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 December 31, 1997

         [ ]      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:  4,268,692  shares as of
February 4, 1998.

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

                       FORM 10-QSB - December 31, 1997


                                      INDEX


Part I.   Financial Information                                      Page
-------------------------------                                      ----
                                                                    
Item   1. Financial Statements                                      
                                                                    
          Consolidated Balance Sheets as of                         
            March 31, 1997 and                                      
            December 31, 1997 (Unaudited)                            2-3
                                                                    
          Consolidated Statements of Earnings for                   
            the Three and Nine Months ended                         
            December 31, 1996 and 1997 (Unaudited)                     4
                                                                    
          Consolidated Statements of Cash Flows for                 
            the Nine Months ended December 31, 1996                 
            and 1997 (Unaudited)                                       5
                                                                    
          Notes to Consolidated Financial Statements                
            (Unaudited)                                              6-7
                                                                    
Item   2. Management's Discussion and Analysis of                   
            Financial Condition and Results of                      
            Operations                                               7-15

                                                                    
Part II.  Other Information                                         
---------------------------                                         
                                                                    
                                                                    
Item   1. Legal proceedings                                            16
                                                                    
Item   3. Defaults Upon Senior Securities                              16
                                                                    
Item   5. Other Information-Retirement of                           
          Stock Information                                            16
                                                                    
Item   6. Exhibits and Reports on Form 8-K                             17
          Signatures                                                   18
<PAGE>                                                           
Part I - Financial Information

Item 1 - Financial Statements


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

<TABLE>
<CAPTION>
                                              ASSETS

                                                                        March 31,         December 31,
                                                                           1997               1997
                                                                       -----------        -----------
                                                                                          (Unaudited)
<S>                                                                    <C>                <C>        
CURRENT ASSETS:
Cash and Cash Equivalents ...........................................  $   531,035        $ 1,105,554
Restricted cash .....................................................  $   546,543        $   499,878
Accounts Receivable, net of allowance
  for doubtful accounts of $762,757 and $670,460 at
    March 31, 1997 and December 31, 1997, respectively:
    Continuing License Fees and
      Advertising Fees ..............................................      291,181            302,269
    Current Portion of Notes Receivable .............................      415,072            393,179
    Current Portion of Direct Financing
      Leases ........................................................       47,228             39,307
    Insurance Premiums Receivable ...................................       25,784             17,861
    Other ...........................................................       25,136             11,086
Prepaid Expenses ....................................................      117,566            180,163
                                                                       -----------        -----------

    TOTAL CURRENT ASSETS ............................................    1,999,545          2,549,297
                                                                       -----------        -----------


PROPERTY AND EQUIPMENT:
  Vehicles ..........................................................       53,025             19,590
  Furniture, Equipment and Leasehold
    Improvements ....................................................      738,130            514,716
  Less:  Accumulated Depreciation and
         Amortization ...............................................     (448,472)          (240,639)
                                                                       -----------        -----------

NET PROPERTY AND EQUIPMENT ..........................................      342,683            293,667
                                                                       -----------        -----------
OTHER ASSETS:
  Trademarks and other  Intangible  Assets,  net of
    accumulated  amortization of $88,729 and $100,971
    at March 31, 1997 and December 31, 1997,
    respectively ....................................................      219,086            207,696
  Long-term Portion of Notes and Direct Financing Lease
    Receivables, net of allowance of $16,278 and $0
    at March 31, 1997 and December 31, 1997,
    respectively ....................................................       32,629             14,662
                                                                       -----------        -----------

                                                                           251,715            222,358
                                                                       -----------        -----------

    TOTAL ASSETS ....................................................  $ 2,593,943        $ 3,065,322
                                                                       ===========        ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.
                                        2
<PAGE>
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                  LIABILITIES AND SHAREHOLDERS' EQUITY


                                                                          March 31,         December 31,
                                                                             1997               1997
                                                                         -----------        -----------
                                                                                            (Unaudited)
<S>                                                                      <C>                <C>        
CURRENT LIABILITIES:
  Accounts Payable and Accrued Expenses ..........................       $   720,338        $   705,314
  Dividends Payable ..............................................            28,782             27,733
  Insurance Premiums, Deposits, and Provision for
    Loss .........................................................            50,828            258,510
  Current Maturities of Capital Lease Obligations ................             8,578               --
                                                                         -----------        -----------

