<PAGE>   1


                       SECURITIES AND EXCHANGE COMMISSION


                              WASHINGTON, DC 20549


                                  FORM 10-Q/A
                               (Amendment No. 1)



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

                For the quarterly period ended December 31, 1997



                                       OR



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

             for the transition period from __________to __________



                         Commission file number 0-11402



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



           Delaware                                     74-1666060
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. employer identification no.)
 incorporation or organization)



 3330 West Market Street, Akron, Ohio                              44333
----------------------------------------                         ----------
(Address of principal executive offices)                         (Zip Code)



                                 (330) 664-1000
              ----------------------------------------------------
              (Registrant's telephone number, including area code)





Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ]. No [ ].

At December 31, 1997, there were 15,902,312 outstanding shares of the
registrant's Common Stock.


<PAGE>   2
This Amendment No. 1 on Form 10-Q/A (this "Amendment") amends and restates in
full the disclosures made by the registrant, Telxon Corporation, in response to
"ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS" in its Form 10-Q as originally filed
with the Securities and Exchange Commission (the "Commission") via EDGAR
transmission on February 17, 1998 (the "Original Filing"). The disclosures
responsive to all of the other Items in the Original Filing are not affected by
this Amendment, but continue as set forth in the Original Filing without change.
Notwithstanding the foregoing, the disclosures in the Original Filing, as
amended by this Amendment, are subject to updating and supplementation by the
disclosures contained in the filings made by the registrant with the Commission 
for any period or as of any date subsequent to the quarter ended 
December 31, 1997, covered by the Original Filing. 



The purpose of this Amendment No. 1 is to make the following correction:

--In "ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS":

     To remove the typographical error duplicating the two line items entitled
"Income (loss) before income taxes" and "Provision (benefit) for income taxes"
in the CONSOLIDATED STATEMENT OF OPERATIONS on page 4 of the Original Filing
(notwithstanding the duplication of the provision for income taxes, the
provision was subtracted only once so that no correction is necessary to the
amount for any subsequent line item from that set forth in the Original Filing).

Except for the typographical correction made in Item 1 as restated herein, the
disclosures set forth herein do not differ from those in Item 1 of the
Original Filing. 
<PAGE>   3

                          PART I. FINANCIAL INFORMATION

                    ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS

                       TELXON CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

                     (In thousands except per share amounts)

<TABLE>
<CAPTION>
                                                                                  December 31,  March 31,
                                                                                     1997         1997
                                                                                   ---------    ---------
                                                                                  (Unaudited)
ASSETS

<S>                                                                                <C>          <C>      
Current assets:
  Cash (including cash equivalents of $5,900 and
    $38,100) ...................................................................   $  12,783    $  45,386
  Accounts receivable, net of allowance for
    doubtful accounts of $1,756 and $1,596 .....................................     122,862      111,959
  Notes and other accounts receivable ..........................................      15,527       16,312
  Inventories ..................................................................     101,547       84,499
  Prepaid expenses and other ...................................................      13,049       11,956
                                                                                   ---------    ---------
     Total current assets ......................................................     265,768      270,112
Property and equipment, net ....................................................      52,458       45,578
Intangible and other assets, net ...............................................      47,832       46,094
                                                                                   ---------    ---------
     Total .....................................................................   $ 366,058    $ 361,784
                                                                                   =========    =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Notes payable ................................................................   $   2,999    $      50
  Current portion of long-term debt ............................................         383          383
  Capital lease obligations due within one year ................................         997          627
  Accounts payable .............................................................      50,240       47,917
  Income taxes payable .........................................................       2,523        3,077
  Accrued liabilities ..........................................................      39,349       49,000
                                                                                   ---------    ---------
     Total current liabilities .................................................      96,491      101,054
Capital lease obligations ......................................................       1,926          968
Convertible subordinated notes and debentures ..................................     107,224      107,224
Other long-term liabilities ....................................................       5,910        5,837
                                                                                   ---------    ---------
     Total liabilities .........................................................     211,551      215,083

