FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


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

For the Quarterly Period Ended December 31, 1998

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934

For the transition period _____________ to _____________

Commission File Number    1-12902


                       FRONTIER ADJUSTERS OF AMERICA, INC.
              ----------------------------------------------------
             (Exact name of registrant as specified in its charter)


            ARIZONA                                     86-0477573
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)


                     45 East Monterey Way, Phoenix, AZ 85012
                     ---------------------------------------
                    (Address of principal executive offices)


                                 (602) 264-1061
               --------------------------------------------------
              (Registrant's telephone number, including area code)


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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 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 [ ]


Number of shares of Common Stock outstanding on February 5, 1999       4,605,358
                                                                       ---------
<PAGE>
PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

                       FRONTIER ADJUSTERS OF AMERICA, INC.
                                AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEET

                                               December 31, 1998   June 30, 1998
                                               -----------------   -------------
                                                 (unaudited)            (*)
                                     ASSETS
CURRENT ASSETS
 Cash                                             $   644,423       $   929,364
 Investments                                        1,295,206         1,289,519
 Receivables                                        1,529,915         1,582,020
 Prepaid expenses                                     265,820           317,454
 Other                                                378,105           439,638
                                                  -----------       -----------
      TOTAL CURRENT ASSETS                          4,113,469         4,557,995
                                                  -----------       -----------

PROPERTY AND EQUIPMENT                              2,600,205         2,543,631
 Less accumulated depreciation and
   amortization                                      (872,214)         (819,302)
                                                  -----------       -----------
                                                    1,727,991         1,724,329
                                                  -----------       -----------
OTHER ASSETS
 Cost of subsidiary in excess of net
   tangible assets acquired                           213,817           213,817
 Less accumulated amortization                       (180,285)         (179,129)
                                                  -----------       -----------
                                                       33,532            34,688
 Receivables (Long term)                              400,000           431,000
 Investments (Long term)                              694,937           694,724
 Other                                                314,215           357,964
                                                  -----------       -----------
                                                    1,442,684         1,518,376
                                                  -----------       -----------
      TOTAL ASSETS                                $ 7,284,144       $ 7,800,700
                                                  ===========       ===========
                                 LIABILITIES

CURRENT LIABILITIES
 Accounts payable                                 $    56,188       $    62,118
 Accrued expenses                                     293,128           513,365
 Franchisee/licensee remittance payable                    --           545,830
 Current portion long term liability                   19,465            28,509
 Other                                                200,248           193,684
                                                  -----------       -----------
      TOTAL CURRENT LIABILITIES                       569,029         1,343,506
                                                  -----------       -----------

LONG TERM LIABILITY                                        --             4,953

STOCKHOLDERS' EQUITY
 Common stock                                          47,820            47,820
 Additional paid in capital                         2,148,470         2,148,470
 Treasury stock                                      (529,584)         (529,584)
 Other                                                 49,760            49,600
 Retained earnings                                  4,998,649         4,735,935
                                                  -----------       -----------
                                                    6,715,115         6,452,241
                                                  -----------       -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY          $ 7,284,144       $ 7,800,700
                                                  ===========       ===========
* Condensed from audited financial statements.
The accompanying notes are an integral part of these condensed statements.

                                        2
<PAGE>
                       FRONTIER ADJUSTERS OF AMERICA, INC.
                                AND SUBSIDIARIES

                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                   (unaudited)


