U.S. SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON D.C. 20549

                                   FORM 10-QSB

             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934



For the fiscal quarter ended:               December 31, 1998
Commission file number:                     0-27842



                                  COLMENA CORP.
             (Exact name of registrant as specified in its charter)


         Delaware                                           54-1778587
         (State or other jurisdiction of                  (I.R.S. Employer
         incorporation or organization)                   Identification No.)




                       2500 N. Military Trail, Suite 225-D
                            Boca Raton, Florida 33431
                    (Address of principal executive offices)
                                   (Zip code)

                                 (561) 998-2031
              (Registrant's telephone number, including area code)


Indicate by check mark whether  registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                     Yes No X

                         APPLICABLE TO CORPORATE ISSUERS

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

On February 28, 2001,  the issuer had  outstanding  15,872,265  shares of common
stock, $.001 par value per share.


<PAGE>



                         COLMENA CORP. AND SUBSIDIARIES
                                   FORM 10-QSB
                    QUARTERLY PERIOD ENDED DECEMBER 31, 1998
                                      INDEX

                                                                    Page

PART I - FINANCIAL INFORMATION

  Item 1 - Consolidated Financial Statements

  Consolidated Balance Sheet (Unaudited)
           As of December 31, 1998....................................3
  Consolidated Statements of Operations (Unaudited)
           For the Three Months Ended December 31, 1998 and 1997......4
  Consolidated Statements of Cash Flows (Unaudited)
           For the Three Months Ended December 31, 1998 and 1997......5

  Condensed Notes to Consolidated Financial Statements............... 6-12

  Item 2 - Management's Discussion and Analysis of Financial
             Condition and Results of Operations..................... 13-15


PART II - OTHER INFORMATION

  Item 1 - Legal Proceedings......................................16-21

  Item 2 - Changes in Securities and use of Proceeds................21

  Item 4 - Submission of Matters to a Vote of Security Holders.......21

  Item 6 - Exhibits and Reports on Form 8-K...........................22

  Signatures..........................................................22


                                       -2-


<PAGE>


                            COLMENA CORP. AND SUBSIDIARIES
                              CONSOLIDATED BALANCE SHEET
                                December 31, 1998
                                   (Unaudited)


                                     ASSETS

CURRENT ASSETS:

    Cash                                                              $     236
    Other Current Assets                                                  1,160
                                                                         ------
      Total Current Assets                                                1,396

    Property and Equipment, net accumulated depreciation of $4,229       24,361
    Equipment to be Repossessed under security agreement,
                         net of impairment                              275,000
                                                                       --------
        Total Assets                                                  $ 300,757
                                                                     ==========

                         LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:

    Cash Overdraft                                                     $ 76,714
    Accounts Payable and Accrued Expenses                               370,607
    Notes Payable-Nonrelated Parties                                    535,120
    Notes Payable-Related Parties                                       292,721
    Due to Shareholder                                                   22,500
    Net Liabilities of Discontinued Operations                        1,048,274
                                                                     ----------
        Total Current Liabilities                                     2,345,936
                                                                     ----------

STOCKHOLDERS' DEFICIT:

    Common Stock ($.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                                             (16,736,947)
                                                                    ------------
        Total Stockholders' Deficit                                  (2,045,179)
                                                                     -----------
        Total Liabilities and Stockholders' Deficit                   $ 300,757
                                                                      ==========

                                       -3-
<PAGE>

                      COLMENA CORP. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (Unaudited)

                                                      For the Three Months
                                                        Ended December 31,
                                                     1998                1997

REVENUES                                           $ 33,885         $ 1,346,026
COST OF SALES                                             -             954,552
                                                    -------            --------

GROSS PROFIT                                         33,885             391,474
                                                    -------            --------
OPERATING EXPENSES:
    Compensation Expense                             39,635                   -
    Depreciation and Amortization                     1,500                   -
    Consulting                                            -                   -
    Professional and Legal Fees                      14,133                   -
    Selling, General and Administrative              37,875              74,813
                                                    -------             -------
                                                     93,143              74,813
                                                     -------             -------
        Total Operating Expenses                     (59,259)           316,661
                                                     --------           --------

