SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                ----------------

                                   FORM 10-QSB

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

For the quarter ended June 30, 1998.
                      -------------
                                       OR

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


                         Commission file number 0-21934
                         ------------------------------

                               TELEPAD CORPORATION
                               -------------------
             (Exact name of registrant as specified in its charter)


Delaware                                           52-1680936
------------------------------            ---------------------------------
(State or other jurisdiction of           (IRS Employer Identification No.)
incorporation or organization)

380 Herndon Parkway, Suite 1900, Herndon, Virginia                  20170
------------------------------------------------------           --------------
(Address of principal executive offices)                         (Zip Code)


Issuer's telephone number, including area code:      (703) 834-9000
                                                     --------------


                            Not Applicable
--------------------------------------------------------------------------------
Former  name,  former  address and former  fiscal  year,  if changed  since last
report.

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

         Yes          X         No
                    ---             ---

            Indicate the number of shares outstanding of each of the
  issuer's classes of common stock, as of the latest practical date:
                                                                      
                                            Shares Outstanding
       Class of Common Stock                at August 13, 1998
       ---------------------                ------------------

       Class A Common Stock                 13,021,874 shares, $0.01 par value
       Class B Common Stock                 none

Transitional Small Business Disclosure Format (check one):

         Yes                   No         X
                ---                      ---
                   
<PAGE>
                       TELEPAD CORPORATION

                      INDEX TO FORM 10-QSB

                                                                        Page No.
                                                                        -------

 Part I.           FINANCIAL INFORMATION

 Item 1.    Financial Statements

      Balance Sheets - June 30, 1998 (unaudited)
          and December 31, 1997                                             3

      Statements of Operations for the three and six month periods
          ended June 30, 1998 (unaudited) and 1997 (unaudited)              4

      Statements of Cash Flows for the six-month periods
          ended June 30, 1998 (unaudited) and 1997 (unaudited)              5

      Notes to Financial Statements                                         6

 Item 2.     Management's Discussion and Analysis of Financial Condition
             and Results of Operations                                  10-13


 Part II.          OTHER INFORMATION

 Item 4     Submission of Matters to a Vote of Securities Holders          13

 Item 6.    Exhibits and Reports on Form 8-K                               13

 SIGNATURES                                                                14


                                       2
<PAGE>



                               TELEPAD CORPORATION
<TABLE>
<CAPTION>

 
     BALANCE SHEETS

                                                                                           June 30,            December 31,
                                                                                             1998                  1997
                                                                                       ------------------    ------------------
                                                                                         (Unaudited)
      <S>                                                                               <C>                  <C>
      Assets
      Current assets:
           Cash and cash equivalents                                                      $      163,302        $    1,588,790
           Short-term investments                                                                173,475                     -
           Accounts receivable,  less allowance of $108,000 at June 30, 1998 and
              $88,000 at December 31, 1997                                                     1,688,140             1,419,231      
          Inventory                                                                            2,478,476             1,174,507      
          Advance to Sanmina                                                                           -             1,286,284      
          Other current assets                                                                   401,973               184,133
                                                                                       ------------------    ------------------
      Total current assets                                                                     4,905,366             5,652,945
                                                                                       ------------------    ------------------
      Furniture and equipment:
           Office furniture and equipment                                                        237,754               203,140      
           Computer equipment                                                                    684,590               668,378
                                                                                       ------------------    ------------------
                                                                                                 922,344               871,518
      
      Less accumulated depreciation                                                             (581,026)             (489,895)
                                                                                       ------------------    ------------------
      Net furniture and equipment                                                                341,318               381,623
      Investment in affiliates                                                                   533,000               200,000
      Deposits and other assets                                                                   25,231                23,591
      Goodwill, net                                                                            3,062,236                     -
                                                                                       ==================    ==================
      Total assets                                                                        $    8,867,151      $      6,258,159      
                                                                                       ==================    ==================

      Liabilities and Stockholders' Equity
      Current liabilities:
           Accounts payable and accrued expenses                                          $    3,071,743      $      2,309,680
           Notes payable                                                                       2,146,308                     -
           Deferred revenue                                                                       13,601                13,601
                                                                                       ------------------    ------------------
      Total current liabilities                                                                5,231,652             2,323,281

      Preferred stock, $.01 par value, 5,000,000 shares authorized:
              Series C 7% cumulative redeemable convertible preferred stock,
                  950,000  shares  designated,  950,000 and no shares issued and
                  outstanding at June 30, 1998 and December 31, 1997, respectively;
                  liquidation preference of $950,000 at June 30, 1998                         1,009,850                      -

