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, 1998

[ ]  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 $7,291,235 as of September 23, 1998.

The number of shares  outstanding  of the  registrant's  Common Stock,  $.01 par
value, as of September 23, 1998, was 4,605,358.

                                     Page 1
<PAGE>
                                     PART I

ITEM 1 - BUSINESS

THE COMPANY

Frontier Adjusters of America,  Inc., an Arizona corporation  (together with its
subsidiaries,  the  "Company"),  licenses and franchises  independent  insurance
adjusters (the  independent  insurance  adjusters  licensed or franchised by the
Company are hereinafter referred to collectively as the "Adjusters")  throughout
the United States and 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,  1998,  the Company  had  entered  into 480 license and
franchise  agreements  ("Agreements")  with 434 entities,  operating 439 offices
with 662 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.

In August 1998,  subsequent  to the period  covered by this Report,  the Company
entered into a letter of intent (the "Letter of Intent")  with United  Financial
Adjusting  Company  ("UFAC"),  a  wholly  owned  subsidiary  of the  Progressive
Corporation  ("Progressive"),  whereby  UFAC will  purchase  newly  issued stock
representing approximately 52% of the Company's voting securities. Following the
purchase by UFAC, the Company's  shareholders will be given the option to retain
their shares and receive a cash  distribution of $1.60 per share or to surrender
their  shares for a price of $2.90 per share.  Up to an  aggregate  of 1,000,000
shares will be accepted  for  repurchase.  UFAC will  purchase  the newly issued
securities of the Company at a price of $1.30 per share and will not be entitled
to  receive  the  cash  distribution  of $1.60  per  share.  If the  transaction
contemplated  by the  Letter of  Intent  is  consummated,  UFAC,  and  therefore
Progressive,  will be able to elect a  majority  of the board of  directors  and
therefore,  will be able to control the  business  and  affairs of the  Company.
Consummation of this transaction is subject to shareholder approval. The Company
will  provide its  shareholders  with a proxy  statement  containing  a detailed
description   of  the  proposed   transaction   prior  to  the  Company's   next
shareholders' meeting.

GENERAL

For its fiscal year ended June 30, 1998, the Company's licensing and franchising
activities  accounted for approximately 79% of gross revenue,  and the Company's
Company-owned   adjusting   and  risk   management   businesses   accounted  for
approximately 21% of gross revenue. For the fiscal years ended June 30, 1997 and
June 30, 1996, the Company's licensing and franchising  activities accounted for
approximately  86% and 89%,  respectively,  of gross revenue,  and the Company's
Company-owned   adjusting   and  risk   management   businesses   accounted  for
approximately 14% and 11%,  respectively,  of gross revenue. The revenue derived
from the Company's operations,  as well as the gross billings by Adjusters (upon
which the  Company's  revenue from  licensing  and  franchising  activities  are
based), are set forth in the following table.

                                             FISCAL YEAR ENDED JUNE 30,
                                  ----------------------------------------------
                                      1998            1997             1996
                                  ----------------------------------------------

Gross billings by Adjusters       $42,050,000      $48,060,000      $46,830,000
 (approximate)
Revenue from licensing and
 franchising activities             4,596,657        5,278,967        5,044,028
Revenue from Company-owned
 adjusting and risk management
 businesses                         1,228,691          885,636          597,956

For its fiscal year ended June 30, 1998, the Company's licensing and franchising
activities accounted for approximately  $1,152,000 in income from operations and
the Company's  Company-owned  adjusting and risk management businesses accounted
for approximately $106,000 in income from operations. For the fiscal years ended
June 30,  1997 and  June 30,  1996,  the  Company's  licensing  and  franchising
activities accounted for approximately  $1,710,000 and $1,943,000  respectively,
in income  from  operations,  the  Company's  Company-owned  adjusting  and risk
management   businesses   accounted  for   approximately   $63,000  and  $5,000,
respectively, in income from operations.

                                     Page 2
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GENERAL (CONTINUED)

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 9.2%,
18.8% and 20.8% of continuing  licensee and franchisee  fees for the years ended
June 30, 1998, 1997 and 1996, respectively.  In June 1997 this client elected to
cease purchasing adjusting services from the Company and its Adjusters.

CLAIMS ADJUSTING

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

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

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

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

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

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

Risk management  related  services  consist  primarily of providing  services to
in-house risk managers of self-insureds  whose internal resources do not include
expertise  in claims  adjusting  or other  aspects  of claims  management.  Risk
management services,  which also are often referred to in the industry as "third
party administration"  include administering claims, working with  self-insurers
to decide whether certain claims need external  investigation,  coordinating the
efforts of the field  investigation  with  internal  claims  review  activities,
generating  necessary  statistical  reports,  and paying  losses.  The insurance
companies responsible for the excess coverage of self-insured clients often play
a  significant  role  in the  selection  and  retention  of  providers  of  risk
management or third party administration and related services.

LICENSING AND FRANCHISING

The major  part of the  Company's  revenue  is  derived  under its  license  and
franchise  agreements  (the  "Agreements")  with the Adjusters.  Pursuant to the
terms of the  Agreements,  an Adjuster is authorized to use, within a designated
geographic  area,  the  Company's  service mark in providing  adjusting and risk
management-related  services.  In  addition,  an  Adjuster  is  provided  with a
computerized  central collection and rebilling service and national  advertising
and referrals by the Company.  The Company  receives a 10% or 15% royalty fee on
all  of the  Adjusters'  collections  depending  upon  the  Agreement  with  the
Adjuster.  In  fiscal  1998,  the  Company  retained  10.9%  of  the  Adjusters'
collections as royalty fees under the Agreements.

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 the
Adjusters have been providing insurance  adjusting  services,  on a Company-wide
basis, is approximately 20 years.

                                     Page 3
<PAGE>
LICENSING AND FRANCHISING (CONTINUED)

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

OPERATION OF INDEPENDENT ADJUSTERS

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

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

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

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

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

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

The Company does not charge interest on any loans or advances made to Adjusters.
During the past four fiscal years, the Company has loaned or advanced an average
aggregate of $324,363 per month and has received  reimbursement of an average of
$303,921 per month. At June 30, 1998, the Company had  approximately  $1,547,000
in outstanding loans or advances. During the past four fiscal years, the Company
has  written  off an average of  $144,385  per year due to bad debts  related to
these arrangements.

                                     Page 4
<PAGE>
LICENSE AND FRANCHISE AGREEMENTS

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

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

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

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

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

The  Agreement  requires  the Adjuster to devote at least 80% of his or her time
during any 45 day period to the  operation  of the business  and  prohibits  the
Adjuster from  accepting any employment for  compensation  from any person.  The
Agreement  sets  forth a  minimum  performance  standard.  The  current  form of
Agreement  provides  that if at any time  after  the first  three  months of the
Agreement,   the  Adjuster's  gross  billings  are  less  than  $4,000  for  any
three-month  period,  then  either  party will have the right to  terminate  the
Agreement.