INCOME (LOSS) FROM OPERATIONS
OTHER (EXPENSES):
    Interest Expense, net                            (43,348)                 -
                                                     --------            -------
TOTAL OTHER EXPENSES                                 (43,348)                 -
                                                     --------            -------
LOSS FROM CONTINUING OPERATIONS                    (102,607)            316,661
LOSS FROM DISCONTINUED OPERATIONS
   Loss From Operations                             (21,270)                  -
   Loss on Disposal                                       -                   -

TOTAL LOSS FROM DISCONTINUED OPERATIONS              (21,270)                 -
                                                   --------            ---------
NET INCOME (LOSS)                                  $ (123,877)         $ 316,661
                                                   ==========         ==========
BASIC AND DILUTED:
  Net Income (Loss) Per Common Share:

       Income (Loss) from Continuing Operations      $ (0.02)            $ 0.06
       Loss from Discontinued Operations               (0.00)                 -
                                                      ------              ------
                                                     $ (0.02)            $ 0.06
                                                     ========            =======

  Weighted Common Shares Outstanding               7,741,697           4,996,830
                                                  ==========          ==========


                                      -4-

<PAGE>

                         COLMENA CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>

<S>                                                                              <C>                    <C>
                                                                                For the Three Months Ended December 31,
                                                                                -----------------------------------
                                                                                    1998               1997
                                                                                ----------------   ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net Income (Loss) from Continuing Operations                                   $ (102,607)         $ 316,661
 Adjustments to Reconcile Net Income (Loss) from Continuing Operations
   to Net Cash Used in Continuing Operations:
      Depreciation and Amortization                                                  1,500             93,443
      Impairment Loss on Marketable Securities                                       3,400                  -

      (Increase) Decrease in:
         Accounts Receivable                                                         9,664         (1,140,861)
         Prepaid Expenses and Other                                                      -              5,087
         Inventory                                                                       -           (131,945)
         Deposits                                                                        -             (9,624)
         Note Receivable - CTI                                                           -            (10,400)
         Other Current Assets                                                        3,217            225,755

       Increase (Decrease) in:
         Cash Overdraft                                                             (7,672)                 -
         Accounts Payable and Accrued Expenses                                     (33,090)           483,423
         Net Liabilities of Discontined Operations                                       -             (9,426)
                                                                                   --------          --------

Net Cash Flows Used in Continuing Operations                                       (125,588)         (177,887)
                                                                                    -------          ---------

 Loss from Discontinued Operations                                                  (21,270)                 -
  Changes in Net Asset and Liabilites of Discontinued Operations                     40,440                  -
                                                                                     -------         ---------

Net Cash Flows Provded by Discontinued Operations                                    19,170                  -
                                                                                    -------           --------

Net Cash Flows Used in Operating Activites                                         (106,418)          (177,887)
                                                                                   ---------          ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Acquisition of Property and Equipment                                            (3,001)           (30,840)
    Purchase of Customer Base                                                             -           (978,016)
                                                                                   ---------          ---------

Net Cash Flows Used in Investing Activities                                          (3,001)        (1,008,856)
                                                                                     -------        -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds From Issuance of Common Stock                                                   -              1,000
 Proceeds from Issuance of Notes Payable - Related Parties                            5,590                  -
 Proceeds from Issuance of Notes Payable - Non-Related Parties                       75,278            697,825
 Due to Shareholder                                                                  22,500                  -
 Other                                                                                    -            496,149
                                                                                     -------           -------

Net Cash Flows Provided by Financing Activities                                      103,368          1,194,974
                                                                                     -------         ---------

Net Increase (Decrease) in Cash                                                       (6,051)             8,231

Cash - Beginning of Period                                                             6,287                  -
                                                                                      ------                 -

Cash - End of Period                                                                   $ 236            $ 8,231
                                                                                      ======           =======

