SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K


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

     For the fiscal year ended June 30, 1999

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

     For the transition period from ______________ to ______________

                         Commission file number 1-12902

                                   ----------

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

                ARIZONA                                        86-0477573
    (State of other jurisdiction of                         (I.R.S. Employer
     incorporation or organization)                       Identification Number)

         45 East Monterey Way                                     85012
           Phoenix, Arizona                                    (Zip Code)
(Address of principal executive offices)

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

                                   ----------

           Securities registered pursuant to Section 12(b) of the Act:

    Title of each class                Name of each exchange on which registered
    -------------------                -----------------------------------------
Common Stock $.01 Par Value                      American Stock Exchange

           Securities registered pursuant to Section 12(g) of the Act:

                                      None

                                   ----------

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 [ ].

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant was $4,652,648 as of August 26, 1999.

The number of shares  outstanding  of the  registrant's  Common Stock,  $.01 par
value, as of August 26, 1999, was 8,957,560.
<PAGE>
                                     PART I

ITEM 1 - BUSINESS

THE COMPANY

Frontier Adjusters of America,  Inc., an Arizona corporation  (together with its
subsidiaries,  the  "Company"),  licenses and franchises  independent  insurance
adjusters (the  independent  insurance  adjusters  licensed or franchised by the
Company are hereinafter referred to collectively as the "Adjusters")  throughout
the United States and in Canada and provides  support services to the Adjusters.
The Adjusters are engaged by insurance  carriers and  self-insured  companies to
adjust claims made against them by claimants and by policyholders.  In addition,
the Company,  and certain of the Adjusters,  offer risk  management  services to
their clients. As of June 30, 1999, the Company had entered into 494 license and
franchise  agreements  ("Agreements")  with 391 entities,  operating 407 offices
with 678 advertised locations in 50 states, the District of Columbia and Canada.
In  addition to  licensing  and  franchising  Adjusters,  the  Company  owns and
operates  independent  insurance  adjusting  and risk  management  businesses in
Arizona and Nevada.

As of June 30,  1999,  the Company  employed  42 people:  40  full-time  and two
part-time.  Twelve employees provided adjusting services full-time, one employee
provided  adjusting  services  part-time,  four were  full-time  officers of the
Company,  24 were  full-time  administrative  staff,  and one employee  provided
part-time  administrative  support.  Management believes that its relations with
its employees are good.

On  April  29,  1999,  at  the  annual  shareholders'   meeting,  the  Company's
shareholders  approved the November 20, 1998,  agreement between the Company and
United Financial  Adjusting Company  ("UFAC"),  a wholly owned subsidiary of The
Progressive Corporation ("Progressive"). Pursuant to the agreement, on April 30,
1999,  UFAC purchased  5,258,513  shares of the Company's newly issued shares of
Series A  Convertible  Voting  Preferred  Stock at a price of $1.30  per  share.
UFAC's  purchase  represented  approximately  53% of the  Company's  outstanding
voting  securities at the time of purchase.  Following the purchase by UFAC, the
Company issued a tender offer to purchase up to 1,000,000 common stock shares at
$2.90 per share from existing shareholders. The tender offer expired on June 12,
1999, and resulted in the purchase of 971,464 common stock shares. Subsequent to
the tender offer,  UFAC's shares represented  approximately 59% of the Company's
outstanding  voting  securities.  On June 15, 1999, the Company  declared a cash
distribution  of $1.60 per share for  shareholders  of record on June 25,  1999,
payable to the holders of the rights to the distribution on July 12, 1999. Those
shares tendered in the tender offer were not eligible for the cash distribution.
UFAC was not eligible to participate in the tender offer,  nor was UFAC entitled
to the cash distribution.

In accordance  with the  agreement  with UFAC,  William J. Rocke,  the Company's
Chairman of the Board and CEO,  and Jean E.  Ryberg,  the  Company's  President,
retired from their  positions  with the Company on June 30, 1999.  Mr. Rocke and
Mrs. Ryberg each received  retirement  packages valued at $382,316 and $291,201,
respectively  (includes  amounts expensed in prior years).  Furthermore,  UFAC's
shares converted into common shares on June 30, 1999, representing approximately
59% of the Company's outstanding voting securities.

Pursuant to a  management  services  agreement  with UFAC,  the  Company  pays a
$25,000  monthly service fee to UFAC for marketing,  managerial,  technological,
financial,  and other services and  resources.  As of June 30, 1999, the Company
had incurred $50,000 in service fees pursuant to this agreement.

GENERAL

For its fiscal year ended June 30, 1999, the Company's licensing and franchising
activities  accounted for approximately 78% of gross revenue,  and the Company's
adjusting and risk  management  businesses  accounted for  approximately  22% of
gross  revenue.  For the fiscal years ended June 30, 1998 and June 30, 1997, the
Company's licensing and franchising  activities  accounted for approximately 79%
and 86%,  respectively,  of gross revenue,  and the Company's adjusting and risk
management businesses accounted for approximately 21% and 14%, respectively,  of
gross revenue. The revenue derived from the Company's operations, as well as the
gross billings by Adjusters (upon which the Company's revenue from licensing and
franchising activities are based), are set forth in the following table.

                                     Page 2
<PAGE>
GENERAL (CONTINUED)

                                               Fiscal Year Ended June 30,
                                         ---------------------------------------
                                            1999          1998          1997
                                         -----------   -----------   -----------
Gross billings by Adjusters              $44,730,000   $42,050,000   $48,060,000
  (approximate)
Revenue from licensing and
  franchising activities                   4,936,349     4,596,657     5,278,967
Revenue from Company-owned adjusting
  and risk management businesses           1,405,235     1,228,691       885,636

For its fiscal year ended June 30, 1999, the Company's licensing and franchising
activities accounted for approximately  $1,051,000 in income from operations and
the  Company's   adjusting  and  risk   management   businesses   accounted  for
approximately  $221,000 in income from  operations.  For the fiscal  years ended
June 30,  1998 and  June 30,  1997,  the  Company's  licensing  and  franchising
activities accounted for approximately  $1,152,000 and $1,710,000  respectively,
in income from  operations,  and the  Company's  adjusting  and risk  management
businesses accounted for approximately  $106,000 and $63,000,  respectively,  in
income from operations.

Although  the  Company  generally  considers  its  client  base  broad  and well
diversified,  collections  received by  Adjusters  from one  insurance  company,
Scottsdale  Insurance Company,  represented royalty fees to the Company of 1.6%,
9.2% and 18.8% of continuing  licensee and  franchisee  fees for the years ended
June 30, 1999, 1998 and 1997, respectively.  In June 1997 this client elected to
purchase  the  majority  of its  adjusting  services  from  other  vendors,  and
thereafter, the revenue generated from this client substantially diminished.

For further disclosure regarding the Company's  accounting segments,  see Note 8
on the accompanying financial statements.

CLAIMS ADJUSTING

A claims adjuster conducts the business of providing claims adjustment  services
to insurance companies and to self-insured clients. The major elements of claims
adjusting consist of the following:

     1.   Investigation - the development of information  necessary to determine
          the cause and origin of the loss.

     2.   Evaluation  - the  determination  of the  extent  and  value of damage
          incurred and the coverage,  liability,  and compensability relating to
          the parties involved.

     3.   Disposition  - the  resolution  of  the  claim,  whether  by  payment,
          negotiation and settlement, by denial, or by other resolution.

     4.   Management - the  coordination  of all parties  involved in the claims
          process  and the  supervision  of the claims  process  including  risk
          management related services.

Insurance  companies,  which represent the major source of revenue to adjusters,
customarily  manage their own claims  management  function,  and require defined
services from adjusters,  such as field  investigation and settlement  services.
Self-insured  clients  typically  require  a range of risk  management  services
including claims adjustment, claims management,  statistical reporting, and loss
control, among other services. Insurance companies usually make claims adjusting
assignments on a claim by claim basis.  Self-insured  clients  typically  retain
adjusting  firms  like the  Company  and the  Adjusters  to handle  all of their
claims,  such as  workers  compensation,  general  liability  claims,  and other
claims.  Neither  the  Company  nor  any  of the  Adjusters  engages  in  public
adjusting,  which consists of representing  individual  insureds with respect to
their claims against insurance companies.

Risk management  related  services  consist  primarily of providing  services to
in-house risk managers of self-insureds  whose internal resources do not include
expertise  in claims  adjusting  or other  aspects  of claims  management.  Risk

                                     Page 3
<PAGE>
CLAIMS ADJUSTING (CONTINUED)

management services,  which also are often referred to in the industry as "third
party administration"  include administering claims,  working with self-insurers
to decide whether certain claims need external  investigation,  coordinating the
efforts of the field  investigation  with  internal  claims  review  activities,
generating  necessary  statistical  reports,  and paying  losses.  The insurance
companies responsible for the excess coverage of self-insured clients often play
a  significant  role  in the  selection  and  retention  of  providers  of  risk
management or third party administration and related services.

LICENSING AND FRANCHISING

The major  part of the  Company's  revenue  is  derived  under its  license  and
franchise  agreements  (the  "Agreements")  with the Adjusters.  Pursuant to the
terms of the  Agreements,  an Adjuster is authorized to use, within a designated
geographic  area,  the  Company's  service mark in providing  adjusting and risk
management-related  services.  In  addition,  an  Adjuster  is  provided  with a
computerized  central collection and rebilling service and national  advertising
and referrals by the Company.  The Company  receives a 10% or 15% royalty fee on
all  of the  Adjusters'  collections  depending  upon  the  Agreement  with  the
Adjuster.  In  fiscal  1999,  the  Company  retained  10.7%  of  the  Adjusters'
collections as royalty fees under the Agreements.

The Company generally does not advertise for or solicit  potential  licensees or
franchisees.  The Company  believes  that through the financial  flexibility  it
offers and the established and dependable services it provides to Adjusters, the
Company is generally capable of attracting qualified licensees and franchisees.

The  philosophy of the Company is to enter into  Agreements  with  licensees and
franchisees  who are highly  qualified  and  capable of  adjusting  all types of
claims.  The Company  estimates that the average length of time during which the
Adjusters have been providing insurance  adjusting  services,  on a Company-wide
basis, is approximately 20 years.

Before entering into an Agreement with a prospective licensee or franchisee, the
Company reviews the prospective  licensee's or franchisee's  background in order
to determine  that he or she is qualified and capable of rendering  professional
insurance adjusting services.  In evaluating a potential licensee or franchisee,
the Company  considers the length of time the  potential  licensee or franchisee
has been  involved in insurance  adjusting  and such other factors as his or her
(i)  experience  and the types of claims that he or she is capable of adjusting;
(ii) ability to act  independently  without  supervision  by the Company;  (iii)
prior and current  associations  in the  insurance  adjusting  business and (iv)
reputation in the insurance  adjusting business and in the community in which he
or she will provide insurance adjusting services.

OPERATION OF INDEPENDENT ADJUSTERS

Each Adjuster is required to maintain an office  within a designated  geographic
area  defined in his or her  Agreement.  The  Agreements  require,  among  other
things,  that  Adjusters  devote at least 80% of their  time  during  any 45 day
period to the conduct of the defined  business.  The  Agreements  are subject to
termination  by the Company upon an  Adjuster's  failure to meet  minimum  gross
billing volumes.  The Adjusters  retain the right to make independent  decisions
regarding the management and operation of their businesses, subject to the terms
of the license or franchise agreements.

The Company has a national  advertising  program in major  trade  journals.  The
advertising is designed to promote the Company's  operations and to generate new
accounts for its licensees and franchisees.  Adjusters  receive claims from both
local  referrals  developed by the Adjusters and from  referrals by the Company.
The latter referrals are generally obtained through  advertising efforts and the
general reputation of the Company. In addition, Adjusters are permitted, but not
required, to advertise within their designated geographic areas.

Upon providing  services to a client, the Adjuster prepares a bill to the client
for the  Adjuster's  services.  The form of  invoice,  which is  supplied by the
Company,  indicates  that  remittance  is to be made  directly to the  Company's
address.  Upon receipt of payment  from the client,  the Company  withholds  the
royalty fee together  with any  reimbursements  due to the Company for liability
and errors and omissions  insurance premiums the Company may have paid on behalf
of the Adjuster and repayments for any credits,  loans,  or advances the Company
may have made to the Adjuster.  The Company  rebills  uncollected  invoices on a
45-60 day cycle.  The Company's  arrangements  with Adjusters  located in Canada
differ  from the  foregoing  in that  clients of Canadian  Adjusters  send their
remittances to the Company's  Canadian P. O. Box or to the Company's  franchisee
in  Regina,   Saskatchewan,   Canada.  Remittances  received  by  the  Company's
franchisee  are deposited by the  franchisee  directly  into the Company's  bank
account.

                                     Page 4
<PAGE>
OPERATION OF INDEPENDENT ADJUSTERS - CONTINUED

If a particular geographic area produces claims volume greater than the Adjuster
in that area is capable of  servicing,  the Adjuster  may, at the request of the
Company,  or at the suggestion of the Adjuster,  relinquish to a new prospective
licensee or  franchisee a portion of the  designated  area covered by his or her
Agreement.  As a result of these  arrangements,  the  Company  redirects  to the
relinquishing  Adjuster 5% of collections  derived from services provided by the
new Adjuster.

To assist new Adjusters in meeting their business and personal  expenses  during
their initial period as Adjusters, the Company may advance funds to them against
future  billings.  Typically  such  advances are made  semi-monthly  and average
approximately  $2,500 per month.  The number of Adjusters  to whom  semi-monthly
advances are made typically  varies  between 1 and 5. The Company  believes that
these  arrangements  provide new Adjusters  assistance in making the  transition
from being employees of insurance companies or other adjusting firms to becoming
the owners of their own businesses  and,  therefore,  aid the Company to attract
qualified individuals as Adjusters.

In addition to advancing funds to new Adjusters,  the Company  frequently  lends
money to Adjusters.  These loans may either be loans that are repaid on a weekly
basis out of their  collections,  or advances against accounts  receivable.  The
Company generally  requires that advances against  receivables be repaid in full
within 45 days.

The Company does not charge interest on any loans or advances made to Adjusters.
During the past four fiscal years, the Company has loaned or advanced an average
aggregate of $341,559 per month and has received  reimbursement of an average of
$322,300 per month. At June 30, 1999, the Company had  approximately  $1,399,000
in outstanding loans or advances. During the past four fiscal years, the Company
has  written  off an average of  $182,683  per year due to bad debts  related to
these arrangements.

LICENSE AND FRANCHISE AGREEMENTS

The current  forms of license and franchise  agreements  used by the Company are
largely  identical  except  that the form of  license  agreement  refers  to the
Adjuster as a licensee,  and the form of the franchise  agreement  refers to the
Adjuster as a franchisee.  The  difference  between the licensee and  franchisee
characterizations  is  primarily  historical,  dating  from the period  when the
Company's arrangements with Adjusters did not constitute a "franchise" under the
United  States  Federal  Trade  Commission's  rules  as  they  now  do.  If  the
arrangement was subject to state franchise laws, the Adjuster was referred to as
a  franchisee;  if not, the Adjuster was referred to as a licensee.  The Company
currently distinguishes between licensees and franchisees in the same manner.

The  franchise  and  other  laws  of  certain   states  limit  or  prohibit  the
enforceability  of covenants not to compete and require or prohibit  other types
of provisions  contained in franchise  agreements.  Accordingly,  certain of the
provisions contained in the Agreement, including, among others, the covenant not
to compete, may not be enforceable under certain circumstances.

The forms of Agreement currently in effect between the Company and the Adjusters
do not necessarily  contain all of the terms in the manner  disclosed below. For
example, the risk management  provisions,  the indemnity provisions,  certain of
the termination provisions,  and the minimum gross billings provisions discussed
below,  may have been  excluded  or  revised  in some of the forms of  Agreement
currently in effect.

Pursuant to the Agreement,  the Adjuster is entitled, and obligated,  to use the
Frontier  service mark in connection  with the conduct of the Adjuster's  claims
adjusting  business and risk  management-related  services.  The current form of
Agreement  provides  that the Adjuster may  participate  in the risk  management
business.  If the  Adjuster  declines  to  participate  in the  risk  management
business, the Adjuster is required to consent to the handling of such matters in
the Adjuster's territory by other Adjusters or by the Company.

The  Agreement  provides  that  each  Adjuster  is  an  independent  contractor.
Accordingly,  each  Adjuster  has  virtually  complete  control over all matters
involving  discretion and judgement in the operation of the Adjuster's business.
However,  before  instituting any legal action against any client,  the Adjuster
must  obtain  the  Company's   consent.   In  addition,   the  Company  has  the
discretionary right to investigate, settle, and satisfy any billing dispute with
any clients of the Adjuster.

