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, 1998 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 ___.

     State issuer's revenues for its most recent fiscal year. $2,403,079

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

                        $1,066,003 as of March 15, 1999

                    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.

              3,334,133 shares of Common Stock as of March 15, 1999

                       DOCUMENTS INCORPORATED BY REFERENCE

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

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


                            [Cover page 2 of 2 pages]

<PAGE>


PART I

                         Item 1. DESCRIPTION OF BUSINESS

General

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

Business Highlights

     The Company focused its resources and efforts entirely on its core business
starting  in the  second  half of 1997 and  continuing  into  early  1998.  This
strategy  resulted in significant  cost savings and increased  revenues in 1998.
Revenues  increased  to  $2,403,079  compared to 1997  revenues  of  $1,779,033.
Revenues from attorneys  working for Risk  Enterprise  Management  (REM) - which
manages the claims of insurance  companies  such as Home  Insurance - which were
expected to reach only $250,000 in 1998,  were  $375,000 in 1998.  Revenues from
major corporate  customers such as REM accounted for  approximately 60% of total
revenues in 1998.

     Gross profit  increased from 40 cents for every $1 of revenue in 1997 to 52
cents for every $1 of revenue in 1998. The Company also cut overhead by $472,592
or 28%. Overhead decreased as a percentage of revenue from 94% in 1997 to 50% in
1998. These factors,  combined with the growth in revenues,  have had a positive
impact on the  Company's  use of cash.  In 1997 it used $790,000 of its cash, in
1998 the Company added $270,000 to cash.

Industry Overview

     It is  estimated  that  over  $100  billion  is spent in the U.S.  on legal
services each year 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.


                                      -3-
<PAGE>


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

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

Business Overview and Initiatives

     LRC's core activities  consist of providing legal and factual  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.  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 -
disk, CD-ROM or Website - which is easier to review and cross reference.

     In 1998, the Company completed 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 


                                      -4-
<PAGE>


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
industries  committed to reducing their conflict costs and industries  which are
experiencing  high conflict costs.  The Company  believes that CADRE will create
greater  exposure  and  awareness  of the  Company's  core  research and writing
services  and will  create  additional  impetus  for  growth in the  traditional
markets served by the Company.  The Company is currently seeking to market CADRE
through insurers to their customers with large product liability exposure.

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

Sales and Marketing

     LRC's marketing strategy centers around providing  customized,  value-added
solutions in response to each customer's  analytical research and writing needs.
Because of the Company's historical limited marketing budget, the Company 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.

     The Company  maintains  strategic  marketing  relationships  with major law
associations  and  other  providers  of  legal  services.   LRC  believes  these
relationships  enhance the Company's  visibility to practitioners and reputation
for  quality  and  enable  its  marketing  partners  to offer  their  members  a
value-added service.  LRC has been the exclusive designated  outsourced provider
of research and writing  services to the 60,000  members of the  Association  of
Trail Lawyers of America since 1989. 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 1998, the Company  entered into an
exclusive 4-year contract with ACCA.

     In 1994, the Company entered into an agreement with West Publishing Company
- now West Group - 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 all requests for analytical  legal and factual research and writing.
The original term of the West Agreement  expired in June 1998; the agreement was
renewed and currently expires in June 1999.

Customer Relationships

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

     In 1996, pursuant to a three-year  contract,  the Company completed a large
multi-jurisdictional  survey  for  a  customer,  Bankers  Systems,  Inc.,  which
accounted for  approximately  8% and 14% of the  Company's  revenues in 1998 and
1997,  respectively.  The  agreement  between  the  Company  and BSI will  renew
automatically in June of 1999.


                                      -5-
<PAGE>


     The Company has a relationship with Risk Enterprise  Management (REM) under
which the Company provides  research services directly for the attorneys and law
firms serving REM. Revenues from major corporate  customers such as REM, BSI and
WestGroup accounted for approximately 60% of total revenues in 1998.

Executive Officers of the Company

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

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

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

Personnel

     As of March 12, 1999,  the Company had 17 employees,  including 5 full-time
research  attorneys,  and a pool of 25 contract  attorneys.  This  represents  a
reduction  in staff  of  approximately  66%  since  approximately  July of 1997,
attributable  to lower revenue levels as well as  efficiencies  in production of
research and overhead  expenses.  Most of the Company's  contract attorneys work
part-time.  No Company  employees are currently  represented by labor unions and
the Company is not a party to any collective bargaining  agreement.  The Company
has never  been  subject  to any form of work  stoppage  or  strike  and has not
experienced  any labor  difficulties.  The current  full-time  staffing level is
considered  to be adequate.  The Company  expects that it will  continue to need
more contract  attorneys as its business  grows and expects that it will be able
to secure such attorneys as needed.

Competition

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

Government Regulation

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


                                      -6-
<PAGE>


Insurance

     The Company carries property damage,  workers' compensation,  and Directors
and  Officers  liability  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 $61,000 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
excessive for its current  operations and its foreseeable  needs, and is seeking
to reduce the amount of space leased at it's current location.