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

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

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

                                     Page 5
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LICENSE AND FRANCHISE AGREEMENTS (CONTINUED)

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

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

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

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

COMPANY-OWNED INSURANCE ADJUSTING BUSINESS

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

                             SPECIAL CONSIDERATIONS

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

THE INSURANCE ADJUSTING BUSINESS

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

UNCERTAINTY OF FUTURE REVENUE

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

                                     Page 6
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UNCERTAINTY OF FUTURE REVENUE (CONTINUED)

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  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 74 years old, and Mrs. Ryberg, who is 66 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 50, 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  36% 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.  In addition,  in
August  1998,  the Company  entered  into the Letter of Intent with UFAC whereby
UFAC will  purchase  newly issued stock  representing  approximately  52% of the
Company's voting  securities.  If the transaction  contemplated by the Letter of
Intent is consummated,  UFAC, and therefore Progressive, will be able to elect a
majority of the board of directors,  and therefore,  will be able to control the
business and affairs of the Company.

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 9.2% of the license and  franchise  fees it
received  during the fiscal year ended June 30,  1998.  See Item 1,  "Business -
General"  and  Item  7,  "Management's  Discussion  and  Analysis  of  Financial
Condition  and Results of  Operations - Results of  Operations  1998 Compared to
1997 - Revenue".  In June 1997 this  client  elected to  discontinue  purchasing
adjusting services from the Company and its Adjusters.  The Company continues to
develop and implement sales and marketing efforts to take advantage of its broad
geographic coverage as well as the unique strengths of its individual  licensees
and  franchisees.   During  fiscal  1998,  the  Company  successfully  completed
negotiations for national/regional relationships with seven new clients and with
three existing clients for additional services. 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

                                     Page 7
<PAGE>
TORT LIABILITY AND INSURANCE (CONTINUED)

Company,  for whose  conduct the Company is not liable.  Further,  although  the
Company and the Adjusters  maintain  insurance (in the amounts of $5,000,000 and
$1,000,000,  respectively) to minimize their exposure to related losses,  it may
become increasingly  difficult or costly to maintain insurance against these and
other  risks.  In such  event,  the  Company's  operations  could  be  adversely
affected.  Costs of insurance may escalate beyond those anticipated,  or certain
types  of  losses  may be  uninsurable  or may  exceed  available  coverage.  In
particular,  claims  against the Company and the  Adjusters may be based upon an
insured's  claim that the insurance  adjusting  operations of the Company and/or
the Adjusters  contributed to a client's "bad faith" in processing a claim.  Any
punitive or multiple  damages arising from any such claim,  and any compensatory
damages  exceeding  the coverage  limitations,  would be excluded  from coverage
under the  insurance  policy  maintained  for the benefit of the Company and the
Adjusters, and, therefore, could adversely affect the financial condition of the
Company.  In June 1997, the Company settled  litigation  against it related to a
former  franchisee  of the  Company in the amount of $525,000  net of  insurance
proceeds.

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.

                                     Page 8
<PAGE>
COMPETITION

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

DIVIDENDS

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,   and  by  their  very  nature,  include  risks  and  uncertainties.
Accordingly, actual results may differ, perhaps materially, from those expressed
in or implied  by such  forward-looking  statements.  Factors  that could  cause
actual results to differ  materially  include the foregoing and those  discussed
elsewhere under this Item 1, "Special Considerations".

ITEM 2 - PROPERTIES

The Company owns the office  building and property  located at 45 East  Monterey
Way,  Phoenix,   Arizona,  where  it  conducts  its  licensing  and  franchising
operations 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  Company  also owns a parcel of real  property  across the  street  from the
Company's principal executive office, which is utilized for employee parking.

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

ITEM 3 - LEGAL PROCEEDINGS

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

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

Fiscal Year Ended June 30, 1997
 First Quarter                            $3.25          $2.5625         153,600
 Second Quarter                           $3.875         $3.00           132,600
 Third Quarter                            $2.625         $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, 1998
 First Quarter................................                    $.0375
 Second Quarter...............................                    $.0375
 Third Quarter................................                    $.0375
 Fourth Quarter...............................                    $.0375

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

As of August 14, 1998, there were 251 shareholders of record  (approximately 908
including beneficial owners) of the Company's Common Stock.

                                     Page 10
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                             YEAR ENDED JUNE 30
                                      --------------------------------------------------------------
                                         1998         1997         1996         1995         1994      
                                      ----------   ----------   ----------   ----------   ----------
<S>                                   <C>          <C>          <C>          <C>          <C>       
INCOME STATEMENT DATA
 Operating revenue                    $5,825,348   $6,164,603   $5,641,984   $5,240,825   $4,590,270
 Net income                              612,475      979,198    1,134,519    1,026,848    1,018,160
 Basic earnings per share                    .13          .21          .25          .22          .22
 Diluted earnings per share                  .13          .21          .25          .22          .22
 Weighted average number of
   shares used in per share
   data: Basic                         4,605,358    4,607,709    4,620,101    4,662,679    4,727,537
         Diluted                       4,612,674    4,631,898    4,627,606    4,664,258    4,727,732
 Cash dividends per share                    .15          .15          .14         .115          .11


BALANCE SHEET DATA
 Working capital                      $3,214,490   $3,261,953   $3,196,562   $2,946,748   $2,749,531
 Total assets                          7,800,700    7,912,139    6,875,752    6,597,050    6,491,066
 Long-term debt                            4,953       33,462       59,983       84,655            -
 Property and equipment, net           1,724,329    1,736,226    1,554,401    1,484,545    1,460,601
 Stockholders' equity                  6,452,242    6,564,193    6,230,799    5,838,651    5,487,999
 Book value per share                       1.40         1.43         1.35         1.26         1.17
 Retained earnings                     4,735,935    4,814,266    4,526,419    4,042,588    3,552,194
 Total shares outstanding              4,605,358    4,605,358    4,619,658    4,640,898    4,690,898
</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 to pay cash  dividends,  acquire
certain license rights, and add new licensees/franchisees.

In fiscal 1998 the Company's continuing  operations generated $1,063,780 in cash
which was sufficient for the Company's cash requirements.  This cash was used to
pay cash dividends of $690,806 and purchase  equipment and property at a cost of
$167,077.

The Company has continued its policy to pay cash  dividends to its  shareholders
with payments  totaling 15 cents per share in the 1998 fiscal year. The Board of
Directors has declared a 3.75 cent dividend  payable on or before  September 10,
1998 to shareholders of record on August 20, 1998.

Without giving effect to any  extraordinary  dividend payable should the Company
consummate the transaction with UFAC  contemplated in the Letter of Intent,  the
Company  anticipates  that  during  fiscal  1999 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 1999.

The  Company's  policy is to  maintain a strong cash  position.  This policy has
resulted in the Company's ratio of current assets to current  liabilities  being
3.39 to 1 as of June 30, 1998 compared to 3.48 to 1 as of June 30, 1997.

RESULTS OF OPERATIONS 1998 COMPARED TO 1997

REVENUE

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

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

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

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

To meet the growing competition in fiscal 1998, the Company continued to develop
and implement  sales and marketing  efforts to take  advantage of its geographic
diversity  as well as the  unique  strengths  of its  individual  licensees  and
franchisees. During fiscal 1998, the Company successfully completed negotiations
for  national/regional  relationships  with  seven new  clients  and with  three
existing clients for additional services.  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.