    TOTAL CURRENT LIABILITIES ....................................           808,526            991,557
                                                                         -----------        -----------


CAPITAL LEASE OBLIGATIONS, Less Current Maturities ...............            30,089               --
                                                                         -----------        -----------

    TOTAL LIABILITIES ............................................           838,615            991,557
                                                                         -----------        -----------



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

SHAREHOLDERS' EQUITY:

  Convertible  Cumulative Series A Preferred Stock,
    $.01 par value;  authorized 10,000,000 shares;
    issued and outstanding 1,439,125 shares at March
    31, 1997 and 1,386,625 shares at December 31, 1997
    (aggregate liquidation preference $1,151,300
    at March 31, 1997 and $1,109,300 at
    December 31, 1997) ...........................................            14,391             13,866
  Common Stock, $.01 par value; authorized
    25,000,000 shares; issued and
    outstanding 4,234,767 shares at March 31, 1997 and
    4,268,692 shares at December 31, 1997 ........................            42,347             42,687
  Additional Paid-In Capital .....................................         3,021,490          3,006,684
  Accumulated Deficit ............................................        (1,322,900)          (989,472)
                                                                         -----------        -----------

    TOTAL SHAREHOLDERS' EQUITY ...................................         1,755,328          2,073,765
                                                                         -----------        -----------

    TOTAL LIABILITIES AND SHAREHOLDERS'
      EQUITY .....................................................       $ 2,593,943        $ 3,065,322
                                                                         ===========        ===========
</TABLE>

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)

<TABLE>
<CAPTION>
                                                           Three Months                Nine Months
                                                        Ended December 31,          Ended December 31,
                                                        1996          1997          1996          1997
                                                    ------------------------    ------------------------
<S>                                                 <C>           <C>           <C>           <C>       
REVENUES:
  Initial License Fees..........................    $  157,500    $  237,250    $  620,000    $  633,500
  Advertising Fees .............................       138,800       173,274       495,167       565,033
  Continuing License Fees ......................       436,424       525,425     1,528,091     1,827,426
  Insurance Premiums ...........................        39,723       159,121       133,164       395,124
  Direct Financing Leases to Franchisees .......           225           225         5,723         2,300
  Other ........................................        24,441        36,928        75,067       118,629
                                                    ----------    ----------    ----------    ----------
                                                       797,113     1,132,223     2,857,212     3,542,012
                                                    ----------    ----------    ----------    ----------
EXPENSES:
  Salaries, Consulting Fees and
    Employee Benefits ..........................       177,088       192,915       556,603       583,808
  Sales and Marketing Expenses .................        56,070       101,976       384,402       380,005
  Advertising and Promotion ....................       189,035       274,178       680,169       845,401
  Underwriting Expenses ........................         1,398       158,486        18,041       341,120
  General and Administrative Expenses ..........       209,174       226,197       598,269       713,256
  Depreciation & Amortization ..................        27,911        29,295        83,466        90,091
                                                    ----------    ----------    ----------    ----------
                                                       660,676       983,047     2,320,950     2,953,681
                                                    ----------    ----------    ----------    ----------

      OPERATING INCOME .........................       136,437       149,176       536,262       588,331

INTEREST INCOME, NET ...........................        18,048        13,418        48,802        45,985
                                                    ----------    ----------    ----------    ----------

      INCOME BEFORE INCOME TAX EXPENSE .........       154,485       162,594       585,064       634,316
                                                    ----------    ----------    ----------    ----------

INCOME TAX EXPENSE .............................        59,631        47,266       104,931       194,369
                                                    ----------    ----------    ----------    ----------

      NET INCOME................................    $   94,854    $  115,328    $  480,133    $  439,947

DIVIDENDS ON CONVERTIBLE CUMULATIVE
  PREFERRED STOCK ..............................        29,975        27,733        90,865        84,111
                                                    ----------    ----------    ----------    ----------