                            Item 3. LEGAL PROCEEDINGS

     Except as  described  below,  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.

     In June of 1998 the Company was sued by Lawfinders Associates,  Inc. (LFA),
a Dallas  competitor,  based  on  LFA's  allegation  that  the  Company  usurped
proprietary   information  learned  in  the  context  of  preliminary   business
combination discussions, which did not materialize. The lawsuit was based on the
Company's plan to offer customers for appellate briefs a 100% guarantee based on
result. This plan was halted when LFA obtained a temporary  restraining order in
Texas  state court  temporarily  ending  LRC's  program.  LFA seeks  unspecified
damages  and seeks to enjoin LRC from  offering a  results-based  guarantee.  On
November 4, 1998, a federal  court in Dallas,  Texas  granted  LRC's  request to
dissolve the state court order and rejected  LFA's claims that it had  exclusive
rights to guaranteed brief writing services.  The Company expects to continue to
prevail in the  proceedings  and expects all its costs related to the litigation
to be covered by its insurer.

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

     No matters were  submitted  during the fourth quarter of the Company's 1998
fiscal year to a vote of security  holders,  through the solicitation of proxies
or otherwise.

PART II

        Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Price Range of Common Stock

     The  Company's  Common  Stock was  traded  on the  Nasdaq  SmallCap  Market
(Nasdaq)  from August 3, 1995 to October 30,  1997,  when it was  delisted  from
Nasdaq as a result of not meeting Nasdaq's  continued listing  criteria.  It now
trades on the Over-the-Counter  Bulletin Board. As of March 


                                      -7-
<PAGE>


15, 1999,  there were  approximately  56  recordholders of its Common Stock. The
Company estimates that there are approximately  1,200 beneficial  holders of its
Common Stock.

     The following  table sets forth the  quarterly  high and low bid prices for
the periods  indicated,  through  December 31, 1998, as reported by Nasdaq.  The
prices listed are inter-dealer  quotations without retail mark-up,  mark-down or
commission  and  may  not  reflect  actual  transactions.  The  Company  has not
independently verified the prices listed.

        Period                            Low Bid                      High Bid
        ------                            -------                      --------

     01/01/97 - 03/31/97                    $1                          $1-7/8 
                                                                    
     04/01/97 - 06/30/97                    $5/8                        $1-1/2
                                                                    
     07/01/97 - 09/30/97                    $5/8                        $1
                                                                    
     10/01/97 - 12/31/97                    $1/8                        $1/2
                                                                    
     01/01/9 - 03/31/98                     $3/16                       $1/2
                                                                    
     04/01/98 - 06/30/98                    $7/32                       $7/16
                                                                    
     07/01/98 - 09/30/98                    $7/32                       $25/64
                                                                    
     10/01/98 - 12/31/98                    $3/16                       $25/64
                                                                

        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 footnotes which
appear elsewhere in this Report.

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

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

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

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

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


                                      -8-
<PAGE>


     The  Company's  revenues  have  historically  been derived from  conducting
analytical research and writing on a non-recurring  basis for its customers.  In
1998, 10 customers  accounted for approximately  60% of the Company's  revenues.
The  loss of one or more of  these  customers  without  the  Company  generating
replacement  business  would have a  material  adverse  impact on its  financial
condition.  Historically,  the Company has experienced a seasonal fluctuation in
revenues with the second and third  quarters  being the slowest  quarters of the
year and the last quarter being the strongest.

     The Company has expended an aggregate of  $3,721,557  due to losses in 1996
and 1997. Steps taken in 1997 and 1998, including the discontinuation of The Law
Office and the write-down  thereof,  enabled it to achieve  profitability by the
third Quarter of 1998.

Results of Operations

Year ended December 31, 1998 compared to the year ended December 31, 1997

     Revenues:  Revenues  increased by $624,046 or 35%, to  $2,403,079  for 1998
compared to 1997 revenues of  $1,779,033.  The increase in revenues is primarily
attributable to increased sales to corporate customers.

     Direct Operating  Costs:  Direct operating costs for compensation and other
benefits  include hourly  contract fees for independent  research  attorneys and
hourly compensation of staff research attorneys, document production and support
personnel.  Other direct  operating  costs  include  outside  research  fees and
services, royalty fees for association referrals,  computer database charges and
document retrieval expenses.  Total direct operating costs increased $75,155, or
7%, to $1,144,488,  compared to 1997 direct operating costs of $1,069,333.  This
increase is directly related to the increase in revenue in 1998.

     Gross  Profit:  Gross  profit  increased  $548,891,  or 77%, to  $1,258,591
compared to 1997 gross profit of $709,700.  As a  percentage  of revenue,  gross
profit  increased  to 52% in 1998  compared  to 40% in 1997.  The  increase  was
principally  due to  increased  efficiency  in the  production  of research  and
writing.

