Condensed Consolidated Interim Financial Statements

Condensed Consolidated Interim Financial Statements As at December 31, 2011 and for the three months ended December 31, 2011 and 2010 NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor. The accompanying unaudited interim financial statements of the Company have been prepared by, and are the responsibility of, the Company s management. The Company s independent auditor has not performed a review of these financial statements. 1

Contents Condensed Consolidated Interim Financial Statements Condensed Consolidated Interim Statements of Financial Position 3-4 Condensed Consolidated Interim Statements of Loss 5 Condensed Consolidated Interim Statements of Comprehensive Loss 6 Condensed Consolidated Interim Statements of Changes in Equity 7 Condensed Consolidated Interim Statements of Cash Flows 8-9 10-45 2

Condensed Consolidated Interim Statements of Financial Position Unaudited Unaudited Unaudited December 31, 2011 September 30, 2011 October 1, 2010 Assets Cash $ 1,997,968 $ 2,586,399 $ 2,165,389 Restricted cash (Note 5) 1,935,774 1,845,911 2,791,630 Accounts receivable, net of allowance for doubtful accounts ($408,240 at 12/31/11; $386,282 at 9/30/11 and $298,938 at 10/1/10) 924,635 1,034,447 922,421 Related party accounts receivable (Note 13) 254,947 242,240 120,890 Related party notes receivable (Note 6) 160,000 160,000 172,500 Other notes receivable, net of allowance for doubtful notes ($26,250 at 12/31/11, $9,001 at 9/30/11 and $16,798 at 10/1/10) (Note 7) 17,904 43,562 - Prepaid expenses 180,544 236,701 207,654 Total current assets 5,471,772 6,149,260 6,380,484 Property, Plant and Equipment, net (Note 8) 173,011 169,746 189,560 Other: Related party notes receivable, net of allowance for doubtful notes ($1,273,447 at 12/31/11 and 9/30/11, respectively and $1,299,566 at 10/1/10) (Note 6) 1,576,355 1,576,355 1,736,356 Other assets (Note 10) 182,446 127,970 129,658 Goodwill 3,959,473 3,959,473 3,959,473 Other intangible assets, net (Note 9) 2,823,891 2,855,860 2,983,735 8,715,176 8,689,404 8,998,782 Total assets $ 14,186,948 $ 14,838,664 $ 15,379,266 See accompanying notes to consolidated financial statements. 3

Condensed Consolidated Interim Statements of Financial Position Unaudited Unaudited Unaudited December 31, 2011 September 30, 2011 October 1, 2010 Liabilities and Shareholders' Equity Liabilities Accounts payable and accrued liabilities $ 2,830,401 $ 2,883,550 $ 2,239,408 Deposits received from franchisees 245,667 235,377 244,517 Insurance loss reserves (Note 5) 1,361,331 1,649,044 2,560,675 Current portion of note payable (Note 11) 2,500,000 - - Total current liabilities 6,937,399 4,767,971 5,044,600 Note payable (Note 11) - 2,500,000 2,500,000 Total liabilities 6,937,399 7,267,971 7,544,600 Commitments and contingencies (Notes 5, 14) Shareholders' Equity Share capital (Note 12a) 15,117,041 15,117,041 15,117,041 Contributed surplus (Note 12b) 1,609,674 1,595,669 1,548,798 16,726,715 16,712,710 16,665,839 Accumulated deficit (9,651,914) (9,311,609) (9,005,246) Accumulated other comprehensive income (Note 12c) 174,748 169,592 174,073 (9,477,166) (9,142,017) (8,831,173) Total shareholders' equity 7,249,549 7,570,693 7,834,666 Total liabilities and shareholders' equity $ 14,186,948 $ 14,838,664 $ 15,379,266 See accompanying notes to consolidated financial statements. Approved by the Board of Directors (Signed) "Sanford Miller" Director (Signed) "Michael Linn" Director 4

Condensed Consolidated Interim Statements of Loss Unaudited Unaudited Three Months Three Months Ended Ended December 31, 2011 December 31, 2010 Revenues Continuing franchisee and related fees (Note 6) $ 937,217 $ 964,720 Initial franchise fees 50,941 103,489 Insurance premiums and related fees 2,782,935 2,900,676 Total revenues 3,771,093 3,968,885 Costs and expenses Direct operating Franchise operating (Note 17 a) 1,314,890 1,112,773 Insurance operating (Note 17 b) 1,361,083 1,466,162 Claims expense 429,985 726,866 Insurance underwriting expenses 108,656 116,596 General and administration (Note 17 c) 838,164 647,501 Recovery of losses on related party notes receivable - (16,275) Provision for losses on other notes receivable 17,250 - Stock-based compensation expense (Note 12a) 14,005 19,273 Amortization and depreciation 55,068 54,842 Total costs and expenses 4,139,101 4,127,738 Operating loss before income taxes (368,008) (158,853) Income tax benefit (27,703) (7,993) Net loss $ (340,305) $ (150,860) Accumulated Deficit beginning of the period (9,311,609) (9,005,246) Accumulated Deficit end of period $ (9,651,914) $ (9,156,106) Loss per share (Note 12d) Basic and Diluted $ (0.01) $ - See accompanying notes to consolidated financial statements. 5

Condensed Consolidated Interim Statements of Comprehensive Loss Unaudited Unaudited Three Months Three Months Ended Ended December 31, 2011 December 31, 2010 Net loss $ (340,305) $ (150,860) Other Comprehensive Loss Translation of Canadian dollar functional currency to US dollar reporting currency (Note 12c) 5,156 6,419 Comprehensive loss $ (335,149) $ (144,441) See accompanying notes to consolidated financial statements. 6

Condensed Consolidated Interim Statements of Changes in Equity Accumulated Other Total Share Contributed Accumulated Comprehensive Shareholders' Capital Surplus Deficit Income Equity Balance, October 1, 2010 $ 15,117,041 $ 1,548,798 $ (9,005,246) $ 174,073 $ 7,834,666 Stock-based compensation expense - 46,871 - - 46,871 Translation adjustment - - - (4,481) (4,481) Net Loss - - (306,363) - (306,363) Balance, September 30, 2011 15,117,041 1,595,669 (9,311,609) 169,592 7,570,693 Stock-based compensation expense - 14,005 - - 14,005 Translation adjustment - - - 5,156 5,156 Net Loss - - (340,305) - (340,305) Balance, December 31, 2011 $ 15,117,041 $ 1,609,674 $ (9,651,914) $ 174,748 $ 7,249,549 See accompanying notes to consolidated financial statements. 7

Condensed Consolidated Interim Statements of Cash Flows Unaudited Unaudited Three Months Three Months Ended Ended December 31, 2011 December 31, 2010 Operating activities Net loss $ (340,305) $ (150,860) Items not affecting cash: Amortization and depreciation (Notes 8 and 9) 55,068 54,842 Recovery of losses on related party notes receivable (Note 6) - (16,275) Provision for losses on other notes receivable (Note 7) 17,249 - Provision for doubtful accounts receivable (Note 16) 31,500 31,500 Note received in payment of franchise fee - (7,022) Repayments on notes and other receivables 8,408 16,275 Stock-based compensation (Note 12a) 14,005 19,273 (214,075) (52,267) Changes in non-cash working capital: Accounts receivable 72,017 35,672 Prepaid expenses and other assets 2,847 (28,091) Accounts payable and accrued liabilities (58,304) (118,381) Insurance loss reserves (295,804) (105,501) Deposits received from franchisees 10,290 3,250 Net change in non-cash working capital (268,954) (213,051) Net cash used in operating activities (483,029) (265,318) Investing activities Change in restricted cash (79,358) 254,417 Property, plant and equipment expenditures (26,364) (8,803) Net cash provided by (used in) investing activities $ (105,722) $ 245,614 See accompanying notes to consolidated financial statements. 8

Condensed Consolidated Interim Statements of Cash Flows Unaudited Unaudited Three Months Three Months Ended Ended December 31, 2011 December 31, 2010 Financing activities Repayments of notes payable $ - $ - Net cash used in financing activities - - Net decrease in cash (588,751) (19,704) Effect of exchange rate changes on cash 320 3,145 Cash, beginning of period 2,586,399 2,165,389 2,586,719 2,168,534 Cash, end of period $ 1,997,968 $ 2,148,830 Supplemental disclosures of cash flow information: Cash paid during the period for: Income taxes paid $ 27,732 $ 8,697 Interest 63,254 63,399 See accompanying notes to consolidated financial statements. 9

