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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                United States Securities and Exchange Commission
                                 Washington D.C.

                                   Form 10-KSB

              Annual report pursuant to Section 13 or 15(d) of the
                   Securities Exchange Act of 1934, as amended
                  For the fiscal year ended September 30, 1998

                         Commission File Number 0-27842

                                  Colmena Corp.

               (Name of Small Business Registrant in its charter)

    Delaware: (State or other jurisdiction of incorporation or organization)

               54-1778587: (I.R.S. Employer Identification Number)

               2500 North Military Trail, Suite 225-D; Boca Raton,
                  Florida 33431 (Address of principal executive
                           offices including zip code)

                 (561) 998-2031 (Registrant's telephone number)

           3896 North Federal Highway; Lighthouse Point, Florida 33064
                       (Former address of the Registrant)

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

    Title of each class: None Name of each exchange on which registered: None

              Securities Registered under Section 12(g) of the Act:
                 Common Stock, $0.01 par value (Title of Class)

         Check whether the Registrant (1) filed all reports required to be filed
by Section  13 or 15(d) of the  Securities  Exchange  Act of 1934,  as  amended,
during the past twelve  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 [_] No [x]

         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 the  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  Registrant's  revenues for its most recent fiscal year:  $10,344,480
(for year ended September 30, 1998)

         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 asked prices of such stock, as of a specified date within
the past 60 days:  $278,467.95  based on a last transaction price of $0.03 as of
June 30,  2000,  there being  9,282,265  shares of common  stock held by persons
other than  officers,  directors or control  persons of the  Registrant  on such
date.

         State  the  number of shares  outstanding  of each of the  Registrant's
classes  of equity,  as of the latest  practicable  date:  15,572,265  shares of
common stock, as of June 30, 2000.

                                      Page 1
<PAGE>

                             Available Information.

         The public may read and copy any materials filed by the Registrant with
the Commission at the  Commission's  Public  Reference Room at 450 Fifth Street,
Northwest,  Washington,  D.C.  20549.  The public may obtain  information on the
operation  of  the  Public   Reference   Room  by  calling  the   Commission  at
1-800-SEC-0330. The Commission maintains an Internet site that contains reports,
proxy and information statements, and other information regarding the Registrant
and other  issuers  that file reports  electronically  with the  Commission,  at
                              http://www.sec.gov.

                       Documents Incorporated by Reference

         Portions of the following documents  previously filed by the Registrant
with the Commission are  incorporated by reference in this report,  as permitted
by Commission Rule 12b-23.

1.       Form 10-KSB for the year ended September 30, 1997, in its entirety.

2.       Forms 8-K for report dates:

         A.    January  29,  1999  [Items  1,  2, 4,  5, 7 and by  amendment  on
               February 12, 1999, Item 4 and 7(c)];

         B.    March 22, 1999,  [Items 2 and 5(c)]; and

         C.    May 18, 1999 (Item 1).

3.        Forms 10-QSB for the calendar  quarters ended December 31, 1997, March
          31, 1998 and June 30, 1998.

4.        Registration  statement on Form S-8 filed with the Commission on March
          16, 1998.

                 Caveat Pertaining to Forward Looking Statements

         The Private  Securities  Litigation Reform Act of 1995 provides a "safe
harbor" for  forward-looking  statements.  Certain of the  statements  contained
herein,  which are not historical  facts,  are  forward-looking  statements with
respect to events,  the  occurrence of which  involve  risks and  uncertainties.
These  forward-looking   statements  may  be  impacted,   either  positively  or
negatively,  by various factors.  Information  concerning potential factors that
could affect the  Registrant is detailed  from time to time in the  Registrant's
reports  filed  with the  Commission.  This  report  contains  "forward  looking
statements" relating to the Registrant's current expectations and beliefs. These
include statements concerning operations,  performance,  financial condition and
anticipated  growth. For this purpose,  any statements  contained in this Annual
Report  and  Form  10-KSB  that  are  not  statements  of  historical  fact  are
forward-looking  statements.  Without  limiting the generality of the foregoing,
words  such as  "may",  "will",  "expect",  "believe",  "anticipate",  "intend",
"could",  "estimate",  or "continue", or the negative or other variation thereof
or comparable terminology are intended to identify  forward-looking  statements.
These  statements by their nature involve  substantial  risks and  uncertainties
which are beyond the Registrant's control.  Should one or more of these risks or
uncertainties  materialize  or should the  Registrant's  underlying  assumptions
prove incorrect,  actual outcomes and results could differ materially from those
indicated in the forward looking statements.

                                     Context

         The  information  in  this  report  is  qualified  in its  entirety  by
reference to the entire  report;  consequently,  this report must be read in its
entirety.  This is especially  important in light of material  subsequent events
disclosed. Information may not be considered or quoted out of context or without
referencing  other  information  contained in this report  necessary to make the
information considered, not misleading.

                                      Page 2
<PAGE>

                                Table of Contents

Part     Item     Page
Number   Number   Number    Caption

I        1          3       Description of Business
         2          17      Description of Property
         3          18      Legal Proceedings
         4          22      Submission  of   Matters to Security Holders

II       5          22      Market for Common Equity  and  Related   Stockholder
                            Matters
         6          37      Management's  Discussion  and  Analysis  and Plan of
                            Operation
         7          40      Financial Statements
         8          67      Changes In  and  Disagreements  With  Accountants on
                            Accounting and Financial Disclosure

III      9          68      Directors, Executive Officers, Promoters and Control
                            Persons
         9          73      Compliance With Section 16(a) of the Exchange Act
         10         73      Executive Compensation
         11         83      Security Ownership of Certain Beneficial Owners and
                            Management

         12         87      Certain Relationships and Related Transactions
         13         89      Exhibits and Reports on Form 8-K

Signatures          94

Additional
Information         95

Exhibits            96


         This document  incorporates  into a single document the requirements of
the Securities and Exchange Commission for the Annual Report to Stockholders and
the Form 10-KSB.

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

Organization & Initial Operations

     Colmena Corp., a Delaware  corporation,  (the  "Registrant") was originally
incorporated  in the  State  of  Virginia  on  July  11,  1994  under  the  name
Sports-Guard,  Inc.; however, its corporate domicile was changed to the state of
Delaware on July 26, 1995 ("Sports-Guard").  On February 2, 1996, the Registrant
completed  the  acquisition  by merger of Skate  Publishing  Corp.,  a  Delaware
corporation   ("Skate").   Skate  had  limited  assets  and   approximately  400
shareholders  of record and was acquired by the  Registrant in order to increase
its shareholder  base. Skate had no active  operations at the time of the merger
with the Registrant.

     The  Registrant was organized to engage in the design and  distribution  of
sports-safety   equipment.   The  Registrant's  first  product,   known  as  the
Fielders-Guard,  was a  polycarbonate  face guard for use primarily by defensive
players in the sports of baseball and softball.  The Registrant was unsuccessful
in  attaining  market  acceptance  for the  Fielders-Guard,  and was  unable  to
generate any meaningful level of sales of the product.

                                      Page 3
<PAGE>


     On October 21, 1997,  Norman O.  Milligan,  Sr. ('Mr.  Milligan")  sold his
controlling  interest  in the  Registrant  to Invest  L'Inc.  Partners,  LLC,  a
creditor  and  shareholder  of the  Registrant  and  resigned  as an officer and
director.  Concurrently  with the sale Mr. Milligan  acquired certain  operating
assets and assumed  certain  liabilities of the  Registrant,  and the Registrant
released  the  exclusive  license  rights to the patent  for the  Fielders-Guard
product previously distributed by the Registrant to Mr. Milligan. On October 31,
1997, Troy D. Wiseman who had been elected as a member of the Registrant's board
of  directors on October 21, 1997,  was elected as the  Registrant's  president,
secretary, treasurer and chief financial officer.

Peplin Related Operations

Background

         On November 10, 1997, the Registrant:

*        Changed its name from Sports-Guard, Inc.  to Colmena Corp. and effected
         a one-for-ten  reverse  split of its  outstanding  common stock.  As a
         result  of  the  reverse   split,   the   outstanding   shares  of  the
         Registrant's common  stock were reduced to approximately 645,000;

*        Consummated  the  acquisition of RCP  Enterprises  Group,  LLC, an Ohio
         limited  liability  company ("RCP-  Ohio"),  through the merger of RCP-
         Ohio with and into RCP Enterprises Group, Inc., a Delaware  corporation
         ("RCP-Delaware")  formed as a wholly-owned subsidiary of the Registrant
         for purposes of the acquisition. In exchange for all of the outstanding
         membership interests in RCP-Ohio,  the members of RCP- Ohio received an
         aggregate of 3,000,000 shares of the Registrant's  common stock. A copy
         of the Registrant's agreement with RCP was filed with the Commission as
         an exhibit to Form 10-KSB for period ended September 31, 1997.

*        Consummated  the acquisition of Tio Cigars,  Inc., an Ohio  corporation
         ("Tio-Ohio"),  through the merger of Tio-Ohio with and into Tio Mariano
         Cigar  Corp.,  a  Delaware  corporation  ("Tio-Delaware")  formed  as a
         wholly-owned   subsidiary  of  the   Registrant  for  purposes  of  the
         acquisition.  In exchange for all of the  outstanding  capital stock of
         Tio-Ohio,  the  stockholders  of  Tio-Ohio  received  an  aggregate  of
         1,310,000  shares  of the  Registrant's  common  stock.  A copy  of the
         Registrant's  agreement  with Tio was filed with the  Commission  as an
         exhibit to Form 10-KSB for period ended September 31, 1997.

*        Richard C. Peplin,  Jr., who founded and  controlled  both RCP Ohio and
         Tio Ohio, was elected as the  Registrant's  sole  director,  president,
         chief  executive  officer,  secretary,  treasurer and  chief  financial
         officer  concurrently  with  Mr.  Wiseman's  resignation  from all such
         positions.

         As a result of the acquisition of RCP Ohio and Tio Ohio, the Registrant
changed its line of  business  and became a holding  company  for its  resulting
wholly-owned operating subsidiaries:  RCP Enterprises Group, Inc. ("RCP"), which
was engaged in the marketing and distribution of long-distance telephone service
calling cards;  and, Tio Mariano Cigar Corp.  ("Tio"),  which was engaged in the
manufacture and  distribution of premium  hand-rolled  cigars.  The RCP-Ohio and
Tio-Ohio   acquisitions   were   treated,   for   accounting   purposes,   as  a
recapitalization of RCP- Ohio and Tio-Ohio,  which were under the common control
of Mr.  Peplin,  and  were  treated  as one  accounting  acquisition.  As of the
acquisition date,  November 10, 1997, the Registrant had no assets,  liabilities
of   approximately   $118,880  and  an  accumulated   deficit  of  approximately
$(721,000).  As of November 10, 1997,  RCP-Ohio and Tio-Ohio had combined assets
of  approximately  $909,216 and total  shareholders'  interest of  approximately
$213,156.


                                      Page 4
<PAGE>


         In conjunction with the change in business,  the Registrant's principal
executive office was moved to 25100 Detroit Road, Westlake, Ohio 44145 (where it
remained until January of 1999),  and its telephone  number was changed to (440)
871-5000.

The Operating Subsidiaries

     RCP was engaged in the creation, distribution,  marketing and management of
long-distance  telephone  services.  RCP's  principal  products  were  telephone
network access  products,  commonly  referred to as prepaid calling cards,  that
allow users to access domestic long-distance,  international long-distance,  and
local  telephone  services from any touch tone  telephone in the United  States.
Users  purchased  the  phone  cards for $9.95  per  month  through  direct  mail
solicitation.  The customer  was billed on his or her phone bill  monthly  until
such time as he or she decided to terminate  the service.  The card  provides 40
minutes per month of service in the United States. Any unused minutes at the end
of the month  expired and the  account was  replenished  with an  additional  40
minutes.  A  toll-free  access  number  (1-800 or 1-888)  and a unique  personal
identification  number ("PIN") were printed on the back of each phone card. When
the  toll-free  access  number was entered,  the user is connected to a debit or
prepaid card platform switch in the telephone network that provided  interactive
voice  prompts  throughout  the call process.  After  entering the PIN, the user
could dial one or more  destination  telephone  numbers in the same  manner as a
normal telephone call. The interactive voice prompts in the platform advised the
user of the  minutes  remaining  on  that  card.  The  prepaid  account  balance
associated  with each  card was  managed  by the  platform  which  automatically
deducted for usage. Upon use of all the minutes stored in the card's account for
the month, the debit card database  automatically  instructed the debit platform
to  terminate  the  active  status  of the  card.  The  card  was  automatically
recharged,  and the customer was billed, every month until the customer canceled
the service.  As a material subsequent event, on March 17, 1998, RCP changed its
name to T2U Co.

     Tio owned all of the assets and assumed  specific  liabilities of Five-Star
Cigar Corp. The Registrant  originally intended to establish Tio as a vertically
integrated cigar manufacturer,  distributor and retailer of private label, hand-
rolled premium brand cigars.  On February 8, 1998, the  Registrant's  management
determined that the best interests of the Registrant  would be served by selling
the  operating  assets  of Tio  to  Dominican  Cigar  Company,  thus  permitting
management   to  focus  its   efforts  on   development   of  the   Registrant's
communications business.

     On or  about  February  19,  1998,  the  Registrant  and  its  wholly-owned
subsidiary, RCP entered into an agreement with Business Technology Systems, Inc.
to acquire the assets and assume the liabilities of Business Technology Systems,
Inc. As consideration  for the purchase,  RCP agreed to pay $100,000 in cash and
the Registrant  agreed to issue 100,000  restricted  shares of its common stock.
The agreement was later amended to lower the cash portion of the purchase  price
to $50,000.  For financial  reporting  purposes,  the Registrant's  common stock
issued was valued at $306,250. On March 15, 1998, the Registrant organized a new
Florida  corporation to which all assets and liabilities of Business  Technology
Systems,  Inc.,  were pushed down using  push-down  accounting.  The new Florida
corporation ("BTSF") also assumed the name "Business  Technology Systems,  Inc."
The purchase was recorded under the purchase method of accounting.  Accordingly,
the purchase  price was  allocated to assets  acquired and  liabilities  assumed
based on the estimated fair market values at the date of  acquisition.  The fair
market value of the net assets acquired was a net liability of $57,412 resulting
in the recording of goodwill  totaling  $413,662.  As of September 30, 1998, the
Registrant  discontinued  operations  of BTSF and  wrote  down  any  unamortized
goodwill to its net  realizable  value of zero. A copy of the agreement is filed
as an exhibit to this report,  see "Part III, Item 13(a),  Exhibits  Required by
Item 601 of Regulation SB."

                                      Page 5
<PAGE>


     On or about April 22, 1998, the Registrant  formed TechTel  Communications,
Inc. ("TechTel"), a wholly- owned Delaware subsidiary headquartered in the State
of  Florida.  TechTel  was a  competitive  local  exchange  carrier  licensed by
BellSouth,  Southwestern  Bell,  Bell Atlantic and Pacific Bell to provide local
and long distance services to customers on a prepaid basis.

Purchase of Telecommunications Equipment

     On or about May 19, 1998,  the  Registrant  entered into an agreement  with
Arnold A. Semler, Inc. dba Associated Industries,  a California corporation,  to
purchase telecommunications switching equipment for $375,000 and the issuance of
300,000 shares of the Registrant's common stock. Of the $375,000, the Registrant
paid  $100,000 in cash and the  balance  through  issuance  of 24 month  secured
promissory  note for  $275,000,  payable and due on August 14, 1999 and yielding
interest at an annual  interest rate of 9%. The equipment was recorded under the
purchase method of accounting for an aggregate $685,935 consisting of the common
stock issued with a value of $310,935 based upon the discounted trading price of
the  Registrant's  common  stock on the  transaction  date,  a note  payable  of
$275,000 and a cash payment of $100,000.  A copy of the agreement is filed as an
exhibit to this report, see "Part III, Item 13(a), Exhibits Required by Item 601
of Regulation SB."

     The equipment was written down to its net  realizable  value of $275,000 at
September 30, 1998. On October 1, 1999 the Registrant  received Notice to Retain
Collateral  regarding  this  equipment in full  satisfaction  of the $275,000 of
related debt. As a result,  the  Registrant  lost its $100,000 cash  investment.
Advances to World Long Distance, Inc., Telenet International, Inc. and Telecuba,
Inc. Pursuant to Stock Purchase Agreement

     Pursuant  to a stock  purchase  agreement  dated May 8, 1998,  whereby  the
Registrant  was to acquire  100% of the issued and  outstanding  common stock of
World Long Distance,  Inc., Telenet International,  Inc. and Telecuba, Inc., the
Registrant  advanced the sellers the sum of $304,000.  The  agreement  was never
consummated  and the  Registrant  has  been  unable  to  collect  the  $304,000.
Accordingly,  an allowance for non-collect  ability was established for $304,000
as of September 30, 1998, resulting in a provision for bad debts in 1998 for the
same amount.

Material Agreements

Consulting Agreement with SBV

     On February 25, 1998, the Registrant entered into a twelve month consulting
agreement with SBV Corporation a/k/a SBV Holdings,  Inc.  ("SBV").  The services
provided  primarily  comprised  the review of business  operations  of potential
transaction  candidates,  initiation and negotiation on behalf of the Registrant
to explore  potential  transactions,  analysis and  evaluation  of the projected
financial  performance of the  Registrant  and assistance in the  negotiation of
definitive  purchase or  financing  agreements  with any  interest  parties.  As
consideration for the services provided, the Registrant granted SBV an option to
purchase 1,500,000 shares of the Registrant's  common stock at an exercise price
of $2.00 per share.  On or about March 16, 1998,  the option and the  underlying
shares were registered with the Commission  under the Securities Act pursuant to
a Registration  Statement on Commission  Form S-8. The options vested and became
exercisable over a period of approximately 10 months with 250,000 of the options
vesting after the September 30, 1998 balance sheet date on December 1, 1998. The
option period  terminated  on February 25, 2000.  As of September 30, 1998,  the
Consultant  had  exercised  the  option  as to  640,000  shares.  A copy  of the
consulting  agreement is filed as an exhibit to this report, see "Part III, Item
13(a), Exhibits Required by Item 601 of Regulation SB."

                                      Page 6
<PAGE>


Consulting Agreements with Various Consultants

     On  November  10,  1997,  the  Registrant   entered  into  five  consulting
agreements with various  consultants.  The agreements were established for terms
ranging from twelve to thirty-six  months.  One of the agreements was terminated
as of April 24, 1998.  One of the remaining  consultants  was engaged to perform
marketing  consulting  services.  The services provided by the other consultants
mainly  comprised  the review of business  operations  of potential  transaction
candidates,  initiation  and  negotiation on behalf of the Registrant to explore
potential  transactions,  analysis and  evaluation  of the  projected  financial
performance of the  Registrant  and assistance in the  negotiation of definitive
purchase or financing  agreements with any interested  parties. As consideration
for the services provided,  the Registrant agreed to issue to the consultants an
aggregate of 800,000 shares of the Registrant's  common stock. On or about March
16, 1998, the shares were  registered  with the Commission  under the Securities
Act pursuant to a Registration Statement on Commission Form S-8. As of September
30, 1998, the Registrant has issued 700,000  shares.  A copy of the five various
consulting  agreements and  termination  agreement are filed as exhibits to this
report,  see "Part III, Item 13(a),  Exhibits Required by Item 601 of Regulation
SB."

Investment Banking and Advisory Services Agreement

     On May 7, 1998,  the  Registrant  entered  into an  Investment  Banking and
Advisory  Services  Agreement with Strategica  Services  Corporation  ("Services
Corp.") and  Strategica  Financial  Corporation  ("Financial  Corp.") for a term
ending on April 30, 2003. The services to have been provided by Services  Corp.,
or at it's  option,  by Financial  Corp.,  primarily  consists of (i)  providing
advice  to  the   Registrant   and  assisting  the   Registrant   with  contract
negotiations,  business  strategies,  and, if  applicable,  required  regulatory
filings,  (ii)  providing  the  Registrant  with advice  relating  to  financing
options,  (iii)  advising  the  Registrant  with  respect  to  potential  public
offerings and private  placements of equity or debt  securities,  (iv) assisting
the Registrant in preparing the required offering  documents,  (v) assisting the
Registrant in identifying potential equity and/or debt investors, (vi) providing
advice  to the  Registrant  with  respect  to  potential  marketing  strategies,
mergers,  other  acquisitions,  reorganizations,  recapitalizations  or sales of
assets,  and (vii) providing advice in the structure of all business  strategies
and agreements.  As  consideration  for the services to have been provided,  the
Registrant  agreed to pay a non-refundable  due diligence review fee of $100,000
and a monthly fee to Services Corp. of $5,000 for the month of May 1998, $10,000
from June 1998 to May 1999,  and $5,000 until April 30, 2003.  In addition,  the
Registrant  agreed to pay to Financial  Corp.  5% and 3%,  respectively,  of the
gross  proceeds  committed  to the  Registrant  for equity sold and debt issued,
respectively,  and to Services  Corp. 5% of the gross purchase price received in
the event of the sale of the Registrant,  its subsidiaries,  or affiliates and a
debt restructuring fee of 10% of all debt restructured,  converted to equity, or
extended.  Furthermore,  the Registrant  agreed to reimburse  Services Corp. and
Financial Corp. for reasonable expenses paid. In addition, the Registrant agreed
to provide  Services  Corp.  and  Financial  Corp.  with warrants for 25% of the
common stock of the Registrant with full anti-dilution and registration  rights.
The services were never provided and the Registrant discontinued payments, in an
effort  to avoid  litigation.  The  Registrant  is  currently  negotiating  with
Services Corp.,  Financial Corp. and their affiliates  (collectively referred to
as the "Strategica  Group") for a settlement of all outstanding  obligations and
anticipates that a settlement will be concluded, calling for the issuance to the
Strategica Group of shares equal to 2.5% of the Registrant's  outstanding common
stock, with anti-dilutive rights. A copy of the agreement is filed as an exhibit
to this  report,  see "Part III,  Item 13(a),  Exhibits  Required by Item 601 of
Regulation SB."


                                     Page 7

<PAGE>


Billing and Collection Contract

     On June 20, 1997 the Registrant  entered into a 12 month  Customer  Billing
and Collection Contract with International Telemedia Associates, Inc., a Georgia
corporation,  whereby  ITA was to  provide  processing  billing  and  collection
services  relating to the  Registrant's  long distance  telephone  services.  As
stipulated in the contract,  ITA had the right to reject,  adjust or reserve for
any  submitted  billings.  ITA  charged  the  Registrant  fees  based upon a per
transaction  schedule as  stipulated  in the  contract.  In  September 1998, ITA
defaulted  in its  payments to the  Registrant  and  subsequently  entered  into
Chapter 7 bankruptcy see "Material Subsequent Events: ITA Default" below. A copy
of the  agreement  is filed as an exhibit to this  report,  see "Part III,  Item
13(a), Exhibits Required by Item 601 of Regulation SB."

Wholesale Independent Contractor Agreement

     On August 8, 1997,  RCP  Enterprises  Group,  LLC entered  into a wholesale
independent   contract  agreement  with  Coronado  Telecom.  The  Agreement  was
established  on a month to month basis until  terminated by either party upon at
least thirty days prior written notice.

Operations Discontinued During Reporting Period

Tio

     On February 8, 1998,  the  Registrant's  management  decided to discontinue
operations of the  Registrant's  subsidiary,  Tio,  which was in the business of
manufacturing and distributing  premium hand-rolled  cigars.  Effective March 1,
1998,  the  Registrant  sold the  inventory and fixed assets of Tio to Dominican
Cigar  Corporation,  ("Dominican") a publicly held corporation,  in exchange for
10,000  restricted shares (300,000  restricted  pre-split shares) of Dominican's
common  stock.  At the time of the  exchange the  Dominican  shares had a market
value of $77,010.  The book value of the assets exchanged  exceeded the value of
the stock.  Accordingly,  a loss on disposal  under  discontinued  operations of
$85,176 was recorded.  In addition, an operating loss was incurred from the date
of the acquisition until the date of its disposition totaling $172,599.

     The following  schedule  reflects  notes  payable to related  parties as of
September 30, 1998, in the then current  portion amount of $168,333,  related to
Tio:

*    Unsecured  note payable to  Alexandria  Peplin in the  principal  amount of
     $10,000, with interest at 10% per annum, due on demand.

*    Unsecured  note  payable  to Dustin A.  Peplin in the  principal  amount of
     $10,000, with interest at 10% per annum, due on demand.

*
     Unsecured note payable to Richard C. Peplin, III in the principal amount of
     $10,000, with interest at 10% per annum, due on demand.


                                     Page 8

<PAGE>



*    Unsecured note payable to Jeff Outcalt in the principal  amount of $15,000,
     with interest at 10% per annum, due on demand.

*    Unsecured  note  payable to Patrick V.  Graham in the  principal  amount of
     $40,000, with interest at 10% per annum, due on demand.

*    Unsecured note payable to Lakewood  Manufacturing  Company in the principal
     amount of $50,000, with interest at 10% per annum, due on demand.

*    Unsecured note payable to Ronald Denne in the principal  amount of $33,333,
     with interest at 10% per annum, due on demand.

Business Technology Systems, Inc.

     On September 30, 1998, the Registrant's  management  decided to discontinue
operations of its subsidiary,  BTSF,  incurring a loss from operations in fiscal
year 1998 of $1,206,948. Because of the discontinuance of BTSF's operations, its
inventory as of September  30, 1998  totaling  $34,094 had no current use to the
Registrant and therefore had no market value. Accordingly,  the Registrant wrote
down the inventory to its net realizable  value of zero and included the loss in
the loss from operations under discontinued operations.

     The  following  schedule  reflects  $287,131  in notes  payable  to related
parties as of September 30, 1998, pertaining to the BTSF termination:

*    $82,500 note payable to SBV,  yielding  interest at 10% per annum,  due and
     payable  on July 30,  1999,  convertible  into  shares of the  Registrant's
     common stock at a conversion  price of $0.40 per share.  The note which was
     increased  to $100,000 on October 1, 1998 has been in default  since August
     1, 1999. (See new Strategic Plans and Change of Controls, below);

*    $34,177 note payable to Wiseman Family Trust (original  principal $50,000),
     yielding interest at 30% per annum,  maturing October 17, 1999,  payable in
     monthly  principal and interest  installments of $2,805,  secured by all of
     RCP's present and future accounts receivable and related rights, guaranteed
     by Mr. Peplin. (See New Strategic Plans and Change of Controls, below);

*    $26,147  note  payable  to  Richard  C.  Peplin,  Sr.  (original  principal
     $40,000),  yielding  interest at 30% per annum,  maturing October 17, 1997,
     payable in monthly principal and interest installments of $2,237 secured by
     all of RCP's present and future  accounts  receivable  and related  rights,
     guaranteed by Mr.  Peplin (See New  Strategic  Plans and Change of Control,
     below);

*    $53,628  note  payable  to  Van C.  Peplin  (original  principal  $80,000),
     yielding interest at 30% per annum,  maturing October 17, 1999,  payable in
     monthly  principal and interest  installments of $4,883,  secured by all of
     RCP's present and future accounts receivable and related rights, guaranteed
     by Mr. Peplin;.

*    $78,517 note payable to Lakewood Manufacturing Company,  original principal
     $100,000,  interest at 30% per annum, maturing October 17, 1999, payable in
     monthly principal and interest  installments of $5,945,  secured by all RCP
     present  and future  accounts  receivable,  guaranteed  by Mr.  Peplin.  In
     default and due immediately.

*    $12,162 note payable to R.C. Rosen, original principal $20,000, interest at
     30% per annum,  maturing October 19, 1999, payable in monthly principal and
     interest  installments  of $1,107,  secured by all RCP  present  and future
     accounts receivable and related rights, guaranteed by Mr. Peplin.


                                     Page 9

<PAGE>

Material Subsequent Events

ITA Default

     On  September  15,  1998,  ITA  defaulted  in its  obligation  to  pay  the
Registrant's  wholly owned subsidiary,  RCP, $5,600,710 for services rendered to
third parties which was  collected by ITA. ITA was  responsible  for the billing
and collections of the net receivables from the local exchange  carriers under a
retrospective  payment system. The Registrant  recorded a third party settlement
receivable  for its  estimates of amounts to be received  from ITA as it settled
with the local  exchange  carriers  in future  months.  Final  settlements  were
usually made six to eight months subsequent to original billing, were subject to
reasonable estimates by management and were reported in the financial statements
in the period in which the phone services were rendered. Differences between the
estimates  originally reported in the financial statements and final settlements
were included in the statement

     As of September 30, 1998,  approximately  95% of the Registrant's  accounts
receivable  were  due from  ITA.  Of that  amount,  $1,298,933  was a hold  back
receivable  to cover  charge  backs.  In  September  of 1998,  ITA was placed in
involuntary  bankruptcy  pursuant to Chapter 7 of the United  States  Bankruptcy
Code. As a result of ITA's failure to pay the Registrant  the  $5,600,710  owed,
the  Registrant's  and its  subsidiaries  were forced to  discontinue  their own
business operations.

Material Subsequent Divestitures

     As a material subsequent event, on or about March 3, 1999, the Registrant's
Board of Directors  determined  that because of pending and probable  litigation
(including  possible  regulatory  actions  against)  its  subsidiaries  based on
actions of former  personnel,  it was in the best interests of the  Registrant's
stockholders to divest itself of all ownership in its operating subsidiaries. On
March 25, 1999,  the Registrant  entered into an agreement with Mr. Peplin,  the
principal stockholder and former president of the Registrant,  pursuant to which
the  three  subsidiaries  then  owned by the  Registrant  were  disposed  of, as
follows:

TechTel Communications, Inc.:

     20% of  TechTel's  common  stock was  retained by the  Registrant  with the
intent of  distributing  it to its  stockholders  pursuant  to the  Commission's
Division of Corporate  Finance's Staff Legal Bulletin Number 5, after completion
of the Registrant's  audit for 1998,  filing of all the Registrant's  delinquent
reports with the Commission and the filing and  effectiveness  of a registration
statement  on  Commission  Form  10-SB  for  TechTel.  The  balance  was used to
compromise or settle outstanding  liabilities of TechTel,  including liabilities
to  Mr.  Peplin  and to a  principal  of  Yankees,  the  Registrant's  strategic
consultant  and then a major  stockholder.  The 20% spin off was never  effected
because,  as  a  result  of  continuing  losses,  TechTel  was  faced  with  the
termination  of all  operations  unless it obtained  required  financing  to pay
telephone  bills and,  rather than close  TechTel,  the Registrant and TechTel's
other  stockholders  agreed to exchange  all of their  TechTel  common stock for
50,000 shares of the common stock of FON Digital Network,  Inc., a non-reporting
public company with  securities  then traded on the over the counter  electronic
bulletin  board  operated  by the NASD under the  symbol  FDNI.  The  Registrant
received 5,000 of such shares. A copy of the Acquisition  Memorandum is filed as
an exhibit to this report, see "Part III, Item 13(a),  Exhibits Required by Item
601 of Regulation SB."

                                    Page 10
<PAGE>

T2U Co.  and Business Technolgy Systems, Inc.

     Business  Technology  Systems,  Inc.:  All of the common stock owned by the
Registrant  in T2U  Co.(formerly  known as RCP  Enterprises,  Inc.),  a Delaware
corporation  doing  business as RCP  Communications  Group,  Inc.  ("T2U");  and
Business   Technology  Systems,   Inc.,  a  Florida  corporation   ("BTSF")  was
transferred  to Mr.  Peplin,  with the  intent  that Mr.  Peplin  would,  at the
Registrant's  expense,  file for protection from creditors pursuant to Chapter 7
of the United States Bankruptcy Code. Any proceeds remaining after completion of
such  proceeding  were to be used to  discharge  obligations  of  TechTel or the
Registrant and proceeds remaining after such payments (an unlikely event),  were
to be paid to the  Registrant.  Instead,  all such assets  were  assigned by Mr.
Peplin  to   regulatory   authorities   in   conjunction   with   settlement  of
administrative  actions against him and them and the Registrant has not provided
any  assistance  to  Mr.  Peplin  in  conjunction  with  their   liquidation  or
bankruptcy.

     The  divestiture  of the  Registrant's  subsidiaries  was undertaken by the
Registrant  at the  recommendation  of the  Yankee  Companies,  Inc.,  a Florida
corporation  ("Yankees"),  based on Yankees  determination  that  litigation and
regulatory  proceedings  involving  the  Registrant's  subsidiaries  was, in the
aggregate,  detrimental  to any prospects for the  Registrant to raise  required
capital  or  acquire  any  promising  business  ventures.  As a  result  of such
divestitures, the Registrant avoided material financial and regulatory exposure.
A copy of the  Registrant's  agreement  with  Mr.  Peplin  was  filed  with  the
Commission as an exhibit to a Form 8-K on or about March 22, 1999 In conjunction
with such divestitures,  Mr. Peplin, the Registrant's president, chief executive
officer and the chairman of its board of directors  resigned  from all positions
with the Registrant on May 4, 1999.

     As of  September  30, 1998,  the assets and  liabilities  of RCP,  BTSF and
TechTel were $41,597 and $1,570,944,  respectively. During 1999, pursuant to the
sale of the  subsidiaries  the Registrant  recognized a gain on sale because the
reorganizations did not qualify as tax-free  reorganizations.  However, no taxes
will be payable,  as the income generated by the Registrant,  as a result of its
reorganizations,  is from the relief of  liabilities  which is fully  excludable
under  the  insolvency/bankruptcy  exception.  Under  such  exception,  the  net
operating loss and other tax attributes are reduced in lieu of reporting income.

Consulting Agreement between the Registrant and the Yankee Companies, Inc.

     On January 5, 1999 , the  Registrant  entered into a  consulting  agreement
with Yankees,  a copy of which was filed with the  Commission as an exhibit to a
current  report on Form 8-K on or about  January 29, 1999.  The agreement has an
initial  term of 365 days but will be  renewed  automatically,  on a  continuing
annual  basis,  unless  terminated  by one of the  parties  30 days prior to the
termination  of the then  current  term.  The services to be provided by Yankees
were agreed to be the services, on a reasonable,  as required, basis, consistent
with Yankees's other business  activities.  Yankees's areas of expertise  mainly
comprise  corporate   structure,   organization  and  reorganization,   mergers,
acquisitions  and  divestitures,   strategic  corporate  development,  corporate
financial and equity analysis, and other corporate matters. Furthermore, Yankees
agreed to be  responsible  for  administering  the  expenditure  of the proceeds
derived by the Registrant  from the exercise of the options that were granted to
Yankees  as part of its  compensation  for the  services  rendered  in  order to
implement the strategic  plans  developed by Yankees and to settle and discharge
the corporate  obligations of the  Registrant.  In this role,  Yankees agreed to
establish and operate bank accounts for the Registrant,  using such  signatories
as Yankees deemed appropriate.


                                    Page 11

<PAGE>


     As consideration  for the first 200 hours of services  provided (in lieu of
document  license  fees and  required  cash  payments  valued at  $20,000),  the
Registrant agreed to grant Yankees within the first 365 days of the agreement, a
Class A Option to purchase  8,066,326 shares of the Registrant's  outstanding or
reserved  common stock  (measured  at the time  exercise  was  completed)  at an
exercise price of $0.005 per share,  under the assumption that 7,750,000  common
shares  were  outstanding  or  reserved  for  future  issuance,  and,  therefore
resulting in Yankees owning 51% of the  Registrant's  common stock. Any increase
or  decrease  in  the   outstanding  or  reserved   shares  would  result  in  a
corresponding adjustment of the options' quantity and prices. The options may be
executed from the 10th day until the 365th day following January 5, 1999. At the
request of the  Registrant  due to  pressing  requirement  for funds in order to
complete the audits  required for it to attain  currency in its filings with the
Commission, the Class A Options were modified by increasing the amount of common
stock issuable to 75% of the Registrant's outstanding or reserved capital stock,
measured  as of the time  exercise  is  complete,  and the  exercise  price  was
increased to $80,000.  A copy of the original and amended  warrant  agreement is
filed as an exhibit to this report, see "Part III, Item 13(a), Exhibits Required
by Item 601 of Regulation SB."