Stockholders' equity:
  Preferred Stock, $1.00 par value per share; 500
    shares authorized, none issued .............................................          --           --
  Common Stock, $.01 par value per share; 50,000
    shares authorized, 16,203 and 16,186 shares issued .........................         162          162
  Additional paid-in capital ...................................................      86,121       87,105
  Retained earnings ............................................................      77,316       70,821
  Equity adjustment for foreign currency translation ...........................      (4,529)      (2,643)
  Unearned compensation relating to restricted stock awards ....................        (290)        (210)
  Treasury stock; 300 and 557 shares of common stock at cost ...................      (4,273)      (8,534)
                                                                                   ---------    ---------
     Total stockholders' equity ................................................     154,507      146,701
                                                                                   ---------    ---------
Commitments and contingencies ..................................................        --           --
                                                                                   ---------    ---------
     Total .....................................................................   $ 366,058    $ 361,784
                                                                                   =========    =========
</TABLE>





See accompanying notes to
consolidated financial statements




                                       3
<PAGE>   4


                       TELXON CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF OPERATIONS

                     (In thousands except per share amounts)

                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                    Three Months              Nine Months
                                                                 Ended December 31,        Ended December 31,
                                                                 1997          1996        1997         1996
                                                               ---------    ---------    ---------    ---------
<S>                                                            <C>          <C>          <C>          <C>      
Revenues:
     Product, net ..........................................   $  97,472    $ 105,030    $ 275,302    $ 288,494
     Customer service, net .................................      19,835       18,545       57,239       55,778
                                                               ---------    ---------    ---------    ---------
              Total net revenues ...........................     117,307      123,575      332,541      344,272

Cost of revenues:
     Product ...............................................      56,482       76,646      163,319      204,915
     Customer service ......................................      12,249       12,966       35,711       35,548
                                                               ---------    ---------    ---------    ---------
              Total cost of revenues .......................      68,731       89,612      199,030      240,463
                                                               ---------    ---------    ---------    ---------

     Gross profit ..........................................      48,576       33,963      133,511      103,809

Operating expenses:
     Selling expenses ......................................      19,821       27,453       56,598       69,674
     Product development and engineering
          expenses .........................................       9,876       13,839       28,526       35,043
     General and administrative expenses ...................       9,662       16,206       29,210       37,914
                                                               ---------    ---------    ---------    ---------
              Total operating expenses .....................      39,359       57,498      114,334      142,631
                                                               ---------    ---------    ---------    ---------

              Income (loss) from operations ................       9,217      (23,535)      19,177      (38,822)

Interest income ............................................         340          161        1,257          511
Interest expense ...........................................      (1,752)      (2,130)      (5,354)      (6,262)
Other non-operating (expense) income .......................        (160)      35,176         (325)      35,249
                                                               ---------    ---------    ---------    ---------

              Income (loss) before income taxes ............       7,645        9,672       14,755       (9,324)

Provision (benefit) for income taxes .......................       3,288        7,537        6,416       (1,961)
                                                               ---------    ---------    ---------    ---------

              Net income (loss) before cumulative
              effect of accounting change...................       4,357        2,135        8,339       (7,363)

Cumulative effect of accounting change, net of taxes........       1,240           --        1,240           -- 
                                                               ---------    ---------    ---------    --------- 
              Net income (loss).............................   $   3,117    $   2,135    $   7,099    $  (7,363)
                                                               =========    =========    =========    =========

Net income (loss) per common share before accounting
       change:
              Basic.........................................   $     .28    $     .13    $     .53    $    (.45)
              Diluted.......................................   $     .27    $     .13    $     .52    $    (.45) 
                                                               =========    =========    =========    ========= 

Cumulative effect of accounting change:

              Basic.........................................   $     .08    $      --    $     .08    $      -- 
              Diluted.......................................   $     .08    $      --    $     .08    $      -- 
                                                               =========    =========    =========    ========= 

Net income (loss) per common share:

              Basic.........................................   $     .20    $     .13    $     .45    $    (.45)
              Diluted.......................................   $     .19    $     .13    $     .44    $    (.45)
                                                               =========    =========    =========    ========= 

Average number of common shares outstanding:

              Basic.........................................      15,685       16,103       15,742       16,207 
              Diluted.......................................      16,262       16,150       16,189       16,207 
                                                               =========    =========    =========    ========= 
                                                                                                        