1. Nature of Business Organization and Nature of the Business Franchise Services of North America Inc. ( FSNA or the Company ), formerly Rent-A-Wreck Capital Inc. is a public company incorporated under the Canada Business Corporations Act on August 27, 1998 and whose common shares are listed on the TSX Venture Exchange under the symbol FSN. The Company s registered office is 2500, 450 1 st Street S.E, Calgary, AB, T2P 5H1 and its principal place of business is 1052 Highland Colony Parkway, Suite 204, Ridgeland, MS, 39157. The Company owns two operating subsidiaries, U-Save Auto Rental of America, Inc. ( U-Save ) and Practicar Systems Inc. ( Practicar ). U-Save licenses franchises to operate U-Save Auto Rental businesses in the United States and abroad. In addition, U-Save offers to franchisees and independent car rental operators ( associates ) insurance products including liability and physical damage coverage on their rental fleet. U-Save also operates an association, Auto Rental Resource Center ( ARRC ). ARRC provides insurance discounts and products and services to its members who operate independent vehicle rental businesses. As a result of the acquisition of DRSN Holdings, LLC ( DRSN ), the Company owns a full-service insurance agency, providing insurance products to its franchisees, associates, and third-party customers predominately in the auto rental business. Practicar licenses franchises to operate Rent-A-Wreck vehicle rental and sales businesses in Canada. Thus, overall, the Company operates in one reportable business segment, the auto rental segment. 2. Basis of Presentation The interim consolidated financial statements have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting ( IAS 34 ) using accounting policies consistent with International Financial Reporting Standards ( IFRS ), issued by the International Accounting Standards Board ( IASB ). This is the first time the Company has prepared its consolidated financial statements in accordance with IFRS, having previously prepared its consolidated financial statements in accordance with Canadian Generally Accepted Accounting Policies ( GAAP ). These condensed consolidated interim financial statements have been prepared in accordance with IFRS applicable to the preparation of interim financial statements, including IAS 34 and IFRS 1 First Time Adoption of International Financial Reporting Standards ( IFRS 1 ). In accordance with IFRS 1, the Company has consistently applied the same accounting policies in its opening IFRS Statement of Financial Position at October 1, 2010 (the Transition Date ) and through all periods presented, as if these policies had always been in effect. These condensed consolidated interim financial statements do not include all of the information and footnotes required by IFRS for complete financial statements for year-end reporting purposes and should be read in conjunction with the Company s Canadian GAAP audited annual consolidated financial statements for the year ended September 30, 2011. The effects of the transition from GAAP to IFRS on the Company s reported financial position, financial performance and cash flows, are set out in Note 4. 10

2. Basis of Presentation, continued Basis of measurement The consolidated financial statements have been prepared on the historical basis. Functional and presentation currency The Company and its operating subsidiary in Canada (Practicar) have a functional currency which is the Canadian dollar. All other subsidiaries have the US dollars as their functional currency. The Company has adopted the U.S. dollar as its presentation currency because the majority of its operations are located in the United States. Significant accounting judgments, estimates and assumptions The preparation of the Company s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainties about these assumptions and estimates could result in outcomes that would require a material adjustment to the carrying amount of the asset or liability affected in the future. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. In particular, information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amount recognized in the consolidated financial statements are described in the following notes: Impairment of non-financial assets At each reporting date, the Company assesses whether there are any indicators of impairment for all non-financial assets. Non-financial assets that have an indefinite useful life or are not subject to amortization, such as goodwill, are tested annually for impairment. Other non-financial assets are tested for impairment if there are indicators that their carrying amounts may not be recoverable. Share-based payments The amount disclosed relating to fair values of stock options issued are based on management s estimates of expected stock price volatility, expected lives of the options, expected dividends to be paid by the Company, risk-free interest rates and certain other assumptions. By their nature, these estimates are subject to measurement uncertainty, and the effect on the consolidated financial statements from changes in such estimates in future years could be material. 11

2. Basis of Presentation, continued Significant accounting judgments, estimates and assumptions, continued Deferred income taxes The calculation of deferred income tax is based on assumptions, which are subject to uncertainty as to timing and which tax rates are expected to apply when temporary differences reverse. Deferred income tax recorded is also subject to uncertainty regarding the magnitude on non-capital losses available for carry forward and of the balances in various tax pools. By their nature, these estimates are subject to measurement uncertainty, and the effect on the consolidated financial statements from changes in such estimates in future years could be material. Provisions The Company is periodically involved in legal actions and automobile accident claims that arise as a result of events occurring in the normal course of operations. In the regular course of business, the Company evaluates estimated losses or costs related to litigation and a provision is made for anticipated losses whenever the Company believes that such losses are probable and can be reasonably estimated. Allowances for receivables At each reporting date, the Company assesses the allowance for doubtful accounts on its accounts receivable by regularly evaluating individual customer receivables and considering a customer s financial condition, credit history, and current economic conditions and on its notes receivable by evaluating any breach in contracts. Insurance reserves The Company makes certain assumptions, which includes discount rates and the future development of claims. See Note 5. 3. Summary of Significant Accounting Policies Basis of Consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Any balances, unrealized gains and losses or income and expenses arising from intra-company transactions, are eliminated upon consolidation. 12

3. Summary of Significant Accounting Policies, continued Foreign Currency Translation Transactions denominated in foreign currencies are translated into the functional currency of the Company at exchange rates prevailing at the transaction dates (spot exchange rates). Monetary assets and liabilities are retranslated at the exchange rates at the period end date. Exchange gains and losses on translation or settlement are recognized in profit or loss whereas the Company s net investment in its foreign subsidiaries is recognized in other comprehensive income. Non-monetary items that are measured at historical cost are translated using the exchange rates at the date of the transaction and non-monetary items that are measured at fair value are translated using the exchange rates at the date when the items fair value was determined. The Company and its Canadian subsidiary (Practicar), which have the Canadian dollar as their functional currency, have been translated into US dollars for presentation purposes as follows: assets and liabilities have been translated at the closing rate at the reporting date; revenues and expenses have been translated at the average rate over the reporting period. Exchange differences are recognized in other comprehensive income (loss) and recognized in the currency translation reserve in equity. Revenue Recognition Initial franchise fee revenue from an individual franchise is recognized when all material services or conditions relating to the transaction have been substantially performed or satisfied by the Company. Generally, substantial performance occurs prior to the commencement of operations by the franchisee. Continuing license fees are recognized as revenue as the fees are earned and are based on the number of cars operated by the individual franchisee or as a percentage of the individual franchisee s time and mileage revenue. Income from insurance operations is recorded as revenue when earned and recognized ratably over the term of the coverage. Cash and Cash Equivalents The Company considers unrestricted highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. Restricted Cash and Cash Equivalents Restricted cash is held in a savings bank account. Restricted cash and cash equivalents are restricted for the payment of estimated insurance claims and premiums for some, but not all, of the Company s insurance programs, with some balances held in the Company s name at financial institutions and other balances held on the Company s behalf by insurance carriers (see Note 5). At December 31, 2011, the Company has annual renewable letters of credit totaling $1.435 million outstanding to the Company s insurance carriers as security for payment of claims, insurance premiums and any other obligations to the carrier. These letters of credit are secured by cash of the same amounts and are reflected in the Company s restricted cash balance at December 31, 2011. 13

3. Summary of Significant Accounting Policies, continued Accounts Receivable Accounts receivable are carried at original invoice amount less an estimate for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer s financial condition, credit history, and current economic conditions. Receivables are written off when deemed uncollectible. See Note 16 for further discussion of financial instrument risks. Notes Receivable Notes receivable are classified as impaired when there is no longer reasonable assurance of the timely collection of outstanding advances. In determining the provision for possible note receivable losses, the Company considers the length of time the notes have been outstanding, whether they are in arrears, the overall financial strength of the borrower and the residual value of security pledged. If necessary, an allowance for losses on impaired notes receivable is made to reduce the carrying amount to the estimated realizable amounts. During the three months ended December 31, 2011, the Company recorded a net recovery of allowance for losses on impaired notes receivable of $Nil ($4,618 for the year ended September 30, 2011). See Note 6 and Note 7. Property, Plant and Equipment Property, plant and equipment are recorded at cost less accumulated depreciation and impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items. Property, plant and equipment are stated at cost and depreciated generally on the straight-line method for financial reporting purposes using estimated useful lives as follows: Furniture and equipment 5 Years Vehicles 5 Years Computer equipment 3-5 Years Intangible Assets Intangible assets acquired in a business combination are identified and recognized separately from goodwill where they meet the definition of an intangible asset and their fair values can be measured reliably. The cost of such intangible assets is their fair value at the acquisition date. Subsequent to initial recognition, intangible assets with a finite life are reported at cost less accumulated amortization and accumulated impairment losses. Intangibles assets with an indefinite life are tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset my be impaired Intangible assets that have a finite life are amortized using the straight-line basis over the estimated useful lives as follows: Customer list 7-8 years Advertising jingle 5 years Non-compete agreement 3 years 14

