U.S. Securities and Exchange Commission
                             Washington, D.C. 20549

                                   FORM 10-QSB

(Mark One)

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

                For the quarterly period ended September 30, 1998

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

           For the transition period from ____________ to ____________

                         Commission File Number 0-14819


                          RENT-A-WRECK OF AMERICA, INC.
       -----------------------------------------------------------------
       (Exact name of small business issuer as specified in its Charter)


         Delaware                                                95-3926056
---------------------------------                            -------------------
(State or other jurisdiction                                  (I.R.S. Employer
of 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


              ----------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)

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

                      APPLICABLE ONLY TO CORPORATE ISSUERS

         State the number of shares  outstanding of each of the issuer's classes
of common equity,  as of the latest  practicable  date:  4,098,792  shares as of
October 15, 1998.

         Transitional Small Business Disclosure Format (Check One):
Yes [ ] No [X]
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES

                        FORM 10-QSB - SEPTEMBER 30, 1998

                                      INDEX


PART I.   FINANCIAL INFORMATION                                        PAGE
                                                                       ----
Item 1.   Financial Statements

          Consolidated Balance Sheets as of
            March 31, 1998 and
            September 30, 1998 (unaudited)                              2-3

          Consolidated Statements of Earnings for
            the Three and Six Months ended
            September 30, 1997 and 1998 (Unaudited)                       4

          Consolidated Statements of Cash Flows for
            the Six Months ended September 30,
            1997 and 1998 (Unaudited)                                     5

          Notes to Consolidated Financial Statements
            (Unaudited)                                                 6-7

Item 2.   Management's Discussion and Analysis or
            Plan of Operations                                         8-11


PART II.  OTHER INFORMATION

Item 1.   Legal proceedings                                              13

Item 2.   Changes in Securities and Use of Proceeds                      13

Item 3.   Defaults Upon Senior Securities                                13

Item 4.   Submission of Matters to a Vote of Security Holders            13

Item 5.   Other Information                                              14

Item 6.   Exhibits and Reports on Form 8-K                               14

          Signatures                                                     15
<PAGE>
PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

                                                    March 31,      September 30,
                                                      1998             1998
                                                    ---------     -------------
                                                                    (Unaudited)
CURRENT ASSETS:
 Cash and Cash Equivalents .....................  $ 1,215,615      $ 1,035,871
 Restricted Cash ...............................      394,021          786,583
 Accounts Receivable, net of allowance for
  doubtful accounts of $682,631 and $741,564
  at March 31, 1998 and September 30, 1998,
  respectively:
    Continuing License Fees and
      Advertising Fees .........................      302,367          402,814
    Current Portion of Notes Receivable ........      342,765          453,251
    Current Portion of Direct Financing
      Leases ...................................       37,653           20,582
    Insurance Premiums Receivable ..............      560,219           33,360
    Other ......................................      176,166          182,511
 Prepaid Expenses ..............................      133,856          154,865
                                                  -----------      -----------

    TOTAL CURRENT ASSETS .......................    3,162,662        3,069,837
                                                  -----------      -----------
PROPERTY AND EQUIPMENT:
 Furniture .....................................       71,655           84,884
 Computer Hardware and Software ................      314,657          346,058
 Machinery and Equipment .......................      101,868          103,748
 Leasehold Improvements ........................       37,896           37,896
 Vehicles ......................................       23,347           97,745
                                                  -----------      -----------
                                                      549,423          670,331
 Less: Accumulated Depreciation and
       Amortization ............................     (265,476)        (323,117)
                                                  -----------      -----------

NET PROPERTY AND EQUIPMENT .....................      283,947          347,214
                                                  -----------      -----------
OTHER ASSETS:
 Trademarks and other Intangible Assets, net
  of accumulated amortization of $105,951
  and $116,004 at March 31, 1998 and
   September 30, 1998, respectively ............      203,129          199,523
 Long-term Portion of Notes and Direct
   Financing Lease Receivables .................       14,374           14,624
                                                  -----------      -----------
                                                      217,503          214,147
                                                  -----------      -----------

