<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 DECEMBER 31, 1999

                                       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)

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

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 [ ].

*        All such filings were timely made except that the registrant was late
         in filing its Quarterly Report on Form 10-Q for the fiscal quarter
         ended December 31, 1998 and its Annual Report on Form 10-K for the
         fiscal year ended March 31, 1999.

At December 31, 1999, there were 16,398,281 outstanding shares of the
registrant's Common Stock.


<PAGE>   2


                               TELXON CORPORATION
        INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>

PART I.       FINANCIAL INFORMATION:                                                       Page No.
                                                                                           --------
<S>                                                                                        <C>
         Item 1:      Consolidated Financial Statements
                      Balance Sheet                                                           3
                      Statement of Operations                                                 4
                      Statement of Cash Flows                                                 5
                      Notes to Consolidated Financial Statements                            6-20

         Item 2:      Management's Discussion and Analysis of Financial
                      Condition and Results of Operations                                   21-42

         Item 3:      Quantitative and Qualitative Disclosure About Market Risk             43-44

PART II.      OTHER INFORMATION:

         Item 1:      Legal Proceedings                                                      45
         Item 2:      Changes in Securities and Use of Proceeds                              45
         Item 6:      Exhibits and Reports on Form 8-K                                      45-56
</TABLE>



                                        2
<PAGE>   3
<TABLE>
<CAPTION>


PART I. FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS

                                            TELXON CORPORATION AND SUBSIDIARIES
                                                CONSOLIDATED BALANCE SHEET
                                          (In thousands except per share amounts)

                                                                                      December 31,             March 31,
                                                                                          1999                   1999
                                                                                    -----------------       ----------------
ASSETS                                                                                (Unaudited)
<S>                                                                                          <C>                   <C>

Current assets:
Cash                                                                                         $ 9,794               $ 22,459
Accounts receivable, net of allowance for doubtful
   accounts of $5,139 and $11,069                                                             74,388                 84,500
Notes and other accounts receivable                                                            6,305                  4,015
Inventories                                                                                   85,509                129,049
Prepaid expenses and other                                                                     6,906                  9,029
                                                                                    -----------------       ----------------
              Total current assets                                                           182,902                249,052
Property and equipment, net                                                                   65,086                 69,557
Intangibles and other assets, net                                                             19,002                 30,235
Investment in affiliate                                                                       21,645                      -
                                                                                    -----------------       ----------------
              Total                                                                        $ 288,635              $ 348,844
                                                                                    =================       ================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable                                                                               $ 55,015               $ 68,567
Capital lease obligations due within one year                                                    405                    525
Accounts payable                                                                              42,711                 64,966
Payable to affiliate                                                                           4,769                      -
Income taxes payable                                                                           6,594                  6,434
Accrued liabilities                                                                           50,450                 74,285
                                                                                    -----------------       ----------------
              Total current liabilities                                                      159,944                214,777
Capital lease obligations                                                                      1,143                  1,435
Convertible subordinated notes and debentures                                                106,913                106,913
Long-term debt                                                                                11,083                      -
Other long-term liabilities                                                                    6,394                  5,446
                                                                                    -----------------       ----------------
              Total liabilities                                                              285,477                328,571
Minority interest                                                                                  -                  3,307
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, 16,398 and 16,234 shares issued                                                    164                    162
Additional paid-in capital                                                                    88,140                 87,029
Retained deficit                                                                             (78,495)               (61,977)
Accumulated other comprehensive income for foreign currency translation                       (5,087)                (5,464)
Unearned compensation relating to restricted stock awards                                       (179)                   (82)
Treasury stock; 2 and 78 shares of common stock at cost                                         (106)                (1,423)
Notes related to purchase of subsidiary stock                                                 (1,279)                (1,279)
                                                                                    -----------------       ----------------
              Total stockholders' equity                                                       3,158                 16,966
                                                                                    -----------------       ----------------
Commitments and contingencies                                                                      -                      -
                                                                                    -----------------       ----------------
              Total                                                                        $ 288,635              $ 348,844
                                                                                    =================       ================

</TABLE>


See accompanying notes to consolidated financial statements.




                                        3
<PAGE>   4
<TABLE>
<CAPTION>


                                                  TELXON CORPORATION AND SUBSIDIARIES
                                                  CONSOLIDATED STATEMENT OF OPERATIONS
                                                (In thousands except per share amounts)
                                                              (Unaudited)

                                                                    Three Months Ended                 Nine Months Ended
                                                                       December 31,                       December 31,
                                                              --------------------------------   --------------------------------
                                                                   1999             1998              1999             1998
                                                              ---------------   --------------   ---------------   --------------
                                                                                                                   (as restated)
<S>                                                                 <C>              <C>              <C>              <C>
Revenues:
      Product, net                                                  $ 74,943         $ 76,392         $ 219,479        $ 248,989
      Customer service, net                                           21,291           20,016            60,875           62,222
                                                              ---------------   --------------   ---------------   --------------
Total net revenues                                                    96,234           96,408           280,354          311,211

Cost of revenues:
      Product                                                         55,431           57,446           163,728          164,670
      Customer service                                                12,971           14,047            37,260           40,374
                                                              ---------------   --------------   ---------------   --------------
Total cost of revenues                                                68,402           71,493           200,988          205,044
                                                              ---------------   --------------   ---------------   --------------

Gross profit:
      Product                                                         19,512           18,946            55,751           84,319
      Customer service                                                 8,320            5,969            23,615           21,848
                                                              ---------------   --------------   ---------------   --------------
Total gross profit                                                    27,832           24,915            79,366          106,167

Operating expenses:
      Selling expenses                                                18,361           22,829            55,202           67,700
      Product development and engineering expenses                     6,350           10,670            19,492           29,108
      General & administrative expenses                               13,860           13,612            41,216           33,541
      Unconsummated business combination costs                             -            4,491                 -            8,070
                                                              ---------------   --------------   ---------------   --------------
Total operating expenses                                              38,571           51,602           115,910          138,419
                                                              ---------------   --------------   ---------------   --------------

Loss from operations                                                 (10,739)         (26,687)          (36,544)         (32,252)

Interest income                                                          137              226               552              569
Interest expense                                                      (3,613)          (2,499)          (10,414)          (6,828)
                                                              ---------------   --------------   ---------------   --------------

Loss before other non-operating income (expense)
      and income taxes                                               (14,215)         (28,960)          (46,406)         (38,511)

Other non-operating income (expense)                                      64             (237)           32,530            1,025
                                                              ---------------   --------------   ---------------   --------------

Loss before income taxes                                             (14,151)         (29,197)          (13,876)         (37,486)

Provision for income taxes                                               621           16,659             2,637           14,784
                                                              --------------    -------------    --------------    --------------
Net loss                                                           $ (14,772)       $ (45,856)        $ (16,513)       $ (52,270)
                                                              ===============   ==============   ===============   ==============
Net loss per common share:
              Basic                                                  $ (0.91)         $ (2.86)          $ (1.02)         $ (3.25)
              Diluted                                                $ (0.91)         $ (2.86)          $ (1.02)         $ (3.25)
Average number of common shares outstanding:
              Basic                                                   16,318           16,048            16,235           16,101
                                                              ===============   ==============   ===============   ==============
              Diluted                                                 16,318           16,048            16,235           16,101
                                                              ===============   ==============   ===============   ==============

</TABLE>

See accompanying notes to consolidated financial statements.



                                        4
<PAGE>   5

<TABLE>
<CAPTION>

                                             TELXON CORPORATION AND SUBSIDIARIES
                                             CONSOLIDATED STATEMENT OF CASH FLOWS
                                                        (In thousands)
                                                         (Unaudited)
                                                                                                    Nine Months Ended
                                                                                                       December 31,
                                                                                          -------------------------------------
                                                                                                1999                1998
                                                                                          -----------------   -----------------
Cash flows from operating activities:                                                                          (as restated)
<S>                                                                                              <C>                 <C>
  Net  loss                                                                                      $ (16,513)          $ (52,270)
  Adjustments to reconcile net loss to net
  cash used in operating activities:
      Depreciation and amortization                                                                 19,330              19,622
      Amortization of restricted stock awards, net                                                     332                 201
      Provision for doubtful accounts                                                                2,091               5,249
      Provision for inventory obsolescence                                                           5,962               6,787
      Gain on sale of subsidiary stock                                                             (32,167)                  -
      Gain on sale of assets                                                                             -                (900)
      Gain on sale of non-marketable investments                                                      (761)                  -
      Equity in earnings of affiliate                                                               (1,039)                  -
      Loss on disposal of property and equipment                                                       207                 255
      Loss on carrying value of non-marketable investment                                            1,558                   -
      Impairment charge                                                                                381                   -
      Minority interest                                                                                  -                 416
      Changes in assets and liabilities:
              Accounts and notes receivable                                                           (101)             13,110
              Amounts due to and from affiliate                                                      4,769                   -
              Inventories                                                                           26,730             (26,764)
              Prepaid expense and other                                                              1,768               3,372
              Intangibles and other assets                                                             (92)              2,806
              Accounts payable and accrued liabilities                                             (32,431)              6,151
              Other long-term liabilities                                                              948               4,012
                                                                                          -----------------   -----------------
   Net cash used in operating activities                                                           (19,028)            (17,953)
Cash flows from investing activities:
      Additions to property and equipment                                                          (11,042)            (26,538)
      Software and other investments                                                                (2,827)             (4,792)
      Proceeds from the sale of subsidiary stock, net of cash given                                 17,211                   -
      Purchase of non-marketable investments                                                             -              (1,950)
      Proceeds from the sale of non-marketable securities                                            1,523                   -
      Proceeds from the sale of non-marketable equity investment                                     2,004
      Payments from long-term notes receivable                                                           -                 929
      Additions to long-term notes receivable                                                            -                (795)
                                                                                          -----------------   -----------------
   Net cash provided by (used in) investing activities                                               6,869             (33,146)
Cash flows from financing activities:
      Extinguishment of former credit facility                                                     (48,888)                  -
      (Repayments) borrowings on former credit facility, net                                       (17,179)             53,526
      Borrowings on current credit facility, net                                                    30,082                   -
      Borrowings of bridge loan under current credit facility                                       20,000
      Borrowings on long-term provisions of current credit facility                                 17,000                   -
      Principal payments on long-term debt                                                            (984)                  -
      Debt issue costs paid                                                                         (2,215)               (302)
      Proceeds from the sale of treasury stock                                                         491
      Proceeds from the exercise of stock options                                                    1,950               1,793
      Principal payments on capital leases                                                            (412)               (589)
      Purchase of treasury shares                                                                        -              (1,088)
                                                                                          -----------------   -----------------
   Net cash (used in) provided by financing activities                                                (155)             53,340
      Effect of foreign currency translation on cash                                                  (351)                316
                                                                                          -----------------   -----------------
   Net (decrease) increase in cash and cash equivalents                                            (12,665)              2,557
Cash at beginning of period                                                                         22,459              27,500
                                                                                          -----------------   -----------------
Cash at end of period                                                                              $ 9,794            $ 30,057
                                                                                          =================   =================
</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)
                         (Unaudited and As and Restated)

1.       Management Representation

         The consolidated financial statements of Telxon Corporation ("Telxon")
         and its subsidiaries (collectively with Telxon, the "Company") have
         been prepared without audit and in accordance with the instructions to
         Form 10-Q. In the opinion of the Company, all adjustments, consisting
         of normal recurring adjustments necessary for a fair statement of
         results for the interim periods, have been made. The operating results
         for the three and nine months ended December 31, 1999, are not
         necessarily indicative of the results that may be achieved for the year
         ending March 31, 2000. The statements, including the March 31, 1999
         balance sheet, 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 for the fiscal year ended March 31, 1999.
         Comparative December 31, 1998 consolidated financial statements are
         unaudited and, as restated, are discussed in Note 4 - Restatement.

2.       Basis of Presentation

         As discussed in Note 12, Subsidiary Stock Transactions and
         Divestitures, during the three months ended September 30, 1999, the
         Company and its former subsidiary, Aironet Wireless Communications,
         Inc. ("Aironet"), sold shares of Aironet's voting common stock on the
         Nasdaq National Market in an Initial Public Offering ("IPO"). As a
         result of the IPO, the Company's percentage interest in the voting
         common stock of Aironet is approximately 35%. As such, the Company has
         ceased to consolidate the results of Aironet as of April 1, 1999, the
         beginning of the Company's fiscal year. From that date forward, the
         Company has accounted for the results of Aironet under the equity
         method of accounting in accordance with the provisions of Accounting
         Principles Board Opinion No. 18 "The Equity Method of Accounting for
         Investments in Common Stock".

3.       Financial Results and Liquidity

         The Company incurred a net loss in fiscal 1999 of $136,982 with a
         decrease in consolidated revenues of $74,862 as compared to fiscal
         1998. Cash flows used in operating activities were $27,616 and cash
         flows used in investing activities were $40,921 for fiscal 1999. The
         primary source of cash flows for fiscal 1999 was net borrowings under
         its former credit facilities (including product financing arrangements)
         that aggregated $65,567. The Company's stockholders' equity and working
         capital at March 31, 1999 were $16,966 and $34,275, respectively.

         During the quarter and nine months ended December 31, 1999, the Company
         incurred net losses of $14,772 and $16,513, respectively. The net
         income for the quarter ended September 30, 1999 was primarily the
         result of the non-operating gain recorded related to the sale of
         Aironet voting common stock of $32,167. The Company incurred losses
         from operations of $10,739 and $36,544 for the quarter and nine months
         ended December 31, 1999, respectively. The Company's stockholders'
         equity and working capital at December 31, 1999 were $3,158 and
         $22,958, respectively. For the nine months ended December 31, 1999, the
         Company used $19,028 of cash in operating activities.

         The Company has pursued the generation of cash from sources such as
         inventories and accounts receivable, and the management of vendor
         payments and related operating expenditures. However, there can be no
         assurance that the cash flows generated


                                        6
<PAGE>   7

         from such sources will be sufficient to support the Company's efforts
         to manage the payment of the amounts presently owed to, or subsequently
         incurred with, its suppliers. If cash flows are not sufficient there
         could be disruption of the flows of necessary materials, components,
         services or other cash requirements of the Company. In addition,
         litigation, commitments and contingencies referenced in Note 10 -
         Litigation and Contingencies could have a material adverse effect on
         the Company's cash flows and, in turn, on the Company's results of
         operations and financial condition.

         On November 9, 1999, Cisco Systems, Inc. ("Cisco") announced that it
         would purchase the Company's affiliate, and former subsidiary, Aironet
         Wireless Communications Inc. ("Aironet"), for shares of Cisco common
         stock. The holders of Aironet securities will receive .6373 shares of
         Cisco common stock for each Aironet share, option or warrant owned.
         Since that announcement, the Company believes that a significant
         portion of the market value of the Aironet shares held by the Company
         is attributable to the market value of Cisco common stock.

         Based on the value of Cisco common stock on December 31, 1999, the
         purchase of Aironet by Cisco will result in total proceeds of $969,801.
         Based on this value, the total purchase price translates into $68.27
         per each share of Aironet common stock on that date. As the company
         continues to own 4,994,262 shares of Aironet stock, or 35% of total
         outstandings, the fair value of the proceeds to the Company is
         $340,962. Based on this fair value, the transaction will result in a
         pre-tax gain, prior to related transaction costs, of $319,317 and the
         Company carrying its resultant investment in Cisco shares on the fair
         value method of accounting, in accordance with the requirements of SFAS
         No. 115 "Accounting for Certain Investments in Debt and Equity
         Securities."

         Based on the value of Cisco common stock on February 10, 2000, the
         purchase of Aironet by Cisco will result in total proceeds of
         $1,230,644. Based on this value, the total purchase price translates
         into $86.63 per each share of Aironet owned by the Company, or
         $432,669 in fair value.

4.       Restatement

         On July 14, 1999, the Company announced its results for the year ended
         March 31, 1999. The year-end results reported contained a further
         restatement adjustment of the results for the three months ended
         September 30, 1998 in addition to the restatement originally announced
         on February 23, 1999. The accompanying financial statements reflect the
         further restatement. As a result of this adjustment, product revenues
         of $6,984 and corresponding cost of product revenues of $4,719 related
         to the sale of the Company's product under which the Company guaranteed
         a customer's lease payments to a third party lessor, were deferred
         subject to the customer's satisfaction of the lease payments.