3. Summary of Significant Accounting Policies, continued Goodwill Goodwill arising in a business combination is recognized as an asset at the date of control (acquisition date). Goodwill is measured as the excess of the cost of the acquisition over the Company s interests in the net fair value of the identifiable net assets, liabilities and contingent liabilities of the acquiree recognized at the date of acquisition. For acquisitions prior to October 1, 2010, the Company has elected to not restate business combinations that occurred before the date of transition to IFRS. The amount of goodwill recognized upon transition to IFRS is therefore the carrying amount under Canadian GAAP at October 1, 2010. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units). Cash-generating units to which goodwill has been allocated are tested for impairment at least annually. An impairment loss is recognized for the amount by which the cash-generating unit s carrying amount exceeds its recoverable amount, and reduces first the carrying amount of any goodwill allocated to that cash-generating unit. Any remaining impairment loss is charged pro rata to the other assets in the cash-generating unit. An impairment loss recognized for goodwill is not reversed in a subsequent period. The amount of goodwill at December 31, 2011 expected to be deductible for tax purposes through the amortization method permitted by the Internal Revenue Service is approximately $698,000. Income Taxes Income taxes are accounted for under the asset and liability method. Under this method, deferred income tax assets and liabilities are determined based on differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recoverable or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date except where they relate to items that are recognized in other comprehensive income (loss) or directly in equity, in which case the related deferred tax is also recognized in other comprehensive income (loss) or equity, respectively. Deferred tax assets, if any, are recognized only to the extent that, in the opinion of management, it is probable that deferred income tax assets will be realized. The Company is subject to income tax in both Canada and the United States. To the extent the Canadian operations generate taxable income, such income would be taxed at the applicable Canadian statutory tax rates. To date, the Company s Canadian operations have not generated taxable income. The Company has not recognized a deferred tax asset related to the resulting non-capital loss carryforwards for its Canadian operations because management has concluded that it is not probable that such deferred income tax assets will be realized. To the extent the U.S. operations generate taxable income, such income would be taxed at the applicable U.S. statutory tax rates. Based upon the level of historical taxable income and anticipated future taxable income over the periods in which the deferred tax assets are deductible, management believes it is not probable that the Company will realize the full benefit of these deferred tax assets and accordingly, has not recognized deferred tax assets in its financial statements. 15

3. Summary of Significant Accounting Policies, continued Leases The economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the ownership of the leased asset. The related asset is then recognized at the inception of the lease at the fair value of the leased asset or, if lower, the present value of the lease payments plus incidental payments, if any. A corresponding amount is recognized as a finance leasing liability, irrespective of whether some of these lease payments are payable up-front at the date of inception of the lease. Leases of land and building are classified separately and the minimum lease payments are allocated between the land and building elements in proportion to the relative fair values of the leasehold interests at the inception of the lease. Assets under finance lease are amortized on a straight-line basis, over the shorter of the useful life and the lease term. The depreciation policy for depreciable leased assets is consistent with that for depreciable assets that are owned by the Company. The corresponding finance leasing liability is reduced by lease payments less finance charges, which are expensed as part of finance costs. All other leases are accounted for as operating leases, and payments are expensed on a straight-line basis over the term of the lease. Associated costs, such as maintenance, are expensed as incurred. Provisions A provision is recognized, if, as a result of a past event, the Company has a legal or constructive obligation that can be estimated reliably and it is probable that a future outflow of economic benefits will be required to settle the obligation. The timing or amount of the outflow may still be uncertain. Provisions are measured by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and specific risks of the obligation. Where there are a number of obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. All provisions are reviewed at each reporting date and adjusted accordingly to reflect the current best estimate. Insurance Reserves The Company recognizes loss reserves primarily for re-insured physical damage claims and liability claims. The Company funds, through monthly installments, loss funds specified by the fronting insurance companies, plus underwriting expenses. For liability claims, these loss funds are used to pay up to the first $20,000, or $100,000 of such loss, depending on the policy and fronting insurer. For property claims, the Company is responsible for the first $25,000 and any amount in excess of $50,000 per vehicle per claim. Operating costs are charged for estimated losses and underwriting fees. The charges are based on the estimated ultimate liability related to claims and differ from period to period due to claim payment and settlement practices as well as changes in development factors for estimated claims incurred but not reported. On a monthly basis, the Company receives from its fronting insurance companies estimates of selected ultimate losses that are based on actuarial analysis, which management uses to estimate the Company s expected losses. Charges to operations are then adjusted to reflect these estimates. 16

3. Summary of Significant Accounting Policies, continued The Company recorded increases (decreases) related to changes in liability claim reserves from the prior period reserves, based on carrier reports, approximately as follows: Three Months Year Ended Ended December 31, September 30, 2011 2011 Changes in liability claim reserves $ (200,580) $ (935,371) Contingent liabilities All contingent liabilities are continually reviewed to determine whether an outflow of economic benefits has become probable. Where a contingent liability becomes probable that an outflow of future economic benefits will be required, a provision is recognized in the period in which the change in probability occurs. If at the end of the reporting period it is no longer probable that an outflow of economic benefits will be required to settle the obligation, the provision is reversed. Employee benefits Contributions to defined contribution plans are recognized as an expense when employees have rendered service to the Company during the year, entitling them to the contributions. Share-Based payments Share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. The fair value of the options granted is recognized as an expense with a corresponding increase to contributed surplus. The fair value of the options is measured at grant date using the Black-Scholes option pricing model, taking into account the terms and conditions upon which the options were granted. The fair value is expensed over vesting period of each tranche (graded vesting). The amount recognized as an expense is adjusted to reflect the actual number of share options that will vest. At each period end date, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in profit or loss over the remaining vesting period, with a corresponding adjustment to the contributed surplus. Share-based payment transactions with other parties are measured at the fair value of the goods or services received, except where the fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the Company obtains the goods or the counterparty renders the service. 17

3. Summary of Significant Accounting Policies, continued Franchise Activity The following provides a summary of the number of franchises granted, acquired and closed during the three months ended December 31, 2011 and the year ended September 30, 2011: Three Months Ended Year Ended December 31, September 30, Franchise Activity 2011 2011 Number of franchises - beginning of period 194 199 New franchises granted 1 14 Franchises closed (3) (19) Number of franchises - end of period 192 194 Risk and Uncertainties The auto rental industry is highly competitive with various companies focusing on different markets, such as business and vacation travel at or near airports, insurance replacement and neighborhood rental. The success of the Company is based largely on the success of its franchisees. Franchisees are located throughout the United States and Canada. The U-Save brand is also represented internationally. The royalty revenue trend for the Company s vehicle rentals and sales is greatly influenced by the tourism cycle; consequently, the summer quarter ending in September, the (4 th ) quarter of the fiscal year, traditionally generates the highest levels of revenue, followed by the spring (3 rd ) quarter ending in June, then the fall (1 st ) quarter ending in December, which includes the Christmas holiday season and finally, the winter (2 nd ) quarter which is usually the lowest in both tourism and car sales. Although tourism is a significant part of the rental revenue, the system also caters to the local rental markets and vehicle replacement market. These markets do not necessarily follow the same cycle patterns as tourism; for example, the vehicle replacement market is typically stronger during the winter months. The insurance premiums reported are a function of the number of cars insured by the underlying franchisees. The seasonality aspects that are attributed above to the tourism cycle also greatly influence the number of vehicles a franchisee will operate and make available for rent. Additionally, as the number of airport locations increase based upon a successful opening of a new location, these airport locations tend to rent a greater number of vehicles than a local market store. Thus, as each airport location is opened, if the Company also provides that location with its vehicle liability insurance for its fleet, the overall car count of insured vehicles will increase thereby having a positive effect on this revenue stream. The Company s royalty revenue stream and insurance premiums are greatly influenced by the performance of the underlying franchisees. This can be affected in either a positive or negative manner based upon current trends in the car rental industry. 18

3. Summary of Significant Accounting Policies, continued Financial Instruments Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred. A financial liability is derecognized when it is extinguished, discharged, cancelled or when it expires. Financial assets and financial liabilities are measured initially at fair value plus transactions costs, except for financial assets and financial liabilities carried at fair value through profit or loss, which are measured initially at fair value. Financial assets and financial liabilities are measured subsequently as described below: Financial assets For the purpose of subsequent measurement, the Company has classified its financial assets into the following category upon initial recognition: Loans and receivables The Company has classified the following financial assets as loans and receivables: cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, related party accounts receivables, related party notes receivables and other notes receivable. These assets are initially recognized at their fair value. Total interest income, calculated using the effective interest rate method, is recognized in profit (loss). Loans and receivables are subsequently measured at their amortized cost, using the effective interest method. Under this method, estimated future cash receipts are exactly discounted over the asset s expected life, or other appropriate period, to its net carrying value. Amortized cost is the amount at which the financial asset is measured at initial recognition less principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount, and less any reduction for impairment or uncollectability. Net gains and losses arising from changes in fair value are recognized in profit (loss) upon derecognition or impairment. Financial asset impairment The Company assesses impairment of all its financial assets, except those classified at fair value through profit (loss). Management considers whether the issuer is having significant financial difficulty, whether there has been a breach in contract, such as a default or delinquency in interest or principal payments, etc, in determining whether objective evidence of impairment exists. Impairment is measured as the difference between the asset s carrying value and its fair value. Any impairment, which is not considered temporary, is included in current year profit (loss). The Company reverses impairment losses on financial assets carried at amortized cost when the decrease in impairment can be objectively related to an event occurring after the impairment loss was recognized. 19