    TOTAL ASSETS ...............................  $ 3,664,112      $ 3,631,198
                                                  ===========      ===========

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

                                       2
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


                      LIABILITIES AND SHAREHOLDERS' EQUITY

                                                        March 31,  September 30,
                                                          1998         1998
                                                        ---------  -------------
                                                                    (Unaudited)

CURRENT LIABILITIES:
  Accounts Payable and Accrued Expenses .............. $  873,690    $  800,496
  Dividends Payable ..................................     27,320        27,320
  Insurance Premiums Payable .........................    488,397       235,852
  Insurance Fees, Claims, and Loss Reserves ..........    244,815       245,630
  Other ..............................................      1,506         1,506
                                                       ----------    ----------

    TOTAL CURRENT LIABILITIES ........................  1,635,728     1,310,804
                                                       ----------    ----------

    TOTAL LIABILITIES ................................  1,635,728     1,310,804
                                                       ----------    ----------

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 at 
    March 31, 1998 and September 30, 1998
    (aggregate liquidation preference $1,092,800
    at March 31, 1998 and September 30, 1998) ........     13,660        13,660
  Common Stock, $.01 par value; authorized 
    25,000,000 shares; issued and outstanding 
    4,189,692 shares at March 31, 1998 and 
    4,098,792 shares at September 30, 1998 ...........     41,896        40,988
  Additional Paid-In Capital .........................  2,900,382     2,790,730
  Accumulated Deficit ................................   (927,554)     (524,984)
                                                       ----------    ----------

    TOTAL SHAREHOLDERS' EQUITY .......................  2,028,384     2,320,394
                                                       ----------    ----------
    TOTAL LIABILITIES AND SHAREHOLDERS'
      EQUITY ......................................... $3,664,112    $3,631,198
                                                       ==========    ==========

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

                                       3
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF EARNINGS
                                   (UNAUDITED)

                                       Three Months             Six Months
                                    Ended September 30,     Ended September 30,
                                      1997        1998        1997        1998
                                      ----        ----        ----        ----
REVENUES:
 Initial License Fees ........... $  125,750  $  367,051  $  396,250  $  679,051
 Advertising Fees ...............    214,914     259,285     391,759     450,740
 Continuing License Fees ........    753,276     791,488   1,302,001   1,374,066
 Insurance premiums .............    148,436     200,974     236,003     363,017
 Vehicle Rental Operations ......      5,481       4,815       8,209       8,290
 Direct Financing Leases to
  Franchisees ...................      1,700         525       2,075         525
 Other ..........................     32,901      42,126      73,492      76,184
                                  ----------  ----------  ----------  ----------
                                   1,282,458   1,666,264   2,409,789   2,951,873
                                  ----------  ----------  ----------  ----------
EXPENSES:
 Salaries, Consulting Fees and
   Employee Benefits ............    195,678     220,806     390,893     424,993
 Sales and Marketing Expenses ...     92,064     147,754     278,209     368,961
 Advertising and Promotion ......    314,813     410,684     571,043     644,478
 Underwriting Expenses ..........    121,535     152,986     182,634     290,046
 General and Administrative
  Expenses ......................    256,004     209,520     487,059     454,976
 Depreciation & Amortization ....     30,252      36,115      60,796      70,134
                                  ----------  ----------  ----------  ----------
                                   1,010,346   1,177,865   1,970,634   2,253,588
                                  ----------  ----------  ----------  ----------

 OPERATING INCOME ...............    272,112     488,399     439,155     698,285

INTEREST INCOME, NET ............     14,476      15,909      32,567      32,029
                                  ----------  ----------  ----------  ----------
   INCOME BEFORE INCOME
     TAX EXPENSE.................    286,588     504,308     471,722     730,314
                                  ----------  ----------  ----------  ----------

INCOME TAX EXPENSE ..............     94,603     169,460     147,103     228,802
                                  ----------  ----------  ----------  ----------