      Stockholders' equity
           Common stock, $.01 par value; 95,000,000 shares authorized:
              Class A common stock, 94,406,937 shares designated,
                  12,065,624  and  11,755,624  shares issued and  outstanding at
                  June 30, 1998 and December 31, 1997, respectively                            130,219                 117,556
              Class B common stock,  593,063 shares designated,  
                  no shares issued or outstanding at June 30, 1998
                  and December  31,1997, respectively                                                -                       -    
           Additional paid-in capital                                                      40,401,213              39,283,613 
           Accumulated deficit                                                            (37,905,783)            (35,466,291) 
                                                                                    ------------------      ------------------ 
      Total stockholders' equity                                                             2,625,649               3,934,878 
                                                                                    ==================      ================== 
      Total liabilities and stockholders' equity                                       $     8,867,151        $      6,258,159    
                                                                                    ==================      ================== 
</TABLE>                                                                       

      See accompanying notes

                                       3

<PAGE>

                               TELEPAD CORPORATION

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>



                                                   Three Months Ended June 30,                Six Months Ended June 30,
                                                    1998                 1997                 1998                 1997
                                              ------------------   -----------------    -----------------    -----------------     
                                                 (Unaudited)         (Unaudited)          (Unaudited)          (Unaudited)
<S>                                            <C>                <C>                 <C>                   <C>

Revenues:
    Product related                              $    1,532,618       $     956,219         $  1,990,008      $     1,445,580
    Service contracts                                    65,799                   -              281,570               32,331       
                                              ------------------   -----------------    -----------------    -----------------
Total revenues                                        1,598,417             956,219            2,271,578            1,477,911

Costs and expenses:
    Cost of goods sold - products                     1,354,973             913,940            1,759,522            1,348,987
    Cost of goods sold - service contracts              116,493                   -              226,631               13,417       
    Research and development                            116,464             317,408              259,712              623,699
    Selling, general and administrative               1,438,144           1,132,086            2,464,663            2,274,360
                                              ------------------   -----------------    -----------------    -----------------
Total costs and expenses                              3,026,074           2,363,434            4,710,528            4,260,463
                                              ------------------   -----------------                                           

Loss from operations                                (1,427,657)         (1,407,215)          (2,438,950)          (2,782,552)

Interest income                                           4,400              66,160               18,482              163,342       
Interest expense                                       (17,291)                   -             (17,291)                    -
Other expenses                                            (145)             (6,378)              (1,733)              (6,378)
                                              ------------------   -----------------    -----------------    -----------------

Net loss available for common
    stockholders                                 $  (1,440,693)       $ (1,347,433)         $(2,439,492)      $    (2,625,588)
                                              ==================   =================    =================    =================

Net loss per share                               $       (0.12)       $      (0.11)         $     (0.20)      $         (0.22)
                                              ==================   =================    =================    =================

Diluted net loss per share                       $       (0.12)       $      (0.11)         $     (0.20)      $         (0.22)
                                              ==================   =================    =================    =================

Weighted average shares outstanding                  12,440,212          11,753,976         $ 12,242,362           11,735,479
                                              ==================   =================    =================    =================

</TABLE>

See accompanying notes


                                       4


<PAGE>
                               TELEPAD CORPORATION

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                        Six Months Ended June 30,
                                                                                       1998                      1997
                                                                                -------------------       -------------------
                                                                                   (Unaudited)               (Unaudited)
<S>                                                                             <C>                      <C>
Operating activities
Net loss                                                                         $     (2,439,492)         $     (2,625,588)
Adjustments to reconcile net loss to net cash
  used in operating activities:
      Depreciation and amortization                                                        120,218                   127,983
      Accrued interest on notes payable                                                     13,308                         -
      Provision for loss on accounts receivable                                              9,468                     5,989
      Provision for gain/loss on foreign exchange                                          (6,179)                         -
      Provision for loss in inventory value                                                 41,085                         -
      Changes in assets and liabilities net of effects from purchase of L&E:
         Accounts receivable                                                               809,257                 (282,042)        
         Inventory                                                                       (633,960)                   124,936
         Advance to Sanmina                                                              1,286,284                         -        
         Other current assets                                                            (209,059)                    94,746
         Deposits and other assets                                                           8,643                     4,100
         Accounts payable and accrued expenses                                           (740,872)                 (476,642)
         Deferred revenue                                                                       -                   (13,241)        
                                                                                -------------------       -------------------
Net cash used in operating activities                                                  (1,741,299)               (3,039,759)