</TABLE>






See accompanying notes to
consolidated financial statements




                                       4
<PAGE>   5

                       TELXON CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS

                                 (In thousands)

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                         Nine Months Ended December 31,
                                                                         ------------------------------
                                                                              1997             1996
                                                                         -------------    -------------
<S>                                                                      <C>              <C>           
Cash flows from operating activities:
     Net income (loss) ...............................................   $       7,099    $      (7,363)
     Adjustments to reconcile net income (loss) to
         net cash used in operating activities:
              Cumulative effect of accounting change..................           2,176               --
              Depreciation and amortization ..........................          18,560           21,948
              Amortization of restricted stock
                  awards, net ........................................             148              474
              Provision for doubtful accounts ........................             451              947
              Provision for inventory obsolescence ...................           5,398           11,502
              Deferred income taxes ..................................              (4)          (1,026)
              Gain on sale of assets .................................              --          (35,176)
              Loss on disposal of fixed assets .......................             825              402
              Trading securities, net ................................              --              902
              Changes in assets and liabilities:
                   Accounts and notes receivable .....................         (11,714)          15,645
                   Inventories .......................................         (22,399)          (1,101)
                   Prepaid expenses and other ........................          (1,135)            (472)
                   Intangible and other assets .......................          (1,985)          (3,047)
                   Accounts payable and accrued liabilities ..........          (8,527)         (25,499)
                   Other long-term liabilities .......................              73           (1,223)
                                                                         -------------    -------------
                             Total adjustments .......................         (18,133)         (15,724)
                                                                         -------------    -------------
     Net cash used in operating activities ...........................         (11,034)         (23,087)

Cash flows from investing activities:
     Additions to property and equipment .............................         (18,791)         (10,926)
     Software investments ............................................          (3,172)          (5,120)
     Proceeds from the sale of fixed assets ..........................             866           65,655
     Proceeds from the sale of non-marketable investments ............           1,033               --
     Purchase of non-marketable investments ..........................          (5,500)            (400)
     Additions to long-term notes receivable .........................            (140)          (1,850)
                                                                         -------------    -------------
     Net cash (used in) provided by investing activities .............         (25,704)          47,359

Cash flows from financing activities:
     Notes payable, net ..............................................           2,949            1,999
     Principal payments on capital leases ............................            (479)            (702)
     Principal payments on long-term borrowing .......................              --           (2,103)
     Purchase of treasury stock ......................................          (4,928)          (1,051)
     Debt issue costs paid ...........................................             (25)            (303)
     Proceeds from exercise of stock options
         (includes tax benefit) ......................................           6,958              710
                                                                         -------------    -------------
     Net cash provided by (used by) financing activities .............           4,475           (1,450)

     Effect of exchange rate changes on cash .........................            (340)              56
                                                                         -------------    -------------

     Net (decrease) increase in cash and cash equivalents ............         (32,603)          22,878
     Cash and cash equivalents at beginning of period ................          45,386           34,828
                                                                         -------------    -------------
     Cash and cash equivalents at end of period ......................   $      12,783    $      57,706
                                                                         =============    =============
</TABLE>







See accompanying notes to
consolidated financial statements



                                       5
<PAGE>   6

                       TELXON CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                (In thousands except share and per share amounts)

1.       Management Representation

         The consolidated financial statements of Telxon Corporation ("Telxon")
         and its subsidiaries (collectively with Telxon, the "Company") have
         been prepared without audit. In the opinion of the Company, all
         adjustments, consisting of normal recurring adjustments necessary for a
         fair statement of results for the interim periods, have been made. The
         statements, including the March 31, 1997, condensed balance sheet data
         derived from audited financial statements, do not include all of the
         information and notes required by generally accepted accounting
         principles for complete financial statements and should be read in
         conjunction with the audited consolidated financial statements as
         contained in Telxon's Annual Report on Form 10-K, as amended by
         Amendment No. 1 on Form 10-K/A, for the fiscal year ended March 31,
         1997.


