SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

(Mark One)

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

For the fiscal year ended December 31, 1997 or

[_]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

     For the transition period from ____________ to ____________.

                         Commission file number 0-26548

                           Legal Research Center, Inc.
                 (Name of Small Business Issuer in Its Charter)

         Minnesota                                          41-1680384
(State or Other Jurisdiction                              (IRS Employer
of Incorporation or Organization)                       Identification No.)

700 Midland Square Building, 331 Second Ave. So., Minneapolis, MN       55401
          (Address of Principal Executive Offices)                   (Zip Code)

Issuer's Telephone Number, Including Area Code:   612/332-4950

Securities registered under Section 12(b) of the Exchange Act:  None.

Securities registered under Section 12(g) of the Exchange Act:

                     Common Stock, par value $.01 per share
                                (Title of Class)

     Check whether the issuer filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 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
                                                              ----    ----

                            [Cover page 1 of 2 pages]


<PAGE>


     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of  Regulation  S-B  contained  in  this  form,  and no  disclosure  will 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-KSB
or any amendment to this Form 10-KSB. [X]

     State issuer's revenues for its most recent fiscal year. $1,779,033

     State the aggregate market value of the voting stock held by non-affiliates
computed by reference  to the price at which the stock was sold,  or the average
bid and ask prices of such  stock,  as of a  specified  date  within the past 60
days. (See definition of affiliate in Rule 12b-2 of the Exchange Act.)

                         $1,454,176 as of March 13, 1998



                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.

              3,327,633 shares of Common Stock as of March 13, 1998


                       DOCUMENTS INCORPORATED BY REFERENCE

     If the following documents are incorporated by reference,  briefly describe
them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated:  (1) any annual report to  security-holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933. The listed documents should be
clearly  described  for   identification   purposes  (e.g.,   annual  report  to
security-holders for fiscal year ended December 31, 1996).

     Definitive Proxy Statement of Legal Research Center,  Inc., relating to the
Annual  Meeting  of  Shareholders  to be held  in June  1998  (the  "1998  Proxy
Statement") (incorporated by reference into Part III of this Form 10-KSB).

                            [Cover page 2 of 2 pages]


<PAGE>


PART I

                         Item 1. DESCRIPTION OF BUSINESS

General

     Legal   Research   Center,   Inc.   (the   "Company"  or  "LRC")  became  a
publicly-owned company in August 1995. The Company provides outsourced legal and
factual research, writing and support services to U.S. and Canadian attorneys in
corporate  and private  practice.  LRC  utilizes a carefully  selected  group of
attorneys to provide  value-added  services to its  customers by (i)  conducting
computerized and manual legal and factual information  research and analysis and
(ii) preparing written memoranda, formal court-ready legal briefs and surveys of
the law. As an adjunct to its core services,  the Company also provides contract
attorneys to law firms and corporate law departments on a temporary or permanent
basis,  library  management  services  and  non-legal  research  services to the
general public.

Business Highlights

     Revenues fell from 1996 to 1997.  Revenues  other than from a major project
from Bankers  Systems,  Inc. which was delivered  December 31, 1996 - increased.
The Company's core revenues of memorandum/brief research and writing were up 56%
from 1996 to 1997. 1997 core research revenues increased to $864,585 compared to
1996 core research  revenues of $553,071.  Revenues from  attorneys  working for
Risk  Enterprise  Management  (REM) - which  manages  the  claims  of  insurance
companies such as Home Insurance - are expected to reach $250,000 in 1998. Those
revenues were $131,082 in 1997.

     The growth the Company  experienced  from 1995 to 1996 required it to build
significant infrastructure. This enlarged infrastructure was necessitated by the
major project with Bankers Systems,  Inc. in 1996. When that project  concluded,
the Company expected to replace that revenue  immediately through the efforts of
LRC's new sales force.

     Gross  margin  increased in 1997 - from 39 cents for every $1 of revenue in
1996 to 40 cents for every dollar of revenue. The Company took steps in the last
quarter  of 1997 to  increase  gross  margin  further  by  lowering  the cost of
producing  research  and  raising  prices.  From the Fall of 1996 to February of
1998, gross margins more than doubled - from 27% to 56%, and the Company expects
this trend to continue.

     The Company also cut  overhead - including  ceasing to fund The Law Office,
to which the Company had advanced  advanced  $1,321,300 as working capital as of
June 30, 1997, It also reduced  management  compensation  by 10%- 30% per person
and reduced  non-research  staff from 41 to 11. Most of these changes came about
in the  second  half of 1997 and  continued  into the first two  months of 1998.
Overhead in 1996 averaged  $225,000 per month. In 1997 it averaged  $140,000 per
month.

     These  efforts have had a positive  impact on the Company's use of cash. In
1996 it used $1.9  million of its cash,  in 1997 it used  $600,000.  Use of cash
fell  significantly  after  discontinuation  of operations of TLO and other cost
reductions. In February the Company used approximately $13,000 of its cash.

Industry Overview

     U.S.  Industrial  Outlook 1994 estimated that over $97 billion was spent in
1994 in the U.S. on legal  services and that such  expenditures  have  increased
significantly  over the past ten years. In advising clients



                                      -1-
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on the routine legal and practical  aspects of their business  transactions  and
dealings,  and in advocating positions in court on behalf of clients,  attorneys
in corporate and private practice rely on an analysis of applicable laws, rules,
regulations  and court  decisions.  As  federal,  state  and local  governmental
authorities  increasingly  add to the  myriad of laws and as the number of court
decisions  proliferate,  the accurate and timely analysis of the controlling law
places growing burdens on practicing private and corporate attorneys.  Even with
the  introduction  of  computerized  legal  databases  such as  West  Publishing
Company's  WESTLAW system and Mead Data Central,  Inc.'s  LEXIS/NEXIS  system, a
significant  portion of the average  attorney's  billable  time is  dedicated to
legal research.


     In a large private law firm, an associate  attorney,  who typically is less
experienced  than the  attorney  having the primary  business  contact  with the
firm's client,  is usually  assigned the task of conducting all necessary  legal
and  factual  research  and of  writing  an  internal  memorandum  to the senior
attorney  related to the  client's  project or lawsuit.  The  memorandum,  which
usually  describes  the  controlling  laws and court  decisions  relevant to the
issues  presented,  may be shared with the client in connection  with  strategic
decision making on a business issue or in the ongoing litigation. If the project
involves   litigation,   the  associate   attorney  may  also  be  assigned  the
responsibility  to prepare a legal brief for  presentation to the court. A legal
brief  advocates a client's legal,  factual and business  reasons for prevailing
over the opposing party on the issues  presented to the court for  adjudication.
Research and writing  services,  such as LRC, prepare legal memoranda and briefs
for review  and use by  attorneys  in law firms as an  alternative  to  internal
preparation by law firm associates.


     Corporations  with in-house  legal  counsel  usually rely on their staff to
advise management on core business and legal issues.  However,  in-house counsel
continue to rely on private law firm support for  expertise in areas  outside of
the counsel's knowledge and for the conduct of litigation.  As corporations seek
to  improve  operating  efficiencies  and  reduce  costs  in all  areas of their
businesses,  their in-house  legal counsel also seek to reduce  overall  outside
legal  expenses.  Increasingly,  corporate  clients  have  begun to treat  legal
services as a commodity and have been carefully reviewing the legal fees charged
by private law firms for analytical research and writing,  especially since much
of this work is performed out of the client's  view and therefore  cannot easily
be  assessed  as  to  its  actual  added  value.  These  trends  also  have  led
corporations  to  outsource  their  legal  and  factual   research  and  writing
activities  to  professional   research  and  writing  companies  such  as  LRC.
Management  believes that there will be continued  growth in the  outsourcing of
legal and factual research and writing  activities by corporations and that such
corporations  will  increasingly  use, or require their outside  counsel to use,
companies such as LRC for such purposes.


     Individual attorney practitioners and small law firms often do not have the
professional  support  for the  conduct  of legal and  factual  research  or for
writing projects.  In order to accomplish  necessary legal research and writing,
yet at the same  time  focus  their  efforts  on  direct  client  contact,  solo
practitioners  and small law firms  increasingly are outsourcing their legal and
factual research and writing activities to professional companies such as LRC.

Business Overview and Initiatives

     LRC's core activities  consist of providing  legal and factual  information
research  and  writing  services  to its  customers.  The  Company  may  receive
assignments from corporate in-house counsel or law firms requesting the analysis
of a single  legal or factual  issue or of complex,  interrelated  issues.  Upon
receipt of an assignment, the Company assigns the project directly to one of the
Company's  research attorneys who contacts the customer to obtain any additional
information  necessary to understand the scope of the project and the customer's
needs.  The researcher  accesses  available legal and other computer  databases,
such as WESTLAW,  LEXIS/NEXIS and DIALOG, to locate  controlling laws, rules and



                                      -2-
<PAGE>


regulations and court decisions relevant to the customer's  research request and
conducts  research  manually,  in order to obtain the  information  necessary to
complete the customer's project.

     In most cases,  the Company  provides its customers with a finished written
work product often in the form of (i) a memorandum  describing  the facts of the
customer's  project  and  setting  forth the legal and  factual  analysis of the
issues  presented,  (ii) a  court-ready  legal brief which  advocates the legal,
factual and business  reasons why the customer  should prevail over the opposing
party in the matter before the court for  adjudication  or (iii) a survey of the
applicable  laws,  rules and regulations in various  jurisdictions on the topics
selected by the customer.  In order to ensure the quality of the Company's  work
product,  the Company's managing research attorneys conduct a substantive and an
editorial review of legal memoranda,  briefs and  multi-jurisdictional  surveys,
and all documents are edited and checked for proper citations.