Investing activities
Purchase of furniture and equipment                                                       (53,996)                  (57,149)        
Proceeds from the sale of fixed assets                                                       9,714                         -        
Purchases of short-term investments                                                      (173,475)                         -        
Sales of short-term investments                                                                  -                 2,907,994
Payment for purchase of L&E, net of cash acquired                                      (3,206,545)                         -
Investment in subsidiary                                                                 (333,000)                         -
                                                                                -------------------       -------------------
Net cash used in investing activities                                                  (3,757,302)                 2,850,845

Financing activities
Proceeds from issuance of common stock                                                   1,130,263                   33,260      
Proceeds from issuance of preferred stock                                                1,009,850                        -
Proceeds from notes payable                                                              1,933,000                        -
                                                                                -------------------       -------------------
Net cash provided by financing activities                                                4,073,113                   33,260

                                                                                -------------------       -------------------
Net decrease in cash                                                                   (1,425,488)                 (155,654)
Cash and cash equivalents, beginning of period                                           1,588,790                 1,418,770
                                                                                ===================       ===================
Cash and cash equivalents, end of period                                         $         163,302        $        1,263,116      
                                                                                ===================       ===================

Supplemental disclosures of cash flow information
Actual cash payments for interest                                                $           3,983        $                -
                                                                                ===================       ===================
</TABLE>

See accompanying notes


                                       5

<PAGE>

                               TELEPAD CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


                  (Information pertaining to the periods ended
                      June 30, 1998 and 1997 is unaudited.)

1.  Organization and Significant Accounting Policies

         Basis of Presentation

         The accompanying  unaudited  condensed  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 of
Regulation  S-B.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements. In the opinion of management,  all adjustments (consisting
of normal recurring accruals)  considered necessary for a fair presentation have
been included.  Operating results for the three-month period ended June 30, 1998
are not necessarily  indicative of the results that may be expected for the year
ending  December  31,  1998.  For further  information,  refer to the  financial
statements for the year ended December 31, 1997 and footnotes  thereto  included
in the Company's Form 10-KSB.

         Net Loss Per Share

         In February  1997,  the  Financial  Accounting  Standards  Board issued
Statement  No. 128,  "Earnings  per Share" which  established  new standards for
computing and  presenting  net income per share  information.  As required,  the
Company adopted the provisions of Statement 128 in its 1997 financial statements
and has restated net loss per share information for all prior periods. Basic net
loss per share was  determined  by  dividing  net loss by the  weighted  average
number of common  shares  outstanding  during each period.  Diluted net loss per
share excludes common equivalent shares,  unexercised stock options and warrants
as the  computation  would not be  dilutive.  A  reconciliation  of the net loss
available for common  shareholders  and number of shares used in computing basic
and diluted net loss per share is as follows:
<TABLE>
<CAPTION>


                                              Three Months Ended June 30,              Six Months Ended June 30,
                                          ------------------------------------    ------------------------------------
                                               1998                1997                1998                1997
                                          ----------------    ----------------    ----------------    ----------------

<S>                                      <C>                 <C>                  <C>                <C>                 
Net loss                                     $ (1,440,693)     $ (1,347,433)       $ (2,439,492)        $  (2,625,588)             
                                          ================    ================    ================    ================

Weighted average shares:
  Basic net loss per share -
    weighted average shares                    12,440,212          11,753,976          12,242,362          11,735,479
  Effect of dilutive securities:
    Stock options                                       -                   -                   -                   -
  Diluted net loss per share -
                                          ----------------    ----------------    ----------------    ----------------
    adjusted weighted average shares           12,440,212          11,753,976          12,242,362          11,735,479
                                          ================    ================    ================    ================

Basic net loss per share                     $      (0.12)     $        (0.11)     $        (0.20)      $       (0.22)
                                          ================    ================    ================    ================
Diluted net loss per share                   $      (0.12)     $        (0.11)     $        (0.20)      $       (0.22)
                                          ================    ================    ================    ================

</TABLE>

                                       6
<PAGE>
                               TELEPAD CORPORATION
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)


         Stockholders' Equity

         During  the first  quarter  of 1998,  310,000  shares of Class A common
stock were issued to seven  officers and directors of the Company who elected to
receive  shares of common stock in lieu of a portion of their  salaries or board
fees.

