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

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

For the fiscal year ended March 31, 1998

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

For the transition period from ________________ to ________________

                           Commission File No. 0-14819

                          RENT-A-WRECK OF AMERICA, INC.
                          -----------------------------
                      (EXACT NAME OF 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 pursuant to Section 12(b) of the Act: None


Securities registered pursuant to Section 12(g) of the 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 of 1934  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.  $4,676,645
                                                                   ----------

         4,162,792 shares of common stock were outstanding as of May 26, 1998.

         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 $2,538,080 on May
         26, 1998.  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
                                                                       ---  ---
                                        1
<PAGE>
                                TABLE OF CONTENTS

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

Item  1.          Description of Business.................         3
Item  2.          Description of Property.................         8
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...........        11
Item  6.          Management's Discussion and Analysis
                    of Financial Condition and Results of
                    Operations............................        15
Item  7.          Financial Statements....................        23
Item  8.          Changes in and Disagreements with
                    Accountants on Accounting
                    and Financial Disclosure..............        50

Part III
--------

Item  9.          Directors and Executive Officers, Promoters
                    and Control Persons; Compliance with
                    Section 16(a) of the Exchange Act             50

Item 10.          Executive Compensation..................        50

Item 11.          Security Ownership of Certain Beneficial
                    Owners and Management.................        52

Item 12.          Certain Relationships and Related
                    Transactions..........................        55


Item 13.          Exhibits and Reports on Form 8-K........        55
                                        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 under three years old. As of March 31, 1998,
73 of the Company's  484  franchisees  are  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,  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 franchisees'  fleet
size or gross revenues.
                                        3
<PAGE>
         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
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  three trucks to operate
under this program.  These trucks and an existing  Company-owned  van 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.

         The  Company   has  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.
                                        4
<PAGE>
         AIG provides  insurance  coverage for the  Company's  franchisees.  CAR
Insurance  reinsures AIG's coverage  subject to a per loss limit of $100,000 per
person and  $300,000 per  accident.  AIG also  provides an  aggregate  stop loss
protection of $1,300,000  for the first year and second year of this  agreement,
thus capping CAR Insurance's  exposure to loss. In carrying out the program, the
Company utilizes Willis Corroon as the insurance broker,  Hertz Claim Management
Corporation as the Third Party Administrator, and AICCO Premium Financing. AICCO
finances premiums to participants in the program. CAR Insurance intends to limit
its exposure to 1,500 vehicles during fiscal year 1998 and 2,000 vehicles during
fiscal year 1999.  The focus of growth for CAR Insurance will be in those states
where the Company's  insurance advisor believes the driver's insurance is deemed
to be primarily responsible for any losses. Franchisees apply for this insurance
coverage  with  Willis  Corroon.   Willis  Corroon  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.  As of March  31,  1998,  approximately  61 of the
Company's  franchisees  were  insuring  an  approximate  total of 1,259 of their
vehicles 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, 1998, the Company
was financing 19 vehicles for 8 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  program. 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 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.
                                        5
<PAGE>
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,  1998, 136 new  franchises  were
granted,  11 existing franchise  locations were transferred to new ownership and
55 franchises were terminated by the Company. The majority of these terminations
resulted from monetary  default.  This resulted in approximately  542 franchised
locations  throughout  the United  States,  as well as 16  franchised  locations
located  in  Europe  and  Asia  at the  end of  this  fiscal  year  compared  to
approximately 468 franchised  locations throughout the United States, as well as
9  franchised  locations  in Europe and Asia at the end of the fiscal year ended
March 31, 1997.

Employees

         As of March 31, 1998, the Company employed 21 people,  consisting of 13
full-time  employees  and 1 part-time  employee  engaged in franchise  sales and
service  and  6  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 local independent  companies also compete
with the Company in various areas. In most major urban areas,  companies such as
Hertz, Avis,  National 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 Regulation

         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
                                        7
<PAGE>
information  about the  franchisor,  its  existing  franchises,  the  rights and
obligations  of  franchisees,  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  April  1998,  the  Company  is  currently  authorized  to  sell
franchises in all 50 states under its  "Rent-A-Wreck"  and "PRICELE$$" trade and
service marks. The Company has registered its  "Rent-A-Wreck"  trade and service
mark in approximately 33 foreign  countries and is in the process of registering
its  "PRICELE$$"  trade and service mark in 4 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.

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.  The Company  also rents on a
month-to-month  basis approximately 861 square feet of executive office space at
11460 Cronridge Drive, Suite 118, Owings
                                        8
<PAGE>
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
-------  -----------------

         On  October  1,  1997,  suit was  initiated  in the  District  Court of
Oklahoma  County,  State of Oklahoma  against  the  Company  and a  Rent-A-Wreck
franchisee by an automobile  dealer in connection with the  plaintiff's  sale of
cars to the  franchisee  for which  plaintiff  has  allegedly not yet been paid.
Plaintiff  alleges  that the  Company  fraudulently  induced it to deal with the
franchisee and seeks  $241,000 in damages plus  interest.  The claim against the
Company has been dismissed,  but the Court now has before it Plaintiff's  Motion
to Reconsider.  If the motion is granted,  the Company believes that Plaintiff's
counsel will dismiss the Company as a defendant.

         A lawsuit that was initiated in August 1994 by Mongo, Inc. and John and
Roberta  Batcher was  dismissed in April 1997.  The Company is aware that Mongo,
Inc. and John Batcher  filed  another  summons on August 21, 1997 in the Supreme
Court,  State of New York,  County of Suffolk  regarding  a lawsuit  against the
Company,  Bundy, K.A.B. Inc., officers of the Company and other defendants.  The
summons  mentions relief sought of $7,000,000 plus interest.  The summons is not
accompanied by a complaint,  and the Company is investigating the basis for this
summons  given that the  plaintiffs'  previous  claims  against the Company were
dismissed.  In November 1997, the Company removed the case to the U.S.  District
Court for the Eastern District of New York, and on February 4, 1998, the Company
petitioned  the  court to  dismiss  the  case.  The case was  dismissed  without
prejudice on May 11, 1998.

         Bundy  initiated  a lawsuit on November  21, 1994 in the United  States
District Court for the Southern  District of New York to collect amounts owed by
a former  franchisee,  Motorcar  Exchange,  Inc., and its  principals,  Gary and
Debbie  Blankfort.  In April 1996, Bundy obtained a default judgment against the
defendants  for  approximately  $140,000 in addition to a contempt  judgment for
approximately $70,000 plus interest. Subsequently, one of the defendants, Debbie
Blankfort, filed a petition as a debtor under the United States bankruptcy laws.
On July 13, 1996,  Bundy filed a petition in the  Southern  District of New York
for a determination that the amounts due pursuant to the judgment it received in
April 1996 are not dischargeable as a result of the bankruptcy petition filed by
Debbie  Blankfort.  Such petition is still pending,  and the Company  intends to
pursue its remedies.
                                        9
<PAGE>
         The Company is also  involved in routine  litigation  incidental to its
business.

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, 1998.
                                       10
<PAGE>
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 were as follows:


                    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

                    Year Ended
                  March 31, 1997             High*      Low*
               ---------------------       --------  ---------

               First Fiscal Quarter        $ 1 1/2   $   31/32 
               Second Fiscal Quarter         1 1/2     1  1/16 
               Third Fiscal Quarter          1 5/16      29/32  
               Fourth Fiscal Quarter         2 1/4     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  currently has preferred stock issued with 1,366,000 shares
outstanding.  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 $109,280.  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 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
                                       11
<PAGE>
public market for the preferred  stock.  At June 1, 1998,  undeclared and unpaid
cumulative preferred dividend arrearages amounted to $177,209.