3. Summary of Significant Accounting Policies, continued Financial liabilities For the purpose of subsequent measurement, the Company has classified its financial liabilities into the following category upon initial recognition: Other financial liabilities The Company has classified the following financial liabilities as other financial liabilities measured at amortized cost: accounts payable and accrued liabilities, deposits received from franchisees, insurance loss reserves and note payable. These liabilities are initially recognized at their fair value. Total interest expense, calculated using the effective interest rate method, is recognized in profit (loss). Financial liabilities measured at amortized cost are subsequently measured at amortized cost using the effective interest method. Under this method, estimated future cash payments are exactly discounted over the liability s expected life, or other appropriate period, to its net carrying value. Amortized cost is the amount at which the financial liability is measured at initial recognition less principal repayments, and plus or minus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount. Net gains and losses arising from changes in fair value are recognized in profit (loss) upon derecognition. Operating segments The Company has three reportable segments which management differentiates by similarities in products and geographical areas. Franchising to operate U-Save Auto Rental businesses in the US, franchising to operate Rent-A-Wreck vehicle rental and sales businesses in Canada, and insurance products in the US. Comprehensive income Comprehensive income (loss) includes all changes in equity of the Company. Comprehensive income (loss) is the total of profit (loss) and other comprehensive income (loss). Other comprehensive income (loss) comprises revenues, expenses, gains and losses that, in accordance with IFRS, require recognition, but are excluded from profit (loss). The Company's other comprehensive income (loss) represents foreign currency translation gains/losses related to translating the financial information of Practicar from its Canadian functional currency to US dollars for presentation purposes. 20

3. Summary of Significant Accounting Policies, continued Future Accounting Pronouncements The following new standards which have not been applied within these financial statements and may or may not have an effect on the Company s future financial statements: IFRS 9: Financial Instruments: Classification and Measurement (Effective for periods beginning on or after January 1, 2015) IFRS 10: Consolidated Financial Statements which replaces SIC-12, Consolidation - Special Purpose Entities and parts of IAS 27, Consolidated and Separate Financial Statements (Effective for periods beginning on or after January 1, 2013) IFRS 11: Joint Arrangements which supersedes IAS 31, Interest in Joint Ventures, and SIC-13, Jointly Controlled Entities - Non-monetary Contributions by Ventures (Effective for periods beginning on or after January 1, 2013) IFRS 12: Disclosure of Interest in Other Entities (Effective for periods beginning on or after January 1, 2013) IAS 12: Deferred Tax: Recovery of Underlying Assets (Amendments to IAS 12) (Effective for periods beginning on or after January 1, 2012) IFRS 13: Fair Value Measurement (Effective for periods beginning on or after January 1, 2013) The Company has not yet assessed the impact of these standards or determined whether they will adopt the standards early. 4. Transition to IFRS The effect of the Company s transition to IFRS, described in Note 2, is summarized in this note as follows: a. Transition exemptions and exceptions applied b. Adjustments to equity and comprehensive income as previously reported under Canadian GAAP to IFRS c. Adjustments to the Statements of Cash Flows a. Transition Elections The Company has applied the following transition exceptions and exemptions to full retrospective application of IFRS: i. In accordance with IFRS transitional provisions, the Company elected to apply IFRS exemption relating to is business combinations prospectively from October 1, 2010. As such, Canadian GAAP balances related to business combinations entered into before that date, including goodwill, have been carried forward without any adjustment. ii. In accordance with IFRS transitional provisions, the Company elected to apply IFRS exemption relating to share-based payments granted after November 7, 2002 that have vested by October 1, 2010. As such, the Company does not have to apply IFRS retrospectively to these options. iii. In accordance with IFRS transitional provisions, the Company elected to apply IFRS exemption relating to insurance contracts. As such, Canadian GAAP balances will be carried forward. iv. In accordance with IFRS transitional provisions, the Company applied mandatory exception from full retrospective application of IFRS relating to estimates. Therefore the estimates made and presented in these financial statements as of October 1, 2010 are consistent with estimates made under Canadian GAAP. 21

b. Adjustments to equity and comprehensive income as previously reported under Canadian GAAP to IFRS Equity at the date of transition and at December 31, 2010 and September 30, 2011 can be reconciled to the amounts reported under pre-changeover accounting standards as follows: October 1, December 31, September 30, Note 2010 2010 2011 Equity under Canadian GAAP $ 7,234,666 $ 7,109,498 $ 6,970,693 Transitional adjustments: Reversal of impairment on indefinite life intangible assets i 600,000 600,000 600,000 Equity under IFRS $ 7,834,666 $ 7,709,498 $ 7,570,693 Total comprehensive loss for the reporting period ended December 31, 2010 can be reconciled to the amounts reported under pre-changeover accounting standards as follows: December 31, September 30, Note 2010 2011 Total loss and comprehensive loss under Canadian GAAP $ (139,530) $ (321,421) Transitional adjustments: Forfeiture estimate and graded vesting of share-based payments ii (4,911) 10,577 Total loss and comprehensive loss under IFRS $ (144,441) $ (310,844) Certain presentation differences between pre-changeover accounting standards and IFRS have no impact on reported loss or total equity. As can be seen in the following tables, some line items are described differently (renamed) under IFRS compared to pre-changeover accounting standards, although the assets and liabilities included in these line items are unaffected. 22

The following table shows the total effect of the transition on the consolidated statement of financial position as of October 1, 2010: October 1, 2010 Canadian GAAP Description Note Canadian GAAP Effect on IFRS IFRS Description Balance transition Balance $ $ $ Cash and cash equivalent 2,165,389 2,165,389 Cash Restricted cash and cash equivalent 2,791,630 2,791,630 Restricted cash Accounts receivable 922,421 922,421 Accounts receivable Related party accounts receivable 120,890 120,890 Related party accounts receivable Related party notes receivable 172,500 172,500 Related party notes receivable Other notes receivable - - Other notes receivable Prepaid expenses 207,654 207,654 Prepaid expenses Property, Plant and Equipment, net 189,560 189,560 Property, Plant and Equipment, net Related party notes receivable 1,736,356 1,736,356 Related party notes receivable Other assets 129,658 129,658 Other assets Goodwill 3,959,473 3,959,473 Goodwill Other intangible assets, net i 2,383,735 600,000 2,983,735 Other intangible assets, net Total assets 14,779,266 600,000 15,379,266 Total assets Accounts payable and accrued liabilities 2,239,408 2,239,408 Accounts payable and accrued liabilities Deposits received from franchisees 244,517 244,517 Deposits received from franchisees Insurance loss reserves 2,560,675 2,560,675 Insurance loss reserves Current portion of note payable - - Current portion of note payable Note payable 2,500,000 2,500,000 Note payable Total liabilities 7,544,600-7,544,600 Total liabilities Share capital 15,117,041 15,117,041 Share capital Contributed surplus ii 1,506,579 42,219 1,548,798 Contributed surplus Accumulated deficit i, ii (9,563,027) 557,781 (9,005,246) Accumulated deficit Accumulated other comprehensive income 174,073 174,073 Accumulated other comprehensive income Total shareholders' equity 7,234,666 600,000 7,834,666 Total shareholders' equity Total liabilities and shareholders' equity 14,779,266 600,000 15,379,266 Total liabilities and shareholders' equity 23

The following table shows the total effect of the transition on the consolidated statement of financial position as of December 31, 2010: December 31, 2010 Canadian GAAP Description Note Canadian GAAP Effect on IFRS IFRS Description Balance transition Balance $ $ $ Cash and cash equivalent 2,148,830 2,148,830 Cash Restricted cash and cash equivalent 2,550,679 2,550,679 Restricted cash Accounts receivable 846,134 846,134 Accounts receivable Related party accounts receivable 137,840 137,840 Related party accounts receivable Related party notes receivable 172,500 172,500 Related party notes receivable Other notes receivable 4,500 4,500 Other notes receivable Prepaid expenses 237,847 237,847 Prepaid expenses Property, Plant and Equipment, net 175,490 175,490 Property, Plant and Equipment, net Related party notes receivable 1,736,356 1,736,356 Related party notes receivable Other notes receivable 2,522 2,522 Other notes receivable Other assets 129,658 129,658 Other assets Goodwill 3,959,473 3,959,473 Goodwill Other intangible assets, net i 2,351,766 600,000 2,951,766 Other intangible assets, net Total assets 14,453,595 600,000 15,053,595 Total assets Accounts payable and accrued liabilities 2,127,690 2,127,690 Accounts payable and accrued liabilities Deposits received from franchisees 247,767 247,767 Deposits received from franchisees Insurance loss reserves 2,468,640 2,468,640 Insurance loss reserves Current portion of note payable - - Current portion of note payable Note payable 2,500,000 2,500,000 Note payable Total liabilities 7,344,097-7,344,097 Total liabilities Share capital 15,117,041 15,117,041 Share capital Contributed surplus ii 1,520,941 47,130 1,568,071 Contributed surplus Accumulated deficit i, ii (9,708,976) 552,870 (9,156,106) Accumulated deficit Accumulated other comprehensive income 180,492 180,492 Accumulated other comprehensive income Total shareholders' equity 7,109,498 600,000 7,709,498 Total shareholders' equity Total liabilities and shareholders' equity 14,453,595 600,000 15,053,595 Total liabilities and shareholders' equity 24