     As of the date of this report,  Yankees has paid $30,000.00 pursuant to its
exercise  of its  Class  A  Option  on  approximately  6,000,000  shares  of the
Registrant's  common stock.  Yankees has also loaned the Registrant  $29,120.59,
pursuant to its Consulting Agreement with the Registrant.

     For additional  services provided,  during the initial term, the Registrant
agreed to pay Yankees the following consideration:

*    If  Yankees  arranges  or  provides  funding  for  the  Registrant  on more
     beneficial terms than those currently reflected in the Registrant's current
     principal financing agreements, Yankees shall be entitled, at its election,
     to either

         *        a fee of 25% of the savings achieved, or

         *        if equity  funding  is  provided  through  consultants  or its
                  affiliates,  a discount  of 10% from the market  price for the
                  subject  equity  securities  based  on the  latest  comparable
                  transactions,  if issuable as free  trading  securities,  or a
                  discount of 50%, if issuable as restricted securities, or

         *        an introduction  fee of 5% of  the aggregate proceeds obtained
                  if  funding is  provided  by  any  persons  introduced  to the
                  Registrant by Yankees;

*    If Yankees generates business for the Registrant, Yankees shall be entitled
     to a  commission  of 10% of the  gross  income  derived  by the  Registrant
     therefrom on a continuing basis.

*    If Yankees arranges for an acquisition by the Registrant,  Yankees shall be
     entitled to 10% of the compensation paid for such acquisition.

     In addition,  the  Registrant  will be  responsible  for the payment of all
costs and  disbursements  associated with Yankees's  services subject to certain
limitations  and/or  approvals,  as stipulated in the  Agreement.  A copy of the
second  amendment  to the  consulting  agreement  is filed as an exhibit to this
report,  see "Part III, Item 13(a),  Exhibits Required by Item 601 of Regulation
SB."

                                    Page 12
<PAGE>

BellSouth Agreement

     As a result of the  reorganizations  described above, the Registrant has no
operations except for a resale agreement for the purchase of  telecommunications
services   for  the   purpose   of   resale   to  end   users   from   BellSouth
Telecommunications,  Inc. ("BellSouth"), pursuant to Sections 251 and 252 of the
Telecommunications   Act   of   1996,   as   an   alternative   local   exchange
telecommunications company in the States of Alabama, Florida, Georgia, Kentucky,
Louisiana, Mississippi, North Carolina, South Carolina and Tennessee.

     The agreement  was executed on November 22, 1999,  for a term of two years,
with the relation continuing on a month to month basis thereafter,  and provides
for  the   Registrant  to  resell   BellSouth's   telecommunications   services,
interconnect  with BellSouth  facilities,  purchase  network  elements and other
services from BellSouth,  and exchange  traffic  specifically for the purpose of
fulfilling  the   obligations   of  the  Registrant  and  BellSouth   under  the
Telecommunications Act of 1996. In addition, the Registrant may also provide its
customers with the following optional services through BellSouth: optional daily
usage file;  enhanced  optional daily usage file;  access daily usage file; line
information  database  storage;  centralized  message  distribution  service and
calling name.

     The  agreement  permits  the  Registrant  to  provide  competing  telephone
exchange  services to residential and business  subscribers  within  territories
where  BellSouth  operates.  Services  provided  by  the  Registrant  under  the
agreement will be on a par with services  provided by BellSouth  directly to its
residential   and  business   subscribers.   BellSouth  must  also  provide  the
Registrant's  customers  with white page  directory  listings (for which neither
party may charge  subscribers),  inclusion in directory assistance databases and
copies of white page books. Neither BellSouth nor the Registrant are granted any
intellectual property rights by the agreement and each has agreed to protect the
confidential or proprietary information of the other.

     The  Registrant  would derive income under the agreement by purchasing  the
services from BellSouth at a discount from the retail rates charged by BellSouth
for such  services,  reflecting  costs  avoided by  BellSouth  when selling such
services for wholesale services. The discounts vary by state as set forth in the
following table:
                                       Discounts *           Carrier
State            Residential           Business              Service Areas***
-----            -----------           --------              ----------------
Alabama             16.3%               16.3%
Florida             21.83%              16.81%
Georgia             20.3%               17.3%
Kentucky            16.79%              15.54%
Louisiana           20.72%              20.72%                   9.05%
Mississippi         15.75%              15.75%
North Carolina      21.5%               17.6%
South Carolina      14.8%               14.8%                    8.98%
Tennessee **        16%                 16%

*    When the Registrant provides resale service in a cross boundary area (areas
     that are part of the local  serving area of another  state's  exchange) the
     rates,  regulations and discounts for the state imposing the tariff will be
     from the serving state.

**   In  Tennessee,  if the  Registrant  provides its own operator  services and
     directory  services,  the  discount  will be 21.56%.  The  Registrant  must
     provide written notification to BellSouth within 30 days prior to providing
     its own operator services and directory  services to qualify for the higher
     discount rate of 21.56%.

***  Unless  noted  in  this  column,  the  discount  for  business  will be the
     applicable discount rate for carrier service areas.

                                    Page 13
<PAGE>


     The Registrant has no current  customers and is not conducting any business
under its  agreement  with  BellSouth  because  it lacks the  operating  capital
required.  The  Registrant's  board of  directors  declined  to engage in public
capital  raising  ventures  during the period since it filed its last  quarterly
report with the Commission  because it was the opinion of management that due to
problems in preparing the audit required for this report,  adequate  information
to comply with the requirements of the Securities Act was not available. At such
time as the Registrant  becomes current in its reporting  obligations  under the
Exchange  Act, it will  reevaluate  its  options  and may,  if required  capital
becomes available,  resume business under the BellSouth agreement, a copy of the
agreement  is filed as an exhibit to this  report,  see "Part III,  Item  13(a),
Exhibits Required by Item 601 of Regulation SB."

Post Reporting Period Strategic Plans & Change of Control

     During January of 1999, Yankees was retained by the Registrant to assist in
development  and  implementation  of new  strategic  plans.  As a result  of the
compensation  due to Yankees for its  services (as  reflected in the  consulting
agreement described above, see "Consulting  Agreement between the Registrant and
the  Yankee  Companies,  Inc."),  originally  an option to  purchase  51% of the
Registrant's  common stock  subsequently  increased to 75%, when aggregated with
800,000  shares which  affiliates  of Yankees had  purchased for an aggregate of
$200,000 prior to Yankees' association with the Registrant,  Yankees effectively
controls the Registrant  (See Part III, Item 11,  Security  Ownership of Certain
Beneficial  Owners  and  Management").  Immediately  following  its  engagement,
Yankees provided the Registrant with funds to pay for the audit of its financial
statements  for the fiscal year ended  September 30, 1998 (the "1998 Audit") and
recruited  additional  officers  and  directors,  all of whom agreed to serve in
consideration  for receipt of stock options (see "Part III,  Item 9,  Directors,
Executive Officers, Promoters and Control Persons").

     After its evaluation of the  Registrant's  prospects,  Yankees  recommended
that the Registrant  first priority be the  preparation and filing of reports to
the Commission required under the Exchange Act, and that it first concentrate on
completing  the audit of its  financial  statements  for the  fiscal  year ended
September  30,  1998.  That  audit was not  completed  until June of 2000 due to
difficulties in  reconstructing  poorly  documented  corporate  transactions and
locating records from discontinued  operations.  Until Yankees was retained, the
Registrant  lacked  funds  to  either  pay for such  audit  or to pay  corporate
personnel to assist the auditors.  Immediately  following completion of the 1998
Audit,  the Registrant  started  preparation of this report and of the quarterly
unaudited  financial  statements  required  in  order to  complete  and file its
delinquent  reports on Commission  Form 10-QSB for the calendar  quarters  ended
December  31, 1998,  March 31, 1999 and June 30, 1999,  the audit for its fiscal
year ended  September  30, 1999 (during  which there was virtually no activity);
and,  the  Registrant's  delinquent  reports on  Commission  Form 10-QSB for the
calendar quarters ended December 31, 1999, March 31, 2000 and June 30, 2000. The
Registrant expects to have all such financial  statements and reports filed with
the Commission prior to December 31, 2000.

     Concurrently with activities pertaining to the 1998 Audit, Yankees assisted
the Registrant to identify  persons with claims or potential  claims against the
Registrant  and to  negotiate to amicably  resolve  such  claims.  In almost all
cases,  Yankees  communicated  with the claimants and potential  claimants under
cover of letters that stated substantially as follows:

     "Please be advised that the Yankee Companies,  Inc., a Florida  corporation
     ("Yankees") serves as the strategic consultant to Colmena Corp., a publicly
     held Delaware corporation  ("Colmena"),  and in conjunction with such role,
     is responsible for liquidation of its current operations, negotiations with
     creditors and, if possible, development of new business opportunities.

                                    Page 14
<PAGE>


     We are  contacting  your  company,  as a creditor  of  Colmena,  to discuss
     Colmena's current financial  condition and to see if there is a basis for a
     settlement  that will permit Colmena to avoid recourse to protection  under
     federal  bankruptcy  laws and preserve for both creditors and  stockholders
     the possibility of a reasonable return on their respective interests.

     A review of the preliminary  draft audit for Colmena's year ended September
     30,  1998,  discloses  that  Colmena  has  suffered  losses  in  excess  of
     $5,000,000 due to the  bankruptcy of  International  Telemedia  Associates,
     Inc.,  a  Georgia  corporation  ("ITA"),  which in turn  led to  additional
     material losses as Colmena's business operations and investments were faced
     with the  absence  of cash flow  required  to support  them.  Consequently,
     Colmena now has no ongoing operations, no assets,  liabilities in the range
     of  $2,242,890  and an  apparent  tax loss  carryforward  of  approximately
     $11,597,587.1

     Yankees  has had  substantial  success  in  negotiating  with  insiders  to
     eliminate a large portion of the current debt and believes that Colmena has
     legitimate defenses to a number of the larger independent  liabilities,  as
     well as potential  material causes of action against very solvent potential
     defendant-  creditors.  However,  Yankees  believes  that  everyone's  best
     interests  would be served if Colmena  and its  creditors  could enter into
     arrangements  that would  eliminate  the  liabilities  without  recourse to
     expensive litigation, permitting Yankees to seek a potential acquisition or
     reverse  acquisition  candidate  that would find  Colmena's  tax loss carry
     forwards and absence of liabilities attractive.

     I  would  very  much   appreciate   the   opportunity  of  meeting  with  a
     representative  of your  company to discuss  details of  Colmena's  current
     status  and  prospects,  in order to help  your  company  make an  informed
     decision  as to its  relationship  with  Colmena  and to discuss  potential
     settlement terms. Please have an appropriately authorized representative of
     your company contact me directly at our Boca Raton offices to make mutually
     convenient arrangements."

     Some claims have been amicably resolved as follows:

                          Basis   Amount
                          for     of
Claimant                  Claim   Claim           Agreed to

Lawrence R. Van Etten      (1)    $18,152.93      136,147 Shares of Common Stock
Madhu & Ila Sethi          (2)    $24,068.69      250,000 Shares of Common Stock
Jack Levine                (3)    $2,550.00       34,000 Shares of Common Stock
Oppenheimer,
Wolff & Donnelly           (4)    $50,781.50      677,087 Shares of Common Stock
Wiseman Family Trust       (5)    $51,000.00      533,333 Shares of Common stock
Patrick V. Graham          (6)    $40,000.00      100,000 shares of common
--------
[FN]

     1    The  information  provided is  confidential,  for settlement  purposes
          only,  and  subject to the  restrictions  against  trading on material
          inside  information,  or  transmitting  material  inside  information,
          imposed  under  federal and state  securities  laws,  regulations  and
          rules.
</FN>

                                    Page 15
<PAGE>


(1)       Salary  and out of  pocket  expenses  owed by  TechTel.  A copy of the
          settlement is filed as an exhibit to this report,  see "Part III, Item
          13(a), Exhibits Required by Item 601 of Regulation SB."

(2)       See Part I, Item 3-Legal  Proceedings  of this  report.  A copy of the
          settlement  agreement is filed as an exhibit to this report, see "Part
          III, Item 13(a), Exhibits Required by Item 601 of Regulation SB."

(3)       Accounting  fees.  A copy of the  settlement  agreement is filed as an
          exhibit to this report,  see "Part III, Item 13(a),  Exhibits Required
          by Item 601 of Regulation SB."

(4)       Legal fees.

(5)       Mr. Peplin,  personally  guaranteed funds loaned by the Wiseman Family
          Trust to RCP.  Troy D. Wiseman,  as Trustee,  brought suit against Mr.
          Peplin in the  Circuit  Court of Cook  County,  Illinois,  to  enforce
          payment on the guaranty.  The  Registrant was not a party to the suit.
          However,  as an accommodation to Mr. Peplin, the Registrant has become
          a party to a settlement  agreement  between the  litigants in which it
          promises  to  transfer  533,333  shares of its  stock to Mr.  Wiseman,
          without assuming any liability for Mr. Peplin's  obligations under the
          settlement  agreement.  A copy of the loan  agreement  and  settlement
          agreement is filed as an exhibit to this report,  see "Part III,  Item
          13(a), Exhibits Required by Item 601 of Regulation SB."

(6)       See Part 1,  Item  3-Legal  Proceedings.  An oral  agreement  has been
          reached and the  necessary  documents  are being  prepared to complete
          this settlement.


     Yankees is currently  conducting  negotiations with other claimants and the
Registrant  has ratified the offers of settlement  negotiated by Yankees.  While
the  Registrant's  management  feels that there is a reasonable  likelihood that
such offers will be accepted, no assurances to that effect can be provided.  The
claims and settlement offers are as follows:

                    Basis for      Amount          Compromise   Offering
Claimant            Claim          of Claim        Offered      Date
--------                            -----          --------     -------
Strategica Group     (1)           (Unknown)       stock        1999
Diners Club          (2)           $  18,265.68    stock        August 2, 1999
Federal Express      (3)           $    5,295.11   stock        August 30, 1999
Arent Fox, et. al.   (4)           $  31,234.87    stock        January 18, 2000
SBV Holdings         (5)           $  82,500.00    stock        1999
MCI                  (6)           $  21,863.48    stock        1999
-------
(1)  See proceeding  discussion under "Investment  Banking and Advisory Services
     Agreement."

(2)  Expenses  related to  services  by Madhu  Sethi,  See Part 1, Item  3-Legal
     Proceedings.

(3)  Overnight  shipping  costs.

(4)  Legal  fees.

(5)  See proceeding discussion under "Business Technology Systems,  Inc." A copy
     of the  promissory  note is filed as an exhibit to this  report,  see "Part
     III, Item 13(a), Exhibits Required by Item 601 of Regulation SB."

(6)  Telephone service.

                                    Page 16
<PAGE>

     The  following   creditors  have  currently   declined  to  participate  in
negotiations:

                                Basis for Amount

Claimant                                    Claim             of Claim
--------                                    -----             --------
Seymour Brown                               (1)               $    250.00
AT&T                                        (2)               $  4,435.61
Omnipoint Comm.                             (2)               $    771.68
Air Touch Cellular                          (2)               $    539.81
American Arbitration Association            (3)               $    800.00
Deutsche Financial Services Corporation     (3)               $348,858.39
-------
(1)      Accounting fees

(2)      Telephone service.

(3)      See Part 1, Item 3-Legal Proceedings.


     Yankees has also suggested to the Registrant that if the Deutsche Financial
Services Corp. claim is not resolved, it should file for reorganization pursuant
to Chapter 11 of the United States Bankruptcy Code, and aggressively  pursue any
and all claims and counterclaims  available to the Registrant in such forum (see
"Part I, Item 3, Legal Proceedings").

     At  such  time  as the  Registrant  has  become  current  in its  reporting
obligations to the  Commission  and resolves  claims by creditors and others (as
disclosed  above),  Yankees has indicated  that it will assist the Registrant to
either obtain capital  required to resume  business  operations  pursuant to the
BellSouth agreement,  or will assist it to acquire  complimentary  businesses in
exchange for shares of the  Registrant's  common  stock and a commitment  by the
Registrant,  with the  assistance  of  Yankees,  to provide  required  expansion
capital.  However, no assurances can be provided that such business plans can be
attained.

Additional Information

     The  foregoing  information  is hereby  supplemented  by  reference  to the
comparable  item in the  Registrant's  report on Form  10-KSB for the year ended
September 30, 1997, the  information  reflected in the  Registrant's  reports on
Form 10-QSB for fiscal quarters ended December 31, 1997, March 31, 1998 and June
30, 1998;  the reports of current event on Form 8-K filed with the Commission on
or about January 29, 1999, (Items 1, 2, 4, 5 and 7) by amendment on February 12,
1999 (Item 4 and 7(c),  March 22,  1999  (Items 2 and 5(c));  and,  May 18, 1999
(Item 1); and, the registration  statement on Form S-8 filed with the Commission
on March 16, 1998, all as permitted by Rule 12b-23  promulgated  under authority
of the Securities Exchange Act of 1934, as amended ("Commission Rule 12b-23").

ITEM 2.           DESCRIPTION OF PROPERTY.

     Until January of 1999,  the Registrant  maintained its principal  office in
Westlake,  Ohio at the offices of Lakewood  Mfg.  Co.,  an entity  under  common
control with the Registrant. Lakewood Mfg. Co. was, and remains the owner of the
property where the Registrant  maintained its principal office, and provided the
office  space at no charge.  Tio also leased a  manufacturing  facility in Santo
Domingo  in  the  Dominican   Republic.   The  facility  had  a  floor  area  of
approximately  10,000 square feet and included multiple production  stations,  a
humidor  large  enough to hold more than 300,000  cigars and a drying room.  The
monthly  rent for the  property was  $1,604.00  and the lease  expired in May of
1998.


                                    Page 17

<PAGE>


Material Subsequent Events

     Since January of 1999, all of the Registrant's offices have been closed and
office facilities,  equipment and clerical personnel at the following  addresses
(all located in the State of Florida) have been made available to the Registrant
by Anthony Q. Joffe, the Registrant's current president, and Yankees:

Lighthouse Point:   3896 North Federal Highway;  Lighthouse point, Florida 33064
                    (Anthony Q. Joffe who serves as the  Registrant's  president
                    has made this facility available without charge).

Ocala:              1941 Southeast 51st Terrace, Suite 800; Ocala, Florida 34471
                    (where  G.  Richard  Chamberlin,   Esquire,  served  as  the
                    Registrant's  general counsel until March 31, 2000,  Vanessa
                    H.  Lindsey,  serves as the  Registrant's  secretary,  chief
                    administrative  officer  and a  member  of the  Registrant's
                    board of directors).

Boca Raton:         902 Clint Moore Road, Suite 136-D; Boca Raton, Florida 33487
                    until  December  1, 1999 and then at the  Crystal  Corporate
                    Center;  2500 North Military Trail, Suite 225-D; Boca Raton,
                    Florida 33431.

     The Registrant  anticipates  that these facilities will be adequate for its
needs unless it resumes business  operations under the BellSouth  Agreement,  at
which point required  facilities would be obtained,  or it engages in a material
acquisition,  in which case it is anticipated that adequate  facilities would be
included as a component of such acquisition or would be obtained.

ITEM 3.           LEGAL PROCEEDINGS.

Legal Proceedings as of September 30, 1998

     The  response to this item is  incorporated  by  reference to the report of
current  events on Form 8-K filed with the  Commission  on or about  January 29,
1999, as permitted by Commission Rule 12b-23.

Material Subsequent Events

Madhu Sethi vs. Colmena Corp., TechTel Communications, Inc., and T2U Co.

     On January 7, 1999,  Madhu Sethi  ("Mr.  Sethi")  filed a complaint  in the
Circuit Court for Broward  County,  Florida,  captioned  Madhu Sethi vs. Colmena
Corp.,  TechTel  Communications,  Inc.,  and T2U Co.,  seeking  the  recovery of
$24,069 for expenses  and  interest  and future  wages for alleged  breach of an
employment  agreement entered into with the Registrant on February 18, 1998. The
employment  agreement was for a term of 5 years and provided for compensation of
$100,000 per year exclusive of fringe benefits,  payable in weekly installments.
In addition,  Mr. Sethi was to receive an annual bonus based upon profits of the
Registrant.  A copy of the  employment  agreement is filed as an exhibit to this
report,  see "Part III, Item 13(a),  Exhibits Required by Item 601 of Regulation
SB."

     On June 3, 1999, a settlement  agreement (the "Agreement") was entered into
by the Registrant,  Mr. Sethi, and Ila Sethi ("Mrs. Sethi"), Mr. Sethi's spouse.
The  Parties  agreed  to an  accord  and  satisfaction  of all of their  rights,
obligations and liabilities. Mr. and Mrs. Sethi agreed to relinquish all rights,
whether  accrued  or  inchoate,  under  any  agreements  between  them or  their
affiliates and the Registrant and its affiliates,  other than those  established
by the Agreement.  Mr. and Mrs. Sethi agreed to cooperate with the Registrant in
its dispute with Deutsche Financial Services  Corporation  (discussed below) and
the  Registrant  agreed to use its best efforts to include Mr. and Mrs. Sethi in
any settlements of the dispute with Deutsche Financial Services Corporation. The
Registrant further agreed to issue to Mr. and Mrs. Sethi,  250,000 shares of the
Registrant's  common  stock,  in reliance  on the  exemption  from  registration
requirements  under  the  Securities  Act of  1933,  as  amended.  A copy of the
settlement  agreement is filed as an exhibit to this report, see "Part III, Item
13(a), Exhibits Required by Item 601 of Regulation SB."

                                    Page 18
<PAGE>


     Immediately  after execution of such settlement  agreement,  the Registrant
was advised that Mr. and Mrs.  Sethi,  rather than cooperate with the Registrant
in  settling  the  Registrant's   dispute  with  Deutsche   Financial   Services
Corporation,  had instead  executed the Extension  Agreement  dated as of August
19,1998 with Deutsche  Financial  Services  Corporation,  evidently  based on an
independent  settlement.  The Registrant  will  incorporate its response to such
apparent  violation  of the  settlement  agreement  in any  action  it  takes in
conjunction with the Deutsche Financial Services  Corporation  arbitration award
discussed below.

Loan  Agreement  and  Extension   Agreement  with  Deutsche  Financial  Services
Corporation

     On or about  February 26, 1997, a loan  agreement for  wholesale  financing
(the "Deutsche Financing Agreement") was entered into between Deutsche Financial
Services  Corporation and Business Technology Systems,  Inc., a corporation then
owned by Mr.  Sethi.  The Deutsche  Financing  Agreement  provided for inventory
financing for Business  Technology  Systems,  Inc.,  secured by a first priority
perfected lien and security interest in all of its assets,  rights, and proceeds
thereof, owned on February 26, 1997 or thereafter acquired. On or about February
19, 1998,  the  Registrant  agreed to purchase all of the assets and assumed the
liabilities  of Business  Technology  Systems,  Inc.,  and on March 15, 1998, it
formed Business  Technology  Systems,  Inc., a Florida  corporation  ("BTSF") to
which all such assets were assigned and which  assumed the related  obligations.
The  obligations  of  Business  Technology  Systems,  Inc.,  under the  Deutsche
Financing  Agreement were guaranteed by Mr. and Mrs. Sethi on or about August 5,
1997.  As of August 19,  1998,  BTSF,  as the  successor in interest to Business
Technology Systems, Inc., was in default under the Deutsche Financing Agreement,
with  past  due   obligations   totaling   approximately   $112,000   and  total
indebtedness,  including accrued interest,  totaling  approximately  $350,000. A
copy of the financing and amended financing  agreement is filed as an exhibit to
this  report,  see "Part  III,  Item  13(a),  Exhibits  Required  by Item 601 of
Regulation SB."

     An  extension  of  the  Deutsche   Financing   Agreement  (the   "Extension
Agreement") was entered into by BTSF and Deutsche Financial Services Corporation
on or about  August  26,  1998,  extending  the time for  payment  of the  debt,
including past due obligations. Under the terms of the Extension Agreement, BTSF
acknowledged and agreed to pay Deutsche Financial  Services  Corporation the sum
of $348,858 on or before  September 15,  representing the principal as of August
14,  1998 of  $345,474,  interest  charges  of  $3,384  through  July 31,  1998,
additional interest charges from August 1, 1998 at the annual rate of prime plus
6.5%, and fees and expenses incurred by Deutsche Financial Services Corporation.
In  addition,  BTSF agreed to  surrender  its  inventory  to Deutsche  Financial
Services  Corporation  for the purpose of its liquidation and application to the
debt as of the  date of the  extension.  Furthermore,  the  Extension  Agreement
called for guarantees by the Registrant, Mr. Peplin, Mr. and Mrs. Sethi and BTSF
and the  guarantors  to enter into a consent  arbitration  award.  A copy of the
extension agreement and consent arbitration award is filed as an exhibit to this
report,  see "Part III, Item 13(a),  Exhibits Required by Item 601 of Regulation
SB."

     The Extension  Agreement and the consent arbitration award were executed by
Mr. Peplin,  then the president of BTSF and the  Registrant,  on or about August
26,  1998,  as the  president  of BTSF,  the  Registrant  and on his own behalf;
however,  Mr.  and Mrs.  Sethi  did not join in the  required  guarantee  or the
consent  arbitration  award, as a result of which, the Registrant and Mr. Peplin
repudiated their guarantees and consents on or before October 20, 1998.

                                    Page 19
<PAGE>


     As of  September  30,  1998,  BTSF had  failed  to pay the  remaining  debt
totaling approximately $331,000. On October 6, 1998, Deutsche Financial Services
Corporation initiated an American Arbitration  Association proceeding in Dallas,
Texas,  entitled Deutsche Financial Services Corporation vs. Business Technology
Systems, Inc., Richard C. Peplin, Jr., and Colmena Corporation. On or about June
1, 1999,  Mr. and Mrs.  Sethi,  without  advising the  Registrant,  executed the
Extension  Agreement as guarantors  and the related  consent  arbitration  award
pursuant to an undisclosed settlement agreement with Deutsche Financial Services
Corporation.  On or about October 8, 1999,  the repudiated  Consent  Arbitration
Award was reduced to a" Consent Arbitrator Award," which provided as follows:

     "Respondents  consent  to the  entry  of an  Award  in  favor  of  Deutsche
     Financial  Services  Corporation  and against  Respondents in the amount of
     $348,858.39,  plus  interest  at the per annum rate of prime plus 6.5% from
     August  1, 1998 less such sums  received  by  Deutsche  Financial  Services
     Corporation pursuant to the Extension Agreement dated as of August 19,1998.
     All funds  received by Deutsche  Financial  Services  Corporation  from the
     liquidation  of the Collateral  and from the  Respondents  will be credited
     against the Debt."

     The  Registrant  has not paid any  portion of the award and is not aware of
the commencement of any proceedings to enforce the award. Should such proceeding
be commenced,  the Registrant will seek to have the award vacated on the grounds
that  the  Registrant  repudiated  its  guarantee  and  consent  to the  consent
arbitration   award  prior  to  its  execution  by  Mr.  and  Mrs.  Sethi,   and
consequently,  the  arbitrators  were  without  jurisdiction  to  entertain  the
proceeding.  In the event the award is reduced to a  judgement,  the  Registrant
anticipates  that it would avail itself of  protection  under  Chapter 11 of the
United States Bankruptcy Code and seek to litigate the entire matter.

Ziff Davis, Inc. vs. BTS

     On February 12, 1999, Ziff-Davis,  Inc. filed an action for damages against
BTSF. A material  judgement  was entered  against BTSF on July 26, 1999.  At the
time of the  judgement,  BTSF was no  longer  a  subsidiary  of the  Registrant.
Management of the Registrant and its counsel believe that, absent the ability to
"pierce the corporate  veil," no liabilities  attributable to BTSF should affect
the Registrant.

Patrick Graham vs. Five Star, Tio, the Registrant and Mr. Peplin

     On July 9, 1999 the matter of Patrick V. Graham vs. Five Star Cigar,  Inc.,
a Delaware corporation; Mariano Cigar Corporation f/k/a Tio Cigar Corporation, a
Delaware corporation; Colmena Corp., a Delaware corporation; and Richard Peplin,
was filed in the Circuit Court of Broward County,  case no. 99-012194.  This was
an action for  compensatory  damages and money lent  claiming  that on March 16,
1997,  Five Star  executed a promissory  note to Patrick V. Graham and that Five
Star  failed to pay the note in the amount of  $40,000.00  and is in default and
that on March 31, 1997, Tio Cigars  executed a promissory  note to Mr. Graham in
the amount of  $40,000.00  and is now in default  on that note.  Mr.  Graham has
taken the position  that the  Registrant is the successor by merger of Tio Cigar
and Five Star and as its successor is liable for the  indebtedness  of Five Star
for the amount of $40,000.00 plus  prejudgement  interest,  costs and attorney's
fees.  In  response  to the  filing of the  complaint,  on  October  6, 1999 the
Registrant  filed an omnibus motion to dismiss and motion for summary  judgement
and motion for attorney's  fees,  challenging  jurisdiction and venue as well as
arguing  that  Five  Star  Cigar,  Inc.  is a  separate  legal  entity  from the
Registrant  that was sold in late 1997 and was never merged into the  Registrant
or Tio Cigar, Inc., or Tio Mariano Cigar Corp. As of August 4, 2000, the Parties
have orally  agreed to settle  Patrick V. Graham vs.  Colmena  Corp.,  et al, as
follows:  in  consideration  for the plaintiff's  dismissing the above mentioned
case with  prejudice  against the  Registrant  and other named  Defendants,  the
transfer  agent will  issue to Patrick V.  Graham,  his  designees  or  assigns,
100,000 restricted shares of the Registrant's common stock.


                                    Page 20

<PAGE>


Investigation by the Federal Trade Commission ("FTC") of T2U Co.

     On December 9 and 10, 1998, the president and regulatory affairs manager of
T2U Co. were asked to testify in a confidential, non-public hearing before staff
of the FTC "to  determine  whether  various  entities  may be  engaging  or have
engaged  in  unfair or  deceptive  action,  acts or  practices  in or  affecting
commerce in  violation  of Section 5 of the  Federal  Trade  Commission  Act, 15
U.S.C.  Section 45, or the Commission's  [FTC] Trade Regulation Rule pursuant to
the Telephone  Disclosure and Dispute  Resolution Act of 1992, 16 CFR part 308."
As monetary relief for any such violations the FTC is seeking  consumer  redress
and  disgorgement  for the United  States  Treasury  of up to the full amount of
income  generated by RCP. A proposed  Stipulated  Final  Judgement and Order for
Permanent  Injunction and Consumer Redress ("Consent  Decree") was signed by T2U
and Mr.  Peplin on November  23,  1999,  and sent to the  Division of  Marketing
Practices,  FTC. The Consent Decree, if signed by the FTC will result in certain
injunctions  and a  judgement  against  T2U  and  Mr.  Peplin  in an  amount  of
$3,200,000.  Based upon  representations made by Mr. Peplin to the FTC regarding
the  financial  insolvency  of Mr.  Peplin  and T2U,  in lieu of  payment of the
foregoing amount, T2U and Mr. Peplin are to assign to the FTC all rights,  title
and interest they may have in their  proceedings in bankruptcy  against ITA. The
Registrant's  management and legal counsel believe that since T2U is no longer a
subsidiary of the Registrant, absent the ability to "pierce the corporate veil,"
no liabilities  attributable to T2U should effect the Registrant.  However, this
matter  is  likely  to have a  material  adverse  impact  on T2U and its  former
president.

Louisiana Public Service Commission vs. RCP

     Although  no formal  complaint  has been  filed,  RCP  personnel  have been
requested to appear at an unspecified  date before the Louisiana  Public Service
Commission by notice dated January 7, 1999. Management of the Registrant and its
counsel  believe  that  absent the  ability to "pierce  the  corporate  veil" no
liabilities attributable to this matter should effect the Registrant.

People of the State of Illinois vs. RCP

     On March 19, 1998,  the State of Illinois  filed a complaint for injunctive
relief  and  civil  money   penalties   against   RCP  doing   business  as  RCP
Communications  Group, Inc. The complaint alleges that RCP and its co-defendant,
ITA, violated the Illinois Consumer Fraud and Deceptive  Business  Practices Act
in connection  with the sale of prepaid  calling cards to Illinois  consumers by
committing  unfair or  deceptive  acts or  practices.  RCP was accused of having
"purportedly  advertised,  solicited,  offered for sale,  sold, and  distributed
enhanced services to, among others,  residents of Sangamon County, Illinois, and
billed or caused  Illinois  consumers  to be billed for such  services." A final
judgment and consent  decree was  executed by RCP and  submitted to the Attorney
General's Office for signature.  The Registrant's  counsel  anticipates that the
Attorney  General's  Office  will  present  the  Decree to the Court in the near
future for entry. The Consent Decree essentially  requires RCP, to follow proper
state rules and regulations  regarding  business practices for telephone service
providers and does not impose any monetary penalties or restitution by RCP based
on RCP's statements that it is financially insolvent.

                                    Page 21
<PAGE>

The Registrant vs. ITA

     In September 1998, ITA, defaulted in payments to T2U Co., doing business as
RCP, for services  rendered to third  parties and collected by ITA (See "Part I,
Item 1, ITA  Default").  Thereafter,  RCP and two  other  corporations,  Psychic
Discovery  Network,  Inc.,("PDN")  a Delaware  corporation  affiliated  with the
Registrant  through  common  ownership  by the  principal  shareholder  of PDN's
parent,  Viatech  Communications  Group, Inc., and BLJ  Communications,  Inc., a
Florida  corporation,  all  creditors  of ITA,  filed a petition  seeking  ITA's
involuntary  bankruptcy  pursuant to Chapter 7 of the United  States  Bankruptcy
Code. It is management's  assumption that a favorable outcome for the Registrant
is not likely. Accordingly, a 100% allowance of the accounts receivable due from
ITA has been recorded.

Various Creditor Claims

     The Registrant has been  negotiating  with several  creditors who have made
claims against the Registrant aggregating approximately $66,000.  Management and
its counsel  have not been able to assess the  probable  outcome of such claims.
All known amounts have been accrued by the Registrant at September 30, 1998.

ITEM 4.           SUBMISSION OF MATTERS TO SECURITY HOLDERS.

     The  Registrant  did not submit any  matter to a vote of  security  holders
during  its  fiscal  year  ended  September  30,  1998 and  does not  anticipate
submitting any matters to a vote of securities  holders until it becomes current
in filing its periodic  reports with the  Commission  (currently  expected to be
completed on or about December 31, 2000).

                                     PART II

ITEM 5.           MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Market Information.

1996, 1997 and 1998

     Prior to July  1996,  there was no  trading  activity  in the  Registrant's
common  stock.  During the report  period (the fiscal year ended  September  30,
1998) the Registrant's  common stock was traded in the  over-the-counter  market
and  quoted in what are  commonly  referred  to as on the "pink  sheets",  which
reports  quotations  by  brokers  or  dealers  in  particular  securities.   The
Registrant's  common  stock was also  quoted and listed on the over the  counter
electronic bulletin board operated by NASDAQ (the "OTC Bulletin Board"). Trading
in the Registrant's  stock was originally  reported under the symbol SPGU but is
now  reported  under the symbol CLME.  Because of the lack of readily  available
quotations and the limited  trading volume  frequently  associated with over the
counter  securities,  there  is a  greater  risk of  market  volatility  of such
securities than for securities traded on national exchanges. The following table
sets forth the quarterly high and low bid prices (to the nearest  $0.125) of the
Registrant's  common stock from July 29, 1996 (the date for which quotations are
first available)  through  September 30, 1998. All quotations are in pre-reverse
split prices.