         The number of stockholders  of record of the Company's  Common Stock as
of May 27, 1998 was 228. 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  1,400 as
of May 26,  1998.  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.

         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.
                                       12
<PAGE>
Selected Financial Data
-----------------------

         Set forth  below  are  selected  financial  data  with  respect  to the
consolidated  statements of operations of the Company and its  subsidiaries  for
each of the five years in the period ended March 31,  1998,  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.


<TABLE>
<CAPTION>
                                                     Year ended March 31,
                                    -----------------------------------------------------
                                      1994        1995       1996       1997       1998
                                    -----------------------------------------------------
                                                (in thousands except per share
                                                  and number of franchises)

<S>                                <C>         <C>        <C>        <C>        <C>     
Franchisees' Results (Unaudited)

Franchisees' Revenue (1)           $ 25,522    $ 26,482   $ 29,864   $ 34,661   $ 40,018

Number of Franchises                    365         384        429        477        558

Company's Results of Operations

Total Revenue                      $  3,224    $  3,003   $  3,455   $  3,785   $  4,677

Costs and expenses and Other          3,511       2,655      3,029      3,252      3,983

Income (loss) before income
  taxes                            $   (262)   $    416   $    489   $    600   $    756

Net income (loss)                      (236)        383        459        537        548

Earnings (loss) per common share

 Basic                             $   (.10)   $    .06   $    .08   $    .10   $    .10
 Weighted average common
  shares                              3,758       4,238      4,210      4,102      4,267

 Diluted                           $   (.10)   $    .06   $    .07   $    .09   $    .09
 Weighted average common           
  shares plus options and
   warrants                           5,727       6,086      6,197      6,083      5,915
</TABLE>
                                       13
<PAGE>
<TABLE>
Company's Balance Sheet Data

<S>                                <C>         <C>        <C>        <C>        <C>     
Working Capital                    $    572    $    850   $    902   $  1,191   $  1,527
                                                                                   
Total assets                          2,553       2,102      2,164      2,594      3,664
                                                                                   
Long-term obligations                   119        --           36         30       --
                                                                                   
Shareholders' Equity                  1,048       1,299      1,372      1,755      2,028
</TABLE>


(1) The franchisees'  revenue data have been derived from unaudited  license fee
reports provided by franchisees.
                                       14
<PAGE>
Item 6.  Management's Discussion and Analysis of
-------  ---------------------------------------
                  Financial Condition and Results of Operations
                  ---------------------------------------------

RESULTS OF OPERATIONS

Year ended March 31, 1998 vs. year ended March 31, 1997

         Revenue from  franchising  operations,  which includes  initial license
fees,  continuing  license fees,  advertising fees and direct financing  leases,
increased by $439,150 (12%). This increase occurred primarily due to an increase
in revenue from initial  license fees,  continuing  license fees and advertising
fees.  Initial license fees increased by $43,002 (6%) 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 $321,446 (15%), and advertising fees increased by $77,900 (12%) due
to the fleet growth at existing franchises and the Company's  dedication of more
resources to its  collection  efforts.  Revenues  from  insurance  premiums were
$579,063  due to the  new  reinsurance  program  that  started  in  March  1997,
partially  offset by a $78,906  (86%)  reduction  in premiums  from the physical
damage  insurance  program ("CLC") and by a $67,551 (100%) reduction in premiums
from  the  national  insurance  program  ("URM")  due to their  termination  and
replacement by the reinsurance program operated through CAR Insurance. Insurance
premium  revenue is  recognized  ratably  over the life of the  policies.  Other
revenue increased by $25,307 (24%) due primarily to an increase in the insurance
replacement program.

         Total  operating  expenses  increased by $730,923  (22%) in fiscal 1998
compared to the prior year due primarily to an increase in underwriting expenses
of $426,202 (1,586%) and an increase in general and  administrative  expenses of
$159,832  (19%).  These  increases  resulted  primarily from the new reinsurance
program.  Advertising  and promotion  expenses  increased by $100,048  (12%) due
primarily to an increase in national advertising expense to promote the Company.
Salary expense increased by $22,265 (3%) due to the growth of the Company. Sales
and marketing  expenses increased by $15,779 (2%), which resulted primarily from
additional  commission expenses due to the larger amount of franchise sales made
in fiscal 1998 compared to the prior year and additional  marketing expenses for
attracting new franchisees, partially offset by a reduction in bad debt expenses
due to improved collection of outstanding  accounts receivable and collection of
previously reserved accounts receivable.

         Net interest income  decreased $4,220 (6%). This decrease was primarily
due to lower interest received on the Company's direct financing leasing program
primarily because of increased attractiveness of competitive programs.
                                       15
<PAGE>
         Depreciation  and  amortization  expense  increased  by $6,797  (6%) in
fiscal 1998  compared to the prior year.  This increase was primarily due to the
additional 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 5 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 $694,085,  before taxes and
interest,  in 1998 compared to operating income of $533,363 for 1997, reflecting
an  increase  of $160,722  (30%).  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.

         Income tax  expense  for the year ended  March 31,  1998  increased  by
$146,089  (234%) over 1997 due to higher  pre-tax  earnings and the depletion of
the Company's federal income tax net operating loss carryforward in fiscal 1997,
partially  offset by a reduction in the deferred tax asset valuation  allowance.
The  valuation  allowance is being  reduced in light of  favorable  earnings and
expected future earnings and is re-assessed quarterly.

         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,  1998,  the  Company  had  working  capital of  $1,526,934
compared to  $1,191,019 at March 31, 1997.  This increase of $335,915  primarily
resulted from net profit earned during the year and a reduction in allowance for
doubtful accounts based on the Company's historical reserves experience,  offset
by increased reserves for the reinsurance program. Of the net increase,  $96,404
is due to a reduction  in the  required  allowance  for  doubtful  accounts as a
result of improved  collection  efforts. In fiscal 1998, the Company's allowance
for doubtful  accounts was $682,631  compared to $779,035 in the prior year. The
Company  wrote off  $169,859 of its  doubtful  accounts  during  fiscal 1998 and
$217,162  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 January  1997,  the  Company's
management  improved its collection effort by dedicating part of the time of one
employee to coordinate collections from franchisees. This new effort
                                       16
<PAGE>
resulted in more accounts being kept current and yielded a collection of $19,895
of receivables from franchisees and $52,999 on a note receivable  arising out of
an asset sale at a franchise  location.  The Company had reserved  against these
receivables in the prior year, and,  accordingly,  this collection improved cash
flow in fiscal 1998 compared to the prior year. 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  increased by $607,189 (100%).  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  collection  efforts.  Restricted cash decreased by
$75,130 (16%) due to higher advertising expenses. Restricted cash includes (1) a
deposit of $250,000 being held in the Bank of Butterfield (Bermuda) for securing
the letter of credit  with The Chase  Manhattan  Bank  ("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 different
advertising programs.

         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 8.5% on June 4, 1998).  For the years ended March 31,
1997 and 1998, 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
8.5% on June 4, 1998).  For the years ended March 31, 1997 and 1998, AIG has not
drawn any funds from the letter of credit.  This  letter of credit is secured by
the
                                       17
<PAGE>
letter  of  credit  with  the  Bank  of  Butterfield  and  50% of the  Company's
receivables under 90 days old.