The  Agreement  requires  the Adjuster to devote at least 80% of his or her time
during any 45 day period to the  operation  of the business  and  prohibits  the
Adjuster from  accepting any employment for  compensation  from any person.  The

                                     Page 5
<PAGE>
LICENSE AND FRANCHISE AGREEMENTS (CONTINUED)

Agreement  sets  forth a  minimum  performance  standard.  The  current  form of
Agreement  provides  that if at any time  after  the first  three  months of the
Agreement,   the  Adjuster's  gross  billings  are  less  than  $4,000  for  any
three-month  period,  then  either  party will have the right to  terminate  the
Agreement.

Pursuant  to the  Agreement,  the  Adjuster  is required to pay to the Company a
royalty fee equal to 10% or 15% of the Adjuster's  collections.  The Adjuster is
required to prepare initial billings to his or her clients and to send a copy of
each invoice to the Company.  Each invoice states that the payment is to be made
to the Company  with the  exception  of payments by clients of certain  Canadian
franchisees  where  payment  is made  through a Canadian  franchisee.  After the
Company  deducts its royalty fee from the  Adjuster's  collections,  the Company
remits the balance to the Adjuster on a weekly  basis.  In addition to deducting
its royalty  fee,  the Company  also  deducts  from the amounts  remitted to the
Adjuster,  the Adjuster's  general liability and errors and omissions  insurance
premiums, and the periodic repayment of credits, loans, and advances.

If a particular geographic area produces claims volume greater than the Adjuster
in the area is capable of  servicing,  the  Adjuster  may, at the request of the
Company,  or at the suggestion of the Adjuster,  relinquish to a new prospective
licensee or  franchisee a portion of the  designated  area covered by his or her
Agreement.  In  such  case,  the  relinquishing  Adjuster  will  receive  5%  of
collections derived from services provided by the new Adjuster.

The  Adjuster is required to  reimburse  the Company for the  premiums and other
costs and expenses necessary to keep in force an errors and omissions  insurance
policy.  The Agreement  also requires the Adjuster to hold the Company  harmless
from,  and to  indemnify  the  Company  for,  any  acts  of the  Adjuster.  This
indemnification includes paying the errors and omissions deductible or any other
amounts that the Company is obligated  to pay on an errors and  omissions  claim
arising out of a transaction handled by the Adjuster.

The  Agreement  contains a covenant not to compete.  This clause  provides  that
during the term of the Agreement the Adjuster  will not  participate  nor accept
employment with any business that is engaged in services that could be or are in
competition with the Company.  In addition,  the Agreement  provides that upon a
termination of the Agreement,  for any reason,  the Adjuster may not, within the
two year period after termination,  compete with the Company or any of the other
Adjusters  within the  territory  assigned to the  Adjuster or within a 100-mile
radius of that territory.

The  Agreement  provides  that an Adjuster  may not sell or transfer  his or her
interest in the license or franchise  without first receiving the consent of the
Company,  which  consent may not be  unreasonably  withheld.  In  addition,  the
Company has a right of first refusal to purchase the Adjuster's  interest in the
license or franchise in connection with any intended transfer to a third party.

The term of the Agreement is generally ten years, with a ten-year renewal option
exercisable by the Adjuster. The form of the renewal agreement will generally be
the form of the Agreement being used by the Company at the time of renewal.

The Adjuster may terminate the Agreement  upon 30 days' prior written  notice to
the Company.  The Company may terminate the Agreement  upon the  occurrence  of,
among other  things,  any of the  following:  the voluntary  abandonment  of the
business by the Adjuster,  the conviction of the Adjuster for certain  offenses,
the failure of the Adjuster to cure a default  under the  Agreement,  any action
that materially impairs the goodwill associated with the Company's service mark,
and the  failure  to meet  performance  goals.  In  addition,  the  Company  may
terminate the Agreement for good cause, which includes,  among other things, the
bankruptcy or insolvency of the Adjuster,  a lack of response on the  telephone,
and a failure to pick up the mail by the Adjuster for a period of 12 days. Other
actions by the  Adjuster  that  would  entitle  the  Company  to  terminate  the
Agreement  include the Adjuster's  failure to provide the Company with copies of
invoices  for  services  performed  by the  Adjuster,  the failure to instruct a
customer to make payments to the Company, and the failure to keep and maintain a
telephone listing and service.

COMPANY-OWNED INSURANCE ADJUSTING BUSINESS

In addition to its operations as a licensor and franchisor, the Company conducts
independent  insurance  adjusting and risk management  operations in Arizona and
Nevada.

                                     Page 6
<PAGE>
                             SPECIAL CONSIDERATIONS

The following factors,  in addition to those discussed elsewhere in this report,
should be carefully considered in evaluating the Company and its business.

THE INSURANCE ADJUSTING BUSINESS

The  insurance  adjusting  business is dependent  upon the volume of claims that
require  adjusting  services.  Several  factors,  including,  among others,  the
weather and the  incidence  of natural and  manmade  disasters,  will impact the
number of claims that require adjusting  services.  In addition,  the Company is
dependent upon its clients to direct their insurance  adjusting  business to the
Company and the  Adjusters.  If a  significant  number of the  Company's and the
Adjusters'   clients,   which  generally  consist  of  insurance  companies  and
self-insured  companies,  adopt a policy and practice of  establishing  in-house
adjusting  departments,  or increasing  the existing  staffing of their in-house
adjusting  departments,  the Company could be materially adversely affected. See
"Special Considerations - Uncertainty of Future Revenue". Further, the insurance
adjusting  business  is  highly  competitive.   See  "Special  Considerations  -
Competition" and Item 1, "Business - General".

UNCERTAINTY OF FUTURE REVENUE

The  Company's  future  revenue  and  net  income  depends  primarily  upon  the
maintenance or increase in the average revenue realized by the Adjusters and the
maintenance  or increase in the number of Adjusters.  As in any business,  there
can be no assurance  that the Company or the Adjusters will maintain or increase
their  revenue.   Further,  although  the  client  base  of  the  Adjusters  has
historically  continued  to  expand,  there  can be no  assurance  that  it will
continue to do so or that the Adjusters  will retain such  companies as clients.
See  "Special  Consideration  -  The  Insurance  Adjusting  Business",  "Special
Considerations   Competition",   "Special   Considerations   -  Dependence  Upon
Significant Clients", and Item 1, "Business - General".

Further,  although  the number of licensees  and  franchisees  has  continued to
increase in recent years,  the Company does not actively  solicit new Adjusters.
The  Company's  plan is to  continue to add  qualified  insurance  Adjusters  as
licensees  and  franchisees.  The  Company's  ability to increase  the number of
Adjusters will depend upon its continued ability to attract and retain qualified
insurance Adjusters as licensees and franchisees.  See "Special Considerations -
Competition".

DEPENDENCE UPON KEY PERSONNEL

In  April  1999,  the  Board  of  Directors   appointed  Jeffrey  C.  Jordan  of
Progressive, age 43, as an Executive Vice President. Francis J. LaPallo, age 51,
was hired by the  Company  in 1996 as an  Executive  Vice  President  and has an
employment agreement with the Company that expires on June 30, 2001. The Company
has purchased and  maintained key man life insurance with respect to Mr. LaPallo
in the amount of $500,000.  In connection with the agreement with UFAC,  William
J. Rocke, the Company's Chairman of the Board and Chief Executive  Officer,  and
Jean E. Ryberg, the Company's  President,  resigned from their positions on June
30, 1999. Both Mr. Rocke and Mrs. Ryberg,  however, may provide up to 40 hours a
month of consulting services until June 30, 2000.  Following their resignations,
the  Board of  Directors  appointed  Troy  Huth of  Progressive,  age 39, as the
Company's  Chairman of the Board and  President.  Mr. Jordan and Mr. LaPallo are
located in the  Company's  home  office and manage the daily  operations  of the
Company,  whereas Mr. Huth is located  off-site and does not  participate in the
daily  operations.  The Company also  receives  certain  managerial,  marketing,
financial,  technological,  and other  services  provided  by UFAC.  Should  the
Company lose the services of Mr. Jordan,  Mr. LaPallo,  and/or UFAC, the Company
would be materially adversely affected,  notwithstanding the above-noted key man
life insurance and new management personnel.

VOTING CONTROL

The  directors  and  officers  of  the  Company  own  in  excess  of  11% of the
outstanding voting stock of the Company.  UFAC's ownership  constitutes 57.9% of
the Company's  outstanding  voting stock.  The Company  anticipates  that UFAC's
ownership will enable UFAC, and therefore  Progressive,  to control the business
and affairs of the  Company.  In April 1999,  eight  Progressive  nominees  were
appointed to the board of directors,  while two previously  existing  members of
the board  resigned.  In August 1999, the board amended the Company's  bylaws to
fix the number of directors  at nine.  At the same time,  six members  resigned;
three from the Progressive nominees and three from the Company's original board.
The board currently consists of nine members;  five nominated by Progressive and
four prior members of the Company's board of directors.

                                     Page 7
<PAGE>
DEPENDENCE UPON SIGNIFICANT CLIENTS

Although   the   Company   generally   considers   its  client  base  broad  and
well-diversified,  the  collections  received by  Adjusters  from one  insurance
company  provided  the  Company  with 1.6%,  9.2%,  and 18.8% of the license and
franchise fees it received during the fiscal year ended June 30, 1999, 1998, and
1997,  respectively.  See Item 1, "Business - General" and Item 7, "Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations -
Results of Operations  1998 Compared to 1997 Revenue".  In June 1997 this client
elected to purchase a majority of its  adjusting  services  from other  vendors,
virtually  diminishing  the  business  received  by  this  client.  The  Company
continues to develop and implement sales and marketing efforts to take advantage
of its  broad  geographic  coverage  as  well  as the  unique  strengths  of its
individual licensees and franchisees.  There is no assurance,  however, that the
Company  will be  successful  in  procuring  nationwide  accounts  on  terms  as
favorable  as it has in the  past  or will be the  successful  bidder  on new or
existing accounts.  Failure to procure such accounts may have a material adverse
affect on the Company's business.

SERVICE MARK

The Company has been  granted a service  mark for the name  Frontier  (R) by the
United  States  Patent  and  Trademark  Office.  If the  Company  is not able to
effectively protect itself against the use of similar trade names, trademarks or
service marks,  or if the Company's use of its service mark is found to infringe
upon the proprietary  rights of third parties,  the Company's  business could be
materially adversely affected.

Recently,  it has come to the  Company's  attention  that another  entity in the
insurance industry has been granted registration by the United States Patent and
Trademark  Office of a service  mark for the name  "Frontier."  The  Company  is
presently in the process of evaluating  this matter.  If the Company  determines
that action should be taken to protect its service mark,  but fails to take such
action,  or such  action is not  successful,  the  Company's  business  could be
materially adversely affected.

TORT LIABILITY AND INSURANCE

The Company and the Adjusters  may be the subject of litigation  based on errors
and  omissions  of their  respective  Adjusters.  Historically,  clients  of the
Adjusters and others have also sued the Company in  connection  with such claims
against the Adjusters.  Generally,  the Company has  successfully  defended such
claims based upon the fact that the Adjusters are independent contractors of the
Company,  for whose  conduct the Company is not liable.  Further,  although  the
Company and the Adjusters  maintain  insurance (in the amounts of $5,000,000 and
$1,000,000,  respectively) to minimize their exposure to related losses,  it may
become increasingly  difficult or costly to maintain insurance against these and
other  risks.  In such  event,  the  Company's  operations  could  be  adversely
affected.  Costs of insurance may escalate beyond those anticipated,  or certain
types  of  losses  may be  uninsurable  or may  exceed  available  coverage.  In
particular,  claims  against the Company and the  Adjusters may be based upon an
insured's  claim that the insurance  adjusting  operations of the Company and/or
the Adjusters  contributed to a client's "bad faith" in processing a claim.  Any
punitive or multiple  damages arising from any such claim,  and any compensatory
damages  exceeding  the coverage  limitations,  would be excluded  from coverage
under the  insurance  policy  maintained  for the benefit of the Company and the
Adjusters, and, therefore, could adversely affect the financial condition of the
Company.  In June 1997, the Company settled  litigation  against it related to a
former  franchisee  of the  Company in the amount of $525,000  net of  insurance
proceeds.  In June  1999,  a client  of a former  franchisee  filed a  complaint
against multiple defendants,  including the Company, alleging losses of at least
$1,800,000. See "Legal Proceedings".

ABILITY TO RELY UPON LICENSE AND FRANCHISE AGREEMENTS

The license and franchise agreements currently in effect between the Company and
the  Adjusters may be terminated by the Adjusters at any time upon a thirty (30)
day prior written  notice to the Company.  Further,  franchise and other laws of
certain  states  limit or  prohibit  the  enforceability  of certain  provisions
contained in the license and franchise agreements, including the covenant not to
compete. See Item 1, "Business - License and Franchise Agreements".

GOVERNMENT REGULATION

FRANCHISING

The Company is subject to various  federal,  state,  provincial,  and local laws
affecting  its  business.  The  Company's  licensing  and  franchising  business
involves  the  sale  of a  franchise  under  the  United  States  Federal  Trade
Commission's  rules and the laws and regulations of certain states.  Many states
have adopted laws  regulating  franchise  operations in a  franchisor-franchisee
relationship,  and similar legislation may be adopted in the remaining states or
provinces.  Existing laws range from filing and disclosure  requirements  in the
offer  and  sale  of  franchises  to  the  application  of  statutory  standards
regulating the franchisor-franchisee relationship. The most common provisions of

                                     Page 8
<PAGE>
FRANCHISING (CONTINUED)

these  laws  that  regulate  substantive  matters  in the  franchisor-franchisee
relationship  establish  restrictions on the ability of franchisors to terminate
or to  refuse to renew  franchise  agreements.  Other  laws  contain  provisions
designed to ensure the fairness of the franchise  agreements to  franchisees.  A
number of these laws include  prohibitions  or  restrictions  pertaining  to the
assignability of the rights of franchisees, franchisee ownership of interests in
other businesses, and franchisee membership in trade associations.  In addition,
decisions of several  states limit or prohibit the  enforceability  of covenants
not  to  compete.  Accordingly,  certain  of  the  provisions  contained  in the
Company's license and franchise  agreements may not be enforceable under certain
circumstances.  Further,  the disclosure  statements and franchise agreements in
connection   with  future   franchisees  may  be  subject  to  review  by  state
administrators  who  may  require  the  Company  to  make  certain  changes  and
accommodations in the way it does business with its franchisees that the Company
would not  otherwise  make.  There can be no assurance  that the Company will be
able to  obtain  necessary  regulatory  approvals  on a timely  basis.  Delay in
obtaining or failure to obtain such approvals could adversely  affect the growth
of the Company's franchising operations.  Historically, however, the Company has
not experienced significant delays in obtaining such approvals.

As the law  applicable to franchise  operations and  relationships  is a rapidly
developing one, the Company is unable to predict the effect on its operations of
additional  requirements or restrictions  which may be enacted or promulgated or
of court decisions which may adversely affect the franchise industry generally.

INSURANCE ADJUSTING

The laws and  regulations of several states require that insurance  adjusters be
licensed  and/or comply with certain  substantive  requirements  with respect to
their  operations.  Additional  requirements  that may be enacted or promulgated
could impact the conduct of the insurance  adjusting business by the Company and
the Adjusters.  Any such additional  requirements  may have  materially  adverse
financial or other consequences and adversely affect the growth of the Company's
franchising and insurance adjusting operations.

COMPETITION

The  insurance  adjusting  business  in  which  the  Company  is  engaged,  both
indirectly as a licensor and franchisor  and directly as an insurance  adjuster,
is highly  competitive.  The Company competes with insurance  companies and with
other  independent  insurance  adjusting  companies for  qualified  adjusters to
become  licensees and  franchisees.  In addition,  through the Adjusters and the
Company-owned  adjusting  businesses,  the  Company  competes  as a provider  of
insurance  adjusting services with other insurance  adjusting companies and with
in-house insurance  adjusting staffs. See "Special  Considerations - Uncertainty
of Future  Revenue",  and "Special  Considerations - Dependence Upon Significant
Clients".