NET INCOME AFTER DIVIDENDS ON
  CONVERTIBLE CUMULATIVE PREFERRED STOCK .......    $   64,879    $   87,595    $  389,268    $  355,836
                                                    ----------    ----------    ----------    ----------

EARNINGS PER COMMON SHARE

  Basic.........................................    $      .02    $      .02    $      .10    $      .08
                                                    ==========    ==========    ==========    ==========

  Diluted.......................................           .02    $      .02    $      .08    $      .07
                                                    ==========    ==========    ==========    ==========
</TABLE>

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)

<TABLE>
<CAPTION>
                                                                        Nine Months Ended  December 31,
                                                                        -------------------------------

                                                                            1996                1997
                                                                        -----------         -----------
<S>                                                                     <C>                 <C>        
Increase (decrease) in cash and cash
equivalents

Cash flows from operating activities:
  Net income ...................................................        $   480,133         $   439,947
  Adjustments to reconcile net income
    to net cash provided by operating activities:
      Depreciation and amortization ............................             83,466              90,091
      Gain on disposal of property and equipment ...............             (1,578)             (4,152)
      Provision for doubtful accounts ..........................            115,696            (108,575)
      Changes in assets and liabilities:
        Accounts and notes receivable ..........................           (191,974)            167,240
        Prepaid expenses .......................................            (24,659)            (62,597)
        Accounts payable and accrued
          expenses .............................................             44,924             (16,074)
        Insurance premiums, deposits, and
          loss reserves ........................................             43,247             207,682
                                                                        -----------         -----------

      Net cash provided by operating activities ................            549,255             713,562
                                                                        -----------         -----------

Cash flows from investing activities:
  Proceeds from sale of property and equipment .................             28,250              29,160
  Acquisition of property and equipment ........................           (119,436)            (55,873)
  Additions to trademarks and other ............................            (70,646)               (852)
                                                                        -----------         -----------

      Net cash used in investing activities ....................           (161,832)            (27,565)
                                                                        -----------         -----------

Cash flow from financing activities:
  Repayments of long-term debt .................................            (11,022)            (38,667)
  Issuance of common stock .....................................             25,000              25,000
  Retirement of common stock ...................................            (66,748)            (18,189)
  Retirement of preferred stock ................................            (85,300)               --
  Preferred dividends paid .....................................           (123,723)           (126,287)
                                                                        -----------         -----------

      Net cash used in financing activities ....................           (261,793)           (158,143)
                                                                        -----------         -----------

      Net increase in cash and cash
         equivalents ...........................................            125,630             527,854

Cash and cash equivalents at beginning of period ...............            579,871           1,077,578
                                                                        -----------         -----------

Cash and cash equivalents at end of period .....................        $   705,501         $ 1,605,432
                                                                        ===========         ===========

Supplemental disclosure of cash flow information:
  Interest paid ................................................        $     5,440         $    16,106
  Taxes paid ...................................................        $    55,737         $    87,044
</TABLE>

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
                                DECEMBER 31, 1997



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  December  31,  1997,   the
consolidated  statements of earnings for the three and nine-month  periods ended
December 30, 1996 and 1997 and the consolidated statements of cash flows for the
nine-month  periods  ended  December 31, 1996 and 1997 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  financial  statements  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. It is suggested that these
financial  statements be read in conjunction  with the financial  statements and
notes  thereto  included  in the  Company's  March 31,  1997  audited  financial
statements.   The  results  of  operations  for  the  interim  periods  are  not
necessarily indicative of the results for any future period or the full year.