         On May 27, 1998,  the Company,  as part of the purchase of L&E,  issued
950,000  shares  of a new  series  of  preferred  stock  designated  Series C 7%
Cumulative   Redeemable   Convertible  Preferred  Stock,  having  a  liquidation
preference of $1.00 per share,  ("Preferred Shares") and 900,000 shares of Class
A common stock. The Preferred Shares are redeemable, at the Company's option, at
a redemption  price payable in cash equal to the liquidation  preference and all
accrued  but  unpaid   dividends   thereon.   Pursuant  to  the  Certificate  of
Designations by which the Preferred Shares were created, each Preferred Share is
convertible  into one share of Common Stock,  upon  approval of such  conversion
(the  "Conversion  Proposal")  by the holders of a majority  of the  outstanding
Common Stock voted thereon in person or by proxy at an annual or special meeting
(the "First  Meeting"),  or a subsequent  annual or special meeting (the "Second
Meeting").  TelePad  intends to convene the First Meeting,  and if necessary the
Second Meeting,  to seek shareholders  approval of the Conversion  Proposal,  no
later than the 210th day following  the closing of the L&E purchase  transaction
on May 27, 1998. If the Conversion  Proposal is approved,  the 950,000 Preferred
Shares will be converted into 950,000 shares of Common Stock (subject to certain
anti-dilution adjustments).

         The Company obtained  $1,000,000 of the cash  consideration paid to the
L&E shareholders through a portion of the proceeds realized on May 27, 1998 from
the  Company's  private sale of  convertible  notes in the  aggregate  principal
amount of $1,500,000 (the "Investor Notes"), to private investors (collectively,
the  "Investors").  The Company also issued to certain placement agents warrants
to purchase  200,000  shares of Common Stock,  at an exercise price of $0.98 per
share,  subject  to  certain   anti-dilution  and  other  adjustment  provisions
contained therein (the "Warrants").  Each Investor Note bears interest at a rate
of 8% per  annum,  matures  on May 27.,  1999,  and is  convertible,  in $25,000
increments,  at the discretion of the holder into Common Stock from time to time
until the  principal  balance and all unpaid  interest on such  Investor Note is
paid in full (the  "Conversion  Date") at a specified per share conversion price
subject to certain  anti-dilution and other adjustments.  The Company has issued
into  escrow  1,500,000  shares of Common  Stock  reserved  for  delivery to the
Investors in the event of the conversion of the Investor Notes.  The issuance of
any additional shares (in excess of such 1,500,000 shares) by the Company to the
Investors  with respect to the conversion of the Investor Notes and the issuance
of the Put Notes (if any), or to certain  placement  agents upon exercise of the
Warrants,  is subject  to prior  approval  of the  Company's  shareholders.  The
conversion  price will be $0.98 per share if the  conversion  occurs  within the
first 120 days following the Closing,  and thereafter if the average closing bid
price  for  the  Common  Stock  on the  NASDAQ  SmallCap  Market,  or any  other
securities  exchange  or  securities  market on which the  Common  Stock is then
traded for any five  consecutive  days is less than $1.31,  then the  conversion
price per share will be the lesser of (i) 75% of the  average  closing bid price
of the  Common  Stock on the NASDAQ  SmallCap  Market,  or any other  securities
exchange or securities market on which the Common Stock is then traded,  for the
five consecutive trading days immediately preceding the Conversion Date, or (ii)
$0.98. The Company has granted the Investors,  a security interest in all of the
Company's  assets,  other than the L&E Stock, to secure the Investor Notes.  The
Investors  have agreed to subordinate  their security  interest in the

                                       7

<PAGE>

                               TELEPAD CORPORATION
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)


Company's  assets  in favor of liens in  connection  with  non-convertible  debt
financing  on  reasonable  commercial  terms by the  Company but up to a maximum
prior lien of  $1,000,000  and  provided  the  Investors  have been given  seven
business days prior notice of such financing.

2.  Acquisition

         On May 27, 1998, the Company,  pursuant to a Share  Purchase  Agreement
dated as of May 27, 1998 (the  "Purchase  Agreement"),  acquired from  Christine
LeMaire and Dean N. Eisenberger  (collectively the "L&E  Shareholders"),  all of
the outstanding capital stock of L&E Mobile Computer Mounts,  Inc. ("L&E").  The
company is accounting  for the  acquisition  as a purchase and is amortizing the
excess fair value over a 10 year period. The initial purchase price,  subject to
additional payments as set forth below, was $3,266,550.