                                     Six Months Ended        Three Months Ended
                                       December 31,             December 31,
                                  ---------------------    ---------------------
                                    1998        1997          1998        1997
                                    ----        ----          ----        ----
REVENUE
 Continuing licensee and
   franchisee fees               $2,458,500  $2,341,906   $1,185,377  $1,121,804
 Adjusting and Risk Management 
  fees                              698,982     553,044      338,736     289,438
                                 ----------  ----------   ----------  ----------
                                  3,157,482   2,894,950    1,524,113   1,411,242
                                 ----------  ----------   ----------  ----------
COST AND EXPENSES
 Compensation and employee 
   benefits                       1,417,784   1,324,151      700,018     679,103
 Office                             202,925     182,419      107,410      88,270
 Advertising and promotion          108,790     124,583       68,203      64,582
 Depreciation and amortization      127,487     125,097       65,012      63,740
 Provision for doubtful accounts     96,000      96,000       48,000      48,000
 Other                              548,752     334,770      275,046     147,701
                                 ----------  ----------   ----------  ----------
                                  2,501,738   2,187,020    1,263,689   1,091,396
                                 ----------  ----------   ----------  ----------
INCOME FROM OPERATIONS              655,744     707,930      260,424     319,846
                                 ----------  ----------   ----------  ----------
OTHER INCOME (EXPENSE)
 Interest income                     57,275      69,850       27,841      33,384
 Other (Net)                          6,333      35,108        7,824      33,429
                                 ----------  ----------   ----------  ----------
 TOTAL OTHER INCOME (EXPENSE)        63,608     104,958       35,665      66,813
                                 ----------  ----------   ----------  ----------
 INCOME BEFORE INCOME TAXES         719,352     812,888      296,089     386,659

INCOME TAXES                        283,937     319,855      116,590     152,268
                                 ----------  ----------   ----------  ----------
   NET INCOME                    $  435,415  $  493,033   $  179,499  $  234,391
                                 ==========  ==========   ==========  ==========
EARNINGS PER SHARE
 Basic                           $      .09  $      .11   $      .04  $      .05
                                 ==========  ==========   ==========  ==========
 Diluted                         $      .09  $      .11   $      .04  $      .05
                                 ==========  ==========   ==========  ==========
WEIGHTED AVERAGE SHARES 
 OUTSTANDING
 Basic                            4,605,358   4,605,358    4,605,358   4,605,358
                                 ==========  ==========   ==========  ==========
 Diluted                          4,607,261   4,616,702    4,605,358   4,628,045
                                 ==========  ==========   ==========  ==========


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

                                        3
<PAGE>
                       FRONTIER ADJUSTERS OF AMERICA, INC.
                                AND SUBSIDIARIES

            CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                   (unaudited)


                                   Six Months Ended       Three Months Ended
                                     December 31,           December 31,
                                ---------------------     --------------------
                                   1998        1997         1998       1997
                                   ----        ----         ----       ----
NET INCOME                      $ 435,415   $ 493,033    $ 179,499   $ 234,391
                                ---------   ---------    ---------   ---------
Other Comprehensive Income,
  net of tax:
   Foreign currency translation
    adjustments                        --          75           --          --
   Unrealized gain (loss) on
    securities                        160     (32,640)      28,131     (38,071)
                                ---------   ---------    ---------   ---------
                                      160     (32,565)      28,131     (38,071)
                                ---------   ---------    ---------   ---------
COMPREHENSIVE INCOME            $ 435,575   $ 460,468    $ 207,630   $ 196,320
                                =========   =========    =========   =========

The accompanying notes are an integral part of these condensed statements

                                        4
<PAGE>
                       FRONTIER ADJUSTERS OF AMERICA, INC.
                                AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (unaudited)

