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, 2001

[ ]  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)


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


           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. [X]

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant was $5,398,127 as of September 14, 2001.

The number of shares  outstanding  of the  registrant's  Common Stock,  $.01 par
value, as of September 14, 2001, was 8,957,660.

                                     Page 1
<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,
certain of the Adjusters offer risk management  services to their clients. As of
June 30, 2001, the Company had entered into 524 license and franchise agreements
("Agreements")  with 390  entities,  operating  482 offices with 681  advertised
locations  in 50 states,  the  District of Columbia  and Canada.  In addition to
licensing  and  franchising  Adjusters,  the  Company  had  owned  and  operated
independent  insurance  adjusting and risk management  businesses in Arizona and
Nevada.  These  businesses  were sold in the fourth  quarter of the fiscal  year
ended June 30, 2001.

As of June  30,  2001,  the  Company  employed  20  full-time  people.  Two were
full-time officers of the Company, and 18 were full-time  administrative  staff.
Management believes that its relations with its employees are good.

In April 2001, the Company  announced that United  Financial  Adjusting  Company
("UFAC"), its majority shareholder, had sold its 5,258,513 shares in the Company
to  Merrymeeting,  Inc.  ("MMI"),  a company  50% owned by John M.  Davies,  the
Company's CEO,  President and Chairman of the Board of Directors,  for $1.58 per
share.  As a  result  of the  sale of the  shares  by UFAC to MMI,  the  service
agreement between the Company and UFAC was terminated  effective April 30, 2001.
The Company still  receives and pays for limited  services  provided by UFAC not
related to the terminated service agreement.  In addition, the Company announced
that its Board of  Directors  had approved a proposal by MMI to take the Company
private  through a cash-out merger at a price of $1.58 per share (referred to as
"Transaction").  Consummation  of this  Transaction  is subject to  approval  by
certain regulatory agencies and by the Company's  shareholders.  The Company has
announced a Special Meeting of shareholders to be held at 9:00 a.m. Arizona time
on Friday, September 28, 2001 for a vote of shareholders on the Transaction. The
record date for the meeting was August 29, 2001.

GENERAL

For its fiscal year ended June 30, 2001, the Company's licensing and franchising
activities  accounted for approximately 90% of gross revenue,  and the Company's
adjusting and risk  management  businesses  accounted for  approximately  10% of
gross  revenue.  For the fiscal years ended June 30, 2000 and June 30, 1999, the
Company's licensing and franchising  activities  accounted for approximately 83%
and 78%,  respectively,  of gross revenue,  and the Company's adjusting and risk
management businesses accounted for approximately 17% and 22%, 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 is based), are set forth in the following table:

<TABLE>
<CAPTION>
                                                                               FISCAL YEAR ENDED JUNE 30,
                                                                        -----------------------------------------
                                                                           2001            2000           1999
                                                                        -----------    -----------    -----------
<S>                                                                     <C>            <C>            <C>
Gross billings by Adjusters (approximate)                               $48,410,000    $45,810,000    $44,730,000
Revenue from licensing and franchising activities                         5,555,722      5,170,592      4,936,349
Revenue from Company-owned adjusting and risk management businesses         628,120      1,086,304      1,405,235
</TABLE>

For its fiscal year ended June 30, 2001, the Company's licensing and franchising
activities accounted for approximately  $3,022,000 in income from operations and
the  Company's   adjusting  and  risk   management   businesses   accounted  for
approximately  $103,000 in a loss from  operations.  For the fiscal  years ended
June 30,  2000 and  June 30,  1999,  the  Company's  licensing  and  franchising

                                     Page 2
<PAGE>
activities accounted for approximately  $2,372,000 and $1,051,000  respectively,
in income from  operations,  and the  Company's  adjusting  and risk  management
businesses accounted for approximately $ 88,000 and $221,000,  respectively,  in
income from operations.

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
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.

LICENSE AND FRANCHISE AGREEMENTS

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  2001,  the  Company  retained  11.3%  of  the  Adjusters'
collections as royalty fees under all of its 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.

                                     Page 3
<PAGE>
LICENSE AND FRANCHISE AGREEMENTS (CONTINUED)

Before entering into an Agreement with a prospective licensee or franchisee, the
Company  reviews  the  prospective  licensee's  or  franchisee's  background  to
determine   whether  he  or  she  is  qualified  and  experienced  in  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 Adjusters.  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,  national account
marketing  programs  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 monthly
for  invoices  in  excess of 60 days in age.  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.

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.

The Company  frequently  lends money to assist the  Adjusters  in meeting  their
business and personal expenses.  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 $294,442 per month and has received  reimbursement of an average of
$295,154 per month. At June 30, 2001, the Company had approximately  $862,000 in
outstanding  loans or advances.  During the past four fiscal years,  the Company
has  written  off an average of  $146,616  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

                                     Page 4
<PAGE>
LICENSE AND FRANCHISE AGREEMENTS (CONTINUED)

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
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.

                                     Page 5
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LICENSE AND FRANCHISE AGREEMENTS (CONTINUED)

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
conducted  independent  insurance  adjusting and risk  management  operations in
Arizona and Nevada.  The Company sold these  businesses in the fourth quarter of
the fiscal year ended June 30, 2001.

                             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".

                                     Page 6
<PAGE>
DEPENDENCE UPON KEY PERSONNEL

The Company gained the full-time services of John M. Davies, age 45, and Jeffrey
R.  Harcourt,  age 40,  when UFAC sold its  shares of the  Company  to MMI.  Mr.
Davies,  Mr. Harcourt,  a marketing director and a CIO have replaced most of the
services  previously  provided  to the  Company  by UFAC  including  managerial,
marketing, financial, technological and other services. Mr. Davies serves as the
Company's  CEO,  President and Chairman of the Board of the  Directors,  and Mr.
Harcourt  serves as the  Company's  CFO,  Treasurer  and  Secretary.  Should the
Company lose the services of Mr. Davies and/or Mr.  Harcourt,  the Company would
be materially adversely affected.

VOTING CONTROL

The  directors  and  officers  of  the  Company  own  approximately  29%  of the
outstanding   voting  stock  of  the  Company.   MMI's   ownership   constitutes
approximately 59% of the Company's  outstanding voting stock. If the Transaction
is consummated, MMI will own 100% of the Company's outstanding voting stock.

DEPENDENCE UPON SIGNIFICANT CLIENTS

The Company generally considers its client base broad and well-diversified,  and
does not have any clients that generate 10% or more of consolidated  revenue. To
avoid  dependence  on any one  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 renewing accounts. Failure to procure or
maintain  such  accounts  may have a material  adverse  affect on the  Company's
business. See "Special Considerations - Competition".

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.

The Company is aware of another  entity in the insurance  industry that has been
granted  registration  by the United  States  Patent and  Trademark  Office of a
service  mark for the name  "Frontier."  The  Company  continues  to monitor and
evaluate this matter. If it is determined that action should be taken to protect
its service mark,  but the Company 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.

                                     Page 7
<PAGE>
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
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 indirectly as a
licensor  and  franchisor  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,  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",
"Special  Considerations  - The  Insurance  Adjusting  Business",  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.
Payment of quarterly  dividends was then suspended until a one-time  dividend of
$1.60 per share was  declared  during the fourth  quarter  of fiscal  1999.  The
Company has since ceased payment of dividends. The Company intends to retain its
earnings  to finance  the  development,  expansion  and growth of the  business.
Consequently,  the Board of Directors does not currently  anticipate the payment
of any dividends to the Company's shareholders in the foreseeable future.

                                     Page 8
<PAGE>
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".

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.  The office building currently contains  approximately 13,000 square
feet of office space. The Company also owns a parcel of real property across the
street from the  Company's  principal  office,  which is utilized  for  employee
parking. As the Company sold its Phoenix adjusting office in April 2001, and has
therefore  reduced its staff  located at its  principal  place of business,  the
Company  now has excess  space.  The Company  has  therefore  placed its 45 East
Monterey Way location for sale as well as the parcel across the street. Upon the
sale of these  properties,  the Company plans to relocate to leased office space
in the Phoenix, Arizona area.

The Company  owned a small  building and property at 51 East  Monterey Way which
contained two offices and was sold during the first quarter of fiscal 2002.  The
combined  offices  contain  approximately  1,500 square feet of office space and
were used for storage.

As a result of the  Company's  decision  to sell these  properties,  the Company
adjusted  the  carrying  value of these  properties  down by $172,600 to reflect
their estimated market value.

Additionally, the Company leases approximately 2,100 square feet of office space
in Independence,  Ohio, 800 square feet of office space in Tucson,  Arizona, and
1,000  square feet of office  space in Las Vegas,  Nevada.  Four  members of the
Company's  executive  management  team are located in the office space leased in
Independence, Ohio. The Tucson, Arizona and Las Vegas, Nevada office spaces were
used for the adjusting  businesses  located in those cities that were previously
owned by the Company. As the Company sold its Tucson, Arizona adjusting business
in January 2000, the Company no longer uses the office leased there and has been
unsuccessful  in its  attempts to sublease it. The Las Vegas,  Nevada  adjusting
office was sold in June 2001 and the  Company no longer  uses the office  leased
there.  Although the Company  remains the lessor,  the  franchisee now servicing
that  territory  has  moved  into the  office  space  and is  funding  the lease
obligation.

ITEM 3 - LEGAL PROCEEDINGS

In June  1999,  Safeway  Inc.  filed a  complaint  against  multiple  defendants
including the Company in the United States and District  Court in Nebraska.  The
complaint  arose from the alleged  embezzlement  of over  $1,800,000 by a former
franchisee of the Company.  The complaint  alleged 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 sought an accounting
and a recovery of  compensatory  damages of at least  $1,800,000.  In the fourth
quarter of fiscal  2001,  this  lawsuit was settled at no expense to the Company
and the Company received  reimbursement  of costs and expenses,  including legal
fees, of approximately $40,000.

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

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

Matters were submitted to a vote of securities holders during the second quarter
of this fiscal year.  Such matters were reported on the Company's  Form 10-Q for
the period  ended  December 31,  2000.  No matters  were  submitted to a vote of
security  holders  during the fourth  quarter of the fiscal year covered by this
report.

                                     Page 9
<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                Volume
                                              ------------------         ------
                                              High           Low
                                              ----           ---
Fiscal Year Ended June 30, 2001
  First Quarter                             $ 4.000        $ 2.625       120,800
  Second Quarter                              3.000          1.000       139,500
  Third Quarter                               1.750          1.000        84,600
  Fourth Quarter                              1.550          1.000       189,300

Fiscal Year Ended June 30, 2000
  First Quarter                             $ 3.250        $ 1.500       308,800
  Second Quarter                              2.125          1.000       370,900
  Third Quarter                               4.500          1.250       397,600
  Fourth Quarter                              4.000          2.500       240,500

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, 2001
  First Quarter                                               $  .0000
  Second Quarter                                                 .0000
  Third Quarter                                                  .0000
  Fourth Quarter                                                 .0000

Fiscal Year Ended June 30, 2000
  First Quarter                                               $  .0000
  Second Quarter                                                 .0000
  Third Quarter                                                  .0000
  Fourth Quarter                                                 .0000

As of September 14, 2001,  the Company has  approximately  220 holders of record
and 800 beneficial holders of its Common Stock.