DIVIDENDS

From the third quarter of the Company's 1985 fiscal year through September 1998,
the Company paid  quarterly  dividends  with respect to shares of Common  Stock.
Declaration  and  payment of  dividends  are  subject to the  discretion  of the
Company's  board of directors and may be made only from funds legally  available
therefor.  Payment of quarterly  dividends was  suspended  during the last three
quarters  of fiscal  1999,  pending the sale of stock by the Company to UFAC and
subsequent to the tender offer. The board declared a cash  distribution of $1.60
per share payable to the holders of the rights to the  distribution  on July 12,
1999, to shareholders of record on June 25, 1999. There can be no assurance that
the Company will be able to, or will continue to declare and pay dividends  with
respect to shares of Common Stock.  The Company's  ability to pay dividends will
be subject to the Company's  financial status and  requirements.  The board does
not expect to declare any dividends for fiscal year ending June 30, 2000.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain  statements  and  information  contained  in this  Report  under Item 7,
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations", and Item 1, "Business" concerning future, proposed, and anticipated
activities  of the  Company,  certain  trends  with  respect  to  the  Company's
operating  results,  capital  resources,  and  liquidity  or with respect to the
insurance adjusting industry in general,  and other statements contained in this
Report  regarding  matters  that are not  historical  facts are  forward-looking
statements,   and  by  their  very  nature,  include  risks  and  uncertainties.
Accordingly, actual results may differ, perhaps materially, from those expressed
in or implied  by such  forward-looking  statements.  Factors  that could  cause
actual results to differ  materially  include the foregoing and those  discussed
elsewhere under this Item 1, "Special Considerations".

                                     Page 9
<PAGE>
ITEM 2 - PROPERTIES

The Company owns the office  building and property  located at 45 East  Monterey
Way,  Phoenix,   Arizona,  where  it  conducts  its  licensing  and  franchising
operations and its Phoenix claims adjusting and risk management-related services
business.  The office building  currently contains  approximately  13,000 square
feet of office space. Adjacent to the main office, the Company also owns a small
building and property at 51 East Monterey Way which  contains two offices.  Both
offices are  currently  being used for  storage.  The combined  offices  contain
approximately 1,500 square feet of office space.

The  Company  also owns a parcel of real  property  across the  street  from the
Company's principal executive office, which is utilized for employee parking.

Additionally,  the Company leases  approximately 800 square feet of office space
in Tucson,  Arizona and 1,000  square  feet in Las Vegas,  Nevada for its claims
adjusting offices in those cities.

Management  believes the facilities owned and leased by the Company are adequate
for its current and foreseeable future operations.

ITEM 3 - LEGAL PROCEEDINGS

In June  1999,  Safeway  Inc.  filed a  complaint  against  multiple  defendants
including  the Company in the United  States  District  Court in  Nebraska.  The
complaint arises from the alleged  embezzlement of over $1,800,000 by the former
licensee.  The complaint  alleges claims against the Company in connection  with
claims services provided for the benefit of Safeway,  Inc.,  including breach of
fiduciary duty, negligent failure to monitor or supervise,  vicarious liability,
and breach of contract.  The  complaint  seeks an  accounting  and a recovery of
compensatory  damages of at least  $1,800,000.  The  litigation  is in the early
stages of discovery;  therefore, the Company cannot yet assess the merits of the
complaint or the effects this litigation  will have on the Company.  The Company
is also taking  steps to determine  whether and to what extent it has  insurance
coverage for any adverse  result in this  litigation.  As of June 30, 1999,  the
Company has not accrued any amounts for potential losses.

From time to time in the normal course of its business,  the Company is named as
a defendant in lawsuits.  With the exception of the complaint  described  above,
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.

ITEM 4 - SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS

Matters were submitted to a vote of securities holders during the fourth quarter
of this fiscal year.  Such matters were reported on the Company's  Form 10-Q for
the period ended March 31, 1999.

                                     Page 10
<PAGE>
                                     PART II

ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDERS
         MATTERS

The Company's Common Stock is listed on the American Stock Exchange (AMEX) under
the  symbol  "FAJ".  The  following  table  sets forth the range of high and low
prices,  and the  trading  volume,  during  each  quarterly  period  within  the
Company's two most recent fiscal years.

                                                      Price
                                               --------------------
                                                High          Low        Volume
                                               -------      -------      -------
Fiscal Year Ended June 30, 1999
  First Quarter                                $ 3.375      $ 2.375      260,900
  Second Quarter                               $ 2.563      $ 2.000      254,200
  Third Quarter                                $ 2.750      $ 2.375      240,800
  Fourth Quarter                               $ 4.375      $ 2.375      354,400

Fiscal Year Ended June 30, 1998
  First Quarter                                $2.8125      $ 2.125      364,300
  Second Quarter                               $  3.50      $ 2.375      699,800
  Third Quarter                                $3.3125      $  2.50      320,600
  Fourth Quarter                               $  3.25      $ 2.375      293,500

The following  shows per share cash  dividends  declared for each quarter during
the Company's two most recent fiscal years.

                                                         Cash Dividends Declared
                                                         -----------------------
Fiscal Year Ended June 30, 1999
  First Quarter                                                   $.0375
  Fourth Quarter                                                  $ 1.60

Fiscal Year Ended June 30, 1998
  First Quarter                                                   $.0375
  Second Quarter                                                  $.0375
  Third Quarter                                                   $.0375
  Fourth Quarter                                                  $.0375

As of August 27, 1999, there were 225 shareholders of record  (approximately 960
including beneficial owners) of the Company's Common Stock.

                                     Page 11
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                             Year Ended June 30
                                     -------------------------------------------------------------------
                                        1999          1998          1997          1996          1995
                                     -----------   -----------   -----------   -----------   -----------
<S>                                  <C>           <C>           <C>           <C>           <C>
INCOME STATEMENT DATA
  Operating revenue                  $ 6,341,584   $ 5,825,348   $ 6,164,603   $ 5,641,984   $ 5,240,825
  Net income                             546,452       612,475       979,198     1,134,519     1,026,848
  Basic earnings per share                   .12           .13           .21           .25           .22
  Diluted earnings per share                 .12           .13           .21           .25           .22
  Weighted average number of
    shares used in per share data:
      Basic                            4,569,049     4,605,358     4,607,709     4,620,101     4,662,679
      Diluted                          4,570,113     4,612,674     4,631,898     4,627,606     4,664,258
 Cash dividends per share            $     1.638   $       .15   $       .15   $       .14   $      .115

BALANCE SHEET DATA
  Working capital                    $ 2,073,511   $ 3,214,489   $ 3,261,953   $ 3,196,562   $ 2,946,748
  Total assets                        12,118,984     7,800,700     7,912,139     6,875,752     6,597,050
  Long-term debt                              --         4,953        33,462        59,983        84,655
  Property and equipment, net          1,608,936     1,724,329     1,736,226     1,554,401     1,484,545
  Stockholders' equity                 5,053,633     6,452,241     6,564,193     6,230,799     5,838,651
  Book value per common share                .56          1.40          1.43          1.35          1.26
  Retained earnings                    3,022,731     4,735,935     4,814,266     4,526,419     4,042,588
  Total shares outstanding             8,957,560     4,605,358     4,605,358     4,619,658     4,640,898
</TABLE>

                                     Page 12
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

FINANCIAL CONDITION

The Company  continues to finance its growth from funds generated by its current
operations.  The  Company  also used such funds to pay cash  dividends,  acquire
certain license rights, and add new licensees/franchisees.

In fiscal 1999, the Company's  continuing  operations generated $947,748 in cash
which was sufficient for the Company's cash requirements.  This cash was used to
pay cash dividends of $172,701 and purchase  equipment and property at a cost of
$324,416.

The Company paid cash dividends to its shareholders  during the first quarter of
fiscal 1999; however, the policy of quarterly dividends was suspended during the
remaining three quarters due to the pending sale of stock by the Company to UFAC
and the subsequent tender offer. The board declared a cash distribution of $1.60
per share payable to the holders of the rights to the  distribution  on July 12,
1999 to  shareholders  of record on June 25, 1999.  The board does not expect to
declare any dividends during the fiscal year ending June 30, 2000.

In June 1999, a complaint was filed against  multiple  defendants  including the
Company. The complaint arises from the alleged embezzlement by a former licensee
in connection  with claims  services  provided for the benefit of the plaintiff.
The complaint  seeks  damages of at least  $1,800,000  from the Company.  As the
Company is still in the discovery phase of this  litigation,  the Company cannot
yet assess the merits of the complaint or the effects this  litigation will have
on the Company. For further discussion, see "Item 3 - Legal Proceedings".

The Company  anticipates  that during fiscal 2000 its  operations  will generate
sufficient cash to fund its operations and equipment  acquisitions.  The Company
projects  that its capital  expenditures  for  equipment  will be  approximately
$200,000 to $300,000 in fiscal 2000.

RESULTS OF OPERATIONS 1999 COMPARED TO 1998

REVENUE

The Company's  revenue  increased to $6,342,000  from $5,825,000 in fiscal 1999,
resulting in a 8.9% increase as compared to the prior fiscal year.  The increase
consists  primarily of a $176,000  increase in adjusting and other revenue and a
$339,000 increase in continuing licensee and franchisee fees.

The  increase of  $176,000  in  adjusting  and other fees to  $1,405,000  in the
current  fiscal year compared to $1,229,000 in the prior fiscal year  represents
an increase of 14.3%.  The  Company  experienced  an increase of $198,000 in its
Phoenix  office and  decreases of $8,000 and $14,000 in adjusting  fees from its
Las Vegas/Henderson and Tucson offices,  respectively. The increase in fees from
the Phoenix office  primarily  reflects fees generated from a client acquired in
November of 1997.

The Company's  revenue from  continuing  licensee and franchisee  fees increased
7.4% or $339,000  from  $4,597,000 in the prior fiscal year to $4,936,000 in the
current  fiscal  year.  The  increase  reflects  the  benefit  to the  Company's
licensees and franchisees from an increase in claims  assignments from insurance
companies and self-insureds.

The Company's  revenue is affected by numerous matters  including the work loads
of  other  companies  and  claims  presented  by  their  clients.  The  Company,
therefore, 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 a business relationship with its then major client. The Company has
responded to this loss of revenue 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.  Through these
efforts and the addition of UFAC's marketing resources,  the Company anticipates
that over time the lost  business  will be replaced  and hopes to see  continued
growth in licensee  and  franchisee  fees paid from other  sources.  There is no
assurance,  however,  that the Company will be  successful in replacing the lost
business.

                                     Page 13
<PAGE>
COMPENSATION AND EMPLOYEE BENEFITS

Compensation  and  employee  benefits  represent   approximately  58.1%  of  the
Company's costs and expenses and are the Company's  largest expense item.  These
expenses  increased  15.3% or $431,000 to $3,248,000 in the current  fiscal year
from  $2,817,000 in the prior fiscal year. This increase is primarily the result
of the  retirement  packages  paid to Mr. Rocke and Mrs.  Ryberg of $327,827 and
$249,940, respectively. 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.  However,  the Company has reduced the amount of compensation  paid to
its  administrative  staff due to the departure and  non-replacement  of certain
salaried personnel.

EXPENSES OTHER THAN COMPENSATION AND FRINGE BENEFITS

The Company's  expenses other than  compensation  and fringe benefits  increased
$233,000 or 11.1% from fiscal 1998 to fiscal 1999.  Significant changes included
the following  increases:  legal  expenses of $162,000;  auditing and accounting
fees of $81,000;  UFAC  service  fees of $50,000;  computer  consulting  fees of
$27,000; general insurance of $22,000;  miscellaneous expenses of $30,000, and a
decrease in bad debt expense of $115,000.

The  increase in legal fees  reflects  the  Company's  increased  need for legal
services in connection with the transaction with UFAC. The increase in audit and
accounting fees reflects the Company's decision to out-source 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 with
the   constantly   changing  state  and  federal  tax  and  reporting  laws  and
regulations. Furthermore, the Company has incurred additional accounting fees in
connection with the transaction with UFAC.

The balance of the Company's  costs and expenses have not changed  significantly
from the prior fiscal year.

OTHER INCOME

The  Company's  other  income  increased  $102,000  or 80.3% from fiscal 1998 to
fiscal 1999.  The principal  items  affecting  this increase  included a $32,000
increase  in interest  income,  a $61,000  increase  in realized  gain on equity
securities  primarily due to the  redemption of the  Company's  mutual funds,  a
decrease in interest  expense of $30,000;  and a decrease in dividend  income of
$10,000.

INCOME TAXES

Income taxes were 44.4% and 40.4% of the  Company's  income  before income taxes
for fiscal year 1999 and 1998  respectively.  A difference in these rates is due
to permanent  differences  and is reflected in the reduction of the deferred tax
asset of $54,000 from  $289,000 at June 30, 1998,  to $235,000 at June 30, 1999.
The Company's income taxes have not been  significantly  affected by any changes
in the federal and state tax laws. However, tax rates can be changed at any time
based upon legislation.

NET INCOME

The Company's net income  decreased  $66,000 to $546,000 in current  fiscal year
from $612,000 in fiscal 1998, a decrease of 10.8%.  The most  significant  items
affecting net income were the $516,000 increase in revenue,  a $431,000 increase
in compensation and fringe benefits,  a $233,000 increase in expenses other than
compensation  and fringe  benefits,  and a $102,000  increase  in other  income.
During the fourth  quarter of fiscal  1999,  the Company  recorded a net loss of
$97,179.  The most  significant  item  contributing  to this loss was a one time
charge of $577,767 for severance pay to former employees.

RESULTS OF OPERATIONS 1998 COMPARED TO 1997

REVENUE

The Company's  revenue  decreased to $5,825,000  from $6,165,000 in fiscal 1997,
resulting in a 5.5% decrease as compared to the prior fiscal year.  The decrease
consisted of a $343,000  increase in adjusting  and other revenue and a $683,000
decrease in continuing licensee and franchisee fees.

                                     Page 14
<PAGE>
REVENUE (continued)

The increase of $343,000 in adjusting and other fees to $1,229,000 in the fiscal
year  ended  June 30,  1998,  compared  to  $886,000  in the prior  fiscal  year
represents  an  increase of 38.7%.  A  significant  portion of this  increase is
related to the Company's Las  Vegas/Henderson,  Nevada office which was acquired
during the last  quarter of the prior fiscal year from a former  licensee.  This
office generated $340,000 in adjusting fees for fiscal 1998.

The Company's  revenue from  continuing  licensee and franchisee  fees decreased
12.9% or $683,000 from  $5,280,000 in the prior fiscal year to $4,597,000 in the
current fiscal year. This decrease reflects lower demand for adjusting  services
in fiscal 1998 due to the  relatively  fewer  incidences  of natural and manmade
disasters in that fiscal year.  Furthermore,  the decrease  reflects the loss of
revenue attributed to a client that contributed 9.2% and 18.8% to the continuing
licensee  and  franchisee  fees in fiscal years ended June 30, 1998 and June 30,
1997,  respectively.  The loss of this client represents a loss of approximately
$564,000 in revenue for this fiscal year as compared to the prior  fiscal  year.
In June 1997, this client elected to purchase its adjusting  services from other
vendors.

The Company's revenue is affected by numerous matters including the weather, the
incidents of natural and manmade disasters, and the work load of other companies
and claims  presented by their insureds.  The Company,  therefore,  is unable to
project its future  revenue.  During the current  fiscal  year,  the Company has
experienced  a decrease  in revenue due  primarily  to the lower  incidences  of
natural and manmade disasters and to the phase out of its business  relationship
with a client  that  accounted  for 9.2% and 18.8% of  continuing  licensee  and
franchisee  fees in  fiscal  years  ended  June 30,  1998  and  June  30,  1997,
respectively.

COMPENSATION AND EMPLOYEE BENEFITS

Compensation  and  employee  benefits  represented  approximately  57.2%  of the
Company's costs and expenses and are the Company's  largest expense item.  These
expenses increased 16.6% or $402,000 to $2,817,000 in the fiscal year ended June
30, 1998,  from $2,415,000 in the prior fiscal year. This increase is the result
of the addition of a Marketing Director to the Company's corporate staff, twelve
months of salary for the employees in Las Vegas/Henderson, Nevada as a result of
the April 1997  acquisition,  additional  employees  hired  including  temporary
employees to handle  increased work loads in the Corporate  office,  and cost of
living  and  merit  increases  given  to  employees.  In  addition,  the cost of
compensation  and fringe benefits was reduced $21,000 as a result of the decline
in  the  Company's  income  and a  corresponding  decline  in  related  bonuses.
Furthermore, the Company paid $85,000 in severance pay to a former employee.

EXPENSES OTHER THAN COMPENSATION AND FRINGE BENEFITS

The Company's  expenses other than  compensation  and fringe benefits  decreased
$165,000 or 7.3% from  fiscal 1997 to fiscal  1998.  The most  significant  item
related to this is a $525,000  settlement  paid in the prior fiscal  year.  This
decrease was offset by an increase in several  items  including,  among  others:
provision  for doubtful  accounts of $203,000;  advertising  expense of $48,000;
audit and accounting fees of $31,000;  computer consulting fees of $16,000;  and
depreciation  and  amortization  of $13,000.  The increase in the  provision for
doubtful  accounts  represents  an  increase  in the  allowance  percentage  for
doubtful  accounts of  franchisee  fees  receivables  due to an increase of aged
receivables,  as well as a  historical  increase  in the  incidents  of bankrupt
debtors to the  Company.  Furthermore,  the  increase  in the expense due to the
provision for doubtful  accounts  represents an increase in receivables from the
Las  Vegas/Henderson,  Nevada office.  Receivables  in the Las  Vegas/Henderson,
Nevada office increased  significantly due to twelve months of operations in the
current  fiscal  year as  compared to three  months of  operations  in the prior
fiscal year.