                   SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997

                                                         1998           1997
                                                         ----           ----
NET INCOME                                           $   435,415    $   493,033
                                                     -----------    -----------
Adjustments to reconcile net income to
net cash provided by operating activities:
  Depreciation and amortization:
    Operations                                           127,487        125,048
    Other                                                    546          1,092
  Gain on sale of investments                                 --         (4,042)
  Loss (Gain) on disposition of property
    and equipment                                          3,640           (120)
  Bad Debt Expense                                        96,000         96,000
Change in assets and liabilities:
 (Increase) decrease in:
   Receivables                                            (9,142)        90,342
   Prepaid expenses                                       51,634         35,944
   Other                                                  33,725        (71,656)
 Increase (decrease) in:
   Accounts payable                                       (5,930)          (864)
   Accrued expenses                                     (220,237)       139,833
   Franchisee and licensee remittance payable           (545,830)        21,960
   Other                                                   6,461       (506,972)
                                                     -----------    -----------
  Total adjustments                                     (461,646)       (73,435)
                                                     -----------    -----------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES         (26,231)       419,598
                                                     -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures                                  (117,191)       (60,183)
  Investments purchased                               (1,977,829)      (989,627)
  Proceeds from sales of investments                   2,000,000      1,040,000
  Proceeds on sale of fixed assets                        26,761            200
  License acquisition                                         --             --
  Payments on License acquisition                        (13,997)       (13,021)
  Advances to licensees and franchisees               (2,237,113)    (2,048,708)
  Collections of advances to licensees
    and franchisees                                    2,233,360      1,875,642
                                                     -----------    -----------
NET CASH (USED IN) INVESTING ACTIVITIES                  (86,009)      (195,697)
                                                     -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Cash dividends                                        (172,701)      (345,403)
  Common stock repurchased                                    --             --
                                                     -----------    -----------
NET CASH (USED IN) FINANCING ACTIVITIES                 (172,701)      (345,403)
                                                     -----------    -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH                       --            125

NET INCREASE (DECREASE) IN CASH                         (284,941)      (121,377)
  Cash at beginning of the period                        929,364      1,012,233
                                                     -----------    -----------
  Cash at the end of the period                      $   644,423    $   890,856
                                                     ===========    ===========
Supplemental disclosures of Cash Flow information
  Cash paid during the period
  Income taxes                                       $   221,060    $   377,887
  Interest                                           $     1,003    $     1,980

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

                                        5
<PAGE>
                       FRONTIER ADJUSTERS OF AMERICA, INC.
                                AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

(1) BASIS OF PRESENTATION

    The  financial  information  included  herein is  unaudited;  however,  such
    information reflects all adjustments  (consisting solely of normal recurring
    adjustments) which are, in the opinion of management, necessary for a fair
    statement of results of operations for the interim periods.

    The dilutive effect on weighted  average shares  outstanding is due to stock
    options  in the  amounts  of 43,435  and  186,870 for the six  months  ended
    December  31,  1998 and 1997,  respectively  and 0 and 186,870 for the three
    months ended December 31, 1998 and 1997, respectively.

    The results of operations for the three and six month periods ended December
    31, 1998 are not necessarily indicative
    of the results to be expected for the full year.

(2) PREFERRED STOCK

    During November 1998, the Board of Directors  approved the issuance of up to
    6,000,000 shares of convertible preferred stock.

(3) FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 130, REPORTING
    COMPREHENSIVE INCOME

    Effective  September  30, 1998,  the Company  adopted  Financial  Accounting
    Standards Board (FASB) Statement No. 130,  REPORTING  COMPREHENSIVE  INCOME.
    Statement  No.  130  establishes  standards  for  reporting  and  displaying
    comprehensive  income  and  its  components  in the  full  set of  financial
    statements. Accordingly, the Company's comprehensive income was $436,000 and
    $460,000 for the six months ended December 31, 1998 and 1997,  respectively,
    and $208,000  and $196,000 for the three months ended  December 31, 1998 and
    1997, respectively.

ITEM2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

The  statements  contained  in this  Report  on Form  10-Q  that are not  purely
historical are forward looking  statements  within the meaning of Section 27A of
the  Securities  Act of 1933,  as amended,  and  Section  21E of the  Securities
Exchange Act of 1934, as amended,  including  statements regarding the Company's
"expectations",   "anticipation",   "intentions",   "beliefs",  or  "strategies"
regarding the future.  Forward looking statements  include statements  regarding
revenue, margins,  expenses, and earnings analysis with regard to the Company or
with regard to the  Company's  licensees  and  franchisees  for the remainder of
fiscal  1999 and  thereafter;  improvement  of,  and  growth in the  number  of,
licensees and franchisees;  future spending on marketing and product development
strategy;  the transaction with United  Financial  Adjusting  Company  described
below;  statements regarding Year 2000 readiness;  and liquidity and anticipated
availability of cash for operations,  acquisitions, or payment of dividends. All
forward  looking  statements  included in this document are based on information
available to the Company on the date of this report,  and the Company assumes no
obligation to update any such forward looking statement. It is important to note
that the Company's  actual  results could differ  materially  from those in such
forward looking statements. Among the factors that could cause actual results to
differ materially are the factors discussed in this Report and any other reports
on file with the SEC,  including  but not  limited  to the  extent and nature of
natural  disasters  in  geographic  areas  serviced  by  the  Company  or by its
licensees  and  franchisees;  management  decisions by insurance  companies  and
self-insureds  to  increase or decrease  the degree to which they  contract  for
services  offered by the Company,  its licensees or  franchisees;  the Company's
ability to identify and attract new  qualified  licensees and  franchisees;  the
Company's  ability to  successfully  manage  offices  reacquired  from  existing
licensees and franchisees;  and uninsured liability for acts or omissions of the
Company's employees, licensees, or franchisees.