     Other  Operating  Costs:  Other  operating  costs include  compensation  of
officers,  sales and other corporate  staff,  advertising  and direct  marketing
expenditures  and  general  corporate  overhead,   including   depreciation  and
amortization.  These costs decreased  $472,592,  or 28%, to $1,205,585 over 1997
costs of $1,678,177. Other operating costs decreased as a percentage of revenues
from 94% in 1997 to 50% in 1998.  The  decrease in these  costs by category  was
$281,166,  or 36%,  for sales and  marketing;  $191,426,  or 21%, in general and
administrative.  The  decrease  in  sales  and  marketing  costs  was due to the
reduction of the sales and support staff and decreased marketing and advertising
expenditures.  General  and  administrative  expenditures  decreased  due to the
reduction  of  the  support  and  management  staff,   decreases  in  management
compensation and decreases in operating  expenses (travel,  accounting and legal
support and supplies).

     Depreciation   and   Amortization:   The  Company  had   depreciation   and
amortization of $155,081 in 1998 compared to $193,736 in 1997.

     Earnings Before Interest,  Taxes,  Depreciation and Amortization:  Earnings
before interest, taxes, depreciation and amortization were $223,203, or $.10 per
share for 1998, compared to a loss of $1,871,268 or $.82 in 1997.

     Net Income (Loss):  The Company earned $55,240 or $.02 per share (basic and
diluted)  for  the  year  ended  December  31,  1998,  compared  to a loss  from
continuing operations of $940,479 or $.41 per share for the comparable period in
1997.  The 106%  change in the  income/loss  per  share was the  result of a 35%
increase in revenue offset by a 7% increase in direct operating  costs,  further
offset  by a 28%  decrease  in  other  operating  costs  through  the  continued
downsizing of the Company's infrastructure.


                                      -9-
<PAGE>


Year 2000

     The Company's  information  systems and accounting  employees have examined
all its internal  systems,  including  hardware and software,  and believes that
year 2000 issues will not materially affect its business,  results of operations
or financial  condition.  The Company  relies  primarily on current  versions of
WordPerfect and Word which it believes are not subject to year 2000 issues.  The
Company's accounting and record-keeping systems - relying primarily on Microsoft
ACCESS,  Windows NT and Peachtree,  it believes, are year 2000 compliant and, in
any event,  are not 2-digit date  dependent.  Additionally,  its  accounting and
record keeping systems can be replicated  easily and manually.  Primary research
sources relied upon are WESTLAW and LEXIS,  which the Company  believes are year
2000  compliant  but which are,  nevertheless,  significantly  redundant to each
other and to easily-accessible print sources.

Liquidity and Capital Resources

     At December 31, 1998, the Company had cash and cash equivalents of $436,110
and working capital of $812,006.  At the same time in 1997, the Company had cash
and cash equivalents of $165,924 and working capital of $391,990.

     In 1997,  the Company  instituted  specific  cost control  measures such as
hiring and wage freezes and reductions,  to reduce  expenditures in all areas of
its operation.  The Company expected that by the end of 1997, expenditures would
be funded almost  exclusively by funds  generated from  operations.  The Company
reached that goal during the first half of 1998, and raised  additional  working
capital in the form of convertible  debt. The debt consists of two notes payable
incurred in 1998 totaling  $200,000 with interest  payments at an annual rate of
10%, and is convertible at $1 per share.

     Net cash provided by operating  activities  was $28,081 in 1998 compared to
$600,745  net cash used in  operating  activities  in 1997.  The Company had net
income of $55,240  compared to a net loss of  $2,065,004 in 1997 for the reasons
discussed above.

     Investment  activities  provided $42,105 in 1998 through cash received on a
note receivable plus proceeds from the sale of equipment.  Financing  activities
provided $200,000 from notes payable discussed above.

     The Company does not anticipate the payment of cash dividends on its Common
Stock in the foreseeable  future.  It is anticipated  that profits 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.

Business Outlook

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

     Starting  July 1, 1997,  the  Company  sought to improve  gross  margins by
restructuring  research  procedures and compensation,  raising and restructuring
pricing,  and utilizing the technology  developed with its new infrastructure to
reduce its  production  department.  The  Company  reduced  overhead by reducing
management compensation by 10% - 30%, restructuring sales compensation, reducing
non-research  staff by  attrition  and layoffs by  two-thirds,  and  reducing or
eliminating all other fixed expenses. The Company hopes to maintain annual gross
margins of 50% or better and hopes  overhead  will continue to be static or grow
at a rate significantly lower than revenue.



                                      -10-
<PAGE>


     The  Company  continues  to focus  its  marketing/sales  efforts  on direct
marketing  of  its  traditionally-strong  products  and  services.  The  Company
believes the market for the outsourced  legal  research and writing  services it
provides to be growing and that it can  continue  to increase  revenues  for the
foreseeable future.

                          Item 7. FINANCIAL STATEMENTS

     The information  required by this item is incorporated  herein by reference
to pages F-1 through F-13, which follow this page.

