UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON D.C. 20549
                                   FORM 10-KSB

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

     For the fiscal year ended March 31, 1999

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

     For the transition period from _____________ to _____________

                           Commission File No. 0-14819

                          RENT-A-WRECK OF AMERICA, INC.
                 ----------------------------------------------
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

          Delaware                                               95-3926056
-------------------------------                              ------------------
(State or other Jurisdiction of                               (I.R.S. Employer
 Incorporation or Organization)                              Identification No.)

11460 Cronridge Drive, Suite 120, Owings Mills, MD                 21117
--------------------------------------------------               ----------
    (Address of Principal Executive Offices)                     (Zip Code)

                   Issuer's telephone number: (410) 581-5755

      Securities registered under Section 12(b) of the Exchange Act: None

         Securities registered under Section 12(g) of the Exchange Act:

                          Common Stock, par value $0.01

         Check whether the Issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 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 no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B is contained in this form,  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-KSB or any
amendment to this Form 10-KSB. [X]

         State issuer's revenues for its most recent fiscal year.  $5,601,315

         3,943,217 shares of common stock were outstanding as of May 19, 1999.

         Aggregate  market  value  of  voting  stock  held by  nonaffiliates  of
registrant, based upon the average of the last bid and asked price of the Common
Stock on the Nasdaq SmallCap Market,  was $3,734,124 on May 19, 1999.  Shares of
Common  Stock held by each  officer and director and by each person who owns 10%
or more of the outstanding  Common Stock have been excluded in that such persons
may be deemed to be affiliates.  This  determination  of affiliate status is not
necessarily conclusive.

         The following  documents are  incorporated by reference and made a part
of the Form 10-KSB:

         1. None

       Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
                                TABLE OF CONTENTS

PART I                                                                     Page
------                                                                     ----

Item  1. Description of Business.........................................    3
Item  2. Description of Property.........................................    9
Item  3. Legal Proceedings...............................................    9
Item  4. Submission of Matters to a Vote of Security Holders.............   10

Part II

Item  5. Market for the Common Equity and Related Stockholder
          Matters........................................................   10
Item  6. Management's Discussion and Analysis of Financial Condition
          and Results of Operations......................................   14
Item  7. Financial Statements............................................   23
Item  8. Changes in and Disagreements with Accountants on Accounting
           and Financial Disclosure......................................   49

Part III

Item  9. Directors and Executive Officers, Promoters and Control
          Persons; Compliance with Section 16(a) of the Exchange Act.....   49

Item 10. Executive Compensation..........................................   51

Item 11. Security Ownership of Certain Beneficial Owners and Management...  54

Item 12. Certain Relationships and Related Transactions...................  56

Item 13. Exhibits and Reports on Form 8-K.................................  56

                                       2
<PAGE>
                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

         Rent-A-Wreck  of America,  Inc. (the  "Company")  was  incorporated  in
Delaware on October 12,  1983.  The Company  conducts its  operations  primarily
through its wholly owned subsidiary, Bundy American Corporation ("Bundy"). Bundy
was incorporated in California on April 22, 1977 and  redomesticated in Maryland
effective October 22, 1996. The Company markets and administers the Rent-A-Wreck
(R) and PRICELE$$ (R) vehicle rental  franchise  programs and related  services.
The Company's franchisees, in aggregate, operate one of the largest used vehicle
rental fleets in the nation,  offering rentals of cars, trucks and vans at rates
that are  generally  less than those  charged by new car rental  companies.  The
Company also has  franchisees  in Europe and Asia.  Reference  to the  "Company"
includes  Rent-A-Wreck of America,  Inc. and its subsidiaries unless the context
otherwise requires.

THE FRANCHISE PROGRAM

         The  Company  sells  to  qualified  persons  the  right  to  operate  a
Rent-A-Wreck or PRICELE$$ franchise, or both, for renting and leasing used motor
vehicles  (automobiles,  vans and trucks) to the general public. The franchisees
who  participate  in the PRICELE$$  used vehicle  rental  franchise  program are
required by the Company to meet higher standards than the Rent-A-Wreck  program,
such as utilizing  vehicles  that are less than three years old. As of March 31,
1999, 141 of the Company's 629 franchisees  were  participating in this program.
The Company  believes the  PRICELE$$  name appeals to a different  clientele and
therefore   complements  the  Rent-A-Wreck  program.  The  Company  offers  each
franchisee  territory  rights  in  which  the  Company  will  not  open  another
franchise.  Franchisees  purchase  the  right to use  certain  of the  Company's
resources,  experience  and  knowledge in  connection  with the operation of the
business for a specified  period of time,  typically ten years.  The  franchisee
utilizes the Company's  systems,  methods,  specifications,  standard  operating
procedures,  guidance,  and trade and service  marks.  When the Company  sells a
franchise,  it charges an initial  franchise  fee that varies  according  to the
population of the franchisee's primary service area at the time the franchise is
granted.  The  Company  may  finance the initial fee over a period not to exceed
twelve months based on the  creditworthiness  of the  franchisee.  Additionally,
franchisees are required to pay the Company monthly  royalties and contribute to
the national  advertising  fund.  These fees vary according to the  franchisees'
fleet size or gross revenues.

         The Company provides its franchisees with a central  reservation system
and marketing force for the insurance replacement  business.  This department is
based in Baltimore, Maryland, and the Company is developing this program so that
it can be used  nationwide.  The Company uses an established  insurance  company

                                       3
<PAGE>
client base,  acquired in December  1996, to provide the  Company's  franchisees
with referrals for insureds requiring  temporary  replacement  vehicles after an
accident.  The Company collects  reservation fees from its franchisees for these
referrals.

         Rent-A-Wreck One Way, Inc., a wholly owned subsidiary, operates a truck
rental program, on a limited, test basis, in the immediate area of the Company's
headquarters in Maryland.  The Company has purchased two trucks to operate under
this program.  These trucks and two existing  Company-owned vans are placed with
one or more of the  Company's  franchisees  which  are  utilizing  them in their
fleets.  The franchisees pay fees to the Company for these vehicles based on the
mileage used.

         The  Company  believes  the  Rent-A-Wreck  name is  unique  and  enjoys
national recognition.  Ongoing marketing programs further promote recognition of
the Rent-A-Wreck  and PRICELE$$ names in both domestic and foreign markets.  The
Company  develops and executes  advertising  and  marketing  programs  that have
included  radio and  television  commercials,  direct mail,  print  advertising,
promotional   items  and  sponsorship  at  sporting  events.   Public  relations
activities  conducted  on the  franchisees'  behalf  include a  franchise  award
announcement,  grand  opening  press  release and  anniversary  press  releases.
Assistance  in  planning  and  implementing  local  promotional   activities  is
available to  franchisees.  The Public  Relations  Department also publishes the
"Rent-A-Wreck  Reporter",  which is distributed  internally to  franchisees  and
externally  to trade and consumer  media and referral  sources such as insurance
adjusters, automotive repair shops, travel agents and corporate travel managers.

         Through July 1, 1997, the Company offered to its franchisees a physical
damage insurance  program through its wholly owned  subsidiary  Central Life and
Casualty,  Limited  ("CLC").  Franchisees  paid monthly  premiums based on their
vehicles'  wholesale  value,  and in return CLC provided  them with coverage for
damage to their  vehicles up to their  wholesale  value.  CLC  utilized  Lindsey
Morden as its insurance adjuster and paid claims from premiums collected. During
the  fiscal  year  ended  March  31,  1998,  approximately  11 of the  Company's
franchisees participated in this program. The Company replaced this program with
the insurance program described in the following paragraph.

         In  1997,  the  Company  formed a wholly  owned  insurance  subsidiary,
Consolidated  American Rental Insurance Company, LTD ("CAR Insurance") domiciled
in Bermuda,  to provide  automobile  liability and physical  damage  reinsurance
through American  International  Group ("AIG") for the vehicles belonging to its
franchisees.

         CAR  Insurance  has an  agreement  with  AIG  whereby  CAR  Insurance's
coverage is subject to a per loss limit of $100,000  per person and $300,000 per
accident.  Under  the  contract,  AIG  also  provides  an  aggregate  stop  loss
protection  of  $1,300,000,  thus capping CAR  Insurance's  exposure to loss. In
carrying  out  the  program,   the  Company   utilizes  Hertz  Claim  Management
Corporation  as the Third  Party  Administrator.  On March 1, 1999,  the Company

                                       4
<PAGE>
replaced Willis Corroon with Rental Industry  Services ("Rise") as the insurance
broker and retained  Willis Corroon as a consultant for this program.  The focus
of  growth  for CAR  Insurance  will be in  those  states  where  the  Company's
insurance advisor believes the driver's (not the owner's) insurance is deemed to
be primarily responsible for any losses. As of March 31, 1999,  approximately 69
of the Company's  franchisees were insuring a total of 1,459 vehicles under this
program. Franchisees apply for this insurance coverage with Rise. Rise processes
the franchisees'  applications  and, if approved,  the franchisee is required to
pay premiums in advance on a monthly basis.  Hertz Claim Management  Corporation
is  responsible  for  processing  all claims and  assisting  the  Company on the
appropriate  reserves for all known claims.  Willis Corroon  further assists the
Company in establishing reserves for known and unknown claims which have run 53%
and 55% of the net premiums for the years ended March 31, 1998 and 1999.

         On March 1, 1999,  the Company  added a new program to offer  insurance
coverage to all of its  franchisees  who do business in those  states  where the
Company's insurance advisor believes the owner's (not the driver's) insurance is
deemed to be primarily  responsible for any losses. In those states, this is the
only program that the Company  offers to its  franchisees.  In carrying out this
new program, the Company utilizes Rise as the insurance broker and CAR Insurance
is not involved.  Franchisees apply for this insurance  coverage with Rise. Rise
processes the  franchisees'  applications  and, if approved,  the  franchisee is
required to pay premiums in advance on a monthly  basis.  The Company  bills and
collects the premiums,  which are forwarded to Rise, and receives fees from Rise
for this  program.  The Company has no  exposure to loss from  insurance  claims
under this program.

         The  Company has  arranged a program  whereby  franchisees  may finance
vehicle  purchases  over a 24-30  month  period.  The  program is  available  to
qualified  applicants who maintain a level of creditworthiness  that the Company
has assessed on a case-by-case basis. The franchisees' qualification is based on
their  credit  history with the  Company,  as well as their  credit  standing as
reported by  national  credit  bureaus.  The  franchisees  are  responsible  for
purchasing  the vehicles  with funds  loaned by the Company,  and the Company is
listed on the vehicles' title as a lienholder. As of March 31, 1999, the Company
was financing 16 vehicles for 5 of its franchisees.

         The Company is committed to educating and training its franchisees. The
Company  conducts  Rent-A-Wreck  School at its headquarters in Maryland every 45
days. All new franchisees are required to attend. School is also available at no
charge to current  franchisees  and their staff.  During an  intensive  five-day
period,  attendees learn all aspects of the Rent-A-Wreck and PRICELE$$ programs.
This includes vehicle acquisition,  maintenance and sales, telephone techniques,
counter procedures,  rental operations,  promotion,  publicity,  advertising and
sales  approaches,  relevant aspects of insurance,  accounting and other general
business  skills.  The Company also employs  field  service  staff who have many

                                       5
<PAGE>
years of experience in the car rental  industry and whose  responsibility  is to
provide continuous advice via personal visits and a toll-free telephone number.

         Additionally,  the Company holds and strongly encourages franchisees to
attend its convention once a year, and regional  meetings which are held twice a
year in eastern and western regions of the United States.  The Company  utilizes
these meetings to present new programs to franchisees  and to provide  continued
training and advice.

         The Company's National Franchisee  Advisory Council,  which consists of
seven  members,  meets  quarterly.  Six  of  the  members  are  elected  by  the
franchisees in their region. The seventh member is a franchisee appointed by the
Company.  The Council is a forum through which  franchisees can express opinions
and concerns to the Company. The Council also provides suggestions as to how the
Company's National  Advertising Fund is allocated.  Advertising monies paid into
the National  Advertising  Fund are expended by the Company on the  franchisees'
behalf after consultation with the National Franchisee  Advisory Council.  Based
on the  Council's  recommendations,  the  Company  has  expended  these funds on
different  programs  such as  advertising  on  Westwood  One Radio,  the Weather
Channel and the Travel Channel and sponsoring a race car to further  promote the
Company's national exposure.

         The Company  markets its  franchise  programs  primarily  by  attending
various trade shows and by conducting an ongoing  direct mailing  campaign.  The
Company employs four full-time salespeople at its corporate headquarters, and in
addition  the  Company  utilizes  the  services of three  independent  franchise
brokers  located  throughout  the  United  States.  These   representatives  are
responsible for responding to potential franchisees' inquiries.

         During the fiscal year ended March 31, 1999,  122 new  franchises  were
granted,  14 existing franchise  locations were transferred to new ownership and
51 franchises were terminated by the Company. The majority of these terminations
resulted from monetary  default.  This resulted in approximately  611 franchised
locations  throughout the United States,  as well as 18 franchised  locations in
Europe and Asia at the end of this fiscal year  compared  to  approximately  542
franchised  locations  throughout  the United  States,  as well as 16 franchised
locations in Europe and Asia at the end of the fiscal year ended March 31, 1998.

EMPLOYEES

         As of March 31, 1999, the Company employed 22 people,  consisting of 12
full-time  employees and 2 part-time  employees  engaged in franchise  sales and
service  and  7  full-time   employees  and  1  part-time  employee  engaged  in
administrative  activities.  In addition,  the Company retains the services of 3
franchise  brokers who sell the Company's  franchises.  None of the employees is
covered by a collective bargaining  agreement,  and management believes that its
relations with its employees are good.

                                       6
<PAGE>
COMPETITION

         The  Company  pioneered  the  concept of used car  rentals.  Unlike the
traditional airport rental companies,  Rent-A-Wreck  developed its niche serving
the "neighborhood" rental market. The Company emphasizes convenience and service
and offers  rentals of used  cars,  trucks and vans at rates that are  typically
lower than those charged by new car rental companies.

         The Company's  customers generally are people from the local community,
although  most  franchisees  service some  business and leisure  travelers  from
outside the  community.  The Company's  franchisees  generally  serve  customers
needing vehicles for insurance and service replacement,  commercial,  short-term
moving and general use.