In  November  1998,  the  Company  entered  into  a  definitive  agreement  (the
"Agreement") with United Financial  Adjusting  Company ("UFAC"),  a wholly owned
subsidiary of the  Progressive  Corporation  ("Progressive"),  whereby UFAC will
purchase  newly  issued  stock  representing  a minimum of 52% of the  Company's
voting  securities.  Following the purchase by UFAC, the Company's  shareholders
will be given the option to retain their shares and receive a cash  distribution
of $1.60 per share or to surrender  their shares for a price of $2.90 per share.
Up to an  aggregate of 1,000,000  shares will be accepted for  repurchase.  UFAC

                                        6
<PAGE>
will purchase the newly issued securities of the Company at a price of $1.30 per
share and will not be  entitled to receive  the cash  distribution  of $1.60 per
share.  If the transaction  contemplated in the Agreement is consummated,  UFAC,
and  therefore  Progressive,  will be able to elect a  majority  of the board of
directors and therefore, will be able to control the business and affairs of the
Company.  Consummation of this  transaction is subject to shareholder  approval.
The Company will provide its  shareholders  with a proxy statement  containing a
detailed  description  of the proposed  transaction  prior to the Company's next
shareholders' meeting.

FINANCIAL CONDITION

The Company has  historically  financed its growth and ongoing  operations  with
cash generated from  operations.  In the six months ended December 31, 1998, the
Company's operations used $26,000 in cash.

During the six months  ended  December  31,  1998,  the most  significant  items
affecting cash used by the Company's operations are the decreases of $220,000 in
accrued expenses and $546,000 in franchisee and licensee remittance payable. The
decrease in accrued  expenses  results from the payout of employee  benefits and
bonuses in the first  quarter of this fiscal year.  The  decrease in  remittance
payable  reflects the timing  difference  of payout dates to the period end. The
six months ended December 31, 1998 fell on the date of remittance  payout to the
franchisees and licensees.

Through  its  capital  investment  program,  the  Company  replaces  obsolete or
outdated  equipment and invests in new equipment and  furnishings to maintain or
increase  the  productivity  of the  Company  and  its  employees.  The  Company
anticipates  investing  $200,000 to $300,000  in fiscal 1999 for  equipment  and
furnishings pursuant to its capital investment program.

Without giving effect to any  extraordinary  dividend payable should the Company
consummate  the  transaction   with  UFAC  in  connection  with  the  Agreement,
management  believes  that  the  Company  will be able to fund  all of its  cash
requirements  (i.e.  current  operations,  capital  asset  acquisition,  and the
payment of dividends) from its current available cash as well as funds generated
by its operations.

The Company's ratio of current assets to current liabilities was 7.23 to 1 as of
December 31, 1998 and 3.39 to 1 as of June 30, 1998.

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

REVENUE

The  Company's  revenue  increased 9% or $262,000 to  $3,157,000  during the six
months ended  December 31, 1998 from  $2,895,000 in the same period of the prior
fiscal year. This increase  represents a combined $146,000 increase in adjusting
and risk  management  fees and a $116,000  increase in  continuing  licensee and
franchisee fees.

