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, 1996 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. $2,760,038

     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.)

                         $2,854,813 as of March 7, 1997

                    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.

              3,297,633 shares of Common Stock as of March 7, 1997

                       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  1997  (the  "1997  Proxy
Statement") (incorporated by reference into Part III of this Form 10-KSB).

                            [Cover page 2 of 2 pages]


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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.

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 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


                                      -1-
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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
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  believes  that as on-line  communication  of  information  on
established networks like The Microsoft Network (MSN) and on the Internet become
more  standardized  and widely  utilized,  corporate  counsel and attorneys will
gravitate  towards  using this medium to purchase  and sell their  products  and
services.  The  Company's  strategy is to play an active  role in this  emerging
market.

     In May 1996 the Company  completed  the  purchase  of The Law Office,  Inc.
(TLO).  TLO is a development  stage entity which will provide content by the way
of web-sites  on MSN and the  Internet.  


                                      -2-
<PAGE>


TLO  operates as a MSN content  provider  under a  non-exclusive  contract  with
Microsoft Online Services Partnership. The contract expires in December 1997 and
the Company  expects to be able to renew this  contract  for  additional  annual
terms after the  initial  expiration  date.  Revenues  will be derived  from the
leasing  of  space  on  TLO's  web-site  and  from  the  sale  of  services  and
advertising.  As of December 31, 1996,  TLO had  generated  $24,300 in revenues.
1996 expenditures from the date of acquisition have been on activities necessary
to bring the web-site on-line,  develop a sales and marketing  program,  solicit
content  providers and hire staff.  The Company has been funding  development of
TLO since May 1995 and has  advanced  $974,000  as  working  capital.  TLO has a
negative book value and requires  substantial  additional  investment to achieve
its economic potential.

     In October 1995,  the Company  created The CyberLaw  Office,  Inc. (CLO) an
eighty five percent owned subsidiary,  to expand its on-line activities into the
international  market place.  The remaining  fifteen percent is owned by Arun K.
Dube, its Chairman of the Board of Directors and Chief Executive Officer of CLO.
In August 1996,  the Company  consolidated  management  of all Internet  related
activities including TLO. CLO plans to seek additional investment from potential
outside investors in the future. The Company intends to consolidate ownership of
TLO under CLO after additional financing is obtained.

     CLO  plans to be a  full-service,  on-line  commercial  center  offering  a
variety  of goods and  services  to legal  professionals  and a variety of legal
related goods and services to the general public.  Through a  comprehensive  and
aggressive sales, promotional,  advertising and networking effort that leverages
on the  marketing  success  of  Windows  95 and Office 97, CLO and TLO expect to
attract entrepreneurial  national and regional practice attorneys and vendors to
offer their services and products through CLO's and TLO' s web-site.

     In 1996, 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 intends
to develop  CADRE  initially as a several day corporate  training  course in the
concepts  and  skills  necessary  to  implement  and  utilize an ADR system on a
corporate-wide basis. The Company has substantially completed the curriculum and
market  development  and expects that the product will be launched in the second
quarter of 1997.

     The Company  believes  that the continued  development  of new products and
investment in new market niches will be justified by the returns  generated from
these  investments.  In addition,  the Company believes that initiatives such as
CLO, TLO and 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.

     As an adjunct to its 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


                                      -3-
<PAGE>


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.  In
1996,  the Company added one sales  representative  to increase its direct sales
effort with respect to research and writing projects.

     The Company also seeks  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 1996, the Company was
invited to become a member of ACCA's  Chairman  Circle Gold,  an honor  provided
only one other  legal  vendor  working  with ACCA.  Also in 1996,  the  National
Association of Criminal  Defense  Lawyers  selected the Company as the exclusive
outsourced  provider of legal research and writing for their 9,000 members.  The
Company  paid  approximately  $20,000 in  royalties  for  research  and  writing
referrals in 1996.

     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 is through June 1997, and the agreement  automatically renews
for  successive  one year periods  unless  earlier  terminated  by either of the
parties on 90 days written  notice.  In 1996,  West was acquired by The Thompson
Corporation.  The  Company  does  not  expect  its  relationship  with  West  to
materially change as a result of this acquisition.

     The Company believes that the ownership and development of CLO and TLO will
result in significant  cost sharing and market  development  opportunities.  The
Company  will have a presence  on MSN  through  TLO and will be able to sell its
multi-jurisdictional  surveys products to a wider market,  both in the legal and
the non-legal market.

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 alliance,  the Company completed a large
multi-jurisdictional  survey  for a  customer  which  accounted  for  52% of the
Company's revenues. This survey represented a 


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non-recurring multi-jurisdictional project in 1996. The Company will continue to
receive revenue under its agreement with this customer to update the survey over
the next two years.  Revenue under this  agreement will not be at the same level
in future years.

Executive Officers of the Company

     The  following  sets forth  biographical  information  for  Christopher  R.
Ljungkull,  James R. Seidl and Frank G. Hallowell, the executive officers of the
Company.  Biographical  information for directors of the Company can be found in
the Company's 1997 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.

     Frank G. Hallowell joined the Company as Vice President and Chief Financial
Officer  in July  1996.  From 1994 to 1996,  Mr.  Hallowell  was with  BellSouth
Corporation  as Regional  Director of Finance for Cellular  One in Madison,  WI.
From  1990  to  1994,  Mr.  Hallowell  was a  Project  Manager  of  Mergers  and
Acquisitions,  at BellSouth's Altanta, Georgia headquarters.  Mr. Hallowell is a
certified public accountant.

Personnel

     As of  March  7,  1997,  the  Company  had 45  employees  of  which  10 are
part-time,  and a pool of 43 contract attorneys.  Most of the Company's contract
attorneys work part-time.  Six full-time  employees were in sales and marketing,
thirteen  were in  research  related  activities  of  which  two are  part-time,
fourteen in support services of which eight are part-time, and twelve in finance
and  administration.  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 with modest staff  increases  anticipated  in the
sales and customer  services area. 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.