The following table shows the total effect of the transition on the consolidated statement of financial position as of September 30, 2011: September 30, 2011 Canadian GAAP Description Note Canadian GAAP Effect on IFRS IFRS Description Balance transition Balance $ $ $ Cash and cash equivalent 2,586,399 2,586,399 Cash Restricted cash and cash equivalent 1,845,911 1,845,911 Restricted cash Accounts receivable 1,034,447 1,034,447 Accounts receivable Related party accounts receivable 242,240 242,240 Related party accounts receivable Related party notes receivable 160,000 160,000 Related party notes receivable Other notes receivable 43,562 43,562 Other notes receivable Prepaid expenses 236,701 236,701 Prepaid expenses Property, Plant and Equipment, net 169,746 169,746 Property, Plant and Equipment, net Related party notes receivable 1,576,355 1,576,355 Related party notes receivable Other assets 127,970 127,970 Other assets Goodwill 3,959,473 3,959,473 Goodwill Other intangible assets, net i 2,255,860 600,000 2,855,860 Other intangible assets, net Total assets 14,238,664 600,000 14,838,664 Total assets Accounts payable and accrued liabilities 2,883,550 2,883,550 Accounts payable and accrued liabilities Deposits received from franchisees 235,377 235,377 Deposits received from franchisees Insurance loss reserves 1,649,044 1,649,044 Insurance loss reserves Current portion of note payable - - Current portion of note payable Note payable 2,500,000 2,500,000 Note payable Total liabilities 7,267,971-7,267,971 Total liabilities Share capital 15,117,041 15,117,041 Share capital Contributed surplus ii 1,564,027 31,642 1,595,669 Contributed surplus Accumulated deficit i, ii (9,879,967) 568,358 (9,311,609) Accumulated deficit Accumulated other comprehensive income 169,592 169,592 Accumulated other comprehensive income Total shareholders' equity 6,970,693 600,000 7,570,693 Total shareholders' equity Total liabilities and shareholders' equity 14,238,664 600,000 14,838,664 Total liabilities and shareholders' equity i. In 2009, the Company recorded a loss on impairment of the Rent-A-Wreck Brand of $600,000 due to economic conditions that suggested that the original carrying value of the intangible was no longer fully recoverable. On the transition date to IFRS, these economic conditions had improved and the Company recalculated the value in use of the intangible and concluded that a reversal of the impairment would be appropriate. ii. Under Canadian GAAP, for grants of share-based payments with graded vesting, the total fair value of the awards is recognized on a straight-line basis over the employment period necessary to vest the awards. Moreover, forfeitures of awards are recognized as they occur. Under IFRS 2, each tranche in an award is considered a separate grant with a different vesting date and fair value. Each grant is accounted for on that basis. Also, an estimate of the number of share-based payments expected to be forfeited is required, which is revised if subsequent information indicates that actual forfeitures are likely to differ from the estimate. As a result, the Company adjusted its opening retained earnings on October 1, 2010 and its expense for subsequent periods for share-based payments to reflect these accounting method differences. c. Adjustments to the Statements of Cash Flows The transition from Canadian GAAP to IFRS had no significant impact on cash flows generated by the Company, except that, under IFRS, cash flows related to notes receivable and interest income are classified as operating. Under Canadian GAAP, cash flows related to notes receivable were classified as investing activities. 25

5. Insurance Programs & Insurance Risk Management a. Overview The Company provides insurance coverage to participating franchisees and associates covering liability, property and physical damage, and commercial and general liability. Under the arrangements described below, the Company pays fronting (or underwriting) fees to its insurance carriers and the Company is required to make deposits to funds restricted for claim payments within the deductibles. At December 31, 2011, the Company has annual renewable letters of credit totaling $1.435 million ($1.435 million at September 30, 2011) outstanding to the Company s insurance carriers as security for payment of claims, insurance premiums and any other obligations to the carrier. These letters of credit are secured by cash of the same amounts and are reflected in the Company s restricted cash balance at December 31, 2011. The Company, through licensed insurers, provides participating franchisees and associates automobile liability insurance for claims arising as a result of personal injury and property damage for which drivers of rental vehicles or franchisees may be legally liable. The Company is responsible, through a funded obligation, for varying deductibles (depending on the policy and insurer), for each claim. The Company has no further obligation to its insurer to fund claims that exceed its funded deductible. The Company has accrued a liability for both incurred and incurred but not reported losses. See item (a) below of Key figures for the Company s insurance programs. The Company deposits funds with the insurance carriers, in a restricted account, to pay claims and other expenses within the deductibles. See item (c) below of Key figures for the Company s insurance programs. The Company also provides its participating franchisees and associates with physical damage insurance coverage. Under this program, the Company has responsibility for a deductible up to $25,000 per claim, per vehicle. Losses in excess of $25,000, up to a maximum of $50,000 per incident, are insured by an insurance carrier. The Company has accrued a liability for claims expected to be reported and claims reported but not paid. See item (b) below of Key figures for the Company s insurance programs. In conjunction with these insurance programs, the Company generally requires participating franchisees to pay a deposit equal to the larger of fifteen percent of estimated annual insurance premium or $2,000. The Company, as agent, also may provide other insurance programs such as commercial and general liability, business interruption, workers compensation, and directors and officers liability. The Company has entered into various agreements with several insurance carriers to provide coverage on these types of policies. 26

5. Insurance Programs & Insurance Risk Management, continued b. Nature of risks arising from insurance contracts There is uncertainty whether an insured event occurs and to what degree for each policy. By the very nature of an insurance contact, the risk is random and therefore unpredictable. Insurance companies accept the transfer of uncertainty from policyholders and seek to add value through the aggregation and management of insurance risk. The Company is at risk for losses in the event that incomplete or incorrect assumptions or information are used when pricing, issuing or reserving for insurance products. The principle risk to the Company under its insurance contacts is that the actual claims and benefit payments arising may exceed the carrying amount of the insurance liabilities because the frequency and/or severity of the actual claims were greater than expected. Underwriting risk, claims risk and product design and pricing risk are also important to the proper management of insurance risk. Underwriting risk is the exposure to financial loss resulting from the selection and approval of risks to be insured or the inappropriate application of underwriting rules to risks being insured. Claims risk refers to the possibility that inappropriate claims payments are made as a result of inadequate adjudication, settlement or claims payments. Product design and pricing risk is the exposure to financial loss from transacting insurance business where costs and liabilities experienced in respect of a product line exceeds the expectation in pricing it. Policies, processes and other internal controls have been established to manage these risks to within tolerable levels. In managing certain insurance risks, reinsurance is employed by the Company; however, the Company is still exposed to reinsurance risk. Reinsurance risk is the risk of financial loss due to inadequacies in reinsurance coverage or the default of a reinsurer. If a reinsurer fails to pay a claim for any reason, the Company remains liable for the payment to the policyholder. c. Sources of uncertainty and processes used to determine assumptions for insurance contacts The Company established a claims reserve to cover claims incurred but not settled at the end of the reporting period. The claims reserve contains both individual claims estimates and an incurred but not reported (IBNR) provision. Individual claims estimates are set by claims adjusters on a case-by-case basis. These specialists apply their knowledge and expertise, after taking available information regarding the circumstances of the claim into account, to set individual case reserve estimates. The policy and procedures by which case reserve estimates are set are well documented. The claims reserving strategy and monitoring of their application and effectiveness falls under the accountability of the Company s accounting department. The IBNR provision is a bulk provision intended to cover future development on both reported claims and claims that have occurred by have yet to be reported. Uncertainty exists on reported claims in that all information may not be available at the valuation date. Claims that have occurred may not be reported to the Company immediately; therefore, estimates are made as to their value, and amount which may take years to finally determine. 27

5. Insurance Programs & Insurance Risk Management, continued d. Changes in assumptions used in measuring insurance contracts Assumptions used to develop this estimate are selected by class of business and geographic location. Consideration is given to the characteristics of the risks, historical trends, the amount of data available on individual claims, inflation and any other pertinent factors. Some assumptions require a significant amount of judgment such as the expected impacts of future judicial decisions and government legislation. The diversity of these considerations result in it not being practicable to identify and quantify all individual assumptions that are more likely than others to have a significant impact on the measurement of the Company s insurance contracts. There were not assumptions identified in the quarter or the preceding year as having a potential or identifiable material impact on the overall claims estimate. e. Objectives, policies and processes for managing risks arising from insurance contracts The Company s underwriting objective is to develop business within our target market on a prudent and diversified basis and to achieve profitable underwriting results. In setting the claims reserves required to cover the estimated liability for Claims, the Company s practice is to maintain an adequate margin to ensure future years earnings are not negatively affected by prior years claims development and other variable factors. The Company monitors fluctuations in reserve adequacy on an ongoing basis. The Company s pricing policies take into account numerous factors including claims frequency and severity trends, product line expense rates and special risk factors. The Company s pricing process is designed to ensure an appropriate return on equity while also providing long-term rate stability. The factors are reviewed annual and adjusted periodically to ensure they reflect the current environment. The Company monitors its compliance with all relevant regulations and actively participates in discussions with regulators, governments and industry groups to ensure that it is well-informed of contemplated changes and that its concerns are understood. The Company considers the implications of potential changes to its regulatory and political environment in its strategic planning process to understand the impacts and adjusts its plans if necessary. f. Objective, policies and processes for managing risk through reinsurance The Company s strategy is to retain underwriting risk where it is financially prudent. The Company reviews it insurance requirements annually to assess the level of reinsurance coverage required. Reinsurance is purchased to limit the Company s exposure to a particular risk, category or risk or geographic risk area. To manage reinsurance counterparty risk, the Company assesses and monitors the financial strength of its reinsurers on a regular basis. 28

