<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION


                              WASHINGTON, DC 20549


                                    FORM 10-Q



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

                For the quarterly period ended September 30, 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 September 30, 1997, there were 15,845,338 outstanding shares of the
registrant's Common Stock.

<PAGE>   2


                               TELXON CORPORATION
        INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




<TABLE>
<CAPTION>
                                                                                                        Page No.
                                                                                                        --------

PART I.       FINANCIAL INFORMATION:

<S>                                                                                                       <C>
     Item 1:  Consolidated Financial Statements
                         Balance Sheet..................................................................    3
                         Statement of Operations........................................................    4
                         Statement of Cash Flows........................................................    5
                         Notes to Consolidated Financial Statements.....................................   6-9

     Item 2:  Management's Discussion and Analysis of Financial
                         Condition and Results of Operations............................................  10-17

PART II.      OTHER INFORMATION:

     Item 1:  Legal Proceedings.........................................................................   18

     Item 4:  Submission of Matters to a Vote of Security Holders.......................................   18

     Item 6:  Exhibits and Reports on Form 8-K..........................................................  18-24
</TABLE>

All Items of Form 10-Q other than those listed above have been omitted as
inapplicable.




                                       2
<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>
                                                                                                September 30,        March 31,
                                                                                                    1997               1997
                                                                                                  --------            ------
                                                                                                 (Unaudited)
<S>                                                                                               <C>                <C>     
ASSETS

Current assets:
  Cash (including cash equivalents of $8,500 and
    $38,100)  ...............................................................................     $ 28,635           $ 45,386
  Accounts receivable, net of allowance for
    doubtful accounts of $1,790 and $1,596...................................................      104,934            111,959
  Notes and other accounts receivable........................................................       14,874             16,312
  Inventories ...............................................................................       87,454             84,499
  Prepaid expenses and other.................................................................       14,207             11,956
                                                                                                  --------           --------
     Total current assets....................................................................      250,104            270,112
Property and equipment, net..................................................................       50,232             45,578
Intangible and other assets, net.............................................................       44,895             46,094
                                                                                                  --------           --------
     Total   ................................................................................     $345,231           $361,784
                                                                                                  ========           ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Notes payable..............................................................................     $     --           $     50
  Current portion of long-term debt..........................................................          383                383
  Capital lease obligations due within one year..............................................          642                627
  Accounts payable...........................................................................       36,050             47,917
  Income taxes payable.......................................................................        1,708              3,077
  Accrued liabilities........................................................................       41,159             49,000
                                                                                                  --------           --------
     Total current liabilities...............................................................       79,942            101,054
Capital lease obligations....................................................................          635                968
Convertible subordinated notes and debentures................................................      107,224            107,224
Other long-term liabilities..................................................................        5,620              5,837
                                                                                                  --------           --------
     Total liabilities.......................................................................      193,421            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.................................................................       86,479             87,105
  Retained earnings..........................................................................       74,533             70,821
  Equity adjustment for foreign currency translation.........................................       (3,633)            (2,643)
  Unearned compensation relating to restricted stock awards..................................         (114)              (210)
  Treasury stock; 357 and 557 shares of common stock at cost.................................       (5,617)            (8,534)
                                                                                                  --------           --------
     Total stockholders' equity..............................................................      151,810            146,701
                                                                                                  --------           --------
Commitments and contingencies................................................................           --                 --
                                                                                                  --------           --------
     Total    ...............................................................................     $345,231           $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                   Six Months
                                                       Ended September 30,           Ended September 30,
                                                      1997            1996          1997           1996
                                                    ---------      ---------      ---------      --------- 
<S>                                                 <C>            <C>            <C>            <C>      
Revenues:
     Product, net .............................     $  91,138      $  89,439      $ 177,829      $ 183,464
     Customer service, net ....................        19,182         18,875         37,404         37,233
                                                    ---------      ---------      ---------      --------- 
              Total net revenues ..............       110,320        108,314        215,233        220,697

Cost of revenues:
     Product ..................................        54,276         62,445        106,836        128,270
     Customer service .........................        12,336         11,534         23,462         22,582
                                                    ---------      ---------      ---------      --------- 
              Total cost of revenues ..........        66,612         73,979        130,298        150,852
                                                    ---------      ---------      ---------      --------- 

     Gross profit .............................        43,708         34,335         84,935         69,845

Operating expenses:
     Selling expenses .........................        18,677         21,037         36,776         42,220
     Product development and engineering
          expenses ............................         9,525         10,096         18,651         21,204
     General and administrative expenses ......         9,843         10,548         19,547         21,711
                                                    ---------      ---------      ---------      --------- 
              Total operating expenses ........        38,045         41,681         74,974         85,135
                                                    ---------      ---------      ---------      --------- 

              Income (loss) from operations ...         5,663         (7,346)         9,961        (15,290)

Interest income ...............................           420            136            917            351
Interest expense ..............................        (1,811)        (2,162)        (3,602)        (4,132)
Other non-operating (expense) income ..........            (7)           (32)          (165)            73
                                                    ---------      ---------      ---------      --------- 

              Income (loss) before income taxes         4,265         (9,404)         7,111        (18,998)

Provision (benefit) for income taxes ..........         1,877         (4,702)         3,129         (9,499)
                                                    ---------      ---------      ---------      --------- 

              Net income (loss) ...............     $   2,388      $  (4,702)     $   3,982      $  (9,499)
                                                    =========      =========      =========      ========= 

Earnings per common and common equivalent
      share:

              Net income (loss) per share .....     $     .15      $    (.29)     $     .25      $    (.58)
                                                    =========      =========      =========      ========= 

Average number of common and common
      equivalent shares outstanding ...........        16,273         16,182         16,027         16,265
                                                    =========      =========      =========      ========= 
</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>
                                                              Six Months Ended September 30,
                                                              ------------------------------
                                                                   1997           1996
                                                                 --------       --------
<S>                                                              <C>            <C>     
Cash flows from operating activities:
     Net income (loss) ....................................      $  3,982       $ (9,499)
     Adjustments to reconcile net income (loss) to
         net cash used in operating activities:
              Depreciation and amortization ...............        12,183         13,673
              Amortization of restricted stock
                  awards, net .............................            96            253
              Provision for doubtful accounts .............           395            180
              Provision for inventory obsolescence ........         3,548          5,972
              Deferred income taxes .......................           172         (1,025)
              Loss on disposal of assets ..................           528            295
              Trading securities, net .....................            --            902
              Changes in assets and liabilities:
                   Accounts and notes receivable ..........         7,597         18,038
                   Inventories ............................        (7,032)        (1,732)
                   Prepaid expenses and other .............        (2,231)            55
                   Intangible and other assets ............        (1,748)          (865)
                   Accounts payable and accrued liabilities       (21,341)       (46,431)
                   Other long-term liabilities ............          (217)            37
                                                                 --------       --------
                             Total adjustments ............        (8,050)       (10,648)
                                                                 --------       --------
     Net cash used in operating activities ................        (4,068)       (20,147)

Cash flows from investing activities:
     Additions to property and equipment ..................       (12,212)        (8,269)
     Software investments .................................        (2,279)        (3,477)
     Proceeds from the sale of assets .....................           866            150
     Purchase of non-marketable investments ...............            --           (400)
     Additions to long-term notes receivable ..............          (140)          (600)
                                                                 --------       --------
     Net cash used in investing activities ................       (13,765)       (12,596)

Cash flows from financing activities:
     Notes payable, net ...................................           (50)        17,269
     Principal payments on capital leases .................          (318)          (502)
     Principal payments on long-term borrowing ............            --         (2,103)
     Purchase of treasury stock ...........................        (3,256)        (1,051)
     Debt issue costs paid ................................            --           (239)
     Proceeds from exercise of stock options
         (includes tax benefit) ...........................         4,863            652
                                                                 --------       --------
     Net cash provided by financing activities ............         1,239         14,026

     Effect of exchange rate changes on cash ..............          (157)            17
                                                                 --------       --------

     Net decrease in cash and cash equivalents ............       (16,751)       (18,700)
     Cash and cash equivalents at beginning of period .....        45,386         34,828
                                                                 --------       --------
     Cash and cash equivalents at end of period ...........      $ 28,635       $ 16,128
                                                                 ========       ========
</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 period(s), 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 the Company'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 earnings per common and common equivalent share of
         common stock are based on the weighted average number of common shares
         outstanding during the period increased by the net shares issuable on
         the assumed exercise of stock options using the treasury stock method.
         All securities having an antidilutive effect on earnings per share have
         been excluded from such computations. Common stock purchase rights
         outstanding under the Company'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.

         In February 1997, the Financial Accounting Standards Board ("FASB")
         issued Statement of Financial Accounting Standards No. 128, "Earnings
         Per Share" ("SFAS No. 128"). SFAS No. 128 revises the standards for
         computing and presenting earnings per share. The Company is required to
         adopt the provisions of SFAS No. 128 beginning with the third quarter
         ending December 31, 1997, at which time all prior and interim period
         earnings per share amounts will be restated. The Company has determined
         that, once adopted, the restated basic and fully diluted earnings per
         share amounts as computed under SFAS No. 128 for the quarter and six
         months ended September 30, 1997, will not be materially different from
         the earnings per share amounts presented in the accompanying
         consolidated statement of operations.

3.       Inventories

<TABLE>
<CAPTION>
         Inventories consisted of the following:
                                                                                           September 30,
                                                                                               1997             March 31,
                                                                                            (Unaudited)            1997
                                                                                           ------------         ---------
<S>                                                                                           <C>                <C>    
         Purchased components.........................................................        $28,279            $29,983
         Work-in-process..............................................................         37,657             31,579
         Finished goods...............................................................         21,518             22,937
                                                                                              -------            -------
                                                                                              $87,454            $84,499
                                                                                              =======            =======
</TABLE>

4.       Accrued Liabilities

<TABLE>
<CAPTION>
         Accrued liabilities consisted of the following:
                                                                                           September 30,
                                                                                               1997             March 31,
                                                                                            (Unaudited)            1997
                                                                                           ------------         ---------
<S>                                                                                           <C>                <C>    
         Deferred customer service revenues...........................................        $13,047            $14,329
         Accrued payroll and other employee compensation..............................          9,644             15,799
         Other accrued liabilities....................................................         18,468             18,872
                                                                                              -------            -------
                                                                                              $41,159            $49,000
                                                                                              =======            =======
</TABLE>



                                       6
<PAGE>   7

                       TELXON CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                (In thousands except share and per share amounts)


5.       Supplemental Cash Flow Information
<TABLE>
<CAPTION>
                                                                               Six Months
                                                                            Ended September 30,
                                                                            -------------------
                                                                          1997               1996
                                                                          ----               ----
                                                                                (Unaudited)

<S>                                                                      <C>                <C>   
         Cash paid during the period for:
         Interest.................................................       $3,674             $4,419
         Income taxes.............................................        4,985              6,127
</TABLE>

         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.

         The Company's re-issuances of treasury stock during the second quarter
         of each of fiscal 1998 and 1997 to satisfy purchases made by employees
         through the Telxon Corporation 1995 Employee Stock Purchase Plan have
         been excluded from the accompanying consolidated statement of cash
         flows as non-cash transactions. See Note 8 - Other Transactions for
         further details of the second quarter fiscal 1998 re-issuance.

