CONFORMED
                                    ---------
                       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, 1997

[ ] 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 Identification Number)
   incorporation or organization)

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

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

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

     Title of each class               Name of each exchange on which registered
     -------------------               -----------------------------------------

 Common Stock $.01 Par Value                     American Stock Exchange

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

                                      None

                        --------------------------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X  No   .
                                      ---   ---

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

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant was $4,605,358 as of August 15, 1997.

The number of shares  outstanding  of the  registrant's  Common Stock,  $.01 par
value, as of August 15, 1997, was 11,513,395.
                                  Page 1 of 37
<PAGE>
                                     PART I
                                     ------

1. 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 as the  "Adjusters")  throughout the United
States and Canada and provides support services to the Adjusters.  The Adjusters
are engaged by insurance  carriers and  self-insured  companies to adjust claims
made against them by claimants and by  policyholders.  In addition,  the Company
and certain of the Adjusters offer risk management services to their clients. As
of June 30,  1997,  the  Company had  entered  into 476  license  and  franchise
agreements  ("Agreements")  with 406  entities,  operating  411 offices with 646
advertised  locations  in 50 states,  the  District of Columbia  and Canada.  In
addition to licensing and franchising  Adjusters,  the Company owns and operates
independent  insurance  adjusting and risk management  businesses in Arizona and
Nevada.

General
-------

For its fiscal year ended June 30, 1997, the Company's licensing and franchising
activities accounted for approximately 86% of gross revenues,  and the Company's
Company-owned   adjusting   and  risk   management   businesses   accounted  for
approximately  14% of gross  revenues.  For the fiscal years ended June 30, 1996
and June 30, 1995, the Company's licensing and franchising  activities accounted
for  approximately  89%  and  91%,  respectively,  of  gross  revenues,  and the
Company's  Company-owned  adjusting and risk management businesses accounted for
approximately 11% and 9%, respectively,  of gross revenues. The revenues derived
from the Company's operations,  as well as the gross billings by Adjusters (upon
which the Company's  revenues  from  licensing and  franchising  activities  are
based), are set forth in the following table.

                                                  Fiscal Year Ended June 30,
                                          --------------------------------------
                                              1995         1996         1997
                                          --------------------------------------
Gross Billings by Adjusters               $42,690,000  $46,830,000  $48,060,000
 (approximate)
Revenues from Licensing and
 Franchising Activities                     4,783,941    5,044,028    5,278,967
Revenues from Company-owned
 Adjusting and risk management Businesses     456,884      597,956      885,636

For its fiscal year ended June 30, 1997, the Company's licensing and franchising
activities accounted for approximately  $1,710,000 in income from operations and
the Company's  Company-owned  adjusting and risk management businesses accounted
for approximately $63,000 in income from operations.  For the fiscal years ended
June 30,  1996 and  June 30,  1995,  the  Company's  licensing  and  franchising
activities accounted for approximately  $1,943,000 and $1,740,000  respectively,
in income  from  operations,  the  Company's  Company-owned  adjusting  and risk
management  businesses  accounted for approximately $5,000 in income and $29,000
in losses, respectively, from operations.

Although  the  Company  generally  considers  its  client  base  broad  and well
diversified,  collections  received by  adjusters  from one  insurance  company,
Scottsdale Insurance Company,  represented royalty fees to the Company of 18.8%,
20.8% and 21.8% of continuing  licensee and franchisee  fees for the years ended
June 30, 1997, 1996 and 1995, respectively.  In June 1997 this client elected to
cease purchasing  adjusting  services from the Company and its Adjusters.  It is
anticipated that the transition will take approximately 60 to 90 days.

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.
                                     Page 2
<PAGE>
Claims Adjusting (continued)
----------------------------

         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  the  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 in  coverage  disputes  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 the self-insured clients often
play a significant  role in the  selection  and retention of risk  management or
third party administration and related services.

Licensing and Franchising
-------------------------

The major part of the  Company's  revenues  are  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
referral 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 1997, the Company retained 11.0% of the Adjusters' collections as royalty
fees from this arrangement.

The  Company  does  not  advertise  for  or  solicit   potential   licensees  or
franchisees.   Instead,   the  Company   believes  that  through  the  financial
flexibility it offers and the established and dependable services it provides to
Adjusters,  the  Company  is  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 its
Adjusters have been providing insurance  adjusting  services,  on a Company-wide
basis, is approximately 20 years.

Before entering into an Agreement with a prospective licensee or franchisee, the
Company reviews the prospective  licensee's or franchisee's  background in order
to determine  that he or she is qualified and capable of rendering  professional
insurance adjusting services.  In evaluating a potential licensee or franchisee,
the Company  considers the length of time the  potential  licensee or franchisee
has been  involved in insurance  adjusting  and such other factors as his or her
(i)  experience  and the types of claims that he or she is capable of adjusting;
(ii) ability to act  independently  without  supervision  by the Company;  (iii)
prior and current  associations  in the  insurance  adjusting  business and (iv)
reputation in the insurance  adjusting business and in the community in which he
or she will provide insurance adjusting services.
                                     Page 3
<PAGE>
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,  Adjusters to devote at least 80% of their time during any 45 day period
to  the  conduct  of  the  defined  business.  The  Agreements  are  subject  to
termination  by the Company upon an  Adjuster's  failure to meet  minimum  gross
billing volumes.  The Adjusters  retain the right to make independent  decisions
regarding the management and operation of their businesses, subject to the terms
of the license or franchise agreements.

The Company has a national  advertising  program in major  trade  journals.  The
advertising is designed to promote the Company's  operations and to generate new
accounts for its licensees and franchisees.  Adjusters  receive claims from both
local  referrals  developed by the Adjusters and from  referrals by the Company.
The latter referrals are generally obtained through  advertising  efforts 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.
The  Company's  arrangements  with  Adjusters  located in Canada differ from the
foregoing  in  that  those  Adjusters'  clients  send  their  remittance  to the
Company's  franchisee  in Regina,  Saskatchewan,  Canada,  who then deposits the
amount remitted 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, relinquish to a new prospective licensee or franchisee a portion of the
designated  area  covered  by  his  or  her  Agreement.  As a  result  of  these
arrangements,  the  Company  redirects  to  the  relinquishing  Adjuster  5%  of
collections derived from services provided by the new Adjuster.

To assist new Adjusters in meeting their business and personal  expenses  during
their initial period as Adjusters, the Company may advance funds to them against
future  billings.  Typically  such  advances are made  semi-monthly  and average
approximately  $2,500. The number of Adjusters to whom semi-monthly advances are
being made typically  varies between 15 and 25. The Company  believes that these
arrangements  provide new  Adjusters  assistance in making the  transition  from
being  employees  of other  adjusting  firms to becoming the owners of their own
businesses  and,  therefore,   aid  the  Company  to  attract  highly  qualified
individuals as Adjusters.

In addition to advancing funds to new Adjusters,  the Company  frequently  lends
money to  Adjusters  who have been with the Company for a longer  period.  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 $293,205 per month and has received  reimbursement of an average of
$277,345 per month. At June 30, 1997, the Company had  approximately  $1,450,000
in outstanding loans or advances. During the past four fiscal years, the Company
has  written  off an average of  $124,351  per year due to bad debts  related to
these arrangements.

License and Franchise Agreements
--------------------------------

The current  forms of license and franchise  agreements  used by the Company are
largely  identical  except  that the form of  license  agreement  refers  to the
Adjuster as a licensee,  and the form of the franchise  agreement  refers to the
Adjuster as a franchisee.  The  difference  between the licensee and  franchisee
characterizations  is  primarily  historical,  dating  from the period  when the
Company's arrangements with Adjusters did not constitute a "franchise" under the
United  States  Federal  Trade  Commission's  rules  as  they  now  do.  If  the
arrangement was subject to state franchise laws, the Adjuster was referred to as
a  franchisee;  if not, the Adjuster was referred to as a licensee.  The Company
currently distinguishes between licensees and franchisees in the same manner.
                                     Page 4
<PAGE>
License and Franchise Agreements (continued)
--------------------------------------------

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.  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,  relinquish a  prospective  new 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
<PAGE>
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 conducts
independent  insurance  adjusting and risk management  operations in Arizona and
Nevada.

                             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 climate
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 effected.  See "Special
Considerations  -  Uncertainty  of  Future  Revenues".  Further,  the  insurance
adjusting  business  is  highly  competitive.   See  "Special  Considerations  -
Competition" and Item 1, "Business - General".

Uncertainty of Future Revenue
-----------------------------

The Company's  continuously  increasing  revenue stream and net income stream in
recent years has resulted primarily from the continuously increasing revenues of
the adjusters.  Accordingly, the Company's future revenues and net income can be
expected to depend  primarily  upon the  maintenance  or increase in the average
revenues 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  revenues.  Further,  although the
client base of the adjusters has historically  continued to expand, there can be
no assurance  that they 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"  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.
Moreover,  it has no predetermined  growth targets within any projected  period.
The
                                     Page 6
<PAGE>
Uncertainty of Future Revenue (continued)
-----------------------------------------

Company's plan is to continue to add qualified  insurance adjusters as licensees
and franchisees.  The Company's ability to increase the number of adjusters will
depend  upon its  continued  ability to attract and retain  qualified  insurance
adjusters  as  licensees  and   franchisees.   See  "Special   Considerations  -
Competition".

Dependence Upon Key Personnel
-----------------------------

The Company is, and will continue to be,  dependent to a material  extent on the
abilities  of William J. Rocke,  the  Chairman of the Board and Chief  Executive
Officer of the Company,  and Jean E. Ryberg,  the President of the Company.  The
Company has purchased and  maintained key man life insurance with respect to Mr.
Rocke, who is 73 years old, and Mrs. Ryberg, who is 65 years old, in the amounts
of $200,000  and  $250,000  respectively.  Both Mr.  Rocke and Mrs.  Ryberg have
entered  into  employment  agreements  with the Company  that expire on June 30,
2000.  In  addition,  the  Company  has hired  Francis  J.  LaPallo,  age 49, as
Executive  Vice  President.  There can be no  assurance  that Mr.  Rocke or Mrs.
Ryberg will continue to provide services for the Company. If the Company were to
lose the services of Mr. Rocke and Mrs. Ryberg,  the Company would be materially
adversely  affected,  notwithstanding the above-noted key man life insurance and
new management personnel.

Voting Control
--------------

The  directors  and  officers  of  the  Company  own  in  excess  of  37% of the
outstanding  voting  stock of the  Company.  The Company  anticipates  that such
percentage  ownership  will enable the  directors and officers of the Company to
continue to control the business and affairs of the Company.