   NET INCOME ................... $  191,985  $  334,848  $  324,619  $  501,512

DIVIDENDS ON CONVERTIBLE
 CUMULATIVE PREFERRED STOCK .....     27,733      27,320      56,378      54,640
                                  ----------  ----------  ----------  ----------
NET INCOME APPLICABLE TO COMMON
 AND COMMON EQUIVALENT SHARES ... $  164,252  $  307,528  $  268,241  $  446,872
                                  ----------  ----------  ----------  ----------
EARNINGS PER COMMON SHARE

 Basic .......................... $      .04  $      .08  $      .06  $      .11
                                  ----------  ----------  ----------  ----------
Weighted average common shares ..  4,291,859   4,097,596   4,291,859   4,097,596
                                  ==========  ==========  ==========  ==========

 Diluted ........................ $      .03  $      .06  $      .05  $      .09
                                  ----------  ----------  ----------  ----------
Weighted average common shares
 plus options and warrants ......  6,123,714   5,505,006   6,123,714   5,505,006
                                  ==========  ==========  ==========  ==========

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

                                       4
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

                                                  Six Months Ended September 30,
                                                  ------------------------------
                                                      1997              1998
                                                      ----              ----
Increase (decrease) in cash and cash
equivalents

Cash flows from operating activities:
 Net income ...................................     $  324,619      $  501,512
 Adjustments to reconcile net income
  to net cash provided by operating activities:
   Depreciation and amortization ..............         60,796          70,134
   Gain on disposal of property and 
     equipment.................................         (4,011)           (390)
   Provision for doubtful accounts ............        (23,390)         58,933
 Changes in assets and liabilities:
   Accounts and notes receivable ..............         39,644         267,469
   Prepaid expenses ...........................       (106,958)        (21,009)
   Accounts payable and accrued
     expenses .................................         41,558         (73,194)
   Insurance fees, claims, and
     loss reserves ............................        309,079             815
                                                    ----------      ----------

   Net cash provided by operating activities ..        641,337         804,270
                                                    ----------      ----------
Cash flows from investing activities:
 Increase in restricted cash ..................        (65,067)       (392,562)
 Proceeds from sale of property and equipment .         29,160          34,550
 Acquisition of property and equipment ........        (42,032)       (157,507)
 Additions to trademarks and other ............           (442)         (6,447)
                                                    ----------      ----------

   Net cash used in investing activities ......        (78,381)       (521,966)
                                                    ----------      ----------
Cash flow from financing activities:
 Decrease in insurance premiums payable .......        (47,464)       (252,545)
 Issuance of common stock .....................         25,000          16,000
 Repayments of long-term debt .................        (38,667)             --
 Retirement of common stock ...................         (7,787)       (126,561)
 Preferred dividends paid .....................        (98,554)        (98,942)
                                                    ----------      ----------

   Net cash used in financing activities ......       (167,472)       (462,048)
                                                    ----------      ----------
   Net increase (decrease) in cash and
     cash equivalents .........................        395,484        (179,744)

Cash and cash equivalents at beginning
  of period ...................................        858,426       1,215,615
                                                    ----------      ----------

Cash and cash equivalents at end of period ....     $1,253,910      $1,035,871
                                                    ==========      ==========
Supplemental disclosure of cash flow
 information:
  Interest paid ...............................     $   11,262          11,308
  Taxes paid ..................................     $   70,991      $  309,282

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

                                       5
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1998


1. CONSOLIDATED FINANCIAL STATEMENTS

         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   consolidated   balance  sheet  as  of  September  30,  1998,  the
consolidated  statements of earnings for the three and  six-month  periods ended
September  30, 1997 and 1998 and the  consolidated  statements of cash flows for
the six-month  periods  ended  September 30, 1997 and 1998 have been prepared by
the Company without audit. In the opinion of management,  all adjustments  which
are necessary to present a fair  statement of the results of operations  for the
interim  periods  have  been  made,  and all  such  adjustments  are of a normal
recurring nature. Certain information and footnote disclosures normally included
in  financial   statements   prepared  in  accordance  with  generally  accepted
accounting principles have been condensed or omitted. These financial statements
should be read in  conjunction  with the financial  statements and notes thereto
included  in the  Company's  March 31, 1998 annual  report on Form  10-KSB.  The
results of operations for the interim periods are not necessarily  indicative of
the results for a full year.