         Rent-A-Wreck  franchisee  fleets  usually  consist of a variety of used
vehicles,  although some locations rent new cars as well. The franchisees  offer
to customers various vehicles according to local demand. Trucks,  passenger vans
and cargo vans are available at many locations.  This allows the franchisees the
flexibility to offer an appropriate range of vehicles for their area.

         Significant competition exists in the local markets. Large systems like
U-Save compete  nationwide.  Dozens of regional and local independent  companies
also  compete  with the Company in various  areas.  In most major  urban  areas,
companies such as Hertz, Avis, National,  Enterprise and Budget operate city and
suburban offices, as well as operating in airport terminals.

         Earlier this decade,  many of the new car rental  companies were owned,
wholly  or  partially,  by  automobile   manufacturers  who  sold  their  rental
subsidiaries  cars at discounted  prices and guaranteed to repurchase cars after
four to nine months in rental service. This enabled the rental companies to pass
along their savings to retail customers in the form of lower rental prices. Over
the last few years,  the rental  companies  have been  returning to  independent
ownership,  the new car discounts  and buybacks  have been reduced,  and new car
retail rental prices have risen, reflecting real costs more accurately.  Because
the Company's franchisees generally attempt to provide substantial discounts off
the retail  prices  charged by the large new car rental  companies,  the Company
believes that the increase in prices  charged by such  companies has enabled the
Company's franchisees to compete more effectively and profitably.

GOVERNMENT REGULATIONS

         The  offering  and sale of  franchises  is subject to Federal and State
regulation and regulations by foreign governments.  The Federal Trade Commission
("FTC")  has  adopted   regulations   requiring  full  pre-sale   disclosure  to
prospective franchisees of certain information,  including information about the
franchisor,  its existing franchises, the rights and obligations of franchisees,

                                       7
<PAGE>
and termination,  cancellation and renewal of franchises. Disclosure is required
to be made prior to the sale in the form of an offering circular. Many states in
which the Company sells or may sell franchises may require pre-sale registration
of the Company and/or the Company's offering circular and franchise agreement to
be used in selling  franchises from or in the state.  The Company must apply for
renewal with many of these states  annually.  Many states also regulate  various
aspects  of  the  franchisor-franchisee   relationship,   including  regulations
regarding awarding, renewing and terminating franchise relationships.

         Compliance  with the laws of the state  from or in which the sale is to
be made,  in addition to the Federal  regulations,  may be required  because FTC
franchising  regulations  will not preempt  state or local laws and  regulations
which are consistent with its Federal  regulations,  or which, if  inconsistent,
would provide  protection to  prospective  franchisees  equal to or greater than
that imposed by the Federal franchising regulations.

         As of June 1999, the Company is currently authorized to sell franchises
in all 50 states  under its  "Rent-A-Wreck"  and  "PRICELE$$"  trade and service
marks. The Company has registered its  "Rent-A-Wreck"  trade and service mark in
approximately  36 foreign  countries  and is in the process of  registering  its
"PRICELE$$"  trade and  service  mark in 21  foreign  countries  and the  entire
European Community.

TRADEMARKS

         The Company  believes that name  recognition  of its primary  trademark
"Rent-A-Wreck"  is important to its franchise  program.  A trademark may be held
for an  indefinite  duration,  but it may be lost  or its  value  diminished  if
adequate  steps to police its use are not taken.  The Company  believes that its
efforts  to police  the use of its  trademarks  are  adequate.  The  Company  is
actively promoting its existing "PRICELE$$" trademark. The Company believes this
trademark will provide additional sales opportunities for its franchisees due to
new target customers of "PRICELE$$" rental fleets.

INSURANCE REGULATIONS

          GOVERNMENT  REGULATION  RELATING TO INSURANCE PROGRAM.  As part of the
insurance program, the Company utilizes  Consolidated  American Rental Insurance
Company,  Ltd ("CAR  Insurance"),  its  wholly  owned  subsidiary  domiciled  in
Bermuda.  Insurance  companies such as CAR Insurance are subject to the laws and
regulations  in the  jurisdictions  in which they are chartered and do business.
Such laws and  regulations  generally  are designed to protect the  interests of
policyholders  rather than the  interests of  shareholders  or the  Company.  In
general,  insurance  regulatory  agencies have broad  authority  over  insurers'
capital and surplus levels,  dividend payments,  financial  disclosure,  reserve
requirements,  investment  parameters and premium  rates.  The regulation of CAR
Insurance  and its  insurance  program  involving  AIG,  Hertz Claim  Management

                                       8
<PAGE>
Corporation  and AICCO  Financing  could have a material effect on the Company's
business, financial condition and results of operations.

         The  Company's  insurance  program  offered  through CAR  Insurance  is
conducted via "fronting"  arrangements  with AIG.  Because some states currently
restrict  or limit such  arrangements,  the ability of the Company to expand the
program into those states is also limited. In addition, the National Association
of  Insurance  Commissioners  ("NAIC")  adopted  a  model  act  concerning  such
"fronting" arrangements.  The model act requires reporting and prior approval of
reinsurance transactions relating to these arrangements and limits the amount of
premiums that can be written under certain  circumstances.  No determination can
be made as to whether,  or in what form,  such act may  ultimately be adopted by
any state,  and the Company is therefore unable to predict whether the model act
will affect its operations or relationships with insurers. Some states currently
regulate third party administration and premium financing arrangements,  such as
those used by the Company. Any or all of these regulations could have a material
effect on the program being offered by the Company.

         State regulation  requires  licensing of persons soliciting the sale of
insurance  within  that  state.  In certain  states,  licenses  are  obtained by
individual  agents rather than a corporate  entity.  Due to the Company's recent
development of the  reinsurance  program and limited  experience  with its other
insurance  programs,  there can be no assurance that its activities  will not be
deemed to be in violation of licensing or other  insurance laws or  regulations.
Such  violations  could subject the Company to  significant  fines and penalties
which could have a material adverse effect on its business,  financial condition
and results of operations.

ITEM 2. DESCRIPTION OF PROPERTY

         The  Company  currently  leases  approximately  6,790  square  feet  of
executive  office space at 11460  Cronridge  Drive,  Suite 120, Owings Mills, MD
21117,  which lease will expire in November  1999 (see note 8). The Company also
rents on a  month-to-month  basis  approximately  781 square  feet of  executive
office space at 11460  Cronridge  Drive,  Suite 118, Owings Mills, MD 21117 (see
Item 12, Certain Relationships and Related Transactions).

         Management  believes  that the  facilities  leased by the  Company  are
adequate for the Company's  current and  foreseeable  future  operations or that
adequate alternative space is readily available.

ITEM 3. LEGAL PROCEEDINGS

         The Company is party to legal  proceedings  incidental  to its business
from time to time.  Certain claims,  suits and complaints  arise in the ordinary
course of  business  and may be filed  against the  Company.  Based on facts now
known to the  Company,  management  believes  all such  matters  are  adequately

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provided  for,  covered by insurance  or, if not so covered or provided for, are
without  merit,  or involve  such amounts  that would not  materially  adversely
affect the  consolidated  results of  operations  or  financial  position of 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 4th
quarter of the fiscal year ended March 31, 1999.

                           PART II. OTHER INFORMATION

ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The  Company's  Common  Stock,  $.01 par  value,  trades on the  Nasdaq
SmallCap Market under the symbol RAWA.

         The range of high and low bid quotations  for the quarterly  periods of
the current and prior fiscal years was as follows:

              Year Ended
            March 31, 1999            High*             Low*
            --------------            ----              ---

          First Fiscal Quarter      $1 3/32           $1 1/32
          Second Fiscal Quarter      1                 1
          Third Fiscal Quarter       1 1/2             1 1/4
          Fourth Fiscal Quarter      1 1/4             1 3/16

              Year Ended
            March 31, 1998            High*             Low*
            --------------            ----              ---

          First Fiscal Quarter      $1 1/2            $1 1/4
          Second Fiscal Quarter      1 3/16            1 1/16
          Third Fiscal Quarter       1                 1
          Fourth Fiscal Quarter      1 3/32            1

* Bid  quotations as reported by Nasdaq  reflect  inter-dealer  prices,  without
retail  mark-up,   mark-down,   or  commission  and  may  not  represent  actual
transactions.

         The Company has never paid any cash dividends on its common stock,  nor
does it  anticipate  paying  dividends  on its common  stock in the  foreseeable
future. The Company has preferred stock issued with 1,139,125 shares outstanding
for the fiscal year ended March 31, 1999. This stock has a cumulative  quarterly
dividend  of two cents per share.  Based on the  current  number of  outstanding
preferred shares,  the annual dividend is $91,130.  The terms of the outstanding
preferred  stock  provide  that the Company  may not  declare or pay  dividends,
whether in cash or in property, on the common stock unless the full dividends on
the  preferred  stock for all past  dividend  periods and the  current  dividend

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<PAGE>
period have been paid or declared and a sum set aside for payment  thereof.  The
preferred stock is convertible into common on a share-for-share  basis. There is
no public market for the preferred stock.

         The number of stockholders  of record of the Company's  Common Stock as
of May 19, 1999 was 206. This figure does not include individual participants in
securities  position  listings  of  registered  clearing  agencies.  The Company
believes that the number of beneficial  stockholders was approximately  1,300 as
of May 28,  1999.  Trading  activity  with  respect to the Common Stock has been
limited,  and the  volume  of  transactions  should  not of  itself be deemed to
constitute an  "established  public  trading  market".  A public  trading market
having the characteristics of depth,  liquidity and orderliness depends upon the
existence  of market  makers  as well as the  presence  of  willing  buyers  and
sellers, which are circumstances over which the Company does not have control.

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<PAGE>
SELECTED FINANCIAL DATA

         Set forth  below  are  selected  financial  data  with  respect  to the
consolidated statements of earnings of the Company and its subsidiaries for each
of the five years in the period  ended March 31,  1999,  and with respect to the
balance sheets thereof at March 31 in each of those years.

         The  selected  financial  data have  been  derived  from the  Company's
audited consolidated financial statements and should be read in conjunction with
the  financial   statements  and  related  notes  thereto  and  other  financial
information  appearing  elsewhere  herein.  The selected  financial  data is not
required by Form 10-KSB and has been  included  herein to provide an overview of
the Company's operations.

                                           Year ended March 31,
                                ----------------------------------------------
                                  1995      1996      1997      1998      1999
                                  ----      ----      ----      ----      ----
                                       (in thousands except per share
                                          and number of franchises)
FRANCHISEES' RESULTS (UNAUDITED)

Franchisees' Revenue (1)        $26,482   $29,864   $34,661   $40,018   $45,358

Number of Franchises                384       429       477       558       629

COMPANY'S RESULTS OF OPERATIONS

Total Revenue                   $ 3,003   $ 3,455   $ 3,785   $ 4,677   $ 5,601

Costs and expenses and Other      2,655     3,029     3,252     3,983     4,564

Income before income
  taxes                         $   416   $   489   $   600   $   756     1,113

Net income                          383       459       537       548       858

Earnings per common share

Basic                           $   .06   $   .08   $   .10   $   .10   $   .18
Weighted average common
 shares                           4,238     4,210     4,102     4,267     4,086

Diluted                         $   .06   $   .07   $   .09   $   .09   $   .15
Weighted average common
 shares plus options and
  warrants                        6,086     6,197     6,083     5,915     5,611

COMPANY'S BALANCE SHEET DATA

Working Capital                 $   850   $   902   $ 1,191   $ 1,527   $ 1,531

Total assets                      2,102     2,164     2,594     3,664     3,886

Long-term obligations                --        36        30        --        --
Shareholders' Equity              1,299     1,372     1,755     2,028     2,041


(1)  The franchisees'  revenue data have been derived from unaudited license fee
     reports provided by franchisees.

                                       12
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Year ended March 31, 1999 vs. year ended March 31, 1998

         The  Company  operates  in  two  principal  segments:   Vehicle  Rental
Franchise  Programs  (franchising) and Insurance Coverage  (insurance).  For the
year ended March 31, 1999,  franchising operations comprised 87% of consolidated
net revenues (88% in 1998) and 94% of  consolidated  income before taxes (93% in
1998).

         Revenue from  franchising  operations,  which includes  initial license
fees,  continuing  license fees,  and  advertising  fees,  increased by $741,162
(19%).  Initial  license fees increased by $274,199 (35%) due to the addition of
new franchises.  The timing of closings of new franchise sales, each of which is
for a relatively  large amount,  varies,  contributing to periodic  increases or
decreases in reported  results.  Management  does not believe  these  short-term
variations  are  indicative  of longer  term  trends.  Continuing  license  fees
increased by $320,403 (13%),  and  advertising  fees increased by $146,560 (20%)
due to the fleet growth at existing  franchises and the Company's  dedication of
more resources to its collection efforts.

         Revenues from  insurance  premiums  increased by $159,470  (28%) due to
higher  participation by the Company's  franchisees in the CAR Insurance program
that started in March 1997. Insurance premium revenue is recognized ratably over
the life of the policies.

         Other  revenue  increased by $23,263 (17%) due primarily to an increase
in promotional material purchased by the Company's franchisees.

         Total  operating  expenses  increased by $581,108  (15%) in fiscal 1999
compared to the prior year. Salary expense increased by $145,613 (19%) primarily
as a result of hiring  additional  employees  in  response  to the growth of the
Company's franchising  operations.  Advertising and promotion expenses increased
by  $161,298  (14%),  which  resulted  primarily  from an  increase  in national
advertising  expense  to  promote  the  Company.  Sales and  marketing  expenses
increased by $127,234  (25%),  which resulted  primarily from a larger amount of
franchise  sales made in fiscal 1999 compared to the prior year, the cost of the
repurchase of a territory  from an existing  franchisee  which was resold by the
Company at a profit, an increase in bad debt expense due to the Company's higher
sales,  and the  recovery  of a bad debt in the prior  year which had been fully
reserved.  General and administrative  expenses decreased by $73,185 (7%), which
resulted primarily from a reduction in legal fees.

         Insurance  underwriting  expenses increased by $163,174 (36%) due to an
increase in paid losses and loss reserves for future  claims in connection  with
higher participation by the Company's franchisees in its CAR Insurance program.