Dependence Upon Significant Clients
-----------------------------------

Although   the   Company   generally   considers   its  client  base  broad  and
well-diversified,  the  collections  received by  adjusters  from one  insurance
company  provided  the Company with 18.8% of the license and  franchise  fees it
received  during the fiscal year ended June 30,  1997.  See Item 1,  "Business -
General"  and  Item  7,  "Management's  Discussion  and  Analysis  of  Financial
Condition  and Results of  Operations - Results of  Operations  1997 Compared to
1996 - Revenues".  In June 1997 this client elected to discontinue purchasing of
adjusting  services from the Company and its Adjusters.  It is anticipated  that
the transition will take  approximately 60 to 90 days. The Company is developing
and  implementing a  comprehensive  marketing  strategy to take advantage of its
broad  geographic  coverage as well as the unique  strengths  of its  individual
licensees and franchisees. There is no assurance, however, that the Company will
be successful in procuring  nationwide  accounts on terms as favorable as it has
in the past or will be the successful bidder on new or existing accounts,  which
would materially adversely affect the Company's business.

Service Mark
------------

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

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
                                     Page 7
<PAGE>
Tort Liability and Insurance (continued)
----------------------------------------

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.  The Company recently settled litigation against it related to a former
franchisee  of the Company in the amount of $525,000 net of insurance  proceeds.
See Item 3, "Legal Proceedings".

Ability to Rely Upon License and Franchise Agreements
-----------------------------------------------------

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

Government Regulation
---------------------

Franchising

The Company is subject to various  federal,  state 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.  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,  both
indirectly as a licensor and franchisor  and directly as an insurance  adjuster,
is highly  competitive.  The Company competes with insurance  companies and with
other  independent  insurance  adjusting  companies for  qualified  adjusters to
become licensees and franchisees. In addition, 
                                     Page 8
<PAGE>
Competition (continued)
-----------------------

through the adjusters and the Company-owned  adjusting  businesses,  the Company
competes as a provider of  insurance  adjusting  services  with other  insurance
adjusting  companies and with in-house insurance  adjusting staffs. See "Special
Considerations - Uncertainty of Future Revenue",  and "Special  Considerations -
Dependence Upon Significant Clients".

Dividends
---------

Although  the Company has paid  quarterly  dividends  with  respect to shares of
Common  Stock  since  the third  quarter  of the  Company's  1985  fiscal  year,
declaration  and  payment of  dividends  are  subject to the  discretion  of the
Company's  board of directors and may be made only from funds legally  available
therefor.  The  Company's  ability  to pay  dividends  will  be  subject  to the
Company's financial status and requirements.  There can be no assurance that the
Company  will be able to, or will  continue  to declare and pay  dividends  with
respect to shares of Common Stock.

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, 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 and its Phoenix claims adjusting and risk management-related services
business.  Adjacent to the main office,  the Company also owns a small  building
and property at 51 East Monterey Way which  contains two offices.  One office is
currently  occupied by a tenant and the second office is being used for storage.
The combined offices contain approximately 1,500 square feet of office space.

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

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

Item 3 - Legal Proceedings
--------------------------

In August,  1995,  Mark  Brockbank and Alan Bird  individually  and on behalf of
certain Underwriters at Lloyd's,  London, a client of a former franchisee of the
Company,  filed a complaint against multiple defendants including the Company in
the District Court of Dallas County, Texas. The complaint arose from the alleged
embezzlement of over $700,000 by the former  franchisee.  The complaint  alleged
claims  against the Company  including  breach of contract,  breach of fiduciary
duty,  negligence,   negligent  supervision,   negligent  misrepresentation  and
negligent licensing.

In June 1997 the Company entered into an agreement to settle the litigation at a
cost to the Company of $525,000 net of insurance  proceeds with mutual  releases
by all parties.

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.
                                     Page 9
<PAGE>
                                     PART II
                                     -------

Item 4 - Submission of Matter to a Vote of Security Holders
-----------------------------------------------------------

No  matters  were  submitted  to a vote of  security  holders  during the fourth
quarter of the fiscal year covered by this report.

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, 1996                 
 First Quarter                                  $3.125      $2.1875     452,800
 Second Quarter                                 $3.00       $2.4375     159,300
 Third Quarter                                  $2.9375     $2.75       110,800
 Fourth Quarter                                 $3.4375     $2.625      436,600
                                                                               
Fiscal Year Ended June 30, 1997                                                
 First Quarter                                  $3.25       $2.5625     153,600
 Second Quarter                                 $3.875      $3.00       132,600
 Third Quarter                                  $3.625      $2.9375      93,700
 Fourth Quarter                                 $3.5625     $2.625      157,400
                                         
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, 1996
 First Quarter.............................                 $.035
 Second Quarter............................                 $.035
 Third Quarter.............................                 $.035
 Fourth Quarter............................                 $.035


Fiscal Year Ended June 30, 1997
 First Quarter.............................                 $.0375
 Second Quarter............................                 $.0375
 Third Quarter.............................                 $.0375
 Fourth Quarter............................                 $.0375


As of August 15, 1997, there were 255 shareholders of record  (approximately 900
including beneficial owners) of the Company's Common Stock.
                                     Page 10
<PAGE>
Item 6 - Selected Financial Data
--------------------------------
<TABLE>
<CAPTION>
                                                               Year Ended June 30
                                        --------------------------------------------------------------
                                           1993         1994         1995         1996         1997
                                        ----------   ----------   ----------   ----------   ----------
<S>                                     <C>          <C>          <C>          <C>          <C>
                                        
Income Statement Data                   
 Operating Revenues                     $4,487,091   $4,590,270   $5,240,825   $5,641,984   $6,164,603
 Net Income                                909,053    1,018,160    1,026,848    1,134,519      979,198
 Earnings Per Common Share                     .19          .22          .22          .25          .21
 Weighted Average Number of             
  Shares Used in Per Share              
  Data                                   4,780,980    4,730,597    4,662,679    4,620,101    4,607,709
 Cash Dividends Per Share                    .0875          .11         .115          .14          .15
                                        
                                        
Balance Sheet Data                      
 Working Capital                        $2,571,073   $2,749,531   $2,946,748   $3,196,562   $3,301,276
 Total Assets                            5,981,298    6,491,066    6,597,050    6,875,752    7,912,139
 Long-Term Debt                               --           --         84,655       59,983       33,462
 Property and Equipment, Net             1,549,227    1,460,601    1,484,545    1,554,401    1,736,226
 Stockholders' Equity                    5,250,138    5,487,999    5,838,651    6,230,799    6,564,193
 Book Value Per Share                         1.10         1.17         1.26         1.35         1.43
 Retained Earnings                       3,053,848    3,552,194    4,042,588    4,526,419    4,814,266
 Total Shares Outstanding                4,782,010    4,690,898    4,640,898    4,619,658    4,605,358
</TABLE>                                
                                     Page 11
<PAGE>
Item 7 - Management's Discussion and Analysis of Financial
----------------------------------------------------------
          Condition and Results of Operations
          -----------------------------------

FINANCIAL CONDITION

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

In fiscal 1997 the Company's continuing  operations generated $1,854,198 in cash
which was sufficient for the Company's cash requirements.  This cash was used to
pay cash  dividends of $691,351,  acquire  14,300 shares of treasury  stock at a
cost of $44,365,  purchase  equipment  and property at a cost of $302,102 and to
acquire operations from one licensee and certain rights from another for a total
of $85,500

The Company has continued its policy to pay cash  dividends to its  shareholders
with payments  totaling 15 cents per share in the 1997 fiscal year. The Board of
Directors  has declared a 3.75 cent  dividend  payable on September  10, 1997 to
shareholders  of record on August 20,  1997.  Additionally,  in October 1996 the
Company  acquired  a parcel of land and a  building  adjacent  to its  Corporate
offices for storage and parking.  The  purchase  price was $170,000 and was paid
during the second  quarter of the  Company's  current  fiscal year.  The Company
presently has  approximately  one third of this building rented until it will be
needed for corporate purposes.

The Company  anticipates  that during fiscal 1998 its  operations  will generate
sufficient  cash  to  fund  its  operations,  dividend  payments  and  equipment
acquisitions.  The Company projects that its capital  expenditures for equipment
will be approximately $200,000 to $300,000 in fiscal 1998.

The Company's policy is to maintain a solid financial position.  This policy has
resulted in the Company's ratio of current assets to current  liabilities  being
3.52 to 1 as of June 30, 1997 compared to 6.46 to 1 as of June 30, 1996.

RESULTS OF OPERATIONS 1997 COMPARED TO 1996

REVENUES

The Company's  revenues  increased to $6,165,000 from $5,642,000 in fiscal 1996,
resulting in a 9.3% increase as compared to the prior fiscal year.  The increase
consists of a $288,000  increase in adjusting and other  revenues and a $235,000
increase in continuing licensee and franchisee fees.

The increase of $288,000 in adjusting and other fees  reflects a 48.2%  increase
to $886,000 in the current  fiscal year compared to $598,000 in the prior fiscal
year. The increase  reflects  $57,000 in revenues from the Las  Vegas/Henderson,
Nevada  office which was acquired by the Company,  April 1, 1997.  Additionally,
the Tucson adjusting office had an increase of $93,000  reflecting the fact that
the  Company  operated  the  office  for the full  fiscal  year,  the office was
acquired  early in fiscal  1996.  The Phoenix  operations  of the Company had an
increase of $142,000 in revenues of which approximately  $100,000 was the result
of a major storm that  occurred in mid August 1996.  The balance of the increase
represents an increase in the demand for the services of the  Company's  Phoenix
office.

The Company's  revenues from  continuing  licensee and franchisee fees increased
4.7% or $235,000  from  $5,044,000 in the prior fiscal year to $5,279,000 in the
current  fiscal  year.  The  increase  reflects  the  benefit  to the  Company's
licensees and franchisees from an increase in claims  assignments from insurance
companies  and self  insureds  due to the  increase  in  volume of  claims.  The
increase also reflects new  territories  opened by licensees and franchisees and
rate increases as a result of inflation.

The Company's revenues are affected by numerous matters including the work loads
of other  companies as well as claims  presented by their  clients.  The Company
has,  however,  seen growth in licensee and franchisee fees paid. The Company is
committed  to  continue  its  work  to  improve  existing  and to add  qualified
licensees. The Company has seen increased competition with respect to nationwide
purchasers of the Company's licensees and franchisees services and in the fourth
quarter of the current  fiscal year was advised by a significant  client that it
would cease  purchasing  adjusting  services from the Company and its Adjusters.
The  effect  of this  change  will be seen in the  coming  fiscal  year with the
transition period expected to be completed within approximately 60 to 90 days.
                                     Page 12
<PAGE>
RESULTS OF OPERATIONS 1997 COMPARED TO 1996 (Continued)

REVENUES (continued)

To meet the growing competition, the Company is in the process of developing and
implementing  a  comprehensive  marketing  strategy  to  take  advantage  of its
geographic diversity as well as the unique strengths of its individual licensees
and  franchisees.  There is no  assurance,  however,  that the  Company  will be
successful in procuring  nationwide  accounts on terms as favorable as it has in
the past or will be the  successful  bidder on new or existing  accounts,  which
could materially adversely affect the Company's results of operations.