2.       Earnings Per Share

         Computations of basic and diluted earnings per share of common stock
         have been made in accordance with the Financial Accounting Standards
         Board's Statement of Financial Accounting Standards No. 128, "Earnings
         Per Share" ("SFAS No. 128"). The Company was required to adopt the
         provisions of SFAS No. 128 beginning with the quarter ended December
         31, 1997. All prior and interim period earnings per common share
         amounts have been restated accordingly. All securities having an
         anti-dilutive effect on earnings per common share have been excluded
         from such computations. Common stock purchase rights outstanding under
         Telxon's stockholder rights plan, which potentially have a
         dilutive effect, have been excluded from the weighted common shares
         computation as preconditions to the exercisability of such rights were
         not satisfied.


<TABLE>
<CAPTION>
                                                 RECONCILIATION OF NUMERATORS AND DENOMINATORS OF THE BASIC
                                                                   AND DILUTED EPS COMPUTATIONS
                                                         (DOLLARS IN THOUSAND EXCEPT PER SHARE AMOUNTS)


                                     For the Quarter ended December 31, 1997         For the Quarter ended December 31, 1996     
                                      Income         Shares         Per-Share          Income       Shares        Per-Share      
                                    (Numerator)   (Denominator)      Amount         (Numerator)  (Denominator)      Amount       
                                   --------------------------------------------   -------------------------------------------    
<S>                                <C>            <C>            <C>              <C>            <C>            <C>             
Net Income                         $      3,117                                   $      2,135                                   
                                                                                                                                 
BASIC EPS                                                                                                                        
Income Available to                                                                                                              
   common stockholders                    3,117         15,685   $       0.20            2,135         16,103   $       0.13    
                                                                 ============                                   ============    
                                                                                                                                
EFFECT OF DILUTIVE SECURITIES                                                                                                   
Options                                                    577                                             47             
                                                                                                                                
DILUTED EPS                                                                                                                     
Income available to stockholders                                                                                                
   of common shares and                                                                                                         
   common stock equivalents        $      3,117         16,262   $       0.19     $      2,135         16,150   $       0.13    
                                   ============   ============   ============     ============   ============   ============    
                                                                                                                                
                                                                                                                                

</TABLE>

                                       6
<PAGE>   7

<TABLE>
<CAPTION>

                                   For the Nine Months ended December 31, 1997     For the Nine Months ended December 31, 1996  
                                      Income         Shares         Per-Share          Income       Shares        Per-Share     
                                    (Numerator)   (Denominator)      Amount         (Numerator)  (Denominator)      Amount      
                                   --------------------------------------------   --------------------------------------------  
<S>                                <C>            <C>            <C>              <C>            <C>            <C>
Net Income (Loss)                  $      7,099                                   $     (7,363)                                 
                                                                                                                                
BASIC EPS                                                                                                                       
Income Available to                                                                                                             
   common stockholders                    7,099         15,742   $       0.45           (7,363)        16,207   $      (0.45)  
                                                                 ============                                   ============   
                                                                                                                                
EFFECT OF DILUTIVE SECURITIES                                                                                                   
Options                                                    447                                                                  
                                                                                                                                
DILUTED EPS                                                                                                                     
Income (Loss) available to                                                                                                      
   stockholders of common shares                                                                                                   
   and common share equivalents    $      7,099         16,189   $       0.44     $     (7,363)        16,207   $      (0.45)  
                                   ============   ============   ============     ============   ============   ============   
                                                                                                                                
                                                                                  
</TABLE>

Options to purchase 457,500 shares of common stock at $21.25 - $24.00 per share
were outstanding during the first nine months of fiscal 1998, but were not
included in the computation of diluted EPS because the options' exercise price
was greater than the average market price of the common shares for the first
nine months of fiscal 1998. The shares issuable upon conversion of Telxon's
5-3/4% Convertible Subordinated Notes and 7-1/2% Convertible Subordinated
Debentures were omitted from the diluted EPS calculation because the
conditions for their conversion were not satisfied as of December 31, 1997.

As more fully described in note 10, subsequent to December 31, 1997, Telxon
reissued 20,972 shares of treasury stock to satisfy purchases made by employees
through its 1995 Employee Stock Purchase Plan and 25,770 shares of treasury
stock to satisfy stock options exercised under its stock option plans.
Additionally, subsequent to December 31, 1997, Telxon repurchased 6,500 shares
of its common stock pursuant to its open market repurchase program.