         A summary of the effects of the restatement on the Company's statement
         of operations for the nine months ended December 31, 1998 is presented
         below:


                                        7
<PAGE>   8
<TABLE>
<CAPTION>

                                TELXON CORPORATION AND SUBSIDIARIES
                                CONSOLIDATED STATEMENT OF OPERATIONS
                                (In thousands, except per share data)
                                             (Unaudited)

                                                                                      NINE MONTHS
                                                                          -------------------------------------
                                                                                ENDED DECEMBER 31, 1998
                                                                          -------------------------------------
                                                                           (AS PRESENTED)      (AS RESTATED)
<S>                                                                              <C>                 <C>
Revenues:
  Product, net                                                                   $ 255,975           $ 248,989
  Customer service, net                                                             62,222              62,222
                                                                          -----------------  ------------------
      Total net revenues                                                           318,197             311,211

Cost of revenues:
  Product                                                                          169,388             164,670
  Customer service                                                                  40,375              40,374
                                                                          -----------------  ------------------
      Total cost of revenues                                                       209,763             205,044

Gross profit:
  Product                                                                           86,587              84,319
  Customer service                                                                  21,847              21,848
                                                                          -----------------  ------------------
      Total gross profit                                                           108,434             106,167

Operating expenses:
  Selling expenses                                                                  67,699              67,700
  Product development and engineering expenses                                      29,107              29,108
  General & administrative expenses                                                 33,541              33,541
  Unconsummated business
     combination costs and other charges                                             8,070               8,070
                                                                          -----------------  ------------------
         Total operating expenses                                                  138,417             138,419
                                                                          -----------------  ------------------

Loss from operations                                                               (29,983)            (32,252)

Interest income                                                                        569                 569
Interest expense                                                                    (6,829)             (6,828)
                                                                          -----------------  ------------------

Loss before other non-operating
             income and income taxes                                               (36,243)            (38,511)

Other non-operating income                                                           1,025               1,025
                                                                          -----------------  ------------------

Loss before income taxes                                                           (35,218)            (37,486)

Provision for income taxes                                                          14,784              14,784
                                                                          -----------------  ------------------

Net loss                                                                         $ (50,002)          $ (52,270)
                                                                          =================  ==================

Net loss per share:

Basic                                                                              $ (3.11)            $ (3.25)
                                                                          =================  ==================

Diluted                                                                            $ (3.11)            $ (3.25)
                                                                          =================  ==================

Average number of common shares outstanding:
               Basic                                                                16,101              16,101
               Diluted                                                              16,101              16,101
</TABLE>


5.       Earnings Per Share


                                        8
<PAGE>   9

         Computations of basic and diluted earnings per share of common stock
         have been made in accordance with the Financial Accounting Standards
         Board's (FASB) Statement of Financial Accounting Standards No. 128,
         "Earnings Per Share". All securities having an anti-dilutive 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.

                  Reconciliation of Numerators and Denominators
                    Of the Basic and Diluted EPS Computations
                     (In thousands except per share amounts)

         In the following table, net loss represents the numerator, and the
         shares represent the denominator, in the earnings per share
         calculation.

<TABLE>
<CAPTION>

                                            For the Three Months Ended                       For the Three Months Ended
                                                December 31, 1999                                  December 31, 1998
                                -------------------------------------------------- ------------------------------------------------
                                        Net                        Per Share              Net                         Per Share
                                       Loss             Shares         Amount             Loss       Shares            Amount
                                -------------------- ------------  --------------- ------------------------------- ----------------
<S>                                <C>                 <C>           <C>            <C>               <C>             <C>
Net loss                         $ (14,772)                                             $(45,856)
                                ====================                               ================
BASIC LOSS PER SHARE
Loss incurred by
  common stockholders            $ (14,772)               16,318         $(0.91)        $(45,856)     16,048           $(2.86)
                                ====================               =============== ================                ================

EFFECT OF DILUTIVE
  SECURITIES
Options                                                        -                                           -
                                                     ------------                                  ---------------

DILUTED LOSS PER SHARE
Loss incurred by holders
  of common stock and
  common stock equivalents       $ (14,772)               16,318         $(0.91)        $(45,856)     16,048           $(2.86)
                                ==================== ============  =============== =============================== ================
</TABLE>


                                        9
<PAGE>   10


<TABLE>
<CAPTION>

                                             For the Nine Months Ended                       For the Nine Months Ended
                                                December 31, 1999                                December 31, 1998
                                  ------------------------------------------------ -----------------------------------------------
                                        Net                        Per Share             Net                          Per Share
                                        Loss           Shares          Amount            Loss           Shares         Amount
                                  ----------------- -------------- --------------- ----------------- -------------- --------------
<S>                                <C>               <C>            <C>             <C>               <C>             <C>
Net loss                                  $(16,513)                                        $(52,270)
                                  =================                                =================
BASIC LOSS PER SHARE
Loss incurred by
  common stockholders                     $(16,513)        16,235         $ (1.02)         $(52,270)        16,101         $(3.25)
                                  =================                =============== =================                ==============

EFFECT OF DILUTIVE
  SECURITIES
Options                                                         -                                                -
                                                    --------------                                   --------------

DILUTED LOSS PER SHARE
Loss incurred by holders of
  common stock and common
  stock equivalents                       $(16,513)        16,235         $ (1.02)         $(52,270)        16,101         $(3.25)
                                  ================= ============== =============== ================= ============== ==============
</TABLE>


         Options to purchase 3,765,385 shares of common stock at a weighted
         average exercise price of $14.47 were outstanding at December 31, 1999,
         but were not included in the computation of diluted earnings per share
         for the three and nine months then ended because the options would have
         an anti-dilutive effect on the net loss for the period.

         Options to purchase 3,198,753 shares of common stock at a weighted
         average exercise price of $17.94 per share were outstanding at December
         31, 1998, but were not included in the computation of diluted earnings
         per share for the three and nine months then ended because the options
         would have had an anti-dilutive effect on the net loss for the periods
         then ended.

         The shares issuable upon conversion of Telxon's 5-3/4% Convertible
         Subordinated Notes and 7-1/2% Convertible Subordinated Debentures were
         omitted from the diluted earnings per share calculations because their
         inclusion at December 31, 1999 and 1998 would have had an anti-dilutive
         effect on earnings for the three and nine months then ended.



                                       10
<PAGE>   11
<TABLE>
<CAPTION>

6.         Comprehensive Loss


                                                                                      Three Months Ended
                                                                               December 31,          December 31,
                                                                                   1999                  1998
                                                                           ---------------------  --------------------
                                                                                                      (Restated)
<S>                                                                                   <C>                   <C>
           Total comprehensive loss consisted of the following:

           Net loss                                                                   $ (14,772)            $ (45,856)
           Other comprehensive loss:
           Foreign currency translation adjustment                                         (524)                  (66)
                                                                           ---------------------  --------------------
           Total comprehensive loss                                                   $ (15,296)            $ (45,922)
                                                                           =====================  ====================


                                                                                         Nine Months Ended
                                                                               December 31,          December 31,
                                                                                   1999                  1998
                                                                           ---------------------  --------------------
                                                                                                      (Restated)
           Net loss                                                                   $ (16,513)            $ (52,270)
           Other comprehensive (loss) income:
           Foreign currency translation adjustment                                         (349)                  569
                                                                           ---------------------  --------------------
           Total comprehensive loss                                                   $ (16,862)            $ (51,701)
                                                                           =====================  ====================

7.         Inventories


                                                                               December 31,            March 31,
                                                                                   1999                  1999
                                                                           ---------------------  --------------------
           Inventories consisted of the following:

           Purchased components                                                        $ 50,005              $ 51,112
           Work-in-process                                                               16,039                32,360
           Finished goods                                                                19,465                45,577
                                                                           ---------------------  --------------------
                                                                                       $ 85,509             $ 129,049
                                                                           =====================  ====================

8.         Accrued Liabilities


                                                                               December 31,            March 31,
                                                                                   1999                  1999
                                                                           ---------------------  --------------------
           Accrued liabilities consisted of the following:

           Deferred customer service revenues                                          $ 10,694              $ 15,351
           Deferred product revenues                                                      6,499                14,168
           Accrued discontinued product costs                                             5,682                12,422
           Accrued payroll and other
              employee compensation                                                       6,429                11,649
           Other accrued liabilities                                                     21,146                20,695
                                                                           ---------------------  --------------------
                                                                                       $ 50,450              $ 74,285
                                                                           =====================  ====================
</TABLE>



                                       11
<PAGE>   12

         The Company's domestic accrual for severance costs decreased from a
         balance of $3,429 at March 31, 1999 to a balance of $2,041 at December
         31, 1999. This decrease was caused by severance charges of $1,247
         during the first nine months of fiscal 2000 that were more than offset
         by severance payments of $2,635 to terminated employees. A total of 35
         employees were terminated during the first half of fiscal 2000. The
         areas of the company affected were domestic sales operations, domestic
         product development, manufacturing operations and corporate
         administration. There have been no material changes to the amounts
         accrued at either March 31, 1999 or December 31, 1999. In addition to
         the domestic sales activity, 1 employee was terminated in the Company's
         international sales operations during the second quarter of fiscal
         2000. The severance recorded related to this employee was approximately
         $1,100, and such amount was paid prior to September 30, 1999.



9.       Supplemental Cash Flow Information
<TABLE>
<CAPTION>

                                                                          Nine Months Ended
                                                                 December 31,           December 31,
                                                                     1999                   1998
                                                             ---------------------  ---------------------
<S>                                                                        <C>                    <C>
              Cash paid during the period for:
              Interest                                                     $8,877                 $8,946
              Income taxes                                                 $3,777                 $5,506
</TABLE>


         Capital lease additions of $276 during the nine months ended December
         31, 1998 have been excluded from the accompanying consolidated
         statement of cash flows as a non-cash transaction. There were no
         capital lease additions during the nine months ended December 31, 1999.
         The non-cash portion of the gain related to the sale of Aironet common
         stock of $14,956 has been excluded from the accompanying consolidated
         statement of cash flows as a non-cash transaction.

10.      Litigation and Contingencies

         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 the Company 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, then an 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, attorney's 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 its 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; however, the claims relating to breach of fiduciary
         duty survived the Motion to Dismiss.



                                       12
<PAGE>   13

         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 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. On March 18,
         1998, defendant Meyo filed a Motion for Judgement on the Pleadings (as
         to himself), in response to which Plaintiff filed its Answer and Brief
         in Opposition. The Motion was argued before the Court on November 4,
         1998, and was granted from the bench, dismissing Meyo as a defendant in
         the case.

         The post-intervention claims are the subject of ongoing discovery,
         which should be completed in February 2000. The defendants filed a
         Motion For Summary Judgment on November 15, 1999, and the plaintiff
         filed a cross Motion for Summary Judgment on December 7, 1999. The
         Motions were argued before the Court on February 4, 2000, and the
         defendants are preparing a supplemental brief for filing February 14,
         2000. No trial date has been set.

         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 its financial
         statements.

         On February 7, 1998, a complaint was filed against the Company in the
         District Court of Harris County, Texas, by Southwest Business
         Properties, the landlord of the Company's former Wynnwood Lane facility
         in Houston, Texas, alleging counts for breach of contract and temporary
         and permanent injunctive relief, all related to alleged environmental
         contamination at the Wynnwood property, and seeking specific
         performance, unspecified monetary damages for all injuries suffered by
         plaintiff, payment of pre-judgement interest, attorneys' fees and costs
         and other unspecified relief. In its Answer, Telxon denied plaintiff's
         allegations. The case was set for trial in December 1999 but was
         settled by the parties; the $500 cost of the initial settlement, $275
         of which has been covered by the Company's insurer, has been recorded
         in the accompanying financial statements;  additional amounts of up to
         $100 are required to be paid as part of the settlement in the event
         that the remediation described below is not timely completed.

         While the litigation with the landlord was pending, Telxon and the
         landlord filed on July 7, 1999 a joint application with the Texas
         Natural Resource Conservation Commission for approval of a proposed
         Response Action Work Plan for the property pursuant to the Commission's
         Voluntary Cleanup Program. The plan, which was approved by the
         Commission in August 1999, projects completion of remediation and
         issuance of a closure certificate in 2002, for which the Company has
         accrued the estimated costs of $250. If closure of the remediation is
         not certified when contemplated by the plan, and the Company were
         ultimately to become 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.

         On May 8, 1998, two class action suits were filed in the Court of
         Chancery of the State of Delaware, in and for the County of New Castle,
         by certain alleged stockholders of Telxon on behalf of themselves and
         purported classes consisting of Telxon stockholders, other than
         defendants and their affiliates, relating to an alleged offer by Symbol
         Technologies, Inc. ("Symbol") to acquire the Company. The named
         defendants are Telxon and its Directors at the time, namely, Frank E.
         Brick, Robert A. Goodman, Dr. Raj Reddy, John H. Cribb, Richard J.
         Bogomolny, and Norton W. Rose.

                                       13
<PAGE>   14
         The plaintiffs allege that on April 21, 1998, Symbol made an offer to
         purchase Telxon for $38.00 per share in cash and that on May 8, 1998,
         Telxon rejected Symbol's proposal. Plaintiffs further allege that
         Telxon has certain anti-takeover devices in place purportedly designed
         to thwart hostile bids for the Company. Plaintiffs charge the Director
         defendants with breach of fiduciary duty and claim that they are
         entrenching themselves in office. The plaintiffs seek certification of
         the purported class, unspecified compensatory damages, equitable and/or
         injunctive relief requiring the defendants to act in specified manners
         consistent with the defendant Directors' fiduciary duties, and payment
         of attorney's fees and costs. The parties have stipulated that the
         plaintiffs will file an Amended Complaint and that the defendants will
         answer only the Amended Complaint.

         On June 2, 1998, the Court ordered consolidation of the above-captioned
         cases. On February 10, 2000, without having filed an Amended Complaint
         or seeking any discovery, the plaintiffs filed a notice for the
         dismissal of the action without prejudice, the approval of which by the
         Court is pending. Should the Court not grant the dismissal, the
         defendants believe that these claims lack merit and intend to
         vigorously defend the consolidated action.

         From December 1998 through March 1999, a total of 27 class actions 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 the
         defendants and their affiliates, who purchased stock during the period,
         from May 21, 1996 through February 23, 1999 or various portions
         thereof, alleging claims for "fraud on the market" arising from alleged
         misrepresentations and omissions with respect to the Company's
         financial performance and prospects and an alleged violation of
         generally accepted accounting principles by improperly recognizing
         revenues. The named defendants are the Company, former President and
         Chief Executive Officer Frank E. Brick and former Senior Vice President
         and Chief Financial Officer Kenneth W. Haver. The actions were referred
         to a single judge. On February 9, 1999, the plaintiffs filed a Motion
         to Consolidate all of the actions, and the Court heard motions on
         naming class representatives and lead class counsel on April 26, 1999.

         On August 25, 1999, the Court appointed lead plaintiffs and their
         counsel, ordered the filing of an Amended Complaint, and dismissed 26
         of the 27 class action suits without prejudice and consolidated those
         26 cases into the first filed action. The appointed lead plaintiffs
         appointed by the Court filed an Amended Class Action Complaint on
         September 30, 1999. The Amended Complaint alleges that the defendants
         engaged in a scheme to defraud investors through improper revenue
         recognition practices and concealment of material adverse conditions in
         Telxon's business and finances. The Amended Complaint seeks
         certification of the identified class, unspecified compensatory and
         punitive damages, pre- and post-judgment interest, and attorneys' fees
         and costs. Various appeals and writs challenging the District Court's
         August 25, 1999 rulings have been filed by two of the unsuccessful
         plaintiffs and continue to be pending; should the Court of Appeals take
         jurisdiction of the challenges, further District Court proceedings
         would be stayed pending the appellate court's disposition of the
         challenges.

         On November 8, 1999, the defendants jointly moved to dismiss the
         Amended Complaint. The Court held a case management conference on
         November 16, 1999 at which it set a conditional schedule. Briefing of
         the defendants' motion to dismiss and the plaintiffs' opposition
         thereto was completed January 18, 2000. The motion to dismiss remains
         pending, and all discovery remains stayed pending the Court's ruling on
         the motion. Also pending is plaintiffs' motion, filed November 16,
         1999, to lift the discovery stay to allow the serving of discovery
         requests on a non-party, which motion is opposed by the defendants. The
         defendants believe that these claims lack merit, and they intend to
         vigorously defend these actions. Defendants anticipate filing a Motion
         to Dismiss.