The Company intends to retain its earnings to finance development, expansion and
growth of its business.  Consequently, the Board of Directors does not currently
anticipate  the payment of any  dividends to the Company's  shareholders  in the
foreseeable future.

                                     Page 10
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                Year Ended June 30,
                                        -----------------------------------------------------------------------
                                            2001           2000          1999            1998           1997
                                        -----------    -----------    -----------    -----------    -----------
INCOME STATEMENT DATA
<S>                                     <C>            <C>            <C>            <C>            <C>
  Operating revenue                     $ 6,183,842    $ 6,256,896    $ 6,341,584    $ 5,825,348    $ 6,164,603
  Net income                              1,575,240      1,240,369        546,452        612,475        979,198
  Basic earnings per share                      .18            .14            .12            .13            .21
  Diluted earnings per share                    .18            .14            .12            .13            .21
  Weighted average number of shares
   used in per share data:
   Basic                                  8,957,660      8,957,586      4,569,049      4,605,358      4,607,709
   Diluted                                8,957,660      8,957,586      4,570,113      4,612,674      4,631,898
  Cash dividends per share              $        --    $        --    $     1.638    $       .15    $       .15

BALANCE SHEET DATA
  Working capital                       $ 7,442,147    $ 3,533,324    $ 2,073,511    $ 3,214,489    $ 3,261,953
  Total assets                            8,902,255      6,720,093     12,118,984      7,800,700      7,912,139
  Long-term debt                                 --             --             --          4,953         33,462
  Property and equipment, net                93,361      1,622,389      1,608,936      1,724,329      1,736,226
  Stockholders' equity                    7,877,489      6,300,340      5,053,633      6,452,241      6,564,193
  Book value per common share                   .88            .70            .56           1.40           1.43
  Retained earnings                       5,838,340      4,263,100      3,022,731      4,735,935      4,814,266
  Total shares outstanding                8,957,660      8,957,660      8,957,560      4,605,358      4,605,358
</TABLE>

                                     Page 11
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

FINANCIAL CONDITION, LIQUIDITY AND FINANCIAL RESOURCES

In fiscal 2001,  the Company's  continuing  operations  generated  $1,981,000 in
cash,  which  was  sufficient  for the  Company's  cash  requirements.  The most
significant  items  reconciling  net income to cash  provided  by the  Company's
operations are an increase in other  liabilities of $151,000,  depreciation  and
amortization  of  $199,000,  a decrease in income taxes  payable of $184,000,  a
write-down  of fixed assets  available for sale of $173,000 and bad debt expense
of $128,000.

Other  liabilities  increased by $151,000  primarily  due to accrued  legal fees
incurred in connection with the Transaction.  The decrease of $184,000 in income
taxes  payable  results  from  estimated  taxes  paid by the  Company  based  on
quarterly  results being higher than actual taxes.  During the fourth quarter of
fiscal  2001,  the  Company  decided to sell two  buildings  and a parking  lot.
Although these  properties did not sell by June 30, 2001, the Company realized a
decline  of  $173,000  between  the  carrying  value and  market  value of these
properties. The bad debt expense relates to the reserves for aged larger balance
loans given to franchisees and licensees.

For the fiscal year ended June 30,  2001,  the  Company's  investing  activities
generated  $845,000 in cash. The most significant items affecting cash generated
from investing activities are $2,184,000 given as advances or loans to licensees
and  franchisees,  $2,394,000  in  collections  on  advances  or loans  given to
licensees   and   franchisees   and  $620,000  in  proceeds  from  the  sale  of
held-to-maturity investments.

For the fiscal year ended June 30,  2001,  the  Company's  financing  activities
generated  $397,000 in cash. In the fourth  quarter of fiscal 2001,  the Company
entered  into an  obligation  with a balance  of  $397,000  at June 30,  2001 in
connection  with its purchase of errors and omissions  insurance for the Company
and its franchisees and licensees.

The Company  anticipates  that during fiscal 2002 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
$100,000 in fiscal 2002.

The  Company  continues  to maintain a strong cash  position.  As a result,  the
Company's ratio of current assets to current liabilities is 8.26 to 1 as of June
30, 2001,  compared to 9.42 to 1 as of June 30, 2000.  The decrease is primarily
the result of the increase in the short-term payable.

RESULTS OF OPERATIONS 2001 COMPARED TO 2000

REVENUE

The Company's  revenue  decreased  $73,000,  or 1.2%,  to $6,184,000  during the
fiscal year ended June 30, 2001 from $6,257,000 in the prior year. This decrease
consists of a $458,000  decrease in adjusting  and other  revenue and a $385,000
increase in continuing licensee and franchisee fees.

The decrease of $458,000 in adjusting  and other fees to $628,000 in the current
fiscal year compared to  $1,086,000 in the prior fiscal year  represents a 42.2%
decrease.  The Company  experienced  decreases in adjusting fees in its Phoenix,
Arizona, Las Vegas, Nevada, and Tucson, Arizona adjusting offices in the amounts
of $294,000, $90,000 and $72,000, respectively. The remainder of the decrease is
due to the discontinuation of risk management services. The Phoenix, Arizona and
Las Vegas,  Nevada  adjusting  offices were sold in the fourth quarter of fiscal
2001, while the Tucson,  Arizona  adjusting office was sold in the third quarter
of fiscal 2000.

Prior to its sale,  the  adjusting  revenue  generated by the  Phoenix,  Arizona
adjusting  office  decreased  due to a reduction  in claims  assigned by clients
during the fiscal year ended June 30,  2001 as  compared  to the prior year.  As
this office was sold on April 30, 2001 to a new  franchisee,  the adjusting fees
for the last two months of the fiscal  year were the result of run-off  business
and were,  therefore,  minimal. The decrease in the Las Vegas, Nevada office was
largely due to a decrease  in storms  during this fiscal year as compared to the

                                     Page 12
<PAGE>
REVENUE (continued)

prior year. Furthermore, the Las Vegas, Nevada adjusting office was sold on June
1, 2001. The decrease in the Tucson,  Arizona  adjusting office is the result of
that office's sale on January 1, 2000.  Finally,  the Company  ceased  providing
risk management services within the Phoenix, Arizona adjusting office during the
prior  fiscal  year as it was not  economical  to  provide  such  services.  The
decision to have franchisees and licensees provide risk management  services for
clients continues to remain with the individual franchisees and licensees.

The Company's  revenue from  continuing  licensee and franchisee  fees increased
$385,000,  or 7.4%,  from  $5,171,000  in the prior  year to  $5,556,000  in the
current  fiscal  year.  This  increase  reflects  an  increase  in the number of
licensees  and  franchisees  as well as an increase in claims  assignments  from
insurance companies and self-insureds.

The Company's revenue is affected by numerous matters including the workloads of
other companies and claims presented by their clients. Therefore, the Company is
unable to project its future revenue.  The Company has historically  seen growth
in the licensee and franchisee fees paid. To further enhance revenue growth, the
Company  continues 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.

COMPENSATION AND EMPLOYEE BENEFITS

Compensation  and  employee  benefits  represent   approximately  42.7%  of  the
Company's  costs and expenses and represent the largest  single item of expense.
These expenses decreased  $430,000,  or 21.7%, from $1,985,000 in the year ended
June 30, 2000 to  $1,555,000  in the current  year.  This  decrease is primarily
attributed to decreases in officers' salaries of $56,000, adjusters' salaries of
$145,000,  health insurance of $45,000 and other compensation of $234,000 and an
increase of $43,000 in temporary staffing services.

The decrease in  officers'  salaries  and in other  compensation  relates to the
resignation of and severance  package payment to an executive officer in January
of 2000.  Certain of the  services  provided by the  executive  officer had been
provided by UFAC pursuant to a service  agreement  between the Company and UFAC,
which  terminated on April 30, 2001. Also included in officers'  salaries is the
compensation  paid to two officers the Company employed  directly as a result of
MMI's purchase of the Company's  stock from UFAC and subsequent  cancellation of
the UFAC service agreement.

Adjusters  employed  in  the  company-owned  adjusting  businesses  were  paid a
commission based on adjusting revenue. As the revenue decreased in the adjusting
businesses, the compensation paid to the adjusters also decreased.  Furthermore,
adjusters'  compensation decreased as a result of the sale by the Company of its
adjusting  businesses  in Phoenix,  Arizona and Las Vegas,  Nevada in the fourth
quarter of this fiscal year.  Services received from temporary staffing services
have  increased  as the Company is  utilizing  more of these  services to handle
increased  workload rather than hiring  additional  employees.  As the number of
employees  has  decreased  as compared to the prior year,  the cost of providing
medical benefits has also decreased.

SERVICE FEES

From April 30, 1999 through April 30, 2001, the Company had a service  agreement
with UFAC  whereby the Company paid a $25,000  monthly fee for certain  services
provided  by UFAC.  Services  included  under this  agreement  were  management,
marketing,  technology,  human  resource  support and  accounting  and reporting
support.  Services fees incurred under this agreement for the fiscal years ended
June 30, 2001 and 2000 were $250,000 and $300,000, respectively.

The  Company  also  paid UFAC for  services  performed  beyond  the scope of the
service agreement. These services consist mainly of computer consulting fees and
telephone support for the Company's 24 hour hotline.  For the fiscal years ended
June 30, 2001 and 2000, the Company paid $67,000 and $61,000,  respectively, for
services  provided  by UFAC  that  were not  within  the  scope  of the  service
agreement.

                                     Page 13

<PAGE>
SERVICE FEES (continued)

As a result of the sale of UFAC's shares to MMI, the service agreement with UFAC
was cancelled on April 30, 2001. At that time, the Company gained four employees
that  replaced  the majority of the services  provided by UFAC.  Therefore,  the
Company does  anticipate  an increase in  compensation  expenses.  For a fee per
call,  UFAC  continues  to provide the Company  with  telephone  support for the
Company's after-hour hotline.

EXPENSES OTHER THAN COMPENSATION AND FRINGE BENEFITS AND UFAC SERVICE FEES

The Company's  expenses  other than  compensation  and fringe  benefits and UFAC
service fees decreased  $89,000,  or 2.0%,  from fiscal 2000 to fiscal 2001. The
principal items affecting these expenses are:  decreases of $184,000 in bad debt
expense, $87,000 in office expenses and $87,000 in computer consulting expenses;
increases of $48,000 in accounting  services,  $42,000 in legal expenses;  and a
write-down in fixed assets available for sale of $173,000.