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
         stockholders of the Company on behalf of themselves and purported
         classes consisting of Telxon stockholders, other than defendants and
         their affiliates, who purchased the Company's common stock between May
         20, 1992 and January 19, 1993. The named defendants are the Company,
         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 the Company, 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 the Company, 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. Though the plaintiffs have the
         right to seek further appeal or other relief from the affirmance, the
         Company would not expect that the trial court's disposition of the
         case, as affirmed by the Court of Appeals, will be overturned;
         accordingly, 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 


                                       7
<PAGE>   8

                       TELXON CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                (In thousands except share and per share amounts)


         Telxon derivatively on behalf of Telxon. The named defendants are the
         Company; 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 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 the Company is nominally a defendant in this derivative action,
         no monetary relief is sought by the plaintiff from the Company. 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 plus non-deductible goodwill amortization and the tax
         effect of subsidiaries' net 



                                       8
<PAGE>   9

                       TELXON CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                (In thousands except share and per share amounts)



         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.

         The decrease in the Company's second quarter and first half of fiscal
         1998 consolidated effective income tax rate from the rate experienced
         during the second quarter and first half of fiscal 1997 was due
         primarily to the decrease in non-deductible goodwill amortization and
         an increase in consolidated pre-tax income without a corresponding
         increase in non-deductible reconciling items.

8.       Other Transactions

         During the second quarter of fiscal 1998, the Company re-issued 200,272
         shares of treasury stock to satisfy the stock options exercised under
         the Company's stock option plans and another 36,140 shares of treasury
         stock to satisfy purchases made by employees through the Telxon
         Corporation 1995 Employee Stock Purchase Plan.

9.       Subsequent Event 

         During October 1997, the Company re-issued 136,921 shares of treasury
         stock to satisfy stock options exercised under the Company's stock
         option plans.

10.      Reclassifications

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


                                       9
<PAGE>   10



                       TELXON CORPORATION AND SUBSIDIARIES

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

IN ADDITION TO DISCUSSING AND ANALYZING THE COMPANY'S RECENT HISTORICAL
FINANCIAL RESULTS AND CONDITION, THE FOLLOWING MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INCLUDES STATEMENTS
REGARDING CERTAIN TRENDS OR OF OTHER FORWARD-LOOKING INFORMATION CONCERNING THE
COMPANY'S ANTICIPATED REVENUES, COSTS, FINANCIAL RESOURCES OR OTHERWISE
AFFECTING OR RELATING TO THE COMPANY WHICH ARE INTENDED TO QUALIFY FOR THE
PROTECTIONS AFFORDED "FORWARD-LOOKING STATEMENTS" UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995, PUBLIC LAW 104-67. THE FORWARD-LOOKING STATEMENTS
MADE HEREIN AND ELSEWHERE IN THIS FORM 10-Q ARE INHERENTLY SUBJECT TO RISKS AND
UNCERTAINTIES WHICH COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS. THE SUMMARY OF CERTAIN OF THE
RISKS AND OTHER IMPORTANT FACTORS WHICH MAY AFFECT THE COMPANY'S BUSINESS,
OPERATING RESULTS AND FINANCIAL AND OTHER CONDITION UNDER "FACTORS THAT MAY
AFFECT FUTURE RESULTS" BELOW SHOULD BE READ IN CONJUNCTION WITH THE MORE
COMPLETE DISCUSSION OF THOSE AND OTHER RISKS AND IMPORTANT FACTORS AFFECTING THE
BUSINESS, OPERATING RESULTS AND CONDITION OF THE COMPANY UNDER "ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION - FACTORS THAT MAY AFFECT FUTURE RESULTS" (WHICH IS INCORPORATED
HEREIN BY THIS REFERENCE), AND OTHER CAUTIONARY STATEMENTS APPEARING UNDER "ITEM
1. BUSINESS" AND ELSEWHERE, IN THE COMPANY'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.

OVERVIEW

The Company recorded net income of $2.4 million or $.15 per share and $4.0
million or $.25 per share for the second quarter and first half of fiscal 1998,
respectively. In comparison, the Company recorded net losses of $4.7 million or
$.29 per share and $9.5 million or $.58 per share for the second quarter and
first half of fiscal 1997, respectively.

The Company operates in a rapidly changing and dynamic market, and the Company's
strategies and plans are designed to adapt to changing market conditions where
and when possible. However, there can be no assurance that the Company's
management will identify the risks (especially those newly emerging from time to
time) affecting, and their impact on, the Company and its business, that the
Company's strategies and plans will take into account all market conditions and
changes thereto or that such strategies and plans will be successfully
implemented. Accordingly, neither the historical results presented in the
Company's consolidated financial statements and discussed herein, nor any
forward-looking statements in this Form 10-Q, are necessarily indicative of the
Company's future results. See "FACTORS THAT MAY AFFECT FUTURE RESULTS" for a
discussion of risk factors which may affect the Company's future results of
operations.

FACTORS THAT MAY AFFECT FUTURE RESULTS

The Company's business, operating results and financial and other condition may
be affected by a number of risks and other important factors, including, without
limitation, the following, some of which are inherently difficult to identify
and predict and/or are beyond the Company's control: general and
industry-specific economic conditions; the identification and implementation of
appropriate cost saving and operational efficiency initiatives; sales and
manufacturing cycles from quarter to quarter and within each quarter; serving
markets characterized by increasingly rapid technological change and associated
changes in market demand, product obsolescence and price erosion; intense
competition; concentration of revenues in the retail industry; ability to
penetrate and expand revenues in new and existing markets; risks associated with
foreign sales and operations; timely and efficient enhancement of appropriate
product offerings through internal development and acquisition of or investment
in new businesses and technologies; dependence on, and freedom from infringement
of, technologies and other proprietary rights of or by third parties; government
regulation of radio and other products and product health and safety concerns;
dependence on sole source, or limited number of, suppliers; and attracting and
retaining qualified employees. In addition to being subject to the foregoing
factors and other cautionary statements elsewhere in this Form 10-Q, the
Company's conduct of its business and the results and condition thereof are also
subject to the possible adverse effects of certain pending litigation and other
contingencies discussed in Note 6 to the accompanying consolidated financial
statements included in Item 1 above.



                                       10
<PAGE>   11


RESULTS OF OPERATIONS

Revenues

1998 vs. 1997

<TABLE>
<CAPTION>
                                                             Quarter ended September 30,                    Increase
                                                             ---------------------------                    --------
                                                                 1997            1996               Dollar         Percentage
                                                                 ----            ----               ------         ----------
                                                                             (in thousands)
 
<S>                                                            <C>              <C>                 <C>               <C> 
Net Revenues:
   Product, net......................................          $ 91,138         $ 89,439            $1,699            1.9%
   Customer service, net.............................            19,182           18,875               307            1.6%
                                                               --------         --------            ------
   Total net revenues................................          $110,320         $108,314            $2,006            1.9%
                                                               ========         ========            ======
</TABLE>


<TABLE>
<CAPTION>
                                                             Six Months ended September 30,            Increase (Decrease)
                                                             ------------------------------            -------------------
                                                                 1997            1996               Dollar         Percentage
                                                                 ----            ----               ------         ----------
                                                                             (in thousands)              

<S>                                                            <C>              <C>                <C>               <C>   
Net Revenues:
   Product, net......................................          $177,829         $183,464           $(5,635)          (3.1)%
   Customer service, net.............................            37,404           37,233               171            0.5 %
                                                               --------         --------           -------
   Total net revenues................................          $215,233         $220,697           $(5,464)          (2.5)%
                                                               ========         ========           =======
</TABLE>


Product revenues include the sale of portable tele-transaction computers
("PTCs"), including rugged, wireless mobile computers and pen-based and
touch-screen workslates; hardware accessories; wireless data communication
products; custom application software and software licenses; and a variety of
professional services, including system integration and project management.

Consolidated product revenues from continuing operations, which exclude the
fiscal 1997 results of the Company's former Itronix subsidiary (which was sold
effective December 31, 1996), increased $22.6 million or 33.0% in the second
quarter of fiscal 1998 from second quarter fiscal 1997 levels. The consolidated
product revenues shown for the second quarter of fiscal 1997 include $20.9
million of product revenues from Itronix. The increase in consolidated product
revenues from continuing operations was due primarily to an increase in domestic
PTC unit volume while the average selling price per PTC unit remained
essentially constant.

Consolidated product revenues from continuing operations increased $35.7 million
or 25.1% in the first half of fiscal 1998 from first half fiscal 1997 levels.
The consolidated product revenues shown for the first half of fiscal 1997
include $41.4 million of product revenues from Itronix. The increase in
consolidated product revenues from continuing operations was due primarily to an
increase in domestic PTC unit volume that was partially offset by a slight
decrease in the average selling price per PTC unit.

Revenues from the Company's international operations increased $4.0 million or
14.8% in the second quarter of fiscal 1998 from second quarter fiscal 1997
levels. The increase in second quarter fiscal 1998 international revenues was
primarily attributable to an increase in the volume of PTC units sold to foreign
distributors, partially offset by a decrease in the average selling price per
PTC unit paid by the foreign distributors. The Company's revenues from
international operations increased $3.9 million or 6.8% in the first half of
fiscal 1998 from first half fiscal 1997 levels. This increase was primarily due
to the increase in the volume of PTC units sold to foreign distributors while
the average selling price per PTC unit paid by the foreign distributors remained
essentially constant. These revenues from international operations for the
quarters and six months ended September 30, 1997 and 1996, exclude the results
of the Canadian operations of the Company's Aironet subsidiary. The relocation
of these Aironet operations to Akron, Ohio, will be completed during the second
half of fiscal 1998, as a result of which their revenues will be included in the
Company's consolidated domestic results.


                                       11
<PAGE>   12




Cost of Revenues

1998 vs. 1997

<TABLE>
<CAPTION>
                                                              Quarter ended September 30,               Increase (Decrease)
                                                              ---------------------------               -------------------
                                                                 1997             1996              Dollar          Percentage
                                                                 ----             ----              ------          ----------
                                                                             (in thousands)
<S>                                                             <C>              <C>                <C>               <C>    
Cost of Revenues:
   Product............................................          $54,276          $62,445            $(8,169)          (13.1)%
   Customer service...................................           12,336           11,534                802             7.0 %
                                                                -------          -------            -------
   Total cost of revenues.............................          $66,612          $73,979            $(7,367)          (10.0)%
                                                                =======          =======            =======

   Cost of product revenues as a
     percentage of product revenues,
     net ............................................              59.6%           69.8%

   Cost of customer service revenues
     as a percentage of customer
     service revenues, net............................             64.3%           61.1%
</TABLE>


<TABLE>
<CAPTION>
                                                             Six Months ended September 30,             Increase (Decrease)
                                                             ------------------------------             -------------------
                                                                1997              1996             Dollar            Percentage
                                                                ----              ----             ------            ----------
                                                                             (in thousands)
<S>                                                            <C>              <C>                <C>                <C>    
Cost of Revenues:
   Product...........................................          $106,836         $128,270           $(21,434)          (16.7)%
   Customer service..................................            23,462           22,582                880             3.9 %
                                                               --------         --------           --------
   Total cost of revenues............................          $130,298         $150,852           $(20,554)          (13.6)%
                                                               ========         ========           ========

   Cost of product revenues as a
     percentage of product revenues,
     net ............................................              60.1%           69.9%

   Cost of customer service revenues
     as a percentage of customer
     service revenues, net...........................              62.7%           60.7%
</TABLE>

The decrease in the second quarter fiscal 1998 consolidated product cost
percentage from second quarter fiscal 1997 levels was due primarily to the
absence of certain non-recurring adjustments and a large-volume/low margin
contract with a single, large customer experienced by the Company during the
second quarter of fiscal 1997. The fiscal 1997 non-recurring adjustments
increased the inventory valuation and customer allowance provisions, which
negatively impacted the second quarter fiscal 1997 product cost percentage by 4%
and 2%, respectively. Additionally, the large-volume/low margin contract with a
single customer effectively reduced the second quarter fiscal 1997 product gross
margin percentage by 2%. Second quarter fiscal 1998 product gross margins were
also positively impacted by the benefit recognized during the quarter from the
Company's fiscal 1997 cost reduction and efficiency initiatives, workforce
reductions and early retirements.