COMPENSATION AND EMPLOYEE BENEFITS

Compensation and employee benefits represent  approximately 52% of the Company's
costs and expenses and are the Company's  largest  expense item.  These expenses
increased  22% or  $440,000  to  $2,415,000  in the  current  fiscal  year  from
$1,975,000 in the prior fiscal year. This increase is the result of the addition
of an Executive  Vice  President to the Company's  management  team,  additional
employees hired including  temporary employees to handle increased work loads in
the Corporate  office and cost of living and merit increases given to employees.
The cost of compensation  and fringe benefits was reduced $35,000 as a result of
the  decline  in the  Company's  income and a  corresponding  decline in related
bonuses.

EXPENSES OTHER THAN COMPENSATION AND FRINGE BENEFITS

The Company's  expenses other than  compensation  and fringe benefits  increased
$307,000 or 16% from  fiscal 1996 to fiscal  1997.  The most  significant  items
related  to  this  increase  were a  $525,000  settlement  (see  Item 3 -  Legal
Proceedings),  a $109,000  decrease in  advertising  and promotion and a $50,000
increase in depreciation expense. The increase in depreciation reflects the fact
that in the last  quarter of the prior  fiscal year and the current  fiscal year
the Company replaced computer equipment which had been fully depreciated as well
acquired  significant other capital assets. The $109,000 decrease in advertising
and  promotion  expense  reflects the  Company's  election to not place  certain
advertisements  in the current year that had been placed in prior years, as part
of its overall review of its marketing program.

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

OTHER INCOME

The Company's other income  decreased  $34,000 or 22% from fiscal 1996 to fiscal
1997.  The most  significant  items  related  to this  decrease  were a  $75,000
permanent  decline  in the value of an equity  security,  a $20,000  gain on the
disposition of fixed assets and a $10,000 increase in interest income.

INCOME TAXES

Income  taxes  were 38.7% and 38.9% of the  Company's  income  before  taxes for
fiscal year 1997 and 1996 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  decreased  $156,000 to $979,000 in current fiscal year
from $1,135,000 in fiscal 1996, a decrease of 13.7%. The most significant  items
affecting  net income were the  $523,000  increase  in  revenues,  the  $525,000
settlement of litigation and the $440,000  increase in  compensation  and fringe
benefits.
                                     Page 13
<PAGE>
RESULTS OF OPERATIONS 1996 COMPARED TO 1995

REVENUES

The Company's  revenues  increased to $5,642,000 from $5,241,000 in fiscal 1995,
resulting  in a 7.7%  increase  when  compared  to the prior  fiscal  year.  The
increase  consists  of a $141,000  increase  in  adjusting  and risk  management
revenues and a $260,000 increase in continuing licensee and franchisee fees.

The increase of $141,000 in adjusting  and risk  management  fees reflects a 31%
increase to  $598,000 in the 1996 fiscal year  compared to $457,000 in the prior
fiscal  year.  The  increase  reflects  an increase of $120,000 in revenues as a
result of the  acquisition  of the  operations  of the  Company's  former Tucson
licensee  on  August  1,  1995 as well as an  increase  in the  demand of claims
services by the Company's clients.

The Company's  revenues from  continuing  licensee and franchisee fees increased
5.4% or $260,000  from  $4,784,000  in the 1995 fiscal year to $5,044,000 in the
1996 fiscal year. A significant  factor  affecting  the  Company's  revenue from
continuing  licensee  and  franchisee  fees  was the  termination  of one of the
Company's  licensees in California in January 1995. During fiscal 1995 fees from
this licensee  contributed  $112,000 to the revenues of the Company. The Company
granted nine new licenses  during fiscal 1996 within the territory of this prior
licensee and received  $28,000 in continuing  licensee and franchisee  fees from
the new  licensees.  The  increase  also  reflects  the fact that the  Company's
licensees and franchisees  benefited from an increase in claims assignments from
insurance  companies and  self-insureds  due to a general  increase in volume of
claims,  and,  to a greater  degree,  the  increase  reflects  the effect of new
licensees and franchisees and rate increases as a result of inflation.

The Company's revenues are affected by numerous matters including the work loads
of  other  companies  and  claims  presented  by  their  clients.  The  Company,
therefore,  is unable to project its future revenues.  The Company has, however,
experienced growth in licensee and franchisee fees paid, and management believes
that the Company will  continue to realize  growth in  continuing  licensing and
franchising  fees in the future as it adds qualified  licensees and franchisees.
Additionally,  the Company  will  continue to reflect  revenue from the recently
purchased  Tucson  operation  which the Company  intends to operate as a Company
owned location.

COMPENSATION AND EMPLOYEE BENEFITS

Compensation and employee benefits represent  approximately 50% of the Company's
costs and expenses and are its largest  expense item.  These expenses  increased
21% or $340,000 to  $1,975,000  in the 1996 fiscal year from  $1,635,000  in the
prior fiscal year. This increase is the result of the Company hiring  additional
employees to staff the recently acquired Tucson location ($90,000) and to handle
increased work load in the corporate office ($60,000) and for cost of living and
merit raises for employees and incentive bonuses ($190,000).

EXPENSES OTHER THAN COMPENSATION AND FRINGE BENEFITS

The Company's  expenses other than compensation and employee benefits  decreased
$138,000  during the  fiscal  year 1996 as  compared  to fiscal  year 1995.  The
principal  items  affecting  these  expenses  were a $443,000  decrease in legal
expenses primarily related to the Company's litigation in California,  a $98,000
increase in advertising and promotion, and a $90,000 increase in office expenses
primarily related to the Company's Tucson office.

The most  significant  item in the $98,000 increase in advertising and promotion
was  $60,000  relative  to  listings  in a  publication  directed  at the claims
industry.  This  expense  was  historically  paid in the  fourth  quarter of the
Company's fiscal year. However,  due to changes in the publisher's  printing and
billing  cycles  this  expense was  incurred  in the second  quarter of the 1996
fiscal year rather than in the fourth  quarter of the fiscal year ended June 30,
1995.

OTHER INCOME

The Company's other income  decreased  $22,000 or 13% from fiscal 1995 to fiscal
1996.  The most  significant  items  related  to this  decrease  were a  $19,000
decrease in gain on disposition of equipment,  a $6,900  decrease in the sale of
computer equipment, and a decrease of $3,000 in dividends.
                                     Page 14
<PAGE>
INCOME TAXES

Income  taxes were 38.9% of the  Company's  income  before taxes for fiscal year
1996 and 1995. The Company's income taxes have not been  significantly  affected
by any changes in the federal or state tax laws.

NET INCOME

The Company's net income  increased  $108,000 from  $1,027,000 in fiscal 1995 to
$1,135,000 in the current fiscal year, an increase of 10.5%.

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.

                                    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> 
Patric R. Greer           Mr. Greer is a certified public accountant     42            1994
Director,                 and has been with the Company as the
Controller,               Controller since 1985.  Mr. Greer was
Chief Financial Officer   appointed Chief Financial Officer in
                          January 1997.  Mr. Greer graduated from
                          Northern Arizona University with a degree
                          in accounting.  An employment agreement
                          between Mr. Greer and the Company provides
                          that Mr. Greer will be an officer of the
                          Company through June 30, 2000.

George M. Hill            Mr. Hill has been associated with the          89            1978
Director,                 Company in an advisory capacity for more
Vice President,           than 25 years, has been a Vice President
Assistant                 of the Company since 1985 and has been
Secretary                 the Assistant Secretary of the Company
                          since 1990.  He is a senior partner in the
                          Phoenix law firm of George M. Hill &
                          Associates and has been a practicing
                          attorney in Arizona for over 50 years.
                          Mr. Hill is a Director and Secretary of
                          National Car Rental, Phoenix, Denver and
                          Colorado Springs, and Director and Vice
                          President of Precise Metal Products Co.,
                          Phoenix and Salt Lake City.
</TABLE>
                                     Page 15
<PAGE>
Item 10 - Directors and Executive Officers of the Registrant (continued)
<TABLE>
<CAPTION>
                                                                                    Served as Director
                                                                                    Since Year Listed
Name/Title                Business Experience                            Age        Below (1)
----------                -------------------                            ---        ---------
<S>                       <C>                                            <C>           <C> 
Francis J. LaPallo        Mr. LaPallo joined the Company on June 24,     49            1996
Director,                 1996.  From 1977 until joining the Company
Executive Vice President  he practiced law in Maryland, the District of
                          Columbia  and  California.  From 1990  until
                          joining  the  Company he was a partner  with
                          the law firm of Manatt, Phelps & Phillips in
                          Los Angles,  California.  He represented the
                          Company in various  legal  matters from 1994
                          until  joining the  Company.  An  employment
                          agreement   between   the  Company  and  Mr.
                          LaPallo provides that Mr. LaPallo will be an
                          executive  officer  of the  Company  through
                          June 30, 2001.

Louis T. Mastos           Mr. Mastos has been the President of           76            1978
Director                  Louis T. Mastos & Associates, Inc.,
                          a managing  general  agency located in Reno,
                          Nevada,  since 1971. He is past President of
                          the American Association of Managing General
                          Agents. He was the Insurance Commissioner of
                          the State of Nevada from 1965 to 1971.

James S. Rocke            Mr. Rocke has been employed by the             29            1993
Director,                 Company since 1982 and currently is
Secretary/Treasurer       an adjuster in the Company's Phoenix
                          office.  Mr. Rocke was elected
                          secretary/treasurer of the Company in
                          1993.  Mr. Rocke graduated from
                          Arizona State University in 1991
                          with a B.S. degree in Finance.  Mr.
                          Rocke is the son of William J. Rocke.

William J. Rocke          Mr. Rocke is the founder of the Company        73            1975
Director, Chairman of     and has served as an Executive Officer of the
the Board, Chief          the Company and its predecessor entities since
Executive Officer         1957.  Mr. Rocke has been in the insurance
                          adjusting business since 1952.  He has a law
                          degree from the University of Denver and is a
                          member of the Colorado Bar Association.
                          The employment agreement between Mr.
                          Rocke and the Company provides that Mr.
                          Rocke will be the Chief Executive Officer
                          of the Company through June 30, 2000.
                          Mr. Rocke is the father of James S. Rocke.

Jean E. Ryberg            Mrs. Ryberg has been employed by the           65            1975
Director, President       Company and its predecessors since 1962.
                          She has held several positions with the
                          Company and has been the President of the
                          Company since 1993. She also manages the
                          Company's insurance adjusting and risk
                          management operations in Phoenix, Arizona.
                          The employment agreement between Mrs. Ryberg
                          and the Company provides that Mrs. Ryberg
                          will be an executive  officer of the Company
                          through June 30, 2000.
</TABLE>
                                     Page 16
<PAGE>
Item 10 - Directors and Executive Officers of the Registrant (Continued)
------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                    Served as Director
                                                                                    Since Year Listed
Name/Title                Business Experience                            Age        Below (1)
----------                -------------------                            ---        ---------
<S>                                                                      <C>           <C> 
Merlin J. Schumann        Mr. Schumann has been a certified public       53            1984
Director                  accountant with the firm of Murray &
                          Murray, P.C., located in Phoenix,
                          Arizona, for over 20 years.  Since
                          December, 1990, Mr. Schumann has also
                          held the position of General  Securities
                          Representative with H. D. Vest Investment
                          Securities, Inc., a stock brokerage and
                          investment counseling firm located in
                          Irving, Texas.