The Company has  traditionally  advanced funds to  franchisees  and licensees to
assist them in the initial  start-up and further growth of their  business.  The
Company  reserves for such loans based upon  historical  experience  and current
changes in circumstances.  Particularly, loans are reserved for when the Company
determines that the loan is uncollectible or when  collectability  of the entire
loan balance becomes questionable. Collectability of a loan becomes questionable
when either the Company  anticipates that the  relationship  between the Company
and the licensee or franchisee will be terminated, or the volume of the licensee
or franchisee is inadequate to repay the loan in a reasonable period.

As the Company has increased its loan  criteria and  collection  efforts and has
significantly  decreased  the granting of such loans,  the frequency of bad debt
has declined.  Accordingly,  bad debt has decreased this fiscal year as compared
to the prior fiscal year.

Office expenses decreased due to the greater than normal purchases during fiscal
2000 as the Company wanted to ensure ample inventory of supplies in the event of
any  shortages  due to Year 2000  problems.  Furthermore,  the Company no longer
incurs office expenses for the Tucson, Arizona,  Phoenix, Arizona and Las Vegas,
Nevada adjusting offices.  Computer consulting expenses decreased for the fiscal
year ended June 30, 2001 as the need for such  services was greater in the prior
year due to preparation for the Year 2000.

Legal fees and  accounting  services  have  increased  this  fiscal  year due to
preparation for the contemplated merger with UFAC that was later abandoned,  and
the preparation for the Transaction.

OTHER INCOME

The Company's other income increased by $39,000,  or 20.8%, from $187,000 in the
year ended June 30,  2000 to  $226,000  for the year  ended June 30,  2001.  The
increase  was  primarily  due to an increase of $62,000 in interest  income,  an
increase in gains on the sale of licenses of $16,000, an increase in the loss on
the disposition of assets of $22,000 and a decrease of $12,000 in realized gains
on the sale of investments.

INCOME TAXES

The Company's  income taxes were 39.4% and 40.1% of the Company's  income before
taxes for fiscal years 2001 and 2000,  respectively.  The Company's income taxes
have not been significantly  affected by any changes in the federal or state tax
laws. However, tax rates can be changed at any time based upon legislation.

NET INCOME

The Company's net income increased  $335,000 to $1,575,000 in the current fiscal
year from $1,240,000 in fiscal 2000, an increase of 27.0%.  The most significant
items  affecting  net income  were a $73,000  decrease  in  revenue,  a $430,000
decrease in compensation  and fringe benefits and a $89,000 decrease in expenses
other than  compensation and fringe benefits and service fees. During the fourth
quarter of fiscal 2001, the Company recorded net income of $218,000.

                                     Page 14
<PAGE>
RESULTS OF OPERATIONS 2000 COMPARED TO 1999

REVENUE

The Company's  revenue  decreased  $85,000,  or 1.3%,  to $6,257,000  during the
fiscal year ended June 30, 2000 from  $6,342,000 in the prior fiscal year.  This
decrease  consists  primarily  of a $319,000  decrease  in  adjusting  and other
revenue and a $234,000 increase in continuing licensee and franchisee fees.

The decrease of $319,000 in adjusting  and other fees to  $1,086,000 in the year
ended June 30, 2000 compared to $1,405,000 in the prior fiscal year represents a
22.7% decrease.  The Company experienced decreases of $209,000 in adjusting fees
in its  Phoenix  office,  $7,000 in  adjusting  fees in its Las  Vegas/Henderson
office, and $99,000 in adjusting fees in its Tucson office. The remainder of the
decrease,  $4,000,  is due to the  discontinuation  of risk management  services
provided by the Company's home office.

The  decline  in the Las  Vegas/Henderson  office is  primarily  the result of a
decrease  in storms  towards  the end of the 2000 fiscal year as compared to the
prior year.  The decrease in the Phoenix  office mainly  relates to a client the
Phoenix  office  acquired in November  1997 and lost in early fiscal  2000.  The
decrease in the Tucson office is the result of the Company's  sale of the Tucson
office to a new  franchisee  on January 1, 2000.  Finally,  the  Company  ceased
providing risk management  services within the home office during fiscal 2000 as
it was not economical to continue  providing such services.  Fees generated from
the risk management services were $2,000 and $5,000 for the years ended June 30,
2000 and 1999,  respectively.  The decision to have  franchisees  and  licensees
provide  risk  management  services  for  clients  continues  to remain with the
individual franchisees and licensees.

The Company's  revenue from  continuing  licensee and franchisee  fees increased
$234,000, or 4.7%, from $4,936,000 in the year ended June 30, 1999 to $5,170,000
in the year ended June 30,  2000.  This  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. Therefore, the Company
is unable to project  its future  revenue.  The Company  has  historically  seen
growth in the licensee and  franchisees  paid,  with  exception to the loss of a
major client in 1997. To further enhance revenue growth,  the Company  continues
to develop and implement sales and marketing  efforts that take advantage of its
geographic diversity as well as the unique strengths of its individual licensees
and franchisees.  In addition to the marketing  resources  provided by UFAC, the
Company hopes to see continued growth in licensee and franchisee fees paid.

COMPENSATION AND EMPLOYEE BENEFITS

Compensation  and  employee  benefits  represent   approximately  45.3%  of  the
Company's  cost and expenses and represent  the largest  single item of expense.
These expenses decreased $1,263,000, or 38.8%, from $3,248,000 in the year ended
June 30, 1999 to $1,985,000 in the year ended June 30, 2000. The decrease is the
result of the retirement of William J. Rocke,  former CEO and former Chairman of
the Board, and Jean E. Ryberg,  former President,  on June 30, 1999. In addition
to the  absence of their  salaries  in the 2000 fiscal  year,  the Company  paid
severance packages to Mr. Rocke and Mrs. Ryberg in the 1999 fiscal year, thereby
increasing   compensation   expense   compared  to  fiscal  2000.   Furthermore,
compensation  decreased as a result of the resignation of Francis J. LaPallo,  a
former  Executive Vice President,  on January 31, 2000.  Certain of the services
provided by Mr.  Rocke,  Mrs.  Ryberg,  and Mr.  LaPallo  were  provided by UFAC
pursuant  to a service  agreement  between  the Company and UFAC during the 2000
fiscal year.  Charges for these  services are reflected in a monthly fee paid to
UFAC. For further discussion, see "Service Fees" below.

SERVICE FEES

On April 30,  1999,  the  Company  entered  into a service  agreement  with UFAC
whereby the Company paid a $25,000 monthly fee for certain services  provided by
UFAC.  Services  included  under  this  agreement  were  management,  marketing,

                                     Page 15
<PAGE>
SERVICE FEES (continued)

technology,  human resource support,  and accounting and reporting support.  For
the fiscal year ended June 30, 2000, the Company  incurred  $300,000 in services
fees under this  agreement  as  compared  to $50,000  for the prior year (as the
agreement was in affect for only two months during fiscal 1999).

The  Company  also  paid UFAC for  services  performed  beyond  the scope of the
service agreement. For the fiscal year ended June 30, 2000, the Company incurred
$51,000 in computer  consulting  fees and $10,000 in  telephone  support for the
Company's  after-hour hotline,  for an aggregate of $61,000 in services provided
by UFAC that were not within the scope of the  service  agreement.  The  Company
believes that the charges for the services  provided under the service agreement
are competitive with charges for similar services and facilities  available from
third parties.

EXPENSES OTHER THAN COMPENSATION AND FRINGE BENEFITS AND UFAC SERVICE FEES

The Company's  expenses  other than  compensation  and fringe  benefits and UFAC
service fees decreased $261,000,  or 11.4%, from fiscal 1999 to fiscal 2000. The
principal   items   affecting  these  expenses  are  decreases  of  $175,000  in
advertising  and  promotion,  $110,000 in legal fees,  $53,000 in  depreciation,
$24,000 in office expenses,  and increases of $74,000 in bad debt and $25,000 in
insurance coverage costs.

As a  portion  of the  monthly  service  fee  paid  to UFAC  includes  marketing
resources,  the  Company  has  decreased  similar  services  previously  paid to
external  sources.  Accordingly,   advertising  and  promotional  expenses  have
decreased  this fiscal year as these services were provided by UFAC and recorded
under  service  fees for the fiscal  year 2000.  Furthermore,  a portion of this
reduction is due to the  non-renewal of the Company's share of a luxury suite at
a sporting  facility.  Legal fees decreased  significantly  due to the increased
need for  legal  services  during  the  first  nine  months  of  fiscal  1999 in
preparation of the UFAC transaction that was later consummated in April of 1999.
Furthermore,  the Company has  reduced the legal  services it receives  from the
Company's  outside  counsel,  a current  shareholder  of the  Company and former
officer and director of the  Company,  by $49,000 from $92,000 in fiscal 1999 to
$43,000 in fiscal 2000.  The decrease in  depreciation  expense is a result of a
decline in capital purchases as well as an increase in fully depreciated  assets
as compared to the prior fiscal year.

The Company has  traditionally  advanced funds to  franchisees  and licensees to
assist them in the initial  start-up  and  further  growth of their  businesses.
Throughout  the years,  the Company has loaned  significant  amounts of money to
various  franchisees  and licensees.  The Company  reserves for such loans based
upon  historical  experience  and current  changes in  circumstances.  Loans are
reserved for under the following circumstances:  (1) the Company determines that
the loan is uncollectible and (2) the  collectability of the entire loan balance
is questionable.  Based upon historical  experience,  a loan is determined to be
uncollectible when notice is given by the Company or by a franchisee or licensee
that the relationship with the Company is being terminated.  Collectability of a
loan  becomes   questionable  when  either  the  Company  anticipates  that  the
relationship  between the Company will become  terminated,  or the volume of the
franchisee or licensee is inadequate to repay the loan in a reasonable period.

As of June 30,  2000,  the Company  carried  loans with certain  franchisees  or
licensees  that had sizable loan  balances  which  accumulated  over a number of
years. As the franchisees' or licensees'  volume has diminished,  or their loans
age, the Company has provided  for reserves on these loans as  appropriate.  The
likelihood of collecting  100% of such loans was determined to be  questionable,
based  on the  Company's  past  experience;  therefore,  the  Company  found  it
appropriate  to  reserve  for  these  loans.   The  Company  is  currently  more
conservative in lending funds to franchisees and licensees today; however, older
loans are  affecting  current  reserves for bad debt.  As of June 30, 2000,  the
Company  carried  older,  large  balance loans as compared to the prior year and
therefore increased its reserves for bad debt,  consequently  increasing the bad
debt expense for fiscal 2000.

The  increase  in  insurance  costs  relates to  increased  coverage  as well as
increases in the premiums during fiscal 2000 for the various insurance  policies
the Company carries.

