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 September 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 November 10, 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
<TABLE>
<CAPTION>


                                                                                                      Page No.
                                                                                                      -------
<S>                                                                                             <C>   
         Part I.           FINANCIAL INFORMATION

         Item 1.    Financial Statements

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

              Statements of Operations for the three and nine-month periods
                  ended September 30, 1998 (unaudited) and 1997 (unaudited)                              4

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

              Notes to Financial Statements                                                           7-12

         Item 2.     Management's Discussion and Analysis of Financial Condition
                     and Results of Operations                                                       13-16

         Item 3.    Quantitative and Qualitative Disclosures About Market Risk                          16

         Part II.          OTHER INFORMATION

         Item 6.    Exhibits and Reports on Form 8-K                                                    16

         SIGNATURES                                                                                     17

</TABLE>

<PAGE>
                                    TELEPAD
                                  CORPORATION
                                 BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                          September 30,          December 31,
                                                                                              1998                   1997
                                                                                        ------------------    -------------------
                                                                                           (Unaudited)
<S>                                                                                        <C>                   <C>          
Assets
Current assets:
     Cash and cash equivalents                                                               $    187,145          $   1,588,790
     Accounts receivable, less allowance of $112,000
        at September 30, 1998 and $88,000 at December 31, 1997                                  1,783,979              1,419,231
     Inventory                                                                                  2,716,675              1,174,507
     Advance to Sanmina                                                                                 -              1,286,284
     Other current assets                                                                          24,853                184,133
                                                                                        ------------------    -------------------
Total current assets                                                                            4,712,652              5,652,945
                                                                                        ------------------    -------------------
Furniture and equipment:
     Office furniture and equipment                                                               201,132                203,140
     Computer equipment                                                                           696,888                668,378
                                                                                        ------------------    -------------------
                                                                                                  898,020                871,518
Less accumulated depreciation                                                                    (600,353)              (489,895)
                                                                                        ------------------    -------------------
Net furniture and equipment                                                                       297,667                381,623
Investment in affiliates                                                                          200,000                200,000
Deposits and other assets                                                                         239,730                 23,591
Goodwill, net                                                                                   2,984,953                      -
                                                                                        ==================    ===================
Total assets                                                                                $   8,435,002          $   6,258,159
                                                                                        ==================    ===================

Liabilities and Stockholders' Equity
Current liabilities:
     Accounts payable and accrued expenses                                                  $   3,250,812          $   2,309,680
     Notes payable                                                                              1,820,941                      -
     Deferred revenue                                                                                   -                 13,601
                                                                                        ------------------    -------------------
Total current liabilities                                                                       5,071,753              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 September 30, 1998 and December 31, 1997,
        respectively; liquidation preference of $950,000 at September 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,
            13,021,874 and 11,755,624 shares issued and outstanding
            at September 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 September 30, 1998
             and December 31,1997, respectively                                                         -                      -

     Additional paid-in capital                                                                40,666,213             39,283,613
     Accumulated deficit                                                                      (38,443,033)           (35,466,291)
                                                                                        ------------------    -------------------
Total stockholders' equity                                                                      2,353,399              3,934,878
                                                                                        ==================    ===================
Total liabilities and stockholders' equity                                                  $   8,435,002          $   6,258,159
                                                                                        ==================    ===================
</TABLE>

See accompanying notes

                                       3
<PAGE>

                               TELEPAD CORPORATION

                            STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>



                                                   Three Months Ended September 30,           Nine Months Ended September 30,
                                                     1998                   1997                 1998                 1997
                                               ------------------    -------------------   -----------------    -----------------   
                                                  (Unaudited)           (Unaudited)          (Unaudited)          (Unaudited)

Revenues:
<S>                                             <C>                    <C>                  <C>                  <C>         
    Product related                                $   2,287,094          $   1,217,234        $  4,277,103         $  2,662,813
    Service contracts                                    304,411                 90,899             585,981              123,230    
                                               ------------------    -------------------   -----------------    -----------------
Total revenues                                         2,591,505              1,308,133           4,863,084            2,786,043

Costs and expenses:
    Cost of goods sold - products                      1,623,656              1,226,816           3,383,177            2,575,803
    Cost of goods sold - service contracts               317,161                 62,214             543,792               75,631    
    Research and development                              61,593                154,924             321,304              778,622
    Selling, general and administrative                1,037,798              1,132,883           3,502,464            3,407,242
                                               ------------------    -------------------   -----------------    -----------------
Total costs and expenses                               3,040,208              2,576,837           7,750,737            6,837,298
                                               ------------------    -------------------   -----------------    -----------------