2.       PREFERRED STOCK

         As of March 31, 1997, preferred dividend arrearages were $274,180.  The
Company paid $41,127 of these arrearages during the quarter ended June 30, 1997.
A quarterly  preferred  dividend of $28,645 was declared  for the first  quarter
ended June 30, 1997 and it was paid on August 11,  1997.  For the quarter  ended
September 30, 1997, the Company declared  preferred  dividends  totaling $27,733
which were paid on November 10, 1997.  For the quarter ended  December 31, 1997,
the Company  declared  dividends  totaling $27,733 which are expected to be paid
during the fourth quarter of the Company's fiscal year. As of December 31, 1997,
preferred dividend arrearages were $224,909.
                                        6
<PAGE>
3.       EARNINGS PER COMMON SHARE

         The  computation  of  earnings  per  common  share  for the  three  and
nine-month periods ended December 31, 1996 and 1997, respectively,  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 for the three and nine-month  periods ended December 31, 1996,  cumulative
preferred  dividends  in the amounts of $29,975 and $90,865 for each period were
subtracted  from net  income  to  arrive at the  earnings  applicable  to common
shareholders.  For the three and  nine-month  periods  ended  December 31, 1997,
cumulative  preferred  dividends  in the amounts of $27,733 and $84,111 for each
period were 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.

         A reconciliation  of the numerators and denominators in the computation
of basic and diluted  earnings  per share for the three and  nine-month  periods
ended December 31, 1997 is as follows:


Basic EPS Computation           Quarter            Year-to-date
                               ----------          ------------
Numerator:
 Net income applicable to
  common shares                $   87,595           $  355,836

Denominator:
 Weighted average common
  shares                        4,297,418            4,278,354
                               ----------           ----------

Basic EPS                      $      .02           $      .08
                               ==========           ==========

                                        7
<PAGE>
Diluted EPS Computation

Numerator:
 Net income applicable to
  common shares                $   87,595            $  355,836
 Dividends on convertible
  preferred stock                  27,733                84,111
                               ----------            ----------
                                  115,328               439,947
                               ----------            ----------

Denominator
 Weighted average common
  shares                        4,297,418             4,278,354
 Convertible preferred
  stock                         1,386,625             1,386,625
 Weighted average options
  and warrants                     54,675               270,018
                               ----------            ----------
                                5,738,718             5,934,997
                               ----------            ----------

Diluted EPS                    $      .02            $      .07
                               ==========            ==========


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.


Item 2. Management's Discussion and Analysis of Financial
---------------------------------------------------------
          Condition and Results of Operations
          -----------------------------------


RESULTS OF  OPERATIONS-THREE  MONTHS ENDED  DECEMBER 31, 1997  COMPARED TO THREE
MONTHS ENDED DECEMBER 31, 1996

         Revenue from  franchising  operations,  which includes  initial license
fees,  continuing  license fees,  advertising  fees and direct  financing leases
increased by $203,225 (28%). This increase occurred primarily due to an increase
in initial license fees,  continuing  license fees and advertising fees. Initial
license fees  increased by $79,750 (51%) 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
                                        8
<PAGE>
or decreases in reported  results.  Management does not believe these short-term
variations  are  indicative  of longer  term  trends.  Continuing  license  fees
increased by $89,001 (20%),  and advertising fees increased by $34,474 (25%) 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
$159,121  due to the  new  reinsurance  program  that  started  in  March  1997,
partially  offset by a $19,801  (100%)  reduction in premiums  from the physical
damage  insurance  program ("CLC") and by a $19,921 (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.  Reserves
are  established  for unearned  premiums  received.  Other revenue  increased by
$12,487 (51%) due primarily to increased  sales of promotional  materials to the
Company's  franchisees.  Such  purchases  can not be predicted in advance by the
Company.

         Total  operating  expenses  increased by $322,371  (49%) in this period
compared to the same  period in the prior  year.  Salary  expense  increased  by
$15,827 (9%) primarily as a result of additional hires in response to the growth
of the Company.  General and administrative  expenses increased by $17,023 (8%),
which resulted primarily from additional expenses such as management fees, audit
fees  and  letter  of  credit(LOC)fees   related  to  the  reinsurance   company
established in March 1997. General and administrative  expenses include a $5,500
additional  reserve  for legal  expenses  during the  three-month  period  ended
December 31, 1997 compared to the same period in the prior year due to a $22,466
award of legal  fees  and out of  pocket  expenses  to a  former  franchisee  in
complete  resolution of  litigation,  which award the Company began to accrue in
the third  quarter.  The  remaining  $16,966 will be reserved  during the fourth
quarter of the Company's fiscal year. Sales and marketing  expenses increased by
$45,906  (82%).  This increase  resulted  primarily from  additional  commission
expenses  due to the  larger  amount  of  franchise  sales  made in this  period
compared to the same period in the prior year. Sales and marketing expenses also
increased due to an increase in bad debt expense in this period  compared to the
same  period in the prior  year which  resulted  from the  collection  on a note
receivable in the prior year which had been 100% reserved. Underwriting expenses
increased  by $157,088  (11,237%),  which  resulted  primarily  from  additional
expenses  such as paid losses and loss reserves  related to the new  reinsurance
company.