         The Company was committed  under capital lease  agreements  for various
equipment,  and it rents its office  facilities  under the terms of an operating
lease.  The capital lease  obligations were $38,667 and $0 at March 31, 1997 and
March 31, 1998,  respectively.  The Company has utilized its working  capital to
pay for these  obligations.  During the quarter ended  September  30, 1997,  the
Company  fully paid its  obligations  under these  capital  leases.  The monthly
office facilities lease commitments were $5,200 and $5,400 at March 31, 1997 and
1998, respectively.  The Company also rents additional space on a month to month
basis for approximately $670 per month.

         Furniture,  equipment and leasehold  improvements decreased by $212,054
(29%) from March 31, 1997 to March 31, 1998.  This decrease  occurred  primarily
due to writing  off the assets  that were not in use or were fully  depreciated.
Vehicles decreased by $29,678 (56%) from March 31, 1997 to March 31, 1998 due to
sales of a rental van and an executive vehicle which was partially offset by the
purchase of a truck for the Company's one way program.

         The Company has made and will continue to make certain  expenditures to
ensure that its software system and applications  continue to function  properly
in and after 2000. These  expenditures  have not been and are not anticipated to
be material to the Company's  financial  position or results of operations.  The
Company expects to spend approximately  $3,000 in its fiscal year 1999 to ensure
that its software systems and applications  continue to function properly in and
after the year 2000. No amounts were spent in fiscal 1998.

         Cash provided by operations was $398,372,  resulting primarily from net
income  before  depreciation  plus the  increase  in accounts  payable,  accrued
expenses and insurance fees, claims and loss reserves, offset by the increase in
the Company's receivables. Prepaid expenses and other increased primarily due to
purchase  of  additional  promotional  items.  Insurance  fees,  claims and loss
reserves  increased  due  to the  new  insurance  program.  Accounts  and  notes
receivable decreased primarily due to the Company's  collections  efforts.  Cash
used in investing  activities of $32,429 related primarily to the acquisition of
computer  software and hardware and  maintaining  trademarks.  Cash  provided by
financing  activities  during the same period was  $176,388,  resulting  from an
increase  in  insurance  premiums  payable and the  issuance of common  stock in
connection  with the  acquisition of assets,  offset by the payment of preferred
dividends,  repayment  of  long-term  debt and  buyback of common and  preferred
stock.

         During the year ended March 31, 1996,  the Company  announced a buyback
of up to 250,000 shares of its common stock and/or its Series A convertible
                                       18
<PAGE>
preferred  stock.  On April 8,  1996,  the  Board of  Directors  authorized  the
repurchase of an additional  250,000 shares of the Company's  outstanding common
and preferred  stock.  During the year ended March 31, 1997,  the Company bought
back 66,500 shares of its common stock at a cost of $66,749 and also bought back
67,625  shares of its  preferred  stock at a cost of $85,301.  These shares were
retired in the year ended March 31, 1997.  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.  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.

         The Company  believes it has sufficient  working capital to support its
business plan through fiscal 1998.

IMPORTANT FACTORS

         The Company may from time to time make written or oral  forward-looking
statements,  including  statements  contained in the Company's  filings with the
Securities and Exchange Commission and its reports to stockholders.  This Report
contains   forward-looking   statements  made  pursuant  to  the  "safe  harbor"
provisions of the Private  Securities  Litigation Reform Act of 1995,  including
the  statements  regarding  anticipated  growth of the Company and trends in the
industry.  In  connection  with these  "safe  harbor"  provisions,  the  Company
identifies   important  factors  that  could  cause  actual  results  to  differ
materially from those contained in any forward-looking  statements made by or on
behalf of the  Company.  Any such  forward-looking  statement  is  qualified  by
reference to the following cautionary statements.

         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.  Because
of the  Company's  limited  experience  with  insurance  risks and the  inherent
uncertainties in estimating the ultimate costs of claims,  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.  Additionally,  if the Company
expands  the  program  as  anticipated,  the  effect  of such  losses  could  be
compounded.

         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
                                       19
<PAGE>
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
Corporation  and AICCO  Premium  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.

         Dependence on  Franchisees;  Credit Risks.  The Company's  revenues are
substantially  dependent on fees paid by its  franchisees.  These fees fluctuate
based on the franchisee's  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.
                                       20
<PAGE>
         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
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
                                       21
<PAGE>
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,  1998,  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  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.
                                       22
<PAGE>
Item 7.  Financial Statements
-------  --------------------

         Index to Consolidated Financial Statements and Supporting Schedules
         -------------------------------------------------------------------

                                                         Page
                                                         ----

Report of Independent Certified Public Accountants...     24

Financial Statements:

  Consolidated Balance Sheet as of March 31,
    1998.............................................     25

  Consolidated Statements of Earnings for
    the Years Ended March 31, 1997 and
    1998.............................................     27

  Consolidated Statements of Shareholders'
    Equity for the Years Ended March 31, 1997
    and 1998.........................................     28

  Consolidated Statements of Cash Flows for the
    Years Ended March 31, 1997 and 1998..............     29

  Notes to Consolidated Financial
    Statements.......................................     30

  Supporting Schedules:

    Schedule II - Valuation and Qualifying
                  Accounts...........................     57


  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.
                                       23
<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, 1998,
and the related  consolidated  statements of earnings,  shareholders' equity and
cash  flows  for the years  ended   March 31,  1998 and  1997.  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, 1998,  and the  consolidated
results  of their  operations  and their  consolidated  cash flows for the years
ended March 31, 1998 and 1997 in conformity with generally  accepted  accounting
principles.

We have also audited Schedule II for the years ended March 31, 1998 and 1997. 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
May 21, 1998
                                       24
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                 MARCH 31, 1998

                                     ASSETS

                                                                       1998
                                                                    ----------

CURRENT ASSETS:
  Cash and Cash Equivalents............................             $1,215,615
  Restricted Cash......................................                394,021
  Accounts Receivable, net of allowance
    for doubtful accounts of $682,631:
      Continuing License Fees and
        Advertising Fees...............................                302,367
      Current Portion of Notes Receivable..............                342,765
      Current Portion of Direct Financing
        Leases.........................................                 37,653
      Insurance Premiums Receivable....................                560,219
      Other............................................                176,166
  Prepaid Expenses and Other...........................                133,856
                                                                    ----------

    TOTAL CURRENT ASSETS...............................              3,162,662
                                                                    ----------


PROPERTY AND EQUIPMENT:
  Furniture............................................                 71,655
  Computer Hardware and Software.......................                314,657
  Machinery and Equipment..............................                101,868
  Leasehold Improvements...............................                 37,896
  Vehicles.............................................                 23,347
                                                                    ----------
                                                                       549,423
  Less:  Accumulated Depreciation and
         Amortization..................................               (265,476)
                                                                    -----------

    NET PROPERTY AND EQUIPMENT.........................                283,947
                                                                    -----------

OTHER ASSETS:
  Trademarks and other Intangible Assets, net of
    accumulated amortization of $105,951...............                203,129
  Long-term Portion of Notes and Direct Financing Lease
    Receivables, net of allowance of $0................                 14,374
                                                                    ----------

                                                                       217,503
                                                                    -----------

    TOTAL ASSETS.......................................             $3,664,112
                                                                    ==========

The accompanying notes are an integral part of this financial statement.
                                       25
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                 MARCH 31, 1998


                      LIABILITIES AND SHAREHOLDERS' EQUITY


                                                                       1998
                                                                   -----------


CURRENT LIABILITIES:
  Accounts Payable and Accrued Expenses................            $  873,690
  Dividends Payable....................................                27,320
  Insurance Premiums Payable...........................               489,903
  Insurance Fees, Claims, and 
    Loss Reserves......................................               244,815
                                                                   -----------