Loss from operations                                    (448,703)            (1,268,704)         (2,887,653)          (4,051,255)

Interest income                                            3,371                127,042              21,852              290,384
                                                         
Interest expense                                         (82,398)                  (214)           (109,226)                (214)   
                                                        
Other income (expense)                                        17                 (7,904)             (1,715)             (14,282)   
                                               ------------------    -------------------   -----------------    -----------------

Net loss available for common
    stockholders                                    $   (527,713)          $  (1,149,780)      $ (2,976,742)        $ (3,775,367)
                                               ==================    ===================   =================    =================

Net loss per share                                  $      (0.04)          $       (0.10)      $      (0.24)        $      (0.32)
                                               ==================    ===================   =================    =================

Diluted net loss per share                          $      (0.04)          $       (0.10)      $      (0.24)        $      (0.32)
                                               ==================    ===================   =================    =================

Weighted average shares outstanding                   13,021,874              11,755,624         12,502,200           11,742,194
                                               ==================    ===================   =================    =================
</TABLE>

See accompanying notes
                                       4


<PAGE>



                               TELEPAD CORPORATION

                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>


                                                                                         Nine Months Ended September 30,
                                                                                         1998                        1997
                                                                                 ---------------------       ---------------------
                                                                                     (Unaudited)                 (Unaudited)


<S>                                                                                 <C>                         <C>            
Operating activities
Net loss                                                                               $   (2,976,742)             $   (3,775,367)
Adjustments to reconcile net loss to net cash
  used in operating activities:
      Depreciation and amortization                                                           303,950                     196,675
      Accrued interest on notes payable                                                        55,941                           -
      Provision for loss on accounts receivable                                                13,757                      18,924
      Provision for gain/loss on foreign exchange                                              (6,196)                          -
      Provision for loss in inventory value                                                    41,085                           -
      Changes in assets and liabilities net of effects from purchase of L&E:
         Restricted cash                                                                            -                   1,652,784
         Accounts receivable                                                                  709,145                  (1,443,688)  
         Inventory                                                                           (872,160)                  1,222,781
         Advance to Sanmina                                                                 1,286,284                           -
         Other current assets                                                                 168,061                  (1,418,869)  
         Deposits and other assets                                                              8,643                    (195,900)
         Accounts payable and accrued expenses                                               (561,800)                   (337,172)
         Deferred revenue                                                                     (13,601)                    (20,442)  
                                                                                 ---------------------       ---------------------
Net cash used in operating activities                                                      (1,843,633)                 (4,100,274)

Investing activities
Purchase of furniture and equipment                                                           (66,294)                    (78,516)  
Proceeds from the sale of fixed assets                                                          9,714                           -
Investment in Intellibit Corporation                                                                -                    (200,000)
Sales of short-term investments                                                                     -                   4,078,679
Payment for purchase of L&E, net of cash acquired                                          (1,239,995)                          -
                                                                                 ---------------------       ---------------------
Net cash provided by (used in) investing activities                                        (1,296,575)                  3,800,163

Financing activities
Proceeds from issuance of common stock                                                        173,563                      33,260   
Proceeds from notes payable                                                                 1,565,000                           -
                                                                                 ---------------------       ---------------------
Net cash provided by financing activities                                                   1,738,563                      33,260
                                                                                 ---------------------       ---------------------
Net decrease in cash                                                                       (1,401,645)                   (266,851)
Cash and cash equivalents, beginning of period                                              1,588,790                   1,418,770
                                                                                 =====================       =====================
Cash and cash equivalents, end of period                                                 $    187,145               $   1,151,919
                                                                                 =====================       =====================
</TABLE>

See accompanying notes

                                       5

<PAGE>




                               TELEPAD CORPORATION

                      STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>


                                                                                          Nine Months Ended September 30,
                                                                                         1998                        1997
                                                                                 ---------------------       ---------------------
                                                                                     (Unaudited)                 (Unaudited)


<S>                                                                                 <C>                        <C>       
Supplemental Disclosures of Cash Flow Information
Actual cash payments for interest                                                        $         -                    $     214
                                                                                 =====================       =====================