         Net interest income decreased $4,630 (34%). This decrease was primarily
due to interest paid to AICCO on the funds which CAR Insurance  Company borrowed
from  AICCO  to meet the  capital  requirements  of the  Bermuda  Government  in
conjunction with the reinsurance program.

         Depreciation and amortization  expense increased by $1,384 (5%) in this
period  compared  to the same  period  in the  prior  year.  This  increase  was
primarily due to additional investment to update computer software and hardware.
Vehicles, office furniture, equipment and leasehold improvements
                                        9
<PAGE>
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 $149,176,  before taxes and
interest,  for the  three-month  period  ended  December  31,  1997  compared to
operating  income of $136,437 for the same period in the prior year,  reflecting
an increase of $12,739 (9%). 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.  However,  operating  margins  decreased  from 17% for the  three-month
period ended  December 31, 1996 to 13% for the same period in the current  year.
This decrease was  primarily  due to low operating  margin for the Company's new
reinsurance program.

         Income tax expense  decreased  $12,365 (21%) in this period compared to
the same period in the prior year due to a reduction in the  Company's  deferred
tax asset valuation  allowance.  In light of the Company's recent earnings,  the
valuation allowance is being reduced and re-assessed quarterly.

YEAR TO DATE RESULTS OF OPERATIONS COMPARED TO SAME PERIOD IN PRIOR YEAR

         Net revenues  increased  by $684,800  (24%) for the  nine-month  period
ended  December 31, 1997 as compared to the same period in the prior year.  This
increase  occurred due to a $299,335 (20%) increase in continuing  license fees,
$69,866  (14%)increase  in  advertising  fees,  $13,500 (2%) increase in initial
license fees and a $261,960  (197%)  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 60% in the
current  nine-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 $632,731 (27%) in this period due
primarily  to an  increase in general  and  administrative  expenses of $114,987
(19%) and an increase in  underwriting  expenses  of  $323,079  (1,791%).  These
increases  resulted primarily from the new reinsurance  program.  Salary expense
increased by $27,205 (5%) primarily as a result of additional  hires in response
to the growth of the Company.

         The Company  realized  operating  income of $588,331,  before taxes and
interest, for the nine months compared to operating income of $536,262 for
                                       10
<PAGE>
1996,  reflecting an increase of $52,069.  This increase resulted primarily from
the increase in continuing license fees and initial license fees.

         Income tax expense for the  nine-month  period ended  December 31, 1997
increased by $89,438 (85%) compared to the nine-month  period ended December 31,
1996 due to higher pre-tax  earnings and the depletion of the Company's  federal
income tax net operating loss  carryforward  partially  offset by a reduction in
the deferred tax asset valuation allowance as described above.