                                       13
<PAGE>
         Depreciation  and  amortization  expense  increased by $56,974 (47%) in
fiscal 1999  compared to the prior year.  This  increase  was  primarily  due to
additional  depreciation  from the  investment to update  computer  software and
hardware.  Vehicles, office furniture,  equipment and leasehold improvements are
carried at cost. Depreciation has been provided by the straight-line method over
the estimated useful lives of the assets ranging from 3 to 7 years. Amortization
of leasehold  improvements  is  calculated on the  straight-line  basis over the
shorter  of the  estimated  life of the  improvements  or the term of the lease.
Betterments,  renewals  and  extraordinary  repairs  that extend the life of the
asset are capitalized; other repairs and maintenance are expensed.

         The Company realized  operating income of $1,037,647,  before taxes and
interest,  in 1999 compared to operating income of $694,085 for 1998, reflecting
an  increase  of $343,562  (49%).  This  increase  resulted  primarily  from the
increase in initial license fees and continuing license fees due to the addition
of new  franchises,  fleet  growth  at  existing  franchises  and the  Company's
improved collection efforts and collection of previously reserved accounts.

         Net interest  income  increased  by $12,788  (21%).  This  increase was
primarily due to interest  earned on the increased  cash deposits which are held
in interest bearing accounts.

         Income tax  expense  for the year ended  March 31,  1999  increased  by
$46,279 (22%) over 1998 due to higher pre-tax  earnings,  partially  offset by a
reduction in the deferred tax asset valuation allowance. The valuation allowance
has been reduced in light of favorable earnings and expected future earnings and
is re-assessed quarterly.

         Effective  June 30,  1993,  the Company  issued  ten-year  options (the
"Options") to K.A.B. for the purchase of up to 2,250,000 shares of the Company's
common stock. The Board of Directors  approved the vesting of 1,000,000  Options
at an  exercise  price of $1.00 per share  and,  as later  amended by the Board,
provided  that the balance of the Options (an  aggregate of  1,250,000  Options)
(the "Unvested Options") would vest at $1.15 per share on July 1,2002 subject to
an acceleration in exercisability upon achievement of certain financial or stock
targets. The Unvested Options can be accelerated upon achieving the following:

           Number of
            Shares                       Alternative Vesting Event:
            ------                       --------------------------

            500,000                Completion of the first fiscal year
                                   in which the Company has Profits of
                                   at least  $750,000  or in which the
                                   Stock Price is at least $4.00

            750,000                Completion of the first fiscal year
                                   in which the Company has Profits of
                                   at least $1,000,000 or in which the
                                   Stock Price is at least $5.00

                                       14
<PAGE>
         For  purposes  hereof,  "Profits"  means any  fiscal  period  where the
Company's  pretax  operating  profit  meets such  targets  during such period as
determined in accordance with generally accepted accounting  principles based on
the Company's books and records,  and excludes any profit or loss from financial
transactions and any charge for compensation expense relating to these options.

         For purposes  hereof,  "Stock Price" means the average closing high bid
price for the Company's  Common Stock as reported on Nasdaq (or, if  applicable,
the NASD Bulletin  Board or pink sheets) over any 30  consecutive  calender days
during the applicable fiscal year.

         As of result of achieving the financial  targets  during the year ended
March 31, 1999, all 1,250,000 Unvested Options are exercisable.

         Effective  January 1, 1999, the annual  management fee earned by K.A.B.
increased from $250,000 to $300,000 (in addition to reimbursement of expenses).

         Inflation has had no material  impact on the  operations  and financial
condition of the Company for all years presented.

LIQUIDITY AND CAPITAL RESOURCES

         At March 31,  1999,  the  Company  had  working  capital of  $1,530,647
compared to  $1,526,934  at March 31,  1998.  This  increase of $3,713  resulted
primarily from net profit earned during the year,  offset by an increase in cash
paid by the Company to repurchase  its common and  preferred  stock and warrants
through  its  buyback  program,  and  an  increase  in  loss  reserves  for  the
reinsurance  program.  In fiscal  1999,  the  Company's  allowance  for doubtful
accounts was $655,418  compared to $682,631 in the prior year. The Company wrote
off $215,787 of its doubtful accounts during fiscal 1999 and $169,859 during the
prior year. The Company generally requires officers and directors of franchisees
to  provide  personal  guarantees  of the  franchisee's  obligations  under  the
franchise  agreement.  In April 1998, the Company hired a part-time  employee to
dedicate more resources to collection efforts.  The Company's  collection effort
is designed to increase liquidity through improved cash flow; however, there can
be no assurance that the Company will be successful in these efforts.

         Cash and cash  equivalents  decreased by $353,821 (29%).  This decrease
resulted  primarily  from an  additional  deposit  of  $388,000  in the  Bank of
Butterfield  (Bermuda) in connection  with the Company's CAR Insurance  Program.
Restricted  cash  increased by $324,521  (82%) due to an  additional  deposit in
connection  with the agreement  between the Company and The Chase Manhattan Bank
("Chase"),  offset by decreases in the national  advertising  funds.  Restricted
cash  includes (1) a deposit of $638,000  being held in the Bank of  Butterfield
for  securing the letter of credit with Chase as part of the  insurance  program
described below and (2) funds being held on behalf of the Company's  franchisees
in the national advertising fund to be spent on various advertising programs.

                                       15
<PAGE>
         In March  1997,  the  Company  deposited  $250,000 on behalf of its CAR
Insurance subsidiary in the Bank of Butterfield.  This deposit was restricted by
a $250,000  letter of credit with the Bank of Butterfield in connection with the
Company's CAR Insurance subsidiary. In June 1998, the Company made an additional
deposit of $388,000 in the Bank of  Butterfield  resulting  in a total amount of
$638,000,  all of which is  restricted  by a $638,000  letter of credit with the
Bank of Butterfield.  This letter of credit is part of the agreement between the
Company  and Chase as  security  for the  letter of  credit  issued to  American
International  Group ("AIG") by Chase.  Funds drawn against the letter of credit
bear interest at The Bank of Butterfield's  prime  commercial  lending rate plus
2.0% (which prime rate was 7.75% on June 2, 1999). For the years ended March 31,
1998 and 1999, Chase has not drawn any funds from the letter of credit.

         In June 1997,  the Company  finalized a $500,000  letter of credit with
Chase in connection with the Company's new CAR Insurance subsidiary. This letter
of credit is part of the  reinsurance  agreement  with AIG to secure  payment of
claims.  In fiscal  1998,  AIG  requested  the Company to increase the letter of
credit with Chase from  $500,000 to  $1,000,000.  Chase  approved the  Company's
request to increase the letter of credit from $500,000 to $1,000,000,  under the
terms and  conditions  of the letter of credit  dated June 3, 1997,  and a first
amendment  dated June 1, 1998.  Funds  drawn  against  the letter of credit bear
interest at Chase's prime commercial  lending rate plus 3% (which prime rate was
7.75% on June 2, 1999). For the years ended March 31, 1998 and 1999, AIG has not
drawn any funds from the letter of credit.  This  letter of credit is secured by
all of the Company's assets.

         The Company rents its office facilities under the terms of an operating
lease. The monthly office facilities lease commitments were $5,400 and $5,670 at
March 31, 1998 and 1999,  respectively.  The Company also rents additional space
from a related party on a month-to-month basis for approximately $670 per month.

         Furniture,  equipment and leasehold  improvements  increased by $57,987
(11%) from March 31, 1998 to March 31, 1999.  This increase  occurred  primarily
due to additional  investment in computer  software and hardware,  offset by the
writing off of fully  depreciated  or disposed  assets.  Vehicles  increased  by
$67,160 (288%) from March 31, 1998 to March 31, 1999 due to the purchase of four
vehicles for the one-way program and a vehicle for use by the Company, offset by
sales of four vehicles which were also used under the one-way program.

         Cash provided by operations was $906,073,  resulting primarily from net
income  before  depreciation  plus the  increases in accounts  payable,  accrued
expenses,  and insurance loss reserves,  offset by the increases in accounts and
notes receivable,  and prepaid  expenses,  and decrease in income taxes payable.
Accounts and notes  receivable in  conjunction  with the  Company's  franchising
program increased by $25,471 primarily due to a higher volume of sales. Accounts
receivable  relating to the reinsurance program increased by $75,313 as a result

                                       16
<PAGE>
of higher  participation of the Company's  franchisees in this program.  Prepaid
expenses  increased  primarily  due to the  finance  charge  paid  to  AICCO  in
connection with the CAR Insurance program. Accounts payable and accrued expenses
increased  primarily from higher  professional  fees in connection  with the CAR
Insurance  program.  Income taxes payable  decreased  primarily due to estimated
income taxes paid for the year ended March 31, 1999.

         Cash used in investing  activities of $491,112 related  primarily to an
increase in restricted cash as required by the Company's  letter of credit,  the
acquisition  of computer  software  and  hardware,  four  vehicles and the costs
associated with obtaining trademarks.

         Cash used in financing  activities during the same period was $768,782,
resulting  from the payment of preferred  dividends and buyback of preferred and
common stock and warrants,  offset by an increase in insurance financing payable
and the  issuance  of  common  stock in  connection  with  warrants  which  were
exercised.

         In 1995 and 1996, the Company  approved the repurchase of up to a total
of 500,000 shares of the Company's  outstanding  common or preferred  stock.  On
April 23, 1998,  the Company  approved  the  repurchase  of up to an  additional
500,000 shares of the Company's  outstanding common or preferred stock. On March
3, 1999, the Company approved the repurchase of an additional  119,075 shares of
the Company's outstanding common or preferred stock. During the year ended March
31, 1998,  the Company  bought back 117,575 shares of its common stock at a cost
of $121,509 and also bought back 20,625 shares of its preferred  stock at a cost
of $25,781.  These shares were retired in the year ended March 31, 1998.  During
the year ended March 31,  1999,  the  Company  repurchased  and retired  311,600
shares of its common stock at a cost of $358,674.  The Company  repurchased  and
retired  226,875  shares of its  preferred  stock at a cost of $363,001 and also
bought back 102,500  warrants at a cost of $11,250.  As of March 31,  1999,  the
Company has  repurchased  and  retired a total of  1,119,075  shares  under this
program, which was the total number of shares authorized for repurchase.

         The Company  believes it has sufficient  working capital to support its
business plan through fiscal 2000.

IMPACT OF INFLATION

         Inflation has had no material  impact on the  operations  and financial
condition of the Company.

YEAR 2000 ISSUE

         The Year 2000  issue is a result of  computer  programs  being  written
using two digits rather than four to define the  applicable  year. The Company's
computer equipment,  software and devices with embedded technology that are time
sensitive  may  recognize  the date using "00" as the year 1900  rather than the

                                       17
<PAGE>
year 2000.  This could  result in a system  failure or  miscalculations  causing
disruption of operations,  including,  among other things, a temporary inability
to process transactions or engage in ordinary business activities.

         The Company has undertaken various initiatives  intended to ensure that
its computer  equipment and software will function  properly with respect to the
year 2000 and  thereafter.  For this purpose,  the term "computer  equipment and
software"   includes  systems  that  are  commonly  thought  of  as  information
technology systems,  including  accounting,  data processing,  telephone and PBX
systems as well as alarm systems, fax machines and other miscellaneous  systems.
Both information  technology and non-information  technology systems may contain
embedded technology which complicates the year 2000 identification,  assessment,
remediation and testing efforts.  Based upon its  identification  and assessment
efforts to date, the Company  believes that its computer  equipment and software
is generally Year 2000 compliant.

         Using both internal and external  resources to identify the needed Year
2000   remediation,   the  Company   currently   believes  that  its  Year  2000
identification,  assessment, remediation and testing efforts which began in 1998
are completed and any additional equipment purchased hereafter will be Year 2000
compliant. Consequently, and based upon independent experts' review, the Company
believes that it is Year 2000 compliant.

         Most of the information the Company  receives in the ordinary course is
in written  form and  entered by the  Company  into its  computer  records.  For
example,  reports from  franchisees  and others are prepared in written form and
not received  electronically.  The Company has orally confirmed with key vendors
that they either have addressed or expect to address all  significant  Year 2000
issues on a timely basis.

         The  Company  believes  that the cost of its Year 2000  identification,
assessment,  remediation  and  testing  efforts  as well as  those  current  and
anticipated costs to be incurred by the Company with respect to Year 2000 issues
of third parties will not exceed $5,000,  which expenditures will be funded from
operating  cash flows.  As of March 31, 1999,  the Company had incurred costs of
approximately  $1,000.  The Company presently  believes that the Year 2000 issue
will not pose significant operational problems for the Company;  however, if all
Year 2000 issues are not properly  identified or if assessment,  remediation and
testing are not effected  timely,  there can be no assurances that the Year 2000
issue will not materially  adversely affect the Company's  results of operations
or  adversely  affect the  Company's  relationship  with  customers,  vendors or
others.  Additionally,  there can be no assurances  that the Year 2000 issues of
other entities will not have a material adverse effect on the Company's  systems
or results of operations.

         Because the Company  believes  that all items have been  resolved,  the
Company has not begun or completed an analysis of the  operational  problems and
costs (including lost revenues) that would be reasonably likely to result from a

                                       18
<PAGE>
failure of the Company and certain third parties to complete  efforts to achieve
Year  2000  compliance  on a  timely  basis,  nor has a  contingency  plan  been
developed for dealing with the most reasonably likely worst-case  scenario,  and
such  scenario  has not been  clearly  identified.  The Company does not plan to
complete  analysis  and  contingency  plans  because it believes it is Year 2000
compliant.

         During  early  1998,  the  Company  engaged  an  independent  expert to
evaluate  its Year 2000  identification,  assessment,  remediation  and  testing
efforts, and such fees have been included in the amount spent to date.

         The above information is based upon management's best estimates and was
derived  using  numerous  assumptions  regarding  future  events,  including the
continued availability of third party remediation plans and other factors. There
can be no assurances that these estimates will prove to be accurate,  and actual
results  could differ  materially  from those  currently  anticipated.  Specific
factors that could cause such material  differences include, but are not limited
to, availability and costs of personnel trained in Year 2000 issues, the ability
to  identify,  assess and  remediate  and test all relevant  computer  codes and
imbedded technology and similar uncertainties.