3.       Inventories

         Inventories consisted of the following:

<TABLE>
<CAPTION>
                                        December 31,
                                           1997              March 31,
                                        (Unaudited)            1997
                                        -----------            ----

<S>                                      <C>                 <C>     
         Purchased components            $ 58,011            $ 29,983
         Work-in-process                   22,642              31,579
         Finished goods                    20,894              22,937
                                         --------            --------
                                         $101,547            $ 84,499
                                         ========            ========
</TABLE>


4.       Accrued Liabilities

         Accrued liabilities consisted of the following:

<TABLE>
<CAPTION>
                                                                 December 31,
                                                                     1997             March 31,
                                                                  (Unaudited)           1997
                                                                  -----------           ----

<S>                                                                 <C>                <C>    
         Deferred customer service revenues                         $10,358            $14,329
         Accrued payroll and other employee compensation             12,588             19,309
         Other accrued liabilities                                   16,403             15,362
                                                                    -------            -------
                                                                    $39,349            $49,000
                                                                    =======            =======
</TABLE>



                                       7
<PAGE>   8
                       TELXON CORPORATION AND SUBSIDIARIES
                                        
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                        
               (In thousands except share and per share amounts)

5.       Supplemental Cash Flow Information
<TABLE>
<CAPTION>
                                                           Nine Months
                                                        Ended December 31,
                                                        ------------------
                                                     1997                1996
                                                     ----                ----
                                                            (Unaudited)

         Cash paid during the period for:
<S>                                                  <C>               <C>   
         Interest                                    $4,694            $5,846
         Income taxes                                 5,502             7,368
</TABLE>

         Capital lease additions of $1,819 (principally for new manufacturing
         equipment) and $48 in fiscal 1998 and fiscal 1997, respectively, have
         been excluded from the accompanying consolidated statement of cash
         flows as non-cash transactions.

         Effective April 1, 1996, the Company sold the assets of certain retail
         application software operations, with net assets of approximately
         $5,000 to a third-party in exchange for $150 in cash and $7,000 in
         secured promissory notes, including interest. The $7,000 of secured
         promissory notes received in connection with the sale have been
         excluded from the accompanying consolidated statement of cash flows as
         a non-cash transaction.

         Telxon's re-issuances of treasury stock during the second quarter
         of each fiscal 1998 and 1997 to satisfy purchases made by employees
         through its 1995 Employee Stock Purchase Plan have been excluded
         from the accompanying consolidated statement of cash flows as 
         non-cash transactions.

6.       Litigation and Contingencies

         In December 1992, four class action suits were filed in the United
         States District Court, Northern District of Ohio, by certain alleged
         Telxon stockholders on behalf of themselves and purported classes
         consisting of Telxon stockholders, other than defendants and
         their affiliates, who purchased Telxon common stock between May
         20, 1992 and January 19, 1993. The named defendants are Telxon,
         former President and Chief Executive Officer Raymond D. Meyo, and then
         President, Chief Operating Officer and Chief Financial Officer Dan R.
         Wipff. On February 1, 1993, the plaintiffs filed their Amended and
         Consolidated Class Action Complaint related to the four actions,
         alleging claims for fraud on the market and negligent
         misrepresentation, arising from alleged misrepresentations and
         omissions with respect to the Company's financial performance and
         prospects, and alleged trading activities of the named individual
         defendants. The Amended Complaint seeks unspecified compensatory
         damages, the imposition of a constructive trust on certain of the
         defendants' assets and other unspecified extraordinary equitable and/or
         injunctive relief, interest, attorneys' fees and costs. The defendants,
         including Telxon, filed a Motion to Dismiss which was denied by
         the court on June 3, 1993.

         On April 16, 1993, the Plaintiffs filed their Motion for Class
         Certification. The defendants, including Telxon, filed their
         briefs in opposition to Class Certification on October 13, 1993. On
         December 17, 1993, the District Court certified the class, consisting
         of Telxon stockholders, other than defendants and their affiliates, who
         purchased Telxon common stock between May 20, 1992 and December 14,
         1992.