Year Ended September 30, 1996                        High              Low

First Quarter                                        None              None
Second Quarter                                       None              None
Third Quarter                                        None              None
Fourth Quarter                                       $2.625            $1.00

Year Ended September 30, 1997                        High              Low

First Quarter                                        $0.75             $0.125
Second Quarter                                       $0.50             $0.50
Third Quarter                                        None              None
Fourth Quarter                                       None              None


                                    Page 22

<PAGE>

Year Ended September 30, 1998                        High              Low

First Quarter                                        $5.75             $4.75
Second Quarter                                       $7.00             $4.25
Third Quarter                                        $7.00             $4.50
Fourth Quarter                                       $5.75             $0.84375

     The quotations  represent  inter-dealer  quotations  without adjustment for
retail  markups,  markdowns or commissions  and does not  necessarily  represent
actual transactions.

Material Subsequent Event

     Bid, offer and transaction report prices for the Registrant's  common stock
were  available  through the OTC Bulletin  Board under the symbol CLME until the
fiscal  calendar  quarter that started on October 1, 1999.  On October 29, 1999,
due to  the  failure  of the  Registrant  to  file  periodic  reports  with  the
Commission on a timely basis,  the NASD  precluded  broker dealers in securities
from  using  the OTC  Bulletin  Board to  publish  quotes  for the  Registrant's
securities. Having anticipated such development, the Registrant's management had
qualified  the  Registrant's  securities  for  quotation  of  offering,  bid and
transactional   reporting  on  the  National  Daily  Quotation  System,   Inc.'s
Electronic  Pink Sheets,  where such  information  concerning  the  Registrant's
securities has been available since December 5, 1997. The Registrant anticipates
that  quotations for its common stock will resume on the OTC Bulletin Board soon
after it completes  updating its periodic reports on Commission Forms 10-QSB and
10-KSB.

     The following table indicates the average high and low bid prices as quoted
for the  Registrant's  common  stock at the end of each  calendar  quarter  from
December 31, 1998 until June 30, 2000. The following over-the-counter quotations
reflect inter-dealer prices, without retail mark-up,  mark-down,  or commission,
and may not necessarily represent actual transactions. The range of the reported
high and low bid quotations have been derived primarily from information  quoted
on the OTC Bulletin Board and the Electronic Pink Sheets.

Quarter Ended            High             Low                        Last Price
-------------            ----             ---                        ----------
December 31, 1998        $1.375           $0.125                     $0.25
March 31, 1999           $0.3125          $0.09375                   $0.125
June 30, 1999            $ 0.140          $0.070                     $0.09
September 30, 1999       $ 0.130          $0.080                     $0.105
December 31, 1999        $ 0.120          $0.010                     $0.015
March 31, 2000           $ 0.090          $0.010                     $0.09
June 30, 2000            $ 0.090          $0.015                     $0.562

     As of June 30, 2000,  six NASD member firms were listed as market makers in
the Registrant's common stock: Knight Trimark, Inc.; Sharpe Capital, Inc.; Hill,
Thompson Magid & Co., Inc.; Wien, Inc.;  Paragon Capital Corp.;  M.H. Meyerson &
Co. The  Transfer  Agent for the  Registrant's  common  stock is American  Stock
Transfer & Trust Company, 40 Wall Street, 46th Floor; New York, New York 10005.

Penny Stock Rules

     Exchange  Act  Section  15(g)  requires  brokers  and  dealers to make risk
disclosures to customers before effecting any transactions in "penny stocks". It
also directs the Securities and Exchange Commission to adopt rules setting forth
additional  standards for disclosure of information  concerning  transactions in
penny stocks.

     Penny stocks are low-priced,  over-the-counter securities that are prone to
manipulation  because of their price and a lack of reliable  market  information
regarding  them.  Under  Section  3(a)(51)(A)  of the  Exchange  Act, any equity
security is considered to be a "penny stock," unless that security is:

                                    Page 23
<PAGE>



     (i)       registered and traded on a national  securities  exchange meeting
               specified Securities and Exchange Commission criteria:

     (ii)      authorized   for  quotation  on  the  National   Association   of
               Securities  Dealers,   Inc.'s  ("NASD")  automated   inter-dealer
               quotation system ("NASDAQ"):

     (iii)     issued by a registered investment company:

     (iv)      excluded,  on the  basis of price or the  issuer's  net  tangible
               assets,  from  the  definition  of the  term  by  Securities  and
               Exchange Commission rule: or

     (v)       excluded  from the  definition  by the  Securities  and  Exchange
               Commission.

     Pursuant to Section  3(a)(51)(B),  securities  that  normally  would not be
considered penny stocks because they are registered on an exchange or authorized
for quotation on NASDAQ may be designated as penny stocks by the  Securities and
Exchange  Commission  if the  securities  are  traded  off  the  exchange  or if
transactions  in the  securities  are  effected  by market  makers  that are not
entering quotations in NASDAQ.

     Rule 3a51-1 was adopted by the Securities  and Exchange  Commission for the
purpose of  implementing  the  provisions  of  Section  3(a)(51).  Like  Section
3(a)(51),  it defines penny stocks by what they are not. Thus, the rule excludes
from the definition of penny stock any equity security that is:

     (A)       a "reported" security:

     (B)       issued by an investment company registered under the 1940 Act:

     (C)       a put or call option issued by the Options Clearing Corporation:

     (D)       priced at five dollars or more:

     (E)       subject to last sale reporting: or

     (F)       whose issuer has assets above a specified amount.

     Rule  3a51-1(a)  excludes  from the  definition  of penny  stock any equity
security that is a "reported security" as defined in Rule 11Aa3-1(a). A reported
security is any exchange-listed or NASDAQ security for which transaction reports
are  required  to  be  made  on a  real-time  basis  pursuant  to  an  effective
transaction  reporting  plan.  Securities  listed on the New York Stock Exchange
(the "NYSE"), certain regional exchange-listed securities that meet NYSE or Amex
criteria,   and  NASDAQ  National  Market  System  ("NMS")  securities  are  not
considered  penny  stocks.   (Release  No.  30608,  Part  III.A.1).   Generally,
securities  listed on the American Stock  Exchange (the "Amex")  pursuant to the
Amex's original and junior tier or its "Emerging  Company  Marketplace"  listing
criteria,  are not  considered  penny  stocks.  Securities  listed  on the  Amex
pursuant  to its  Emerging  Companies  Market  ("ECM")  criteria,  however,  are
considered to be "penny stock" solely for purposes of Exchange Act 15(b)(6).



                                    Page 24

<PAGE>

     Rule 3a51-1(d) excludes securities that are priced at five dollars or more.
Price, in most cases, will be the price at which a security is purchased or sold
in  a  particular  transaction,  excluding  any  broker  commission,  commission
equivalent,  mark-up, or mark-down.  In the absence of a particular transaction,
the five dollar price may be based on the inside bid  quotation for the security
as displayed on a Qualifying  Electronic  Quotation  System [i.e.,  an automated
inter-dealer  quotation system as set forth in Exchange Act Section  17B(b)(2)].
"Inside bid  quotation" is the highest bid quotation for the security  displayed
by a market  maker in the  security on such a system.  If there is no inside bid
quotation,  the average of at least three inter-dealer bid quotations  displayed
by three  or more  market  makers  in the  security  must  meet the five  dollar
requirement.  Broker-dealers  may not rely on  quotations  if they know that the
quotations  have been  entered for the  purpose of  circumventing  the rule.  An
inter-dealer  quotation system is defined in Rule  15c2-7(c)(1) as any system of
general   circulation  to  brokers  and  dealers  that  regularly   disseminates
quotations of identified brokers or dealers.

     In the case of a unit composed of one or more securities, the price divided
by the number of shares of the unit that are not  warrants,  options,  or rights
must be five dollars or more.  Furthermore,  the exercise  price of any warrant,
option,  or  right,  or of the  conversion  price of any  convertible  security,
included in the unit must meet the five dollar requirement.  For example: a unit
composed  of five shares of common  stock and five  warrants  would  satisfy the
requirements of the rule only if the unit price was twenty-five dollars or more,
and the warrant  exercise price was five dollars or more. Once the components of
the unit begin trading  separately on the  secondary  market,  they must each be
separately priced at five dollars or more.

     Securities that are registered, or approved for registration upon notice of
issuance,  on  a  national  securities  exchange  are  also  excluded  from  the
definition of penny stock [Rule  3a51-1(e)].  The exchange must make transaction
reports  available  pursuant to Rule  11Aa3-1  for the  exclusion  to work.  The
exclusion is further  conditioned  on the current  price and volume  information
with respect to  transactions  in that security  being reported on a current and
continuing  basis  and made  available  to  vendors  of market  information.  In
addition,  the exclusion is limited to exchange-listed  securities that actually
are purchased or sold through the  facilities  of the exchange,  or as part of a
distribution.  Exchange-listed  securities satisfying Rule 3a51-1(e),  but which
are not otherwise excluded under Rule 3a51-1(a)-(d), continue to be deemed penny
stocks for purposes of Exchange Act Section 15(b)(6).

     Securities that are registered, or approved for registration upon notice of
issuance,  on NASDAQ are  excluded  from the  definition  of penny  stock  [Rule
3a51-1(f)].  Similar to the exchange-registered exclusion of Rule 3a51-1(e), the
NASDAQ exclusion is conditioned on the current price and volume information with
respect  to  transactions  in that  security  being  reported  on a current  and
continuing basis and made available to vendors of market information pursuant to
the rules of NASD.  NASDAQ securities  satisfying Rule 3a51-1(e),  but which are
not otherwise  excluded  under Rule  3a51-1(a)-(d),  continue to be deemed penny
stocks for purposes of Exchange Act Section 15(b)(6).

     An exclusion is available  for the  securities of issuers that meet certain
financial standards. This exclusion pertains to:

     (i)       issuers that have been in continuous operation for at least three
               years  having net tangible  assets in excess of $2 million  [Rule
               3a51-1(g)(1)]:

     (ii)      issuers  that have  been in  continuous  operation  for less than
               three years  having net  tangible  assets in excess of $5 million
               [Rule 3a51-1(g)(1)]:

     (iii)     issuers  that have an average  revenue of at least $6 million for
               the last three years [Rule 3a51- 1(g)(2)].

                                    Page 25

<PAGE>


     To satisfy this requirement,  an issuer must have had total revenues of $18
million by the end of a three-year  period.  For domestic issuers,  net tangible
assets or revenues must be demonstrated  by financial  statements that are dated
no less than fifteen  months prior to the date of the related  transaction.  The
statements  must have been audited and reported on by an independent  accountant
in accordance with Regulation  S-X. For foreign  private  issuers,  net tangible
assets or revenues must be demonstrated  by financial  statements that are dated
no less than fifteen  months prior to the date of the related  transaction.  The
statements must be filed with the Securities and Exchange Commission pursuant to
Rule  12g3-2(b).  If the  issuer  has not been  required  to  furnish  financial
statements  during the previous  fifteen months,  the statements may be prepared
and audited in compliance with generally accepted  accounting  principles of the
country of incorporation.

     Whether the issuer is domestic or foreign,  in all cases a broker or dealer
must review the financial  statements and have a reasonable  basis for believing
that they were  accurate as of the date they were made (Rule  3a51-1[g][3]).  In
most  cases a  broker-dealer  need not  inquire  about or  independently  verify
information contained in the statements. Brokers and dealers must keep copies of
the domestic or foreign issuer's  financial  statements for at least three years
following the date of the related transaction.

     The Registrant's  securities are, as of the date of this report, subject to
the foregoing  regulations  as "Penny  Stocks".  The  Registrant  hopes that its
acquisition  program and funds from the sale of its  securities  will remove its
shares from such category prior to December 31, 2000; however, it can provide no
assurances that its efforts will prove successful.

The Registrant's Common Stock

     The  authorized  capital  stock of the  Registrant  consists of  20,000,000
shares of common stock, $.01 par value. As of the close of business on September
31, 1998, the Registrant had 7,741,697  shares of common stock  outstanding  and
held of record by approximately  470 persons.  As a material  subsequent  event,
since  December 31, 1998,  the  Registrant  has funded all of its operations and
paid all of its debts through  issuance of its securities;  consequently,  as of
June  30,  2000,  15,572,265  shares  of  the  Registrant's  common  stock  were
outstanding. The number of record holders of the Registrant's common stock as of
the  close of  business  on June 30,  2000,  was  approximately  497.  Of those,
approximately   31  were  holding  such   securities   pursuant  to   depository
arrangements with the actual beneficial owners (e.g.,  securities held in street
name for their clients by securities  brokers and dealers),  and the  Registrant
has been advised  that  approximately  294  additional  persons were  beneficial
owners under such  arrangements.  Consequently,  the total number of  beneficial
owners is 791.


                                    Page 26

<PAGE>


     Each holder of shares of the  Registrant's  common stock is entitled to one
vote for each  share held on all  matters  to be voted upon by the  stockholders
generally.  The shares do not have  cumulative  voting  rights  which means that
holders of more than 50% of the shares of the  Registrant's  common stock voting
for the election of directors can elect all the  directors,  and that in such an
event the holders of the  remaining  shares  would not be able to elect a single
director.  The approval of  proposals  submitted  to  stockholders  at a meeting
requires the favorable  vote of a majority of the shares  voting,  except in the
case of certain  fundamental  matters where  Delaware law requires the favorable
vote of at least a majority of all outstanding shares. Shareholders are entitled
to receive such  dividends as may be declared  from time to time by the board of
directors  out  of  funds  legally  available  therefor,  and in  the  event  of
liquidation, dissolution or winding up of the Registrant to share ratably in all
assets  remaining  after  payment of  liabilities.  The holders of shares of the
Registrant's common stock have no preemptive, conversion or subscription rights.

     The  Registrant has not declared any dividends on its common stock and does
not expect to do so at any time in the foreseeable  future.  There are currently
no restrictions on the Registrant's  ability to declare dividends in the future,
other than restrictions  applicable to all Delaware  corporations  involving the
source of funds for payment of dividends and their  effects on the  Registrant's
solvency.  In the future, the Registrant expects that a portion of its expansion
and development capital may be in the form of loans from financial institutions,
in which case it is likely that such institutions would require  restrictions on
the payment of  dividends  based on  traditional  financial  ratios  designed to
predict  the  Registrant's  ability to repay such  loans.  However,  no specific
predictions as to any such restrictions can be made at this time.

Amounts of Common Equity Subject to Outstanding Options or Warrants to Purchase,
or Securities Convertible Into Common Equity of the Registrant

Common Stock Purchase Warrants

     Since January 1, 1999,  the  Registrant  has issued  common stock  purchase
warrants  to  Yankees  and to its  officers  and  directors,  in  lieu  of  cash
compensation  for their services.  Current details  concerning such warrants are
provided below. As of June 30, 2000, 4,370,000 shares of the Registrant's common
stock were  reserved for issuance  pursuant to existing  obligations,  including
common stock  purchase  warrants  held by its officers and  directors in lieu of
cash  compensation for their services,  but excluding shares issuable to Yankees
pursuant to its current  warrant.  Yankees  recognizes  that the total number of
authorized  shares is not  sufficient  to allow for  reservation  of the  shares
subject to its warrant but believes that it can obtain  sufficient  director and
stockholders  votes to increase the authorized  capital stock of the Registrant,
as  required  to permit  exercise  of its  warrant.  Consequently,  Yankees  has
consented to the issuance and reservation of the Registrant's common stock which
would otherwise have been subject to the warrant.


                                    Page 27

<PAGE>

Stock Options

     On  February  25,  1998,  the  Registrant  granted  an option  to  purchase
1,500,000  shares of its common stock at an exercise price of $2.00 per share to
SBV as consideration for services. The option vested and became exercisable over
a period of 10 months.  The option period terminated on February 25, 2000. As of
September  30,  1998,  the  consultant  had  exercised  the option as to 640,000
shares.  The  Registrant  applies the fair market  value  method of Statement of
Financial  Accounting  Standards 123 in accounting  for stock options  issued to
consultants.  Accordingly,  a consulting  expense of $4,770,000  was  recognized
during 1998 for the option granted.

     On February 27, 1998 the Registrant's  board of directors  adopted the 1998
stock option plan (the  "Plan") to provide  added  incentive  for high levels of
performance to its officers, directors, employees,  consultants, and independent
contractors.  Options  granted under the Plan were designed  either as incentive
stock options or as non-  qualified  stock  options.  The plan will terminate on
February  27,  2008,  unless  previously  terminated.  The Plan  authorizes  the
Registrant to grant options to purchase up to an aggregate of 600,000  shares of
the Registrant's common stock. Non-qualified options may be granted to officers,
employees,  directors,  consultants,  independent  contractors  or other service
providers of the Registrant at an exercise price  determined by the Registrant's
Board of  Directors at least equal to 85% of the fair market value of the common
stock at the date of the grant.  Incentive  stock options may only be granted to
officers, employees, and directors, who are also employees of the Registrant, at
an exercise price determined by the Registrant's  board of directors which shall
not be less than 100% of the fair market  value of the common  stock at the date
of grant and may not be less than 110% of the fair  market  value of the  common
stock at the date of grant if  granted  to an  individual  owning  more than ten
percent of the total combined voting power. Options are exercisable at dates and
conditions  determined  by the  Registrant's  board of  directors at the time of
grant,  consistent  with  applicable  tax laws.  However,  an option  may not be
exercisable after the expiration of 10 years from the date it is granted, or, in
the case of  incentive  stock  options,  the term may not  exceed  five years if
granted to an option holder  owning more than ten percent of the total  combined
voting power. Through the date of this report no stock options have been granted
pursuant  to the  Plan.  The Plan  was  filed as an  exhibit  to a  registration
statement on Form S-8, filed March 16, 1998.

     On March  16,  1998,  a total of  2,900,000  shares of  common  stock  were
registered  under  the  Securities  Act  of  1933,  as  amended,  pursuant  to a
Registration  Statement on Form S-8. The aggregate  2,900,000 shares comprised a
total of 600,000 shares for stock options  authorized under the Plan,  1,500,000
shares for stock  options  issued to SBV as of February  25,  1998,  and 800,000
shares as agreed per five various consulting agreements as of November 10, 1997.

     On June 1, 1998,  the  Registrant  granted an option to purchase  1,000,000
shares of its common stock to the President and Chief  Executive  Officer of the
Registrant  under an  employment  agreement  effective as of the same date.  The
options vest at a rate of 200,000  shares per year on each  anniversary  date of
the employment  agreement,  and are exercisable at $6.00 per share for six years
following  their grant.  As of September 30, 1998, none of the stock options had
been  exercised.  A copy of the  employment  agreement is filed as an exhibit to
this  report,  see "Part  III,  Item  13(a),  Exhibits  Required  by Item 601 of
Regulation SB."


                                    Page 28

<PAGE>


Tabular Information

     As of June 30, 2000, the Registrant had 4,370,000  shares of its authorized
common  stock  reserved  for  issuance  (excluding  the  number  of shares to be
reserved for Yankees warrants) in conjunction with current  obligations to issue
additional shares or in the event that currently outstanding options or warrants
are exercised. The following table provides summary data concerning such options
and warrants:

Designation          Nature of          Exercise or           Number of Shares
or Holder            The Security       Conversion Price      Currently Reserved
---------            ------------       ----------------      ------------------
Yankees                 Option          $80,000 in total             (1)
(2)                     Warrant         $18,500 in total            370,000
(3)                       (3)                 (3)                 2,000,000
(4)                       (4)                 (4)                 1,600,000
Bell Entertainment        (5)                 (5)                   200,000
Anthony Q. Joffe          (6)                 (6)                   200,000
------

(1)      The  number of shares  cannot be  determined  with  certainty,  rather,
         Yankees has the right, for an aggregate of $80,000,  to purchase shares
         of the  Registrant's  common  stock  equal  to 75% of the  Registrant's
         outstanding and reserved shares of common stock,  measured  immediately
         after  exercise is completed.  See Notes to financial  statements.  For
         purposes of the Table,  the computation was made assuming that only the
         shares  currently  outstanding  or  reserved  would be  outstanding  or
         reserved at the time of exercise (an improbable  scenario).  The actual
         formula for  determining  the total  number of Yankees'  option  shares
         issuable is: [the total shares outstanding at the time the final option
         exercise  payment is made + the shares then reserved other than for the
         Yankees'  option]  multiplied  by 3 and  rounded  up or down  based  on
         proximity to the next whole number.

(2)      Represents the shares issuable to members of the Registrant's  board of
         directors,  as disclosed in Part III, Item 10, Executive  Compensation,
         and such disclosure is incorporated by reference  herein,  as permitted
         by Commission Rule 12b-23.

(3)      Represents  shares  reserved  for  issuance  in  the  event  offers  of
         settlement by the Registrant are accepted by certain current creditors,
         as disclosed at Part I, Item 1, Description of Business - New Strategic
         Plans & Change in  Control,  and such  disclosure  is  incorporated  by
         reference herein, as permitted by Commission Rule 12b-23.

(4)      Represents the shares issuable  pursuant to the  Registrant's  1998 and
         2000 stock option plans,  as disclosed at Part III, Item 10,  Executive
         Compensation  and the  Notes  to  Financials,  and such  disclosure  is
         incorporated  by reference  herein,  as permitted  by  Commission  Rule
         12b-23.

(5)      Represents the shares issuable  pursuant to the  Supplemental  Services
         Agreement between Yankees and the Registrant,  a copy of which is filed
         as an  exhibit to this  report,  see "Part III,  Item  13(a),  Exhibits
         Required by Item 601 of Regulation SB."

(6)      Represents  the  shares  issuable  to  Mr.  Joffe  as  compensation  as
         President,  as disclosed in Part III, Item 10, Executive  Compensation,
         and such disclosure is incorporated by reference  herein,  as permitted
         by Commission Rule 12b-23.


                                    Page 29

<PAGE>


Amounts  of  Common  Equity  That  Could  Be Sold Pursuant to Rule 144 under the
Securities Act

Reporting Period

         As of September 30, 1998,  7,741,697 shares of the Registrant's  common
stock were outstanding, of which:

         *     3,843,395 are recognized as free trading by the Registrant;

         *     3,898,302  have been issued over the years pursuant to exemptions
               from  registration  and are thus restricted  securities,  some of
               which are eligible for resale  under  Commission  Rule 144 ("Rule
               144").

     Of the shares that the  Registrant  has  instructed  its transfer  agent to
treat as restricted:

         *     497,929  were issued prior to June 30,  1997,  and  consequently,
               could have been sold under Rule 144, subject to Rule 144's volume
               limitations,  notice,  public  information  and  manner  of  sale
               conditions.  The volume  limitations  restricted  quantities sold
               over 90 day periods to the greater of 1% of the total outstanding
               common stock,  or the average  weekly  trading  volume during the
               four week period preceding the sale;

         *     486,919  were  issued  to  persons  that  do  not  appear  to  be
               affiliates  of  the  Registrant  prior  to  June  30,  1996,  and
               consequently may be sold by holders that have not been affiliates
               of the  Registrant  for a period  of at least 90 days,  under the
               more  liberal   provisions  of  Commission   Rule  144(k)  ("Rule
               144[k]"),  which dispense with the volume, public information and
               manner of sale conditions.

Material Subsequent Events

     As of September 7, 2000, 15,572,265 shares of the Registrant's common stock
were outstanding, of which:

         *     14,443,003 are recognized as free trading by the Registrant;

         *     1,129,262  have been issued over the years pursuant to exemptions
               from  registration  and are thus restricted  securities,  some of
               which are eligible for resale  under  Commission  Rule 144 ("Rule
               144").

         Of the shares that the  Registrant has instructed its transfer agent to
treat as restricted:

         *     16,556,737 were issued prior to June 30,2000,  and  consequently,
               may  currently  be sold  under  Rule 144,  subject  to Rule 144's
               volume limitations, notice, public information and manner of sale
               conditions.  The volume limitations restrict quantities sold over
               90 day  periods  to the  greater  of 1% of the total  outstanding
               common stock,  or the average  weekly  trading  volume during the
               four week period preceding the sale;

         *     10,556,737  were  issued  to  persons  that do not  appear  to be
               affiliates  of  the  Registrant  prior  to  June  30,  2000,  and
               consequently may be sold by holders that have not been affiliates
               of the  Registrant  for a period  of at least 90 days,  under the
               more  liberal   provisions  of  Commission   Rule  144(k)  ("Rule
               144[k]"),  which dispense with the volume, public information and
               manner of sale conditions.


                                    Page 30

<PAGE>

Rule 144

         Pursuant  to the  provisions  of  Rule  144(e),  permissible  sales  of
securities thereunder are determined as follows:

Sales by affiliates:     If  restricted  or  other  securities  are sold for the
                    account  of  an  affiliate  of  the  Registrant   (officers,
                    directors,  other control persons or their  affiliates,  and
                    persons who have been  affiliates  within the  preceding  90
                    days),  the amount of  securities  sold,  together  with all
                    sales of restricted  and other  securities of the same class
                    for the account of such person  within the  preceding  three
                    months, shall not exceed the greater of:

                    *    one  percent of the shares or other  units of the class
                    outstanding  as shown by the most recent report or statement
                    published by the Registrant, or

                    *    the average weekly  reported  volume of trading in such
                    securities  on  all  national  securities  exchanges  and/or
                    reported  through  the  automated   quotation  system  of  a
                    registered  securities  association during the four calendar
                    weeks  preceding  the filing of notice  required by Rule 144
                    (h), or if no such notice is required the date of receipt of
                    the order to execute  the  transaction  by the broker or the
                    date of execution of the transaction  directly with a market
                    maker, or

                    *    the average weekly volume of trading in such securities
                    reported  through  the  consolidated  transaction  reporting
                    system  contemplated  by Rule 11Aa3-1  under the  Securities
                    Exchange Act of 1934 during the four- week period  specified
                    above.

Sales by
non-affiliates:          The  amount  of  restricted  securities  sold  for  the
                    account  of  any  person  other  than  an  affiliate  of the
                    Registrant,  together  with all  other  sales of  restricted
                    securities  of the same class for the account of such person
                    within  the  preceding  three  months,  shall not exceed the
                    amount specified in paragraphs above for affiliates,  unless
                    the  conditions in Rule 144 (k) are satisfied  (two,  rather
                    than a one year holding period).

Determination
of Amount:               For the purpose of determining the amount of securities
                    specified  above (the  "Permitted  Volume"),  the  following
                    provisions apply:

                    *    Where both convertible securities and securities of the
                    class into which they are  convertible  are sold, the amount
                    of convertible securities sold is deemed to be the amount of
                    securities of the class into which they are  convertible for
                    the  purpose  of   determining   the  aggregate   amount  of
                    securities of both classes sold;


                                  Page 31

<PAGE>


                    *    The  amount of  securities  sold for the  account  of a
                    pledgee  thereof,  or for the account of a purchaser  of the
                    pledged securities, during any period of three months within
                    one year  after a default in the  obligation  secured by the
                    pledge,  and the amount of  securities  sold during the same
                    three-  month  period for the account of the pledgor may not
                    exceed, in the aggregate, the Permitted Volume.

                    *    The  amount of  securities  sold for the  account  of a
                    donee  thereof  during any period of three months within one
                    year after the donation,  and the amount of securities  sold
                    during the same  three-month  period for the  account of the
                    donor,  shall not exceed,  in the  aggregate,  the Permitted
                    Volume.

                    *    Where  securities  were  acquired  by a trust  from the
                    settlor of the trust, the amount of such securities sold for
                    the account of the trust  during any period of three  months
                    within one year after the  acquisition  of the securities by
                    the trust, and the amount of securities sold during the same
                    three-month period for the account of the settlor, shall not
                    exceed, in the aggregate, the Permitted Volume.

                    *    The amount of  securities  sold for the  account of the
                    estate  of a  deceased  person,  or  for  the  account  of a
                    beneficiary  of such  estate,  during  any  period  of three
                    months and the  amount of  securities  sold  during the same
                    period for the account of the  deceased  person prior to his
                    death  shall not exceed,  in the  aggregate,  the  Permitted
                    Volume;  provided,  that no limitation on amount shall apply
                    if the estate or beneficiary  thereof is not an affiliate of
                    the Registrant;

                    *    When two or more  affiliates  or other persons agree to
                    act in concert  for the purpose of selling  securities  of a
                    Registrant,  all  securities  of the same class sold for the
                    account  of all such  persons  during  any  period  of three
                    months shall be  aggregated  for the purpose of  determining
                    the limitation on the amount of securities sold;

Securities              The following  sales of securities need not be included
excluded:           in  determining  the amount of  securities  sold in reliance
                    upon this section:

                    *    Securities  sold pursuant to an effective  registration
                    statement under the Securities Act;

                    *    Securities  sold  pursuant to an exemption  provided by
                    Regulation A under the Securities Act; and


                    *    Securities  sold in a  transaction  exempt  pursuant to
                    Section 4 of the Securities Act and not involving any public
                    offering.

     Because a major theoretical component of securities pricing involves supply
and demand,  sales in reliance on Rule 144 will increase the supply and,  unless
there is a corresponding  increase in demand, can be expected to result in lower
prices.


                                    Page 32

<PAGE>


Amount of Common Equity That the  Registrant Has Agreed  to  Register  under the
Securities Act for Sale by Security Holders

     The Registrant  has not agreed to register any of its common stock,  except
in  conjunctions to include  securities in  registration  statements that it may
otherwise file (commonly referred to as "piggyback" rights).


Amounts of Common Equity That the Registrant Is Considering Publicly Offering or
Privately  Placing  Other  than  Shares to Be Issued  (Pursuant  to an  Employee
Benefit Plan or Dividend  Reinvestment Plan), the Offering of Which Could Have a
Material Effect on the Market Price of the Registrant's Common Equity.

During the Year Following the Reporting Period

     Information concerning the Registrant's actual issued during the year ended
September  30,  1999,  is  contained  below at  "Recent  Sales  of  Unregistered
Securities - Material Subsequent Events."

Material Subsequent Events

     As of June  30,  2000,  the  Registrant  had no  definitive  plans to offer
securities  other than as disclosed above in conjunction  with shares  currently
reserved.  However,  after the  Registrant has become current with its reporting
obligations  to the Commission  and resolved  currently  asserted or anticipated
claims by third parties,  it will require  operating and expansion capital which
it intends to obtain,  first through  private  placements of its  securities and
thereafter,  through one or more  secondary  offerings of its  securities.  Such
securities may involve the Registrant's  common equity.  No current estimates of
the amounts  involved can be determined.  The offering price will be tied to the
market  price at the time of  offering  except for small  discounts  if a rights
offering to existing  stockholders is involved and somewhat larger discounts for
shares privately  placed.  However,  the Registrant cannot currently provide any
realistic  estimates  as to what such  prices  will be since they will depend on
market  conditions,  the  Registrant's  success in either renewing its telephone
resale   business  under  the  BellSouth   agreement  or  effecting   profitable
acquisitions  that appeal to the investing  public and other factors  beyond the
Registrant's control.

Recent Sales of Unregistered Securities

During The Three Year Period Preceding Reporting Date

     During the three year period ended  September 30, 1998, the Registrant sold
the  securities  listed  in the  tables  below  without  registration  under the
Securities  Act in  reliance on the  exemption  from  registration  requirements
cited.

Footnotes  for all  tables  follow  the last table  after  "Material  Subsequent
Events."

                                    Page 33
<PAGE>

<TABLE>
<S>              <C>           <C>                         <C>                <C>             <C>
Common Stock:

                Amount of                                 Total                              Registration
                Securities                                Offering          Total            Exemption
Date            Sold        Subscriber                    Consideration     Discounts        Relied on
----            -----       ----------                    -------------     ---------        ---------
1995:
November 28     25,000      Tony Alford                   (3)                   (3)              (1)
November 28     30,000      Mickey Lee Britt              (3)                   (3)              (1)
November 28     25,000      Richard Dolan                 (3)                   (3)              (1)
November 28     65,000      Frank Gambosh                 (3)                   (3)              (1)
November 28     25,000      John J. Hanky                 (3)                   (3)              (1)
November 28     10,000      Charles E. Henderson          (3)                   (3)              (1)
November 28     25,000      David & Janice Lester         (3)                   (3)              (1)
November 28  4,452,000      Norman O. Milligan, Sr.       (3)                   (3)              (1)
November 28     25,000      Warren S. Rutledge            (3)                   (3)              (1)
November 28    100,000      Ronald K. Stack               (3)                   (3)              (1)
November 28     12,500      William H. Stephens           (3)                   (3)              (1)
1996:
May 30          50,000      Robert J. Skandalaris         (3)                   (3)              (1)
December 26     10,000      Lorine S. Caveness            (4)                   None             (1)
December 26     10,000      Joe H. Gieck                  (4)                   None             (1)
December 26     25,000      John M. Grubb Jr.             (4)                   None             (1)
December 26     75,000      John Moates                   (4)                   None             (1)
December 26      2,000      Bruce N. Shaw                 (4)                   None             (1)
December 26      5,000      Thomas R. Squires, Jr.        (4)                   None             (1)

1997:

none

1998

January 7       46,500       Marshal Family LTD           (4)                   None             (1)
January 12     100,000       Richard Cherskov             (4)                   None             (1)
January 12      18,750       Peter Accorti                (6)                   None             (1)
January 12      50,000       Borden Barrows               (4)                   None             (1)
January 12      25,000       Ronald Denne                 (6)                   None             (1)
January 12      50,000       David DeBenedetto            (4)                   None             (1)
January 12      50,000       Leonard J. Feilez, Jr.       (4)                   None             (1)
January 12      50,000       Robert S. Gigliotti          (5)                   None             (1)
January 12     175,000       Marty Gillespie              (6)                   None             (1)
January 12      30,000       Patrick Graham               (6)                   None             (1)
January 12     937,500       Lakewood Manufacturing       (6)                   None             (1)
January 12      11,250       Jeffery Outcalt              (6)                   None             (1)
January 12     400,000       Beth M. Peplin               (6)                   None             (1)
January 12   2,500,000       Richard C. Peplin, Jr.       (6)                   None             (1)
January 12       7,500       Richard C. Peplin, Jr        (6)                   None             (1)
                              c/f Richard C. Peplin, III
January 12       7,500       Richard C. Peplin, Jr        (6)                   None             (1)
                              c/f Alexandria M. Peplin
January 12       7,500       Richard C. Peplin, Jr        (6)                   None             (1)
                              c/f Dustin A. Peplin
January 12     100,000       Arlene Powers                (4)                   None             (1)
January 12      15,000       Mark Schmeidle               (6)                   None             (1)
January 12     175,000       Anna Villanueva              (6)                   None             (1)
January 12     200,000       Marshall Family LTD          (4)                   None             (1)
January 13          10       Ralph Gesauldo               (3)                   None             (1)
March 10       200,000       Players, Inc.                (4)                   None             (1)
June 11        100,000       Troy D. Wiseman              (7)                   None             (1)
August 19      300,000       Arnold A. Semler, Inc.       (8)                   None             (1)
September 19   100,000         Ila Sethi                  (9)                   None             (1)

</TABLE>

                                    Page 34
<PAGE>


Convertible Securities:

     On March  16,  1998,  a total of  2,900,000  shares of  common  stock  were
registered  under  the  Securities  Act  of  1933,  as  amended,  pursuant  to a
Registration  Statement on Form S-8. The aggregate  2,900,000 shares comprises a
total of 600,000 shares for stock options authorized under the 1998 Stock Option
Plan,  1,500,000  shares for stock options issued to a consultant as of February
25, 1998, and 800,000 shares as agreed per various  consulting  agreements as of
November 10, 1997.

Material Subsequent Events

     Since the end of the three  year  period  ended  September  30,  1998,  the
Registrant sold the securities  listed in the tables below without  registration
under  the  Securities  Act in  reliance  on  the  exemption  from  registration
requirements cited.