Supplemental  Schedule of Noncash Investing and Financing Activities
The Company purchased  all of the capital  stock of L&E Mobile  Computer
Mounts,  Inc. for $3,266,550.  In connection with the acquisition, common 
and preferred stock was issued as follows:

      Fair value of assets acquired                                                      $  3,266,550                   $       -
      Cash paid for capital stock                                                          (1,300,000)                          -
                                                                                 ---------------------       ---------------------
         Common and preferred stock issued                                               $  1,966,550                   $       -
                                                                                 =====================       =====================
      Issuance of common stock                                                           $    956,700                   $       -
      Issuance of preferred stock                                                           1,009,850                           -
                                                                                 ---------------------       ---------------------
         Common and preferred stock issued                                               $  1,966,550                   $       -
                                                                                 =====================       =====================
</TABLE>

See accompanying notes

                                       6
<PAGE>

                               TELEPAD CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

                  (Information pertaining to the periods ended
                    September 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.  The  acquisition  of L&E Mobile  Computer  Mounts,  Inc.
("L&E") on May 27,  1998 has been  accounted  for as a purchase.  The  financial
statements  include the results of operations of L&E since the acquisition  date
and all  inter-company  transactions  with  L&E  have  been  eliminated  through
consolidation.  Of the purchase price of  $3,267,000,  $178,000 was allocated to
L&E's net  assets  and  remainder  was  allocated  to  goodwill,  which is being
amortized on a  straight-line  basis over 10 years.  At September 30, 1998,  the
accumulated  amortization of goodwill was $106,000. In the event that additional
consideration  is paid to the L&E  shareholders,  per the terms of the  Purchase
Agreement,  such  additional  consideration  will be  capitalized  as additional
purchase  price. 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 September 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 September 30,            Nine Months Ended September
                                                                                                   30,
                                           ----------------------------------      ------------------------------------
                                               1998               1997                  1998                1997
                                           --------------    ----------------      ----------------    ----------------

<S>                                       <C>               <C>                   <C>                 <C>          
Net loss per share                            $ (527,713)       $ (1,149,780)         $ (2,976,742)       $ (3,775,367)
                                           ==============    ================      ================    ================
Weighted average shares:
  Basic net loss per share -
    weighted average shares                   13,021,874          11,755,624            12,502,200          11,742,194
  Effect of dilutive securities:
    Stock options                                      -                   -                     -                   -
  Diluted net loss per share -
                                           --------------    ----------------      ----------------    ----------------            
    adjusted weighted average shares          13,021,874          11,755,624            12,502,200          11,742,194
                                           ==============    ================      ================    ================
Basic net loss per share                      $    (0.04)         $    (0.10)           $    (0.24)         $    (0.32)
                                           ==============    ================      ================    ================
Diluted net loss per share                    $    (0.04)         $    (0.10)           $    (0.24)         $    (0.32)
                                           ==============    ================      ================    ================
</TABLE>
 
                                      7
<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 1998  salaries or
board fees in the aggregate  amount of $155,000.  The shares were valued at $.50
per share,  which was the closing  price on the date of  issuance.  The cost was
deferred and is being  amortized  over the period of  performance of services in
1998.

         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").  The  Company  is  required  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.  The Company  believes that such First Meeting will
not be able to be  conveved  on or before  the time  required,  but  intends  to
convene  such  meeting  as soon as  possible.  The  Company  intends  to seek an
extension of such time from the L&E Shareholders, but if unsucessful, will be in
violation of its obligations under the Pledge Agreements  regarding such special
meeting (see Note 2. Acquisition).  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).

         On September 10, 1998, the Company  entered into a consulting  contract
with Milan Capital Group,  Inc. to provide  investor  relations  services to the
Company. In addition to cash payments required under this agreement, the Company
agreed  to  issue  450,000  fully  vested  warrants,  which do not  contain  any
penalties for  non-performance,  to purchase  450,000 shares of Common Stock, at
exercise  prices  ranging  from  $0.781  per  share to $3.00 per  share,  with a
weighted  average  exercise  price of $1.868 per share.  The fair value of these
warrants,  which was capitalized and is being amortized over the period in which
the consulting  services are performed,  is estimated as $141,000 on the date of
grant  using  the   Black-Scholes   option-pricing   model  with  the  following
assumptions:  dividend yield 0%, volatility of 106%,  risk-free interest rate of
4.25%, and expected life of 2 years.

