137,486
Income before extraordinary item (3)               1,834,465          1,605,806           1,295,281           949,391
Net income                                         1,834,465          1,605,806           1,295,281           680,374
Earnings applicable to common shares (4)           1,834,465          1,605,806           1,295,281           960,549
Earnings per common share
Basic
  Income before extraordinary item          $           0.26      $        0.24    $           0.20    $         0.19
  Net income                                            0.26               0.24                0.20              0.15
Diluted
  Income before extraordinary item (7)      $           0.22      $        0.20    $           0.18    $         0.17
  Net income (7)                                        0.22               0.20                0.18              0.14
Weighted average shares outstanding
  Basic                                            7,059,451          6,659,569           6,609,853         6,593,876
  Diluted                                          9,872,589          9,434,819           8,687,547         7,026,327
</TABLE>

    (1) Includes the results of operations of Ace Rentals since January 1, 1998 
        and Champion  Rentals,  Inc.  since February 5, 1998(See note 4).
    (2)  Includes the results of operations of Fast Rentals,  Inc. since July
         21, 1998 and Cari Rentals,  Inc. since September 10,1998 (See note 4).
    (3) As a result of the refinancing of its senior credit facility in November
        1996, the Company incurred an extraordinary  charge, net of tax benefit,
        of $269,017 (See notes 1 and 7).
    (4) As a  result  of  redemption  on a  discounted  basis  of its  remaining
        redeemable preferred stock outstanding on November 26, 1996, the Company
        recognized a net gain on redemption of $280,175 (See note 10).
    (5) Includes the results of  operations of the Bill Coleman TV, Inc. since
        January 2, 1997 and Rental King since  February 1, 1997 (See Note 4).
    (6) Includes the results of  operations  of seven  rental  purchase  stores
        acquired  in July  and  September  1997. 
    (7) The sum of the 1998 and 1997 quarterly  per share  amounts does not 
        equal annual per share amounts due to the effect of rounding.



<PAGE>


                                 RENT-WAY, INC.

                    NOTES TO FINANCIAL STATEMENTS (Continued)

18. SUBSEQUENT EVENTS:

    On October 8, 1998, the Company began trading on the New York Stock Exchange
under the symbol "RWY". The Company's common stock had been previously traded on
the NASDAQ National Market System under the symbol "RWAY".

    On December  10,  1998,  the Company  completed  the merger with Home Choice
Holdings,  Inc.  ("Home  Choice").  In connection  with the merger,  the Company
issued 10,024,821 million shares of its Common Stock to the stockholders of Home
Choice based on an exchange ratio of 0.588 Rent-Way  shares for each Home Choice
share. This business combination will be accounted for as a pooling-of-interests
combination and,  accordingly,  the Company's  historical  financial  statements
presented in future reports will be restated to include the historical  accounts
and results of operations of Home Choice. The following unaudited pro forma data
summarizes the consolidated results of operations of Rent-Way and Home Choice as
if the combination had been consummated on October 1, 1995.
<TABLE>
<CAPTION>

                                                          UNAUDITED PRO FORMA INFORMATION

                                                                                   For the Years Ended September 30,
                                                                                    1998            1997           1996
                                                                                    ----            ----           ----
<S>                                                                             <C>             <C>            <C>         
                       Total revenues........................................   $434,902,440    $319,012,133   $175,332,697
                       Income (loss) before extraordinary item...............     (1,838,221)      1,567,349      3,944,870
                                                                                                  
                       Net income (loss).....................................     (1,838,221)      1,578,507      3,944,870
                                                                                
                       Earnings (loss) per share before extraordinary item...
                          Basic..............................................   $      (0.09)   $       0.08   $       0.35
                                                                                       
                          Diluted............................................   $      (0.04)   $       0.07   $       0.33
                                                                                     
                       Earnings (loss) per share (1)
                          Basic..............................................   $      (0.09)   $       0.08   $       0.35
                                                                                    
                          Diluted............................................   $      (0.04)   $       0.07   $       0.33
                                                                                     
</TABLE>


    (1) Pro  forma  earnings  (loss)  per  share  are  based  on the  sum of the
        historical shares  outstanding for basic and diluted earnings per share,
        as reported by the Company,  and the historical  shares  outstanding for
        Home Choice  converted to Company  shares at the exchange  ratio of .588
        Rent-Way shares for each Home Choice share.