<TABLE>
<S>                  <C>           <C>                         <C>              <C>              <C>
Common Stock:

                  Amount of                                 Total                              Registration
                  Securities                                Offering Total                     Exemption
Date              Sold          Subscriber                  Consideration     Discounts        Relied on
----              -----         ----------                  -------------     ---------        ---------
1999:
February 22       2,000,000     The Yankee Companies, Inc.       (10)           (11)             (2)
April 14          2,000,000     The Yankee Companies, Inc.       (10)           (11)             (2)
October 6         2,000,000     The Yankee Companies, Inc.       (10)           (11)             (2)
2000:
March 17             34,000     Jack Levine                      (12)           None             (1)
March 17            677,087     Oppenheimer Wolff & Donnelly     (12)           None             (1)
May 11              136,147     Larry Van Etten                  (12)           None             (1)
May 4               200,000     Anthony Q. Joffe                 (13)           None             (2)
May 31              533,333     Troy D. Wiseman                  (12)           None             (1)
August 7            250,000     Madhu & Ila Sethi                (12)           None             (1)

Convertible
Securities:

                  Amount of                                 Total             Terms of         Registration
                  Securities                                Offering          Conversion       Exemption
Date              Sold          Subscriber                  Consideration     or Exercise      Relied on
----              -----         ----------                  -------------     -----------      ---------

1999:

January 15          570,000     Stock Purchase Warrant         $18,500           $0.05(14)       (2)
October 15          200,000     Consulting Agreement             (15)              (15)          (1)

2000:

January 3         1,000,000     Stock Option Plan                (16)              (16)          (1)
January 3           200,000     Anthony Q. Joffe                 (17)              (17)          (2)
2000              2,000,000     (18)                             (18)              (18)          (1)

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

</TABLE>


                                    Page 35

<PAGE>


(1)  Section  4(2) of the  Securities  Act.  In each case,  the  subscriber  was
     required  to  represent  that the  shares  were  purchased  for  investment
     purposes,  the  certificates  were legended to prevent  transfer  except in
     compliance  with  applicable laws and the transfer agent was instructed not
     to permit  transfers  unless  directed  to do so by the  Registrant,  after
     approval by its legal counsel. In addition, each subscriber was directed to
     review the Registrant's  filings with the Commission under the Exchange Act
     and was provided with access to the Registrant's officers, directors, books
     and records, in order to obtain required information.

(2)  Section  4(6) of the  Securities  Act.  In each case,  the  subscriber  was
     required  to  represent  that the  shares  were  purchased  for  investment
     purposes,  the  certificates  were legended to prevent  transfer  except in
     compliance  with  applicable laws and the transfer agent was instructed not
     to permit  transfers  unless  directed  to do so by the  Registrant,  after
     approval by its legal counsel.  Each  subscriber was directed to review the
     Registrant's  filings  with the  Commission  under the Exchange Act and was
     provided with access to the  Registrant's  officers,  directors,  books and
     records, in order to obtain required  information;  and, a Form D reporting
     the transaction was filed with the Commission.

(3)  Current management has no knowledge of these transactions.

(4)  Compensation  for  unspecified  services  rendered  for the  benefit of the
     Registrant,  with neither the offering price or  consideration  clearly set
     forth.

(5)  For services as a director.

(6)  Shares of Tio stock were converted into the Registrant's common stock.

(7)  Compensation  for  consulting  services for the benefit of the  Registrant,
     with neither the offering price or consideration  clearly set forth. A copy
     of the agreement is filed as an exhibit to this report, see "Part III, Item
     13(a), Exhibits Required by Item 601 of Regulation SB."

(8)  Asset Purchase  Agreement  dated May 19, 1998,  entered into by and between
     the  Registrant  and  Arnold  A.  Semler,  Inc.  doing  business  under the
     fictitious name "Associated Industries."

(9)  Consideration for the purchase of Business Technology Systems,  Inc. by the
     Registrant.

(10) Option to purchase 75% of the Registrant's  outstanding and reserved common
     stock  measured   immediately   following   exercise  of  the  option,   in
     consideration for an aggregate of $80,000, such option being the portion of
     consideration  granted to Yankees under its  consulting  agreement with the
     Registrant in exchange for Yankees  agreement to forego hourly and document
     licensing fees for a period of approximately two years, see "Part III: Item
     11, Security  Ownership of Certain  Beneficial Owners and Management;" and,
     "Part III, Item 12, Certain Relationships and Related Transactions."

(11) No commissions  or discounts  were paid to anyone in  conjunction  with the
     sale of the foregoing securities.

(12) Term of settlement for various services provided to the Registrant.

(13) Compensation  to Anthony Q. Joffe for his services as president from May 4,
     1999 to May 3, 2000.

(14) Represents  the shares  issuable  to members of the  Registrant's  board of
     directors, as disclosed in "Part III, Item 10, Executive Compensation."

(15) Represents  the  shares  issuable  pursuant  to the  Supplemental  Services
     Agreement  between Yankees and the Registrant,  a copy of which is filed as
     an exhibit to this report, see "Part III, Item 13(a),  Exhibits Required by
     Item 601 of Regulation SB."

(16) Represents the shares issuable  pursuant to the Registrant's  1998 and 2000
     stock  option  plans,  as  disclosed  at  "Part  III,  Item  10,  Executive
     Compensation" and the "Notes to Financials."

(17) Represents  the  shares  issuable  to Mr.  Joffe  for his  services  as the
     Registrant's  president,  as  disclosed  in "Part III,  Item 10,  Executive
     Compensation."

(18) Represents  shares  reserved for issuance in the event offers of settlement
     by the Registrant are accepted by certain current  creditors,  as disclosed
     at "Part I, Item 1,  Description of Business - New Strategic Plans & Change
     in Control."


                                    Page 36
<PAGE>


ITEM 6.   MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL  CONDITION  AND
          RESULTS OF OPERATIONS.

Overview

     The  following   discussion   should  be  read  in  conjunction   with  the
Registrant's  audited  financial  statements  and the more detailed  information
contained  in Part I,  Item 1 of this  report.  During  November  of  1997,  the
Registrant  became  engaged  in  the  business  of  marketing  and  distributing
long-distance  telephone  service  calling  cards  and  in the  manufacture  and
distribution of premium  hand-rolled  cigars, in each case, through wholly owned
subsidiaries.  During  March  of  1999,  the  Registrant's  board  of  directors
concluded negotiations to divest the Registrant of its wholly owned subsidiaries
positioning  itself to  undertake  new  business  endeavors  or to become a more
attractive acquisition candidate.

Plan of Operations

     During  January  of 1999,  the  Registrant's  board of  directors  signed a
consulting agreement with Yankees, calling for Yankees to provide the Registrant
with working  capital and assistance in development  and  implementation  of new
strategic  plans.  Yankees  suggested that the Registrant  first  concentrate on
completing  the audit of its  financial  statements  for the  fiscal  year ended
September 30, 1998.  Concurrently with activities  pertaining to the 1998 Audit,
Yankees  assisted the  Registrant to identify  persons with claims and potential
claims against the  Registrant  and to negotiate  with them to amicably  resolve
such claims (See further  discussion in "Part I, Item 1, Description of Business
- New Strategic Plans & Change of Control").

     The Registrant has completed the audit of its financial  statements for the
fiscal year ended  September 30, 1998 and is completing the quarterly  unaudited
financial  statements  required  in order to  complete  and file its  delinquent
reports on Commission  Form 10-QSB for the calendar  quarters ended December 31,
1998 and 1999, March 31, 1999 and 2000 and June 30, 1999 and 2000, and the audit
for its fiscal year ended September 30, 1999. The Registrant expects to have all
such  financial  statements  and  reports  filed  with the  commission  prior to
December 31, 2000.

     Almost all claims and potential claims against the Registrant identified by
Yankees  have been  amicably  resolved  through the  issuance  of  approximately
1,730,567  shares of common  stock,  with the notable  exception of the arbitral
award  in  Deutsche  Financial  Services  Corporation  vs.  Business  Technology
Systems,  Inc.,  Ila Sethi,  Madhu Sethi,  Richard C.  Peplin,  Jr., and Colmena
Corporation,  which the  Registrant  will  contest  (see  "Part I, Item 3, Legal
Proceedings").  Yankees,  on behalf of the  Registrant  is currently  conducting
negotiations with certain remaining  claimants and has made offers of settlement
for claims of  approximately  $165,956  While  management  feels that there is a
reasonable  likelihood that such offers will be accepted,  no assurances to that
effect can be provided.

     The  Registrant  currently  has no businesses  operations  other than those
pertaining to correcting  deficiencies in filing  obligations under the Exchange
Act,  maintenance of its corporate  existence and potential  operations  under a
negotiated resale agreement involving the purchase of telecommunication services
for  the  resale  to end  users  from  BellSouth  Telecommunications,  Inc.  The
agreement  pertains to  Sections  251 and 252 of the  Telecommunications  Act of
1996,  and allows the  Registrant to operate as an  alternative  local  exchange
telecommunications company in the States of Alabama, Florida, Georgia, Kentucky,
Louisiana,  Mississippi,  North  Carolina,  South  Carolina and  Tennessee.  The
agreement  permits  the  Registrant  to  provide  competing  telephone  exchange
services to residential and business  subscribers in territories where BellSouth
operates.  The  Registrant  currently has no customers and is not conducting any
business  under its agreement  with  BellSouth.  As soon as the  Registrant  has
become  current in its filing  obligations  under the Exchange  Act, it plans to
either  obtain  capital  required to resume  business operations pursuant to the



                                    Page 37
<PAGE>



BellSouth  agreement,  or to acquire  complimentary  businesses  in exchange for
shares of the  Registrant's  common stock and a commitment by the  Registrant to
provide required expansion capital.  However, no assurances can be provided that
such business plan can be attained.

     The foregoing plan of operation  contains  forward-looking  statements that
are  subject to risks and  uncertainties  which could  cause  actual  results to
differ  materially  from those discussed in the  forward-looking  statements and
from historical results of operations.  Among the risks and uncertainties  which
could cause such a difference are those relating to the Registrant's  dependence
upon certain key personnel,  its ability to manage its growth,  the Registrant's
success in  implementing  its business  strategy,  the  Registrant's  success in
arranging financing where required,  and the risk of economic and market factors
affecting the Registrant or its customers.  Many of such risk factors are beyond
the control of the Registrant and its management.

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations

Year ended September 30, 1998 compared to year ended September 30, 1997.

     Prior  to  the  discontinuation  of  past  operations,   substantially  all
financial  activity  during 1998 and 1997 was a result of business  conducted in
the marketing and distributing of long-distance telephone service calling cards.
The Registrant  reported  losses for the fiscal year ended September 30, 1998 of
($16,824,000) and net income for the fiscal period from inception (June 1, 1997)
to September  30, 1997 of  $211,000.  This  translates  to a per share (loss) of
$(2.64) for fiscal year 1998 and per share income of $.05 for fiscal year 1997.

     The net income  (loss)  figures  were based on  corresponding  revenues  of
$10,344,480  and  $1,266,414  for the years ended  September  30, 1998 and 1997,
respectively.  The increase in net revenue and corresponding increase in cost of
revenue  in 1998 as  compared  to 1997 was  attributable  to the  marketing  and
distributing  of  long-distance   telephone  service  calling  cards.  Operating
expenses  rose to  $20,682,276  in 1998 as  compared  to  $39,516  in 1997.  The
substantial  increase  was due to  issuance  of  common  stock  and  options  to
consultants  amounting to  $12,611,200  in consulting  expense,  and  $5,453,907
related to the write off of accounts receivable.

     On a cash basis,  1998 operations  were slightly more than breakeven.  Cash
used in investing  activities were $1,558,736 and related  substantially  to the
purchase of a customer base. The Registrant received net proceeds from financing
activities of $1,472,295. These funds were primarily from the issuance of common
stock. These items resulted in a positive total cash flow position for the year,
which was similar to the prior year.

     No  additional  meaningful  comparisons  can be  made  for the  year  ended
September  30,  1998 as compared  to the year ended  September  30, 1997 in that
during the year ended  September 30, 1997,  the  activities of the  Registrant's
predecessor were unrelated.

Interim Periods

     Management has taken steps to redirect the  Registrant's  business focus to
more  profitable  activities  (See  Item 1 and  previous  discussion  in  Item 6
regarding  new  strategic  plans).  At this time it is not  possible  to predict
whether or not the  Registrant  will  succeed in obtaining  capital  required to
resume business  operations  pursuant to the BellSouth agreement or to invest in
expansion of complimentary,  acquired  businesses,  or, what, if any,  financial
benefits it might derive were such financing to be obtained.

                                    Page 38
<PAGE>


     The  effect  of the  board  of  directors'  decision  to  discontinue  past
operations  has had the effect of allowing the  Registrant to be classified as a
development stage company prepared to conduct  profitable  business  activities.
Current  revenues  have been  reduced to zero in  contemplation  of new business
opportunities being sought by the Registrant.

Year 2000 Compliance

     As of the date this  report  was to have been  filed  with the  Commission,
there were serious  concerns about the effects the transition  from the 1900s to
the 2000s  would  have on  computer  programs  designed  to ignore the first two
digits  of  each  year  in  determining  operating  periods.  As a  result,  the
Commission required  Registrant's to report on their states of readiness to face
potential year 2000 problems.  The following disclosure would have been accurate
prior to January 1, 2000:

     The inability of business processes to continue to function correctly after
     the  beginning  of the Year 2000  could  have  serious  adverse  effects on
     companies  and  entities  throughout  the world.  The  Registrant  does not
     currently own any computer equipment and thus would not be subject directly
     to any problems associated with such Year 2000 problems.  It currently uses
     computer  equipment  provided by its  management and  consultants,  none of
     which would be  materially  affected  by Year 2000  software  and  hardware
     problems.  However,  in the  event it makes a  material  acquisition,  such
     problems could affect the acquired  entity's  operations and, to the extent
     that the problem  affects  national  communications,  financial  or utility
     businesses  in general,  the  Registrant,  like other  businesses  could be
     adversely affected. In the event that the Registrant  experiences Year 2000
     related problems,  it would be forced to expend such amounts of its working
     capital as might be necessary to correct the affected software and hardware
     systems and implement contingency plans.

     As a material  subsequent event, no material year 2000 problems occurred as
a result of the  transition  from the 1900s to the  2000s on  computer  programs
designed  to ignore the first two digits of each year in  determining  operating
periods.

Liquidity and Capital Resources

     At September 30, 1998,  the Registrant  had a  stockholders'  deficiency of
approximately  $1,921,000.  The  Registrant's  future  operations  and growth is
dependent on its ability,  with the assistance of Yankees,  to raise capital for
expansion  and  to  implement  its  strategic  plan.  If the  Registrant  is not
successful in raising  capital and in resolving the remaining  claims of certain
claimants,  or if the arbitral award in Deutsche Financial Services  Corporation
vs.  Business  Technology  Systems,  Inc.,  Ila Sethi,  Madhu Sethi,  Richard C.
Peplin, Jr., and Colmena  Corporation,  were successfully reduced to a judgment,
the Registrant may file for reorganization  pursuant to Chapter 11 of the United
States  Bankruptcy  Code. The Registrant has no other material  commitments  for
capital expenditures.


                                    Page 39

<PAGE>

ITEM 7.  FINANCIAL STATEMENTS.

Index to Financial Statements and Financial Statement Schedules.

     The auditor's  report and audited  balance sheet of the  Registrant for its
years ended  September 30, 1998 and December 31, 1997 and related  statements of
operations,  stockholder's  equity, cash flows and notes to financial statements
for such years,  including  indexes  therefor,  follow in sequentially  numbered
pages numbered 40 through 67.

                         COLMENA CORP. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                          AS OF SEPTEMBER 30, 1998 AND

                          COMBINED FINANCIAL STATEMENTS

                            AS OF SEPTEMBER 30, 1997

                         Colmena Corp. and Subsidiaries

                                    Contents

Page     41       Independent Auditors' Report

Page     42       Consolidated Balance Sheet as of September 30, 1998

Page     43      Statements of Operations for the Years Ended September 30,
                 1998 (Consolidated) and 1997 (Combined)

Page     44      Statements of Changes in Stockholders' Equity (Deficiency) for
                 the Years Ended September 30, 1998 (Consolidated) and 1997
                 (Combined)

Pages    45 - 46 Statements of Cash Flows for the Years Ended September 30,
                 1998 (Consolidated) and 1997 (Combined)

Pages    47 - 67 Notes to Financial Statements as of September 30, 1998 and 1997


                                      Page 40
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors of:
Colmena Corp.

     We have  audited the  accompanying  consolidated  balance  sheet of Colmena
Corp.  and  subsidiaries  as of September 30, 1998 and the related  consolidated
statements of operations,  changes in stockholders' equity (deficiency) and cash
flows for the year then ended. These financial statements are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these  consolidated  financial  statements  based  on our  audit.  The  combined
financial  statements of Colmena Corp. and affiliated  companies as of September
30, 1997,  were audited by other  auditors  whose report dated January 23, 1998,
expressed an unqualified opinion on those statements.

     We conducted  our audit in  accordance  with  generally  accepted  auditing
standards.  These 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 financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audit provides a reasonable  basis
for our opinion.

     In our opinion,  the 1998  consolidated  financial  statements  referred to
above  present  fairly,  in all material  respects,  the  financial  position of
Colmena Corp. and subsidiaries as of September 30, 1998 and the results of their
operations  and their  cash  flows for the year then  ended in  conformity  with
generally accepted accounting principles.

     The accompanying 1998 consolidated  financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
18 to the financial  statements,  the Company has suffered recurring losses from
operations and has a  stockholders'  and working  capital  deficiency that raise
substantial doubt about its ability to continue as a going concern. In addition,
through the  discontinuance  of  operations  and the sale of  subsidiaries,  the
Company has ceased all operations.  (See Notes 12, 18 and 19) Management's plans
in regard to these  matters  are also  described  in Note 18.  The  consolidated
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.

                           /s/WEINBERG & COMPANY, P.A.

Boca  Raton,  Florida  July 31,  1999
except for Notes 17 and 19 as to which the
date is March 17, 2000

                                      Page 41
<PAGE>


                         COLMENA CORP. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                      FOR THE YEAR ENDED SEPTEMBER 30, 1998

                                     ASSETS

CURRENT ASSETS

         Cash                                           $               6,287
         Accounts receivable-net                                        9,664
         Investment in stock                                            3,400
         Other current assets                                           4,377
                                                                  -------------

                  Total Current Assets                                 23,728
                                                                   ------------
PROPERTY AND EQUIPMENT

         Furniture and equipment                                       25,589
         Less: Accumulated depreciation                               (2,729)
                                                                   ------------
                  Total Property and Equipment                         22,860
                                                                   ------------

OTHER ASSETS

         Equipment to be repossessed under security
                agreement, net of impairment                          275,000
                                                                   ------------

TOTAL ASSETS                                             $            321,588
------------                                                       ============

                    LIABILITIES AND STOCKHOLDERS' DEFICIENCY

CURRENT LIABILITIES

         Cash overdraft                                  $              84,386
         Accounts payable and accrued expenses                         403,697
         Notes payable - non-related parties                           443,423
         Notes payable - related parties                               281,288
         Net liabilities of discontinued operations                  1,007,834
                                                                   -----------

                  Total Current Liabilities              $          2,220,628
                                                                   -----------

LONG-TERM LIABILITIES

         Notes payable - non-related parties                           16,419
         Notes payable - related parties                                5,843
                                                                   ------------
                  Total Long-term Liabilities            $              22,262
                                                                   -----------

         TOTAL LIABILITIES                               $          2,242,890
                                                                   -----------
STOCKHOLDERS' DEFICIENCY

         Common stock, $0.01 par value; 20,000,000 shares authorized;
                  7,741,697 shares issued and outstanding $            77,417
         Additional Paid-In Capital                                14,614,351
         Accumulated deficit                                      (16,613,070)
                                                                   -----------
        Total Stockholders' Deficiency                    $        (1,921,302)
                                                                   ------------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY            $           321,588
                                                                  =============


               See accompanying notes to financial statements.

                                      Page 42
<PAGE>

<TABLE>
<S>                                                                  <C>                  <C>
                         COLMENA CORP. AND SUBSIDIARIES
                            STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997

                                                                 (Consolidated)          (Combined)
                                                                     1998                   1997
                                                                     ----                   ----

NET REVENUE                                                   $     10,344,480     $       1,266,414

COST OF REVENUE                                                      3,164,474               896,220
                                                                 -------------             -----------

GROSS PROFIT                                                         7,180,006               370,194
                                                                  -------------            -----------

OPERATING EXPENSES

         Compensation expense                                          674,582                    -
         Amortization and depreciation                                 283,070                    -
         Consulting                                                 12,481,200                    -
         Professional and legal fees                                   946,947                    -
         Provision for doubtful accounts and receivable              5,453,907                    -
         Selling, general and administrative                           842,570                39,516
                                                                   ------------            -----------

         Total Operating Expenses                                   20,682,276                39,516
                                                                   ------------            -----------

INCOME (LOSS) FROM OPERATIONS                                      (13,502,270)              330,678
                                                                   ------------            ------------
OTHER EXPENSES

         Interest expense-net                                        (120,414)                    -
         Loss on impairment of assets                              (1,717,491)                    -
                                                                  -------------            -----------

         Total Other Expenses                                      (1,837,905)                    -
                                                                   -----------             ------------

INCOME (LOSS) FROM CONTINUING OPERATIONS                          (15,340,175)               330,678
                                                                   ------------            -------------
LOSS FROM DISCONTINUED OPERATIONS

         Loss from Operations                                      (1,379,547)              (119,522)
         Loss on Disposal                                            (104,504)                   -
                                                                 --------------            -------------

                  Total Loss From Discontinued Operations          (1,484,051)              (119,522)
                                                                  -------------            -------------

NET INCOME (LOSS)                                                $(16,824,226)               211,156
                                                                  -------------            -------------

NET INCOME (LOSS) PER COMMON SHARE -  BASIC AND DILUTED          $      (2.64)                  0.05
                                                                 ==============            =============

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

BASIC AND DILUTED                                                   6,366,877              4,310,000
                                                                 ==============            =============

</TABLE>
            See accompanying notes to financial statements.

                                      Page 43

<PAGE>

<TABLE>
                         COLMENA CORP. AND SUBSIDIARIES
                 CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES
                      IN STOCKHOLDERS' EQUITY (DEFICIENCY)
          FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997, RESPECTIVELY


<S>                          <C>              <C>               <C>                <C>               <C>
                                                              Additional        Retained
                                  Common Stock                Paid-in           Earnings
                           Shares           Amount            Capital           (Deficit)            Total

Balance, June 1, 1997
(Date of Inception)        4,310,000        $43,100           $  (43,100)       $       -        $         -

Contributions                      -              -                2,000                -              2,000

Net income, June 1, 1997
to September 30, 1997              -              -                    -          211,156            211,156
                           ----------     ----------          ------------      -----------      ------------

Balance,
September 30, 1997         4,310,000         43,100              (41,100)         211,156            213,156

Recapitalization:
Balance, Pre-merger

Sports Guard, Inc.           645,192          6,452               595,709       (721,041)           (118,880)
Reclassification of
Sports  Guard, Inc.'s
Retained Earnings                  -             -               (721,041)       721,041                   -
                           ----------      ---------           -----------      -----------      ------------
                           4,955,192         49,552              (166,432)       211,156              94,276
Common stock issued to
Consultants:               1,646,500         16,465             7,694,735              -           7,711,200

Exercise of options          640,000          6,400             1,273,600              -           1,280,000

Common stock issued in
exchange for equipment       300,000          3,000               307,935              -             310,935

Common stock issued in
exchange for BTS Assets      100,000          1,000               (51,000)             -             (50,000)

Common stock issued for
cash                         100,000          1,000               299,263              -             300,263

Goodwill resulting from
BTS purchase                      -               -               356,250              -             356,250

Stock options issued to:
         consultants              -               -             4,770,000              -           4,770,000
         employees                -               -               130,000              -             130,000

Net loss 1998                     -               -                 -           (16,824,226)     (16,824,226)
                          -------------    ----------           -------------   ------------    --------------
Balance,
September 30, 1998         7,741,692       $ 77,417           $14,614,351       $(16,613,070)   $ (1,921,302)
                          ============     ==========           =============   =============   ==============
</TABLE>

                 See accompanying notes to financial statements.

                                      Page 44
<PAGE>


                         COLMENA CORP. AND SUBSIDIARIES
                            STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
 <TABLE>
<S>                                                                     <C>                        <C>
                                                                      (Consolidated)            (Combined)
                                                                        1998                      1997
                                                                        ----                      ----

CASH FLOWS FROM OPERATING ACTIVITIES:

         Net income (loss)                                              (16,824,226)            $ 211,156

         Adjustments to reconcile net income (loss) to net

         Cash provided by (used in) operating activities:

                  Depreciation                                               21,045                     -
                  Amortization                                              330,051                82,538
                  Provision for doubtful Accounts                         5,453,907                     -
                  Write-off of due from stockholder                         115,483                     -
                  Loss on impairment of customer base                     1,232,946                     -
                  Write-down of inventory to net realizable value           110,196                     -
                  Write-down of goodwill                                    365,401                     -
                  Impairment loss on marketable Securities                   73,610                     -
                  Loss on disposal of PP&E                                  104,700                     -
                  Loss on impairment of equipment to be repossessed         410,935                     -
                  Stock and options issued to consultants                12,611,200                     -

         Changes in operating assets and liabilities:
                  (Increase) decrease in:
                           Accounts receivable                           (4,728,091)             (459,709)
                           Third party settlement receivable                 51,829               (51,829)
                           Inventories                                            -              (131,945)
                           Deposits                                           9,624                (9,624)
                           Prepaid customer base                                  -              (283,525)
                           Other current assets                             178,121                     -
                           Net assets of discontinued operations            105,035                     -
                           Cash overdraft                                    84,386                     -
                           Accounts payable and accrued expenses           (544,977)              212,006
                           Deferred revenue                                 (22,993)               22,993
                           Net liabilities of discontinued operations       949,524                     -
                                                                        -------------           ------------

TOTAL ADJUSTMENTS                                                        16,911,932              (619,095)
                                                                        -------------           ------------
         Net cash provided by (used in) operating activities                 87,706              (407,939)

CASH FLOWS FROM INVESTING ACTIVITIES:
         Investment in Business Technology Systems, Inc.,
                  Net of cash acquired                                      (29,727)                    -
         Purchase of property and equipment                                 (38,322)              (50,100)
         Purchase of equipment to be repossessed                           (100,000)                    -
         Loan to stockholder                                               (115,483)                    -
         Purchase of customer base                                       (1,275,204)                    -
                                                                        -------------           -------------
         Net cash used in investing activities                           (1,558,736)              (50,100)

                 See accompanying notes to financial statements.

</TABLE>                                     Page 45
<PAGE>

<TABLE>
                         COLMENA CORP. AND SUBSIDIARIES
                            STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997


<S>                                                                       <C>                      <C>
                                                                      (Consolidated)            (Combined)
                                                                        1998                      1997
                                                                        ----                      ----

CASH FLOWS FROM FINANCING ACTIVITIES:
         Borrowings (Repayment) on notes to related parties              $(173,930)               461,061
         Proceeds from borrowings - non-related parties                     65,962                      -
         Proceeds from issuance of common stock                          1,580,263                  2,000
                                                                        ------------            ------------
         Net cash provided by(used in) financing activities              1,472,295                463,061
                                                                        ------------            ------------

NET INCREASE IN CASH                                                         1,265                  5,022

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                               5,022                      -
                                                                        ------------             -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                $    6,287                $ 5,022
                                                                        ============            =============

</TABLE>

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

     During 1998,  the  Registrant  purchased  telecommunications  equipment for
$685,935 which included  non-cash  consideration  of a $275,000 note payable and
300,000 shares of common stock valued at $310,935.

     Pursuant to the  recapitalization  (See Note 1(A)), the Registrant  assumed
$118,880 of liabilities.

     In February 1998,  the Registrant  issued 100,000 shares of common stock as
part of the total consideration to acquire the net assets of Business Technology
Systems, Inc. (See Note 9)

                 See accompanying notes to financial statements.


                                      Page 46

<PAGE>


                         COLMENA CORP. AND SUBSIDIARIES
    NOTES TO FINANCIAL STATEMENTS FOR YEARS ENDED SEPTEMBER 30, 1998 AND 1997

Note 1   Summary of Significant Accounting Policies and Organization

(A)  Description of Business

     Colmena Corp. (the "Registrant"),  formerly known as Sports-Guard, Inc., is
a Delaware  corporation  that  through its  subsidiaries  was engaged in various
industries.  Through its subsidiary T2U Co.  (formerly  known as RCP Enterprises
Group, Inc.), which was doing business as RCP Communications Group, Inc. ("RCP")
and  through its  subsidiary,  TechTel  Communications,  Inc.  ("TechTel"),  the
Registrant   was  engaged  in  the  business  of  marketing   and   distributing
telecommunications   services.  Through  its  subsidiary,   Business  Technology
Systems,  Inc.,  ("BTSF") whose  operations were  discontinued in 1998 (See Note
12),  the  Registrant  was in the  business of selling  computer  equipment.  In
addition,  the Registrant was in the business of manufacturing  and distributing
premium  hand-rolled  cigars  through its  subsidiary,  Tio Mariano  Cigar Corp.
("Tio"),  whose  operations  were  discontinued  in 1998 (See Note 12). In March
1999, the Registrant  transferred one hundred percent of its  subsidiaries,  RCP
and BTSF to its president and principal  stockholder in a transaction  accounted
for as a sale. In November  1999, the Registrant  sold its  subsidiary,  TechTel
[See Note 19(B)].

     On November 10,  1997,  RCP was  acquired by  Sports-Guard,  Inc., a public
traded  company,  which had no operations  as of the merger date.  Sports-Guard,
Inc. issued 3,000,000 shares of common stock to complete the acquisition.  Also,
on November 10, 1997, Tio was acquired by Sports-Guard, Inc. for the issuance of
1,310,000 shares of stock. The transactions are treated for accounting  purposes
as a recapitalization of the Registrant at historical cost.

     All share  quantities  and per  share  data in the  accompanying  financial
statements have been retroactively restated for the recapitalization.

     During 1998 the Registrant's  operations were  significantly  impacted from
the bankruptcy of its sole service bureau. (See Note 2)

(B)  Principles of Consolidation and Combination

     The 1998  consolidated  financial  statements  include the  accounts of The
Registrant.  and its  subsidiaries  RCP, BTSF, Tio and TechTel.  All significant
intercompany balances and transactions have been eliminated in consolidation.

     The 1997  financial  statements  have been  presented on a combined  basis,
which represents as the Registrant,  the  Registrant's  owned affiliates RCP and
Tio. Significant  intercompany balances and transactions have been eliminated in
combination.

                                      Page 47
<PAGE>

                         COLMENA CORP. AND SUBSIDIARIES
    NOTES TO FINANCIAL STATEMENTS FOR YEARS ENDED SEPTEMBER 30, 1998 AND 1997
                                   (continued)

(C)  Use of Estimates

     In preparing  financial  statements in conformity  with generally  accepted
accounting principles,  management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent  assets and  liabilities at the date of the financial  statements and
revenues and expenses  during the reported  period.  Actual results could differ
from those estimates.

(D)  Cash and Cash Equivalents

     For  purpose of the cash flow  statements,  the  Registrant  considers  all
highly liquid  investments  with original  maturities of three months or less at
time of purchase to be cash equivalents.

(E)  Property and Equipment

     Property and equipment are stated at cost, less  accumulated  depreciation.
Expenditures  from  maintenance  and repairs are charged to expense as incurred.
Depreciation  is provided  using the  straight-line  method  over the  estimated
useful life of the assets of five to seven years.

(F)  Investments

     The Registrant  accounts for investments in marketable equity securities in
accordance  with  Statement  of  Financial   Accounting   Standards  Number  115
"Accounting for Certain Investments in Debt and Equity  Securities."  Management
determines  the  appropriate  classification  of its  investments at the time of
acquisition  and  reevaluates  such  determination  at each balance  sheet date.
Trading securities are characterized by the Registrant's  intent to sell them in
the near term, while available-for-sale  securities are those securities that do
not qualify as trading securities. Trading securities are carried at fair value,
with  unrealized  trading  gains and losses  included  in  earnings.  Available-
for-sale securities are carried at fair value, with unrealized gains and losses,
net of tax,  reported  as a  separate  component  of  stockholders'  equity.  In
determining  realized gains and losses, the cost of the securities sold is based
on the specific identification method.

                                      Page 48
<PAGE>


                         COLMENA CORP. AND SUBSIDIARIES
    NOTES TO FINANCIAL STATEMENTS FOR YEARS ENDED SEPTEMBER 30, 1998 AND 1997
                                   (continued)

(G)  Long Term Investments

     The Registrant accounts for investments in non-marketable equity securities
in accordance  with Accounting  Principles  Board Opinion Number 18 ("Accounting
Principles  Board  Opinion 18") and related  interpretations.  Under  Accounting
Principles  Board Opinion 18,  investments in corporate joint ventures and other
common stock of less than 20% are generally  accounted for using the cost method
while  investments  between 20% and 50% are  generally  accounted  for using the
equity method.

     Under the cost  method,  investments  are recorded and reported at original
cost until they are partially or entirely disposed of or the original cost value
has been  impaired.  Under the equity  method,  the  investment  is  recorded at
original  cost  and  periodically   increased   (decreased)  by  the  investor's
proportionate share of earnings (losses) of the entity invested in and decreased
by all dividends received by the investor from the entity invested in.

     During  November 1998,  the  Registrant  received a dividend in the form of
common stock of another  corporation  on the  investments  in the 10,000  shares
acquired in the sale of Tio (See Notes 1(F), 5 and 12).  The stock  dividend was
in effect a spin-off of a subsidiary  of the publicly  held  company.  The stock
dividend received was recorded at its original cost of zero.

(H)  Revenue Recognition and Cost of Revenue

     The  Registrant  recognizes  revenue,  less  an  amount  for  uncollectible
accounts,  based upon their  experience and others in the long distance  service
calling  cards  industry,  and  related  costs  from the  selling  of their long
distance telephone service calling cards at the expiration of its use, generally
thirty  days or end of month.  Until  the  thirty-day  period  has  passed,  the
Registrant defers all revenues and costs.

(I)  Third Party Receivable

     The   Registrant's   service  bureau,   responsible  for  the  billing  and
collections of the net  receivables  from the local exchange  carriers  operates
under a  retrospective  payment  system.  The  Registrant  records a third party
settlement  receivable  for its  estimates  of amounts to be  received  from the
service bureau as it settles with the local exchange  carriers in future months.
Final  settlements  are usually made six to eight months  subsequent to original
billing and are subject to reasonable  estimates by management  and are reported
in the  financial  statements  in the  period in which the  phone  services  are
rendered. Differences between the estimates originally reported in the financial
statements and final  settlements are included in the statement of income in the
period the settlements are made. (See Note 2)

(J)  Income Taxes

     The  Registrant  accounts for income taxes under the  Financial  Accounting
Standards  Board  Statement  of  Financial   Accounting  Standards  Number  109.
"Accounting for Income Taxes" ("Statement No.109").  Under Statement Number 109,
deferred  tax  assets  and   liabilities  are  recognized  for  the  future  tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
basis.  Deferred tax assets and liabilities are measured using enacted tax rates
expected  to apply to  taxable  income  in the  years in which  those  assets or
liabilities  are expected to be recovered or settled.  Under  Statement 109, the
effect  on  deferred  tax  assets  and  liabilities  of a change in tax rates is
recognized in income in the period that includes the enactment date.

(K)  Per Share Data

     Net income  (loss) per common share for the years ended  September 30, 1998
and 1997 is based upon the weighted  average  common shares and dilutive  common
stock  equivalents  outstanding  during  the year as  defined  by  Statement  of
Financial Accounting Standards,  Number 128, "Earnings Per Share". There were no
common stock  equivalents at September 30, 1997. The assumed  exercise of common
stock  equivalents was not utilized in 1998 since the effect was  anti-dilutive.
At September 30, 1998,  there were 1,860,000  options  outstanding,  which could
potentially dilute future earnings per share.


