SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB
                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

For Fiscal Year ended December 31, 1999           Commission File Number 0-21934

                              DIGITAL PRIVACY, INC.
             (Exact Name of Registrant as Specified in its Charter)

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

4820 Minnetonka Blvd., Suite 410, St. Louis Park, MN            55416
(Address of Principal Executive Offices)                     (Zip Code)

Registrant's telephone number,
      including Area Code:                          (612) 285-1163

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

Securities registered pursuant
      to Section 12(g) of the Act:                  Common Stock, par value $.01

Indicate by check mark whether the issuer (1) has filed all reports  required to
be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during
the preceding twelve (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 ninety (90) days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
registrant's  best  knowledge,  in definitive  proxy or  information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The  aggregate  market  value of voting and  non-voting  common  equity  held by
non-affiliates of the Issuer: Indeterminate - No existing market

The number of shares outstanding of Issuer's Common Stock as
of March 30, 2000: 3,903,113

Transitional Small Business Disclosure Format: Yes [   ] No [X]

Check  whether the Issuer has filed all  documents  and  reports  required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the  distribution  of
securities under a plan confirmed by a court.
Yes [X] No [   ]

Revenues for the most recent fiscal year (September 9, 1999 (exit from
bankruptcy) through December 31, 1999): $761


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ITEM 1.           BUSINESS

Important background information

                  Before  carefully   reading  the  substantive  parts  of  this
section,  there is some background information about us that you should know. We
feel this  information will help you understand us a little better and will make
the following sections more meaningful.

                  As you see us today, we are the result of a merger on December
30, 1999 between a publicly held Delaware corporation called Telepad Corporation
and Digital Privacy, Inc., a privately held Minnesota corporation.  Prior to the
merger,  both  companies  recently came out of bankruptcy  proceedings,  Digital
Privacy,  Inc. in September 1999 and Telepad  Corporation in November 1999. As a
result of the bankruptcy,  the Delaware  corporation  emerged as a shell with no
significant  assets or  liabilities  and no business  operations.  The Minnesota
corporation  emerged from bankruptcy with its business operations intact. In the
merger, the Minnesota  corporation merged into the Delaware  corporation and the
Delaware  corporation  changed  its name to  Digital  Privacy,  Inc.  and  began
carrying out the Minnesota corporation's business activities.

                  Thus,   today,  we  are  really  the  publicly  held  Delaware
corporation carrying on the business of the former Minnesota  corporation.  This
means that  whenever we talk about "us" or "we" it is  referring to the Delaware
corporation,  and when we talk about our business, we mean the operations of the
former  Minnesota  corporation that are now owned and being run by us (otherwise
known as the Delaware corporation).

                  Since both companies  recently came out of bankruptcy prior to
the merger, and only one company had any business activities,  there are unusual
accounting  rules that apply.  The  significant  information  is presented  from
September 9, 1999  through  December 31,  1999.  This  information  reflects the
operations of the Minnesota corporation from the time it emerged from bankruptcy
through the end of the year. Any information regarding the pre-merger operations
of the Delaware  corporation are not meaningful since we no longer carry on that
business.

Forward-looking Statements

                  The following  discussion  should be read in conjunction  with
the financial  statements and related notes which are included elsewhere in this
prospectus.   Statements   made  below  which  are  not  historical   facts  are
forward-looking statements. Forward-looking statements involve a number of risks
and uncertainties  including,  but not limited to, general economic  conditions,
our ability to complete  development  and then market our products and services,
competitive factors and other risk factors.

Our Business

                  Our  mission  is to become a leading  provider  of smart  card
based computer and data security products and customized multi-application smart
card  solutions  for   corporations,   government   agencies  and  organizations
worldwide.

                  We expended a  considerable  amount of time and  resources  to
develop a product line for computer and data security which we believe is one of
the most comprehensive in the industry.  We design,  develop and market multiple
security  applications  utilizing smart card technology for personal  computers,
laptops and network computers. Our suite of products control access to systems

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and  information,  authenticates  users through  various  techniques and secures
proprietary  documents,  files and other  information  through  encryption,  all
incorporating  smart card  technology.  Our products can also be integrated with
new or existing applications for multi-application solutions. Key industries for
multi-application  solutions are facility security, banking and payment systems,
health care, travel and transportation and e-commerce.

                  Our  strength  is in  our  smart  card  and  digital  security
expertise.  We believe that smart cards are destined to become the interoperable
token of the future. This interoperable  token, a credit card sized plastic card
with an  embedded,  programmable  computer  chip,  is an  extremely  secure  and
versatile tool that, with the right applications, can solve many of the security
issues of today.  We believe  that a major shift is beginning to occur for smart
card solution providers inasmuch as computer system  manufacturers and operating
system  developers will become the smart card solution  providers of the future.
This is a  dramatic  transition  from the  niche-market  focus  that  smart card
vendors  have today.  The  confluence  of the need for digital  security and the
advance of smart card technology present the opportunity we intend to attempt to
exploit.

                  We  possess  broad  method  and  apparatus  patents  that  are
valuable for  computer  and  information  security,  communications,  electronic
commerce and  telephony  markets.  We plan to deploy our unique  combination  of
smart card and security expertise to gain the leadership position for smart card
security while also providing other applications for that marketplace.

                  Our strategy is to deploy our unique  combination  of security
and  smart  card  expertise  in  open  systems  architecture  design  to  gain a
leadership position within the information security market.

                  The smart card and computer security market  independently are
growing rapidly.  However,  the intersection of these two markets occurs because
of the  need  for a secure  digital  world.  We  believe  that  this can be best
achieved  through the  utilization of smart card  technology.  Opportunities  in
these intersecting markets are enormous. Currently, the computer security market
offers  a  wide  variety  of  products  fulfilling  a  singular  customer  need.
Alternatively,  the smart card market is  characterized by integrating a product
with a uniform  physical form (the smart card) that offers many vertical markets
a wide variety of customer applications in addition to a security solution.

                  Smart cards secure information by controlling  end-user access
to both desktop,  notebook and network  computers.  Encryption  software extends
protection  to  wherever  the data is stored  within  the  distributed  network.
Furthermore,  virtual private networks and associated secure messaging  products
facilitate the protection of data in transit.

                  We believe that security  capabilities will become part of all
standard network components; routers, with their additional functionality,  will
subsume   firewalls;   network  directory  server   functionality  will  subsume
Certificate  Servers;  and virtual private networks and secure messaging will be
included in the browser and e-mail products and ultimately will be embedded into
all  operating  systems.  Already,  smart card  readers  are being  embedded  in
desktop, notebook, Thin-client and Network computers. In all of these instances,
our Tool Kit with its smart card  enabling  technology,  the most  robust on the
market, will be wholly integrated.

                  In the year 2000,  we believe  that smart  cards will begin to
become the single largest industry segment for security. This occurs because the
largest  component of an information  system is the end-user's  computer,  which
will have an integrated smart card reader. The inclusion of

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certification  servers and encryption software within the network structure will
enable the computer to become a secure access point into the network.

                  Our Privacy  Suite is the label we have attached to all of the
products  which have been derived from our core  technology.  Our Privacy  Suite
includes:

         o    Privacy.ACCESS(TM) - controls access and authenticates
              thin-clients, NC or PC users
         o    Privacy.APP(TM) - provides  developers with the open
              migration facility to incorporate smart cards in their
              applications
         o    Privacy.FILE(TM) - transparently encrypts / decrypts user
              proprietary files and provides non-repudiation with digital
              signatures
         o    Privacy.WEB(TM) - secures browsers and web-site accessibility
         o    Professional Services - smart card integration services
              allowing proprietary applications to reside on a single smart card

Privacy.ACCESS

                  The ability to identify  and  authenticate  users of computers
and  servers  has  become  an  increasingly  costly  and  troublesome  task  for
corporations.  With the rapid growth and  utilization  of mobile  computing  and
Internet access  compounding this problem,  organizations  are in dire need of a
scalable and  extendable  solution for  authentication  and access  control.  We
believe  we  have  developed  the  ultimate   enterprise-wide  access  solution,
Privacy.ACCESS.

                  Privacy.ACCESS  is an access  and  authentication  application
that enables  organizations  and individuals to easily  integrate access control
capabilities into their existing networking  systems.  Privacy.ACCESS is an easy
to install, user friendly security application that ensures that only authorized
users have access to proprietary computer systems, applications and information.

                  Upon   insertion   of  a   smart   card,   and   after   valid
authentication,  a user will have  access to the  system  and  designated  data.
Privacy.ACCESS   also  offers  optional   password  and  fingerprint   biometric
authentication for enhanced security and administrative control.  Privacy.ACCESS
can be  incorporated  into a number  of  platforms  and is  compatible  with the
leading  smart card and smart card readers  available.  We also offer a software
only version that does not require a smart card reader.

Privacy.APP

                  As smart card  technology  becomes a mainstream  peripheral in
the  computing  world,  a number of  prominent  worldwide  corporations  such as
Honeywell,   Microsoft,  HP  and  IBM  are  making  significant  investments  in
integrating  smart card  capabilities.  Because smart card applications are just
beginning  to  emerge  from  a  nascent  stage,   there  is  a  high  degree  of
misunderstanding  associated with the proper development of applications for the
computing market. We have been developing smart card based applications for over
seven  years  and  have  created  the most  comprehensive  smart  card  tool kit
available for developing robust, open, smart card applications.

                  Privacy.APP  is DPI's  smart  card tool kit that  provides  an
intuitive  Application  Program  Interface  (API) allowing  developers to create
smart card based  applications.  It also permits the  integration of smart cards
into existing applications. Smart cards are ideal for controlling data

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that requires  portability  and  security.  With the  protection  afforded by an
external   physical  token,  the  smart  card,   software   application  can  be
significantly  enhanced by incorporating  this technology for added security and
multi-functionality.

                  Privacy.APP    provides   three   levels   of   security   for
authentication of the smart card. Additionally,  the smart card will lock up and
be marked unusable after three unsuccessful  log-on attempts by a non-authorized
user.

Privacy.FILE

                  Organizations,  in both the public and private sector, as well
as individuals,  are all lacking in the ability to adequately secure proprietary
informational  assets. One of the most significant corporate or government needs
is a secure,  reliable, cost effective and easy to deploy method of safeguarding
data and  information  that reside on computers.  We provide a unique and simple
solution with our Privacy.FILE product.

                  Privacy.FILE is a high performance data security solution.  It
is one of the most comprehensive encryption applications on the market today.

                  Privacy.FILE  protects  data by utilizing a unique  encryption
key (E-Key(TM)) that is stored on the hard drive or a floppy disk.  Privacy.FILE
also offers digital signature  capabilities for enhanced security.  Privacy.FILE
ensures that only  authorized  users have access to protected  data. In order to
access  their  protected  data,  the user must  provide the  necessary  personal
identification responses.

                  Privacy.FILE  is a file  encryption  application  utilizing  a
smart card. It ensures trusted security of proprietary  information  stored on a
laptop, desktop or network computer. It secures data by allowing users to select
individual files or directories which are encrypted  utilizing unique encryption
keys that are  stored  on the  smart  card.  These  files  can be  automatically
decrypted when opened and re-encrypted when closed.  The more robust PRO version
of Privacy.FILE offers automatic  transparent  encryption and selected files and
directories   without   requiring   any   action  by  the  end  user.   As  with
Privacy.ACCESS,  Privacy.FILE  also offers a software version only that does not
require a smart card reader.