                                     Page 16
<PAGE>
OTHER INCOME

The Company's other income decreased $42,000 or 18.4% from fiscal 1999 to fiscal
2000. The principal items affecting this decrease  include a $49,000 decrease in
realized gain on equity  securities  primarily  due to the  redemption in fiscal
1999 of mutual funds owned by the Company as investments, an increase of $16,000
in the gain on sale of a  license,  an  increase  of  $13,000  in  miscellaneous
revenue,  a decrease of $10,000 in interest income,  and a decrease of $9,000 in
the disposition of fixed assets.

INCOME TAXES

Income taxes were 40.1% and 44.4% of the  Company's  income  before income taxes
for fiscal year 2000 and 1999  respectively.  A difference in these rates is due
to  permanent  differences  and is reflected in the increase of the deferred tax
asset of $122,000  from $235,000 at June 30, 1999, to $357,000 at June 30, 2000.
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.

The  Company's net income  increased  $694,000 to $1,240,000 in fiscal 2000 from
$546,000  in fiscal  1999,  an increase of 127.1%.  The most  significant  items
affecting net income were the $85,000 decrease in revenue, a $1,263,000 decrease
in  compensation  and fringe  benefits,  a $250,000  increase in service fees, a
$261,000  decrease in expenses other than  compensation  and fringe benefits and
service fees, and a $42,000 decrease in other income.  During the fourth quarter
of fiscal 2000, the Company recorded net income of $369,000.

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 2001, the Company sold its investments in municipal bonds
and is therefore no longer  exposed to any interest  income risk or market value
risks associated with those investments.

Although the Company wholly owns a Canadian subsidiary,  the cash and short-term
investments  held by the Canadian  subsidiary  are 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>
Eric J. Carlstrom**           Mr. Carlstrom has been associated with the Company          42           2000
Director                      as a director since  December 2000. Mr.  Carlstrom
                              has served as Senior  Vice  President  of AON Risk
                              Services,  Inc.  since 1997.  Prior  thereto,  Mr.
                              Carlstrom  served  as  Senior  Vice  President  at
                              Alexander  &  Alexander,  an  insurance  brokerage
                              firm,  from 1994 to 1997.  Mr.  Carlstrom  holds a
                              bachelors of arts degree from Hofstra University.

John M. Davies                Mr. Davies has been associated with the Company as          45           1999
Director, Chairman of         a director since April 1999, Chairman of the Board
the Board, President          since January 2000 and Chief Executive Officer and
and CEO                       President  since  November  2000.  Mr. Davies also
                              currently   serves  as   Chairman  of  the  Board,
                              President and Chief Executive Officer of MMI. From
                              June 1999 through April 2001, Mr. Davies served as
                              President of Netrex LLC, a financial  services and
                              technology  company.  From  November  1999 through
                              April  2001 Mr.  Davies was the sole  Director  of
                              UFAC. From September 1989 to June 1999, Mr. Davies
                              was employed by The Progressive Corporation,  most
                              recently as Division  President  of  Progressive's
                              Diversified  Business  Group.  Mr.  Davies  has  a
                              masters  of  business   administration   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 served as Chief Financial Officer          40           1999
Director, Chief Financial     of the Company since August 1999, as a director of
Officer, Treasurer and        the Company  since April 1999, as Treasurer of the
Secretary                     Company since January 2000 and as Secretary  since
                              April 2001. From November 1999 through April 2001,
                              Mr. Harcourt served as Chief Financial  Officer of
                              Netrex. From November 1999 through April 2001, Mr.
                              Harcourt  also served as  Treasurer  of UFAC,  and
                              from March 1999 through April 2001,  Mr.  Harcourt
                              served   as   Treasurer   and   director   of  DBG
                              Technologies,  Inc..  From  October  1990  through
                              November 1999, Mr. Harcourt was employed by The
</TABLE>

                                     Page 18
<PAGE>
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>
Jeffrey R. Harcourt           Progressive  Corporation,  most  recently  as  the
(continued)                   Controller of the Diversified  Business Group. Mr.
                              Harcourt  also  currently   serves  as  the  Chief
                              Financial Officer, Secretary and Treasurer of MMI,
                              and as Treasurer of JW Software,  Inc., a software
                              company. Mr. Harcourt holds a bachelors of science
                              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.

Glenn P. Nagy                 Mr. Nagy has been associated with the Company as a          46           2001
Director**                    director  since July 2001.  Mr. Nagy has owned and
                              operated  Purchasing  Control  Services,   a  food
                              purchasing and consulting company, since 1991. Mr.
                              Nagy holds a bachelors  degree from Washington and
                              Jefferson  College and a master's  degree from the
                              University of Pittsburgh.

Kenneth A. Sexton             Mr.  Sexton was  appointed  as a  director  of the          47           2000
Director**                    Company  in January  2000.  Mr.  Sexton  currently
                              serves as Senior  Vice  President  of Finance  and
                              Administration  and  Chief  Financial  Officer  of
                              Merant,  a  world-wide   technology  and  software
                              company.   Mr.   Sexton   has  served  in  various
                              positions  with Merant and its  related  companies
                              since  1991.  Mr.  Sexton  holds  a  bachelors  of
                              science   degree  in  business   from  Ohio  State
                              University and is a Certified Public Accountant.
</TABLE>

----------
*    The Board in its entirety acts as the Company's compensation committee.
**   Member of the Company's audit committee
(1)  Term will continue until next election of directors

                                     Page 19
<PAGE>
ITEM 11 - EXECUTIVE COMPENSATION

The following table sets forth certain  information  concerning the compensation
paid by the Company during its year ended June 30, 2001, to the chief  executive
officer and each other executive officer whose aggregate  compensation  exceeded
$100,000.

                         SUMMARY COMPENSATION TABLE (1)

                                                       Annual Compensation
                                                 -------------------------------
Name and Principal Position        Year          Salary ($)(2)      Bonus ($)(2)
---------------------------        ----          -------------      ------------
John M. Davies                     2001             41,667                 --
Director, Chairman, CEO            2000                 --                 --
and President                      1999                 --                 --

----------
(1)  Columns (e), (f), (g) and (h) have been omitted as no such compensation was
     granted.
(2)  From April 30, 1999 through April 30, 2001,  Mr.  Davies'  services and the
     services of other  executive  officers of the Company were  provided to the
     Company by UFAC under a contract whereby the Company paid $25,000 per month
     for  services  consisting  of  management,  marketing ,  technology,  human
     resource  support and  accounting  and  reporting  services.  This  service
     agreement  was  terminated  April  30,  2001 as a result of the sale of the
     Company's shares from UFAC to MMI. Upon completion of the sale, the Company
     gained four full-time employees, including Mr. Davies.

OPTION/SAR EXERCISES AND HOLDINGS

The Company did not grant any stock  options  during  fiscal 2001 nor were there
any options outstanding as of June 30, 2001 for any of the Named Executive.

DIRECTORS COMPENSATION

Directors who are not employees of the Company,  UFAC or Netrex, are paid $1,000
per board meeting  attended.  During fiscal 2001, Mr. Sexton received $8,000 and
Mr. Carlstrom received $7,000 for attendance at board meetings.

EMPLOYMENT AGREEMENTS

The Company has no employment agreements in place at this time.

REPORT OF THE COMPENSATION COMMITTEE

For the fiscal year ended June 30,  2001,  the Board,  as a whole,  acted as the
Compensation   Committee.   The  Board  establishes  policies  relating  to  the
compensation  of  employees.  The  following is a report  submitted by the Board
members  in  their  capacity  as  the  Compensation  Committee,  addressing  the
Company's  compensation  policy as it relates to the named executive officers in
fiscal 2001.

                                    Page 20
<PAGE>
COMPENSATION POLICY

The goal of the  Company's  executive  compensation  policy is to ensure that an
appropriate  relationship  exists  between  executive  pay and the  creation  of
shareholder  value,  while  at  the  same  time  motivating  and  retaining  key
employees.  To achieve this goal,  during fiscal 2001 the Company  implemented a
bonus program for all employees. For executive management,  the bonus program is
designed  to reward  executive  management  for  exceptional  growth,  return on
revenue and  personal  performance.  For the  remainder  of the  employees,  the
program  is  designed  to  reward   employees  for  personal   performance   and
accomplishments  throughout the year.  Disbursements under each program are made
at the discretion of the Board. In addition to the bonus program,  all executive
officers and  management are eligible to participate in the Company's 1996 Stock
Option Plan. Annual cash  compensation,  together with  equity-based,  incentive
compensation  is  designed  to attract and retain  qualified  executives  and to
ensure that such executives have a continuing stake in the long-term  success of
the Company.

FISCAL 2001 EXECUTIVE COMPENSATION

The Company's  fiscal 2001 executive  compensation  plan consisted of (i) a base
salary and (ii) bonus based on personal  performance and revenue targets. On May
1, 2001, upon the  cancellation of the UFAC service  agreement,  John M. Davies,
the Company's  President and CEO, became a direct  employee of the Company.  Mr.
Davies' salary was set at  approximately  the same level as the Company's  prior
CEO,  however,  Mr. Davies  elected not to receive any bonus for fiscal 2001. No
stock options were granted by the Board during fiscal 2001.

The Board believes that linking executive  compensation to corporate performance
(i.e.  revenue targets) provides incentive to the executive to enhance corporate
performance and the shareholders'  interests.  It was with this in mind that the
bonus portion of executive  compensation was revised to the current  arrangement
with the Company's named executives.

ERIC J. CARLSTROM               JOHN M. DAVIES               JEFFREY R. HARCOURT

            GLENN P. NAGY                         KENNETH A. SEXTON

COMPANY PERFORMANCE

The following graph reflects a five-year  comparison of cumulative total returns
for the Common Stock,  the AMEX Market Value Index, and the Company's Peer Group
of Stocks based on the four digit SIC Code Index. The total cumulative return on
investment  (change in the year-end stock price plus  reinvested  dividends) for
each of the periods and indexes is based on the stock price or  composite  index
at the end of fiscal 1996.  The graph  compares the  performance  of the Company
with AMEX and Peer Group Indexes with the investment  weighted based upon market
capitalization.

                       6/30/96   6/30/97   6/30/98   6/30/99   6/30/00   6/30/01
                       -------   -------   -------   -------   -------   -------
Frontier Adjusters      100.00     93.86    115.15    163.36    192.77     73.19
Industry                100.00    137.31    179.95    190.45    231.17    278.52
AMEX Market Index       100.00    106.35    122.96    120.96    139.08    136.22

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 June 30, 2001, 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.  Unless  otherwise  indicated in the
footnotes,  all of such interests are owned directly,  and the indicated  person
has sole voting and investment power. The number of shares represents the number
of shares of the Company's common stock the person holds.  Information presented
in the table and  related  notes has been  obtained  from the  beneficial  owner
and/or from reports filed by the  beneficial  with the  Securities  and Exchange
Commission pursuant to Section 13 of the Exchange Act.