                                      Page 49
<PAGE>


                         COLMENA CORP. AND SUBSIDIARIES
    NOTES TO FINANCIAL STATEMENTS FOR YEARS ENDED SEPTEMBER 30, 1998 AND 1997
                                   (continued)


(L)  Stock Options

     In accordance with Statement of Financial  Accounting Standards Number 123,
the  Registrant  has elected to account for Stock  Options  issued to  employees
under Accounting Principles Board Opinion Number 25 and related interpretations.
The  Registrant  accounts  for stock  options  issued to  consultants  and other
non-employees  under the fair value method of Statement of Financial  Accounting
Standards 123.

Note 2   Accounts Receivable

     Accounts receivable were as follows at September 30, 1998:

Accounts receivable                                  $  5,919,366
Allowance for doubtful accounts                        (5,909,702)
                                                       -----------
                                                     $      9,664
                                                       ===========

     At September 30, 1998,  approximately  95% of accounts  receivable  was due
from one customer,  International  Telemedia  Associates,  Inc. ("ITA"). Of that
amount,  $1,298,933  was a hold  back  receivable  to  cover  charge  backs.  In
September 1998, ITA was placed into involuntary bankruptcy pursuant to Chapter 7
of the United States  Bankruptcy  Code [See Note 17(B)].  As it is unlikely that
these  accounts  receivable  will be  collectible,  the  allowance  for doubtful
accounts includes a 100% allowance of $5,600,710 for this receivable.  [See Note
1(I)]

Note 3   Property and Equipment and Other Assets

     Property and equipment at September 30, 1998 consisted of the following:

Office furniture                                     $    2,784
Computer and office equipment                            12,828
Computer software                                         9,977
Less accumulated depreciation                            (2,729)
                                                        -------
                                                     $   22,860
                                                        =======

     Depreciation  expense for the year ended September 30, 1998 was $21,045, of
which  $19,765 is part of  discontinued  operations,  and $1,280 is  included in
continuing operations. Certain telecommunications equipment totaling $275,000 at
September  30,  1998  was  not  in use  and  was  recorded  as  equipment  to be
repossessed under security agreement, net of impairments.

     The Registrant applies Statement of Financial  Accounting  Standards Number
121  "Accounting  for the  Impairment  of Long-Lived  Assets and for  Long-Lived
Assets to Be Disposed Of". In evaluating the potential  impairment of Property &
Equipment as of September 30, 1998, the Registrant  determined that a portion of
the carrying amount of the telecommunications equipment,  originally recorded at
a cost of $685,935,  was not  recoverable.  The equipment was therefore  written
down to its net realizable value of $275,000. Accordingly, an impairment loss of
$410,935 has been recorded  which is included in other expenses on the statement
of operations. (See Note 10) On October 1, 1999 the Registrant received a Notice
of Proposal to Retain  Collateral  pursuant to the Security  Agreement of August
14,  1998  in  full  satisfaction  of the  obligation  secured  by the  Security
Agreement totaling $275,000 at September 30, 1998 [See Note 6 and 19(H)].

                                      Page 50
<PAGE>


                         COLMENA CORP. AND SUBSIDIARIES
    NOTES TO FINANCIAL STATEMENTS FOR YEARS ENDED SEPTEMBER 30, 1998 AND 1997
                                   (continued)

Note 4   Amortizable Customer Base

     The Registrant  purchases  customer  databases  from third  parties.  These
databases are used to market the  Registrant's  service plans.  These databases,
which are not re-saleable  are amortized over a 12 month period.  During 1998, a
subsidiary of the Registrant  acquired a customer  database for $1,476,191 which
was amortized through September 30, 1998. Since the subsidiary ceased operations
and there was no use in its  business  plan for the  customer  base,  nor was it
saleable,  the Registrant has written off the remaining  $1,232,946 net carrying
value of this  asset,  which has been  included as an  impairment  loss in other
expenses. Amortization for the period prior to write-off was $243,245.

Note 5   Investment in Stock

     The  Registrant's  investment in stock  represents  10,000 shares of common
stock of a publicly  held  company  received in  exchange  for the sale of Tio's
assets (See Note 12). These equity securities have been classified as available-
for-sale securities and accordingly,  are carried at their fair value based upon
the quoted market prices as of September 30, 1998.  The  investment had suffered
considerable  losses from the date of  acquisition to the balance sheet date. As
the quoted stock price showed a further  decline in the market value  subsequent
to the balance sheet date, and no indication for recovery,  the decline  through
September  30,  1998  was  considered  an  other-than-temporary   impairment  in
accordance with Statement of Financial Accounting Standards 115. Accordingly,  a
loss on  impairment  of stock  aggregating  $73,610  has been  included in other
expenses as part of the loss on impairment of assets.

     The composition of investments at September 30, 1998 is as follows:

                                                              Fair
                                            Cost              Value

Common stock                                $77,010           $ 3,400
                                            --------          --------
Total investments                           $77,010           $ 3,400
                                            ========          ========

     Loss on  Impairment  of stock for the year  ended  September  30,  1998 was
as follows:

        Loss on Impairment of stock                     $73,610
                                                        =======

Note 6   Notes Payable - Non-related Parties

     The following  schedule  reflects loans payable to  non-related  parties at
September 30, 1998:

     Note payable to non-related party, original principal $290,000,
     interest at 30% per annum,  due on October 17, 1999,  payable
     in monthly  principal and interest installments of $16,829,
     secured by all of RCP present and future accounts  receivable
     and related  rights,  guaranteed by Richard C. Peplin, Jr.
     ("Mr. Peplin")and David DiBenedetto                                $184,842

     Note payable to related party,  interest at 9% per annum,
     maturing  August 14, 1999, payable in monthly principal
     and interest installments secured by telecommunications
     equipment. In default and due immediately. On October 1,
     1999 the  Registrant  received  Notice of Proposal to
     retain  collateral in full satisfaction of this note.
     (See Notes 3, 10 and 19[H]);                                       $275,000
                                                                       ---------
                                                                        459,842
                Less current maturities                                 443,423
                                                                        --------
         Notes Payable- Nonrelated Parties- Long Term                  $ 16,419
                                                                        ========


                                    Page 51

<PAGE>

                         COLMENA CORP. AND SUBSIDIARIES
    NOTES TO FINANCIAL STATEMENTS FOR YEARS ENDED SEPTEMBER 30, 1998 AND 1997
                                   (continued)

Note 7   Notes Payable - Related Parties

     The  following  schedule  reflects  loans  payable  to  related  parties at
September 30, 1998:

     Note payable to related party,  interest at 10% per annum,
     due and payable on July 30, 1999.  Holder may convert any
     portion of the principal  balance into shares of the
     Registrant's common stock at a conversion price of $0.40
     per share. In default as of August 1, 1999;

                                                                        $82,500

     Note payable to related party, original principal $50,000,
     interest at 30% per annum,  maturing  October 17, 1999,
     payable in monthly  principal  and interest  installments
     of $2,805, secured by all RCP present and future accounts
     receivable  and related  rights, guaranteed by Mr. Peplin.
     In default and due immediately;                                    $34,177

     Note payable to related party, original principal $40,000,
     interest at 30% per annum,  maturing  October 17, 1997,
     payable in monthly principal and interest  installments
     of $2,237  secured  by all RCP  present and future accounts
     receivable  and related  rights, guaranteed by Mr. Peplin.
     In default and due immediately;                                    $26,147

     Note payable to related party, original principal $80,000,
     interest at 30% per annum,  maturing  October 17, 1999,
     payable in monthly  principal and interest  installments
     of $4,883,  secured by all RCP present and future accounts
     receivable and related rights, guaranteed by Mr. Peplin;           $53,628

     Note payable to related party, original principal $100,000,
     interest at 30% per annum,  maturing  October 17, 1999,
     payable in monthly  principal  and interest  installments
     of $5,945,  secured by all RCP  present and future accounts
     receivable, guaranteed by Mr. Peplin.  In default and due
     immediately;                                                       $78,517

     Note payable to related party, original principal $20,000,
     interest at 30% per annum,  maturing  October 19, 1999,
     payable in monthly  principal and interest  installments
     of $1,107, secured by all RCP present and future accounts
     receivable and related rights, guaranteed by Mr. Peplin;           $12,162
                                                                        287,131
         Less current maturities                                        281,288
                                                                      ----------
         Notes Payable - Related Parties - Long-Term                    $ 5,843
                                                                      ==========

                                      Page 52

<PAGE>


                         COLMENA CORP. AND SUBSIDIARIES
    NOTES TO FINANCIAL STATEMENTS FOR YEARS ENDED SEPTEMBER 30, 1998 AND 1997
                                   (continued)

Note 8   Loan Agreement and Extension Agreement with Deutsche Financial Services
         Corporation

     On or about  February 26, 1997 (the  "Effective  Date"),  an agreement,  as
     amended,  for wholesale  financing (the "Loan  Agreement") was entered into
     between Deutsche  Financial  Services  Corporation and Business  Technology
     Systems, Inc. (the "Borrower"), Madhu Sethi, Ila Sethi, Mr. Peplin, and the
     Registrant (the  "Guarantors").  The Loan Agreement  provided for inventory
     financing for the Borrower.  The loans made under the Loan  Agreement  have
     been secured by a first priority  perfected  lien and security  interest in
     all of  Borrower's  assets,  rights,  and  proceeds  thereof,  owned at the
     Effective  Date or thereafter  acquired by the Borrower.  The loan was also
     guaranteed  by the  parent,  The  Registrant.  As of August 19,  1998,  the
     Borrower was in default of payments.  As of August 19, 1998,  the amount of
     past  due  obligations  totaled  approximately   $112,000,  and  the  total
     indebtedness  including  accrued interest was  approximately  $350,000 (See
     Note 9).

     On August 19, 1998, an extension agreement (the "Extension  Agreement") was
     entered into between Deutsche Financial  Services  Corporation and Business
     Technology  Systems,  Inc. (the  "Borrower"),  Madhu Sethi,  Ila Sethi, Mr.
     Peplin and the  Registrant  (the  "Guarantors").  (See  further  discussion
     regarding  the  repudiation  of  this  extension  agreement  in  succeeding
     paragraph.)  The  Extension  Agreement  extended the terms of the Agreement
     (see above) entered into on February, 26 1997, as amended, and extended the
     payment of the debt, including past due obligations. Under the terms of the
     Extension  Agreement,  the Borrower  acknowledged  an  indebtedness  due to
     Deutsche Financial Services Corporation of $348,858 representing  principal
     as of August 14, 1998 of $345,474,  interest charges of $3,384 through July
     31, 1998,  additional interest charges from August 1, 1998 at the per annum
     rate of Prime  plus  6.5%,  and  fees and  expenses  incurred  by  Deutsche
     Financial  Services  Corporation  (the "Debt").  In addition,  the Borrower
     agreed  to  surrender   its  inventory  to  Deutsche   Financial   Services
     Corporation  for the purpose of its liquidation and application to the Debt
     as of the date of the Extension  Agreement.  Under the repayment terms, the
     Debt was to be paid on or before  September 15, 1998 by the Borrower or the
     Guarantors.  Furthermore,  the  Borrower and the  Guarantors  agreed to the
     entry of a consent arbitration award for the total Debt as described above.

     As of September 30, 1998, the remaining debt totaled approximately $331,000
     and is included in the balance  sheet in net  liabilities  of  discontinued
     operations  [See Note 12(B)].  At that date, the Borrower was in default of
     the payment of the Debt pursuant to the Extension Agreement.  Subsequent to
     the balance sheet date,  Deutsche  Financial  Services  Corporation filed a
     Consent  Arbitration  Award  based  upon  alleged  breach of the  Extension
     Agreement.  Due to  matters  relating  to  the  execution  of  the  Consent
     Arbitration  Award, the Registrant  repudiated its signing of the extension
     agreements  and has taken the position that the Consent  Arbitration  Award
     entered  pursuant to the  extension  agreement is not legally  binding [See
     Notes 17(D) and 19(D)].

Note 9   Purchase of Assets and Liabilities of Business Technology Systems, Inc.

     Effective   February  19,  1998,  the   Registrant  and  its   wholly-owned
subsidiary,   RCP,  (the  "Buyer")  entered  into  an  agreement  with  Business
Technology  Systems,  Inc., to acquire the assets and assume the  liabilities of
Business Technology Systems,  Inc.. As consideration for the purchase, the Buyer
agreed to pay  $100,000 in cash and to issue  100,000  restricted  shares of the
Registrant's  common  stock.  The  agreement was later amended to lower the cash
portion of the purchase price to $50,000 from $100,000.  For financial reporting
purposes,  the Registrant's  common stock issued pursuant to the acquisition was
valued at $306,250.  From February 19, 1998, Business  Technology Systems,  Inc.
operated as a defacto corporation until the articles of incorporation were filed
in the State of Florida on May 15, 1998. All assets and liabilities  were pushed
down to the subsidiary using push-down accounting.

                                    Page 53
<PAGE>

     The  purchase  was  recorded  under  the  purchase  method  of  accounting.
Accordingly, the purchase price was allocated to assets acquired and liabilities
assumed  based on the estimated  fair market values at the date of  acquisition.
The fair market value of the net assets  acquired was a net liability of $57,412
resulting in the recording of goodwill totaling $413,662.

     As of September 30, 1998,  the Registrant  discontinued  operations of BTSF
and wrote down any unamortized goodwill to its net realizable value of zero [See
Notes 8 and 12 (B)].

Note 10  Purchase of Telecommunications Equipment

     Effective May 19, 1998,  the  Registrant  entered into an agreement with an
individual doing business as Associated Industries (the "Seller"),  a California
Corporation, to purchase telecommunications  equipment. As consideration for the
equipment, the agreement stipulated a total payment of $375,000 and the issuance
of 300,000 shares of the  Registrant's  common stock.  Of the total of $375,000,
the  Registrant  agreed to pay  $100,000  in cash and  issue a 24 month  secured
promissory note for $250,000,  at an annual interest rate of 9%, payable and due
on August 14, 1999.  The remaining  $25,000 was agreed to be covered by a credit
issued  by an  affiliate  of  the  Seller.  As the  latter  never  occurred  the
Registrant  still owes the seller an additional  $25,000 which has been added to
the total outstanding promissory note balance of $250,000 (See Note 7).

     The equipment was recorded  under the purchase  method of accounting for an
aggregate  $685,935  consisting  of the  common  stock  issued  with a value  of
$310,935  based upon the  discounted  trading price of the  Registrant's  common
stock on the transaction  date, a note payable of $275,000 and a cash payment of
$100,000.

     The equipment was written down to its net  realizable  value of $275,000 at
September  30,  1998 (See Note 3). On  October 1, 1999 the  Registrant  received
Notice to Retain Collateral regarding this equipment in full satisfaction of the
$275,000 of related debt [See Note 3, 7 and 19(H)].

                                      Page 54
<PAGE>


                         COLMENA CORP. AND SUBSIDIARIES
    NOTES TO FINANCIAL STATEMENTS FOR YEARS ENDED SEPTEMBER 30, 1998 AND 1997
                                   (continued)

Note 11  Advances Pursuant to Stock Purchase Agreement

     Pursuant to a stock purchase agreement (the "Agreement") dated May 8, 1998,
whereby the Registrant was to acquire 100% of the issued and outstanding  common
stock of World Long Distance,  Inc., Telenet  International,  Inc. and Telecuba,
Inc. (the "Sellers"), the Registrant advanced the Seller $304,000. The Agreement
was  never  consummated  and the  Registrant  has been  unable  to  collect  the
$304,000. Accordingly, an allowance for non-collect ability has been established
for $304,000 at September  30, 1998,  resulting in a provision  for bad debts in
1998 for the same amount.

Note 12  Discontinued Operations

     During  1998  the  Registrant   discontinued   operations  of  two  of  its
subsidiaries;  Tio [See Note 12 (A) below] and BTSF [See Note 12 (B) below]. The
net  liabilities of discontinued  operations  which are shown as a separate line
item in the Balance Sheet as of September 30, 1998 comprise the following:

Net liabilities of discontinued operations:

         Tio                        $         288,783
         BTSF                                 719,051
                                            ---------
         Total                      $       1,007,834
                                            ---------

     The loss from discontinued  operations reported separately in the Statement
of  Operations  for the years ended  September 30, 1998 and 1997 is comprised of
the following amounts:

Loss from discontinued operations:               1998                   1997

         Loss from Operations

         Tio                              $   (172,599)      $        (119,522)
         BTSF                               (1,206,948)                      -
                                           -------------        ----------------
         Total Loss from Operations         (1,379,547)               (119,522)
                                           -------------        ----------------
         Loss on Disposal

         Tio                              $   (104,504)      $               -
                                           -------------        ----------------
         Total Loss on Disposal           $   (104,504)      $               -
                                           -------------        ----------------
Total Loss from Discontinued Operations   $ (1,484,051)      $        (119,522)
                                           -------------        ----------------
(A)      Discontinued Operations - Tio

     On  February  8,  1998  (the  "Measurement  Date")  management  decided  to
discontinue  operations of the  Registrant's  subsidiary,  Tio, which was in the
business of manufacturing and distributing premium hand-rolled cigars. Effective
March 1, 1998 (the "Disposal Date"), the Registrant sold the inventory and fixed
assets of Tio to Dominican  Cigar  Corporation,  ("Dominican")  a publicly  held
corporation,  in  exchange  for 10,000  restricted  shares  (300,000  restricted
pre-split shares) of Dominican. At the time of the exchange the Dominican shares
had a market  value of  $77,010.  (See  Note 5).  The book  value of the  assets
exchanged exceeded the value of the stock. Accordingly, a loss on disposal under
discontinued  operations  of $85,176  was  recorded.  In  addition,  the loss on
operations  incurred  from the  Measurement  Date to the Disposal  Date totaling
$19,328 has been included in the loss on disposal under discontinued operations.
The loss from operations of $172,599 for the period up to the  Measurement  Date
is shown as loss from operations under discontinued operations.


                                      Page 55

<PAGE>


                         COLMENA CORP. AND SUBSIDIARIES
    NOTES TO FINANCIAL STATEMENTS FOR YEARS ENDED SEPTEMBER 30, 1998 AND 1997
                                   (continued)

     Net assets  and  liabilities  of Tio's  discontinued  operations  have been
classified as current.  A summary of the net  liabilities of Tio's  discontinued
operations is as follows:

Cash                                                 $        1,376
Notes payable - related parties                            (168,333)
Due to related party                                        (30,000)
Due to Shareholder                                          (91,826)
                                                        -------------
Net liabilities of discontinued operations           $     (288,783)
                                                        =============

(i)     Notes Payable

         The  following  schedule  reflects  notes payable at September 30, 1998
related to the discontinued segment Tio:

     Note  payable to related  party  interest at 10% per annum,
     due on demand, unsecured;                                         $10,000.

     Note  payable to related  party  interest at 10% per annum,
     due on demand, unsecured;                                         $10,000.

     Note  payable to related  party  interest at 10% per annum,
     due on demand, unsecured;                                         $10,000

     Note  payable to related  party  interest at 10% per annum,
     due on demand, unsecured;                                         $15,000.

     Note  payable to related  party  interest at 10% per annum,
     due on demand, unsecured;                                         $40,000.

     Note  payable to related  party  interest at 10% per annum,
     due on demand, unsecured;                                         $50,000.

     Note  payable to related  party  interest at 10% per annum,
     due on demand, unsecured,                                         $33,333.
                                                                        --------

      Notes Payable - Related Parties - Current                       $168,333
                                                                        ========

(B)      Discontinued Operations - Business Technolgy Systems, Inc.

     On September 30, 1998 the  Registrant's  management  decided to discontinue
operations of its  subsidiary,  BTSF. The loss from operations of $1,206,948 for
1998 is shown as loss from operations  under  discontinued  operations (See Note
9).

     Net assets and  liabilities  of BTSF's  discontinued  operations  have been
classified as current.  A summary of the net liabilities of BTSF's  discontinued
operations is as follows:

Cash                                        $      1,666
Accounts receivable - net                         12,805
Inventory                                              -
Property and Equipment                                 -
Cash overdraft                                    (1,148)
Loan payable (See Note 8)                       (331,000)
Accounts payable                                (401,374)
                                                ----------
Net liabilities of discontinued operations  $   (719,051)
                                                ==========
                                      Page 56
<PAGE>


                         COLMENA CORP. AND SUBSIDIARIES
    NOTES TO FINANCIAL STATEMENTS FOR YEARS ENDED SEPTEMBER 30, 1998 AND 1997
                                   (continued)


(i)      Accounts receivable

         Accounts receivable were as follows at September 30, 1998:


Accounts receivable                        $     127,823
Allowance for doubtful accounts                 (115,018)
                                               ---------
                                           $      12,805
                                                ========
(ii)     Inventory

         Inventory was as follows at September 30, 1998:

Inventory                                               $     34,094
Allowance to reduce inventory to market                      (34,094)
                                                        -------------
                                                        $          -
                                                        =============

     Because of the discontinuance of BTSF operations, its inventory as of
September 30, 1998 totaling $34,094 had no current use in its business plan. The
Registrant  determined that the inventory could not be sold and therefore had no
market value. Accordingly,  the Registrant has written down the inventory to its
net realizable  value of zero and included the loss in the loss from  operations
under discontinued operations.

(iii)    Property and Equipment

     The Registrant applies Statement of Financial  Accounting  Standards Number
121  "Accounting  for the  Impairment  of Long-Lived  Assets and for  Long-Lived
Assets to Be Disposed Of". In evaluating the potential  impairment of Property &
Equipment  as of September  30,  1998,  the  Registrant  determined  that office
equipment and furniture totaling $71,235 had no current use in the business plan
of BTSF because of the  discontinuance of its operations,  and was not saleable.
Accordingly, the Registrant has written down the remaining net carrying value by
recording an impairment loss of $71,235 which has been included in the loss from
discontinued operations.

Note 13  Income Taxes

     RCP was formed as a limited liability company with total capital of $1,000.

     Tio was  incorporated  as a C Corporation,  with 850 shares of common stock
and contributed capital of $1,000.

     Tio  incurred a loss for the period of July 1, 1997 to  September  30, 1997
and has a net operating  loss of  approximately  $119,500,  which can be carried
forward,  subject to certain  limitations for 15 years. At September 30, 1997, a
deferred  tax  asset of  approximately  $36,000  was  recorded.  Because  of the
uncertainty  surrounding this asset, a valuation  allowance for $36,000 was also
recorded at September 30, 1997. RCP is a limited liability company and was taxed
as a partnership  until November 10, 1997, the date of the merger.  There was no
current  income tax provision  for the year ended  September 30, 1998 due to the
Registrant's net loss.

     The  Registrant's  tax expense  differs from the "expected" tax expense for
the year ended  September 30, 1998  (computed by applying the Federal  Corporate
tax rate of 34 percent to income (loss) before taxes), as follows:

Computed "expected" tax expense (benefit)            $         5,720,237
Non-deductible stock based compensation                       (4,243,608)
Effect of net operating loss carry forwards                   (1,476,629)
                                                        -----------------
                                                     $                 -
                                                        =================

                                      Page 57

<PAGE>


                         COLMENA CORP. AND SUBSIDIARIES
    NOTES TO FINANCIAL STATEMENTS FOR YEARS ENDED SEPTEMBER 30, 1998 AND 1997
                                   (continued)

     The tax  effects of  temporary  differences  that give rise to  significant
portions of deferred tax assets and  liabilities  at  September  31, 1998 are as
follows:

Deferred tax assets:
Net operating loss carryforward                      $        1,476,629
Stock based compensation                                      4,243,608
                                                        -----------------
Total gross deferred tax assets                               5,720,237

Less valuation allowance                                     (5,720,237)
                                                        ----------------
Net deferred tax assets                              $               -
                                                        ================

     At September 30, 1998 the  Registrant had net operating loss carry forwards
of approximately $4,343,000 for income tax purposes,  available to offset future
taxable income expiring on various dates through 2019.

     In  assessing  the  realizability  of the  deferred  tax assets  management
considers  whether it is more likely  than not that some  portions or all of the
deferred tax assets will not be realized.  The ultimate  realization of deferred
tax assets is dependent  upon the generation of future taxable income or changes
in ownership or business  during the periods in which the temporary  differences
become deductible.  Due to the Registrant's  reorganization [See Note 19(B)] and
the ceasing of all  operations  it is more likely than not that the deferred tax
assets will not be realized.

     The valuation  allowance at September 30, 1997 was $36,000.  The net change
in the valuation allowance was an increase of $5,684,237.

Note 14  Stock Options

(A)      Stock Option Plan

         On February 27, 1998 the Board of Directors of the  Registrant  adopted
the 1998 Stock  Option Plan (the  "Plan") to provide  added  incentive  for high
levels of  performance  to  officers,  directors,  employees,  consultants,  and
independent  contractors of the  Registrant.  Options granted under the plan are
designed  either as incentive stock options or as  non-qualified  stock options.
The plan will terminate on February 27, 2008, unless previously terminated.

     The Stock  Option Plan  authorizes  options up to an  aggregate  of 600,000
shares of the Registrant's common stock. The Registrant grants non-qualified and
incentive  stock  options.  Non-qualified  options  may be granted to  officers,
employees,  directors,  consultants,  independent  contractors  or other service
providers of the Registrant at an exercise price  determined by the Registrant's
Board of Directors (the "Committee") which shall be at least equal to 85% of the
fair market value of the common stock at the date of the grant.  Incentive stock
options may only be granted to officers,  employees, and directors, who are also
employees of the  Registrant  at an exercise  price  determined by the Committee
which shall not be less than 100% of the fair market  value of the common  stock
at the date of grant and may not be less than 110% of the fair  market  value of
the common  stock at the date of grant if granted to an  individual  owning more
than ten percent of the total combined voting power.

     Options are exercisable at dates and conditions determined by the Committee
at the time of grant.  However,  an option  shall not be  exercisable  after the
expiration  of 10 years from the date it is  granted.  In the case of  incentive
stock  options the term may not exceed five years if granted to an option holder
owning more than ten percent of the total  combined  voting  power.  Through the
date of this report no stock options have been granted.

(B)      Stock Options Granted to Consultant

     On February 25, 1998, the Registrant  issued 1,500,000 common stock options
at an exercise  price of $2.00 per share to a consultant  as  consideration  for
services.  The options vested and became exercisable over a period of 10 months.
The option period will  terminate on the second  anniversary  from the effective
date of the  agreement.  As of September 30, 1998,  the consultant had exercised
640,000 options [See Note 16 B(i)].

                                      Page 58
<PAGE>


                         COLMENA CORP. AND SUBSIDIARIES
    NOTES TO FINANCIAL STATEMENTS FOR YEARS ENDED SEPTEMBER 30, 1998 AND 1997
                                   (continued)

     The  Registrant  applies  the fair  market  value  method of  Statement  of
Financial  Accounting  Standards 123 in accounting  for stock options  issued to
consultants. Accordingly, consulting expense of $4,770,000 was recognized during
1998 for the 1,500,000 options issued.

(C)      Stock Options Granted to the Registrant's President

     On June 1, 1998, the Registrant  issued  1,000,000  common stock options to
the President and Chief Executive  Officer of the Registrant under an employment
agreement  effective as of the same date.  The options vest at a rate of 200,000
shares per year on each  anniversary date of the employment  agreement,  and are
exercisable  at $6.00  per  share  for six  years  following  the  grant of such
options.  As of  September  30,  1998,  none of these  stock  options  have been
exercised [See Note 16(C)].

     In accordance  with  Statement of Financial  Accounting  Standards 123, for
options issued to employees,  the Registrant  applies the intrinsic value method
of Accounting Principles Board Opinion Number 25 and related  interpretations in
accounting for options issued. Accordingly, $130,000 was charged to compensation
during  1998,  since the fair  market  value of the common  stock based upon the
trading price at the grant date exceeded the exercise  price by $0.13 per share.
Had  compensation  cost been  recognized  based on the fair market  value of the
options on the grant date  consistent  with  Statement of  Financial  Accounting
Standards 123, the  Registrant's  net loss for the year ended September 30, 1998
would have been increased to the pro forma amounts as follows:

Net loss:
As reported                                 (16,824,226)
Pro Forma                                   (18,894,226)

Net loss per share:
As reported                              $        (2.64)
Pro Forma                                $        (2.97)

     The effect of applying Statement of Financial  Accounting  Standards 123 is
not likely to be representative of the effects on reported net income for future
years due to, among other things, the effects of vesting.

Note 15 Common Stock Registration Pursuant to Registration Statement on Form S-8

     On March  16,  1998,  a total of  2,900,000  shares of  common  stock  were
registered  under  the  Securities  Act  of  1933,  as  amended,  pursuant  to a
Registration  Statement on Form S-8. The aggregate  2,900,000 shares comprises a
total of 600,000 shares for stock options authorized under the 1998 Stock Option
Plan  [see  Note 14  (A)],  1,500,000  shares  for  stock  options  issued  to a
consultant as of February 25, 1998 [see Notes 14(B) and 16 (B)(i)],  and 800,000
shares as agreed per various consulting  agreements as of November 10, 1997 [See
Note 16 B(ii)].

Note 16  Commitments and Contingencies

(A)      Year 2000 Issues

     The Registrant is aware of the issues  associated with the programming code
in existing computer systems as the millennium (year 2000) approaches. The "Year
2000" problem is pervasive  and complex as virtually  every  computer  operation
will be affected in some way by the  rollover of the  two-digit  year to 00. The
issue  is  whether  computer  systems  will  properly  recognize  date-sensitive
information  when  the  year  changes  to  2000.  Systems  that do not  properly
recognize such  information  could generate  erroneous data or cause a system to
fail.

     As of the date of this report,  the Registrant has either  discontinued  or
divested of most of its operations and therefore has not addressed any Year 2000
issues.

                                      Page 59


<PAGE>


                         COLMENA CORP. AND SUBSIDIARIES
    NOTES TO FINANCIAL STATEMENTS FOR YEARS ENDED SEPTEMBER 30, 1998 AND 1997
                                   (continued)

(B)      Consulting Agreements

         (i)      Consulting Agreement with SBV Corporation

     On February 25, 1998 (the "Effective  Date"), the Registrant entered into a
consulting agreement with SBV Corporation (the "Consultant").  The agreement was
established  for a term of twelve months from the Effective  Date.  The services
provided by the Consultant primarily comprised the review of business operations
of potential transaction candidates, initiation and negotiation on behalf of the
Registrant to explore  potential  transactions,  analysis and  evaluation of the
projected  financial  performance  of the  Registrant  and the assistance in the
negotiation  of definitive  purchase or financing  agreements  with any interest
parties.  As consideration for the services  provided,  the Registrant issued to
the Consultant  1,500,000 options to purchase shares of the Registrant's  common
stock at an  exercise  price of $2.00 per share  (See Note 14).  As of March 16,
1998,  these options and the underlying  shares have been  registered  under the
Securities Act of 1933, as amended, pursuant to a Registration Statement on Form
S-8 (See Note 15). The options  vested and became  exercisable  over a period of
approximately  10 months with 250,000 of the options vesting after the September
30,  1998  balance  sheet date on  December  1, 1998.  The  option  period  will
terminate on the second anniversary from the Effective Date of the agreement. As
of September 30, 1998, the Consultant  had exercised  640,000  options [See Note
14(B)].

         (ii)     Consulting Agreements with Various Consultants

     On November 10, 1997 (the "Effective  Date"),  the Registrant  entered into
five  consulting  agreements  with  various  consultants.  The  agreements  were
established  for  terms  ranging  from  twelve  to  thirty-six  months  from the
Effective Date. One of these agreements was terminated as of April 28, 1998. One
of the  remaining  consultants  was  engaged  to  perform  marketing  consulting
services.  The services provided by the other  consultants  mainly comprised the
review of business operations of potential  transaction  candidates,  initiation
and negotiation on behalf of the Registrant to explore  potential  transactions,
analysis and evaluation of the projected financial performance of the Registrant
and the  assistance  in the  negotiation  of  definitive  purchase or  financing
agreements  with  any  interest  parties.  As  consideration  for  the  services
provided,  the  Registrant  agreed to issue to the  consultants  an aggregate of
800,000 shares of the  Registrant's  common stock.  As of March 16, 1998,  these
shares  have been  registered  under the  Securities  Act of 1933,  as  amended,
pursuant to a Registration  Statement on Form S-8. As of September 30, 1998, the
Registrant had issued a total of 700,000 shares (See Note 14 and Note 15).

         (iii)    Investment Banking and Advisory Services Agreement

     On May 7, 1998 (the  "Effective  Date"),  the  Registrant  entered  into an
Investment  Banking and Advisory  Services  Agreement with  Strategica  Services
Corporation ("Services Corp.") and Strategica Financial Corporation  ("Financial
Corp.").  The  agreement was  established  for a term lasting from the effective
date of the  agreement  through  April 30,  2003 (the  "Expiration  Date").  The
services  provided by Services  Corp.,  or at it's option,  by Financial  Corp.,
primarily  consists of (i) providing  advice to the Registrant and assisting the
Registrant with contract negotiations,  business strategies, and, if applicable,
required regulatory filings,  (ii) providing the Registrant with advice relating
to financing  options,  (iii) advising the Registrant  with respect to potential
public  offerings  and private  placements  of equity or debt  securities,  (iv)
assisting  the  Registrant  in preparing the required  offering  documents,  (v)
assisting the Registrant in identifying  potential equity and/or debt investors,
(vi)  providing  advice to the  Registrant  with respect to potential  marketing
strategies, mergers, other acquisitions,  reorganizations,  recapitalizations or
sales of assets,  and (vii)  providing  advice in the  structure of all business
strategies and  agreements.  As  consideration  for the services  provided,  the
Registrant  agreed to pay a non-refundable  due diligence review fee of $100,000
and a monthly fee to Services Corp. of $5,000 for the month of May 1998, $10,000
from June 1998 to May 1999, and $5,000  thereafter until the Expiration Date. In
addition,   the  Registrant  agreed  to  pay  to  Financial  Corp.  5%  and  3%,
respectively,  of the gross proceeds committed to the Registrant for equity sold
and debt issued,  respectively,  and to Services  Corp. 5% of the gross purchase
price  received  in a sale  of the  Registrant  or one of its  subsidiaries,  or
affiliates  and a debt  restructuring  fee of  10%  of  all  debt  restructured,
converted  to  equity,  or  extended.  Furthermore,  the  Registrant  agreed  to
reimburse  Services corp. and Financial  Corp. for reasonable  expenses paid. In
addition,  the Registrant  agreed to provide  Services Corp. and Financial Corp.
with  warrants  for  25%  of  the  common  stock  of the  Registrant  with  full
anti-dilution and registration rights.



                                      Page 60
<PAGE>


                         COLMENA CORP. AND SUBSIDIARIES
    NOTES TO FINANCIAL STATEMENTS FOR YEARS ENDED SEPTEMBER 30, 1998 AND 1997
                                   (continued)


         (iv)     Billing and Collection Contract

     On June 20, 1997 the Registrant  entered into a 12 month  Customer  Billing
and  Collection  Contract (the  "Contract")  with ITA whereby ITA was to provide
processing  billing and collection  services  relating to the Registrant's  long
distance telephone services. As stipulated in the contract, ITA had the right to
reject, adjust or reserve for any submitted billings. ITA charges the Registrant
fees based upon a per  transaction  schedule as stipulated  in the Contract.  In
September 1998 ITA defaulted in its payments to the Registrant and  subsequently
entered into Chapter 7 bankruptcy [See Note 17(B)].

(C)      Employment Agreements

     On June 1, 1998 (the  "Effective  Date"),  the  Registrant  entered into an
employment  agreement  (the  "Agreement")  with Mr.  Peplin(the  "Employee"),  a
principal  shareholder,  director and executive employee of the Registrant.  The
Employee  was  engaged  as the  President  and Chief  Executive  Officer  of the
Registrant.  The  Agreement  was  established  for a term  of 5 years  from  the
Effective  Date.  The  Agreement   contains  a  confidentiality   clause  and  a
non-competition  clause.  As consideration for the Employee's  performance,  the
Registrant  agreed to pay a base salary of $300,000 per year.  In addition,  the
Registrant  agreed  to  grant  1,000,000  options  to  purchase  shares  of  the
Registrant's common stock,  vesting at a rate of 200,000 shares per year on each
anniversary  date of the agreement,  at an exercise price of $6.00 per share and
exercisable for 6 years following the grant of such options. As of September 30,
1998,  no stock  options have been  exercised  (See Note 14). On May 4, 1999 the
employment contract was terminated [See Note 19(B)].