         L&E is a  distributor,  installer  and  integrator  of vehicle  mounted
mobile  computers,  and  a  distributor  and  manufacturer  of  mobile  mounting
products. At closing, among other things, the Company paid a total of $1,300,000
in cash to the L&E  Shareholders  ("Cash  Consideration")  and  issued to them a
total of (a)  900,000  shares of its Class A Common  Stock,  par value  $.01 per
share (the  "Common  Stock  Consideration"),  and (b) 950,000  shares,  having a
liquidation  preference of $1.00 per share,  of a new series of preferred  stock
designated  Series  C  7%  Cumulative  Redeemable  Convertible  Preferred  Stock
("Preferred  Shares").  The Company is obligated to pay an  additional  sum (the
"Additional  Consideration") to the L&E Shareholders,  within a specified number
of days after the earlier of: (i) the third anniversary of the closing under the
Purchase Agreement (the "Closing"); (ii) the date on which any event included in
the definition of "Acceleration  Event" occurs  (including  specified changes in
control of the Company and certain  other  extraordinary  events  regarding  the
Company or L&E);  and (iii) at the  Company's  option,  on an earlier  date (the
"Additional   Consideration   Payment  Date").  The  amount  of  the  Additional
Consideration  will be based on either (a) a formula  using a multiple  of L&E's
average annual  "stand-alone"  earnings  before income taxes,  depreciation  and
amortization  (as  defined in the  Purchase  Agreement)  from the Closing to the
Additional  Consideration  Payment  Date, or (b) at the  Company's  option,  the
present value on the  Additional  Consideration  Payment  Date,  of  $20,000,000
discounted from the third  anniversary of the Closing,  assuming a discount rate
of 8.5% per annum. As a condition to the Closing, as a capital contribution, the
Company  concurrently issued a non-recourse  $333,000 note payable to L&E, which
bears  interest at a rate of  6% per annum,  and which matures 60 days following
the Closing (the "Note").  The Company is obligated to make  additional  capital
contributions  to L&E of $333,000 on May 27, 1999 and  $334,000 on May 27, 2000.
The  Company,  L&E  and the L&E  shareholders  have  entered  into a  series  of
negotiations  concerning  the possible  termination of the Note and amendment of
the  provisions  of  the  Purchase  Agreement  relating  to  additional  capital
investments in L&E to be made by the Company.

                                       8

<PAGE>


                               TELEPAD CORPORATION
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)


3.  Pro Forma Information

         The unaudited  pro forma  combined  condensed  statements of operations
gives effect to the acquisition of L&E Mobile  Computer  Mounts,  Inc.  ("L&E"),
completed by TelePad  Corporation  (the "Company") on May 27, 1998, as if it had
occurred at January 1, 1998 and January 1, 1997, respectively.

                                             Six Months Ended June 30,
                                            1998                   1997
                                        ----------------      -----------------
                                          Pro forma             Pro forma

Revenue                                  $   5,115,377          $   2,295,410
Net loss available to
  common shareholders                    $ (2,592,799)          $ (2,692,968)
                                       ================      =================

Basic and diluted loss per share         $     (20.00)          $      (0.21)   
                                       ================      =================

                                       9

<PAGE>

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

Results of Operations
---------------------

         For  the  quarter  ended  June  30,  1998,  revenues  increased  67% to
$1,598,000  from $956,000  recorded in the same period in 1997.  The increase is
primarily the result of revenue from the addition of L&E Mobile Computer Mounts,
Inc. ("L&E"),  which was acquired in a purchase transaction on May 27, 1998. For
the  first  six  months  of  1998,  revenues  increased  $794,000,  or 54%  from
$1,478,000 in the same period in 1997. The addition of L&E was partially  offset
by a decline  in  shipments  of  TelePad 3  computers  in the first half of 1998
compared  to the first  half of 1997.  The  Company  has  experienced  delays in
securing orders for TelePad 3 computers.  Service revenue  increase  $250,000 in
the first half compared to the first half of 1997 as more service  contract work
has been performed.  However, service revenue in the quarter ended June 30, 1998
was reduced by the reversal of revenue  recognized  in the first quarter of 1998
based on  misrepresentations  by an employee of the Company  regarding  contract
work performed.