                                    Page 21
<PAGE>
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
          (CONTINUED)

                                            Amount of Beneficial Ownership
                                             Common Stock $.01 Par Value
                                          ----------------------------------
Name and Address                          Number of Shares (1)   Percent (2)
----------------                          --------------------   -----------
OFFICERS AND DIRECTORS

Eric J. Carlstrom (3)                              1,800              *

John M. Davies (3) (4)                         2,629,757            29.36%

Jeffrey R. Harcourt (3)                               --              *

Glenn P. Nagy (3)                                     --              *

Kenneth A. Sexton (3)                                 --              *

All officers and directors as a group          2,631,557            29.38%
 (five persons) (4)

FIVE PERCENT SHAREHOLDERS

MMI (3)                                        5,258,513            58.70%

Patrick Enthoven (3) (5)                       2,629,256            29.35%

----------
*    Less than 1%

(1)  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 after June 30,
     2001 by the exercise of stock options.
(2)  The  percentages  shown  include the shares of Common Stock that the person
     had the right to acquire within 60 days after June 30, 2001. In calculating
     the percentage of ownership, all shares of Common Stock that the identified
     person  had the right to acquire  within 60 days  after  June 30,  2001 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 shareholders.
(3)  Each of such persons may be reached through the Company at 45 East Monterey
     Way, Phoenix, Arizona 85012.
(4)  Includes 2,629,257 shares representing one-half of the shares owned by MMI.
     Mr. Davies disclaims any beneficial  interest for purposes of Section 13(d)
     or (g) of the Securities Exchange Act of 1934, as amended, in the remaining
     one-half of the shares owned by MMI.
(5)  Includes 2,629,256 shares representing one-half of the shares owned by MMI.
     Mr.  Enthoven  disclaims  any  beneficial  interest for purposes of Section
     13(d) or (g) of the  Securities  Exchange Act of 1934,  as amended,  in the
     remaining  one-half of the shares owned by MMI.

Based  solely on a review of the copies of such forms  received  by the  Company
during the fiscal year ended June 30, 2001, 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.

To the best  knowledge  of the  Company,  no person or groups of persons , other
than officers,  directors and MMI beneficially own more than five percent of the
Company's common stock (based upon present records of the transfer agent).

                                     Page 22
<PAGE>
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Old Frontier  Investment,  Inc. of Arizona,  a  shareholder,  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 $7,909,  $14,448 and $13,382
for the  fiscal  years  ended  June 30,  2001,  2000 and 1999  respectively,  in
connection with such 5% royalty agreement.

Included in other  liabilities is $10,000 in accrued moving expenses for John M.
Davies, shareholder, President, CEO and the Company's Chairman of the Board.

George M.  Hill,  a former  shareholder,  Vice  President  and  Director  of the
Company,  acted as outside  counsel to the Company.  The Company paid Mr. Hill's
law firm  approximately  $38,000 in fiscal 2001, $43,000 in fiscal 2000, $92,000
in fiscal 1999, for legal services and reimbursement of expenses.

UFAC, a shareholder  through  April 2001,  had an agreement  that  terminated in
April  2001  whereby  the  Company  had paid  $25,000  per month for  marketing,
managerial, technological,  financial and other services and resources (see Note
14). As of June 30, 2001, the Company incurred  $250,000 in service fees related
to this agreement and an additional  $66,563 for services  performed  outside of
the agreement for an aggregate of $316,563.  The Company  incurred  $360,741 and
$50,000 in  similar  fees for the  fiscal  year  ended  June 30,  2000 and 1999,
respectively

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.

                                     Page 23
<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:

          Independent Auditor's Report

          Consolidated Balance Sheets - June 30, 2001 and 2000

          Consolidated  Statements  of Income for the Years Ended June 30, 2001,
          2000 and 1999

          Consolidated  Statements of Comprehensive  Income for years ended
          June 30, 2001, 2000 and 1999

          Consolidated  Statements  of Cash  Flows for the Years  Ended
          June 30, 2001, 2000 and 1999

          Consolidated  Statements of  Stockholders'  Equity for the Years
          Ended June 30, 2001, 2000 and 1999

          Notes to Consolidated  Financial  Statements - June 30, 2001, 2000
          and 1999

(a) (2) Financial Statement Schedules

        SCHEDULE
         NUMBER
         ------

           II       Valuation and Qualifying Accounts Years Ended June 30, 2001,
                    2000 and 1999

                    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 24
<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.**

   3(c)     Amended and First Restated  Articles of  Incorporation of Frontier
            Adjusters of America, Inc.*******

   3(d)     Amended  and First  Restated  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

   10(m)    No longer Applicable

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

   23       Consent of Independent Accountants
----------
*       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.
******* Incorporated by reference to the  Registrant's  Form 10Q for the quarter
        ended December 31, 2000.

(b)  The Company filed a Form 8-K with the Securities and Exchange Commission on
     May 2, 2001 to report a change in control.

                                     Page 25
<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/ John M. Davies
                                        ----------------------------------------
                                        John M. Davies, Chairman of the Board,
                                        President and Chief Executive Officer

                                        September 14, 2001
                                        ------------------

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/ Eric J. Carlstrom                                     September 14, 2001
--------------------------------------                    ------------------
Eric J. Carlstrom, Director


/s/ John M. Davies                                        September 14, 2001
--------------------------------------                    ------------------
John M. Davies, Chairman of the Board,
President, Chief Executive Officer and
Director


/s/ Jeffrey R. Harcourt                                   September 14, 2001
--------------------------------------                    ------------------
Jeffrey R. Harcourt, Chief Financial
Officer, Principal Accounting Officer,
Secretary, Treasurer and Director


/s/ Glenn P. Nagy                                         September 14, 2001
--------------------------------------                    ------------------
Glenn P. Nagy, Director


/s/ Kenneth A. Sexton                                     September 14, 2001
--------------------------------------                    ------------------
Kenneth A. Sexton, Director

                                     Page 26
<PAGE>
                       FRONTIER ADJUSTERS OF AMERICA, INC.
                                AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Independent Auditor's Report                                                F-2

Consolidated Balance Sheets - June 30, 2001 and 2000                        F-3

Consolidated Statements of Income for the Years Ended
June 30, 2001, 2000 and 1999                                                F-4

Consolidated  Statements of Comprehensive  Income for
the Years Ended June 30, 2001, 2000 and 1999.                               F-5

Consolidated Statements of Cash Flows for the Years Ended
June 30, 2001, 2000 and 1999                                                F-6

Consolidated Statements of Stockholders' Equity for the
Years Ended June 30, 2001, 2000 and 1999                                    F-7

Notes to Consolidated Financial Statements - June 30, 2001,
2000 and 1999                                                               F-8

Supplementary Data (unaudited)                                              F-17

Schedule II - Valuation and Qualifying Accounts Years Ended
June 30, 2001, 2000 and 1999                                                F-18

                                       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, 2001 and 2000, and
the related consolidated statements of income, comprehensive income, cash flows,
and  stockholders'  equity for each of the three years ended June 30, 2001, 2000
and 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 auditing standards generally accepted
in the  United  States of  America.  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, 2001 and 2000, and the results
of their  operations  and their  cash  flows for each of the three  years in the
period ended June 30, 2001, in conformity with accounting  principles  generally
accepted in the United States of America.

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,  2001,  2000,  and 1999
included on page F-18 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 10, 2001

                                       F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS
Frontier Adjusters of America, Inc. and Subsidiaries
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                             June 30,
                                                                                  ------------------------------
                                                                                     2001                2000
                                                                                  -----------        -----------
<S>                                                                               <C>                <C>
ASSETS
CURRENT ASSETS
  Cash and cash equivalents                                                       $ 5,357,293        $ 2,132,297
  Current portion of advances to licensees and franchisees (Notes 4 and 6)            362,921            535,472
  Receivables, net (Note 3)                                                           791,670            809,463
  Income tax refund receivable                                                        150,241                 --
  Unbilled adjusting fees                                                                  --             23,130
  Other                                                                               308,013            211,108
  Land and property available for sale (Note 5)                                     1,232,351                 --
  Deferred income taxes, current portion (Note 9)                                     264,424            241,607
                                                                                  -----------        -----------
       TOTAL CURRENT ASSETS                                                         8,466,913          3,953,077
                                                                                  -----------        -----------
PROPERTY AND EQUIPMENT, at cost, less accumulated depreciation and
 amortization (Note 5)                                                                 93,361          1,622,389
                                                                                  -----------        -----------
OTHER ASSETS
  Held to maturity investments (Note 7)                                                    --            628,661
  Advances to licensees and franchisees, net of current portion (Notes 4 and 6)       132,000            200,000
  Licenses and franchises, net of accumulated amortization of $269,452 in
   2001 and $261,789 in 2000                                                           92,247            170,412
  Deferred income taxes, net of current portion (Note 9)                              117,734            115,488
  Cost of subsidiary in excess of net identifiable assets acquired, net of
   accumulated amortization of $0 in 2001 and $183,752 in 2000                             --             30,066
                                                                                  -----------        -----------
                                                                                      341,981          1,144,627
                                                                                  -----------        -----------
       TOTAL ASSETS                                                               $ 8,902,255        $ 6,720,093
                                                                                  ===========        ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Accounts payable                                                                $    35,847        $    25,835
  Accrued expenses                                                                    175,074             41,594
  Short term note payable                                                             397,442                 --
  Salaries payable and related benefits                                               120,404            138,275
  Service fees due to UFAC                                                              1,103             15,000
  Licensees' and franchisees' remittance payable                                      214,525            116,287
  Income taxes payable                                                                     --             33,989
  Other (Notes 10 and 13)                                                              80,371             48,773
                                                                                  -----------        -----------
       TOTAL CURRENT LIABILITIES                                                    1,024,766            419,753
                                                                                  -----------        -----------
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                                                                    90,191             90,191
  Additional contributed capital                                                    2,104,413          2,104,413
  Retained earnings                                                                 5,838,340          4,263,100
                                                                                  -----------        -----------
                                                                                    8,032,944          6,457,704
 Add (deduct):
   Treasury stock; 61,399 shares                                                     (184,068)          (184,068)
   Other                                                                               28,613             26,704
                                                                                  -----------        -----------
       TOTAL STOCKHOLDERS' EQUITY                                                   7,877,489          6,300,340
                                                                                  -----------        -----------
       TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                 $ 8,902,255        $ 6,720,093
                                                                                  ===========        ===========
</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,
                                                           -----------------------------------------------
                                                              2001               2000              1999
                                                           -----------       -----------       -----------
REVENUE
<S>                                                        <C>               <C>               <C>
  Continuing licensee and franchisee fees (Note 8)         $ 5,555,722       $ 5,170,592       $ 4,936,349
  Adjusting and risk management fees (Note 8)                  628,120         1,086,304         1,405,235
                                                           -----------       -----------       -----------
                                                             6,183,842         6,256,896         6,341,584
COST AND EXPENSES
  Compensation and employee benefits (Note 11)               1,554,522         1,984,581         3,248,276
  Office                                                       300,594           387,529           411,345
  Advertising and promotion                                    230,929           210,441           385,372
  Depreciation and amortization                                198,529           218,615           271,884
  Bad debt expense                                             127,584           311,820           237,601
  Service fees to UFAC (Notes 10 and 14)                       316,563           360,741            50,000
  Legal fees paid to a shareholder (Note 10)                    38,217            42,774            92,187
  Write-down of fixed assets (Note 5)                          172,600                --                --
  Other                                                        870,967           857,913           891,342
                                                           -----------       -----------       -----------
                                                             3,810,505         4,374,414         5,588,007
                                                           -----------       -----------       -----------
       INCOME FROM OPERATIONS                                2,373,337         1,882,482           753,577
                                                           -----------       -----------       -----------
OTHER INCOME (EXPENSE)
  Interest income                                              217,299           155,038           165,272
  Disposition of investments                                       896             1,000                --
  Gain (loss) on sale of license (Note 6)                       17,724             1,276           (14,500)
  Gain (loss) on disposition of equipment                      (28,787)           (7,066)            1,501
  Realized gain (loss) (Note 7)                                     --            12,494            60,753
  Other                                                         18,827            24,231            15,539
                                                           -----------       -----------       -----------
       TOTAL OTHER INCOME                                      225,959           186,973           228,565
                                                           -----------       -----------       -----------
       INCOME BEFORE INCOME TAXES                            2,599,296         2,069,455           982,142