(D)      Wholesale Independent Contractor Agreement

     On August 8, 1997,  RCP  Enterprises  Group,  LLC entered  into a wholesale
independent  contract  agreement (the "Agreement")  with Coronado  Telecom.  The
Agreement was  established on a month to month basis until  terminated by either
party upon at least thirty days prior written notice.

Note 17  Litigation

(A)      People of the State of Illinois versus RCP

     On March 19, 1998,  the State of Illinois  filed a complaint for injunctive
relief  and civil  money  penalties  against  RCP  doing  business  as RCP.  The
complaint  alleges  that RCP and its  co-defendant,  ITA, a Georgia  corporation
violated the Illinois  Consumer  Fraud and Deceptive  Business  Practices Act in
connection  with the sale of prepaid  calling  cards to  Illinois  consumers  by
committing  unfair or  deceptive  acts or  practices.  RCP was accused of having
"purportedly  advertised,  solicited,  offered for sale,  sold, and  distributed
enhanced services to, among others,  residents of Sangamon County, Illinois, and
billed or caused  Illinois  consumers  to be billed for such  services." A final
Judgment and Consent  Decree has been executed by RCP. and has been submitted to
the  Attorney   General's  Office  for  signature.   The  Registrant's   council
anticipates  that the Attorney  General's  Office will present the Decree to the
Court in the near future for entry. The Consent decree essentially requires RCP.
to follow proper State rules and regulations  regarding  business  practices for
telephone  service  providers  and does not impose  any  monetary  penalties  or
restitution by RCP based on RCP's statements that it is financially insolvent.



                                      Page 61
<PAGE>


                         COLMENA CORP. AND SUBSIDIARIES
    NOTES TO FINANCIAL STATEMENTS FOR YEARS ENDED SEPTEMBER 30, 1998 AND 1997
                                   (continued)
(B)      The Registrant. versus ITA

     In  September  1998,  ITA,  defaulted  in its  payments  to T2U Co.,  doing
business as RCP, for services  rendered to third  parties,  payment of which was
collected by ITA. Thereafter, RCP and two other corporations,  Psychic Discovery
Network,  Inc.,("PDN")  a  Delaware  corporation  affiliated  to the  Registrant
through common ownership by the principal  shareholder of PDN's parent,  Viatech
communications Group, Inc. and BLJ Communications,  Inc., a Florida corporation,
all  creditors of ITA,  filed a petition  seeking ITA'S  involuntary  bankruptcy
pursuant to Chapter 7 of the United States  Bankruptcy  Code. It is management's
assertion   that  a  favorable   outcome  for  the  Registrant  is  not  likely.
Accordingly,  a 100% allowance of the accounts  receivable due from ITA has been
recorded (See Note 2).

(C)      Investigation of T2U Co. by Federal Trade Commission

     On December 9 and 10, 1998, the president and regulatory  affairs  manager,
respectively,  of T2U Co.  were asked to testify in a  confidential,  non-public
hearing  before  staff of the Federal  Trade  Commission  ("FTC") "to  determine
whether various  entities may be engaging or have engaged in unfair or deceptive
action,  acts or practices in or affecting commerce in violation of Section 5 of
the Federal  Trade  Commission  Act, 15 U.S.C.  Section 45, or the  Commission's
[FTC] Trade  Regulation  Rule pursuant to the Telephone  Disclosure  and Dispute
Resolution  Act of 1992, 16 CFR part 308" [See Note 18(E)].  As monetary  relief
for any such violations the Federal Trade Commission is seeking consumer redress
and  disgorgement  from the United  States  Treasury of up to the full amount of
income  generated by RCP. A proposed  Stipu1ated  Final  Judgement and Order for
Permanent  Injunction and Consumer Redress ("Consent  Decree") was signed by T2U
and Mr.  Peplin on  November  23,  1999 and sent to the  Division  of  Marketing
Practices,  Federal Trade  Commission.  The Consent Decree, if signed by the FTC
will result in certain injunctions and a judgement against T2U and Mr. Peplin in
an amount of $3,200,000.  Based upon  representations  made by the Registrant to
the FTC regarding the Registrant's  financial insolvency,  in lieu of payment of
the  foregoing  amount,  T2U and Mr. Peplin are to assign to the FTC all rights,
title and interest they may have in their proceedings in bankruptcy against ITA.
Management and its council  believes that since T2U is no longer a subsidiary of
the  Registrant,  that  absent the ability to "pierce the  corporate  veil",  no
liabilities  attributable  to T2U should effect the  Registrant.  However,  this
matter  is  likely  to have a  material  adverse  impact  on T2U and its  former
president.

(D)      Deutsche Financial Services Corporation

     Subsequent to September 30, 1998, Deutsche Financial Services  Corporation,
a creditor of BTSF filed a consent  arbitration  award based upon alleged breach
of a loan extension agreement [See Note 8 and 19(D)].

(E)      Various Creditor Claims

     The Registrant has been  negotiating  with several  creditors who have made
claims against the Registrant aggregating approximately $66,000.  Management and
its counsel  have not been able to assess the  probable  outcome of such claims.
All known amounts have been accrued by the Registrant at September 30, 1998.

(F)      Subsequent Litigation

     As   discussed   in  Note  19,   Subsequent   Events,   various   lawsuits,
investigations,  claims,  resolutions  or  settlements  occurred  subsequent  to
September 30, 1998.

Note 18  Going Concern

     The accompanying  financial statements have been prepared assuming that the
Registrant will continue as a going concern.  The Registrant incurred a net loss
of $16,824,226  during 1998 and had a working  capital  deficiency of $2,196,900
and an  accumulated  deficit of  $16,613,070 at September 30, 1998. In addition,
through current and subsequent discontinuance of operations and the sale and the
divestiture of its subsidiaries, the Registrant has ceased all operations. These
conditions raise substantial doubt about the Registrant's ability to continue as
a going concern.

                                      Page 62
<PAGE>


                         COLMENA CORP. AND SUBSIDIARIES
    NOTES TO FINANCIAL STATEMENTS FOR YEARS ENDED SEPTEMBER 30, 1998 AND 1997
                                   (continued)

     The  Registrant  continues to maintain  its  licenses as telephone  service
resellers with the Federal  Communications  Commission  and Management  looks to
expand on such  operations.  Management is also considering  seeking  protection
under Chapter 11 of the  Bankruptcy  Code as a means of making  continuation  of
operations possible.

Note 19  Subsequent Events

(A)  Consulting Agreement between The Registrant. and the Yankee Companies, Inc.

     On January 5, 1999 (the  "Effective  Date"),  a consulting  agreement  (the
"Agreement")  was  entered  into by and between  the  Registrant  and The Yankee
Companies,  Inc. (the "Consultant"),  a Florida  corporation.  The Agreement was
established  for a term of 730 days from the Effective  Date and will be renewed
automatically,  on a continuing  annual basis,  unless  terminated by one of the
parties 30 days prior to the  termination of the then current term. The services
provided by the consultant were agreed to be the services,  on a reasonable,  as
required, basis, consistent with the consultant's other business activities. The
consultant's   areas  of  expertise   mainly   comprise   corporate   structure,
organization  and  reorganization,   mergers,   acquisitions  and  divestitures,
strategic corporate  development,  corporate financial and equity analysis,  and
other corporate  matters.  Furthermore,  the consultant agreed to be responsible
for administering the expenditure of the proceeds derived by the Registrant from
the  exercise  of  options  that  were  given to the  consultant  as part of its
compensation  for the services  rendered  (see below) in order to implement  the
strategic  plans  developed by the  consultant  and to settle and  discharge the
corporate obligations of the Registrant.  In this role, the consultant agreed to
establish and operate bank accounts for the Registrant,  using such  signatories
as the consultant deems appropriate.

     As consideration  for the first 200 hours of services  provided (in lieu of
document  license  fees and  required  cash  payments  valued at  $20,000),  the
Registrant  agreed to issue  within  the first 365 days of the  agreement,  (the
"Initial  Term")  to the  consultant  8,066,326  Class  A  options  to  purchase
8,066,326 shares of the Registrant's common stock at an exercise price of $0.005
per share, under the assumption that 7,750,000 common shares were outstanding or
reserved for future issuance,  and therefore  resulting in the consultant owning
51%  of  the  Registrant's  common  stock.  Any  increase  or  decrease  in  the
outstanding or reserved shares would result in a corresponding adjustment of the
options'  quantity  and prices.  The  options may be executed  from the 10th day
until the 365th day following the effective date. As of the date of this report,
the consultant had exercised 5,000,000 options.

     For additional  services provided,  during the initial term, the Registrant
agreed to pay the following  consideration:  (a) If the  consultant  arranges or
provides  funding  for  the  Registrant  on more  beneficial  terms  than  those
currently reflected in the Registrant's current principal financing  agreements,
the consultant shall be entitled, at its election, to either (i) a fee of 25% of
the savings achieved,  or (ii) if equity funding is provided through consultants
or its  affiliates,  a discount of 10% from the bid price for the subject equity
securities,  if issuable as free  trading  securities,  or a discount of 50%, if
issuable as restricted  securities,  or (iii) an  introduction  fee of 5% of the
aggregate  proceeds obtained if funding is provided by any persons introduced to
the Registrant by the consultant;  (b) If the consultant  generates business for
the Registrant,  the consultant  shall be entitled to a commission of 10% of the
gross income derived by the Registrant  therefrom on a continuing  basis; (c) If
the consultant  arranges for an acquisition  by the  Registrant,  the consultant
shall be  entitled  to 10% of the  compensation  paid for such  acquisition.  In
addition,  the Registrant  will be responsible  for the payment of all costs and
disbursements  associated  with the  consultant's  services  subject  to certain
limitations and/or approvals, as stipulated in the Agreement.


                                      Page 63
<PAGE>


                         COLMENA CORP. AND SUBSIDIARIES
    NOTES TO FINANCIAL STATEMENTS FOR YEARS ENDED SEPTEMBER 30, 1998 AND 1997
                                   (continued)


(B)      Reorganization Agreement between the Registrant and Mr. Peplin, and
         Resignation of Mr. Peplin.

     On March 25, 1999, a Reorganization Agreement (the "Agreement") was entered
into and  consummated  by and among the  Registrant and Mr. Peplin the principal
stockholder  and  former  president  of the  Registrant.  Under the terms of the
Agreement,  the Registrant  conveyed to the order of Mr. Peplin,  and Mr. Peplin
accepted, all of the Registrant's right, title and interest in and to all of the
capital  stock of T2U Co.  and BTSF  (the  "Subsidiaries"),  expecting  that Mr.
Peplin will designate a newly organized  corporation to assume  ownership of the
Subsidiaries. The transaction was accounted for as a sale, at fair market value,
the  consideration  being an assumption of net  liabilities by Mr.  Peplin.  The
Registrant  agreed to pay all reasonable  costs required to effect a liquidation
of the Subsidiaries by Mr. Peplin's designee pursuant to Chapter 7 of the United
States  Bankruptcy  Code and to defend any  resulting  litigation  or regulatory
actions. Furthermore, the Registrant agreed to spin out 20% of the capital stock
of TechTel to the Registrant's  stockholders under the parameters established by
Securities  Exchange  Commission  Division  of  Corporate  Finance  Staff  Legal
Bulletin  Number 5, and to use the remaining 80% of the capital stock of TechTel
to settle  outstanding  liabilities of TechTel to Mr. Peplin,  to a principal of
Yankees  [see Note 19 (A)] and to other  persons,  based on  negotiations  to be
conducted  by  Yankees.  Mr.  Peplin  irrevocably  agreed  that  any net  assets
remaining after  liquidation of the  Subsidiaries  will be used to pay taxes and
liabilities of TechTel guaranteed by Mr. Peplin or the Registrant,  with the net
balance returned to the Registrant,  such net balance interest to be represented
by a security  interest  memorialized  in one or more Forms UCC-1 to be filed in
each state in which the Subsidiaries have any assets.  The 80% of TechTel common
stock was transferred to Mr. Peplin and others in a transaction accounted for as
a sale, the consideration being the assumption by the transferors of liabilities
of TechTel.  Before the  transfer of the 20% TechTel  common  stock as discussed
above, in November 1999 the interest of all  stockholders in TechTel,  including
the  Registrant,  was  acquired by FON Digital  Network,  Inc.  ("FON"),  an OTC
Bulletin Board company.  FON issued 50,000 shares to various  parties  including
5,000 to the Registrant in exchange for TechTel shares.

     As of September 30, 1998, the assets and liabilities representing RCP, BTSF
and  TechTel  were  $41,597  and  $1,570,944   respectively,   Amounts  totaling
approximately  $310,000  due to Deutsche  Financial  Services  Corporation  were
guaranteed by the Registrant,  (See Notes 8, 17(D), and 19(D) for repudiation of
this  agreement) the parent company at that time.  During 1999,  pursuant to the
sale of the subsidiaries the Registrant recognized a gain on sale.

     The   reorganizations   discussed   above  do  not   qualify  as   tax-free
reorganizations.  However,  no taxes will be payable, as the income generated by
the  Registrant  as a  result  of its  reorganizations  is from  the  relief  of
liabilities which is fully excludable under the insolvency/bankruptcy exception.
Under  such  exception,  the net  operating  loss and other tax  attributes  are
reduced in lieu of reporting income.

     On May 4, 1999, Mr. Peplin resigned from all offices and directorships held
in the Registrant and its remaining subsidiary.

(C)      Filing and Settlement of Litigation: Madhu Sethi versus the Registrant,
         TechTel and RCP.

     On January 7, 1999, Madhu Sethi (Mr. Sethi") filed a complaint  seeking the
recovery of $24,069  for  expenses  and  interest  and future  wages for alleged
breach of an agreement entered into with The Registrant. The complaint was based
on an employment  agreement,  executed on February 18, 1998,  established  for a
term of 5 years and agreed compensation of $100,000 per year exclusive of fringe
benefits  and payable in weekly  installments.  In  addition,  Mr.  Sethi was to
receive an annual bonus based upon profits of the Registrant.

                                      Page 64
<PAGE>


                         COLMENA CORP. AND SUBSIDIARIES
    NOTES TO FINANCIAL STATEMENTS FOR YEARS ENDED SEPTEMBER 30, 1998 AND 1997
                                   (continued)

     On June 3, 1999,  a settlement  agreement  (the  "Agreement")  was made and
entered into by and among the Registrant,  Mr. Sethi, and Ila Sethi, Mr. Sethi's
spouse (the "Parties").  The Parties agreed to an accord and satisfaction of all
of their  rights,  obligations  and  liabilities.  Mr. and Mrs.  Sethi agreed to
relinquish all rights, whether accrued or inchoate, under any agreements between
them or their affiliates and the Registrant and its affiliates, other than those
agreed upon in the Agreement.  The Registrant  agreed to use its best efforts to
include  Mr. and Mrs.  Sethi in any  settlements  of the  current  dispute  with
Deutsche  Financial  Services  Corporation [See Notes 8 and 17 (D)] and issue to
Mr. and Mrs. Sethi, 250,000 shares of the Registrant's common stock, in reliance
on the exemption  from  registration  requirements  under the  Securities Act of
1933, as amended. Mr. and Mrs. Sethi represented, warranted, and covenanted that
all of the common  stock  will bear  legends  restricting  its  transfer,  sale,
conveyance, or hypothecation unless such common stock is either registered under
provisions of Section 5 of the  Securities  Act and the Florida Blue Sky Act, or
an opinion of legal counsel is provided that such  registration  is not required
as a result of applicable  exemptions therefrom.  In addition,  the Registrant's
transfer  agent shall be instructed  not to transfer any of the stock unless the
Registrant  advises it that such transfer is in compliance  with all  applicable
laws.  Furthermore,  Mr. and Mrs. Sethi represented that they are each acquiring
the stock for their own account,  for investment  purposes only and that Mr. and
Mrs. Sethi or their advisors have examined the Registrant's Exchange Act filings
and are fully familiar with the Registrant and its operations.

(D)      Filing of Litigation: Deutsche Financial Services Corporation versus
         BTSF, Mr. Peplin and the Registrant.

     Subsequent  to the  balance  sheet  date,  on  October  8,  1999,  Deutsche
Financial Services  Corporation caused a Consent Arbitration Award in the amount
if $348,858  plus  interest at the per annum rate of prime plus 6.5% from August
1, 1998 less any sums received pursuant to the Extension  Agreement  referred to
below,  to be entered  against the Registrant and others based on the Registrant
purportedly  having consented to such award.  The Registrant  signed the Consent
Award after having signed a loan extension agreement (the "Extension Agreement")
in August of 1998,  along with Mr. Peplin.  Because the Registrant has agreed to
the terms of the Extension  Agreement,  and the accompanying Consent Arbitration
Award, on the condition that two additional  parties,  Mr. and Mrs. Sethi, would
sign them both and by  similarly  bound by them,  and because  these  additional
parties have not signed the Extension  Agreement by September 15, 1998, the time
payment of  $348,858  was due under the  Extension  Agreement,  the  Registrant,
through its counsel,  repudiated its signing of both the Extension Agreement and
the Consent  Arbitration Award.  Accordingly,  the Registrant takes the position
that the Consent Arbitrator Award is not binding and enforceable.

(E) Investigation by the Federal Trade Commission ("FTC") of T2U Co.

     On December 9 and 10, 1998, the president and regulatory affairs manager of
T2U Co. were asked to testify in a confidential, non-public hearing before staff
of the FTC "to  determine  whether  various  entities  may be  engaging  or have
engaged  in  unfair or  deceptive  action,  acts or  practices  in or  affecting
commerce in  violation  of Section 5 of the  Federal  Trade  Commission  Act, 15
U.S.C.  Section 45, or the Commission's  [FTC] Trade Regulation Rule pursuant to
the Telephone  Disclosure and Dispute  Resolution Act of 1992, 16 CFR part 308."
(See  Note 17 C).  As of the date of this  report,  no  further  information  is
available.

(F)      Ziff Davis, Inc. vs. BTSF

     On February 12, 1999 Ziff-Davis filed an action for damages against BTSF. A
material judgement was entered against BTSF on July 26, 1999. At the time of the
judgement, BTSF was no longer a subsidiary of the Registrant.  Management of the
Registrant  and its  counsel  believe  that  absent the  ability to "pierce  the
corporate   veil"  no  liabilities   attributable  to  BTSF  should  affect  the
Registrant.


                                     Page 65


<PAGE>


                         COLMENA CORP. AND SUBSIDIARIES
    NOTES TO FINANCIAL STATEMENTS FOR YEARS ENDED SEPTEMBER 30, 1998 AND 1997
                                   (continued)

(G)       Patrick Graham vs. Five Star Cigar, Inc, Tio Marino Cigar Corporation,
          the Registrant, and Mr. Peplin

     On July 9, 1999, the plaintiff filed an action for compensatory damages and
money lent claiming that on March 16, 1997, Five Star Cigar,  Inc. ("Five Star")
executed a promissory note to Patrick V. Graham ("Mr. Graham")and that Five Star
failed to pay the note in the  amount of $40,000  and is in default  and that on
March 31, 1997,  Tio executed a promissory  note to Mr.  Graham in the amount of
$40,000  and is now in  default.  Mr.  Graham  has taken the  position  that The
Registrant. is the successor by merger of Tio and Five Star and as its successor
is liable  for the  indebtedness  of Five Star for the  amount of  $40,000  plus
interest,  costs and attorney  fees. The  Registrant's  position is that Tio and
Five Star were never merged into the Registrant and thus the Registrant is not a
proper party to the action. The accompanying  consolidated  financial statements
include the note payable  liability of $40,000 and related  accrued  interest of
$6,000 at September 30, 1998. The  Registrant  and its counsel  believe the debt
will  likely  be  settled  in  exchange  for  100,000  restricted  shares of the
Registrant's common stock.

(H)       Louisiana Public Service  Commission vs. RCP Enterprises Group, Inc. ,
          T2U Communications

     Although  no  formal  complaint  has been  filed,  the  parties  have  been
requested to appear, at an unspecified date, before the Louisiana Public Service
Commission by notice dated January 7, 1999. Management of the Registrant and its
counsel  believe  that  absent the  ability to "pierce  the  corporate  veil" no
liabilities attributable to this matter should effect the Registrant.

(I)      Note Payable - Related Party

     As of  October 1,  1998,  the  principal  of the note  payable  issued to a
related party for $82,500 as of September  30, 1998,  was increased to $100,000.
This note is due and payable on July 30, 1999,  with  interest at 10% per annum.
The holder may convert any portion of the  principal  balance into shares of the
Registrant's  common stock at a conversion  price of $0.40 per share.  As of the
date of this report,  the  Registrant  has defaulted on this note and the holder
has not sought to exercise their conversion rights (See Note 7).

(J)      Note Payable - Related Party

     As of December 2, 1998,  a note  payable was issued to a related  party for
$6,799, by TechTel, one of the Registrant's subsidiaries. Principal and interest
of 10% per annum  were due in 90 days from the date of  issuance.  The holder of
the note had the option to convert  principal  and  interest  to the  Registrant
common  stock at $0.5 per share  with  demand  registration  rights or to 10% of
TechTel on a fully diluted basis or to the Prostar  16x16  telephone  system for
which the money was  originally  lent. Any payments not made within five days of
the due date were  agreed to be  subject  to a late  charge of 18% of the amount
due.

(K)      Conversions of Debt to Equity

     On January 3, 2000, a vendor who provided  legal services to the Registrant
converted total amounts due aggregating $50,782 at September 30, 1998 to 677,087
restricted shares of common stock of the Registrant.

     On January 3,  2000,  a vendor  converted  total  amounts  due of $2,550 at
September 30, 1998 to 34,000 shares of common stock of the Registrant.

     In January  2000, a vendor who provided  legal  services to the  Registrant
converted  total amounts due of $31,214 at October 11, 1999 to 416,185 shares of
common stock of the Registrant.  The $31,214 includes amounts due and accrued at
September 30, 1998 of $15,917.

     On  January  29,  1999,  a vendor of the  Registrant  was  issued for legal
services, 70,000 common stock options at an exercise price of $0.05 per share on
or before January 15, 2000, which has been extended to January 14, 2001.

                                      Page  66
<PAGE>


     For all  conversions of debt with unrelated  parties,  the Registrant  will
record a gain or loss on the extinguishment of debt based upon the quoted market
price of the stock on the conversion dates.

(L)      Potential Reorganization Under Bankruptcy Code

     In light of the volume of litigation,  potential  litigation and regulatory
action, the Registrant and its Board of Directors have discussed the possibility
of  reorganization  under Chapter 11 of the United States Bankruptcy Code. As of
the date of this report no such reorganization has been consummated.

ITEM 8.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.

     On January 21, 1999, Ernst & Young LLP resigned as independent auditors for
the Registrant.  The report of Ernst & Young LLP on the  Registrant's  financial
statements  as of  September  30, 1997 and for period from June 1, 1997 (date of
inception)  to  September  30,  1997 did not  contain  an  adverse  opinion or a
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope, or accounting principles.

     In connection with the audit of the Registrant's financial statements as of
September  30, 1997 and for the period from June 1, 1997 (date of  inception) to
September 30, 1997, and in the subsequent  period,  there were no  disagreements
with Ernst & Young LLP in any matters of  accounting  principles  or  practices,
financial  statement  disclosure , or auditing scope or procedures which, if not
resolved to the  satisfaction  of Ernst & Young LLP,  would have caused  Ernst &
Young LLP to make  reference  to the matter in their  report.  Ernst & Young LLP
furnished a letter  addressed to the Commission  stating that it agreed with the
foregoing  statements  which the  Registrant  filed by amendment on February 12,
1999 as an exhibit to the current report on Form 8-K which it had filed with the
Commission on January 29, 1999 to disclose such resignation.

     The  Registrant  selected the firm of Weinberg & Company,  P.A.,  Certified
Public Accountants, of Boca Raton, Florida to replace Ernst & Young LLP and such
firm has audited the Registrant's financial statements for the fiscal year ended
September 30, 1998, included in this report.


                                      Page 67
<PAGE>

                                    PART III
ITEM 9.   DIRECTORS,   EXECUTIVE   OFFICERS,   PROMOTERS  AND  CONTROL  PERSONS;
          COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

Directors and Executive Officers

Directors and Executive Officers as of September 30, 1998

     As of September 30, 1998, the following  persons served as the Registrant's
directors and executive officers:

Name                    Age     Term      Positions

Richard C. Peplin, Jr.   41      *        Chairman  of  the  Board of Directors,
                                          Director,   Chief  Executive  Officer;
                                          Treasurer
Robert S. Gigliotti      51      **       Director; Secretary
---------
*    Elected on November 10, 1997,  by the Board of Directors to serve until the
     next  annual  meeting  of the  Registrant's  stockholders,  and  until  his
     successors were elected, and assumed their office except that service as an
     officer was at the pleasure of the Board of Directors.  Mr. Peplin resigned
     from all roles with the Registrant on May 4,1999.

**   Elected on December 11, 1997,  by the Board of Directors to serve until the
     next  annual  meeting  of the  Registrant's  stockholders,  and  until  his
     successors were elected, and assumed their office except that service as an
     officer was at the pleasure of the Board of Directors.

Material Subsequent Events

     On or about  September 15, 1998, ITA defaulted in its obligation to pay RCP
$5,600,710  for  services  rendered  to third  parties,  payment  for  which was
collected  by  ITA.  As a  result  of  such  default,  all of  the  Registrant's
operations  were materially  affected in a very negative  fashion and all of the
Registrant's  business  operations  were  subsequently  divested or  terminated.
Realizing that the Registrant  would have to drastically  revise its operations,
the Registrant began  negotiations with Yankees for assistance in developing and
implementing new strategic plans.  Negotiations  with Yankees  culminated in the
Yankees  Consulting  Agreement.  The  Yankees  Consulting  Agreement  originally
permitted  Yankees to acquire 51% of the Registrant's  common stock at a cost of
$40,000,  and required Yankees to recruit additional directors and to assist the
Registrant to develop and implement a new strategic plan,  assist the Registrant
to negotiate  with its creditors  and assist the  Registrant to prepare and file
required reports with the Securities and Exchange  Commission (the  Registrant's
independent  ability  to do so  having  been  affected  by its  current  lack of
required funds). The option was modified during January of 2000 as an inducement
to Yankees'  extension of the consulting  agreement by increasing the percentage
of shares of the  Registrant's  securities which Yankees had a right to purchase
up to 75% and increasing  the exercise price to $80,000 (the "Yankee  Options").
As of June 30, 2000,  Yankees had paid $30,000 of such exercise  price.  Most of
the proceeds from exercise of the Yankee Options has been paid by the Registrant
to its  auditors in  conjunction  with the audit of the  Registrant's  financial
statements  for the period ended  September 30, 1998, to a consultant who worked
to gather  information  required  by the  Registrant's  auditors,  and to settle
outstanding liabilities of the Registrant.


                                    Page 68

<PAGE>


     In conjunction  with its  obligations  to the Registrant  under the Yankees
Consulting  Agreement,  Yankees  recommended that three new directors be elected
(see biographies  below) and recruited a new general counsel and secretary,  all
of which were elected by the  Registrant's  existing  directors to the positions
described  below.  Thereafter,  Mr. Peplin  resigned from all positions with the
Registrant on May 4, 1999 and Yankees  recommended and the Registrant's board of
directors  elected,  the  following  people (in  addition to Mr.  Gigliotti  who
continues  to serve as a  member  of the  Registrant's  board of  directors)  as
officers and directors of the Registrant.

Name                          Age (1)   Term (2)    Positions
----                          -------   --------    ---------
Anthony Q. Joffe                57       (3)(4)     President,director, chairman
                                                    of the board of directors.
Penny Adams Field               44       (3)(5)     Director, chairperson of the
                                                    audit committee
Charles J. Champion, Jr.        33       (3)(6)     Director  and  member of the
                                                    audit committee.
Vanessa H. Lindsey              29       (3)(7)     Secretary and director.
Lawrence R. Van Etten           63       (8)        Director.
G. Richard Chamberlin, Esquire  53       (3)(9)     General counsel.
--------
(1)      As of July 31, 2000.
(2)      All  directors  were  elected  for a term  ending  at such  time as his
         successor  is elected at the next  annual  meeting of the  Registrant's
         stockholders  and is qualified in office and all officers  serve at the
         pleasure of the board of directors,  subject to any contractual  rights
         to compensation that may survive their termination.
(3)      Term started on January 12, 1999.
(4)      Mr.  Joffe  was  elected  as a  member  of the  Registrant's  board  of
         directors  on January 12,  1999,  as the  chairman of the  Registrant's
         board  of  directors  during  March  of  1999  and as the  Registrant's
         president on May 4, 1999.
(5)      Ms. Field resigned as chair of the audit  committee on November 4, 1999
         and as a member  of the  Registrant's  board of  directors  on March 1,
         2000, in each case due to other business commitments.
(6)      Mr.  Champion  became the  chairperson of the audit committee upon the
         resignation  of  Penny  Fields.  (7) Ms.  Lindsey  was  elected  as the
         Registrant's  secretary  on  January 12,  1999,  and as a member of the
         Registrant's  board of  directors  effective  February 1, 2000. (8) Mr.
         Van  Etten  was  elected  as a  member  of  the  Registrant's  board of
         directors  on May 31,  2000.  (9) Mr.  Chamberlin  resigned as  general
         counsel  in order to pursue  other  business  interest  as of March 31,
         2000.

                                      Page 69

<PAGE>



Biographies of Directors and Executive Officers

Richard C. Peplin,  Jr.,  President,  chief executive officer and director until
May 4, 1999.

     Mr. Peplin's  biography is incorporated by reference from the  Registrant's
report on Form 10-KSB for the fiscal year ended September 30, 1997, as permitted
by Commission Rule 12b-23.

Anthony Q. Joffe, Director, President.

     Anthony Q. Joffe, age 57, has served as a member of the Registrant's  board
of directors  since January 12, 1999, in March of 1999, Mr. Joffe was elected as
its chairman of the board of directors and in May of 1999, he was elected as its
president.  Mr. Joffe holds a degree in Aeronautical Engineering Management from
Boston  University,  Boston,  Massachusetts.  Subsequent to his graduation,  Mr.
Joffe was employed as the Quality Control Manager for Cognitronics  Corporation,
a computer  manufacturer,  where he was  responsible  for  overseeing the United
States  Air  Force  compliance  testing  program  as well as  normal  day-to-day
management.  In 1967, Mr. Joffe was employed by General Electric as a production
engineer in the insulating  materials  field. In 1970, Mr. Joffe was employed by
King's  Electronics,   a  RF  coaxial  connector  manufacturer,   where  he  was
responsible  for major  accounts and guided the field sales force.  In 1973, Mr.
Joffe was one of the founders and vice-president of J.S. Love Associates,  Inc.,
a commodity  brokerage house no longer in operation (then  headquartered  in New
York  City).  In 1976,  Mr.  Joffe  formed  and  served as  President  and Chief
Operating Officer of London Futures, Ltd., a commodity broker with 275 employees
in nine offices.  London Futures, Ltd. was closed in 1979 and Mr. Joffe moved to
Florida.  From 1979 until 1986, Mr. Joffe was vice president of Gramco Holdings,
Inc. (and its predecessor companies),  a firm which owned and operated a variety
of companies.  These  companies  included five  cemeteries  and funeral homes in
Broward County, Florida, a 33 acre marina, a general contracting company, a boat
title insurance  underwriting firm, three  restaurants,  a real estate brokerage
company,   a   mortgage   brokerage   company   and  a  leasing   company.   His
responsibilities  involved  supervision  of the  day-to-day  operations  and new
business  development.  From 1986 to 1991, Mr. Joffe served as consultant and/or
principal to a variety of small  businesses  in the South  Florida area. In 1989
Mr. Joffe became President of Windy City Capital Corp., a small publicly traded,
reported  company that was  originally  formed as a "blind pool" for the express
purpose of finding an acquisition  candidate.  Eventually,  a reverse merger was
consummated with a computer software company from  Pennsylvania.  Mr. Joffe then
took the position of President of Rare Earth Metals,  Inc. (and its  predecessor
companies), a small publicly traded company which has purchased Spinecare, Inc.,
a medical  clinic in New York.  Spinecare  changed its name to Americare  Health
Group and relocated  its state  domicile to Delaware.  Since March of 1993,  Mr.
Joffe has performed consulting services for First Commodities,  Inc., an Atlanta
based  commodities  firm, and has been involved in fund raising for the Multiple
Sclerosis Foundation.  He also assisted Digital Interactive  Associates and IVDS
Partnership  with financial  affairs in conjunction with their successful bid to
the Federal  Communications  Commission  for  licenses in the cities of Atlanta,
Georgia,  Minneapolis/St.  Paul, Minnesota, and Kansas City, Missouri. Mr. Joffe
served as the interim president of Madison Sports & Entertainment Group, Inc., a
publicly held Utah corporation then  headquartered in Fort Lauderdale,  Florida,
from  September 1, 1994,  until  February 16, 1996,  at which time he became its
vice president and vice chairman,  chief operating officer,  treasurer and chief
financial  officer until he resigned in 1996.  Since 1996, he has founded a boat
financing  company  and  joined  NorthStar  Capital  ("NorthStar")  as  Managing
Director.  NorthStar  is an  investment  banking  firm with offices in Stamford,
Connecticut and Boca Raton,  Florida which specializes in assisting small to mid
size private and publicly traded companies with business and financial planning;
acquisition  and  divestiture:  financial  public  relations and market position
advice: and, treasury services. Mr. Joffe has, since November of 1998, served as
a member of the Board of Directors of AmeriNet Group.com, Inc., (formerly Equity
Growth Systems, inc.), a publicly held Delaware corporation.

                                    Page 70
<PAGE>


Penny Adams Field,  Former  director,  audit committee chair.

     Penny  Adams  Field,  age 44, was  elected as a member of the  Registrant's
board of  directors  and as the  chair of the  audit  committee  of the board of
directors on January 12, 1999. She was replaced as chair of the audit  committee
on  November 4, 1999 and  resigned as a director on March 1, 2000,  in each case
due to her  inability to dedicate  the time  required to such roles due to other
business  commitments.  Mrs.  Field is a principal  and  co-founder of Executive
Concepts,  a management  consulting  and investment  banking  advisory firm. Ms.
Field has technical expertise in designing and implementing financial management
systems,  acquisition and divestiture models, cash flow management,  information
systems assessment and implementations,  and operational and cost system audits.
Her background in strategic  planning,  performance  measurement,  comprehensive
business  planning,  and cost structure analysis add to the breadth and depth of
the Executive  Concepts team skills.  Ms. Field is an experienced and accredited
business  valuation  specialist  and is a member of the  Institute  of  Business
Appraisers.  She serves on numerous  not-for- profit and corporate  boards. As a
management  consultant,  Ms.  Field has  consulted  with firms such as Monsanto,
Mallinckrodt, McDonnell-Douglas, MEMC Electronic Materials Company, Maytag, Mark
Andy, CyberTel, and numerous other small firms in the healthcare, manufacturing,
construction,  and service industries. Prior to founding Executive Concepts, Ms.
Field was an administrator for the John M. Olin School of Business at Washington
University  in St. Louis,  where she helped to establish the Executive  Programs
division.  Her  responsibilities  included program  development in the Far East.
Prior to her  administrative  role  she  served  as a  full-time  member  of the
accounting faculty  instructing in financial  accounting and cost management for
undergraduate and graduate programs at the Olin School.  Prior to graduate study
at  Washington  University,  Ms. Field worked in healthcare  administration  and
banking,  including  positions at Children's Hospital National Medical Center in
Washington,  D.C.  and  Harris  Bank in  Chicago.  After  earning  a  B.B.A.  in
Accounting  and Finance,  Ms.  Field  earned her M.B.A.  from the Olin School of
Business at Washington  University in St. Louis.  Ms. Field also posted  several
hours of Ph.D.  level course work in  accounting  and finance  prior to making a
full-time  commitment to consulting.  From November of 1998 until March 1, 2000,
Mrs.  Field served as a member of the Board of Directors of AmeriNet  Group.com,
Inc.   (formerly  Equity  Growth  Systems,   inc.],  a  publicly  held  Delaware
corporation.