Privacy.FILE PRO

                  Privacy.FILE PRO is the smart card enabled version of our high
performance  data  security  solution  Privacy.FILE.  It  is  one  of  the  most
comprehensive  encryption applications on the market today.  Privacy.FILE PRO is
the full-featured version of Privacy.FILE.

                  Privacy.FILE   PRO   protects   data  by  utilizing  a  unique
encryption key (E-Key(TM))  that is stored on the smart card.  Privacy.FILE  PRO
also offers digital signature capabilities for enhanced security.

                  Privacy.FILE PRO, through the  use of a  smart  card,  ensures
that only  authorized  users have access to protected  data.  In order to access
their protected data, users insert their  personalized smart card into the smart
card reader and provide the necessary personal identification responses.




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Privacy.FILE Lite

                  Privacy.FILE Lite is designed with all of the functionality of
Privacy.FILE and Privacy. FILE PRO with the exception of encrypted  directories.
Privacy.FILE  Lite also  offers  smart card  based key  storage  for  additional
security.

                  Privacy.FILE  protects  data by utilizing a unique  encryption
key  (E-Key(TM))  that is stored on the smart  card.  Privacy.FILE  also  offers
digital signature capabilities for enhanced security.

                  Privacy.FILE  Lite,  through the use of a smart card,  ensures
that only  authorized  users have access to protected  data.  In order to access
their protected data, users insert their  personalized smart card into the smart
card reader and provide the necessary personal identification responses.

                  Privacy.FILE  Lite protects  data by allowing  users to select
individual  files to be encrypted and decrypted.  Privacy.FILE  Lite also allows
users to send encrypted files or attachments over non-secure  environments  such
as the Internet.

Privacy.WEB

                  Privacy.WEB is still under  development  and is being designed
to offer the most secure method to authenticate and deploy secure  accessibility
to  web-sites  on the  Internet.  Privacy.WEB  is a  combination  smart card and
software  product  that uses our  secure  smart  card  software  to ensure  that
passwords, digital certificates and other authentication mechanisms are securely
stored and transmitted to their destinations.

                  Digital  certificates  are becoming an  increasingly  accepted
means for user identification throughout the Internet world. Non-repudiation can
be  achieved  as well as two factor  authentication  with the use of smart cards
enabled to handle digital certificates.  This product uses a cryptographic smart
card to store Verisign certificates for Internet access control. Privacy.WEB can
also be used on intranets when utilized with Verisign OnSiteSM software.

                  With Internet security becoming an increasingly  vital concern
for individuals,  corporations and governments, we believe that Privacy.WEB will
become an invaluable  tool for  e-commerce,  public  network  security and other
Internet uses.

                  We currently expect  Privacy.WEB to be ready for alpha testing
in March/April 2000.

Professional Services

                  We also offer complete software development  expertise,  smart
card integration and support  services.  Our leading-edge  security products and
smart card expertise give organizations the ability to easily add smart card and
multi-functionality  to existing and new applications and environments.  We have
the ability to provide  clients with the  necessary  tools and our  expertise to
create complete, affordable, scaleable smart card enhanced solutions.

         o        Software Development

                  We have been developing smart card software solutions since we
were established in 1990. All of our solutions incorporate smart card technology
with a primary focus on security

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applications.  We have created a line of smart card security  products that meet
government  standards and has introduced several  leading-edge product offerings
for the  commercial  security  marketplace.  Our  Professional  Services team is
dedicated to creating  flexible  customized  security  solutions  which meet the
specific needs of our clients.

         o        Smart Card Integration

                  We offer  integration  services  to  organizations  seeking to
incorporate  smart cards into existing  applications.  These services  provide a
real benefit to developers  with nominal  experience  in, and exposure to, smart
card  technology.  A sampling of  projects  successfully  completed  include the
incorporation  of smart  card  functionality  into the  WinFrame  and  MetaFrame
clients for Citrix  Systems,  and an ActiveX  plug-in for  Honeywell's  building
security systems.  This smart card based technology merges Honeywell's  physical
security  products  with our  computer  security  products  creating  a complete
security solution.

         o        Support Services

                  Our  developer's  tool  kit,  Privacy.APP,  is an  easy to use
Application  Programming  Interface (API) that includes sample code for the most
popular  compilers.  This tool kit allows  developers to create smart card based
applications  and to  integrate  smart  cards into  existing  applications.  Our
support  services  are  available  to assist in adding  additional  features and
providing smart card support.

         o        SDK Integration

                  We currently have integrated  eight smart cards and smart card
readers, from various  manufacturers,  into our Privacy.APP tool kit. Smart card
and reader  manufacturers  can make their  cards and  readers  available  to our
rapidly increasing install base through incorporation of their product code into
our Privacy.APP product.

         o        Citrix ICA Client Integration

                  Citrix  Systems is  providing to all ICA  licensees  hooks for
smart card  technology  into their WinFrame and MetaFrame  clients.  These hooks
include  the  Gemplus  MPCOS smart card and  Gemplus  GCR-410  reader.  Hardware
manufacturers  that have  selected  other readers and smart cards can have hooks
for those designated products incorporated into the clients through us.

         o        Physical Access Integration

                  We have been  collaborating  with both the Honeywell  Home and
Building  Control and Casi Rusco physical  access  control  systems to provide a
single card  solution  for access to buildings  and  computers  access.  Systems
designed with Privacy.APP can also be made compatible to these physical security
systems with the assistance of our Professional Services team.

The Market

                  Our  primary  focus is the  Identity/Access  smart card market
segment,  which  includes both facility  access  (physical  access) and computer
access (logical access).


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                  We believe  that the  corporate  segment of  Identity/  Access
Control for the smart cards will become the largest  market  opportunity  for us
and thus, logically,  the primary target because smart cards can be incorporated
into  many  applications  in  addition  to  security.   Each  individual  in  an
organization  will be  distributed  a smart card which holds their unique access
profile.

                  The  risks  associated  with  the  corporate  segment  of  the
Identity/Access  market are the slow rate of adoption of new security technology
and the commitment by  organizations  to deploy a complete  enterprise  security
solution.  We are attempting to influence the rate of adoption and deployment by
delivering a transparent solution to both users and system administrators.  This
solution adds  significant  incremental  capabilities  and value.  One important
capability  is single  sign on  services  which  allows  for  one-time  (single)
authentication   and  access  to  all  designated   systems,   applications  and
information.  We believe this is a major opportunity for us because the solution
meets the complete needs and expectations of the enterprise.

                  We believe that colleges, Government Access, and Government ID
segments will also be likely adopters for our products.  Generally, colleges are
often early adopters of technology and become valuable  partners for the seeding
of new  ground.  Colleges  are  also  pioneering  new  trends  such as  distance
learning,  tele-medicine  and other  remote  Internet  applications.  Because of
required  security and the potential cost savings that digital access  provides,
government applications are expected to require smart cards as tokens for access
and information  control.  We have already  developed  strategic  alliances with
government  contractors  who have added its  Privacy  Suite  portfolio  to their
General Services  Administration (GSA) schedules and Blanket Purchase Agreements
(BPA).

                  The  residential  segment  of the  Identity/Access  market  is
undefined and will require the proper consumer product partners.  There are many
large  companies  seeking a presence in this  market.  Because  the  residential
market is just  emerging,  consumer needs and product price points are not fully
understood.

                  The size of the  geographic  markets and rate of adoption will
dictate  where we will  market  our  suite of  products.  We have  developed  an
international  version  of our  Privacy  Suite  of  products  and  has  received
authorization  to export  from the United  States  Department  of  Commerce  and
National Security Agency (NSA).  Initial  international  focus will be in Europe
and Asia.

                  Leadership in ID/access  market mandates that the incorporated
security  solution must be absolutely  transparent  to the end-user.  When users
open their  applications,  files must  encrypt and decrypt  instantaneously  and
transparently  without  perceptible impact on performance.  We have made this an
integral feature of our technology.

                  Ease  of  administration  is  another   significant   customer
requirement.  Many organizations are reluctant to commit to purchasing  security
technology until they experience a security breach or until an effortless,  cost
effective  solution has been successfully  introduced.  Again, we have developed
the  products  and  possesses  the  skills  to meet  all  customer  requirements
including ease of use.

                  The corporate and government markets are in need of a complete
and reliable security solution. The complete security solution involves securing
computers,  information,  building facilities, and other resources. Our open and
flexible smart card security solutions provide these markets a comprehensive and
totally secure enterprise environment with the ability to incorporate additional
applications and functionality onto the smart card.


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                  We have already completed  projects for various  organizations
including  Citrix Systems and Honeywell Home and Building Control  Division.  We
have also demonstrated compatibility with software that uses the same smart card
platforms such as Casi-Rusco and Hughes ID building control products.

                  We currently are actively working with the following  entities
through either partnerships or alliances:

                  o        Citrix Systems, Inc.
                  o        GE Capital IT Solutions
                  o        Gemplus USA
                  o        Honeywell Home and Building Control Division
                  o        Simple Technology Inc.
                  o        Sytel Systems & Telecommunications
                  o        Harramor Enterprises

Competition

                  As discussed  earlier,  we sell into the  intersection  of the
Computer  Security Market and the Smart Card Market.  As a result,  we are faced
with challenges from both markets.  Both markets,  however,  are growing rapidly
and because the Computer  Security  Market is just emerging,  the competition is
not as well defined as it is in the somewhat more mature Smart Card Market.

                  As computer hardware companies enter the smart card market, we
believe  their focus will be  primarily  as suppliers of smart card systems that
include both the reader and associated  software.  These systems are referred to
in the industry as the Card Acceptor Device (CAD). When the CAD is packaged with
an  application  program  interface  (API) it is  known  as the CAD  API.  Major
companies  such  as IBM  and HP  currently  ship  CAD  API  products  which  are
compatible with our software.

                  We will be competing with the following companies. Their names
and products are listed below:

                  COMPANY                            PRODUCT
                  -------                            -------
                  Norton/Symantec                    For your Eyes Only
                  Security Dynamics                  SecurPC
                  AT&T                               Secret Agent
                  Alladin                            Private File
                  Litronic                           SecureSmart
                  Network Associates                 PGP for Windows
                  Fischer                            Watchdog
                  Aliroo                             PrivaFile

                  Most if not all of  these  companies  have  greater  resources
available for research and development and marketing than us.

Intellectual Property

                  Our strategy  regarding  the  protection  of our  intellectual
property is to  trademark  and patent  certain new  products  thereby  providing
barriers to entry for competitors while also attracting  valuable  alliances for
successful marketing of our product globally.

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                  In addition to our Privacy Suite of products described earlier
which are marked to indicate that we are seeking trademark  protection,  we have
also filed trademark  registrations for "DPI" and "Digital Privacy" as well as a
servicemark for the latter.

                  The following patents are either issued or pending. Due to the
sensitivity  of the  information  on  patents  that  are  pending,  only a brief
description will be offered.  However,  in the case where the patent has already
been  issued  and  the  information  is now of  public  record  a more  detailed
description is offered.