       INCOME TAXES (Note 9)                                (1,024,056)         (829,086)         (435,690)
                                                           -----------       -----------       -----------
       NET INCOME                                          $ 1,575,240       $ 1,240,369       $   546,452
                                                           ===========       ===========       ===========
EARNINGS PER SHARE
  Basic                                                    $       .18       $       .14       $       .12
                                                           ===========       ===========       ===========
  Diluted                                                  $       .18       $       .14       $       .12
                                                           ===========       ===========       ===========
WEIGHTED AVERAGE SHARES OUTSTANDING
  Basic                                                      8,957,660         8,957,586         4,569,049
                                                           ===========       ===========       ===========
  Diluted                                                    8,957,660         8,957,586         4,570,113
                                                           ===========       ===========       ===========
</TABLE>

The accompanying notes are an integral part of these statements.

                                       F-4
<PAGE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Frontier Adjusters of America, Inc. and Subsidiaries
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                 Years Ended June 30,
                                                                   ------------------------------------------------
                                                                       2001              2000               1999
                                                                   -----------       -----------        -----------
<S>                                                                <C>               <C>                <C>
NET INCOME                                                         $ 1,575,240       $ 1,240,369        $   546,452

OTHER COMPREHENSIVE INCOME, NET OF TAX
  Foreign currency translation adjustments                               1,157             6,051              9,746
  Unrealized (loss) on securities, net of
    reclassification adjustment (see below)                                 --                --            (38,693)
                                                                   -----------       -----------        -----------
OTHER COMPREHENSIVE INCOME:                                              1,157             6,051            (28,947)
                                                                   -----------       -----------        -----------

COMPREHENSIVE INCOME                                               $ 1,576,397       $ 1,246,420        $   517,505
                                                                   ===========       ===========        ===========
Reclassifications adjustment
  Unrealized gain (loss) on securities during the year             $        --       $    12,494        $    22,060
  Less reclassification adjustment included in net income                   --           (12,494)           (60,753)
                                                                   -----------       -----------        -----------

  Net unrealized (loss) on securities                              $        --       $        --        $   (38,693)
                                                                   ===========       ===========        ===========
</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,
                                                                 ------------------------------------------------
                                                                     2001              2000              1999
                                                                 ------------      ------------      ------------
<S>                                                              <C>               <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
 Net income                                                      $ 1,575,240      $ 1,240,369      $   546,452
                                                                 -----------      -----------      -----------
 Adjustments to reconcile net income to net cash
  provided by operating activities:
   Depreciation and amortization                                     198,529          218,615          272,430
   (Gain) on sale of investments                                        (896)          (1,000)              --
   (Gain) loss on sale of license                                    (17,724)          (1,276)          14,500
   Write-down of fixed assets                                        172,600               --               --
   (Gain) loss on disposition of equipment                            28,787            7,066           (1,501)
   Bad debt expense                                                  127,584          311,820          237,601
   Deferred income taxes                                             (25,063)        (121,714)          53,891
   Realized (gain)/loss on equity investments                             --          (12,494)         (60,753)
   Other                                                               9,577            6,507            9,576
 Change in assets and liabilities
  (Increase) decrease in:
   Receivables                                                       (77,912)        (100,277)         (91,235)
   Unbilled adjusting fees                                            23,130           14,040            3,780
   Prepaid expenses and other assets                                 (90,303)         132,933           57,406
  Increase (decrease) in:
   Accounts payable                                                   10,012           (2,170)         (34,113)
   Salaries payable and related benefits                             (17,871)        (266,050)        (204,788)
   Income taxes payable/receivable                                  (184,230)         133,215           73,722
   Licensees' & franchisees' remittance payable                       98,238         (436,659)           7,116
   Other                                                             151,181          (56,233)          63,664
                                                                 -----------      -----------      -----------
          Total adjustment                                           405,639         (173,677)         401,296
                                                                 -----------      -----------      -----------
          NET CASH PROVIDED BY OPERATING ACTIVITIES                1,980,879        1,066,692          947,748
                                                                 -----------      -----------      -----------
CASH FLOWS FROM INVESTING ACTIVITIES
  Proceeds from sale of fixed assets                                   7,000            1,550           93,512
  Capital expenditures                                               (34,592)        (171,655)        (324,416)
  Investments purchased                                               (6,602)              --      (11,769,769)
  Proceeds from maturity of held-to-maturity investments             619,980           51,000       13,124,869
  Proceeds from sale of available-for-sale investments                    --           12,494               --
  Proceeds from sale of licenses                                      49,077           31,531               --
  Payments on license acquisition                                         --          (43,660)         (33,462)
  Advances to licensees' and franchisees'                         (2,184,222)      (3,497,630)      (4,183,647)
  Collections of advances to licensees & franchisees               2,394,125        3,701,261        4,096,545
                                                                 -----------      -----------      -----------
          NET CASH PROVIDED BY INVESTING ACTIVITIES                  844,766           84,891        1,003,632
                                                                 -----------      -----------      -----------
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from short term note payable                              508,028               --               --
  Payments on short term note payable                               (110,586)              --               --
  Cash dividends                                                          --       (5,918,475)        (172,701)
  Proceeds from sales of stock                                            --              287        6,992,308
  Common stock repurchased                                                --               --       (2,817,246)
                                                                 -----------      -----------      -----------
          NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES        397,442       (5,918,188)       4,002,361

EFFECT OF EXCHANGE RATE CHANGES ON CASH                                1,909            6,051            9,746
                                                                 -----------      -----------      -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS               3,224,996       (4,760,554)       5,963,487
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD               2,132,297        6,892,851          929,364
                                                                 -----------      -----------      -----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD                   $ 5,357,293      $ 2,132,297      $ 6,892,851
                                                                 ===========      ===========      ===========
</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
Years Ended June 30, 2001, 2000 and 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                         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>
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             --          --

Stock options exercised from 100 shares
 of treasury stock                              --              --               (13)            --          --
Net income                                      --              --                --             --          --
Foreign currency translation                    --              --                --             --          --
                                        ----------        --------       -----------     ----------    --------

Balance, June 30, 2000                   9,019,059          90,191         2,104,413             --          --

Net income                                      --              --                --             --          --
Foreign currency translation                    --              --                --             --          --
                                        ----------        --------       -----------     ----------    --------

Balance, June 30, 2001                   9,019,059        $ 90,191       $ 2,104,413             --    $     --
                                        ==========        ========       ===========     ==========    ========

                                                                         Cumulative       Unrealized
                                         Retained         Treasury      Translation     Gain (Loss) On
                                         Earnings           Stock        Adjustment      Investments
                                        -----------       ---------     -----------      -----------

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               --

Stock options exercised from 100 shares
 of treasury stock                               --             300             --               --
Net income                                1,240,369              --             --               --
Foreign currency translation                     --              --          6,051               --
                                        -----------       ---------        -------         --------

Balance, June 30, 2000                    4,263,100        (184,068)        26,704               --

Net income                                1,575,240              --             --               --
Foreign currency translation                     --              --          1,909               --
                                        -----------       ---------        -------         --------

Balance, June 30, 2001                  $ 5,838,340       $(184,068)       $28,613         $     --
                                        ===========       =========        =======         ========
</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. The Company sold
its adjusting businesses in Phoenix,  Arizona and Las Vegas, Nevada in April and
June of 2001,  respectively.  The Company  grants  credit to its  licensees  and
franchisees,  all of whom operate  within the insurance  industry.  Revenue from
claims adjusted by previously  Company-owned adjusting offices was recognized as
the  services  were  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  -- Property  and  equipment  is stated at cost.
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 a  period  no less  than 31  years  and six  months.

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.

IMPAIRMENT OF LONG-LIVED ASSETS -- The Company reviews its long-lived assets and
intangibles   related  to  those  assets  periodically  to  determine  potential
impairment by comparing the carrying value of the long-lived assets and with the
estimated future net undiscounted  cash flows expected to result from the use of
the  assets,  including  cash  flows  from  disposition.  Should  the sum of the
expected  future net cash flows be less than the  carrying  value,  the  Company
would  recognize an impairment  loss at that date.  An impairment  loss would be
measured by comparing  the amount by which the carrying  value  exceeds the fair
value (estimated discounted future cash flows) of the long-lived assets.

During the fiscal year ended June 30, 2001 the Company  determined  the carrying
value of its cost of a subsidiary in excess of net identifiable  assets to be in
excess of its future value, resulting in a decrease in the carrying value of the
asset to $0.

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.

                                       F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Frontier Adjusters of America, Inc. and Subsidiaries
--------------------------------------------------------------------------------

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

USE OF ESTIMATES IN THE  PREPARATION OF FINANCIAL  STATEMENTS -- The preparation
of financial  statements  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 or premiums and accretion of discount,
computed by the interest method over their contractual lives.

During  the  fiscal   year  ended  June  30,   2001,   the   Company   sold  its
held-to-maturity  investments  as the Company  decided to change its  investment
policy to increase its liquidity.

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 7 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.

SEGMENT  REPORTING  --  Statement  No.  131,  DISCLOSURES  ABOUT  SEGMENTS OF AN
ENTERPRISE AND RELATED  INFORMATION,  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 No. 131 also establishes standards for
related  disclosures  about products and services,  geographic  areas, and major
customers. Management has determined the Company to have one reportable segment.
With the dispositions of the Phoenix, Arizona and Las Vegas, Nevada offices, the
Company  no  longer  reports  its  operations  by  geographic  segments  due  to
immateriality and,  accordingly,  the Company has only one segment.  The Company
still provides the same services to the same markets and clients.