                                      -5-
<PAGE>


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 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 and workers'  compensation  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.  Prior to November 1, 1998,  the  landlord  has the right,
subject to the Company's right of first refusal,  to lease the space occupied by
the Company to a third party.  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
1996 fiscal  year to a vote of security  holders,  through the  solicitation  of
proxies or otherwise.


                                      -6-
<PAGE>


PART II

        Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Price Range of Common Stock

     The Company's  Common Stock has been traded on the Nasdaq  SmallCap  Market
(Nasdaq) since August 3, 1995. As of March 7, 1997, 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, 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
             ------                        -------                     --------

         08/03/95 - 09/30/95                  $3-1/4                    $4-1/4

         10/01/95 - 12/31/95                  $2-1/2                    $3-3/4

         01/01/96 - 03/31/96                  $2-1/4                    $4-4/8

         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

         Current (03/07/97)                   $1-5/8                    $1-23/32

     Under  Nasdaq  rules,  the  Company's  Common Stock may be deleted from the
Nasdaq system if, among other  matters,  the  Company's  total assets fall below
$2,000,000,  stockholders equity falls below $1,000,000, or the bid price of the
Common Stock falls 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 


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<PAGE>


be  forward-looking  and subject to risk 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:

     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    Risks related to obtaining permanent financing for CLO and TLO.

     o    Effectiveness  of cost  cutting  measures  implemented  in 1996 by the
          Company to moderate the growth in sales and  marketing and general and
          administrative expenses.

     The  Company's  revenues  have  historically  been derived from  conducting
analytical  research  and  writing  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.  During 1996, the Company  implemented  programs to
attract  customers  to enter into long term  relationships  to  provide  greater
consistency in quarterly revenues.

     As  discussed  in greater  detail in Note 2 of the  Consolidated  Financial
Statements,  the Company issued shares in its initial  public  offering (IPO) in
August 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. The Company intends to secure separate, permanent financing for CLO and
TLO.

     The Company increased its operating costs beginning in the third quarter of
1995 and  continuing  through  1996,  as it  positioned  itself for  growth.  In
addition,  during 1996 the Company  completed  the largest  multi-jurisdictional
survey  project in its history.  The  production  effort to complete this survey
required an additional  investment in infrastructure  and operating expense from
what was  originally  contemplated,  which  reduced  gross margins in the fourth
quarter of 1996.  Management  believes that these expenditures will position the
Company to realize  and support the  expected  long term growth of revenues  and
business operations.

Results of Operations

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 has
been able to secure through sales and marketing activities. 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 also attempts to re-market  surveys to other  customers with similar
needs or issues. The Company expects to continue its sales and marketing efforts
to seek and expand upon similar projects in the future.

     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 


                                      -8-
<PAGE>


services, royalty fees for association referrals,  computer database charges and
document retrieval expenses.

     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  are  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.  The Company expects to recover these additional costs in 1997 and
beyond  with  new  surveys  already  in  production  and on  order,  as  well as
subsequent re-sales of the original survey.

     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 is principally  due to the increase in
direct  operating  costs  to  complete  large  multi-jurisdictional  surveys  as
discussed above. The Company expects gross profit in the core research  business
to return to higher levels in 1997.

     Other  operating costs include  compensation  of officers,  sales and other
corporate  staff,  advertising and direct  marketing  expenditures,  development
costs  of  TLO  and  general  corporate  overhead,  including  depreciation  and
amortization. These 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 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 years  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 3 to Consolidated  Financial  Statements.  In
1995,  the  Company  recorded  $29,500 as its share of losses in  unconsolidated
investments.


                                      -9-
<PAGE>


New Accounting Pronouncement

     In October 1995, the Financial  Accounting Standards Board issued Statement
of  Financial   Accounting   Standards  No.  123,   Accounting  for  Stock-Based
Compensation,   which   establishes  new  standards  for  stock-based   employee
compensation  plans.  The  statement  establishes a  fair-value-based  method of
accounting  for  stock-based  compensation  plans and  encourages,  but does not
require,  entities  to  adopt  that  method  in  place of APB  Opinion  No.  25,
Accounting for Stock Issued to Employees.  Entities that elect to continue under
Opinion No. 25 must disclose pro forma net income and earnings per share for all
years presented as if Statement No. 123 had been adopted.

     In 1996, the Company adopted the statement but did not adopt the fair-value
based  method.  Required  pro forma  disclosures  are  included in Note 6 to the
Consolidated Financial Statements.

Liquidity and Capital Resources

     The  Company  continued  to use the  proceeds  from  its  IPO to fund  1996
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.  In
addition,  the Company  continues to look for other  marketing  and  development
opportunities and alliances. At December 31, 1996, the Company had cash and cash
equivalents of $955,600 and working capital of $1,787,868.

     Net cash used in operating  activities  increased  from $432,444 in 1995 to
$1,925,548 in 1996. The Company had a net loss of $1,656,553 in 1996 compared to
a net loss of $392,753 in 1995 for the reasons discussed above. Non cash charges
increased $342,211 in 1996 over 1995 primarily due to increased amortization and
depreciation on long-term assets,  increased provision for doubtful accounts and
a full year's loss from  operations  from  investments  accounted  for under the
equity method. 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.  This  use of  cash  is  primarily  due  to an  increase  in  accounts
receivable,  unbilled services,  related party accounts and other current assets
of $802,203 offset by a net increase in accounts payable and accrued expenses of
$91,491.  The  increase in accounts  receivable,  unbilled  services and related
party  advances is due to higher  volume of larger  projects that take longer to
complete  and under  contract  terms,  are billed as phases of the  project  are
completed.

     Net cash used in  investing  activities  increased  by $68,521 in 1996 over
1995.  The increase was due to interest and advances to TLO prior to acquisition
in May 1996, cash paid to acquire TLO, investments in the CADRE and TLO web site
development.  The Company  expects that investment in CADRE will continue during
the first half of 1997.