                  The initial objective of the patent strategy is to insure that
both the Method (process) and Apparatus (device) of the invention are protected.
An additional  objective is to utilize  continuances in part, which  necessitate
further patent filings, which extend and broaden the claim set of the patent.

                    o    Method  and   Apparatus   for  preboot   protection  of
                         unauthorized  use  of  programs  and  data  with a card
                         reader   interface.   Patent   numbers   5,327,497  and
                         5,515,440.  The value of this  patent  is to  provide a
                         method of securing a computer by controlling  access to
                         all  internal  devices  (i.e.  hard  drive,  COM  port,
                         printer,  etc.) via an integrated  smart card reader. A
                         microprocessor   controlled   card  reader   interfaces
                         logically by connecting to the central  processing unit
                         (CPU) of the  computer.  The  device  reads and  writes
                         information  from and to a smart card  inserted  in the
                         smart card  reader and  performs  additional  functions
                         (i.e. access control, authentication, etc.) in response
                         to commands received from the CPU.

                    o    Method  and  Apparatus  preboot  protection  for a data
                         security  system  with   anti-intrusion   capabilities.
                         Patent number 5,610,981.  The prominent feature of this
                         patent allows for a hardware encryption chip to encrypt
                         all data that is stored on the hard disk.  The value of
                         this hardware  feature assures faster  processing (8 to
                         10 times  faster)  and more  effective  security of the
                         customer data. A further  feature of this patent is the
                         system protection methods, which regulate access to the
                         system.  Multiple levels of data protection methods are
                         provided.

                    o    Method  and  Apparatus  preboot  protection  for a data
                         security system with anti-intrusion capabilities.  This
                         patent is a  continuation  of patent number  5,610,981,
                         which will include an internal audit system.  This will
                         permit the security officer of a corporation to monitor
                         the access and usage of the enterprise.  This patent is
                         pending.

                    o    Method  and  apparatus   for  a  Cellular   Phone  Call
                         Management System (CPCMS(R)).  Patent number 5,761,624.
                         This   invention   pertains   generally   to   cellular
                         communications     systems,     particularly    to    a
                         microprocessor, which controls the memory interface for
                         a cellular  telephone.  This  permits the  recording of
                         calls  on  a  memory  device  as  they  are  placed  or
                         received.  It also  contains the  computer  software to
                         process call transactions.


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                    o    Access  controlled  /  crypto  system.  This  invention
                         relates to a trusted security system for protecting and
                         controlling access to data using a system of electronic
                         keys (E-Key). This patent is pending.

                    o    Card access system  supporting  multiple cards and card
                         readers.  This  invention  relates  generally to a card
                         access system which  supports  multiple  cards and card
                         readers and in  particular  to a integrated  circuit or
                         smart card access system for supporting multiple models
                         and  makes of  integrated  circuit  or smart  cards and
                         readers. This patent is pending.

Employees

                  We currently have seven full time employees of which one is an
executive, two are engaged in administrative  activities and four are engaged in
marketing activities.  Additional financing permitting,  we intend to hire up to
20 additional employees. None of our employees are represented by a labor union.
We believe that relations with our employees are good.

ITEM 2.           PROPERTIES

                  Our facilities are located in approximately  1,000 square feet
of leased office space in St. Louis Park, Minnesota. The lease expires on August
31, 2000 and provides for a monthly  rental of $1,087.  We have only  negligible
costs relating to environmental compliance laws.

ITEM 3.           LEGAL PROCEEDINGS

                  We  are  not   currently   involved  in  any  material   legal
proceedings.

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

                  Not applicable.


                                     PART II

ITEM 5.           MARKET PRICE OF REGISTRANT'S COMMON EQUITY
                  AND RELATED STOCKHOLDER MATTERS


                  There is no public  trading market for our  securities.  As of
March 30, 2000, there were 38 record holders of our common stock.

                  Since inception,  we have not paid any dividends on its common
stock and have no current intention to do so in the foreseeable future.

                  We are  authorized  to issue up to  5,000,000  shares of blank
check preferred stock. This means that the board of directors has the ability to
determine  the rights and  preferences  of each series of preferred  stock to be
issued.  As a result,  classes or series of preferred stock could be issued with
rights and  preferences  superior in many ways to our common stock.  In December
1999,  we created a class called Series A 8%  Cumulative  Convertible  Preferred
Stock,  consisting of 40,000  shares.  To date,  only 30,000 shares of preferred
stock have been issued.

                                       11

<PAGE>




                  The Series A  preferred  stock is  convertible  into shares of
common stock at any time in an amount determined by taking the sum of the stated
value per share  ($10.00)  and any accrued and unpaid  dividends  divided by the
lesser of $1.05 or 77.5% of the average  closing bid prices for the five trading
days preceding the conversion. We may redeem the Series A preferred stock, after
the effective  date of a  registration  statement  filed with the Securities and
Exchange  Commission,  upon 30 days  notice,  for 125% of the stated  value plus
accrued  dividends.  We have  reserved  1,200,000  shares  of  common  stock for
conversion of the Series A preferred stock.

                  Dividends are payable  quarterly,  at our election,  in either
cash or additional  Series A preferred shares at the rate of one share of Series
A preferred  stock for each $10 of dividends not paid in cash.  Dividends may be
paid with Series A preferred  stock only if the common  stock  deliverable  upon
conversion  of such  stock  was  included  for  public  resale  in an  effective
registration statement.

Convertible Securities

                  We currently have an aggregate of 851,059 options and warrants
outstanding,  each of which entitles the  registered  holder thereof to purchase
one share of common stock. All of the derivative  securities  contain provisions
which protect the holders thereof against dilution by adjustment of the exercise
price and number of underlying  shares of common stock, in certain events,  such
as stock dividends,  stock splits,  mergers,  sale of  substantially  all of our
assets,  and  for  other  extraordinary  events.  We  also  have  outstanding  a
convertible  note in the face amount of $600,000  that is currently  convertible
into 1,521,828 shares of common stock.  These rights are also protected  against
dilution.

ITEM 6.           SELECTED FINANCIAL DATA

                  The following selected financial data for the period September
9, 1999 (exit from  bankruptcy)  through  December  31, 1999 is derived from our
audited financial statements included in this Report.

                  The  following  data  should be read in  conjunction  with our
financial statements and related footnotes.

Statement of Operations Data

                                From 9/9/99
                             (exit bankruptcy)
                                to 12/31/99
                             -----------------
         Revenue              $       761
         Operating Loss       $ ( 294,077)
         Income Taxes         $    -0-
         Net Loss             $ ( 377,129)
         Net Loss Per Share-
         Basic and Diluted    $  (.11)


                                       12

<PAGE>

Balance Sheet Data

                                  December 31, 1999
                                  -----------------
         Working Capital            $      7,997
         Total Assets               $    590,412
         Total Liabilities          $    696,014
         Stockholders' Deficit      $   (105,602)


ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS

                  The following  discussion  should be read in conjunction  with
the financial  statements and related notes which are included elsewhere in this
report. Statements made below which are not historical facts are forward-looking
statements.   Forward-looking   statements   involve   a  number  of  risks  and
uncertainties  including,  but not limited to, general economic conditions,  our
ability to complete  development  and then  market our  products  and  services,
competitive  factors  and other  risk  factors,  not all of which  are  detailed
herein.

                  We were  initially  formed in December  1990 and are currently
preparing to begin  commercial  activity in the first  quarter of 2000. We filed
for bankruptcy  under Chapter 11 of the U.S.  Bankruptcy Code on January 6, 1999
and our Reorganization  Plan was confirmed by the U.S.  Bankruptcy Court for the
District of Minnesota on September 8, 1999.

                  After many years of design and development,  the full array of
operating  software and systems  described above in "Business" are available for
commercial use.

                  We believe we are currently in the pre-launch  phase,  and are
now in a  position  to offer a diverse  range of  products  designed  around the
concept of providing  useful products and services in an attractive,  convenient
format to people in their everyday environments.

                  From  December  7,  1990  through  December  1998,  we  raised
approximately  $5,000,000  through  equity  and  debt  financings  from  private
investors. As a development stage enterprise, we incurred losses in excess of $8
million.

                  Following the merger,  our ability to continue is dependent on
our ability to raise additional capital and, ultimately,  to generate sufficient
cash flow from  operations  to support our cost  structure.  The  following  are
primary  obstacles  which we feel  contributed to our inability to generate cash
flow sufficient to meet scheduled  payments and sustain  further  operations and
forced us into bankruptcy prior to the merger:

                    1.   We experienced  significant  delays,  some unforseeable
                         and  uncontrollable,  in the design and  development of
                         our products;

                    2.   We  experienced  delays in  bringing  our  products  to
                         market because of the slow  adaptation and  development
                         of the  smart  card and  security  market  place in the
                         United States, and the lack of established distribution
                         channels;

                    3.   Our inability to deliver to the  government  market our
                         hardware based product and the  significant  time delay
                         in developing new software products; and

                    4.   We expended a considerable amount of time and resources
                         in preparing for further  financing and growth.  It was
                         necessary  to engage an  independent  auditor to review
                         and  audit   historical   financials  and   operational
                         procedures   and  to  retain   consultants  to  provide
                         marketing research and prepare a

                                       13

<PAGE>




                           comprehensive  business  plan.  We also  retained the
                           services  of  corporate  counsel to  prepare  private
                           placement  memorandum,   review  our  past  sales  of
                           securities for compliance with applicable  securities
                           laws   and   applicable    contractual    shareholder
                           obligations,  assist in reducing potential  liability
                           resulting from past  transactions,  and advise on the
                           revaluation    and   related   issues   involved   in
                           recapitalization efforts.

                  We  recognized  only very nominal  revenues in 1998.  Revenues
were generated primarily on integration services and the sale of our developer's
tool kit product. 1998 was the first year we realized sales.

                  Inadequate cash flow and lack of capital  resources  continued
to be the most  serious  concerns  facing our  management  coming into 1999.  At
December 31, 1998, we had a significant  negative net worth.  Having taken steps
to cut expenses and extend the payment schedule on long- term payables,  we then
developed a proposal  for a  restructuring  of our debts that would  involve the
conversion of secured and certain unsecured debt into common stock.  Ultimately,
we concluded that a non-bankruptcy restructuring was unlikely to be completed in
a timely  manner.  We therefore  decided to file a Chapter 11  bankruptcy as the
best method for restructuring our obligations.

                  Following  the   bankruptcy   proceedings   we  added  to  our
management structure and board of directors. Current management is familiar with
our history and recognizes the problems that plagued us prior to the bankruptcy.
Accordingly, we are now focused on two aspects: (i) raising sufficient financing
to  support  us until  positive  cash flow from  sales  are  generated  and (ii)
generating sales.

                  In this  regard,  since  December  30,  1999  we  have  raised
$300,000  from the sale of  convertible  preferred  stock  and  $566,000  from a
private placement.  We believe these funds will be sufficient for at least seven
months. We currently project requiring approximately an additional $1,500,000 to
allow us to grow the business.  In the event we are unsuccessful in raising such
funds in this offering,  we will have to seek alternative sources of funding. We
currently have no plans how to raise such additional funds.