    TOTAL CURRENT LIABILITIES..........................             1,635,728
                                                                   -----------



    TOTAL LIABILITIES..................................             1,635,728
                                                                   -----------



COMMITMENTS AND CONTINGENCIES                                            -

SHAREHOLDERS' EQUITY:

  Convertible  Cumulative Series A Preferred Stock,  
    $.01 par value; authorized 10,000,000 shares; 
    issued and outstanding 1,366,000 shares
    (aggregate liquidation preference $1,092,800)                      13,660
  Common Stock, $.01 par value; authorized
    25,000,000 shares; issued and
    outstanding 4,189,692 shares.......................                41,896
  Additional Paid-In Capital...........................             2,900,382
  Accumulated Deficit..................................              (927,554)
                                                                   -----------

    TOTAL SHAREHOLDERS' EQUITY.........................             2,028,384
                                                                   -----------

    TOTAL LIABILITIES AND SHAREHOLDERS'
      EQUITY...........................................            $3,664,112
                                                                   ==========

The accompanying notes are an integral part of this financial statement.
                                       26
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF EARNINGS
                   FOR THE YEARS ENDED MARCH 31, 1997 AND 1998




                                                        1997         1998
                                                    -----------   ----------

REVENUES:
  Initial License Fees.....................         $  751,000    $  794,002
  Advertising Fees.........................            673,090       750,990
  Continuing License Fees..................          2,079,657     2,401,103
  Insurance Premiums.......................            161,497       579,063
  Vehicle Rental Operations................              5,482        15,104
  Direct Financing Leases to Franchisees...              6,923         3,725
  Other....................................            107,351       132,658
                                                    -----------   ----------

                                                     3,785,000     4,676,645
                                                    -----------   ----------

EXPENSES:
  Salaries, Consulting Fees, and
    Employee Benefits......................            747,743       770,008
  Advertising and Promotion................            822,587       922,635
  Underwriting Expenses....................             26,880       453,082
  Sales and Marketing .....................            699,819       715,598
  General and Administrative ..............            839,944       999,776
  Depreciation and  Amortization...........            114,664       121,461
                                                    -----------   ----------

                                                     3,251,637     3,982,560
                                                    -----------   ----------

         OPERATING INCOME..................            533,363       694,085

INTEREST INCOME, NET.......................             66,567        62,347
                                                    -----------   ----------

         INCOME BEFORE INCOME TAX EXPENSE..            599,930       756,432

INCOME TAX EXPENSE.........................             62,439       208,528
                                                    -----------   ----------

         NET INCOME........................            537,491       547,904

DIVIDENDS ON CONVERTIBLE CUMULATIVE
  PREFERRED STOCK..........................           (119,648)     (111,431)
                                                    -----------   -----------

NET INCOME AFTER DIVIDENDS ON
  CONVERTIBLE CUMULATIVE PREFERRED STOCK...         $  417,843    $  436,473
                                                    ===========   ==========

EARNINGS PER COMMON SHARE

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

Weighted average common shares.............          4,101,904     4,266,711
                                                    ===========   ==========


  Diluted..................................         $      .09    $      .09
                                                    ===========   ==========

Weighted average common shares
 plus options and warrants.................          6,083,043     5,914,752
                                                    ===========   ==========

The accompanying notes are an integral part of these financial statements.
                                       27
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                   FOR THE YEARS ENDED MARCH 31, 1997 AND 1998

<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, 1996............  1,566,375   $  15,664  4,121,642  $  41,216  $2,992,198   $(1,676,685)  $1,372,393

  Issuance of common stock and
    exercise of warrants..........       -           -       120,000      1,200     148,800          -         150,000

  Retirement of common stock......       -           -       (66,500)      (665)    (66,084)         -         (66,749)

  Retirement of preferred stock...    (67,625)       (677)      -          -        (53,424)      (31,200)     (85,301)

  Conversion of preferred stock
  into common stock...............    (59,625)       (596)    59,625        596        -             -            -

  Preferred dividends paid ($.08
    per share)....................       -           -          -          -           -         (119,648)    (119,648)

  Preferred dividend arrearages
    paid .........................       -           -          -          -           -          (32,858)     (32,858)

  Net income......................       -           -          -          -           -          537,491      537,491
                                   -----------  ---------  ---------  ---------  ----------   ------------  ----------

Balance, March 31, 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
                                   ===========  =========  ========== =========  ==========   ============  ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.
                                       28
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                   FOR THE YEARS ENDED MARCH 31, 1997 AND 1998

<TABLE>
<CAPTION>
                                                                1997            1998
                                                            -----------     -----------
<S>                                                         <C>             <C>       
Increase (decrease) in cash and cash
equivalents

Cash flows from operating activities:
  Net Income............................................... $  537,491      $  547,904
  Adjustments to reconcile net income
    to net cash provided by operating activities:
      Depreciation and amortization........................    114,664         121,461
      Gain on disposal of property and equipment...........     (2,403)         (4,065)
      Provision for doubtful accounts......................    (13,945)        (96,404)
  Changes in assets and liabilities:
      Accounts and notes receivable........................    192,949        (500,111)
      Prepaid expenses and Other...........................    (31,779)        (16,290)
      Accounts payable and accrued
        expenses...........................................    119,357         151,890
      Insurance fees, claims, and
        loss reserves......................................    (58,867)        193,987
                                                            -----------     -----------

       Net cash provided by operating activities...........    857,467         398,372
                                                            -----------     -----------

Cash flows from investing activities:
  (Increase) decrease in restricted cash...................   (469,152)         75,130
  Proceeds from sale of property and equipment.............     29,075          36,683
  Acquisition of property and equipment....................   (144,460)        (75,270)
  Additions to trademarks and other........................    (75,956)         (4,114)
                                                            -----------     -----------

       Net cash (used in) provided by investing activities.   (660,493)         32,429
                                                            -----------     -----------

Cash flows from financing activities:
  Increase in insurance premiums payable...................       -            489,903
  Issuance of common stock.................................    150,000          25,000
  Repayments of obligation under capital lease.............    (13,863)        (38,667)
  Retirement of common stock...............................    (66,749)       (121,509)
  Retirement of preferred stock............................    (85,301)        (25,781)
  Preferred dividends paid.................................   (152,506)       (152,558)
                                                            -----------     -----------

       Net cash (used in) provided by financing activities.   (168,419)        176,388
                                                            -----------     -----------

       Net increase in cash and cash
        equivalents........................................     28,555         607,189

Cash and cash equivalents at beginning of year.............    579,871         608,426
                                                            -----------     -----------

Cash and cash equivalents at end of year................... $  608,426      $1,215,615
                                                            ===========     ===========

Supplemental disclosure of cash flow information:
  Interest paid............................................ $    6,096      $   10,115
  Taxes paid............................................... $   38,722      $  103,733
</TABLE>

The accompanying notes are an integral part of these financial statements.
                                       29
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998



1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

         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.

Restricted Cash

         Restricted  cash includes a deposit of $250,000  being held in the Bank
of Butterfield  (Bermuda) securing the letter of credit with The Chase Manhattan
Bank  ("Chase")  and funds being held for  $144,021  on behalf of the  Company's
franchisees  in  the  national   advertising  fund  to  be  spent  on  different
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
purposes. Accelerated
                                       30
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
                                 MARCH 31, 1998


Property and Equipment-continued

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

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

Trademarks and Other Intangible Assets

         Costs  associated  with trademarks are capitalized and amortized on the
straight-line method to operations over periods ranging from ten to forty years.
Intangibles  represent costs in excess of net assets acquired in connection with
businesses  acquired and 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.