         By letter dated December 18, 1998, the Staff of the Division of
         Enforcement of the Securities and Exchange Commission advised the
         Company that it was conducting a preliminary, informal inquiry into
         trading of the securities of the Company at or about the time of the
         Company's December 11, 1998 press release announcing that the Company
         would be restating the revenues for its second fiscal quarter ended
         September 30, 1998. On January 20, 1999, the Commission issued a formal
         Order Directing Private Investigation And Designating Officers To Take
         Testimony with respect to the referenced trading and specified
         accounting matters, pursuant to which subpoenas have been served
         requiring the production of specified documents and testimony. The
         Company has cooperated, and intends to continue cooperating fully with,
         the Staff.

                                       14
<PAGE>   15
         The Company has received a number of letters from its customers
         requesting Telxon to indemnify them with respect to their defense of
         demands which have been made on them by the Lemelson Medical, Education
         & Research Foundation Limited Partnership for the payment of a license
         fee for the alleged infringement of the Foundation's so-called
         "bar-code" patents by the customers' systems utilizing automatic
         identification technology, portions of which have been supplied by the
         Company. On October 27, 1999, the Foundation also sent a letter
         directly to the Company similarly demanding that the Company purchase a
         license with respect to "Telxon's use of machine vision and bar coding
         technology." The Company believes that the patents so being asserted
         against it and its customers are invalid, unenforceable and not
         infringed. This position has also been taken by seven other companies
         in the automatic identification industry, including the Company's
         principal competitors, which in July 1999 jointly filed a federal court
         action seeking a declaratory judgment to that effect against the
         Foundation.

         On December 30, 1999, 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 the Company derivatively on behalf of Telxon.
         The named defendants are the Company; the then directors of the
         Company, Richard J. Bogomolny, John H. Cribb, Robert A. Goodman, Raj
         Reddy, Frank Brick and Norton Rose; Robert F. Meyerson, former
         Chairman of the Board, Chief Executive Officer and director; and
         Telantis Venture Partners V Inc., an affiliate of Robert F. Meyerson.
         The Complaint alleges that Telxon's sale of stock in its then Aironet
         Wireless Communications, Inc. subsidiary to Meyerson interests
         constitutes a waste and gift of Telxon assets in breach of the
         defendant directors' duties of care and to act in good faith. The
         Complaint also alleges that the defendant directors' opposition of an
         alleged offer by Symbol to acquire the Company in the Spring of 1998
         violated their duties of loyalty, good faith and due care and wasted
         the Company's assets. The Complaint seeks an order rescinding the
         Aironet stock transactions (or in the event such relief cannot be
         granted, rescissory damages), requiring the defendants other than the
         Company to account for Telxon's losses in connection with the alleged
         wrongs (including the funds spent resisting the alleged Symbol bid)
         and awarding plaintiff its attorneys' fees and expenses. While the
         Company is nominally a defendant in this derivative action, no
         monetary relief is sought by the plaintiff from the Company. The
         defendants have received an extension of time within which to file
         their initial response to the Complaint.

         The defendants believe that these derivative claims lack merit and
         intend to vigorously defend 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 its financial statements.

         Except as otherwise specified, in the event that any of the foregoing
         litigation ultimately results in a money judgment against the Company
         or is otherwise determined adversely to the Company by a court of
         competent jurisdiction, such determination could, depending on the
         particular circumstances, adversely affect the Company's conduct of its
         business and the results and condition thereof. 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 is also subject to various pending legal
         actions and contingencies, which may include matters involving
         suppliers, customers, lessors of Company products to customers and
         lessors of equipment to the Company.

11.      Income Taxes

         The Company's consolidated tax provision of $621 and $2,637 for the
         third quarter and first nine months of fiscal 2000, respectively,
         relate to foreign taxes on the Company's international subsidiaries. No
         taxes have been provided for the gain related to the sale of Aironet
         voting common stock, which occurred in the second quarter of fiscal
         2000, as the Company has a sufficient current year operating loss to
         offset a tax provision or liability. The Company has not recognized any
         income tax benefits other than those utilized through the realization
         of gains from the sale of Aironet voting common stock based on the
         Company's assessment that it is more likely than not that the deferred
         tax assets will not be utilized through future taxable income or
         implementation of tax planning strategies.

12.      Subsidiary Stock Transactions and Divestitures

         During the second quarter of fiscal 2000, Aironet and the Company sold
         6,919,434 shares of Aironet's voting common stock on the Nasdaq
         National Market at an offering price of $11.00 per share. Of the total
         number of shares offered, Aironet sold 4,637,196 shares, and the
         Company sold 2,282,238 shares. The aggregate proceeds, net of
         underwriting discounts and commissions, were $47,400 to Aironet and
         $23,300 to Telxon. Subsequent to this transaction, the Company's
         remaining interest in Aironet was approximately 35%. As a result of
         this transaction, the Company recorded a non-operating gain of
         approximately $32,200 net of additional transaction costs of $1,500.
         Also as a result of this transaction, the Company ceased consolidation
         of Aironet effective April 1, 1999 and is accounting for its

                                       15
<PAGE>   16

         investment under the equity method of accounting. Investment income of
         $337 and $1,039 was recorded for the Company's interest in the earnings
         of Aironet for the third quarter and first nine months of fiscal 2000.
         During the three months ended June 30, 1999, the Company repurchased
         60,000 shares of the voting common stock of Metanetics from former key
         employees, at a price of $2.00 per share. Giving effect to the share
         repurchase, the Company's interest in the voting common stock of
         Metanetics was 61% at June, 30, 1999. Prior to the repurchase of these
         shares, the Company's interest in the voting common stock of Metanetics
         was 60%.

         During the three months ended June 30, 1998, the Company entered into a
         series of transactions with a business partner relating to Metanetics,
         a development stage subsidiary that develops image processing
         technology. The Company repurchased 400,000 voting common shares of
         Metanetics for $1,950 or $4.875 per share. Simultaneously, the business
         partner agreed to pay amounts due of $1,850 for previously purchased
         manufacturing rights and software licenses. Additionally, the companies
         mutually agreed to terminate such agreements and released each other
         from any future liability related to the original agreements. The
         Company had originally recorded the additional $1,950 investment in
         Metanetics as an operating expense as of June 30, 1998, because of the
         historical financial losses of the subsidiary and future funding
         requirements for its operations. However, after further assessment as
         part of the restatement discussed in Note 4 - Restatement above, and
         based in part on an independent valuation of Metanetics, the Company
         has capitalized this additional investment as goodwill to be amortized
         over a useful life of three years. Giving effect to the share
         repurchase, the Company's interest in the voting common stock of
         Metanetics was 60% at June 30, 1998. Prior to the repurchase of these
         shares, the company's interest in the voting common stock of Metanetics
         was 52%.

         During the three months ended June 30, 1998, the Company's Aironet
         subsidiary sold 222,222 shares of its voting common stock to various
         third party investors at a price of $3.50 per share. Proceeds from this
         sale of stock were $778. The resulting pre-tax net gain of $340 was
         recorded as non-operating income in the accompanying consolidated
         statement of operations. In addition to the sale of the shares of
         stock, 66,667 warrants at $3.50 per share for the purchase of Aironet
         voting common stock were issued. A gain of $47 relating to these
         warrants has been deferred until the warrants are exercised or lapse.
         The Company's remaining interest in the issued voting common stock of
         Aironet at June 30, 1998, was 76%. Prior to the sale of these shares,
         the Company's interest in the voting common stock of Aironet was 78%.

         Effective March 31, 1998, the Company sold the stock of its Virtual
         Vision subsidiary to a third party in exchange for $500 in cash and
         $4,500 in Series F Preferred Shares of FED Corporation at a value of
         $6.00 per share or 750,000 shares. As all of the conditions of the sale
         were not satisfied as of March 31, 1998, the related pre-tax gain of
         $900 was deferred. During the three months ended June 30, 1998, all of
         the conditions of the sale were satisfied, and the Company recorded a
         pre-tax gain of $900 as non-operating income in the accompanying
         consolidated statement of operations.

13.      Senior Secured Credit Facility

         On August 30, 1999, the Company entered into a loan and security
         agreement whereby Telxon obtained a $100,000 senior secured credit
         facility as a replacement for the Company's existing revolving credit
         agreement and business purpose promissory note. The facility consists
         of both term and revolving credit arrangements. On November 18, 1999,
         the Company entered into an amendment of this security agreement
         whereby additional borrowings of $20,000 were provided. The amendment
         also extended to March 31, 2000 the maturity date of the $30,000 term
         loan described below.


                                       16
<PAGE>   17
         Borrowings under the revolving loan provisions of such facility are
         subject to availability on qualifying accounts receivable and
         inventory, reduced by amounts borrowed and outstanding under the
         facility's term loan features and letters of credit. The revolving
         credit facility has a limit of $50,000 less the outstanding balance of
         the term loans and until such time the bridge loans described below are
         paid in full. At that time, the maximum amount available will increase
         to $80,000 less the outstanding remaining term loan balances.
         Availability under the agreement is $24,900 as of December 31, 1999.
         The maturity date of the loan and security agreement is August 29,
         2002. At the maturity date the agreement is automatically renewed for
         successive one-year periods until the agreement is terminated.

         The secured credit facility has four term loan features. The first term
         loan of $6,000 is limited by a portion of the liquidation value of the
         Company's machinery and equipment. The repayment terms for this term
         loan are straight-line over a 10-year period. The second term loan of
         $10,000 is limited, together with the $20,000 and $30,000 term loans
         discussed below, by the market value of Aironet capital stock owned by
         the Company. The repayment of this second term loan is straight-line
         over a 3-year period. The third and fourth term loans of $20,000 and
         $30,000, respectively, are limited by a specific percentage of the
         market value of Aironet capital stock owned by the Company. The third
         and fourth term loans mature on March 31, 2000 and are to be repaid
         with proceeds resulting from the sale of a portion of the Company's
         Aironet stock.

         The interest rate charged on the revolving loan, the $6,000 term loan
         and the $20,000 term loan is 0.5% above the financial institution's
         prime lending rate. The $6,000 term loan and the revolving loan may be
         converted to Euro-rate loans at the option of the Company; converted
         loans would be charged a rate of 2.75% plus the Eurodollar rate. On
         December 31, 1999, the prime lending rate and the Eurodollar rate were
         8.50% and 6.00%, respectively. At December 31, 1999 the rate charged on
         each of these loans was prime plus .50%, or 9.0%. To the extent that
         the $30,000 and $20,000 term loans are not repaid upon any sale of
         Aironet stock by the Company, the rate on these term loans will become
         fixed at 12.5%. The interest rate on the $10,000 term loan and the
         $30,000 term loan is also fixed at 12.5%. Interest is payable monthly.
         The interest rate charged is subject to change based upon the Company's
         financial results. The facility also provides for the payment of an
         unused line fee of 0.375% per annum on a monthly basis, and a 1.25% per
         annum fee for undrawn letters of credit.

         The $100,000 credit facility is collateralized by essentially all of
         the Company's assets including accounts receivable, machinery and
         equipment, general intangibles, inventory, future proceeds and real
         property.

         The credit facility also requires the maintenance of various financial
         and non-financial covenants. Significant financial covenants include
         maintaining a minimum level of customer service revenue, ensuring that
         the total outstanding balance of the credit facility does not exceed
         collections from certain significant accounts, maintaining minimum
         earnings before interest, taxes, depreciation and amortization (EBITDA)
         and maintaining minimum tangible net worth requirements. On February
         10, 2000, the Company's lenders modified certain of these debt
         covenants. Due to this modification, the Company was in compliance with
         all financial covenants as of December 31, 1999.

                                       17
<PAGE>   18

14.      Business Segments

         As of December 31, 1999 the Company's business consisted of three
         geographic operating segments: a) sales and distribution of all its
         product lines in the United States; b) sales and distribution of all
         its product lines in Europe; and c)sales and distribution of all of its
         product lines in international locations outside of Europe.

         For fiscal 1999, the Company reported results for a fourth operating
         segment--the Company's former Aironet subsidiary, which designs,
         develops, markets, and services high speed standards-based wireless
         local area networking (LAN) solutions, -- which is presented below for
         the quarter-ended December 31, 1998. As described in Note 2 - Basis
         of Presentation, the Company has ceased consolidating the results of
         Aironet as of April 1, 1999. Aironet will no longer be presented as a
         separate business segment prospectively, and is not presented as such
         for the three and nine-month periods ended December 31, 1999. The gain
         recognized from the sale of Aironet stock in Aironet's initial public
         offering of $32,167 has been included within the U.S. operating segment
         for the nine months ending December 31, 1999.

         Summarized financial information concerning the Company's reportable
         segments is displayed in the following tables.
<TABLE>
<CAPTION>

(in thousands)                  United                     Other         Adj./
                                States       Europe    International     Elims.     Consolidated
                             ----------------------------------------------------------------------------------
<S>                              <C>           <C>           <C>                <C>       <C>         <C>
Three months ended
  December 31, 1999
Revenue from
  unaffiliated customers         $ 67,970      $21,931       $ 6,333            $ -       $96,234
Revenue from
  intercompany sales               11,880          233           134        (12,247)            -
                             ---------------------------------------------------------------------
              Total revenue      $ 79,850      $22,164       $ 6,467      $ (12,247)      $96,234

(Loss) income before
   income tax                    $(15,089)     $ 1,075         $ 280         $ (417)    $ (14,151)
                             =====================================================================

                                 U.S.
                              Other than                                 Other          Adj./
                               Aironet      Aironet       Europe     International     Elims.     Consolidated
                             ----------------------------------------------------------------------------------

Three months ended
  December 31, 1998
Revenue from
  unaffiliated customers         $ 61,634      $ 8,367       $18,949        $ 7,458           $ -      $96,407
Revenue from
  intercompany sales               11,604        4,748           122            597       (17,071)           -
                             ----------------------------------------------------------------------------------
              Total revenue      $ 73,238      $13,115       $19,071        $ 8,055     $ (17,071)     $96,407

(Loss) income before
   income tax                    $(33,660)     $ 1,129       $ 1,909        $ 1,316         $ 109    $ (29,197)
                             ==================================================================================
</TABLE>


                                       18
<PAGE>   19
<TABLE>
<CAPTION>

                                           United                      Other            Adj./
                                           States        Europe    International        Elims.         Consolidated
                                       -------------------------------------------------------------------------------
<S>                                         <C>           <C>            <C>                     <C>        <C>          <C>
Nine months ended
  December 31, 1999
Revenue from
  unaffiliated customers                    $ 200,415     $ 61,590       $ 18,349          $ -              $ 280,354
Revenue from
  intercompany sales                           34,022          561          2,121            (36,704)               -
                                       -------------------------------------------------------------------------------
                     Total revenue          $ 234,437     $ 62,151       $ 20,470          $ (36,704)       $ 280,354

(Loss) income before
   income tax                               $ (17,070)     $ 4,380        $ 2,213           $ (3,399)       $ (13,876)
                                       ===============================================================================

                                            U.S.
                                         Other than                                     Other             Adj./
                                          Aironet       Aironet        Europe       International         Elims.       Consolidated
                                       --------------------------------------------------------------------------------------------

Nine months ended
  December 31, 1998
Revenue from
  unaffiliated customers                    $ 215,360     $ 19,862       $ 55,346           $ 20,643        $ -          $ 311,211
Revenue from
  intercompany sales                           31,563       12,434            438              1,709          (46,144)           -
                                       --------------------------------------------------------------------------------------------
                     Total revenue          $ 246,923     $ 32,296       $ 55,784           $ 22,352        $ (46,144)   $ 311,211

(Loss) income before
   income tax                               $ (48,948)     $ 1,908        $ 5,924            $ 3,244            $ 386    $ (37,486)
                                       ============================================================================================
</TABLE>

15.      Subsequent Events

         On February 2, 2000, the Company issued 300,000 shares of the Company's
         common stock to John W. Paxton, Chairman and Chief Executive Officer of
         the Company, for $2,616 or $8.72 per share. The terms of the issuance
         of this common stock were pursuant to his employment contract dated
         March 22, 1999. No compensation expense has been recorded related to
         these common shares in accordance with the provisions of APB No.25.