    Pro forma financial information is not necessarily  indicative of results of
operations  that would have occurred if the  acquisition had occurred on October
1, 1995,  or of future  results of operations  of the combined  companies.  As a
result of the Company and Home Choice  having  different  fiscal year ends,  the
consolidated  pro forma amounts for the years ended  September 30, 1996 and 1997
include  amounts for the Company based on its September 30 year end and for Home
Choice based on its December 31 year end. Pro forma  amounts for  September  30,
1998 are based on the twelve months ended  September 30 for both the Company and
Home  Choice.   Revenues  were  $42,739,933  and  net  losses  were  $1,553,946,
respectively  for the three month period ended December 31, 1997 for Home Choice
and will be reflected as an  adjustment  to  shareholders'  equity.  The Company
expects to incur  approximately $10.0 million of expenses in connection with the
merger which will be expensed in the quarter ended December 31, 1998.

    On  December  10,  1998,  the  Company  entered  into  a new  collateralized
revolving credit facility with a syndicate of banks led by National City Bank of
Pennsylvania,  NationsBank,  N.A. and Harris Bank, providing loans or letters of
credit up to $207.5  million.  A portion of this  facility was used to refinance
the debt of Home Choice  acquired in the merger and to refinance  debt under the
Company's  previous facility.  Subject to compliance with certain formulas,  the
remaining  portion of the  facility  will be  available  to  finance  additional
acquisitions. The Company expects to write-off $722,481 ($433,487 net of tax) of
deferred loan costs  associated  with the prior credit facility in December 1998
(see Note 7).


<PAGE>


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

    There has been no change of  accountants or reporting  disagreements  on any
matter of accounting  principle,  practice,  financial  statement  disclosure or
auditing scope or procedure within the Company's two most recent fiscal years or
the current interim period.


<PAGE>


                                 RENT-WAY, INC.

                                    PART III

ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS ACT

Information  in response to this item is  incorporated  herein by reference from
the Company's  definitive proxy statement for the annual meeting of shareholders
to be held on March  10,  1999,  which  will be filed  with the  Securities  and
Exchange Commission within 120 days after September 30, 1998.

ITEM 11 EXECUTIVE COMPENSATION

Information  in response to this item is  incorporated  herein by reference from
the Company's  definitive proxy statement for the annual meeting of shareholders
to be held on March  10,  1999,  which  will be filed  with the  Securities  and
Exchange Commission within 120 days after September 30, 1998.

ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information  in response to this item is  incorporated  herein by reference from
the Company's  definitive proxy statement for the annual meeting of shareholders
to be held on March  10,  1999,  which  will be filed  with the  Securities  and
Exchange Commission within 120 days after September 30, 1998.

ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information  in response to this item is  incorporated  herein by reference from
the Company's  definitive proxy statement for the annual meeting of shareholders
to be held on March  10,  1999,  which  will be filed  with the  Securities  and
Exchange Commission within 120 days after September 30, 1998.

ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

    (a)(1.)Financial Statements.

    See Index to Financial Statements appearing at Item B 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