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").  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 interest, taxes, depreciation and amortization and
certain other expenses (as described in the Purchase Agreement) from the Closing
to the Additional  Consideration  Payment Date, or (b) at the 

                                       8

<PAGE>

                              TELEPAD CORPORATION
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)


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,  initially  bearing  interest  at a rate of 6% per  annum
through  maturity,  which was July 27, 1998, and thereafter at the lesser of (i)
the  rate of 12  percent  (12%)  per  annum or (ii) the  highest  interest  rate
permitted  by  applicable  law  (the  "Note").  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. There is no assurance that the above-mentioned negotiations will result
in an  agreement  to amend  the  Purchase  Agreement.  If no such  agreement  of
amendment is reached, the Company would intend to repay the Note.

         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").  The Company is
required 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. The Company believes that such First Meeting will not
be able to be  conveved on or before the time  required,  but intends to convene
such  meeting as soon as possible.  The Company  intends to seek an extension of
such time from the L&E Shareholders, but if unsucessful, will be in violation of
its obligations under the Pledge Agreements  regarding such special meeting.  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).

         Subject  to The  Company's  right to redeem or  purchase  such  shares,
failure of the Preferred  Shares to convert into Common Stock on or prior to the
210th day following  the Closing would  constitute an event of default under the
pledge  agreements  between the Company and the L&E  Shareholders  as  discussed
below (the "Pledge  Agreements"),  and, as a result,  the L&E Shareholders would
have a right to  foreclose  upon the L&E capital  stock  acquired by the Company
from  the L&E  Shareholders  (the  "L&E  Stock")  commencing  on the  271st  day
following the Closing.  The L&E Shareholders  and the Investors  (defined below)
have  agreed  to vote all  Common  Stock  held by such  persons  in favor of the
Conversion Proposal.

         Dividends,  payable  annually  in cash  will  begin  to  accrue  on the
Preferred  Shares  commencing  on the earlier of January 1, 2000 and the date on
which the Second Meeting is held if at such meeting shareholder  approval of the
Conversion  Proposal  is not  obtained.  At any time  before,  on or  after  the
dividend commencement date, the Company may at its option redeem, in whole or in
part,  the  Preferred  Shares at a redemption  price equal to their  liquidation
preference  plus, if the redemption date occurs after the dividend  commencement
date, accrued and unpaid dividends thereon to the redemption date.

         The Common Stock  Consideration and the Preferred Shares are subject to
certain  purchase  and sale  obligations  pursuant  to the  Purchase  Agreement.
Specifically,  commencing 90 days  following the Closing,  each L&E  Shareholder
shall have the right to cause the Company to purchase  any part,  or all, of the
Common Stock  Consideration and the Preferred Shares (including all Common Stock
into which such shares may be converted), at a purchase price of $0.38 per share
(the "Put Rights"). The earliest date on which the Put Rights shall terminate is
the 300th day from the Closing,  and the latest date is the first anniversary of
the  Closing.   However,  if  the  Common  Stock  comprising  the  Common  Stock
Consideration and, if the Conversion  Proposal is approved,  Common Stock issued
upon conversion of the Preferred Shares are subject to a registration  statement
effective  under the Securities Act of 1933 as amended (the  "Securities  Act"),
the Put Right shall  terminate  on the later to occur of the 300th day after the
Closing and the date such registration statement first becomes effective. If the
Company fails to file such a  registration  statement on or before the 210th day
following  the  Closing  an  event  of  default  will  occur  under  the  Pledge
Agreements,  entitling the L&E  Shareholders  to foreclose upon the L&E Stock as
discussed above.

         In  addition  to its rights to redeem the  Preferred  Shares  under the
Certificate of Designations, the Company has certain repurchase rights under the
Purchase  Agreement  (the "Call  Rights").  The Call Rights 


                                       9
<PAGE>
                              TELEPAD CORPORATION
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)


entitle the Company, from time to time, following notice to the L&E Shareholders
or either L&E  Shareholder,  (a) commencing on the Closing Date, and expiring on
the 210th day  following  the Closing,  to  repurchase  up to 450,000  Preferred
Shares (or Common Stock if such L&E Shareholder or L&E Shareholders, as the case
may be, no longer owns any  Preferred  Shares) at a purchase  price of $0.50 per
share;  and (b) if the  Conversion  Proposal is not  approved on or prior to the
210th day following  the Closing,  commencing on such 210th day, and expiring 60
days thereafter, to repurchase up to an additional 500,000 Preferred Shares at a
purchase price of $1.00 per share.