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

     Effective as of December 17, 1997, the Company's principal accounting firm,
McGladrey & Pullen, LLP resigned.  McGladrey & Pullen's reports on the financial
statements  of the Company for 1996 and 1995 did not contain an adverse  opinion
or disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting  principles.  There have been no disagreements between
the  Company  (including  the audit  committee  of the Board of  Directors)  and
McGladrey  &  Pullen  on any  matter  of  accounting  principles  or  practices,
financial statement  disclosure or auditing scope or procedure.  Effective as of
February 13, 1998,  the Company hired Lurie  Besikof,  Lapidus & Co., LLP, which
firm audited the Company's 1997 and 1998 financial statements.

                                    CONTENTS

--------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT                                                F-1
--------------------------------------------------------------------------------
                                                                    
FINANCIAL STATEMENTS                                                
                                                                    
  Consolidated Balance Sheets                                               F-2
                                                                    
  Consolidated Statements of Operations                                     F-3
                                                                    
  Consolidated Statements of Stockholders' Equity                           F-4
                                                                    
  Consolidated Statements of Cash Flows                                     F-5
                                                                    
  Notes to Consolidated Financial Statements                         F-6 - F-13
--------------------------------------------------------------------------------
                                                            


                                      -11-
<PAGE>
                                      


                          INDEPENDENT AUDITOR'S REPORT



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


We have audited the  accompanying  consolidated  balance sheet of LEGAL RESEARCH
CENTER,  INC. as of December  31,  1998 and 1997,  and the related  consolidated
statements of  operations,  stockholders'  equity,  and cash flows for the years
then ended.  These consolidated  financial  statements are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our 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  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  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 LEGAL  RESEARCH
CENTER,  INC.  as of  December  31,  1998 and  1997,  and the  results  of their
operations  and their cash flows for the years  then  ended in  conformity  with
generally accepted accounting principles.



                                        LURIE, BESIKOF, LAPIDUS & CO., LLP
Minneapolis, Minnesota
February 18, 1999


                                     


                                       F1
<PAGE>


                                     


                           LEGAL RESEARCH CENTER, INC.

                           CONSOLIDATED BALANCE SHEETS
                           December 31, 1998 and 1997


<TABLE>
<CAPTION>
          ASSETS                                                         1998           1997    
                                                                     -----------    -----------
<S>                                                                  <C>            <C>        
CURRENT ASSETS
    Cash and cash equivalents                                        $   436,110    $   165,924
    Accounts receivable                                                  457,723        277,144
    Notes receivable                                                      30,909         60,000
    Other                                                                 33,121         43,399
                                                                     -----------    -----------
       TOTAL CURRENT ASSETS                                              957,863        546,467
                                                                     -----------    -----------

FURNITURE AND EQUIPMENT                                                  342,067        362,247
    Less accumulated depreciation                                        298,340        245,632
                                                                     -----------    -----------
                                                                          43,727        116,615
                                                                     -----------    -----------

OTHER ASSETS
    Notes receivable, net of current amount                               50,050         60,959
    Intangible assets                                                    232,645        313,624
                                                                     -----------    -----------
                                                                         282,695        374,583
                                                                     -----------    -----------
                                                                     $ 1,284,285    $ 1,037,665
                                                                     ===========    ===========

          LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
    Accounts payable                                                 $    44,235    $    57,411
    Accrued expenses:
       Compensation                                                       80,990         48,899
       Other                                                               3,155         21,394
    Client advances                                                       17,477         26,773
                                                                     -----------    -----------
       TOTAL CURRENT LIABILITIES                                         145,857        154,477
                                                                     -----------    -----------

NOTES PAYABLE                                                            200,000             -- 
                                                                     -----------    -----------

STOCKHOLDERS' EQUITY
    Common stock, $0.01 par value (authorized - 20,000,000 shares;
       issued - 3,327,633)                                                33,276         33,276
    Additional paid-in capital                                         6,870,007      6,870,007
    Accumulated deficit                                               (3,998,605)    (4,053,845)
    Notes receivable from officers and directors                      (1,966,250)    (1,966,250)
                                                                     -----------    -----------
                                                                         938,428        883,188
                                                                     -----------    -----------
                                                                     $ 1,284,285    $ 1,037,665
                                                                     ===========    ===========
</TABLE>


See notes to consolidated financial statements.


                                      


                                       F2
<PAGE>


                                     


                           LEGAL RESEARCH CENTER, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     Years Ended December 31, 1998 and 1997



                                                         1998           1997    
                                                     -----------    -----------

REVENUES                                             $ 2,403,079    $ 1,779,033
                                                     -----------    -----------

DIRECT OPERATING COSTS
    Compensation and benefits                            817,111        767,712
    Other                                                327,377        301,621
                                                     -----------    -----------
                                                       1,144,488      1,069,333
                                                     -----------    -----------

GROSS PROFIT                                           1,258,591        709,700
                                                     -----------    -----------

OTHER OPERATING COSTS
    Sales and marketing                                  493,324        774,490
    General and administrative                           712,261        903,687
                                                     -----------    -----------
                                                       1,205,585      1,678,177
                                                     -----------    -----------

INCOME (LOSS) FROM OPERATIONS                             53,006       (968,477)
                                                     -----------    -----------