IMPORTANT FACTORS

         The statements regarding  anticipated future performance of the Company
contained in this report are forward-looking  statements which are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. These  forward-looking  statements  involve risks and  uncertainties  that
could  cause  the  Company's  actual  results  to  differ  materially  from  the
forward-looking  statements.  Factors  which could cause or  contribute  to such
differences include, but are not limited to, the Company's limited experience in
the reinsurance  business and the potential for negative claims experience,  the
effects of  government  regulation  of the  Company's  franchise  and  insurance
programs  including  maintaining  properly  registered  franchise  documents and
making any required  alterations  in the Company's  franchise  program to comply
with changes in the laws,  competitive pressures from other motor vehicle rental
companies which have greater marketing and financial resources than the Company,
protection  of the  Company's  trademarks,  and the  dependence on the Company's
relationships with its franchisees. These risks and uncertainties are more fully
described under the caption,  "Item 6 - Management's  Discussion and Analysis of
Financial  Condition  and  Results of  Operations  -  Important  Factors" in the
Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1999.
All forward-looking  statements should be considered in light of these risks and
uncertainties.

         LIMITED INSURANCE EXPERIENCE; POTENTIAL FOR NEGATIVE CLAIMS EXPERIENCE.
The Company's  reinsurance business exposes its assets to significant  liability
for claims and losses  under the  program.  There can be no  assurance  that the
premiums  collected will be adequate to cover the  liabilities  incurred or that

                                       19
<PAGE>
the Company's  reserves  will be  sufficient.  Because of the Company's  limited
experience with insurance risks and the inherent uncertainties in estimating the
ultimate  costs of claims,  reserves are  particularly  uncertain and losses and
adjustment  expenses may deviate  substantially from expectations.  Furthermore,
the timing,  frequency and extent of  liabilities  under this program  cannot be
predicted  accurately  because the conditions and events which  established  the
Company's  loss  expectancies  may not recur in the  future.  Unexpected  losses
associated  with  this  program  could  have a  material  adverse  effect on the
Company's business, financial condition and results of operations as a result of
the need to make  payments in excess of reserves.  Additionally,  if the Company
expands  the program as  anticipated,  the effect of such losses and or reserves
could be compounded.

         DEPENDENCE ON  FRANCHISEES;  CREDIT RISKS.  The Company's  revenues are
substantially  dependent on fees paid by its  franchisees.  These fees fluctuate
based on the franchisees'  performance.  Franchisees are independent contractors
who  operate  their  business   independent  of  the  Company.  Any  failure  of
franchisees to operate their businesses,  or inability of the Company to collect
fees owed by franchisees,  could have a material adverse effect on the Company's
business, financial condition and results of operations.

         DEPENDENCE ON TRADEMARKS.  The Company's success depends in significant
part on its ability to maintain and protect its primary trademarks involving the
"Rent-A-Wreck"  name. The Company's revenues are almost exclusively derived from
the goodwill associated with the name. Significant negative publicity related to
the name or the  inability of the Company to pursue  infringements  and maintain
its  proprietary  rights would have a material  adverse  effect on the Company's
business, financial condition and results of operations.

         INTENSE  COMPETITION.  The vehicle rental industry in which the Company
and  its  franchisees   operate  is   characterized   by  intense   competition,
particularly  with respect to price and  service,  from  national,  regional and
local vehicle rental companies. Many of these competitors, particularly national
competitors  and those  with  relationships  with  vehicle  manufacturers,  have
substantially  greater  resources  than the Company.  In  addition,  competition
exists from many smaller,  independent  operations in local markets. Any failure
by the Company and its  franchisees  to offer  services  and prices that compete
favorably  in the  marketplace  would  have a  material  adverse  effect  on the
Company's business, financial condition and results of operations.

         COMPLIANCE WITH GOVERNMENTAL REGULATIONS.  The Company's operations are
subject to numerous federal,  state,  local and foreign laws,  including federal
and state laws governing the offer and sale of franchises and relationship  with
franchisees.  Several  states'  laws  require  the  Company  to renew  its state
franchise registration annually. If the Company does not maintain required state
registrations, it must terminate franchise sales activity in those states. While
the  Company  has  suspended  franchise  sales  activity  in the past until such

                                       20
<PAGE>
registrations  were properly renewed,  the Company believes that it is currently
in material  compliance with such laws.  Changes in franchise laws could require
the Company to make material  alterations  to its core  business.  Additionally,
failure to comply  with  franchise  or other laws could  subject  the Company to
significant  fines  and  penalties  and have a  material  adverse  effect on the
Company's business, financial condition and results of operations.

         During the past  several  years,  a number of states  have  interpreted
existing  laws as requiring  out-of-state  companies  which  generate  income by
granting  franchises  in the  state to file  returns  and pay tax in the  state.
Following this trend,  other states have adopted laws  specifically  designed to
impose tax on out-of-state  companies  granting  franchises in the state.  While
many companies, along with many tax practitioners and commentators, contend that
the  application  of such laws  violates  the federal  constitution,  the United
States Supreme Court has not yet ruled on the issue directly. If the application
of these  laws is  constitutional,  if the laws apply to the  activities  of the
Company,  or  if  the  states'   interpretation  of  existing  laws  is  applied
retroactively,  any resulting  taxes and  associated  interest and penalties for
which the Company may be liable also could have a material adverse effect on the
Company.

         RISKS OF INTERNATIONAL  OPERATIONS.  During the fiscal year ended March
31,  1999,  approximately  1%  of  the  Company's  revenues  were  derived  from
international operations.  The Company's international operations are subject to
certain risks,  including adverse developments in foreign political and economic
environments,  varying government  regulations,  including regulations regarding
the  protection  of  trademarks  and the offer and sale of  franchises,  foreign
currency  fluctuations and potential adverse tax  consequences.  There can be no
assurance that any of these factors,  especially if the Company is successful in
expanding its international presence, will not have a material adverse effect on
the Company's business, financial condition and results of operations.

         Developments  in any of these  areas,  which are more  fully  described
elsewhere in "Item 1 - Description of Business" which is incorporated  into this
section by  reference,  could cause the Company's  results to differ  materially
from results that have been or may be projected by or on behalf of the Company.

         The Company  cautions that the foregoing  list of important  factors is
not  exclusive.  The Company does not  undertake  to update any  forward-looking
statement that may be made from time-to-time by or on behalf of the Company.

                                       21
<PAGE>
ITEM 7. FINANCIAL STATEMENTS


       INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPORTING SCHEDULES

                                                                         Page
                                                                         ----
Report of Independent Certified Public Accountants......................  23

Financial Statements:

  Consolidated Balance Sheet as of March 31, 1999.......................  24

  Consolidated Statements of Earnings for the Years Ended
    March 31, 1998 and 1999.............................................  25

  Consolidated Statements of Shareholders' Equity for the Years
    Ended March 31, 1998 and 1999........................................ 27

  Consolidated Statements of Cash Flows for the Years Ended
    March 31, 1998 and 1999.............................................. 28

  Notes to Consolidated Financial Statements............................. 29

  Supporting Schedules:

    Schedule II - Valuation and Qualifying Accounts...................... 56

         Schedules  other than those listed above have been omitted because they
are either not required,  inapplicable,  or the required information is included
in the Consolidated Financial Statements or notes thereto.

                                       22
<PAGE>
                       [LETTERHEAD OF GRANT THORNTON LLP]


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors
Rent-A-Wreck of America, Inc.

We have audited the accompanying  consolidated  balance sheet of Rent-A-Wreck of
America,  Inc. (a Delaware  corporation)  and subsidiaries as of March 31, 1999,
and the related  consolidated  statements of earnings,  shareholders' equity and
cash  flows  for the years  ended   March 31,  1999 and  1998.  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  in  accordance  with  generally   accepted  auditing
standards.  Those standards 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.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the consolidated  financial position of Rent-A-Wreck of
America,  Inc., and  subsidiaries,  as of March 31, 1999,  and the  consolidated
results  of their  operations  and their  consolidated  cash flows for the years
ended March 31, 1999 and 1998 in conformity with generally  accepted  accounting
principles.

We have also audited Schedule II for the years ended March 31, 1999 and 1998. In
our opinion,  this  schedule  presents  fairly,  in all material  respects,  the
information required to be set forth therein.



/s/ Grant Thornton LLP

Baltimore, Maryland
June 10, 1999

                                       23
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                 MARCH 31, 1999


                                     ASSETS

CURRENT ASSETS:
  Cash and Cash Equivalents ...................................     $   861,794
  Restricted Cash .............................................         718,543
  Accounts Receivable, net of allowance
    for doubtful accounts of $655,418:
      Continuing License Fees and
        Advertising Fees ......................................         336,242
      Current Portion of Notes Receivable .....................         388,812
      Current Portion of Direct Financing
        Leases ................................................           7,850
      Insurance Premiums Receivable ...........................         635,532
      Other ...................................................          61,081
  Prepaid Expenses and Other ..................................         166,421
  Deferred Taxes ..............................................         199,028
                                                                    -----------

    TOTAL CURRENT ASSETS ......................................       3,375,303
                                                                    -----------
PROPERTY AND EQUIPMENT:
  Furniture ...................................................          93,505
  Computer Hardware and Software ..............................         370,012
  Machinery and Equipment .....................................          82,650
  Leasehold Improvements ......................................          37,896
  Vehicles ....................................................          90,507
                                                                    -----------
                                                                        674,570
  Less:  Accumulated Depreciation and
         Amortization .........................................        (388,887)
                                                                    -----------

    NET PROPERTY AND EQUIPMENT ................................         285,683
                                                                    -----------
OTHER ASSETS:
  Intangible Assets, net of accumulated
    amortization of $126,192 ..................................         192,872
  Long-term Portion of Notes and Direct
    Financing Lease Receivables ...............................          32,088
                                                                    -----------

                                                                        224,960

    TOTAL ASSETS ..............................................     $ 3,885,946
                                                                    ===========

    The accompanying notes are an integral part of this financial statement.

                                       24
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                 MARCH 31, 1999


                      LIABILITIES AND SHAREHOLDERS' EQUITY


CURRENT LIABILITIES:
  Accounts Payable and Accrued Expenses .......................     $   709,506
  Dividends Payable ...........................................          22,782
  Insurance Financing Payable .................................         564,684
  Insurance Loss Reserves .....................................         366,022
  Income Taxes Payable ........................................         181,662
                                                                    -----------

    TOTAL CURRENT LIABILITIES .................................       1,844,656
                                                                    -----------

    TOTAL LIABILITIES .........................................       1,844,656
                                                                    -----------

COMMITMENTS AND CONTINGENCIES .................................              --

SHAREHOLDERS' EQUITY:
  Convertible  Cumulative Series A Preferred Stock,
    $.01 par value; authorized 10,000,000 shares;
    issued and outstanding 1,139,125 shares
    (aggregate liquidation preference $911,300) ...............          11,391
  Common Stock, $.01 par value; authorized 25,000,000
    shares; issued and outstanding 3,934,092 shares ...........          39,340
  Additional Paid-In Capital ..................................       2,209,182
  Accumulated Deficit .........................................        (218,623)
                                                                    -----------

    TOTAL SHAREHOLDERS' EQUITY ................................       2,041,290
                                                                    -----------

    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................     $ 3,885,946
                                                                    ===========

The accompanying notes are an integral part of this financial statement.

                                       25
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF EARNINGS
                   FOR THE YEARS ENDED MARCH 31, 1998 AND 1999


                                                       1998             1999
                                                   -----------      -----------
REVENUES:
  Initial License Fees .........................   $   794,002      $ 1,068,201
  Continuing License Fees ......................     2,401,103        2,721,506
  Advertising Fees .............................       750,990          897,550
  Insurance Premiums ...........................       579,063          738,533
  Vehicle Rental Operations ....................        15,104           15,879
  Other ........................................       136,383          159,646
                                                   -----------      -----------

                                                     4,676,645        5,601,315
                                                   -----------      -----------
EXPENSES:
  Salaries, Consulting Fees, and
    Employee Benefits ..........................       771,508          917,121
  Advertising and Promotion ....................     1,128,801        1,290,099
  Insurance Underwriting Expenses ..............       453,082          616,256
  Sales and Marketing ..........................       509,432          636,666
  General and Administrative ...................       998,276          925,091
  Depreciation and  Amortization ...............       121,461          178,435
                                                   -----------      -----------

                                                     3,982,560        4,563,668
                                                   -----------      -----------

      OPERATING INCOME .........................       694,085        1,037,647

INTEREST INCOME, NET ...........................        62,347           75,135
                                                   -----------      -----------

      INCOME BEFORE INCOME TAX EXPENSE .........       756,432        1,112,782

INCOME TAX EXPENSE .............................       208,528          254,807
                                                   -----------      -----------

      NET INCOME ...............................       547,904          857,975

DIVIDENDS ON CONVERTIBLE CUMULATIVE
  PREFERRED STOCK ..............................      (111,431)        (104,742)
                                                   -----------      -----------
NET INCOME AFTER DIVIDENDS ON
  CONVERTIBLE CUMULATIVE PREFERRED STOCK .......   $   436,473      $   753,233
                                                   ===========      ===========
EARNINGS PER COMMON SHARE

  Basic ........................................   $       .10      $       .18
                                                   ===========      ===========

Weighted average common shares .................     4,266,711        4,085,860
                                                   ===========      ===========

  Diluted ......................................   $       .09      $       .15
                                                   ===========      ===========
Weighted average common shares
 plus options and warrants .....................     5,914,752        5,611,423
                                                   ===========      ===========

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

                                       26
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                   FOR THE YEARS ENDED MARCH 31, 1998 AND 1999

<TABLE>
<CAPTION>
                                    Preferred Stock       Common Stock      Additional
                                   ----------------     -----------------    Paid-in    Accumulated
                                   Shares    Amount     Shares     Amount    Capital      Deficit        Total
                                   ------    ------     ------     ------    -------      -------        -----
<S>                             <C>        <C>        <C>        <C>      <C>          <C>           <C>
Balance, April 1, 1997 ........  1,439,125  $ 14,391   4,234,767  $42,347  $3,021,490   $(1,322,900)  $1,755,328

 Issuance of common stock .....         --        --      20,000      200      24,800            --       25,000

 Retirement of common stock ...         --        --    (117,575)  (1,176)   (120,333)           --     (121,509)

 Retirement of preferred stock     (20,625)     (206)         --       --     (25,575)           --      (25,781)

 Conversion of preferred stock
 into common stock ............    (52,500)     (525)     52,500      525          --            --           --

 Preferred dividends paid ($.08
   per share) .................         --        --          --       --          --      (111,431)    (111,431)