Income Taxes

         Income taxes are provided for in accordance with Statement of Financial
Accounting  Standards  No.  109,  "Accounting  for Income  Taxes."  Accordingly,
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. The
                                       31
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
                                 MARCH 31, 1998


principal items giving rise to temporary differences are depreciation,  reserves
and accrued liabilities.

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).

         Other
         -----

         Insurance  administration  and  physical  damage  program  revenues are
recognized ratably over the term of the coverage.  Promotional material revenues
are recorded when shipped.

Advertising

         Advertising  costs are  expensed  as  incurred  and are  classified  as
advertising and promotion expenses.
                                       32
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
                                 MARCH 31, 1998


Stock-Based Compensation

         Compensation costs for stock options is 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.

Newly Issued Accounting Standard

         In June 1997, the Financial Accounting Standards Board issued Statement
of Financial  Accounting  Standards 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.  The  Company  plans to adopt SFAS 131 in the fiscal year
beginning April 1, 1998.
                                       33
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1998


Reclassifications

         Certain  prior year  amounts have been  reclassified  to conform to the
1998 presentation.

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.
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 ($500,000) and Bank of Butterfield
($250,000).  In  addition,  certain  assets of the Company  have been pledged to
secure the agreement with Chase. The letters of credit were increased subsequent
to year end (see note 14).
                                       34
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1998


3.       DIRECT FINANCING LEASES

         The  components  of the Company's  net  investment in direct  financing
leases are as follows:
                                                                   March 31,
                                                                     1998
                                                                 ------------
                                                                
Total Minimum Lease Payments to be Received........                $69,184
         Less Amounts Representing                              
           Administration Costs Included in                     
           Total Minimum Lease Payments............                  1,292
                                                                   -------
                                                                
Minimum Lease Payment Receivable...................                 67,892
                                                                
         Less Allowance for Uncollectibles.........                 15,927
                                                                   -------
                                                                
Net Minimum Lease Payments Receivable..............                 51,965
                                                                
         Less Unearned Income......................                  3,405
                                                                   -------
                                                                
Net Investment in Direct Financing Leases..........                 48,560
                                                                   -------
                                                                
         Current Portion ..........................                $37,653
         Non-Current Portion.......................                 10,907
                                                                   -------
                                                                
Net Investment in Direct Financing Leases..........                $48,560
                                                                   =======
                                                          

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

         1999 .............................$56,937
         2000.............................. 12,247
                                           -------
                  Total                    $69,184
                                           =======
                                       35
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1998


4.       ACCOUNTS PAYABLE AND ACCRUED EXPENSES

         Accounts payable and accrued expenses consist of the following:

                                                     March 31,
                                                       1998
                                                     ---------
Accounts Payable...............................      $ 161,830
National Advertising Fund......................        144,022
Payroll........................................         30,219
Commissions and Royalties......................        144,040
Professional Fees..............................         83,254
Income Taxes Payable...........................        201,676
Other..........................................        108,649
                                                     ---------
                                        
                                                     $ 873,690
                                                     =========
                                       36
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1998

5.EARNINGS PER SHARE

         A reconciliation  of the numerators and denominators in the computation
of basic and diluted  earnings  per share for the years ended March 31, 1997 and
1998 is as follows:

                                      1997                 1998
                                   ----------           -----------
                                                       
BASIC EPS COMPUTATION                                  
                                                       
Numerator:                                             
 Net income applicable to                              
  common shares                    $  417,843           $   436,473
                                                       
Denominator:                                           
 Weighted average common                               
  shares                            4,101,904             4,266,711
                                   ----------            ----------
                                                       
Basic EPS                          $      .10            $      .10
                                   ==========            ==========
                                                       
DILUTED EPS COMPUTATION                                
                                                       
Numerator:                                             
 Net income applicable to                              
  common shares                    $  417,843            $  436,473
 Dividends on convertible                              
  preferred stock                     119,648               111,431
                                   ----------             ---------
                                      537,491               547,904
                                   ----------             ---------
                                                       
Denominator                                            
 Weighted average common                               
  shares                            4,101,904             4,266,711
 Convertible preferred                                 
  stock                             1,439,125             1,366,000
 Weighted average options                              
  and warrants                        542,014               282,041
                                   ----------             ---------
                                    6,083,043             5,914,752
                                                       
Diluted EPS                        $      .09            $      .09
                                   ==========            ==========

                                       37
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1998


6.       INCOME TAXES

         The Company  accounts  for income  taxes on the  liability  method,  as
prescribed by Statement of Financial  Accounting  Standards 109,  Accounting for
Income  Taxes (SFAS 109).  The  provision  for income  taxes for the years ended
March 31, 1997 and 1998 consists of the following:

                                               1997               1998
                                               ----               ----

  Currently payable
    State income taxes.................      $ 28,214           $ 51,341
    Federal income taxes...............        34,225            225,695
                                             --------            -------
          Total currently payable......        62,439            277,036
                                                           
  Deferred.............................          -               (68,508)
                                             --------            -------
          Total........................      $ 62,439           $208,528
                                             ========           ========

         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, 1997 and 1998 is as follows:

                                                1997             1998
                                             ---------        ---------
                                                              
  Federal taxes at statutory                                  
    rate............................         $ 189,825        $ 257,187
                                                              
  Utilization of tax loss                                     
    carryforward....................          (155,600)            -
                                                              
  Reduction in valuation allowance..              -            (100,000)
                                                              
  State and local taxes, net........            28,214           51,341
                                             ---------        ---------
                                                              
                                                              
        Total.......................         $  62,439        $ 208,528
                                             =========        =========

                                       38
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1998


6.       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, 1998 is as follows:

                                                         1998
                                                      ----------
 Deferred tax assets:                                 
   Reserve for doubtful accounts.................     $ 266,225
   Accrued expenses..............................       101,190
   Other ........................................        10,891
                                                      ----------
                                                        378,306
 Deferred tax liabilities:                            
   Fixed assets..................................       (33,068)
                                                      ----------
                                                      
 Net deferred tax asset before                        
   valuation allowance...........................       345,238
                                                      
 Valuation allowance.............................      (276,730)
                                                      ----------
 Net deferred tax asset..........................     $  68,508
                                                      ==========

         The net change in the valuation  allowance for the year ended March 31,
1998 was a decrease of $100,000.  The  valuation  allowance is being  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, 1998


7.       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.  Future minimum lease payments under  non-cancelable
agreements are as follows:

         March 31,
         ---------
         1999.....................$66,712
         2000.....................$45,357


         Total rent  expense  for the years  ended  March 31,  1997 and 1998 was
$70,064 and $71,999, of which $7,189 and $9,649, respectively was to the related
party (see Note 8).

         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.

8.       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,
1997 and 1998 were $200,000 and $250,000 respectively. KAB has also been granted
an option to purchase up to 2,250,000  shares of the Company's common stock (see
note 9).
                                       40
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1998


8.       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 $7,189 and $9,649 for the
years ended March 31, 1997 and 1998, 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,  1997 and  1998,  $34,204  and
$21,839, 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, 1997 and 1998, there were no fees paid
to Richter & Co., Inc. pursuant to this agreement.

         Richter & Co., Inc. provides ongoing financial  management  services to
the  Company  at no  charge.  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.


9.       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.