OTHER INCOME (EXPENSE)
    Interest income                                       15,116         27,998
    Interest expense                                     (12,882)            -- 
                                                     -----------    -----------
                                                           2,234         27,998
                                                     -----------    -----------

INCOME (LOSS) FROM CONTINUING OPERATIONS                  55,240       (940,479)
                                                     -----------    -----------

DISCONTINUED OPERATIONS (Note 2)
    Loss from operations                                      --       (407,517)
    Loss on the disposal of subsidiaries                      --       (717,008)
                                                     -----------    -----------
                                                              --     (1,124,525)
                                                     -----------    -----------

NET INCOME (LOSS)                                    $    55,240    ($2,065,004)
                                                     ===========    ===========

NET INCOME (LOSS) PER COMMON SHARE
    Continuing operations - basic and diluted        $      0.02    ($     0.41)
    Discontinued operations - basic and diluted               --          (0.50)
                                                     -----------    -----------
                                                     $      0.02    ($     0.91)
                                                     ===========    ===========

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
    Basic                                              2,287,633      2,272,633
    Diluted                                            2,292,568      2,272,633




See notes to consolidated financial statements.


                                     


                                       F3
<PAGE>


                                    


                           LEGAL RESEARCH CENTER, INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                     Years Ended December 31, 1998 and 1997


<TABLE>
<CAPTION>
                                                                                
                                                       Common Stock         Additional   
                                                -------------------------     Paid-in    Accumulated      Notes
                                                   Shares        Amount       Capital       Deficit      Receivable        Total   
                                                -----------   -----------   -----------  ------------    -----------    -----------
<S>                                               <C>         <C>           <C>           <C>            <C>            <C>        
BALANCE, DECEMBER 31, 1996                        3,297,633   $    32,976   $ 6,765,307   ($1,988,841)   ($1,966,250)   $ 2,843,192

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

    Net loss                                             --            --            --    (2,065,004)            --     (2,065,004)
                                                -----------   -----------   -----------   -----------    -----------    -----------


BALANCE, DECEMBER 31, 1997                        3,327,633        33,276     6,870,007    (4,053,845)    (1,966,250)       883,188

    Net income                                           --            --            --        55,240             --         55,240
                                                -----------   -----------   -----------   -----------    -----------    -----------


BALANCE, DECEMBER 31, 1998                        3,327,633   $    33,276   $ 6,870,007   ($3,998,605)   ($1,966,250)   $   938,428
                                                ===========   ===========   ===========   ===========    ===========    ===========
</TABLE>



See notes to consolidated financial statements.




                                       F4
<PAGE>



                                    

                           LEGAL RESEARCH CENTER, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     Years Ended December 31, 1998 and 1997

<TABLE>
<CAPTION>
                                                                              1998           1997    
                                                                          -----------    -----------
<S>                                                                       <C>            <C>         
OPERATING ACTIVITIES
    Net income (loss)                                                     $    55,240    ($2,065,004)
    Adjustments to reconcile net income (loss) to net cash
     provided (used) by operating activities:
       Loss on disposal of subsidiaries                                            --        717,008
       Depreciation                                                            71,777         83,279
       Amortization of intangible assets and capitalized
          development costs                                                    83,304        110,457
       Gain on sale of furniture and equipment                                 (3,319)            --
       Accounts receivable                                                   (180,579)       646,374
       Other current assets                                                    10,278        169,711
       Accounts payable                                                       (13,176)      (124,621)
       Accrued expenses                                                        13,852       (128,765)
       Client advances                                                         (9,296)        (9,184)
                                                                          -----------    -----------
          Net cash provided (used) by operating activities                     28,081       (600,745)
                                                                          -----------    -----------

INVESTING ACTIVITIES
    Cash received on notes receivable                                          40,000         50,000
    Capitalized development costs                                              (2,325)      (224,398)
    Proceeds from sale of property and equipment                                4,430             --
    Purchases of furniture and equipment                                           --         (6,278)
                                                                          -----------    -----------
          Net cash provided (used) by investing activities                     42,105       (180,676)
                                                                          -----------    -----------

FINANCING ACTIVITIES
    Proceeds from notes payable                                               200,000             --
    Payments on noncompete agreements                                              --         (8,255)
                                                                          -----------    -----------
          Net cash provided (used) by financing activities                    200,000         (8,255)
                                                                          -----------    -----------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                              270,186       (789,676)

CASH AND CASH EQUIVALENTS
    Beginning of year                                                         165,924        955,600
                                                                          -----------    -----------
    End of year                                                           $   436,110    $   165,924
                                                                          ===========    ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
    Cash paid for interest                                                $    12,882    $        --

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
    Conversion of accounts receivable from American Research
       Corporation to a note receivable, net of allowance of $8,414 and
       reclassification of allowance for doubtful accounts of $46,721              --        129,145
    Sale of investment in American Research Corporation
       for a note receivable, net of allowance of $58,336                          --         41,764
</TABLE>

See notes to consolidated financial statements.