 Preferred dividend arrearages
   paid .......................         --        --          --       --          --       (41,127)     (41,127)

 Net income ...................         --        --          --       --          --       547,904      547,904
                                 ---------  --------   ---------  -------  ----------   -----------   ----------

Balance, March 31, 1998 .......  1,366,000    13,660   4,189,692   41,896   2,900,382      (927,554)   2,028,384


 Issuance of common stock .....         --        --      56,000      560      36,340            --       36,900

 Retirement of common stock ...         --        --    (311,600)  (3,116)   (355,558)           --     (358,674)

 Retirement of preferred stock    (226,875)   (2,269)         --       --    (360,732)           --     (363,001)

 Retirement of warrants .......         --        --          --       --     (11,250)           --      (11,250)

 Preferred dividends paid ($.08
   per share) .................         --        --          --       --          --      (104,742)    (104,742)

 Preferred dividend arrearages
   paid .......................         --        --          --       --          --       (44,302)     (44,302)

 Net income ...................         --        --          --       --          --       857,975      857,975
                                 ---------  --------   ---------  -------  ----------   -----------   ----------

Balance, March 31, 1999 .......  1,139,125  $ 11,391   3,934,092  $39,340  $2,209,182   $  (218,623)  $2,041,290
                                 =========  ========   =========  =======  ==========   ===========   ==========
</TABLE>

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

                                       27
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                   FOR THE YEARS ENDED MARCH 31, 1998 AND 1999

                                                         1998           1999
                                                     -----------    -----------
Increase (decrease) in cash and cash
equivalents

Cash flows from operating activities:
 Net Income .....................................    $   547,904    $   857,975
 Adjustments to reconcile net income
  to net cash provided by operating activities:
   Depreciation and amortization ................        121,461        178,435
   Deferred income taxes ........................        (68,508)      (130,520)
   Gain on disposal of property and equipment ...         (4,065)        (3,382)
   Provision for doubtful accounts ..............        (96,404)       (27,153)
 Changes in assets and liabilities:
   Accounts and notes receivable ................       (403,101)      (100,784)
   Prepaid expenses and other ...................        (44,792)       (32,564)
   Accounts payable and accrued
     expenses ...................................        (27,074)        75,861
   Income taxes payable .........................        178,964        (31,496)
   Insurance loss reserves ......................        193,987        119,701
                                                     -----------    -----------

   Net cash provided by operating activities ....        398,372        906,073
                                                     -----------    -----------
Cash flows from investing activities:
 Decrease (increase)in restricted cash ..........         75,130       (324,521)
 Proceeds from sale of property and equipment ...         36,683         51,602
 Acquisition of property and equipment ..........        (75,270)      (208,208)
 Additions to intangible assets .................         (4,114)        (9,985)
                                                     -----------    -----------
   Net cash provided by (used in) investing
    activities ..................................         32,429       (491,112)
                                                     -----------    -----------
Cash flows from financing activities:
 Increase in insurance financing payable ........        489,903         76,287
 Issuance of common stock .......................         25,000         36,900
 Repayments of obligation under capital lease ...        (38,667)            --
 Retirement of warrants .........................             --        (11,250)
 Retirement of common stock .....................       (121,509)      (358,674)
 Retirement of preferred stock ..................        (25,781)      (363,001)
 Preferred dividends paid .......................       (152,558)      (149,044)
                                                     -----------    -----------
   Net cash provided by (used in) financing
    activities ..................................        176,388       (768,782)
                                                     -----------    -----------
   Net increase (decrease) in cash and cash
    equivalents .................................        607,189       (353,821)

Cash and cash equivalents at beginning of year ..        608,426      1,215,615
                                                     -----------    -----------

Cash and cash equivalents at end of year ........    $ 1,215,615    $   861,794
                                                     ===========    ===========

Supplemental disclosure of cash flow information:
 Interest paid ..................................    $    10,115    $    21,780
 Income taxes paid ..............................    $   103,733    $   415,454

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

                                       28
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1999


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION AND NATURE OF BUSINESS

         The  consolidated  financial  statements  presented  herein include the
accounts of Rent-A-Wreck of America,  Inc.  ("RAWA,  Inc.") and its wholly owned
subsidiaries,  Rent-A-Wreck Operations,  Inc. ("RAW OPS"), Rent-A-Wreck One Way,
Inc. ("RAW One Way"),  Consolidated American Rental Insurance Company, LTD ("CAR
Insurance") and Bundy American Corporation ("Bundy"),  and Bundy's subsidiaries,
Rent-A-Wreck Leasing, Inc. ("RAW Leasing"),  URM Corporation ("URM") and Central
Life and Casualty Company, Limited ("CLC").

         All of the above entities are collectively referred to as the "Company"
unless the context  provides or requires  otherwise.  All material  intercompany
balances and transactions have been eliminated.

         The Company  markets and  administers  the  Rent-A-Wreck  and PRICELE$$
vehicle rental  franchise  programs  throughout  the United  States,  as well as
various foreign  countries.  The Company also provides insurance coverage on the
vehicles of some of its  franchiees.  The  Company's  operations  are subject to
numerous  federal,  state,  local and foreign laws,  including federal and state
laws  governing  the  offer  and  sale  of  franchises  and  relationship   with
franchisees.

RESTRICTED CASH

         Restricted  cash includes a deposit of $638,000  being held in the Bank
of Butterfield  (Bermuda) securing the letter of credit with The Chase Manhattan
Bank  ("Chase") and $80,543 held on behalf of the Company's  franchisees  in the
national advertising fund to be spent on various advertising programs.

ACCOUNTS AND NOTES RECEIVABLE

         Substantially  all receivables  derived from franchises  granted by the
Company  are  personally   guaranteed  by  the  officers  or  directors  of  the
franchisees.  Initial  license fees are collected upon execution of the contract
or financed, generally over a twelve-month period with interest.

PROPERTY AND EQUIPMENT

         Depreciation and amortization are provided for in amounts sufficient to
relate the cost of depreciable assets to operations over their estimated service
lives,  utilizing  primarily the  straight-line  method for  financial statement

                                       29
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
                                 MARCH 31, 1999


PROPERTY AND EQUIPMENT-CONTINUED

purposes.  Accelerated  methods of depreciation  and  amortization  are used for
substantially  all assets for income tax purposes.  The estimated  service lives
used in determining depreciation for financial reporting are as follows:

         Furniture                                 3   years
         Computer Hardware and Software            3-5 years
         Machinery and Equipment                   5   years
         Leasehold Improvements                    3   years
         Vehicles                                  5   years

INTANGIBLE ASSETS

         Intangible  assets  include the value of trademarks and costs in excess
of net assets acquired in connection with  businesses  acquired.  Trademarks are
amortized on the  straight-line  method to operations  over periods ranging from
ten to forty years.  Costs in excess of net assets  acquired in connection  with
businesses  acquired are being amortized to operations on a straight-line  basis
over ten years. The  recoverability  of carrying values of intangible  assets is
evaluated on a recurring basis. The primary indicators are current or forecasted
profitability  of the related  business.  There have been no  adjustments to the
carrying values of intangible assets resulting from these evaluations.

INSURANCE RESERVES

         The Company  recognizes a liability for  re-insured  auto claims at the
time a claim is reported to the  Company by the third party  administrator.  The
third  party  administrator  establishes  the  initial  claim  reserve  based on
information relating to the nature, severity and the cost of similar claims. The
Company provides for claims incurred,  but not reported,  based on industry-wide
data and the Company's past claims  experience  through  consultation with third
party  actuaries.  The  liability  recorded  may be more or less than the actual
amount of the claims when they are submitted and paid.  Changes in the liability
are charged or credited to operations as the estimates are revised.

                                       30
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
                                 MARCH 31, 1999


INCOME TAXES

         Income tax  liabilities  and assets are recognized for the deferred tax
consequences of temporary  differences or carryforwards  that will result in net
taxable income or deductible amounts in future periods.  Deferred tax expense or
benefit  is the result of changes  in the net asset or  liability  for  deferred
taxes.

REVENUE RECOGNITION

         INITIAL LICENSE, ADVERTISING AND CONTINUING LICENSE FEES

         Revenues are composed  primarily of initial  license  fees,  continuing
license fees, and advertising  fees.  Franchisees have certain rights to use the
Company's  trademarked  names,  "Rent-A-Wreck"  and "PRICELE$$",  in a specified
territory.  Although the franchisee has continuing  access to the use of certain
of the Company's resources, experience and knowledge, the Company recognizes the
initial  license fee as revenue upon  completion of an initial  orientation  and
training course since this represents  substantially all of the initial services
required.  Many franchisees have had prior business  experience and,  therefore,
require little assistance in commencing business.  There is no obligation beyond
the initial training as related to the initial license fee.  Continuing  license
and  advertising  fees are  recognized  as revenues on a monthly  basis over the
contract year based primarily on franchisees' reported gross revenues.

         DIRECT FINANCING LEASES

         The Company offers, on a selective basis to qualified franchisees,  the
opportunity to finance vehicles for their rental fleets under a direct financing
program.  The  Company  recognizes  the  related  interest,   documentation  and
administrative  revenues  as they are  received.  The Company  accounts  for the
financing of the vehicles with the franchisees as direct  financing  leases (see
Note 3).

         INSURANCE PREMIUMS

         Insurance  premiums  are  recognized  ratably  over  the  term  of  the
coverage.

                                       31
<PAGE>
                  RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1999


ADVERTISING

         Advertising  costs are  expensed  as  incurred  and are  classified  as
advertising and promotion expenses.

STOCK-BASED COMPENSATION

         Compensation  costs for stock  options are  measured as the excess,  if
any, of the quoted market price of the Company's stock at the date of grant over
the amount to be paid to acquire the stock.  Compensation  cost for stock awards
is recorded based on the quoted market value of the Company's  stock at the time
of grant.

EARNINGS PER COMMON SHARE

         The  computation  of earnings  per common share is presented on a basic
and diluted basis in accordance with Statement of Financial Accounting Standards
128,  Earnings Per Share.  In  computing  basic  earnings  per share,  preferred
dividends are subtracted from net income to arrive at the earnings applicable to
common  shareholders.  In computing  diluted  earnings  per share,  the dilutive
effect of stock options,  warrants,  and the conversion of cumulative  preferred
stock was  considered in determining  the weighted  average number of common and
common equivalent shares.

STATEMENT OF CASH FLOWS

         For purposes of the statement of cash flows, the Company  considers all
highly liquid financial instruments purchased with a maturity of three months or
less to be cash equivalents.

ESTIMATES

         In preparing financial statements in conformity with generally accepted
accounting principles,  management is required to make estimates and assumptions
that affect the reported  amounts of assets and  liabilities,  the disclosure of
contingent  assets and reported  revenues and  expenses.  Actual  results  could
differ from those estimates.

                                       32
<PAGE>
                  RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1999


NEWLY ISSUED ACCOUNTING STANDARDS

         In June 1997,  the FASB issued SFAS No.  130,  Reporting  Comprehensive
Income (SFAS 130),  which is effective for fiscal years beginning after December
15, 1997.  The  Statement  establishes  standards  for  reporting and display of
comprehensive income and its components.  Adoption of this standard did not have
an effect on the Company.

         In June 1997, the FASB issued SFAS No. 131,  DISCLOSURES ABOUT SEGMENTS
OF AN  ENTERPRISE  AND RELATED  INFORMATION  (SFAS 131),  which is effective for
fiscal  years  beginning  after  December 15, 1997.  The  statement  establishes
revised standards under which an entity must report business segment information
in its financial  statements on the basis that is used internally for evaluating
segment  performance.  The Company adopted SFAS 131 in the fiscal year beginning
April 1, 1998 and has  restated  its prior year  segment data to conform to this
presentation.

         In December 1997, SFAS No. 132,  Employers'  Disclosures  about Pension
and Other Postretirement Benefits, was issued and is effective for the Company's
1999 fiscal year. The statement  revises  current  disclosure  requirements  for
employers'   pensions  and  other  retiree  benefits.   Implementation  of  this
disclosure  standard did not affect the Company's  financial position or results
of operations.

         In June 1998, SFAS No. 133,  Accounting for Derivative  Instruments and
Hedging  Activities,  was issued and is  effective  for all fiscal  quarters  of
fiscal years beginning after June 15, 2000. The statement establishes accounting
and reporting standards for derivative instruments,  and for hedging activities.
Implementation  of this  standard  is not  anticipated  to have an effect on the
Company.

RECLASSIFICATIONS

         Certain  prior year  amounts have been  reclassified  to conform to the
1999 presentation.

                                       33
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1999


2. CAPTIVE INSURANCE COMPANY

         In March 1997,  Rent-A-Wreck  of America,  Inc.  formed a wholly owned,
Bermuda-based  captive  insurance   subsidiary,   Consolidated  American  Rental
Insurance Company,  LTD ("CAR Insurance"),  to provide automobile  liability and
physical damage insurance for vehicles owned by participating  franchisees.  The
Company's  insurance  operations are subject to the laws and  regulations in the
jurisdictions   in  which  they  are   chartered   and  do  business.   American
International  Group (AIG) provides policy fronting,  excess insurance coverage,
and an aggregate  stop loss  protection of $1,300,000.  CAR Insurance  reinsures
AIG's  coverage  subject to a per loss limit of $100,000 per person and $300,000
per accident.

         As security for the reinsurance  arrangement  with AIG, the Company has
obtained  standby  letters  of credit  from Chase  ($1,000,000)  and the Bank of
Butterfield ($638,000). In addition, all assets of the Company have been pledged
to secure the agreement with Chase.