         On January 19, 2000, the Company entered into a stock purchase
         agreement with affiliates of Robert F. Meyerson, former Chairman and
         Chief Executive Officer of the Company, together constituting the
         primary minority shareholder of its Metanetics subsidiary. The
         agreement calls for the Company to purchase 1,370,930 common shares of
         Metanetics for $6.73 per share, or $9,226. As part of the purchase, the
         repayment of $1,557 in notes receivable from Meyerson's affiliates will
         be offset against the purchase price. The purchase price will be paid
         with 477,790 shares of Telxon common stock with an agreed value of
         $16.05 per share, which approximated fair market value on that date.
         The stock purchase agreement contemplates that the Company will also
         contemporaneously purchase all of the remaining minority interest for
         cash at the same price per share. The Company currently owns
         approximately 61% of Metanetics. Additionally, the Company further
         agreed that it will offer to purchase the remaining 475,000 Metanetics
         shares held by minority shareholders for cash of $6.73 per share or an
         aggregate of $3,197, effectively giving the Company's full ownership of
         Metanetics to 100%.


                                       19
<PAGE>   20
         Additionally, the Company has agreed to pay named employees of
         Metanetics an amount equal to the implied value of previously granted
         stock options for 520,000 Metanetics shares at an exercise price of
         $1.04 per share. These options had previously been rescinded. The
         payments to these employees will total approximately $2,958.

         The company has received an opinion from an independent financial
         advisor that the $6.73 per share transaction price is fair, from a
         financial point of view, to Telxon. The Company anticipates that the
         amount of the purchase price of the Metanetics common stock will be
         capitalized as goodwill and amortized over a useful life of three
         years. The Company will continually assess the carrying value of this
         investment for impairment in accordance with the requirements of SFAS
         No. 121 "Accounting for the Impairment of Long-Lived Assets and for
         Long-Lived Assets to Be Disposed Of." The Company anticipates that cash
         payments to the Metanetics employees will be expensed as compensation
         expense during the fourth quarter of fiscal 2000.

         In connection with the above agreement, Mr. Meyerson agreed to
         surrender and forfeit to the Company 240,000 stock options for purchase
         of Telxon common stock at a per share price of $20.13 per share he had
         retained upon his retirement.

16.      New Accounting Standards

         On December 3, 1999, the Securities and Exchange Commission issued
         Staff Accounting Bulletin 101 Revenue Recognition in Financial
         Statements. This document expresses the views of the Securities and
         Exchange Commission in applying generally accepted accounting
         principals while recognizing revenue. The Company has abided by the
         views expressed in this document.

         On November 24, 1999 the Securities and Exchange Commission issued
         Staff Accounting Bulletin No. 100. This authoritative document
         expresses the views of the staff regarding the accounting and
         disclosure of certain expenses commonly reported in connection with
         exit activities and business combinations. The Company has abided by
         the guidance contained within this document in accounting for current
         exit costs.

         During fiscal 1999, the FASB issued Statement of Financial Accounting
         Standards No. 133, "Accounting for Derivative Instruments and Hedging
         Activities" ("SFAS No. 133"). SFAS No. 133 provides accounting and
         reporting standards for derivative instruments. This standard will
         require the Company to recognize all derivatives as either assets or
         liabilities in the statement of financial position and to measure those
         instruments at fair value. The Company is required to adopt the
         provisions of SFAS No. 133 during the first quarter of fiscal 2002 (as
         delayed by Statement of Financial Accounting Standards No. 137 -
         Deferral of the Effective Date of FASB Statement No. 133). Management
         believes that the adoption of this pronouncement will not have a
         material effect on the Company's consolidated financial position,
         results of operations or cash flows.

17.      Reclassifications

         Certain items in the fiscal 1999 consolidated financial statements and
         notes thereto have been reclassified to conform to the fiscal 2000
         presentation.


                                       20
<PAGE>   21

                       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 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 OR OTHER FUTURE
EVENTS PERTAINING TO THE COMPANY 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 AND THE OCCURRENCE OF SUCH FUTURE EVENTS 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", AND OTHER CAUTIONARY
STATEMENTS APPEARING UNDER "ITEM 1. BUSINESS" AND ELSEWHERE, IN THE COMPANY'S
ANNUAL REPORT ON FORM 10-K, FOR THE FISCAL YEAR ENDED MARCH 31, 1999.

On July 14, 1999, the Company announced its results for the year ended March 31,
1999. The year-end results contained a further restatement adjustment of the
results reported for the three months ended September 30, 1998 in addition to
the restatement originally announced on February 23, 1999. See Note 4 -
Restatement to the accompanying consolidated financial statements for further
detail concerning the restatement adjustment made. The financial information for
all periods included in the following discussion gives effect to the restatement
as so adjusted and should be read in conjunction with the restated information
presented in Note 4 - Restatement to the accompanying consolidated financial
statements.

Overview

The Company recorded a net loss of $14.8 million or $.91 per share (diluted) and
a net loss of $16.5 million or $1.02 per share (diluted) for the third quarter
and first nine months of fiscal 2000, respectively. Consolidated revenues
decreased $.2 million or .2% and $30.9 million or 10% for the third quarter and
first nine months of fiscal 2000 as compared to those same periods in fiscal
1999. The Company's consolidated gross margin percentages increased to 29% for
the third quarter of fiscal 2000 as compared to 26% for the same period in
fiscal 1999. The Company's consolidated gross margin percentages decreased to
28% for the first nine months of fiscal 2000 as compared to 34% for the same
period in fiscal 1999. Consolidated operating expenses decreased $13.0 million
and $22.5 million for the third quarter and first nine months of fiscal 2000 as
compared to fiscal 1999 levels. A major contributor to these decreases was the
absence of unconsummated business combination costs incurred in response to
takeover and proxy contest proposals in the third quarter and first nine months
of fiscal 1999 of $4.5 million and $8.1 million, respectively. As a result of
the Company's operations, the Company recorded losses of $10.7 million and $36.5
million for the third quarter and first nine months of fiscal 2000 as compared
to $26.7 million and $32.3 million for those same periods in fiscal 1999. The
results for the second quarter of fiscal 2000 included non-operating gains of
$32.7 million. Substantially all of this gain was related to the sale of common
stock of the Company's former subsidiary, Aironet Wireless Communications, Inc.
("Aironet"), in July, 1999. The results also include a tax provision of $.6
million and $2.6 million for the third quarter and first nine months of fiscal
2000 due to foreign



                                       21
<PAGE>   22

taxes. No tax benefit has been recognized for the third quarter and first nine
months of fiscal 2000 based on the Company's current year operating losses and
current assessment regarding the utilization and realization of such tax assets.
Additionally, no provision has been recorded related to the gain discussed above
due to the utilization of current year operating losses.

The Company's results for fiscal 2000 do not include the results of its Aironet
subsidiary, which became a publicly traded company in July, 1999. The Company's
percentage ownership decreased to approximately 35% at that time, and the
Company can no longer exercise control over that entity. Accordingly, the
results for the first quarter of fiscal 2000 have been restated to reflect the
removal of Aironet's financial position, results of operations and cash flows
effective at the beginning of the fiscal year and reflect the results of Aironet
under the equity method of accounting.

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 ability of the Company's senior
management to successfully implement its plan to relocate substantially all of
its Akron, Ohio headquarters operations and to identify and implement additional
appropriate cost reduction, efficiency and other operating improvement
strategies, and the amount of expenses actually incurred and saved as a result;
the continued adequacy of the Company's internal and external sources of working
capital; 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; the Company's ability to gain and maintain market
acceptance of its products; the levels of customer demand for the Company's
products and customers' commitments of resources to information technology
investments; concentration of revenues in the retail industry and possible
decreases in their purchases from the Company in response to any downturn in
general economic prospects or conditions to the extent that reduced levels of
new store openings are not offset by their investment in the Company's systems
to improve the efficiency of existing stores; 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 a 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, is
also subject to the possible adverse effects of



                                       22
<PAGE>   23

certain pending litigation and other contingencies discussed in Note 10 -
Litigation and Contingencies to the accompanying consolidated financial
statements included in Item 1 above. The financial results of the Company
historically have not been materially adversely impacted as a result of
inflation. However, there can be no assurance that inflation will not have a
material adverse impact in the future.

Readiness for the Year 2000

THE INFORMATION SET FORTH UNDER THIS CAPTION IS HEREBY DESIGNATED TO BE A "YEAR
2000 READINESS DISCLOSURE" UNDER THE YEAR 2000 INFORMATION READINESS DISCLOSURE
ACT (THE "YEAR 2000 ACT"), PUBLIC LAW 105-271, AND THE STATEMENTS BELOW AND THE
REGISTRANT, AS THE MAKER THEREOF, SHALL BE ENTITLED TO THE PROTECTIONS PROVIDED
BY THE YEAR 2000 ACT.

As the end of the twentieth century neared, there was worldwide concern
regarding the use by many existing computer programs of only the last two digits
rather than four to identify the year in a date field. If not corrected, the
potential existed for computer applications to treat year dates intended to
represent years in the twenty-first century instead as still being in the
twentieth century, which would in turn result in system failure or
miscalculations disruptive of business operations, including, among other
things, an inability to initiate, receive, process, invoice or otherwise
complete normal business activities. These Year 2000 issues affected virtually
all companies and organizations.

Year 2000 issues affected both the Company's offerings of computer products and
related services to its customers as well as its own operations. The Year 2000
readiness of the Company's operations in turn involved not only its corporate
information systems but also computer-based systems used directly in the conduct
of its business ("Process Management Systems"), such as hardware and software
engineering design tools, manufacturing equipment and customer service and
maintenance tracking systems. In addition, the Company could also be affected by
the Year 2000 readiness of its customers and of its suppliers of raw materials,
components, peripherals, finished products and software and its providers of
facilities, equipment and services. The costs of the Company's Year 2000
readiness efforts have been funded from the Company's consolidated operating
cash flows and borrowings.

With respect to its products, the Company has not to date been notified by its
customers of, nor has it otherwise encountered, any material product failures or
malfunctions relating to Year 2000 issues. Though the turn of the century has
passed, it is still possible, although not expected, that Year 2000 issues may
arise given the varied range of applications and computations in which the
Company's products are utilized that may not as yet have been put through their
full range of use since January 1, 2000. The costs to date of upgrading the
Company's products to Year 2000 readiness have not been, and the Company does
not expect that any future costs that may be required in that regard would be,
material to the Company's financial position or results of operations.

The Company has purchased and worked with outside contractors to develop and
install new business corporate-wide domestic information systems in the
company's U.S. operations. Though the new systems were identified as a strategic
business initiative independent of Year 2000 considerations, they were also
designed to make the Company's Information Systems Year 2000 ready. The
Company's international subsidiaries remediated their own Year 2000 readiness
issues independent of the new domestic systems installation. The overall
implementation of the new corporate information systems was substantially
completed at the beginning of the Company's fiscal 2000 second quarter, subject
to normal ongoing post-implementation activities normally associated with
systems of this magnitude as well as upgrades and additions of enhanced
capabilities and applications.

                                       23
<PAGE>   24
The total capital expenditures for the new systems installation were $33.8
million. In addition, the company also accelerated the replacement of
approximately $5.8 million of computer hardware in connection with the new
systems installation. As of December 31, 1999, the Company had purchased $.8
million of replacement computer hardware and leased an additional $5.0 million
of replacement computer hardware.

In addition to these capitalized expenditures, the Company had incurred $10.9
million of accumulated non-capitalizable expenses as of December 31, 1999,
related to the new systems installation. The non-capitalizable expenses for the
three months ended December 31, 1999 were approximately $1.9 million versus
approximately $3.7 million for the three months ended June 30, 1999. The
decreased expense reflects the reduction in post implementation activities.
These non-capitalized expenses exclude the one-time, after-tax charge of $1.0
million recorded during fiscal 1998 as a change in accounting principle in
accordance with the Financial Accounting Standards Board's Emerging Issues Task
Force consensus ruling "Accounting for Costs Incurred in Connection with a
Consulting Contract or an Internal Project That Combines Business Process
Reengineering and Information Technology Transformation." The Company may incur
additional non-capitalizable expenses in its efforts to complete the project to
meet management requirements. These expenses have not been quantified at this
time.

The Company believes that it has successfully addressed all mission critical
Year 2000 issues relating to its engineering, manufacturing, and customer
maintenance and service Process Management Systems and information technology
infrastructure. The costs of the Year 2000 readiness review and any related
remediation, which were not material in amount, were borne by the respective
functional areas. However, given the varied range of applications and
computations in which the Company's Process Management Systems are utilized and
which may not as yet have been put through their full range of use since January
1, 2000, it is possible, although not expected, that Year 2000 issues may still
be encountered.

The Company could also be affected by the Year 2000 readiness of its customers,
as well as of its suppliers of raw materials, components, peripherals, finished
products and software and its providers of facilities, equipment and services
and any failure on their part to achieve readiness in their own operations or
with respect to the items they supply or otherwise provide to the Company.
Through its inquiries made of such third parties regarding their Year 2000
readiness, the Company identified a limited number of items which presented
potential Year 2000 issues; those items have been replaced or updated at nominal
cost. The Company has not to date encountered any material problems relating to
the Year 2000 readiness of such third parties, though it is possible, but not
expected, that such third parties may in the future experience Year 2000
difficulties which could affect the Company insofar as such third parties may
not as yet have put their Year 2000 sensitive systems through their full range
of use since January 1, 2000.

It is still possible that scenarios resulting from Year 2000 issues could arise
which, alone or in aggregate effect, could, depending on the particular
circumstances, materially adversely affect the Company's business and/or its
financial results or conditions. These scenarios could affect the Year 2000
readiness of the Company's own product or service offerings, disrupt its
business operations or negatively impact its operating results. The Company
could be adversely affected by the failure of one or more of its suppliers of
raw materials, components, peripherals, finished products or software or its
providers of facilities, equipment and services to achieve Year 2000 readiness
in their own operations or with respect to the items they supply or otherwise
provide to the Company. If such an event were to, or circumstances indicate that
one is likely to, occur, the Company would seek alternative sources of supply
(the Company periodically reviews its sourcing options as part of its general
operating procedures independent of Year 2000 concerns) or seek to develop or
obtain a software upgrade to make the affected item Year 2000 ready. As with all
businesses engaged in some facet of the computer industry, there is a risk that
the Company's customers may experience Year 2000 failures or other difficulties
in their use of computer systems comprised of or incorporating products or
services furnished by the Company and may commence legal action or seek other
compensation for their resulting losses; such legal actions, even if not
ultimately determined adverse to the Company, would likely involve significant
defense costs to the Company, particularly where the combination of products
and/or services of several different vendors in addition to the Company in the
subject customer system presents complex issues for isolating the cause of the
Year 2000 problem and determining the vendor responsible for that problem.
Disruptions in the economy generally, domestically and/or in foreign countries,
resulting from Year 2000 issues could also materially affect the Company. At

                                       24
<PAGE>   25
this time, the Company does not believe that any of the above scenarios are
likely to, but there can be no assurance that they still may, occur, or what the
nature or extent of their possible adverse effects on the Company would be
should they occur. Though the Company currently does not have formal contingency
plans in place to address any particular possible Year 2000 scenario, the
Company would develop appropriate contingency plans if and when any significant
risks relating to Year 2000 issues are identified.

RESULTS OF OPERATIONS

The results of operations and financial position of the Company discussed below
contains the results of its former Aironet subsidiary for fiscal 1999 only.
<TABLE>
<CAPTION>

Revenues
(in thousands)
                                             Three Months Ended                           (Decrease)
                                                 December 31,                              Increase
                                     -------------------------------------     ----------------------------------
                                           1999                1998                 Dollar          Percentage
                                     -----------------   -----------------     -----------------   --------------
<S>                                          <C>                 <C>                   <C>                  <C>
Product, net                                 $ 74,943            $ 76,392              $ (1,449)           -1.9%
Customer service, net                          21,291              20,016                 1,275             6.4%
                                     -----------------   -----------------     -----------------
Total net revenues                           $ 96,234            $ 96,408              $   (174)           -0.2%
                                     =================   =================     =================



                                              Nine Months Ended
                                                 December 31,                              Decrease
                                     -------------------------------------     ----------------------------------
                                           1999                1998                 Dollar          Percentage
                                     -----------------   -----------------     -----------------   --------------
Product, net                                 $219,479            $248,989              $(29,510)          -11.9%
Customer service, net                          60,875              62,222                (1,347)           -2.2%
                                     -----------------   -----------------     -----------------
Total net revenues                           $280,354            $311,211              $(30,857)           -9.9%
                                     =================   =================     =================
</TABLE>

Net 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, network management software and software
licenses; and a variety of professional services, including systems integration
and project management.