The increase of $146,000 in adjusting and risk  management fees from $553,000 in
the six months  ended  December  31, 1997 to $699,000  for the six months  ended
December 31, 1998 represents a 26% increase. The Company experienced an increase
of $211,000 in adjusting  fees in its Phoenix  office,  and decreases of $49,000
and $16,000 in adjusting fees from the Las  Vegas/Henderson  and Tucson offices,
respectively.  The increase in fees from the Phoenix office  primarily  reflects
fees generated from a new client.

The Company's revenue from continuing  licensee and franchisee fees increased 5%
or  $116,000  from  $2,342,000  in the six months  ended  December  31,  1997 to
$2,458,000 in the six months ended December 31, 1998. This increase reflects the
benefit to the Company's licensees and franchisees due to an increase in the use
of their  services by insurance  companies  and  self-insured  resulting  from a
larger volume of claims and from a greater demand for the Company's services.

The Company's  revenue is affected by numerous matters  including the work loads
of other  companies  and  claims  presented  by their  clients.  Therefore,  the
Company,  is unable to project its future revenue.  The Company has historically
seen growth in licensee  and  franchisee  fees paid.  However,  during the prior
fiscal year the Company  experienced  a decrease in revenue due primarily to the
phase out of its business  relationship with its then major client.  The Company
has  responded to this loss by  continuing  to develop and  implement  sales and
marketing  efforts to take advantage of its geographic  diversity as well as the
unique strengths of its individual licensees and franchisees. For the six months
ended  December 31, 1998,  the  Company  successfully completed negotiations for

                                        7
<PAGE>
national/regional  relationships  with three new clients  and with one  existing
client for additional services.  Furthermore, the Company expects to continue to
reflect revenue from its Phoenix, Tucson, and Las Vegas/Henderson operations.

COMPENSATION AND FRINGE BENEFITS

Compensation and fringe benefits  represent  approximately  57% of the Company's
costs and  expenses  and  represent  the largest  single item of expense.  These
expenses  increased  7% or  $94,000  from  $1,324,000  in the six  months  ended
December 31, 1997 to $1,418,000  in the current six month period.  This increase
is the result of the additional employees hired including temporary employees to
handle  increased work loads in the Corporate and Phoenix office as well as cost
of living and merit increases given to employees. Furthermore, certain adjusters
in the Phoenix  office are  compensated by commission  based on their  adjusting
services.  As the adjusting fees in the Phoenix office increase,  the wages paid
to these adjusters also increase.

EXPENSES OTHER THAN COMPENSATION AND FRINGE BENEFITS

The Company's  expenses other than  compensation  and fringe benefits  increased
$221,000  during the six months ended  December 31, 1998 as compared to the same
period of the prior fiscal year. The principal  items  affecting  these expenses
are an  $86,000  increase  in legal  fees,  a  $69,000  increase  in  audit  and
accounting  fees, a $27,000  increase in insurance costs, and a $21,000 increase
in office expenses.

The  increase in legal fees  reflects  the  Company's  increased  need for legal
services in preparation for the proposed UFAC transaction. The increase in audit
and accounting fees reflects the Company's  decision to outsource certain income
tax and financial reporting  functions that were previously  performed in-house.
The Company believes this will enable it to more efficiently  monitor compliance
of the constantly changing state and federal laws and regulations.  Furthermore,
the  Company has  incurred  additional  accounting  fees in  preparation for the
proposed UFAC transaction.  The increased insurance costs reflect an increase in
the cost of  insurance  as well as expanded  coverage.  The balance of Company's
costs have not changed significantly from the same period of the prior year.

INCOME TAXES

The Company's income taxes for the six months ended December 31, 1998 were 39.5%
of its income before taxes, or approximately  the same as they were in the prior
fiscal year.  Changes made in the tax laws by various  states and by the federal
government have not had a material  effect on the Company's  current overall tax
rates;  however,  there is no assurance  that such changes will not occur in the
future.

OTHER INCOME

The  Company's  other income  decreased  $41,000 or 39% from $105,000 in the six
months ended  December 31, 1997 to $64,000 in the current six month period.  The
most  significant  items  affecting  other income are  decreases in dividend and
interest income of $23,000 and $13,000, respectively.