         The L&E Shareholders will continue to comprise the senior management of
L&E pursuant to employment agreements with L&E executed at the Closing. Pursuant
to the Purchase Agreement,  until the Additional  Consideration is paid, (a) the
L&E  Shareholders  will  have  the  right  to  nominate  three  of the  five L&E
directors,  which three nominees the Company is obligated to elect,  and (b) the
Company's board of directors is obligated to appoint one of the L&E Shareholders
to the existing vacant seat on the Company's board of directors, and to nominate
such person as a director.

         Until the  Additional  Consideration  has been  paid,  no  dividend  or
distribution  in respect of the L&E Stock shall be paid or made to the  Company,
except L&E is obligated to pay a dividend at the end of each fiscal quarter,  in
respect  of the L&E Stock in an  aggregate  amount  equal to the  Estimated  Tax
Payment.  Estimated Tax Payment means (a) 25% of L&E's  estimated  "stand alone"
tax  liability  for the then  current  tax year,  less (b) with  respect  to the
initial  tax year in which a change in L&E's  method of  accounting  from  "cash
basis" to "accrual basis" occurs,  the increase in L&E's estimated "stand alone"
tax liability,  if any, incurred solely as a result of such change in accounting
method,  to the fullest extent that funds are legally  available for declaration
of such dividends.

         Pursuant to separate Pledge  Agreements,  the Company granted  security
interests  in the  L&E  Stock  to L&E and the L&E  Shareholders  to  secure  the
Company's   obligations  (a)  to  pay  the  Note;  (b)  to  pay  the  Additional
Consideration;  (c) to pay the above-discussed  additional capital contributions
to L&E;  (d) to  register  the Common  Stock of the L&E  Shareholders  under the
Securities Act; (e) to satisfy the Put Rights,  and (f) to nominate as a Company
director  a  designee  of the  L&E  Shareholders  ("Secured  Obligations").  The
Company's  liability  in respect of the  Secured  Obligations  is limited to the
right of each L&E  Shareholder  to  foreclose  upon the L&E Stock which such L&E
Shareholder sold to the Company pursuant to the Purchase Agreement.  However, as
a condition to each L&E Shareholder's right to foreclose upon L&E Stock prior to
the first  anniversary  of the Closing,  he or she must  transfer to the Company
475,000 Preferred Shares; provided,  however, if such L&E Shareholder owns fewer
than 475,000 Preferred  Shares,  including as a result of the exercise of Put or
Call Rights or redemption rights,  then any shortfall shall be satisfied by such
L&E Shareholder by transferring an equal number of shares of Common Stock.

         Under the Purchase Agreement, regardless of whether a default under the
Pledge  Agreements  has occurred,  the Company is entitled at any time to assign
and transfer 50% of the L&E Stock to one L&E  Shareholder and the 50% balance of
the L&E Stock to the other L&E Shareholder,  in complete  satisfaction of all of
the  Secured  Obligations  and in such  event  the  Company  shall  not have any
personal  or  direct  obligation  or  liability  for  payment,  satisfaction  or
otherwise in respect of the Secured Obligations. Also, the Company does not have
any  personal  or direct  obligation  or  liability  in respect  of the  Secured
Obligations  except in respect of foreclosure  against the L&E Stock as provided
in the Pledge Agreements.

         The Company  obtained  $1,000,000 of the Cash  Consideration  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 the following private  investors:  Ellis Enterprises LTD,
Beeston Investments LTD, The Hewlett Fund, Inc.,  Investcor LLC, Austrot Anstalt
Schaan, Balmore Funds S.A., and The Gross Foundation,  Inc.  (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").  The fair value of the Warrants, 


                                       10
<PAGE>
                              TELEPAD CORPORATION
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)


which was capitalized  and is being amortized on a straight-line  basis over the
life of the  note,  is  estimated  as  $124,000  on the date of grant  using the
Black-Scholes  option-pricing  model with the  following  assumptions:  dividend
yield 0%,  volatility of 106%,  risk-free  interest rate of 4.25%,  and expected
life  of  2  years.  The  exercise  price  was  determined  through  arms-length
negotiation between the parties.  Each Investor Note bears interest at a rate of
8%  per  annum,  matures  on  the  first  anniversary  of  the  Closing,  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  subordinated  their  security
interest  in  the  Company's  assets  in  favor  of  liens  in  connection  with
non-convertible debt financing by the Company, but up to a maximum prior lien of
$1,000,000.