                                     Page 12
<PAGE>
COMPENSATION AND EMPLOYEE BENEFITS

Compensation and employee benefits represent  approximately 57% of the Company's
costs and expenses and are the Company's  largest  expense item.  These expenses
increased  17% or  $402,000  to  $2,817,000  in the  current  fiscal  year  from
$2,415,000 in the prior fiscal year. This increase is the result of the addition
of a Marketing  Director to the  Company's  corporate  staff,  twelve  months of
salary for the employees in Las Vegas/Henderson, Nevada as a result of the April
1997 acquisition,  additional  employees hired including  temporary employees to
handle  increased  work loads in the  Corporate  office,  and cost of living and
merit increases given to employees.  In addition,  the cost of compensation  and
fringe  benefits was reduced $21,000 as a result of the decline in the Company's
income and a corresponding decline in related bonuses.  Furthermore, the Company
paid $85,000 in severance pay to a former employee.

EXPENSES OTHER THAN COMPENSATION AND FRINGE BENEFITS

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

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

OTHER INCOME

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

INCOME TAXES

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

NET INCOME

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

RESULTS OF OPERATIONS 1997 COMPARED TO 1996

REVENUE

The Company's  revenue increased to $6,165,000 in fiscal 1997 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 revenue 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 fiscal 1997  compared to $598,000 in the prior fiscal  year.  The
increase reflects $57,000 in revenue from the Las Vegas/Henderson, Nevada office
which was

                                     Page 13
<PAGE>
REVENUE (continued)

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
revenue 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  revenue 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
fiscal 1997.  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  revenue is 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 was seen in the 1998 fiscal year.

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,  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 as 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.

                                     Page 14
<PAGE>
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  revenue,  the  $525,000
settlement of litigation,  and the $440,000  increase in compensation and fringe
benefits.

CURRENT  ACCOUNTING  DEVELOPMENTS  -- 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 and
is effective for the Company's  year ending June 30, 1999.  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, 1999.  The Company has not determined the effect of the adoption
of this Statement would have on the Company's financial statement disclosure.

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

To date,  the Company has  determined  that certain of the software  used by the
Company is not Year 2000 compliant. The Company has identified upgraded software
that is Year 2000  compliant.  The Company expects to complete these upgrades by
December 31, 1998.

The Company is  finalizing  arrangements  with a consulting  firm to undertake a
complete  analysis of the Company's  operations  to identify the remaining  Year
2000 issues  embodied in its operations  and facility,  and to develop a plan to
resolve  such  issues.  The Company  expects  this  analysis to begin during the
second  quarter of this fiscal year and to be  completed  by December  31, 1998.
Thereafter, the Company will resolve such issue.

Certain  software  products  sold by the Company to certain of its licensees and
franchisees in prior years are not Year 2000 compliant.  The Company's  computer
staff is developing an upgrade of the software that will be Year 2000 compliant.
The Company expects to complete  development of the Year 2000 compliant  version
of its software by December 31, 1998. The Company will  distribute  this version
to purchasers of the non-compliant version, free of charge. The Company does not
anticipate  that the cost of this  upgrade  will be  material  to the  Company's
operations.

Members of the Company's  computer staff are  undertaking the task of contacting
the Company's  customers and vendors to determine the status of such  customers'
and vendors' software for Year 2000 compliance.  As the Company identifies these
issues,  it will  determine  the steps  necessary  to avoid  disruptions  due to
failures in Year 2000 compliance by its customers and/or vendors.

The Company expects that the cost of analysis and development and implementation
of a plan to  address  its Year  2000  issues,  will not  exceed  $175,000.  The
Company's  estimate reflects  assumptions  regarding the extent of the Year 2000
issues embodied in the Company's operations and facilities, the availability and
cost of personnel  trained in this area, the compliance  plans of third parties,
and similar  uncertainties.  However, due to the complexity and pervasiveness of
the Year 2000 issue, and in particular, the uncertainty regarding the compliance
programs of third parties,  no assurance can be given that these  estimates will
be achieved,  and actual results could differ materially from those anticipated.
If the Company is unable to address the Year 2000 issues  successfully,  or in a
timely fashion, the Company may need to devote more resources to the process and
additional  costs may be incurred.  This could have a material adverse effect on
the Company's  results of operations.  The Company has purchased  insurance that
may offset  certain  losses to the Company for claims based upon  non-compliance
with Year 2000 issues.

                                     Page 15
<PAGE>
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> 
George M. Hill                Mr. Hill has been associated with the             90                 1978
Director,                     Company in an advisory capacity for               
Vice President,               more than 25 years, has been a Vice               
Assistant                     President of the Company since 1985               
Secretary                     and has been 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.                               
                                                                                
Francis J. LaPallo            Mr. LaPallo joined the Company on                 50                 1996
Director,                     June 24, 1996. From 1977 until joining            
Executive Vice President      the Company he practiced law in                   
                              Maryland, the District of Columbia and            
                              California. From 1990 until joining the           
                              Company he was a partner with the law firm        
                              of Manatt, Phelps & Phillips in Los 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.                                             
</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> 
Louis T. Mastos               Mr. Mastos has been the President of              77             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                30             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           74            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              66             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 and Tucson,      
                              Arizona, and Las Vegas, Nevada. 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.                            
                                                                                
Merlin J. Schumann            Mr. Schumann has been a Certified Public          54             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.                                    
</TABLE>                                                                        
                                                                                
                                     Page 17                                    
<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> 
William W. Strawther, Jr.     Mr. Strawther was the President and               72                 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            62                 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, 1998.

ITEM 11 - EXECUTIVE COMPENSATION

The following table sets forth certain  information  concerning the compensation
paid by the  Company  during  its year  ended  June 30,  1998 to each  executive
officer whose aggregate compensation exceeded $100,000.

<TABLE>
<CAPTION>
                                               Summary Compensation Table
                                 ------------------------------------------------------
            a                      b           c                d               e                  f
---------------------------      ----      ----------       ---------      ------------      ------------
                                                                           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,           1998       237,776          39,794               --             29,898
Chairman, Director               1997       231,300          51,559               --             23,569
                                 1996       225,000          71,981               --             22,719

Jean E. Ryberg,                  1998       169,085          39,794               --             29,898
President, Director              1997       164,480          51,559               --             29,568
                                 1996       160,000          71,981               --             29,266

Francis J. LaPallo,              1998       185,040              --               --             29,898
Executive Vice President,        1997       180,000              --               --             29,568
Director                         1996           692              --               --                 --


Patric R. Greer, (4)             1998        95,111          19,897               --            103,421
                                 1997        92,520          17,187               --             21,876
                                 1996        90,000          11,224               --             17,364
</TABLE>

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

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

(3)  "All Other  Compensation"  includes (i) directors' fees of $2,250,  $3,750,
     and  $2,250  for Mr.  Rocke in years  ended  June 30,  1998,  1997 and 1996
     respectively;  $2,250,  $3,750,  and $3,000 for Mrs.  Ryberg in years ended
     June 30,  1998,  1997 and 1996  respectively;  $2,250  and  $3,750  for Mr.
     LaPallo in years  ended June 30,  1998 and 1997  respectively;  and $1,500,
     $3,750,  and $3,000 for Mr. Greer in years ended June 30, 1998,  1997,  and
     1996 respectively;  (ii) profit sharing contributions of $27,648,  $19,819,
     and  $20,469  for Mr.  Rocke in years  ended June 30,  1998,  1997 and 1996
     respectively;

                                     Page 18
<PAGE>
ITEM 11 - EXECUTIVE COMPENSATION (CONTINUED)

     $27,648, $25,818, and $26,266 for Mrs. Ryberg in years ended June 30, 1998,
     1997, and 1996  respectively;  $27,648 and $25,818 for Mr. LaPallo in years
     ended June 30, 1998 and 1997 respectively;  $16,921,  $18,126,  and $14,364
     for Mr. Greer for years ended June 30, 1998, 1997, and 1996,  respectively,
     and (iii) an $85,000  severance  package  for Mr.  Greer for the year ended
     June 30, 1998.