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid during the year for:
   Interest                                                                            $ -                $ -
                                                                                      ======               ===
   Income Taxes                                                                        $ -                $ -
                                                                                      ======               ===

</TABLE>

                                      -5-

<PAGE>

                                  COLMENA CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE 1 - BASIS OF PRESENTATION

The accompanying  unaudited consolidated financial statements have been prepared
in  accordance  with  generally  accepted  accounting   principles  for  interim
financial  information and with the  instructions to Form 10-QSB and Item 310(b)
of Regulation S-B.  Accordingly,  the financial statements do not include all of
the  information  and  footnotes  required  by  generally  accepted   accounting
principles  for  complete  financial  statements.   The  consolidated  financial
statements  include  the  accounts  of the  Company  and its  subsidiaries.  All
significant intercompany accounts and transactions have been eliminated.  In the
opinion of management,  all  adjustments  have been included and all adjustments
considered  necessary  for a fair  presentation  have  been  included  and  such
adjustments are of a normal recurring nature.

These consolidated  financial  statements should be read in conjunction with the
consolidated  financial  statements  for the year ended  September  30, 1998 and
notes  thereto  contained  in the Report on Form  10-KSB of Colmena  Corp.  (the
"Company") as filed with the Securities and Exchange Commission.  The results of
operations  for the three  months ended  December  31, 1998 are not  necessarily
indicative of the results for the full fiscal year ending September 30, 1999.

NOTE 2 - 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 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

NOTE 3 - 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.


                                       -6-
<PAGE>

                                  COLMENA CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



NOTE 3 - SUBSEQUENT EVENTS (Continued)

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

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  exercised  from the 10th day
until the 365th day  following the effective  date of a  registration  statement
registering  the  underlying  common stock with the  commission.  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.  On
January  4,  2001,  the  Registrant  entered  into  a new  strategic  consulting
agreement  that replaced the  agreement in place since January 5, 1999.  The new
agreement is substantially the same except that a fee of $10,000 per months will
accrue for  services  rendered  by certain  individuals.  As of the date of this
report, only 6,000,000 common shares were issued related to these warrants.  The
Registrant is in the process of issuing the remaining  2,000,000  common 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, consulting expense of $1,476,138 was recognized during January 1999
for the 8,066,326 options issued.



                                       -7-
<PAGE>

                                  COLMENA CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


NOTE 3 - SUBSEQUENT EVENTS (Continued)

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


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.

(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 and to other persons, based on negotiations to be conducted by Yankees.


                                       -8-

<PAGE>
                                  COLMENA CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


NOTE 3 - SUBSEQUENT EVENTS (Continued)

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

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.  During March 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)       Common Stock Transactions And Stock Options And Warrants Granted

On January 3, 2000,  a vendor who  provided  legal  services  to the  Registrant
converted total amounts due aggregating  $50,782 at December 31, 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.

On May 11, 2000,  the  Registrant  issued 136,147 shares of common stock in full
payment of all obligations owned to a vendor.


                                       -9-

<PAGE>

                                  COLMENA CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



NOTE 3 - SUBSEQUENT EVENTS (Continued)

(C) Common Stock Transactions and Stock Options and Warrants Granted (Continued)

On May 31, 2000, the Registrant issued 533,333 shares of common stock to a third
party as an accommodation to Mr. Peplin. Mr. Peplin, personally guaranteed funds
loaned by the third  party to RCP.  The third  party  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 the third party without  assuming any liability for Mr. Peplin's
obligations under the settlement agreement.

On June 3, 1999,  in  connection  with a settlement  agreement,  the  Registrant
issued to Mr. Sethi, a former employees,  250,000 shares of common stock at fair
value.

On November 8, 2000,  the  Registrant  issued  100,000 shares of common stock in
full satisfaction of all obligations owed to a third party.

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.

On January 29,  1999,  directors  of the  Registrant  were issued for  services,
300,000  common  stock  options  at an  exercise  price of $0.05 per share on or
before  January 15,  2000.  On January 3, 2000,  the warrants  were  extended to
January 12, 2001. On January 11, 2001,  theses warrants were extended to January
15, 2002. .  Additionally,  on March 14, 2000, a director of the  Registrant was
issued for services,  70,000  common stock options at an exercise  price of $.05
per share. These options expire on January 15, 2002.