William W. Strawther, Jr. Mr. Strawther was the President and            71            1978
Director, Vice Chairman   principal shareholder of Continental
of the Board              American Securities, Inc., located in
                          Phoenix,  Arizona from 1970 through 1982. He
                          is a former member of the National  Board of
                          Governors  of the  National  Association  of
                          Securities  Dealers,  Inc.  He has  been  an
                          independent business consultant since 1982.

R. Scott Younker          Mr. Younker has been a licensee of the         61            1992
Director                  Company in Prescott, Arizona since 1979.
                          He  has  been   engaged  in  the   insurance
                          adjusting business for 32 years.
</TABLE>
(1)  Term will continue through October 10, 1997.

Item 11 - Executive Compensation
--------------------------------

The following table sets forth certain  information  concerning the compensation
paid by the  Company  during  its year  ended  June 30,  1997 to each  executive
officer whose aggregate compensation exceeded $100,000.
<TABLE>
<CAPTION>
                                               Summary Compensation Table
                                 -----------------------------------------------------
            a                     b             c              d               e               i
---------------------------      ----       ----------      ---------     ------------   ------------
                                                                          Other Annual    All Other
                                                                          Compensation   Compensation
Name and Principal Position      Year       Salary ($)      Bonus ($)       ($) (2)        ($) (3)
-----------------------------------------------------------------------------------------------------
<S>                              <C>         <C>             <C>              <C>           <C>    
William J. Rocke, CEO,           1997        231,300         51,559           --            23,569
Chairman, Director               1996        225,000         71,981           --            22,719
                                 1995        206,636         50,000           --            23,670

Jean E. Ryberg,                  1997        164,480         51,559           --            29,568
President, Director              1996        160,000         71,981           --            29,266
                                 1995        145,861         50,000           --            29,168

Francis J. LaPallo,              1997        180,000           --             --            29,568
Executive Vice President,        1996            692           --             --              --
Director

Patric R. Greer                  1997         92,520         17,187           --            21,876
Chief Financial Officer,         1996         90,000         11,224           --            17,364
Director                         1995         68,116         12,703           --            14,756
</TABLE>
                                     Page 17
<PAGE>
Item 11 - Executive Compensation (continued)
--------------------------------------------

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

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

(3)  "All Other Compensation"  includes (i) directors fees of $3,750, $2,250 and
     $3,000  for Mr.  Rocke  in  years  ended  June  30,  1997,  1996  and  1995
     respectively; $3,750, $3,000 and $3,000 for Mrs. Ryberg in years ended June
     30, 1997,  1996 and 1995  respectively;  $3,750 for Mr.  LaPallo for fiscal
     1997 and  $3,750,  $3,000 and $2,250 for Mr.  Greer in years ended June 30,
     1997,  1996, and 1995  respectively;  (ii) profit sharing  contributions of
     $19,819,  $20,469 and $20,670 for Mr.  Rocke in years ended June 30,  1997,
     1996 and 1995 respectively; $25,818, $26,266 and $26,168 for Mrs. Ryberg in
     years  ended June 30,  1997,  1996 and 1995  respectively;  $25,818 for Mr.
     LaPallo in fiscal year 1997; $18,126, $14,364 and $12,506 for Mr. Greer for
     years ended June 30, 1997, 1996 and 1995, respectively.

     Excluded from all other  compensation is the increase and the  amortization
     of the June 30, 1995 cash surrender  value of life insurance  policies that
     will  transfer  to Mr.  Rocke and Mrs.  Ryberg  upon  termination  of their
     employment.  The amount  excluded is $18,119 and $18,203 for Mr.  Rocke for
     the years  ended June 30,  1997 and 1996 and  $13,678  and $13,511 for Mrs.
     Ryberg for the years ended June 30, 1997 and 1996.

Option/SAR Exercises and Holdings
---------------------------------

                     OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
                                          Individual Grants
                          ----------------------------------------------
                                             % of Total
                                            Options/SARs                                       Potential Realization
                           Number of          Granted                                                Value at
                           Securities          to All         Exercise                      Assumed Annual Rates of Stock
                           Underlying        Employees        or Base      Expiration    Price Appreciation for Options Term
Name                      Options/SARs     in fiscal 1997   Price ($/SH)      Date              5%                 10%
---------------------     ------------     --------------   ------------   -----------   ---------------     ---------------
<S>                             <C>            <C>            <C>        <C>                <C>                  <C>          
Francis J. LaPallo              100,000        100.00         $2.875     July 1, 2006       180,807              458,201
</TABLE>

The  following  table shows Company  stock  options that were  exercised  during
fiscal 1997 and the number of shares and value of grants  outstanding as of June
30, 1997 for each Named Executive.

  AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1997 AND YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>

                                                                   Number of Securities         Value of Unexercised,
                                                                  Underlying Unexercised      In-The-Money Options/SARs
                                                               Options/SARs at 6/30/97 (#)        at 6/30/97 ($)(a)
                                 Shares                        ---------------------------  -----------------------------
                                Acquired          Value
          Name              on Exercise (#)    Realized ($)     Exercisable  Unexercisable  Exercisable     Unexercisable
-----------------------    ----------------  ----------------------------------------------------------------------------
<S>                               <C>              <C>            <C>           <C>             <C>             <C>

William J. Rocke                  --               --             48,654           --            --             --

Jean E. Ryberg                    --               --             51,347           --           2,715           --

Francis J. LaPallo                --               --               --          100,000          --             --

Patric R. Greer                   --               --             51,346           --           2,715           --
</TABLE>
(a)   Value of unexercised,  in-the-money Company options based on a fair market
      value of the  Company's  common  stock of $2.625  per share as of June 30,
      1997.

Directors Compensation
----------------------

     Each director,  including  employees of the Company, is paid $750 per Board
meeting  attended.  During fiscal 1996,  each director,  except for Mr. Louis T.
Mastos and Mr.  William W.  Strawther,  Jr.,  received  $3,750 for attendance to
Board Meetings. Mr. Mastos and Mr. Strawther each received $3,000 for attendance
to Board Meetings.
                                     Page 18
<PAGE>
Item 11 - Executive Compensation (continued)
--------------------------------------------

Employment Agreements
---------------------

     The Company has entered into  employment  agreements  with Mr. Rocke,  Mrs.
Ryberg,  Mr. Greer and Mr. LaPallo each for five-year terms.  Mr. Rocke's,  Mrs.
Ryberg's and Mr. Greer's  agreements were effective July 1, 1995 and expire June
30, 2000. Mr.  LaPallo's  agreement was effective June 23, 1996 and expires June
30, 2001.

     Mr. Rocke's agreement provides for an annual salary of $225,000 with annual
cost of living  increases  based upon the U.S.  Department  of  Labor's  cost of
living index,  plus a bonus of three percent (3%) of the Company's income before
taxes and bonuses and 5% of the increase in the  Company's  income  before taxes
and bonuses from the prior year.

     Mrs.  Ryberg's  agreement  provides for an annual  salary of $160,000  with
annual cost of living  increases based upon the U.S.  Department of Labor's cost
of living  index,  plus a bonus of three  percent (3%) of the  Company's  income
before taxes and bonuses and 5% of the increase in the  Company's  income before
taxes and bonuses from the prior year.

     Mr. Greer's agreement  provides for an annual salary of $90,000 with annual
cost of living  increases  based upon the U.S.  Department  of  Labor's  cost of
living  index,  plus a bonus of .5% of the  Company's  income  before  taxes and
bonuses  in year 1, 1% in year  two and  1.5% in years 3, 4 and 5 and .5% of the
increase in the Company's income before taxes and bonuses from the prior year in
year one and increasing .5% annually to 2.5% in year five of the agreement.

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

Item 12 - Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------

Name and Address                          Amount of Beneficial Ownership
                                          Common Stock $.01 Par Value
------------------------------------      ---------------------------
                                          Number of Shares (1)  Percent (2)
                                          --------------------  -----------
    
Patric R. Greer (3)                             66,316             1.42%

George M. Hill (4)                             150,000             3.26%

Francis J. LaPallo 
 and Wendy J. Harrison, his wife (5)            54,782             1.19%

Louis T. Mastos 
 and Eva B. Mastos, his wife (6)               208,703             4.53%

William J. Rocke 
 and Garnet Rocke, his wife (7)                442,268             9.50%
P. O. Box 7641
Phoenix, Arizona  85011

James S. Rocke (8)                             471,803            10.14%
P. O. Box 7641
Phoenix, Arizona  85011

Jean E. Ryberg (9)                             160,589             3.45%

Merlin J. Schumann 
 and Donna L. Schumann, his wife                20,114             *
                                     Page 19
<PAGE>
Item 12 -  Security  Ownership  of  Certain  Beneficial  Owners  and  Management
--------------------------------------------------------------------------------
            (continued)
            -----------

Name and Address                               Amount of Beneficial Ownership
-------------------------------------          Common Stock $.01 Par Value
                                               ---------------------------
                                               Number of Shares (1)  Percent (2)
                                               --------------------  -----------
William W. Strawther, Jr. 
 and Marjorie A. Strawther,
 his wife (10)                                       444,138            9.60%
7108 North 15th Street
Phoenix, Arizona  85020

R. Scott Younker 
 and Sandra L. Younker, his wife                      90,669            1.97%

All officers and directors as a group
     (ten persons) (11)                            1,819,382           37.55%
-------------------------------------
*Less than 1%

(1)  The number of shares shown in the table,  including the notes thereto, have
     been rounded to the nearest whole share. Includes, when applicable,  shares
     owned of record by such  person's  minor  children  and spouse and by other
     related  individuals  and  entities  over whose shares of Common Stock such
     person has custody,  voting control or power of disposition.  Also includes
     shares of Common Stock that the identified  person had the right to acquire
     within 60 days of August 1, 1997 by the exercise of stock options.

(2)  The  percentages  shown include the shares of Common Stock which the person
     will  have the right to  acquire  within  60 days of  August  1,  1997.  In
     calculating  the percentage of ownership,  all shares of Common Stock which
     the  identified  person  will have the right to  acquire  within 60 days of
     August 1, 1997 are deemed to be  outstanding  for the purpose of  computing
     the percentage of the shares of Common Stock owned by such person,  but are
     not deemed to be outstanding for the purpose of computing the percentage of
     shares of Common Stock owned by any other stockholders.

(3)  Includes 51,346 shares subject to a currently  exercisable stock options at
     an average of $3.005 per share.