Consolidated product revenues decreased slightly as compared to prior year
levels and remained constant with the levels experienced in the second quarter
of fiscal 2000. Demand for the Company's products was lower as compared with
fiscal 1999, particularly in the Company's North American operations, where the
Company's legacy products continue to experience competitive pressures. The
Company's revenues for the third quarter and first nine months of fiscal 2000
contained a relatively high proportion of batch products. This product mix
reduced the average selling price of the Company's products. While the third
quarter of fiscal 2000 contains revenues from shipments of the Company's newly
introduced pen-based products, primarily the PTC 2134, revenues from the
Company's pen-based products remained a small percentage of total revenues.
Consolidated product revenues for the third quarter and first nine months of
fiscal 2000 included $4.2 million and $18.0 million, respectively, of revenue
related to transactions previously deferred pending customer acceptance of such
goods. Revenues from goods shipped totaling $1.1 million were deferred pending
such transactions meeting all revenue recognition criteria.



                                       25
<PAGE>   26

Product revenues for the third quarter of fiscal 2000 included revenues of $12.7
million from the rollout of Company products to a large domestic retailer.
Revenues from this one customer accounted for 17% and 13% of the Company's
consolidated product revenues for the third quarter and first nine months of
fiscal 2000, respectively. Product revenues related to this customer were minor
during the same periods in fiscal 1999. Revenues related to this customer are
high volume-low margin business. Therefore, the relatively high volume of
business with this customer lowered the average selling price for the Company's
products overall.

The volume of revenues from the Company's Value-Added Distributor channel
decreased approximately $10.7 million and $51.3 million for the third quarter
and first nine months of fiscal 2000 as compared to the same periods in fiscal
1999. This decrease reflects new management's emphasis on the Company's
direct sales channel. Revenues related to Value-Added Distributors now represent
less than 10% of product revenues.

The Company anticipates that consolidated product revenues for the fourth
quarter of fiscal 2000 will be higher than the levels experienced during the
third quarter of fiscal 2000. However, the Company does not expect this increase
to be substantial.

Consolidated customer service revenues decreased $1.3 million or 2% for the
first nine months of fiscal 2000 as the result of start-up issues with the
Company's new information system. This also reflects the impact of decreased
product revenues over the past four quarters. Consolidated customer service
revenues increased $1.3 million or 6.4% for the third quarter of fiscal 2000 as
compared to the same period in fiscal 1999.

The Company anticipates that consolidated customer service revenues will remain
essentially unchanged for the fourth quarter of fiscal 2000 as compared to those
experienced during the third quarter of fiscal 2000.

Revenues from the Company's international operations (including Canada)
increased $1.8 million or 5% during the third quarter and decreased $1.8 million
or 2% during the first nine months of fiscal 2000 compared to the same periods
in fiscal 1999, respectively. The increase in the Company's international
revenues for the third quarter was primarily the result of increased revenues
from the Company's European subsidiaries of $3.5 million partially offset by
decreased revenues in the Company's Canadian subsidiary. The decrease in the
Company's international revenues for the nine-month period was primarily the
result of decreased revenues from shipments to the Company's international
distributors, particularly in Latin America, as well as the aforementioned
decreased revenues in the Company's Canadian subsidiary. These decreases were
partially offset by increased revenues of $6.5 million in the Company's European
subsidiaries. The decrease in international distributor revenues was $.2 million
and $5.2 million for the third quarter and first nine months of fiscal 2000 as
compared to those same periods in fiscal 1999. The decrease in the Company's
Canadian subsidiary revenues was $1.3 million and $3.0 million for the third
quarter and first nine months of fiscal 2000 as compared to those same periods
in fiscal 1999. The results of the Company's international operations were
negatively impacted by approximately $1.8 million due to changes in foreign
currency exchange rates (reflective of the strength of the U.S. dollar in
relation to the local currencies where the Company operates) during the first
nine months of fiscal 2000.

The Company's reserve for sales returns and allowances decreased from a balance
at March 31, 1999 of $15.0 million to $10.4 million at December 31, 1999. This
decrease was caused by fewer outstanding accounts receivable from the Company's
Value-Added Distributors and by improved rates of return and cash collections in
the Company's direct sales channel. These decreases to the reserve were
partially offset by increased reserves for known returns.


                                       26
<PAGE>   27

The Company's consolidated revenues for the third quarter and first nine months
of fiscal 1999 included revenues of Aironet to outside customers of $8.4 million
and $19.9 million, respectively.

     The decrease of 1% in the consolidated cost of product revenues as a
percentage of consolidated product revenues during the third quarter of fiscal
2000 was primarily the result of several offsetting factors as follows. There
were no unusual charges in the fiscal 2000 period such as the inventory and loss
provisions of $3.3 million as had occurred in the prior year. The cost
percentage was also favorably impacted by lower provisions for fulfillment fees
payable to the Company's Value-Added Distributors ("VADs") of $1.8 million due
to the lower volume of goods in that distribution channel. The cost percentage
for the quarter was decreased by a decrease in underabsorbed manufacturing
overhead costs of $1.1 million. This undersabsorption was caused by lower than
expected volumes and manufacturing inefficiencies, although at a lesser rate
than the prior year. Also contributing to the decreased cost percentage was a
decrease in the provisions for non-conformance costs and inventory losses
related to contract manufacturers of $1.1 million. Lower amounts of amortization
of capitalized software costs and decreased provisions for test equipment held
by customers of $.5 million and $.3 million also contributed to the decrease in
the cost percentage. These favorable items were offset by the following
increases to the cost percentage. The Company experienced negative purchase
price variance of $1.9 million as compared to the prior year due to changes in
standard costs. The Company also increased its provision for manufacturing
obsolescence by $.6 million as compared to the third quarter of fiscal 1999. The
increased provision for excess and obsolete manufacturing inventories was
primarily due to decreased revenue volumes and related inventory usage as
compared to on-hand inventory balances. For the third quarter of fiscal 2000,
increased fixed royalty costs related to a supply agreement with Aironet were
$.8 million. Due to the deconsolidation of the results of Aironet for fiscal
2000, intercompany profit benefit related to Aironet products used as components
of the Company's products was reduced for the third quarter of fiscal 2000 by
$2.7 million as compared to the same period in the prior year. In addition to
these items, the relatively high amount of revenue volume related to a high
volume-low margin customer caused an approximately 2% increase to the cost
percentage, or approximately $1.5 million in incremental costs to overall costs
of revenues.

<TABLE>
<CAPTION>

Cost of Revenues
(in thousands)
                                                           Three Months Ended
                                                    December 31,                          Decrease
                                          ----------------------------------   -------------------------------
Cost of Revenues:                              1999              1998              Dollar         Percentage
                                          ----------------  ----------------   ----------------   ------------
<S>                                               <C>               <C>                <C>               <C>
Product                                           $55,431           $57,446            $(2,015)         -3.5%
Customer service                                   12,971            14,047             (1,076)         -7.7%
                                          ----------------  ----------------   ----------------
Total cost of revenues                            $68,402           $71,493            $(3,091)         -4.3%
                                          ================  ================   ================

Cost of product revenue as a
  percentage of product revenue,
  net                                               74.0%             75.2%

Cost of customer service revenue
  as a percentage of customer
  service revenue, net                              60.9%             70.2%
</TABLE>



                                       27
<PAGE>   28
<TABLE>
<CAPTION>

Cost of Revenues
(in thousands)
                                                          Nine Months Ended
                                                             December 31,                              (Decrease)
                                               -----------------------------------------   ------------------------------------
Cost of Revenues:                                     1999                  1998                Dollar            Percentage
                                               -------------------   -------------------   ------------------   ---------------
<S>                                                      <C>                   <C>                    <C>                 <C>
Product                                                  $163,728              $164,670             $   (942)            -0.6%
Customer service                                           37,260                40,374               (3,114)            -7.7%
                                               -------------------   -------------------   ------------------
Total cost of revenues                                   $200,988              $205,044             $ (4,056)            -2.0%
                                               ===================   ===================   ==================

Cost of product revenue as a
  percentage of product revenue,
  net                                                       74.6%                 66.1%

Cost of customer service revenue
  as a percentage of customer
  service revenue, net                                      61.2%                 64.9%
</TABLE>


The increase of 9% in the consolidated cost of product revenues as a percentage
of consolidated product revenues during the first nine months of fiscal 2000 was
primarily the result of several offsetting factors as follows. The Company
experienced negative purchase price variance of $4.3 million as compared to the
prior year due to changes in standard costs. The cost percentage for the first
nine months of fiscal 2000 was increased by an increase in underabsorbed
manufacturing overhead costs of $3.6 million. This undersabsorption was caused
by lower than expected volumes and manufacturing inefficiencies, primarily in
the first two quarters of fiscal 2000. The Company also increased its provision
for manufacturing obsolescence by $2.6 million as compared to the first nine
months of fiscal 1999. The increased provision for excess and obsolete
manufacturing inventories was primarily due to decreased revenue volumes and
related inventory usage as compared to on-hand inventory balances. For the first
nine months of fiscal 2000, increased fixed royalty costs related to a supply
agreement with Aironet were $2.4 million. Due to the deconsolidation of the
results of Aironet for fiscal 2000, intercompany profit benefit related to
Aironet products used as components of the Company's products was reduced for
the first nine months of fiscal 2000 by $7.2 million as compared to the same
period in the prior year. In addition to these items, the relatively high amount
of revenue volume related to a high volume-low margin customer caused an
approximately .3% increase to the cost percentage, or approximately $.7 million
in incremental costs to overall costs of revenues. Finally, there was an
increase in operating expenses due to expediting costs of approximately $2.3
million.

These increases to the cost percentage were offset by the following decreases to
the cost percentage. There were no unusual charges in the fiscal 2000 period
such as the inventory and loss provisions of $3.3 million as had occurred in the
prior year. The cost percentage was also favorably impacted by lower provisions
for fulfillment fees payable to the VADs of $1.2 million, due to the lower
volume of goods in that distribution channel. Also contributing to the decreased
cost percentage was a decrease in provisions for non-conformance costs and
inventory losses related to contract manufacturers of $1.0 million. Lower
amounts of amortization of capitalized software costs and decreased provisions
for test equipment held by customers of $1.2 million and $.9 million also caused
a decrease in the cost percentage.


                                       28
<PAGE>   29

The Company is subject to a high degree of technological change in market and
customer demands. The Company therefore continually monitors its inventories for
excess and obsolete items based upon a combination of historical usage and
forecasted usage of such inventories. Additionally, discrete provisions are made
when existing facts and circumstances indicate that the subject inventory will
not be utilized.

Management disposes of excess and obsolete inventory as necessary and as
manpower permits. During the first nine months of fiscal 2000, the Company
disposed of $20.4 million of excess and obsolete material. Of this amount $18.9
million related to manufacturing purchased components, $1.3 million related to
the Company's customer service inventories and $.2 million related to the
Company's international operations. There were no material recoveries related to
the disposal of this material.

Inventory allowance provisions for the first nine months of fiscal 2000 were
composed of manufacturing purchased components of $4.8 million, customer service
spare parts and used equipment of $.3 million and international finished goods
inventories of $.9 million. Inventory allowance accounts were further increased
by reclassification of accrued liabilities of $6.2 million related to purchase
commitments for obsolete purchased components and customer service spare parts.
At December 31, 1999, inventory allowance accounts aggregated $20.0 million and
were composed of manufacturing purchased components of $11.2 million, customer
service spare parts and used equipment of $6.2 million and international
finished goods inventories of $2.6 million. In addition to the inventory
allowance accounts, the Company has recorded accrued liabilities totaling $5.7
million for purchase commitments to outside contract manufacturers for
discontinued products.

At December 31, 1999, the Company had approximately $8.6 million of finished
goods inventory held at distributors and customers, and approximately $3.6
million of manufacturing purchased components at contract manufacturers. At
March 31, 1999, the Company had approximately $25.7 million of finished goods
inventory held at distributors and customers, and approximately $5.7 million of
manufacturing purchased components at contract manufacturers. The decrease in
the amount of finished goods held at distributors and customers was the result
of revenue recognized upon installation and customer acceptance of the Company's
products. Additionally, the inventory value of finished goods due back from
customers for product returns decreased in proportion to the decrease in the
reserve for sales returns and allowances.

The Company accrues fees due its VADs for the distribution services and
technical support provided to end users as well as cooperative advertising
costs. These fees are generally based upon the sales value of the goods to the
end user. During the third quarter and first nine months of fiscal 2000, the
Company incurred $.3 million and $1.3 million of these fees, respectively.

The Company's consolidated cost of revenues for the third quarter and first half
of fiscal 1999 included costs of revenues related to Aironet's outside customers
of $5.9 million and $13.4 million, respectively.

The decrease in the customer service cost of revenues as a percentage of
customer service revenues during the third quarter and first nine of fiscal 2000
resulted primarily from cost containment efforts and lower cost benefits derived
from the Company's service repair operations in Juarez, Mexico.

The Company expects continued consolidated product gross margin pressures for
the fourth quarter of fiscal 2000. While the Company does anticipate
improvements in the consolidated product gross margin percentage from that
experienced during the third


                                       29
<PAGE>   30

quarter of fiscal 2000, the Company may still experience higher product costs
and related charges due to transactions with high volume-low margin
customers.

<TABLE>
<CAPTION>


Operating Expenses
(in thousands)
                                                          Three Months Ended                      (Decrease)
                                                             December 31,                          Increase
                                                   ---------------------------------    -------------------------------
Operating expenses:                                     1999              1998              Dollar         Percentage
                                                   ---------------   ---------------    ----------------   ------------
<S>                                                       <C>               <C>                <C>               <C>
Selling expenses                                          $18,361           $22,829            $ (4,468)        -19.6%
Product development and
   engineering expenses                                     6,350            10,670              (4,320)        -40.5%
General and administrative
   expenses                                                13,860            13,612                 248           1.8%
Unconsummated business
   combination costs                                            -             4,491              (4,491)          N.M.
                                                   ---------------   ---------------    ----------------
Total operating expenses                                  $38,571           $51,602            $(13,031)        -25.3%
                                                   ===============   ===============    ================


Operating Expenses
(in thousands)
                                                             Nine Months Ended                       (Decrease)
                                                               December 31,                           Increase
                                                   -------------------------------------   --------------------------------
Operating expenses:                                      1999                1998               Dollar         Percentage
                                                   -----------------   -----------------   -----------------   ------------
Selling expenses                                           $ 55,202            $ 67,700            $(12,498)        -18.5%
Product development and
   engineering expenses                                      19,492              29,108              (9,616)        -33.0%
General and administrative
   expenses                                                  41,216              33,541               7,675          22.9%
Unconsummated business
   combination costs                                              -               8,070              (8,070)          N.M.
                                                   -----------------   -----------------   -----------------
Total operating expenses                                   $115,910            $138,419            $(22,509)        -16.3%
                                                   =================   =================   =================
</TABLE>


Consolidated selling expenses, as a percentage of revenues, decreased for the
third quarter of fiscal 2000 as compared to fiscal 1999 from 24% to 19%. For the
nine months ended December 31, 1999, consolidated selling expenses decreased as
a percentage of revenues from 22% to 20%. Contributing to the overall dollar
decrease in selling expenses was a decrease in U.S. commissions of $1.1 million
for the first nine months of fiscal 2000 due to the decreased revenue. U.S.
commissions for the third quarter of fiscal 2000 increased by $.8 million over
that experience in the same period of fiscal 1999. The provision for bad debts
also decreased for the third quarter and first nine months of fiscal 2000 by $.9
million and $3.2 million, respectively. This decrease is primarily the result of
lower provisions for doubtful accounts related to a foreign distributor during
the first nine months of fiscal 1999 of $1.2 million and $4.6 million,
respectively, due to the foreign distributor's improved payment history and
financial condition. Also contributing to the decrease in selling expenses were
cost containment efforts in the Company's North American sales operations, whose
expenses decreased $.8



                                       30
<PAGE>   31

million and $2.6 million for the third quarter and first nine months of fiscal
2000 as compared to the same periods in fiscal 1999. These decreases were
composed primarily of lower salaries and wages and sales expediting costs offset
by increased computer hardware and software support costs. Additionally, selling
expense for the third quarter and first nine months of fiscal 2000 related to
the Company's international operations decreased by $1.0 million and $.5
million, respectively, as the result of reductions in sales administration
costs in the Company's Belgian international headquarters. Offsetting this
decease for the first nine months of fiscal 2000 were severance charges related
to the Company's international sales operations of $1.1 million.