     LRC regularly seeks to create new products and value-added services for its
clients.   Towards   this  end,   the  Company   developed   a  product   called
Multi-Jurisdictional  Surveys.  The Company prepares written reports of the laws
in various states on selected topics for corporate  customers.  For example,  in
1996,  the Company  completed  a large,  52  jurisdiction  survey of law for the
banking and financial services industries. An attractive feature of this form of
product is that, once prepared,  it can be resold to other customers who can use
this  information.  The Company also adds value to the product by converting all
or portions of the document into  electronic  form which is easier to review and
cross  reference.  The Company  attempts  to  re-market  these  surveys to other
corporate  customers and shares proceeds from  remarketing  with the originating
customer,  thereby enabling them to recoup a substantial portion of the original
cost of the survey.

     The Company had been  funding  development  of The Law Office,  Inc.  (TLO)
since May 1995 and advanced  $1,321,300 as working  capital as of June 30, 1997,
when the Company ceased funding its operation.  TLO provided  content by the way
of web-sites on The Microsoft Network and the Internet.  The Company  determined
that TLO  required  substantial  additional  investment  to achieve its economic
potential, and the Company did not believe such an expenditure was a prudent use
of its limited capital and was unsuccessful in obtaining investment from outside
investors.  It  ceased  funding  TLO as of  June  30,  1997  and  wrote  off its
investment,  while it  continues  to seek a partner,  investor or buyer for TLO,
which is still an operating company.

     In 1997, the Company continued the development of its Corporate Alternative
Dispute  Resolution   Enterprises   (CADRE)  program.   An  alternative  dispute
resolution (ADR) system is a means to reduce the amount of courtroom  litigation
and includes  private  arbitration and mediation.  CADRE's mission is to provide
corporations  with the  highest  quality  state of the art  alternative  dispute
resolution  training and consulting  services,  enabling  corporate managers and
legal counsel to develop,  implement and institutionalize  policies for reducing
the risk and spiraling costs of litigation.  Management  believes that the trend
to save legal costs which have led to  outsourcing  of  analytical  research and
writing  activities by corporations  will also lead in-house  corporate  counsel
increasingly to seek ADR as a more  cost-effective and efficient  alternative to
litigation in resolving  corporate legal disputes.  The potential market for the
services of CADRE  includes  any  industry  presently  committed to reducing its
conflict costs.  Industries  experiencing  the most claims and highest  conflict
costs  clearly  will be most  interested  in CADRE's  services.  The Company has
substantially  completed  the  curriculum  and began  providing  ADR  consulting
services  in the third  quarter of 1997.  The Company  believes  that CADRE will
create greater exposure and awareness of the Company's core research and writing
services  and will  create  additional  impetus  for  growth in the  traditional
markets served by the Company.  The Company is currently seeking to market CADRE
through insurers to their customers with large product liability exposure.



                                      -3-
<PAGE>


     As an adjunct to other  services,  the Company  provides  full or part-time
contract attorneys and librarians for temporary or permanent  assignments to law
firms and corporate law departments.  In many cases, a customer indicates to the
Company  its  interest  in  engaging  the  specific  contract  attorney  who had
previously  been assigned to a project for such  customer.  While  revenues from
such  services are not  significant,  the Company  believes  that  offering such
value-added  placement services enhances the Company's  visibility and long-term
relationships  with its customers.  The Company also provides document retrieval
services for attorneys and the general public.

Sales and Marketing

     LRC's marketing strategy centers around providing  customized,  value-added
solutions in response to each customer's  analytical research and writing needs.
Because of the Company's  historical  limited marketing budget,  the Company had
relied primarily on its customers' own initiatives to provide repeat business to
LRC.  Since  its  initial  public  offering,  the  Company  has  been  targeting
opportunities  to  capture  an  increasing  share of its  customers'  analytical
research and writing  activities  by  increasing  its contacts with its existing
customers through direct mail, telemarketing and direct account services.

     During  1997 the  Company  relied  heavily on its  expanded  sales force to
maintain   revenues  from   multijurisdictional   surveys  at  1996  levels  and
simultaneously  lowered  spending  on direct  mail.  Results  were  slower  than
expected,  and the  Company  decided in the 2nd Half of 1997 to reduce its sales
force and refocus on significantly increasing its direct mail program.

     The Company  maintains  strategic  marketing  relationships  with major law
associations  and  other  providers  of  legal  services.   LRC  believes  these
relationships  enhance the Company's  visibility to practitioners and reputation
for  quality  and  enable  its  marketing  partners  to offer  their  members  a
value-added service. In 1989, the Association of Trail Lawyers of America (ATLA)
selected LRC as the  exclusive  designated  outsourced  provider of research and
writing  services to its 60,000  members.  Since  1990,  LRC has also served the
members of the  American  Corporate  Counsel  Association  (ACCA),  the  largest
organization  serving the nation's corporate  counsel.  In 1997, the Company was
awarded  ACCA's  President's  Award,  an honor  provided only a handful of other
legal  vendors  working  with ACCA.  The Company paid  approximately  $19,000 in
royalties for research and writing referrals in 1997.

     In 1994, the Company entered into an agreement with West Publishing Company
pursuant to which West, the leading legal  publisher in the U.S. and operator of
the WESTLAW computer legal database, exclusively refers to the Company for a fee
all requests for analytical legal and factual research and writing.  The term of
the West  Agreement  was  through  June 1997,  and the  agreement  automatically
renewed at that time for a one year period.

Customer Relationships

     The  Company  generally  operates  under   project-by-project   contractual
agreements. The pricing component of a contract generally includes a fixed price
or an hourly rate for  analytical  research  and writing  services  and separate
charges for computer database and other ancillary charges. The Company generally
charges higher hourly rates for quick turn-around  service and offers discounted
rates to  certain  customers  willing  to  commit  to a  specified  usage of the
Company's services. The Company often prices multi-jurisdictional surveys of the
law on a flat fee basis.

     In 1996, pursuant to a three-year  contract,  the Company completed a large
multi-jurisdictional  survey  for  a  customer,  Bankers  Systems,  Inc.,  which
accounted for 52% of the Company's  revenues.  The Company  continues to receive
revenue  under its  agreement  with this  customer  to update the  survey.  That



                                      -4-
<PAGE>


revenue  accounted for 14% of the Company's  revenues in 1997. It is not certain
that revenue from this customer will  continue  beyond 1998,  which is the final
year of the agreement between the Company and the customer.


Executive Officers of the Company

     The  following  sets forth  biographical  information  for  Christopher  R.
Ljungkull  and  James  R.  Seidl,   the  executive   officers  of  the  Company.
Biographical  information  for  directors  of the  Company  can be  found in the
Company's 1998 Proxy Statement, incorporated herein by reference.

     Christopher  R. Ljungkull has been Chief  Executive  Officer of the Company
since  rejoining  it on a full  time  basis in  1994.  From  1987 to  1994,  Mr.
Ljungkull served in various  capacities with West Publishing  Corporation,  most
recently as an editor.  Mr.  Ljungkull  is an  attorney  and  co-founder  of the
Company and has been a director since its inception.

     James R. Seidl has been the  President of the Company since 1988 and served
as its Chief  Executive  Officer prior to Mr.  Ljungkull's  return in 1994.  Mr.
Seidl is an attorney  and  co-founder  of the Company and has been a director of
the Company since its inception.

Personnel

     As of March 12, 1998,  the Company had 16 employees,  including 4 full-time
research  attorneys,  and a pool of 25 contract  attorneys.  This  represents  a
reduction in staff of approximately 66%, attributable to lower revenue levels as
well as  efficiencies in production of research and overhead  expenses.  Most of
the  Company's  contract  attorneys  work  part-time.  No Company  employees are
currently  represented  by labor  unions  and the  Company is not a party to any
collective bargaining agreement.  The Company has never been subject to any form
of work stoppage or strike and has not experienced any labor  difficulties.  The
current  full-time  staffing  level is  considered  to be adequate.  The Company
expects that it will  continue to need more  contract  attorneys as its business
grows and expects that it will be able to secure such attorneys as needed.

Competition

     The business of providing legal research services is highly competitive and
extremely fragmented. The Company competes in the corporate market with in-house
counsel and outside law firms and individual legal  practitioners,  who are also
customers of the Company.  For its major corporate clients, the Company competes
with larger law firms which have the financial ability to negotiate flexible fee
arrangements  for their major  clients.  The Company  also  competes  with other
companies, such as the National Legal Research Group and Legal Research Network,
which also provide legal research services on an outsourced basis, both of which
may have significantly greater resources than the Company and therefore may also
have the ability to compete more effectively.

Government Regulation

     The Company  engages  attorneys as employees or independent  contractors to
provide  analytical  research  and  writing  services  for the  Company  and its
customers.  The practice of law is regulated by each state. The Company believes
that it is not engaged in the  practice  of law  because it provides  customized
research  and  writing  services  for other  lawyers to use in  connection  with
representation of their clients.  In addition,  the Standing Committee on Ethics
and  Professional  Responsibility  of the American Bar



                                      -5-
<PAGE>


Association  has taken the position  that  performing  legal  research  does not
constitute the practice of law.  Although the Company  believes that it does not
engage in the practice of law,  there can be no assurance  that a state will not
take the position that the Company is improperly  engaged in the practice of law
or that all of the persons providing legal research services must be licensed in
the state where the Company's customers are located.