Charles J. Champion, Jr., Director, current audit committee chair.

     Charles J. Champion,  Jr., age 33,  graduated from Florida State University
in 1988 with a bachelor's degree in political science.  Following graduation, he
joined the Champion Group of Companies,  a family owned  enterprise  involved in
the  insurance  and  financial   industries.   In  1991,  while  continuing  his
association  with the Champion  Group of Companies,  he became a vice  president
with Sunshine Securities Corporation, a licensed broker dealer in securities and
member  of the  National  Association  of  Securities  Dealers,  Inc.,  which he
purchased  in  1996,  at  which  time it  became  one of the  Champion  Group of
Companies.  He then became Sunshine Securities  Corporation's  president and its
business  capabilities  were  expanded  to  include  practice  as  a  registered
investment  advisor.  Sunshine  Securities  Corporation's  name was  changed  to
Champion Capital  Corporation on or about February 5, 2000. Mr. Champion holds a
number of insurance and securities  licenses,  including  series 7 and series 24
securities licenses.

Vanessa H. Lindsey, Secretary and director.

     Vanessa H. Lindsey,  age 29, was elected as the  Registrant's  secretary on
January 12, 1999 and was elected as a member of its board of directors effective
February 1, 2000. From 1993 to 1995 she was employed by Accell Plumbing Systems,
Inc., an Ohio  corporation,  as that company's  office  manager and  bookkeeper.
Since 1995 she has been  employed by  Diversified  Corporate  Consulting  Group,
L.L.C., a Delaware limited  liability  company engaged in providing  diversified
consulting  services  and in filing  EDGARized  documents  for clients  with the
Commission,  as that company's chief administrative  officer. Since 1996 she has
been employed by the Southeast Companies, Inc., a Florida corporation,  involved
in the  entertainment  industry,  in business and political  consulting and as a
finance company, as its chief administrative officer and currently serves as its
vice president and secretary. She is also the secretary and chief administrative
officer  for the  Yankee  Companies,  Inc.,  which  serves  as the  Registrant's
strategic  consultant  and for Southern  Capital  Group,  Inc, a Florida  retail
finance  corporation and licensed  mortgage  brokerage  business.  She currently
holds the position of secretary of The Marion County  Libertarian  Party and was
the  Campaign  Treasurer  for the  Cyndi  Calvo  for State  Senate,  District  8
Campaign.  Since  November  of 1999,  she has served as the  secretary  and as a
member of the board of directors of AmeriNet  Group.com,  Inc., a publicly  held
Delaware corporation.

                                    Page 71
<PAGE>


Lawrence R. Van Etten, Director.

     Mr. Van Etten, age 63,was elected as a member of the Registrant's  board of
directors on May 31, 2000. Mr. Van Etten [add educational background,  including
full name and location of school,  degrees  obtained,  including  dates). He was
employed by IBM from 1956, until 1987,  where he held several senior  management
positions including Corporate Control Operations Manager,  Corporate  Scheduling
Manager and Director of Logistics Special Processes.  Since leaving IBM, Mr. Van
Etten has served as vice president  with several  companies in the United States
and Canada [need names, dates,  locations and description of business] and owned
and  managed  his  own  consulting  company  [need  name,  dates,  location  and
description  of  business].  Much of his recent work  experience  has dealt with
business  management  systems,  personal computer  application  software and the
Internet.  Since May 22, 2000, Mr. Van Etten has served as a member of the board
of directors  and as acting  president and chief  operating  officer of AmeriNet
Group.com, Inc., a publicly held Delaware corporation.

G. Richard Chamberlin, Esquire, Former general counsel.

     G. Richard  Chamberlin age 53, served as the  Registrant's  general counsel
from January 12, 1999 until March 31, 2000. He is a graduate of Eastern Military
Academy,  Huntington,  New York (College Prep Diploma,  1964): The Citadel,  The
Military College of South Carolina,  (B.A.,  political  science,  1968): and the
University of Georgia School of Law, (J.D.,  1971).  From 1973 to 1974 he served
as Trust  Officer with Central Bank & Trust  Company,  Jonesboro,  Georgia.  Mr.
Chamberlin is a practicing  attorney and is a member of the Georgia Bar,  (since
1974),  and the Florida Bar,  (since 1990).  He is also a member of the Bars for
the Federal  District Court for the Northern  District of Georgia,  (since 1974)
and the Federal  District  Court for the  Northern  District  of Florida  (since
1995),  the Court of  Appeals  for the State of  Georgia,  (since  1974) and the
Supreme Court for the State of Georgia  (since 1974).  Mr.  Chamberlin is also a
member of the Bar for the Eleventh District Court of Appeals,  (since 1982). Mr.
Chamberlin earned a Certificate from the American Bankers Association,  National
Trust School,  (1974). Mr. Chamberlin is a two term former member of the Georgia
House of Representatives, (1979-1983). In the State House, Mr. Chamberlin served
on  the  Following  committees:   House  Journal  Committee,  Natural  Resources
Committee,  Special  Judiciary  Committee  and Labor  Committee.  He is a former
member of the  Counsel  for  National  Policy.  He is the founder of the Georgia
Roundtable,  Inc., and served as President from 1981 to 1986.: He is the founder
of the Georgia Heritage  Foundation,  and served as President from 1982 to 1986.
He is the  former  Principal  of Soul's  Harbor  Christian  Academy,  Belleview,
Florida,  (1990-1992).  Mr. Chamberlin served as national music chairman for the
Religious  Roundtable,  Inc.,  at the premier  event known as the 1992  National
Affairs Briefing in Dallas,  Texas wherein President George Bush was the keynote
speaker.  Mr. Chamberlin has received Resolutions of Commendation from the House
of Representatives  for the Commonwealth of Kentucky,  (1985) and from the House
of  representatives  for the State of Georgia,  (1982). Mr. Chamberlin is former
president and director for Atrieties Development Company,  Inc., a publicly held
corporation  involved in the real estate industry,  (1986 through 1987), and has
held licenses as a real estate agent, (Georgia and Florida). He presently serves
as president of Southern  Capital Group,  Inc., a Florida  corporation,  ("SCG")
with  offices  in  Belleview  and  Ocala,  Florida.  SCG was  founded in 1999 to
consolidate pre existing business lines in the automotive and mortgage business.
Mr.  Chamberlin is also president and sole director of and majority  stockholder
in Sports Collectible  Exchange,  Inc., a Florida corporation,  ("SCE"). SCE was
founded  in 1999  specializing  in the sale  and  distribution  of minor  league
baseball collectibles.  Mr. Chamberlin served as general counsel to Yankees from
its inception until March 31, 2000.  Since November of 1998, Mr.  Chamberlin has
served  as a member  of the  board of  directors  of  AmeriNet  Group.com,  Inc.
(formerly  Equity Growth Systems,  inc.], a publicly held Delaware  corporation,
and until  November 11, 1999,  also served as its secretary and general  counsel
until March 31, 2000.

                                    Page 72
<PAGE>


Robert S. Gigliotti, Director, audit committee member.

     Robert S.  Gigliotti,  age 51, served as the  Registrant's  secretary  from
November 10, 1997 until January 12, 1999 and has served as a member of its board
of  directors  since  December  11,  1997.  In 1970,  Mr.  Gigliotti  received a
bachelor's degree in business from Alma College,  located in Alma, Michigan. For
longer than the past five years, Mr.  Gigliotti has been a practicing  certified
public  accountant  and serves as the managing tax partner of Perrin,  Fordree &
Company,  P.C. in Troy,  Michigan.  Mr. Gigliotti  received his certified public
accountancy  license in 1972 and  joined the firm of Perrin,  Fordree & Company,
P.C.  in 1976 after six years in the tax  department  of the  Detroit  office of
Arthur  Andersen &  Company.  Mr.  Gigliotti's  specialties  include  estate and
financial planning, franchising and corporate taxation.

Other Material Personnel

     In addition to the  Registrant's  directors and executive  officers,  since
January of 1999,  William A.  Calvo,  III and  Leonard  Miles  Tucker  have also
provided  material  services to the Registrant  through  Yankees,  in which they
serve as directors and executive officers and which they and their families own.
Because  Yankees  has  the  right  to  acquire  up to 75%  of  the  Registrant's
securities, it should also be deemed a control person of the Registrant.


Family Relationships.

     There are no family  relationships among the current officers and directors
of the Registrant.

Involvement in Certain Legal Proceedings.

     Based  on  information  provided  in  response  to the  Registrant's  legal
counsel,  except as otherwise  disclosed  in this  report,  during the five year
periods  ending on  September  30, 1998 and 2000,  no current  director,  person
nominated to become a director or executive officer,  and no promoter or control
person of the Registrant has been a party to or the subject of:

(1)  Any  bankruptcy  petition  filed by or against  any  business of which such
     person was a general partner or executive officer either at the time of the
     bankruptcy or within two years prior to that time;

(2)  Any  conviction  in a criminal  proceeding or has been subject to a pending
     criminal   proceeding   (excluding   traffic  violations  and  other  minor
     offenses);

(3)  Any order,  judgment,  or decree, not subsequently  reversed,  suspended or
     vacated, of any court of competent jurisdiction, permanently or temporarily
     enjoining, barring, suspending or otherwise limiting his involvement in any
     type of business, securities or banking activities; and

(4)  Been found by a court of competent  jurisdiction  (in a civil action),  the
     Commission or the Commodity  Futures Trading  Commission to have violated a
     federal or state  securities or  commodities  law, and the judgment has not
     been reversed, suspended, or vacated.

Compliance with Section 16(a) of the Exchange Act

     To the best of the Registrant's  knowledge, no one subject to Section 16(a)
of the Exchange Act engaged in any transactions in the  Registrant's  securities
during 1998, except with reference to receipt of securities from the Registrant,
as described in this report.

ITEM 10.          EXECUTIVE COMPENSATION.

     During the 57 month period commencing on October 1, 1995 and ending on June
30, 2000, Mr. Milligan, served as the Registrant's president and chief executive
officer  until  October  31,  1997,  when  Mr.  Wiseman,   was  elected  as  the
Registrant's president,  secretary,  treasurer and chief financial officer until
November 10, 1997, when Mr. Peplin,  was elected as the  Registrant's  president
and chief  executive  officer.  Mr.  Peplin was replaced as President  and Chief
Executive Officer by Mr. Joffe on May 4, 1999.


                                    Page 73

<PAGE>

     During the 12 month period ended September 30, 1996, Mr. Milligan  received
$72,000 as  compensation  for  services to the  Registrant.  During the 12 month
period ended September 30, 1997, Mr. Milligan  received  $96,000 as compensation
for services to the  Registrant.  During the 12 month period ended September 30,
1998,  Mr.  Peplin  received   $153,000as   compensation  for  services  to  the
Registrant. As of the date of this report Mr. Joffe is to receive 200,000 shares
as compensation for his services to the Registrant.

<TABLE>
<S>                 <C>       <C>    <C>     <C>      <C>          <C>             <C>          <C>
Summary Compensation Table

                  Annual Compensation                Awards                       Payouts
                                                                 Securities
                                            Other                Underlying       Long          All
Name and                                    Annual   Restricted  Options &        Term          Other
Principal                                   Compen- Stock        Stock Apprecia-  Incentive     Compen-
Position          Year     Salary   Bonus   sation   Awards      tion Rights      Payouts       sation
--------          ----     ------   -----   ------   ------      -----------      -------       ------
Mr. Milligan (1)  1996     $72,000  *       *        *           *                *             *
Mr. Milligan (1)  1997     $96,000  *       *        *           *                *             *
Mr. Peplin (2)    1998     $153,000 *       *        *           *                *             *
Mr. Joffe (3)     1999     *        *       *        200,000     *                *             *

</TABLE>

(1)  Mr.  Milligan  served as the  Registrant's  president  and chief  executive
     officer  during  the  period  beginning  on  October  1, 1996 and ending on
     November  10,  1997.   See  the  disclosure   concerning   Mr.   Milligan's
     compensation at "Executive Compensation" above.

(2)  Mr. Peplin served as the Registrant's president and chief executive officer
     during the period beginning on November 10, 1997 and ending on May 4, 1999.
     See the  disclosure  concerning  Mr.  Peplin's  compensation  at "Executive
     Compensation" above.

(3)  Mr.  Joffe has served as the  Registrant's  president  and chief  executive
     officer  since  May  4,  1999.  See   disclosure   concerning  Mr.  Joffe's
     compensation at "Executive Compensation" above.

*    Not Applicable

Options and Stock Appreciation Rights Grants Table

For Fiscal Year Ended September 30, 1998:

                         Quantity of Percentage of Total

                           Securities Options or Stock

                Underlying           Appreciation      Exercise
                Options & Stock      Rights Granted    or Base
                Appreciation         to Employees      Price Per  Expiration
Name            Rights Granted       In Fiscal Year    Share      Date
----            --------------       --------------    -----      ----
Mr. Peplin      1,000,000            100%              $6.00      June 30, 2000*

-------
*    Mr. Peplin resigned as an officer and director on May 4, 2000




                                    Page 74


<PAGE>

For Fiscal Year Ended September 30, 1999:

                Quality of         Percentage of Total
                Securities         Options or Stock
                Underlying         Appreciation     Exercise
                Options & Stock    Rights Granted   or Base
                Appreciation       to Employees     Price Per    Expiration
Name            Rights Granted     In Fiscal Year   Share        Date
----            --------------     --------------   -----        ----
Mrs. Lindsey      20,000               25%          $0.05       January 12, 2001
Mr. Chamberlin    70,000               75%          $0.05       January 12, 2001


For Quarter Ended June 30, 2000:

                Quantity of        Percentage of Total
                Securities         Options or Stock
                Underlying         Appreciation     Exercise
                Options & Stock    Rights Granted   or Base
                Appreciation       to Employees     Price Per   Expiration
Name            Rights Granted     In Fiscal Year   Share       Date
----            --------------     --------------    -----     ----
Mrs. Lindsey      24,000               100%          $0.02     December 31, 2002

Aggregated  Option  &  Stock  Appreciation  Right  Exercises and Fiscal Year-End
Options & Stock Appreciation Rights Value Table

                                           Number of
                                           Securities
                                           Underlying
                                           Options &        Value of
                                           Stock            Unexercised
                                           Appreciation     In-the-Money
        Shares                             Rights at        Options & Stock
        Acquired         Value             Fiscal           Appreciation Rights
Name    On Exercise      Realized          Year End         at Fiscal Year End
----    -----------      --------          --------         ------------------
None

Long Term Incentive Plan Awards Table

Long Term Incentive Plans - Awards in Last Fiscal Year


                                  Performance
                       Number     or Other
Name                   of Units   Period Until
of                     or Other   Maturation
Executive Officer      Rights     or Payout        Threshold    Target   Maximum
-----------------      -----      ------------     ---------    ------   -------
Not Applicable

Compensation of Directors

Standard Arrangements

     During  the  reporting  period,   members  of  the  Registrant's  board  of
directors,  except for Mr.  Gigliotti  as disclosed  below,  did not receive any
compensation  for such role;  however,  they may have received  compensation  in
conjunction  with their roles as employees or officers of the Registrant,  or as
consultants  thereto,  all of which is either disclosed as part of this Item, or
is  disclosed  in  Part  III,  Item  12,  Certain   Relationships   and  Related
Transactions.



                                    Page 75
<PAGE>


     Mr.  Gigliotti  received an option to purchase  50,000 for $0.01 per share,
which he exercised on January 12, 1998.

Other Arrangements

     During the reporting period, members of the Registrant's board of directors
did not receive any compensation for such role; however,  they may have received
compensation  in  conjunction  with their roles as  employees or officers of the
Registrant,  or as consultants thereto, all of which is either disclosed as part
of this Item, or is disclosed in Part III, Item 12,  Certain  Relationships  and
Related Transactions.

Material Subsequent Events

     In January of 1999, the members of the Registrant's  board of directors and
officers were  compensated  through the grant of warrants to purchase  shares of
the Registrant's common stock, as disclosed in the following table:

                             Date of       Expiration     Exercise    Underlying
Name                         Option        Date           Price       Shares
----                         ------        ------         -----       ------
Anthony Q. Joffe (1)         1-29-99       1-15-00        $0.05       70,000
Penny Adams Field (1)        1-29-99       1-15-00        $0.05       70,000
Charles J. Champion, Jr.(1)  1-29-99       1-15-00        $0.05       70,000
Vanessa H. Lindsey (2)       1-29-99       1-15-00        $0.05       20,000
G. Richard Chamberlain (2)   1-29-99       1-15-00        $0.05       70,000
------
(1)      Directors
(2)      Officers

     In January of 2000, the members of the Registrant's  board of directors and
officers were  compensated  through the grant of warrants to purchase  shares of
the Registrant's common stock, as disclosed in the following table:

                             Date of       Expiration     Exercise    Underlying
Name & Category              Option        Date           Price       Shares
---------------              ------        --------       -----       ------
Anthony Q. Joffe (1)(2)      1-3-00        12-31-02       $0.02       48,000
Charles J. Champion, Jr.(1)  1-3-00        12-31-02       $0.02       48,000
Robert S. Gigliotti (1)      1-3-00        12-31-02       $0.02       48,000
Robert S. Gigliotti (1)      3-14-00        1-12-01       $0.05       70,000
Vanessa H. Lindsey (1)(2)    1-3-00        12-31-02       $0.02       48,000
Vanessa H. Lindsey (1)(2)    1-3-00        12-31-02       $0.02       24,000
Lawrence R. Van Etten (1)    1-3-00        12-31-02       $0.02       48,000
------
(1)      Director
(2)      Executive Officer

     A sample copy of the warrant agreements listed above is filed as an exhibit
to this  report,  see "Part III,  Item 13(a),  Exhibits  Required by Item 601 of
Regulation SB."

     At Yankees  recommendation,  on January 3, 2000, the  Registrant  adopted a
plan to compensate its directors  based on set quantities of options for service
on the  board of  directors  and for  services  on  committees  of the  board of
directors, for services chairing the board of directors and its committees; with
forfeiture  provisions  in  the  event  of  non-  participation.   As  currently
contemplated,  the plan would provide that members of the Registrant's  board of
directors  who  are  not  provided  other   compensation  by  the   Registrant's
subsidiaries  (if any are  subsequently  acquired),  be  compensated  for  their
services during the period ending on December 31, 2001, as follows:


                                    Page 76

<PAGE>

*    For basic service as a member of the  Registrant's  board of directors,  an
     option to purchase  48,000 shares of the  Registrant's  common stock during
     the  twelve  month  period  commencing  on  January  1, 2001 and  ending on
     December  31,  2002,  at an  exercise  price  based  on the  last  reported
     transaction  price for the  Registrant's  common stock  reported on the OTC
     Bulletin  Board  on an  appropriate  measuring  date,  possibly  the  first
     business  day  following  the  next  annual  meeting  of  the  Registrant's
     stockholders.  The options would vest as to 4,000 shares of the  underlying
     common stock per month,  provided  that the subject  director  attended all
     meetings of the board of  directors  held during such month and any options
     that did not vest would expire.

*    For  service  on the audit or  executive  committee,  the  option  would be
     increased by an  additional  12,000  shares which would vest at the rate of
     1,000 shares per month,  provided  that the subject  director  attended all
     meetings  of the subject  committee  held during such month and any options
     that did not vest would expire; and

*    For service as the chair of the audit or  executive  committee,  the option
     would be increased by an  additional  24,000 shares which would vest at the
     rate of 2,000 shares per month, provided that the subject director attended
     all  meetings  of the  subject  committee  held  during  such month and any
     options that did not vest would expire.

     All of the foregoing  options would require that the recipient  comply on a
timely  basis  with  all  personal  reporting   obligations  to  the  Commission
pertaining to his or her role with the Registrant  and that the recipient  serve
in the  designated  position  providing  all of the  services  required  thereby
prudently and in good faith until September 30, 2001 (unless such person was not
elected to such position by the Registrant's  stockholders despite a willingness
and ability to serve).  In addition to the  compensation  described  above,  the
Registrant's  directors  elected at the Annual Meeting of Stockholders  would be
entitled to the following contingent compensation and right to indemnification:

(1)  In the event that a member of the Registrant's  board of directors arranged
     or provided  funding for the Registrant on terms more beneficial than those
     reflected  in the  Registrant's  current  principal  financing  agreements,
     copies  of which are  included  among the  Registrant's  records  available
     through the SEC's EDGAR web site, the director would be entitled, at his or
     her election, to either:

    (A)   A fee equal to 5% of such savings, on a continuing basis; or

    (B)   If equity  funding is provided  through the director or any affiliates
          thereof,  a discount of 5% from the bid price for the  subject  equity
          securities,  if they are  issuable as free trading  securities,  or, a
          discount of 25% from the bid price for the subject equity  securities,
          if they are issuable as restricted  securities (as the term restricted
          is used for purposes of SEC Rule 144); and

    (C)   If equity  funding is arranged for the  Registrant by the director and
          the  Registrant is not obligated to pay any other source  compensation
          in conjunction therewith, other than the normal commissions charged by
          broker  dealers in  securities  in  compliance  with the  compensation
          guidelines of the NASD, the director would be entitled to a bonus in a
          sum equal to 5% of the net proceeds of such funding.

(2)  In the event that the director generated business for the Registrant, then,
     on any sales  resulting  therefrom,  the  director  would be  entitled to a
     commission  equal  to 5% of  the  net  income  derived  by  the  Registrant
     therefrom, on a continuing basis.

                                   Page 77

<PAGE>

     The Registrant would defend, indemnify and hold the members of its board of
directors harmless from all liabilities,  suits, judgments,  fines, penalties or
disabilities,  including  expenses  associated  directly,  therewith (e.g. legal
fees, court costs,  investigative  costs, witness fees, etc.) resulting from any
reasonable actions taken by them, in good faith on behalf of the Registrant, its
affiliates or for other  persons or entities at the request of the  Registrant's
board of directors, to the fullest extent legally permitted,  and in conjunction
therewith,  would  assure that all required  expenditures  were made in a manner
making  it  unnecessary  for  indemnified  directors  to incur any out of pocket
expenses;  provided,  however,  that such director  permitted the  Registrant to
select  and  supervise  all  personnel  involved  in such  defense  and that the
director  waived any  conflicts of interest  that such  personnel  may have as a
result of also representing the Registrant,  its stockholders or other personnel
and agreed to hold them harmless from any matters involving such representation,
except such as involved  fraud or bad faith. A copy of the 2000 plan is filed as
an exhibit to this report, see "Part III, Item 13(a),  Exhibits Required by Item
601 of Regulation SB."

     Yankees'  has also  recommended  that the  Registrant's  board of directors
resolve  that,  at such time as the  Registrant  has, on a  consolidated  basis,
earned a net,  after  tax  profit  of at least  $100,000  per  quarter  for four
calendar quarters, the Registrant would:

*    Obtain insurance to cover the Registrant's  indemnification obligations, if
     available on terms deemed economically  reasonable under the circumstances,
     which would not materially, detrimentally affect the Registrant's liquidity
     at the time;

*    Provide  members of its board of directors  who would not have  overlapping
     coverage  with health and life  insurance  coverage,  if available on terms
     deemed  economically  reasonable under the  circumstances,  which would not
     materially,  detrimentally  affect the Registrant's  liquidity at the time;
     and

*    Pay $500 per diem cash allowance for all meetings or functions  attended in
     person  rather  than by  telephone  or similar  means at the request of the
     Registrant,  to all  members  of the  board of  directors  who are not also
     officers or employees of the Registrant or its subsidiaries.

     All of the foregoing would be reflected in a form of "agreement to serve as
a corporate  director" that each director nominee would have signed prior to the
Annual Meeting of Stockholders, except that the stock bonus provisions would not
apply to directors who served as designees of  subsidiaries  or businesses  that
the  Registrant  acquired  pursuant to  contractual  commitments  obligating the
Registrant  to  nominate  them  for  membership  on the  Registrant's  board  of
directors.  Copies of the executed  agreements would be filed as exhibits to the
Registrant's quarterly report on Form 10-QSB or current report on Form 8-K first
filed with the Commission  following the Annual Meeting of Stockholders at which
such plan was adopted.

Employment  Contracts  and  Termination  of  Employment  and  Change in  Control
Arrangements.

     During  the  fiscal  year  that  started  on  October  1, 1997 and ended on
September 30, 1998, the Registrant had no employment  contracts,  termination of
employment or change in control arrangements with any of its executive officers,
except as set forth  below.  However,  see Part I,  Item 3,  Legal  proceedings,
concerning   employment   agreements   with   presidents  of  the   Registrant's
subsidiaries and settlement agreements associated therewith.

                                    Page 78
<PAGE>


Employment Agreements

     On June 1, 1998, the Registrant  entered into an employment  agreement with
Mr. Peplin  pursuant to which he was engaged as the  Registrant's  president and
chief executive officer. The agreement was established for a term of 5 years and
contained  confidentiality and non-competition clauses. As consideration for Mr.
Peplin's  services,  the Registrant  agreed to pay a base salary of $300,000 per
year.  In  addition,  the  Registrant  agreed to grant him an option to purchase
1,000,000 shares of the Registrant's  common stock at an exercise price of $6.00
per share  and  exercisable  for 6 years  following  the grant of such  options,
vesting at a rate of 200,000  shares  per year on each  anniversary  date of the
agreement. No stock options were exercised and on March 25, 1999, the employment
contract was terminated.  A copy of the Peplin employment  agreement is filed as
an exhibit to this report, see "Part III, Item 13(a),  Exhibits Required by Item
601 of Regulation SB."

     As a material  subsequent event, in conjunction with the resignation of Mr.
Peplin as the Registrant's  president and a member of the Registrant's  board of
directors,  on May 4, 1999, the Registrant's  board of directors elected Anthony
Q. Joffe as its president.  Mr. Joffe's term as an officer is at the pleasure of
the Registrant's board of directors,  subject to his contractual rights under an
employment agreement.  The terms of Mr. Joffe's compensation for services to the
Registrant  are set  forth in his  employment  agreement  with  the  Registrant,
summarized  below.  A copy of the  Joffe  employment  agreement  is  filed as an
exhibit to this report.,  see "Part III, Item 13 (a),  Exhibit  Required by Item
601 of Regulation SB."

TERMS OF EMPLOYMENT

     The following  summary  information  extracted from the Joffe  Agreement is
qualified in its entirety by reference to the Joffe Agreement.

Duties:  Mr. Joffe will:

     Serve as the  principal  point of contact  between the  Registrant  and the
media (print,  electronic,  voice and picture), the investment community and the
Registrant's security holders;

     Be responsible for supervision of all of the Registrant's other officers;

     Be responsible for the  Registrant's  compliance with all applicable  laws,
including federal, state and local securities laws and tax laws;

     Be responsible for supervision of the Registrant's subsidiaries; and,

     Perform such other duties as are assigned to him by the Registrant's  board
of  directors,  subject to  compliance  with all  applicable  laws and fiduciary
obligations.

Other Activities

     Mr. Joffe shall,  unless  specifically  otherwise  authorized  by Colmena's
board of directors,  on a case by case basis,  devote his business time in a way
that the affairs of Colmena  are  satisfied;  provided,  however,  that  Colmena
hereby  recognizes that Mr. Joffe is a full time employee of Harbour  Acceptance
Corp. and hereby consents to his  continuation in such roles,  provided that his
role as  Colmena's  president  shall take  priority  in  allocation  of time and
resources to any activities  pertaining to such roles,  and that he will resolve
any actual  conflicts of interest  resulting from such roles in favor of Colmena
whenever possible and practical.

Status:

     Mr.  Joffe will serve as an  employee of the  Registrant  but shall have no
authority  to  act  as an  agent  thereof  or to  bind  the  Registrant  or  its
subsidiaries as a principal or agent thereof without the specific consent of the
Registrant's board of directors,  all such functions being reserved to the board
of directors in compliance with the requirements of its constituent documents.


                                    Page 79
<PAGE>


Limitations:

     Mr. Joffe has agreed that he will not:

     Release  any  financial  or other  material  information  or data about the
Registrant  without the prior written  consent and approval of the  Registrant's
General  Counsel;  or,  conduct any meetings  with  financial  analysts  without
informing the Registrant's  General Counsel and board of directors in advance of
the proposed meeting and the format or agenda of such meeting.

     Disclose  to  any  third  party  any  confidential  non-public  information
furnished by the  Registrant  except on a need to know basis,  and in such case,
subject  to  appropriate  assurances  that such  information  shall not be used,
directly  or  indirectly,  in any  manner  that would  violate  state or federal
prohibitions on insider trading of the Registrant's securities.

     Take any action  which would in any way  adversely  affect the  reputation,
standing or prospects of the  Registrant or which would cause the  Registrant to
be in violation of  applicable  laws.  In any  circumstances  where Mr. Joffe is
describing  the  securities of the  Registrant  to a third party,  Mr. Joffe has
agreed to disclose to such person any compensation  received from the Registrant
to the extent required under any applicable laws, including, without limitation,
Section 17(b) of the Securities Act of 1933, as amended.


Term:

     The Joffe Agreement is for a term of one year,  subject to automatic annual
renewal  thereafter  unless the Party  deciding not to renew  provides the other
with  written  notice of  intention  not to renew  prior to the 60th day  before
termination of the then effective term or renewal thereof.

Compensation:

     A.  200,000 shares of the Registrant's common stock, provided that:

         (1)   He remains in the  employ of the  Registrant  for a period of not
               less than 365 consecutive days;

         (2)   He has not been discharged by the Registrant for cause;

         (3)   He fully  complies with the  provisions  of the Joffe  Agreement,
               including,    without   limitation,   the   confidentiality   and
               non-competition sections hereof;

     B.   In the event that Mr.  Joffe  arranges  or  provides  funding  for the
          Registrant  on terms  more  beneficial  than  those  reflected  in the
          Registrant's current principal financing  agreements,  copies of which
          are included  among the  Registrant's  records  available  through the
          SEC's EDGAR web site, Mr. Joffe shall be entitled, at its election, to
          either:

         (1)   A fee equal to 5% of such savings, on a continuing basis; or

         (2)   If equity funding is provided through Mr. Joffe or any affiliates
               thereof,  a  discount  of 5% from the bid price  for the  subject
               equity   securities   if  they  are   issuable  as  free  trading
               securities,  or, a  discount  of 25% from the bid  price  for the
               subject  equity  securities,  if they are issuable as  restricted
               securities  (as the term  restricted  is used for purposes of SEC
               Rule 144); and

         (3)   If equity funding is arranged for the Registrant by Mr. Joffe and
               the   Registrant  is  not  obligated  to  pay  any  other  source
               compensation  in  conjunction  therewith,  other  then the normal
               commissions charged by broker dealers in securities in compliance
               with the compensation guidelines of the NASD, the Mr. Joffe shall
               be entitled  to a bonus in a sum equal to 5% of the net  proceeds
               of such funding.


                                    Page 80

<PAGE>


     C    In the event that  Mr.Joffe  generates  business  for the  Registrant,
          then, on any sales resulting therefrom, Mr. Joffe shall be entitled to
          a commission  equal to 5% of the net income  derived by the Registrant
          therefrom, on a continuing basis.

Benefits:

     Mr. Joffe is entitled to any benefits generally made available to all other
employees  (rather than to a specified  employee or group of  employees)  of the
Registrant or its subsidiaries.

Indemnification:

     The Registrant will defend,  indemnify and hold Mr. Joffe harmless from all
liabilities,  suits,  judgments,  fines,  penalties or  disabilities,  including
expenses  associated   directly,   therewith  (e.g.  legal  fees,  court  costs,
investigative  costs,  witness fees, etc.) resulting from any reasonable actions
taken by him in good faith on behalf of the  Registrant,  its  affiliates or for
other  persons  or  entities  at the  request of the board of  directors  of the
Registrant,  to  the  fullest  extent  legally  permitted,  and  in  conjunction
therewith,  shall  assure that all  required  expenditures  are made in a manner
making  it  unnecessary  for Mr.  Joffe to  incur  any out of  pocket  expenses;
provided, however, that Mr. Joffe permits the Registrant to select and supervise
all  personnel  involved in such defense and that Mr. Joffe waives any conflicts
of interest that such  personnel may have as a result of also  representing  the
Registrant,  their  stockholders  or other  personnel  and  agrees  to hold them
harmless from any matters involving such representation,  except such as involve
fraud or bad faith.

Early Termination:

     The Registrant can terminate the employment agreements severally, as to the
terminating  entity only,  for cause (e.g.,  the inability  through  sickness or
other  incapacity to discharge  duties for 21 or more  consecutive days or for a
total of 45 or more days in a period of twelve  consecutive  months;  refusal to
follow directions of the board of directors; dishonesty; theft; or conviction of
a crime  involving  moral  turpitude;  material  default in the  performance  of
obligations,  services or duties required under the employment  agreement (other
than for illness or  incapacity)  or  materially  breach of any provision of the
employment  agreement,  which  continues for 5 days after  written  notice if it
resulted in material  damage);  discontinuance  of business;  and death.  In the
event of a dispute concerning termination due to breach or default, compensation
will be continued  until  resolution  of such dispute by a tribunal of competent
jurisdiction,   subject  to  repayment  upon  final   determination   that  such
compensation   was  not  called   for  The  Joffe   Agreement   contains   broad
non-disparagement,  confidentiality  and  non-competition  covenants  subject to
judicial  restructuring if found to be legally  unenforceable  which provide for
both injunctive relief and liquidated damages.

COMPENSATION OF CORPORATE SECRETARY

     The  Registrant has agreed to compensate  Mrs.  Lindsey for her services as
secretary until December 31, 2000, by granting her a non-qualified  stock option
pursuant to the  Registrant's  Stock Option Plan  (described  in this report) to
purchase 24,000 shares of the Registrant's  common stock at a price of $0.02 per
share,  exercisable  during the period starting on January 1, 2001 and ending on
December 31, 2002.  A copy of the  agreement to serve as corporate  secretary is
filed as an  exhibit  to this  report.,  see  "Part  III,  Item 13 (a),  Exhibit
Required by Item 601 of Regulation SB."

                                    Page 81
<PAGE>


Report of Re-Pricing of Options or Stock Appreciation Rights

     During the report period (October 1, 1997 until September 30, 1998), to the
best  knowledge of the  Registrant,  the former  management did not re-price any
options  or  stock  appreciation   rights  previously  granted  to  any  of  the
Registrant's   executive  officers,   whether  by  amendment,   cancellation  or
replacement grants, or any other means.

     As a material subsequent event, during the period commencing on January 12,
1999 and  ending on the date of this  report,  except as  disclosed  below,  the
Registrant  has not adjusted or amended the exercise  price of stock  options or
stock  appreciation  rights previously  awarded to any of the named directors or
executive  officers,  whether  through  amendment,  cancellation  or replacement
grants, or any other means, nor are any such adjustments or amendments currently
contemplated:

1.   The  consulting  agreement with Yankees calls for services which in certain
     cases  approach  duties  normally  undertaken by a  corporation's  board of
     directors (e.g.,  recommendations  concerning  divestitures,  acquisitions,
     compensation  for officers and directors,  and nominations for officers and
     directors).  While  in each  case,  the  ultimate  decision  is made by the
     Registrant's  board  of  directors,  because  Yankees  is the  Registrant's
     largest  stockholder,  currently  provides  almost all of the  Registrant's
     capital and  operating  facilities  and has nominated all of the members of
     the  Registrant's  board  of  directors  (other  than Mr.  Gigliotti),  the
     Registrant has elected to respond to this Item as if Yankees was a director
     or executive officer.