         Following the completion of discovery (other than of experts), each
         defendant filed a Motion for Summary Judgment on May 19, 1995, all of
         which were opposed by the plaintiffs. On September 14, 1995, the trial
         court granted each defendant summary judgment on all counts, which the
         plaintiffs appealed to the United States Sixth Circuit Court of
         Appeals. On November 12, 1997, the Court of Appeals affirmed the
         summary judgment as to all defendants. The plaintiffs had 90 days from
         the entry of the judgement to seek further appeal or other relief, and
         it is believed that such time has expired. Accordingly, the Company
         does not expect that the trial court's disposition of the case, as
         affirmed by the Court of Appeals, will be overturned, and, no provision
         has been made in the accompanying consolidated financial statements for
         any liability that could result to the Company with respect to the
         Consolidated Class Action.

         On September 21, 1993, a derivative Complaint was filed in the Court of
         Chancery of the State of Delaware, in and for Newcastle County, by an
         alleged stockholder of Telxon derivatively on behalf of Telxon. The
         named defendants are Telxon; Robert F. Meyerson, former Chairman
         of the Board, Chief Executive Officer and director; Dan R. Wipff, then
         President, Chief Operating Officer and Chief Financial Officer and
         director; Robert A. Goodman, Corporate Secretary and 

                                       8
<PAGE>   9
                       TELXON CORPORATION AND SUBSIDIARIES
                                        
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                        
               (In thousands except share and per share amounts)

         outside director; Norton W. Rose, outside director; and Dr. Raj Reddy,
         outside director. The Complaint alleges breach of fiduciary duty to the
         Company and waste of the Company's assets in connection with certain
         transactions entered into by Telxon and compensation amounts paid by
         the Company. The Complaint seeks an accounting, injunction, rescission,
         attorneys' fees and costs. While Telxon is nominally a defendant
         in this derivative action, no monetary relief is sought by the
         plaintiff from Telxon. On November 12, 1993, Telxon and the
         individual director defendants filed a Motion to Dismiss. The plaintiff
         filed his brief in opposition to the Motion on May 2, 1994, and the
         defendants filed a final responsive brief. The Motion was argued before
         the Court on March 29, 1995, and on July 18, 1995, the Court issued its
         ruling. The Court dismissed all of the claims relating to the
         plaintiff's allegations of corporate waste but allowed the claims
         relating to breach of fiduciary duty to continue.

         On October 31, 1996, plaintiff's counsel filed a Motion to Intervene in
         the derivative action on behalf of a new plaintiff stockholder. As part
         of the Motion to Intervene, the intervening plaintiff asked that the
         Court designate as operative for the action the intervening plaintiff's
         proposed Complaint, which alleges that a series of transactions in
         which the Company acquired certain technology from a corporation
         affiliated with Mr. Meyerson was wrongful in that Telxon already owned
         the technology by means of a pre-existing consulting agreement with
         another affiliate of Mr. Meyerson; the intervenor's complaint also
         names Raymond D. Meyo, President, Chief Executive Officer and director
         at the time of the first acquisition transaction, as a new defendant.
         The defendants opposed the Motion on grounds that the new claim alleged
         in the proposed Complaint and the addition of Mr. Meyo were time-barred
         by the statute of limitations and the intervening plaintiff did not
         satisfy the standards for intervention. After taking legal briefs, the
         Court ruled on June 13, 1997, to permit the intervention. Discovery is
         continuing, and no deadline for its completion has yet been set by the
         Court. The defendants believe that the post-intervention claims lack
         merit, and they intend to continue vigorously defending this action.
         While the ultimate outcome of this action cannot presently be
         determined, the Company does not anticipate that this matter will have
         a material adverse effect on the Company's consolidated financial
         position, results of operations or cash flows and accordingly has not
         made provisions for any loss or related insurance recovery in the
         accompanying consolidated financial statements.