2. PREFERRED STOCK

         As of March 31, 1998, preferred dividend arrearages were $221,511.  The
Company paid $44,302 of these arrearages during the quarter ended June 30, 1998.
A quarterly  preferred  dividend of $27,320 was declared  for the first  quarter
ended June 30,  1998 and it was paid on August 6, 1998.  For the  quarter  ended
September 30, 1998, the Company declared  preferred  dividends  totaling $27,320
which are expected to be paid during the third quarter of the  Company's  fiscal
year. As of September 30, 1998, preferred dividend arrearages were $177,209.


                                       6
<PAGE>
3. EARNINGS PER SHARE

         A  reconciliation  of the numerators and  denominators  utilized in the
computation  of basic and diluted  earnings  per share for the  three-month  and
six-month periods ended September 30, 1997 and 1998 is as follows:

                                    Three Months                Six Months
                                 Ended September 30,        Ended September 30,
                                 1997          1998          1997        1998
                                 ----          ----          ----        ----
BASIC EPS COMPUTATION

Numerator:
 Net income applicable to
  common and common
   equivalent shares ....     $  164,252   $  307,528     $  268,241  $  446,872

Denominator:
 Weighted average common
  shares ................      4,291,859    4,097,596      4,291,859   4,097,596
                              ----------   ----------     ----------  ----------

Basic EPS ...............     $      .04   $      .08     $      .06  $      .11
                              ==========   ==========     ==========  ==========
DILUTED EPS COMPUTATION

Numerator:
 Net income applicable to
  common and common
   equivalent shares ....     $  164,252   $  307,528     $  268,241  $  446,872
 Dividends on convertible
  preferred stock .......         27,733       27,320         56,378      54,640
                              ----------   ----------     ----------  ----------
                                 191,985      334,848        324,619     501,512
                              ----------   ----------     ----------  ----------
Denominator
 Weighted average common
  shares ................      4,291,859    4,097,596      4,291,859   4,097,596
 Convertible preferred
  stock .................      1,386,625    1,366,000      1,386,625   1,366,000
 Weighted average options
  and warrants ..........        445,230       41,410        445,230      41,410
                              ----------   ----------     ----------  ----------
                               6,123,714    5,505,006      6,123,714   5,505,006
                              ----------   ----------     ----------  ----------

Diluted EPS .............     $      .03          .06     $      .05         .09
                              ==========   ==========     ==========  ==========

4.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.

                                       7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

RESULTS OF OPERATIONS-THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO
SEPTEMBER 30, 1997

         Revenue from  franchising  operations  which includes  initial  license
fees,  continuing  license fees,  advertising  fees and direct  financing leases
increased by $322,709  (29%).  Initial license fees increased by $241,301 (192%)
due to the addition of new  franchises.  Continuing  license  fees  increased by
$38,212 (5%) and  advertising  fees increased by $44,371 (21%).  These increases
resulted primarily from the fleet growth at existing franchises, the addition of
new  franchises  and the Company's  dedication  of  additional  resources to the
collection  effort.  Revenues from insurance premiums increased by $60,538 (43%)
due to higher  participation  by the Company's  franchisees in the CAR Insurance
program  that  started  in March  1997,  partially  offset by a  $13,303  (100%)
reduction  in  the  physical  damage  insurance   program  ("CLC")  due  to  its
termination and replacement by CAR Insurance.