<PAGE>


<TABLE>
<CAPTION>


                       Exhibit No.                                Description
<S>                       <C>                                                   
                          2.1(1)   Asset Purchase Agreement among the Company,  AV
                                   Rentals/Warren, Inc., AV Rentals/Garystown, Inc., 
                                   Best Rentals Northside, Inc. and C. Dennis
                                   Goldman, dated February 24, 1995.
                          2.2(4)   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(7)   Stock  Purchase  Agreement  by and  among the
                                   Company, Diamond Leasing Corporation, Kenneth
                                   H. Moye and Lee Brady, dated July 20, 1996.
                          2.4(9)   Stock Purchase Agreement by and among the 
                                   Company, Bill Coleman TV, Inc. and
                                   David Coleman, dated January 2, 1997.
                          2.5(6)   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(6)   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(10)  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(11)  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(12)  Agreement and Plan of Merger dated  September
                                   1, 1998  between  the Company and Home Choice
                                   Holdings, Inc.
                          3.1*     Articles of Incorporation of the Company, as amended.
                          3.2(2)   By-Laws of the Company, as amended.
                          4.1(1)   Form of Stock Option Agreement between the 
                                   Company and each of the shareholders of 
                                   McKenzie Leasing Corporation, dated July 21, 1995.
                          4.2(1)   Registration Rights Agreement among the Company, 
                                   Massachusetts Mutual Life Insurance Co. and 
                                   affiliates thereof ("MassMutual"), dated July 15, 1995.
                          4.3(9)   Shareholder's  Agreement  between the Company
                                   and Lee Brady, dated July 20, 1996.
                          4.4(9)   Stock  Option  Agreement  between the Company
                                   and David Coleman, dated January 2, 1997.
                          10.1(2)  Company's Stock Option Plan of 1992.
                          10.2(1)  Company's 1995 Stock Option Plan.
                          10.3(2)  Form of Non-Plan Stock Option Agreement.
                          10.4(5)  Employment   Agreement   between  William  E.
                                   Morgenstern and the Company, dated October 1,
                                   1995.
                          10.5(5)  Employment   Agreement   between  Jeffrey  A.
                                   Conway  and the  Company,  dated  October  1,
                                   1995.
                          10.6(5)  Employment  Agreement  between Gerald A.
                                   Ryan and the Company,  dated  October 1,
                                   1995.
                          10.7(1)  Consulting  Agreement  between the Company
                                   and Marc Joseffer, dated May 18, 1994.
                          10.8(1)  Non-Competition  Agreement  between  Marc
                                   Joseffer and the  Company,  dated May 18,
                                   1994.
                          10.9(1)  Consulting  Agreement between the Company and
                                   McKenzie Development Corporation,  dated July
                                   21, 1995.  
                          10.10(1) Non-Competition  Agreement between
                                   the Company and Steve A. McKenzie, dated July 21, 1995.
                          10.11(1) Non-Competition Agreement between the Company
                                   and Brenda G. McKenzie, dated July 21, 1995.
                          10.12(4) Subordinated Note Agreement among the Company
                                   and MassMutual, dated July 15, 1995.
                          10.13(1) Form of MassMutual Subordinated Note, dated 
                                   July 15, 1995.
                          10.14(1) Form of MassMutual Warrant, dated July 15, 1995.
                          10.15(12)Non competition Agreement between the Company
                                   and George D. Johnson, Jr.
                          10.16*   Revolving   Credit  Facility  and  Term  Loan
                                   Agreement by and among the Company, the banks
                                   party  thereto  and  National  City  Bank  of
                                   Pennsylvania,  NationsBank,  N.A.  and Harris
                                   Bank as Agents, dated December 10, 1998. 
                          10.17(8) Form of the Company's 7% Convertible  Subordinated
                                   Debentures due 2007 (the "Debentures").
                          10.18(8) Indenture, dated February 4, 1997, between
                                   the Company and Manufacturers and Traders 
                                   Trust Company, as Trustee, in respect of the
                                   Debentures.
                          10.19*   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.
                          10.20*   Non-Compete  Agreement  between Bill C. Ogle,
                                   Sr.,  Gary E. Jackson,  J. Lee Ogle,  Bill C.
                                   Ogle, Jr., Cindy Harper,  Teresa Ogle and the
                                   Company, dated February 5, 1998.
                          10.21*   Consulting Agreement between Paul N. Upchurch
                                   and the Company, dated February 5, 1998.
                          21*      Subsidiaries of the Company
                          23*      Consent of PricewaterhouseCoopers LLP.
                          27*      Financial Data Schedule.
----------

    * Filed herewith
</TABLE>

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

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

(3) Previously  filed,  as of July 9, 1993,  pursuant to Amendment No. 2 to the 
Company's  Registration  Statement of Form S-18 (No.33-55562-NY).