(4)  Excludes  50,000 shares held by Nell S. Hill,  Mr. Hill's wife, and 134,258
     shares held by Mr. Hill's  children and  grandchildren,  in which shares he
     disclaims any beneficial interest.

(5)  Includes 34,782 shares subject to a currently  exercisable  stock option at
     an average of $2.875 per share.

(6)  Includes  183,180 shares which are held in a trust under an agreement dated
     February  10,  1981,  in which Mr. and Mrs.  Mastos  hold equal  beneficial
     interests,  and  25,523  shares  which  are held by the  Louis T.  Mastos &
     Associates,  Inc.  Employees  Profit Sharing Plan, of which Mr. Mastos is a
     trustee and the majority beneficial owner.

(7)  Includes 290,000 shares held by Old Frontier Investment,  Inc., of Arizona,
     of which  William J. and Garnet  Rocke hold 51% of the  outstanding  stock.
     Includes 48,654 shares subject to a currently  exercisable stock options at
     $3.2829 per share.

(8)  Includes 290,000 shares held by Old Frontier Investment, Inc. of Arizona of
     which James S. Rocke holds 49% of the  outstanding  stock.  Includes 48,653
     shares  subject to a currently  exercisable  stock options at an average of
     $3.2829 per share.

(9)  Includes 51,347 shares subject to a currently  exercisable stock options at
     an average of $3.005 per share.

(10) Held as trustees under Trust  Agreement,  dated June 7, 1989,  establishing
     the William W.  Strawther,  Jr. and Marjorie A. Strawther  Living Trust, of
     which Mr. and Mrs.  Strawther are  beneficiaries.  Excludes an aggregate of
     200,000 shares beneficially owned by Mr. and Mrs. Strawther's son, in which
     shares Mr. and Mrs. Strawther disclaim any beneficial interest.

(11) Excludes all duplicate reporting of holdings.

To the best of knowledge of the Company,  no person or groups of persons,  other
than  officers  and  directors,  beneficially  own more than five percent of the
Frontier Adjusters of America,  Inc. Common Stock (based upon present records of
the transfer agent).
                                     Page 20
<PAGE>
Item 12 -  Security  Ownership  of  Certain  Beneficial  Owners  and  Management
--------------------------------------------------------------------------------
            (continued)
            -----------
 
Based  solely on a review of the copies of such forms  received  by the  Company
during the fiscal year ended June 30, 1997, and written  representations that no
other reports were required,  the Company  believes that each person who, at any
time during such fiscal year,  was a director,  officer or  beneficial  owner of
more than 10% of the  Company's  Common Stock  complies  with all Section  16(a)
filing  requirements during such fiscal year, except that R. Scott Younker filed
a late Form 4 covering five transactions for a total of 2,800 shares.

Item 13 - Certain Relationships and Related Transactions
--------------------------------------------------------

      Old Frontier  Investment,  Inc. of Arizona,  of which William J. Rocke and
Garnet Rocke, his wife, are owners of 51% of the issued and outstanding stock of
said  corporation  and James S. Rocke owns the remaining 49%, has entered into a
license agreement with the Company pursuant to which it operates, under standard
terms and  conditions,  an  insurance  adjusting  and risk  management  business
located in  Scottsdale,  Arizona,  and is paid a 5%  royalty  on gross  revenues
derived from  services  provided by certain  other  licensees  in other  Arizona
cities and towns. The Company paid that  corporation  $15,944 during fiscal year
1997 in connection with such 5% royalty agreement.

      George M. Hill,  Vice  President  and  Director  of the  Company,  acts as
General  Counsel to the Company.  During the fiscal year 1997,  the Company paid
Mr.  Hill  $91,572  for  services  rendered  and  disbursements.  Such fees will
continue to accrue,  pursuant to a retainer agreement, at the rate of $6,650 per
month effective September 1, 1995.

      The Company paid its Vice Chairman,  William W.  Strawther,  Jr.,  $20,000
during fiscal year 1997 for business and financial consulting services.

      The Company believes that the cost to the Company for all of the foregoing
were and are  competitive  with  charges for  similar  services  and  facilities
available from third parties.
                                     Page 21
<PAGE>
                                     PART IV
                                     -------

Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
-------------------------------------------------------------------------

(a) (1) Financial Statements

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

          Report of Independent Certified Public Accountants

          Consolidated Balance Sheets - June 30, 1997 and 1996

          Consolidated  Statements  of Income for the Years Ended June 30, 1997,
          1996 and 1995

          Consolidated  Statements  of Cash  Flows for the Years  Ended June 30,
          1997, 1996 and 1995

          Consolidated  Statements of  Stockholders'  Equity for the Years Ended
          June 30, 1997, 1996 and 1995

          Notes to Consolidated  Financial  Statements - June 30, 1997, 1996 and
          1995

(a) (2) Financial Statement Schedules

        Schedule
        Number
        --------

          II   Valuation and Qualifying Accounts Years Ended June 30, 1997, 1996
               and 1995

               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.

(a) (3)  Exhibits filed with this report.
                                     Page 22
<PAGE>
                                  EXHIBIT LIST
                                  ------------

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

    3(a)      Articles of Incorporation of Frontier Adjusters of America, Inc.*
              
    3(b)      By-Laws of Frontier Adjusters of America, Inc.**
              
   10(a)      Frontier Adjusters of America, Inc. Incentive Stock Option Plan*
              
   10(b)      Profit Sharing Plan, as amended***
              
   10(c)      Employment Agreement, dated August 10, 1995 between the Registrant
              and William J. Rocke***
              
   10(d)      Employment Agreement, dated August 10, 1995 between the Registrant
              and Jean E. Ryberg***
              
   10(e)      Incentive Stock Option Plan, dated October 10, 1987*
              
   10(f)      Form  of   Franchise   Agreement   between  the   Registrant   and
              franchisees*
              
   10(g)      Form of License Agreement between the Registrant and licensees*
              
   10(h)      Agreement,   dated  June  1,  1990,  between  the  Registrant  and
              Scottsdale Insurance Company*
              
   10(i)      Form of Software Purchase Agreement and Order Form*
              
   10(j)      Frontier Adjusters of America,  Inc., Stock Option Plan, dated May
              21, 1996****
              
   10(k)      Employment Agreement, dated April 23, 1996, between the Registrant
              and Francis J. LaPallo*****
              
      21      List of Subsidiaries of Frontier Adjusters of America, Inc.
              
      23      Consent of McGladrey & Pullen, LLP
              
            


    *  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.

(b)    The Company filed no reports on Form 8-K with the Securities and Exchange
       Commission during the last quarter of the fiscal year June 30, 1997
                                     Page 23
<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, thereunto duly authorized.

                       FRONTIER ADJUSTERS OF AMERICA, INC.


/s/ William J. Rocke                          /s/ Patric R. Greer
----------------------------------            ----------------------------------
William J. Rocke                              Patric R. Greer 
(Chief Executive Officer,                     (Chief Financial Officer)    
Chairman of the Board)

     August 21, 1997                               August 21, 1997
----------------------------------            ----------------------------------

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/ William J. Rocke                                           August 21, 1997
---------------------------------------------                 ------------------
William J. Rocke, Director


/s/ Jean E. Ryberg                                             August 21, 1997
---------------------------------------------                 ------------------
Jean E. Ryberg, President, Director


/s/ Francis J. LaPallo                                         August 21, 1997
---------------------------------------------                 ------------------
Francis J. LaPallo, Exec. V.P., Director


/s/ George M. Hill                                             August 21, 1997
---------------------------------------------                 ------------------
George M. Hill, V.P., Director


/s/ James S. Rocke                                             August 21, 1997
---------------------------------------------                 ------------------
James S. Rocke, Secretary/Treasurer, Director


/s/  Merlin J. Schumann                                        August 21, 1997
---------------------------------------------                 ------------------
Merlin J. Schumann, Director


---------------------------------------------                 ------------------
William W. Strawther, Jr., Director


/s/ Lou Mastos                                                 August 21, 1997
---------------------------------------------                 ------------------
Lou Mastos, Director


/s/ R. Scott Younker                                           August 21, 1997
---------------------------------------------                 ------------------
R. Scott Younker, Director


/s/ Patric R. Greer                                            August 21, 1997
---------------------------------------------                 ------------------
Patric R. Greer, Director
                                     Page 24
<PAGE>
                       FRONTIER ADJUSTERS OF AMERICA, INC.
                                AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




Report of Independent Certified Public Accountants                           F-2

Consolidated Balance Sheets - June 30, 1997 and 1996                         F-3

Consolidated Statements of Income for the Years Ended June
30, 1997, 1996 and 1995                                                      F-4

Consolidated Statements of Cash Flows for the Years Ended June 30,
1997, 1996 and 1995                                                          F-5

Consolidated Statements of Stockholders' Equity for the Years Ended 
June 30, 1997, 1996 and 1995                                                 F-6

Notes to Consolidated Financial Statements - June 30, 1997, 1996 and 1995    F-7



Supplementary Schedule                                                      F-15

Schedule II - Valuation and Qualifying  Accounts Years Ended
June 30, 1997, 1996 and 1995                                                F-16
                                       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, 1997 and 1996, and
the related  consolidated  statements of income,  cash flows, and  stockholders'
equity for each of the three  years in the period  ended  June 30,  1997.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of Frontier Adjusters
of America,  Inc. and subsidiaries as of June 30, 1997 and 1996, and the results
of their  operations  and their  cash  flows for each of the three  years in the
period ended June 30, 1997, in conformity  with  generally  accepted  accounting
principles.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
financial  statements taken as a whole. The financial  statement Schedule II for
the years ended June 30, 1997, 1996, and 1995 included on page F-16 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  financial  statements.  This
schedule has been subjected to the auditing  procedures  applied in the audit of
the  basic  financial  statements  and,  in our  opinion,  fairly  states in all
material respects the financial data required to be set forth herein in relation
to the basic financial data taken as a whole.