5. Insurance Programs & Insurance Risk Management, continued Key figures for the Company's insurance programs are as follows: December 31, September 30, October 1, 2011 2011 2010 (a) Funded Deductible Program Deductibles of $20,000 or $100,000 Accrued liability for incurred and incurred but not reported losses $ 1,243,826 $ 1,444,406 $ 2,379,777 (b) Physical Damage Deductible Program Deductibles of $25,000 Excess of $25,000 to $50,000 max separately insured Accrued liability for incurred and incurred but not reported losses 117,505 204,638 180,898 Insurance loss reserves $ 1,361,331 $ 1,649,044 $ 2,560,675 (c) Restricted Cash Amounts held related to estimated liability for claims and expenses $ 1,935,774 $ 1,845,911 $ 2,791,630 6. Related Party Notes Receivable This balance originated from certain accounts receivable (insurance, royalties, reservation fees) of a former franchisee of which a Co-Chief Executive Officer of the Company was formerly a co-owner. This note was restructured, effective February 1, 2010. The new note is unsecured, bears interest at prime+2% (currently 5.25%) payable quarterly, with annual principal payments of $10,000. The note matures in 2020. This balance originated from interest payments paid or payable by U-Save on behalf of the Co- Chief Executive Officers on related loans incurred to acquire common shares of U-Save through ownership in Holdings. Holdings is required to reimburse U-Save for payments made in this regard. This balance is non-interest bearing and is unsecured, and has been classified as noncurrent based on management s estimate of when the balance will be collected. A portion of the balance attributable to one of the Company s Co-Chief Executive Officers ($255,298) was fully reserved in September 2009 after consideration of the financial strength of the borrower and the unsecured nature of the note. Effective February 1, 2010, the portion of this balance that had not been previously reserved was restructured into a new note with a face amount of $1,782,355. December 31, 2011 September 30, 2011 October 1, 2010 $ 104,000 $ 104,000 $ 114,000 255,298 255,298 255,298 29

6. Related party notes receivable, continued December 31, 2011 September 30, 2011 October 1, 2010 This note originated February 1, 2010, as a restructuring of certain amounts due from and payable to a Co-Chief Executive Officer of the Company. The note is unsecured, bears interest at prime+2% (currently 5.25%) payable quarterly, with annual principal payments of $150,000. The note matures in 2020. Note receivable from a franchisee in which one of the Company s Co-Chief Executive Officers has a non-controlling financial interest. Note originated in December 2008 reconstituting certain outstanding accounts receivable of $723,404 and existing notes receivable of $284,419, totaling $1,007,823. The note required a $37,500 down payment that was received in January 2009. The note bears interest at 6%, requires interest only payments in the first year and graduated principal and interest payments thereafter, with a final maturity in 2014. The Company has fully reserved this note after consideration of the financial strength of the borrower and the value of the underlying collateral pledged as security for the note. Note receivable from an executive officer of the Company. This note originated in May 2000, is non-interest bearing and is unsecured. The note matured in May 2010 and allows $30,000 of the note to be forgiven if the balance is paid in full. During the year ended September 30, 2009, the Company fully reserved this note after considering the likelihood that the note will ultimately be repaid. 1,632,355 1,632,355 1782,355 938,149 938,149 964,269 80,000 80,000 80,000 Allowance for notes deemed uncollectible: (1,273,447) (1,273,447) (1,299,566) Current portion of related party notes receivable (160,000) (160,000) (172,500) Total $ 1,576,355 $ 1,576,355 $ 1,736,356 During the year ended September 30, 2011, the Company recorded a net recovery of losses on impaired notes receivable of $13,619, which included a $26,119 recovery on a note due from a franchisee in which one of the Company s Co-Chief Executive Officers has a non-controlling financial interest offset by a $12,500 loss attributable to forgiveness of a note due from an Executive Officer of the Company as required under his employment agreement with the Company, with the loss recorded as a write-off of the related note. 30

6. Related party notes receivable, continued Effective February 1, 2010, the Company s Co-Chief Executive Officers agreed to restructure certain notes payable to and receivable from the Company. The restructuring of these notes and the related terms and conditions were approved at the Company s Annual General Meeting on March 31, 2010. The notes require annual principal payments and quarterly interest payments. One of the Company s Co-Chief Executive Officers agreed to combine a non-interest bearing note with a principal balance of $2,423,823, an other non-interest bearing receivable of $254,966, and offset a note payable due to that Co-Chief Executive Officer with a principal balance of $896,434 resulting in a new note with a net principal balance due from the Co-Chief Executive Officer of $1,782,355. 7. Other Notes Receivable December 31, 2011 September 30, 2011 October 1, 2010 Unsecured notes receivable due from franchisees. The notes bear interest at rates from 0% - 4.0% and mature in 2012 and 2013. $ 45,222 $ 53,827 $ 20,000 Discount: (1,068) (1,264) (3,202) Allowance for notes deemed uncollectible: (26,250) (9,001) (16,798) Current portion of notes receivable: (17,904) (43,562) Total $ - $ - $ - 8. Property, Plant and Equipment Furniture and Vehicles Computer Total equipment equipment Cost Balance on October 1, 2010 $ 524,020 $ 24,200 $ 1,076,702 $ 1,624,922 Additions 6,025-61,670 67,695 Balance on September 30, 2011 530,045 24,200 1,138,372 1,692,617 Additions - - 26,364 26,364 Balance on December 31, 2011 $ 530,045 $ 24,200 $ 1,164,736 $ 1,718,981 Accumulated depreciation Balance on October 1, 2010 $ 480,641 $ 20,167 $ 934,554 $ 1,435,362 Depreciation 22,588 4,033 60,888 87,509 Balance on September 30, 2011 503,229 24,200 995,442 1,522,871 Depreciation 3,987-19,112 23,099 Balance on December 31, 2011 $ 507,216 $ 24,200 $ 1,014,554 $ 1,545,970 Carrying amount at: October 1, 2010 43,379 4,033 142,148 189,560 September 30, 2011 26,816-142,930 169,746 December 31, 2011 22,829-150,182 173,011 The Company recorded total depreciation expense of $23,099 and $22,873 for the three months ended December 31, 2011 and 2010, respectively. 31

9. Other Intangible Assets Finite life intangible assets Customer list Advertising Non-compete Total Jingle agreement Cost Balance on October 1, 2010 $ 983,000 $ 10,000 $ 254,158 $ 1,247,158 Additions - - - - Balance on September 30, 2011 983,000 10,000 254,158 1,247,158 Additions - - - - Balance on December 31, 2011 $ 983,000 $ 10,000 $ 254,158 $ 1,247,158 Accumulated amortization Balance on October 1, 2010 $ 525,616 $ 10,000 $ 254,158 $ 789,774 Amortization 127,875 - - 127,875 Balance on September 30, 2011 653,491 10,000 254,158 917,649 Amortization 31,969 - - 31,969 Balance on December 31, 2011 $ 685,460 $ 10,000 $ 254,158 $ 949,618 Carrying amount of finite life intangible assets at: October 1, 2010 457,384 - - 457,384 September 30, 2011 329,509 - - 329,509 December 31, 2011 297,540 - - 297,540 Indefinite life intangible assets Rent-A-Wreck Trademark Total Brand Cost Balance on October 1, 2010 $ 2,516,931 $ 9,420 $ 2,526,351 Additions - - - Balance on September 30, 2011 2,516,931 9,420 2,526,351 Additions - - - Balance on December 31, 2011 $ 2,516,931 $ 9,420 $ 2,526,351 Carrying amount of intangible assets at: October 1, 2010 2,983,735 September 30, 2011 2,855,860 December 31, 2011 2,823,891 Amortization expense of $31,969 was recorded for both the three months ended December 31, 2011 and 2010. 32