         Under the Company's stock option plans, 300,000 shares of the Company's
common  stock are  reserved  and  available  for  issuance  upon the exercise of
options  granted to employees,  including  officers and directors.  At March 31,
1998, no options were outstanding under the plan.

         The Company has issued stock options to acquire 2,250,000 shares of its
common stock to
                                       41
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1998


9.       STOCK OPTION PLANS AND COMMON STOCK WARRANTS - continued

KAB in conjunction with its management agreement.  These options are not part of
the  foregoing  plan.  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  13,333  and  16,666  vested  and  unvested  options,
respectively,  to Mr. Richter. In April 1996, 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 fair value of each option  grant is estimated on the date of grant,
using   the   Black-Scholes    options-pricing    model   with   the   following
weighted-average  assumptions  used for grants issued in fiscal year 1997:  risk
free interest rate of 6.870%; expected volatility of 57.880%, and expected lives
of 2.92 to 6.21 years.  There were no stock options  granted  during fiscal year
1998.
                                       42
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1998


9.       STOCK OPTION PLANS AND COMMON STOCK WARRANTS - continued


         The following table summarizes option activity:

                                                          1997        1998
                                                        Weighted    Weighted
                                                        Average     Average
                             1997           1998        Exercise    Exercise
                             Shares         Shares        Price       Price
                           ---------      ---------     --------    --------
Options outstanding at                    
  beginning of year        2,305,000      2,265,000      $ 1.17      $ 1.08
Options exercised               -              -            -           -
Options granted            2,250,000           -           1.15         -
Options canceled          (2,250,000)          -           1.30         -
Options expired              (40,000)       (15,000)        -          1.44
                          -----------     ----------               
                                                               
Options outstanding at                    
  end of year              2,265,000      2,250,000      $ 1.08      $ 1.08
                                          
Option price range at                     
  end of year              $ 1.00 to      $ 1.00 to
                           $ 1.44         $ 1.15
Option price range for                    
  exercised shares            -              -   
                                          
Weighted-average fair                     
 value of options,                        
 granted during                           
   the year                $ 0.70         $  -   
                                         
At March 31, 1997 and 1998, 1,015,000 and 1,000,000 options, respectively,  were
exercisable.
                                       43
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1998


9.       STOCK OPTION PLANS AND COMMON STOCK WARRANTS - continued

         The following table summarizes options outstanding at March 31, 1998:

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

       2,250,000     $ 1.00 to         $ 1.08              5.25 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:

                                                1997             1998
                                            -----------      -----------
     Net income applicable to common     
       and common equivalent shares      
         As reported                        $   417,843      $   436,473
         Pro forma                          $   190,546      $   351,579
                                         
     Earnings per share                  
                                         
       Basic:                            
         As reported                        $       .10      $       .10
         Pro forma                          $       .05      $       .08
                                         
       Diluted:                          
         As reported                        $       .09      $       .09
         Pro forma                          $       .03      $       .06

                                       44
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1998


9.       STOCK OPTION PLANS AND COMMON STOCK WARRANTS - continued

         In   consideration   of  services   rendered  in  connection  with  the
negotiation of the management  agreement with KAB, the Company granted Richter &
Co., Inc. five-year warrants, expiring June 30, 1998, to purchase 155,000 shares
of the  Company's  Common  Stock for its  services  as  investment  banker.  The
exercise  price of 20,000 of such warrants was $.80,  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  have been  issued to  Richter & Co.,  Inc.  in  connection  with
previous private  placement  transactions for which Richter & Co., Inc. acted as
agent.  Richter & Co., Inc. has assigned  12,000 of these warrants to William L.
Richter and 4,000 warrants to Richter & Co., Inc. employees.

         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 is $1.25 per share.

         A summary of changes in  outstanding  warrants for the year ended March
31, 1998 is as follows:

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

   Outstanding, beginning of year..      290,000       $.80 - $1.50
   Issued..........................         -        
   Exercised.......................         -        
   Canceled........................       (5,000)             $1.25
                                       ----------    
                                                     
   Outstanding, end of year........      285,000       $.80 - $1.25
                                       ==========    

                                       45
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1998


10.      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 96% 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,  1998,  the  Company  repurchased  and
retired  20,625  shares of  preferred  stock and 52,500  preferred  shares  were
converted to common shares, reducing the total outstanding preferred shares from
1,439,125 to  1,366,000.  At March 31, 1998,  undeclared  and unpaid  cumulative
preferred dividends amounted to $221,511.  During the year ended March 31, 1998,
the Company declared  preferred  dividends  totaling  $111,431,  plus $41,127 of
dividend arrearages,  and at March 31, 1998, unpaid declared preferred dividends
totaled $27,320.


11.      OTHER REVENUES

         Components  of other  revenues  for the years  ended March 31, 1997 and
1998 were as follows:
                                       1997             1998
                                     --------         --------
Promotional materials.......           94,685          106,779

Other.......................           12,666           25,879
                                     --------         --------

                                     $107,351         $132,658
                                     ========         ========

                                       46
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1998


12.      CONCENTRATIONS OF CREDIT RISK - CASH

         The Company  maintains  its cash  balances  in a financial  institution
located in Maryland,  which 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.

13.  GEOGRAPHIC AND INDUSTRY SEGMENTS

         The Company  currently  operates  in two  principal  segments:  Vehicle
Rental Franchise Programs and Insurance Coverage.

         The  Company's  foreign  operations  are  presently  conducted  by  CAR
Insurance in Bermuda.

         Information by geographic area and industry segment is as follows:

                                                  1997           1998
                                              ----------      ----------
                                                              
Net revenues to unaffiliated customers                        
 Vehicle Rental Franchises-United States      $3,623,503      $4,097,582
 Insurance-United States                         161,497          20,921
 Insurance-Bermuda                                  -            558,142
                                              ----------      ----------
                                              $3,785,000      $4,676,645
                                              ==========      ==========
                                                              
Operating income (loss)                                       
 Vehicle Rental Franchises-United States      $ 438,622       $  645,103
 Insurance-United States                         94,741           26,460
 Insurance-Bermuda                                  -             22,522
                                              ----------      ----------
                                              $  533,363      $  694,085
                                              ==========      ==========
                                                              
Assets                                                        
 Vehicle Rental Franchises-United States      $2,247,278      $2,630,585
 Insurance-United States                          77,495          10,625
 Insurance-Bermuda                               269,170       1,022,902
                                              ----------      ----------
                                              $2,593,943      $3,664,112
                                              ==========      ==========
                                                              
Capital expenditures                                          
 Vehicle Rental Franchises-United States      $  144,460      $   75,270
 Insurance-United States                            -               -
 Insurance-Bermuda                                  -               -
                                              ----------      ----------
                                              $  144,460      $   75,270
                                              ==========      ==========
                                                              
Depreciation and amortization expense                         
 Vehicle Rental Franchises-United States      $  114,664      $  121,461
 Insurance-United States                            -               -
 Insurance-Bermuda                                  -               -
                                              ----------      ----------
                                              $  114,664      $  121,461
                                              ==========      ==========
                                       47
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1998


14.      SUBSEQUENT EVENTS

         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,  subject to the same terms and conditions of the share repurchase program
initiated in the year ended March 31, 1996.

         On May 15, 1998, the Company paid 20% of the dividend arrearages on all
preferred shares outstanding as of March 31, 1998. These paid arrearages totaled
$44,302,  which was paid with and in addition to the regular quarterly preferred
dividend on May 15, 1998.  Remaining  undeclared and unpaid cumulative preferred
dividends were reduced to $177,209.