NET INCOME

The  Company's net income for the six months ended  December 31, 1998  decreased
$58,000  or 12% from  $493,000  in the six months  ended  December  31,  1997 to
$435,000 in the current period.  The most significant items affecting net income
were a $262,000  increase in revenue,  a $94,000  increase in  compensation  and
benefits,  a $221,000  increase in expenses other than  compensation  and fringe
benefits, and a decrease of $41,000 in other income.

COMPREHENSIVE INCOME

Effective September 30, 1998, the Company adopted Financial Accounting Standards
Board (FASB) Statement No. 130, REPORTING  COMPREHENSIVE  INCOME.  Statement No.
130 establishes standards for reporting and displaying  comprehensive income and
its  components  in the  full  set of  financial  statements.  Accordingly,  the
Company's  comprehensive  income for the six months ended  December 31, 1998 and
1997 was $436,000 and $460,000, respectively.

                                        8
<PAGE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO
THREE MONTHS ENDED DECEMBER 31, 1997

REVENUE

The  Company's  revenue  increased 8% or $113,000 to  $1,524,000  in the current
quarter  from  $1,411,000  in the same  period of the prior  fiscal  year.  This
increase is a combined  $50,000  increase in adjusting and risk  management fees
and a $63,000 increase in continuing licensee and franchisee fees.

The increase of $50,000 in adjusting and risk  management  fees from $289,000 in
the three months  ended  December 31, 1997 to $339,000 in the three months ended
December 31, 1998 represents a 17% increase. The Company experienced an increase
of $91,000 in adjusting  fees in its Phoenix office and decreases of $32,000 and
$9,000  in  adjusting  fees from the Las  Vegas/Henderson  and  Tucson  offices,
respectively.  The increase in fees from the Phoenix office  primarily  reflects
fees generated from a new client.

The Company's revenue from continuing  licensee and franchisee fees increased 6%
or $63,000  from  $1,122,000  in the three  months  ended  December  31, 1997 to
$1,185,000 in the three months ended December 31, 1998.  This increase  reflects
the benefit to the Company's licensees and franchisees due to an increase in the
use of their services by insurance companies and self-insureds  resulting from a
larger volume of claims and from a greater demand for the Company's services.

The Company's  revenue is affected by numerous factors  including the work loads
of other companies and claims presented by their clients. Therefore, the Company
is unable to project  its future  revenue.  The Company  has  historically  seen
growth in licensee and franchisee  fees paid.  However,  during the prior fiscal
year the Company  experienced  a decrease in revenue due  primarily to the phase
out of its business  relationship  with its then major  client.  The Company has
responded  to this  loss by  continuing  to  develop  and  implement  sales  and
marketing  efforts to take advantage of its geographic  diversity as well as the
unique strengths of its individual licensees and franchisees.  In addition,  the
Company  believes that it will continue to realize growth as it adds  additional
qualified  licensees  and  franchisees.  Furthermore,  the  Company  expects  to
continue to reflect revenue from its Phoenix,  Tucson,  and Las  Vegas/Henderson
operations.

COMPENSATION AND FRINGE BENEFITS

Compensation and fringe benefits  represent  approximately  55% of the Company's
costs and  expenses  and  represent  the largest  single item of expense.  These
expenses  increased  3% or  $21,000  from  $679,000  in the three  months  ended
December  31,  1997 to $700,000 in the  current  quarter.  This  increase is the
result of the additional employees hired including temporary employees to handle
increased  work loads in the  Corporate  and  Phoenix  office as well as cost of
living and merit increases given to employees. Furthermore, certain adjusters in
the  Phoenix  office are  compensated  by  commission  based on their  adjusting
services.  As the adjusting fees in the Phoenix office increase,  the wages paid
to these adjusters also increase.