The balance of the Company's  costs and expenses have not changed  significantly
from the prior fiscal year.

OTHER INCOME

The Company's other income  increased  $6,600 or 5.5% from fiscal 1997 to fiscal
1998.  Significant  items  affecting  this increase were decreases in unrealized
losses on equity  securities  of $75,000  and  interest  income of  $22,000  and
increases in interest  expense of $24,000.  Additionally,  the disposal of fixed
assets  during 1998 resulted in a loss of $6,648 as opposed to a gain of $24,875
in 1997.

                                     Page 15
<PAGE>
INCOME TAXES

Income taxes were 40.4% and 38.7% of the  Company's  income  before income taxes
for fiscal year 1998 and 1997 respectively.  The Company's income taxes have not
been  significantly  affected  by any changes in the federal and state tax laws.
However, tax rates can be changed at any time based upon legislation.

NET INCOME

The Company's net income  decreased  $367,000 to $612,000 in current fiscal year
from $979,000 in fiscal 1997, a decrease of 37.5%.  The most  significant  items
affecting net income were the $339,000 decrease in revenue,  a $402,000 increase
in compensation and fringe benefits,  and a $165,000  decrease in expenses other
than compensation and fringe benefits. During the fourth quarter of fiscal 1998,
the  Company  recorded  a net  loss  of  $47,000.  The  most  significant  items
contributing to this loss were a one time charge of $85,000 for severance pay to
a former employee and the writeoffs of old receivables from clients and advances
to former franchisees/licensees.

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 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 October 31,
1999.  The Company has had its  computer  servers  tested  internally  and by an
external  party.  The external party has found all but one operating  system are
compliant.  Arrangements  are currently  being made to upgrade the  noncompliant
server.  The Company hopes to finish its testing of internal  systems by October
31, 1999.

All of the Company's personal computers that need to be Year 2000 compliant have
been  upgraded.  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.  Except as noted herein, the Company expects to complete
the formal plan of resolution by September 30, 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  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 Year 2000 compliant  version
of its software by October 1, 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 are  undertaking the task of contacting
the Company's  customers and vendors to determine the status of such  customers'
and vendors' software for Year 2000 compliance.  None of the responses  received
thus far have  indicated any major  problems.  As the Company  identifies  these
issues,  it will determine the steps  necessary to minimize  disruptions  due to
failures in Year 2000 compliance by its customers and/or vendors.

To  date,  the  Company  has  paid  approximately   $150,000  in  the  analysis,
development,  and  implementation of a plan to address its Year 2000 issues, and
does not  expect  costs to exceed  $325,000  in total.  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

                                     Page 16
<PAGE>
YEAR 2000 COMPLIANCE (CONTINUED)

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.

In its reasonably likely worst case Year 2000 scenario,  the Company anticipates
that the software  which it uses,  despite the completion  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  installed a back-up  power  generator in August 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 October 1999.

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss to future earnings,  fair values, or future cash
flows  due to  potential  changes  in the  price of a  financial  instrument.  A
financial  instrument's  value may  change as a result of  changes  in  interest
rates,  exchanges  rates,  commodity  prices,  equity  prices,  and other market
changes.  Market  risk  is  inherent  in all  market  risk  sensitive  financial
instruments.

During the fiscal year, the Company invested in $1,000,000 U.S.  treasury bills.
However, the Company ceased investing in treasury bills upon the expiration of a
treasury  bill on May 20,  1999.  The  Company  retained  the  funds to  provide
additional  cash  for the cash  distribution  related  to the UFAC  transaction.
Therefore,  the  Company is no longer  exposed to any  interest  income risk and
market value risks on these investments.

The Company also  invested in various  mutual funds  throughout  the fiscal year
that it held as short-term  available  for sale  investments.  However,  in June
1999, the Company sold all its mutual funds to provide  additional  cash to fund
the cash distribution related to the UFAC transaction. Therefore, the Company is
no longer exposed to market risk associated with these investments.

The  Company has a book value of $668,000  invested in  municipal  bonds that it
carries as long term held to maturity investments. An increase in interest rates
would result in a decline in the market  value of the bonds.  These bonds mature
between  2005 and 2031.  As the Company has the intent and ability to hold these
bonds to maturity,  the market risk associated with these bonds is insignificant
and does not have a material effect on the financial statements.

Although  the Company  wholly owns a Canadian  subsidiary,  the cash held by the
Canadian  subsidiary  is not material to the Company's  operations.  Any foreign
currency  fluctuations  would  not  have a  material  effect  on  the  Company's
financial statements.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reference is made to the Consolidated  Financial  Statements,  the Notes thereto
and Report of Independent Public  Accountants  thereon commencing at page F-1 of
this Report,  which  Consolidated  Financial  Statements,  Notes and Reports are
incorporated herein by reference.

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURES

     Not applicable.

                                     Page 17
<PAGE>
                                    PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

<TABLE>
<CAPTION>
                                                                               Served as Director
                                                                                Since Year Listed
Name/Title                Business Experience                        Age            Below (1)
----------                -------------------                        ---       ------------------
<S>                       <C>                                        <C>   <C>
Milo C. Bolender          Mr. Bolender has been employed by The       47     April 1999-August 1999
                          Progressive Corporation since 1987 and           (Mr. Bolender resigned as
                          currently manages the Claims Services            a director in August 1999)*
                          Marketing Group within Progressive's
                          Diversified Business Group. In previous
                          positions within Progressive, Mr.
                          Bolender served as Product Manager for
                          both private passenger auto and
                          commercial auto programs. Prior to
                          joining Progressive, he was employed in
                          the commercial banking industry,
                          including senior positions in the
                          commercial lending groups of Union Bank
                          California and Lloyds Bank California.
                          Mr. Bolender has an MBA from Loyola
                          Marymount University.

Charles B. Chokel         Mr. Chokel graduated from Williams          46     April 1999-August 1999
                          College and received his MBA from the            (Mr. Chokel resigned as
                          University of Chicago. He worked for             a director in August 1999)*
                          three years as a commercial property
                          underwriter for Chubb and Son before
                          joining Progressive in 1978. He has held
                          many different positions at Progressive,
                          including National Sales Manager, Auto
                          Product Manager, California Division
                          President and Chief Financial Officer,
                          and, is currently Progressive's CEO of
                          Investments and Capital Management.

John M. Davies            Effective June 1, 1999, Mr. Davies          43              1999
Director                  became President of Netrex, LLC, a
                          startup financial services and
                          technology company. Mr. Davies was
                          employed by The Progressive Corporation
                          from 1990 to 1999. His last position
                          with Progressive was managing
                          Progressive's Diversified Business
                          Group. Prior to joining Progressive, he
                          was employed at Coopers & Lybrand, an
                          international accounting and consulting
                          firm. Mr. Davies has an MBA from the
                          University of Pittsburgh and has earned
                          numerous professional designations,
                          including being a Certified Public
                          Accountant, a Chartered Property and
                          Casualty Underwriter and a Chartered
                          Life Underwriter.

Jeffrey R. Harcourt       Mr. Harcourt has been employed by The       38              1999
Chief Financial Officer   Progressive Corporation since 1990 and
and Director              currently is the Controller for
                          Progressive's Diversified Business
                          Group. Prior to joining Progressive, he
                          was employed by KPMG Peat Marwick, an
                          international accounting and consulting
                          firm. Mr. Harcourt holds a BS degree
                          from Miami University and has earned
                          numerous designations, including being a
                          Certified Public Accountant, a Chartered
                          Property and Casualty Underwriter, a
                          Certified Internal Auditor and a
                          Certified Information systems Auditor.
</TABLE>

                                     Page 18
<PAGE>
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)

<TABLE>
<CAPTION>
                                                                               Served as Director
                                                                                Since Year Listed
Name/Title                Business Experience                        Age            Below (1)
----------                -------------------                        ---       ------------------
<S>                       <C>                                        <C>   <C>
George M. Hill            Mr. Hill has been associated with the       91          1978-1999
                          Company in an advisory capacity for more         (Mr. Hill resigned as a
                          than 25 years, was a Vice President of            director in April 1999)
                          the Company and an Assistant Secretary
                          of the Company. He is a senior partner
                          in the Phoenix law firm of George M.
                          Hill & Associates and has been a
                          practicing attorney in Arizona for over
                          50 years. Mr. Hill is a Director and
                          Secretary of National Car Rental,
                          Phoenix, Denver and Colorado Springs,
                          and Director and Vice President of
                          Precise Metal Products Co., Phoenix and
                          Salt Lake City.

Troy Huth                 Mr. Huth has been employed by The           39              1999
Director, President and   Progressive Corporation since 1986 and
Chairman of the Board     currently manages Progressive's
                          Diversified Technologies Group, the
                          Progressive Vehicle Inspection Services
                          Group, and the Progressive Diversified
                          Business Group Claims Organization.
                          Prior to joining Progressive, he held
                          several information technology
                          management positions in manufacturing
                          and service businesses and has been in
                          the technology field since 1979. Mr.
                          Huth has a BA from Baldwin Wallace
                          College.

Jeffrey C. Jordan         Mr. Jordan has been employed by The         43              1999
Director and Executive    Progressive Corporation from 1978-1980
Vice President            and from 1984 through the present. He
                          began his career with Progressive as an
                          adjuster trainee and has held numerous
                          technical and managerial positions
                          within the Progressive claims
                          organization. Mr. Jordan holds a BA
                          degree from Rutgers University and a JD
                          from UCLA. Prior to his return to
                          Progressive in 1984, Mr. Jordan was an
                          attorney in private practice in Los
                          Angeles.

Francis J. LaPallo        Mr. LaPallo joined the Company on June      51              1996
Director and Executive    24, 1996. From 1977 until joining the
Vice President            Company he practiced law in Maryland,
                          the District of Columbia and California.
                          From 1990 until joining the Company he
                          was a partner with the law firm of
                          Manatt, Phelps & Phillips in Los
                          Angeles, California. He represented the
                          Company in various legal matters from
                          1994 until joining the Company. An
                          employment agreement between the Company
                          and Mr. LaPallo provides that he will be
                          an executive officer of the Company
                          through June 30, 2001.

Louis T. Mastos           Mr. Mastos has been the President of        78              1978
Director**                Louis T. Mastos & Associates, Inc., a
                          managing general agency located in Reno,
                          Nevada, since 1971. He is past President
                          of the American Association of Managing
                          General Agents. Mr. Mastos was the
                          Insurance Commissioner of the State of
                          Nevada from 1965 to 1971.
</TABLE>

                                     Page 19
<PAGE>
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)

<TABLE>
<CAPTION>
                                                                               Served as Director
                                                                                Since Year Listed
Name/Title                Business Experience                        Age            Below (1)
----------                -------------------                        ---       ------------------
<S>                       <C>                                        <C>   <C>
James S. Rocke            Mr. Rocke has been employed by the          31           1993-1999
Secretary/Treasurer       Company since 1982 and currently is an            (Mr. Rocke resigned as
                          adjuster in the Company's Phoenix                a director in August 1999)*
                          office. Mr. Rocke was elected
                          secretary/treasurer of the Company in
                          1993. Mr. Rocke graduated from Arizona
                          State University in 1991 with a BS
                          degree in Finance. Mr. Rocke is the son
                          of William J. Rocke.

William J. Rocke          Mr. Rocke founded the Company in 1957       75              1975
Director                  and served as an Executive Officer of
                          the Company and its predecessor
                          entities. Mr. Rocke has been in the
                          insurance adjusting business since 1952.
                          He has a law degree from the University
                          of Denver and is a member of the
                          Colorado Bar Association. Mr. Rocke
                          retired as Chairman of the Board and
                          Chief Executive Officer of the Company
                          on June 30, 1999.

Jean E. Ryberg            Mrs. Ryberg held several positions with     67              1975
Director**                the Company since 1962. She also managed
                          the Company's insurance adjusting and
                          risk management operations in the
                          Phoenix and Tucson, Arizona and Las
                          Vegas, Nevada offices. She was elected
                          President of the Company in 1993 and
                          served in that capacity until retiring
                          on June 30, 1999.

Merlin J. Schumann        Mr. Schumann has been a Certified Public    55           1984-1999
                          Accountant with the firm of Murray &             (Mr. Schumann resigned as
                          Murray, P.C., located in Phoenix,                a director in August 1999)*
                          Arizona, for over 20 years. Since
                          December, 1990, Mr. Schumann has also
                          held the position of General Securities
                          Representative with H.D. Vest Investment
                          Securities, Inc., a stock brokerage and
                          investment counseling firm located in
                          Irving, Texas.

Dane A. Shrallow          Mr. Shrallow has been practicing            52     April 1999-August 1999
                          corporate and business law since 1971.           (Mr. Shrallow resigned as
                          Mr. Shrallow joined the Progressive              a director in August 1999)*
                          organization in 1988 and currently
                          serves as Associate General Counsel of
                          Progressive and its subsidiaries. Prior
                          to joining Progressive, Mr. Shrallow
                          served as Assistant General Counsel of
                          Leaseway Transportation Corp., a company
                          engaged in the truck transportation,
                          leasing and physical distribution
                          industries. Mr. Shrallow has a BS in
                          Commerce from Washington and Lee
                          University and a JD from Cornell
                          University.
</TABLE>

                                     Page 20
<PAGE>
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)

<TABLE>
<CAPTION>
                                                                               Served as Director
                                                                                Since Year Listed
Name/Title                Business Experience                        Age            Below (1)
----------                -------------------                        ---       ------------------
<S>                       <C>                                        <C>   <C>
R. Scott Younker          Mr. Younker has been a licensee of the      63           1992-1999
                          Company in Prescott, Arizona since 1979.         (Mr. Younker resigned as
                          He has been engaged in the insurance             a director in August 1999)*
                          adjusting business for 33 years.


William A. White          Mr. White has been employed by The          45              1999
Director                  Progressive Corporation since 1985 and
                          currently manages Progressive's
                          Diversified Claims Business Group. Prior
                          to joining Progressive, Mr. White served
                          as a commissioned officer in the United
                          States Army. Mr. White holds a master's
                          degree from the University of Southern
                          California and undergraduate degree in
                          Business Administration from John
                          Carroll University in Cleveland, Ohio.
</TABLE>

(1) Term will continue until next election of directors.

* These directors resigned in connection with a board determination to fix the
number of directors at nine.

** Member of the Company's audit committee.

ITEM 11 - EXECUTIVE COMPENSATION

The following table sets forth certain  information  concerning the compensation
paid by the  Company  during  its year ended June 30,  1999,  to each  executive
officer whose aggregate compensation exceeded $100,000.

<TABLE>
<CAPTION>
                                    Summary Compensation Table
                              ---------------------------------------
                                                            Other Annual    All Other
                                                            Compensation  Compensation
Name and Principal Position   Year   Salary ($)  Bonus ($)     ($)(2)       ($)(3)(4)
---------------------------   ----   ----------  ---------     ------       ---------
<S>                           <C>    <C>         <C>           <C>          <C>
William J. Rocke, CEO,        1999    241,105     32,914         --          412,830
Chairman, Director            1998    237,776     39,794         --           29,898
                              1997    231,300     51,559         --           23,569

Jean E. Ryberg                1999    171,453     32,914         --          321,715
President, Director           1998    169,085     39,794         --           29,898
                              1997    164,480     51,559         --           29,568

Francis J. LaPallo,           1999    156,359     32,914         -            29,801
Executive Vice President      1998    185,040         --         --           29,898
Director                      1997    180,000         --         --           29,568
</TABLE>

(1)  Columns  g and h  have  been  omitted  as  there  has  been  no  long  term
     compensation  awarded to, earned by or paid to any of the named  executives
     in any fiscal year covered by these columns.

(2)  No  perquisites  were  received by any person named above  greater than the
     lesser of $50,000 or 10% of salary plus bonus.

                                     Page 21
<PAGE>
ITEM 11 - EXECUTIVE COMPENSATION (CONTINUED)

(3)  "All Other  Compensation"  includes (i) directors' fees of $3,000,  $2,250,
     and  $3,750  for Mr.  Rocke in years  ended  June 30,  1999,  1998 and 1997
     respectively;  $3,000,  $2,250,  and $3,750 for Mrs.  Ryberg in years ended
     June 30, 1999, 1998 and 1997 respectively;  $3,000,  $2,250, and $3,750 for
     Mr. LaPallo in years ended June 30, 1999, 1998, and 1997 respectively; (ii)
     profit sharing contributions of $27,514, $27,648, and $19,819 for Mr. Rocke
     in years ended June 30, 1999, 1998 and 1997 respectively; $27,514, $27,648,
     and 25,818 for Mrs.  Ryberg in years ended June 30,  1999,  1998,  and 1997
     respectively;  $26,801, $27,648, and $25,818 for Mr. LaPallo in years ended
     June 30, 1999, 1998, and 1997 respectively;  and (iii) retirement  packages
     for Mr.  Rocke and Mrs.  Ryberg in the  amounts of $382,316  and  $291,201,
     respectively, for the fiscal year ended June 30, 1999.