                  There  can be no  assurance  that we will be able to raise any
additional  proceeds  from our current  private  offering of our  securities  or
otherwise obtain the substantial  additional  capital  necessary to permit us to
attract and retain a sufficient  number of subscribers  or that any  assumptions
relating to our business plan will prove to be accurate.  While we hope to raise
additional  financing,  we have no  current  arrangements  with  respect  to, or
sources of,  additional  financing  and there can be no assurance  that any such
financing,  particularly  the  significant  amounts of  financing  that would be
required,  will be available to us on commercially  reasonable terms, or at all.
Any  inability  to obtain  additional  financing  could have a material  adverse
effect,  including  possibly  requiring  us to  significantly  curtail  or cease
operations.

                  At  the  same  time  we are  actively  pursuing  sales  of our
products.  Effective March 1, 2000 we hired a Vice President of Sales to develop
a marketing  plan and sales  department to increase  sales.  We are hopeful that
these efforts will be successful.  In the event we can increase sales, this will
relieve the burden of financing  and allow other members of management to devote
their efforts to growing the business through internal growth.


                                       14

<PAGE>




                  Once we attain a level of liquidity, we will also look to grow
our business through acquisitions. We currently have no acquisition plans and do
not believe that any such type of transaction is likely in the near future.

                  While we currently  expect to incur a loss from  operations in
the first  quarter of 2000, we also expect to have an increase of revenues and a
strong working capital  position as a result of our recently  concluded  private
offering.

Year 2000 Disclosure

                  We are  Year  2000  compliant  and we do  not  anticipate  any
internal problems. In the event any internal problems should arise, we have many
expert  computer  technicians on our payroll and we believe that we will be able
to satisfactorily  address any such problems.  However,  we are dependent on the
integrity of the Internet  being  maintained to increase its use as a commercial
marketplace,  thereby  increasing  demand for our products.  Given the currently
available  information  it does not appear to be likely that the  Internet  will
suffer major failure and, accordingly,  we do not believe that our potential for
profitability  or  operations  will be  materially  affected  by the  Year  2000
problem.

ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                  The  financial  statements  are  included  herein  immediately
before  the  signature  page.  We are  not  required  to  provide  supplementary
financial information.

ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                  ON ACCOUNTING AND FINANCIAL DISCLOSURE

                  Following  its merger on December 30, 1999,  we retained a new
auditing firm.  Current  Reports on Form 8-K and 8-K/A reporting this event were
filed January 19, 2000 and March 14, 2000, respectively.

                  Prior  to  our  bankruptcy  filing  on  March  17,  1999,  our
independent  auditors  were  Ernst & Young  LLP  ("E&Y").  E&Y  reported  on our
financial  statements  for the year ended  December  31, 1997 and was engaged to
audit our financial statements for the year ended December 31, 1998; however the
1998 audit was not completed due to our bankruptcy filing on March 17, 1999. E&Y
has not performed any professional services for us subsequent to the date of the
bankruptcy filing.

                  The report of E&Y on our financial  statements for fiscal year
1997 did not  contain an adverse  opinion or  disclaimer  of opinion and was not
qualified or modified as to  uncertainty,  audit scope or accounting  principles
except  that it  included  an  explanatory  paragraph  regarding  our ability to
continue as a going concern.

                  In connection  with the audit of our financial  statements for
the year ended  December 31,  1997,  and in the  subsequent  period prior to the
bankruptcy  filing,  there  were  no  disagreements  with us on any  matters  of
accounting principles or practices,  financial statement disclosure, or auditing
scope and procedures  which,  if not resolved to the  satisfaction  of E&Y would
have caused E&Y to make  reference to the matter in their report.  In connection
with the audit of our financial statements for the year ended December 31, 1997,
there  were no  "reportable  events"  as  that  term is  described  in Item  304
(a)(1)(v) of Regulation S-K.

                                       15

<PAGE>




                  In  connection  with E&Y's  engagement  to audit our financial
statements for the year ended  December 31, 1998, E&Y identified  certain issues
such as proper inventory  controls,  sufficient  internal control  structure and
management cooperation to discuss with our Audit Committee. Upon notice of these
issues,  our Audit Committee  Chairman shared E&Y's concerns with management and
expressed  an intent  to work  with E&Y to  address  these  issues.  E&Y did not
perform any auditing  procedures for us subsequent to the date of the bankruptcy
filing.  Therefore  E&Y  cannot  express  an opinion as to whether it would have
concluded to make reference to these issues in its report,  had the relationship
continued and had the audit for the year ended December 31, 1998 been completed.

                                    PART III

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Officers and Directors

         Our officers and directors are as follows:

Name                     Age   Position
----                     ---   --------
Howard Miller            45    President, Chief Executive Officer and Chairman
J. Virgil Bradley        37    Senior Vice President and Chief Technical Officer
Harold Gruesner          47    Vice President Sales
Peter E. Christensen     48    Director
Daniel Hilliard          41    Director
Stuart Eisenberger       48    Director
Mark Sarna               45    Director

Mr. Howard Miller, President, CEO and Chairman of the Board. Mr. Miller has been
actively  involved  in  numerous  and  varied  corporate  ventures  either as an
integral  participant  of senior  management  or as a member of the  Board.  Mr.
Miller  has had a  successful  career as a trader  and  investment  banker  with
several  prominent Wall Street firms. Mr. Miller graduated from Columbia College
attaining  his  Bachelor  of Arts  degree  in 1976  and a  Masters  of  Business
Administration in Finance from Columbia Graduate School of Business in 1978.

Mr. J. Virgil  Bradley,  Senior Vice  President,  CTO.  Prior to joining us, Mr.
Bradley spent 14 years in the U.S. Navy. Mr. Bradley has an extensive background
in computer software and hardware,  maintenance,  testing,  training and project
management.  Mr.  Bradley  is an  experienced  senior  manager  within  defense,
electronic,  computer  technologies  and military  intelligence.  Mr.  Bradley's
background has resulted in major  contributions in the design and implementation
of our new security based products.

Mr. Harold  Gruesner,  Vice President  Sales.  Prior to joining us, Mr. Gruesner
spent 6 years with  InterActive  Plus, a valued added reseller  specializing  in
contact  management  software  and network  installations.  Prior  thereto,  Mr.
Gruesner worked for three years for the Institute for Advanced Technology (IAT),
a spin off from Control Data, where he was Vice President of Sales.  Before IAT,
he was the Regional Sales Manager for Artisoft  Corporation for three years with
responsibility  for developing a reseller  channel in the Midwest.  Mr. Gruesner
has been involved in the computer  industry since 1978. Mr.  Gruesner  graduated
from the University of Minnesota with a B.A. in Business and has been trained by
numerous computer manufacturers  including IBM, Compaq, Apple, GoldMine Software
and Novell.


                                       16

<PAGE>




Mr. Peter E. Christensen,  Director.  Mr.  Christensen is the Chairman and Chief
Executive  Officer of ComTec.  Prior to joining  ComTec,  Mr.  Christensen was a
Managing Director of PaineWebber, Incorporated for 9 years and a member of their
Board of  Directors  for 4 years.  Mr.  Christensen  has  extensive  Wall Street
experience in managing the departments of mortgage backed  securities,  European
fixed income,  quantitative research,  credit research,  fixed income economics,
structured  derivative products and financial  institutions  investment banking.
Mr.  Christensen has also served on the Boards of Directors of various small and
medium sized financial institutions and manufacturing companies.

Mr. Daniel Hilliard,  Director. Mr. Hilliard is one of three general partners of
the Hilliard Limited  Partnership,  a family  partnership formed in 1997, with a
focus in private equity investments.  He also sits on the Boards of Capital Bank
and Vision Aire, a jet airplane  development  company. Mr. Hilliard was a member
of  management  at  American  Medical  Security  for 5 years and was a  planning
analyst and design engineer at Chevron's  Richmond,  California  refinery for 12
years.  Mr. Hilliard  graduated from the University of Minnesota with a Bachelor
of  Science   degree  in  chemical   engineering   and  a  Masters  of  Business
Administration from San Francisco State University.

Mr.  Stuart  Eisenberger,  Director.  Stuart  Eisenberger  has been  involved in
brokerage,  ownership and  management of real estate  investment  properties for
more than 25 years.  He has also been a consultant to investors  and  investment
funds relating to real estate companies.  Since Telepad Corporation's  effective
emergence  from  bankruptcy  on November 8, 1999,  Mr.  Eisenberger  was interim
president until his resignation upon the merger on December 30, 1999.  Following
the Merger, Mr.  Eisenberger  agreed to continue as a director.  Mr. Eisenberger
was neither an officer nor a director of Telepad  Corporation prior to or during
its bankruptcy.

Mr. Mark Sarna,  Director.  Mr. Sarna is 45 years old and is a 1976  graduate of
Columbia University and a 1980 graduate from New York Law School. Presently, Mr.
Sarna is a real estate developer.

Key Employees

Mr. Paul Kimlinger,  Director of Software  Engineering.  Mr.  Kimlinger has been
with us, since our inception. Prior to joining the company, Mr. Kimlinger worked
four years in the  Networking  Group at Cray  Research,  Inc and three  years in
System  Administration  at Northwest  Airlines.  Mr.  Kimlinger  graduated  from
Mankato  State  University  with  undergraduate  degrees in Finance and Computer
Science as well as post-graduate work in the MBA program.

Mr. Thomas Kimlinger,  Software  Engineering  Manager.  Prior to joining us, Mr.
Kimlinger  worked for 7 years at Unisys as a Systems  Programmer  in the I/O and
Processor  Control areas of their operating  system.  Prior to Unisys, he worked
for Western Union as a programmer on their Money Transfer and Mailgram  systems.
Mr.  Kimlinger  graduated  with honors from Mankato State  University  with a BS
degree in Computer Science,  specializing in systems programming, and Electrical
Engineering.  Mr.  Kimlinger  also  has a  technical  degree  in  Business  Data
Processing and Accounting.

Indemnification of Directors and Officers

                  Our By-Laws includes certain provisions  permitted pursuant to
the Delaware  General  Corporation Law whereby our officers and directors are to
be indemnified  against certain  liabilities to the fullest extent  permitted by
law. These provisions of the By-Laws have no effect on any

                                       17

<PAGE>




director's  liability  under  Federal  securities  laws or the  availability  of
equitable  remedies,  such as injunction  or recession,  for breach of fiduciary
duty. We believe that these  provisions  will facilitate our ability to continue
to attract  and  retain  qualified  individuals  to serve as our  directors  and
officers.

                  At  present,  there is no  pending  litigation  or  proceeding
involving   any  of  our   directors,   officers,   employee  or  agents   where
indemnification might be required or permitted. We are unaware of any threatened
litigation or proceeding that might result in a claim for such indemnification.

Compensation of Directors

                  Directors  do not  receive  any cash  compensation  for  their
service as members of the Board of  Directors.  However,  on December 31 of each
year, each Director receives 10,000 stock options.

ITEM 11.          EXECUTIVE COMPENSATION

                  The  following  table  sets  forth  the  compensation  paid or
accrued from  September 9, 1999 through the year ended  December 31, 1999 to its
Chief  Executive  Officer.  No  other  executive  officer  was  paid or  accrued
compensation in excess of $100,000 for such period.