         In June 1998, Chase increased the letter of credit  associated with the
reinsurance  arrangement  from  $500,000  to  $1,000,000.  The  Company  made an
additional  deposit of $388,000 in the Bank of Butterfield  resulting in a total
restricted deposit of $638,000, which is secured by a $638,000  letter of credit
with the Bank of Butterfield.


                                       48
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1998


Item 8.  Changes in and Disagreements with Accountants on
-------  ------------------------------------------------
         Accounting and Financial Disclosure
         -----------------------------------

Not Applicable.  (The Company need not provide the disclosure called for by this
Item because it has been  previously  reported,  as that term is defined in Rule
12b-2 under the Securities Exchange Act of 1934, as amended).


                                    PART III
                                    --------

Item 9.  DIRECTORS AND 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,  1998.  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.

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,  1996,  1997 and 1998.  No other  executive  officer  who was  serving as an
executive officer during the year ended March 31, 1998 received salary and bonus
which  aggregated at least $100,000 for services  rendered to the Company during
the fiscal year.
                                       49
<PAGE>
<TABLE>
<CAPTION>
                                                   Annual               Long-Term
                                                Compensation       Compensation Awards
                                              ----------------  -------------------------

                                                                  Securities Underlying
Name and Principal Position          Year       Salary($)(1)         Options/SARs(#)
----------------------------       --------   ----------------  -------------------------

<S>                                  <C>          <C>                     <C>
Kenneth L. Blum, Sr., CEO            1998         $250,000                --(2)
                                     1997          250,000                --(2)
                                     1996          200,000                --(2)
                                                
</TABLE>

(1)      Mr. Blum became Chief  Executive  Officer of the Company in  connection
         with a  Management  Agreement  between the Company and K.A.B.,  Inc., a
         Florida corporation  ("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
         $250,000  per  year  plus  expense  reimbursements  (in the  amount  of
         $8,037).  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 Item 12. Certain  Relationships  and
         Related   Transactions  under  the  caption  "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  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 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."
                                       50
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1998


                      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 Value Table

         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.

Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
-------- -----------------------------------------------
         AND MANAGEMENT
         --------------

         As of  May  26,  1998,  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
                                       51
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1998


Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
-------- -----------------------------------------------
         AND MANAGEMENT-continued
         ------------------------

securities  reflected  in such table.  All the  outstanding  shares of Preferred
Stock 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)

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

                                                              Shares
Name and Address of Beneficial           Title of          Beneficially                           % of
Owner                                      Class              Owned            % of Class        Common
-------------------------------       --------------     ----------------    --------------    ----------

<S>                                    <C>                 <C>                    <C>             <C>    
David Schwartz                            Common             865,000(2)           20.8             --    
Bundy Rent-A-Wreck                                                                                       
12333 W. Pico Blvd.                                                                                      
Los Angeles, CA 90064                                                                                    
                                                                                                         
Cumberland Associates                     Common             151,200(3)            3.6             --    
1114 Ave. of the Amer.                 Preferred(4)           96,250               7.0             5.8   
New York, NY  10035                                                                                      
                                                                                                         
William L. Richter                        Common             881,040(5)           20.5             --    
c/o Richter & Co., Inc.                Preferred(4)        1,342,875(5)           96.0            33.1(6)
450 Park Avenue                                                                                          
New York, NY 100022                                                                                      
                                                                                                         
Alan L. Aufzien                           Common              32,500               **              --    
P.O. Box 2369                          Preferred(4)           34,375               2.5             1.6   
Secaucus, NJ 07094                                                                                       
                                                                                                         
Kenneth L. Blum, Sr.(8)                     --                  --                 --              --    
11460 Cronridge Dr., #120                                                                                
Owings Mills, MD 21117                                                                                   
                                                                                                         
Kenneth L. Blum, Jr.(7)(8)                Common             650,000              14.0             --    
11460 Cronridge Dr., #120                                                                                
Owings Mills, MD 21117                                                                                   
                                                                                                         
Robin Cohn (7)(8)                         Common             649,999              14.0             --   
c/o Rent-A-Wreck of America, Inc.                                                                        
11460 Cronridge Dr., #120                                                                                
Owings Mills, MD  21117                                                                                  
                                                                                                         
All Directors and Executive Officers      Common           2,428,540(5)           50.7             --    
as a Group, including the Directors                          (7)(8)                                      
Named Above (5 persons)                Preferred(4)        1,311,000(5)           96.0            57.4(6)
                                                                                                  
</TABLE>
                                       52
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1998


Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
-------- -----------------------------------------------
         AND MANAGEMENT-continued
         ------------------------

*    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 Preferred Stock.
**   Less than 1%.
(1)  Based on 4,162,792  Common Shares and 1,366,000  shares of Preferred  Stock
     outstanding on the date of this table, May 26, 1998.
(2)  Pledged to secure third-party bank loan to stockholder.
(3)  Cumberland  Associates is a limited partnership organized under the laws of
     the State of New York and is  engaged in the  business  of  managing,  on a
     discretionary  basis,  eleven  securities  accounts.  K.  Tucker  Andersen,
     Richard Reiss,  Jr., Robert Bruce III, and Oscar S. Schafer are the general
     partners (the "General  Partners") of Cumberland  Associates.  The business
     address of each of the General  Partners is the same as that of  Cumberland
     Associates.  By virtue of Rule 13d-3, each  of the General  Partners may be
     deemed the  beneficial  owner of all of the shares of Common Stock owned by
     Cumberland Associates. The foregoing information is based on a Schedule 13D
     dated October 10, 1989, filed by Cumberland Associates,  as supplemented by
     additional information supplied to the Company by Cumberland Associates.
(4)  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. Currently  holders
     of preferred stock nominate and elect two of the four  directors.  Pursuant
     to the terms of proxies granted to Richter Investment Corp. ("RIC"), 96% of
     the Preferred  Stock may be voted by RIC as of the date of this table.  The
     proxies are effective  until such time that less than $500,000 of Preferred
     Stock remains outstanding. See note 5 below.
(5)  Includes  57,334  shares of Common Stock  issuable upon exercise of options
     and warrants (currently exercisable or exercisable within 60 days), 178,750
     shares of  Preferred  Stock,  and 6,200  shares of Common  Stock and 13,750
     shares of Preferred  Stock held by family  members.  Also includes  550,000
     shares of Preferred  Stock and 275,000  shares of Common Stock held by RIC,
     144,375  shares of Common  Stock and  warrants  (currently  exercisable  or
     exercisable  within 60 days) to acquire  82,000 shares of Common Stock held
     by Richter & Co., Inc.  ("RCI"),  and 46,600 shares of Common Stock held in
     RCI's  trading  account.  Also  includes an  additional  568,500  shares of
     Preferred Stock as to which RIC holds voting
                                       53
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1998


Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
-------- -----------------------------------------------
         AND MANAGEMENT-continued
         ------------------------

     authority via proxy (see note 4 above).  Mr.  Richter has voting control of
     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 preferred
     stock are subject to a voting proxy granted to RIC.
(6)  Excludes  568,500  shares of  Preferred  Stock as to which RIC holds voting
     authority  via proxy (see notes 4 and 5 above)  because  RIC would not have
     voting or investment  control of the Common Stock issued upon conversion of
     such Preferred Stock.
(7)  Mr. Blum, Sr. is the father of Kenneth L. Blum Jr. and Robin Cohn; see note
     9 below.  Mr. Blum  disclaims  beneficial  ownership  of shares held by Mr.
     Blum, Jr. and Ms. Cohn. See also Item 12. Certain Relationships and Related
     Transactions.
(8)  Includes 483,333 shares issuable pursuant to currently  exercisable options
     and, in the case of Ms.  Cohn,  includes  166,666  shares held jointly with
     spouse.  See note 8 above.  Mr. Blum, Jr. and Ms. Cohn disclaim  beneficial
     ownership  of  shares  held  by  each  other.  For  information   regarding
     additional  options  held by Mr.  Blum,  Jr.  and Ms.  Cohn  which  are not
     currently  exercisable (and thus not deemed beneficially owned for purposes
     of the  above  table),  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."