         Total  operating  expenses  increased by $167,519  (17%) in this period
compared  to the same  three-month  period in the  prior  year.  Salary  expense
increased  by  $25,128  (13%)  primarily  as a result of hiring  two  additional
employees in order to assist in managing  the growth of the  Company.  Sales and
marketing  expenses  increased  by  $55,690  (60%) due to the  larger  amount of
franchise sales in this period compared to the same period in the prior year and
the  repurchase of a territory from an existing  franchisee  which was resold by
the Company at a profit. Advertising and promotion expenses increased by $95,871
(30%), which resulted primarily from an increase in national advertising expense
to promote  the  Company  and the  amounts  spent on the  Enterprise  Rent-A-Car
Company   ("Enterprise")  lawsuit  concerning  limits  on  the  use  of  certain
advertising.  Insurance  underwriting expenses increased by $31,451 (26%) due to
an increase in paid losses and loss  reserves  for future  claims in  connection
with higher  participation  of the  Company's  franchisees  in its CAR Insurance
program.  General and administrative  expenses decreased by $46,484 (18%), which
resulted primarily from a reduction in legal fees.

         Depreciation and amortization expense increased by $5,863 (19%) in this
period  compared  to the same  period  in the  prior  year.  This  increase  was
primarily due to the additional investment in computer software and hardware and
the purchase of two additional vehicles.

         Net interest income increased $1,433 (10%). This increase was primarily
due to interest  earned on the cash reserves which are held in interest  bearing
accounts.

         The Company  realized  operating  income of $488,399,  before taxes and
interest,  for the  three-month  period  ended  September  30, 1998  compared to
operating  income of $272,112 for the same period in the prior year,  reflecting
an  increase  of $216,287  (79%).  This  increase  resulted  primarily  from the
increase in initial license fees, continuing license fees and insurance premiums
due to the addition of new franchises and the Company's collection efforts.

         Income tax expense for the three-month  period ended September 30, 1998
increased by $74,857 (79%) compared to the  three-month  period ended  September
30, 1997 due to higher pre-tax earnings.

                                       8
<PAGE>
YEAR TO DATE RESULTS OF OPERATIONS COMPARED TO SAME PERIOD IN PRIOR YEAR

         Net revenues increased by $542,084 (22%) for the six-month period ended
September  30,  1998 as  compared  to the same  period in the prior  year.  This
increase  occurred due to a $282,801 (71%)  increase in initial  license fees, a
$72,065 (5%) increase in continuing  license  fees, a $58,981  (15%)increase  in
advertising  fees, and a $127,014 (54%) increase in premiums in connection  with
the new  reinsurance  program.  These  increases  occurred  for the same reasons
indicated above. The direct financing leases to franchisees  decreased by 75% in
the current six-month period compared to the same period in the prior year. This
decrease was due to fewer  franchisees  electing to participate in the Company's
direct financing leasing program  primarily because of increased  attractiveness
of competitive programs.

         Total  operating  expenses  increased by $282,954  (14%) in this period
compared to the same  period in the prior  year.  Salary  expense  increased  by
$34,100 (9%)  primarily as a result of  additional  employees in response to the
growth of the Company.  Sales and marketing expenses increased by $90,752 (33%),
which  resulted  primarily  from a larger amount of franchise  sales made in the
current  six-month  period compared to the same period in the prior year and the
repurchase of a territory  from an existing  franchisee  which was resold by the
Company at a profit.  Advertising  and promotion  expenses  increased by $73,435
(13%), which resulted primarily from an increase in national advertising expense
to promote the Company and the costs spent on the Enterprise  lawsuit concerning
limits on the use of certain  advertising.  Underwriting  expenses  increased by
$107,412  (59%) due to an increase in paid losses and loss  reserves  for future
claims in connection  with higher  participation  by the Company's  franchisees.
General and  administrative  expenses  deceased by $32,083 (6%),  which resulted
primarily from a reduction in legal fees.

         Depreciation and amortization expense increased by $9,338 (15%) for the
six-month  period ended September 30, 1998 as compared to the same period in the
prior year.  This  increase was primarily  due to the  additional  investment in
computer  software  and  hardware  and  due to the  purchase  of two  additional
vehicles.

         The Company  realized  operating  income of $698,285,  before taxes and
interest,  for the  six-month  period  ended  September  30, 1998 as compared to
operating income of $439,155 for 1997, reflecting an increase of $259,130.  This
increase  resulted   primarily  from  the  increase  in  initial  license  fees,
continuing license fees and insurance premiums.