On January 3, 2000,  directors  and officers of the  Registrant  were issued for
services,  264,000  common stock options at an exercise price of $0.02 per share
on or before December 31, 2002.

On January 11,  2001,  directors  of the  Registrant  were issued for  services,
400,000  common  stock  options  at an  exercise  price of $0.05 per share on or
before January 11, 2002.

(D) Non-Qualified Stock Option & Stock Incentive Plan

Effective   January  1,  2000,   the   Registrant   adopted  the  "Colmena  Corp
Non-Qualified  Stock Option & Stock Incentive Plan" (the 2000 Plan). The purpose
of the plan was to promote the success and enhance the value of the  Registrant.
Subject to  adjustment,  as defined in the  agreement,  the aggregate  number of
shares of common  stock  that may be granted  under the Plan shall be  1,000,000
shares.  As of April 15, 2001, no shares have been issued under the plan and the
stockholders  did  not  approve  the  plan.  Accordingly,   the  plan  has  been
terminated.



                                      -10-

<PAGE>

                                  COLMENA CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



NOTE 3 - SUBSEQUENT EVENTS (Continued)

(E) Employment Agreement

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.  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.

The shares were issued on October 31, 2000.

     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.


                                      -11-
<PAGE>

                                  COLMENA CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(E)      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 2.  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 which was  completed in September  2000.  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.

The  Registrant  has  completed the audit of its  financial  statements  for the
fiscal year ended  September 30, 1998 and is currently  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
March 31, 1999 and 2000 and June 30, 1999 and 2000, and the audit for its fiscal
year ended September 30, 1999 and 2000. The Registrant  expects to have all such
financial  statements  and reports  filed with the  commission  prior to July 1,
2001.

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 II, Item 1, 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.


                                      -12-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (Continued)

Plan of Operations (Continued)

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
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.

Three months ended December 31, 1998 compared to three months ended December 31,
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. We
reported net losses for the three months ended  December 31, 1998 of  ($123,878)
and net income for the three  months ended  December 31, 1997 of $316,661.  This
translates to a per share (loss) of $(0.02) for the three months ended  December
31, 1998 and per share income of $0.06 for the three  months ended  December 31,
1997.

The net income (loss)  figures were based on  corresponding  revenues of $33,885
and  $1,346,026  for  the  three  months  ended  December  31,  1998  and  1997,
respectively.  The decrease in net revenue and corresponding decrease in cost of
revenue in 1998 as compared to 1997 was attributable to the  discontinuation  of
substantially  all of marketing  and  distributing  of  long-distance  telephone
service calling cards.  Operating  expenses rose to $93,143 for the three months
ended  December  31,  1998 as compared  to $74,813  for the three  months  ended
December 31, 1997. The increase was due the increased professional fees incurred
related to the Registrant's restructuring amounting to approximately 14,000.

                                      -13-

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION  AND RESULTS
        OF OPERATIONS (Continued)

Three months ended December 31, 1998 compared to three months ended December 31,
1997

Net cash used in investing  activities in the 1998 period was $3,001 compared to
net cash used in investing  activities of  $1,008,856  in the 1997 period.  This
difference was related  substantially  to the purchase of a customer base in the
1997 period.

Net cash  provided by  financing  activities  in the 1998 period was $103,368 as
compared to net cash provided by financing  activities of $1,194,974 in the 1997
period.  The difference was  attributable  to decreased  proceeds  received from
loans and decreased capital contributions.

No  additional  meaningful  comparisons  can be made for the three  months ended
December  31, 1998 as compared to the three  months  ended  December 31, 1997 in
that during the three months ended  December 31,  1997,  the  activities  of the
Registrant's predecessor were unrelated.

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.



                                      -14-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS (Continued)

Liquidity and Capital Resources

At  December  31,  1998,  the  Registrant  had  a  stockholders'  deficiency  of
approximately  $2,045,000.  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.