EXPENSES OTHER THAN COMPENSATION AND FRINGE BENEFITS

The Company's  expenses other than  compensation  and fringe benefits  increased
$152,000 during the three months ended December 31, 1998 as compared to the same
quarter in the prior fiscal year. The principal  items  affecting these expenses
are an  $80,000  increase  in legal  fees,  a  $29,000  increase  in  audit  and
accounting fees, a $19,000  increase in office expenses,  and a $15,000 increase
in insurance costs.

The  increase in legal fees  reflects  the  Company's  increased  need for legal
services in preparation for the proposed UFAC transaction. The increase in audit
and accounting fees reflects the Company's  decision to outsource certain income
tax and financial reporting  functions that were previously  performed in-house.
The Company believes this will enable it to more effectively  monitor compliance
of the constantly changing state and federal laws and regulations.  Furthermore,
the  Company has  incurred  additional  accounting  fees in  preparation for the
proposed UFAC transaction.  The increased insurance costs reflect an increase in
the cost of  insurance  as well as expanded  coverage.  The balance of Company's
costs have not changed significantly from the same period of the prior year.

INCOME TAXES

The  Company's   income  taxes  were  39.4%  of  its  income  before  taxes,  or
approximately  the same as they were in the prior fiscal  year.  Changes made in
the tax laws by various states and by federal government did not have a material
effect on the Company's current overall tax rates; however, this could change at
any time.

OTHER INCOME

The Company's other income decreased  $31,000 or 46% from $67,000 in the quarter
ended December 31, 1997 to $36,000 in the current quarter. The most significant
items  affecting  other income include a decrease in dividend  income of $23,000
and a $6,000 decrease in interest income.

                                        9
<PAGE>
NET INCOME

The  Company's  net income for the quarter  ended  December 31, 1998,  decreased
$55,000 or 24% from $234,000 in the quarter ended  December 31, 1997 to $179,000
in the current quarter.  The most significant  items affecting net income were a
$113,000  increase  in  revenue,  a $152,000  increase  in  expenses  other than
compensation  and fringe  benefits,  a $31,000  decrease in other income,  and a
$21,000 increase in compensation and fringe benefits.

COMPREHENSIVE INCOME

Effective September 30, 1998, the Company adopted Financial Accounting Standards
Boards (FASB) Statement No. 130, REPORTING  COMPREHENSIVE INCOME.  Statement No.
130 establishes standards for reporting and displaying  comprehensive income and
its  components  in the  full  set of  financial  statements.  Accordingly,  the
Company's  comprehensive income for the three months ended December 31, 1998 and
1997 was $208,000 and $196,000 respectively.

YEAR 2000 COMPLIANCE

The "Year 2000" issue creates risk for the Company from  unforeseen  problems in
its own computer  systems and from third  parties  with whom the Company  deals.
Many currently  installed  computer  systems and software  products are coded to
accept two digit  entries in the date code  field.  These date code  fields will
need to accept four digit  entries to  distinguish  21st century dates from 20th
century dates.  Left uncorrected,  time sensitive  software may recognize a date
using "00" as the year 1900 rather than the year 2000,  resulting  in a computer
shutdown or  incorrect  calculations.  Failures of the  Company's  and/or  third
parties'  computer systems could have a material adverse effect on the Company's
ability to conduct its business.

To  date  the  Company  has  examined  both  its   information   technology  and
non-information  technology systems.  The Company has determined that certain of
the  software  used by the Company is not Year 2000  compliant.  The Company has
identified  and  purchased  upgraded  software that is Year 2000  compliant.  In
addition,  the Company is currently  updating all custom  software so that it is
Year 2000 compliant.  A full-time programmer is dedicating all of her efforts to
this project.  The Company  expects to complete these upgrades by June 30, 1999.
The Company has also tested its  computer  servers  internally,  and an external
party will test these systems  shortly.  The Company hopes to finish its testing
of internal systems by April, 1999.

All of the Company's personal computers that need to be Year 2000 compliant have
been updated.  The Company's  phone system has also been updated to be Year 2000
compliant.  The  Company  has  determined  that  its  alarm,  heating,  and  air
conditioning  systems  will not be  affected  by the Year 2000.  The Company has
completed an analysis of the Company's operations to identify the remaining Year
2000 issues  embodied in its  operations and facilities and is developing a plan
to resolve  such  issues.  The Company  expects to  complete  the formal plan of
resolution by March 31, 1999.