         Income tax expense for the  six-month  period ended  September 30, 1998
increased by $81,699 (56%) compared to the six-month  period ended September 30,
1997 due to higher pre-tax earnings.

LIQUIDITY AND CAPITAL RESOURCES

         At September  30, 1998,  the Company had working  capital of $1,759,033
compared to  $1,526,934 at March 31, 1998.  This  increase of $232,099  resulted
primarily from the net profit earned during the six-month period ended September
30, 1998.

         The Company has a $1,000,000  letter of credit from The Chase Manhattan
Bank ("Chase") in connection with the Company's CAR Insurance  subsidiary.  This
letter  of  credit  is  part  of  the   reinsurance   agreement   with  American
International  Group  ("AIG") to secure  payment of claims.  If funds were drawn
against  the  letter of credit  due to a  default,  the  borrowings  would  bear
interest at 3% plus Chase's prime commercial  lending rate (which prime rate was
8.25% on October 15, 1998).  For the quarter ended  September 30, 1998,  AIG has
not drawn any funds from the letter of credit.  This letter of credit is secured
by all of the Company's assets.

                                       9
<PAGE>
         Furniture,  equipment and leasehold  improvements  increased by $46,510
(9%) from March 31, 1998 to September 30, 1998. This increase occurred primarily
due to  additional  investment  in  computer  software  and  hardware.  Vehicles
increased by $74,398 (319%) from March 31, 1998 to September 30, 1998 due to the
purchase of a vehicle for the one-way program and a vehicle for the Company.

         Cash provided by operations was $804,270,  resulting primarily from net
income before  depreciation  plus the decrease in accounts and notes receivable,
increase in insurance fees, claims and loss reserves,  offset by the increase in
the  Company's  prepaid  expenses,  decrease  in  accounts  payable  and accrued
expenses.  Accounts and notes receivable decreased primarily from funds received
from AIG in connection with the reinsurance program.  Prepaid expenses increased
primarily due to the purchase of additional  promotional items. Accounts payable
and accrued  expenses  decreased  primarily  from income taxes paid for the year
ended March 31, 1998.  Cash used in  investing  activities  of $521,966  related
primarily to the acquisition of computer software and hardware, two vehicles and
the annual costs  associated  with renewing  trademarks.  Cash used in financing
activities  during the same period was  $462,048,  resulting  from a decrease in
insurance premiums payable and the payment of preferred dividends and buyback of
common stock offset by the issuance of common stock in connection  with warrants
which were exercised.

         In June 1995 and April 1996, the Company  approved the repurchase of up
to a total of 500,000  shares of the Company's  outstanding  common or preferred
stock.  On April 23,  1998,  the Company  approved  the  repurchase  of up to an
additional  500,000  shares of the  Company's  outstanding  common or  preferred
stock. For the six months ended September 30, 1998, the Company  repurchased and
retired  120,900  shares of its common  stock.  As of September  30,  1998,  the
Company  has  repurchased  and  retired a total of  599,000  shares  under  this
program.  A total of 401,000 shares is still available for repurchase under this
1998 repurchase program.

         The Company  believes it has sufficient  working capital to support its
business plan through fiscal 1999.

IMPACT OF INFLATION

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

         The statements regarding  anticipated future performance of the Company
contained in this report are forward-looking  statements which are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. These  forward-looking  statements  involve risks and  uncertainties  that
could  cause  the  Company's  actual  results  to  differ  materially  from  the
forward-looking  statements.  Factors  which could cause or  contribute  to such
differences include, but are not limited to, the Company's limited experience in
the reinsurance  business and the potential for negative claims experience,  the
effects of  government  regulation  of the  Company's  franchise  and  insurance
programs  including  maintaining  properly  registered  franchise  documents and
making any required  alterations  in the Company's  franchise  program to comply
with changes in the laws,  competitive pressures from other motor vehicle rental
companies which have greater marketing and financial resources than the Company,
protection  of the  Company's  trademarks,  and the  dependence on the Company's
relationships with its franchisees. These risks and uncertainties are more fully
described under the caption,  "Item 6 - Management's  Discussion and Analysis of
Financial  Condition  and  Results of  Operations  -  Important  Factors" in the
Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1998.
All forward-looking  statements should be considered in light of these risks and
uncertainties.