BUSINESS  COMBINATIONS -- In July 2001, the Financial Accounting Standards Board
("FASB") issued Statement 141, BUSINESS  Combinations.  Statement 141 eliminates
the pooling  method for  accounting  for business  combinations,  requires  that
intangible  assets  that meet  certain  criteria  be  reported  separately  from
goodwill and requires negative  goodwill arising from a business  combination to
be recorded as an extraordinary gain. The Company has not yet completed its full
assessment  of the effects of  Statement  141 and is uncertain as to the impact.
The standard  generally is required to be implemented by the Company in the 2002
fiscal year.

GOODWILL AND OTHER  INTANGIBLES -- FASB also issued Statement 142,  GOODWILL AND
OTHER  INTANGIBLES,  in July 2001.  Statement 142 eliminates the amortization of
goodwill and other  intangibles  that are determined to have an indefinite  life
and requires that, at minimum,  annual  impairment  tests for goodwill and other
intangible  assets that are  determined to have an indefinite  life. The Company
has not yet completed its full assessment of the effects of Statement 142 and is
uncertain as to the impact. The standard generally is required to be implemented
by the Company in the 2002 fiscal year.

EARNINGS  PER COMMON  SHARE -- The  Company  is  required  to present  basic and
diluted earnings per share amounts.  Basic earnings per common share is computed
by dividing net income by the  weighted  average of common  shares  outstanding.
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.  At June 30, 2001, the
Company has no dilutive potential common shares outstanding.

                                       F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Frontier Adjusters of America, Inc. and Subsidiaries
--------------------------------------------------------------------------------

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

                                          2001            2000           1999
                                       -----------     ----------    -----------
Cash paid during the year:
  Interest                             $     5,270     $    1,405    $     1,369
  Income taxes                           1,237,504        838,099        315,659
Noncash investing activities:
  Sale of licenses                         240,000        242,629             --
  Deferred gain on sale of licenses        232,417        231,021             --
  Disposal of license                       (7,583)            --             --
Noncash financing activities:
  Accrued dividends                             --             --      5,918,475

NOTE 3: RECEIVABLES

                                                           2001          2000
                                                        ---------     ---------
Receivables consist of:
  Accounts receivable trade                             $  58,622     $ 165,377
  Licensee and franchisee fees receivable                 635,144       595,354
  Errors and omissions insurance premium advanced         210,612       160,854
  Other                                                     8,722        30,964
                                                        ---------     ---------
       Total receivables                                  913,100       952,549
  Less allowance for doubtful accounts                   (121,430)     (143,086)
                                                        ---------     ---------
                                                        $ 791,670     $ 809,463
                                                        =========     =========

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:

                                                           2001         2000
                                                        ---------    ----------
Advances to licensees and franchisees                   $ 861,598    $1,197,533
Less allowance for doubtful advances                     (366,677)     (462,061)
                                                        ---------    ----------
                                                          494,921       735,472
Less current portion                                     (362,921)     (535,472)
                                                        ---------    ----------
Long term portion                                       $ 132,000    $  200,000
                                                        =========    ==========

NOTE 5: PROPERTY AND EQUIPMENT

During the fourth  quarter of the fiscal year ended June 30,  2001,  the Company
placed for sale two  buildings  and a parking  lot.  At that time,  the  Company
adjusted  its  carrying  value of these  properties  down by $172,600 to reflect
their estimated market values. Available for sale property and buildings consist
of:

                                      F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Frontier Adjusters of America, Inc. and Subsidiaries
--------------------------------------------------------------------------------

NOTE 5: PROPERTY AND EQUIPMENT (CONTINUED)

                                                        2001            2000
                                                    -----------     -----------
Building and improvements                           $   645,608     $        --
Land                                                    586,743              --
                                                    -----------     -----------
                                                    $ 1,232,351     $        --
                                                    ===========     ===========

Property and equipment consist of:
                                                        2001            2000
                                                    -----------     -----------
Building and improvements                           $        --     $ 1,390,166
Computers and software                                  263,940         314,716
Furniture and fixtures                                  280,612         348,596
Automobiles                                                  --          16,494
                                                    -----------     -----------
                                                        544,552       2,069,972
Less accumulated depreciation and amortization         (451,191)     (1,034,326)
                                                    -----------     -----------
                                                         93,361       1,035,646
Land                                                         --         586,743
                                                    -----------     -----------
                                                    $    93,361     $ 1,622,389
                                                    ===========     ===========

NOTE 6: SALE OF LICENSES

The Company sold its Phoenix,  Arizona  adjusting  office in April 2001 to a new
franchisee and its Las Vegas, Nevada adjusting office in June 2001 to a group of
existing franchisees.  The sale of the offices resulted in an aggregate deferred
gain of $212,417. The Company also sold an office in the Chicago,  Illinois area
and an office in the Allentown, Pennsylvania area during this fiscal year for an
aggregate  deferred  gain of $20,000.  The Company is  collecting  proceeds from
these sales by  deducting  a specified  percentage  of the  franchisees'  weekly
remittances  to be applied  against  the sales  price  until  paid in full.  The
deferred  gains  associated  with these  sales are netted  against  the  current
portion of advances to licensees and franchisees for balance sheet  presentation
and are recorded as a gain on sale of assets when received. On June 30, 2001 and
2000, the aggregate  deferred gain netted against  receivables  was $444,438 and
$229,745,  respectively.  The  Company  also  sold a  license  in the San  Jose,
California area for cash proceeds of $25,000.

NOTE 7: 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, 2001 and 2000:

<TABLE>
<CAPTION>
                                           Gross         Gross          Gross
                                          Amortized    Unrealized     Unrealized
                                            Cost          Gains         Losses      Fair Value
                                         ----------    ----------    ------------   ----------
                                                                 2001
                                         -----------------------------------------------------
<S>                                      <C>           <C>           <C>             <C>
Held to maturity securities
  Local government securities & other    $       --    $       --    $         --    $      --
                                         ==========    ==========    ============    =========

                                                                 2000
                                         -----------------------------------------------------
Held to maturity securities
  Local government securities & other    $  628,661    $    1,010    $     18,596    $ 611,075
                                         ==========    ==========    ============    =========
</TABLE>

During  the  fiscal   year  ended  June  30,   2001,   the   Company   sold  its
held-to-maturity  securities  due to a  change  in its  investment  policy.  The
Company  recognized  a gain of $12,494  and $60,753 for the years ended June 30,
2000 and 1999  respectively,  due to the realized gain of its available for sale
securities.

                                      F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Frontier Adjusters of America, Inc. and Subsidiaries
--------------------------------------------------------------------------------

NOTE 8: LICENSING AND FRANCHISING

As of June 30,  2001,  the Company has  entered  into 524 license and  franchise
agreements  with  390  entities,  operating  482  offices  with  681  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, 2001,  2000 and 1999
were approximately $48,410,000, $45,810,000 and $44,730,000, respectively.

The Company's main line of business is providing  services through its 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:

<TABLE>
<CAPTION>
                                          Licensing          Adjusting
                                             and                and             Corporate
                                         Franchising      Risk Management       and Other      Consolidated
                                         -----------      ---------------       ---------      ------------
<S>                                      <C>                <C>                <C>              <C>
2001
Revenue                                  $ 5,555,722        $   628,120        $        --      $ 6,183,842
Costs and expenses                         2,533,709            731,206            545,590        3,810,505
                                         -----------        -----------        -----------      -----------
Income (loss) from operations            $ 3,022,013        $  (103,086)       $  (545,590)     $ 2,373,337
                                         ===========        ===========        ===========      ===========
Identifiable assets                      $ 3,440,237        $   136,213        $ 5,325,805      $ 8,902,255
                                         ===========        ===========        ===========      ===========
Number of advertised locations
  Beginning of year                              649                 23                 --              672
  Opened                                          17                 --                 --               17
  Closed                                          (8)                --                 --               (8)
  Ownership changes                                2                 (2)                --               --
                                         -----------        -----------        -----------      -----------
  End of year                                    660                 21                 --              681
                                         ===========        ===========        ===========      ===========

                                          Licensing          Adjusting
                                             and                and             Corporate
                                         Franchising      Risk Management       and Other      Consolidated
                                         -----------      ---------------       ---------      ------------
2000
Revenue                                  $ 5,170,592        $ 1,086,304        $        --      $ 6,256,896
Cost and expenses                          2,798,397            998,078            577,939        4,374,414
                                         -----------        -----------        -----------      -----------
Income (loss) from operations            $ 2,372,195        $    88,226        $  (577,939)     $ 1,882,482
                                         ===========        ===========        ===========      ===========
Identifiable assets                      $ 3,346,286        $   494,756        $ 2,879,051      $ 6,720,093
                                         ===========        ===========        ===========      ===========
Number of advertised locations
  Beginning of year                              659                 19                 --              678
  Opened                                           5                 --                 --                5
  Closed                                         (11)                --                 --              (11)
  Ownership changes                               (4)                 4                 --               --
                                         -----------        -----------        -----------      -----------
  End of year                                    649                 23                 --              672
                                         ===========        ===========        ===========      ===========
</TABLE>
                                      F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Frontier Adjusters of America, Inc. and Subsidiaries
--------------------------------------------------------------------------------

NOTE 8: LICENSING AND FRANCHISING (CONTINUED)

<TABLE>
<CAPTION>
                                          Licensing         Adjusting
                                             and               and            Corporate
                                         Franchising     Risk Management      and 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
                                        ============      ============      ============     ============
</TABLE>

NOTE 9: INCOME TAXES

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

                                    2001               2000              1999
                                 -----------       -----------       -----------
Federal
  Current                        $   850,346       $   762,200       $   309,299
  Deferred                           (19,899)          (96,637)           42,788
State
  Current                            198,773           188,600            72,500
  Deferred                            (5,164)          (25,077)           11,103
                                 -----------       -----------       -----------
       Income taxes              $ 1,024,056       $   829,086       $   435,690
                                 ===========       ===========       ===========

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

                                                  2001        2000        1999
                                                  ----        ----        ----
Statutory rate                                    35.0%       35.0%       35.0%
Increase (decrease) resulting from:
  State income taxes, net                          4.8         5.1         5.5
  Non-deductible items                              .7         1.1         4.0
  Non-taxable revenue                              (.5)        (.6)       (1.4)
  Other                                            (.6)        (.5)        1.3
                                                  ----        ----        ----
Effective rate                                    39.4%       40.1%       44.4%
                                                  ====        ====        ====

Net deferred tax assets consist of the following components:

                                                          2001            2000
                                                        --------        --------
Deferred tax assets
  Current:
   Allowance for doubtful accounts                      $182,982        $224,301
   Land and property available for sale                   67,919              --
   Other liabilities                                      13,523          17,306
                                                        --------        --------
                                                         264,424         241,607
                                                        --------        --------
  Long term:
   Property and equipment                                103,930          84,714
   Other liabilities                                      13,804          30,774
                                                        --------        --------
                                                         117,734         115,488
                                                        --------        --------
                                                        $382,158        $357,095
                                                        ========        ========

                                      F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Frontier Adjusters of America, Inc. and Subsidiaries
--------------------------------------------------------------------------------

NOTE 10: RELATED PARTY TRANSACTIONS

Old Frontier  Investment,  Inc. of Arizona,  a  shareholder,  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 $7,909,  $14,448 and $13,382
for the  fiscal  years  ended  June 30,  2001,  2000 and 1999  respectively,  in
connection with such 5% royalty agreement.