Selling expenses related to Aironet were $1.7 million and $4.5 million during
the third quarter and first nine months of fiscal 1999.

The Company's allowance for doubtful accounts decreased from a balance of $11.1
million at March 31, 1999 to a balance of $5.1 million at December 31, 1999. The
Company provided for $2.1 million of bad debts, and bad debt write-offs totaled
$7.7 million. These bad debt write-offs were primarily related to accounts
receivable from the foreign distributor referenced above.

Consolidated product development and engineering expenses as a percentage of
revenues decreased to 7% for the third quarter of fiscal 2000 as compared to 11%
for the third quarter of fiscal 1999. Consolidated product development and
engineering expenses as a percentage of revenues for the first nine months of
fiscal 2000 decreased to 7% compared to 9% for the same period last year. The
overall dollar decreases in product development and engineering expenses were
due to current management efforts to perform more engineering tasks with Company
personnel rather than with more expensive contract engineering firms. These
actions have reduced expenses related to contract labor and outside engineering
services by $2.2 million and $3.1 million for the third quarter and first nine
months of fiscal 2000, respectively, as compared to the same periods in fiscal
1999. Additionally, increased management focus on engineering processes and job
completion has resulted in reduced parts usage, rework and travel costs.
Engineering expenses incurred in the U.S. related to these items for the third
quarter and first nine months of fiscal 2000 were reduced by $1.0 million and
$2.2 million, respectively, as compared to those same periods in fiscal 1999.
Employee relocation expenses also decreased by $.2 million and $.7 million for
those same periods, respectively. These decreases were offset by increased
salaries and wages of $.1 million and $.5 million and increased patent costs of
$.2 million and $.5 million for the third quarter and first nine months of
fiscal 2000 as compared to the same periods in fiscal 1999, respectively. The
Company also increased its spending on development activities at its technical
subsidiaries, Metanetics and PenRight! by $.1 million and $.7 million for the
third quarter and first nine months of fiscal 2000 as compared to the same
periods in fiscal 1999. The Company also incurred third party development
charges of $.2 million during the third quarter and nine months of fiscal 2000.
Additionally, the Company incurred severance charges of $.2 million during the
first nine months of fiscal 2000 related to personnel changes in its product
development and engineering operations.

Product development and engineering expenses related to Aironet were $1.6
million and $4.7 million during the third quarter and first nine months of
fiscal 1999.

During the first nine months of fiscal 2000, the Company capitalized 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" aggregating $2.8 million, offset by
amortization to cost of product revenues of $3.9 million on previously
unamortized software.


                                       31
<PAGE>   32
Consolidated general and administrative expenses as a percentage of revenues
were 14% for the third quarters of fiscal 2000 and fiscal 1999. Consolidated
general and administrative expenses as a percentage of revenues were 15% and 11%
for the first nine months of fiscal 2000 as compared to the first nine months of
fiscal 1999. Although overall general and administrative expenses for the third
quarters of fiscal 2000 and fiscal 1999 remained relatively constant in
aggregate dollar amount, there were offsetting increases and decreases in
several expense categories as follows. The increase in general and
administrative expenses for the quarter was primarily due to a $1.8 million
increase in expenses related to the Company's corporate information systems
project, including amortization of costs related to installed modules as well as
other costs such as training and debugging which may not be capitalized.
Additionally, during the third quarter, the Company incurred greater bank fees
of $.8 million related to its credit facilities than in fiscal 1999. The Company
also incurred increased professional fees of $.3 million related to SEC and
litigation matters. These increases for the third quarter were offset by a
decrease in expenses related to the Company's sale of its corporate jet of $.4
million. Additionally, expenses were further decreased by the absence of the
$1.3 million charge related to start-up costs of a joint venture in the People's
Republic of China by the Company's Metanetics subsidiary incurred during the
third quarter of fiscal 1999. For the first nine months of fiscal 2000, general
and administrative expense increased $7.7 million as compared to the same period
in fiscal 1999. This increase was primarily caused by increased costs related to
the Company's corporate information systems project of $7.5 million.
Additionally, during the first nine months of fiscal 2000, the Company incurred
greater bank fees of $2.3 million related to its credit facilities than in
fiscal 1999. The Company also incurred increased professional fees of $.8
million related to SEC and litigation matters. During the first nine months of
fiscal 2000, the Company incurred $.4 million in asset impairment charges
related the cessation of the Company's corporate jet operations and severance
charges aggregating $.2 million. These increases for the third quarter were
offset by a decrease in operating expenses related to the Company's corporate
jet of $.7 million. Additionally, expenses were further decreased by the absence
of the $1.3 million charge related to start-up costs as noted above.

General and administrative expenses related to Aironet were $.8 million and $2.6
million during the third quarter and first nine months of fiscal 1999.

The Company's domestic accrual for severance costs decreased from a balance of
$3.4 million at March 31, 1999 to a balance of $2.0 million at December 31,
1999. This decrease was caused by severance charges of $1.2 million during the
first nine months of fiscal 2000, which were more than offset by severance
payments of $2.6 million to terminated employees. A total of 35 employees were
terminated during the first nine months of fiscal 2000. The areas of the Company
affected were domestic sales operations, domestic product development,
manufacturing operations and corporate administration. There have been no
material changes to the amounts accrued at either March 31, 1999 or December 31,
1999. In addition to the domestic severance activity, 1 employee was terminated
in the Company's international sales operations during the first nine months of
fiscal 2000. The severance recorded related to this employee was $1.1 million,
which has been paid.

Fiscal 2000 operating expenses were favorably impacted by the absence of costs
incurred in response to an unsolicited takeover proposal and to a proxy contest
for the third quarter and first nine months of fiscal 1999 of $4.5 million and
$8.1 million, respectively.

On November 10, 1999, the Company announced that it intends to relocate
approximately 170 employees currently located at its Akron, Ohio headquarters.
The Company anticipates that the relocation will entail moving 30 to 40
positions to a new facility in



                                       32
<PAGE>   33
 Cincinnati, Ohio and approximately 75 positions to its World Technology Center
in The Woodlands, Texas. Approximately 20 to 25 employees in the Company's
software development, advance consulting and project management groups will
relocate to a smaller, more cost effective facility in the Akron area. The
Company anticipates that the net costs of relocation will be approximately $4.0
million and will be incurred over the next twelve months. The Company's Board of
Directors approved the relocation plans for this action on November 1, 1999.
Although the Company did have plans to carryout the relocation and these plans
were approved by the appropriate level of management, the plans were not
sufficient under the requirements of Staff Accounting Bulletin No. 100
"Restructuring and Impairment Charges" ("SAB No. 100") to warrant the accrual of
these costs as of December 31, 1999. However, in connection with the Company's
plans to relocate employees and move facilities, the Company did reassess the
useful lives of leasehold improvements at its Akron, Ohio headquarters. The
Company therefore recorded increased depreciation expense of $.1 million on
those assets. The Company anticipates that it will continue to record this
increased depreciation over the next six months so that the leasehold
improvements will be fully depreciated by the completion of the relocation. In
addition, amounts payable under the Company's agreements with individual
employees for retention bonuses have been, and will continue to be, accrued as
they are earned over the transaction period. The amount accrued for the third
quarter of fiscal 2000 was not material.

The Company anticipates operating expenses, excluding charges related to the
Company's relocation of its corporate offices, for the fourth quarter of fiscal
2000 to increase from the levels experienced during the third quarter of fiscal
2000. However, the Company expects that operating expenses, excluding the
charges noted above, for the fourth quarter of fiscal 2000 to be less than those
experienced during the second quarter of fiscal 2000.

<TABLE>
<CAPTION>

Interest Expense and Other Non-operating Income (Expense), net
(in thousands)
                                                                 Three Months Ended                        (Decrease)
                                                                    December 31,                                    Increase
                                                         -----------------------------------   ------------------------------------
                                                              1999               1998              Dollar            Percentage
                                                         ---------------   -----------------   ---------------    -----------------
<S>                                                           <C>                 <C>               <C>                  <C>
Interest income                                                 $   137            $    226           $   (89)          -39.4%
Interest expense                                                 (3,613)             (2,499)           (1,114)           44.6%
Other non-operating income (expense)                                 64                (237)              301             N.M.
Total interest expense and other
 non-operating income (expense),
                                                         ---------------   -----------------   ---------------
 net                                                            $(3,412)           $ (2,510)          $  (902)           35.9%
                                                         ===============   =================   ===============
</TABLE>

                                       33
<PAGE>   34
<TABLE>
<CAPTION>

                                                                  Nine Months Ended                        (Decrease)
                                                                   December 31,                           Increase
                                                         ---------------------------------   -----------------------------------
                                                              1999              1998             Dollar            Percentage
                                                         ---------------   ---------------   ---------------   -----------------
<S>                                                           <C>                <C>                <C>                 <C>
Interest income                                                $    552           $   569           $   (17)              -3.0%
Interest expense                                                (10,414)           (6,828)           (3,586)              52.5%
Gain on sale of subsidiary stock                                 32,167               339            31,828                N.M.
Other non-operating income                                          363               686              (323)             -47.1%
Total interest expense and other
                                                         ---------------   ---------------   ---------------
 non-operating income, net                                     $ 22,668           $(5,234)          $27,902                N.M.
                                                         ===============   ===============   ===============
</TABLE>


Interest expense increased for the third quarter and first nine months of fiscal
2000 as compared to the same periods in fiscal 1999 due the increased borrowings
and interest charged under the Company's new credit facility. The weighted
average of the amounts borrowed under the Company's credit facilities increased
$1.9 million to $67.7 million in fiscal 2000. The weighted average interest rate
paid on these borrowings increased to 9.9% during fiscal 2000 as compared to
6.8% during fiscal 1999.

During the first quarter of fiscal 2000, the Company recorded $1.3 million of
non-operating expense related to the reduction in carrying value of an
investment in non-marketable securities. The Company's estimate of the reduction
was based upon the market value of subsequent equity transactions of the
investee with third parties. The investment consists of stock in the
development-stage technology company that purchased the Company's Virtual Vision
subsidiary.

During the first quarter of fiscal 2000, the Company sold an investment in
marketable securities of another development stage technology company for cash
proceeds of $1.5 million. As this investment was previously non-marketable, its
carrying value was based upon the cost basis, and was $.7 million. The Company
therefore recorded a pre-tax gain of $.8 million.

During the second quarter of fiscal 2000, the Company entered into a set of
transactions whereby the Company repurchased its corporate jet which was
previously sold and leased-back, and resold the corporate jet to a third party.
As a result of these transactions, the Company retained net cash proceeds of $.3
million. This was recorded as non-operating gain.

During the second quarter of fiscal 2000, Aironet and the Company sold 6,846,800
shares of Aironet's voting common stock in an initial public offering on the
Nasdaq National Market at an offering price of $11.00 per share. Of the total
number of shares offered, Aironet sold 4,564,562 shares, and the Company sold
2,282,238 shares. The aggregate proceeds, net of underwriting discounts and
commissions, were $47.4 million to Aironet and $23.3 million to Telxon.
Subsequent to this transaction, the Company's remaining interest in Aironet was
approximately 35%. As a result of this transaction, the Company recorded a
non-operating gain of approximately $32.2 million, net of transaction costs of
$1.5 million. Also as a result of this transaction, the Company ceased
consolidation of Aironet effective April 1, 1999. The Company will account for
its investment under the equity method of accounting. Investment income of $.3
million and $1.0 million was recorded for the Company's interest in the earnings
of Aironet for the third quarter and first nine months of fiscal 2000.




                                       34
<PAGE>   35

During the third quarter of fiscal 2000, the Company reassessed the carrying
value of a note and an investment in two separate business partners based upon
current information regarding the financial viability of the underlying
entities. As a result, a charge of $.3 million was recorded to reduce the
carrying values of the note and investment to zero.

During the first quarter of fiscal 1999, a transaction to sell the stock of
Virtual Vision to a third party was consummated, resulting in the recording of a
$.9 million non-operating gain. Subsequent to the consummation of the
transaction, positive adjustments to such gain totaling $.2 million were
recorded. These adjustments related to the changes in purchase price based upon
key employee retention rates subsequent to the transaction.

During the first quarter of fiscal 1999, Aironet sold 222,222 shares of its
voting common stock to various third party investors at a price of $3.50 per
share. The resulting pre-tax gain of approximately $.3 million was recorded as
other non-operating income in the accompanying consolidated statement of
operations. In addition to the sale of shares of stock, 66,667 warrants at $3.50
per share for the purchase of Aironet voting common stock were issued. A gain of
approximately $.05 million relating to these warrants has been deferred until
the warrants are exercised or lapse. The Company's remaining interest in the
voting common stock of Aironet at June 30, 1998 was 76%.

<TABLE>
<CAPTION>

Income Taxes
(in thousands)
                                                   Three Months Ended
                                                      December 31,                            Decrease
                                             -------------------------------     ------------------------------------
                                                1999              1998                Dollar            Percentage
                                             ------------    ---------------     ------------------   ---------------

<S>                                                <C>              <C>                  <C>               <C>
Provision for income taxes                         $ 621            $16,659              $(16,038)        -96.3%

                                                    Nine Months Ended
                                                       December 31,                            Decrease
                                             ---------------------------------     ----------------------------------
                                                 1999              1998                 Dollar          Percentage
                                             -------------    ----------------     -----------------   --------------

Provision for income taxes                        $2,637            $14,784              $(12,147)        -82.2%

</TABLE>


The Company's consolidated tax provision of $.6 million and $2.6 million for the
third quarter and first nine months of fiscal 2000 relates to foreign taxes on
the Company's international subsidiaries. No taxes have been provided for the
gain related to the sale of Aironet voting common stock as the Company has
sufficient current year operating losses to offset a tax provision or liability.
The Company has not recognized any income tax benefits other than those utilized
through the realization of gains from the sale of



                                       35
<PAGE>   36
Aironet voting common stock, in Aironet's initial public offering based on the
Company's assessment that it is more likely than not that the deferred tax
assets will not be utilized through future taxable income or implementation of
tax planning strategies.