(4)  Mr. Greer  resigned from his position with the Company  effective  June 30,
     1998.  In  connection  with Mr.  Greer's  resignation,  termination  of Mr.
     Greer's  employment  agreement,  and as  consideration  of a Settlement and
     Release Agreement between Mr. Greer and the Company,  Mr. Greer received an
     aggregate severance payment of $85,000.

     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 $18,166,  $18,119,  and $18,203 for Mr.
     Rocke for the years ended June 30, 1998, 1997, and 1996, respectively,  and
     $14,070,  $13,678, and $13,511 for Mrs. Ryberg for the years ended June 30,
     1998, 1997, and 1996, respectively.

OPTION/SAR EXERCISES AND HOLDINGS

During 1998 the Company did not grant any stock options.

The following  table shows the number of shares and value of grants  outstanding
as of June 30, 1998 for each Named Executive.

                AGGREGATED OPTION/SAR YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
                                                         Number of Securities           Value of Unexercised,     
                                                        Underlying Unexercised        In-The-Money Options/SARs   
                                                      Options/SARs At 6/30/98 (#)          At 6/30/98 ($)(A)      
                         Shares                      ----------------------------    ---------------------------- 
                        Acquired         Value       
   Name              on Exercise (#)   Realized ($)  Exercisable     Unexercisable   Exercisable     Unexercisable
-------------------  ---------------   ---------------------------------------------------------------------------
<S>                        <C>            <C>           <C>            <C>              <C>              <C>   
William J. Rocke           --             --            48,654             --           8,253                --
                                                                                      
Jean E. Ryberg             --             --            51,347             --          13,682                --
                                                                                      
Francis J. LaPallo         --             --            34,782         65,218           8,696            16,304
                                                                                      
Patric R. Greer (b)        --             --            51,346             --          13,682                --
</TABLE>

(a)  Value of unexercised,  in-the-money  Company options based on a fair market
     value of the Company's common stock of $3.13 per share as of June 30, 1998.

(b)  Mr. Greer  resigned from his position with the Company  effective  June 30,
     1998.

DIRECTORS COMPENSATION

     Each director,  including  employees of the Company, is paid $750 per Board
meeting  attended.  During fiscal 1998, each director,  except for Mr. Patric R.
Greer,  received  $2,250 for  attendance to Board  Meetings.  Mr. Greer received
$1,500 for attendance at Board Meetings.

EMPLOYMENT AGREEMENTS

     The Company has entered into  employment  agreements  with Mr. Rocke,  Mrs.
Ryberg, and Mr. LaPallo each for five-year  terms. Mr. Rocke's and Mrs. Ryberg'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.

                                     Page 19
<PAGE>
ITEM 11 - EXECUTIVE COMPENSATION (CONTINUED)

EMPLOYMENT AGREEMENTS (CONTINUED)

     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.  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

<TABLE>
<CAPTION>
NAME AND ADDRESS                                                         AMOUNT OF BENEFICIAL OWNERSHIP
-------------------------------------------------                          COMMON STOCK $.01 PAR VALUE
                                                                           ---------------------------
                                                                        NUMBER OF SHARES (1)  PERCENT (2)
                                                                        --------------------  -----------
<S>                                                                        <C>                  <C>  
George M. Hill (3)                                                            155,000            3.37%
                                                                                              
Francis J. LaPallo and Wendy J. Harrison, his wife (4)                         91,564            1.99%
                                                                                              
Louis T. Mastos and Eva B. Mastos, his wife (5)                               206,703            4.49%
                                                                                              
William J. Rocke and Garnet Rocke, his wife (6)                               442,268            9.50%
P. O. Box 7641                                                                                
Phoenix, Arizona  85011                                                                       
                                                                                              
James S. Rocke (7)                                                            471,803           10.14%
P. O. Box 7641                                                                                
Phoenix, Arizona  85011                                                                       
                                                                                              
Jean E. Ryberg (8)                                                            150,589            3.23%
                                                                                              
Merlin J. Schumann and Donna L. Schumann, his wife                             20,114             *
                                                                                              
William W. Strawther, Jr. and Marjorie A. Strawther,                                          
 his wife (9)                                                                 444,138            9.64%
7108 North 15th Street                                                                        
Phoenix, Arizona  85020                                                                       
                                                                                              
R. Scott Younker and Sandra L. Younker, his wife                               67,819            1.47%
                                                                                              
All officers and directors as a group                                                         
     (nine persons) (10)                                                    1,759,998           36.49%
</TABLE>
-----------------------------------------
*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.

                                     Page 20
<PAGE>
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
             MANAGEMENT (CONTINUED)

(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)  Excludes  52,000 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.

(4)  Includes 69,564 shares subject to a currently  exercisable  stock option at
     $2.875 per share.

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

(6)  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
     a weighted average of $3.2829 per share.

(7)  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 a weighted
     average of $3.2829 per share.

(8)  Includes 51,347 shares subject to a currently  exercisable stock options at
     a  weighted  average  of $3.005  per  share.  Excludes  5,000  held by Mrs.
     Ryberg's son in which she disclaims any beneficial interest.

(9)  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
     140,000 shares beneficially owned by Mr. and Mrs. Strawther's son, in which
     shares Mr. and Mrs. Strawther disclaim any beneficial interest.

(10) 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).

Based  solely on a review of the copies of such forms  received  by the  Company
during the fiscal year ended June 30, 1998, 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  5  covering  five  transactions  totaling  14,600  shares  and  a
discrepancy of 8,250 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  revenue
derived from  services  provided by certain  other  licensees  in other  Arizona
cities and towns. The Company paid that  corporation  $13,142 during fiscal year
1998 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 1998,  the Company paid
Mr.  Hill  $92,510  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 1998 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, 1998 and 1997

             Consolidated Statements of Income for the Years Ended June 30,
             1998, 1997 and 1996

             Consolidated Statements of Cash Flows for the Years  Ended June 30,
             1998, 1997 and 1996

             Consolidated Statements of Stockholders' Equity for the Years Ended
             June 30, 1998, 1997 and 1996

             Notes to  Consolidated  Financial  Statements - June 30, 1998, 1997
             and 1996

(a) (2) Financial Statement Schedules

        Schedule
        Number 
        ------ 

          II        Valuation and Qualifying Accounts Years Ended June 30, 1998,
                    1997 and 1996

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

                                     Page 22
<PAGE>
                     (a) (3) EXHIBITS FILED WITH THIS REPORT



EXHIBIT NO.                           DESCRIPTION OF EXHIBIT
-----------                           ----------------------

   3(a)          Articles of  Incorporation of Frontier  Adjusters  of  America,
                 Inc.*

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

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

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

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

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

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

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

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

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

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

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

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

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

     23          Consent of Independent Accountants

     27          Financial Data Schedule


     *    Incorporated by reference  to the Registrant's Form  S-2 filed July 9,
          1991

    **    Incorporated by  reference to the  Registrant's Form 10-K for the year
          ended June 30, 1993

   ***    Incorporated  by reference  to the Registrant's Form 10-K for the year
          ended June 30, 1995

  ****    Incorporated  by  reference  to  the  Registrant's Form  10-Q for  the
          quarter ended September 30, 1996.