YEAR 2000 ISSUE

         The Year 2000  issue is a result of  computer  programs  being  written
using two digits rather than four to define the  applicable  year. The Company's
computer equipment,  software and devices with embedded technology that are time
sensitive  may  recognize  the date using "00" as the year 1900  rather than the
year 2000.  This could  result in a system  failure or  miscalculations  causing
disruption of operations,  including,  among other things, a temporary inability
to process transactions or engage in ordinary business activities.

                                       10
<PAGE>
         The Company has undertaken various initiatives  intended to ensure that
its computer  equipment and software will function  properly with respect to the
year 2000 and  thereafter.  For this purpose,  the term "computer  equipment and
software"   includes  systems  that  are  commonly  thought  of  as  information
technology systems,  including  accounting,  data processing,  telephone and PBX
systems as well as alarm systems, fax machines and other miscellaneous  systems.
Both information  technology and non-information  technology systems may contain
embedded technology which complicates the year 2000 identification,  assessment,
remediation and testing efforts.  Based upon its  identification  and assessment
efforts to date, the Company  believes that its computer  equipment and software
is generally Year 2000 compliant.

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

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

         The  Company  believes  that the cost of its Year 2000  identification,
assessment,  remediation  and  testing  efforts  as well as  those  current  and
anticipated costs to be incurred by the Company with respect to Year 2000 issues
of third parties will not exceed $5,000,  which expenditures will be funded from
operating cash flows.  As of October 21, 1998, the Company had incurred costs of
approximately  $1,000.  The Company presently  believes that the Year 2000 issue
will not pose significant operational problems for the Company;  however, if all
Year 2000 issues are not properly  identified  or  assessment,  remediation  and
testing are not effected  timely,  there can be no assurances that the Year 2000
issue will not materially  adversely affect the Company's  results of operations
or  adversely  affect the  Company's  relationship  with  customers,  vendors or
others.  Additionally,  there can be no assurances  that the Year 2000 issues of
other entities will not have a material  adverse effect on the Company's  system
or results of operations.

         Because the Company  believes  that all items have been  resolved,  the
Company has not begun or completed an analysis of the  operational  problems and
costs (including lost revenues) that would be reasonably likely to result from a
failure of the Company and certain third parties to complete  efforts to achieve
Year  2000  compliance  on a  timely  basis,  nor has a  contingency  plan  been
developed for dealing with the most reasonably  likely  worst-case  scenario and
such  scenario  has not been  clearly  identified.  The Company does not plan to
complete  analysis  and  contingency  plans  because it believes it is Year 2000
compliant.

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

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

                                       11
<PAGE>
SELECTED FINANCIAL DATA

         Set forth  below  are  selected  financial  data  with  respect  to the
consolidated  statements of earnings of the Company and its subsidiaries for the
fiscal  quarters  ended  September  30,  1997 and 1998 and with  respect  to the
balance sheets thereof at September 30 in each of those years.

         The  selected  financial  data have  been  derived  from the  Company's
unaudited  consolidated  financial  statements and should be read in conjunction
with the financial  statements  and related  notes  thereto and other  financial
information appearing elsewhere herein.