     Cash  used  in  financing  activities  was  $48,928  in  1996  compared  to
$4,445,103  of net cash  provided  in  1995.  The use of cash in 1996 was due to
payments made to former  shareholders in connection with the acquisition of TLO.
The cash  provided in 1995 was  primarily  the result of the  Company's  IPO. In
1995,  the Company used some of the IPO proceeds to pay down  outstanding  debt,
including bank debt and other borrowings. The Company's financing activities are
described in greater detail in Note 2 of the Consolidated Financial Statements.

     Management  believes that during 1996, it has completed the development and
implementation of the necessary infrastructure to support larger revenues in the
core  business  in 1997 and beyond.  In  addition,  the  Company has  instituted
specific  cost  control  measures  such as hiring  and wage  freezes,  to reduce
expenditures in all areas of its operation.  The Company expects that by the end
of 1997,  expenditures  in the core  research  business  will be  funded  almost
exclusively by funds generated from  operations.  The Company  believes that the
cash  requirements  of CLO,  TLO,  CADRE and  other  


                                      -10-
<PAGE>


marketing and  development  activities  will be significant in the first half of
1997.  Initially,  the Company intends to fund such  investments and development
activities and if possible,  raise additional funding in 1997, although there is
no assurance that such  financing  will be available on terms  acceptable to the
Company or at all. If the Company  does not raise such funds,  cash  advances to
CLO and TLO will be reduced or eliminated in order to conserve cash.

     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.

                          Item 7. FINANCIAL STATEMENTS

     The information  required by this item is incorporated  herein by reference
to pages F-1 through F-18, which follow this page.

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

                                      None.


                                      -11-


<PAGE>


                                    CONTENTS

--------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT                                             F-2
--------------------------------------------------------------------------------

FINANCIAL STATEMENTS

  Consolidated Balance Sheets                                      F-3 - F-4

  Consolidated Statements of Operations                                  F-5

  Consolidated Statements of Stockholders' Equity                        F-6

  Consolidated Statements of Cash Flows                            F-7 - F-8

  Notes to Consolidated Financial Statements                       F-9 - F18
--------------------------------------------------------------------------------



                                      F-1
<PAGE>


                          INDEPENDENT AUDITOR'S REPORT

To  the Board of Directors
Legal Research Center, Inc.
Minneapolis, Minnesota

We have audited the accompanying  consolidated  balance sheets of Legal Research
Center, Inc. and subsidiaries, as of December 31, 1996 and 1995, and the related
consolidated  statements of operations,  stockholders' equity and cash flows for
the years 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 audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of the Legal Research
Center,  Inc. and subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for the years 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, 1996 and 1995

<TABLE>
<CAPTION>
ASSETS                                                                 1996           1995
------------------------------------------------------------------------------------------
<S>                                                             <C>            <C>        
Current Assets
   Cash and cash equivalents                                    $   955,600    $ 3,510,752
   Accounts receivable:
        Trade                                                       713,965        246,945
        Unbilled services                                           505,419        205,582
        Related party                                               174,066        136,223
        Less, allowance for doubtful accounts                      (120,000)       (41,341)
                                                                --------------------------
             Net accounts receivable                              1,273,450        547,409
  Other                                                              39,044          5,000
                                                                --------------------------
             Total current assets                                 2,268,094      4,063,161
                                                                --------------------------

Other Assets
  Intangible assets, net of accumulated amortization of
  $152,789                                                          827,465           --
  Investment in and note receivable from The Law Office, Inc.          --          193,539
  Capitalized development costs, net of accumulated
     amortization of $5,916 in 1996                                 101,061         14,000
  Investment in American Research Corporation                        41,764        100,000
                                                                --------------------------
                                                                    970,290        307,539
                                                                --------------------------

Furniture and equipment, at cost                                    367,381        197,018
Less, accumulated depreciation                                      129,886         44,598
                                                                --------------------------
                                                                    237,495        152,420
                                                                --------------------------
                                                                $ 3,475,879    $ 4,523,120
                                                                ==========================
</TABLE>


See Notes to Consolidated Financial Statements


                                      F-3
<PAGE>


                           LEGAL RESEARCH CENTER, INC.

                           CONSOLIDATED BALANCE SHEETS

                           December 31, 1996 and 1995

<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY                                 1996           1995
------------------------------------------------------------------------------------------
<S>                                                             <C>            <C>        
Current Liabilities
 Accounts payable                                               $   182,032    $   172,393
 Non compete agreement                                               16,508           --
 Client advances                                                     35,957         39,969
 Accrued expenses:
   Compensation                                                     108,438         59,544
   Other                                                            137,291         10,510
                                                                --------------------------
             Total current liabilities                              480,226        282,416
                                                                --------------------------

Non compete 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 3,297,633 and 2,135,833 shares respectively        32,976         21,358
 Additional paid in capital                                       6,765,307      4,551,634
 Accumulated deficit                                             (1,988,841)      (332,288)
 Notes receivable from officers and directors                    (1,966,250)          --
                                                                --------------------------
                                                                  2,843,192      4,240,704
                                                                --------------------------
                                                                $ 3,475,879    $ 4,523,120
                                                                ==========================
</TABLE>

See Notes to Consolidated Financial Statements


                                      F-4
<PAGE>


                           LEGAL RESEARCH CENTER, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                     Years Ended December 31, 1996 and 1995


                                                     1996           1995
--------------------------------------------------------------------------------
Revenues                                        $ 2,760,038    $ 1,404,389

Direct operating costs:
  Compensation and benefits                       1,340,666        561,152
  Other                                             374,591        179,035
                                                --------------------------
             Total direct operating costs         1,715,257        740,187
                                                --------------------------

             Gross profit                         1,044,781        664,202
                                                --------------------------

Other operating costs:
  Sales and marketing                               990,726        405,644
  General and administrative                      1,168,192        685,900
  Developmental costs of The Law Office, Inc.       546,091           --
                                                --------------------------
             Total other operating costs          2,705,009      1,091,544
                                                --------------------------

             Operating loss                      (1,660,228)      (427,342)

Interest income                                     127,018         84,796
Interest expense                                       (632)       (20,707)
Losses related to unconsolidated investments       (122,711)       (29,500)
                                                --------------------------
             Net loss                           $(1,656,553)   $  (392,753)
                                                ==========================

             Net loss per share                 $     (0.75)   $     (0.33)
                                                ==========================

Weighted average common shares outstanding        2,213,040      1,191,189


See Notes to Consolidated Financial Statements


                                      F-5
<PAGE>
<TABLE>
<CAPTION>
                                                   LEGAL RESEARCH CENTER, INC.