         In the normal course of its operations, the Company is subject to
         performance under contracts and assertions that technologies it
         utilizes may infringe third party intellectual properties, and has
         various legal actions and certain contingencies pending, including a
         claim made by the owner of a manufacturing facility formerly leased by
         the Company that the Company caused and should remediate soil
         contamination at the facility and may be responsible for possible
         diminution in the economic value of the premises allegedly resulting
         from the contamination. The Company, with professional assistance, is
         continuing to investigate the scope, nature and cause of the
         contamination. Information necessary to support a reasonable estimate
         of the scope of loss, if any, is not presently available and,
         accordingly, no provision has been made in accompanying financial
         statements. The Company, while not conceding denial of coverage, has
         been advised by its insurers that coverage is not available concerning
         this matter. While the Company, based on the information currently
         available to it, continues to believe the matter's ultimate resolution
         will not have a material adverse effect on the Company's business or
         financial condition, if the Company were ultimately held responsible
         for the alleged contamination, the associated loss could have a
         material adverse effect on results of operations for one or more
         quarters in which the associated charge(s) would be taken. In
         management's opinion, all other such outstanding matters have either
         been reflected in the consolidated financial statements, are covered by
         insurance or would not have a material adverse effect on the Company's
         business, consolidated financial position or results of operations or
         cash flows.

7.       Income Taxes

         The Company's consolidated effective income tax rate reflects income
         before taxes increased by non-deductible goodwill amortization and the
         tax effect of subsidiaries' net operating loss benefits not currently
         utilized, which sum is multiplied by the United States statutory rate
         and increased by foreign tax rate differentials. The effective income
         tax rate was decreased by the favorable tax treatment of the Company's
         foreign sales corporation.

8.       Other Transactions

         During the third quarter of fiscal 1998, Telxon re-issued 128,813
         shares of treasury stock to satisfy stock options exercised under its
         stock option plans. Additionally, during the third quarter of fiscal
         1998, Telxon repurchased 72,000 shares of its common stock, at a
         weighted average price of $23.22 per share, pursuant to its open market
         repurchase program.


                                       9
<PAGE>   10
                       TELXON CORPORATION AND SUBSIDIARIES
                                        
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                        
               (In thousands except share and per share amounts)

9.       Change in Accounting Principle

         On November 20, 1997, the Financial Accounting Standards Board's
         Emerging Issues Task Force issued a new consensus ruling, "Accounting
         for Costs Incurred in Connection with a Consulting Contract or an
         Internal Project That Combines Business Process Reengineering and
         Information Technology Transformation" ("EITF 97-13"). EITF 97-13
         requires business process reengineering costs associated with
         information system development to be expensed as incurred. The Company
         has been involved in a corporate-wide information systems 
         implementation project that is affected by this pronouncement. In 
         accordance with this ruling, during the quarter ended December 31, 
         1997, the Company recorded a one-time, after-tax, non-cash charge of 
         $1.2 million to expense previously capitalized costs associated with 
         this project. Such costs had primarily been incurred during the second
         quarter of fiscal 1998.


10.      Subsequent Events

         Subsequent to December 31, 1997, Telxon reissued 20,972 shares of
         treasury stock to satisfy purchases made by employees through its 1995
         Employee Stock Purchase Plan. Additionally, Telxon reissued 25,770
         shares of treasury stock in January 1998 to satisfy stock options
         exercised under its stock option plans.

         Subsequent to December 31, 1997, Telxon repurchased 6,500 shares of its
         common stock at a price of $21.88 per share, pursuant to its open
         market repurchase program.

11.      Newly Issued Accounting Pronouncements

         In October 1997, the American Institute of Certified Public
         Accountants issued Statement of Position 97-2, "Software Revenue
         Recognition" ("SOP 97-2"). The Company is required to adopt the        
         provisions of SOP 97-2 for the fiscal year ending March 31, 1999.
         Management believes that the adoption of this pronouncement will not   
         have a material effect on the Company's consolidated financial
         position, results of operations or cash flows.

12.      Reclassifications

         Certain items in the fiscal 1997 consolidated financial statements and
         notes thereto have been reclassified to conform to the fiscal 1998
         presentation.



                                       10
<PAGE>   11

                               TELXON CORPORATION

                                    SIGNATURE


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

Date:    March 13, 1998   


                                             TELXON CORPORATION
                                             (Registrant)


                                             /s/ KENNETH W. HAVER
                                             --------------------
                                             Kenneth W. Haver, Senior
                                             Vice President and Chief
                                             Financial Officer