                                       Three Months              Six Months
                                    Ended September 30,      Ended September 30,
                                      1997        1998         1997       1998
                                      ----        ----         ----       ----
                                         (in thousands except per share and
                                                 number of franchises)
                                                      (Unaudited)
FRANCHISEES' RESULTS (UNAUDITED)

Franchisees' Revenue (1)             $12,555     $13,191     $21,700     $22,901
Number of Franchises                     469         588         469         588

RESULTS OF OPERATIONS

Total Revenue                        $ 1,282     $ 1,666     $ 2,410     $ 2,952
Costs and expenses and Other           1,010       1,178       1,971       2,254
Income before income
  taxes                                  287         504         472         730
Net income                               192         335         325         502
Earnings per share
 Basic                               $   .04     $   .08     $   .06     $   .11

Weighted average common
  shares                               4,292       4,098       4,292       4,098
 Diluted                             $   .03     $   .06     $   .05     $   .09

Weighted average common                6,124       5,505       6,124       5,505
 shares
                                                                 Six Months
                                                             Ended September 30,
                                                               1997        1998
                                                               ----        ----
                                                                  (Unaudited)
BALANCE SHEET DATA

Working capital                                               $1,458      $1,759
Total assets                                                  $3,152      $3,631
Shareholders' equity                                          $2,002      $2,320

(1) The  franchisees'  revenue  data have been derived  from  unaudited  reports
provided by franchisees  submitted when paying license fees and advertising fees
to the Company.

                                       12
<PAGE>
PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

         On June 30, 1998,  the Company issued 20,000 shares of its common stock
in connection with the exercise of warrants. See also Item 5 below.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

         The  information  disclosed in footnote 2 to the  financial  statements
provided in Part I Item 1 of this Report on Form 10-QSB is  incorporated  herein
by this reference.

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

         On April  23,  1998,  approximately  96% of the  outstanding  shares of
Series A Preferred Stock  consented to the  corporation's  authorization  of the
repurchase of up to 500,000 shares of the Company's Common Stock or its Series A
Preferred Stock.

         (a) The 1998 Annual Meeting of  Stockholders of the Company was held on
October 17, 1998.

         (b) The  following  persons were elected as directors of the Company at
the Annual Meeting for a one-year term:

                                                        Withheld       Broker
                                              For       Authority    Non-Votes
                                              ---       ---------    ---------
Class I directors
(elected by holders
of common stock): Kenneth L. Blum, Sr.     2,797,325      11,844        --
                  Kenneth L. Blum, Jr.     2,798,325      10,844        --

Class II directors
(elected by holders
of preferred stock): Alan L. Aufzien       1,324,750      20,625        --
                     William L. Richter    1,324,750      20,625        --


                                       13
<PAGE>
         Subsequent to the proxy statement and proxy card being distributed,  in
early  October  1998 and  shortly  before the 1998  Annual  Meeting,  Mr.  David
Schwartz  advised the Company that he would be  unavailable to continue to serve
in his capacity as a director and as a nominee for director. Accordingly, and in
accordance with the description in the proxy statement, management nominated Mr.
Kenneth L.  Blum,  Jr.  (currently  President  of the  Company)  as nominee  for
director  and all  proxies  which were cast for Mr.  Schwartz  were cast for Mr.
Blum, Jr. who was elected to the Board of Directors.

ITEM 5. OTHER INFORMATION

         During the  six-month  period ended  September  30,  1998,  the Company
repurchased  and retired  120,900  shares of its common  stock,  reducing  total
outstanding common shares from 4,189,692 to 4,098,792.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

         (a)  See  Exhibit  Index  following  the  Signatures   page,  which  is
incorporated herein by reference.

         (b) No reports on Form 8-K were filed during the quarter for which this
report is filed.

                                       14
<PAGE>

                                   SIGNATURES

In accordance with the  requirements of the Exchange Act, the registrant  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                    October 29, 1998
------------------------                  ----------------
Mitra Ghahramanlou
Chief Accounting Officer



/s/Kenneth L. Blum, Sr.                   October 29, 1998
-----------------------                   ----------------
Kenneth L. Blum, Sr.
CEO and Chairman of
the Board


                                       15
<PAGE>

                                  EXHIBIT INDEX
                                       TO
                          RENT-A-WRECK of AMERICA, INC.
              FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 1998



EXHIBIT NO.       DESCRIPTION
-----------       -----------

  27.1            Financial Data Schedule            Filed herewith.

  27.2            Financial Data Schedule            Filed herewith.
                  (Restated from the Quarterly 
                  Period ended September 30, 1997)