Insurance

     The Company  carries  property  damage,  workers'  compensation,  and D & O
insurance  coverage in amounts  management  considers  sufficient to protect the
Company. Management does not believe that the Company is engaged in the practice
of law and accordingly does not maintain any professional malpractice insurance.


Item 2. DESCRIPTION OF PROPERTY

     The Company's corporate headquarters and administrative offices are located
in Minneapolis,  Minnesota in an office  building and consists of  approximately
6,057 square feet leased  office space.  The Company  leases the facility from a
related party under an operating lease expiring  January 2001,  requiring annual
rent of approximately $73,000 and a portion of the increase in tax and operating
costs over their 1993 levels.  The lease is on the same terms and  conditions as
the lease between the related party and the related  party's  landlord.  Because
most of the Company's research  attorneys  generally office in their homes or in
public library  facilities,  the Company  believes that the leased  premises are
suitable and adequate for its current  operations and its foreseeable  needs. In
the event that additional space is required, the Company has the right, prior to
October 1, 1998, to expand the leased premises to include any available space in
the office building. The Company does not anticipate any difficulty in obtaining
additional premises if necessary.


Item 3. LEGAL PROCEEDINGS

     The Company is not currently a party to any  litigation  which would likely
have a materially  adverse  effect on the  Company's  results of  operations  or
financial condition, if decided adversely to the Company.


Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

     No matters were  submitted  during the fourth quarter of the Company's 1997
fiscal year to a vote of security  holders,  through the solicitation of proxies
or otherwise.


PART II


Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Price Range of Common Stock

     The  Company's  Common  Stock was  traded  on the  Nasdaq  SmallCap  Market
(Nasdaq)  starting  August 3, 1995, and has been traded on the  Over-the-Counter
Bulletin  Board  since  October  30,  1997.  As



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<PAGE>


of March 13,  1998,  there were  approximately  56  recordholders  of its Common
Stock.  The Company  estimates  that there are  approximately  1,200  beneficial
holders of its Common Stock.

     The following  table sets forth the  quarterly  high and low bid prices for
the periods  indicated,  through  December 31, 1997, as reported by Nasdaq.  The
prices listed are inter-dealer  quotations without retail mark-up,  mark-down or
commission  and  may  not  reflect  actual  transactions.  The  Company  has not
independently verified the prices listed.

       Period                                    Low Bid              High Bid
       ------                                    -------              --------
  01/01/96 - 03/31/96                             $2-1/4               $4-3/8

  04/01/96 - 06/30/96                             $1-7/8               $3-3/8

  07/01/96 - 09/30/96                             $1-3/4               $2-7/8

  10/01/96 - 12/31/96                             $1-1/4               $2-7/8

  01/01/97 - 03/31/97                             $1                   $1-7/8

  04/01/97 - 06/30/97                             $5/8                 $1-1/2

  07/01/97 - 09/30/97                             $5/8                 $1

  10/01/97 - 12/31/97                             $1/8                 $1/2

     Under Nasdaq rules, the Company's Common Stock was delisted from the Nasdaq
system  because the  Company's  total assets fell below  $2,000,000  and the bid
price of the Common Stock fell below $1.00.


Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

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

General

     The  following  discussion  and  analysis  provides  information  that  the
Company's  management believes is relevant to an assessment and understanding of
the Company's  results of operations and financial  condition.  This  discussion
should be read in conjunction with the financial statements and foot notes which
appear elsewhere in this Report.

     In connection with the "safe harbor"  provisions of the Private  Securities
Litigation  Reform Act of 1995,  the Company  cautions  readers that  statements
contained herein, other than historical data, may be forward-looking and subject
to risks and  uncertainties  including,  but not limited to the  continuation of
revenues   through  the  Company's   strategic   alliances  and  the  successful
development of other new business.  The following  important factors could cause
the  Company's  actual  results to differ  materially  from those  projected  in
forward-looking statements made by or on behalf of , the Company:



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<PAGE>


     o    Failure of the  Company or its  partners  to  successfully  expand its
          market share and sell products and services.

     o    Company's  inability  to produce and deliver its products and services
          at margins sufficient to cover operating costs.

     o    Company's  inability to continue operating due to insufficient cash or
          capital and continued losses.

     o    Company's dependence on a major customer or customers.

     o    Effectiveness of restructuring  and cost cutting measures  implemented
          in 1997 by the Company to increase its gross margin and decrease sales
          and general and administrative expenses.

     The  Company's  revenues  have  historically  been derived from  conducting
analytical  research  and writing on a  non-recurring  basis for its  customers.
Historically,  the Company has  experienced a seasonal  fluctuation  in revenues
with the  first  quarter  being  the  slowest  quarter  of the year and the last
quarter being the strongest.

     The Company issued shares in its initial  public  offering (IPO) in August,
1995, and received  $4,462,880 in net proceeds from this  offering.  The Company
used a portion of the proceeds to hire additional  sales,  research,  management
and  support  personnel  to  substantially  increase  its  sales  and  marketing
activities and to support a larger operation.  In addition to increased spending
in the sales and  marketing  area,  the  Company  advanced  CLO and TLO  working
capital.  As a  result  of  decreased  revenue  in  1997,  as  well  as  lack of
performance  by TLO and CLO, the Company  ceased funding of TLO and CLO and made
substantial cuts in sales, administrative and general expenses.

     The Company has expended an aggregate of  $3,721,557  due to losses in 1996
and 1997, but believes that steps taken in 1997,  including the  discontinuation
of The  Law  Office  and the  write-down  thereof,  will  enable  it to  achieve
profitability  with capital  resources it believes  will be  sufficient  both to
insure stability and fund growth.

Results of Operations

Year ended December 31, 1997 compared to the year ended December 31, 1996

     Revenues declined by $956,738, or 35%, to $1,779,033,  for 1997 compared to
1996 revenues of $2,735,771.  The decrease in revenues is primarily attributable
to the 1996  production of a large  multi-jurisdictional  survey that  comprised
$1,323,445,  or 48% of 1996  revenue.  Ongoing  revenue  from  that  survey  was
approximately  $155,000  in 1997.  Multi-jurisdictional  surveys  are  typically
non-recurring  projects. In some instances on-going revenue will be derived from
updating completed survey projects quarterly or annually.  The Company refocused
its efforts in 1997 on core  research and writing  business and revenues in that
area  increased  by 56%.  1997 core  research  revenues  increased  to  $864,585
compared to 1996 core research revenues of $553,071.

     Direct  operating costs for  compensation and other benefits include hourly
contract fees for  independent  research  attorneys and hourly  compensation  of
staff  research  attorneys,  document  production and support  personnel.  Other
direct operating costs include outside research fees and services,  royalty fees
for association  referrals,  computer  database  charges and document  retrieval
expenses.

     Total direct  operating  costs  decreased  $604,060,  or 36%, to $1,069,333
compared to 1996 direct  operating  costs of $1,673,393.  The decrease in direct
operating  costs is primarily  due to lower  personnel  costs in 1997,  when the
company eliminated the hiring of independent  attorneys and fees paid to outside



                                      -8-
<PAGE>


firms to  complete  the large  multi-jurisdictional  research  project  in 1996.
Throughout  1997,   measures  have  been  implemented  to  reduce  research  and
production costs.

     Gross profit decreased $352,678, or 33%, to $709,700 compared to 1996 gross
profit of  $1,062,378  due to the reasons  discussed  above.  As a percentage of
revenue,  gross  profit  increased to 40% in 1997  compared to 39% in 1996.  The
increase was  principally  due to increased  efficiency in the  production of in
core research and writing.

     Other  operating costs include  compensation  of officers,  sales and other
corporate  staff,  advertising  and direct  marketing  expenditures  and general
corporate  overhead,  including  depreciation  and  amortization.   These  costs
decreased  $480,741,  or 22%, to $1,678,177  over 1996 costs of $2,158,918.  The
decrease  in these  costs by  category  was  $216,236,  or 22%,  for  sales  and
marketing;  $264,505,  or 23%, in general and  administrative.  The  decrease in
sales and  marketing  costs was due to the  reduction  of the sales and  support
staff  and  decreased  marketing  and  advertising  expenditures.   General  and
administrative  expenditures  decreased  due to the reduction of the support and
management  staff,  decreases  in  management   compensation  and  decreases  in
operating expenses (travel, accounting and legal support and supplies).

     The Company reports a loss from discontinued operations of its subsidiaries
of  $407,517  in  1997,  compared  to a loss of  $563,913  in  1996.  Due to the
continuing negative cash flow, funding for the Company's  subsidiaries ceased at
the  end of  second  quarter.  The  Company  recorded  a  $717,008  loss  on the
discontinuation  of  operations of The Law Office,  which  consists of a noncash
charge for intangible assets totaling  $623,200,  a noncash valuation charge for
computers  and  equipment of $20,000,  and a provision  for  operating  expenses
during the phase-out period of approximately $73,800.

     Interest income decreased $98,613, or 78%, to $27,998 in 1997 over interest
income of  $126,611  in 1996.  The  decrease  in  interest  income  was due to a
declining  balance on invested  cash  proceeds  received in the IPO completed in
August of 1995.

Year ended December 31, 1996 compared to the year ended December 31, 1995

     Revenues increased by $1,355,649, or 97%, to $2,760,038, for 1996 over 1995
revenues of $1,404,389. The increase in revenues in primarily attributable to an
increase in large  multi-jurisdictional  research  projects that the Company had
been able to secure through sales and marketing activities.