                                       34
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1999

3. DIRECT FINANCING LEASES

         The  components  of the Company's  net  investment in direct  financing
leases as of March 31, 1999 are as follows:

         Total Minimum Lease Payments to be Received ................   $55,798
            Less Amounts Representing Administration
             Costs Included in Total Minimum Lease Payments .........     1,558
                                                                        -------

         Minimum Lease Payment Receivable ...........................    54,240

            Less Allowance for Uncollectibles .......................    11,665
                                                                        -------

         Net Minimum Lease Payments Receivable ......................    42,575

            Less Unearned Income ....................................     7,137
                                                                        -------

         Net Investment in Direct Financing Leases ..................   $35,438
                                                                        =======

            Current Portion .........................................   $ 7,850
            Non-Current Portion .....................................    27,588
                                                                        -------

         Net Investment in Direct Financing Leases ..................   $35,438
                                                                        =======

         The total minimum  lease  payments  receivable in the three  succeeding
fiscal years are as follows:

         2000 .........................  $27,525
         2001..........................   18,662
         2002..........................    9,611
                                         -------
                  Total                  $55,798
                                         =======

                                       35
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1999

4.INTANGIBLE ASSETS

         Intangible assets consist of the following at March 31, 1999:


         Costs in Excess of Net Assets Acquired ....................   $ 50,000
         Trademarks ................................................    269,064
                                                                       --------
                                                                        319,064

         Less Accumulated Amortization .............................    126,192
                                                                       --------

                                                                       $192,872
                                                                       ========

5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

         Accounts payable and accrued expenses consist of the following at March
31, 1999:

         Accounts Payable ..........................................   $126,278
         National Advertising Fund .................................    108,754
         Payroll ...................................................     61,415
         Commissions and Royalties .................................    166,371
         Professional Fees .........................................    135,109
         Other .....................................................    111,579
                                                                       --------

                                                                       $709,506
                                                                       ========

                                       36
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1999


6.EARNINGS PER SHARE

         A  reconciliation  of  the  numerators  and  denominators  used  in the
computation  of basic and diluted  earnings  per share for the years ended March
31, 1998 and 1999 is as follows:

                                                          1998           1999
                                                       ----------     ----------
BASIC EPS COMPUTATION

Numerator:
 Net income applicable to common shares ..........     $  436,473     $  753,233

Denominator:
 Weighted average common shares ..................      4,266,711      4,085,860

Basic EPS ........................................     $      .10     $      .18
                                                       ==========     ==========
DILUTED EPS COMPUTATION

Numerator:
 Net income applicable to common shares ..........     $  436,473     $  753,233
 Dividends on convertible preferred stock ........        111,431        104,742
                                                       ----------     ----------
                                                          547,904        857,975
                                                       ----------     ----------
Denominator
 Weighted average common shares ..................      4,266,711      4,085,860
 Weighted average convertible preferred stock ....      1,366,000      1,346,731
 Weighted average options and warrants ...........        282,041        178,832
                                                       ----------     ----------
                                                        5,914,752      5,611,423

Diluted EPS ......................................     $      .09     $      .15
                                                       ==========     ==========

                                       37
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1999


7. INCOME TAXES

         The  provision  for income taxes for the years ended March 31, 1998 and
1999 consists of the following:

                                                         1998           1999
                                                       ---------      ---------
         Currently payable
          State income taxes .......................   $  51,341      $  52,461
          Federal income taxes .....................     225,695        332,866
                                                       ---------      ---------
              Total currently payable ..............     277,036        385,327

         Deferred ..................................     (68,508)      (130,520)
                                                       ---------      ---------

              Total ................................   $ 208,528      $ 254,807
                                                       =========      =========

         The  reconciliation  of the  provision  for income  taxes  computed  at
statutory rates to the provision for income taxes provided on pre-tax income for
the year ended March 31, 1998 and 1999 is as follows:

                                                         1998           1999
                                                       ---------      ---------
         Federal taxes at statutory rate ...........   $ 257,187      $ 378,346

         Reduction in valuation allowance...........    (100,000)      (176,000)

         State and local taxes, net ................      51,341         52,461
                                                       ---------      ---------

                   Total ...........................   $ 208,528      $ 254,807
                                                       =========      =========

                                       38
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1999


7. INCOME TAXES-CONTINUED

         The  significant  components  of the  deferred  income  tax  asset  and
(liability), stated by source of the difference between financial accounting and
tax basis as of March 31, 1999, are as follows:


         Deferred tax assets:
           Reserve for doubtful accounts ..................    $ 255,613
           Accrued expenses ...............................       68,798
           Other ..........................................       13,795
                                                               ---------
                                                                 338,206
         Deferred tax liabilities:
           Fixed assets ...................................      (38,448)
                                                               ---------
         Net deferred tax asset before
           valuation allowance ............................      299,758

         Valuation allowance ..............................     (100,730)
                                                               ---------
         Net deferred tax asset ...........................    $ 199,028
                                                               =========

         The net change in the valuation  allowance for the year ended March 31,
1999 was a decrease of $176,000.  The  valuation  allowance  has been reduced in
light of  favorable  earnings and expected  future  earnings and is  re-assessed
quarterly.

                                       39
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1999


8. COMMITMENTS AND CONTINGENCIES

         LEASE COMMITMENTS

         The  Company's  corporate  offices  are  occupied  under  the  terms of
operating leases from both related and non-related parties, the longest of which
expires in November  1999 (see note 15).  Future  minimum lease  payments  under
non-cancelable agreements are as
follows:

         March 31,
         ---------
         2000.....................$45,357

         Total rent  expense  for the years  ended  March 31,  1998 and 1999 was
$71,999 and $71,510, of which $9,649 and $8,044, respectively,  was to a related
party (see Note 9).

         LITIGATION

         The Company is party to legal  proceedings  incidental  to its business
from time to time.  Certain claims,  suits and complaints  arise in the ordinary
course of  business  and may be filed  against the  Company.  Based on facts now
known to the  Company,  management  believes  all such  matters  are  adequately
provided  for,  covered by insurance  or, if not so covered or provided for, are
without  merit,  or involve  such amounts  that would not  materially  adversely
affect the consolidated results of operations or financial
position of the Company.

9. RELATED PARTY TRANSACTIONS

         The Company has entered into a Management  Agreement with K.A.B.,  Inc.
(KAB), a management  consulting  group controlled by and affiliated with Kenneth
L. Blum, Sr.,  Chairman of the Board of Directors and Chief Executive Officer of
the  Company,  which  expires  July 1, 2003.  As a part of this  agreement,  KAB
provides  direct overall  management of the Company's  operations.  Total annual
fees paid to KAB under the  management  agreement  for the years ended March 31,
1998 and 1999 were $250,000 and $262,500 respectively.  KAB also holds an option
to purchase up to 2,250,000 shares of the Company's common stock (see note 10).

                                       40
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1999


9. RELATED PARTY TRANSACTIONS - CONTINUED

         The Company  leases a portion of its corporate  offices under the terms
of a month-to-month  operating lease with American Business Information Systems,
Inc.  (ABIS), a related party of KAB. The Company paid $9,649 and $8,044 for the
years ended March 31, 1998 and 1999, respectively, to ABIS under this agreement.

         In 1995,  the Company  entered into an  agreement  with ABIS, a related
party of KAB, to develop  computer  software  and related  documentation  over a
five-year term. For the years ended March 31, 1998 and 1999, $21,839 and $1,175,
respectively, have been paid to ABIS under this agreement.

         In 1995, the Company  retained Richter & Co., Inc., a related party, to
serve as exclusive  financial  advisor and placement agent for the Company.  For
its role of placement  agent and financial  advisor,  Richter & Co., Inc.'s fees
will be  contingent  and based upon  transactions  completed,  as defined in the
agreement.  For the years ended March 31, 1998 and 1999, there were no fees paid
to Richter & Co., Inc. pursuant to this agreement.

         Through  March 31,  1999,  Richter & Co.,  Inc.  has  provided  ongoing
financial  management  services to the Company at no charge.  Effective April 1,
1999,  Richter & Co., Inc. will receive an annual consulting fee of $30,000.  In
the opinion of management,  the terms of the Company's  agreements with Richter,
KAB and ABIS taken as a whole are at least as  favorable to the Company as could
be obtained from third parties.

10. STOCK OPTION PLANS AND COMMON STOCK WARRANTS

         Options and warrants to acquire  shares of the  Company's  common stock
are  granted  at a value  not less  than  100% of the fair  market  value of the
underlying stock on the date of issuance.

         The Company has issued stock options to acquire 2,250,000 shares of its
common stock to KAB in  conjunction  with its management  agreement.  During the
year ended March 31, 1996,  KAB  transferred  (a)483,333  and 604,167 vested and
unvested  options,  respectively,  to each of Kenneth L. Blum Jr., the Company's
president,  and Mr. Blum's sister,  Robin Cohn; (b) 20,000 and 25,000 vested and
unvested options,  respectively, to Richter & Co., Inc., an affiliate of William
L. Richter a director of the Company and financial  advisor;  and (C) 13,333 and
16,666 vested and unvested options, respectively, to Mr. Richter. In April 1996,

                                       41
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1999

10. STOCK OPTION PLANS AND COMMON STOCK WARRANTS - CONTINUED

the Company  approved the extension of the term of the KAB Management  Agreement
for five years expiring June 30, 2003,  the extension of the options  originally
granted to KAB by five years (with a  corresponding  delay in the fixed  vesting
date until July 1, 2002), and the addition of a cashless exercise  feature.  The
unvested  options  are  subject  to  an  acceleration  of  exercisability   upon
achievement  of certain  financial  stock  targets.  Such targets were  achieved
during the year ended March 31,  1999,  and at March 31,  1999,  all options are
fully vested.

         The fair value of each option  grant is estimated on the date of grant,
using the  Black-Scholes  options-pricing  model.  There  were no stock  options
granted during fiscal years 1998 and 1999.

         The following table summarizes option activity:

                                                               1998      1999
                                                             Weighted   Weighted
                                                             Average    Average
                                       1998        1999      Exercise   Exercise
                                      Shares      Shares      Price      Price
                                      ------      ------      -----      -----

Options outstanding at
  beginning of year ..............   2,265,000   2,250,000    $1.08      $1.08
Options exercised ................          --          --       --         --
Options granted ..................          --          --       --         --
Options canceled .................          --          --       --         --
Options expired ..................     (15,000)         --     1.44         --
                                    ----------   ---------

Options outstanding at
 end of year .....................   2,250,000   2,250,000    $1.08      $1.08
Option price range at
 end of year......................  $  1.00 to  $  1.00 to
                                    $  1.15     $  1.15
Option price range for
 exercised shares.................          --          --

Weighted-average fair value
 of options, granted during
 the year.........................  $       --  $       --

                                       42
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1999


10. STOCK OPTION PLANS AND COMMON STOCK WARRANTS - CONTINUED

         At  March  31,  1998  and  1999,   1,000,000  and  2,250,000   options,
respectively, were exercisable.

         The following table summarizes options outstanding at March 31, 1999:

                                                         Weighted Average
          Number        Exercise   Weighted Average         Remaining
         Outstanding     Price      Exercise Price       Contractual Life
         -----------     -----      --------------       ----------------

          2,250,000     $1.00 to       $1.08                4.25 years
                        $1.15

         The Company has adopted the disclosure-only  provisions of Statement of
Financial   Accounting   Standards   No.  123,   "Accounting   for   Stock-Based
Compensation."  Accordingly,  no  compensation  cost has been recognized for the
stock options plans.  Had  compensation  cost been recognized  based on the fair
value at the grant date on a straight-line  basis over the vesting period of the
grant for the fiscal 1997 awards consistent with the provisions of SFAS No. 123,
the Company's net earnings and earnings per share would have been reduced to the
following pro forma amounts:

                                                     1998           1999
                                                   --------       --------
         Net income applicable to common
          and common equivalent shares
             As reported .....................     $436,473       $753,233
             Pro forma .......................     $351,579       $668,270

         Earnings per share
           Basic:
             As reported .....................     $    .10       $    .18
             Pro forma .......................     $    .08       $    .16
           Diluted:
             As reported .....................     $    .09       $    .15
             Pro forma .......................     $    .06       $    .12

         In consideration of investment  banking services rendered in connection
with the  negotiation of the management  agreement with KAB, the Company granted
Richter & Co., Inc. five-year  warrants,  originally  expiring June 30, 1998, to
purchase  155,000  shares of the Company's  common stock.  The exercise price of

                                       43
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1999


10. STOCK OPTION PLANS AND COMMON STOCK WARRANTS - CONTINUED

20,000 of such warrants was $.80. Those were exercised on June 25, 1998, and the
exercise  price of the  remaining  135,000  warrants is tied to the exercise and
vesting  provisions  of  the  options  issued  to  KAB in  connection  with  the
management  agreement.  Richter & Co., Inc. assigned 62,000 of these warrants to
William L. Richter.

         In April 1996, the Company extended 135,000 of the warrants  originally
issued to Richter & Co., Inc. for an additional five years in  consideration  of
services  rendered in connection  with the  renegotiation  of the KAB Management
Agreement and related services.

         Warrants for 30,000 shares of the Company's common stock exercisable at
$.80 per share were issued to Richter & Co.,  Inc. in  connection  with previous
private  placement  transactions  for which Richter & Co., Inc.  acted as agent.
Richter & Co., Inc.  assigned 12,000 of these warrants to William L. Richter and
4,000 warrants to Richter & Co., Inc. employees. On February 11, 1999, Richter &
Co., Inc.  exercised  14,000 of these warrants and William L. Richter  exercised
12,000 of these  warrants.  On March 1, 1999, the Company bought back a total of
2,500 of these warrants from Richter & Co., Inc.  employees at $.50 per warrant,
and the remaining 1,500 of these warrants have expired.

         On September 30, 1994, the Company  issued  warrants for 100,000 shares
of the  Company's  common stock to Whale  Securities  Co.,  L.P. for  consulting
services.  The exercise  price was $1.25 per share.  On November  23, 1998,  the
Company bought back these warrants for $10,000.

         A summary of changes in  outstanding  warrants for the year ended March
31, 1999 is as follows:

                                                  Number of      Exercise Price
                                                  Warrants         per Warrant
                                                  --------         -----------

         Outstanding, beginning of year......      285,000        $ .80 - $1.50
         Issued..............................           --        $  --
         Exercised...........................      (46,000)       $ .80
         Bought Back.........................     (102,500)       $ .80 - $1.25
         Canceled............................       (1,500)       $ .80
                                                 ---------

         Outstanding, end of year............      135,000        $1.00 - $1.15
                                                 =========

                                       44
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1999


11. PREFERRED STOCK

         The terms of the  outstanding  preferred stock provide that the Company
may not declare or pay dividends,  whether in cash or in property, on the common
stock unless all dividends on the preferred stock for all past dividend  periods
and the then current  dividend period shall have been paid or declared and a sum
set aside for payment thereof.  Holders of preferred  stock,  voting as a class,
are  entitled to elect up to four members of a  seven-member  Board of Directors
and are also entitled to vote as a class on other significant corporate actions.
Pursuant to the terms of a voting trust,  Richter Investment Corp. holds a proxy
to vote  approximately 95% of the preferred stock, and, by virtue of his control
over Richter  Investment Corp.,  William L. Richter can be deemed to have voting
control over such shares.  The holders of the Series A Preferred are entitled to
cumulative  dividends  at an annual rate of eight cents per share.  The Series A
Preferred is convertible, at the option of the holder, into common shares on the
basis of one share of common for each share of Series A Preferred.