LIQUIDITY AND CAPITAL RESOURCES

         At December 31,  1997,  the Company had working  capital of  $1,557,740
compared to $1,191,019 at March 31, 1997, an increase of $366,721. This increase
primarily  resulted from the net profit earned during the period and a reduction
in allowance for doubtful  accounts based on the Company's  historical  reserves
experience, offset by reserves for the reinsurance program. Of the net increase,
$108,575 is due to a reduction in the required  allowance for doubtful  accounts
as a result of improved  collection efforts. At December 31, 1997, the Company's
allowance  for  doubtful  accounts  was  $670,460  compared to $779,035 at March
31,1997.  The Company did not write off any doubtful  accounts  during the three
month period ended December 31, 1997. The Company  generally  requires  officers
and directors of  franchisees  to give personal  guarantees of the  franchisee's
obligations  under the  franchise  agreement.  In January  1997,  the  Company's
management  improved its collection  efforts from  franchisees and guarantors by
dedicating  part of the time of one  employee  to  coordinate  collections  from
franchisees.  During the three month  period ended  December 31, 1997,  this new
effort  resulted in more accounts being kept current and yielded a collection of
$15,898 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 a prior period, and, accordingly,  this collection improved
cash flow in the current period by the amount of the collection.  The Company is
planning  to hire a  part-time  employee  in the fourth  quarter of the  current
fiscal year 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 $574,519 (108%).  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
$46,665  (9%) due to  higher  national  advertising  expenses.  Restricted  cash
includes 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") and
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  under its CAR Insurance
subsidiary in the Bank of Butterfield.  This deposit is restricted by a $250,000
letter of credit with the Bank of Butterfield  in connection  with the Company's
CAR Insurance subsidiary. 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%
(which prime rate was 6.25% on January 28, 1998). For the quarter ended December
31, 1997,  Chase has not drawn any funds from the letter of credit.  This letter
of  credit  expires  on March 31,  1998 but will  automatically  extend  without
amendment  for  additional  one year  periods  unless sixty days notice is given
prior to the  expiration  date.  As of February 9, 1998, no such notice had been
received.
                                       11
<PAGE>
         In June 1997 the Company  finalized  an $800,000  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.  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 January 28, 1998).
For the quarter  ended  December 31, 1997,  AIG has not drawn any funds from the
letter of  credit.  This  letter of credit is  secured  by all of the  Company's
assets.

         The Company 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
December 31, 1997, 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 obligations were $5,200 and $5,400 at March 31, 1997 and
December 31, 1997,  respectively.  The Company also rents  additional space on a
month to month basis for approximately $900 per month.

         Furniture,  equipment and leasehold  improvements decreased by $223,414
(30%) from March 31, 1997 to December 31, 1997. This decrease occurred primarily
due to writing  off the assets  that were not in use or were fully  depreciated.
Vehicles decreased by $33,435 (63%) from March 31, 1997 to December 31, 1997 due
to sales of a rental van and an executive  vehicle which was partially offset by
the purchase of a truck for the one way program.

         Cash provided by operations was $713,562 during the  nine-months  ended
December  31,  1997,  resulting  from an increase in net income,  an increase in
reinsurance  premiums,  deposits,  and loss reserves and an increase in accounts
and notes  receivable  offset by a decrease  in  accounts  payable  and  accrued
expenses  and an  increase  in  prepaid  expenses.  Prepaid  expenses  increased
primarily  due to expenses  related to the new  reinsurance  company such as LOC
fees and legal and secretarial  fees.  Insurance  premiums,  deposits,  and loss
reserves  increased  due to the new  reinsurance  program.  Accounts  and  notes
receivable  decreased primarily due to the Company's  collection  efforts.  Cash
used in investing  activities of $27,565 related primarily to the acquisition of
computer  software  and  hardware  and  maintaining  trademarks.  Cash  used  in
financing  activities  was $158,143,  which was applied to payments of preferred
dividends,  long-term  debt and  buyback of common  stock  offset by issuance of
common stock in connection with the acquisition of assets.

         The Company  believes  cash  provided by  operations  and its letter of
credit will provide  sufficient  working  capital to support its  business  plan
through fiscal 1998.
                                       12
<PAGE>
IMPACT OF INFLATION

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

         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 in the
Company's new reinsurance program,  the effects of government  regulation of the
Company's  franchise and reinsurance  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,  1997.  All  forward-looking
statements should be considered in light of these risks and uncertainties.
                                       13
<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 three and
nine-month  periods  ended  December  31, 1996 and 1997 and with  respect to the
balance  sheets  thereof  at  December  31 in each of  those  years.  Except  as
otherwise  noted,  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.