  *****   Incorporated by reference to the  Registrant's  Form 10-K for the year
          ended June 30, 1996.

(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, 1998

                                     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, hereunto duly authorized.

                       FRONTIER ADJUSTERS OF AMERICA, INC.


/s/ WILLIAM J. ROCKE                                 /s/ JEAN E. RYBERG
------------------------------------------           ---------------------------
William J. Rocke (Chief Executive Officer,           Jean E. Ryberg (President)
Chairman of the Board, Acting Chief 
Financial Officer)

  SEPTEMBER 25, 1998                                     SEPTEMBER 25, 1998
------------------------------------------           ---------------------------

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                                        SEPTEMBER 25, 1998  
----------------------------------------                  ----------------------
William J. Rocke, CEO, Chairman
of the Board, Acting CFO, Director

/s/ JEAN E. RYBERG                                          SEPTEMBER 25, 1998  
----------------------------------------                  ----------------------
Jean E. Ryberg, President, Director


/s/ FRANCIS J. LAPALLO                                      SEPTEMBER 25, 1998  
----------------------------------------                  ----------------------
Francis J. LaPallo, Exec. V.P.,
Director

/s/ GEORGE M. HILL                                          SEPTEMBER 25, 1998
----------------------------------------                  ----------------------
George M. Hill, V.P., Director

/s/ JAMES S. ROCKE                                          SEPTEMBER 25, 1998  
----------------------------------------                  ----------------------
James S. Rocke, Secretary/Treasurer,
Director

/s/  MERLIN J. SCHUMANN                                     SEPTEMBER 25, 1998  
----------------------------------------                  ----------------------
Merlin J. Schumann, Director

/s/   WILLIAM W. STRAWTHER, JR.                             SEPTEMBER 25, 1998  
----------------------------------------                  ----------------------
William W. Strawther, Jr., Director

/s/ LOU MASTOS                                              SEPTEMBER 25, 1998  
----------------------------------------                  ----------------------
Lou Mastos, Director

    R. SCOTT YOUNKER                                        SEPTEMBER 25, 1998  
----------------------------------------                  ----------------------
R. Scott Younker, 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, 1998 and 1997                     F-3

Consolidated Statements of Income for the Years Ended June 30,
1998, 1997 and 1996                                                      F-4

Consolidated Statements of Cash Flows for the Years Ended 
June 30, 1998, 1997 and 1996                                             F-5

Consolidated Statements of Stockholders' Equity for the Years
Ended June 30, 1998, 1997 and 1996                                       F-6

Notes to Consolidated Financial Statements - June 30, 1998, 
1997 and 1996                                                            F-7



Supplementary Schedule                                                   F-16

Schedule II - Valuation and Qualifying Accounts Years Ended
June 30, 1998, 1997 and 1996                                             F-17

                                       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, 1998 and 1997, and
the related  consolidated  statements of income,  cash flows, and  stockholders'
equity for each of the three  years in the period  ended  June 30,  1998.  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, 1998 and 1997, and the results
of their  operations  and their  cash  flows for each of the three  years in the
period ended June 30, 1998, in conformity  with  generally  accepted  accounting
principles.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
consolidated   financial   statements   taken  as  a  whole.   The  consolidated
supplemental  schedule  II for the years  ended June 30,  1998,  1997,  and 1996
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
consolidated  financial  statements.  This  schedule  has been  subjected to the
auditing  procedures applied in our audits of the basic  consolidated  financial
statements  and, in our opinion,  is fairly  stated in all material  respects in
relation to the basic consolidated financial statements taken as a whole.

McGLADREY & PULLEN, LLP


/s/ McGladrey & Pullen, LLP

Phoenix, Arizona
August 4, 1998, except for Note 14 as to which the date is August 28, 1998

                                       F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS

Frontier Adjusters of America, Inc. and Subsidiaries

June 30,                                                     1998          1997
-------------------------------------------------------------------------------

ASSETS
CURRENT ASSETS
 Cash and cash equivalents                            $   929,364   $ 1,012,233
 Securities available for sale (Note 6)                 1,289,519     1,288,976
 Current portion of advances to licensees
  and franchisees (Note 4)                                900,190       872,527
 Receivables, net (Note 3)                                681,830       740,572
 Income tax refund receivable                             172,948          --
 Unbilled adjusting fees                                   40,950        26,700
 Prepaid expenses                                         317,454       268,192
 Deferred income taxes, current portion (Note 9)          225,740       367,237
                                                      -------------------------
         TOTAL CURRENT ASSETS                           4,557,995     4,576,437
                                                      -------------------------
PROPERTY AND EQUIPMENT, at cost, less accumulated
 depreciation and amortization (Note 5)                 1,724,329     1,736,226
                                                      -------------------------
OTHER ASSETS
 Held to maturity investments (Note 6)                    694,724       714,872
 Advances to licensees and franchisees, net of
   current portion (Note 4)                               431,000       431,000
 Licenses and franchises, net of accumulated
   amortization of $256,654 in 1998 and
   $226,240 in 1997                                       155,838       246,253
 Deferred income taxes, net of current portion
   (Note 9)                                                63,532        39,323

 Cost of subsidiary in excess of net identifiable
  assets acquired, net of accumulated amortization
  of $179,130 in 1998 and $176,819 in 1997                 34,688        36,999
 Other                                                    138,594       131,029
                                                      -------------------------
                                                        1,518,376     1,599,476
                                                      -------------------------
         TOTAL ASSETS                                 $ 7,800,700   $ 7,912,139
                                                      =========================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
 Accounts payable                                     $    62,118   $    33,793
 Salaries payable and related benefits                    609,113       169,032
 Income taxes payable                                        --          84,989
 Licensees' and franchisees' remittance payable           545,830       396,991
 Current portion of long term liability (Note 7)           28,509        26,521
 Other (Note 13)                                           97,936       603,158
                                                      -------------------------
         TOTAL CURRENT LIABILITIES                      1,343,506     1,314,484
                                                      -------------------------
LONG TERM LIABILITY (Note 7)                                4,953        33,462
                                                      -------------------------
COMMITMENTS AND CONTINGENCIES (Notes 13 and 14)              --            --
STOCKHOLDERS' EQUITY (Note 12 and 13)
 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                                      4,735,935     4,814,266
                                                      -------------------------
                                                        6,932,225     7,010,556
 Add (deduct):
  Treasury stock 176,652 shares in 1998 and 1997         (529,584)     (529,584)
  Other                                                    49,600        83,221
                                                      -------------------------
         TOTAL STOCKHOLDERS' EQUITY                     6,452,241     6,564,193
                                                      -------------------------
         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 7,800,700   $ 7,912,139
                                                      =========================

The accompanying notes are an integral part of these statements.