         During the year ended  March 31,  1999,  the  Company  repurchased  and
retired  226,875  shares of  preferred  stock,  reducing  the total  outstanding
preferred  shares from  1,366,000 to 1,139,125.  During the year ended March 31,
1999, the Company declared preferred  dividends totaling $104,743,  plus $44,302
of  dividend  arrearages,  and at March  31,  1999,  unpaid  declared  preferred
dividends totaled $22,782.  At March 31, 1999,  undeclared and unpaid cumulative
preferred dividends amounted to $147,737.

12. OTHER REVENUES

         Components  of other  revenues  for the years  ended March 31, 1998 and
1999 were as follows:

                                                   1998             1999
                                                 --------         --------

         Promotional materials...............    $106,779         $135,278
         Other...............................      29,604           24,368
                                                 --------         --------

                                                 $136,383         $159,646
                                                 ========         ========

                                       45
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1999


13. CONCENTRATIONS OF CREDIT RISK - CASH

         The Company  maintains  its cash  balances in  financial  institutions,
which balances at times may exceed federally insured limits. The Company has not
experienced any losses in such accounts,  and management believes the Company is
not exposed to significant credit risk.

14. GEOGRAPHIC AND INDUSTRY SEGMENTS

         The Company  currently  operates  in two  principal  segments:  Vehicle
Rental Franchise Programs and Insurance Coverage.  Corporate costs are allocated
to each  segment's  operations and are included in the measure of each segment's
profit or loss.  The  geographic  data  include  revenues  based  upon  customer
locations and assets based on physical locations.

         The  Company's  foreign  operations  are  presently  conducted  by  CAR
Insurance in Bermuda (see note 2).

         Information by geographic area and industry segment is as follows:

                                                        1998             1999
                                                     ----------       ----------
Net revenues from external customers
 Vehicle Rental Franchises-United States ........    $4,097,582       $4,862,782
 Insurance-United States ........................       579,063          738,533
 Insurance-Bermuda ..............................            --               --
                                                     ----------       ----------
                                                     $4,676,645       $5,601,315
                                                     ==========       ==========
Segment income before taxes
 Vehicle Rental Franchises-United States ........    $  645,324       $  978,477
 Insurance-United States ........................        48,761           59,170
 Insurance-Bermuda ..............................            --               --
                                                     ----------       ----------
                                                     $  694,085       $1,037,647
                                                     ==========       ==========
Segment assets
 Vehicle Rental Franchises-United States ........    $2,630,585       $2,498,757
 Insurance-United States ........................       764,274          742,156
 Insurance-Bermuda ..............................       269,253          645,033
                                                     ----------       ----------
                                                     $3,664,112       $3,885,946
                                                     ==========       ==========

                                       46
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1999


14. GEOGRAPHIC AND INDUSTRY SEGMENTS-CONTINUED

                                                          1998            1999
                                                        --------        --------
Expenditures for segment assets
 Vehicle Rental Franchises-United States ..........     $ 75,270        $208,208
 Insurance-United States ..........................           --              --
 Insurance-Bermuda ................................           --              --
                                                        --------        --------
                                                        $ 75,270        $208,208
                                                        ========        ========
Depreciation and amortization
 Vehicle Rental Franchises-United States ..........     $121,461        $178,435
 Insurance-United States ..........................           --              --
 Insurance-Bermuda ................................           --              --
                                                        --------        --------
                                                        $121,461        $178,435
                                                        ========        ========
Interest income
 Vehicle Rental Franchises-United States ..........     $ 66,225        $ 64,872
 Insurance-United States ..........................          445              --
 Insurance-Bermuda ................................       18,369          32,043
                                                        --------        --------
                                                        $ 85,039        $ 96,915
                                                        ========        ========
Interest expense
 Vehicle Rental Franchises-United States ..........     $ 10,115        $    182
 Insurance-United States ..........................       12,577          21,598
 Insurance-Bermuda ................................           --              --
                                                        --------        --------
                                                        $ 22,692        $ 21,780
                                                        ========        ========
Income taxes
 Vehicle Rental Franchises-United States ..........     $192,498        $254,807
 Insurance-United States ..........................       16,030              --
 Insurance-Bermuda ................................           --              --
                                                        --------        --------
                                                        $208,528        $254,807
                                                        ========        ========

15. SUBSEQUENT EVENTS

         On May 7, 1999, the Company's Board of Directors authorized the payment
of 100%  of  remaining  dividend  arrearages  as of May 6,  1999  ($146,915)  on
preferred shares to the shareholders of record as of that date.

         On May 7, 1999,  the  Company's  Board of Directors  also approved that
office space be leased from KA Estate  Associates,  LLC, a firm owned by Kenneth
L. Blum, Jr. and Alan Cohn, effective at the expiration of the Company's current
lease and  subject to the lease  terms  being  equivalent  or  superior to terms
available to the Company on comparable space in the vicinity.

                                       47
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
        AND FINANCIAL DISCLOSURE

        Not Applicable.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
        COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

         Under  the  securities  laws  of  the  United  States,   the  Company's
directors,  its executive officers, and any persons holding more than 10% of the
Company's  Common Stock are required to report  their  initial  ownership of the
Company's  Common  Stock and any  subsequent  changes in that  ownership  to the
Securities  and Exchange  Commission.  Specific due dates for these reports have
been established, and the Company is required to disclose any failure to file by
these dates.  The Company  believes that all of these filing  requirements  were
satisfied  during  the  fiscal  year  ended  March 31,  1999.  In  making  these
disclosures,  the Company has relied solely on  representations of its directors
and  executive  officers and copies of the reports that they have filed with the
Commission.

CLASS I DIRECTORS:

         Kenneth L. Blum,  Sr., 72.  Kenneth L. Blum, Sr. has served as Chairman
and a Director  of the Company  since June 1993,  has been the  Company's  Chief
Executive  Officer since  December 1993, and was its President from June 1993 to
October 1994. Since 1990, Mr. Blum has been a management consultant to a variety
of companies,  including  National Computer  Services,  Inc., a computer service
bureau,  and American Business  Information  Systems,  Inc., a high-volume laser
printing company. Mr. Blum is a director of Avesis  Incorporated,  which markets
and  administers  discount  benefit  programs.  Mr.  Blum is the  father  of the
Company's  President,  Kenneth L. Blum,  Jr. Mr. Blum controls  K.A.B.,  Inc., a
Florida  corporation  ("K.A.B."),  which  has a  Management  Agreement  with the
Company. See "Certain Transactions."

         Kenneth L. Blum,  Jr., 35, has served as Secretary of the Company since
March 1994, as Vice President from May 1994 to October 1994, as President  since
October 1994,  and as director since October 1998. Mr. Blum is also President of

                                       48
<PAGE>
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
        COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT-CONTINUED

American  Business  Information  Systems,  Inc., a  high-volume  laser  printing
company  and  computer  service  bureau.  Mr.  Blum is the son of the  Company's
Chairman and Chief Executive Officer.

CLASS II DIRECTORS:

         William  L.  Richter,  56,  has been a director  of the  Company  since
November 1989 and served previously as a director from 1983 to 1985. Mr. Richter
was Co-Chairman of the Company from November 1989 to June 1993 and has been Vice
Chairman since June 1993. For the past ten years, Mr. Richter has been President
of Richter  Investment  Corp.  and its wholly owned  subsidiary,  Richter & Co.,
Inc., a registered  broker-dealer  and investment  banking firm. Mr. Richter has
been a Senior Managing  Director of Cerberus  Capital  Management,  L.P. (or its
predecessor  organization)  since their  founding in late 1992. Mr. Richter is a
Director and Co-Chairman of Avesis  Incorporated,  which markets and administers
discount benefit programs.

         Alan L.  Aufzien,  69, has served as a Director  of the  Company  since
November 1989. Mr. Aufzien has also been a partner in the Norall Organization, a
private  investment  company,  since  1987.  Since  1983,  he has also  been the
president  and a director of New York  Harbour  Associates,  Inc. (a real estate
development  firm).  From  1986  to  1996,  Mr.  Aufzien  was  the  Chairman  of
Meadowlands  Basketball  Association (New Jersey Nets) and currently serves as a
director  of that  organization.  Mr.  Aufzien is also a director  of First Real
Estate Trust of New Jersey.

                                       49
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

         The following table and related notes set forth  information  regarding
the compensation  awarded to, earned by or paid to the Company's Chief Executive
Officer for services rendered to the Company during the fiscal years ended March
31,  1997,  1998 and 1999.  No other  executive  officer  who was  serving as an
executive  officer during fiscal 1999 received salary and bonus which aggregated
at least  $100,000 for services  rendered to the Company  during the fiscal year
ended March 31, 1999.

                                         Annual         Long-term Compensation
                                      Compensation              Awards
                                      ------------       ---------------------
                                                         Securities Underlying
Name and Principal Position        Year      Salary (1)     Options/SARS(#)
---------------------------        ----      ---------   ---------------------

Kenneth L. Blum, Sr., CEO          1999      $262,500            -- (2)
                                   1998       250,000            -- (2)
                                   1997       250,000            -- (2)

(1)  Mr. Blum became Chief  Executive  Officer of the Company in connection with
     the Management Agreement between the Company and K.A.B., effective June 30,
     1993.  Mr.  Blum  does not  receive  cash  compensation  directly  from the
     Company.  K.A.B.  receives  cash  compensation  pursuant to the  Management
     Agreement of $300,000 per year  (250,000 per year prior to January 1, 1999)
     plus expense  reimbursements ($7,850 in the year ended March 31, 1999). The
     amounts  indicated in the table represent  compensation  received by K.A.B.
     pursuant to the Management  Agreement.  Mr. Blum is the sole stockholder of
     K.A.B. See "Certain  Transactions - Management  Agreement with K.A.B., Inc.
     and Related Transactions - Management Agreement."

(2)  During the year ended  March 31,  1994,  K.A.B.  received  options  for the
     purchase of 2,250,000  shares of the  Company's  Common Stock in connection
     with the  Management  Agreement.  During the year ended March 31, 1995, the
     Board of Directors approved the vesting of 1,000,000 of these options at an
     exercise  price of $1.00 per share.  Effective  July 20, 1995, the exercise

                                       50
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE-CONTINUED

     price of the balance of the options  was set by the Board of  Directors  at
     $1.15 per share, with vesting, subject to continued employment,  on July 1,
     2002, or earlier  subject to  satisfaction  of  performance  targets.  Also
     effective  on  that  date,  K.A.B.   transferred  the  Options  to  certain
     transferees.  See "Certain Transactions - Management Agreement with K.A.B.,
     Inc. and Related Transactions - Stock Option Grant."

OPTION/SAR GRANTS IN LAST FISCAL YEAR

         No stock options or SARs were granted to the executive officer named in
the Summary Compensation Table during the last fiscal year. See Item 12. Certain
Relationships and Related Transactions under the caption "Certain Transactions -
Management  Agreement with K.A.B., Inc. and Related  Transactions - Stock Option
Grant."

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES

         No executive  officer named in the Summary  Compensation  Table held or
exercised  options  at the end of the last  fiscal  year.  See Item 12.  Certain
Relationships and Related Transactions under the caption "Certain Transactions -
Management  Agreement with K.A.B., Inc. and Related  Transactions - Stock Option
Grant."

EMPLOYMENT/CHANGE OF CONTROL ARRANGEMENTS

         In the event of  termination  of the  Management  Agreement with K.A.B.
without cause,  all options  granted to K.A.B. in connection with the Management
Agreement  remain  outstanding  for the balance of their ten-year term. See Item
12. Certain  Relationships and Related  Transactions  under the caption "Certain
Relationships and Related Transactions -- Management Agreement with K.A.B., Inc.
and Related Transactions - Stock Option Grant."

COMPENSATION OF DIRECTORS

         Currently,  directors  of the Company who also serve as officers of the
Company and outside  directors  receive no cash  compensation in connection with
the services they render as directors.  (Officers, however, receive compensation
in their capacity as officers as described above).  Directors are reimbursed for
expenses incurred in connection with their board service.  On March 3, 1999, the
Company's  Board of Directors  approved  that the Company pay William L. Richter
consulting  fees of $30,000 per year  beginning  April 1, 1999. The fees will be
assigned to Richter & Co., Inc.

                                       51
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         As of  May  19,  1999,  the  persons  and  entities  identified  in the
following table,  including all directors,  executive officers and persons known
to the Company to own more than 5% of the  Company's  voting  securities,  owned
beneficially,  within the meaning of  Securities  and Exchange  Commission  Rule
13d-3,  the  shares  of  voting  securities  reflected  in such  table.  All the
outstanding  shares of Series A Preferred  are  immediately  convertible  at the
option of the holder into Common Stock, on a  share-for-share  basis.  Except as
otherwise  specified,  the named beneficial owner has sole investment and voting
power with respect to such shares.

<TABLE>
<CAPTION>
                                                                                 Total (1)
                                                                           ---------------------
 Name and Address                                          Shares          Percent      Percent
of Beneficial Owner                  Title of Class   Beneficially Owned   of Class    of Common
-------------------                  --------------   ------------------   --------    ---------
<S>                                 <C>                <C>                 <C>         <C>
David Schwartz
Bundy Rent-A-Wreck
12333 W. Pico Blvd.
Los Angeles, California 90064         Common              865,000(2)          21.9        21.9

William L. Richter
c/o Richter & Co., Inc.
450 Park Avenue                       Common              992,706(4)          23.9(4)     23.9
New York, NY 100022                   Preferred(3)      1,075,000(4)          95.1        35.4(5)

Alan L. Aufzien
P.O. Box 2369                         Common               32,500               **          **
Secaucus, NJ 07094                    Preferred(4)         34,375              3.0         1.7(8)

Kenneth L. Blum, Sr.(6)
11460 Cronridge Dr., #120
Owings Mills, MD 21117                     --                  --               --          --

Kenneth L. Blum, Jr.(6)(7)
11460 Cronridge Dr., #120
Owings Mills, MD 21117                Common            1,249,167             24.8        24.8

Robin Cohn (6)(7)
c/o Rent-A-Wreck of America, Inc.
11460 Cronridge Dr., #120
Owings Mills, MD  21117               Common            1,254,167             24.9        24.9
                                      Common            2,274,373 (4)(6)(7)   43.4        43.4 (5)

All Directors and Executive Officers
 as a Group including the Directors
 Named Above (4 persons)              Preferred(3)(4)   1,075,000(4)(5)       95.1        50.4(8)
</TABLE>

*    Represents percentage ownership of Common Stock based upon shares of Common
     Stock  owned or deemed  owned due to  presently  exercisable  warrants  and
     options and after such person's conversion of Series A Preferred.