                                         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                              Years Ended December 31, 1996 and 1995



                                                                                           
                                                  Common Stock            Additional                        
                                             ------------------------     Paid-in      Accumulated       Notes
                                               Shares        Amount       Capital        Deficit      Receivable        Total
                                             -----------------------------------------------------------------------------------
<S>                                          <C>         <C>           <C>            <C>            <C>            <C>        
Balance, December 31, 1994                     500,000   $     5,000   $   104,417    $  (127,840)   $      --      $   (18,423)
  Sale of common stock                          26,296           263        70,737           --             --           71,000
  Conversion of note payable to common
    stock                                       57,037           570       153,430           --             --          154,000
  Distribution to stockholders                    --            --            --          (36,000)          --          (36,000)
  Net loss through date of S Corporation
    termination                                   --            --            --          (60,465)          --          (60,465)
  Sale of common stock, net of issuance           --
    costs of $970,870                        1,552,500        15,525     4,447,355           --             --        4,462,880
  Constructive dividend to S Corporation
    stockholders                                  --            --        (224,305)       224,305           --             --
  Net loss subsequent to S Corporation
    termination                                   --            --            --         (332,288)          --         (332,288)
                                            -----------------------------------------------------------------------------------
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 a stock           
    subscription agreement                   1,040,000        10,400     1,955,850           --       (1,966,250)          --
  Net loss                                        --            --            --       (1,656,553)          --       (1,656,553)
                                            -----------------------------------------------------------------------------------
Balance, December 31, 1996                   3,297,633   $    32,976   $ 6,765,307    $(1,988,841)   $(1,966,250)   $ 2,843,192
                                            ===================================================================================
</TABLE>


See Notes to Consolidated Financial Statements


                                      F-6
<PAGE>


                                    LEGAL RESEARCH CENTER, INC.

                               CONSOLIDATED STATEMENTS OF CASH FLOWS

                              Years Ended December 31, 1996 and 1995


<TABLE>
<CAPTION>
                                                                               1996            1995
------------------------------------------------------------------------------------------------------
<S>                                                                        <C>            <C>         
Cash Flows From Operating Activities
  Net loss                                                                 $(1,656,553)   $  (392,753)
  Adjustments to reconcile net loss to net cash used
    in operating activities:
     Depreciation                                                               81,642         28,467
     Amortization of intangible assets and capitalized development costs       158,705           --
     Provision for uncollectible accounts receivable                            78,659         41,539
     Equity in losses of unconsolidated investments                            122,711         29,500
     Changes in assets and liabilities, net of effects of the
       purchase of The Law Office, Inc. in 1996:
       Trade accounts receivable and unbilled services                        (682,450)      (272,624)
       Related party accounts and other current assets                        (119,753)        (1,816)
       Accounts payable                                                        (48,020)       103,539
       Client advances                                                         (16,512)        29,419
       Accrued expenses                                                        156,023          2,285
                                                                           --------------------------
                Net cash used in operating activities                       (1,925,548)      (432,444)
                                                                           --------------------------

Cash Flows From Investing Activities
  Purchases of furniture and equipment                                        (123,285)      (139,124)
  Advances to The Law Office, Inc. through date of acquisition                (266,453)          --
  Cash paid for The Law Office, Inc. including acquisition costs               (97,961)       (29,500)
  Capitalized development costs                                                (92,977)       (14,000)
  Purchase of American Research Corporation common stock                          --         (100,000)
  Disbursements on related-party notes receivable                                 --         (229,532)
                                                                           --------------------------
                Net cash used in investing activities                         (580,676)      (512,156)
                                                                           --------------------------

Cash Flows From Financing Activities
  Cash payments on redemption of common stock                                  (35,000)          --
  Cash payments on non compete agreements                                      (13,928)          --
  Proceeds on notes payable                                                       --          500,000
  Principal payments on long-term debt and notes payable                          --         (564,023)
  Distributions to stockholders                                                   --          (36,000)
  Net proceeds from sale of stock                                                 --        4,554,126
                                                                           --------------------------
                Net cash (used in) provided by financing activities            (48,928)     4,454,103
                                                                           --------------------------

                (Decrease) increase in cash and cash equivalents            (2,555,152)     3,509,503

Cash and cash equivalents
  Beginning                                                                  3,510,752          1,249
                                                                           --------------------------
  Ending                                                                   $   955,600    $ 3,510,752
                                                                           ==========================
</TABLE>


See Notes to Consolidated Financial Statements

                                   (Continued)


                                      F-7
<PAGE>


                                    LEGAL RESEARCH CENTER, INC.

                         CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

                               Years Ended December 31, 1996 and 1995


<TABLE>
<CAPTION>
                                                                               1996           1995
-----------------------------------------------------------------------------------------------------
<S>                                                                        <C>            <C>        
Supplemental Disclosures of Cash Flow Information
  Cash payments for interest                                               $       632    $    20,707
                                                                           ==========================

Supplemental Schedule of Non-cash Investing and Financing
  Activities
    Notes received for issuance of common stock                            $ 1,966,250    $      --
    Conversion of note payable into common stock
      subject to repurchase obligation                                         140,000           --
    Conversion of note payable to common stock                                    --          154,000
    Deferred stock offering costs                                                 --           20,246

  Acquisition of The Law Office, Inc. 
   Tangible assets acquired                                                $    79,997    $      --
   Intangible assets acquired                                                  980,254           --
   Liabilities assumed                                                        (625,352)          --
   Stock options issued                                                        (15,441)          --
   Non  compete agreement                                                      (77,897)          --
   Common stock issued                                                        (243,600)          --
                                                                           --------------------------
   Cash purchase price, including acquisition costs                        $    97,961    $      --
                                                                           ==========================
</TABLE>

See Notes to Consolidated Financial Statements


                                      F-8
<PAGE>




                           LEGAL RESEARCH CENTER, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 1. Nature of Business and Significant Accounting Policies

Nature of business and credit risk: Legal Research Center,  Inc.  provides legal
and factual  research and writing  services to U.S.  and  Canadian  attorneys in
corporate and private  practice.  The Company  grants credit to its customers on
terms it establishes for each customer.  Through its  eighty-five  percent owned
subsidiary The CyberLaw Office,  Inc. (CLO) and its wholly-owned  subsidiary The
Law Office,  Inc.  (TLO),  the  Company  intends to be a  full-service,  on-line
commercial   center   offering  a  variety  of  goods  and   services  to  legal
professionals  and a variety of legal-related  goods and services to the general
public.