The decrease in the first half of fiscal 1998 consolidated product cost
percentage from first half fiscal 1997 levels was due primarily to the absence
of certain non-recurring adjustments, large-volume/low margin business and new
product rollouts experienced by the Company during the first half of fiscal
1997. The non-recurring adjustments to increase the inventory valuation and
customer allowance provisions negatively impacted the first half fiscal 1997
product cost percentage by 2% and 1%, respectively, while the large-volume/low
margin contract with a single customer effectively reduced the first half fiscal
1997 product gross margin percentage by 1%. First half fiscal 1998 product gross
margins were also positively impacted by the benefit recognized during the
period from the Company's fiscal 1997 cost reduction and efficiency initiatives,
workforce reductions and early retirements.

The Company anticipates its second half of fiscal 1998 consolidated product cost
percentage to decrease from second half fiscal 1997 levels due to the absence of
non-recurring charges for inventory valuation, workforce reduction and early
retirement provisions recorded during the third quarter of fiscal 1997 as well
as the continued benefit of the Company's fiscal 1997 cost reduction and
efficiency initiatives, workforce reductions and early retirements.

The increase in the second quarter and first half of fiscal 1998 consolidated
customer service cost percentage from second quarter and first half fiscal 1997
levels was due primarily to the increased direct material and labor costs
required to repair the Company's more sophisticated and complex pen-based and
radio frequency units that comprise 


                                       12
<PAGE>   13



an increasing proportion of its installed customer base.

The Company anticipates its second half of fiscal 1998 consolidated customer
service cost percentage to decrease from second half fiscal 1997 levels due to
the absence of non-recurring charges for inventory valuation and customer
service consolidation provisions recorded during the third quarter of fiscal
1997 as well as the continued benefit of the Company's fiscal 1997 cost
reduction and efficiency initiatives.

At September 30, 1997, consolidated inventory allowance accounts increased to
$18.7 million from $16.0 million at March 31, 1997. As a percentage of
consolidated gross inventories, the Company's consolidated inventory allowances
increased to 17.4% at September 30, 1997, from 15.6% at March 31, 1997. The
Company anticipates continuing to provide for inventory obsolescence resulting
from technological change.


Operating Expenses

1998 vs. 1997

<TABLE>
<CAPTION>
                                                           Quarter ended September 30,                  (Decrease)
                                                           ---------------------------                  ----------
                                                             1997               1996             Dollar         Percentage
                                                             ----               ----             ------         ----------
                                                                           (in thousands)

<S>                                                        <C>                 <C>               <C>               <C>   
Operating Expenses:
   Selling expenses..................................      $18,677             $21,037           $(2,360)         (11.2)%
   Product development and
     engineering expenses............................        9,525              10,096              (571)          (5.7)%
   General and administrative
     expenses........................................        9,843              10,548              (705)          (6.7)%
                                                           -------             -------           -------
   Total operating expenses..........................      $38,045             $41,681           $(3,636)          (8.7)%
                                                           =======             =======           =======
</TABLE>


<TABLE>
<CAPTION>
                                                        Six Months ended September 30,                   (Decrease)
                                                        ------------------------------                   ----------
                                                            1997              1996                Dollar          Percentage
                                                            ----              ----                ------          ----------
                                                                         (in thousands)

<S>                                                        <C>                 <C>              <C>               <C>    
Operating Expenses:
   Selling expenses..................................      $36,776             $42,220          $ (5,444)         (12.9)%
   Product development and
     engineering expenses............................       18,651              21,204            (2,553)         (12.0)%
   General and administrative
     expenses........................................       19,547              21,711            (2,164)         (10.0)%
                                                           -------             -------          --------
   Total operating expenses..........................      $74,974             $85,135          $(10,161)         (11.9)%
                                                           =======             =======          ========
</TABLE>

Consolidated selling expenses as a percentage of consolidated total revenues
decreased to 16.9% and 17.1%, respectively, in the second quarter and first half
of fiscal 1998 from 19.4% and 19.1%, respectively, in the second quarter and
first half of fiscal 1997. The decrease in selling expenses was due primarily to
the benefit recognized throughout the first half of fiscal 1998 from the
Company's fiscal 1997 workforce reductions and early retirements as well as the
absence of $.5 million of severance charges recorded during the second quarter
of fiscal 1997. The Company anticipates its second half of fiscal 1998
consolidated selling expenses as a percentage of consolidated total revenues to
decrease from second half fiscal 1997 levels due to the absence of non-recurring
charges related to the redesign of the Company's worldwide distribution and
logistics operations and the workforce reduction and early retirement
initiatives recorded during the third quarter of fiscal 1997 as well as the
continued benefit of the Company's fiscal 1997 workforce reduction and early
retirement initiatives.

The decrease in consolidated product development and engineering expenses in the
second quarter and first half of fiscal 1998 from second quarter and first half
fiscal 1997 levels was due primarily to the absence of such expenses for the
Company's former Itronix subsidiary. During the second quarter and first half of
fiscal 1997, Itronix recorded product development and engineering expenses of
$1.7 million and $3.3 million, respectively. These second quarter and first half
fiscal 1998 cost reductions were partially offset by $.4 million of costs
incurred by the Company during the second quarter of fiscal 1998 to begin
consolidating and relocating its engineering and development operations to
Houston, Texas. Product development and engineering expenses for the second half
of fiscal 1998 will include increased incremental costs to complete the
consolidation of the Company's engineering operations. The Company anticipates
that its overall second half of fiscal 1998 consolidated product development
and engineering expenses of its continuing operations will remain at
substantially the same level as the comparable second half fiscal 1997 levels,
representing a decrease from reported second half fiscal 1997 levels as a
result of the absence of engineering costs incurred by its former Itronix
subsidiary during the third quarter of fiscal 1997.


                                       13
<PAGE>   14



During the second quarter and first half of fiscal 1998, the Company capitalized
internal software development costs in accordance with the requirements of
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed" ("SFAS No. 86")
aggregating $.8 million and $1.5 million, respectively. The Company capitalized
$1.3 million and $2.6 million, respectively, of internal software development
costs during the second quarter and first half of fiscal 1997. The Company
anticipates the dollar amount of internal software development costs capitalized
during the second half of fiscal 1998 to decrease from second half fiscal 1997
levels.

The decrease in general and administrative expenses in the second quarter and
first half of fiscal 1998 from second quarter and first half fiscal 1997 levels
was due primarily to the benefits recognized from the Company's fiscal 1997
workforce reductions, early retirements and other cost reduction initiatives as
well as the absence of the general and administrative expenses of the Company's
former Itronix subsidiary. During the second quarter and first half of fiscal
1997, Itronix recorded general and administrative expenses of $.7 million and
$1.4 million, respectively. The Company anticipates its second half of fiscal
1998 consolidated general and administrative expenses to decrease from the
reported second half fiscal 1997 levels due to the absence of costs incurred by
its former Itronix subsidiary during the third quarter of fiscal 1997 and that
the second half of fiscal 1998 expenses of its continuing operations will
further reflect a decrease from the comparable second half fiscal 1997 levels
due to the absence of non-recurring charges related to the Company's workforce
reduction and early retirement initiatives, previously developed corporate
information systems and certain consulting agreements recorded during the third
quarter of fiscal 1997.



Income Taxes

1998 vs. 1997

<TABLE>
<CAPTION>
                                                          Quarter ended September 30,                       Increase
                                                          ---------------------------                       --------
                                                           1997               1996                Dollar            Percentage
                                                           ----               ----                ------            ----------
                                                                         (in thousands)
<S>                                                         <C>              <C>                  <C>                  <C>   
Income Taxes:
   Provision (benefit) for
      income taxes...................................       $1,877           $(4,702)             $6,579               139.9%
</TABLE>



<TABLE>
<CAPTION>
                                                       Six Months ended September 30,                       Increase
                                                       ------------------------------                       --------
                                                           1997               1996                Dollar            Percentage
                                                           ----               ----                ------            ----------
                                                                         (in thousands)
<S>                                                         <C>              <C>                 <C>                   <C>   
Income Taxes:
   Provision (benefit) for
      income taxes...................................       $3,129           $(9,499)            $12,628               132.9%
</TABLE>

The Company's consolidated effective income tax rate was 44% in the second
quarter and first half of fiscal 1998 and 50% in the second quarter and first
half of fiscal 1997.

The consolidated effective income tax rate for the second quarter and first half
of fiscal 1998 reflects income before taxes multiplied by the United States
federal statutory tax rate. The tax rate was increased by nondeductible goodwill
amortization, international tax rate differentials and subsidiaries' net
operating loss benefits not currently utilized. The effective income tax rate
was decreased by the favorable tax treatment of the Company's foreign sales
corporation. No benefit was recorded for increasing research and development
expenditures during the second quarter and first half of fiscal 1998 due to the
expiration of the credit for research and development expenditures at June 1,
1997. There were no other significant tax law changes during the first half of
fiscal 1998 that had a significant effect on the calculation of the Company's
income tax liability.

The consolidated effective income tax rate for the second quarter and first half
of fiscal 1997 reflects income before taxes increased by nondeductible goodwill
amortization, the sum of which was multiplied by the United States federal
statutory tax rate and increased by international tax rate differentials and
subsidiaries' net operating loss benefits not currently utilized. These
increases in the consolidated effective income tax rate were partially offset by
the favorable tax treatment of the Company's foreign sales corporation.