                           PART II. OTHER INFORMATION

Item 1.   Legal Proceedings.
          ------------------

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.

     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 Form 10-KSB as of September  30,
1998 per "Part III, Item 13(a), Exhibits Required by Item 601 of Regulation SB."


                                      -15-

<PAGE>

                           PART II. OTHER INFORMATION (Continued)

Item 1.   Legal Proceedings (Continued)


     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.
Mr. and Mrs. Sethi  guaranteed the obligations of Business  Technology  Systems,
Inc., under the Deutsche  Financing  Agreement 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 Form 10-KSB
as of September  30, 1998 per "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 Form
10-KSB as of September 30, 1998 per "Part III, Item 13(a),  Exhibits Required by
Item 601 of Regulation SB."


                                      -16-
<PAGE>

                           PART II. OTHER INFORMATION (Continued)


Item 1.   Legal Proceedings (Continued)

     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.

     As of December 31, 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  judgment,  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 judgment was entered against BTSF on July 26, 1999. At the time
of the judgment,  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.


                                    -17-

<PAGE>

                           PART II. OTHER INFORMATION (Continued)

Item 1.   Legal Proceedings (Continued)


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 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 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  prejudgment  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  judgment  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. On November 8, 2000, the Parties 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  Registrant  issued to Patrick V.
Graham, his designees or assigns,  100,000 restricted shares of the Registrant's
common stock. A copy of the settlement  agreement is filed as an exhibit to this
Form 10-QSB as of December 31, 1998 per "Part II, Item 6(a),  Exhibits  Required
by Item 601 of Regulation S-B."

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.


                                      -18-
<PAGE>

                           PART II. OTHER INFORMATION (Continued)

Item 1.   Legal Proceedings (Continued)

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.

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.  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 December 31, 1998.


                                     -19-
<PAGE>

                           PART II. OTHER INFORMATION (Continued)

Item 1.   Legal Proceedings (Continued)


Prime Source  Leasing,  Inc.,  Plaintiff  (Prime  Source) vs.  General  Electric
Capital    Corporation    GE),    Defendant   vs.   Republic    Funding   Group,
Inc.(Republic),Colmena  Corporation  (Colmena),  Richard C. Peplin, Jr. (Peplin)
and World Long Distance,  Inc. (World Long Distance) Palm Beach County Case No.:
98-010716-AJ


     Prime Source Leasing,  Inc. sued General  Electric  Capital  Corporation in
Palm Beach County  Circuit  Court,  under Case No.  98-010716 AJ.  Subsequently,
General  Electric Capital  Corporation sued Richard C. Peplin,  Republic Funding
Group, Inc., Colmena Corporation and World Long Distance, Inc. They have alleged
that  Colmena  and  Republic  executed  on or about  August  12,  1998 a Chattel
Mortgage for the financing of various telecommunications  equipment. GE contends
that it was accepted by Colmena and  delivered,  inspected and installed in good
working order.

     Pursuant to this Chattel Mortgage,  Colmena is obligated to pay to Republic
the sum of $3,785 per month for 24 months.  There existed a Master Loan Security
Agreement that had been entered into between Republic and General Electric dated
March 16, 1998.  Republic assigned all of its right,  title and interest to this
mortgage and all other  documents  received in conjunction  therewith to General
Electric.  The claim of General Electric against Colmena contained in Count I is
an  indemnification  claim where GE is claiming  that Colmena would be liable to
them in the event that they are found  liable to Prime  Source,  who has sued GE
for  a  stopped  payment  check  for  $80,000.   This  claim  is  a  contractual
indemnification claim based upon the language contained in the Chattel Mortgage.
They also seek the recovery of attorney*s  fees and costs.  GE has also sued for
replevin  against  Colmena  for the return of the  equipment,  however,  Colmena
claims it does not have the equipment.