<TABLE>
<CAPTION>
                                              Three Months                      Nine Months
                                              Ended December 31,                Ended December 31,
                                              1996      1997                    1996      1997
                                              --------------------------------------------------------
                                              (in thousands except per share and number of franchises)
                                                                    (Unaudited)
<S>                                           <C>       <C>                     <C>       <C>    
Franchisees' Results (Unaudited)
--------------------------------

Franchisees' Revenue (1)                      $ 7,274   $ 8,757                 $25,468   $30,457
Number of Franchises                              469       485                     469       485
                                                                            
Results of Operations                                                       
---------------------                                                       
                                                                            
Net Revenue                                   $   797   $ 1,132                 $ 2,857   $ 3,542
Costs and expenses and Other                      661       983                   2,321     2,954
Income before income                                                        
taxes                                             154       163                     585       634
Net income                                         95       115                     480       440
Earnings per share                                                          
                                                                            
 Basic (2)                                    $   .02   $   .02                 $   .10   $   .08
 Weighted average common                                                    
  shares                                        4,063     4,297                   4,094     4,278
                                                                            
 Diluted (2)                                  $   .02       .02                 $   .08       .07
 Weighted average common                                                    
  shares plus options and                                                   
   warrants                                     5,844     5,739                   5,875     5,935
</TABLE>


<TABLE>
<CAPTION>
                                                                                Nine Months
                                                                                Ended December 31,
                                                                                1996      1997
                                                                                -------------------
                                                                                    (Unaudited)
<S>                                                                             <C>       <C>    
Balance Sheet Data                                                              
------------------                                                              
                                                                                
Working capital                                                                 $ 1,026   $ 1,558
Total assets                                                                    $ 2,471   $ 3,065
Long-term obligations                                                           $    33   $  -
Shareholders' equity                                                            $ 1,602   $ 2,074
</TABLE>

(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.
                                       14
<PAGE>
(2) Basic  earnings  per share are after  deducting  a provision  for  preferred
dividends of $29,975 and $90,865,  for the three and  nine-month  periods  ended
December 31, 1996. For the three and nine-month periods ended December 31, 1997,
basic earnings per share are after deducting a provision for preferred dividends
of $27,733 and  $84,111.  Diluted  earnings per share  assumes a  conversion  of
cumulative  preferred  stock into common shares and,  accordingly,  no deduction
from earnings is made for preferred dividends.
                                       15
<PAGE>
Part II.          Other Information

ITEM 1.           LEGAL PROCEEDINGS
-------           -----------------

         Information is incorporated by reference from the Company's Report Form
10-KSB  for the year  ended  March  31,  1997  under the  caption  "Item 3 Legal
Proceedings"  and the Company's Report on 10-QSB for the quarter ended September
30, 1997 under the Caption "Part II, Item 1. 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 Company believes the claim against
it is without merit and intends to defend it vigorously.

         Regarding the lawsuit that was initiated in August 1994 by Mongo,  Inc.
and John and Roberta Batcher and ultimately dismissed in April 1997, the Company
is aware that Mongo,  Inc. and John Batcher have 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.


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 5.           OTHER INFORMATION-RETIREMENT OF STOCK INFORMATION
-------           -------------------------------------------------

         On November 17, 1997 the Company  bought back and retired 15,000 shares
of its common  stock.  On December 23, 1997 the Company  retired 6,700 shares of
its common stock which were returned to the Company in partial satisfaction of a
franchisee's  debt.  On December  31,  1997 the Company  bought back and retired
10,000 shares of its common stock.
                                       16
<PAGE>
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.
                                       17
<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 Khosravi                            February 10, 1998
-----------------------                   ------------------------
Mitra Khosravi
Chief Accounting Officer









/s/Kenneth L. Blum, Sr.                      February 10, 1998
-----------------------                   ------------------------
Kenneth L. Blum, Sr.
CEO and Chairman of
the Board
                                       18
<PAGE>
                                  EXHIBIT INDEX
                                       TO
                          RENT-A-WRECK of AMERICA, INC.
                      FORM 10-QSB FOR THE QUARTER ENDED DECEMBER 31, 1997



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

     4.1                   Terms of $250,000 Letter of        Filed herewith.
                           Credit issued by the Bank of
                           Butterfield, as contained in 
                           application dated June 20, 
                           1997, with attached Letter 
                           of Set-off

     27                    Financial Data Schedule            Filed herewith.
                                       19