                                       14
<PAGE>   15


FINANCIAL CONDITION

Liquidity

1998 vs. 1997

<TABLE>
<CAPTION>
                                                                                                               Dollar
                                                                          September 30,      March 31,        Increase
                                                                              1997             1997          (Decrease)
                                                                            --------         --------         --------
                                                                                   (in thousands except ratios)

<S>                                                                         <C>              <C>                <C>   
Cash and cash equivalents............................................       $ 28,635         $ 45,386         $(16,751)
Accounts and notes receivable........................................        119,808          128,271           (8,463)
Inventories..........................................................         87,454           84,499            2,955
Other ...............................................................         14,207           11,956            2,251
                                                                            --------         --------         --------
Total current assets.................................................       $250,104         $270,112         $(20,008)
                                                                            ========         ========         ========

Notes payable........................................................       $     --         $     50         $    (50)
Accounts payable.....................................................         36,050           47,917          (11,867)
Income taxes payable.................................................          1,708            3,077           (1,369)
Accrued liabilities..................................................         41,159           49,000           (7,841)
Other ...............................................................          1,025            1,010               15
                                                                            --------         --------         --------
Total current liabilities............................................       $ 79,942         $101,054         $(21,112)
                                                                            ========         ========         ========

Working capital (current assets
  less current liabilities)..........................................       $170,162         $169,058         $  1,104
                                                                            ========         ========         ========

Current ratio (current assets divided
  by current liabilities)............................................       3.1 to 1         2.7 to 1
</TABLE>

The increase in the Company's consolidated working capital at September 30,
1997, from March 31, 1997, was due primarily to the decrease in accounts payable
and accrued liabilities, partially offset by decreases in cash and accounts and
notes receivable and increases in inventories and other current assets. The
decreases in accounts payable and accrued liabilities as well as the
corresponding decrease in cash at September 30, 1997, from amounts recorded at
March 31, 1997, were due primarily to the Company's increased payments to
vendors during the first half of fiscal 1998 for goods and services procured as
of March 31, 1997. Consolidated days sales outstanding decreased to 87 days at
September 30, 1997, from 88 days at March 31, 1997.

The Company believes its existing resources, including available cash and cash
equivalents, internally generated funds and bank credit facilities will be
sufficient to meet working capital requirements for the next twelve months.


Cash Flows from Operating Activities:

1998 vs. 1997

<TABLE>
<CAPTION>
                                                                                                                Dollar   
                                                                                                               Increase  
                                                                                                              (Decrease) 
                                                                        Six Months ended September 30,            in     
                                                                        ------------------------------         Cash Flow 
                                                                           1997               1996              Impact
                                                                           ----               ----              ------
                                                                                         (in thousands)

<S>                                                                      <C>                <C>                 <C>    
Cash Flows from Operating Activities:
   Net income (loss)..............................................       $ 3,982             $(9,499)           $13,481
   Depreciation and amortization..................................        12,279              13,926             (1,647)
   Provision for inventory obsolescence...........................         3,548               5,972             (2,424)
   Deferred income taxes..........................................           172              (1,025)             1,197
   Accounts and notes receivable..................................         7,597              18,038            (10,441)
   Inventories....................................................        (7,032)             (1,732)            (5,300)
   Prepaid expenses and other.....................................        (2,231)                 55             (2,286)
   Accounts payable and accrued liabilities.......................       (21,341)            (46,431)            25,090
   Other .........................................................        (1,042)                549             (1,591)
                                                                         -------            --------            -------
   Net cash used in operating activities..........................       $(4,068)           $(20,147)           $16,079
                                                                         =======            ========            =======
</TABLE>

The reduction in the amount of cash used in the Company's consolidated operating
activities for the first half of fiscal 1998 from first half of fiscal 1997
levels was due primarily to the increase in net income between the two periods,
the change in the cash flow impact of accounts payable and accrued liabilities
and the absence of the net cash used



                                       15
<PAGE>   16


in the operating activities of the Company's former Itronix subsidiary during
the first half of fiscal 1997. During the first half of fiscal 1997, Itronix
used approximately $9.3 million of cash in its operating activities that was
ultimately funded by Telxon. These positive cash flow items were partially
offset by decreased cash flows from accounts and notes receivable and increased
inventory purchases, as detailed in the preceding table.


Cash Flows From Investing Activities

1998 vs. 1997

<TABLE>
<CAPTION>
                                                                                                                  Dollar  
                                                                                                                 Increase 
                                                                                                                (Decrease)
                                                                     Six Months ended September 30,                 in    
                                                                     ------------------------------              Cash Flow
                                                                        1997                1996                  Impact
                                                                        ----                ----                  ------
                                                                                        (in thousands)

<S>                                                                  <C>                   <C>                     <C>     
Cash Flows from Investing Activities:
   Additions to property and equipment..........................     $(12,212)             $ (8,269)               $(3,943)
   Software investments.........................................       (2,279)               (3,477)                 1,198
   Proceeds from sale of assets.................................          866                   150                    716
   Other .......................................................         (140)               (1,000)                   860
                                                                     --------              --------                -------
   Net cash used in investing activities........................     $(13,765)             $(12,596)               $(1,169)
                                                                     ========              ========                =======
</TABLE>

The increase in the amount of cash used in the Company's consolidated investing
activities for the first half of fiscal 1998 from first half of fiscal 1997
levels was due primarily to the capitalization of $3.5 million of expenditures
relating to the installation, commenced during the first half of fiscal 1998, of
new corporate-wide information systems designed to enhance management's
operational and information resources as well as address Year 2000 issues. This
negative cash flow item was partially offset by a reduction in software
investments and the proceeds from the sale-leaseback of certain office computer
equipment during the first half of fiscal 1998, as detailed in the preceding
table. The Company anticipates the capitalization of increased incremental costs
associated with its installation of new corporate-wide information systems
during the second half of fiscal 1998.

Effective April 1, 1996, the Company sold the assets of certain retail
application software operations, with net assets of approximately $5.0 million
to a third-party for approximately $.2 million in cash and $7.0 million in
secured promissory notes, including interest. In addition to the proceeds from
the sale, the Company also entered into a software license agreement with the
third-party purchaser. The agreement provides for the Company to receive, over
the next five years, license fees amounting to 20% of the revenue generated by
the purchased software, with minimum required payments aggregating $6.6 million.
The $7.0 million in promissory notes received in connection with the divestiture
have been excluded from the accompanying consolidated statement of cash flows as
a non-cash transaction.


Cash Flows From Financing Activities

1998 vs. 1997

<TABLE>
<CAPTION>
                                                                                                                  Dollar  
                                                                                                                 Increase 
                                                                                                                (Decrease)
                                                                     Six Months ended September 30,                 in    
                                                                     ------------------------------              Cash Flow
                                                                        1997                1996                  Impact
                                                                        ----                ----                  ------
                                                                                        (in thousands)
Cash Flows from Financing Activities:
<S>                                                                   <C>                   <C>                   <C>      
   Notes payable, net...........................................      $   (50)              $17,269               $(17,319)
   Purchase of treasury stock...................................       (3,256)               (1,051)                (2,205)
   Proceeds from exercise of stock options......................        4,863                   652                  4,211
   Principal payments on long-term borrowing....................           --                (2,103)                 2,103
   Other .......................................................         (318)                 (741)                   423
                                                                      -------               -------               --------
   Net cash provided by financing
     activities.................................................      $ 1,239               $14,026               $(12,787)
                                                                      =======               =======               ========
</TABLE>

The decrease in the amount of cash provided by the Company's consolidated
financing activities for the first half of fiscal 1998 from first half of fiscal
1997 levels was due primarily to the absence of borrowings against the Company's
credit facilities during the first half of fiscal 1998 and the Company's
repurchase of an additional 215,700 shares of its common stock during the first
quarter of fiscal 1998 under its open market repurchase program. The absence of
borrowings against the 


                                       16
<PAGE>   17


Company's credit facilities reflects the utilization of proceeds from the
December 31, 1996, sale of its former Itronix subsidiary to pay down amounts
borrowed and outstanding against the Company's credit facilities during fiscal
1997. These negative cash flow items were partially offset by the increase in
proceeds from the exercise of stock options, reflecting the increased exercise
activity by optionees in response to the increase in market price of the
Company's common stock, and the absence of principal payments on long-term
borrowings during the first half of fiscal 1998, as detailed in the preceding
table.

During the second quarter of fiscal 1998, the Company extended to August 4,
1998, the $20.0 million in bank credit which it maintains under its business
purpose revolving promissory note in addition to its ongoing $100.0 million
credit agreement.


OTHER TRANSACTIONS

During the second quarter of fiscal 1998, the Company re-issued 200,272 shares
of treasury stock to satisfy the stock options exercised under the Company's
stock option plans and another 36,140 shares of treasury stock to satisfy
purchases made by employees through the Telxon Corporation 1995 Employee Stock
Purchase Plan. The Company's re-issuance of treasury stock to satisfy purchases
made by employees through the Telxon Corporation 1995 Employee Stock Purchase
Plan has been excluded from the accompanying consolidated statement of cash
flows as a non-cash transaction.


SUBSEQUENT EVENT

During October 1997, the Company re-issued 136,921 shares of treasury stock to
satisfy stock options exercised under the Company's stock option plans.



                                       17
<PAGE>   18


ITEM 1.  LEGAL PROCEEDINGS

See Note 6 to the consolidated financial statements included in Part I of this
Quarterly Report on Form 10-Q for a discussion of the material pending legal
proceedings to which the Company is a party, which footnote discussion is
incorporated in this Part II by this reference.

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

         (a) Telxon held its Annual Meeting of Stockholders on September 10,
         1997 (the "Annual Meeting").

         (b) The matters voted upon by Telxon's stockholders at the Annual
         Meeting included the election of three directors of the class to hold
         office until the 2000 annual meeting of stockholders. Proxies for the
         Annual Meeting were solicited pursuant to Regulation 14 under the
         Securities Exchange Act of 1934, there was no solicitation in
         opposition to management's nominees as listed in the proxy statement,
         and all of such nominees were elected.

         (c) The following three matters were voted upon by Telxon's
         stockholders at the Annual Meeting:

                  (1) The election of three directors of the class to hold
                  office until the 2000 annual meeting of stockholders or until
                  their successors are elected and qualified. The following
                  votes were cast for each director nominee:

                           For the election of Frank E. Brick --

                                    Votes for:                13,310,126
                                    Votes withheld:              943,096,

                           For the election of Robert A. Goodman --

                                    Votes for:                13,325,376
                                    Votes withheld:              927,846, and

                           For the election of Dr. Raj Reddy --

                                    Votes for:                13,328,399
                                    Votes withheld:              924,823;

                  (2) The approval of amendments to the Telxon Corporation 1990
                  Stock Option Plan for employees. The following votes were
                  cast:

                                    Votes for:                 10,944,596
                                    Votes against:              2,331,797
                                    Votes abstained:              109,182
                                    Broker non-votes:             867,647; and

                  (3) The approval of the Telxon Corporation 1997 Section 162(m)
                  Performance-Based Compensation Plan for the Chief Executive
                  Officer. The following votes were cast:

                                    Votes for:                 11,815,192
                                    Votes against:              1,442,696
                                    Votes abstained:              127,688
                                    Broker non-votes:             867,646.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a) Exhibits required by Item 601 of Regulation S-K:

                2         Asset Purchase Agreement by and among Dynatech
                          Corporation, IAQ Corporation, Registrant and Itronix
                          Corporation, a wholly owned subsidiary of Registrant,
                          dated as of December 28, 1996, incorporated 


                                       18
<PAGE>   19



                          herein by reference to Exhibit 2 to Registrant's Form
                          8-K dated December 31, 1996.