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

Principles of consolidation:  The consolidated  financial statements include the
accounts of the  Company  and its  subsidiaries.  All  significant  intercompany
accounts and transactions have been eliminated.

Revenue  recognition:  Revenue is  recognized  as the  services  are  performed.
Unbilled services relate to unbilled revenue  recognized for services  performed
which include projects which are not fully complete.

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 includes approximately $946,600 in 1996 and $3,544,000
in 1995,  which were invested in money market  accounts.  These  investments are
carried at cost which is equal to fair value.

Depreciation: Depreciation is computed using the straight-line method over three
to seven years.

Capitalized  development  costs: The Company  capitalizes  certain product costs
incurred for the  development of its Corporate  Alternative  Dispute  Resolution
Enterprises  (CADRE) program and through part of 1996, the development  costs of
the  web-site  for TLO.  Capitalized  costs  include  direct  labor and fees and
expenses  of  contractors  who are or have  assisted in the  development  of the
product or service.  Once the product or service has been  launched,  such costs
are no longer capitalized and are expensed as incurred.  Capitalized development
costs for products now in service are amortized on a straight-line  basis over a
two year period.

Intangible  and  long-lived  assets:  In accordance  with Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets
to Be  Disposed  of, the  Company  reviews its  long-lived  assets and  goodwill
related to those  assets  periodically  to  determine  potential  impairment  by
comparing the carrying value of the long-lived  assets with the estimated future
net  undiscounted  cash flows  expected  to result  from the use of the  assets,
including  cash flows from  disposition.  Should the sum of the expected  future
cash net cash flows be less than the carrying value, the Company would recognize
an  impairment  loss at that  date.  An  impairment  loss would be  measured  by
comparing  the  amount  by which  the  carrying  value  exceeds  the fair  value
(estimated  discounted future cash flows) of the long-lived assets and goodwill.
While management has determined that no impairment currently


                                      F-9
<PAGE>


                           LEGAL RESEARCH CENTER, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

exists,  a future  impairment  may  develop if the Company is unable to meet its
plans and objectives related to the development of CLO and TLO.

Fair value of financial instruments:  The following methods and assumptions were
used to estimate the fair value of each class of financial instruments.

Cash and cash equivalents: The carrying value approximates fair value.

Notes receivable and advances: The carrying value approximates fair value due to
the associated interest rate approximating the current rate available on similar
notes.

Investment  in  American  Research  Corporation  (ARC):  The fair  value of this
investment,  based upon subsequent  sales of stock by ARC, results of operations
and estimated cash flow, is estimated to be its recorded value.

Net loss per common share: Net loss per common share is computed on the basis of
the weighted average number of common shares  outstanding  during the respective
periods.

Reclassifications:   Certain  reclassifications  have  been  made  to  the  1995
financial  statements to conform to the  classifications  in the 1996  financial
statements.  These  reclassifications did not have any impact on the net loss or
net loss per share of the Company for 1995.

Newly adopted  accounting  standard:  In October 1995, the Financial  Accounting
Standards  Board issued  Statement of Financial  Accounting  Standards  No. 123,
Accounting for  Stock-Based  Compensation,  which  established new standards for
stock-based   employee   compensation   plans.   The  statement   established  a
fair-value-based  method of accounting for  stock-based  compensation  plans and
encourages,  but does not require, entities to adopt that method in place of APB
Opinion No. 25, Accounting for Stock Issued to Employees. Entities that elect to
continue  under  Opinion No. 25 must  disclose pro forma net income and earnings
per share for all years  presented as if Statement No. 123 had been adopted.  In
1996,  the Company  adopted the statement but did not adopt the fair value based
method in measuring expense. Required pro forma disclosures are detailed in Note
6.

Advertising and promotion:  All costs  associated with advertising and promoting
products are expensed in the year incurred.  Advertising  and promotion  expense
was approximately $449,000 and $214,000 in 1996 and 1995, respectively.

Note 2. Common Stock

Public  offering  and  recapitalization:  On August 8, 1995,  the  Company  sold
1,350,000 shares of its common stock at a price of $3.50 per share in an initial
public offering (IPO). Under terms of the IPO, the underwriter exercised an over
allotment  option to purchase an additional  202,500 shares of common stock at a
price of $3.50 per share,  which was exercised by the  underwriter  on September
13, 1995. The  underwriter  was also granted  warrants to purchase an additional
135,000 shares at a price of $4.20 per share.  The Company received net proceeds
of an aggregate of $4,462,880 from the sale of the shares of common stock in the
IPO.


                                      F-10
<PAGE>


                           LEGAL RESEARCH CENTER, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Financing  and  issuance  of stock:  In May and June 1995,  the  Company  issued
$500,000 of 10 percent promissory notes (including $150,000 purchased by related
parties) and warrants to purchase  100,000  shares of the common stock at $2.625
per share.  In June 1995,  $154,000 of the promissory  notes were converted into
57,037  shares of common  stock at $2.70 per  share.  The  remaining  notes were
repaid in August 1995. The warrants expire in June 1999.

In June  1995,  the  Company  issued to two  officers  and  stockholders  in the
aggregate  26,296  shares  of common  stock at a price of  $2.625  per share and
warrants to  purchase  14,200  shares for $2.70 per share  which  expire in June
1999.

