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, 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: 4,035,792 shares as of January
18, 1999.

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

                         FORM 10-QSB - DECEMBER 31, 1998


                                      INDEX


PART I.   FINANCIAL INFORMATION                                       Page
                                                                      ----
Item 1.   Financial Statements
         
          Consolidated Balance Sheets as of
            March 31, 1998 and
            December 31, 1998 (Unaudited)                              2-3
                                                               
          Consolidated Statements of Earnings for              
            the Three and Nine Months ended                    
            December 31, 1997 and 1998 (Unaudited)                       4
                                                               
          Consolidated Statements of Cash Flows for            
            the Nine Months ended December 31,                 
            1997 and 1998 (Unaudited)                                    5
                                                               
          Notes to Consolidated Financial Statements           
            (Unaudited)                                                6-8
                                                               
Item 2.   Management's Discussion and Analysis or              
            Plan of Operations                                         8-12
                                                               
PART II.  OTHER INFORMATION
                                                               
Item 1.   Legal proceedings                                              16
                                                               
Item 2.   Changes in Securities and Use of Proceeds                      16
                                                               
Item 3.   Defaults Upon Senior Securities                                16
                                                               
Item 4.   Submission of Matters to a Vote of Security          
          Holders                                                        16
                                                               
Item 5.   Other Information                                              16
                                                               
Item 6.   Exhibits and Reports on Form 8-K                               16
                                                               
          Signatures                                                     17
<PAGE>                                                         
Part I - Financial Information                               
                                                             
Item 1 - Financial Statements                                
                                                           
                 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


                                     ASSETS

                                                      March 31,     December 31,
                                                        1998           1998
                                                     ----------      ----------
                                                                    (Unaudited)
CURRENT ASSETS:
 Cash and Cash Equivalents .....................     $1,215,615      $1,236,715
 Restricted Cash ...............................        394,021         742,147
 Accounts Receivable, net of allowance
  for doubtful accounts of $682,631 and 
  $809,361 at March 31, 1998 and 
  December 31, 1998, respectively:
     Continuing License Fees and
       Advertising Fees ........................        302,367         354,092
     Current Portion of Notes Receivable .......        342,765         445,204
     Current Portion of Direct Financing
       Leases ..................................         37,653          12,411
     Insurance Premiums Receivable .............        560,219              --
     Other .....................................        176,166         242,726
 Prepaid Expenses ..............................        133,856         149,451
                                                     ----------      ----------

   TOTAL CURRENT ASSETS ........................      3,162,662       3,182,746
                                                     ----------      ----------
PROPERTY AND EQUIPMENT:
 Furniture .....................................         71,655          92,405
 Computer Hardware and Software ................        314,657         359,421
 Machinery and Equipment .......................        101,868         103,750
 Leasehold Improvements ........................         37,896          37,896
 Vehicles ......................................         23,347          94,750
                                                     ----------      ----------
                                                        549,423         688,222
 Less: Accumulated Depreciation and
       Amortization ............................       (265,476)       (351,851)
                                                     ----------      ----------

NET PROPERTY AND EQUIPMENT .....................        283,947         336,371
                                                     ----------      ----------
OTHER ASSETS:
 Trademarks and other Intangible Assets,
  net of accumulated amortization of
  $105,951 and $121,092 at March 31, 1998
  and December 31, 1998, respectively ..........        203,129         194,684
 Long-term Portion of Notes and Direct
  Financing Lease Receivables ..................         14,374          13,022
                                                     ----------      ----------

                                                        217,503         207,706
                                                     ----------      ----------

    TOTAL ASSETS ...............................     $3,664,112      $3,726,823
                                                     ==========      ==========

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,   December 31,
                                                          1998         1998
                                                       ----------    ----------
                                                                    (Unaudited)
CURRENT LIABILITIES:                                  
 Accounts Payable and Accrued Expenses .............   $  634,374    $  695,234
 Dividends Payable .................................       27,320        27,320
 Insurance Premiums Payable ........................      488,397        58,637
 Insurance Fees, Claims, and Loss Reserves .........      244,815       329,794
 Income Taxes Payable ..............................      239,316       227,276
 Other .............................................        1,506         1,506
                                                       ----------    ----------
                                                      
   TOTAL CURRENT LIABILITIES .......................    1,635,728     1,339,767
                                                       ----------    ----------
                                                      
   TOTAL LIABILITIES ...............................    1,635,728     1,339,767
                                                       ----------    ----------
                                                      