                3.1       Restated Certificate of Incorporation of Registrant,
                          incorporated herein by reference to Exhibit No. 3.1 to
                          Registrant's Form 10-K for the year ended March 31,
                          1993.

                3.2       Amended and Restated By-Laws of Registrant, as
                          amended, incorporated herein by reference to Exhibit
                          No. 2(b) to Registrant's Registration Statement on
                          Form 8-A with respect to its Common Stock filed
                          pursuant to Section 12(g) of the Securities Exchange
                          Act, as amended by Amendment No. 1 thereto filed under
                          cover of a Form 8 and Amendment No. 2 thereto filed on
                          Form 8-A/A.

                4.1       Portions of the Restated Certificate of Incorporation
                          of Registrant pertaining to the rights of holders of
                          Registrant's Common Stock, par value $.01 per share,
                          incorporated herein by reference to Exhibit 3.1 to
                          Registrant's Form 10-K for the year ended March 31,
                          1993.

                4.2       Text of form of Certificate for Registrant's Common
                          Stock, par value $.01 per share, and description of
                          graphic and image material appearing thereon,
                          incorporated herein by reference to Exhibit 4.2 to
                          Registrant's Form 10-Q for the quarter ended June 30,
                          1995.

                4.3       Rights Agreement between Registrant and KeyBank
                          National Association, as Rights Agent, dated as of
                          August 25, 1987, as amended and restated as of July
                          31, 1996, incorporated herein by reference to Exhibit
                          4 to Registrant's Form 8-K dated August 5, 1996.

                          4.3.1        Form of Rights Certificate (included as
                                       Exhibit A to the Rights Agreement
                                       included as Exhibit 4.3 above). Until the
                                       Distribution Date (as defined in the
                                       Rights Agreement), the Rights Agreement
                                       provides that the common stock purchase
                                       rights created thereunder are evidenced
                                       by the certificates for Registrant's
                                       Common Stock (the text of which and
                                       description thereof is included as
                                       Exhibit 4.2 above, which stock
                                       certificates are deemed also to be
                                       certificates for such common stock
                                       purchase rights) and not by separate
                                       Rights Certificates; as soon as
                                       practicable after the Distribution Date,
                                       Rights Certificates will be mailed to
                                       each holder of Registrant's Common Stock
                                       as of the close of business on the
                                       Distribution Date.

                          4.3.2        Letter agreement among Registrant,
                                       KeyBank National Association and Harris
                                       Trust and Savings Bank, dated June 11,
                                       1997, with respect to the appointment of
                                       Harris Trust and Savings Bank as
                                       successor Rights Agent under the Rights
                                       Agreement included as Exhibit 4.3 above,
                                       incorporated herein by reference to
                                       Exhibit 4.3.2 to Registrant's Form 10-K
                                       for the year ended March 31, 1997.

                4.4       Indenture by and between Registrant and AmeriTrust
                          Company National Association, as Trustee, dated as of
                          June 1, 1987, regarding Registrant's 7-1/2%
                          Convertible Subordinated Debentures Due 2012,
                          incorporated herein by reference to Exhibit 4.2 to
                          Registrant's Registration Statement on Form S-3,
                          Registration No. 33-14348, filed May 18, 1987.

                          4.4.1        Form of Registrant's 7-1/2% Convertible
                                       Subordinated Debentures Due 2012 (set
                                       forth in the Indenture included as
                                       Exhibit 4.4 above).

                4.5       Indenture by and between Registrant and Bank One Trust
                          Company, N.A., as Trustee, dated as of December 1,
                          1995, regarding Registrant's 5-3/4% Convertible
                          Subordinated Notes due 2003, incorporated herein by


                                       19
<PAGE>   20



                          reference to Exhibit 4.1 to Registrant's Registration
                          Statement on Form S-3, Registration No. 333-1189,
                          filed February 23, 1996.

                          4.5.1        Form of Registrant's 5-3/4% Convertible
                                       Subordinated Notes due 2003 issued under
                                       the Indenture included as Exhibit 4.5
                                       above, incorporated herein by reference
                                       to Exhibit 4.2 to Registrant's
                                       Registration Statement on Form S-3,
                                       Registration No. 333-1189, filed February
                                       23, 1996.

                          4.5.2        Registration Rights Agreement by and
                                       among Registrant and Hambrecht & Quist
                                       LLC and Prudential Securities
                                       Incorporated, as the Initial Purchasers
                                       of Registrant's 5-3/4% Convertible
                                       Subordinated Notes due 2003, with respect
                                       to the registration of said Notes under
                                       applicable securities laws, incorporated
                                       herein by reference to Exhibit 4.3 to
                                       Registrant's Registration Statement on
                                       Form S-3, Registration No. 333-1189,
                                       filed February 23, 1996.

                10.1      Compensation and Benefits Plans of Registrant.

                          10.1.1       Amended and Restated Retirement and
                                       Uniform Matching Profit-Sharing Plan of
                                       Registrant, effective July 1, 1993,
                                       incorporated herein by reference to
                                       Exhibit 10.1.1 to Registrant's Form 10-K
                                       for the year ended March 31, 1994.

                                       10.1.1.a         Amendment, dated January
                                                        1, 1994, to the Plan
                                                        included as Exhibit
                                                        10.1.1 above,
                                                        incorporated herein by
                                                        reference to Exhibit
                                                        10.1.1.a to Registrant's
                                                        Form 10-K for the year
                                                        ended March 31, 1994.

                                       10.1.1.b         Amendment, dated April
                                                        1, 1994, to the Plan
                                                        included as Exhibit
                                                        10.1.1 above,
                                                        incorporated herein by
                                                        reference to Exhibit
                                                        10.1.1.b to Registrant's
                                                        Form 10-K for the year
                                                        ended March 31, 1994.

                                       10.1.1.c         Amendment, dated January
                                                        1, 1994, to the Plan
                                                        included as Exhibit
                                                        10.1.1 above,
                                                        incorporated herein by
                                                        reference to Exhibit
                                                        10.1.1.c to Registrant's
                                                        Form 10-Q for the
                                                        quarter ended December
                                                        31, 1994.

                          10.1.2       1990 Stock Option Plan for employees of
                                       Registrant, as amended, filed herewith.

                          10.1.3       1990 Stock Option Plan for Non-Employee
                                       Directors of Registrant, as amended,
                                       filed herewith.

                          10.1.4       Non-Qualified Stock Option Agreement
                                       between Registrant and Raj Reddy, dated
                                       as of October 17, 1988, incorporated
                                       herein by reference to Exhibit 10.1.6 to
                                       Registrant's Form 10-K for the year ended
                                       March 31, 1994.

                                       10.1.4.a         Description of amendment
                                                        extending the term of
                                                        the Agreement included
                                                        as Exhibit 10.1.4 above,
                                                        incorporated herein by
                                                        reference to Exhibit
                                                        10.1.6.a to Registrant's
                                                        Form 10-Q for the
                                                        quarter ended September
                                                        30, 1994.

                          10.1.5       1992 Restricted Stock Plan of Registrant,
                                       incorporated herein by reference to
                                       Exhibit 10.1.17 to Registrant's Form 10-Q
                                       for the quarter ended December 31, 1993.


                                       20
<PAGE>   21



                                       10.1.5.a         Amendment, dated
                                                        December 7, 1993, to the
                                                        Plan included as Exhibit
                                                        10.1.5 above,
                                                        incorporated herein by
                                                        reference to Exhibit
                                                        10.1.17.a to
                                                        Registrant's Form 10-Q
                                                        for the quarter ended
                                                        December 31, 1993.

                                       10.1.5.b         Amendment, dated July
                                                        18, 1994, to the Plan
                                                        included as Exhibit
                                                        10.1.5 above,
                                                        incorporated herein by
                                                        reference to Exhibit
                                                        10.1.17.b to
                                                        Registrant's Form 10-Q
                                                        for the quarter ended
                                                        September 30, 1994.

                          10.1.6       1995 Employee Stock Purchase Plan of
                                       Registrant, as amended, incorporated
                                       herein by reference to Exhibit 10.1.7 to
                                       Registrant's Form 10-Q for the quarter
                                       ended September 30, 1995.

                          10.1.7       1996 Stock Option Plan for employees,
                                       directors and advisors of Aironet
                                       Wireless Communications, Inc., a
                                       subsidiary of Registrant, incorporated
                                       herein by reference to Exhibit 10.1.7 to
                                       Registrant's Form 10-K for the year ended
                                       March 31, 1997.

                          10.1.8       Non-Competition Agreement by and between
                                       Registrant and Robert F. Meyerson,
                                       effective February 27, 1997, incorporated
                                       herein by reference to Exhibit 10.1.8 to
                                       Registrant's Form 10-K for the year ended
                                       March 31, 1997.

                          10.1.9       Description of terms of employment of
                                       Frank E. Brick with Registrant for the
                                       three fiscal years ending March 31, 2000,
                                       incorporated herein by reference to
                                       Exhibit 10.1.9 to Registrant's Form 10-Q
                                       for the quarter ended June 30, 1997.

                          10.1.10      Employment Agreement between Registrant
                                       and Leonard D. Abeita, effective as of
                                       April 1, 1997, incorporated herein by
                                       reference to Exhibit 10.1.10 to
                                       Registrant's Form 10-K for the year ended
                                       March 31, 1997.

                          10.1.11      Employment Agreement between Registrant
                                       and James G. Cleveland, effective as of
                                       April 1, 1997, incorporated herein by
                                       reference to Exhibit 10.1.11 to
                                       Registrant's Form 10-K for the year ended
                                       March 31, 1997.

                          10.1.12      Employment Agreement between Registrant
                                       and Kenneth W. Haver, effective as of
                                       April 1, 1997, incorporated herein by
                                       reference to Exhibit 10.1.12 to
                                       Registrant's Form 10-K for the year ended
                                       March 31, 1997.

                          10.1.13      Employment Agreement between Registrant
                                       and David D. Loadman, effective as of
                                       April 1, 1997, incorporated herein by
                                       reference to Exhibit 10.1.13 to
                                       Registrant's Form 10-K for the year ended
                                       March 31, 1997.

                          10.1.14      Employment Agreement between Registrant
                                       and David W. Porter, effective as of
                                       April 1, 1997, incorporated herein by
                                       reference to Exhibit 10.1.14 to
                                       Registrant's Form 10-K for the year ended
                                       March 31, 1997.

                          10.1.15      Employment Agreement between Registrant
                                       and Dan R. Wipff, effective as of April
                                       1, 1997, incorporated herein by reference
                                       to Exhibit 10.1.15 to Registrant's Form
                                       10-K for the year ended March 31, 1997.

                          10.1.16      Letter of the Audit Committee of
                                       Registrant's Board of Directors, dated
                                       July 22, 1996, engaging Norton Rose to
                                       act as 



                                       21
<PAGE>   22


                                       the Committee's delegate to advise and
                                       assist Registrant's management,
                                       incorporated herein by reference to
                                       Exhibit 10.1.16 to Registrant's Form 10-K
                                       for the year ended March 31, 1997.

                10.2      Material Leases of Registrant.

                          10.2.1       Lease between Registrant and 3330 W.
                                       Market Properties, dated as of December
                                       30, 1986, incorporated herein by
                                       reference to Exhibit 10.2.1 to
                                       Registrant's Form 10-K for the year ended
                                       March 31, 1994.