     Excluded from all other  compensation is the increase and the  amortization
     of the June 30, 1995 cash surrender value of these life insurance policies.
     The amount excluded is $18,391, $18,166, and $18,119, for Mr. Rocke for the
     years ended June 30,  1999,  1998,  and 1997,  respectively,  and  $14,173,
     $14,070,  and  $13,678 for Mrs.  Ryberg for the years ended June 30,  1999,
     1998, and 1997, respectively.

(4)  On June 30,  1999,  William J. Rocke and Jean E.  Ryberg  terminated  their
     employment with the Company.  Mr. Rocke received a severance package with a
     total value of $382,316 and Mrs. Ryberg received a severance package with a
     value of $291,201.  Included in these  amounts were their  company cars and
     the life insurance policies previously owned by the Company.

OPTION/SAR EXERCISES AND HOLDINGS

During 1999 the Company did not grant any stock options.

The following  table shows the number of shares and value of grants  outstanding
as of June 30, 1999 for each Named Executive.

               AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
                         AND YEAR-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
                                                        Number of Securities          Value of Unexercised,
                                                       Underlying Unexercised       In-The-Money Options/SARs
                        Shares                       Options/SARs at 6/30/99 (#)       at 6/30/99 ($)(a)
                       Acquired         Value        ---------------------------   ---------------------------
      Name           on Exercise (#)  Realized ($)   Exercisable   Unexercisable   Exercisable   Unexercisable
      ----           ---------------  ------------   -----------   -------------   -----------   -------------
<S>                  <C>              <C>            <C>           <C>             <C>           <C>
William J. Rocke        21,718           2,715              --          --               --           --

Jean E. Ryberg          21,718           8,144          29,629          --               --           --

Francis J. LaPallo          --              --         100,000          --           25,000           --
</TABLE>

(a)  Value of unexercised,  in-the-money  Company options based on a fair market
     value of the  Company's  common  stock of  $3.125  per share as of June 30,
     1999.

DIRECTORS COMPENSATION

     During  fiscal  1999,   each  director   (other  than  those   employed  by
Progressive),  but including  employees of the Company,  was paid $750 per Board
meeting  attended.  In total,  each director  received  $3,000 for attendance at
Board Meetings.

EMPLOYMENT AGREEMENTS

     The Company has an employment  agreement  with Mr.  LaPallo for a five-year
term. Mr.  LaPallo's  agreement was effective June 23, 1996 and expires June 30,
2001.  In  addition,  the  services of Mr.  Jeffrey  Jordan are  provided to the
Company pursuant to the service agreement with UFAC.

                                     Page 22
<PAGE>
ITEM 11 - EXECUTIVE COMPENSATION (CONTINUED)

EMPLOYMENT AGREEMENTS (CONTINUED)

     Mr.  LaPallo's  agreement  provides for an annual  salary of $180,000  with
annual cost of living  increases based upon the U.S.  Department of Labor's cost
of living index for the first two years.  For the  remaining  three  years,  the
agreement  provides for an annual  salary of $150,000 with annual cost of living
increases based upon the U.S. Department of Labor's cost of living index, plus a
bonus of three percent (3%) of the Company's income before taxes and bonuses and
3% of the  increase in the  Company's  income  before taxes and bonuses from the
prior year. In  connection  with the Company's  employment of Mr.  LaPallo,  the
Company sold Mr.  LaPallo 20,000 shares of common stock from the treasury for an
aggregate of $55,547.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following  table sets forth certain  information  with respect to beneficial
ownership  of the  Company's  common  stock  on  August  24,  1999,  by (1) each
director,  (2) each executive officer,  (3) all directors and executive officers
of the Company as a group,  (4) each  person,  known by the  Company,  to be the
beneficial owners of more than 5% of the common stock.

<TABLE>
<CAPTION>
                                                            Amount of Beneficial Ownership
                                                             Common Stock $.01 Par Value
                                                          ----------------------------------
Name and Address**                                        Number of Shares (1)   Percent (2)
------------------                                        --------------------   -----------
<S>                                                       <C>                    <C>
John M. Davies                                                      500                 *

Francis J. LaPallo and Wendy J. Harrison, his wife (3)          122,000              1.35%

Louis T. Mastos and Eva B. Mastos, his wife (4)                 207,103              2.31%

William J. Rocke and Garnet Rocke, his wife (5)                 415,332              4.64%
P. O. Box 7641
Phoenix, Arizona  85011

James S. Rocke (6)                                              444,867              4.97%
P. O. Box 7641
Phoenix, Arizona  85011

Jean E. Ryberg (7)                                              140,589              1.56%

All officers and directors as a group                         1,040,391             11.45%
  (six persons) (8)

United Financial Adjusting Company                            5,258,513             57.87%
</TABLE>

*  Less than 1%
** Addresses not shown are those of the Company.

(1)  The number of shares shown in the table,  including the notes thereto, have
     been rounded to the nearest whole share. Includes, when applicable,  shares
     owned of record by such  person's  minor  children  and spouse and by other
     related  individuals  and  entities  over whose shares of Common Stock such
     person has custody,  voting control or power of disposition.  Also includes
     shares of Common Stock that the identified  person had the right to acquire
     within 60 days of August 24, 1999 by the exercise of stock options.

(2)  The  percentages  shown include the shares of Common Stock which the person
     will  have the right to  acquire  within 60 days of  August  24,  1999.  In
     calculating  the percentage of ownership,  all shares of Common Stock which
     the  identified  person  will have the right to  acquire  within 60 days of
     August 24, 1999 are deemed to be  outstanding  for the purpose of computing
     the percentage of the shares of Common Stock owned by such person,  but are
     not deemed to be outstanding for the purpose of computing the percentage of
     shares of Common Stock owned by any other stockholders.

                                     Page 23
<PAGE>
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
          (CONTINUED)

(3)  Includes 100,000 shares subject to a currently  exercisable stock option at
     $2.875 per share.

(4)  Includes  183,180 shares which are held in a trust under an agreement dated
     February  10,  1981,  in which Mr. and Mrs.  Mastos  hold equal  beneficial
     interests,  and 23,523  shares  which are held by the Louis T. Mastos in an
     Individual Retirement Account.

(5)  Includes 290,000 shares held by Old Frontier Investment,  Inc., of Arizona,
     of which William J. and Garnet Rocke hold 51% of the outstanding stock.

(6)  Includes 290,000 shares held by Old Frontier Investment, Inc. of Arizona of
     which James S. Rocke holds 49% of the outstanding stock.

(7)  Includes 29,629 shares subject to a currently  exercisable stock options at
     $3.375 per share.  Excludes 15,000 held by Mrs.  Ryberg's sons in which she
     disclaims any beneficial interest.

(8)  Excludes all duplicate reporting of holdings.

Based  solely on a review of the copies of such forms  received  by the  Company
during the fiscal year ended June 30, 1999, and written  representations that no
other reports were required,  the Company  believes that each person who, at any
time during such fiscal year,  was a director,  officer or  beneficial  owner of
more than 10% of the  Company's  Common Stock  complies  with all Section  16(a)
filing  requirements during such fiscal year, except that R. Scott Younker filed
a late Form 4 covering two transactions  totaling 18,000 shares.  James S. Rocke
filed a late Form 4 regarding  2,000 shares  purchased  in 1995,  and William J.
Rocke filed a late Form 4 regarding 100 shares purchased March 24, 1994.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Old Frontier  Investment,  Inc. of Arizona,  of which  William J. Rocke and
Garnet Rocke, his wife, are owners of 51% of the issued and outstanding stock of
said  corporation  and James S. Rocke owns the remaining 49%, has entered into a
license agreement with the Company pursuant to which it operates, under standard
terms and  conditions,  an  insurance  adjusting  and risk  management  business
located  in  Scottsdale,  Arizona,  and is paid a 5%  royalty  on gross  revenue
derived from  services  provided by certain  other  licensees  in other  Arizona
cities and towns. The Company paid that  corporation  $13,382 during fiscal year
1999 in connection with such 5% royalty agreement.

     George M. Hill,  former Vice President and former  Director of the Company,
acts as General Counsel to the Company. During the fiscal year 1999, the Company
paid Mr. Hill $92,187 for services  rendered and  disbursements.  Such fees will
continue to accrue,  pursuant to a retainer agreement, at the rate of $3,000 per
month effective June 1, 1999.

     The  Company  paid its former Vice  Chairman,  William W.  Strawther,  Jr.,
$20,000 during fiscal year 1999 for business and financial consulting services.

     In April 1999, in conjunction  with the transaction  with UFAC, the Company
entered  into an  agreement  with UFAC  whereby the  Company  will pay a $25,000
monthly fee for marketing, managerial,  technological,  financial, the full time
services of Jeffrey  Jordan,  and other services and  resources.  As of June 30,
1999,  the  Company  has  incurred  $50,000  in  service  fees  related  to this
agreement.

     The Company  believes that the cost to the Company for all of the foregoing
were and are  competitive  with  charges for  similar  services  and  facilities
available from third parties.

                                     Page 24
<PAGE>
                                     PART IV

ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) (1)   Financial Statements

          The following Financial Statements are included at page F-1:

               Report of Independent Auditor

               Consolidated Balance Sheets - June 30, 1999 and 1998

               Consolidated  Statements  of Income for the Years  Ended June 30,
               1999, 1998 and 1997

               Condensed  Consolidated  Statements of  Comprehensive  Income for
               years ended June 30, 1999, 1998 and 1997

               Consolidated  Statements  of Cash Flows for the Years  Ended June
               30, 1999, 1998 and 1997

               Consolidated  Statements  of  Stockholders'  Equity for the Years
               Ended June 30, 1999, 1998 and 1997

               Notes to Consolidated  Financial Statements - June 30, 1999, 1998
               and 1997

(a) (2)   Financial Statement Schedules

          Schedule
           Number

             II     Valuation and Qualifying Accounts Years Ended June 30, 1999,
                    1998 and 1997

                    Schedules I through XIV not listed  above have been  omitted
                    because they are not applicable or the required  information
                    is  included in the  consolidated  financial  statements  or
                    notes thereto.

                                     Page 25
<PAGE>
(a) (3) EXHIBITS FILED WITH THIS REPORT

Exhibit No.                        Description of Exhibit
-----------                        ----------------------
    3(a)       Articles of Incorporation of Frontier Adjusters of America, Inc.*

    3(b)       By-Laws of Frontier Adjusters of America, Inc.**

   10(a)       Frontier Adjusters of America, Inc. Incentive Stock Option Plan*

   10(b)       Profit Sharing Plan, as amended***

   10(c)       Employment   Agreement,   dated   August  10,  1995  between  the
               Registrant and William J. Rocke***

   10(d)       Employment   Agreement,   dated   August  10,  1995  between  the
               Registrant and Jean E. Ryberg***

   10(e)       Incentive Stock Option Plan, dated October 10, 1987*

   10(f)       Form  of  Franchise   Agreement   between  the   Registrant   and
               franchisees*

   10(g)       Form of License Agreement between the Registrant and licensees*

   10(h)       Agreement,  dated  June  1,  1990,  between  the  Registrant  and
               Scottsdale Insurance Company*

   10(i)       Form of Software Purchase Agreement and Order Form*

   10(j)       Frontier Adjusters of America, Inc., Stock Option Plan, dated May
               21, 1996****

   10(k)       Employment   Agreement,   dated  April  23,  1996,   between  the
               Registrant and Francis J. LaPallo*****

   10(l)       Stock Purchase  Agreement between Frontier  Adjusters of America,
               Inc. and United Financial Adjusting Company, dated as of November
               20, 1998,  including  the  following  attachments******
                    Terms of Preferred Shares, Registration Rights Agreement,
                    Service Agreement, William Rocke Agreement, and
                    Jean Ryberg Agreement

   21          List of Subsidiaries of Frontier Adjusters of America, Inc.

   23          Consent of Independent Accountants

   27          Financial Data Schedule
----------
     *  Incorporated  by  reference  to  the Registrant's Form S-2 filed July 9,
        1991
    **  Incorporated  by  reference  to  the Registrant's Form 10-K for the year
        ended June 30, 1993
   ***  Incorporated  by  reference  to  the Registrant's Form 10-K for the year
        ended June 30, 1995
  ****  Incorporated  by reference to the Registrant's Form 10-Q for the quarter
        ended September 30, 1996.
 *****  Incorporated  by  reference  to  the Registrant's Form 10-K for the year
        ended June 30, 1996.
******  Incorporated  by  reference  to the  Exhibits to Frontier  Adjusters  of
        America, Inc., Notice of Annual Meeting, and Proxy Statement on Form 14A
        as filed with the SEC in definitive form on March 26, 1999.

(b)  The Company filed no reports on Form 8-K with the  Securities  and Exchange
     Commission during the last quarter of the fiscal year June 30, 1999

                                     Page 26
<PAGE>
                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, hereunto duly authorized.

                                        FRONTIER ADJUSTERS OF AMERICA, INC.

                                        /s/ Troy Huth
                                        ----------------------------------------
                                        Troy Huth, President
                                          and Chairman of the Board

                                        September 3, 1999

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates included:


/s/ John M. Davies                                             September 3, 1999
----------------------------------------
John M. Davies, Director


/s/ Jeffrey R. Harcourt                                        September 3, 1999
----------------------------------------
Jeffrey R. Harcourt, Chief
Financial Officer and Director


/s/ Troy Huth                                                  September 3, 1999
----------------------------------------
Troy Huth, Chairman of the
Board, President, Director


/s/ Jeffrey C. Jordan                                          September 3, 1999
----------------------------------------
Jeffrey C. Jordan, Exec.
Vice President, Director


/s/ Francis J. LaPallo                                         September 3, 1999
----------------------------------------
Francis J. LaPallo, Exec.
Vice President, Director


/s/ Lou Mastos                                                 September 3, 1999
----------------------------------------
Lou Mastos, Director


/s/ William J. Rocke                                           September 3, 1999
----------------------------------------
William J. Rocke, Director


/s/ Jean E. Ryberg                                             September 3, 1999
----------------------------------------
Jean E. Ryberg, Director


/s/ William A. White                                           September 3, 1999
----------------------------------------
William A. White, Director

                                     Page 27
<PAGE>
                       FRONTIER ADJUSTERS OF AMERICA, INC.

                                AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Report of Independent Auditor                                               F-2

Consolidated Balance Sheets - June 30, 1999 and 1998                        F-3

Consolidated Statements of Income for the Years Ended June 30,
1999, 1998 and 1997                                                         F-4

Condensed  Consolidated  Statements of Comprehensive Income
for the Years F-5 Ended June 30, 1999, 1998 and 1997.

Consolidated Statements of Cash Flows for the Years Ended
June 30, 1999, 1998 and 1997                                                F-6

Consolidated Statements of Stockholders' Equity for the Years
Ended June 30, 1999, 1998 and 1997                                          F-7

Notes to Consolidated Financial Statements - June 30, 1999,
1998 and 1997                                                               F-8

Supplementary Schedule                                                      F-19

Schedule II - Valuation and Qualifying Accounts Years Ended
June 30, 1999, 1998 and 1997                                                F-20

                                       F-1
<PAGE>
                          INDEPENDENT AUDITOR'S REPORT


To the Board of Directors
Frontier Adjusters of America, Inc.
Phoenix, Arizona

We have  audited  the  accompanying  consolidated  balance  sheets  of  Frontier
Adjusters of America,  Inc. and  subsidiaries  as of June 30, 1999 and 1998, and
the related consolidated statements of income, comprehensive income, cash flows,
and  stockholders'  equity for each of the three years in the period  ended June
30, 1999.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of Frontier Adjusters
of America,  Inc. and subsidiaries as of June 30, 1999 and 1998, and the results
of their  operations  and their  cash  flows for each of the three  years in the
period ended June 30, 1999, in conformity  with  generally  accepted  accounting
principles.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
consolidated   financial   statements   taken  as  a  whole.   The  consolidated
supplemental  schedule  II for the years  ended June 30,  1999,  1998,  and 1997
included on page F-20 of this form 10-K is  presented  for purposes of complying
with the Securities and Exchange Commission's rules and is not part of the basic
consolidated  financial  statements.  This  schedule  has been  subjected to the
auditing  procedures applied in our audits of the basic  consolidated  financial
statements  and, in our opinion,  is fairly  stated in all material  respects in
relation to the basic consolidated financial statements taken as a whole.