                        SUMMARY COMPENSATION TABLE(1)(2)
                        --------------------------------
                                                             Long-Term
                                   Annual Compensation      Compensation
                                   ---------------------   ----------------
      (a)              (b)           (c)         (d)            (e)
                    Year Ended
Name/Principal      December 31                            Restricted Stock
Position            (3)           Salary ($)   Bonus ($)   Awards (4)
-----------------   -----------   ----------   ---------   ----------------
Howard Miller       1999          41,411       -0-         60,000
President and CEO
-------------------------
(1)      The above  compensation  does not include the use of an automobile  and
         other personal benefits,  the total value of which do not exceed, as to
         any named  officer or  director  or group of  executive  officers,  the
         lesser  of  $50,000  or  10%  of  such   person's  or   persons'   cash
         compensation.
(2)      Pursuant to the regulations promulgated by the  SEC,  the  table  omits
         columns reserved for types of compensation not applicable to us.
(3)      Covers the period from emergence from bankruptcy on September 9, 1999.
(4)      Represents incentive stock options exercisable at $.055 per share.

Employment Agreements


                                       18

<PAGE>




                  On December 31, 1999,  Mr. Howard  Miller  entered into a five
year employment  agreement.  The agreement provides for an initial annual salary
of $180,000 and options to purchase 300,000 shares at an exercise price of $.055
per share,  vesting  equally  over five years.  Mr.  Miller is also  entitled to
receive performance options based upon revenues and our market valuation.

                  On December  31,  1999,  Mr. J. Virgil  Bradley  entered  into
a three year employment  agreement.  The agreement provides for an annual salary
of $100,000 and options to purchase  90,000 shares at an exercise  price of $.05
per share  vesting  equally over three years.  Mr.  Bradley is also  entitled to
receive a bonus based upon sales.

                  On March 1, 2000, Mr. Harold Gruesner  entered into a 10 month
employment  agreement.  The  agreement  provides  for a salary of  $100,000  and
options  to  purchase  90,000  shares  at an  exercise  price of $2.00 per share
vesting equally over three years, provided he remains an employee.

1997 Stock Option Plan

                   The Board of Directors  and our  stockholders  have adopted a
Stock Option Plan as an incentive for, and to encourage  share  ownership by our
officers, directors and other key employees and/or consultants and management of
possible  future  acquired  companies.  The Option Plan provides that options to
purchase a maximum of 2,000,000 shares of common stock, subject to adjustment in
certain  circumstances,  may be  granted.  The Option  Plan also  allows for the
granting of stock appreciation rights in tandem with, or independently of, stock
options.

                   The  purpose  of the Option  Plan is to make both  "incentive
stock options"  within the meaning of Section 422A of the Internal  Revenue Code
of 1986, as amended,  and non-qualified  options and stock  appreciation  rights
available to our officers,  directors and other key employees and/or consultants
in order to give such  individuals  a greater  personal  interest in our success
and, in the case of  employees,  an added  incentive  to continue and advance in
their employment.

                   The Option Plan is  currently  administered  by the  majority
vote of a Committee  appointed  by the Board of  Directors  and  comprised of at
least two "independent"  members of the Board, or  alternatively,  by the entire
Board,  who are not  eligible  to  receive  options,  other than  pursuant  to a
formula. Currently, each director receives 10,000 options on December 31 of each
year.  It is intended  that this plan  qualify  under Rule 16b-3 as  promulgated
pursuant to the  Securities  Exchange Act of 1934,  as amended.  With  specified
limitations, the Committee, or Board, may amend the terms of the Option Plan.

                   The Committee,  or Board, designates those persons to receive
grants under the Option Plan and  determines  the number of options and/or stock
appreciation rights, as the case may be, to be granted and the price payable for
the  shares of common  stock  thereunder.  The price  payable  for the shares of
common stock underlying each option will be fixed at the time of the grant, but,
for incentive stock options, must be not less than 100% of the fair market value
of common stock at the time the option is granted. The Committee, or Board, will
also  determine  the  term  and  vesting  schedule  of  all  options  and  stock
appreciation  rights granted,  provided that no option may be exercisable  later
than ten years  after  the date of  grant.  The  Committee,  or Board,  may also
institute  divesting  schedules.  All options  are payable in cash or check,  by
delivery of a secured  personal  interest bearing note, or by delivery of shares
of common stock equal in value to the cost of the options.


                                       19

<PAGE>




                   There are currently  441,059 stock options  outstanding at an
exercise  price of $.05;  300,000 at an  exercise  price of $.055;  10,000 at an
exercise  price of $1.05;  and 90,000 at an exercise  price of $2.00.  Currently
only 451,059 options are vested.

Compliance With Section 16(a) of the Securities Exchange Act of 1934

                   Section 16(a) of the Securities Exchange Act of 1934 requires
the Company's officers and directors,  and persons who own more than ten percent
of a registered  class of the Company's  equity  securities,  to file reports of
ownership and changes in ownership with the Securities and Exchange  Commission.
Officers,  directors and  greater-than-ten-percent  shareholders are required by
SEC  regulation  to furnish the Company  with copies of all Section  16(a) forms
they file.  During fiscal 1999, one outside  director did not timely file a Form
3.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

                   The  following  table  sets forth,  as  of  March  30,  2000,
information  regarding the  beneficial  ownership of our common stock based upon
the most recent  information  available to us for (i) each person known by us to
own  beneficially  more than five (5%) percent of our outstanding  common stock,
(ii) each of our  officers  and  directors  and (iii)  all of our  officers  and
directors as a group. Each stockholder's  address is c/o Digital Privacy,  Inc.,
4820 Minnetonka Blvd., Suite 410, St. Louis Park, MN 55416.

                                    Number of
                                    Shares Owned
Name                                Beneficially     % of Total
----                                ------------     ----------
Howard Miller (1)                    1,107,837         27.9%
Daniel Hilliard (2)(3)                 471,569         12.1%
Mark Sarna (3)(4)                    1,531,828         28.2%
Peter Christensen (3)                   10,000           *
Stuart Eisenberger (3)(5)               10,000           *
J. Virgil Bradley (6)(7)                92,370          2.3%
Investcor LLC (8)                      529,007         13.4%
Lazar Fruchter                         242,000          6.2%
Hilliard Limited Partnership           446,569         12.3%
All Officers and Directors
  as a Group (6 persons) (9)         3,223,604         57.2%
------------------
* less than 1%

(1) President, CEO and Chairman.  Includes 70,000 currently exercisable options.
(2) Includes 446,569 shares held by Hilliard Limited Partnership, of which he
    is a General Partner.
(3) Director.  Includes 10,000 shares underlying currently exercisable options.
(4) Includes 1,521,828 shares underlying a currently exercisable note.
(5) Does not include 529,007 shares owned by Investcor LLC, which is partially
    owned by spouse.
(6) Senior Vice President and Chief Technology Officer.
(7) Consists of currently exercisable stock options.
(8) Includes 33,562 shares underlying convertible preferred stock.
(9) Includes an aggregate of 1,714,198 shares underlying currently  exercisable
    options and a convertible note and all 446,569 shares owned by Hilliard
    Limited Partnership.

                                       20

<PAGE>





ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

                  Mr. Mark Sarna, a director,  holds a $600,000  promissory note
issued to him when he provided  funds to the Minnesota  corporation  both during
and following its bankruptcy  proceedings.  Pursuant to the terms of the merger,
we assumed the note. At the time, Mr. Sarna was not an officer or director.  The
Note is  convertible  at Mr. Sarna's  discretion  into  1,521,828  shares of our
common stock.

                  Investcor  LLC  purchased  an  aggregate  of 3,524  shares  of
preferred  stock in December  1999 and January  2000.  One of the owners of this
entity is the spouse of Mr. Stuart Eisenberger,  a director. Five other entities
purchased  shares of preferred stock at the same time and on the same terms. The
transaction  was  approved by our entire  board of  directors.  Mr.  Eisenberger
disclaims beneficial ownership of these shares.

                                     PART IV

ITEM 14.          EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K

(a)      1.       Financial Statements

                  The financial  statements are listed in the Index to Financial
Statements and are filed as part of this annual report.

         2.       Not Applicable.

         3.       Exhibits

                  27 - Financial Data Schedule.

(b)               Reports on Form 8-K

                  None.


                                       21

<PAGE>





















                              DIGITAL PRIVACY, INC.

                              FINANCIAL STATEMENTS

                        Period September 9, 1999 through
                      December 31, 1999, Period January 1,
                         1999 through September 8, 1999,
                          Year Ended December 31, 1998




<PAGE>






















                                 C O N T E N T S


                                                               Page

INDEPENDENT AUDITOR'S REPORT                                   1 - 2

FINANCIAL STATEMENTS

    Balance sheets                                               3

    Statements of operations                                     4

    Statements of stockholders' deficit                          5

    Statements of cash flows                                     6

    Notes to financial statements                             7 - 16



<PAGE>

















                          INDEPENDENT AUDITOR'S REPORT




Board of Directors
Digital Privacy, Inc.
St. Louis Park, Minnesota


We have  audited  the  accompanying  balance  sheets of  DIGITAL  PRIVACY,  INC.
(formerly  TelePad  Corporation  - see Note 1) as of December 31, 1999 and 1998,
and the related statements of operations,  stockholders'  deficit and cash flows
for the periods September 9, 1999 through December 31, 1999, and January 1, 1999
through September 8, 1999, and the year ended December 31, 1998. These financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial  position of DIGITAL PRIVACY,  INC., as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the periods September 9, 1999 through December 31, 1999, and January 1, 1999
through  September 8, 1999,  and the year ended December 31, 1998, in conformity
with generally accepted accounting principles.

As more fully  discussed  in Note 2 to the  financial  statements,  the  Company
emerged from protection under Chapter 11 of the U.S. Bankruptcy Code pursuant to
a  reorganization  plan confirmed by the United States  Bankruptcy Court for the
District  of  Minnesota  on  September  8, 1999.  In  accordance  with  American
Institute  of Certified  Public  Accountants  (AICPA)  Statement of Position No.
90-7,  "Financial  Reporting by Entities in Reorganization  Under the Bankruptcy
Code," the Company was required to account for the  reorganization  using "Fresh
Start Reporting" whereby its assets,  liabilities and new capital structure were
adjusted to reflect estimated fair values as of September 9, 1999.  Accordingly,
all financial  statements  prior to September 9, 1999, are not comparable to the
financial statements for the period after reorganization.



<PAGE>




                                      - 2 -





The accompanying  financial  statements have been prepared  assuming the Company
will continue as a going concern. As discussed in Notes 2 and 3 to the financial
statements,  the Company has incurred  losses since  commencement of operations,
filed for bankruptcy under Chapter 11 with the United States  Bankruptcy  Court,
and  had  their  bankruptcy   reorganization  plan  recently  confirmed.   These
conditions raise  substantial doubt about the Company's ability to continue as a
going concern.  Management's  plans concerning these matters are also disclosed.
The financial  statements do not include any adjustments  that might result from
the outcome of these uncertainties.




                                       LURIE, BESIKOF, LAPIDUS & CO., LLP

Minneapolis, Minnesota
February 22, 2000



<PAGE>




                                      - 3 -

                              DIGITAL PRIVACY, INC.