                                      


                                       F5
<PAGE>



                                    

                           LEGAL RESEARCH CENTER, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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

     The Business

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

     During 1997, the Company  discontinued  the operations of the  subsidiaries
     The Law Office,  Inc. (TLO) and The CyberLaw Office, Inc. (CLO), which were
     acquired during 1996 and 1995 (Note 2).

     Principles of Consolidation

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

     Use of Estimates

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

     Fair Value of Financial Instruments

     The carrying amounts of financial  instruments  consisting of cash and cash
     equivalents,  receivables,  accounts payable, and notes payable approximate
     their fair values.

     Revenue Recognition

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

     Cash and Cash Equivalents

     All  investments  purchased  with a  maturity  of three  months or less are
     considered to be cash equivalents.  Cash and cash equivalents include money
     market accounts of approximately $430,700 and $152,300 at December 31, 1998
     and 1997,  respectively.  These  investments are not insured by the Federal
     Deposit Insurance Corporation.

     (continued)


                                      


                                       F6
<PAGE>




                                    

                           LEGAL RESEARCH CENTER, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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

     Furniture and Equipment

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

     Intangible Assets

     The Company  capitalized certain product costs incurred for the development
     of  the  Corporate  Alternative  Dispute  Resolution   Enterprises  (CADRE)
     training  program.  Capitalized  costs  include  direct  labor,  fees,  and
     expenses of contractors who assisted in the development of the product. The
     Company completed the development of CADRE during the first quarter of 1998
     and  began  amortizing  the  capitalized  costs  over  three  years  on the
     straight-line  method.  Accumulated  amortization  was  $83,304 and $-0- at
     December 31, 1998 and 1997, respectively.

     Advertising and Promotions

     Costs  associated with  advertising and promoting  products are expensed in
     the year incurred.  Advertising and promotion  expenses were  approximately
     $203,800 and $281,000 in 1998 and 1997, respectively.

     Net Income (Loss) Per Common Share

     Basic net income (loss) per share is computed based on the weighted average
     number of common shares outstanding. Diluted net income (loss) per share is
     computed based on the weighted average number of common shares  outstanding
     plus stock options and the shares subject to  subscription if the inclusion
     of such items is dilutive.

     Accounting for Stock-Based Compensation

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



                                      


                                       F7
<PAGE>



                                   

                           LEGAL RESEARCH CENTER, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

     During 1996 and 1995, the Company  acquired The Law Office,  Inc. (TLO) and
     The CyberLaw Office, Inc. (CLO) to develop on-line legal services.  TLO and
     CLO  revenues  were not  sufficient  to cover cash  operating  expenses and
     development costs, and in 1997, the Company was informed that a significant
     agreement with Microsoft Online Services  Partnership would not be renewed.
     The Company  suspended  the funding of TLO and CLO as a result of the above
     and the uncertainty of obtaining  adequate funds to finance the TLO and CLO
     operations  and  development.  The Company  recorded a $717,008 loss on the
     disposal  of TLO and CLO in 1997.  The loss on  disposition  consists  of a
     noncash charge for intangible assets totaling $623,200, a noncash valuation
     charge for computer and related equipment of approximately  $20,000,  and a
     provision  for   operating   expenses   during  the  phase-out   period  of
     approximately $73,800.

3.   Accounts Receivable -

     Accounts receivable consist of the following:

                                                         1998           1997 
                                                       --------       --------
          Trade                                        $458,430       $415,083
          Unbilled services                              56,493         15,261
                                                       --------       --------
                                                        514,923        430,344
          Less allowance for doubtful accounts           57,200        153,200
                                                       --------       --------
                                                       $457,723       $277,144
                                                       ========       ========
        
4.   Notes Receivable -

     Notes receivable, including past due interest, consist of the following:

                                                    Annual
                                                   Interest    1998       1997  
                                                   --------  --------   --------
Unsecured promissory note, monthly payments
of $5,000 and a final balloon payment due
July 1999 (restructuring note)                       10%     $ 94,280   $134,280
                                                            
Unsecured promissory note, due in quarterly                 
installments of $25,025 beginning July 1999                 
(repurchase note)                                    10%      100,100    100,100
                                                          
Interest receivable - past due                                 37,612     14,380
                                                             --------   --------
                                                              231,992    248,760
Less allowance for doubtful accounts                          151,033    127,801
                                                             --------   --------
                                                               80,959    120,959
Less current amount                                            30,909     60,000
                                                             --------   --------
                                                             $ 50,050   $ 60,959
                                                             ========   ========

     (continued)


                                      


                                       F8
<PAGE>





                                     

                           LEGAL RESEARCH CENTER, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



4.   Notes Receivable - (continued)

     The notes are due from American  Research  Corporation  (ARC), an entity in
     which the Company held a 5% investment  from  September  1995 to June 1997.
     The  restructuring  note arose  from the  conversion  of  amounts  owed the
     Company totaling $184,280,  including accrued interest. The repurchase note
     was received in conjunction with ARC reacquiring all of its shares owned by
     the Company for $100,100.  Due to ARC's uncertain financial condition,  the
     Company reserved a portion of the notes and accrued interest as potentially
     uncollectible.