     Total direct  operating  costs increased  $975,070,  or 132%, to $1,715,257
over 1995 direct  operating costs of $740,187.  The increase in direct operating
costs  were  primarily  due to higher  personnel  costs,  hiring of  independent
attorneys and fees paid to outside firms to complete large  multi-jurisdictional
research  projects.  The percentage  increase in these costs was higher than the
increase  in  revenues  for 1996,  due to  additional  research  and  production
expenses to  complete  and  deliver a large,  fixed  price  multi-jurisdictional
survey  by  December  31,  1996.  The  production  effort  required   additional
expenditures for personnel and independent  contractors from what was originally
contemplated.

     Gross profit  increased  $380,579,  or 57%, to  $1,044,781  over 1995 gross
profit of $664,202. As a percentage of revenue,  gross profit declined to 38% in
1996 compared to 47% in 1995. The decline was principally due to the increase in
direct  operating  costs  to  complete  large  multi-jurisdictional  surveys  as
discussed above.

     Other  operating costs  increased  $1,613,465,  or 148%, to $2,705,009 over
1995 costs of $1,091,544.  The increase in these costs by category was $585,082,
or  144%,   for  sales  and  marketing;   $482,292,   or  70%,  in  general  and
administrative;  and $546,091 in development costs of TLO. The



                                      -9-
<PAGE>


increase in sales and marketing costs was due to higher compensation and benefit
costs, the hiring of additional sales and support staff and increased  marketing
and advertising expenditures.  General and administrative expenditures increased
due to higher  compensation and benefit costs, the hiring of additional  finance
and support  personnel and  increases in operating  expenses  (rent,  utilities,
supplies) for a larger organization.

     The Company recognized $546,091 of expenses associated with the development
of TLO from May through December 1996. Development costs were incurred to hire a
sales and support staff and begin  marketing its services.  From January 1, 1996
through the date of acquisition May 13, 1996, the Company  recorded 25% of TLO's
losses,  or  $64,476  under the  equity  method  of  accounting.  TLO  commenced
operations  in May 1995 and  reported  year-to-date  losses of $197,622  through
December 31, 1995,  of which  $29,500 had been recorded by the Company under the
equity method of accounting.

     Interest  income  increased  $42,222,  or 50%,  to  $127,018  in 1996  over
interest income of $84,796 in 1995. The increase in interest income was due to a
full year's  earnings on invested cash proceeds  received in the public offering
that was completed in August of 1995. Interest expense decreased $20,075 to $632
due to the retirement of substantially  all interest bearing  obligations  after
the IPO in 1995.

     The  Company  recorded  a charge  of  $122,711  as its  share of  losses in
unconsolidated  investments in TLO and American Research  Corporation (ARC). For
further discussion on ARC see Note 4 to Consolidated Financial Statements.

Liquidity and Capital Resources

     The  Company  continued  to use the  proceeds  from  its  IPO to fund  1997
operating  costs,  to  position  itself for future  growth in 1997,  to fund the
development of CADRE,  and to provide  working capital to CLO and TLO until June
30, 1997.  In addition,  the Company  continues to look for other  marketing and
development  opportunities and alliances.  At December 31, 1997, the Company had
cash and cash equivalents of $165,924 and working capital of $391,990.

     In 1997,  the Company  instituted  specific  cost control  measures such as
hiring and wage freezes and reductions,  to reduce  expenditures in all areas of
its operation. The Company expected that by the end of 1997, expenditures in the
core research  business would be funded almost  exclusively  by funds  generated
from operations. The Company now expects that goal to be reached in the 1st Half
of 1998, but nevertheless is seeking additional capital.

     Net cash used in operating  activities decreased from $1,925,548 in 1996 to
$600,745 in 1997.  The Company  had a net loss of  $2,065,004  compared to a net
loss of $1,656,553  in 1996 for the reasons  discussed  above.  Non cash charges
increased  $502,181 in 1997 over 1996 due  primarily  to the loss in disposal of
The Law  Office.  The use of cash  stemming  from the  changes in other  current
assets and  liabilities  in 1996, net of the effects of the purchase of TLO, was
$710,712 In 1997 changes in other current assets and liabilities was a source of
cash in an  aggregate  of  $520,361.  This was  primarily  due to a decrease  in
accounts  receivable,  unbilled  services and related party accounts of $782,931
offset by a  decrease  in  accounts  payable  and  accrued  expenses  and client
advances of $262,570.

     The  Company  used  $180,700  in  investment  activities  in  1997  through
expenditures  for  development  costs and purchases of furniture and fixtures of
$224,400 and $6,300, respectively.  This was offset by the receipt of $50,000 on
a note  receivable.  Funds used in  financing  activites in 1997 were limited to
payments on noncompete agreements totaling $8,300.



                                      -10-
<PAGE>


     The Company does not anticipate the payment of cash dividends on its Common
Stock  in the  foreseeable  future.  It is  anticipated  that  profits,  if any,
received from operations will be devoted to the Company's future operations. Any
decision to pay dividends  will depend upon the Company's  profitability  at the
time, cash availability and other factors.

New Accounting Pronouncement

     In June 1997, the Financing Accounting Standards Board issued SFAS No. 130,
Reporting  Comprehensive  Income,  which  establishes  financial  accounting and
reporting  standards  for  comprehensive  income  and its  components  (revenue,
expenses,  gains,  and  losses).  SFAS No. 130 is  effective  for  fiscal  years
beginning  after December 15, 1997 and is not expected to have a material impact
on the reported operating results of the Company.

Business Outlook

     The Company  began a  restructurng  of  operations  starting  July 1, 1997,
initiated by the  discontinuation  of operations of The Law Office (TLO) on June
30, 1997.  Until that time, the Company was burdened with 1) continued  expenses
for the funding of TLO, with  inadequate  revenue from TLO, 2) low gross margins
in the core research  business and 3) increased  overhead from an infrastructure
developed to support revenues of $3 - 5 million.

     Starting  July 1, 1997,  the  Company  sought to improve  gross  margins by
restructuring  research  procedures and compensation,  raising and restructuring
pricing,  and utilizing the technology  developed with its new infrastructure to
reduce and eventually eliminate its production  department.  It reduced overhead
by  reducing  management   compensation  by  10%  -  30%,   restructuring  sales
compensation,   reducing   non-research   staff  by  attrition  and  layoffs  by
two-thirds, and reducing or eliminating all other fixed expenses. Simultaneously
the Company returned its marketing/sales focus to strong direct marketing of its
traditionally-strong products and services.

     Finally,  the  Company is seeking to  eliminate  the cost of  carrying  and
collecting receivables and is seeking capital in the form of convertible debt.

     As  a  result  of  these   efforts,   the   Company's   core   revenues  of
memorandum/brief  research and writing  were up 56% from 1996 to 1997.  From the
Fall of 1996 to February of 1998,  gross  margin more than doubled - from 27% to
56%, and the Company  expects this trend to continue.  Overhead in 1996 averaged
$225,000 per month. In 1997 it averaged $140,000 per month and continues to fall
in the 1st Quarter of 1998.

     In 1996 the Company used $1.9 million of its cash in operations, in 1997 it
used  $600,000.   Use  of  cash  fell  significantly  after  discontinuation  of
operations  of TLO and other cost  reductions.  In  February of 1998 the Company
used  approximately  $13,000 of its cash. At December 31, 1997,  the Company had
cash and cash  equivalents  of $165,924  and  working  capital of  $391,990.  It
expects to raise between $250,000 and $500,000 in additional  capital in the 1st
Half of 1998.


Item 7. FINANCIAL STATEMENTS

     The information  required by this item is incorporated  herein by reference
to pages F-1 through F-16, which follow this page.



                                      -11-
<PAGE>


Item 8.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

     Effective as of December 17, 1997, the Company's principal accounting firm,
McGladrey & Pullen, LLP resigned.  McGladrey & Pullen's reports on the financial
statements  of the  Company  for each of the past two years did not  contain  an
adverse opinion or disclaimer of opinion, nor were they qualified or modified as
to  uncertainty,  audit  scope or  accounting  principles.  There  have  been no
disagreements between the Company (including the audit committee of the Board of
Directors)  and  McGladrey & Pullen on any matter of  accounting  principles  or
practices,  financial  statement  disclosure  or  auditing  scope or  procedure.
Effective as of February 13, 1998,  the Company hired Lurie  Besikof,  Lapidus &
Co., LLP, which firm audited the Company's 1997 financial statements.



                                      -12-
<PAGE>


                                    CONTENTS

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

INDEPENDENT AUDITOR'S REPORT                                                 F-1

INDEPENDENT AUDITORS' REPORT                                                 F-2

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

FINANCIAL STATEMENTS

  Consolidated Balance Sheets                                                F-3

  Consolidated Statements of Operations                                      F-4

  Consolidated Statements of Stockholders' Equity                            F-5

  Consolidated Statements of Cash Flows                                F-6 - F-7

  Notes to Consolidated Financial Statements                          F-8 - F-16

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



                                      -13-
<PAGE>



                          INDEPENDENT AUDITOR'S REPORT




The Board of Directors and Stockholders
Legal Research Center, Inc.
Minnetonka, Minnesota


We have audited the  accompanying  consolidated  balance sheet of LEGAL RESEARCH
CENTER, INC. as of December 31, 1997, and the related consolidated statements of
operations,  stockholders' equity, and cash flows for the year then ended. These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance  about  whether  the  consolidated  financial  statements  are free of
material  misstatement.  An audit includes examining,  on a test basis, evidence
supporting the amounts and disclosures in the consolidated 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 audit provides a reasonable  basis
for our opinion.