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

(5)  Previously  filed,  as of December 28, 1995, as an exhibit to the Company's
Report on Form 10-KSB.

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

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

(8) Previously filed, as of May 9, 1997, pursuant to the Company's  Registration
Statement on Form S-3 (No. 333-26835).

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

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

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

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

    (b) Reports on Form 8-K:

         (1)      On July 22, 1998,  the Company filed a Current  Report on Form
                  8-K disclosing its intention to raise $75.0 million  through a
                  rule 144A private offering of convertible  subordinated  notes
                  within the United States.

         (2)      On July 22, 1998,  the Company filed a Current  Report on Form
                  8-K  disclosing  its  issuance of a press  release on July 21,
                  1998,  which announced the acquisition of Fast Rentals,  Inc.,
                  an eight-store rental-purchase chain.

         (3)      On August 12, 1998, the Company filed a Current Report on Form
                  8-K  disclosing  its issuance of a press  release on August 4,
                  1998,  which announced the indefinite  delay of its previously
                  announced proposed offering of convertible subordinated notes.

         (4)      On September 14, 1998,  the Company filed a Current  Report on
                  Form 8-K disclosing  that it had entered into an Agreement and
                  Plan of  Merger,  dated as of  September  1,  1998,  with Home
                  Choice Holdings, Inc.

         (5)      On September 16, 1998,  the Company filed a Current  Report on
                  Form  8-K  disclosing  its  issuance  of a  press  release  on
                  September 10, 1998, which announced the Company's  acquisition
                  of Cari Rentals, a 23-store rental-purchase chain.

         (6)      On December 24, 1998,  the Company  filed a Current  Report on
                  Form 8-K disclosing the  consummation  of the merger with Home
                  Choice Holdings, Inc., effective December 10, 1998.




<PAGE>


                                 RENT-WAY, INC.

                                   SIGNATURES

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

Registrant: RENT-WAY, INC.

By:     /s/ WILLIAM E. MORGENSTERN
-------------------------------------------
President and Chief Executive Office
 (Principal Executive Officer)

December 29, 1998
Date
By:    /s/ JEFFREY A. CONWAY
-------------------------------------------
Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)

December 29, 1998
Date

    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>
                                     /s/ GERALD A. RYAN          Chairman of the Board   December 29,
                                                                 of                      1998
                                    Gerald A. Ryan               Directors

                                 /s/ WILLIAM E. MORGENSTERN      Director                December 29,
                                                                                         1998
                                   William E. Morgenstern

                                     /s/ VINCENT CARRINO         Director                December 29,
                                                                                         1998
                                       Vincent Carrino

                                     /s/ ROBERT FAGENSON         Director                December 29,
                                                                                         1998
                                       Robert Fagenson

                                    /s/ MARC W. JOSEFFER         Director                December 29,
                                                                                         1998
                                      Marc W. Joseffer

                                     /s/ WILLIAM LERNER          Secretary and Director  December 29,
                                                                                         1998
                                       William Lerner

                                     /s/ PAUL N. UPCHURCH        Director                December 29,
                                                                                         1998
                                   Paul N. Upchurch

</TABLE>


<PAGE>



                                                             Exhibit 21

                                                            Subsidiaries



RTO Holding Co., Inc., a Delaware corporation

ATRO, Inc., a South Carolina corporation

Action Rent-To-Own Holdings of South Carolina, Inc., a South Carolina
corporation

RTO Operating, Inc., a Delaware corporation doing business as Home Choice
Lease or Own


<PAGE>


                                   Exhibit 23

                       Consent of Independent Accountants


We consent to the  incorporation by reference in the  registration  statement of
Rent-Way, Inc. on Form S-8 (File Nos. 33-86090,  333-13355 and 333-49355) of our
report dated  December  10, 1998 on our audits of the  financial  statements  of
Rent-Way,  Inc.  as of  September  30,  1998 and 1997,  and for the years  ended
September  30,  1998,  1997 and 1996,  which  report is  included in this Annual
Report on Form 10-K.

                                                      PricewaterhouseCoopers LLP


Cleveland, Ohio
December 28, 1998