Included in other  liabilities is $10,000 in accrued moving expenses for John M.
Davies, shareholder, President, CEO and the Company's Chairman of the Board.

George M.  Hill,  a former  shareholder,  Vice  President  and  Director  of the
Company,  acted as outside  counsel to the Company.  The Company paid Mr. Hill's
law firm  approximately  $38,000 in fiscal 2001, $43,000 in fiscal 2000, $92,000
in fiscal 1999, for legal services and reimbursement of expenses.

UFAC, a shareholder  through  April 2001,  had an agreement  that  terminated in
April  2001  whereby  the  Company  had paid  $25,000  per month for  marketing,
managerial, technological,  financial and other services and resources (see Note
14). As of June 30, 2001, the Company incurred  $250,000 in service fees related
to this agreement and an additional  $66,563 for services  performed  outside of
the agreement for an aggregate of $316,563.  The Company  incurred  $360,741 and
$50,000 in  similar  fees for the  fiscal  year  ended  June 30,  2000 and 1999,
respectively

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: EMPLOYEE BENEFIT PLANS

On  June  14,  1984,  the  Company   adopted  a  Profit  Sharing  Plan  covering
substantially  all  employees  of the  Company  who have  completed  one year of
service  and  have  reached  age  20.  The  Profit  Sharing  Plan  provided  for
contributions at the discretion of management not to exceed the amount permitted
under the Internal Revenue Code as a deductible expense.  Participants' benefits
vested at the rate of 20% per year.  Contributions  to the Profit  Sharing  Plan
were  made  to  trust   accounts  for   investment  at  the  discretion  of  the
participants.  The Profit Sharing Plan was terminated by the Company on December
14, 2000 and was replaced with first a  gainsharing  program and 401(k) plan and
then a  discretionary  bonus plan.  Profit  sharing  expenses  were  $17,726 and
$235,724 for the years ended June 30, 2000 and 1999,  respectively.  The Company
did not grant any contributions for the year ended June 30, 2001.

In fiscal  2000,  the Company  used a  gainsharing  program that was designed to
reward  employees for  exceptional  growth and return on revenue.  Disbursements
were only made if targets set by upper management were met.  Gainsharing expense
for the year ended June 30,  2000 was  $86,362.  The  Company  did not incur any
expenses related to this program for the year ended June 30, 2001.

The  Company  also  implemented  a 401(k)  plan  during  fiscal 2000 in which it
matched up to a maximum of 3% for those  participants who contributed 5% or more
of their salary. The Company's employer match expense for the fiscal years ended
June 30,  2001 and 2000 were  $14,261  and  $7,883,  respectively.  The  Company
terminated the 401(k) plan in April 2001.

During fiscal 2001, the Company  terminated its gainsharing and 401(k) plans and
replaced them with a discretionary  bonus plan. The discretionary  bonus plan is
designed  to reward  employees  for  personal  performance  and  accomplishments
throughout  the year.  For the  fiscal  year ended June 30,  2001,  the  expense
related to discretionary bonuses was $122,550.

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  for
employee awards.  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 2001,
2000 and 1999 would have decreased by $0, $0 and $18,000, respectively,  with no
effect on earnings per share.

                                      F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Frontier Adjusters of America, Inc. and Subsidiaries
--------------------------------------------------------------------------------

NOTE 12: STOCK OPTIONS (CONTINUED)

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 1987 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.  As of June 30,  2001,  the 1987  Plan has no  shares  outstanding  and
134,847 available for granting.

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 1996 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.  As of June 30,  2001,  the 1996  Plan has no  shares
outstanding and 299,900 available for granting.

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
                         ----------------------------------------------------------------------
                                 2001                    2000                      1999
                         --------------------   ----------------------    ---------------------
                         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            --          --      129,629       $2.99      300,000       $3.05
  Granted                     --          --           --          --           --          --
  Exercised                   --          --         (100)      (2.88)     (65,153)      (2.67)
  Expired                     --          --     (129,529)      (2.99)    (105,218)      (3.37)
                           -----       -----     --------       -----     --------       -----
Outstanding June 30           --          --           --          --      129,629       $(2.99)
                           =====       =====     ========       =====     ========       =====
</TABLE>

                                    2001            2000             1999
                                    ----            ----             ----
Exercisable at end of year           --              --             129,629

The following is a  reconciliation  of the  numerators and  denominators  of the
basic and diluted earnings per share computation for June 30:

<TABLE>
<CAPTION>
                                2001                         2000                       1999
                      -------------------------   -------------------------   -------------------------
                          Shares      Per-share       Shares      Per-share       Shares      Per-share
                      (Denominator)     Amount    (Denominator)    Amount     (Denominator)     Amount
                      -------------     ------    -------------    ------     -------------     ------
<S>                     <C>             <C>         <C>             <C>         <C>             <C>
Basic EPS               8,957,660       $0.18       8,957,586       $0.14       4,569,049       $0.12
                                        =====                       =====                       =====
Effect of Dilutive
 Securities Options            --          --              --          --           1,064          --
                        ---------       -----       ---------       -----       ---------       -----
Diluted EPS             8,957,660       $0.18       8,957,586       $0.14       4,570,113       $0.12
                        =========       =====       =========       =====       =========       =====
</TABLE>

NOTE 13: COMMITMENTS AND CONTINGENCIES.

The Company  leases  various  office space and office  equipment  under  various
noncancellable  agreements.  These  leases  expire  between  August 31, 2002 and
February 28, 2007 and require  various  minimum  annual  rental  payments.  Each
office lease also requires the payment of taxes.

                                      F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Frontier Adjusters of America, Inc. and Subsidiaries
--------------------------------------------------------------------------------

NOTE 13: COMMITMENTS AND CONTINGENCIES (CONTINUED)

The total minimum rental commitment at June 30, 2001 is due as follows:

                         During the year ending June 30:

                         2002                  $  41,413
                         2003                     49,680
                         2004                     47,190
                         2005                     47,190
                         2006                     47,190
                         2007                     31,460
                                               ---------
                                               $ 264,123
                                               =========

The total rental expense  included in the income  statements for the years ended
June 30, 2001, 2000 and 1999 is $33,918, $34,426 and $35,633, respectively.

Included in Other liabilities is the Company's payable to  franchisees/licensees
and  clients  at June  30,  2001  and  June 30,  2000 of  $68,242  and  $37,593,
respectively.

During the year ended June 30, 2001 the Company  settled a claim made against it
and a former  franchisee  at no expense to the Company and the Company  received
reimbursement  of costs and expenses,  including  legal fees,  of  approximately
$40,000.

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

NOTE 14: STOCK TRANSACTIONS

In April 2001, the Company  announced that United  Financial  Adjusting  Company
("UFAC"), its majority shareholder, had sold its 5,258,513 shares in the Company
to Merrymeeting,  Inc. ("MMI"), a company 50% owned by John M. Davies,  Chairman
of the  Company's  Board of Directors,  for $1.58 per share.  As a result of the
sale of the shares by UFAC to MMI, the service agreement between the Company and
UFAC was  terminated  effective  April 30, 2001.  The Company still receives and
pays for limited services provided by UFAC not related to the terminated service
agreement.  In addition,  the Company  announced that its Board of Directors had
approved a proposal by MMI to take the Company private through a cash-out merger
at a price of $1.58 per share  (referred to as  "Transaction").  Consummation of
this Transaction is subject to certain regulatory  agencies and by the Company's
shareholders.

                                      F-16
<PAGE>
                       FRONTIER ADJUSTERS OF AMERICA, INC.
                                AND SUBSIDIARIES

                               SUPPLEMENTARY DATA

Selected Quarterly Financial Data

(Information for all periods shown below is unaudited)

<TABLE>
<CAPTION>
                                                                2001
                                       ---------------------------------------------------------
                                                         Three Months Ended
                                       ---------------------------------------------------------
                                         Sept. 30       Dec. 31        Mar. 31         June 30
                                       -----------    -----------    -----------     -----------
<S>                                    <C>            <C>            <C>             <C>
Revenue                                $ 1,594,665    $ 1,471,297    $ 1,556,204     $ 1,561,676
Income from operations                     676,408        672,667        671,953         352,309
Income before income taxes                 740,045        740,734        713,765         404,752
Net income                                 476,996        426,891        453,594         217,759
Net income per share
  Basic                                        .05            .05            .05             .02
  Diluted                                      .05            .05            .05             .02
Weighted average shares outstanding
  Basic                                  8,957,660      8,957,660      8,957,660       8,957,660
  Diluted                                8,957,660      8,957,660      8,957,660       8,957,660

                                                                2000
                                       ---------------------------------------------------------
                                                         Three Months Ended
                                       ---------------------------------------------------------
                                         Sept. 30       Dec. 31        Mar. 31         June 30
                                       -----------    -----------    -----------     -----------
Revenue                                $ 1,676,064    $ 1,566,992    $ 1,482,098     $ 1,531,742
Income from operations                     552,906        289,886        467,744         571,946
Income before income taxes                 583,929        345,257        509,423         630,846
Net income                                 367,332        199,068        304,497         369,472
Net income per share
  Basic                                        .04            .02            .03             .04
  Diluted                                      .04            .02            .03             .04
Weighted average shares outstanding
  Basic                                  8,957,560      8,957,560      8,957,564       8,957,660
  Diluted                                8,957,560      8,957,560      8,957,564       8,957,660

                                                                1999
                                       ---------------------------------------------------------
                                                         Three Months Ended
                                       ---------------------------------------------------------
                                         Sept. 30       Dec. 31        Mar. 31         June 30
                                       -----------    -----------    -----------     -----------
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
</TABLE>
                                      F-17
<PAGE>

                       FRONTIER ADJUSTERS OF AMERICA, INC.
                                AND SUBSIDIARIES

                  SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
                FOR THE YEARS ENDED JUNE 30, 2001, 2000 AND 1999

<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, 2001:
  Allowance for doubtful accounts         $605,147       $127,584       $244,624      $488,107

Year Ended June 30, 2000:
  Allowance for doubtful accounts         $350,367       $311,820       $ 57,040      $605,147

Year Ended June 30, 1999:
  Allowance for doubtful accounts         $375,220       $237,601       $262,454      $350,367
</TABLE>

                                      F-18