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 December 31, 1998               
   (aggregate liquidation preference $1,092,800       
   at March 31, 1998 and December 31, 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 4,035,792 shares at December 31, 1998 .......       41,896        40,358
 Additional Paid-In Capital ........................    2,900,382     2,709,333
 Accumulated Deficit ...............................     (927,554)     (376,295)
                                                       ----------    ----------
                                                      
    TOTAL SHAREHOLDERS' EQUITY .....................    2,028,384     2,387,056
                                                       ----------    ----------
    TOTAL LIABILITIES AND SHAREHOLDERS'               
      EQUITY .......................................   $3,664,112    $3,726,823
                                                       ==========    ==========
                                                    
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,
                                                1997        1998          1997        1998
                                             ---------   ----------   ----------   ----------
<S>                                          <C>         <C>          <C>          <C>
REVENUES:
  Initial License Fees....................   $ 237,250   $  228,250   $  633,500   $  907,301
  Advertising Fees .......................     173,274      217,073      565,033      667,813
  Continuing License Fees ................     525,425      647,829    1,827,426    2,021,895
  Insurance premiums .....................     159,121      202,357      395,124      565,374
  Vehicle Rental Operations ..............       3,508        3,910       11,717       12,200
  Other ..................................      33,645       45,011      109,212      121,720
                                            ----------   ----------   ----------   ----------
                                             1,132,223    1,344,430    3,542,012    4,296,303
                                            ----------   ----------   ----------   ----------
EXPENSES:
 Salaries, Consulting Fees and
  Employee Benefits ......................     192,915      225,812      583,808      650,805
 Sales and Marketing Expenses ............     101,976      163,752      380,185      532,713
 Advertising and Promotion ...............     274,178      303,040      845,221      947,518
 Underwriting Expenses ...................     158,486      174,432      341,120      464,478
 General and Administrative Expenses .....     226,197      213,325      713,256      668,301
 Depreciation & Amortization .............      29,295       35,045       90,091      105,179
                                            ----------   ----------   ----------   ----------
                                               983,047    1,115,406    2,953,681    3,368,994
                                            ----------   ----------   ----------   ----------

     OPERATING INCOME ....................     149,176      229,024      588,331      927,309

INTEREST INCOME, NET .....................      13,418       20,407       45,985       52,436
                                            ----------   ----------   ----------   ----------

     INCOME BEFORE INCOME TAX EXPENSE ....     162,594      249,431      634,316      979,745
                                            ----------   ----------   ----------   ----------

INCOME TAX EXPENSE .......................      47,266       73,422      194,369      302,224
                                            ----------   ----------   ----------   ----------

      NET INCOME..........................  $  115,328   $  176,009   $  439,947   $  677,521

DIVIDENDS ON CONVERTIBLE CUMULATIVE
  PREFERRED STOCK ........................      27,733       27,320       84,111       81,960
                                            ----------   ----------   ----------   ----------
NET INCOME APPLICABLE TO COMMON
  AND COMMON EQUIVALENT SHARES............  $   87,595   $  148,689   $  355,836   $  595,561
                                            ----------   ----------   ----------   ----------
EARNINGS PER COMMON SHARE
  Basic...................................  $      .02   $      .04   $      .08   $      .15
                                            ----------   ----------   ----------   ----------

Weighted average common shares ...........   4,292,454    4,078,781    4,276,386    4,106,907
                                            ==========   ==========   ==========   ==========

  Diluted.................................  $      .02   $      .03   $      .07   $      .12
                                            ----------   ----------   ----------   ----------
Weighted average common shares
 plus options and warrants ...............   5,919,012    5,568,516    5,902,944    5,596,642
                                            ==========   ==========   ==========   ==========
</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)

                                                  Nine Months Ended December 31,
                                                  ------------------------------
                                                       1997           1998
                                                    ----------     ----------
Increase (decrease) in cash and cash
equivalents

Cash flows from operating activities:
 Net income ...................................... $   439,947    $   677,521
 Adjustments to reconcile net income to net
  cash provided by operating activities:
   Depreciation and amortization .................      90,091        105,179
   Gain on disposal of property and equipment ....      (4,152)        (1,577)
   Provision for doubtful accounts ...............    (108,575)       126,730
 Changes in assets and liabilities:
   Accounts and notes receivable and other .......     167,240        239,359
   Prepaid expenses ..............................     (62,597)       (15,595)
   Accounts payable and accrued
    expenses .....................................    (124,436)        60,860
   Income Taxes Payable ..........................     108,362        (12,040)
   Insurance fees, claims, and
    loss reserves ................................     148,101         84,979
                                                   -----------    -----------