                                 BALANCE SHEETS


<TABLE>
                                                                                                     December 31,
                                                           ASSETS                              1999              1998
                                                                                          ------------     --------------
<S>                                                                                       <C>              <C>
CURRENT ASSETS
    Cash                                                                                   $    84,493      $       4,233
    Inventory                                                                                   14,765             11,835
    Other                                                                                        4,753             38,983
                                                                                            ----------       ------------
       TOTAL CURRENT ASSETS                                                                    104,011             55,051
                                                                                            ----------       ------------

PROPERTY AND EQUIPMENT                                                                          48,584             85,455
                                                                                            ----------       ------------

OTHER ASSETS
    Patents and trademarks                                                                     387,821            374,116
    License fee escrow                                                                          49,996             49,996
    Deferred finance costs (net of accumulated
       amortization of $-0- and $622,975)                                                         -               326,371
                                                                                            ----------       ------------
                                                                                               437,817            750,483
                                                                                            ----------       ------------
                                                                                           $   590,412      $     890,989
                                                                                            ==========       ============


                      LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
    Notes payable to stockholders                                                         $      -         $   1,831,539
    Notes payable to vendor                                                                    10,000               -
    Accounts payable                                                                           56,326            489,053
    Accrued interest                                                                           13,601            159,072
    Accrued expenses - other                                                                   16,087             40,802
                                                                                           ----------       ------------
       TOTAL CURRENT LIABILITIES                                                               96,014          2,520,466
                                                                                           ----------       ------------

NOTE PAYABLE TO DIRECTOR                                                                      600,000               -
                                                                                           ----------       ------------

STOCKHOLDERS' DEFICIT
    Preferred stock:
       Series A, 8%  cumulative  convertible  - $.01 par  value,  $10 stated and
          liquidation value (authorized - 40,000 and 0 shares; issued
          and outstanding - 15,000 and 0 shares)                                               150,000               -
       Undesignated - $.01 par value (authorized - 4,960,000 and
          10,000,000 shares; no shares issued and outstanding)                                    -                  -
    Common stock - $.01, par value (authorized - 95,000,000 and
       20,000,000 shares; issued and outstanding - 3,620,113 and
       6,307,106 shares)                                                                        36,201             63,071
    Additional paid-in capital                                                                  80,449          5,454,002
    Warrants                                                                                     4,877          1,640,240
    Accumulated deficit                                                                   (    377,129)    (    8,786,790)
                                                                                            ----------      -------------
                                                                                          (    105,602)    (    1,629,477)
                                                                                            ----------       ------------
                                                                                           $   590,412      $     890,989
                                                                                            ==========       ============
See notes to financial statements.
</TABLE>


<PAGE>




                                      - 4 -

                              DIGITAL PRIVACY, INC.

                            STATEMENTS OF OPERATIONS

<TABLE>
                                                                    Period                Period
                                                                  September 9,           January 1,
                                                                  1999 Through          1999 Through         Year Ended
                                                                   December 31,         September 8,         December 31,
                                                                    1999                  1999                 1998
                                                               ----------------     ----------------     ----------------
<S>                                                            <C>                  <C>                  <C>
REVENUE                                                          $       761          $        322         $     19,736

COST OF GOODS SOLD                                                       442                    89                1,432
                                                                  ----------           -----------          -----------

GROSS PROFIT                                                             319                   233               18,304
                                                                  ----------           -----------          -----------

OPERATING EXPENSES
    Selling, general and administrative                              228,805               603,225            2,790,916
    Research and development                                          65,591               172,969              381,277
                                                                  ----------           -----------          -----------
                                                                     294,396               776,194            3,172,193
                                                                  ----------           -----------          -----------

OPERATING LOSS                                                  (    294,077)        (     775,961)       (   3,153,889)

INTEREST EXPENSE                                                      13,010                14,507              148,333
                                                                  ----------           -----------          -----------

LOSS BEFORE REORGANIZATION ITEMS
 AND EXTRAORDINARY GAIN                                         (    307,087)        (     790,468)       (   3,302,222)
                                                                  ----------           -----------          -----------

REORGANIZATION ITEMS
    Recapitalization under fresh start
     reporting                                                          -                  889,655                 -
    Professional fees                                                 35,769         (     133,882)                -
    Chapter 11 settlement expense                                     34,273         (      94,535)                -
                                                                  ----------           -----------          -----------
                                                                      70,042               661,238                 -
                                                                  ----------           -----------          -----------

LOSS BEFORE EXTRAORDINARY GAIN                                  (    377,129)        (     129,230)       (   3,302,222)

EXTRAORDINARY GAIN ON DISCHARGE
 OF PREPETITION LIABILITIES                                             -                1,838,259                 -
                                                                  ----------           -----------          -----------

NET INCOME (LOSS)                                               ($   377,129)         $  1,709,029        ($  3,302,222)
                                                                  ==========           ===========          ===========

NET LOSS PER SHARE OF COMMON STOCK -
    BASIC AND DILUTED                                           ($       .11)
                                                                  ==========

WEIGHTED AVERAGE NUMBER OF COMMON
    SHARES OUTSTANDING                                             3,375,122




See notes to financial statements.
</TABLE>


<PAGE>




                                      - 5 -

                              DIGITAL PRIVACY, INC.

                  STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)


<TABLE>
                               Preferred Stock        Common Stock
                             -------------------   --------------------     Additional
                              Number                  Number                Paid-in                     Accumulated
                              of Shares   Amount   of Shares     Amount     Capital        Warrants     Deficit        Total
                              ---------  -------   ----------   -------     ---------     ----------   -----------    ----------
<S>                           <C>        <C>       <C>          <C>         <C>           <C>          <C>            <C>
BALANCE,
   DECEMBER 31, 1997             -        $-        5,563,605   $55,636     $4,176,876    $  748,800   ($5,484,568)   ($ 503,256)

   Net loss for year             -         -             -         -             -              -      ( 3,302,222)   (3,302,222)

   Issuance of stock             -         -          743,501     7,435     1,277,126           -             -        1,284,561

   Issuance of warrants          -         -             -         -             -           891,440          -          891,440
                              -------      ----     ---------    ------      --------      ---------     ---------      --------

BALANCE,
   DECEMBER 31, 1998             -         -        6,307,106    63,071     5,454,002      1,640,240   ( 8,786,790)   (1,629,477)

   Net income for period         -         -             -         -             -              -        1,709,029     1,709,029

   Bankruptcy
      reorganization
      adjustments                -         -      ( 3,961,993) ( 39,620)   (5,397,901)   ( 1,640,240)    7,077,761           -
                              -------      ----     ---------    ------      --------      ---------     ---------      --------

BALANCE,
   SEPTEMBER 9, 1999             -        -         2,345,113    23,451        56,101           -             -           79,552

   Issuance of common
      stock and warrants         -        -           275,000     2,750        34,348          4,877          -           41,975

   Issuance of preferred
      stock                    15,000      150           -         -          149,850           -             -          150,000

   TelePad merger                -         -        1,000,000    10,000    (   10,000)          -             -             -

   Net loss for period           -         -             -         -             -              -      (   377,129)   (  377,129)
                              -------      ----     ---------    ------      --------      ---------     ---------      --------

BALANCE,
   DECEMBER 31, 1999           15,000     $150      3,620,113   $36,201     $ 230,299     $    4,877   ($  377,129)   ($ 105,602)
                               ======      ===      =========    ======      ========      =========     =========      ========









See notes to financial statements.
</TABLE>


<PAGE>




                                      - 6 -

                              DIGITAL PRIVACY, INC.

                            STATEMENTS OF CASH FLOWS


<TABLE>
                                                                    Period                Period
                                                                   September 9,          January 1,
                                                                   1999 Through         1999 Through         Year Ended
                                                                   December 31,         September 8,         December 31,
                                                                     1999                 1999                 1998
                                                                ---------------     ----------------     ----------------
<S>                                                             <C>                 <C>                  <C>
OPERATING ACTIVITIES
    Net income (loss)                                             ($   377,129)       $  1,709,029        ($  3,302,222)
    Adjustments to reconcile net income (loss) to
     net cash used by operating activities:
       Extraordinary gain on discharge of
         prepetition liabilities                                          -          (   1,838,259)                -
       Common stock issued for services                                  2,420                -                    -
       Depreciation                                                      9,379              19,259               33,796
       Loss on sale or disposal of property and
        equipment                                                         -                  9,292               15,075
       Amortization and impairment of deferred
        finance costs                                                     -                326,371              747,188
       Changes in operating assets and liabilities:
          Inventory                                               (      3,012)                 82        (       5,798)
          Other current assets                                             885              33,346        (       4,924)
          Accounts payable                                              75,710       (     468,882)              85,540
          Accrued expenses and other liabilities                  (    220,657)             67,190               66,199
                                                                    ----------         -----------          -----------
             Net cash used by operating activities                (    512,404)      (     142,572)       (   2,365,146)
                                                                    ----------         -----------          -----------

INVESTING ACTIVITIES
    Purchases of property and equipment                           (      1,059)               -                    -
    Patent and trademark costs                                    (      3,230)      (      10,475)       (      46,933)
    Proceeds from sale of property and equipment                          -                   -                  32,700
                                                                    ----------         -----------          -----------
             Net cash used by investing activities                (      4,289)      (      10,475)       (      14,233)
                                                                    ----------         -----------          -----------

FINANCING ACTIVITIES
    Issuance of stock                                                  150,000                -               1,284,561
    Proceeds from notes payable                                        450,000             150,000            1,206,488
    Payments on notes payable                                             -                   -           (      34,401)
    Decrease in checks issued in excess of deposits                       -                   -           (      38,639)
    Deferred finance costs                                                -                   -           (      57,906)
                                                                    ----------         -----------          -----------
             Net cash provided by financing activities                 600,000             150,000            2,360,103
                                                                    ----------                              -----------

NET INCREASE (DECREASE) IN CASH                                         83,307       (       3,047)       (      19,276)

CASH
    Beginning of period                                                  1,186               4,233               23,509
                                                                    ----------         -----------          -----------
    End of period                                                  $    84,493        $      1,186         $      4,233
                                                                    ==========         ===========          ===========

See notes to financial statements.
</TABLE>


<PAGE>




                                      - 7 -

                              DIGITAL PRIVACY, INC.

                          NOTES TO FINANCIAL STATEMENTS



 1.    Description of the Company and Summary of Significant Accounting Policies

       The Company

       The Company  designs,  develops  and markets  smart card  technology  for
       personal computers, laptops and network computers.

       Merger

       On  December  30,  1999,  TelePad  Corporation,  a  Delaware  corporation
       ("TelePad"),  completed a merger with Digital Privacy,  Inc., a privately
       owned  Minnesota  corporation  ("DPI").  The  combined  entity,  in which
       TelePad  was the  surviving  corporation,  changed  its  name to  Digital
       Privacy, Inc.

       As  discussed  in  Note  2,  DPI's  bankruptcy  reorganization  plan  was
       confirmed by the U.S.  Bankruptcy  Court for the District of Minnesota on
       September 8, 1999. On March 17, 1999,  TelePad  sought  protection of the
       Bankruptcy  Court and started a Chapter 11  proceeding.  TelePad  emerged
       from  bankruptcy  on  November  8,  1999,  as  an  empty  shell  with  no
       significant assets or liabilities.

       The merger was  accounted for as a  recapitalization  of DPI, and because
       the  operations  of TelePad prior to the merger are not  meaningful,  the
       financial  statements  reflect that of DPI and have not been  restated to
       reflect TelePad.

       Under the terms of the merger,  each share of DPI common stock  converted
       into one share of TelePad common stock.  The shareholders of DPI received
       2,345,113 shares of common stock of TelePad.