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.  In October 1996,  10,000 of such shares
were repurchased by the Company from the shareholder at $3.50 a share. 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  addition,  the
shareholder  can  require  the  Company  to  repurchase  a portion or all of the
remaining  shares at $3.50 a share if TLO obtains  debt or equity  financing  in
excess of $500,000.

Notes  receivable from officers and directors:  On September 3, 1996 the Company
sold an  aggregate  of  1,040,000  shares  of its  common  stock to three of its
officers and/or  directors,  at the closing price for the Company's common stock
on September 4, 1996, or $1.89 per share.  The purchases were made through seven
year non-recourse notes, with the shares pledged as collateral. The notes bear a
fixed interest rate of 8.5% and cannot be prepaid  anytime  before  September 2,
2003.  The shares are  restricted  and cannot be sold or  otherwise  transferred
without  repaying the notes.  It is Company policy not to record interest income
on the notes until cash is received on September 2, 2003.

Common stock issued to officers or  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 common stock equivalents for purposes
of  calculating  weighted  common average  shares  outstanding  and earnings per
share.

Note 3. Investments and Notes Receivable

Acquisition of The Law Office, Inc.: In May 1995 the Company acquired 25% of the
stock of The Law Office,  Inc.  (TLO).  The  investment in TLO was accounted for
under the equity method of accounting through May 1996.

In May 1996, the Company acquired all of 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 purchase of TLO was accounted  for as a purchase and the purchase  price has
been  allocated to the assets  acquired and  liabilities  assumed  based on fair
values.  The  original  purchase  price  allocation   consisted  of  actual  and
contingent liabilities. During the third and


                                      F-11
<PAGE>


                           LEGAL RESEARCH CENTER, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

fourth  quarters  of  1996,   certain   contingent   liabilities  were  settled;
accordingly,  the purchase  price  allocation  has been  adjusted to reflect the
settlement.  The revised  purchase price and  allocation to assets  acquired and
liabilities assumed is as follows:

                    Purchase Price:
                     Stock issued and cash paid            $  341,561
                     Stock options issued                      15,441
                     Liabilities assumed                      703,249
                                                           ----------
                                                           $1,060,251
                                                           ==========

                    Allocated to:
                     Tangible assets                       $   79,997
                     Intangible assets:
                       Microsoft contract                      70,800
                       Non compete agreement                   96,468
                       Goodwill                               812,986
                                                           ----------
                                                           $1,060,251
                                                           ==========

The excess of the purchase price net of liabilities  assumed over the fair value
of the tangible asset acquired has been assigned to intangible  assets which are
being amortized using the straight-line method over the following periods:

         Microsoft contract                          18 months
         Non compete agreement                       54 months
         Goodwill                                    60 months

The  CyberLaw  Office,  Inc.:  The  CyberLaw  Office,  Inc.  (CLO),  a Minnesota
corporation,  was  incorporated  on October 16,  1995,  and is a majority  owned
subsidiary of the Company.  CLO was originally  created by the Company to expand
its on-line activities  similar to TLO, into the international  market place. In
July 1996,  the Company  sold a 15%  interest to a director of the Company as an
inducement  to become the new Chief  Executive  Officer  of CLO,  as part of the
employment  agreement,  for a nominal  sum.  CLO has  insignificant  assets  and
reported no results from operations in 1996 or 1995. In August 1996, the Company
consolidated  management  of all  Internet  related  activities  under the Chief
Executive  Officer of CLO. The Company  intends to consolidate  ownership of TLO
under CLO when additional  financing is complete.  TLO has a negative book value
and requires  substantial  additional  investment to achieve its potential.  CLO
plans to seek additional investment from outside investors in 1997.

American  Research  Corporation:  In September 1995, the Company  purchased less
than 5 percent of the common  stock of ARC for  $100,000.  ARC has  developed  a
product  and service  that  supports  professional  service  providers.  ARC has
reported  losses in operations  since  inception in 1992.  The Company  provides
research  services  to ARC for which it charges ARC an  arm's-length  negotiated
market rate. Total revenues from ARC were approximately  $202,000 and $84,000 in
1996 and 1995, respectively.


                                      F-12
<PAGE>

                           LEGAL RESEARCH CENTER, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

The Company uses the cost method of accounting for this investment. In September
1995, the Company advanced ARC $50,000, evidenced by a unsecured 9.75% note. The
note plus interest was repaid in October 1996.

At  December  31,  1996  and  1995,  the  Company  had  receivables  from ARC of
approximately  $174,000 and  $136,000,  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.  ARC is  currently  seeking
investors to raise funds to meet its operating cash  requirements.  The Company,
based  on  information   currently   available  through   discussions  with  ARC
management,  has concluded that the amounts due from ARC should be  collectible.
Given  the  uncertainties  associated  with ARC  attempts  to  raise  additional
financing  and the  possibility  that ARC may be unable  to raise the  necessary
funds to meet its obligations, the Company has reserved approximately $80,000 of
the December 31, 1996 receivable as potentially uncollectible.  In addition, the
Company wrote down its stock  investment  in ARC from $100,000 to  approximately
$42,000 at December 31, 1996, an estimate of its market value.

Note 4. Pro Forma Results of Operations

The  following  pro  forma  information  is  based on the  historical  financial
statements  of the  Company  and  TLO.  This  information  gives  effect  to the
acquisition  of TLO by the Company as if it  occurred  on May 3, 1995,  the date
operations  commenced  for TLO.  The pro forma  financial  information  does not
purport to represent  what the Company's  results of operations  would  actually
have been if the  acquisition  occurred on the dates indicated or to project the
Company's  results at any future period or date.  The pro forma  information  is
presented for comparative purposes only.
     