**   Less than 1%.

                                       52
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT-CONTINUED

FOOTNOTES

(1)  Based on 3,943,217  Common Shares and 1,130,000  Series A Preferred  Shares
     outstanding on the date of this table, May 19, 1999.
(2)  Pledged to secure third-party bank loan to Mr. Schwartz.
(3)  Holders of Series A Preferred,  voting as a class, are entitled to elect up
     to four members of a seven member Board of Directors  and are also entitled
     to vote as a class on other significant corporate actions.  Pursuant to the
     terms of proxies granted to Richter Investment Corp. ("RIC"),  95.2% of the
     Series A Preferred  may be voted by RIC as of the date of this  table.  The
     proxies are  effective  until such time that fewer than  500,000  shares of
     Series A Preferred remain outstanding. See note 4 below.
(4)  Includes  84,000  shares of Common Stock  issuable upon exercise of options
     and  warrants,  178,750  shares of Series A Preferred,  and 1,200 shares of
     Common  Stock held by spouse and 13,750  shares of Series A  Preferred  and
     5,000 shares of Common Stock held by a family member. Also includes 550,000
     shares of Series A  Preferred  and 321,600  shares of Common  Stock held by
     RIC, 296,375 shares of Common Stock and warrants (currently  exercisable or
     exercisable  within 60 days)  held by  Richter & Co.,  Inc.  ("RCI").  Also
     includes an additional 332,500 shares of Series A Preferred as to which RIC
     holds voting  authority via proxy (see note 3 above).  Mr.  Richter holds a
     controlling interest in RIC, and RIC holds 100% of the outstanding stock of
     RCI. Mr. Richter,  RIC and RCI have the same address.  Mr. Aufzien's 34,375
     shares of  Series A  Preferred,  held by a  partnership  controlled  by Mr.
     Aufzien, are subject to a voting proxy granted to RIC.
(5)  Excludes  332,500 shares of Series A Preferred as to which RIC holds voting
     authority  via proxy (see notes 3 and 4 above)  because  RIC would not have
     voting or  investment  control of the  converted  Common  Stock issued upon
     conversion of such shares of Series A Preferred.
(6)  Mr.  Blum,  Sr. is the father of Kenneth L. Blum,  Jr. and Robin Cohn;  see
     note 7 below. Mr. Blum disclaims beneficial ownership of shares held by Mr.
     Blum, Jr. and Ms. Cohn.
(7)  Includes  1,087,500  shares  issuable  pursuant  to  currently  exercisable
     options and, in the case of Ms. Cohn,  includes 166,667 shares held jointly
     with  spouse.  See  note 6 above.  Mr.  Blum,  Jr.  and Ms.  Cohn  disclaim
     beneficial   ownership  of  shares  held  by  each  other.  For  additional
     information  regarding  options  held by Mr. Blum,  Jr. and Ms.  Cohn,  see
     footnote 10 of the Company's audited financial statements found in Item 7.

                                       53
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Reference  is made to  footnote 9 of the  Company's  audited  financial
statements for the description of such information.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

     (a)  The following documents are filed as part of this report:

          1.   The financial statements, notes thereto and Report of Independent
               Public Accountants listed in the Index to Consolidated  Financial
               Statements set forth in Item 7.

          2.   The Exhibits listed in the Exhibit Index following the Signatures
               page, which is incorporated herein by this reference.

          3.   Financial  Statement  Schedules for the years in the period ended
               March 31, 1998 and 1999, as applicable.


     (b)  No  reports  on Form 8-K were  filed  during  the last  quarter of the
          period covered by this report.

                                       54
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
                  SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
                       YEARS ENDED MARCH 31, 1998 and 1999
<TABLE>
<CAPTION>
                                                 ADDITIONS
                                        ---------------------------
                           BALANCE AT   CHARGED TO                                    BALANCE
                           BEGINNING    COSTS AND      CHARGED TO                      AT END
DESCRIPTION                OF PERIOD    EXPENSES     OTHER ACCOUNTS    DEDUCTIONS    OF PERIOD
-----------                ---------    --------     --------------    ----------    ---------
<S>                        <C>          <C>            <C>              <C>           <C>
MARCH 31, 1998

Allowance for
 doubtful accounts         $779,035     $ 73,455       $     --         $169,859(1)   $682,631
                           ========     ========       ========         ========      ========

Valuation allowance on
 net deferred tax assets   $377,000     $     --       $     --         $100,000(2)   $277,000
                           ========     ========       ========         ========      ========

MARCH 31, 1999

Allowance for
 doubtful accounts         $682,631     $188,574       $     --         $215,787(1)   $655,418
                           ========     ========       ========         ========      ========

Valuation allowance on
 net deferred tax assets   $277,000     $     --       $     --         $176,000(2)   $101,000
                           ========     ========       ========         ========      ========
</TABLE>

(1)  Accounts written off

(2)  Reduction in the valuation  allowance based on evaluation of realization of
     net deferred tax assets.

                                       55
<PAGE>
                                   SIGNATURES

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

Rent-A-Wreck of America, Inc.
Registrant

By:                                                  Date:

/s/ Mitra Ghahramanlou                                    June 23, 1999
------------------------------
Mitra Ghahramanlou
Chief Accounting Officer

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

   Signature and Title                                         Date
   -------------------                                         ----

/s/ Kenneth L. Blum, Sr.                                  June 23, 1999
------------------------------
Kenneth L. Blum, Sr.
Chairman of the Board
and Director (Principal
Executive Officer)

/s/ Mitra Ghahramanlou                                    June 23, 1999
------------------------------
Mitra Ghahramanlou
Chief Accounting Officer
(Principal Financial and
Accounting Officer)

/s/ Kenneth L. Blum, Jr.                                  June 23, 1999
------------------------------
Kenneth L. Blum, Jr.
President and Director

/s/ William L. Richter                                    June 23, 1999
------------------------------
William L. Richter
Vice Chairman of the Board
and Director

/s/ Alan Aufzien                                          June 23, 1999
------------------------------
Alan Aufzien, Director

                                       56
<PAGE>
                          RENT-A-WRECK OF AMERICA, INC.
                                  EXHIBIT INDEX
                                   FORM 10-KSB
                                 FOR FISCAL YEAR
                              ENDED MARCH 31, 1999

Exhibit                                                  Incorporated
  No.              Exhibit                             by Reference from
  ---              -------                             -----------------

3.1       Certificate of Incorporation            Form 10-K for the Fiscal  year
                                                  ended March 31, 1997.

3.2       Bylaws, as amended                      Form 10-K for the fiscal  year
                                                  ended March 31, 1986, in which
                                                  the Bylaws,  are  incorporated
                                                  by reference and amendments to
                                                  Bylaws are filed therein.

4.1       Terms of $250,000  Letter of Credit     Form  10-QSB  for the  quarter
          issued by the Bank of  Butterfield,     ended December 31, 1997.
          as contained in  application  dated
          June 20, 1997, with attached Letter
          of Set-Off

4.15      Amendment to Letter Of Credit terms     Form  10-KSB  for  the  fiscal
          of   $638,000   by  the   Bank   of     year ended March 31, 1998
          Butterfield,    as   contained   in
          application  dated  June 20,  1997,
          with attached Letter of Set-Off

4.2       Financing  Statement dated June 10,     Form  10-QSB  for the  quarter
          1997  by  Rent-A-Wreck  Leasing  in     ended June 30, 1997.
          favor of The Chase Manhattan Bank

4.3       General  Security  Agreement  dated     Form  10-QSB  for the  quarter
          June  4,   1997   by   Rent-A-Wreck     ended June 30, 1997.
          Leasing   in  favor  of  The  Chase
          Manhattan Bank

4.4       Financing  Statement dated June 10,     Form  10-QSB  for the  quarter
          1997  by  Rent-A-Wreck   Operation,     ended June 30, 1997.
          Inc.   in   favor   of  The   Chase
          Manhattan Bank

                                       57
<PAGE>
4.5       General  Security  Agreement  dated     Form  10-QSB  for the  quarter
          June  4,   1997   by   Rent-A-Wreck     ended June 30, 1997.
          Operation,  Inc.  in  favor  of The
          Chase Manhattan Bank

4.6       Financing  Statement dated June 10,     Form  10-QSB  for the  quarter
          1997  by  Rent-A-Wreck  One  Way in     ended June 30, 1997.
          favor of The Chase Manhattan Bank

4.7       General  Security  Agreement  dated     Form  10-QSB  for the  quarter
          June 4,1997 by Rent-A-Wreck One Way     ended June 30, 1997.
          in  favor  of The  Chase  Manhattan
          Bank

4.8       Financing  Statement dated June 10,     Form  10-QSB  for the  quarter
          1997 by Bundy American  Corporation     ended June 30, 1997.
          in  favor  of The  Chase  Manhattan
          Bank

4.9       General  Security  Agreement  dated     Form  10-QSB  for the  quarter
          June  4,  1997  by  Bundy  American     ended June 30, 1997.
          Corporation  in favor of The  Chase
          Manhattan Bank

4.10      Financing Statement by Rent-A-Wreck     Form  10-QSB  for the  quarter
          of  America,  Inc.  dated  June 10,     ended June 30, 1997.
          1997   in   favor   of  The   Chase
          Manhattan Bank

4.11      General  Security  Agreement  dated     Form  10-QSB  for the  quarter
          June  4,  1997 by  Rent-A-Wreck  of     ended June 30, 1997.
          America, Inc. in favor of The Chase
          Manhattan Bank

4.12      Financing  Statement dated June 10,     Form  10-QSB  for the  quarter
          1997 by URM Corporation in favor of     ended June 30, 1997.
          The Chase Manhattan Bank

                                       58
<PAGE>
4.13      General  Security  Agreement  dated     Form  10-QSB  for the  quarter
          June 4, 1997 by URM  Corporation in     ended June 30, 1997.
          favor of The Chase Manhattan Bank

4.14      Financing  Statement  dated June 6,     Form  10-QSB  for the  quarter
          1997 by Central  Life and  Casualty     ended June 30, 1997.
          Company,  Limited  in  favor of The
          Chase Manhattan Bank

4.15      General  Security  Agreement  dated     Form  10-QSB  for the  quarter
          June 4,  1997 by  Central  Life and     ended June 30, 1997.
          Casualty Company, Limited, in favor
          of The Chase Manhattan Bank

9         Voting Trust Agreement                  Form 10-K for the fiscal  year
                                                  ended March 31, 1990

10.1      Option Plan                             Form 10-K for the fiscal  year
                                                  ended March 31, 1993

10.2*     Management  Agreement  - K.A.B., Inc.   Form 8-K, dated June 30, 1993
          Related party dated June 30, 1993


10.2.1*   Amendment to  Management  Agreement     Form 10-K for the fiscal  year
          with K.A.B.,  Inc.,  Related  party     ended March 31, 1997.
          dated March 27, 1996

10.3*     Stock Option Grant to K.A.B.,  Inc.     Form 8-K, dated June 30, 1993
          dated June 30, 1993                     and Amendment No. 1 to Form
                                                  10-K for the fiscal year ended
                                                  March 31, 1997.

10.3.1*   Amendment  to Stock Option Grant to     Form 10-K for the fiscal  year
          K.A.B., Inc. dated July 20, 1995        ended March 31, 1997.

10.4*     Registration Rights Agreement dated     Form 8-K, dated June 30, 1993
          June 30, 1993, among K.A.B.,  Inc.,
          Kenneth L. Blum,  Jr., Alan S. Cohn
          and the Company

10.5      Warrant  Agreement - Richter & Co.,     Form 8-K, dated June 30, 1993
          Inc.

10.6      Software  Development  and Computer     Form  10-KSB  for  the  fiscal
          Usage Agreement  effective  January     year ended March 31, 1995.
          1, 1995 between  National  Computer
          Services, Inc. and the Company.

                                       59
<PAGE>
10.7      Financial     Advisory    Agreement     Form  10-KSB  for  the  fiscal
          between  the  Company and Richter &     year ended March 31, 1995.
          Co., Inc. dated March 20, 1995.

10.8      Lease   between   the  Company  and     Form  10-KSB  for  the  fiscal
          Owings   Mills   Commerce    Centre     year ended March 31, 1996.
          Limited Partnership dated September
          19,    1995   and    subordination,
          Attornment   and    Non-Disturbance
          Agreement.

10.9      Franchise Agreement - standard form     Form  10-KSB  for  the  fiscal
          as of August 3, 1995                    year ended March 31, 1996.

10.10     Facultative  Reinsurance  Agreement     Form  10-KSB  for  the  fiscal
          dated   March   1,   1997   between     year ended March 31, 1998.
          National   Union   Fire   Insurance
          Company  of   Pittsburg,   PA.  and
          Consolidated     American    Rental
          Insurance Company, LTD.

10.11     Standby  or  Performance  Letter of     Form  10-KSB  for  the  fiscal
          Credit  Application  and  Agreement     year ended March 31, 1998.
          dated   June   3,   1997    between
          Rent-A-Wreck  Of America,  Inc. and
          The Chase Manhattan Bank

10.11.1   First  Amendment dated June 1, 1998     Form  10-KSB  for  the  fiscal
          to  the   Standby  or   Performance     year ended March 31, 1998.
          Letter  of Credit  Application  and
          Agreement   dated   June  3,   1997
          between  Rent-A-Wreck  Of  America,
          Inc. and The Chase Manhattan Bank

21        List of Subsidiaries                    Filed herewith.

27        Financial Data Schedule                 Filed herewith.

*  Management contract or compensatory plan or arrangement.

                                       60