                          10.2.2       Standard Office Lease (Modified Net
                                       Lease) between Registrant and John D.
                                       Dellagnese III, dated as of July 19,
                                       1995, including an Addendum thereto,
                                       incorporated herein by reference to
                                       Exhibit 10.2.4 to Registrant's Form 10-K
                                       for the year ended March 31, 1996.

                                       10.2.2.a         Second Addendum, dated
                                                        as of October 5, 1995,
                                                        to the Lease included as
                                                        Exhibit 10.2.2 above,
                                                        incorporated herein by
                                                        reference to Exhibit
                                                        10.2.4.a to Registrant's
                                                        Form 10-K for the year
                                                        ended March 31, 1996.

                                       10.2.2.b         Third Addendum, dated as
                                                        of March 1, 1996, to the
                                                        Lease included as
                                                        Exhibit 10.2.2 above,
                                                        incorporated herein by
                                                        reference to Exhibit
                                                        10.2.4.b to Registrant's
                                                        Form 10-K for the year
                                                        ended March 31, 1996.

                                       10.2.2.c         Fourth Addendum, dated
                                                        as of April 16, 1996, to
                                                        the Lease included as
                                                        Exhibit 10.2.2 above,
                                                        incorporated herein by
                                                        reference to Exhibit
                                                        10.2.2.c to Registrant's
                                                        Form 10-Q for the
                                                        quarter ended June 30,
                                                        1997.

                                       10.2.2.d         Fifth Addendum, dated as
                                                        of June 24, 1997, to the
                                                        Lease included as
                                                        Exhibit 10.2.2 above,
                                                        incorporated herein by
                                                        reference to Exhibit
                                                        10.2.2.d to Registrant's
                                                        Form 10-Q for the
                                                        quarter ended June 30,
                                                        1997.

                10.3      Credit Agreements of Registrant.

                          10.3.1       Credit Agreement by and among Registrant,
                                       the lenders party thereto from time to
                                       time and The Bank of New York, as letter
                                       of credit issuer, swing line lender and
                                       agent for the lenders, dated as of March
                                       8, 1996, incorporated herein by reference
                                       to Exhibit 10.3.2 to Registrant's Form
                                       10-K for the year ended March 31, 1996.

                                       10.3.1.a         Amendment No. 1, dated
                                                        as of August 6, 1996, to
                                                        the Agreement included
                                                        as Exhibit 10.3.1 above,
                                                        incorporated herein by
                                                        reference to Exhibit
                                                        10.3.2.a to Registrant's
                                                        Form 8-K dated August
                                                        16, 1996.

                                       10.3.1.b         Security Agreement,
                                                        dated as of August 6,
                                                        1996, by and among
                                                        Registrant and The Bank
                                                        of New York, as Agent,
                                                        incorporated herein by
                                                        reference to Exhibit
                                                        10.3.2.b to Registrant's
                                                        Form 8-K dated August
                                                        16, 1996.

                                       10.3.1.c         Amendment No. 2, dated
                                                        as of December 16, 1996,
                                                        to the Agreement
                                                        included as Exhibit
                                                        10.3.1 above,
                                                        incorporated herein by
                                                        reference to Exhibit



                                       22
<PAGE>   23


                                                        10.3.2.c to Registrant's
                                                        Form 8-K dated December
                                                        16, 1996.

                          10.3.2       Business Purpose Revolving Promissory
                                       Note made by Registrant in favor of Bank
                                       One, Akron, N.A., dated September 8,
                                       1995, and related Letter Agreement
                                       between them of even date, incorporated
                                       herein by reference to Exhibit 10.3.2 to
                                       Registrant's Form 10-Q for the quarter
                                       ended September 30, 1995.

                          10.3.3       Business Purpose Revolving Promissory
                                       Note made by Registrant in favor of Bank
                                       One, Akron, N.A., dated November 24,
                                       1995, and related Letter Agreement
                                       between them dated November 22, 1995,
                                       incorporated herein by reference to
                                       Exhibit 10.3.3 to Registrant's Form 10-Q
                                       for the quarter ended December 31, 1995.

                          10.3.4       Business Purpose Revolving Promissory
                                       Note made by Registrant in favor of Bank
                                       One, Akron, N.A., dated January 31, 1996,
                                       and related Letter Agreement between them
                                       dated of even date, incorporated herein
                                       by reference to Exhibit 10.3.4 to
                                       Registrant's Form 10-Q for the quarter
                                       ended December 31, 1995.

                          10.3.5       Business Purpose Revolving Promissory
                                       Note made by Registrant in favor of Bank
                                       One, Akron, N.A., dated February 29,
                                       1996, and related Letter Agreement
                                       between them dated of even date,
                                       incorporated herein by reference to
                                       Exhibit 10.3.6 to Registrant's Form 10-K
                                       for the year ended March 31, 1996.

                          10.3.6       Business Purpose Revolving Promissory
                                       Note (Swing Line) made by Registrant in
                                       favor of Bank One, Akron, N.A., dated
                                       March 20, 1996, incorporated herein by
                                       reference to Exhibit 10.3.7 to
                                       Registrant's Form 10-K for the year ended
                                       March 31, 1996.

                          10.3.7       Business Purpose Revolving Promissory
                                       Note (Swing Line) made by Registrant in
                                       favor of Bank One, Akron, N.A., dated
                                       August 6, 1996 (in replacement of the
                                       Note included as Exhibit 10.3.6 above),
                                       incorporated herein by reference to
                                       Exhibit 10.3.8 to Registrant's Form 8-K
                                       dated August 16, 1996.

                                       10.3.7.a         Bank One Security
                                                        Agreement, dated as of
                                                        August 6, 1996, by and
                                                        among Registrant and
                                                        Bank One, Akron, N.A.,
                                                        incorporated herein by
                                                        reference to Exhibit
                                                        10.3.8.a to Registrant's
                                                        Form 8-K dated August
                                                        16, 1996.

                          10.3.8       Business Purpose Revolving Promissory
                                       Note (Swing Line) made by Registrant in
                                       favor of Bank One, NA (fka Bank One,
                                       Akron, N.A.), dated August 5, 1997
                                       (extending the credit facility evidenced
                                       by the Note included as Exhibit 10.3.7
                                       above), incorporated herein by reference
                                       to Exhibit 10.3.8 to Registrant's Form
                                       10-Q for the quarter ended June 30, 1997.

                10.4      Amended and Restated Agreement between Registrant and
                          Symbol Technologies, Inc., dated as of September 30,
                          1992, incorporated herein by reference to Exhibit 10.4
                          to Registrant's Form 10-K for the year ended March 31,
                          1993.

                10.5      Agreement of Purchase and Sale of Assets by and among
                          Vision Newco, Inc., a subsidiary of Registrant,
                          Virtual Vision, Inc., as debtor and debtor in
                          possession, and the Official Unsecured Creditors'
                          Committee, on behalf of the bankruptcy estate of
                          Virtual Vision, dated as of July 13, 1995,
                          incorporated herein by reference to Exhibit 10.8 to
                          Registrant's Form 10-Q for the quarter ended June 30,
                          1995.

                10.6      Subscription Agreement by and among New Meta Licensing
                          Corporation, a 


                                       23
<PAGE>   24



                          subsidiary of Registrant, and certain officers of
                          Registrant as Purchasers, dated as of September 19,
                          1995, incorporated herein by reference to Exhibit 10.8
                          to Registrant's Form 10-Q for the quarter ended
                          September 30, 1995.

                10.7      Shareholder Agreement by and among New Meta Licensing
                          Corporation, a subsidiary of Registrant, and its
                          Shareholders, including the officers of Registrant
                          party to the Agreement included as Exhibit 10.6 above,
                          dated as of September 29, 1995, incorporated herein by
                          reference to Exhibit 10.9 to Registrant's Form 10-Q
                          for the quarter ended September 30, 1995.

                          10.7.1       First Amendment, dated as of September
                                       29, 1995, to the Agreement included as
                                       Exhibit 10.7 above, incorporated herein
                                       by reference to Exhibit 10.9.1 to
                                       Registrant's Form 10-Q for the quarter
                                       ended December 31, 1995.

                          10.7.2       Second Amendment, dated as of January,
                                       1996, to the Agreement included as
                                       Exhibit 10.7 above, incorporated herein
                                       by reference to Exhibit 10.9.2 to
                                       Registrant's Form 10-Q for the quarter
                                       ended December 31, 1995.

                          10.7.3       Amended and Restated Shareholder
                                       Agreement by and among Metanetics
                                       Corporation (fka New Meta Licensing
                                       Corporation) and its Shareholders, dated
                                       as of March 28, 1996, superseding the
                                       Agreement included as Exhibit 10.7 above,
                                       as amended by the First and Second
                                       Amendments thereto included as Exhibits
                                       10.7.1 and 10.7.2 above, incorporated
                                       herein by reference to Exhibit 10.9.3 to
                                       Registrant's Form 10-K for the year ended
                                       March 31, 1996.

                          10.7.4       First Amendment, dated as of March 30,
                                       1996, to the Agreement included as
                                       Exhibit 10.7.3 above, incorporated herein
                                       by reference to Exhibit 10.9.4 to
                                       Registrant's Form 10-K for the year ended
                                       March 31, 1996.

                10.8      Stock Purchase Agreement by and among Meta Holding
                          Corporation, a subsidiary of Registrant, and certain
                          officers of Registrant as Purchasers, dated as of
                          March 30, 1996, incorporated herein by reference to
                          Exhibit 10.8 to Registrant's Form 10-K for the year
                          ended March 31, 1997.

                10.9      Stock Purchase Agreement by and between Metanetics
                          Corporation, a subsidiary of Registrant fka New Meta
                          Licensing Corporation, and Accipiter II, Inc., dated
                          as of September 30, 1996, incorporated herein by
                          reference to Exhibit 10.8 to Registrant's Form 10-Q
                          for the quarter ended September 30, 1996.

                10.10     Stock Purchase Agreement by and between Registrant and
                          Telantis Capital, Inc., dated as of March 31, 1997,
                          incorporated herein by reference to Exhibit 10.10 to
                          Registrant's Form 10-K for the year ended March 31,
                          1997.

                11.       Computation of earnings per share for the quarters and
                          six months ended September 30, 1997 and 1996, filed
                          herewith.

                27.       Financial Data Schedule as of September 30, 1997,
                          filed herewith.

         (b)  Reports on Form 8-K

         Registrant did not file any Current Reports on Form 8-K during the
         fiscal quarter for which this Quarterly Report on Form 10-Q is filed.



                                       24
<PAGE>   25




                               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:         November 14, 1997





                                                 TELXON CORPORATION
                                                 ------------------------
                                                 (Registrant)



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





<PAGE>   26


                               TELXON CORPORATION

                                   EXHIBITS TO

                                    FORM 10-Q

                    FOR THE QUARTER ENDED SEPTEMBER 30, 1997






<PAGE>   27


                                INDEX TO EXHIBITS


Where
Filed
-----

    *           2         Asset Purchase Agreement by and among Dynatech 
                          Corporation, IAQ Corporation, Registrant and Itronix
                          Corporation, a wholly owned subsidiary of Registrant,
                          dated as of December 28, 1996, incorporated herein by
                          reference to Exhibit 2 to Registrant's Form 8-K dated
                          December 31, 1996.