In our opinion,  the 1997 consolidated  financial  statements  referred to above
present  fairly,  in all  material  respects,  the  financial  position of LEGAL
RESEARCH  CENTER,  INC.  as of  December  31,  1997,  and the  results  of their
operations  and their  cash  flows for the year then  ended in  conformity  with
generally accepted accounting principles.

As discussed  in Note 2, during 1997,  the Company  discontinued  operating  two
subsidiaries, The Law Office, Inc. and The CyberLaw Office, Inc., resulting in a
$717,008 loss on disposal.

The accompanying  consolidated  financial statements have been prepared assuming
the  Company  will  continue as a going  concern.  As  discussed  in Note 3, the
Company  incurred  significant  losses in 1997 and 1996 which raise  substantial
doubt  about  the  Company's  ability  to  continue  as  a  going  concern.  The
consolidated  financial  statements  do not include any  adjustments  that might
result from the outcome of this uncertainty.



                                           LURIE, BESIKOF, LAPIDUS & CO., LLP
Minneapolis, Minnesota
March 10, 1998

                                       F-1


<PAGE>


                          INDEPENDENT AUDITOR'S REPORT




The Board of Directors and Stockholders
Legal Research Center, Inc.
Minnetonka, Minnesota

We have audited the  accompanying  consolidated  balance sheet of Legal Research
Center,  Inc.  and  subsidiaries,  as of  December  31,  1996  and  the  related
consolidated  statements of operations,  stockholders' equity and cash flows for
the year then ended.  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 audit.

We conducted our audit 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 our audit provides 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 the Legal Research
Center,  Inc. and subsidiaries as of December 31, 1996, and the results of their
operations  and their  cash  flows for the year then  ended in  conformity  with
generally accepted accounting principles.

                                               McGLADREY & PULLEN, LLP

Minneapolis, Minnesota
February 14, 1997




                                       F-2

<PAGE>




                           LEGAL RESEARCH CENTER, INC.

                           CONSOLIDATED BALANCE SHEETS
                           December 31, 1997 and 1996


                      ASSETS                             1997           1996
                                                     -----------    -----------
CURRENT ASSETS
    Cash and cash equivalents                        $   165,924    $   955,600
    Accounts receivable                                  277,144      1,273,450
    Note receivable                                       60,000             --
    Other                                                 43,399         39,044
                                                     -----------    -----------
       TOTAL CURRENT ASSETS                              546,467      2,268,094
                                                     -----------    -----------

FURNITURE AND EQUIPMENT                                  362,247        367,381
    Less accumulated depreciation                        245,632        129,886
                                                     -----------    -----------
                                                         116,615        237,495
                                                     -----------    -----------

OTHER ASSETS
    Notes receivable, net of $113,500
       allowance for doubtful accounts                    60,959             --
    Intangible assets                                    313,624        928,526
    Investment in American Research Corporation               --         41,764
                                                     -----------    -----------
                                                         374,583        970,290
                                                     -----------    -----------
                                                     $ 1,037,665    $ 3,475,879
                                                     ===========    ===========


         LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
    Accounts payable                                 $    57,411    $   182,032
    Accrued expenses:
       Compensation                                       48,899        108,438
       Other                                              21,394        137,291
    Noncompete agreement                                      --         16,508
    Client advances                                       26,773         35,957
                                                     -----------    -----------
       TOTAL CURRENT LIABILITIES                         154,477        480,226
                                                     -----------    -----------

NONCOMPETE AGREEMENT                                          --         47,461
                                                     -----------    -----------

COMMON STOCK SUBJECT TO REPURCHASE OBLIGATION                 --        105,000
                                                     -----------    -----------

STOCKHOLDERS' EQUITY
    Common stock, $0.01 par value
       (authorized - 20,000,000 shares;
       issued - 3,327,633 and 3,297,633
       shares, respectively)                              33,276         32,976
    Additional paid-in capital                         6,870,007      6,765,307
    Accumulated deficit                               (4,053,845)    (1,988,841)
    Notes receivable from officers and directors      (1,966,250)    (1,966,250)
                                                     -----------    -----------
                                                         883,188      2,843,192
                                                     -----------    -----------
                                                     $ 1,037,665    $ 3,475,879
                                                     ===========    ===========


See notes to consolidated financial statements.

                                       F-3


<PAGE>




                           LEGAL RESEARCH CENTER, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     Years Ended December 31, 1997 and 1996



                                                         1997          1996
                                                     -----------    -----------

REVENUES                                             $ 1,779,033    $ 2,735,771
                                                     -----------    -----------

DIRECT OPERATING COSTS
    Compensation and benefits                            767,712      1,303,367
    Other                                                301,621        370,026
                                                     -----------    -----------
                                                       1,069,333      1,673,393
                                                     -----------    -----------

GROSS PROFIT                                             709,700      1,062,378
                                                     -----------    -----------

OTHER OPERATING COSTS
    Sales and marketing                                  774,490        990,726
    General and administrative                           903,687      1,168,192
                                                     -----------    -----------
                                                       1,678,177      2,158,918
                                                     -----------    -----------

LOSS FROM OPERATIONS                                    (968,477)    (1,096,540)
                                                     -----------    -----------

OTHER INCOME (EXPENSE)
    Interest income                                       27,998        126,611
    Losses related to unconsolidated investments              --       (122,711)
                                                     -----------    -----------
                                                          27,998          3,900
                                                     -----------    -----------

LOSS FROM CONTINUING OPERATIONS                         (940,479)    (1,092,640)
                                                     -----------    -----------

DISCONTINUED OPERATIONS (Note 4)
    Loss from operations                                (407,517)      (563,913)
    Loss on the disposal of subsidiaries                (717,008)            --
                                                     -----------    -----------
                                                      (1,124,525)      (563,913)
                                                     -----------    -----------

NET LOSS                                             ($2,065,004)   ($1,656,553)
                                                     ===========    ===========

NET LOSS PER COMMON SHARE
    Continuing operations                            ($     0.41)   ($     0.49)
    Discontinued operations                                (0.50)         (0.26)
                                                     -----------    -----------
                                                     ($     0.91)   ($     0.75)
                                                     ===========    ===========

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING             2,272,633      2,213,040



See notes to consolidated financial statements.


                                       F-4


<PAGE>


                           LEGAL RESEARCH CENTER, INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                     Years Ended December 31, 1997 and 1996


<TABLE>
<CAPTION>
                                                       Common Stock          Additional
                                                -------------------------     Paid-in     Accumulated       Notes
                                                   Shares        Amount       Capital       Deficit       Receivable       Total
                                                -----------   -----------   -----------   -----------    -----------    -----------
<S>                                               <C>         <C>           <C>           <C>            <C>            <C>
BALANCE, DECEMBER 31, 1995                        2,135,833   $    21,358   $ 4,551,634   ($  332,288)   $        --    $ 4,240,704

   Issuance of stock to purchase
      The Law Office, Inc.                          121,800         1,218       242,382            --             --        243,600

   Issuance of stock options to
      purchase The Law Office, Inc.                      --            --        15,441            --             --         15,441

   Issuance of shares subject to
      stock subscription agreement                1,040,000        10,400     1,955,856            --     (1,966,256)            --

   Net loss                                              --            --            --    (1,656,553)            --     (1,656,553)
                                                -----------   -----------   -----------   -----------    -----------    -----------

BALANCE, DECEMBER 31, 1996                        3,297 633        32,976     6,765,313    (1,988,841)    (1,966,256)     2,843,192

   Expiration of repurchase option
      on common stock                                30,000           300       104,700            --             --        105,000

   Net loss                                              --            --            --    (2,065,004)            --     (2,065,004)
                                                -----------   -----------   -----------   -----------    -----------    -----------
BALANCE, DECEMBER 31, 1997                        3,327,633   $    33,276   $ 6,870,013   ($4,053,845)   ($1,966,256)   $   883,188
                                                ===========   ===========   ===========   ===========    ===========    ===========
</TABLE>





See notes to consolidated financial statements.


                                       F-5

<PAGE>


                           LEGAL RESEARCH CENTER, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     Years Ended December 31, 1997 and 1996


<TABLE>
<CAPTION>
                                                                                                   1997                    1996
                                                                                                -----------             -----------
<S>                                                                                             <C>                     <C>
OPERATING ACTIVITIES
    Net loss                                                                                    ($2,065,004)            ($1,656,553)
    Adjustments to reconcile net loss to net cash
     used by operating activities:
       Loss on disposal of subsidiaries                                                             717,008                      --
       Depreciation                                                                                  83,279                  81,642
       Amortization of intangible assets and capitalized
          development costs                                                                         110,457                 158,705
       Provision for uncollectible accounts receivable                                               33,154                  78,659
       Equity in losses of unconsolidated investments                                                    --                 122,711
       Change in assets and liabilities, net of effects of
        the purchase of The Law Office, Inc. in 1996:
          Trade accounts receivable and unbilled services                                           613,220                (682,450)
          Related party accounts and other current assets                                           169,711                (119,753)
          Accounts payable                                                                         (124,621)                (48,020)
          Accrued expenses                                                                         (128,765)                156,023
          Client advances                                                                            (9,184)                (16,512)
                                                                                                -----------             -----------
             Net cash used by operating activities                                                 (600,745)             (1,925,548)
                                                                                                -----------             -----------

INVESTING ACTIVITIES
    Purchases of furniture and equipment                                                             (6,278)               (123,285)
    Capitalized development costs                                                                  (224,398)                (92,977)
    Cash received on notes receivable                                                                50,000                      --
    Advances to The Law Office, Inc.
      through date of acquisition                                                                        --                (266,453)
    Cash paid for The Law Office, Inc.
      including acquisition costs                                                                        --                 (97,961)
                                                                                                -----------             -----------
             Net cash used by investing activities                                                 (180,676)               (580,676)
                                                                                                -----------             -----------

FINANCING ACTIVITIES
    Payments on noncompete agreements                                                                (8,255)                (13,928)
    Payments on redemption of common stock                                                               --                 (35,000)
                                                                                                -----------             -----------
             Net cash used by financing activities                                                   (8,255)                (48,928)
                                                                                                -----------             -----------

DECREASE IN CASH AND CASH EQUIVALENTS                                                              (789,676)             (2,555,152)

CASH AND CASH EQUIVALENTS
    Beginning of year                                                                               955,600               3,510,752
                                                                                                -----------             -----------
    End of year                                                                                 $   165,924             $   955,600
                                                                                                ===========             ===========
</TABLE>


(continued)


See notes to consolidated financial statements.