     Net cash provided by operating activities ...     653,981      1,265,416
                                                   -----------    -----------
Cash flows from investing activities:
 Decrease (Increase) in restricted cash ..........      52,592       (348,126)
 Proceeds from sale of property and equipment ....      29,160         42,386
 Acquisition of property and equipment ...........     (55,870)      (183,272)
 Additions to trademarks and other ...............        (852)        (6,694)
                                                   -----------    -----------

     Net cash used in investing activities .......      25,030       (495,706)
                                                   -----------    -----------
Cash flow from financing activities:
 Increase (Decrease) in insurance premiums
   payable .......................................      59,581       (429,760)
 Issuance of common stock ........................      25,000         16,000
 Repayments of long-term debt ....................     (38,667)            --
 Retirement of warrants ..........................          --        (10,000)
 Retirement of common stock ......................     (18,189)      (198,588)
 Preferred dividends paid ........................    (126,287)      (126,262)
                                                   -----------    -----------

     Net cash used in financing activities .......     (98,562)      (748,610)
                                                   -----------    -----------

     Net increase in cash and cash equivalents ...     580,449         21,100

Cash and cash equivalents at beginning
 of period .......................................     531,127      1,215,615
                                                   -----------    -----------

Cash and cash equivalents at end of period ....... $ 1,111,576    $ 1,236,715
                                                   ===========    ===========
Supplemental disclosure of cash
 flow information:
  Interest paid .................................. $    16,106         17,947
  Taxes paid ..................................... $    87,044    $   367,758


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, 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 December 31, 1998, the  consolidated
statements of earnings for the three and  nine-month  periods ended December 31,
1997 and 1998 and the consolidated  statements of cash flows for the nine- month
periods  ended  December  31,  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 were paid on November 11, 1998.  For the quarter ended  December 31, 1998,
the Company  declared  dividends  totaling $27,320 which are expected to be paid
during the fourth quarter of the Company's fiscal year. As of December 31, 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
nine-month periods ended December 31, 1997 and 1998 is as follows:

                                  Three Months                  Nine Months
                               Ended December 31,           Ended December 31,
                                1997         1998            1997         1998
                            ----------   ----------      ----------   ----------
BASIC EPS COMPUTATION

Numerator:
 Net income applicable to
  common and common
   equivalent shares        $   87,595   $  148,689      $  355,836   $  595,561

Denominator:
 Weighted average common
  shares                     4,292,454    4,078,781       4,276,386    4,106,907
                            ----------   ----------      ----------   ----------

Basic EPS                   $      .02   $      .04      $      .08   $      .15
                            ==========   ==========      ==========   ==========

DILUTED EPS COMPUTATION

Numerator:
 Net income applicable to
  common and common
   equivalent shares        $   87,595   $  148,689      $  355,836   $  595,561
 Dividends on convertible
  preferred stock               27,733       27,320          84,111       81,960
                            ----------   ----------      ----------   ----------
                               115,328      176,009         439,947      677,521
                            ----------   ----------      ----------   ----------
Denominator:
 Weighted average common
  shares                     4,292,454    4,078,781       4,276,386    4,106,907
 Convertible preferred
  stock                      1,386,625    1,366,000       1,386,625    1,366,000
 Weighted average options
  and warrants                 239,933      123,735         239,933      123,735
                            ----------   ----------      ----------   ----------
                             5,919,012    5,568,516       5,902,944    5,596,642
                            ----------   ----------      ----------   ----------

Diluted EPS                 $      .02   $      .03      $      .07   $      .12
                            ==========   ==========      ==========   ==========

                                        7
<PAGE>
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 OR PLAN OF OPERATIONS

RESULTS OF OPERATIONS-THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO
DECEMBER 31, 1997

     Revenue from franchising  operations,  which includes initial license fees,
continuing  license fees and  advertising  fees,  increased  by $157,203  (17%).
Continuing  license  fees  increased  by  $122,404  (23%) and  advertising  fees
increased by $43,799 (25%).  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 $43,236 (27%) due to higher participation by the
Company's  franchisees  in the CAR  Insurance  program that began  operations in
March 1997.

     Total  operating  expenses  increased  by  $132,359  (13%)  in this  period
compared  to the same  three-month  period in the  prior  year.  Salary  expense
increased by $32,897 (17%) primarily as a result of hiring additional  employees
in response to the growth of the Company. Sales and marketing expenses increased
by $61,776 (61%) due to an increase in bad debt expense in this period  compared
to the same period in the prior year, as the prior year included the recovery of
a bad debt previously reserved.  Advertising and promotion expenses increased by
$28,862 (11%), which resulted primarily from an increase in national advertising
expense to promote the Company.  Insurance  underwriting  expenses  increased by
$15,946  (10%) due to an increase in paid  losses and loss  reserves  for future
claims in connection with higher  participation by the Company's  franchisees in
its CAR Insurance  program.  General and  administrative  expenses  decreased by
$12,872 (6%), which resulted primarily from a reduction in legal fees.