                                                      Year ending December 31,
                                                     --------------------------
                                                         1996          1995
                                                     --------------------------
Pro forma revenues                                    $ 2,760,038    $1,404,389
Pro forma loss                                        $(1,840,710)   $ (721,762)
Pro forma net loss per share                          $     (0.82)   $    (.057)

Pro forma weighted average common shares outstanding    2,257,633     1,268,607

Note 5. Income Taxes and S Corporation Distributions

Prior to the completion of the IPO on August 8, 1995, the Company was taxed as a
S Corporation whereby the profits and losses of the Company were reported in the
individual income tax returns of the stockholders.  Periodic  distributions were
made to the Company's  stockholders  for the  estimated  income tax liability on
reported earnings.

Upon the  completion  of the IPO,  the Company  became a C  Corporation,  and is
required  to pay  income  taxes on its  subsequent  earnings.  Accordingly,  the
accumulated  deficit  was  reclassified  to  additional  paid-in  capital  as  a
constructive   dividend  to  the  S  Corporation   stockholders  followed  by  a
contribution by such stockholders to the capital of the Company.


                                      F-13
<PAGE>


                           LEGAL RESEARCH CENTER, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Deferred taxes are provided on a liability  method  whereby  deferred tax assets
are recognized for deductible  temporary  differences  and operating loss or tax
credit  carryforwards,  and deferred tax  liabilities are recognized for taxable
temporary  differences.  Temporary  differences are the differences  between the
amounts  of  assets  and  liabilities  recorded  for  income  tax and  financial
reporting  purposes.  Deferred  tax assets are reduced by a valuation  allowance
when management  determines that it is more likely than not that some portion or
all of the  deferred  tax assets will not be  realized.  Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.

Deferred taxes consisted of the following at December 31,

                                                       1996         1995
                                                    ---------------------
    Deferred tax assets:
                 Trade receivables                  $  42,000       14,000
                 Investments                           36,000       10,000
                 Accrued expenses                      16,000         --
                 Net operating loss carry forward     645,000      112,000
                                                    ----------------------
                                                      739,000      136,000

    Deferred tax liability:
                 Furniture and equipment               (4,000)      (8,000)
                                                    ----------------------

    Net deferred tax assets                           735,000      128,000

    Valuation allowance                              (735,000)    (128,000)
                                                    ----------------------
                                                    $    --      $    -- 
                                                    ======================

The  Company  has not  recorded  an income tax  benefit in 1996 or 1995 due to a
valuation allowance which was recorded to account for the uncertainty associated
with the realization of such loss carryforwards in future years.

At  December  31,  1996,  the  Company had a net  operating  loss  carryforwards
totaling  $1,843,000,  of which $650,000 and $1,193,000  will expire in 2010 and
2011,  respectively.  $350,000 of the net operating carryforwards are subject to
certain annual limitations.


Note 6. Stock Option Plans

At December 31, 1996 the Company had two stock-based  compensation  plans, which
are  described   below.   The  Company   applies  APB  Opinion  25  and  related
interpretations  in  accounting  for its stock  option  plans.  Accordingly,  no
compensation  cost has been recognized for its fixed options plans. In addition,
no compensation  cost has been charged against income for its performance  based
stock  option  grants  in 1996.  Had  compensation  cost for the  Company's  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 FASB
Statement  123,  the  Company's  net loss and loss per  share  would  have  been
increased to the pro forma amounts indicated below:


                                      F-14
<PAGE>


                           LEGAL RESEARCH CENTER, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

                                                 1996            1995
                                          -----------------------------
     Net loss         As reported         $  (1,656,533)   $  (392,753)
                      Pro forma           $  (3,336,450)   $  (422,744)

     Loss per share   As reported         $       (0.75)   $     (0.33)
                      Pro forma           $       (1.51)   $     (0.35)

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

Fixed Stock Option Plans

In May 1995,  the Company  adopted the Legal  Research  Center,  Inc. 1995 Stock
Option  Plan  (Option  Plan) and  reserved  200,000  shares of common  stock for
issuance under the plan. The Board of Directors has approved an amendment to the
Option Plan to increase  the number of reserved  shares to 700,000.  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.

In April 1995, the Company  adopted the Legal  Research  Center,  Inc.  Existing
Officers'  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.

Non-employee 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 expiring 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 1996 and 1995,  respectively:  no dividend yield
during the expected life of outstanding  options;  expected volatility of 93 and
41 percent; risk free interest rates of 6 percent; and expected lives of 5.7 and
2.6 years.

A summary of the status of the Company's  fixed stock options under these plans,
including the stock issued to officers and directors  which are treated as stock
options (see Note 2), as of December 1996 and 1995 and changes  during the years
ending on those dates is presented below:


                                      F-15
<PAGE>


                           LEGAL RESEARCH CENTER, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                              1996                                               1995
                                          --------------------------------------------   ----------------------------------
                                                                  Weighted-average                         Weighted-average
                                                 Shares            Exercise Price             Shares        Exercise Price
                                          --------------------------------------------   ---------------------------------
<S>                                              <C>                <C>                    <C>                  <C>   
Outstanding at beginning of year                 394,200         $   2.96                        --             $   --
Granted                                        1,138,104             2.96                        --                 --
Exercised                                           --               --                       394,200               2.96
Forfeited                                         (1,500)            2.25                        --                 --
                                             ------------                                  ----------             
Outstanding at end of year                     1,530,804             2.96                     394,200               2.96
                                             ============                                  ==========             
Weighted-average fair value of                                                                             
 options granted during the year             $     1.37                                    $    1.18
                                             ============                                  ==========             
</TABLE>

The following table summarizes information about fixed stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
                                         Options Outstanding                                      Options Exercisable
                       ---------------------------------------------------------------   ---------------------------------
                           Number         Weighted -Average                                 Number
     Range of          Outstanding at         Remaining         Weighted-average         Exercisable      Weighted-average
 Exercise Prices          12/31/96        Contractual Life       Exercise Price          at 12/31/96       Exercise Price
--------------------------------------------------------------------------------------   ---------------------------------
<S>                      <C>                   <C>                    <C>                <C>                   <C>  
 $1.88 - 2.70               57,200             2.47                $   2.53                 57,200          $   2.53
 $1.69 - 2.97              413,604             3.26                    2.84                173,604              2.66
    $1.89                1,040,000             6.68                    3.02              1,040,000              3.02
    $3.50                   10,000             8.59                    3.50                 10,000              3.50
    $3.38                   10,000             9.47                    3.38                 10,000              3.38
                        -----------                                                      ---------
$1.69 - $3.50            1,530,804             5.63                    2.96              1,290,804              2.96
                        ===========                                                      =========
</TABLE>


Performance-based  Stock Option Plans

In June 1996,  under the terms of the Option Plan, the Company adopted a program
to award stock option grants to executive  officers  whose vesting is contingent
upon the Company  attaining two consecutive  profitable  quarters.  The exercise
price of each option is equal to the market price of the Company's  stock on the
date of grant and  expire in periods  ranging  from three to five years from the
date of grant.