10. Other Assets Other Assets consisted of the following: December 31, September 30, October 1, 2011 2011 2010 Security Deposits $ 154,165 $ 99,165 $ 99,165 Other 28,281 28,805 30,493 $ 182,446 $ 127,970 $ 129,658 11. Note Payable December 31, 2011 September 30, 2011 October 1, 2010 In December 2003, the Company entered into two notes payable with a non-related party totaling $2,500,000. The notes were renewed in December 2008 into a single note bearing an interest rate of 10% per annum. Interest only payments are due monthly. The note is collateralized with personal assets of a shareholder and stock of Auto Rental Resource Center, Inc. The note matures December 2012. $ 2,500,000 $ 2,500,000 $ 2,500,000 Subtotal $ 2,500,000 $ 2,500,000 $ 2,500,000 Less current portion (2,500,000) (-) (-) Total $ - $ 2,500,000 $ 2,500,000 Maturities of note payable is as follows: Year Ending September 30 2013 2,500,000 Total $ 2,500,000 Interest expense was $64,422 and $63,399 for the three months ended December 31, 2011 and 2010, respectively. 33

12. Shareholders Equity 12. (a) Share Capital Authorized: Unlimited common shares, without par value Unlimited preferred shares, without par value Issued: Common Shares December 31, 2011 Number Amount Balance at September 30, 2011 62,820,426 $ 15,117,041 No activity - - Balance at December 31, 2011 62,820,426 $ 15,117,041 Common Shares September 30, 2011 Number Amount Balance at October 1, 2010 62,820,426 $ 15,117,041 No activity - - Balance at September 30, 2011 62,820,426 $ 15,117,041 There were no outstanding preferred shares at December 31, 2011 or September 30, 2011. Stock options The Company has adopted the Franchise Services of North America Inc. Stock Option Plan ( the Plan ) as approved by the shareholders on November 30, 2006. Under the Plan, the Company may grant stock options to directors, officers, employees or agents of the Company. The number of common shares reserved for issuance shall not at any time exceed 20% of the aggregate number of issued and outstanding shares of the Company on a non-diluted basis. As of December 31, 2011, the Company had granted 9,305,994 stock options under the terms of its Plan. Of these options, all were granted to directors, officers, employees and consultants and none were granted to agents of the Company. Options granted vest over a range of periods from immediately to four years and expire within a range of two to ten years from the date of grant. The fair value of options granted to employees is calculated on the date of grant using the Black- Scholes option pricing model. The fair value of options granted in 2009 (the most recent grant date) was calculated to be $258,000 using the following assumptions: 10 year term, expected volatility of 429%, risk-free interest rate of 3.65% and zero dividend yield. Stock-based compensation expense of $14,005 and $19,273 was recorded for the three months ended December 31, 2011 and 2010, respectively. 34

12. Shareholders Equity, continued A summary of stock option activity during fiscal 2011 and the three months ended December 31, 2011 is summarized as follows: Weighted Average Exercise Options Price Outstanding C$ Balance outstanding at October 1, 2010 9,444,942 $ 0.15 Options forfeited (114,386) 0.18 (114,386) Balance outstanding at September 30, 2011 9,330,556 $ 0.15 Options forfeited (24,562) 0.15 (24,562) Balance outstanding at December 31, 2011 9,305,994 $ 0.15 35

12. Shareholders Equity, continued The weighted average remaining contractual life of stock options outstanding at December 31, 2011 is presented below: Weighted Weighted Average Average Total Outstanding Options Total Remaining Exercise by price range - C$ Options Life Price December 31, 2011 Outstanding (years) C$ $0.1016 to $0.14 8,402,584 5.5 $ 0.11 $0.50 873,410 4.9 0.50 $0.85 30,000 5.2 0.85 Total Outstanding Options 9,305,994 5.4 $ 0.15 Weighted Weighted Average Average Exercisable Options Remaining Exercise by price range - C$ Exercisable Life Price December 31, 2011 Options (years) C$ $0.1016 to $0.14 7,457,584 5.2 $ 0.11 $0.50 873,410 4.9 0.50 $0.85 30,000 5.2 0.50 Total Exercisable Options 8,360,994 5.2 $ 0.15 36

12. Shareholders Equity, continued The weighted average remaining contractual life of stock options outstanding at September 30, 2011 is presented below: Weighted Weighted Average Average Total Outstanding Options Total Remaining Exercise by price range - C$ Options Life Price September 30, 2011 Outstanding (years) C$ $0.1016 to $0.14 8,425,424 5.7 $ 0.11 $0.50 875,132 5.2 0.50 $0.85 30,000 5.5 0.85 Total Outstanding Options 9,330,556 5.7 $ 0.15 Weighted Weighted Average Average Exercisable Options Remaining Exercise by price range - C$ Exercisable Life Price September 30, 2011 Options (years) C$ $0.1016 to $0.14 7,475,424 5.5 $ 0.11 $0.50 875,132 5.2 0.50 $0.85 30,000 5.5 0.85 Total Exercisable Options 8,380,556 5.5 $ 0.15 37

12. Shareholders Equity, continued The weighted average remaining contractual life of stock options outstanding at October 1, 2010 is presented below: Weighted Weighted Average Average Total Outstanding Options Total Remaining Exercise by price range - C$ Options Life Price October 1, 2010 Outstanding (years) C$ $0.1016 to $0.14 8,519,077 6.7 $ 0.11 $0.50 895,865 6.2 0.50 $0.85 30,000 6.5 0.85 Total Outstanding Options 9,444,942 6.7 $ 0.15 Weighted Weighted Average Average Exercisable Options Remaining Exercise by price range - C$ Exercisable Life Price October 1, 2010 Options (years) C$ $0.1016 to $0.14 7,073,452 6.3 $ 0.11 $0.50 895,865 6.2 0.50 $0.85 22,500 6.5 0.85 Total Exercisable Options 7,991,817 6.3 $ 0.15 12. (b) Contributed Surplus December 31, September 30, October 1, 2011 2011 2010 Balance at beginning of period $ 1,595,669 $ 1,548,798 $ 1,513,094 Stock-based compensation expense 14,005 46,871 35,704 Balance at end of period $ 1,609,674 $ 1,595,669 $ 1,548,798 38

12. Shareholders Equity, continued 12. (c) Accumulated Other Comprehensive Income December 31, September 30, October 1, 2011 2011 2010 Balance at beginning of period $ 169,592 $ 174,073 $ 149,128 Translation adjustment, current period 5,156 (4,481) 24,945 Balance at end of period $ 174,748 $ 169,592 $ 174,073 12. (d) Weighted Shares Outstanding Three Months Three Months Ended Ended December 31, December 31, 2011 2010 Weighted average common shares outstanding - Basic 62,820,426 62,820,426 Dilutive stock options - - Weighted average common shares outstanding - Diluted 62,820,426 62,820,426 Net loss $ (340,305) $ (150,860) Loss per Share - Basic $ (0.01) $ (0.00) Loss per Share - Diluted $ (0.01) $ (0.00) Options excluded from the earnings per share calculation as their impact would have been anti-dilutive: 9,097,373 9,208,818 13. Related Party Transactions FSNA has the following wholly-owned subsidiaries that are included in the Group s consolidated financial statements: Practicar Systems Inc. U-Save Holdings Inc. U-Save Auto Rental of America Inc. Peakstone Financial Services Inc. Auto Rental Resource Center Inc. U-Save Car Sales Inc. Practical Rent-A-Car System Inc. Hollywood Call Center Inc. U-Save Leasing Inc. 39

13. Related Party Transactions, continued Notes due from related parties are described in Note 6. Members of the Company s Board of Directors, who are also officers and significant shareholders of the Company, have investments in certain vehicle rental operations and transportation companies, which have transactions with the Company. Transactions include insurance, reservation and royalty payments that were provided in the normal course of business and recorded at fair value. The Company also leases vehicles for two officers of the Company from a franchisee in which one of the officers (who is also a significant shareholder and member of the Company s Board of Directors) has a non-controlling financial interest. The Company recorded revenues and expenses related to these transactions as follows: Three months Three months ended ended December 31, December 31, 2011 2010 Continuing franchise and related fees $ 30,212 $ 81,244 Insurance premiums and related fees 34,793 46,582 Interest income, included in continuing franchise and related fees 23,227 39,356 Vehicle leases, included in franchise operating expenses 11,070 11,070 Compensation paid to key management during the three months ended December 31, 2011 and the three months ended December 31, 2010 amounted to $220,207 and $219,877 respectively; included in each amount is $7,230 of stock-based compensation expense. At December 31, 2011, September 30, 2011 and October 1, 2010, related party accounts receivable totaled $254,947, $242,240 and $120,890, respectively. Interest receivable on related party notes totaled $15,576, $15,327 and $16,730 at December 31, 2011, September 30, 2011 and October 1, 2010, respectively. 14. Commitments and Contingencies Contingencies The Company is periodically involved in legal actions and automobile accident claims (see Note 5) that arise as a result of events occurring in the normal course of operations. In the regular course of business, the Company evaluates estimated losses or costs related to litigation and provision is made for anticipated losses whenever the Company believes that such losses are probable and can be reasonably estimated. In January 2007, the Company, through its wholly-owned subsidiary, Peakstone Financial Services, Inc., acquired certain assets of DRSN Holdings, LLC, an Arizona-based limited liability company. The initial purchase price, which totaled $1,191,214, was paid with cash funded by a major shareholder. In addition, the agreement called for two subsequent contingent payments of $188,150 payable on or about January 15, 2008 and 2009, which can be adjusted based on the amount of revenue retained in relation to specified baseline revenue. In December 2010, the uncertainty related to the contingent payments was resolved with no resulting adjustment to the purchase price as previously recorded. 40