         Pursuant to its obligations  under the subscription  agreement by which
the Investors purchased the Investor Notes (the "Subscription  Agreement"),  the
Company filed with the Securities and Exchange  Commission ("SEC")  Registration
Statement (No.  333-57795) on Form S-3 (the "Registration  Statement")  covering
all of the Common  Stock  issuable  upon  exercise of the  Warrants,  and 20,000
shares of Common  Stock for each $10,000 of  aggregate  principal  amount of the
Investor  Notes (the  "Investor  Shares"),  and the Common Stock  issuable  upon
conversion  of the Put Notes  (described  below).  Such  Registration  Statement
became  effective  on July 10 1998,  resulting  in  $300,000  of the  $1,500,000
purchase price of the Investor Notes being released to the Company,  which funds
had been held in escrow  pursuant  to  agreement  between  the  Company  and the
Investors.

          Pursuant  to  the  Subscription   Agreement,   if  certain  conditions
precedent had been satisfied,  as described below, the Investors would have been
obligated to purchase  from the Company  convertible  notes (the "Put Notes") in
the aggregate principal amount of $1,000,000,  if the Company had exercised such
right during the 45-day period  commencing 30 days after the effective date of a
registration   statement  covering  the  Investor  Shares  ("Put  Period").  The
Investors'  obligation to purchase the Put Notes was  contingent on, among other
things,   the  timely  obtainment  of  the  exemption  from  NASDAQ's  corporate
governance  rules or the  approval of its  shareholders  of the  issuance of the
Investor  Shares upon  conversion  of the  Investor  Notes,  the Put Notes,  and
exercise of the Warrants.  The Company did not satisfy this condition  precedent
and the Investors are no longer obligated to purchase the Put Notes.

         Upon the occurrence of certain events ("Investor Acceleration Events"),
(i) the interest  rate under the Investor  Notes is subject to increase  from 8%
per annum to 16% per annum,  and (ii) all sums of principal  and  interest  then
remaining  unpaid  under  the  Investor  Notes  and all  other  amounts  payable
thereunder,  shall be immediately due and payable,  at the holders  option,  all
without demand,  presentment or notice, or grace period.  Investor  Acceleration
Events include, among other things, the failure of the Company to obtain, within
60 days of  Closing,  the  approval  of its  shareholders  required  pursuant to
NASDAQ's  corporate  governance  rules to allow conversion of the Investor Notes
and exercise of all the Warrants and  conversion  of the Put Notes,  but only to
the extent of the Investor  Notes that may not be converted due to the Company's
failure  to obtain  such  shareholder  approval.  As of the 170th day  following
Closing, the Company has not obtained such shareholder  approval.  The 


                                       11
<PAGE>
                              TELEPAD CORPORATION
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Investors have indicated to the Company their  intention to convert a portion of
the Investor Notes (no Put Notes have been issued as of such date).

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 the Company on May 27,  1998,  as if it had occurred at January 1,
1998 and January 1, 1997, respectively.

                                            Nine Months Ended September 30,
                                              1998                  1997
                                         -----------------     -----------------
                                           Pro forma             Pro forma

Revenue                                      $ 7,705,599           $ 4,754,898
Net loss available to
  common shareholders                        $(3,162,178)          $(3,677,886)
                                        =================     =================

Basic and diluted loss per share             $     (0.24)          $     (0.29)
                                        =================     =================

                                       12

<PAGE>




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

         For the quarter ended September 30, 1998, total revenues  increased 98%
to $2,592,000 from  $1,308,000  recorded in the same period in 1997. The revenue
increase is the net result of  $2,063,000  in revenue  from the  addition of L&E
Mobile  Computer  Mounts,  Inc.  ("L&E"),  which  was  acquired  in  a  purchase
transaction on May 27, 1998, and a $779,000 decrease in revenue from the sale of
TelePad products and services. Product revenue contributed by L&E was $2,004,000
while TelePad product  revenue  declined by $934,000.  The Company  continues to
experience delays in securing  significant  orders for TelePad 3 computers.  L&E
contributed  $59,000 in service revenue and TelePad service revenue increased by
$154,000  (169%) in the  quarter.  For the  first  nine  months  of 1998,  total
revenues  increased  $2,077,000,  or 75%, from  $2,786,000 in the same period in
1997. L&E added combined product and service revenue of $3,408,000, but this was
partially  offset by a $1,331,000  decline in TelePad revenue due primarily to a
reduced  number of  shipments of TelePad 3 computers in the first nine months of
1998 compared to the nine months of 1997.  Service revenue increased 376% in the
first nine months  compared  to the same  period in 1997 due to the  addition of
$65,000 in L&E service  revenue  and an increase of $398,000 in TelePad  service
revenue due to an increase in awards of service contract work.