                                       F-6

<PAGE>


                           LEGAL RESEARCH CENTER, INC.

                CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
                     Years Ended December 31, 1997 and 1996



<TABLE>
<CAPTION>
                                                                                               1997                  1996
                                                                                            -----------           -----------
<S>                                                                                       <C>                     <C>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
    Acquisition of The Law Office, Inc.
       Tangible assets acquired                                                            $        --         $     79,997
       Excess of costs over net assets acquired                                                     --              980,254
       Liabilities assumed                                                                          --             (625,352)
       Stock options issued                                                                         --              (15,441)
       Noncompete agreement                                                                         --              (77,897)
       Common stock issued                                                                          --             (243,600)
                                                                                           ------------        ------------
          Cash purchase price, including acquisition costs                                 $        --          $    97,961
                                                                                           ============        ============

    Conversion of accounts receivable from American Research
     Corporation to a note receivable, net of allowance of $8,414 and
     reclassification of allowance for doubtful accounts of $46,721                        $   129,145          $        --
    Sale of investment in American Research Corporatio
       for a note receivable, net of allowance of $58,336                                       41,764                   --
    Notes received for issuance of common stock                                                     --            1,966,250
    Conversion of note payable into common stock
       subject to repurchase obligation                                                             --              140,000
</TABLE>




See notes to consolidated financial statements.


                                       F-7

<PAGE>



                           LEGAL RESEARCH CENTER, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Description of the Business and Summary of Significant Accounting Policies-

     The Business

     Legal  Research  Center,  Inc.  (the  Company)  provides  legal and factual
     research and writing  services to U.S. and Canadian  attorneys in corporate
     and private  practice.  The Company  grants  credit to  customers  on terms
     established for each customer.  Additionally, the Company is developing the
     Corporate  Alternative  Dispute Resolution  Enterprises  (CADRE) program, a
     training course focusing on the concepts and skills  necessary to implement
     and utilize an alternative  dispute  resolution  system on a corporate wide
     basis.

     During 1997, the Company  discontinued  the operations of the  subsidiaries
     The Law Office,  Inc. (TLO) and The CyberLaw Office, Inc. (CLO), which were
     acquired in 1996 (Note 4).

     Principles of Consolidation

     The consolidated  financial  statements include the accounts of the Company
     and its TLO and CLO  subsidiaries  presented on a discontinued  basis.  All
     significant intercompany accounts and transactions are eliminated.

     Use of Estimates

     The preparation of these financial  statements in conformity with generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions that may affect certain reported amounts and disclosures in the
     financial  statements and accompanying  notes.  Actual results could differ
     from these estimates.

     Revenue Recognition

     Revenue is  recognized  as the services are  performed.  Unbilled  services
     relate to revenue  recognized for services  performed,  but not billed, and
     includes projects not completed.

     Cash and Cash Equivalents

     The Company  considers all investments  with an original  maturity of three
     months or less to be cash  equivalents.  Cash and cash equivalents  include
     money market  accounts of  approximately  $152,300 and $946,600 in 1997 and
     1996, respectively. These investments are carried at cost which is equal to
     fair value.

     Furniture and Equipment

     Furniture  and  equipment  are recorded at cost.  Depreciation  is computed
     using the straight-line method over three to five years.

     (continued)

                                       F-8


<PAGE>


                           LEGAL RESEARCH CENTER, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Description of the Business and Summary of Significant  Accounting Policies
     - (continued)

     Capitalized Development Costs

     The Company  capitalizes certain product costs incurred for the development
     of  the  Corporate  Alternative  Dispute  Resolution   Enterprises  (CADRE)
     training  program and through part of 1996,  the  development  costs of the
     web-site  for TLO.  Capitalized  costs  include  direct  labor,  fees,  and
     expenses of contractors  who are or have assisted in the development of the
     product or  service.  Once the  product or service is  available  for sale,
     costs will no longer be capitalized  and will be expensed as incurred.  The
     Company  expects to  complete  the  development  of CADRE  during the first
     quarter of 1998 and thereafter begin amortizing the capitalized  costs over
     three years.

     Advertising and Promotions

     Costs  associated with  advertising and promoting  products are expensed in
     the year incurred.  Advertising and promotion  expenses were  approximately
     $281,000 and $449,000 in 1997 and 1996, respectively.

     Net Loss Per Common Share

     Net loss per share of common  stock is computed by dividing net loss by the
     weighted average number of shares outstanding during the period,  excluding
     stock options and the shares subject to  subscription as their impact would
     be  anti-dilutive.  In 1997,  the Company  adopted  Statement  of Financial
     Accounting  Standards  (SFAS) No. 128,  Earnings Per Share,  which requires
     dual  presentation of basic and diluted earnings per share.  Implementation
     of SFAS No. 128 did not have any effect on reported net loss per share.

     Accounting for Stock-Based Compensation

     The Company accounts for employee stock options under the method prescribed
     by Accounting  Principles Board Opinion No. 25, Accounting for Stock Issued
     to Employees,  and provides the pro forma disclosures  required by SFAS No.
     123, Accounting for Stock-Based Compensation.

     Comprehensive Income

     In June 1997, the Financing Accounting Standards Board issued SFAS No. 130,
     Reporting  Comprehensive Income, which establishes financial accounting and
     reporting standards for comprehensive  income and its components  (revenue,
     expenses,  gains,  and losses).  SFAS No. 130 is effective for fiscal years
     beginning  after  December  15, 1997 and is not expected to have a material
     impact on the reported operating results of the Company.

     Reclassifications

     Certain  reclassifications were made to the 1996 financial statements so as
     to  present  those  financial  statements  on a basis  comparable  with the
     current year.

                                       F-9


<PAGE>


                           LEGAL RESEARCH CENTER, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   Discontinued  Operations of The Law Office,  Inc. and The CyberLaw  Office,
     Inc. -

     In May 1995, the Company acquired 25% of the stock of The Law Office,  Inc.
     (TLO). In May 1996, the Company acquired the remaining  outstanding  shares
     of TLO for $97,961 in cash including acquisition costs, issuance of 121,800
     shares of the Company  and  options to buy 54,500  shares of the Company at
     $3.50 per share. The acquisition of TLO was accounted for as a purchase and
     the purchase  price was  allocated to the assets  acquired and  liabilities
     assumed  based on fair values.  The excess of the purchase  price above the
     fair value of the assets was assigned to intangible assets which were being
     amortized  over  periods  ranging from 18 to 60 months.  Intangible  assets
     consisted primarily of an Independent Content Provider Agreement (ICP) with
     Microsoft Online Services  Partnership (MOSP),  noncompete  agreements with
     former shareholders of TLO and goodwill.

     The CyberLaw  Office,  Inc. (CLO), was incorporated in Minnesota in October
     1995, and is a majority owned subsidiary of the Company. CLO was originally
     created by the Company to expand on-line  activities,  similar to TLO, into
     the international market place.

     TLO and CLO revenues were not sufficient to cover cash  operating  expenses
     and development  costs. In June 1997, TLO was informed by MOSP that the ICP
     agreement  will not be  renewed  for a second  term.  MOSP  decided  not to
     continue the ICP concept and is not renewing ICP contracts.

     The Company  sought  additional  investors to fund operating and continuing
     development  costs  of TLO  and  CLO.  Due to  the  continuing  substantial
     negative  cash  flow,  the  nonrenewal  of  the  ICP  agreement,   and  the
     uncertainty  of  obtaining  adequate  funds  to  finance  the  TLO  and CLO
     operations and  development,  the Company  suspended the funding of TLO and
     CLO and will dispose of their assets.  The Company recorded a $717,008 loss
     on the  disposal  of TLO and CLO.  The loss on  disposition  consists  of a
     noncash charge for intangible assets totaling $623,200, a noncash valuation
     charge for computer and related equipment of approximately  $20,000,  and a
     provision  for   operating   expenses   during  the  phase-out   period  of
     approximately $73,800.


3.   Going Concern -

     The accompanying  consolidated financial statements are prepared on a going
     concern  basis  which  contemplates  the  realization  of  assets  and  the
     satisfaction  of  liabilities  and  commitments  in the  normal  course  of
     business. The Company incurred losses of $2,065,004 and $1,656,533 for 1997
     and 1996, respectively.  The continuation of the Company as a going concern
     is dependent upon its ability to achieve  profitable  operations and obtain
     additional  financing.  Management  is  pursuing  a  variety  of  financing
     arrangements and cost reductions.