McGLADREY & PULLEN, LLP

/s/ McGladrey & Pullen, LLP


Phoenix, Arizona
August 4, 1997
                                       F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS

Frontier Adjusters of America, Inc. and Subsidiaries
<TABLE>
<CAPTION>
June 30,                                                                           1997           1996
------------------------------------------------------------------------------------------------------
<S>                                                                         <C>            <C>    
ASSETS
CURRENT ASSETS
 Cash and cash equivalents                                                  $ 1,012,233    $   534,540
 Securities available for sale (Note 6)                                       1,288,976      1,249,463
 Current portion of advances to licensees and franchisees (Note 4)              872,527        794,561
 Receivables net (Note 3)                                                       740,572        754,624
 Unbilled adjusting fees                                                         26,700         16,100
 Prepaid expenses                                                               268,192        288,893
 Deferred income taxes (Note 9)                                                 406,560        143,351
                                                                            --------------------------
         TOTAL CURRENT ASSETS                                                 4,615,760      3,781,532
                                                                            --------------------------
PROPERTY AND EQUIPMENT, at cost, less accumulated
 depreciation and amortization (Note 5)                                       1,736,226      1,554,401
                                                                            --------------------------

OTHER ASSETS
 Held to maturity Investments (Notes 1 and 6)                                   714,872        750,730
 Advances to licensees and franchisees, net of current portion (Note 4)         431,000        327,000
 Licenses and franchises, net of accumulated amortization of
  $226,240 in 1997 and $138,816 in 1996                                         246,253        298,177
 Cost of subsidiary in excess of net identifiable assets acquired, net of
  accumulated amortization of $176,819 in 1997 and $174,508 in 1996              36,999         39,309
 Other                                                                          131,029        124,603
                                                                            --------------------------
                                                                              1,560,153      1,539,819
                                                                            --------------------------
         TOTAL ASSETS                                                       $ 7,912,139    $ 6,875,752
                                                                            ==========================

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
 Accounts payable                                                           $    33,793    $    11,666
 Accrued expenses                                                               169,032        238,215
 Income taxes payable                                                            84,989         57,305
 Licensees' and franchisees' remittance payable                                 396,991        135,518
 Current portion of long term liability (Note 7)                                 26,521         24,672
 Other (Note 13)                                                                603,158        117,594
                                                                            --------------------------
         TOTAL CURRENT LIABILITIES                                            1,314,484        584,970
                                                                            --------------------------
LONG TERM LIABILITY (Note 7)                                                     33,462         59,983
                                                                            --------------------------
COMMITMENTS AND CONTINGENCIES (Note 13)                                            --             --
STOCKHOLDERS' EQUITY (Note 12)
 Common stock, authorized 100,000,000 shares, par value $.01,
  issued 4,782,010 shares                                                        47,820         47,820
 Additional contributed capital                                               2,148,470      2,148,470
 Retained earnings                                                            4,814,266      4,526,419
                                                                            --------------------------
                                                                              7,010,556      6,722,709
 Add (deduct):
  Treasury stock 176,652 shares in 1997: 162,352 shares in 1996                (529,584)      (485,219)
  Other                                                                          83,221         (6,691)
                                                                            --------------------------
         TOTAL STOCKHOLDERS' EQUITY                                           6,564,193      6,230,799
                                                                            --------------------------
         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                         $ 7,912,139    $ 6,875,752
                                                                            ==========================

</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,                                       1997           1996          1995
---------------------------------------------------------------------------------------------
<S>                                                 <C>            <C>             <C>      
REVENUES
 Continuing licensee and franchisee fees (Note 8)   $ 5,278,967    $ 5,044,028     4,783,941
 Adjusting and risk management fees (Note 8)            885,636        597,956       456,884
                                                    ----------------------------------------
                                                      6,164,603      5,641,984     5,240,825
                                                    ----------------------------------------

COST AND EXPENSES
 Compensation and employee benefits (Note 11)         2,414,582      1,975,028     1,635,289
 Office                                                 379,287        372,788       308,783
 Advertising and promotion                              347,396        459,329       360,878
 Depreciation and amortization                          240,246        190,044       136,428
 Provision for doubtful accounts                        149,392        151,847       169,640
 Other (Notes 10 and 13)                              1,155,630        791,299     1,127,138
                                                    ----------------------------------------
                                                      4,686,533      3,940,335     3,738,156
                                                    ----------------------------------------
       INCOME FROM OPERATIONS                         1,478,070      1,701,649     1,502,669
                                                    ----------------------------------------


OTHER INCOME (Expense)
 Interest income                                        154,860        144,677       134,136
 Disposition of investments                                 343           --            --
 Gain on sale of licensee                                  --            5,000
 Gain on disposition of equipment                        24,875           --          19,416
 Unrealized loss (Note 6)                               (74,914)          --            --
 Other                                                   15,107          4,498        22,867
                                                    ----------------------------------------
        TOTAL OTHER INCOME                              120,271        154,175       176,419
                                                    ----------------------------------------
        INCOME BEFORE INCOME TAXES                    1,598,341      1,855,824     1,679,088


INCOME TAXES (Note 9)                                   619,143        721,305       652,240
                                                    ----------------------------------------
 NET INCOME                                         $   979,198    $ 1,134,519   $ 1,026,848
                                                    ========================================

Earnings per common share                           $       .21    $       .25   $       .22
                                                    ========================================
Weighted average number of shares
 of common stock outstanding                          4,607,709      4,620,101     4,622,679
                                                    ========================================
</TABLE>
The accompanying notes are an integral part of these statements.
                                      F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS

Frontier Adjusters of America, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years Ended June 30,                                           1997             1996            1995
------------------------------------------------------------------------------------------------------
<S>                                                     <C>              <C>              <C>        
CASH FLOWS FROM OPERATING ACTIVITIES
 Net Income                                             $   979,198      $ 1,134,519      $ 1,026,848
                                                        ---------------------------------------------
 Adjustments to reconcile net income to net
  cash provided by operating activities:
   Depreciation and amortization                            241,884          190,044          136,428
   Gain on sale of investments                                 (343)            --               --
   Gain on sale of license                                     --             (5,000)            --
   Gain on disposition of equipment                         (24,875)            --            (19,416)
   Allowance for doubtful accounts                          149,392          151,847          168,222
   Deferred income taxes                                   (263,209)         (42,242)         (47,004)
   Unrealized loss on investments                            74,914             --               --
   Change in assets and liabilities
    (Increase) decrease in:
     Receivables                                             12,364          181,133         (282,028)
     Unbilled adjusting fees                                (10,600)          (1,875)          (2,375)
     Prepaid expenses                                        20,701          (30,728)         (31,108)
     Other                                                  (52,893)         (50,029)         (59,522)
    Increase (decrease) in:
     Accounts payable                                        22,127           (1,003)         (33,877)
     Accrued expense                                        (69,183)         (59,758)         167,408
     Income taxes payable                                    27,684           (7,415)          34,647
     Licensees' & franchisees' remittance payable           261,473          (86,102)        (497,735)
     Other                                                  485,564           63,783          (22,657)
                                                        ---------------------------------------------
     Total adjustment                                       875,000          302,655         (489,017)
                                                        ---------------------------------------------
    NET CASH PROVIDED
     BY OPERATING ACTIVITIES                              1,854,198        1,437,174          537,831
                                                        ---------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
 Capital expenditures                                      (302,102)        (170,057)        (127,195)
 Investments purchased                                   (1,958,743)      (2,970,057)      (3,968,431)
 Collection on receivable from licensee                        --               --              3,154
 Proceeds from maturity of investments                    2,000,000        3,000,000        4,000,000
 Payments on license acquisition                           (110,172)        (136,951)        (110,306)
 Advances to licensees' and franchisees'                 (3,979,135)      (3,964,357)      (3,358,235)
 Collections of advances to licensees & franchisees       3,703,132        3,695,280        3,241,491
                                                        ---------------------------------------------
  NET CASH USED IN INVESTING ACTIVITIES                    (647,020)        (546,142)        (319,522)
                                                        ---------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
 Cash dividends                                            (691,351)        (647,147)        (536,454)
 Proceeds from sale of treasury stock                          --             55,547             --
 Common stock repurchased                                   (44,365)        (129,438)        (136,377)
                                                        ---------------------------------------------
  NET CASH USED IN
   FINANCING ACTIVITIES                                    (735,716)        (721,038)        (672,831)
EFFECT OF EXCHANGE RATE CHANGES
 ON CASH                                                      6,231            5,586            8,702
                                                        ---------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
 CASH EQUIVALENTS                                           477,693          175,580         (445,820)
CASH AND CASH EQUIVALENTS AT
 BEGINNING OF THE PERIOD                                    534,540          358,960          804,780
                                                        ---------------------------------------------
CASH AND CASH EQUIVALENTS AT
 END OF THE PERIOD                                      $ 1,012,233      $   534,540      $   358,960
                                                        =============================================
</TABLE>
The accompanying notes are an integral part of these statements.
                                       F-5
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Frontier Adjusters of America, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years Ended June 30, 1997, 1996 and 1995
---------------------------------------------------------------------------------------------------------------------------


                          Numbers of      Par Value     Additional                               Cumulative    Unrealized
                             Shares        of Common   Contributed     Retained       Treasury  Translation  gain (loss) on
                             Issued         Stock        Capital       Earnings         Stock    Adjustments   Investments
---------------------------------------------------------------------------------------------------------------------------
<S>                         <C>           <C>           <C>            <C>           <C>          <C>          <C>       
Balance, July 1, 1994       4,782,010     $  47,820     $2,148,470     $3,552,194    $ (278,492)  $   18,007   $       --

 Cash dividends -
  $.115 per share                  --            --             --       (536,454)           --           --           --
 Net income                        --            --             --      1,026,848            --           --           --
 Treasury stock purchase
 50,000 shares                     --            --             --            --       (136,377)          --           --
 Foreign currency translation      --            --             --            --             --        8,702           --
 Unrealized loss                   --            --             --            --             --           --      (12,067)
---------------------------------------------------------------------------------------------------------------------------

Balance, June 30, 1995      4,782,010        47,820      2,148,470      4,042,588      (414,869)      26,709      (12,067)
 Cash dividends -
  $.14 per share                   --            --             --       (647,147)           --           --           --
 Net income                        --            --             --      1,134,519            --           --           --
 Treasury stock purchase
  41,240 shares                    --            --             --             --      (129,438)          --           --
 Treasury stock sold
  20,000 shares                    --            --             --         (3,541)       59,088           --           --
Foreign currency translation       --            --             --             --            --        5,586           --
 Unrealized loss                   --            --             --             --            --           --      (26,919)
---------------------------------------------------------------------------------------------------------------------------

Balance, June 30, 1996      4,782,010        47,820      2,148,470      4,526,419      (485,219)      32,295      (38,986)
 Cash dividends -
  $.15 per share                   --            --             --       (691,351)           --           --           --
 Net income                        --            --             --        979,198            --           --           --
 Treasury stock purchase
 14,300 shares                     --            --             --             --       (44,365)          --           --
 Foreign currency translation      --            --             --             --            --      (15,351)          --
 Unrealized gain                   --            --             --             --            --           --      105,263
---------------------------------------------------------------------------------------------------------------------------

Balance, June 30, 1997       4,782,010    $   47,820     $2,148,470     $4,814,266   $( 529,584)     $ 16,944    $ 66,277
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
                                       F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 1:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Business -- The Company's operations consist of the licensing and franchising of
independent  adjusters throughout the United States and Canada and the operation
of an independent  adjusting business in Arizona and a risk management  division
out of its Phoenix  and  Tucson,  Arizona  and Las Vegas,  Nevada  offices.  The
Company  grants  credit to its licensees  and  franchisees,  all of whom operate
within the insurance industry. Revenues from claims adjusted by employees of the
Company are  recognized  as the services  are  performed;  revenues  from claims
adjusted by  independent  licensees and  franchisees  are  recognized  when they
become due under the terms of the license  and  franchise  agreements  (Note 8).
Included in the  revenues  are  collections  received  from one  customer  which
provided the Company with revenues representing approximately $990,000 or 18.8%,
$1,047,000  or 20.8% and  $1,044,000  or 21.8% of the  continuing  licensee  and
franchisee   fees  during  the  years  ended  June  30,  1997,   1996  and  1995
respectively.  Outstanding  licensee and franchisee fees  receivable  related to
this customer were  approximately  $95,000 at June 30, 1997 and $123,000 at June
30, 1996.  In June of 1997 this client  elected to place its  adjusting  service
needs with other  vendors.  The  transition  will take place over the  following
60-90 days.