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

         Reference  is made to  footnote 8 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.
                                       54
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                 MARCH 31, 1998


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

         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, 1997 and 1998, as applicable.
                                       55
<PAGE>
                         RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
                         SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
                              YEARS ENDED MARCH 31, 1997 and 1998


<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, 1997              
                            
Allowance for               
  doubtful accounts         $ 792,980       $ 203,217       $      -        $ 217,162 (1)    $ 779,035
                            =========       =========       ============    =========        =========
                            
Valuation allowance on      
 net deferred tax assets    $ 513,000       $    -          $      -        $ 136,000        $ 377,000
                            =========       =========       ============    =========        =========
                            
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        $ 277,000
                            =========       =========       ============    ==========       =========
</TABLE>                   
                           
         (1)      Accounts written off
                                       56
<PAGE>
(b)      No reports on Form 8-K were filed during the last quarter of the period
         covered by this report.
                                       57
<PAGE>
                                   SIGNATURES
                                   ----------


         In accordance  with Section 13 or 15(d) of the Securities  Exchange Act
of 1934,  Rent-A-Wreck  of America,  Inc. has 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 25, 1998
-----------------------------       -----------------------------
Mitra Ghahramanlou
Chief Accounting Officer


         In accordance with 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 as indicated:
                                       58
<PAGE>
Signature and Title                   Date
-------------------                   ----


 /s/ Kenneth L. Blum, Sr.                June 25, 1998
------------------------------        ------------------------
Kenneth L. Blum, Sr.                                  
Chairman of the Board                                 
and Director (Principal                               
Executive Officer)                                    
                                                      
 /s/ Mitra Ghahramanlou                  June 25, 1998
------------------------------        ------------------------
Mitra Ghahramanlou                                    
Chief Accounting Officer                              
(Principal Financial and                              
Accounting Officer)                                   
                                                      
 /s/ David Schwartz                      June 25, 1998
------------------------------        ------------------------
David Schwartz                                        
Vice Chairman of the Board                            
                                                      
 /s/ William L. Richter                  June 25, 1998
------------------------------        ------------------------
William L. Richter
Vice Chairman of the Board


 /s/ Alan Aufzien                        June 25, 1998
------------------------------        ------------------------
Alan Aufzien, Director
                                       59
<PAGE>
                          RENT-A-WRECK OF AMERICA, INC.
                                  EXHIBIT INDEX
                                   FORM 10-KSB
                                 FOR FISCAL YEAR
                              ENDED MARCH 31, 1998


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

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


3.2            Bylaws,                       Form 10-K
               as amended                    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             Form 10-QSB for the
               Letter of Credit              quarter ended
               issued by the                 December 31, 1997.
               Bank of Butterfield,  
               as contained in 
               application dated June
               20, 1997, with attached
               Letter of Set-Off


4.15           Amendment to Letter           Filed herewith.
               Of Credit terms of
               $638,000 by the
               Bank of Butterfield,
               as contained in
               application dated
               June 20, 1997,
               with attached
               Letter of Set-Off
                                       60
<PAGE>
4.2            Financing Statement           Form 10-QSB for the
               dated June 10, 1997           quarter ended
               by Rent-A-Wreck               June 30, 1997.
               Leasing in favor
               of The Chase
               Manhattan Bank


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

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

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


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


4.7            General Security              Form 10-QSB for the
               Agreement dated               quarter ended
               June 4,1997 by                June 30, 1997.
               Rent-A-Wreck One
               Way in favor of
               The Chase Manhattan
               Bank
                                       61
<PAGE>
4.8            Financing Statement           Form 10-QSB for the
               dated June 10, 1997           quarter ended
               by Bundy American             June 30, 1997.
               Corporation in favor
               of The Chase Manhattan
               Bank


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


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


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


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


4.13           General Security              Form 10-QSB for the
               Agreement dated               quarter ended
               June 4, 1997 by               June 30, 1997.
               URM Corporation
               in favor of The
               Chase Manhattan
               Bank
                                       62
<PAGE>
4.14           Financing Statement           Form 10-QSB for the
               dated June 6, 1997            quarter ended
               by Central Life and           June 30, 1997.
               Casualty Company,
               Limited in favor of
               The Chase Manhattan
               Bank


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


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


10.1           Asset Purchase                Form 10-QSB for the
               Agreement dated               quarter ended December
               December 3, 1996              31, 1996.
               Between Baltimore
               Car and Truck
               Rental, Inc.,
               Insurance Rentals,
               Inc., Mark Eisenberg,
               and the Company.


10.2           Commercial Installment        Form 8-K, Dated
               Sales and Finance             February 21, 1992 and is
               Agreement, as Amended         incorporated by reference;
                                             Amendment filed with Form
                                             10-KSB for the fiscal  
                                             year ended March 31,
                                             1995 and is incorporated
                                             by reference.


10.3           Promissory Note -             Form 10-K for the fiscal
               David Schwartz,               year ended March 31, 1993
               Shareholder as Amended        is incorporated by
                                             reference.
                                       63
<PAGE>
10.4           Option Plan                   Form 10-K for the fiscal
                                             year ended March 31, 1993
                                             is incorporated
                                             by reference.


10.5 *         Management Agreement -        Form 8-K, dated June 30,
               K.A.B., Inc. Related          1993 and is incorporated
               party dated June 30,          by reference.
               1993


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



10.6 *         Stock Option Grant to         Form 8-K, dated June 30,
               K.A.B., Inc. dated            1993 and is incorporated
               June 30, 1993                 by reference.  
                                             Amendment filed on Form 
                                             10-K for the fiscal
                                             year ended March 31, 
                                             1997.


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


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


10.8           Commercial Installment        Form 10-KSB for the
               Sales and Finance             fiscal year ended
               Agreement-K.A.B., Inc.        March 31, 1994.
               dated August 1, 1993


10.9           Franchise Agreement -         Form 10-KSB for the
               standard form                 fiscal year ended
                                             March 31, 1994.
                                       64
<PAGE>
10.10          Warrant Agreement -           Form 8-K, dated June 30,
               Richter & Co., Inc.           1993 and is incorporated
                                             by reference.


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


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


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


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


10.15+         Facultative                   Filed herewith.
               Reinsurance Agreement
               dated March 1, 1997
               between National
               Union Fire Insurance
               Company of Pittsburg,
               PA. and Consolidated
               American Rental
               Insurance Company,
               LTD.
                                       65
<PAGE>
10.16          Standby or Performance        Filed herewith.
               Letter of Credit
               Application and
               Agreement dated June 3,
               1997 between Rent-A-Wreck
               Of America, Inc. and The
               Chase Manhattan Bank


10.16.1        First Amendment dated         Filed herewith.
               June 1, 1998 to the
               Standby or Performance
               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.


27.1          Financial Data Schedule        Filed herewith.

27.2          Amended Financial Data 
              Schedule                       Filed herewith.


+ Confidential Treatment sought for a portion of this exhibit.


*  Management contract or compensatory plan or arrangement.
                                       66