       Use of Estimates

       The  preparation  of  these  financial   statements  in  conformity  with
       generally  accepted  accounting  principles  requires  management to make
       estimates  and   assumptions   that  affect  the  reported   amounts  and
       disclosures in the financial statements. Actual results could differ from
       these  estimates.  A  significant  management  estimate  relates  to  the
       amortization of patents and trademarks.

       Fair Value of Financial Instruments

       Financial  instruments  consist  primarily  of  notes  payable,  accounts
       payable and prepetition  liabilities.  The carrying  amounts  approximate
       their fair values without regard to the bankruptcy reorganization.

       Inventory

       Inventory,  consisting  primarily of smart cards and related readers,  is
       valued at the lower of cost (first-in, first-out) or market.

       (continued)



<PAGE>




                                      - 8 -

                              DIGITAL PRIVACY, INC.

                          NOTES TO FINANCIAL STATEMENTS



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

       Property and Equipment

       Property and  equipment  were restated to fair value at September 9, 1999
       (as required  under fresh start  reporting)  and were reported at cost at
       December 31, 1998.  Depreciation  is provided  using the  straight-  line
       method over the estimated  useful lives of the assets,  primarily five to
       seven years.

       Patents and Trademarks

       The  Company  capitalizes  costs of patents and  trademarks.  The Company
       retained  the  cost of the  patents  and  trademarks  under  fresh  start
       reporting. The Company believes this is the most appropriate value as, to
       date, significant revenues have not been generated by these assets.

       Patent and trademark costs will be amortized,  from the date  significant
       revenues are first generated on the related products,  on a straight-line
       basis, over the expected useful life of the products, currently estimated
       at five years. No patent or trademark  amortization  has been recorded as
       significant  revenues have not been generated.  The Company  periodically
       reviews its patent and trademark  portfolios to assess the recoverability
       of the recorded amounts.

       Deferred Finance Costs

       Deferred  finance costs were amortized on a straight-line  basis over the
       term of the related notes.  The balance of the deferred finance costs was
       expensed in connection with the bankruptcy reorganization plan.

       Stock-Based Compensation

       The  Company   accounts  for  employee  stock  options  under  Accounting
       Principles   Board  Opinion  No.  25  "Accounting  for  Stock  Issued  to
       Employees"  and provides the other  disclosures  required by Statement of
       Financial  Accounting  Standards  No.  123  "Accounting  for  Stock-Based
       Compensation" (SFAS 123).

       Research and Development Costs

       Research and development expenditures are charged to expense as incurred.

       Earnings per Share

       Basic  earnings  (loss) per common  share is computed by dividing the net
       loss plus  preferred  stock  dividends by the weighted  average number of
       shares of common stock  outstanding  during the period.  Diluted earnings
       (loss) per common share is computed  similar to the  computation of basic
       earnings  (loss) per share,  except that the denominator is increased for
       the assumed  exercise of dilutive options and warrants using the treasury
       stock  method.  No stock  options or warrants  were  included in dilutive
       earnings  loss per share as their  inclusion was  antidilutive.  Earnings
       (loss)  per  share  was not  calculated  prior  to the  period  beginning
       September  9,  1999,  as it is  not  meaningful  due  to  the  bankruptcy
       reorganization  and fresh start  reporting.  Weighted  average  number of
       shares  outstanding  reflect  the  TelePad  merger as if it  occurred  on
       September 9, 1999.



<PAGE>




                                      - 9 -

                              DIGITAL PRIVACY, INC.

                          NOTES TO FINANCIAL STATEMENTS



 2.    Bankruptcy Reorganization and Fresh Start Reporting -

       DPI filed for bankruptcy under Chapter 11 of the U.S.  Bankruptcy Code on
       January  6,  1999.  The  Reorganization  Plan was  confirmed  by the U.S.
       Bankruptcy  Court for the District of Minnesota on September 8, 1999. DPI
       adopted fresh start  reporting upon emergence from Chapter 11 as required
       under the  provisions of AICPA  Statement of Position  90-7,  (SOP 90-7),
       "Financial  Reporting by Entities in Reorganization  under the Bankruptcy
       Code".

       Accordingly,  the September 9, 1999, balance sheet was prepared as if DPI
       were  a  new  reporting  entity  and  reflected  certain   reorganization
       adjustments  that included the  restatement of assets and  liabilities to
       approximate fair value, the discharge of outstanding  liabilities related
       to creditor  claims  against DPI,  which were satisfied by the bankruptcy
       confirmation, and the new capital structure. The financial statements for
       the period September 9, 1999 through  December 31, 1999,  incorporate the
       effects of fresh start reporting.  However,  the financial statements for
       the period January 1, 1999 through  September 8, 1999, and the year ended
       December 31, 1998, are based on historical cost. A bold vertical line was
       drawn on the accompanying financial statements to distinguish between the
       Reorganized Company and the Predecessor Company.

       All  common  shares  issued  and  outstanding  at the time of  bankruptcy
       reorganization  were  cancelled.  Under  the  bankruptcy  reorganization,
       2,345,113 new shares of DPI's common stock were distributed to holders of
       claims against the Predecessor Company.

       The  bankruptcy  discharge and fresh start  reporting  adjustments to the
       September 9, 1999, balance sheet were as follows:

<TABLE>
                                                                           Adjustments to Record
                                                                           Confirmation of Plan
                                                   Preconfirmation    ------------------------------       Reorganized
                                                       Balance          Bankruptcy       Fresh Start         Balance
                                                        Sheet           Discharge        Reporting            Sheet
                                                   ---------------    -------------     ------------       ------------
<S>                                                <C>                <C>               <C>
                ASSETS
       CURRENT ASSETS
          Cash                                       $      1,186     $       -          $      -          $     1,186
          Inventory                                        11,753             -                 -               11,753
          Other                                            21,792    (      16,155)             -                5,637
                                                      -----------      -----------        ----------        ----------
                                                           34,731    (      16,155)             -               18,576

       PROPERTY AND EQUIPMENT                              56,904             -                 -               56,904

       OTHER ASSETS
          Patents and trademarks                          384,591             -                 -              384,591
          License fee escrow                               49,996             -                 -               49,996
          Deferred finance costs                           34,964             -         (     34,964)             -
                                                      -----------      -----------        ----------        -------
                                                     $    561,186    ($     16,155)     ($    34,964)      $   510,067
                                                      ===========      ===========        ==========        ==========

       (continued)
</TABLE>


<PAGE>




                                     - 10 -

                              DIGITAL PRIVACY, INC.

                          NOTES TO FINANCIAL STATEMENTS



 2.    Bankruptcy Reorganization and Fresh Start Reporting - (continued)

<TABLE>
                                                                           Adjustments to Record
                                                                           Confirmation of Plan
                                                   Preconfirmation    ------------------------------       Reorganized
                                                       Balance          Bankruptcy       Fresh Start         Balance
                                                        Sheet           Discharge        Reporting            Sheet
                                                   ---------------    -------------     ------------       ------------
<S>                                                <C>                <C>               <C>
          LIABILITIES AND STOCKHOLDERS' EQUITY
       CURRENT LIABILITIES
          Accounts payable                         $       20,171     $       -         $       -        $      20,171
          Accrued expenses                                107,288    (      90,000)             -               17,288
          Prepetition liabilities                            -                -              233,056           233,056
                                                    -------------      -----------       -----------      ------------
                                                          127,459    (      90,000)          233,056           270,515
                                                    -------------      -----------       -----------      ------------

       NOTES PAYABLE                                      150,000           10,000              -              160,000
                                                    -------------      -----------       -----------      ------------

       PREPETITION LIABILITIES                          2,837,554    (   2,604,498)    (     233,056)             -
                                                    -------------      -----------       -----------      ------------

       STOCKHOLDERS' EQUITY
          Common stock                                     63,071    (      39,620)             -               23,451
          Additional paid-in capital                    5,454,002    (   4,508,246)    (     889,655)           56,101
          Warrants                                      1,640,240    (   1,640,240)             -                 -
          Retained earnings (deficit)             (     9,711,140)       8,856,449           854,691              -
                                                    -------------      -----------       -----------      ------------
                                                  (     2,553,827)       2,668,343     (      34,964)           79,552
                                                    -------------      -----------       -----------      ------------
                                                   $      561,186    ($     16,155)    ($     34,964)    $     510,067
                                                    =============      ===========       ===========      ============
</TABLE>

 3.    Going Concern -

       DPI has failed to generate  significant  revenues and incurred  operating
       losses since its  inception.  DPI also filed for bankruptcy and had their
       reorganization  plan  confirmed by the  bankruptcy  court (Note 2). DPI's
       ability to continue  as a going  concern is  dependent  on its ability to
       raise additional  capital and,  ultimately,  to generate  sufficient cash
       flows from operations.  These factors,  among others,  raise  substantial
       doubt about the  Company's  ability to continue as a going  concern.  The
       financial  statements  do not  include  any  adjustments  relating to the
       recoverability  and  classifications of assets and liabilities should the
       Company be unable to continue  as a going  concern.  Management  believes
       that it can raise sufficient capital to fund operations until the Company
       becomes self-sustaining.



<PAGE>




                                     - 11 -

                              DIGITAL PRIVACY, INC.

                          NOTES TO FINANCIAL STATEMENTS



 4.    Property and Equipment -

       Property and equipment consists of the following:
<TABLE>
                                                                                                   December 31,
                                                                                              1999             1998
                                                                                           ---------       -----------
<S>                                                                                        <C>             <C>
             Furniture and equipment                                                       $  57,963       $   167,283
             Leasehold improvements                                                             -               15,067
                                                                                            --------        ----------
                                                                                              57,963           182,350
             Less accumulated depreciation                                                     9,379            96,895
                                                                                            --------        ----------
                                                                                           $  48,584       $    85,455
                                                                                            ========        ==========
</TABLE>

 5.    Notes Payable -

       Notes payable consist of the following:
<TABLE>
                                                                                                 December 31,
                                                                                           1999               1998
                                                                                        ----------       -------------
<S>                                                                                     <C>              <C>
             Notes payable to stockholders - discharged in
             bankruptcy reorganization.                                                 $     -          $   1,831,539
                                                                                         =========        ============

             Note payable to vendor, interest at 10%, due
             October 2000, unsecured.                                                    $  10,000       $        -
                                                                                          ========        =========

             Note  payable to  director,  interest  at 10%,  due  October  2001,
             convertible into common stock through July 7, 2000, at 36.6% of all
             common   stock   and   dilutive    securities   upon    conversion,
             collateralized by substantially all Company
             assets.                                                                    $  600,000       $        -
                                                                                         ==========       =========
</TABLE>

       Interest expense of approximately $120,000 was not recorded on discharged
       debt for the period January 6, 1999 (petition date) through  September 8,
       1999, in accordance with SOP 90-7.


 6.    Income Taxes -

       For the periods  September 9, 1999 through December 31, 1999, and January
       1, 1999 through  September 8, 1999, and the year ended December 31, 1998,
       the Company had no current or deferred  income tax provision.  Similarly,
       no income taxes were applied against the extraordinary gain in the period
       January 1, 1999 through September 8, 1999.

       (continued)



<PAGE>




                                     - 12 -

                              DIGITAL PRIVACY, INC.