Consolidated  statements  of cash  flow -- Short  term  investments  which  have
original maturities of 90 days or less are considered cash equivalents.

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

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

Licenses and  franchises  -- Licenses and  franchises  represent  Company  owned
adjusting  operations and are stated at cost less amortization.  Amortization is
computed using the straight-line basis over the period of the relevant contract.

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  carryforwards  and deferred tax  liabilities  are
recognized for taxable  temporary  differences.  Temporary  differences  are the
differences  between the reported  amounts and assets and  liabilities and their
tax bases.  Deferred tax assets are reduced by a valuation  allowance when it is
more likely than not that some  portion or all of the  deferred  tax assets will
not be  realized.  Deferred  tax assets and  liabilities  are  adjusted  for the
effects of changes in the tax laws and rates on the date of enactment.

Use of estimates in the  preparation of financial  statements -- The preparation
of  financial  statements  in  conformity  with  generally  accepted  accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent  assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses  during the  reporting  period.  Actual  results  could
differ from those estimates.

Investments    held-to-maturity   securities   --   Securities   classified   as
held-to-maturity  are those debt  securities the Company has both the intent and
ability  to hold  to  maturity  regardless  of  changes  in  market  conditions,
liquidity needs or changes in general economic conditions.  These securities are
carried at cost adjusted for amortization of premiums and accretion of discount,
computed by the interest method over their contractual lives.
                                       F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

NOTE 1:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Investments held-to-maturity securities (continued)

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

Available-for-sale securities -- Securities classified as available-for-sale are
those debt securities that the Company intends to hold for an indefinite  period
of time,  but not  necessarily  to  maturity.  Any  decision  to sell a security
classified as  available-for-sale  would be based on various factors,  including
significant  movements  in interest  rates,  changes in the  maturity mix of the
Company's  investments,  liquidity needs, and other similar factors.  Securities
available-for-sale are carried at fair value. Unrealized gains or losses, net of
the related  deferred  tax effect,  are  reported as  increases  or decreases in
stockholders' equity.  Realized gains or losses,  determined on the basis of the
cost of specific securities sold, are included in earnings.

Fair value of  financial  instruments  --  Effective  July 1, 1995,  the Company
adopted  FASB  Statement  No.  107,  Disclosures  About Fair Value of  Financial
Instruments, which requires disclosure of fair value information about financial
instruments,  whether or not  recognized in the balance  sheet,  for which it is
practicable to estimate that value.

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

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

The carrying amounts of all financial instruments approximate fair values.

Current  accounting  developments -- Effective for financial  statements  issued
after  December  15,  1997,  the  Company  will be required  to  implement  FASB
Statement No. 128, Earnings per Share. The Statement  establishes  standards for
computing and  presenting  earnings per share (EPS) and applies to entities with
publicly  held  common  stock  or  potential   common  stock.  It  replaces  the
presentation  of primary EPS with a presentation  of basic EPS and also requires
dual  presentation of basic and diluted EPS on the face of the income  statement
for all entities with complex capital structures. The Company has not determined
what effect the adoption of this  Statement  will have on its earnings per share
calculations.

The FASB has issued Statement No. 130, Reporting Comprehensive Income. Statement
No. 130 requires that an enterprise  (a) classify  items of other  comprehensive
income (as defined in the  Statement)  by their nature in a financial  statement
and (b) display the accumulated balance of other comprehensive income separately
from retained  earnings and additional  paid-in capital in the equity section of
the statement of financial position. Management does not believe the application
of this Statement will materially  affect the Company's  financial  position and
statement of operations.

The  FASB has  issued  Statement  No.  131,  Disclosures  about  Segments  of an
Enterprise  and Related  Information.  Statement No. 131 modifies the disclosure
requirements  for  reportable  segments and is effective for the Company's  year
ending June 30, 1998.  The Company has not determined the effect of the adoption
of this Statement would have on the Company's financial statements.
                                       F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

NOTE 1:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Earnings per common share -- Earnings per common share are based on the weighted
average  number of shares  outstanding  during  the  year.  The  effect of stock
options  (Note 12) as common  stock  equivalents  is less than 3% dilutive  and,
therefore, is not included in the computation.

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

                                        1997            1996             1995
                                  ----------------------------------------------
Cash paid during the year:
 Interest                         $    7,259      $    8,056       $    6,745
 Income taxes                     $  854,741      $  794,454       $  668,427

On August 1, 1995, the Company  reacquired  its Tucson,  Arizona  licensee.  The
purchase price was $139,807 gross or $116,081 net of the imputed  interest.  The
purchase price was paid as follows:

         Purchase price                           $ 116,081
         Outstanding loan to licensee
          (Net of imputed interest of $22,926)      (57,626)
         Outstanding advance to licensee            (22,455)
                                                 ----------
         Net cash                                 $  36,000
                                                 ==========


NOTE 3:  RECEIVABLES

Receivables consist of:
                                                        1997             1996
                                                  ---------------------------

 Accounts receivable trade                         $ 145,902       $   65,098
 Licensee and franchisee fees receivable             538,601          568,216
 Errors and omissions insurance premium advanced     105,953          124,671
 Other                                                50,616           28,139
                                                  ---------------------------
          Total receivables                          841,072          786,124
 Less allowance for doubtful accounts                100,500           31,500
                                                  ---------------------------
                                                   $ 740,572       $  754,624
                                                  ==========       ==========
                                       F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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:

                                                         1997            1996
                                                  ---------------------------
                                                  
 Advances to licensees and franchisees             $1,453,164      $1,335,061
 Less  allowance for doubtful advances                149,637         213,500
                                                  ---------------------------
                                                    1,303,527       1,121,561
 Less current portion                                 872,527         794,561
                                                  ---------------------------
 Long term portion                                 $  431,000      $ 327,000
                                                  ===========================
                                                 

NOTE 5:  PROPERTY AND EQUIPMENT

Property and equipment consist of:
                                                         1997            1996
                                                  ---------------------------

 Building and improvements                         $1,269,288      $1,170,656
 Computers and software                               171,661         373,419
 Furniture and fixtures                               285,878         268,147
 Automobiles                                          140,249         123,802
                                                  ---------------------------
                                                    1,867,076       1,936,024
 Less accumulated depreciation and amortization       717,593         881,766
                                                  ---------------------------
                                                    1,149,483       1,054,258
 Land                                                 586,743         500,143
                                                  ---------------------------
                                                   $1,736,226      $1,554,401
                                                   ==========================


NOTE 6:  INVESTMENTS IN DEBT AND MARKETABLE EQUITY SECURITIES

The  following is a summary of the Company's  investment in debt and  marketable
equity securities as of June 30, 1997 and 1996:
<TABLE>
<CAPTION>
                                                  Gross         Gross          Gross
                                                Amortized     Unrealized     Unrealized
                                                  Cost          Gains          Losses       Fair Value
                                              --------------------------------------------------------
                                                                       1997
                                              --------------------------------------------------------
<S>                                            <C>            <C>            <C>            <C>       
Available for Sale Securities                  
    U.S. government securities                 $  992,787     $     --       $     --       $  992,787
    Equity securities                             304,826         67,388         76,025        296,189
                                               -------------------------------------------------------
    Total available for sale securities         1,297,613         67,388         76,025      1,288,976
Held to maturity securities                    
    Local government securities & other           714,872         11,817          1,552        725,137
                                               -------------------------------------------------------
                                               $2,012,485     $   79,205     $   77,577     $2,014,113
                                               =======================================================
                                               
                                                                       1996
                                               -------------------------------------------------------
Available for sale securities                  
    U.S. government securities                 $  993,631     $     --       $     --       $  993,631
    Equity securities                             294,818         37,892         76,878        255,832
                                               -------------------------------------------------------
    Total available for sale securities         1,288,449         37,892         76,878      1,249,463
Held to maturity securities                    
    Local government securities & other           750,730          9,300         25,834        734,196
                                               -------------------------------------------------------
                                               $2,039,179     $   47,192     $  102,712     $1,983,659
                                               =======================================================
</TABLE>

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

The Company's investments available for sale all have contractual  maturities of
less than one year.
                                      F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

NOTE 6:  INVESTMENTS IN DEBT AND MARKETABLE EQUITY SECURITIES (continued)

The Company recognized a loss of $74,914 for the year ended June 30, 1997 due to
the permanent impairment in value of its available for sale securities.

NOTE 7:  LONG TERM DEBT

On August 1, 1994, the Company acquired,  from a licensee,  certain rights under
his license  agreement.  Those  rights were  acquired for $25,000 cash and sixty
monthly payments of $2,500. The balance is as follows:

                                                            1997
                                                          --------
             Balance Due                                  $ 65,000
             Imputed interest @ 7.25%                        5,017
                                                          --------
                                                            59,983
             Less Current Portion                           26,521
                                                          --------
             Long Term Portion                            $ 33,462
                                                          ========

Interest paid on outstanding debt amounted to $7,110 in 1997 and $7,049 in 1996.
Aggregate payments for the term of the agreement are as follows:

             Year Ending June 30,
                                       1998                 26,521  
                                       1999                 28,509
                                       2000                  4,953
                                                          --------
                                                          $ 59,983
                                                          ========


NOTE 8:  LICENSING AND FRANCHISING

As of June 30,  1997,  the Company has  entered  into 476 license and  franchise
agreements  with  406  entities,  operating  411  offices  with  646  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, 1997,  1996 and 1995
were approximately $48,060,000, $46,830,000 and $42,690,000, respectively.