         Cost of  products  and  services  sold  during the three  months  ended
September 30, 1998 totaled  $1,941,000  (75% of revenue)  compared to $1,289,000
(99% of  revenue)  in the  same  period  in 1997.  L&E's  cost of  products  was
$1,365,000  and the cost of services was $69,000 in this  period.  For the first
nine months of 1998, the cost of products and services sold was $3,927,000  (81%
of revenue) compared with $2,651,000 (95% of revenue) in the comparison  period.
For the nine month period, L&E's cost of products was $2,432,000 and the cost of
services was $96,000.  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 third quarter of 1998 improved from
the same period in 1997  primarily  as a result of the addition of L&E, but they
were offset  partially by a $13,000  negative gross margin on service  contracts
resulting  primarily from the reversal of service contract revenue in the second
quarter of 1998.  Improving  competitive  computer  technology  continues to put
downward margin pressure on the TelePad 3 computer sales.

         Research and development ("R&D") expenses for the third quarter of 1998
were $62,000 compared to $155,000 for the same period in 1997. This 60% decrease
in R&D spending in the quarter  ended  September 30, 1998 and a 59% reduction in
the first nine months 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  ("SG&A") expenses for the quarter
ended  September 30, 1998  decreased  $95,000 (8%) from the same period in 1997.
This was the net result of the  addition  of $238,000  in L&E SG&A  expenses,  a
$410,000 decrease in TelePad SG&A expenses,  and the addition of amortization of
goodwill  related  to the  acquisition  of L&E of  $77,000.  For the nine  month
period,  SG&A expenses  increased  $95,000,  or 3% from the same period in 1997.
This  increase was  primarily  the net result of a $337,000  (10%)  reduction in
TelePad SG&A  expenses,  the  addition of $326,000 in L&E  selling,  general and
administrative  expenses,  and the  addition  of  $106,000  in  amortization  of
goodwill related to the acquisition of L&E.

         Interest  income in the third  quarter of 1998 was $3,000  compared  to
$127,000  in  the   comparison   period.   This  reflects  a  reduced   invested
cash-equivalents  caused by the use of cash in  operations.  For the nine  month
period,  interest  income was $22,000  compared  to  $290,000 in the  comparison
period also reflecting  reduced invested  cash-equivalents  caused by the use of
cash in operations.  Interest expense  increased  $82,000 in the current quarter
and  $109,000  in the nine  month  period,  primarily  as a result  of the notes
payable related to the acquisition of L&E.

                                       13
<PAGE>



         The Company is monitoring and considering possible  implications of the
year 2000 problem,  but to date has not encountered any issues that would have a
material adverse effect on the operations or financial condition of the Company.
The Company's current product the TelePad 3 is not presently year 2000 compliant
in that the TelePad 3 computer's  date does not  automatically  roll over to the
correct date in the year 2000.  However, it is possible to manually reset to the
correct  date.  The  Company is in  discussions  with the  software  vendor that
provided the  software  which  provides  the date  function and based upon these
discussions  believes that the necessary  modification  is feasible and that the
cost to modify the code will not be material. There can be no assurance that the
Company  will be able to implement  the  necessary  changes in an efficient  and
timely  manner or that such changes will be effective in  automatically  rolling
over the date to the correct date in the year 2000.

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

         At September 30, 1998,  the  Company's  cash and cash  equivalents  was
$187,000, a $1,402,000 decrease from the prior year-end balances.  Net cash used
in operating  activities was $1,844,000 in the nine-month period ended September
30, 1998 as compared to $4,100,000 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  $709,000 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 $1,444,000 use of cash.  Inventory
increased  $872,000 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 an $82,000 decrease in
L&E's  inventory.  The  increase  in  inventory  was  partially  financed  by  a
$1,286,000  draw down of advances by Sanmina,  which  advances  had been made in
1997 against open purchase  orders for inventory.  Accounts  payable and accrued
expenses decreased by $562,000 in the nine-month period ended September 30, 1998
due primarily to a $474,000 reduction in L&E accounts payable.