                                      F-10

<PAGE>




                           LEGAL RESEARCH CENTER, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



4.   American Research Corporation -

     In September  1995, the Company  purchased less than 5% of the common stock
     of American Research  Corporation  (ARC) for $100,000,  which was accounted
     for  under the cost  method.  ARC  developed  a product  and  service  that
     supports professional service providers.

     ARC  reported  losses in  operations  since  inception in 1992 and has been
     actively seeking financing to support its operations.  The Company provides
     research services to ARC and charges ARC an arm's-length  negotiated market
     rate.  Total  revenues from ARC were  approximately  $1,800 and $202,000 in
     1997 and 1996, respectively.

     ARC made payments to the Company under the terms of its original agreement,
     for  services  rendered  through  July  1996.  In late  1996,  the  Company
     restructured  its  arrangement  with ARC to allow ARC more time to complete
     its  refinancing.  At December 31, 1996,  the Company had  receivables  and
     notes from ARC of approximately $174,000.

     In  June  1997,  ARC  completed  its  refinancing  which  resulted  in  the
     repurchase of its common stock from the Company and a restructuring  of the
     amounts  owed the  Company.  Amounts  owed the Company  totaling  $184,280,
     including  accrued  interest,  were converted  into a promissory  note. The
     note,  as  amended,  bears  annual  interest  at 10% and  requires  monthly
     payments  of $5,000 and a final  balloon  payment  due June 1999.  ARC paid
     $50,000  on the  note  through  December  31,  1997.  ARC  also  agreed  to
     repurchase  its shares held by the Company for  $100,100 in exchange  for a
     unsecured   promissory  note.  The  unsecured  note  is  due  in  quarterly
     installments of $25,025  beginning June 30, 1999, and bears annual interest
     at 10%. Due to ARC's uncertain  financial  condition,  the Company reserved
     approximately  $113,500  of the  notes  as  potentially  uncollectible  and
     reserved  the  accrued   interest.   The  carrying  value  of  these  notes
     approximates their fair market values.


5.   Accounts Receivable -

     Accounts receivable consist of the following:

                                                    1997         1996
                                                 ----------   ----------
          Trade                                  $  415,083   $  713,965
          Unbilled services                          15,261      505,419
          Related party - ARC                            --      174,066
                                                 ----------   ----------
                                                    430,344    1,393,450
          Less allowance for doubtful accounts      153,200      120,000
                                                 ----------   ----------
                                                 $  277,144   $1,273,450
                                                 ==========   ==========


                                      F-11


<PAGE>


                           LEGAL RESEARCH CENTER, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.   Intangible Assets -

     Intangible assets consist of the following:

                                                             1997       1996
                                                           --------   --------
     Capitalized development costs, net of accumulated
        amortization of $ -0- and $5,916, respectively      313,624    101,061
     Intangible assets, net of accumulated
        amortization of $ -0- and $152,789, respectively         --    827,465
                                                           --------   --------
                                                           $313,624   $928,526
                                                           ========   ========

7.   Common Stock -

     Common Stock Subject to Repurchase Obligation

     In September  1996,  the Company  issued  40,000  shares of common stock on
     behalf of TLO to settle a $140,000 note  payable.  The note was issued to a
     former  shareholder of TLO as a prerequisite  to the  acquisition of TLO by
     the  Company.  Under the terms of the  agreement  by which the shares  were
     issued,  the  shareholder  could require the Company to  repurchase  10,000
     shares at $3.50 a share upon written  notice to the  Company,  on or before
     December 31, 1997. In October 1996, the shareholder  exercised this option.
     In addition,  the shareholder could have required the Company to repurchase
     a portion or all of the  remaining  shares at $3.50 a share if TLO obtained
     debt or  equity  financing  in  excess  of  $500,000.  However,  due to the
     discontinued status of TLO the repurchase option is treated as expired.

     Notes Receivable From Officers and Directors

     On September 3, 1996, the Company sold an aggregate of 1,040,000  shares of
     common stock to three  officers  and/or  directors at the closing price for
     the  Company's  common stock on September  4, 1996,  or $1.89 a share.  The
     purchases  were made through  nonrecourse  notes with the shares pledged as
     collateral.  The notes bear interest at 8.5% and cannot be prepaid  anytime
     before September 2003, except in connection with a merger,  acquisition, or
     sale  of  substantially  all  of  the  Company's  assets.  The  shares  are
     restricted and cannot be sold or otherwise transferred without repaying the
     notes.  The Company's  policy is to not record interest income on the notes
     until the cash is received in September 2003.

     Common stock issued to officers and directors  (Officer Shares) in exchange
     for notes  receivable  structured as described  above, are not deemed to be
     shares outstanding under generally accepted accounting principles.  Rather,
     such shares are treated as stock options and therefore potentially dilutive
     for purposes of calculating  weighted average common shares outstanding and
     earnings per share.

                                      F-12

<PAGE>


                           LEGAL RESEARCH CENTER, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.   Income Taxes -

     Deferred taxes consist of the following:

<TABLE>
<CAPTION>
                                                                1997                1996
                                                            -----------          ----------
<S>                                                         <C>                  <C>
        Deferred tax assets:
           Allowance for doubtful accounts                  $    54,000          $   42,000
           Investments                                           43,000              36,000
           Interest income                                       60,000                  --
           Accrued expenses                                      48,000              16,000
           Net operating loss carryforward                    1,007,000             645,000
                                                            -----------          ----------
                                                              1,212,000             739,000
        Deferred tax liability - furniture and equipment        (4,000)             (4,000)
                                                            -----------          ----------
        Net deferred tax assets                               1,208,000             735,000
        Valuation allowance                                  (1,208,000)           (735,000)
                                                            -----------          ----------
                                                            $        --          $       --
                                                            ===========          ==========
</TABLE>

     The  Company  recorded  a  valuation   allowance  due  to  the  uncertainty
     associated  with the  realization  of the net deferred tax assets in future
     years.

     At December 31, 1997,  the Company has a net  operating  loss  carryforward
     totaling $2,876,000, expiring $1,033,000, $1,193,000, and $650,000 in 2012,
     2011, and 2010, respectively.  The net operating loss carryforward includes
     $350,000 subject to certain annual limitations.


9.   Stock Option Plans -

     The Company has reserved  700,000 shares of common stock for issuance under
     the 1995 fixed stock option plan. Options may not be granted at an exercise
     price less than the fair market value of the common stock of the Company on
     the date of grant.  The  options  granted may  qualify as  incentive  stock
     options, vest annually, and are exercisable over periods ranging from three
     to ten years.

     The Company also has the Legal Research  Center,  Inc.  Existing  Officer's
     Stock Option Plan. Pursuant to the officers' plan, the Company reserved and
     granted  options to two officers to each purchase  180,000 shares of common
     stock.  These  incentive stock options are exercisable at fair value on the
     date of grant,  vest in three equal  installments  commencing one year from
     the date of grant, and expire five years from the date of grant.

     The  Company  also has a 1997  fixed  stock  option  plan and has  reserved
     700,000  shares of common stock for issuance  under that plan.  Options may
     not be granted at an exercise  price less than the fair market value of the
     common  stock on the date of grant.  The options  may qualify as  incentive
     stock options, vest annually, and are exercisable over periods ranging from
     three to ten years.

     (continued)

                                      F-13


<PAGE>


                           LEGAL RESEARCH CENTER, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9.   Stock Option Plans - (continued)

     Nonemployee  directors  are  compensated  with annual stock  option  grants
     (Director Options) of 5,000 shares, exercisable at fair market value on the
     date of grant, and expire ten years after issuance.

     The fair value of each option grant is estimated on the date of grant using
     the Black-Scholes option pricing model with the following  weighted-average
     assumptions  used for grants in 1997 and 1996,  respectively;  no  dividend
     yield during the expected life of outstanding options;  expected volatility
     of 178% and 93%;  risk free interest  rates of 6.5% and 6.0%,  and expected
     lives of 3.8 and 5.7 years.

     A summary of the  status of the fixed  stock  options  under  these  plans,
     including the stock issued to officers and  directors  which are treated as
     stock options, is as follows:

<TABLE>
<CAPTION>
                                                        1997                                      1996
                                           ----------------------------------        ---------------------------------
                                                             Weighted-Average                          Weighted-Average
                                           Options           Exercise Price          Options           Exercise Price
                                           -------           --------------          -------           --------------
<S>                                        <C>                  <C>                    <C>               <C>
          Outstanding at
             beginning of year             1,530,804            $ 2.96                 394,200           $ 2.96
          Granted                            126,600              1.15               1,138,104             2.96
          Forfeited                           (4,000)             2.23                  (1,500)            2.25
                                          ----------                                ----------
          Outstanding at
             end of year                   1,653,404            $ 2.81               1,530,804           $ 2.96
                                          ==========                                ==========
          Weighted-average fair
             value of options granted
             during the year                                    $ 1.04                                   $ 1.37
                                                                 =====                                    =====
</TABLE>

     The  following  table  summarizes  information  about fixed  stock  options
     outstanding as of December 31, 1997:

<TABLE>
<CAPTION>
                                                   Options Outstanding                        Options Exercisable
                                    --------------------------------------------------    ---------------------------
                                                         Weighted-           Weighted-                       Weighted-
            Range of                                      Average            Average                         Average
            Exercise                                     Remaining           Exercise                        Exercise
             Prices                   Options         Contractual Life         Price         Options           Price
        ----------------            -----------     ------------------    -------------   ------------    ----------
          <S>                         <C>                   <C>             <C>            <C>              <C>
           $.13 - $.88                    2,840             3.4             $  .56               2,840      $  .56
          $1.00 - $1.25                 113,160             4.9               1.13             113,160        1.13
          $1.50 - $1.88                  14,404             2.1               1.65              14,404        1.65
          $2.00 - $2.38                  78,700             2.9               2.06              78,700        2.06
          $2.63 - $2.97                 394,300             2.2               2.95             274,300        2.94
          $3.02 - $3.50               1,050,000             5.7               3.02           1,050,000        3.02
                                     ----------                                            -----------
           $.13 - $3.50               1,653,404             4.6               2.81           1,533,404        2.80
                                     ==========                                            ===========
</TABLE>

     (continued)

                                      F-14

<PAGE>


                           LEGAL RESEARCH CENTER, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



9.   Stock Option Plans - (continued)

     In June 1996,  under the terms of the Option  Plan,  the Company  adopted a
     program to award stock  options to  executive  officers  whose  vesting was
     contingent upon the Company attaining two consecutive  profitable quarters.
     The  exercise  price of each  option was equal to the  market  price of the
     Company's  stock on the date of grant and expired in periods  ranging  from
     three to five  years  from the date of  grant.  In 1996,  options  totaling
     $385,000 were issued with a  weighted-average  exercise price of $2.03.  In
     1997, these options were cancelled.