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 1996: no dividend yield during the expected life
of outstanding options; expected volatility of 93%; risk free interest rate of 6
percent; and expected lives of 2.0 years.

A summary of the status of the  Company's  performance-based  option plans as of
December 1996 and changes during the year is presented below:


                                      F-16
<PAGE>


                           LEGAL RESEARCH CENTER, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

                                                            1996
                                          --------------------------------------
                                                            Weighted-average
                                                 Shares      Exercise Price
                                          --------------------------------------

Outstanding at beginning of year                    --          $ --
Granted                                          385,000          2.03
Exercised                                           --            --
Forfeited                                           --            --
                                                --------
Outstanding at end of year                       385,000          2.03
                                                ========

Weighted-average fair value of
 options granted during the year                $  1.05
                                                ========

The following table summarizes information about performance-based stock options
outstanding at December 31, 1996:

<TABLE>
<CAPTION>
                                             Options Outstanding                                      Options Exercisable
                       ---------------------------------------------------------------       --------------------------------------
                             Number         Weighted -Average                                     Number
       Range of          Outstanding at         Remaining         Weighted-average             Exercisable      Weighted-average
   Exercise Prices          12/31/96        Contractual Life       Exercise Price              at 12/31/96       Exercise Price
--------------------------------------------------------------------------------------       --------------------------------------
<S>                        <C>                  <C>                  <C>                             <C>             <C>   
   $2.88                   15,000               2.49                 $2.88                           --              $   --
   $2.00                  370,000               4.37                  2.00                           --                  --
                       ------------                                                           ------------- 
                          385,000               4.29                  2.03                           --                  --
                       ============                                                           ============= 
</TABLE>

Note 7. Agreements

The Company has agreements with certain  associations  which require the Company
to pay  royalties for projects  resulting  from direct  referrals.  In addition,
royalties  are also  required when the project was not referred yet the customer
served is a member of the association. Royalty rates and terms of the agreements
vary  depending  upon the agreement  and apply to a  significant  portion of the
Company's revenues.  Royalty expense for 1996 and 1995 was approximately $20,000
and $47,000, respectively.

Note 8. Related-Party Transactions

Lease:  The  Company  leases an office  facility  from a related  party under an
operating lease requiring  monthly rent of approximately  $6,000 through January
2001.  The lease is at 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  $66,700 and $40,300 for 1996 and 1995,
respectively.

Officer employment  agreements:  The Company entered into three-year  employment
agreements  with two  officers  of the  Company  commencing  July 1,  1995.  The
agreements,  as  amended,  require  annual  base  salaries  of $96,000  for each
officer,  plus goal-oriented  incentives starting in 1996, which may be adjusted
by  the  Board  of  Directors.  Incentive  compensation  expense  under  officer
employment agreements was approximately $68,200 in 1996.

Capitalized development costs: The Company entered into an agreement with one of
its directors for the  development of CADRE, an alternative  dispute  resolution
program which the Company intends to market as a corporate  training course. The
agreement requires payments of $2,800 per month through


                                      F-17
<PAGE>


                           LEGAL RESEARCH CENTER, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

July 1997 and  automatically  renews for one year periods  unless  terminated by
either party. The Company has capitalized these development costs.


Note 9. Major Customer

One customer accounted for 52% of the Company's revenues in 1996 and had amounts
owing to the Company  for  services of  approximately  $770,000 at December  31,
1996.  No  customer  accounted  for more than 10  percent of total  revenues  in
recorded in 1995.



                                      F-18
<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
1997 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 I 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 1997 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
1997 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 1997 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, 1996
and 1995 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:

Exhibit No.               Title                                 Method of Filing
-----------               -----                                 ----------------

  3.1       Restated Articles of Incorporation                          1

  3.2       Restated Bylaws                                             1

  4         Form of Common Stock Certificate                            1

  10.1      1995 Stock Option Plan                                      1


                                      -12-
<PAGE>



  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

  10.10     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                                      Filed herewith

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

  10.16     News  release  dated March 6, 1997  regarding 
            the  financial results for the year
            ended December 31, 1996                               Filed herewith

  11        Subsidiaries of Legal Research Center, Inc.           Filed herewith

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.

     (b)  Reports on Form 8-K.

                 None

                                      -13-
<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/ Frank  G. Hallowell   
                                                    --------------------------
                                                    Frank G. Hallowell, VP & 
                                                    Chief Financial Officer

     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 26, 1997
                                      -------------------


Christopher R. Ljungkull
Chief Executive Officer
(Principal Executive                  /s/ C.R. Ljungkull          March 26, 1997
Officer) and Director                 -------------------
                                                                 

James R. Seidl
President and Director                /s/ James R. Seidl          March 26, 1997
                                      -------------------

James J. Seifert
Director                              /s/James J. Seifert         March 26, 1997
                                      -------------------

                                      -14-
<PAGE>


              As filed with the Securities and Exchange Commission
                                on March 26, 1997


                        SECURITIES AND EXCHANGE COMISSION
                             WASHINGTON, D.C. 20549



                                    EXHIBITS

                                       TO

                                   FORM 10 KSB

                                  ANNUAL REPORT

                   For the fiscal year ended December 31, 1996

                       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
                                    --------

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

10.16 News release dated March 6, 1997  regarding  the financial  results for 
      the year ended December 31, 1996

11    Subsidiaries of Legal Research Center, Inc.