          In the  nine-month  period  ended  September  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
  
                                       14

<PAGE>

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.

         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.

         Upon the occurrence of certain events ("Investor Acceleration Events"),
(i) the interest  rate under the Investor  Notes is subject to increase  from 8%
per annum to 16% per annum,  and (ii) all sums of principal  and  interest  then
remaining  unpaid  under  the  Investor  Notes  and all  other  amounts  payable
thereunder,  shall be immediately due and payable,  at the holders  option,  all
without demand,  presentment or notice, or grace period.  Investor  Acceleration
Events include, among other things, the failure of the Company to obtain, within
60 days of  Closing,  the  approval  of its  shareholders  required  pursuant to
NASDAQ's  corporate  governance  rules to allow conversion of the Investor Notes
and exercise of all the Warrants and  conversion  of the Put Notes,  but only to
the extent of the Investor  Notes that may not be converted due to the Company's
failure  to obtain  such  shareholder  approval.  As of the 170th day  following
Closing, the Company has not obtained such shareholder  approval.  The Investors
have  indicated  to the  Company  their  intention  to  convert a portion of the
Investor Notes (no Put Notes have been issued as of such date).

         On February  27,  1998,  the Company was  notified by The Nasdaq  Stock
Market,  Inc. ("Nasdaq") that the market price for Class A Common Stock ("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  Nasdaq  that the  market  price  for  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 Nasdaq that the
market  price  for  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.  On
October 30, 1998, the Company requested a hearing on this matter.

         On  September 1, 1998,  the Company was notified by Nasdaq that,  based
upon a review of the Company's public filings and market data, the Company fails
to meet any one of the three quantitative  requirements for continued listing of
the Common Stock Nasdaq SmallCap Market (the "Quantitative Requirements"), which
include (a) net tangible assets of $2 million, (b) market  capitalization of $35
million,  or (c) net income of $500,000 in the most  recently  completed  fiscal
year or two of the last three most recently  completed fiscal years. The Company
must satisfy al least one of the three Quantitative Requirements, in addition to
satisfying the Minimum Share Price Requirement,  to avoid delisting. The Company
has  submitted a proposal to Nasdaq,  which  requires  additional  financing  to
implement, and which the Company believes will enable it to satisfy at least one
of the Quantitative Requirements,  although there is no assurance that such plan
will be  successful  or  acceptable  to Nasdaq or that the  required  additional
financing  which is necessary to implement the proposal will be available at all
or on terms that are acceptable to the Company.

         The Company's existing capital resources, consisting primarily of cash,
short-term investments have continued to be 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 

                                       15

<PAGE>

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  sales,  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 will most likely
require  substantial  additional  financing  at such time.  The  Company  has no
established banking relationships and no available line of credit.  However, the
Company has  established  a financial  arrangement  with a finance  company that
provides for advances against assigned  invoices which assists in leveraging its
working capital.  L&E's established banking relationships and line of credit are
restricted to use within L&E and are not otherwise available to the Company as a
source of  liquidity.  The  Company  may seek to further  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 and private offerings. There can be no
assurance as to the availability or terms of any required additional  financing,
when and if needed. In the event that the Company is unable to generate revenues
sufficient  to cover  operating  expenses or obtain  additional  financing,  the
Company may be unable to satisfy  most of the current  liabilities  and would be
unable to sustain its  operations at the current level  thereafter.  The Company
would then be required to radically reduce its operations and may be required to
seek protection under the United States Bankruptcy Code.

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

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

         Not applicable.


PART II. OTHER INFORMATION

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.

         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.

                                       16

<PAGE>


                                   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:    November 16, 1998          /s/ DONALD W. BARRETT              
      -------------------------     -----------------------------------------
                                    Donald W. Barrett
                                    Chairman of the Board and Chief 
                                    Executive Officer



Date:    November 16, 1998          /s/ ROBERT D. RUSSELL              
      -------------------------     -----------------------------------------
                                    Robert D. Russell
                                    Vice President, Secretary and Treasurer
                                    Principal Financial and Accounting Officer