     The  Company  applies  APB  Opinion  25  and  related   interpretations  in
     accounting for stock option plans.  Accordingly,  no compensation  cost was
     recognized  for the fixed options plans or  performance-based  stock option
     plans  in 1997 or  1996.  Had  compensation  cost  for the two  stock-based
     compensation  plans  been  determined  based on the fair value at the grant
     dates for awards under those plans,  consistent with the method of SFAS No.
     123,  the net loss and net loss per  share  would be  increased  to the pro
     forma amounts indicated below:

                                               1997                1996
                                           ------------       -------------
             Net loss:
                As reported               ($  2,065,004)     ($   1,656,533)
                Pro forma                 (   2,356,452)     (    3,336,450)
             Net loss per share:
                As reported               ($       0.91)     ($        0.75)
                Pro forma                 (        1.04)     (         1.51)

     The pro forma effects of applying SFAS No. 123 are not indicative of future
     amounts  since,  among other  reasons,  the pro forma  requirements  of the
     Statement were applied only to options granted after December 31, 1994.


10.  Royalty Agreements -

     The Company has agreements with certain  associations which require payment
     of royalties for projects.  Royalty rates and terms of the agreements  vary
     depending  upon the  agreement  and  apply to a  significant  amount of the
     Company's  revenues.  Royalty  expense for 1997 and 1996 was  approximately
     $19,000 and $20,000, respectively.


                                      F-15


<PAGE>


                           LEGAL RESEARCH CENTER, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.  Related Party Transactions -

     Lease

     The Company  utilizes an office facility leased by a related party under an
     operating  lease  requiring  monthly rent of  approximately  $6,000 through
     January 2001.  The Company  complies with the same terms and  conditions as
     the lease between the related party and the related party's landlord.  Rent
     expense,  including  operating  expenses,  was  approximately  $64,700  and
     $66,700 for 1997 and 1996, respectively.

     Officer Employment Agreements

     The  Company has  employment  agreements  with two  officers of the Company
     through  July 1, 1998.  The  agreements,  as amended,  require  annual base
     salaries of $96,000 for each officer, plus goal-oriented incentives,  which
     may be adjusted by the Board of Directors.  Incentive  compensation expense
     under officer employment  agreements was approximately $ -0- and $68,200 in
     1997 and 1996, respectively.

     Capitalized Development Costs

     The Company had an agreement with a former  director for the development of
     CADRE,  an  alternative  dispute  resolution  program to be  marketed  as a
     corporate  training  course.  The agreement  required  monthly  payments of
     $2,800 through July 1997. The agreement was terminated in 1997. The Company
     capitalized these development costs totaling approximately $68,300.


12.  Major Customer -

     One customer  accounted for 14% and 52% of the  Company's  revenues in 1997
     and 1996,  respectively,  and owed the  Company  approximately  $47,000 and
     $770,000 at December 31, 1997 and 1996, respectively.






                                      F-16


<PAGE>


PART III

Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(a) OF THE EXCHANGE ACT

     The information  contained  under the captions  "Election of Directors" and
"Compliance  with Section 16(a) of the  Securities  Exchange Act of 1934" in the
1998 Proxy Statement is incorporated herein by reference.

     Information concerning executive officers of the Company can be found under
the caption "Executive Officers of the Company" in Item 1 hereof.


Item 10. EXECUTIVE COMPENSATION

     The information  contained under the captions "Executive  Compensation" and
"Election of  Directors--Board  of  Directors  and  Committees--Remuneration  of
Directors" in the 1998 Proxy Statement is incorporated herein by reference.


Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information contained under the caption "Principal Shareholders" in the
1998 Proxy Statement is incorporated herein by reference.


Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information  contained  under the caption  "Certain  Relationships  and
Transactions" in the 1998 Proxy Statement is incorporated herein by reference.


Item 13. EXHIBITS AND REPORTS ON FORM 8-K

The following documents are filed as part of the report:

1. Financial  Statements.  Audited financial  statements as of December 31, 1997
and 1996 and for the years then ended are filed as part of this Form 10-KSB. See
Index to Financial Statements on Page F-1.

2. Exhibits. The following exhibits are being filed as part of this Form 10-KSB:

<TABLE>
<CAPTION>
       Exhibit No.                                Title                                Method of Filing
       -----------                                -----                                ----------------

<C>                   <S>                                                                      <C>
      3.1             Restated Articles of Incorporation                                       1

      3.2             Restated Bylaws                                                          1

      4               Form of Common Stock Certificate                                         1


                                      -24-
<PAGE>


      10.1            1995 Stock Option Plan                                                   1

      10.2            Existing Officer's Stock Option Plan                                     1

      10.3            Employment  Agreement  dated July 1, 1995 between the Company
                      and Christopher R. Ljungkull                                             1

      10.4            Employment  Agreement  dated July 1, 1995 between the Company
                      and James R. Seidl                                                       1

      10.5            1997 Stock Option Plan                                                   5

      10.10           Agreement  dated May 17,  1995  between  the  Company and the
                      other shareholders of The Law Office, Inc.                               1

      10.11           First Amendment to Net Office Lease Agreement dated June 1996
                                                                                               2

      10.12           Letter  Agreement  dated  September  6, 1995  between LRC and
                      James Seifert re: Consulting Services                                    2

      10.13           Acquisition  of Stock of The Law Office,  Inc.  dated May 13,
                      1996                                                                     3

      10.14           Employment   Agreement   dated  July  25,  1996  between  The
                      CyberLaw Office, Inc. and Arun K. Dube                                   5

      10.15           Sale of Common Stock to Officers  and  Directors on September
                      3, 1996                                                                  4

      10.17           News Release  regarding  the agreement  with Risk  Enterprise     Filed Herewith
                      Management
      10.18           News Release regarding the agreement with WIRE                    Filed herewith

      11              Subsidiaries of Legal Research Center, Inc.                              5
</TABLE>


1.   Incorporated  by reference to the same  numbered  Exhibit to the  Company's
     Registration Statement on Form SB-2, which was declared effective August 3,
     1995, pursuant to Rule 12b-32.

2.   Incorporated  by reference to the same  numbered  Exhibit to the  Company's
     Form 10-KSB, dated March 29, 1996.

3.   Incorporated by reference to Exhibits 2.1 and 2.2 to the Company's Form 8-K
     dated May 13, 1996.

4.   Incorporated  by reference to Exhibits 10.1, 10.2 and 10.3 to the Company's
     Form 8-K dated September 5, 1996.

5.   Incorporated  by reference to Exhibits  10.14 and 11 to the Company's  Form
     10-KSB (as amended) dated March 27, 1997.

     (b) Reports on Form 8-K.

         None

                                      -25-

<PAGE>


                                   SIGNATURES

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

                                              LEGAL RESEARCH CENTER, INC.


                                              By: /s/ Christopher R. Ljungkull
                                                  -----------------------------
                                                  Christopher R. Ljungkull, CEO

     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 indicated.

          Name and Title               Signature                   Date
          --------------               ---------                   ----
Arun K. Dube
Chairman of the Board              /s/ Arun K. Dube         March 27 , 1998
                                   ----------------

Christopher R. Ljungkull
Chief Executive Officer
(Principal Executive Officer)
and Director                       /s/ C.R. Ljungkull       March 27, 1998
                                   ----------------

James R. Seidl
President and Director             /s/ James R. Seidl       March 27 , 1998
                                   ------------------


                                      -26-


<PAGE>



              As filed with the Securities and Exchange Commission
                                on March 30, 1998



                        SECURITIES AND EXCHANGE COMISSION
                             WASHINGTON, D.C. 20549



                                    EXHIBITS

                                       TO

                                   FORM 10 KSB

                                  ANNUAL REPORT

                   For the fiscal year ended December 31, 1997

                       Pursuant to Section 13 or 15(d) of
                       The Securities Exchange Act of 1934


                           LEGAL RESEARCH CENTER, INC.
                           700 Midland Square Building
                             331 Second Avenue South
                              Minneapolis, MN 55401


<PAGE>


                                INDEX TO EXHIBITS


                                    Exhibits


10.17      News Release regarding the agreement with Risk Enterprise Management

10.18      News Release regarding the agreement with WIRE