McGLADREY & PULLEN, LLP


/s/ McGladrey & Pullen, LLP

Phoenix, Arizona
August 6, 1999

                                       F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS

Frontier Adjusters of America, Inc. and Subsidiaries

<TABLE>
<CAPTION>
June 30,                                                            1999           1998
------------------------------------------------------------------------------------------
<S>                                                           <C>             <C>
ASSETS
CURRENT ASSETS
  Cash and cash equivalents                                   $  6,892,851    $    929,364
  Securities available for sale (Note 6)                                --       1,289,519
  Current portion of advances to licensees
    and franchisees (Note 4)                                       859,515         900,190
  Receivables, net (Note 3)                                        744,241         681,830
  Income tax refund receivable                                      99,226         172,948
  Unbilled adjusting fees                                           37,170          40,950
  Prepaid expenses                                                 344,041         317,454
  Deferred income taxes, current portion (Note 9)                  161,818         225,740
                                                              ------------    ------------
      TOTAL CURRENT ASSETS                                       9,138,862       4,557,995
                                                              ------------    ------------
PROPERTY AND EQUIPMENT, at cost, less accumulated
 depreciation and amortization (Note 5)                          1,608,936       1,724,329
                                                              ------------    ------------
OTHER ASSETS
  Held to maturity investments (Note 6)                            685,148         694,724
  Advances to licensees and franchisees,
    net of current portion (Note 4)                                350,000         431,000
  Licenses and franchises, net of accumulated
    amortization of $303,605 in 1999 and $256,654 in 1998          226,015         155,838
  Deferred income taxes, net of current portion (Note 9)            73,563          63,532
  Cost of subsidiary in excess of net identifiable assets
    acquired, net of accumulated amortization of $181,441
    in 1999 and $179,130 in 1998                                    32,377          34,688
  Other                                                              4,083         138,594
                                                              ------------    ------------
                                                                 1,371,186       1,518,376
                                                              ------------    ------------
      TOTAL ASSETS                                            $ 12,118,984    $  7,800,700
                                                              ============    ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
 Accounts payable                                             $     28,005    $     62,118
 Salaries payable and related benefits                             404,325         609,113
 Service fees due to UFAC                                           50,000              --
 Distributions payable (Note 14)                                 5,918,475              --
 Licensees' and franchisees' remittance payable                    552,946         545,830
 Current portion of long term liability                                 --          28,509
 Other (Note 13)                                                   111,600          97,936
                                                              ------------    ------------
      TOTAL CURRENT LIABILITIES                                  7,065,351       1,343,506
                                                              ------------    ------------
LONG TERM LIABILITY                                                     --           4,953
                                                              ------------    ------------
COMMITMENTS AND CONTINGENCIES (Note 13)                                 --              --
STOCKHOLDERS' EQUITY
Preferred stock, authorized 100,000,000 shares,
  par value $.01, none issued or outstanding                            --              --
Common stock, authorized 100,000,000 shares,
  par value $.01, issued 9,019,059 shares in
  1999 and 4,782,010 shares in 1998                                 90,191          47,820
Additional contributed capital                                   2,104,426       2,148,470
Retained earnings                                                3,022,731       4,735,935
                                                              ------------    ------------
                                                                 5,217,348       6,932,225
 Add (deduct):
  Treasury stock; 61,499 shares in 1999 and 176,652 in 1998       (184,368)       (529,584)
  Other                                                             20,653          49,600
                                                              ------------    ------------
         TOTAL STOCKHOLDERS' EQUITY                              5,053,633       6,452,241
                                                              ------------    ------------
         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY           $ 12,118,984    $  7,800,700
                                                              ============    ============
</TABLE>

The accompanying notes are an integral part of these statements.

                                       F-3
<PAGE>

CONSOLIDATED STATEMENTS OF INCOME

Frontier Adjusters of America, Inc. and Subsidiaries

<TABLE>
<CAPTION>
Years Ended June 30,                                        1999           1998           1997
--------------------------------------------------------------------------------------------------
<S>                                                      <C>            <C>            <C>
REVENUE
  Continuing licensee and franchisee fees (Note 7)       $ 4,936,349     $4,596,657    $ 5,278,967
  Adjusting and risk management fees (Note 7)              1,405,235      1,228,691        885,636
                                                         -----------    -----------    -----------
                                                           6,341,584      5,825,348      6,164,603
                                                         -----------    -----------    -----------
COST AND EXPENSES
  Compensation and employee benefits (Notes 11 and 13)     3,248,276      2,817,168      2,414,582
  Office                                                     411,345        404,554        379,287
  Advertising and promotion                                  385,372        395,210        347,396
  Depreciation and amortization                              271,884        253,667        240,246
  Bad debt expense                                           237,601        352,132        149,392
  Service fees to UFAC                                        50,000             --             --
  Legal fees paid to a director (Note 10)                     92,187         92,510         91,572
  Other                                                      891,342        609,111      1,064,058
                                                         -----------    -----------    -----------
                                                           5,588,007      4,924,352      4,686,533
                                                         -----------    -----------    -----------
    INCOME FROM OPERATIONS                                   753,577        900,996      1,478,070
                                                         -----------    -----------    -----------
OTHER INCOME (EXPENSE)
  Interest income                                            165,272        133,067        154,860
  Disposition of investments                                      --          4,042            343
  (Loss) on sale of license                                  (14,500)       (13,000)            --
  Gain on disposition of equipment                             1,501          6,352         24,875
  Realized gain (loss) (Note 6)                               60,753            (93)       (74,914)
  Other                                                       15,539         (3,497)        15,107
                                                         -----------    -----------    -----------
    TOTAL OTHER INCOME                                       228,565        126,871        120,271
                                                         -----------    -----------    -----------
    INCOME BEFORE INCOME TAXES                               982,142      1,027,867      1,598,341

    INCOME TAXES (Note 9)                                    435,690        415,392        619,143
                                                         -----------    -----------    -----------
    NET INCOME                                           $   546,452    $   612,475    $   979,198
                                                         ===========    ===========    ===========
EARNINGS PER SHARE
    Basic                                                $       .12    $       .13    $       .21
                                                         ===========    ===========    ===========
    Diluted                                              $       .12    $       .13    $       .21
                                                         ===========    ===========    ===========
WEIGHTED AVERAGE SHARES
  OUTSTANDING
    Basic                                                  4,569,049      4,605,358      4,607,709
                                                         ===========    ===========    ===========
    Diluted                                                4,570,113      4,612,674      4,631,898
                                                         ===========    ===========    ===========
</TABLE>

The accompanying notes are an integral part of these statements.

                                       F-4
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Frontier Adjusters of America, Inc. and Subsidiaries

<TABLE>
<CAPTION>
Years Ended June 30,                            1999           1998           1997
--------------------------------------------------------------------------------------
<S>                                          <C>            <C>            <C>
NET INCOME                                   $   546,452    $   612,475    $   979,198

OTHER COMPREHENSIVE INCOME, NET OF TAX

  Foreign currency translation adjustments         9,746         (6,037)       (15,351)
  Unrealized gain (loss) on securities,
   net of reclassification adjustment
   (see below)                                   (38,693)       (27,584)       105,263
                                             -----------    -----------    -----------
OTHER COMPREHENSIVE INCOME:                      (28,947)       (33,621)        89,912
                                             -----------    -----------    -----------
COMPREHENSIVE INCOME                         $   517,505    $   578,854    $ 1,069,110
                                             ===========    ===========    ===========

Reclassifications adjustment
  Unrealized gain (loss) on securities
   during the year                           $    22,060    $   (27,584)   $   105,263
  Less reclassification adjustment for
   gain (loss) included in net income            (60,753)            --             --
                                             -----------    -----------    -----------
  Net unrealized gains on securities         $   (38,693)   $   (27,584)   $   105,263
                                             ===========    ===========    ===========
</TABLE>

The accompanying notes are an integral part of these statements.

                                       F-5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS

Frontier Adjusters of America, Inc. and Subsidiaries

<TABLE>
<CAPTION>
Years Ended June 30,                                      1999            1998            1997
--------------------------------------------------------------------------------------------------
<S>                                                   <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
 Net income                                           $    546,452    $    612,475    $    979,198
                                                      ------------    ------------    ------------
 Adjustments to reconcile net income to net
  cash provided by operating activities:
   Depreciation and amortization                           272,430         255,852         241,884
   (Gain) on sale of investments                                --          (4,042)           (343)
   Loss on sale of license                                  14,500          13,000              --
   (Gain) on disposition of equipment                       (1,501)         (6,352)        (24,875)
   Bad debt expense                                        237,601         352,132         149,392
   Deferred income taxes                                    53,891         117,288        (263,209)
   Realized (gain)/loss on equity investments              (60,753)             93          74,914
   Change in assets and liabilities
    (Increase) decrease in:
     Receivables                                           (91,235)         (1,665)         12,364
     Unbilled adjusting fees                                 3,780         (14,250)        (10,600)
     Prepaid expenses                                      (26,587)        (49,262)         20,701
     Other                                                  93,569         (65,575)        (52,893)
    Increase (decrease) in:
     Accounts payable                                      (34,113)         28,325          22,127
     Salaries payable and related benefits                (204,788)        440,081         (69,183)
     Income taxes payable/receivable                        73,722        (257,937)         27,684
     Licensees' & franchisees' remittance payable            7,116         148,839         261,473
     Other                                                  63,664        (505,222)        485,564
                                                      ------------    ------------    ------------
     Total adjustment                                      401,296         451,305         875,000
                                                      ------------    ------------    ------------
    NET CASH PROVIDED
     BY OPERATING ACTIVITIES                               947,748       1,063,780       1,854,198
                                                      ------------    ------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES
 Proceeds from sale of fixed assets                         93,512          16,200              --
 Capital expenditures                                     (324,416)       (167,078)       (302,102)
 Investments purchased                                 (11,769,769)     (1,993,019)     (1,958,743)
 Proceeds from maturity of investments                  13,124,869       2,040,000       2,000,000
 Payments on license acquisition                           (33,462)        (26,521)       (110,172)
 Advances to licensees' and franchisees'                (4,183,647)     (4,267,700)     (3,979,135)
 Collections of advances to licensees & franchisees      4,096,545       3,948,312       3,703,132
                                                      ------------    ------------    ------------
NET CASH PROVIDED BY (USED IN)
 INVESTING ACTIVITIES                                    1,003,632        (449,806)       (647,020)
                                                      ------------    ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES
 Cash dividends                                           (172,701)       (690,806)       (691,351)
 Proceeds from sales of stock                            6,992,308              --              --
 Common stock repurchased                               (2,817,246)             --         (44,365)
                                                      ------------    ------------    ------------
NET CASH PROVIDED BY (USED IN)
 FINANCING ACTIVITIES                                    4,002,361        (690,806)       (735,716)
EFFECT OF EXCHANGE RATE CHANGES
 ON CASH                                                     9,746          (6,037)          6,231
                                                      ------------    ------------    ------------
NET INCREASE (DECREASE) IN CASH AND
 CASH EQUIVALENTS                                        5,963,487         (82,869)        477,693
CASH AND CASH EQUIVALENTS AT
 BEGINNING OF THE PERIOD                                   929,364       1,012,233         534,540
                                                      ------------    ------------    ------------
CASH AND CASH EQUIVALENTS AT
 END OF THE PERIOD                                    $  6,892,851    $    929,364    $  1,012,233
                                                      ============    ============    ============
</TABLE>

The accompanying notes are an integral part of these statements.

                                       F-6
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Frontier Adjusters of America, Inc. and Subsidiaries

<TABLE>
<CAPTION>
Years Ended June 30, 1999, 1998 and 1997
--------------------------------------------------------------------------------------------------------------------
                                                                                           Number of
                                            Number of    Par Value of     Additional       Preferred    Par Value of
                                          Common Shares     Common       Contributed        Shares        Preferred
                                             Issued          Stock         Capital          Issued          Stock
--------------------------------------------------------------------------------------------------------------------
<S>                                       <C>             <C>            <C>             <C>          <C>
Balance, June 30, 1996                       4,782,010    $    47,820    $ 2,148,470             --             --
 Cash dividends -
   $.15 per share                                   --             --             --             --             --
 Net income                                         --             --             --             --             --
 Treasury stock purchase
   14,300 shares                                    --             --             --             --             --
 Foreign currency translation                       --             --             --             --             --
 Unrealized gain                                    --             --             --             --             --
--------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1997                       4,782,010    $    47,820    $ 2,148,470             --             --
 Cash dividends -
  $.15 per share                                    --             --             --             --             --
 Net income                                         --             --             --             --             --
Foreign currency translation                        --             --             --             --             --
Unrealized loss                                     --             --             --             --             --
--------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1998                       4,782,010    $    47,820    $ 2,148,470             --             --
 Cash dividends -
  $.0375 per share                                  --             --             --             --             --
Sale of shares to UFAC (Note 14)                    --             --      6,765,982      5,258,513         52,585
Stock options exercised from
 65,153 shares of treasury
 stock                                              --             --        (21,580)            --             --
Retirement of 971,464 common shares
 shares repurchased in tender
  offer (Note 14)                             (971,464)        (9,714)    (2,807,531)            --             --
Distributions declared
  $1.60 per share (Note 14)                         --             --     (3,958,451)            --             --
Retirement of 50,000 treasury
 shares                                        (50,000)          (500)       (22,464)            --             --
Conversion of preferred shares
 into common shares (Note 14)                5,258,513         52,585             --     (5,258,513)       (52,585)
Net income                                          --             --             --             --             --
Foreign currency translation                        --             --             --             --             --
Unrealized gain                                     --             --             --             --             --
--------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1999                       9,019,059         90,191      2,104,426             --             --
====================================================================================================================


---------------------------------------------------------------------------------------------------
                                                                         Cumulative     Unrealized
                                            Retained       Treasury      Translation   Gain (loss) on
                                            Earnings        Stock         Adjustment    Investments
---------------------------------------------------------------------------------------------------

Balance, June 30, 1996                     $ 4,526,419    $  (485,219)   $    32,295    $   (38,986)
 Cash dividends -
   $.15 per share                             (691,351)            --             --             --
 Net income                                    979,198             --             --             --
 Treasury stock purchase
   14,300 shares                                    --        (44,365)            --             --
 Foreign currency translation                       --             --        (15,351)            --
 Unrealized gain                                    --             --             --        105,263
---------------------------------------------------------------------------------------------------
Balance, June 30, 1997                     $ 4,814,266    $  (529,584)   $    16,944    $    66,277
 Cash dividends -
  $.15 per share                              (690,806)            --             --             --
 Net income                                    612,475             --             --             --
Foreign currency translation                        --             --         (6,037)            --
Unrealized loss                                     --             --             --        (27,584)
---------------------------------------------------------------------------------------------------
Balance, June 30, 1998                     $ 4,735,935    $  (529,584)   $    10,907    $    38,693
 Cash dividends -
  $.0375 per share                            (172,701)            --             --             --
Sale of shares to UFAC (Note 14)                    --             --             --             --
Stock options exercised from
 65,153 shares of treasury
 stock                                              --        195,321             --             --
Retirement of 971,464 common shares
 shares repurchased in tender
  offer (Note 14)                                   --             --             --             --
Distributions declared
  $1.60 per share (Note 14)                 (1,960,024)            --             --             --
Retirement of 50,000 treasury
 shares                                       (126,931)       149,895             --             --
Conversion of preferred shares
 into common shares (Note 14)                       --             --             --             --
Net income                                     546,452             --             --             --
Foreign currency translation                        --             --          9,746             --
Unrealized gain                                     --             --             --        (38,693)
---------------------------------------------------------------------------------------------------
Balance, June 30, 1999                       3,022,731       (184,368)        20,653             --
===================================================================================================
</TABLE>

The accompanying notes are an integral part of these statements.

                                       F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Frontier Adjusters of America, Inc. and Subsidiaries
--------------------------------------------------------------------------------

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION -- These financial  statements  include the accounts
of Frontier Adjusters of America,  Inc.  (Company) and its subsidiaries,  all of
which  are  wholly-owned.  Intercompany  accounts  and  transactions  have  been
eliminated.

BUSINESS -- The Company's operations consist of the licensing and franchising of
independent  adjusters throughout the United States and Canada and the operation
of an  independent  adjusting  business  and a risk  management  division in its
Phoenix and Tucson,  Arizona and Las Vegas,  Nevada offices.  The Company grants
credit  to its  licensees  and  franchisees,  all of  whom  operate  within  the
insurance industry.  Revenue from claims adjusted by employees of the Company is
recognized  as the  services  are  performed;  revenue  from claims  adjusted by
independent  licensees and  franchisees is recognized when they become due under
the terms of the license and franchise agreements (Note 8).