                                       F-3
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME

Frontier Adjusters of America, Inc. and Subsidiaries

Years Ended June 30,                         1998           1997           1996
--------------------------------------------------------------------------------

REVENUE
 Continuing licensee and franchisee
  fees (Note 8)                       $ 4,596,657    $ 5,278,967    $ 5,044,028
 Adjusting and risk management
  fees (Note 8)                         1,228,691        885,636        597,956
                                      -----------------------------------------
                                        5,825,348      6,164,603      5,641,984
                                      -----------------------------------------
COST AND EXPENSES
 Compensation and employee benefits
  (Notes 11 and 13)                     2,817,168      2,414,582      1,975,028
 Office                                   404,554        379,287        372,788
 Advertising and promotion                395,210        347,396        459,329
 Depreciation and amortization            253,667        240,246        190,044
 Provision for doubtful accounts          352,132        149,392        151,847
 Legal fees paid to a director
  (Note 10)                                92,510         91,572         90,376
 Other (Note 13)                          609,111      1,064,058        700,923
                                      -----------------------------------------
                                        4,924,352      4,686,533      3,940,335
                                      -----------------------------------------
       INCOME FROM OPERATIONS             900,996      1,478,070      1,701,649
                                      -----------------------------------------

OTHER INCOME (EXPENSE)
 Interest income                          133,067        154,860        144,677
 Disposition of investments                 4,042            343           --
 Gain (loss) on sale of license           (13,000)          --            5,000
 Gain on disposition of equipment           6,352         24,875           --
 Unrealized loss (Note 6)                     (93)       (74,914)          --
 Other                                     (3,497)        15,107          4,498
                                      -----------------------------------------
        TOTAL OTHER INCOME                126,871        120,271        154,175
                                      -----------------------------------------
        INCOME BEFORE INCOME TAXES      1,027,867      1,598,341      1,855,824


        INCOME TAXES (Note 9)             415,392        619,143        721,305
                                      -----------------------------------------
        NET INCOME                    $   612,475    $   979,198    $ 1,134,519
                                      =========================================
EARNINGS PER SHARE
         Basic                        $       .13    $       .21    $       .25
                                      =========================================
         Diluted                      $       .13    $       .21    $       .25
                                      =========================================
WEIGHTED AVERAGE SHARES
 OUTSTANDING
         Basic                          4,605,358      4,607,709      4,620,101
                                      =========================================
         Diluted                        4,612,674      4,631,898      4,627,606
                                      =========================================

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,                                    1998              1997              1996
------------------------------------------------------------------------------------------------
<S>                                              <C>               <C>               <C>        
CASH FLOWS FROM OPERATING ACTIVITIES
 Net income                                      $   612,475       $   979,198       $ 1,134,519
                                                 -----------------------------------------------
 Adjustments to reconcile net income to net
  cash provided by operating activities:
   Depreciation and amortization                     255,852           241,884           190,044
   (Gain) on sale of investments                      (4,042)             (343)             --
   (Gain) loss on sale of license                     13,000              --              (5,000)
   (Gain) on disposition of equipment                 (6,352)          (24,875)             --
   Provision for doubtful accounts                   352,132           149,392           151,847
   Deferred income taxes                             117,288          (263,209)          (42,242)
   Unrealized loss on investments                         93            74,914              --
   Change in assets and liabilities
    (Increase) decrease in:
     Receivables                                      (1,665)           12,364           181,133
     Unbilled adjusting fees                         (14,250)          (10,600)           (1,875)
     Prepaid expenses                                (49,262)           20,701           (30,728)
     Other                                           (65,575)          (52,893)          (50,029)
    Increase (decrease) in:
     Accounts payable                                 28,325            22,127            (1,003)
     Salaries payable and related benefits           440,081           (69,183)          (59,758)
     Income taxes payable/receivable                (257,937)           27,684            (7,415)
     Licensees' & franchisees' remittance
      payable                                        148,839           261,473           (86,102)
     Other                                          (505,222)          485,564            63,783
                                                 -----------------------------------------------
     Total adjustment                                451,305           875,000           302,655
                                                 -----------------------------------------------
    NET CASH PROVIDED
     BY OPERATING ACTIVITIES                       1,063,780         1,854,198         1,437,174
                                                 -----------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
 Proceeds from sale of fixed assets                   16,200              --                --
 Capital expenditures                               (167,078)         (302,102)         (170,057)
 Investments purchased                            (1,993,019)       (1,958,743)       (2,970,057)
 Proceeds from maturity of investments             2,040,000         2,000,000         3,000,000
 Payments on license acquisition                     (26,521)         (110,172)         (136,951)
 Advances to licensees' and franchisees'          (4,267,700)       (3,979,135)       (3,964,357)
 Collections of advances to licensees &
  franchisees                                      3,948,312         3,703,132         3,695,280
                                                 -----------------------------------------------
  NET CASH USED IN INVESTING ACTIVITIES             (449,806)         (647,020)         (546,142)
                                                 -----------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
 Cash dividends                                     (690,806)         (691,351)         (647,147)
 Proceeds from sale of treasury stock                   --                --              55,547
 Common stock repurchased                               --             (44,365)         (129,438)
                                                 -----------------------------------------------
  NET CASH USED IN
   FINANCING ACTIVITIES                             (690,806)         (735,716)         (721,038)
EFFECT OF EXCHANGE RATE CHANGES
 ON CASH                                              (6,037)            6,231             5,586
                                                 -----------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
 CASH EQUIVALENTS                                    (82,869)          477,693           175,580
CASH AND CASH EQUIVALENTS AT
 BEGINNING OF THE PERIOD                           1,012,233           534,540           358,960
                                                 -----------------------------------------------
CASH AND CASH EQUIVALENTS AT
 END OF THE PERIOD                               $   929,364       $ 1,012,233       $   534,540
                                                 ===============================================
</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, 1998, 1997 and 1996
-----------------------------------------------------------------------------------------------------------------------------
                             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, 1995        4,782,010   $  47,820   $ 2,148,470   $ 4,042,588    $  (414,869)   $    26,709    $   (12,067)
 Cash dividends -
  $.114 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
 Cash dividends -
  $.15 per share                  --          --            --        (690,806)          --             --             --
 Net income                       --          --            --         612,475           --             --             --
 Foreign currency
  translation                     --          --            --            --             --           (6,037)          --
 Unrealized loss                  --          --            --            --             --             --          (27,584)
-----------------------------------------------------------------------------------------------------------------------------

Balance, June 30, 1998       4,782,010   $  47,820   $ 2,148,470   $ 4,735,935    $  (529,584)   $    10,907    $    38,693
=============================================================================================================================
</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 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. Revenue from claims adjusted by employees of the Company are
recognized  as the  services  are  performed;  revenue  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
revenue are  collections  received from one customer  which provided the Company
with revenue representing approximately $426,000 or 9.2%, $990,000 or 18.8%, and
$1,047,000 or 20.8% of the continuing  licensee and  franchisee  fees during the
years ended June 30, 1998, 1997 and 1996, respectively. Outstanding licensee and
franchisee fees receivable related to this customer were approximately $6,800 at
June 30, 1998 and $95,000 at June 30, 1997. In June of 1997 this client  elected
to place its adjusting  service needs with other  vendors.  This  transition has
caused revenue from this client to decrease by $564,000,  or 60%, in this fiscal
year.