         Cost of products and  services  sold during the three months ended June
30,  1998  totaled  $1,471,000  (92% of revenue)  compared  to $914,000  (95% of
revenue) in the same period in 1997.  For the first six months of 1977, the cost
of products and services  sold was  $1,986,000  (87% of revenue)  compared  with
$1,362,000 (92% of revenue) in the comparison period. The second quarter of 1998
includes a $41,000  charge to cost of goods sold to recognize  the loss in value
of inventory held for future production.  Gross margin percentages in the second
quarter of 1998 improved  from the same period in 1997  primarily as a result of
the addition of L&E, but offset  partially by a $51,000 negative gross margin on
service  contracts  resulting  from the  reversal of service  contract  revenue.
Improving  competitive  computer  technology  continues to put  downward  margin
pressure on the TelePad 3 computer sales.

         Research and  development  ("R&D")  expenses for the second  quarter of
1998 were  $116,000  compared to $317,000 for the same period in 1997.  This 63%
decrease  in R&D  spending  in the  quarter  ended  June  30,  1998  and the 58%
reduction in the first half  compared to the prior period  reflects a shift from
work on developing the 586  microprocessor  version of the TelePad 3 and modules
for the TelePad 3 in the prior  period to a reduced  level of work on  designing
the next version of the TelePad 3 in the current period.

         Selling, general and administrative expenses for the quarter ended June
30, 1998 increased  27%, or $306,000,  from the same period in 1997. For the six
month period,  selling,  general and administrative expenses increased $191,000,
or 8% from the same period in 1997.  The  increases  in the current  quarter and
first  half  compared  to the prior  periods  was  primarily  the  result of the
addition of L&E  selling,  general  and  administrative  expenses  and legal and
accounting costs associated with the purchase of L&E.

         Interest  income in the second  quarter of 1998 was $4,000  compared to
$66,000 in the comparison period. This reflects a reduced cash balance caused by
the use of cash in operations. Interest expense increased $17,000 in the current
quarter primarily as a result of the notes payable related to the acquisition of
L&E.
                                       10
<PAGE>

Liquidity and Capital Resources
-------------------------------

         Net cash used in operating  activities  was $1,741,000 in the six-month
period ended June 30, 1998 as compared to $3,040,000 in the comparable period in
1997. Net cash used in operating activities in both periods was primarily due to
the net losses incurred in each respective period. Accounts receivable decreased
by a net amount of  $809,000 in the current  period  based on reduced  TelePad 3
computer sales offset partially by an increase in L&E receivables.  In the prior
period  revenue  exceeded  collections  resulting  in a  $282,000  use of  cash.
Inventory increased $634,000 on a net basis in the current quarter due primarily
to the  delivery  of nearly  completed  TelePad  3  computer  kits from  Sanmina
Corporation  ("Sanmina"),  the Company's contract manufacturer.  The increase in
inventory  due to the  addition  of  computer  kits was  partially  offset  by a
decrease in L&E's  inventory.  The  increase in  inventory  was  financed by the
$1,286,000  draw down of advances by Sanmina,  which  advances  had been made in
1997 against open purchase orders for inventory.  Other current assets increased
by  $209,000  in the  six-month  period  ended June 30,  1998 due  primarily  to
$300,000 in proceeds from a notes payable issued in connection with the purchase
of L&E being held in escrow. This portion of the proceeds from the notes payable
was held in escrow until the satisfaction of certain  requirements  specified in
the financing agreements.

          In the  six-month  period ended June 30, 1998,  cash used in operating
activities  was  partially  funded by the  proceeds  from the  issuance of notes
payable issued in connection  with the L&E purchase  transaction  whereas in the
prior  period  cash  used in  operating  activities  was  primarily  funded by a
reduction in short-term investments.