CONSOLIDATED  STATEMENTS  OF CASH  FLOW -- Short  term  investments  which  have
original maturities of 90 days or less are considered cash equivalents.

CASH  CONCENTRATION  -- The Company  maintains  amounts on deposit in  financial
institutions in excess of federal deposit insurance limits.

DEPRECIATION  AND  AMORTIZATION -- Depreciation is computed using  straight-line
and accelerated  methods over estimated useful lives,  which range from three to
ten years for all  property  and  equipment  except for the two  buildings.  The
buildings are depreciated using the straight-line method over 30 years. The cost
of a subsidiary  in excess of net tangible  assets  acquired is being  amortized
over 40 years.

LICENSES AND  FRANCHISES  -- Licenses and  franchises  represent  Company  owned
adjusting  operations and are stated at cost less amortization.  Amortization is
computed using the straight-line basis over a period of five years.

INCOME  TAXES --  Deferred  taxes are  provided on a  liability  method  whereby
deferred tax assets are  recognized  for deductible  temporary  differences  and
operating loss and tax credit  carry-forwards  and deferred tax  liabilities are
recognized for taxable  temporary  differences.  Temporary  differences  are the
differences  between the reported  amounts and assets and  liabilities and their
tax bases.  Deferred tax assets are reduced by a valuation  allowance when it is
more likely than not that some  portion or all of the  deferred  tax assets will
not be  realized.  Deferred  tax assets and  liabilities  are  adjusted  for the
effects of changes in the tax laws and rates on the date of enactment.

USE OF ESTIMATES IN THE  PREPARATION OF FINANCIAL  STATEMENTS -- The preparation
of  financial  statements  in  conformity  with  generally  accepted  accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent  assets
and liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ
from those estimates.

INVESTMENTS    HELD-TO-MATURITY   SECURITIES   --   Securities   classified   as
held-to-maturity  are those debt  securities the Company has both the intent and
ability  to hold  to  maturity  regardless  of  changes  in  market  conditions,
liquidity needs or changes in general economic conditions.  These securities are
carried at cost adjusted for amortization of premiums and accretion of discount,
computed by the interest method over their contractual lives.

The sale of a security  within  three  months of its  maturity  date or after at
least 85 percent of the principal  outstanding  has been collected is considered
held to maturity for purposes of classification and disclosure.

                                       F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Frontier Adjusters of America, Inc. and Subsidiaries
--------------------------------------------------------------------------------

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

FAIR VALUE OF FINANCIAL  INSTRUMENTS  --  Management  uses its best  judgment in
estimating the fair value of the Company's financial instruments; however, there
are  inherent   weaknesses  in  any   estimation   technique.   Therefore,   for
substantially  all financial  instruments,  the fair value  estimates  presented
herein are not  necessarily  indicative  of the amounts  the Company  could have
realized in a sales  transaction at June 30 of the reporting year. The estimated
fair value amounts have been  measured as of June 30 of the  reporting  year and
have not  been  reevaluated  or  updated  for  purposes  of  these  consolidated
financial statements subsequent to that date. As such, the estimated fair values
of these financial instruments subsequent to the reporting date may be different
than the amounts reported at each year end.

The  information  in Note 6 should not be interpreted as an estimate of the fair
value of the entire Company since a fair value  calculation is only required for
a limited portion of the Company's  assets and  liabilities.  This disclosure of
fair  value  amounts  does not  include  the  fair  values  of any  intangibles,
licensees and  franchisees.  The carrying  amounts of all financial  instruments
approximate fair values.

REPORTING  COMPREHENSIVE  INCOME -- Effective July 1, 1998, the Company  adopted
Financial  Accounting  Standards  Board  (FASB)  Statement  No.  130,  Reporting
Comprehensive Income. Statement No. 130 requires that an enterprise (a) classify
items of other  comprehensive  income  (as  defined in the  Statement)  by their
nature in a financial statement and (b) display the accumulated balance of other
comprehensive  income separately from retained  earnings and additional  paid-in
capital in the equity section of the statement of financial position.

SEGMENT  REPORTING -- Effective June 30, 1999, the Company adopted Statement No.
131,  Disclosures  about  Segments of an  Enterprise  and  Related  Information.
Statement No. 131 modifies the disclosure  requirements for reportable  segments
and establishes  standards in the way public businesses report information about
operating  segments  in  financial  statements  and  interim  reports  issued to
shareholders.  Statement 131 also establishes  standards for related disclosures
about products and services, geographic areas, and major customers.

EARNINGS  PER COMMON SHARE -- Statement  No. 128  requires the  presentation  of
earnings  per share by all entities  that have common stock or potential  common
stock, such as options,  warrants,  and convertible  securities outstanding that
trade in a public  market.  Under  Statement No. 128, the Company is required to
present basic and diluted earnings per share amounts.  Diluted per share amounts
assume the  conversion,  exercise,  or issuance of all  potential  common  stock
instruments  unless  the effect is to reduce a loss or  increase  the income per
share from continuing  operations.  The Company  initially applied Statement No.
128 for its  interim  period  ending  December  31,  1997 and all prior  periods
presented have been restated with no material effect.

FOREIGN CURRENCY TRANSLATION -- The functional currency of the Company's foreign
operations  is  the  applicable  local  currency.  The  foreign  currencies  are
translated to U.S.  dollars using  applicable  exchange rates at the end of each
period.  The gains or losses  resulting from such  translations  are included in
Stockholders' Equity.

ADVERTISING EXPENSE -- Advertising expenditures are expensed when incurred.

NOTE 2: SUPPLEMENTAL CASH FLOW INFORMATION

                                           1999           1998           1997
                                        ----------------------------------------
Cash paid during the year:
  Interest                              $    1,369     $   30,898     $    7,259
  Income taxes                          $  315,659     $  607,170     $  854,741
Noncash financing activities:
  Accrued dividends                     $5,918,475             --             --

                                       F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Frontier Adjusters of America, Inc. and Subsidiaries
--------------------------------------------------------------------------------

NOTE 3: RECEIVABLES

                                                       1999             1998
                                                    -----------      -----------
Receivables consist of:
 Accounts receivable trade                          $   209,049      $   187,846
 Licensee and franchisee fees receivable                601,518          532,202
 Errors and omissions insurance premium advanced         90,992          114,028
 Other                                                    3,469            7,398
                                                    -----------      -----------
          Total receivables                             905,028          841,474
 Less allowance for doubtful accounts                   160,787          159,644
                                                    -----------      -----------
                                                    $   744,241      $   681,830
                                                    ===========      ===========

NOTE 4: LONG-TERM RECEIVABLES

Long-term  receivables consist of non interest bearing advances to licensees and
franchisees  which are  repayable  in the amount  equal to a  percentage  of the
monthly  licensee  and  franchisee  revenue.  Estimated  current  and  long-term
maturities are as follows:

                                                       1999             1998
                                                    -----------      -----------
Advances to licensees and franchisees               $ 1,399,095      $ 1,546,766
Less allowance for doubtful advances                    189,580          215,576
                                                    -----------      -----------
                                                      1,209,515        1,331,190
Less current portion                                    859,515          900,190
                                                    -----------      -----------
Long term portion                                   $   350,000      $   431,000
                                                    ===========      ===========

NOTE 5: PROPERTY AND EQUIPMENT

Property and equipment consist of:
                                                       1999             1998
                                                    -----------      -----------
Building and improvements                           $ 1,273,023      $ 1,269,288
Computers and software                                  269,724          231,810
Furniture and fixtures                                  359,235          312,565
Automobiles                                              51,494          143,225
                                                    -----------      -----------
                                                      1,953,476        1,956,888
Less accumulated depreciation and amortization          931,283          819,302
                                                    -----------      -----------
                                                      1,022,193        1,137,586
Land                                                    586,743          586,743
                                                    -----------      -----------
                                                    $ 1,608,936      $ 1,724,329
                                                    ===========      ===========

                                      F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Frontier Adjusters of America, Inc. and Subsidiaries
--------------------------------------------------------------------------------

NOTE 6: INVESTMENTS IN DEBT AND MARKETABLE EQUITY SECURITIES

The  following is a summary of the Company's  investment in debt and  marketable
equity securities as of June 30, 1999 and 1998:

<TABLE>
<CAPTION>
                                            Gross       Gross        Gross
                                          Amortized   Unrealized   Unrealized
                                            Cost        Gains        Losses     Fair Value
                                         -------------------------------------------------
                                                               1999
                                         -------------------------------------------------
<S>                                      <C>          <C>          <C>          <C>
Held to maturity securities
  Local government securities & other    $  685,148   $   17,886   $    2,992   $  700,042
                                         ----------   ----------   ----------   ----------
                                         $  685,148   $   17,886   $    2,992   $  700,042
                                         ==========   ==========   ==========   ==========

                                                               1998
                                         -------------------------------------------------
Available for Sale Securities
  U.S. government securities             $  993,148   $       --   $       --   $  993,148
  Equity securities                         257,678       68,311       29,618      296,371
                                         ----------   ----------   ----------   ----------
  Total available for sale securities     1,250,826       68,311       29,618    1,289,519
Held to maturity securities
   Local government securities & other      694,724       26,766        1,138      720,352
                                         ----------   ----------   ----------   ----------
                                         $1,945,550   $   95,077   $   30,756   $2,009,871
                                         ==========   ==========   ==========   ==========
</TABLE>

The Company's investment in local government  securities is concentrated in Salt
River Project Agricultural  Improvement and Power District Municipal Bonds which
mature between 2006 and 2031.

The Company  recognized a gain (loss) of $60,753,  ($93),  and ($74,914) for the
years ended June 30, 1999, 1998, 1997, respectively, due to the realized gain or
permanent impairment in value of its available for sale securities.

NOTE 7: LICENSING AND FRANCHISING

As of June 30,  1999,  the Company has  entered  into 494 license and  franchise
agreements  with  391  entities,  operating  407  offices  with  678  advertised
locations,  whereby the Company grants exclusive ten year licenses or franchises
for the right to use the name "Frontier  Adjusters" in a particular  area. There
is no  initial  license or  franchise  fee except  where the  Company  resells a
previously  acquired  license or  franchise  in which case the Company  seeks to
recover some or all of its acquisition  cost. The Company performs  advertising,
collection and remittance  services,  and provides the licensees and franchisees
with supplies.  As compensation  for the above, the Company receives a fee based
on a percentage of the licensees' or franchisees' gross billings. Gross billings
by licensees and  franchisees  for the years ended June 30, 1999,  1998 and 1997
were approximately $44,730,000, $42,050,000 and $48,060,000, respectively.

The Company's main line of business is providing services,  directly and through
licensees and franchisees,  to the insurance industry and to self-insureds.  The
revenue  and cost  components  along  with  identifiable  assets  and  number of
advertised locations are as follows:

                                      F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Frontier Adjusters of America, Inc. and Subsidiaries
--------------------------------------------------------------------------------

NOTE 7: LICENSING AND FRANCHISING (continued)

<TABLE>
<CAPTION>
                                  Licensing       Adjusting        Corporate
                                     and             and              and
                                 Franchising    Risk Management      Other       Consolidated
                                 -----------    ---------------  ------------    ------------
<S>                              <C>             <C>             <C>             <C>
1999
Revenue                          $  4,936,349    $  1,405,235    $         --    $  6,341,584
Costs and expenses                  3,885,586       1,184,289         518,132       5,588,007
                                 ------------    ------------    ------------    ------------
Income (loss) from operations    $  1,050,763    $    220,946    $   (518,132)   $    753,577
                                 ============    ============    ============    ============
Identifiable assets              $  4,231,025    $    637,680    $  7,250,279    $ 12,118,984
                                 ============    ============    ============    ============
Number of advertised locations
 Beginning of year                        652              10              --             662
 Opened                                    23              --              --              23
 Closed                                    (7)             --              --              (7)
 Ownership changes                         (9)              9              --              --
                                 ------------    ------------    ------------    ------------
 End of year                              659              19              --             678
                                 ============    ============    ============    ============

1998
Revenue                          $  4,596,657    $  1,228,691    $         --    $  5,825,348
Costs and expenses                  3,444,402       1,123,172         356,778       4,924,352
                                 ------------    ------------    ------------    ------------
Income (loss) from operations    $  1,152,255    $    105,519    $   (356,778)   $    900,996
                                 ============    ============    ============    ============
Identifiable assets              $  4,520,408    $    540,212    $  2,740,080    $  7,800,700
                                 ============    ============    ============    ============
Number of advertised locations
 Beginning of year                        646              12              --             658
 Opened                                    23              --              --              23
 Closed                                   (19)             --              --             (19)
 Ownership changes                          2              (2)             --              --
                                 ------------    ------------    ------------    ------------
 End of year                              652              10              --             662
                                 ============    ============    ============    ============

1997
Revenue                          $  5,278,967    $    885,636    $         --    $  6,164,603
Cost and expenses                   3,569,310         822,683         294,540       4,686,533
                                 ------------    ------------    ------------    ------------
Income (loss) from operations    $  1,709,657    $     62,953    $   (294,540)   $  1,478,070
                                 ============    ============    ============    ============
Identifiable assets              $  4,274,227    $    609,188    $  3,028,724    $  7,912,139
                                 ============    ============    ============    ============
Number of advertised locations
 Beginning of year                        618              20              --             638
 Opened                                    45              --              --              45
 Closed                                   (20)             (5)             --             (25)
 Ownership changes                          3              (3)             --              --
                                 ------------    ------------    ------------    ------------
 End of year                              646              12              --             658
                                 ============    ============    ============    ============
</TABLE>

                                      F-12
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Frontier Adjusters of America, Inc. and Subsidiaries
--------------------------------------------------------------------------------

NOTE 8: SEGMENT REPORTING

The Company's reportable segments are determined by the physical location of the
segment. Each segment is managed separately due to its physical location.

The Company has two reportable segments: (1) the Las Vegas/Henderson, Nevada and
the Tucson,  Arizona  adjusting  offices;  and (2) the corporate home office and
Phoenix adjusting  office.  The Las  Vegas/Henderson  and Tucson offices provide
claims adjustment services to insurance  companies and to self-insured  clients.
Both the Las  Vegas/Henderson  and  Tucson  offices  have a manager  onsite  who
oversees the daily  activities of that office and reports to the Company's  home
office.  The corporate home office and Phoenix  adjusting  office are located on
the same property. The corporate home office maintains the business derived from
the  Company's  franchisees/licensees,  as well as  supervises  and  manages the
Phoenix location.

The accounting  policies  applied to determine the segment  information  are the
same as those  described  in the  summary of  significant  accounting  policies.
However,  for the  purposes  of segment  reporting,  only  direct  expenses  are
reflected in the financial  information for the Las  Vegas/Henderson  and Tucson
offices.  Any overhead  incurred at the  Company's  home office for that segment
locations has not been allocated.

Management  evaluates  the  performance  of each segment based on profit or loss
from operations  before income taxes.  Management bases its decisions on monthly
financial  statements  which report profit or loss from the Las  Vegas/Henderson
and Tucson locations, and balance sheet and income statements for the Company on
a consolidated basis.

Financial information with respect to the reportable segments follows:

<TABLE>
<CAPTION>
                                  Las Vegas/Henderson   Corporate and
1999                               And Tucson Offices   Phoenix Office    Consolidated
----                               ------------------   --------------    ------------
<S>                                   <C>                <C>              <C>
Revenue                               $   503,002        $ 5,838,582      $ 6,341,584

Depreciation and Amortization              43,395            228,489          271,884
Interest Income                                --            165,272          165,272
Segment Net Income                         46,709            499,743          546,452
Expenditures for Segment Assets            19,298            305,118          324,416
Segment Assets                        $   112,008        $12,006,976      $12,118,984

                                  Las Vegas/Henderson   Corporate and
1998                               And Tucson Offices   Phoenix Office    Consolidated
----                               ------------------   --------------    ------------
Revenue                               $   524,779        $ 5,300,569      $ 5,825,348

Depreciation and Amortization              43,433            210,234          253,667
Interest Income                                --            133,067          133,067
Segment Net Income                          1,487            610,988          612,475
Expenditures for Segment Assets             9,225            157,853          167,078
Segment Assets                        $    89,501        $ 7,711,199      $ 7,800,700
</TABLE>

                                      F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Frontier Adjusters of America, Inc. and Subsidiaries
--------------------------------------------------------------------------------

NOTE 8: SEGMENT REPORTING (continued)

<TABLE>
                                  Las Vegas/Henderson   Corporate and
1997 (a)                           And Tucson Offices   Phoenix Office    Consolidated
----                               ------------------   --------------    ------------
<S>                                   <C>                <C>              <C>
Revenue                               $   271,264        $ 5,893,339      $ 6,164,603

Depreciation and Amortization              33,328            206,918          240,246
Interest Income                                --            154,860          154,860
Segment Net Income                         14,939            964,259          979,198
Expenditures for Segment Assets            22,487            279,615          302,102
Segment Assets                        $    76,379        $ 7,835,760      $ 7,912,139
</TABLE>

(a) The Las Vegas/Henderson office began operations 4/1/97.