<TABLE>
<CAPTION>


Liquidity
(in thousands, except ratios)                                                                                 Dollar
                                                         December 31,             March 31,                 (Decrease)
                                                            1999                    1999                     Increase
                                                      -----------------      --------------------     ---------------------
<S>                                                            <C>                      <C>                      <C>
Cash                                                         $   9,794                 $  22,459                 $ (12,665)
Accounts receivable                                             74,388                    84,500                   (10,112)
Notes and other receivables                                      6,305                     4,015                     2,290
Inventories                                                     85,509                   129,049                   (43,540)
Other                                                            6,906                     9,029                    (2,123)
                                                      -----------------      --------------------     ---------------------
Total current assets                                         $ 182,902                 $ 249,052                 $ (66,150)
                                                      =================      ====================     =====================

Notes payable                                                $  55,015                 $  68,567                 $ (13,552)
Capital lease obligations                                          405                       525                      (120)
Accounts payable                                                42,711                    64,966                   (22,255)
Payable to affiliate                                             4,769                         -                     4,769
Income taxes payable                                             6,594                     6,434                       160
Accrued liabilities                                             50,450                    74,285                   (23,835)
                                                      -----------------      --------------------     ---------------------
Total current liabilities                                    $ 159,944                 $ 214,777                 $ (54,833)
                                                      =================      ====================     =====================

Working capital (current assets
  less current liabilities)                                  $  22,958                 $  34,275                 $ (11,317)
                                                      =================      ====================     =====================

Current ratio (current assets
divided by current liabilities)                                    1.1                       1.2

</TABLE>




The decrease in the Company's working capital at December 31, 1999, from March
31, 1999 was primarily due to decreases in cash, accounts receivable and
inventories. The reductions in working capital were generally offset by
reductions in notes payable, accounts payable and accrued liabilities. The
decrease in accounts receivable reflects improved cash collections in the
Company's domestic operations. Accordingly, consolidated sales outstanding
decreased from 98 days at March 31, 1999 to 71 days at December 31, 1999.
Additionally, the decrease in accounts receivable reflects the absence of
Aironet's



                                       36
<PAGE>   37

accounts receivable from outside customers of $4.2 million that was present at
March 31, 1999. The Company's inventories decreased as a result of an increase
in the obsolescence reserve related to customer service spare parts of $3.2
million. Additionally, the Company's inventories related to finished goods held
at customers and distributors decreased by $16.8 million due to customer
acceptance of these goods after March 31, 1999. Inventories staged to rollout to
customer sites also decreased $5.9 million. Also causing the decrease in
inventories is the absence of Aironet's manufacturing inventories of $4.6
million. A net decrease in raw material and work-in-process inventory of $10.2
million resulted from management's efforts to decease inventory levels, as well
as, the strategic timing of raw material purchases. Additionally, decreased
inventory levels also reflect the Company providing for an additional $6.0
million in obsolescence reserves. As a result of the net decrease in inventories
offset by the relative decrease in cost of revenues between the fourth quarter
of fiscal 1999 and the third quarter of fiscal 2000, inventory turns have
increased from 2.3 to 2.7 at March 31, 1999 and December 31, 1999, respectively.
The decrease in the notes payable balance was primarily caused by repayments of
amounts borrowed with proceeds from the sale of Aironet voting common stock, and
the recharacterization of $13.1 million of borrowings as long-term. Accounts
payable decreased primarily due to increased payments to vendors with internally
generated funds, proceeds from the sale of Aironet shares and credit facility
borrowings. Accrued liabilities decreased primarily due to a $16.5 decrease in
deferred hardware revenue subsequent to acceptance of these deliveries by the
Company's customers. In the third quarter 2000, a settlement was reached with a
financial institution which reduced the Company's accrued liability related to
its guarantee of a customer's lease payments by $2.0 million. Due to payment
activity, the following also contributed significantly to the decrease in
accrued liabilities: a $1.4 million dollar decrease in accrued severance, a
$.8 million decrease in accrued unconsummated business combination costs, and
a $2.8 million dollar decrease in amounts accrued related to the purchase of
obsolete inventory from outside processors. A $3.0 million reclassification of
amounts accrued related to purchase commitments for obsolete purchased
components against inventory reserves also contributed to the decrease.




                                       37
<PAGE>   38



<TABLE>
<CAPTION>


Cash Flows from Operating Activities                                                                         Dollar
(in thousands)                                                                                              Increase
                                                                              Nine Months Ended            (Decrease)
                                                                                December 31,              in Cash Flow
                                                       --------------------------------------------          Impact
                                                              1999                     1998
                                                       --------------------     -------------------    --------------------
<S>                                                              <C>                     <C>                       <C>
Net loss                                                         $ (16,513)              $ (52,270)               $ 35,757
Depreciation and amortization                                       19,330                  19,622                    (292)
Amortization of restricted stock awards, net                           332                     201                     131
Provision for doubtful accounts                                      2,091                   5,249                  (3,158)
Provision for inventory obsolescence                                 5,962                   6,787                    (825)
Gain on sale of subsidiary                                         (32,167)                      -                 (32,167)
Gain on sale of assets                                                   -                    (900)                    900
Gain on sale of non-marketable investment                             (761)                      -                    (761)
Equity in earnings of affiliate                                     (1,039)                      -                  (1,039)
Minority interest                                                        -                     416                    (416)
Loss on disposal of property and equipment                             207                     255                     (48)
Loss on carrying value of non-marketable
   investments                                                       1,558                       -                   1,558
Impairment charge                                                      381                       -                     381
Changes in assets and liabilities:
     Accounts and notes receivable                                    (101)                 13,110                 (13,211)
     Amounts due to and from affiliate                               4,769                       -                   4,769
     Inventories                                                    26,730                 (26,764)                 53,494
     Prepaid expenses and other                                      1,768                   3,372                  (1,604)
     Intangible and other assets                                       (92)                  2,806                  (2,898)
     Accounts payable and accrued liabilities                      (32,431)                  6,151                 (38,582)
     Other long term liabilities                                       948                   4,012                  (3,064)
                                                       --------------------     -------------------    --------------------
Net cash used in operating activities                            $ (19,028)              $ (17,953)               $ (1,075)
                                                       ====================     ===================    ====================
</TABLE>




The decrease in cash flows related to the Company's consolidated operating
activities for the third quarter of fiscal 2000 compared to fiscal 1999 levels
was primarily due to the negative cash flow impact of the Company's increased
operating loss by $4,292 for the nine months ended December 31, 1999.
Additionally, decreases in cash provided by accounts and notes receivable, and
increases in cash utilized for accounts payable and accrued liabilities also
contributed to the decrease. These negative cash flow impacts were partially
offset by positive cash flow impacts from inventories and from the decrease in
the net loss for the period. During fiscal 1999, the cash flow impact of
accounts and notes receivable was favorably impacted from the significant
decline in the accounts receivable balance at December 31, 1999. During the
current fiscal year, however, the accounts receivable balance has remained
fairly constant between March 31, 1999 and December 31, 1999. Accounts payable
and accrued liabilities utilized more cash during fiscal 2000 due to the
relatively high amount outstanding at March 31, 1999 and subsequent pay-down of
this amount resulting from the Company obtaining new financing during the second
quarter of fiscal 2000. The cash flow impact of inventories was favorably
impacted by a significant decline in inventories related to finished goods held
for pending installation at customer sites and from customer acceptance of these
goods. In the prior year, there was a build-up of manufacturing inventories held
at customer and distributor locations.


                                       38
<PAGE>   39

<TABLE>
<CAPTION>

Cash Flows from Investing  Activities                                                                         Dollar
(in thousands)                                                                                               Increase
                                                                          Nine Months Ended                 (Decrease)
                                                                             December 31,                  in Cash Flow
                                                                -------------------------------------         Impact
                                                                     1999                 1998
                                                                ----------------    -----------------    -----------------
<S>                                                                    <C>                  <C>                  <C>
Additions to property and equipment                                    $(11,042)           $ (26,538)            $ 15,496
Software and other investments                                           (2,827)              (4,792)               1,965
Proceeds from the sale of subsidiary
   stock, net of cash given                                              17,211                    -               17,211
Purchase of non-marketable investments                                        -               (1,950)               1,950
Payments from long-term note receivable                                       -                  929                 (929)
Additions to long-term note receivable                                        -                 (795)                 795
Proceeds from sale of non-marketable
   securities                                                             1,523                    -                1,523
Proceeds from redemption of non-
   marketable equity investment                                           2,004                    -                2,004
Net cash provided by (used in)
                                                                ----------------    -----------------    -----------------
   investing activities                                                 $ 6,869            $ (33,146)            $ 40,015
                                                                ================    =================    =================
</TABLE>



The increase in cash flows from the Company's consolidated investing activities
was primarily due to the sale of Aironet stock in its initial public offering
for net proceeds of $17.2 million. Additionally, there was a reduction in the
amount of additions to property and equipment of approximately $15.5 million.
Costs related to the Company's corporate information systems project are no
longer capitalized due to the completion of the installation of the principal
modules of the systems. Cash flows from investing activities were also
positively impacted by the absence of the purchase of non-marketable
investments, and additions of long-term notes. Additionally, proceeds were
realized from the sale of non-marketable securities and the redemption of
non-marketable equity investments.



                                       39
<PAGE>   40
<TABLE>
<CAPTION>

Cash Flows from Financing  Activities
(in thousands)                                                                                                Dollar
                                                                                                            (Decrease)
                                                                          Nine Months Ended                  Increase
                                                                             December 31,                  in Cash Flow
                                                               ---------------------------------------        Impact
                                                                     1999                  1998
                                                               ------------------     ----------------  --------------------
<S>                                                                <C>                      <C>              <C>
Extinguishment of former credit facility                               $ (48,888)             $     -        $  (48,888)
(Repayments) borrowings on former
   credit facility, net                                                  (17,179)              53,526           (70,705)
Borrowings on credit facility, net                                        30,082                    -            30,082
Borrowings on bridge loan  under current
   credit facility                                                        20,000                    -            20,000
Borrowing under long term provisions of
   current credit facility                                                17,000                    -            17,000
Principal payments on long-term debt                                        (984)                   -              (984)
Debt issue costs paid                                                     (2,215)                (302)           (1,913)
Proceeds from the sale of treasury stock                                     491                    -               491
Purchase of treasury stock                                                     -               (1,088)            1,088
Proceeds from the exercise of stock options                                1,950                1,793               157
Principal payments on capital leases                                        (412)                (589)              177
Net cash  (used in)  provided by
                                                               ------------------     ----------------  --------------------
  financing activities                                                    $ (155)             $53,340          $(53,495)
                                                               ==================     ================  ====================
</TABLE>


The net cash flow impact from financing activities was neutral for the first
nine months of fiscal 2000. The net cash flow impact of financing activities was
primarily influenced by the extinguishment of the Company's former credit
facility with proceeds from the Company's new credit facility. The net cash flow
impact of these transactions was a positive $1.0 million. The net decrease in
cash flows provided by financing activities is the result of borrowings during
fiscal 1999 for the Company's financing of investments in inventory and accounts
receivable, as well as its operating losses. During fiscal 2000, the Company
decreased its investments in both inventory and accounts receivable and has
been able to fund its operating losses and working capital needs through means
other than financing activities.

On August 30, 1999, the Company entered into a loan and security agreement
whereby Telxon obtained a $100.0 million senior secured credit facility as a
replacement for the Company's existing revolving credit agreement and business
purpose promissory note. The facility consists of both term and revolving credit
arrangements. On November 18, 1999, the Company entered into an amendment of
this security agreement whereby, additional borrowings of $20.0 million were
provided for. The amendment also extended to March 31, 2000 the maturity date of
the $30.0 million term loan described below.


Borrowings under the revolving loan provisions of such facility are subject to
availability on qualifying accounts receivable and inventory, reduced by amounts
borrowed and outstanding under the facility's term loan features and letters of
credit. The revolving credit facility has a limit of $50.0 million less the
outstanding balance of the term loans and until such time the bridge loans
described below are paid in full. At that time the maximum amount available will
be increased to $80.0 million less the outstanding remaining term loan balances.
Availability under the agreement was approximately $24.9 million as of December
31, 1999. The maturity date of the loan and



                                       40
<PAGE>   41

security agreement is August 29, 2002. At the maturity date the agreement is
automatically renewed for successive one-year periods until the agreement is
terminated.

The secured credit facility has four term loan features. The first term loan of
$6.0 million is limited by a portion of the liquidation value of the Company's
machinery and equipment. The repayment terms for this term loan are
straight-line over a 10-year period. The second term loan of $10.0 million is
limited, together with the $20.0 million and $30.0 million term loan discussed
below, by the market value of Aironet capital stock owned by the Company. The
repayment of this second term loan is straight-line over a 3-year period. The
third and fourth term loans of $20.0 million and $30.0 million respectively are
limited by a specific percentage of the market value of Aironet capital stock
owned by the Company. The third and fourth term loans mature on March 31, 2000
and are to be repaid with proceeds resulting from the sale of a portion of the
Company's holdings in the aforementioned Aironet capital stock.

The interest rate charged on the revolving loan, the $6.0 million term loan and
the $20.0 million term loan is 0.5% above the financial institution's prime
lending rate. The $6.0 million term loan and the revolving loan may be converted
to Euro-rate loans at the option of Telxon. Converted loans would be charged a
rate of 2.75% plus the Eurodollar rate. On December 31, 1999, the prime lending
rate and the Eurodollar rate were 8.50% and 6.00%, respectively. At December 31,
1999 the rate charged on each of these loans was prime plus .50%, or 9.0%. In
the event that the Aironet stock pledged on the $20.0 million and $30.0 million
term loan is sold the rate on these term loans will become fixed at 12.5%. The
interest rate on the $10.0 million term loan and the $30.0 million term loan is
also fixed at 12.5%. Interest is payable monthly. The interest rate charged is
subject to change based upon the Company's financial results. The facility also
provides for the payment of an unused line fee of 0.375% per annum on a monthly
basis, and a 1.25% per annum fee for undrawn letters of credit.

The $100.0 million credit facility is collateralized by essentially all of the
Company's assets including accounts receivable, machinery and equipment, general
intangibles, inventory, future proceeds and real property.

The credit facility also requires the maintenance of various financial and
non-financial covenants. Significant financial covenants include maintaining a
minimum level of customer service revenue, ensuring that the total outstanding
balance of the credit facility does not exceed collections from certain
significant accounts, maintaining minimum tangible net worth requirements. On
February 10, 2000, the Company's lenders modified certain of these debt
covenants. Due to this modification, the Company was in compliance with all
financial covenants as of December 31, 1999.

Subsequent Events

On February 2, 2000, the Company issued 300,000 shares of the Company's common
stock to John W. Paxton, Chairman and Chief Executive Officer of the Company,
for $2.6 million or $8.72 per share. The terms of the issuance of this common
stock were pursuant to his employment contract dated March 22, 1999. No
compensation expense has been recorded related to these common shares in
accordance with the provisions of APB No.25.

On January 19, 2000, the Company entered into a stock purchase agreement with
Robert F. Meyerson, former Chairman and Chief Executive Officer of the Company,
and the primary minority shareholder of its Metanetics subsidiary. The agreement
calls for the Company to purchase 1,370,930 common shares of Metanetics for
$6.73 per share, or $9.2 million. As part of the purchase, the repayment of $1.6
million in notes receivable from Meyerson



                                       41
<PAGE>   42

will be offset against the purchase price. The purchase price will be paid with
477,790 shares of Telxon common stock with an agreed value of $16.05 per share,
which approximated fair market value on that date. The stock purchase agreement
contemplates that the Company will also contemporaneuosly purchase all of the
remaining minority interest for cash at the same price per share. The Company
currently owns approximately 61% of Metanetics. Additionally, the Company
further agreed that it will offer to purchase the remaining 475,000 Metanetics
shares held by minority shareholders for cash of $6.73 per share or an aggregate
of $3.2 million, effectively giving the Company full ownership of Metanetics.

Additionally, the Company has agreed to pay named employees of Metanetics an
amount equal to the implied value of 520,000 previously granted stock options
for Metanetics shares at an exercise price of $1.04 per share. These options had
previously been rescinded. The payments to these employees will total
approximately $3.00 million.

The Company has received an opinion from an independent financial advisor that
the $6.73 per share transaction price is fair, from a financial point of view,
to Telxon. The Company anticipates that the amount of the purchase price of the
Metanetics common stock will be capitalized as goodwill and amortized over a
useful life of three years. The Company will continually assess the carrying
value of this investment for impairment in accordance with the requirements of
SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." The Company anticipates that cash payments
to the Metanetics employees will be expensed as compensation expense during the
fourth quarter of fiscal 2000.

In connection with the above agreement, Mr. Meyerson agreed to surrender and
forfeit to the Company 240,000 stock options for purchase of Telxon common stock
at a per share price of $20.13 per share he had retained upon his retirement.

New Accounting Standards

On December 3, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101 Revenue Recognition in Financial Statements. This
document expresses the views of the Securities and Exchange Commission in
applying generally accepted accounting principals while recognizing revenue. The
Company has abided by the views expressed in this document.

On November 24, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 100. This authoritative document expresses the views of
the staff regarding the accounting and disclosure of certain expenses commonly
reported in connection with exit activities and business combinations. The
Company has abided by the guidance contained within this document in accounting
for current exit costs.

During fiscal 1999, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"). SFAS No. 133 provides accounting and reporting standards for
derivative instruments. This standard will require the Company to recognize all
derivatives as either assets or liabilities in the statement of financial
position and to measure those instruments at fair value. The Company is required
to adopt the provisions of SFAS No. 133 during the first quarter of fiscal 2002
(as delayed by Statement of Financial Accounting Standards No. 137 - Deferral of
the Effective Date of FASB Statement No. 133). Management believes that the
adoption of this pronouncement will not have a material effect on the Company's
consolidated financial position, results of operations or cash flows.