    *           3.1       Restated Certificate of Incorporation of Registrant, 
                          incorporated herein by reference to Exhibit No. 3.1 to
                          Registrant's Form 10-K for the year ended March 31,
                          1993.

    *           3.2       Amended and Restated By-Laws of Registrant, as 
                          amended, incorporated herein by reference to Exhibit
                          No. 2(b) to Registrant's Registration Statement on
                          Form 8-A with respect to its Common Stock filed
                          pursuant to Section 12(g) of the Securities Exchange
                          Act, as amended by Amendment No. 1 thereto filed under
                          cover of a Form 8 and Amendment No. 2 thereto filed on
                          Form 8-A/A.

    *           4.1       Portions of the Restated Certificate of Incorporation 
                          of Registrant pertaining to the rights of holders of
                          Registrant's Common Stock, par value $.01 per share,
                          incorporated herein by reference to Exhibit 3.1 to
                          Registrant's Form 10-K for the year ended March 31,
                          1993.

    *           4.2       Text of form of Certificate for Registrant's Common 
                          Stock, par value $.01 per share, and description of
                          graphic and image material appearing thereon,
                          incorporated herein by reference to Exhibit 4.2 to
                          Registrant's Form 10-Q for the quarter ended June 30,
                          1995.

    *           4.3       Rights Agreement between Registrant and KeyBank 
                          National Association, as Rights Agent, dated as of
                          August 25, 1987, as amended and restated as of July
                          31, 1996, incorporated herein by reference to Exhibit
                          4 to Registrant's Form 8-K dated August 5, 1996.

    *                     4.3.1        Form of Rights Certificate (included as 
                                       Exhibit A to the Rights Agreement
                                       included as Exhibit 4.3 above). Until the
                                       Distribution Date (as defined in the
                                       Rights Agreement), the Rights Agreement
                                       provides that the common stock purchase
                                       rights created thereunder are evidenced
                                       by the certificates for Registrant's
                                       Common Stock (the text of which and
                                       description thereof is included as
                                       Exhibit 4.2 above, which stock
                                       certificates are deemed also to be
                                       certificates for such common stock
                                       purchase rights) and not by separate
                                       Rights Certificates; as soon as
                                       practicable after the Distribution Date,
                                       Rights Certificates will be mailed to
                                       each holder of Registrant's Common Stock
                                       as of the close of business on the
                                       Distribution Date.

    *                     4.3.2        Letter agreement among Registrant, 
                                       KeyBank National Association and Harris
                                       Trust and Savings Bank, dated June 11,
                                       1997, with respect to the appointment of
                                       Harris Trust and Savings Bank as
                                       successor Rights Agent under the Rights
                                       Agreement included as Exhibit 4.3 above,
                                       incorporated herein by reference to
                                       Exhibit 4.3.2 to Registrant's Form 10-K
                                       for the year ended March 31, 1997.

    *           4.4       Indenture by and between Registrant and AmeriTrust 
                          Company National Association, as Trustee, dated as of
                          June 1, 1987, regarding Registrant's 7-1/2%
                          Convertible Subordinated Debentures Due 2012,
                          incorporated herein by reference to Exhibit 4.2 to
                          Registrant's Registration Statement on Form S-3,
                          Registration No. 33-14348, filed May 



<PAGE>   28


                          18, 1987.

    *                     4.4.1        Form of Registrant's 7-1/2% Convertible 
                                       Subordinated Debentures Due 2012 (set
                                       forth in the Indenture included as
                                       Exhibit 4.4 above).

    *           4.5       Indenture by and between Registrant and Bank One Trust
                          Company, N.A., as Trustee, dated as of December 1,
                          1995, regarding Registrant's 5-3/4% Convertible
                          Subordinated Notes due 2003, incorporated herein by
                          reference to Exhibit 4.1 to Registrant's Registration
                          Statement on Form S-3, Registration No. 333-1189,
                          filed February 23, 1996.

    *                     4.5.1        Form of Registrant's 5-3/4% Convertible
                                       Subordinated Notes due 2003 issued under
                                       the Indenture included as Exhibit 4.5
                                       above, incorporated herein by reference
                                       to Exhibit 4.2 to Registrant's
                                       Registration Statement on Form S-3,
                                       Registration No. 333-1189, filed February
                                       23, 1996.

    *                     4.5.2        Registration Rights Agreement by and 
                                       among Registrant and Hambrecht & Quist
                                       LLC and Prudential Securities
                                       Incorporated, as the Initial Purchasers
                                       of Registrant's 5-3/4% Convertible
                                       Subordinated Notes due 2003, with respect
                                       to the registration of said Notes under
                                       applicable securities laws, incorporated
                                       herein by reference to Exhibit 4.3 to
                                       Registrant's Registration Statement on
                                       Form S-3, Registration No. 333-1189,
                                       filed February 23, 1996.

                10.1      Compensation and Benefits Plans of Registrant.

    *                     10.1.1      Amended and Restated Retirement and
                                      Uniform Matching Profit-Sharing Plan of
                                      Registrant, effective July 1, 1993,
                                      incorporated herein by reference to
                                      Exhibit 10.1.1 to Registrant's Form 10-K
                                      for the year ended March 31, 1994.

    *                                  10.1.1.a         Amendment, dated 
                                                        January 1, 1994, to the
                                                        Plan included as Exhibit
                                                        10.1.1 above,
                                                        incorporated herein by
                                                        reference to Exhibit
                                                        10.1.1.a to Registrant's
                                                        Form 10-K for the year
                                                        ended March 31, 1994.

    *                                  10.1.1.b         Amendment, dated 
                                                        April 1, 1994, to the
                                                        Plan included as Exhibit
                                                        10.1.1 above,
                                                        incorporated herein by
                                                        reference to Exhibit
                                                        10.1.1.b to Registrant's
                                                        Form 10-K for the year
                                                        ended March 31, 1994.

    *                                  10.1.1.c         Amendment, dated 
                                                        January 1, 1994, to the
                                                        Plan included as Exhibit
                                                        10.1.1 above,
                                                        incorporated herein by
                                                        reference to Exhibit
                                                        10.1.1.c to Registrant's
                                                        Form 10-Q for the
                                                        quarter ended December
                                                        31, 1994.

   **                     10.1.2       1990 Stock Option Plan for employees of 
                                       Registrant, as amended, filed herewith.

   **                     10.1.3       1990 Stock Option Plan for Non-Employee
                                       Directors of Registrant, as amended, 
                                       filed herewith.

    *                     10.1.4       Non-Qualified Stock Option Agreement 
                                       between Registrant and Raj Reddy, dated
                                       as of October 17, 1988, incorporated
                                       herein by reference to Exhibit 10.1.6 to
                                       Registrant's Form 10-K for the year ended
                                       March 31, 1994.

<PAGE>   29



    *                                  10.1.4.a         Description of amendment
                                                        extending the term of
                                                        the Agreement included
                                                        as Exhibit 10.1.4 above,
                                                        incorporated herein by
                                                        reference to Exhibit
                                                        10.1.6.a to Registrant's
                                                        Form 10-Q for the
                                                        quarter ended September
                                                        30, 1994.

    *                     10.1.5       1992 Restricted Stock Plan of Registrant,
                                       incorporated herein by reference to
                                       Exhibit 10.1.17 to Registrant's Form 10-Q
                                       for the quarter ended December 31, 1993.

    *                                  10.1.5.a         Amendment, dated 
                                                        December 7, 1993, to the
                                                        Plan included as Exhibit
                                                        10.1.5 above,
                                                        incorporated herein by
                                                        reference to Exhibit
                                                        10.1.17.a to
                                                        Registrant's Form 10-Q
                                                        for the quarter ended
                                                        December 31, 1993.

    *                                  10.1.5.b         Amendment, dated 
                                                        July 18, 1994, to the
                                                        Plan included as Exhibit
                                                        10.1.5 above,
                                                        incorporated herein by
                                                        reference to Exhibit
                                                        10.1.17.b to
                                                        Registrant's Form 10-Q
                                                        for the quarter ended
                                                        September 30, 1994.

    *                     10.1.6       1995 Employee Stock Purchase Plan
                                       of Registrant, as amended, incorporated
                                       herein by reference to Exhibit 10.1.7 to
                                       Registrant's Form 10-Q for the quarter
                                       ended September 30, 1995.

    *                     10.1.7       1996 Stock Option Plan for employees, 
                                       directors and advisors of Aironet
                                       Wireless Communications, Inc., a
                                       subsidiary of Registrant, incorporated
                                       herein by reference to Exhibit 10.1.7 to
                                       Registrant's Form 10-K for the year ended
                                       March 31, 1997.

    *                     10.1.8       Non-Competition Agreement by and between 
                                       Registrant and Robert F. Meyerson,
                                       effective February 27, 1997, incorporated
                                       herein by reference to Exhibit 10.1.8 to
                                       Registrant's Form 10-K for the year ended
                                       March 31, 1997.

    *                     10.1.9       Description of terms of employment of 
                                       Frank E. Brick with Registrant for the
                                       three fiscal years ending March 31, 2000,
                                       incorporated herein by reference to
                                       Exhibit 10.1.9 to Registrant's Form 10-Q
                                       for the quarter ended June 30, 1997.

    *                     10.1.10      Employment Agreement between Registrant 
                                       and Leonard D. Abeita, effective as of
                                       April 1, 1997, incorporated herein by
                                       reference to Exhibit 10.1.10 to
                                       Registrant's Form 10-K for the year ended
                                       March 31, 1997.

    *                     10.1.11      Employment Agreement between Registrant 
                                       and James G. Cleveland, effective as of
                                       April 1, 1997, incorporated herein by
                                       reference to Exhibit 10.1.11 to
                                       Registrant's Form 10-K for the year ended
                                       March 31, 1997.

    *                     10.1.12      Employment Agreement between Registrant 
                                       and Kenneth W. Haver, effective as of
                                       April 1, 1997, incorporated herein by
                                       reference to Exhibit 10.1.12 to
                                       Registrant's Form 10-K for the year ended
                                       March 31, 1997.

    *                     10.1.13      Employment Agreement between Registrant 
                                       and David D. Loadman, effective as of
                                       April 1, 1997, incorporated herein by
                                       reference to Exhibit 10.1.13 to
                                       Registrant's Form 10-K for the year ended
                                       March 31, 1997.

    *                     10.1.14      Employment Agreement between Registrant 
                                       and David W. Porter, effective as of
                                       April 1, 1997, incorporated herein by
                                       reference to Exhibit 10.1.14 to
                                       Registrant's Form 10-K for the year ended

<PAGE>   30



                                       March 31, 1997.

    *                     10.1.15      Employment Agreement between Registrant 
                                       and Dan R. Wipff, effective as of April
                                       1, 1997, incorporated herein by reference
                                       to Exhibit 10.1.15 to Registrant's Form
                                       10-K for the year ended March 31, 1997.