The Company  earns  franchise  fees from  franchisees  in the United  States and
Canada.  All  long-lived  assets are located at the Company's home office in the
United  States.  The following  table presents  information  about the Company's
revenue by geographic area:

                                            1999          1998          1997
                                         -----------   -----------   -----------
United States                            $ 6,315,790   $ 5,785,503   $ 6,116,089
Canada                                        25,794        39,845        48,514
                                         -----------   -----------   -----------
Total Revenue                            $ 6,341,584   $ 5,825,348   $ 6,164,603
                                         ===========   ===========   ===========

NOTE 9: INCOME TAXES

The components of the provision for income taxes at June 30 are as follows:

                                           1999          1998          1997
                                        -----------   -----------   -----------
Federal
 Current                                $   309,299   $   241,232   $   695,946
 Deferred                                    42,788        93,123      (208,979)
State
 Current                                     72,500        56,872       186,406
 Deferred                                    11,103        24,165       (54,230)
                                        -----------   -----------   -----------
   Income taxes                         $   435,690   $   415,392   $   619,143
                                        ===========   ===========   ===========

A  reconciliation  of the  statutory  Federal  income tax rate to the  Company's
effective tax rate follows:

                                           1999          1998          1997
                                        -----------   -----------   -----------
Statutory rate                                 35.0%         35.0%         35.0%
Increase (decrease) resulting from:
 State income taxes, net                        5.5           5.1           5.5
 Non-deductible items                           4.0           3.4           1.6
 Non-taxable revenue                           (1.4)         (1.4)         (1.1)
 Other                                          1.3          (1.7)         (2.3)
                                        -----------   -----------   -----------
Effective rate                                 44.4%         40.4%         38.7%
                                        ===========   ===========   ===========

                                      F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Frontier Adjusters of America, Inc. and Subsidiaries
--------------------------------------------------------------------------------

NOTE 9: INCOME TAXES (continued)

Net deferred tax assets consist of the following components:

                                                          1999            1998
                                                        --------        --------
Deferred tax assets
  Current:
  Allowance for doubtful accounts                       $129,858        $143,631
  Other liabilities                                       31,960          82,109
                                                        --------        --------
                                                         161,818         225,740
  Long term:
  Property and equipment                                  73,563          63,532
                                                        --------        --------
                                                        $235,381        $289,272
                                                        ========        ========

NOTE 10: RELATED PARTY TRANSACTIONS

Old Frontier  Investment,  Inc. of Arizona, of which William J. Rocke and Garnet
Rocke,  his wife, are owners of 51% of the issued and outstanding  stock of said
corporation  and James S. Rocke  owns the  remaining  49%,  has  entered  into a
license agreement with the Company pursuant to which it operates, under standard
terms and  conditions,  an  insurance  adjusting  and risk  management  business
located  in  Scottsdale,  Arizona,  and is paid a 5%  royalty  on gross  revenue
derived from  services  provided by certain  other  licensees  in other  Arizona
cities and towns. The Company paid that  corporation  $13,382 during fiscal year
1999 in connection with such 5% royalty agreement.

George M. Hill,  former Vice President and former Director of the Company,  acts
as General Counsel to the Company.  The Company paid the law firm  approximately
$92,000 in fiscal 1999, $93,000 in fiscal 1998, $92,000 in fiscal 1997 for legal
services  and  reimbursement  of  expenses.  Such fees will  continue to accrue,
pursuant to a retainer agreement at the rate of $3,000 per month.

The Company paid its former Vice Chairman,  William W. Strawther,  Jr.,  $20,000
during fiscal year 1999 for business and financial consulting services.

In April  1999,  in  conjunction  with the  transaction  with UFAC,  the Company
entered into an  agreement  with UFAC whereby the Company pays $25,000 per month
for marketing, managerial,  technological,  financial, the full-time services of
Jeffrey  Jordan,  and other  services and  resources.  As of June 30, 1999,  the
Company had incurred $50,000 in service fees related to this agreement.

The Company  believes that the cost to the Company for all of the foregoing were
competitive  with charges for similar  services and  facilities  available  from
third parties.

NOTE 11: PROFIT SHARING PLAN

On June 14, 1984,  the Company  adopted a Profit  Sharing  Plan (Plan)  covering
substantially  all  employees  of the  Company  who have  completed  one year of
service and have  reached age 20. The Plan  provides  for  contributions  at the
discretion of management not to exceed the amount  permitted  under the Internal
Revenue Code as a deductible expense. Participants' benefits vest at the rate of
20% per  year.  Contributions  to the  Plan  are  made  to  trust  accounts  for
investment at the  discretion of the  individual  participants.  Profit  sharing
expense was $235,724,  $258,272, and $217,601 for the years ended June 30, 1999,
1998, and 1997 respectively.

                                      F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Frontier Adjusters of America, Inc. and Subsidiaries
--------------------------------------------------------------------------------

NOTE 12: STOCK OPTIONS

The Company applies APB Option 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and
related   Interpretations   in  accounting  for  its  plans.   Accordingly,   no
compensation  cost has been  recognized  for  grants in which the fair value per
share exceeds the exercise  price per share.  No  compensation  expense has been
charged to expense  for any period  presented.  The  Company  has elected not to
adopt FASB  Statement No. 123,  ACCOUNTING  FOR  STOCK-BASED  COMPENSATION.  Had
compensation  cost for the Company's stock option plan been determined  based on
the fair value at the grant dates for awards under this plan consistent with the
method of Statement No. 123,  reported net income for 1999, 1998, and 1997 would
have decreased by $18,000, $20,000 and $20,000, respectively,  with no effect on
earnings per share.

On October 9, 1987,  the  shareholders  approved an Incentive  Stock Option Plan
(1987 Plan) which  provides for the granting of options to acquire up to 300,000
shares of common stock to certain  officers and key  employees of the Company at
no less  than  100% of the fair  market  value  of the  stock on the date of the
grant.  Options under the Plan are intended to be Incentive Stock Options (ISOs)
pursuant to Section 422A of the Internal  Revenue Code.  Such options may have a
maximum term of ten years and are exercisable one year after they are granted.

On October 11, 1996, the  shareholders  approved a Stock Option Plan (1996 Plan)
which had been adopted by the Board of  Directors on May 21, 1996 and  effective
July 1,  1996,  which  provides  for the  granting  of  options to acquire up to
300,000  shares of common  stock to certain  officers  and key  employees of the
Company. Options under the Plan may be incentive stock options "ISO" pursuant to
Section 422A of the Internal  Revenue Code. On July 1, 1996, the Company granted
ISO's for  100,000  shares of stock at $2.875 per  share,  the fair value at the
grant date.

Outstanding  options become  exercisable in varying  amounts  beginning one year
after grant. Information regarding these option plans are as follows:

<TABLE>
<CAPTION>
                                                 Number of Shares
                        -----------------------------------------------------------------
                                1999                   1998                  1997
                        --------------------    -------------------   -------------------
                        Number of   Weighted    Number of  Weighted   Number of  Weighted
                         Shares     Average      Shares    Average     Shares    Average
                        --------    --------    --------   --------   --------   --------
<S>                     <C>         <C>         <C>        <C>        <C>        <C>
Outstanding July 1       300,000    $   3.05     300,000   $   3.05    200,000   $   3.14
Granted                       --          --          --         --    100,000       2.88
Exercised                (65,153)      (2.67)         --         --         --         --
Expired                 (105,218)      (3.37)         --         --         --         --
                        --------    --------    --------   --------   --------   --------
Outstanding June 30      129,629    $   2.99     300,000   $   3.05    300,000   $   3.05
                        ========    ========    ========   ========   ========   ========
</TABLE>

                                                   1999       1998        1997
                                                 --------   --------    --------
Exercisable at end of year                        129,629    234,782     200,000
Weighted-average fair value per option                                  $    .60
 of options granted during the year

At June 30, 1999,  there are no remaining  options  available for issuance under
the 1987 Plan and the 1996 Plan had options  available  for  granting of 200,000
shares.

                                      F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Frontier Adjusters of America, Inc. and Subsidiaries
--------------------------------------------------------------------------------

NOTE 12: STOCK OPTIONS (continued)

<TABLE>
<CAPTION>
                                  Weighted         Weighted                  Weighted
Range of                           Average          Average                   Average
Exercise         Number           Remaining        Exercise     Number       Exercise
 Price         Outstanding     Contractual Life      Price    Exercisable      Price
 -----         -----------     ----------------      -----    -----------      -----
<S>            <C>             <C>                 <C>        <C>           <C>
 $2.88           100,000              7.0             2.88      100,000         2.88
 $3.38            29,629              4.6             3.38       29,629         3.38
                --------                                       --------
                 129,629                                        129,629
                ========                                       ========
</TABLE>

In determining the proforma amounts above, the value of each grant was estimated
at the  grant  date  using  the  Black-Scholes  option  pricing  model  with the
following  assumptions  for  grants  in  1997:  a  dividend  rate of 5%, a price
volatility of 28%, a risk free rate of 6%, and an expected life of six years.

NOTE 13: COMMITMENTS AND CONTINGENCIES

The  Company  entered  into  five-year  employment  agreements  with  three  key
executive  officers.  Two of these  agreements  were to expire on June 30, 2000,
however,  were  terminated  on  June  30,  1999,  due  to the  employees'  early
retirement.  Severance  packages  related  to their  retirement  resulted  in an
expense of $577,767 for the fiscal year ended June 30, 1999.  For the  remaining
agreement,  which expires June 30, 2001, the employee  receives a base salary in
addition to a bonus based upon the Company's pre-tax earnings and annual cost of
living increases.  Total compensation under the three employment  agreements was
$662,020,  $786,497,  and $788,605 for years ended June 30, 1999, 1998 and 1997,
respectively.

The aggregate commitment for future salaries at June 30, 1999, excluding bonuses
and cost of living increases, is $318,034 as follows:

          Year ending June 30,
          --------------------
                  2000                                          159,017
                  2001                                          159,017

The Company  leases  various  office space and office  equipment  under  various
noncancellable  agreements.  These  leases  expire  between  August 31, 1999 and
August 31, 2002 and require various minimum annual rental payments.  Each office
lease also requires the payment of taxes.

The total minimum rental commitment at June 30, 1999 is due as follows:

     During the year ending June 30:

                 2000                                          $ 34,006
                 2001                                            15,065
                 2002                                            14,823
                 2003                                             2,490
                                                               --------
                                                               $ 66,384
                                                               ========

                                      F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Frontier Adjusters of America, Inc. and Subsidiaries
--------------------------------------------------------------------------------

NOTE 13: COMMITMENTS AND CONTINGENCIES (continued)

The total rental expense  included in the income  statements for the years ended
June 30, 1999, 1998, and 1997 is $35,633, $34,365, and $28,829, respectively.

During the year, a claim was filed  against  multiple  defendants  including the
Company. The complaint arises from the alleged embezzlement by a former licensee
in  connection  with the  provision  of claims  services.  The  complaint  seeks
compensatory  damages of at least  $1,800,000.  The  litigation  is in the early
phases of discovery,  therefore, the Company cannot yet assess the merits of the
complaint or the effects this  litigation  will have on the Company.  As of June
30, 1999, the Company has not accrued any amounts for potential losses.

Included in Other Liabilities is the Company's payable to  franchisees/licensees
and  clients  at June  30,  1999  and  June 30,  1998 of  $37,065  and  $47,807,
respectively.

NOTE 14: STOCK TRANSACTIONS

On  April  29,  1999,  at  the  annual  shareholders'   meeting,  the  Company's
shareholders  approved the November 20, 1998,  agreement between the Company and
United Financial  Adjusting Company  ("UFAC"),  a wholly owned subsidiary of The
Progressive Corporation ("Progressive"). Pursuant to the agreement, on April 30,
1999,  UFAC purchased  5,258,513  shares of the Company's newly issued shares of
Series A  Convertible  Voting  Preferred  Stock at a price of $1.30  per  share.
UFAC's  purchase   represented   approximately   53%  of  the  Company's  voting
securities. Following the purchase by UFAC, the Company issued a tender offer to
purchase up to 1,000,000  common  stock shares at $2.90 per share from  existing
shareholders.  The tender offer  expired on June 12,  1999,  and resulted in the
purchase of 971,464 common stock shares.  Also pursuant of UFAC's purchase,  the
Company  declared a cash  distribution  of $1.60 per share for  shareholders  of
record  on June 25,  1999,  and  payable  to the  holders  of the  rights of the
distribution  on July 12, 1999.  Those shares  tendered in the tender offer were
not eligible for the cash distribution.  UFAC was not eligible to participate in
the tender offer,  nor was UFAC entitled to the cash  distribution.  On June 30,
1999,   UFAC's  preferred  shares  were  converted  into  common  stock  shares,
representing 59% of the Company's voting securities.

                                      F-18
<PAGE>
                       FRONTIER ADJUSTERS OF AMERICA, INC.
                                AND SUBSIDIARIES

                               SUPPLEMENTARY DATA

Selected Quarterly Financial Data

(Information for all periods shown below is unaudited)

<TABLE>
<CAPTION>
                                                           1999
                                      --------------------------------------------------
                                                    Three Months Ended
                                      --------------------------------------------------
                                       Sept. 30     Dec. 31      Mar. 31       June 30
                                      ----------   ----------   ----------    ----------
<S>                                   <C>          <C>          <C>           <C>
Revenue                               $1,633,369   $1,524,113   $1,572,172    $1,611,930
Income from operations                   395,320      260,424      312,573      (214,740)
Income before income taxes               423,263      296,089      347,951       (85,161)
Net income (loss)                        255,916      179,499      208,216       (97,179)
Net income (loss) per share
  Basic                                      .06          .04          .05          (.02)
  Diluted                                    .06          .04          .05          (.02)
Weighted average shares outstanding
  Basic                                4,605,358    4,605,358    4,605,358     4,459,723
  Diluted                              4,609,163    4,605,358    4,605,784     4,459,723


                                                            1998
                                      --------------------------------------------------
                                                     Three Months Ended
                                      --------------------------------------------------
                                       Sept. 30     Dec. 31      Mar. 31       June 30
                                      ----------   ----------   ----------    ----------
Revenue                               $1,483,708   $1,411,242   $1,440,432    $ 1,489,966
Income from operations                   388,084      319,846      233,857        (40,791)
Income before income taxes               426,229      386,659      274,900        (59,921)
Net income (loss)                        258,642      234,391      166,817        (47,375)
Net income (loss) per share
  Basic                                      .06          .05          .04           (.01)
  Diluted                                    .06          .05          .04           (.01)
Weighted average shares outstanding
  Basic                                4,605,358    4,605,358    4,605,358      4,605,358
  Diluted                              4,605,358    4,628,045    4,611,934      4,605,358


                                                            1997
                                      --------------------------------------------------
                                                     Three Months Ended
                                      --------------------------------------------------
                                       Sept. 30     Dec. 31      Mar. 31       June 30
                                      ----------   ----------   ----------    ----------
Revenue                               $1,663,529   $1,505,195   $1,485,765    $1,510,114
Income from operations                   520,451      469,744      391,257        96,618
Income before income taxes               563,995      546,913      437,238        50,194
Net income                               342,263      329,847      265,137        41,951
Net income per share
  Basic                                      .07          .07          .06           .01
  Diluted                                    .07          .07          .06           .01
Weighted average shares outstanding
  Basic                                4,614,684    4,605,358    4,605,358     4,605,358
  Diluted                              4,626,202    4,638,337    4,635,531     4,627,521
</TABLE>

                                      F-19
<PAGE>
                       FRONTIER ADJUSTERS OF AMERICA, INC.
                                AND SUBSIDIARIES

                        VALUATION AND QUALIFYING ACCOUNTS

                For the Years Ended June 30, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                                 Additions
                                      Balance at   Charged to   Deductions     Balance
                                      Beginning     Cost and       From         at End
                                      of Period     Expenses     Reserves      of Period
                                      ----------   ----------   ----------    ----------
<S>                                   <C>          <C>          <C>           <C>
Year Ended June 30, 1999:
  Allowance for doubtful accounts     $  375,220   $  237,601   $  244,435    $  350,367

Year Ended June 30, 1998:
  Allowance for doubtful accounts     $  250,137   $  352,132   $  227,049    $  375,220

Year Ended June 30, 1997:
  Allowance for doubtful accounts     $  245,000   $  149,392   $  144,255    $  250,137
</TABLE>

                                      F-20