                          NOTES TO FINANCIAL STATEMENTS



 6.    Income Taxes - (continued)

       Deferred income taxes consist of the following:
<TABLE>
                                                                                               December 31,
                                                                                       1999                 1998
                                                                                 ----------------     --------------
<S>                                                                              <C>                  <C>
             Deferred tax assets:
                Net operating loss carryforwards                                   $  1,995,000         $  2,050,000
                Deferred finance costs                                                     -                 318,000
                Accrued salaries                                                          2,000               16,000
                                                                                    -----------          -----------
                                                                                      1,997,000            2,384,000
             Deferred tax liability - depreciation                                (      13,000)       (      11,000)
                                                                                    -----------          -----------
                                                                                      1,984,000            2,373,000
             Valuation allowance                                                  (   1,984,000)       (   2,373,000)
                                                                                    -----------          -----------
             Net deferred taxes                                                    $       -            $       -
                                                                                    ===========          ===========
</TABLE>

       The Company determined the valuation allowance to be appropriate as it is
       more  likely  than not  that  the net  deferred  tax  assets  will not be
       realized. The valuation allowance increased by approximately $795,000 for
       the year ended  December 31,  1998,  respectively,  primarily  due to the
       Company's  inability to utilize its net operating  losses.  The valuation
       allowance decreased by approximately $320,000 and $69,000 for the periods
       January 1, 1999 through  September 8, 1999, and September 9, 1999 through
       December 31, 1999, respectively,  primarily due to limitations on the net
       operating loss carryforwards caused by the bankruptcy reorganization.

       The  effective  income tax rate differs from the federal  statutory  rate
       primarily due to the Company's inability to use deferred tax assets.

       At December 31, 1999, net operating loss carryforwards were approximately
       $5,000,000,  starting to expire in 2008. Utilization of tax net operating
       losses of  approximately  $4,700,000  from periods  prior to September 9,
       1999, are limited to approximately  $6,000 annually due to the bankruptcy
       reorganization and Internal Revenue Code Section 382.

       State tax effects are insignificant and not separately disclosed.


 7.    Stockholders' Deficit -

       Convertible Preferred Stock

       The Series A preferred  stock is convertible  into shares of common stock
       at any time  determined  by the sum of the stated value per share and any
       accrued and unpaid  dividends  divided by the lesser of $1.05 or 77.5% of
       the average  closing bid prices for the five trading days  preceding  the
       conversion.  The Company may redeem the Series A preferred  stock,  after
       the effective date of a registration  statement filed with the Securities
       and  Exchange  Commission,  upon 30 days  notice,  for 125% of the stated
       value plus accrued  dividends.  The Company reserved  1,200,000 shares of
       common stock for conversion of its Series A preferred stock.

       (continued)


<PAGE>




                                     - 13 -

                              DIGITAL PRIVACY, INC.

                          NOTES TO FINANCIAL STATEMENTS



 7.    Stockholders' Deficit -

       Convertible Preferred Stock (continued)
       ---------------------------

       Dividends  are payable  quarterly,  at the  election of the  Company,  in
       either cash or  additional  Series A preferred  shares at the rate of one
       share of Series A preferred  stock for each $10 of dividends  not paid in
       cash.  Dividends  may be paid  at the  Company's  option  with  Series  A
       preferred stock only if the common stock  deliverable  upon conversion of
       such stock was  included for public  resale in an effective  registration
       statement.

       Preferred Stock

       The  Company  also has  available  4,960,000  shares of  preferred  stock
available for future designation.

       Stock Options

       The Company has an Omnibus  Stock Plan (Plan) which  permits the issuance
       of incentive and nonstatutory  stock options,  stock application  rights,
       performance   shares,  and  restricted  stock  to  employees,   officers,
       directors,  consultants and advisors.  The Plan reserved 2,000,000 shares
       of common  stock for  issuance  awards  with the term of each award to be
       determined by the Board of Directors (Board).

       The exercise  price of incentive  stock  options may not be less than the
       fair market value of the stock on the award date. Options are exercisable
       for  periods  not to exceed ten years from grant date and vest at varying
       periods.  Stock  appreciation  rights  entitle the recipient to receive a
       specified  excess of the fair market value of the Company's  stock on the
       exercise date, as determined by the Board,  over the fair market value on
       the date of grant.  Performance  shares  entitle  recipients  to  acquire
       Company stock upon the  attainment of specific  performance  goals set by
       the Board.  Restricted stock entitles recipients to acquire Company stock
       subject to the right of the Company to repurchase the shares in the event
       conditions  specified by the Board are not satisfied  prior to the end of
       the restriction period.

       Stock option activity was as follows:
<TABLE>
                                                                            Weighted        Weighted
                                                                            Average         Average      Contractual
                                                                            Exercise         Fair          Life -
                                                            Options          Price           Value          Years
                                                         -----------     -----------     -----------     ---------
<S>                                                      <C>             <C>             <C>             <C>
             Balance, December 31, 1997                      195,000        $ 5.00          $ 1.28              4
             Granted                                          60,000          5.00            1.09              8
                                                          ----------

             Balance, December 31, 1998                      255,000          5.00            1.23              5

             Cancelled in bankruptcy
               reorganization                           (    255,000)         5.00            1.23              5
             Granted                                         751,059           .07             .01           7.83
                                                          ----------

             Balance, December 31, 1999                      751,059           .07             .01           7.83
                                                          ==========
</TABLE>

       (continued)



<PAGE>




                                     - 14 -

                              DIGITAL PRIVACY, INC.

                          NOTES TO FINANCIAL STATEMENTS



 7.    Stock Options and Warrants - (continued)

       Stock Options (continued)
       -------------

       Options outstanding at December 31, 1999, are as follows:
<TABLE>
                                                                   Outstanding                    Exercisable
                                                         -----------------------------     -------------------------
                                                                                                            Weighted
                                                                           Remaining                        Average
                                 Range of                                  Contractual                      Exercise
                              Exercise Prices               Options        Life-Years         Options       Price
                              ---------------            -----------     -------------     -----------     ---------
<S>                                                      <C>             <C>               <C>             <C>
                              $0.050 - $0.055                741,059           7.81            441,059         $0.05
                                   $1.05                      10,000          10.00             10,000          1.05
                                                          ----------                        ----------
                                                             751,059                           451,059
                                                          ==========                        ==========
</TABLE>

       Pro forma stock option  disclosures for the  Predecessor  Company are not
       presented as they are not  significant  nor considered  meaningful due to
       the bankruptcy  reorganization  and fresh start reporting.  The pro forma
       impact on subsequent  operations  for stock options  issued in connection
       with the bankruptcy reorganization is insignificant.

       Warrants

       Warrant activity was as follows:
<TABLE>
                                                                            Weighted        Weighted
                                                                            Average         Average      Contractual
                                                                            Exercise         Fair           Life -
                                                          Warrants           Price           Value          Years
                                                        ------------     -----------     -----------     -----------
<S>                                                     <C>              <C>             <C>             <C>
                Balance, December 31, 1998                   585,000     $      5.00     $      1.28            5
                Granted                                    1,350,667            3.00             .66            5
                                                         -----------

                Balance, December 31, 1998                 1,935,667            3.60             .85            5

                Cancelled in bankruptcy
                  reorganization                       (   1,935,667)           3.60             .85            5
                Granted                                       10,000            1.05             .23           10
                                                         -----------

                Balance, December 31, 1999                    10,000            1.05             .23           10
                                                         ===========
</TABLE>

       In December  1999,  the Company  issued 25,000 shares of common stock and
       issued 10,000  warrants  exercisable  for 10 years,  in  satisfaction  of
       accounts payable of $31,127.

       (continued)



<PAGE>




                                     - 15 -

                              DIGITAL PRIVACY, INC.

                          NOTES TO FINANCIAL STATEMENTS



 7.    Stock Options and Warrants - (continued)

       Stock Option and Warrant Assumptions

       The fair value of stock  options and  warrants is the  estimated  present
       value at the grant  date using the Black-  Scholes  Option-Pricing  Model
       with the following weighted average assumptions for 1999 and 1998:

                Risk free interest rate                                 5.0%
                Expected life                                        5 years
                Expected volatility (stock not publicly traded)           0%
                Expected dividend rate                                    0%


 8.    Operating Lease -

       The Company  leases  offices for monthly  rents of $1,087 plus  operating
       expenses,  property taxes and repairs  through August 2000.  Rent expense
       under all  operating  leases was $6,900 for the period  September 9, 1999
       through December 31, 1999, $16,222 for the period January 1, 1999 through
       September 8, 1999, and $51,676 for the year ended December 31, 1998.

       Future minimum lease  payments for the year ending  December 31, 2000 are
approximately $9,500.


 9.    Commitments -

       Employment

       Two  officers of the  Company  have salary  commitments  of $180,000  and
       $100,000 for five and three years, respectively.  The President and Chief
       Executive Officer may also earn additional performance stock options each
       year  based  on net  revenues,  increase  in  revenues  and  the  Company
       valuation (all as defined in the agreements).

       Marketing

       In  December  1999,  the  Company  entered  into a  sales  and  marketing
       agreement  with two sales  representatives  under  which the  Company  is
       obligated  to issue  common  stock  at the  rate of 0.5% of total  shares
       outstanding for every  $3,000,000 in gross sales, up to 1.5% of the total
       outstanding  shares.  The agreement  expires  March 31, 2000,  and may be
       terminated earlier by either party upon 30 days notice.




<PAGE>



                                     - 16 -

                              DIGITAL PRIVACY, INC.

                          NOTES TO FINANCIAL STATEMENTS



10.    Supplemental Cash Flow Information -
<TABLE>
                                                                   Period              Period
                                                                  September 9,        January 1,
                                                                  1999 Through       1999 Through         Year Ended
                                                                  December 31,       September 8,         December 31,
                                                                    1999               1999                 1998
                                                              ----------------     --------------     ----------------
<S>                                                           <C>                  <C>                <C>
             Interest paid                                       $   3,826          $      -             $       234

             Noncash financing activities:

                Deferred financing costs                         $    -             $      -             $   891,440
                Transfer prepetition accounts
                  payable to a note                                   -                  10,000                 -
                Recapitalization under fresh
                  start reporting                                    -                  889,655                 -
                Conversion of accounts payable
                  to common stock and warrants                      39,555                 -                    -
</TABLE>

11.    Subsequent Events -

       In  February  2000,  the Company  exercised  a call  option and  received
       $150,000  for the  issuance of 15,000  shares of Series A, 8%  cumulative
       convertible preferred stock.




<PAGE>









                                   SIGNATURES

                  Pursuant  to the  requirements  of  Section 13 or 15(d) of the
Securities  Exchange Act of 1934,  Registrant  has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.

                                                     DIGITAL PRIVACY, INC.


                                                     By:  /s/ Howard Miller
                                                          Howard Miller
                                                          President and CEO

Dated: 29th day of March, 2000


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


Signature                           Title                        Date
---------                           -----                        ----

/s/ Howard Miller
Howard Miller                       President, Chief             March 29, 2000
                                    Executive Officer
                                    and Chairman

/s/ Peter E. Christensen
Peter E. Christensen                Director                     March 30, 2000




Daniel Hilliard                     Director                     March ___, 2000




Stuart Eisenberger                  Director                     March ___, 2000



/s/ Mark Sarna                      Director                     March 30, 2000
Mark Sarna