     Colmena has responded to the complaint and has asserted various affirmative
defenses.  Colmena has claimed that the  equipment,  which is the subject of the
Chattel  Mortgage,  was  delivered to World Long  Distance over the objection of
Colmena;  that Prime  Source  Leasing  had agreed to deliver  the  $80,000  stop
payment  check (from GE) to Colmena,  however,  Sohail  Quraeshi of Prime Source
diverted the check to Prime  Source.  Richard  Peplin,  upon  discovering  this,
notified GE that they should not deliver the funds to Prime Source, resulting in
the stop payment order on the check. Accordingly, Colmena has taken the position
that it would not have  executed  the Chattel  Mortgage  had it not been for his
representation,  which  representation was false.  Accordingly,  it is Colmena's
position that the Chattel Mortgage was induced by fraud of Prime Source. Colmena
has also asserted that Sohail Quraeshi,  while arranging the subject transaction
for the purchase and delivery of the various  telecommunications  equipment, was
employed both by Prime Source and Colmena and had a fiduciary  responsibility to
Colmena,  to obtain loan  guarantees  from Luis Cuello and World Long  Distance.
Again,  as set forth in this defense,  had it not been for this  representation,
Colmena would not have  executed the Chattel  Mortgage  Agreement.  Colmena also
asserts as a defense that a portion of the  equipment,  which included three (3)
Nuera AP 100 Voice Mux boxes,  was canceled based upon notice provided to Omnico
(the  supplier),  however,  Omnico,  over objection of Colmena,  consummated the
transaction. Accordingly, Colmena asserts that it would have no liability.


                                      -20-

<PAGE>

                           PART II. OTHER INFORMATION (Continued)

Item 1.    Legal Proceedings (Continued)

     The exposure to Colmena in this lawsuit is for the sum of $80,000  together
with  attorney*s  fees  and  costs  incurred  by GE,  in the  event  that  GE is
successful in pursuing the indemnification claim against Colmena.  Since Colmena
is not in  possession of the  equipment,  GE will be unable to obtain a replevin
writ against Colmena as requested in Count II. This case is presently  scheduled
for trial during the 4-week trial docket  beginning August 13, 2001 before Judge
Thomas A. Barkdull, Circuit Court Judge of Palm Beach County.


Item 2.    Changes in Securities

     As  permitted  by  Commission  Rule  12b-23,  the  response to this item is
incorporated by reference from the corresponding item in the Registrant's report
of Form 10-KSB for the fiscal year ended September 30, 1998.


Item 3.    Defaults Upon Senior Securities

     As  permitted  by  Commission  Rule  12b-23,  the  response to this item is
incorporated by reference from the corresponding item in the Registrant's report
of Form 10-KSB for the fiscal year ended September 30, 1998.


Item 4.    Submission of Matters to a Vote of Security Holders.

     As  permitted  by  Commission  Rule  12b-23,  the  response to this item is
incorporated by reference from the corresponding item in the Registrant's report
of Form 10-KSB for the fiscal year ended September 30, 1998.

                                      -21-

<PAGE>

                  PART II. OTHER INFORMATION (Continued)


Item 6.        Exhibits and Reports on Form 8-K.

   (a)    Exhibits and Index of Exhibits

     As  permitted  by  Commission  Rule  12b-23,  the  response to this item is
incorporated by reference from the corresponding item in the Registrant's report
of Form 10-KSB for the fiscal year ended September 30, 1998 except as follows:


(10)                            Material Contracts:

        10.29                   Strategic Consulting Agreement with Yankees
                                dated January 4, 2001.

        10.30                   Settlement agreement between Patrick Graham and
                                the Registrant dated November 8, 2000.

(99)                            Additional Exhibits

         99.3                   Stock Procedure Memo to American Stock Transfer.

   (b)    Reports on Form 8-K

     The Registrant filed a current report on Form 8-K on January 29, 1999.


                                   SIGNATURES

     In accordance  with the  requirements  of the Exchange Act, the  registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                  COLMENA CORP.
                                  (Registrant)


Dated: May 1, 2001
                            By: /s/ Anthony Q. Joffe
                              --------------------
                           Anthony Q. Joffe, President
                        Chief Executive Officer, Director


                                      -22-

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