5.   Notes Payable -

     The two notes require quarterly interest payments at an annual rate of 10%.
     The notes may be converted into common stock at the option of the holder at
     $1 per share any time prior to maturity in 2000.


6.   Common Stock -

     Common Stock Subject to Repurchase Obligation

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

     Notes Receivable From Officers and Directors

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

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




                                       F9
<PAGE>




                                     

                           LEGAL RESEARCH CENTER, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



7.   Income Taxes -

     Deferred taxes consist of the following:

<TABLE>
<CAPTION>

                                             1998                                         1997
                          -----------------------------------------    -----------------------------------------
                             Total         Federal         State          Total         Federal         State
                          -----------    -----------    -----------    -----------    -----------    -----------
<S>                       <C>            <C>            <C>            <C>            <C>            <C>        
Deferred tax assets:
  Allowance for doubt-
    ful accounts          $    81,000    $    70,000    $    11,000    $   109,000    $    94,000    $    15,000
  Intangible, other
    assets and accrued
    expenses              $    71,000    $    61,000    $    10,000    $    78,000    $    67,000    $    11,000
  Furniture and
    equipment             $    14,000    $    12,000    $     2,000             --             --
  Net operating loss
    carryforward          $ 1,219,000    $ 1,036,000    $   183,000    $ 1,215,000    $ 1,033,000    $   182,000
                          -----------    -----------    -----------    -----------    -----------    -----------
                          $ 1,385,000    $ 1,179,000    $   206,000    $ 1,402,000    $ 1,194,000    $   208,000
Valuation allowance       ($1,385,000)   ($1,179,000)   ($  206,000)   ($1,397,000)   ($1,190,000)   ($  207,000)
Deferred tax liability-
  furniture and
  equipment                        --             --             --    ($    5,000)   ($    4,000)   ($    1,000)
                          ===========    ===========    ===========    ===========    ===========    ===========
                          $        --    $        --    $        --    $        --    $        --    $        --
                          ===========    ===========    ===========    ===========    ===========    ===========
</TABLE>

     The  Company  recorded  a  valuation   allowance  due  to  the  uncertainty
     associated with the realization of the net deferred tax assets.  The change
     in the  valuation  allowance  was a decrease  of $12,000 and an increase of
     $662,000 in 1998 and 1997, respectively.

     At  December  31,  1998,  the  Company  has a federal  net  operating  loss
     carryforward  totaling  $3,049,000  (state - $1,870,000)  expiring  $9,000,
     $1,196,000,  $1,194,000,  and  $650,000  in 2018,  2012,  2011,  and  2010,
     respectively. The net operating loss carryforward includes $350,000 subject
     to certain annual limitations.

8.   Stock Option Plans -

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

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

     (continued)


                                      


                                      F10
<PAGE>




                                     

                           LEGAL RESEARCH CENTER, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.   Stock Option Plans - (continued)

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

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

     The fair value of each option grant is estimated on the date of grant using
     the Black-Scholes option pricing model with the following  weighted-average
     assumptions  used for grants in 1998 and 1997,  respectively;  no  dividend
     yield during the expected life of outstanding options;  expected volatility
     of 167% and 178%;  risk free interest  rates of 5.5% and 6.5%, and expected
     lives of 2.5 and 3.8 years.

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

<TABLE>
<CAPTION>
                                                    1998                              1997
                                        -----------------------------    -------------------------------
                                                     Weighted-Average                   Weighted-Average
                                         Options      Exercise Price       Options       Exercise Price 
                                        ---------    ----------------    ----------     ----------------
<S>                                     <C>                <C>            <C>                <C>  
     Outstanding at
        beginning of year               1,653,404          $2.81          1,530,804          $2.96
     Granted                              193,200            .25            126,600           1.15
     Forfeited                            (53,133)          1.74             (4,000)          2.23
                                        ---------                         ---------               
     Outstanding at                                                                        
        end of year                     1,793,471          $2.60          1,653,404          $2.81
                                        =========                         =========               
     Weighted-average fair                                                                 
        value of options granted                                                           
        during the year                                    $ .21                             $1.04
                                                           =====                             =====
</TABLE>
                                                                      
       The  following  table  summarizes  information  about fixed stock options
outstanding as of December 31, 1998:


                              Options Outstanding                  
                         ---------------------------------
                                                  Weighted-          Weighted-
       Range of                                    Average             Average
       Exercise                                  Remaining            Exercise
        Prices              Options       Contractual Life               Price
     -------------          -------       ----------------           ---------
      $.13 - $.25            154,400              3.6                 $  .24
      $.29 - $.75             19,700              2.5                    .33
     $1.13 - $1.88            95,871              3.9                   1.15
     $2.00 - $2.63            79,300              1.9                   2.11
     $2.70 - $2.97           374,200              1.2                   2.96
     $3.02 - $3.50         1,070,000              4.7                   3.02
                          ----------
      $.13 - $3.50         1,793,471              3.7                   2.60
                          ==========

     (continued)


                                     


                                      F11
<PAGE>




                                     

                           LEGAL RESEARCH CENTER, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



8.   Stock Option Plans - (continued)

     All of the above options are exercisable.