         On May 27, 1998, the Company,  pursuant to a Share  Purchase  Agreement
dated as of May 27, 1998 (the  "Purchase  Agreement"),  acquired from  Christine
LeMaire and Dean N. Eisenberger  (collectively the "L&E  Shareholders"),  all of
the outstanding capital stock of L&E Mobile Computer Mounts,  Inc. ("L&E").  L&E
is a distributor,  installer and integrator of vehicle mounted mobile computers,
and a distributor  and  manufacturer of mobile  mounting  products.  At closing,
among other  things,  the Company paid a total of  $1,300,000 in cash to the L&E
Shareholders  ("Cash  Consideration")  and issued to them a total of (a) 900,000
shares of its Class A Common Stock,  par value $.01 per share (the "Common Stock
Consideration"),  and (b) 950,000  shares,  having a  liquidation  preference of
$1.00 per  share,  of a new series of  preferred  stock  designated  Series C 7%
Cumulative  Redeemable  Convertible  Preferred Stock ("Preferred  Shares").  The
Company is obligated to pay an additional sum (the  "Additional  Consideration")
to the L&E Shareholders, within a specified number of days after the earlier of:
(i) the third  anniversary  of the closing  under the  Purchase  Agreement  (the
"Closing");  (ii) the date on which  any event  included  in the  definition  of
"Acceleration  Event"  occurs  (including  specified  changes  in control of the
Company and certain other  extraordinary  events  regarding the Company or L&E);
and  (iii)  at  the  Company's  option,  on an  earlier  date  (the  "Additional
Consideration Payment Date"). The amount of the Additional Consideration will be
based  on  either  (a) a  formula  using a  multiple  of  L&E's  average  annual
"stand-alone"  earnings before income taxes,  depreciation  and amortization (as
defined  in  the  Purchase   Agreement)  from  the  Closing  to  the  Additional
Consideration Payment Date, or (b) at the Company's option, the present value on
the Additional  Consideration  Payment Date, of $20,000,000  discounted from the
third anniversary of the Closing, assuming a discount rate of 8.5% per annum. As
a condition to the Closing, as a capital contribution,  the Company concurrently
issued a  non-recourse  $333,000 note payable to L&E,  which bears interest at a
rate of  6% per annum,  and which  matures 60 days  following  the Closing  (the
"Note").  The Company is obligated to make additional  capital  contributions to
L&E of $333,000 on May 27, 1999 and $334,000 on May 27, 2000.  The Company,  L&E
and the L&E shareholders  have entered into a series of negotiations  

                                       11
<PAGE>

concerning the possible  termination of the Note and amendment of the provisions
of the Purchase Agreement  relating to additional capital  investments in L&E to
be made by the Company.

         The Company  obtained  $1,000,000 of the Cash  Consideration  through a
portion of the proceeds  realized on May 27, 1998 from TelePad's private sale of
convertible notes in the aggregate principal amount of $1,500,000 (the "Investor
Notes").  The  Company  also  issued to certain  placement  agents  warrants  to
purchase  200,000  shares of Common  Stock,  at an  exercise  price of $0.98 per
share,  subject  to  certain   anti-dilution  and  other  adjustment  provisions
contained therein.  Each Investor Note bears interest at a rate of 8% per annum,
matures on the first  anniversary  of the issue  date,  and is  convertible,  in
$25,000 increments,  at the discretion of the holder into Common Stock from time
to time until the  principal  balance and all unpaid  interest on such  Investor
Note is paid in full at a  specified  per  share  conversion  price  subject  to
certain anti-dilution and other adjustments.

         On February  27,  1998,  the Company was  notified by The Nasdaq  Stock
Market,  Inc.  that the market  price for Class A Common Stock does not meet the
quantitative  maintenance  requirements for minimum bid price and the Company is
therefore  subject to being  delisted  from the NASDAQ  SmallCap  Market if this
situation is not remedied by May 28,  1998,  which time may be extended  through
the review process. On June 1, 1998 the Company was notified by The Nasdaq Stock
Market,  Inc.  that the  market  price  for  Class A Common  Stock  was again in
compliance  with closing bid  requirement  for  continued  listing on The Nasdaq
Stock  Market.  On July 30, 1998 Company was again  notified by The Nasdaq Stock
Market,  Inc.  that the market  price for Class A Common Stock does not meet the
quantitative  maintenance  requirements for minimum bid price and the Company is
therefore  subject to being  delisted  from the NASDAQ  SmallCap  Market if this
situation  is not  remedied  by October  30,  1998,  which time may be  extended
through the review process.

         The Company's existing capital resources, consisting primarily of cash,
short-term  investments  have  been  eroded  by the  continued  use of  funds in
operations.  Future operations are heavily dependent upon the TelePad 3 computer
being  competitive in the market and the Company's  ability to sell the existing
TelePad 3 inventory,  failure of which could have a material  adverse  effect on
the financial condition of the Company. In the event that the Company's internal
estimates  relating to its  anticipated  expenditures  and funds from operations
prove  materially  inaccurate,  the Company may be required to reallocate  funds
among its planned activities and curtail or eliminate certain  expenditures.  In
any event, the Company  anticipates that it may require  substantial  additional
financing at such time. The Company's established banking relationships and line
of credit is restricted  to use within L&E and is not  otherwise  available as a
source of  liquidity.  The  Company may seek to  leverage  its  working  capital
requirements  through  borrowings,   collaborative  arrangements  and  strategic
alliances,  volume  discounts for mass purchases of TelePad  computers and other
products,  and additional public offerings.  There can be no assurance as to the
availability or terms of any required additional financing, when and if needed.