The Company's main line of business is providing services,  directly and through
licensees and franchisees,  to the insurance industry and to self-insureds.  The
revenue  and cost  components  along  with  identifiable  assets  and  number of
advertised locations are as follows:
<TABLE>
<CAPTION>
                                            Licensing       Adjusting          Corporate
                                               and             and                and
                                           Franchising    Risk Management        Other       Consolidated
                                           --------------------------------------------------------------
1997                                       
----                                       
<S>                                        <C>              <C>              <C>              <C>        
Revenues                                   $ 5,278,967      $   885,636                       $ 6,164,603
Costs and expenses                           3,569,310          822,683          294,540        4,686,533
                                           --------------------------------------------------------------
                                          
Income (loss) from operations              $ 1,709,657      $    62,953      $  (294,540)     $ 1,478,070
                                           ==============================================================
                                           
Identifiable assets                        $ 4,274,227      $   609,188      $ 3,028,724      $ 7,912,139
                                           ==============================================================
                                           
Number of advertised locations             
 Beginning of year                                 618               20                              638
 Opened                                             45               --                               45
 Closed                                            (20)              (5)                             (25)
 Ownership changes                                   3               (3)                              --
                                           --------------------------------------------------------------
                                                   646               12                              658
                                           ==============================================================
</TABLE>
                                      F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

NOTE 8:  LICENSING AND FRANCHISING (Continued)
<TABLE>
<CAPTION>
                                    Licensing        Adjusting         Corporate
                                        and             and               and
                                   Franchising    Risk Management        Other       Consolidated
                                   --------------------------------------------------------------
<S>                                <C>              <C>              <C>              <C>
1996
----
Revenues                           $ 5,044,028      $   597,956      $      --        $ 5,641,984
Cost and expenses                    3,101,217          592,467          246,653        3,940,337
                                   --------------------------------------------------------------

Income (loss) from operations      $ 1,942,811      $     5,489      $  (246,653)     $ 1,701,647
                                   ==============================================================

Identifiable assets                $ 3,553,856      $   563,204      $ 2,758,692      $ 6,875,752
                                   ==============================================================

Number of advertised locations
 Beginning of year                         590               21             --                611
 Opened                                     47                1             --                 48
 Closed                                    (19)              (2)            --                (21)
Ownership changes                         --               --               --               --
                                   --------------------------------------------------------------
                                           618               20             --                638
                                   ==============================================================

1995
----
Revenues                           $ 4,783,941      $   456,884      $      --        $ 5,240,825
Costs and expenses                   3,043,680          485,739          208,737        3,738,156
                                   --------------------------------------------------------------

Income (loss) from operations      $ 1,740,261      $   (28,855)     $  (208,737)     $ 1,502,669
                                   ==============================================================

Identifiable assets                $ 3,638,623      $   457,380      $ 2,501,047      $ 6,597,050
                                   ==============================================================

Number of advertised locations
 Beginning of year                         569                4             --                573
 Opened                                     47             --               --                 47
 Closed                                     (9)            --               --                 (9)
 Ownership changes                         (17)              17             --               --
                                   --------------------------------------------------------------
                                           590               21             --                611
                                   ==============================================================
</TABLE>

NOTE 9:  INCOME TAXES

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

                                       1997              1996              1995
                                  ---------------------------------------------
Federal
 Current                          $ 695,946         $ 600,407         $ 544,580
 Deferred                          (208,979)          (34,540)          (36,491)
State
 Current                            186,406           163,140           154,664
 Deferred                           (54,230)           (7,702)          (10,513)
                                  ---------------------------------------------
   Income taxes                   $ 619,143         $ 721,305         $ 652,240
                                  =============================================

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

                                       1997              1996              1995
                                  ----------------------------------------------
Statutory rate                         35.0%             35.0%             35.0%
Increase (decrease) resulting from:                                  
 State income taxes, net                5.5               5.5               5.7
 Non-deductible items                   1.6               1.1               1.1
 Non-taxable revenues                  (1.1)             (1.0)             (1.0)
 Other                                 (2.3)             (1.7)             (1.9)
                                  ---------------------------------------------
Effective rate                         38.7%             38.9%             38.9%
                                  =============================================
                                      F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

NOTE 9:  INCOME TAXES (Continued)

Net deferred tax assets consist of the following components at June 30, 1997 and
1996:

                                                        1997              1996
                                                    ---------------------------
      Deferred tax assets
        Allowance for doubtful accounts             $  94,443         $  94,410
        Property and equipment                         39,323            22,004
        Unrealized loss on investments                 29,479                --
        Other liabilities                             243,315            26,937
                                                    ---------------------------
                                                    $ 406,560          $143,351
                                                    ===========================

The deferred tax amounts  mentioned above have been classified as current assets
in the accompanying balance sheets as of June 30, 1997 and 1996.


NOTE 10:  RELATED PARTY TRANSACTIONS

A director/officer  of the Company is a partner in a law firm that renders legal
services to the Company. The Company paid the law firm approximately  $92,000 in
fiscal  1997,  $90,500  in fiscal  1996 and  $88,500  in  fiscal  1995 for legal
services and reimbursement of expenses.


NOTE 11:  PROFIT SHARING PLAN

On June 14, 1984,  the Company  adopted a Profit  Sharing  Plan (Plan)  covering
substantially  all  employees  of the  Company  who have  completed  one year of
service and have  reached age 20. The Plan  provides  for  contributions  at the
discretion of management not to exceed the amount  permitted  under the Internal
Revenue Code as a deductible expense. Participants' benefits vest at the rate of
20% per  year.  Contributions  to the  Plan  are  made  to  trust  accounts  for
investment at the  discretion of the  individual  participants.  Profit  sharing
expense was  $217,601,  $175,390 and $160,717 for the years ended June 30, 1997,
1996 and 1995 respectively.


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. The Company has elected not to adopt FASB
Statement No. 123,  Accounting for Stock-based  Compensation.  Had  compensation
cost for the Company's stock option plan been determined based on the fair value
at the grant  dates for  awards  under this plan  consistent  with the method of
Statement No. 123, there would not be a material  difference  from the Company's
reported net income.

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

On October 11, 1996, the  shareholders  approved a Stock Option Plan (1996 Plan)
which had been adopted by the Board of  Directors on May 21, 1996 and  effective
July 1,  1996,  which  provides  for the  granting  of  options to acquire up to
300,000  shares of common  stock to certain  officers  and key  employees of the
Company. Options under the Plan may be incentive stock options "ISO" pursuant to
Section 422A of the Internal  Revenue Code. On July 1, 1996, the Company granted
ISO's for  100,000  shares of stock at $2.875 per  share,  the fair value at the
grant date.
                                      F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

NOTE 12:  STOCK OPTIONS (continued)

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

                                                   Number of Shares
                                    --------------------------------------------
                                       1997             1996              1995
                                    --------------------------------------------
Outstanding July 1                   200,000          200,000           113,130
Granted                              100,000               --            86,870
Exercised                                --                --                --
                                    --------------------------------------------

Outstanding June 30                  300,000          200,000           200,000
                                    ============================================

Options were  outstanding at June 30, 1997,  1996 and 1995 at average prices per
share of $3.05,  $3.14 and $3.14  respectively.  At June 30, 1997,  there are no
remaining  options  available for issuance under the 1987 Plan and the 1996 Plan
had options available for granting of 200,000 shares.


NOTE 13:  COMMITMENTS AND CONTINGENCIES

The Company entered into five-year employment agreements with four key executive
officers,  three of which  expire  June 30, 2000 and one that  expires  June 30,
2001.  In addition to a base salary,  the  agreements  provide for bonuses based
upon the Company's pre-tax earnings and annual cost of living  increases.  Total
compensation  under those  employment  agreements  was  $788,605,  $635,436  and
$452,497 for the years ended June 30,  1997,  1996 and 1995,  respectively.  The
aggregate commitment for future salaries at June 30, 1997, excluding bonuses and
cost of living increases, is $2,140,956 as follows:

                       Year ended June 30,
                       -------------------

                             1998                  $  687,012 
                             1999                     651,972
                             2000                     651,972
                             2001                     150,000


The Company has entered  into an  agreement  with a customer to share a suite in
the America West Arena in Phoenix,  Arizona for client development purposes. The
agreement  provides  that the  Company is  responsible  for 50% of the costs and
expenses  of the  suite.  The  Company's  commitment  began in June,  1992.  The
Company's minimum required payments are as follows:


                       Year ended June 30,             Amount
                       --------------------------------------

                             1998                  $   37,960
                             1999                      39,477
                                                   ----------
                                                   $   77,437
                                                   ==========

During the year ended June 30, 1997, the Company settled a claim made against it
and a former  franchisee  at a cost to the Company of $525,000  net of insurance
reimbursement.
                                      F-14
<PAGE>
                       FRONTIER ADJUSTERS OF AMERICA, INC.
                                AND SUBSIDIARIES

                               SUPPLEMENTARY DATA
                               ------------------



Selected Quarterly Financial Data

(Information for all periods shown below is unaudited)
<TABLE>
<CAPTION>
                                                                          1997
                                                -------------------------------------------------------
                                                                   Three Months Ended
                                                -------------------------------------------------------
                                                 Sept. 30        Dec. 31        Mar. 31        June 30
                                                ----------     ----------     ----------     ----------
<S>                                             <C>            <C>            <C>            <C>       
Revenues                                        $1,663,529     $1,505,195     $1,485,765     $1,510,114
 Income from operations                            520,451        469,744        391,257         96,618
 Income before income taxes                        563,995        546,913        437,238         50,194
 Net income                                        342,263        329,847        265,137         41,951
 Net income per share                                  .07            .07            .06            .01

 Weighted average shares outstanding             4,614,684      4,605,358      4,605,358      4,605,358




                                                                       1996
                                                -------------------------------------------------------
                                                                  Three Months Ended
                                                -------------------------------------------------------
                                                 Sept. 30        Dec. 31        Mar. 31        June 30
                                                ----------     ----------     ----------     ----------
Revenues                                        $1,408,666     $1,352,330     $1,396,634     $1,484,354
 Income from operations                            437,150        395,569        420,995        447,932
 Income before income taxes                        471,789        447,351        460,416        476,265
 Net income                                        286,038        271,595        278,941        297,942
 Net income per share                                  .06            .06            .06            .07

 Weighted average shares outstanding             4,637,943      4,609,658      4,609,658      4,623,065




                                                                       1995
                                                -------------------------------------------------------
                                                                  Three Months Ended
                                                -------------------------------------------------------
                                                 Sept. 30        Dec. 31       Mar. 31         June 30
                                                ----------     ----------     ----------     ----------
Revenues                                        $1,270,785     $1,257,356     $1,232,935     $1,479,749
 Income from operations                            400,164        415,959        198,670        487,876
 Income before income taxes                        440,483        482,236        242,891        513,478
 Net income                                        267,530        292,947        146,708        319,663
 Net income per share                                  .06            .06            .03            .07

 Weighted average shares outstanding             4,690,943      4,677,311      4,640,898      4,640,898
</TABLE>
                                      F-15
<PAGE>
                       FRONTIER ADJUSTERS OF AMERICA, INC.
                                AND SUBSIDIARIES


                        VALUATION AND QUALIFYING ACCOUNTS
                        ---------------------------------

                For the Years Ended June 30, 1997, 1996 and 1995
<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, 1997:
   Allowance for doubtful accounts         $ 245,000       $ 149,392       $ 144,255        $ 250,137



Year Ended June 30, 1996:
   Allowance for doubtful accounts           223,000         151,847         129,847          245,000



Year Ended June 30, 1995:
   Allowance for doubtful accounts           116,000         169,640          62,640          223,000
</TABLE>
                                      F-16