    *                     10.1.16      Letter of the Audit Committee of
                                       Registrant's Board of Directors, dated
                                       July 22, 1996, engaging Norton Rose to
                                       act as the Committee's delegate to advise
                                       and assist Registrant's management,
                                       incorporated herein by reference to
                                       Exhibit 10.1.16 to Registrant's Form 10-K
                                       for the year ended March 31, 1997.

                10.2      Material Leases of Registrant.

    *                     10.2.1       Lease between Registrant and 3330 
                                       W. Market Properties, dated as of
                                       December 30, 1986, incorporated herein by
                                       reference to Exhibit 10.2.1 to
                                       Registrant's Form 10-K for the year ended
                                       March 31, 1994.

    *                     10.2.2       Standard Office Lease (Modified Net 
                                       Lease) between Registrant and John D.
                                       Dellagnese III, dated as of July 19,
                                       1995, including an Addendum thereto,
                                       incorporated herein by reference to
                                       Exhibit 10.2.4 to Registrant's Form 10-K
                                       for the year ended March 31, 1996.

    *                                  10.2.2.a         Second Addendum, dated 
                                                        as of October 5, 1995,
                                                        to the Lease included as
                                                        Exhibit 10.2.2 above,
                                                        incorporated herein by
                                                        reference to Exhibit
                                                        10.2.4.a to Registrant's
                                                        Form 10-K for the year
                                                        ended March 31, 1996.

    *                                  10.2.2.b         Third Addendum, dated as
                                                        of March 1, 1996, to the
                                                        Lease included as
                                                        Exhibit 10.2.2 above,
                                                        incorporated herein by
                                                        reference to Exhibit
                                                        10.2.4.b to Registrant's
                                                        Form 10-K for the year
                                                        ended March 31, 1996.

    *                                  10.2.2.c         Fourth Addendum, dated 
                                                        as of April 16, 1996, to
                                                        the Lease included as
                                                        Exhibit 10.2.2 above,
                                                        incorporated herein by
                                                        reference to Exhibit
                                                        10.2.2.c to Registrant's
                                                        Form 10-Q for the
                                                        quarter ended June 30,
                                                        1997.

    *                                  10.2.2.d         Fifth Addendum, dated as
                                                        of June 24, 1997, to the
                                                        Lease included as
                                                        Exhibit 10.2.2 above,
                                                        incorporated herein by
                                                        reference to Exhibit
                                                        10.2.2.d to Registrant's
                                                        Form 10-Q for the
                                                        quarter ended June 30,
                                                        1997.

                10.3      Credit Agreements of Registrant.

    *                     10.3.1       Credit Agreement by and among Registrant,
                                       the lenders party thereto from time to
                                       time and The Bank of New York, as letter
                                       of credit issuer, swing line lender and
                                       agent for the lenders, dated as of March
                                       8, 1996, incorporated herein by reference
                                       to Exhibit 10.3.2 to Registrant's Form
                                       10-K for the year ended March 31, 1996.

    *                                  10.3.1.a         Amendment No. 1, dated 
                                                        as of August 6, 1996, to
                                                        the Agreement included
                                                        as Exhibit 10.3.1 above,
                                                        incorporated herein by
                                                        reference to Exhibit
                                                        10.3.2.a to Registrant's
                                                        Form 8-K dated August
                                                        16, 1996.


<PAGE>   31



    *                                  10.3.1.b         Security Agreement, 
                                                        dated as of August 6,
                                                        1996, by and among
                                                        Registrant and The Bank
                                                        of New York, as Agent,
                                                        incorporated herein by
                                                        reference to Exhibit
                                                        10.3.2.b to Registrant's
                                                        Form 8-K dated August
                                                        16, 1996.

    *                                  10.3.1.c         Amendment No. 2, dated 
                                                        as of December 16, 1996,
                                                        to the Agreement
                                                        included as Exhibit
                                                        10.3.1 above,
                                                        incorporated herein by
                                                        reference to Exhibit
                                                        10.3.2.c to Registrant's
                                                        Form 8-K dated December
                                                        16, 1996.

    *                     10.3.2       Business Purpose Revolving Promissory 
                                       Note made by Registrant in favor of Bank
                                       One, Akron, N.A., dated September 8,
                                       1995, and related Letter Agreement
                                       between them of even date, incorporated
                                       herein by reference to Exhibit 10.3.2 to
                                       Registrant's Form 10-Q for the quarter
                                       ended September 30, 1995.

    *                     10.3.3       Business Purpose Revolving Promissory 
                                       Note made by Registrant in favor of Bank
                                       One, Akron, N.A., dated November 24,
                                       1995, and related Letter Agreement
                                       between them dated November 22, 1995,
                                       incorporated herein by reference to
                                       Exhibit 10.3.3 to Registrant's Form 10-Q
                                       for the quarter ended December 31, 1995.

    *                     10.3.4       Business Purpose Revolving Promissory 
                                       Note made by Registrant in favor of Bank
                                       One, Akron, N.A., dated January 31, 1996,
                                       and related Letter Agreement between them
                                       dated of even date, incorporated herein
                                       by reference to Exhibit 10.3.4 to
                                       Registrant's Form 10-Q for the quarter
                                       ended December 31, 1995.

    *                     10.3.5       Business Purpose Revolving Promissory 
                                       Note made by Registrant in favor of Bank
                                       One, Akron, N.A., dated February 29,
                                       1996, and related Letter Agreement
                                       between them dated of even date,
                                       incorporated herein by reference to
                                       Exhibit 10.3.6 to Registrant's Form 10-K
                                       for the year ended March 31, 1996.

    *                     10.3.6       Business Purpose Revolving Promissory 
                                       Note (Swing Line) made by Registrant in
                                       favor of Bank One, Akron, N.A., dated
                                       March 20, 1996, incorporated herein by
                                       reference to Exhibit 10.3.7 to
                                       Registrant's Form 10-K for the year ended
                                       March 31, 1996.

    *                     10.3.7       Business Purpose Revolving Promissory 
                                       Note (Swing Line) made by Registrant in
                                       favor of Bank One, Akron, N.A., dated
                                       August 6, 1996 (in replacement of the
                                       Note included as Exhibit 10.3.6 above),
                                       incorporated herein by reference to
                                       Exhibit 10.3.8 to Registrant's Form 8-K
                                       dated August 16, 1996.

    *                                  10.3.7.a         Bank One Security 
                                                        Agreement, dated as of
                                                        August 6, 1996, by and
                                                        among Registrant and
                                                        Bank One, Akron, N.A.,
                                                        incorporated herein by
                                                        reference to Exhibit
                                                        10.3.8.a to Registrant's
                                                        Form 8-K dated August
                                                        16, 1996.

    *                     10.3.8      Business Purpose Revolving Promissory
                                      Note (Swing Line) made by Registrant in
                                      favor of Bank One, NA (fka Bank One,
                                      Akron, N.A.), dated August 5, 1997
                                      (extending the credit facility evidenced
                                      by the Note included as Exhibit 10.3.7
                                      above), incorporated herein by reference
                                      to Exhibit 10.3.8 to Registrant's Form
                                      10-Q for the quarter ended June 30, 1997.

    *           10.4      Amended and Restated Agreement between Registrant and 
                          Symbol Technologies, Inc., dated as of September 30,
                          1992, incorporated herein by reference to Exhibit 10.4
                          to Registrant's Form 10-K for the year ended March 31,
                          1993.

<PAGE>   32


    *           10.5      Agreement of Purchase and Sale of Assets by and among 
                          Vision Newco, Inc., a subsidiary of Registrant,
                          Virtual Vision, Inc., as debtor and debtor in
                          possession, and the Official Unsecured Creditors'
                          Committee, on behalf of the bankruptcy estate of
                          Virtual Vision, dated as of July 13, 1995,
                          incorporated herein by reference to Exhibit 10.8 to
                          Registrant's Form 10-Q for the quarter ended June 30,
                          1995.

    *           10.6      Subscription Agreement by and among New Meta Licensing
                          Corporation, a subsidiary of Registrant, and certain
                          officers of Registrant as Purchasers, dated as of
                          September 19, 1995, incorporated herein by reference
                          to Exhibit 10.8 to Registrant's Form 10-Q for the
                          quarter ended September 30, 1995.

    *           10.7      Shareholder Agreement by and among New Meta Licensing 
                          Corporation, a subsidiary of Registrant, and its
                          Shareholders, including the officers of Registrant
                          party to the Agreement included as Exhibit 10.6 above,
                          dated as of September 29, 1995, incorporated herein by
                          reference to Exhibit 10.9 to Registrant's Form 10-Q
                          for the quarter ended September 30, 1995.

    *                     10.7.1       First Amendment, dated as of
                                       September 29, 1995, to the Agreement
                                       included as Exhibit 10.7 above,
                                       incorporated herein by reference to
                                       Exhibit 10.9.1 to Registrant's Form 10-Q
                                       for the quarter ended December 31, 1995.

    *                     10.7.2       Second Amendment, dated as of January, 
                                       1996, to the Agreement included as
                                       Exhibit 10.7 above, incorporated herein
                                       by reference to Exhibit 10.9.2 to
                                       Registrant's Form 10-Q for the quarter
                                       ended December 31, 1995.

    *                     10.7.3       Amended and Restated Shareholder 
                                       Agreement by and among Metanetics
                                       Corporation (fka New Meta Licensing
                                       Corporation) and its Shareholders, dated
                                       as of March 28, 1996, superseding the
                                       Agreement included as Exhibit 10.7 above,
                                       as amended by the First and Second
                                       Amendments thereto included as Exhibits
                                       10.7.1 and 10.7.2 above, incorporated
                                       herein by reference to Exhibit 10.9.3 to
                                       Registrant's Form 10-K for the year ended
                                       March 31, 1996.

    *                     10.7.4       First Amendment, dated as of March 30, 
                                       1996, to the Agreement included as
                                       Exhibit 10.7.3 above, incorporated herein
                                       by reference to Exhibit 10.9.4 to
                                       Registrant's Form 10-K for the year ended
                                       March 31, 1996.

    *           10.8      Stock Purchase Agreement by and among Meta Holding 
                          Corporation, a subsidiary of Registrant, and certain
                          officers of Registrant as Purchasers, dated as of
                          March 30, 1996, incorporated herein by reference to
                          Exhibit 10.8 to Registrant's Form 10-K for the year
                          ended March 31, 1997.

    *           10.9      Stock Purchase Agreement by and between Metanetics 
                          Corporation, a subsidiary of Registrant fka New Meta
                          Licensing Corporation, and Accipiter II, Inc., dated
                          as of September 30, 1996, incorporated herein by
                          reference to Exhibit 10.8 to Registrant's Form 10-Q
                          for the quarter ended September 30, 1996.

    *           10.10     Stock Purchase Agreement by and between Registrant and
                          Telantis Capital, Inc., dated as of March 31, 1997,
                          incorporated herein by reference to Exhibit 10.10 to
                          Registrant's Form 10-K for the year ended March 31,
                          1997.

   **           11.       Computation of earnings per share for the quarters and
                          six months ended September 30, 1997 and 1996, filed
                          herewith.

<PAGE>   33



   **           27.       Financial Data Schedule as of September 30, 1997, 
                          filed herewith.

---------------

    *           Previously filed

   **           Filed herewith