     The consulting  agreement with Yankees was  renegotiated  during January of
     2000 at the Registrant's  request, due to its inability to start making the
     cash  payments  called for by the  original  agreement.  As a result of the
     amendment,  Yankees  option was increased from the right to purchase 51% of
     the  Registrant's  common stock for $40,000 to the right to purchase 75% of
     the Registrant's  common stock for $80,000,  in consideration  for Yankees'
     agreement  to waive its  hourly  and  licensing  fees for  services  to the
     Registrant  until  December  31,  2000.  A copy of the  amended  consulting
     agreement is filed as an exhibit to this report, see "Part III, Item 13(a),
     Exhibits Required by Item 601 of Regulation SB."

2.   On or about January 3, 2000, the expiration  date of the options granted to
     the  members  of the  Registrant's  board of  directors  and its  executive
     officers who assumed  office on and after  January 12,  1999,  was extended
     until January 12, 2001.



                                    Page 82
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

As of the end of the Report Period

     As of September  30, 1998,  the  Registrant's  only  currently  outstanding
voting securities were 7,741,697  shares of common stock,  $0.01 par value.  The
following tables disclose  information  concerning ownership of the Registrant's
common stock by officers, directors and principal stockholders (holders of 5% or
more of the  Registrant's  common  stock)  as of  such  date.  The  Registrant's
outstanding shares of common stock for purposes of these  calculations,  include
both  outstanding  securities as of the report date and securities which a named
person  had a  right  to  acquire  within  60 days  following  the  report  date
(September 30, 1998). Consequently,  the number of shares deemed outstanding for
purposes of the first table (principal  stockholders)  will vary materially from
those deemed  outstanding for purposes of the second table  (executive  officers
and directors).

Footnotes  to all tables  follow the second  table  after  "Material  Subsequent
Events."

Security Ownership of Certain Beneficial Owners

     As of September 30, 1998,  the following  persons  (including  any "group")
were,  based on information  available to the Registrant,  beneficial  owners of
more than five  percent  of the  Registrant's  common  stock  (its only class of
voting  securities).  Of the number of shares shown in column 2, the  associated
footnotes  indicate  the amount of shares with respect to which such persons had
the right to acquire  beneficial  ownership  as  specified  in  Commission  Rule
13(d)(1),  within 60 days  following  the report date.  For purposes of Table A,
7,741,697 shares of the Registrant's common stock are assumed to be outstanding.


                                              Amount
                                              and Nature                Percent
                                              Of Beneficial             of
Name and Address of Beneficial Owner (1)      Ownership (2)             Class
----------------------------------------      -------------             -----
Richard C. Peplin, Jr.                        1,626,041 (3)             21%
25100 Detroit Road; Westlake, Ohio 44145

Lakewood Manufacturing Co.                      793,944(3)              10%
25100 Detroit Road; Westlake, Ohio 44145

Security Ownership of Management

     As of September 30, 1998, the following  table  discloses the  Registrant's
common  stock  (the  only  outstanding   class  of  equity  securities  for  the
Registrant,  its  parents  or  subsidiaries  held  by  persons  other  than  the
Registrant) other than directors'  qualifying shares,  beneficially owned by all
directors and nominees,  naming them each; each of the named executive  officers
as defined in Item 402(a) of Commission  Regulation  S-B; and, all directors and
executive officers of the Registrant as a group,  without naming them. The table
shows in column 3 the total number of shares  beneficially owned and in column 4
the percent  owned.  Of the number of shares  shown in column 2, the  associated
footnotes  indicate  the amount of shares,  if any,  with  respect to which such
persons had the right to acquire beneficial ownership as specified in Commission
Rule 13(d)(1),  within 60 days following the report dated.  For purposes of this
table,  7,741,697  shares of the  Registrant's  common stock are assumed to have
been  outstanding  based on the  options to acquire  shares of the  Registrant's
common stock exercisable within the next 60 days held by the persons listed.

                                    Page 83
<PAGE>

Name and Address of                         Amount         Nature of     Percent
Beneficial                                  Of Equity      Beneficial    of
Owner    (1)                                Owned          Ownership     Class
-----    ---                                 -----         ---------     -----
Richard C. Peplin, Jr.                     2,419,985        (3)          31%
25100 Detroit Road; Westlake, Ohio 44145

Robert S. Gigliotti                          100,000        (6)           1%
901 Wilshire Drive, Suite 400;
Troy, Michigan 48084

All officers and directors as a group      2,519,985        (2)          32%

Material Subsequent Events

     The Registrant has issued a material quantity of its common stock (its only
class of outstanding securities,  since the report date (September 30, 1998). As
of June 30, 2000, the Registrant's only currently  outstanding voting securities
are 15,572,265  shares of common stock,  $0.01 par value,  held by approximately
497 registered  holders of record and approximately 325 additional holders whose
securities are  registered in "street name" (e.g.,  held in the names of brokers
or dealers in securities  or their  designees,  the  Depository  Trust  Company,
etc.). The following  tables disclose  information  concerning  ownership of the
Registrant's  common stock by officers,  directors  and  principal  stockholders
(holders  of 5% or more of the  Registrant's  common  stock).  The  Registrant's
currently   outstanding   shares  of  common   stock,   for  purposes  of  these
calculations, are calculated based on information available as of June 30, 2000,
and include both currently  outstanding  securities and securities which a named
person has a right to acquire  within 60 days following the date of this report.
Consequently,  the number of shares deemed outstanding for purposes of the first
table   (principal   stockholders)   will  vary  materially  from  those  deemed
outstanding for purposes of the second table (executive officers and directors).

All footnotes follow the second table.

Security Ownership of Certain Beneficial Owners

     As of June 30, 2000,  the following  persons  (including  any "group") are,
based on information available to the Registrant, beneficial owners of more than
five  percent  of the  Registrant's  common  stock  (its  only  class of  voting
securities). Of the number of shares shown in column 2, the associated footnotes
indicate  the amount of shares with respect to which such persons have the right
to acquire beneficial ownership as specified in Commission Rule 13(d)(1), within
60 days following the date of this report.  For purposes of Table A,  51,399,060
shares of the Registrant's common stock are assumed to be outstanding.


                                                Amount
                                                and Nature             Percent
                                                Of Beneficial          of
Name and Address of Beneficial Owner (1)        Ownership (2)          Class
----------------------------------------        -------------          -----
The Yankee Companies, Inc.
(and its affiliates)(4)                        42,616,795 (5)          83%
2500 North Military Trail, Suite 225;
Boca Raton, Florida 33431

Security Ownership of Management

     As of June 30, 2000, the following Table discloses the Registrant's  common
stock (the only outstanding class of equity  securities for the Registrant,  its
parents or subsidiaries  held by persons other than the  Registrant)  other than
directors' qualifying shares,  beneficially owned by all directors and nominees,
naming them each; each of the named executive officers as defined in Item 402(a)
of Commission  Regulation S-B; and, all directors and executive  officers of the
Registrant  as a group,  without  naming  them.  The table shows in column 3 the
total number of shares  beneficially owned and in column 4 the percent owned. Of
the number of shares shown in column 2, the  associated  footnotes  indicate the
amount of shares,  if any,  with respect to which such persons have the right to
acquire beneficial ownership as specified in Commission Rule 13(d)(1), within 60
days following the date of this report.  For purposes of this Table,  15,942,265
shares of the Registrant's  common stock are assumed to be outstanding  based on
the  options to acquire  shares of the  Registrant's  common  stock  exercisable
within the next 60 days held by the persons listed. Footnotes follow this table.


                                    Page 84

<PAGE>

Name and Address of                 Amount           Nature of         Percent
Beneficial                          Of Equity        Beneficial        of
Owner (1)                           Owned            Ownership         Class
---------                           -----            ---------         -----
Robert S. Gigliotti                 160,000          (6)               0.01%
901 Wilshire Drive, Suite 400;
Troy, Michigan 48084

Anthony Q. Joffe                     70,000          (7)               0.004%
101 Southwest 11th Avenue;
Boca Raton, Florida 33486

Penny Adams Field                    70,000          (8)               0.004%
2424 Longboat Drive;
Naples, Florida 34104

G. Richard Chamberlin, Esquire       70,000          (9)               0.004%
4518 Southwest 44th Lane,
Ocala, Florida 34474

Vanessa H. Lindsey                   20,000          (10)              0.001%
340 Southeast 55th Avenue;
Ocala, Florida 34471

Charles J. Champion                  70,000          (11)              0.004%
Post Office Box 952259;
Lake Mary, Florida 32795

Lawrence R. Van Etten                 0              (12)              0%
1601 North 15th Terrace;
Hollywood, Florida 33020

All officers and directors
as a group                          460,000           (2)              0.028%

Footnotes to Tables of Principal  Stockholders and Tables of Executive  Officers
and Directors

The following footnotes apply to the preceding four tables:

(1)  This table  pertains to common stock,  the  Registrant's  only  outstanding
     equity securities.

(2)  Beneficial and record.

(3)  Mr. Peplin served as the Registrant's  president,  chief executive officer,
     as a member of the  Registrant's  board of directors  and as its chair from
     November 10, 1997 until May 4, 1999 (except that he resigned as chairman on
     March 3, 1999).  Lakewood Mfg. Co. is an entity control by Mr. Peplin.

(4)  The Tucker  family is comprised of Michelle  Tucker,  Leonard Miles Tucker,
     her husband,  Shayna and Montana, their minor daughters and Jerrold Tucker,
     her  father-in-law.  Mr.  Jerrold  Tucker holds 250,000  shares and 440,000
     shares in trust for his minor  granddaughters  and,  in  addition,  100,000
     shares are held by Blue Lake Capital Corp., a Florida  corporation owned by
     Mrs. Tucker.

(5)  The Yankee Companies, Inc., is a Florida corporation, 50% of which is owned
     by members of the Tucker family. Consequently, half of its securities could
     be  attributed  beneficially  to the  Tucker  Family  (see note 2).

(6)  Mr.Gigliotti has served as a member of the Registrant's  board of directors
     since December 11, 1997,  and as its secretary  until January 12, 1999.


                                    Page 85

<PAGE>


(7)  Mr.  Joffe has served as a member of the  Registrant's  board of  directors
     since January 12, 1999, as its president and chief executive  officer since
     May 4, 1999.

(8)  Ms. Field served as a member of the  Registrant's  board of directors  from
     January  12,  1999  until  March  1,  2000,  as a  member  of the  board of
     directors' audit committee from January 12, 1999 until March 1, 2000 and as
     chair of the audit committee from January 12, 1999 until March 1, 2000.

(9)  Mr. Chamberlin served as the Registrant's  general counsel from January 12,
     1999 until March 31, 2000.

(10) Ms. Lindsey was elected as the  Registrant's  secretary on January 12, 1999
     and as a member of the Registrant's  board of directors  effective February
     1, 2000.

(11) Mr. Champion has served as a member of the Registrant's  board of directors
     since January 12, 1999.


(12) Mr.  Van  Etten,  was  elected  as a member  of the  Registrant's  board of
     directors on May 31, 2000.

Changes in Control

     As of the end of the report  period  (September  30,  1998),  there were no
change of control  arrangements  in effect.  Since the end of the report period,
material  changes in control have taken place (see "Part III, Item 9, Directors,
Executive Officers,  Promoters and Control Persons ...." for a discussion of how
current  management  assumed  control of the  Registrant  starting in January of
1999).  As a result of the  investments  by Yankees and equity  compensation  to
which Yankees is entitled  under its consulting  agreement with the  Registrant,
the Registrant's former principal stockholder (Mr. Peplin) can no longer control
decisions by the Registrant's stockholders,  although he has fully supported the
Registrant's  current  management.  Based on its current stock ownership and its
option to acquire up to 75% of the  Registrants  common  stock,  Yankees and its
stockholders  should be deemed to currently  control the  Registrant and to have
the capacity to pass matters to be acted on at stockholders meetings. Except for
the foregoing, to the best knowledge and belief of the Registrant,  there are no
arrangements,  understandings,  or agreements relative to the disposition of the
Registrant's  securities,  the  operation  of which would at a  subsequent  date
result in a change in control of the Registrant.

Parents of the Registrant

     As  defined  in  Rule  405 of  Commission  Regulation  C, a  "parent"  of a
specified person is an affiliate  controlling such person directly or indirectly
through one or more  intermediaries.  The same rule  defines an  affiliate  as a
person that directly or indirectly through one or more intermediaries,  controls
or is controlled by, or is under common control with, the person specified.

     The  following  table  discloses  all  persons  who  were  parents  of  the
Registrant  (as such term is  defined  in  Securities  and  Exchange  Commission
Regulation C) as of September  30, 1998,  showing the basis of control and as to
each parent, the percentage of voting securities owned or other basis of control
by its immediate parent if any.


                                     Basis for         Percentage of Voting
Name                                 Control           Securities Owned
----                                 -------           ----------------
Richard C. Peplin, Jr.               *                 31%
---------
*    Stock  ownership & options,  employment  agreement.  The  discussion of Mr.
     Peplin is dealt with in detail in Part I, Item 1, Description of Business."


                                    Page 86

<PAGE>


     As a  material  subsequent  event,  since  the  report  date,  Yankees  has
supplanted  Mr.  Peplin as the  Registrant's  parent (as such term is defined in
Securities and Exchange Commission  Regulation C) and the following table, as of
June 30, 2000, discloses the basis of Yankees' control.


                                     Basis for         Percentage of Voting
Name                                 Control           Securities Owned
----                                 -------           ----------------
Yankees                              *                          83%
---------
*    Stock ownership & options, consulting agreement. The discussion of Yankees,
     association with the Registrant is, as permitted by Commission Rule 12b-23,
     incorporated  by  reference  to the  discussion  thereof  in Part II of the
     Registrant's  report on Form 8-K filed with the  Commission  on January 12,
     1999.  Leonard Miles Tucker,  a resident of Boca Raton  Florida,  serves as
     Yankees'  president and as a member of its board of  directors;  William A.
     Calvo, III, serves as Yankees' vice president, treasurer and as a member of
     its board of directors; Vanessa H. Lindsey (also an officer and director of
     the  Registrant)  serves as  Yankees  secretary  and  chief  administrative
     officer. Yankees is owned in equal shares by members of Mr. Tucker's family
     and Mr. Calvo's family.

ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The response to this Item set forth below is  supplemented  by  information
contained  in the  Registrant's  reports:  on Form  10-KSB  for the  year  ended
September  30, 1997;  on Form 10-QSB for the quarters  ended  December 31, 1997,
March 31, 1998 and June 30,  1998;  and,  the current  reports on Form 8-K filed
with the Commission on January 29, 1999,  February 12, 1999,  March 22, 1999 and
May 18, 1999, all hereby  incorporated by reference,  as permitted by Commission
Rule 12b-23, and for matters discussed in this report in response to Items 1, 2,
3, 9, 10 and 11 above.

Materially Adverse Proceedings

     The  Registrant  is not aware of any  proceedings  involving  its executive
officers or directors adverse to the Registrant's interests.

Certain Business Relationships

As of the Report Date

     Except as specifically set forth below, none of the Registrant's  directors
or nominees for director:

(1)  Was during  the  fiscal  year ended  September  30,  1998 (the 1998  fiscal
     year"),  an  executive  officer of, or owned of record or  beneficially  in
     excess of ten percent  equity  interest  in, any  business or  professional
     entity that made or proposed to make during the 1999 fiscal year,  payments
     to the Registrant or its subsidiaries for property or services in excess of
     five percent of (i) the  Registrant's  consolidated  gross revenues for the
     1998 fiscal year, or (ii) the other  entity's  consolidated  gross revenues
     for its 1998 fiscal year;

(2)  Was during the 1998  fiscal  year an  executive  officer  of, or owned,  or
     during the 1998 fiscal year owned,  of record or  beneficially in excess of
     ten percent  equity  interest  in, any business or  professional  entity to
     which the Registrant or its subsidiaries  made during the 1998 fiscal year,
     or proposed to make during the 1999 fiscal  year,  payments for property or
     services  in excess of five  percent of (i) the  Registrant's  consolidated
     gross  revenues  for its  1998  fiscal  year,  or (ii) the  other  entity's
     consolidated gross revenues for its 1998 fiscal year;


                                    Page 87
<PAGE>

(3)  Was during the 1998  fiscal  year an  executive  officer  of, or owned,  or
     during 1998 fiscal year had owned,  of record or  beneficially in excess of
     ten percent  equity  interest  in, any business or  professional  entity to
     which the  Registrant  or its  subsidiaries  was indebted at the end of the
     Registrant's  1998  fiscal  year in an  aggregate  amount in excess of five
     percent of the Registrant's  total  consolidated  assets at the end of such
     fiscal year;

(4)  Was during the 1998  fiscal  year a member of, or of counsel to, a law firm
     that the  Registrant  retained  during the 1998  fiscal year or proposed to
     retain during the 1999 fiscal year,  which had or was expected to result in
     payment of fees exceeding five percent of the law firm's gross revenues for
     that firm's last 1998 fiscal year;

(5)  Was  during the 1998  fiscal  year a partner  or  executive  officer of any
     investment banking firm that performed  services for the Registrant,  other
     than as a participating underwriter in a syndicate,  during the 1998 fiscal
     year or that the Registrant  proposed to have perform  services  during the
     1999  fiscal  year and the dollar  amount of  compensation  received  by an
     investment  banking firm exceeded or was expected to exceed five percent of
     the investment  banking firm's  consolidated gross revenues for that firm's
     1998 fiscal year; or

(6)  Was  during  the 1998 year  involved  in any other  relationships  that the
     Registrant  is aware of between the nominee or director and the  Registrant
     that  is or  was  substantially  similar  in  nature  and  scope  to  those
     relationships listed in paragraphs (1) through (5).


                                              Nature of               Amount
                          Relationship to     Interest in the         of Such
Name                      The Registrant      Transaction             Interest
----                      --------------      -----------             --------
Richard C. Peplin, Jr.    (1)                  (2) (3)                 (2) (3)
-------
(1)  Mr. Peplin served as a member of the  Registrant's  board of directors,  as
     its chairman and as the Registrant's  president and chief executive officer
     from  November  10, 1997 until May 4, 1999  (except as  chairman,  where he
     resigned  on  March  3,  1999).  He was  also  the  Registrant's  principal
     stockholder until Yankees attained that status.

(2)  On November 10, 1997, the Registrant  acquired RCP Enterprises  Group, LLC,
     an Ohio limited liability company and Tio Cigars,  Inc., both of which were
     principally  owned by Mr. Peplin, in exchange for an aggregate of 4,310,000
     shares of the  Registrant's  common  stock (see details at "Part I, Item 1,
     Description of Business - Peplin Related Operations").

(3)  As a material  subsequent event, on or about March 16, 1999, the Registrant
     conveyed all of the capital  stock of its  subsidiaries  to Mr. Peplin (see
     details at "Part I, Item 1,  Description of Business - Material  Subsequent
     Event - 1999 Divestitures").

Material Subsequent Events

     Except as  specifically  set forth  below,  during the period  starting  on
October 1, 1998 and ending on June 30, 2000, none of the Registrant's  directors
or nominees for director:

(1)  Is, or during the last fiscal year has been,  an  executive  officer of, or
     owns, or during the last fiscal year has owned,  of record or  beneficially
     in excess of ten percent equity  interest in, any business or  professional
     entity that has made during the  Registrant's  last full  fiscal  year,  or
     proposes to make during the Registrant's  current fiscal year,  payments to
     the  Registrant or its  subsidiaries  for property or services in excess of
     five percent of (i) the  Registrant's  consolidated  gross revenues for its
     last full  fiscal  year,  or (ii) the  other  entity's  consolidated  gross
     revenues for its last full fiscal year;

(2)  Is, or during the last fiscal year has been,  an  executive  officer of, or
     owns, or during the last fiscal year has owned,  of record or  beneficially
     in excess of ten percent equity  interest in, any business or  professional
     entity to which the  Registrant  or its  subsidiaries  has made  during the
     Registrant's  last  full  fiscal  year,  or  proposes  to make  during  the
     Registrant's  current  fiscal  year,  payments  for property or services in
     excess of five percent of (i) the Registrant's  consolidated gross revenues
     for its last full  fiscal  year,  or (ii) the other  entity's  consolidated
     gross revenues for its last full fiscal year;

                                    Page 88
<PAGE>


(3)  Is, or during the last fiscal year has been,  an  executive  officer of, or
     owns, or during the last fiscal year has owned,  of record or  beneficially
     in excess of ten percent equity  interest in, any business or  professional
     entity to which the Registrant or its  subsidiaries was indebted at the end
     of the Registrant's  last full fiscal year in an aggregate amount in excess
     of five percent of the Registrant's total consolidated assets at the end of
     such fiscal year;

(4)  Is, or during the last fiscal year has been, a member of, or of counsel to,
     a law firm that the issuer has  retained  during  the last  fiscal  year or
     proposes to retain during the current fiscal year, which has or is expected
     to result in payment of fees exceeding five percent of the law firm's gross
     revenues for that firm's last full fiscal year;

(5)  Is, or during the last fiscal year has been, a partner or executive officer
     of any  investment  banking  firm  that  has  performed  services  for  the
     Registrant,  other  than as a  participating  underwriter  in a  syndicate,
     during the last fiscal year or that the Registrant proposes to have perform
     services  during the  current  year and the dollar  amount of  compensation
     received by an  investment  banking firm  exceeded or is expected to exceed
     five percent of the investment  banking firm's  consolidated gross revenues
     for that firm's last full fiscal year; or

(6)  Is,  or  during  the  last  fiscal  year  has been  involved  in any  other
     relationships  that the  Registrant  is aware of  between  the  nominee  or
     director and the Registrant that is or was substantially  similar in nature
     and scope to those relationships listed in paragraphs (1) through (5).

                                            Nature of               Amount
                      Relationship to       Interest in the         of Such
Name                  The Registrant        Transaction             Interest
----                  --------------        -----------              --------
Bell Entertainment       (1)                   (1)                200,000 shares
-------
(1)      Represents  the shares  issued  pursuant to the  Supplemental  Services
         Agreement between Yankees and the Registrant,  a copy of which is filed
         as an  exhibit to this  report,  see "Part III,  Item  13(a),  Exhibits
         Required by Item 601 of Regulation SB."

ITEM 13.   EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.

Exhibits Required by Item 601of Regulation S-B

     The response to this Item as contained in the  Registrant's  report on Form
10-KSB  for the year  ended  September  30,  1997,  is  hereby  incorporated  by
reference,  as permitted by  Commission  Rule 12b-23,  except as modified by the
disclosure  contained  in the  Registrant's:  reports  on  Form  10-QSB  for the
quarters  ended  December 31, 1997,  March 31, 1998 and June 30, 1998;  and, the
current  reports on Form 8-K filed with the  Commission  on  January  29,  1999,
February  12,  1999,  March  22,  1999 and May 18,  1999  and for the  following
additional exhibits filed herewith.  The exhibits listed below and designated as
filed herewith (rather than incorporated by reference) follow the signature page
in sequential order.


                                    Page 89

<PAGE>


Designation        Page
of Exhibit       Number
as Set Forth     or Source of
in Item 601 of   Incorporation
Regulation S-B   By Reference   Description

(1)                *            Underwriting Agreement

(2)                             Plan of acquisition, reorganization,arrangement,
                                liquidation or succession:

    2.1            (1)          Merger  Agreement   among  Sports-Guard,   Inc.,
                                RCP Enterprise, Inc. and  RCP Enterprises Group,
                                LLC, dated October 31, 1997
    2.2            (1)          Merger  Agreement   among   Sports-Guard,  Inc.,
                                Tio Mariano Cigar Corp.  and  Tio  Cigars, Inc.,
                                dated October 31, 1997
    2.3            96           Agreement for Purchase and Sale of Assets By and
                                among  RCP Communications  Group,  Inc., Colmena
                                Corp.  and Business  Technology   Systems, Inc.,
                                dated February 19, 1998.

(3)  (i)                        Articles of incorporation:

    3.1            (2)          Certificate  of  Incorporation  of  the company,
                                dated July 17, 1995.
    3.2            (1)          Certificate   of   Amendment  of  Certificate of
                                Incorporation of the Company, dated November 10,
                                1997

     (ii)                               Bylaws:

     3.3           (2)           Bylaws of the company.
     3.4           (1)           Amended and Restated Bylaws of the Registrant.
     3.5           115           Amended and Restated Bylaws of the Registrant.

(4)                              Instruments  defining  the  rights  of holders,
                                 including indentures:
     4.1           (2)           Specimen Common Stock Certificate
     4.2           (2)           (Form of) Stock Purchase Warrant
     4.3           (3)           (Form of) 10% Convertible Notes
     4.4           (4)           Registrant's 1998  Stock  Option Plan and Forms
                                 of Incentive Stock Option  Agreement  and  Non-
                                 Qualified Stock Option Agreement.
     4.5           142           Yankees Warrant Agreement, effective January 5,
                                 1999.
     4.6           157           Common  Stock  Purchase  Warrants  between  the
                                 directors and officers of the Registrant, dated
                                 January 29, 1999.
     4.7           163           Yankees   Amended  Warrant   Agreement,   dated
                                 December 30, 1999
     4.8           179           Amended  Common Stock Purchase Warrants between
                                 the directors and  officers  of the Registrant,
                                 dated January 3, 2000.
     4.9           185           Registrant's  2000 Non-qualified Stock Option &
                                 Stock Incentive Plan, dated January 3, 2000.

                                    Page 90
<PAGE>


(5)                *             Opinion re: legality

(6)                *

(8)                *             Opinion re: tax matters

(9)                              Voting trust agreements

(10)                             Material Contracts:

     10.1          (5)           Yankee Consulting  Agreement, dated  January 5,
                                 1999
     10.b-3        (6)           Reorganization Agreement with Richard C.Peplin,
                                 Jr., dated March 25, 1999
     10.4          203           Financing Agreement,Amended Financing Agreement
                                 Extension  Agreement  with  Dueutsche  and BTS,
                                 dated  February 26,  1997 and  August 19,  1998
     10.5          234           Customer  Billing  &  Collection Contract  with
                                 International Telemedia Associates, dated  June
                                 20, 1997.
     10.6          251           Loan  Agreement  between Wiseman Family, Peplin
                                 and RCP, dated October 13, 1997.
     10.7          266           Consulting  Agreement  between The Kaplan Group
                                 and the Registrant, dated November 10, 1997.
     10.8          269           Consulting Agreement between Robert S.Gigliotti
                                 and the Registrant, dated November 10, 1997.
     10.9          273           Consulting Agreement  between  Troy Wiseman and
                                 the Registrant, dated November 10, 1997.
     10.10         276           Consulting Agreement and Termination  Agreement
                                 between Jeff Outcalt and the Registrant,  dated
                                 November 10, 1997 and May 1, 1998.
     10.11         283           Consulting Agreement between Michael J. Feldman
                                 and the Registrant, dated November 10, 1997.
     10.12         286           Consulting  Agreement  between  Sohail Quraushi
                                 and the Registrant, dated November 10, 1997.
     10.13         289           Purchase Agreement between Arnold Semler,  Inc.
                                 and the Registrant, dated November 10, 1997
     10.14         296           Employment  Agreement  between  Madhu Sethi and
                                 the Registrant, dated February 18, 1998.
     10.15         300           Consulting Agreement between SBV Holdings, Inc
                                 and the Registrant, dated February 25, 1998.
     10.16         303           Investment  Banking  and   Advisory   Services
                                  Agreement with Strategica and  the  Registrant
                                  dated May 7, 1998.
     10.17         311            Employment Agreement between Richard C.Peplin,
                                  Jr. and the Registrant, dated June 1, 1998.
     10.18         319            SBV Promissory Note, dated October 1, 1998.
     10.19         320            Settlement  Agreement  between Madhu Sethi and
                                  the Registrant, dated June 3, 1999.
     10.20         325            Supplemental   Services   Agreement    between
                                  Yankees and the Registrant,  dated October 15,
                                  1999
     10.21         338            Memorandum of Acquisition  between Fon Digital
                                  Network, Inc. and TechTel Communications,Inc.,
                                  dated November 1999.
     10.22         339            Agreement  between  Registrant  and  BellSouth
                                  Telecommunications, dated November 22, 1999.
     10.23         397            Yankees  Second    Amendment  to    Consulting
                                  Agreement, dated January  2, 2000
     10.24         403            Agreement  to  Serve  as  Corporate  Secretary
                                  between  Vanessa Lindsey and  the  Registrant,
                                  dated January 3, 2000.
     10.25         418            Employment agreement between  Anthony Q. Joffe
                                  and the Registrant, dated January 3, 2000.
     10.26         430            Settlement  Agreement between  Jack Levine and
                                  the Registrant, dated January 17, 2000.
     10.27         42            Settlement Agreement between Lawrence VanEtten
                                  and the Registrant, dated May 11, 2000.
     10.28         438            Settlement Agreement between  Troy D. Wiseman,
                                  Richard  C. Peplin, Jr.  and  the  Registrant,
                                  dated May 31, 2000.

                                    Page 91
<PAGE>


Designation      Page
of Exhibit       Number
as Set Forth     or Source of
in Item 601 of   Incorporation
Regulation S-B   By Reference     Description

(11)               43             Statement re computation of per share earnings

(13)               *              Annual or quarterly reports, Form 10-QSB

(15)               *              Letter  on    unaudited  interim     financial
                                  information

(16)                              Letter on change in certifying accountant

     16.1          (7)            Letter re  Change  in  Certifying   Accountant
                                  Ernst & Young LLP

(17)               **             Letter on director resignation

(18)               **             Letter re change in accounting principals

(19)               *              Reports furnished to security holders

(20)               **             Other  documents  or  statements  to  security
                                  holders   or  any  document   incorporated  by
                                  reference

(21)               95             Subsidiaries of the Registrant

(22)               **             Published  report regarding  matters submitted
                                  to vote

(23)                              Consent of experts and counsel

     23.4          (8)             Consent of Weinberg & Co.

(24)               **             Power of attorney

(25)               *              Statement re eligibility of trustee

(26)               *              Invitation for competitive bids

(27)              441             Financial data schedule

(99)                              Additional Exhibits:

-------
*        Not applicable

**       None

(1)      Filed as an exhibit to the  Registrant's  Report on Form 10-KSB for the
         fiscal year ended September 31, 1997,  bearing the exhibit  designation
         number shown above;  incorporated  by reference  herein as permitted by
         Commission Rule 12b-23.

(2)      Filed as an exhibit to the Registrant's  Registration Statement on Form
         10-SB filed February 23, 1996,  bearing the exhibit  designation number
         shown  above;   incorporated  by  reference   herein  as  permitted  by
         Commission Rule 12b-23.

(3)      Filed as an exhibit to the Registrant's  Registration Statement on Form
         10-SB/A  filed June 3, 1996,  bearing  the exhibit  designation  number
         shown  above;   incorporated  by  reference   herein  as  permitted  by
         Commission Rule 12b-23.

                                    Page 92
<PAGE>


(4)      Filed as an  exhibit  to the  Registrant's  Report  on Form  8-K  dated
         January 29, 1999,  bearing the exhibit  designation number shown above;
         incorporated  by  reference  herein as  permitted  by  Commission  Rule
         12b-23.

(5)      Filed as an exhibit to the Registrant's  registration statement on Form
         S-8,   registration   number  333-47999,   declared  effective  by  the
         Securities and Exchange  Commission on March 16, 1998, as exhibit 99.1;
         and,  incorporated by reference  herein as permitted by Commission Rule
         12b-23.

(6)      Filed as an exhibit to the Registrant's  Report on Form 8-K dated March
         22,  1999,   bearing  the  exhibit   designation  number  shown  above;
         incorporated  by  reference  herein as  permitted  by  Commission  Rule
         12b-23.

(7)      Filed  as  an exhibit to the  Registrant's  Report on Form 8-K/A  dated
         February 12, 1999, bearing the exhibit  designation number shown above;
         incorporated  by  reference  herein as  permitted  by  Commission  Rule
         12b-23.

(8)      On August 31,  2000,  the  Registrant  received  a letter from Derek M.
         Webb,  CPA from the firm  of Weinberg & Company,  P.A.  which stated "A
         consent  letter  is not needed for this filing,  but we have proof read
         the finacnial staements  conatined in the 10-K filing and have found no
         inconsistencies.

Reports on Form 8-K Filed During Quarter Ended September 30, 1998

         During the calendar  quarter ended  September 30, 1998,  the Registrant
filed the following reports on Form 8-K with the Commission:

                   Financial

Items Reported     Statements Included                           Date Filed
--------------     -------------------                           ----------
1,2 and 7          No                                            December 1,1997
4 and 7            For the Period of June 1, 1997 (Date of
                   Inception)  to   September   30,  1997,
                   Combined    Balance   Sheet,  Combined
                   Statement of Income, Combined Statement
                   of Changes  in Shareholders'  Interest,
                   Combined  Statement   of  Cash   Flows,
                   Notes to Combined Financial Statements,
                   Unaudited  Pro  Forma Combined Balance,
                   Unaudited  ProForma Combined Statement,
                   Notes to Unaudited Pro Forma Financial
                   Statements. February 26, 1998

         As material  subsequent  events,  the  Registrant  filed the  following
reports on Form 8-K with the Commission after September 30, 1998:

                                    Financial

Items Reported                   Statements Included       Date Filed
--------------                   ----------------          ----------
1,2,4,5 and 7                    No                           January 29, 1999
4 and 7                          No                           February 12, 1999
2 and 5                          No                           March 22, 1999
1                                No                           May 18, 1999



                                    Page 93

<PAGE>



                                   Signatures

     In accordance with Section 13 or 15(d) of the Exchange Act, as amended, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned hereunto duly authorized.

     Dated:   September 7, 2000
                                  Colmena Corp.

                           By: /s/Anthony Q. Joffe/s/
                       President & Chief Executive 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:

Signature                           Date                Title

/s/Anthony Q. Joffe/s/              September 7, 2000   President,
                                                        Chief Executive Officer,
                                                        Director
/s/Vanessa H. Lindsey/s/            September 7, 2000   Secretary & Director
/s/Charles J. Champion, Jr. /s/     September 7, 2000   Director & Audit
                                                        Committee Member
/s/Robert S. Gigliotti/s/           September 7, 2000   Director & Audit
                                                        Committee Member
/s/Lawrence R. Van Etten/s/         September 7, 2000   Director



                                    Page 94
<PAGE>



                             Additional Information

                                  Colmena Corp.

                                   Registrant

        Crystal Corporate Center; 2500 North Military Trail, Suite 225-D;
                           Boca Raton, Florida 33431
    Telephone Number: (561) 998-3435; Facsimile Transmission (561) 998-3425;
                           E-mail aqj@colmenacorp.com
                              -------------------
                             Corporate Headquarters

                          Anthony Q. Joffe, President;
          Vanessa H. Lindsey, Secretary & Chief Administrative Officer
                                     ------
                                    Officers

         Anthony Q. Joffe; Robert S. Gigliotti; Charles J. Champion, Jr.
                  ; Vanessa H. Lindsey; Lawrence R. Van Etten
                                     ------
                               Board of Directors

                   Weinberg & Co. Certified Public Accountants

             6100 Glades Road, Suite 314; Boca Raton, Florida 33434
        Telephone (561) 487-5765: Facsimile Transmission (561) 487-5766;
                            E-mail weinacctg@aol.com
                                -----------------
                         Independent Public Accountants

                     American Stock Transfer & Trust Company

                    40 Wall Street; New York, New York 10005

        Telephone (212) 936-5100: Facsimile Transmission (718) 921-8326;
                            E-mail info@amstock.com
                                ----------------
                                 Transfer Agent

     Exhibits to this Form 10-KSB are available on the  Securities  and Exchange
Commission's  web site  located at  www.sec.gov  in the EDGAR  archives,  on the
Registrant's website located at www.colmenacorp.com and will be provided without
charge to  stockholders  of the  Registrant  upon written  request  addressed to
Vanessa H. Lindsey,  Secretary;  Colmena  Corp.;  1941  Southeast  51st Terrace;
Ocala, Florida 34471.

     The Securities  and Exchange  Commission has not approved or disapproved of
this Form 10-KSB and Annual  Report to  Stockholders  nor has it passed upon its
accuracy or adequacy.

                                    Page 95