Certain  software  products  sold by the Company to certain of its licensees and
franchisees  in prior years are not Year 2000  compliant.  A partial  upgrade to
accommodate  current  policy  dates on or after the Year 2000 has  already  been
developed and distributed to franchisees free of charge.  The Company's computer
staff is developing an upgrade of the software that will be Year 2000 compliant.
The Company  expects to complete  development  of the final Year 2000  compliant
version of its software by March 31,  1999.  The Company  will  distribute  this
version to purchasers of the non-compliant  version, free of charge. The Company
does not  anticipate  that  the cost of this  upgrade  will be  material  to the
Company's operations.

Members of the Company's computer staff have sent Year 2000 readiness surveys to
the Company's  customers and vendors to determine the status of such  customers'
and vendors'  computer systems for Year 2000  compliance.  None of the responses
received thus far have indicated any major problems.  As the Company  identifies
potential   problems,   it  will  determine  the  steps  necessary  to  minimize
disruptions  due to failures in Year 2000  compliance  by its  customers  and/or
vendors.

The Company expects that the cost of analysis and development and implementation
of a plan to  address  its Year  2000  issues  will  not  exceed  $225,000.  The
Company's  estimate reflects  assumptions  regarding the extent of the Year 2000
issues embodied in the Company's operations and facilities, the availability and
cost of personnel  trained in this area, the compliance  plans of third parties,
and similar  uncertainties.  However, due to the complexity and pervasiveness of
the Year 2000 issue, and in particular, the uncertainty regarding the compliance
programs of third parties,  no assurance can be given that these  estimates will
be achieved,  and actual results could differ materially from those anticipated.
If the Company is unable to address the Year 2000 issues  successfully,  or in a
timely fashion, the Company may need to devote more resources to the process and
additional  costs may be incurred.  This could have a material adverse effect on
the Company's  results of operations.  The Company has purchased  insurance that
may offset  certain  losses to the Company for claims based upon  non-compliance
with Year 2000 issues.

                                       10
<PAGE>
In its reasonable likely worst case Year 2000 scenario,  the Company anticipates
that the software which it uses, despite the completion of upgrades,  will still
fail to be Year 2000  compliant.  In addition,  it is possible that the software
sold by the Company to certain of its licensees and franchisees  will not become
Year 2000  compliant  despite the  Company's  efforts to upgrade this  software.
Finally,  the  Company  anticipates  the  possibility  that its  customers'  and
vendors' systems will not be Year 2000 compliant. In the event that any of these
scenarios  materialize,  the Company expects that it would  experience  problems
processing  transactions  and  remitting  checks to licensees  and  franchisees.
Licensees and franchisees  would  experience a slow-down in their  processing of
paperwork.

In the event  that the steps  being  implemented  by the  Company  fail to avoid
problems associated with the Year 2000, the Company is currently  developing its
contingency  plans. Such plans may include the immediate purchase of replacement
hardware or software at the beginning of the Year 2000, the switching of vendors
who supply goods or services to the Company, or other alternatives. In addition,
the Company plans to purchase a back-up  power  generator in 1999 to prepare for
the unlikely  event of a power grid failure.  The Company  anticipates  that its
contingency plans will be completed no later than July 1999.

PART II OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

From time to time in the normal course of its business,  the Company is named as
a defendant in lawsuits.  The Company does not believe that it is subject to any
such lawsuits or litigation or threatened  lawsuits or litigation that will have
a material adverse effect on the Company or its business.

                                   SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                           FRONTIER ADJUSTERS OF AMERICA, INC.



Date: February 12, 1999    /s/ William J. Rocke
                           -----------------------------------------------------
                           William J. Rocke, Chief Executive Officer/Chairman of
                           the Board, Acting Chief Financial Officer, Director


Date: February 12, 1999    /s/ Jean E. Ryberg
                           -----------------------------------------------------
                           Jean E. Ryberg, President, Director


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