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

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

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

                                       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
equity securities and 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  --  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  -- 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 and
is effective for the Company's  year ending June 30, 1999.  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, 1999.  The Company has not determined the effect of the adoption
of this Statement would have on the Company's financial statement disclosure.

EARNINGS PER COMMON SHARE -- Effective  December 31, 1997,  the Company  adopted
Financial  Accounting  Standards Board (FASB)  Statement No. 128,  "Earnings Per
Share",  which  supersedes  Accounting  Principles  Board (APB)  Opinion No. 15.
Statement  No.  128  requires  the  presentation  of  earnings  per share by all
entities  that have common stock or  potential  common  stock,  such as options,
warrants,  and convertible securities outstanding that trade in a public market.
Under  Statement  No. 128, the Company is required to present  basic and diluted
earnings per share  amounts.  Diluted per share amounts  assume the  conversion,
exercise,  or issuance of all  potential  common  stock  instruments  unless the
effect is to reduce a loss or  increase  the income  per share  from  continuing
operations.  The Company  initially  applied  Statement  No. 128 for its interim
period  ending  December  31,  1997 and all prior  periods  presented  have been
restated with no material effect.

The weighted-average  number of shares of common stock used to compute the basic
earnings per share was increased by 7,316, 24,189, and 7,505, respectively,  for
the dilutive effect of the employee stock options.

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.

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

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

NOTE 1:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECLASSIFICATION - Certain items on the financial statements for the years ended
June 30, 1997 and 1996 have been reclassified,  with no effect on net income, to
be consistent with classifications adopted for the year ended June 30, 1998.

NOTE 2:  SUPPLEMENTAL CASH FLOW INFORMATION

                                           1998             1997            1996
                                    --------------------------------------------
Cash paid during the year:
 Interest                           $    30,898      $     7,259      $    8,056
 Income taxes                       $   607,170      $   854,741      $  794,454


NOTE 3:  RECEIVABLES

Receivables consist of:                                          1998       1997
                                                             -------------------

 Accounts receivable trade                                   $187,846   $145,902
 Licensee and franchisee fees receivable                      532,202    538,601
 Errors and omissions insurance premium advanced              114,028    105,953
 Other                                                          7,398     50,616
                                                             -------------------
          Total receivables                                   841,474    841,072
 Less allowance for doubtful accounts                         159,644    100,500
                                                             -------------------
                                                             $681,830   $740,572
                                                             ===================

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:

                                                               1998         1997
                                                         -----------------------
                                                         
 Advances to licensees and franchisees                   $1,546,766   $1,453,164
 Less  allowance for doubtful advances                      215,576      149,637
                                                         -----------------------
                                                          1,331,190    1,303,527
 Less current portion                                       900,190      872,527
                                                         -----------------------
 Long term portion                                       $  431,000   $  431,000
                                                         =======================
                                                         
NOTE 5:  PROPERTY AND EQUIPMENT                          
                                                         
Property and equipment consist of:                       
                                                               1998         1997
                                                         -----------------------
                                                         
 Building and improvements                               $1,269,288   $1,269,288
 Computers and software                                     231,810      171,661
 Furniture and fixtures                                     312,565      285,878
 Automobiles                                                143,225      140,249
                                                         -----------------------
                                                          1,956,888    1,867,076
 Less accumulated depreciation and amortization             819,302      717,593
                                                         -----------------------
                                                          1,137,586    1,149,483
 Land                                                       586,743      586,743
                                                         -----------------------
                                                         $1,724,329   $1,736,226
                                                         =======================

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

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

NOTE 6:  INVESTMENTS IN DEBT AND MARKETABLE EQUITY SECURITIES

The  following is a summary of the Company's  investment in debt and  marketable
equity securities as of June 30, 1998 and 1997:

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

                                                       1997 
                                   ---------------------------------------------
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
                                   =============================================

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.

The  Company  recognized  a loss of $93 and $74,914 for the years ended June 30,
1998 and 1997,  respectively,  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:

                                                           1998      1997 
                                                         -------   -------
        Balance Due                                      $35,000   $65,000
        Imputed interest @ 7.25%                           1,538     5,017
                                                         -------   -------
                                                          33,462    59,983
        Less Current Portion                              28,509    26,521
                                                         -------   -------
        Long Term Portion                                $ 4,953   $33,462
                                                         =======   =======

Interest paid on outstanding debt amounted to $3,681 in 1998 and $7,110 in 1997.
Aggregate payments for the term of the agreement are as follows:

        Year Ending June 30,
                    1999                                  28,509
                    2000                                   4,953  
                                                         -------
                                                         $33,462  
                                                         =======  

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

FRONTIER ADJUSTERS OF AMERICA, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------

NOTE 8:  LICENSING AND FRANCHISING

As of June 30,  1998,  the Company has  entered  into 480 license and  franchise
agreements  with  434  entities,  operating  439  offices  with  662  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, 1998,  1997 and 1996
were approximately $42,050,000, $48,060,000 and $46,830,000, 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
                                  ---------------------------------------------------------
<S>                               <C>            <C>            <C>            <C>        
1998
Revenue                           $ 4,596,657    $ 1,228,691    $      --      $ 5,825,348
Costs and expenses                  3,444,402      1,123,172        356,778      4,924,352
                                  --------------------------------------------------------

Income (loss) from operations     $ 1,152,255    $   105,519    $  (356,778)   $   990,996
                                  ========================================================

Identifiable assets               $ 4,520,408    $   540,212    $ 2,740,080    $ 7,800,700
                                  ========================================================
Number of advertised locations
 Beginning of year                        646             12           --              658
 Opened                                    23           --             --               23
 Closed                                   (19)          --             --              (19)
 Ownership changes                          2             (2)          --             --   
                                  --------------------------------------------------------
                                          652             10           --              662
                                  ========================================================
1997
Revenue                           $ 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
                                  ========================================================
1996
Revenue                           $ 5,044,028    $   597,956    $      --      $ 5,641,984
Cost and expenses                   3,101,217        592,467        246,651      3,940,335
                                  --------------------------------------------------------

Income (loss) from operations     $ 1,942,811    $     5,489    $  (246,651)   $ 1,701,649
                                  ========================================================

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

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

NOTE 9:  INCOME TAXES

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

                                                  1998        1997         1996 
                                             ----------------------------------
Federal                                      
 Current                                     $ 241,232   $ 695,946    $ 600,407
 Deferred                                       93,123    (208,979)     (34,540)
State                                        
 Current                                        56,872     186,406      163,140
 Deferred                                       24,165     (54,230)      (7,702)
                                             ----------------------------------
   Income taxes                              $ 415,392   $ 619,143    $ 721,305
                                             ==================================
                                      
A  reconciliation  of the  statutory  Federal  income tax rate to the  Company's
effective tax rate follows:

                                               1998          1997         1996 
                                             ----------------------------------
Statutory rate                                 35.0%         35.0%        35.0%
Increase (decrease) resulting from:                                   
 State income taxes, net                        5.1           5.5          5.5
 Non-deductible items                           3.4           1.6          1.1
 Non-taxable revenue                           (1.4)         (1.1)        (1.0)
 Other                                         (1.7)         (2.3)        (1.7)
                                             ----------------------------------
Effective rate                                 40.4%         38.7%        38.9%
                                             ==================================
                                                                    