         "Safe Harbor" Statement under the private Securities  Litigation Reform
Act  of  1995:  The  statements   above  which  are  not  historical  facts  are
forward-looking statements that involve risks and uncertainties,  including, but
not limited to, demand for the Company's  products and market  acceptance risks,
the effect of  economic  conditions,  the  impact of  competitive  products  and
pricing, product development,  commercialization and technological difficulties,
capacity,  and supply  constraints  or  difficulties,  the results of  financing
efforts,  possible  delisting of  securities  by Nasdaq,  the risk of low-priced
stock,  and other  risks  detailed  in the  Company's  Securities  and  Exchange
Commission  filings.   Although  the  Company  believes  that  the  expectations
reflected in the forward-looking  statements are reasonable at this time, it can
give no  assurances  that such  expectations  will  prove to have been  correct.

                                       12
<PAGE>

Actual results could differ  materially based on a number of factors  including,
but not limited to the facts set forth above.

PART II. OTHER INFORMATION

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

         The annual meeting of shareholders of the Registrant was held on May 4,
1998 for the  purpose of (i)  electing a director  of the  Company to serve as a
Class II director of the Company's Board of Directors for a term expiring at the
third succeeding  annual meeting after election,  and until a successor shall be
duly elected and  qualified,  (ii)  approving an amendment to the  Corporation's
Second Restated  Certificate of  Incorporation  to effect a one-for-ten  reverse
stock split (the "Reverse Split") of the  Corporation's  issued shares of Common
Stock  and to  provide  for the  payment  of cash in lieu of  fractional  shares
otherwise issuable in connection therewith,  and (iii) ratifying the appointment
of the Registrant's  independent public accountants for the year ending December
31, 1998.  Proxies for the meeting were solicited  pursuant to Regulation 14A of
the Securities Exchange Act of 1934 and there was no solicitation in opposition.

         The following director was elected by the following vote:


                                                            Votes
                                                            -----
                                          Class        For          Withheld
                                          -----        ---          --------
            Alan B. Salisbury              II       10,303,837       125,960

              The proposal to approve an amendment to the  Corporation's  Second
Restated  Certificate  of  Incorporation  to  effect  the  Reverse  Split of the
Corporation's  issued  shares of Common  Stock and to provide for the payment of
cash in lieu of fractional shares otherwise issuable in connection therewith was
approved by the following vote:

                 For            Against         Abstain
                 ---            -------         -------
              9,136,339         939,437         277,211


         The  proposal  to ratify  the  appointment  of the  independent  public
accountants  for the year ending December 31, 1998 was approved by the following
vote:

                 For            Against         Abstain
                 ---            -------         -------
            10,353,777          65,645           10,375

Item 6.  Exhibits and Reports on Form 8-K

         (a)  Exhibits - 27.1 Financial Data Schedule

         (b)  Reports on Form 8-K

         On June 11, 1998, the Company filed a Form 8-K that reported under item
2 the acquisition of L&E Mobile Computer Mounts, Inc. on May 27, 1998.

                                       13

<PAGE>


         On August 10,  1998,  the Company  filed a Form 8-K/A that  updated the
information  reported  under item 2 relating  to the  acquisition  of L&E Mobile
Computer  Mounts,  Inc.  on  May  27,  1998  and  also  provided  the  financial
information required by item 7.

                                   SIGNATURES


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.


                               TELEPAD CORPORATION



Date:         August 13, 1998               /s/ DONALD W. BARRETT
         ------------------------           -----------------------
                                                Donald W. Barrett
                                                Chairman of the Board and
                                                Chief Executive Officer



Date:         August 13, 1998                /s/ ROBERT D. RUSSELL
         ---------------------------         -----------------------
                                                 Robert D. Russell
                                                 Vice President, Secretary and 
                                                 Treasurer Principal Financial
                                                 and Accounting Officer


                                       14

<PAGE>


                                 EXHIBIT INDEX



Exhibit No.                       Description
----------                        ------------


27.1                              Financial Data Schedule