14. Commitments and Contingencies, continued Lease Commitments The Company leases office space and certain furniture and equipment under non-cancellable operating leases. Rental expense was approximately $108,000 and $82,000 for the three months ended December 31, 2011 and 2010, respectively. The minimum rental commitments under non-cancellable operating leases with initial or remaining terms in excess of one year are as follows: Year ending September 30 Amount 2012 $ 207,236 2013 225,423 2014 184,006 2015 165,247 2016 164,838 Thereafter 357,148 $ 1,303,898 15. Capital The Company s objectives when managing capital are to: (1) maintain liquidity in order to preserve its ability to meet financial obligations; (2) deploy capital to provide an appropriate investment return to its shareholders; and (3) maintain a capital structure that allows multiple financing options to the Company should a financing need arise. The capital structure of the Company consists of the following: December 31, September 30, October 1, 2011 2011 2010 Note payable, including current portion $ 2,500,000 $ 2,500,000 $ 2,500,000 Share capital 15,117,041 15,117,041 15,117,041 Contributed surplus 1,609,674 1,595,669 1,548,798 Accumulated deficit and accumulated other comprehensive income (9,477,166) (9,142,017) (8,831,173) $ 9,749,549 $ 10,070,693 $ 10,334,666 The Company manages its capital structure and makes adjustments in light of economic conditions. The Company, upon approval from its Board of Directors, will balance its overall capital structure through consideration of new share or debt issues or by undertaking other activities as deemed appropriate under the specific circumstances. The Company is not subject to externally imposed capital requirements and the Company s overall strategy with respect to capital risk management is consistent and remains unchanged from the year ended September 30, 2011. 41

15. Capital, continued Under the existing capital structure of the Company, its current daily need for capital is funded from the Company s operations. The need for additional capital above its existing structure would not be from operations, but would be sourced from additional expansion or acquisitions, both of which would require the approval of the Board of Directors. 16. Financial Instruments The Company is exposed to risks of varying degrees of significance which could affect its ability to achieve its strategic objectives for growth and shareholder returns. The principal financial risk to which the Company is exposed is concentration of credit risk described below. a) Credit Risk Financial instruments that could potentially subject the Company to credit risk consist principally of accounts receivable associated with customers and related parties. The risk is that a customer will be unable to pay amounts due to the Company. Customers are located primarily throughout the United States and Canada. A portion of the customers ability to honor their obligations is dependent upon the local economy. Allowances are provided for potential losses that have been incurred at the period end date. The amounts disclosed in the statement of financial position are net of these allowances for estimated bad debts. Accounts receivable are considered for impairment on a case-by-case basis when they are past due or when objective evidence is received that a customer will default. The Company takes into consideration the customer s payment history, credit worthiness and the economic environment in which the customer operates to assess impairment. The Company accounts for a specific bad debt provision when management considers that the expected recovery is less than the actual receivable. All bad debt write-offs are charged to bad debt expense through the allowance for doubtful accounts. The Company also has credit risk associated with notes receivable from related parties. The Company monitors this risk by reviewing the financial position of each borrower on a periodic basis. The aging of accounts receivable balances is presented as follows: December 31, September 30, October 1, Aging of Accounts Receivable 2011 2011 2010 Current $ 768,185 $ 1,063,959 $ 811,143 Past due 1-30 days 253,936 4,457 119,111 Past due 31-60 days 51,427 112,305 22,354 Past due 61-90 days 39,309 26,715 40,591 Over 91 days past due 474,965 455,533 349,050 Less: Allowance for doubtful accounts (408,240) (386,282) (298,938) Total $ 1,179,582 $ 1,276,687 $ 1,043,311 42

16. Financial Instruments, continued A reconciliation of the allowance accounts during the current period is presented as follows: Accounts Receivable December 31, September 30, October 1, Allowance for Doubtful Accounts 2011 2011 2010 Balance at beginning of period $ 386,282 $ 298,938 $ 273,440 Bad debt provision 31,500 122,724 141,192 Write-offs, net of recoveries (10,753) (34,685) (115,864) Effect of exchange rate 1,211 (695) 170 Balance at end of period $ 408,240 $ 386,282 $ 298,938 Notes Receivable Allowance for Notes Receivable Balance at beginning of period $ 1,282,448 $ 1,316,364 $ 1,315,348 Bad debt provision (recovery) 17,249 (4,618) 13,516 Write-offs - (29,298) (12,500) Balance at end of period $ 1,299,697 $ 1,282,448 $ 1,316,364 The Company has also converted certain accounts receivable of franchise operators and associates into notes receivable. These notes are included as part of the balances disclosed in Note 6 of $938,149 at December 31, 2011 and September 30, 2011, respectively, and in Note 7 of $45,222 and $53,827 at December 31, 2011 and September 30, 2011, respectively. The Company maintains cash at financial institutions which, at December 31, 2011 and September 30, 2011 and other times throughout the year, exceeded federally insured limits. The Company has not experienced any losses of such funds and management believes the Company is not exposed to significant risk on cash. Other risks include: b) Fair Value The fair values of accounts receivable, notes receivable, accounts payable and accrued liabilities, approximate their carrying values due to their short term nature. The fair value of note payable approximates its carrying value based on current interest rates, market values and pricing of financial instruments with comparable terms. The fair value of certain notes due to and from related parties approximates their carrying value based on a comparison to current interest rates for similar loans carrying similar risks. Fair value measurements recognized in the statement of financial position must be classified in accordance with the fair value hierarchy established by IFRS 7 Financial Instruments, which reflects the significance of the inputs used in determining the measurements. The inputs can either be observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity s pricing based upon its own market assumptions. 43

16. Financial Instruments, continued The fair value hierarchy consists of the following three levels: Level 1: Inputs are quoted, unadjusted prices in active markets for identical assets or liabilities; Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; Level 3: Inputs for the asset or liability that are not based on observable market data. c) Liquidity Risk Liquidity risk implies maintaining sufficient cash and cash equivalents to meet its financial obligations. The Company maintains restricted cash balances to secure the servicing of its insurance obligations and deposits from franchises participating in its insurance programs. The Company anticipates that given the nature of its note payable obligation and past and present arrangements, it has the flexibility to renew and/or extend maturing obligations at or near maturity which is currently in 2012. Significant future maturities of note payable obligation include a note payable with an outstanding balance of $2.5 million at December 31, 2011 which matures in December 2012. d) Foreign Exchange Risk A portion of the Company s financial instruments are denominated in foreign currency. At December 31, 2011, certain of the Company s financial instruments are denominated in Canadian dollars as follows: C$ Cash 48,839 Restricted cash 369,657 Accounts receivable 171,885 Accounts payable 147,349 Insurance reserves 239,147 Because the Company has certain financial instruments denominated in a foreign currency, a sensitivity analysis at December 31, 2011 indicates that a 1% increase in the exchange rate on the financial statements of the operating subsidiary in Canada would result in a decrease of the translation of Canadian dollar functional currency to U.S. dollar reporting currency of approximately $2,900 (2010 - $2,200) in other comprehensive income (loss).the Company has no contracts in place to mitigate this exposure. e) Interest Rate Risk The Company s Note Payable is fixed rate note and not subject to interest rate fluctuations. However, certain of the Company s Related Party Notes Receivable bear interest at a floating rate, prime plus 2%. f) Market Risk The Company s exposure to financial market risk is limited since there are no financial instruments which will fluctuate as a result of changes in market prices. 44

17. Nature of expenses The company presented some expenses on the face of the condensed consolidated interim financial statements based on their functions. The breakdown of these expenses according to their nature is as follow: a) Franchise operating 3 months ended December 31, 2011 2010 Salaries and benefits $ 516,478 $ 522,138 Sales and marketing expenses 102,427 70,021 Commissions & finders fees 42,668 66,241 Convention expense 201,878 17,986 Franchise forms & supplies 24,380 24,131 Office supplies & expense 17,385 13,680 Professional fees 15,640 15,640 Reservation system expense 191,472 226,286 Telephone expense 22,266 27,801 Finance costs 48,749 15,225 Other 131,547 113,624 $ 1,314,890 $ 1,112,773 b) Insurance operating 3 months ended December 31, 2011 2010 Salaries and benefits $ 165,106 $ 162,279 Advertising & promotion 6,633 13,682 Commission expense 64,886 60,812 Premium expense 1,118,257 1,224,405 Other 6,201 4,984 $ 1,361,083 $ 1,466,162 c) General and administration 3 months ended December 31, 2011 2010 Salaries and benefits $ 200,575 $ 201,662 Insurance expense 26,846 26,141 Professional fees 391,376 166,184 Rent expense 88,370 66,129 Telephone expense 5,835 5,843 Sales and marketing expenses 4,886 6,013 Finance costs 95,643 101,626 Other 24,633 73,903 $ 838,164 $ 647,501 45