     Depreciation  and  amortization  expense  increased by $5,750 (20%) 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 three additional vehicles.

                                        8
<PAGE>
     Net interest income increased $6,989 (52%). This increase was primarily due
to interest  earned on the increased  cash  reserves  which are held in interest
bearing accounts.

         The Company  realized  operating  income of $229,024,  before taxes and
interest,  for the  three-month  period  ended  December  31,  1998  compared to
operating  income of $149,176 for the same period in the prior year,  reflecting
an increase of $79,848 (54%). This increase resulted primarily from the increase
in  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  December  31, 1998
increased by $26,156 (55%) compared to the three-month period ended December 31,
1997 due to higher pre-tax earnings.

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

     Net revenues  increased by $754,291 (21%) for the  nine-month  period ended
December  31,  1998 as  compared  to the same  period  in the prior  year.  This
increase  occurred due to a $273,801 (43%)  increase in initial  license fees, a
$194,469(11%)  increase in continuing license fees, a $102,780  (18%)increase in
advertising  fees, and a $170,250 (43%) increase in premiums in connection  with
the new  reinsurance  program.  These  increases  occurred  for the same reasons
indicated above.

     Total  operating  expenses  increased  by  $415,313  (14%)  in this  period
compared to the same  period in the prior  year.  Salary  expense  increased  by
$66,997 (11%)  primarily as a result of additional  employees in response to the
growth of the Company. Sales and marketing expenses increased by $152,528 (40%),
which  resulted  primarily  from a larger amount of franchise  sales made in the
current  nine-month  period  compared to the same period in the prior year,  the
repurchase of a territory  from an existing  franchisee  which was resold by the
Company at a profit, and from the recovery of a bad debt in the prior year which
had been  fully  reserved.  Advertising  and  promotion  expenses  increased  by
$102,297  (12%),   which  resulted   primarily  from  an  increase  in  national
advertising  expense to promote  the  Company and the  expenses  arising  from a
lawsuit with a competitor  concerning  limits on the use of certain  advertising
slogans and names.  Underwriting  expenses increased by $123,358 (36%) 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 decreased by $44,955 (7%), which resulted primarily from a reduction in
legal fees.

     Depreciation  and amortization  expense  increased by $15,088 (17%) for the
nine-month  period ended December 31, 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 three  additional
vehicles.

                                        9
<PAGE>
     The  Company  realized  operating  income  of  $927,309,  before  taxes and
interest,  for the  nine-month  period  ended  December  31, 1998 as compared to
operating income of $588,331 for 1997, reflecting an increase of $338,978 (58%).
This  increase  resulted  primarily  from the increase in initial  license fees,
continuing license fees and insurance premiums.

     Income tax  expense  for the  nine-month  period  ended  December  31, 1998
increased by $107,855 (55%) compared to the nine-month period ended December 31,
1997 due to higher pre-tax earnings.

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

            Number of
             Shares                     Alternative Vesting Event:
             ------                     --------------------------
            500,000                 Completion of the first fiscal year
                                    in which the Company has Profits of
                                    at least  $750,000  or in which the
                                    Stock Price is at least $4.00

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

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

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

                                       10
<PAGE>
     Consequently,  if the Profits  for the year  ending  March 31, 1999 meet or
exceed $750,000,  then 500,000 Unvested Options will become exercisable,  and if
Profits  exceed  $1,000,000,  then all  1,250,000  Unvested  Options will become
exercisable.

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

LIQUIDITY AND CAPITAL RESOURCES

     At  December  31,  1998,  the Company  had  working  capital of  $1,842,979
compared to  $1,526,934 at March 31, 1998.  This  increase of $316,045  resulted
primarily from the net profit earned during the nine-month period ended December
31, 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 7.75% on January 15, 1999).
For the quarter  ended  December 31,  1998,  AIG did not draw any funds from the
letter of  credit.  This  letter of credit is  secured  by all of the  Company's
assets.

     Property and  equipment  increased by $67,396  (13%) from March 31, 1998 to
December 31, 1998. This increase occurred primarily due to additional investment
in computer  software and hardware.  Vehicles  increased by $71,403  (306%) from
March 31, 1998 to December  31, 1998 due to the purchase of two vehicles for the
one-way program and a vehicle for use by the Company.