Net deferred tax assets consist of the following components:

                                                            1998        1997  
                                                         ----------------------
      Deferred tax assets                               
        Current:                                        
        Allowance for doubtful accounts                  $ 143,631    $  94,443
        Other liabilities                                   82,109      272,794 
                                                         ----------------------
                                                           225,740      367,237
                                                        
        Long term:                                      
        Property and equipment                              63,532       39,323
                                                         ----------------------
                                                         $ 289,272    $ 406,560
                                                         ======================
                                                 
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  $93,000 in
fiscal  1998,  $92,000  in fiscal  1997 and  $90,500  in  fiscal  1996 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

                                      F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

NOTE 11:   PROFIT SHARING PLAN (CONTINUED)

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 $258,272,
$217,601,  and  $175,390  for the years  ended  June 30,  1998,  1997,  and 1996
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  for  grants in which the fair value per
share exceeds the exercise  price per share.  No  compensation  expense has been
charged to expense  for any period  presented.  The  Company  has elected not to
adopt FASB  Statement No. 123,  ACCOUNTING  FOR  STOCK-BASED  COMPENSATION.  Had
compensation  cost for the Company's stock option plan been determined  based on
the fair value at the grant dates for awards under this plan consistent with the
method of Statement No. 123,  reported net income for 1998, 1997, and 1996 would
have  decreased  by  $20,000,  $20,000 and $0,  respectively,  with no effect on
earnings per share.

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

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

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

                                            Number of Shares
                     -----------------------------------------------------------
                             1998                 1997               1996
                     -----------------------------------------------------------
                     Number of  Weighted  Number of Weighted Number of  Weighted
                      Shares    Average    Shares    Average   Shares   Average
                     -----------------------------------------------------------
Outstanding July 1    300,000   $  3.05   200,000    $  3.14  200,000   $   3.14
Granted                  --          --   100,000       2.88       --         --
Exercised                --          --        --         --       --         --
                     -----------------------------------------------------------

Outstanding June 30   300,000   $  3.05   300,000    $  3.05  200,000   $   3.14
                     ===========================================================

                                             1998        1997        1996
                                           -------------------------------
Exercisable at end of year                 234,782     200,000     200,000
Weighted-average fair value per option
 of options granted during the year        $   .00     $   .60     $   .00

At June 30, 1998,  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.

                              Weighted        Weighted                 Weighted
 Range of                      Average         Average                  Average
 Exercise      Number         Remaining       Exercise     Number      Exercise
  Price      Outstanding   Contractual Life    Price     Exercisable    Price
----------   -----------   ----------------   --------   -----------   --------
$2.50-2.75      86,870           6.6            2.62        86,870       2.62
$2.88          100,000           8.0            2.88        34,782       2.88
$3.38-3.71     113,130           5.7            3.60       113,130       3.60
               -------                                     -------
               300,000                                     234,782
               =======                                     =======
                                      F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

NOTE 12:  STOCK OPTIONS (CONTINUED)

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

NOTE 13:  COMMITMENTS AND CONTINGENCIES

Subsequent  to June 30, 1998,  the Board of Directors  approved  payment of 3.75
cents per share common stock dividend,  to be paid on September 10, 1998, to all
shareholders of record on August 20, 1998.

The  Company  entered  into  five-year  employment  agreements  with  three  key
executive officers,  two 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 $786,497,  $788,605,  and
$635,436 for the years ended June 30, 1998, 1997, and 1996, respectively.

The aggregate commitment for future salaries at June 30, 1998, excluding bonuses
and cost of living increases, is $1,294,193 as follows:

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

                        1999                         568,917
                        2000                         568,917
                        2001                         156,359

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

                  1999                                39,477

The  Company  has  leased   office   space  and  postage   meters  for  its  Las
Vegas/Henderson, Nevada and Tucson, Arizona operations and storage space for its
Las Vegas/Henderson  operation under various  noncancellable  agreements.  These
leases expire  between  December 31, 1998 and June 30, 2001 and require  various
minimum annual rental  payments.  Each office lease also requires the payment of
taxes.

The total minimum rental commitment at June 30, 1998 is due as follows:

                  During the year ending June 30:
                  1999                               $35,633
                  2000                                22,293
                  2001                                   948
                                                     -------
                                                     $58,874
                                                     =======

The total rental expense  included in the income  statements for the years ended
June 30, 1998, 1997, and 1996 is $34,365, $28,829, and $15,230, respectively.

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

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

NOTE 13:  COMMITMENTS AND CONTINGENCIES (CONTINUED)

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.

Included in Other Liabilities is the Company's payable to  franchisees/licensees
and  clients  at June  30,  1998  and  June 30,  1997 of  $47,800  and  $19,700,
respectively.

NOTE 14:  SUBSEQUENT EVENTS

In August  1998,  the Company  entered  into a letter of intent (the  "Letter of
Intent")  with United  Financial  Adjusting  Company  ("UFAC"),  a wholly  owned
subsidiary of the  Progressive  Corporation  ("Progressive"),  whereby UFAC will
purchase  newly issued stock  representing  approximately  52% of the  Company's
voting  securities.  Following the purchase by UFAC, the Company's  shareholders
will be given the option to retain their shares and receive a cash  distribution
of $1.60 per share or to surrender  their shares for a price of $2.90 per share.
Up to an  aggregate of 1,000,000  shares will be accepted for  repurchase.  UFAC
will purchase the newly issued securities of the Company at a price of $1.30 per
share and will not be  entitled to receive  the cash  distribution  of $1.60 per
share. If the  transaction  contemplated by the Letter of Intent is consummated,
UFAC, and therefore  Progressive,  will be able to elect a majority of the board
of directors and therefore,  will be able to control the business and affairs of
the Company.

                                      F-15
<PAGE>
                       FRONTIER ADJUSTERS OF AMERICA, INC.
                                AND SUBSIDIARIES

                               SUPPLEMENTARY DATA


Selected Quarterly Financial Data

(Information for all periods shown below is unaudited)

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

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

                                                 1996
                             --------------------------------------------------
                                            Three Months Ended
                             --------------------------------------------------
                              Sept. 30      Dec. 31      Mar. 31      June 30
                             -----------  -----------  -----------  -----------
Revenue                      $ 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
     Basic                           .06          .06          .06          .06
     Diluted                         .06          .06          .06          .06
 Weighted average shares
  outstanding
     Basic                     4,637,943    4,609,658    4,609,658    4,623,065
     Diluted                   4,639,614    4,612,875    4,609,607    4,648,326

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


                        VALUATION AND QUALIFYING ACCOUNTS

                FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996


                                              Additions
                                Balance at    Charged to  Deductions    Balance
                                Beginning      Cost and      From       at End
                                of Period      Expenses    Reserves    of Period
                                ----------    ----------  ----------   ---------
Year Ended June 30, 1998:
   Allowance for doubtful 
    accounts                    $ 250,137     $ 352,132    $ 227,049   $ 375,220
                              
Year Ended June 30, 1997:     
   Allowance for doubtful     
    accounts                    $ 245,000     $ 149,392    $ 144,255   $ 250,137
                              
Year Ended June 30, 1996:     
   Allowance for doubtful     
    accounts                    $ 223,000     $ 151,847    $ 129,847   $ 245,000
                              

                                      F-17