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

     The  Company  applies  APB  Opinion  25  and  related   interpretations  in
     accounting for stock option plans.  Accordingly,  no compensation  cost was
     recognized  for the fixed options plans or  performance-based  stock option
     plans  in 1998 or  1997.  Had  compensation  cost  for the two  stock-based
     compensation  plans  been  determined  based on the fair value at the grant
     dates for awards under those plans,  consistent with the method of SFAS No.
     123, the pro forma net income  (loss) and net income (loss) per share would
     be as follows:

                                                      1998             1997    
                                                 -------------    ------------- 
     Net income (loss):
        As reported                              $      55,240    ($  2,065,004)
        Pro forma                                      (69,421)      (2,356,452)
     Net income (loss) per share:
        As reported - basic and diluted          $        0.02    ($       0.91)
        Pro forma - basic and diluted                    (0.03)           (1.04)

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


9.   Royalty Agreements -

     The Company has agreements with certain  associations which require payment
     of royalties for projects.  Royalty rates and terms vary depending upon the
     agreement.  Royalty expense for 1998 and 1997 was approximately  $9,500 and
     $19,000, respectively.



                                      


                                      F12
<PAGE>




                                    

                           LEGAL RESEARCH CENTER, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



10.  Major Customers -

     The Company had the following transactions with significant customers:

                              Percent                 Accounts Receivable
                              of Revenues             at December 31,    
                              -------------           -------------------
          Company              1998         1997         1998          1997  
          -------             ------       ------     -----------    ---------

             A                  30%          --         $ 60,500     $     --
             B                  16%          --          115,500           --
             C                  --           14%              --       47,000
                                                     
11.  Related Party Transactions -

     Lease

     The Company  utilizes an office facility leased by a related party under an
     operating  lease  requiring  monthly rent of  approximately  $6,300 through
     January 2001.  The Company  complies with the same terms and  conditions as
     the lease between the related party and the related party's landlord.  Rent
     expense,  including  operating  expenses,  was  approximately  $61,300  and
     $64,700 for 1998 and 1997, respectively.

     Officer Employment Agreements

     The Company has  employment  agreements  with two officers  through July 1,
     1999. The agreements,  as amended,  require annual base salaries of $96,000
     for each officer, plus goal-oriented  incentives,  which may be adjusted by
     the Board of Directors.  There was no incentive  compensation expense under
     the officer employment agreements in 1998 or 1997.



                                      


                                      F13
<PAGE>




PART III

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

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

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

                         Item 10. EXECUTIVE COMPENSATION

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

     Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

             Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

                    Item 13. EXHIBITS AND REPORTS ON FORM 8-K

The following documents are filed as part of the report:

1. Financial  Statements.  Audited financial  statements as of December 31, 1998
and 1997 and for the years then ended are filed as part of this Form 10-KSB. See
Index to Financial Statements on Page F-1.

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

<TABLE>
<CAPTION>
     Exhibit No.             Title                                                     Method of Filing
     -----------             -----                                                     ----------------
<S>                    <C>                                                                      <C>
     3.1               Restated Articles of Incorporation                                       1

     3.2               Restated Bylaws                                                          1

     4                 Form of Common Stock Certificate                                         1
</TABLE>


                                      


                                      -12-
<PAGE>




<TABLE>
<S>                    <C>                                                               <C>
     10.1              1995 Stock Option Plan                                                   1

     10.2              Existing Officer's Stock Option Plan                                     1

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

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

     10.5              1997 Stock Option Plan                                                   5

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

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

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

     11                Subsidiaries of Legal Research Center, Inc.                              5

     27                1998 Fiscal Year End Financial Data Schedule                      Filed Herewith

     99.1              News Release  regarding  the agreement  with Risk  Enterprise            6
                       Management

     99.2              News Release regarding the agreement with WIRE                           6
</TABLE>


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

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

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

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

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

6.   Incorporated by reference to Exhibits 10.17 and 10.18 to the Company's Form
     10-KSB (as amended) dated March 27, 1998.

     (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/ Christopher R. Ljungkull
                                            -----------------------------
                                            Christopher R. Ljungkull, CEO

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.

     Name and Title                     Signature                    Date
     --------------                     ---------                    ----

Arun K. Dube
Chairman of the Board                /s/ Arun K. Dube           March 26 , 1999
                                     ------------------

Christopher R. Ljungkull
Chief Executive Officer
(Principal Executive Officer) and
Director                             /s/ C.R. Ljungkull          March 26, 1999
                                     ------------------

James R. Seidl
President and Director               /s/ James R. Seidl          March 26, 1999
                                     ------------------


Bruce J. Aho                         /s/ Bruce J. Aho            March 26, 1999
                                     ------------------



                                      -14-