     Cash provided by operations was  $1,265,416,  resulting  primarily from net
income before  depreciation  plus the decrease in accounts and notes receivable,
increase  in  insurance  fees,  claims and loss  reserves,  increase in accounts
payable and accrued  expenses,  offset by the increase in the Company's  prepaid
expenses and decrease in income taxes payable.  Accounts and notes receivable in
conjunction  with  the  Company's  franchising  program  increased  by  $254,300
primarily due to a higher volume of sales.  Accounts  receivable relating to the
reinsurance program decreased by $560,219 as a result of funds received from the
finance  company.  Prepaid expenses  increased  primarily due to the purchase of
additional  promotional  items.  Accounts payable and accrued expenses increased
primarily  from higher  commissions  payable and  accrued  national  advertising
expense.  Income taxes payable decreased  primarily due to income taxes paid for
the year ended March 31, 1998.

                                       11
<PAGE>
     Cash used in  investing  activities  of $495,706  related  primarily  to an
increase in restricted cash as required by the Company's  letter of credit,  the
acquisition  of computer  software and hardware,  three  vehicles and the annual
costs associated with renewing trademarks.

     Cash used in  financing  activities  during the same  period was  $748,610,
resulting  from a decrease  in  insurance  premiums  payable  and the payment of
preferred  dividends  and  buyback of common  stock and  warrants  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
nine months ended December 31, 1998, the Company repurchased and retired 183,900
shares of its common stock. As of December 31, 1998, the Company has repurchased
and retired a total of 662,000  shares  under this  program.  A total of 338,000
shares are 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.

                                       12
<PAGE>
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.

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

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

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

     The  Company  believes  that  the  cost of its  Year  2000  identification,
assessment,  remediation  and  testing  efforts  as well as  those  current  and
anticipated costs to be incurred by the Company with respect to Year 2000 issues
of third parties will not exceed $5,000,  which expenditures will be funded from
operating cash flows. As of December 31, 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 if assessment,  remediation and

                                       13
<PAGE>
testing are not effected  timely,  there can be no assurances that the Year 2000
issue will not materially  adversely affect the Company's  results of operations
or  adversely  affect the  Company's  relationship  with  customers,  vendors or
others.  Additionally,  there can be no assurances  that the Year 2000 issues of
other entities will not have a material adverse effect on the Company's  systems
or results of operations.

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

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

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

                                       14
<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 December 31, 1997 and 1998 and with respect to the balance
sheets thereof at December 31 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             Nine Months
                                  Ended December 31,      Ended December 31,
                                    1997      1998          1997       1998
                                    ----      ----          ----       ----
                                      (in thousands except per share and
                                              number of franchises)
                                                  (Unaudited)
FRANCHISEES' RESULTS (UNAUDITED)

Franchisees' Revenue (1)           $8,575     $10,797     $30,457     $33,698
Number of Franchises                  485         623         485         623

RESULTS OF OPERATIONS

Total Revenue                      $1,132     $ 1,344     $ 3,542     $ 4,296
Costs and expenses and
 Other                                983       1,115       2,954       3,369
Income before income
  taxes                               163         249         634         980
Net income                            115         176         440         678
Earnings per share:

 Basic                             $  .02     $   .04     $   .08     $   .15

Weighted average common
 shares                             4,292       4,079       4,276       4,107

 Diluted                           $  .02     $   .03     $   .07     $   .12

Weighted average common
 shares                             5,919       5,569       5,903       5,597

                                                              Nine Months
                                                          Ended December 31,
                                                           1997      1998
                                                           ----      ----
                                                             (Unaudited)
BALANCE SHEET DATA

Working capital                                           $1,558      $1,843
Total assets                                              $3,065      $3,727
Shareholders' equity                                      $2,074      $2,387

(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.

                                       15
<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

     None

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

     None.

ITEM 5. OTHER INFORMATION

     During  the  nine-month   period  ended  December  31,  1998,  the  Company
repurchased  for  $198,588  and  retired  183,900  shares of its  common  stock,
reducing  total  outstanding  common  shares from  4,189,692  to 4,035,792 as of
December 31, 1998.

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.

                                       16
<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                        February 3, 1999
----------------------------                  ----------------
Mitra Ghahramanlou
Chief Accounting Officer





/s/ Kenneth L. Blum, Sr.                      February 3, 1999
----------------------------                  ----------------
Kenneth L. Blum, Sr.
CEO and Chairman of
the Board

                                       17
<PAGE>
                                  EXHIBIT INDEX
                                       TO
                          RENT-A-WRECK of AMERICA, INC.
               FORM 10-QSB FOR THE QUARTER ENDED DECEMBER 31, 1998




Exhibit No.                Description
-----------                -----------


   27                Financial Data Schedule            Filed herewith.





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