                                       42
<PAGE>   43


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

In the ordinary course of business, the Company is subject to foreign currency
and interest rate risks. The risks primarily relate to the sale of the Company's
products to foreign customers through its foreign subsidiaries and changes in
interest rates on the Company's short-term financing and capital lease
obligations. Additionally, as the result of the Aironet IPO, the Company owns
approximately a 35% interest in a publicly traded company whose market value is
determined based upon market conditions. Although the Company currently carries
this investment on the equity method of accounting and recorded $21.6 million on
its consolidated balance sheet at December 31, 1999, the amount of cash proceeds
ultimately realized from this investment may be substantially different from the
current market value of the underlying shares owned. As discussed in Note 3
"Financial Results and Liquidity" to the consolidated financial statements, on
November 9, 1999, Cisco Systems, Inc. ("Cisco") announced that it would purchase
Aironet for common stock of Cisco. For each Aironet share, option or warrant,
the holders of these securities will receive .6373 shares of Cisco common stock.
Since the announcement on November 8, 1999, the Company believes that a
significant portion of the market value of the Aironet shares held by the
Company has been attributable to the change in market value of Cisco common
stock. The current market value of this investment is approximately $350.2
million.

Stock Market Risk

Due to the announced purchase of Aironet by Cisco, as noted above, and the
nature of the proceeds from that unconsummated transaction, the Company is
subject to substantial stock market risk. Although recorded under the equity
method on the Company's balance sheet, the Company's investment in Aironet is a
significant potential source of liquidity. Significant changes in the market
value of Aironet stock may have an impact on the Company's ability to finance
its operations and address its working capital needs.

Although the Company has not entered into any firm commitments concerning its
investment in Aironet, it is currently exploring various hedging strategies in
order to reduce its exposure to market fluctuations in the price of Aironet
stock.

Interest Rate Risk

The Company's debt facility, including revolving loans and term loans, carries
interest rate risk that is generally related to the financial institution's
prime lending rate or the Eurodollar rate. If these rates were to change while
the Company has borrowings under such facility, the related interest expense
would increase or decrease accordingly. As of December 31, 1999, the Company had
$54.7 million due currently and $11.1 million due long-term under revolving and
term loan provisions of its debt facility, respectively.

The Company's convertible subordinated debentures carry fixed rates of interest
and therefore do not pose interest rate risk to the Company. However, interest
rate changes would effect the fair market value of the debentures. At December
31, 1999, the Company had $106.9 million of convertible subordinated debentures
outstanding.

The Company monitors its interest rate risk, but does not engage in any interest
rate hedging activities using derivative financial instruments.

Foreign Currency Risk

The financial results of the Company's foreign subsidiaries are measured in
their local currencies. Assets and liabilities are translated into U.S. Dollars
at the rate of exchange available at the end of each reporting period. Revenues
and expenses are also translated at average rates of exchange at the conclusion
of each reporting period. Resulting translation adjustments are reported as a
component of comprehensive income.


                                       43
<PAGE>   44

Historically, the Company has not experienced any significant foreign currency
gains or losses involving U.S. Dollars and other currencies. This is primarily
due to natural hedges of revenues and expenses in the functional currencies of
the countries in which the Company's subsidiaries are located. The Company had
one forward currency exchange contract in place at December 31, 1999, in the
amount of $3.0 million, which expired in January 2000. The Company monitors its
foreign currency exposure and utilizes these derivative financial instruments to
mitigate foreign currency risk when considered appropriate.



                                       44
<PAGE>   45

PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

See Note 10 to the consolidated financial statements included in Part I of this
Quarterly Report of 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 reference.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

As of the end of the Company's third quarter of fiscal 200, the Company had
effected the following issuances of unregistered shares of its common stock:

         Pursuant to an agreement made by the Company with R. Dave Garwood,
         prior to his election as one of the Company's current Directors, for
         his rendering of employee training and consulting services relating to
         the Company's adoption and implementation of an MRP-II material
         resource planning process, the Company has issued him an aggregate of
         20,197 shares of common stock subject to vesting and forfeiture
         conditions based on his completion of the subject services. As of
         December 31, 1999, 10,098 of the subject have vested and are no longer
         subject to forfeiture. The shares constitute Mr. Garwood's remuneration
         for the subject services, and the issuance thereof did not otherwise
         result in any proceeds to the Company.

         Pursuant to an agreement made by the Company with a consulting firm,
         not otherwise affiliated with the Company, for strategic product
         consulting services, the Company has issued the consultant an aggregate
         of 1,476 shares of common stock subject to vesting and forfeiture
         conditions based on his completion of the subject services. As of
         December 31, 1999, 984 of the subject shares have vested and are no
         longer subject to forfeiture. As part (in addition to cash fees) of the
         consultant's remuneration for the subject services, this issuance did
         not otherwise result in any proceeds to the Company.

         Pursuant to the Company's employment agreement with David H. Biggs, the
         Company's Vice President and Chief Technology Officer, the Company has
         issued him an aggregate of 35,000 shares of common stock (23,200 of
         which were issued under the Company's Restricted Stock Plan, the shares
         awarded under which are registered on Form S-8) subject to vesting and
         forfeiture conditions based on his completion of the subject services
         and to a deferred compensation election. As of December 31, 1999, none
         of the subject shares had yet vested. The shares constitute Mr. Biggs'
         remuneration for his services, and the issuance thereof did not
         otherwise result in any proceeds to the Company.

Each of the above sales of securities was pursuant to a privately negotiated
transaction between the Company and the recipient of the subject shares deemed
to be exempt from registration under the Securities Act of 1933 in reliance on
Section 4(2) of such Act, as constituting transactions by an issuer not
involving a public offering. Each of the recipients of shares in these
transactions made written representations to the Company in connection with such
issuances confirming their intention to acquire the securities for investment
only and not with a view to, or for sale in connection with, any distribution
thereof, and appropriate legends were affixed to the share certificates issued
in such transactions. All of the recipients also confirmed that they had access
to their satisfaction, through the Company's public securities filings and their
respective relationships with the Company, to information concerning the Company
and its financial and business affairs.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

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

                  3.1      Restated Certificate of Incorporation of Registrant,
                           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.

                  3.2      Amended and Restated By-Laws of Registrant,
                           incorporated herein by reference to Exhibit 3.2 to
                           Registrant's Form 10-K for the year ended March 31,
                           1999.

                  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 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.

                  4.2      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


                                       45
<PAGE>   46


                                    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
                           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,
                                    as amended, incorporated herein by reference
                                    to Exhibit 10.1.1 to Registrant's Form 10-K
                                    for the year ended March 31, 1999.


                                       46
<PAGE>   47

                           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 10.1.4 to Registrant's
                                    Form 10-Q for the year ended March 31, 1999.

                                    10.1.4.a        Description of amendments
                                                    extending the term of the
                                                    Agreement included as
                                                    Exhibit 10.1.4 above, filed
                                                    herewith.

                           10.1.5   1992 Restricted Stock Plan of Registrant, as
                                    amended, incorporated herein by reference to
                                    Exhibit 10.1.5 to Registrant's Form 10-Q for
                                    the quarter ended December 31, 1998.

                           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.

                                    10.1.7.a   Amended and Restated 1996
                                               Stock Option Plan for employees,
                                               directors and advisors of Aironet
                                               Wireless Communications, Inc.,
                                               incorporated herein by  reference
                                               to Exhibit 10.1.7.a to
                                               Registrant's Form 10-K for the
                                               year ended March 31, 1998.

                                    10.1.7.b   First Amendment to Amended and
                                               Restated 1996 Stock Option Plan
                                               for employees, directors and
                                               advisors of Aironet Wireless
                                               Communications, Inc. herein by
                                               reference to Exhibit 10.1.7.b to
                                               Registrant's Form 10-K for the
                                               year ended March 31, 1999.


                                       47
<PAGE>   48


                           10.1.8   1999 Stock Option Plan for Non-Employee
                                    Directors of Aironet Wireless
                                    Communications, Inc., incorporated herein by
                                    reference to Exhibit 10.1.8 to Registrant's
                                    Form 10-Q for the quarter ended
                                    September 30, 1999.

                           10.1.9   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.

                           10.1.10  Employment Agreement between Registrant and
                                    John W. Paxton, Sr., effective as of March
                                    22, 1999, incorporated herein by reference
                                    to Exhibit 10.1.10 to Registrant's Form 10-K
                                    for the year ended March 31, 1999.

                           10.1.11  Employment Agreement between Registrant and
                                    Kenneth A. Cassady, effective as of June 7,
                                    1999, incorporated herein by reference to
                                    Exhibit 10.1.11 to Registrant's Form 10-K
                                    for the year ended March 31, 1999.

                           10.1.12  Employment Agreement between Registrant and
                                    Woody M. McGee, effective as of June 1,
                                    1999, incorporated herein by reference to
                                    Exhibit 10.1.12 to Registrant's Form 10-K
                                    for the year ended March 31, 1999.

                           10.1.13  Employment Agreement between Registrant and
                                    David M. Biggs, effective as of June 7,
                                    1999, filed herewith.

                           10.1.14  Offer and acceptance of employment between
                                    Registrant and Gene Harmegnies, effective
                                    as of January 31, 2000, filed herewith.

                           10.1.15  Description of Key Employee Retention
                                    Program, incorporated herein by reference to
                                    Exhibit 10.1.15 to Registrant's Form 10-K
                                    for the year ended March 31, 1998.

                                    10.1.15.a  Form of letter agreement made
                                               with key employees selected under
                                               the retention program described
                                               in Exhibit 10.1.15 above,
                                               incorporated herein by reference
                                               to Exhibit 10.1.15.a to
                                               Registrant's Form 10-K for the
                                               year ended March 31, 1998.

                           10.1.16  Employment Agreement, effective as of April
                                    1, 1997, between Registrant and Frank E.
                                    Brick, a former executive officer,
                                    incorporated herein by reference to Exhibit


                                       48
<PAGE>   49

                                    10.1.9 to Registrant's Form 10-K for the
                                    year ended March 31, 1998.

                           10.1.17  Amended and Restated Employment Agreement,
                                    effective as of April 1, 1997, between
                                    Registrant and James G. Cleveland, a former
                                    executive officer, incorporated herein by
                                    reference to Exhibit 10.1.10 to Registrant's
                                    Form 10-K for the year ended March 31, 1998.

                           10.1.18  Amended and Restated Employment Agreement,
                                    effective as of April 1, 1997, between
                                    Registrant and Kenneth W. Haver, a former
                                    executive officer, incorporated herein by
                                    reference to Exhibit 10.1.11 to Registrant's
                                    Form 10-K for the year ended March 31, 1998.

                           10.1.19  Amended and Restated Employment Agreement,
                                    effective as of April 1, 1997, between
                                    Registrant and David W. Porter, a former
                                    executive officer, incorporated herein by
                                    reference to Exhibit 10.1.13 to Registrant's
                                    Form 10-K for the year ended March 31, 1998.

                           10.1.20  Amended and Restated Employment Agreement,
                                    effective as of April 1, 1997, between
                                    Registrant and Danny R. Wipff, a former
                                    executive officer, incorporated herein by
                                    reference to Exhibit 10.1.14 to Registrant's
                                    Form 10-K for the year ended March 31, 1998.

                           10.1.21  Letter agreement of Registrant with Robert
                                    A. Goodman, dated as of December 29, 1997
                                    and executed and delivered January 20, 1998,
                                    for continued consulting services following
                                    certain changes in his law practice,
                                    incorporated herein by reference to Exhibit
                                    10.1.17 to Registrant's Form 10-K for the
                                    year ended March 31, 1998.

                           10.1.22  Letter agreement of Registrant with R. Dave
                                    Garwood, dated August 30, 1999, for MRP-II
                                    consulting services, incorporated herein by
                                    reference to Exhibit 1.1.20 to Registrant's
                                    Form 10-Q for the quarter ended September
                                    30, 1999.

                  10.2     Material Leases of Registrant.

                           10.2.1   Lease between Registrant and 3330 W. Market
                                    Properties, dated as of December 30, 1986,
                                    for premises at 3330 West Market Street,
                                    Akron, Ohio, incorporated herein by
                                    reference to Exhibit 10.2.1 to Registrant's
                                    Form 10-K for the year ended March 31, 1999.

                           10.2.2   Lease Agreement between The Woodlands
                                    Commercial Properties Company, L.P. and
                                    Registrant, made and entered into as of
                                    January 16, 1998, including Rider No. 1
                                    thereto, for premises at 8302 New Trails
                                    Drive, The Woodlands, Texas, incorporated
                                    herein by reference to Exhibit 10.2.2 to
                                    Registrant's Form 10-K for the year ended
                                    March 31, 1998.

                           10.2.3   Standard Office Lease (Modified Net Lease)
                                    between Registrant and John D. Dellagnese
                                    III, dated as of July 19, 1995, for premises
                                    at 3875 Embassy Parkway, Bath, Ohio,
                                    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.

                                    10.2.3.a   Second Addendum, dated as of
                                               October 5, 1995, to the Lease
                                               included as Exhibit 10.2.3 above,
                                               incorporated  herein by reference
                                               to Exhibit 10.2.4.a to
                                               Registrant's Form 10-K for the
                                               year ended March 31, 1996.

                                    10.2.3.b   Third Addendum, dated as of
                                               March 1, 1996, to the Lease


                                       49
<PAGE>   50

                                               included as Exhibit 10.2.3 above,
                                               incorporated herein  by reference
                                               to Exhibit 10.2.4.b to
                                               Registrant's Form 10-K for the
                                               year ended March 31, 1996.

                                    10.2.3.c   Fourth Addendum, dated as of
                                               April 16, 1996, to the Lease
                                               included as Exhibit 10.2.3 above,
                                               incorporated herein by reference
                                               to Exhibit  10.2.2.c to
                                               Registrant's Form 10-Q for the
                                               quarter ended June 30, 1997.

                                    10.2.3.d   Fifth Addendum, dated as of June
                                               24, 1997, to the Lease included
                                               as Exhibit 10.2.3 above,
                                               incorporated herein by reference
                                               to Exhibit 10.2.2.d to
                                               Registrant's Form 10-Q for the
                                               quarter ended June 30, 1997.

                                    10.2.3.e   Sixth Addendum, dated as of
                                               March, 1998, to the Lease
                                               included as Exhibit 10.2.3 above,
                                               incorporated herein by reference
                                               to Exhibit 10.2.3.e to
                                               Registrant's Form 10-Q for the
                                               quarter ended September 30, 1998.

                                    10.2.3.f   Seventh Addendum, dated as of
                                               July 20, 1998, to the Lease
                                               included as Exhibit 10.2.3 above,
                                               incorporated herein by reference
                                               to Exhibit 10.2.3.f to
                                               Registrant's Form 10-Q for the
                                               quarter ended September 30, 1998.

                                    10.2.3.g   Eighth Addendum, dated as of
                                               September 8, 1998, to the Lease
                                               included as Exhibit 10.2.3 above,
                                               incorporated herein by reference
                                               to Exhibit 10.2.3.g to
                                               Registrant's Form 10-Q for the
                                               quarter ended September 30, 1998.

                                    10.2.3.h   Sublease Agreement, dated as of
                                               September 1, 1998, between
                                               Registrant and Aironet Wireless
                                               Communications, Inc. for the
                                               premises subject to the Lease
                                               included as Exhibit 10.2.3 above,
                                               as amended through the Eighth
                                               Addendum thereto included as
                                               Exhibit 10.2.3.g above,
                                               incorporated herein by reference
                                               to Exhibit 10.2.3.h to
                                               Registrant's Form 10-K for the
                                               year ended March 31, 1999.

                                       50
<PAGE>   51

                                    10.2.3.i   Renewal, dated June 16, 1999,
                                               with respect to the Sublease
                                               Agreement included as Exhibit
                                               10.2.3.h above, incorporated
                                               herein by reference to Exhibit
                                               10.2.3.i to Registrant's Form
                                               10-K for the year ended March 31,
                                               1999.

                           10.2.4   Lease Contract between Desarrollos \
                                    Inmobiliarios Paso del Norte, S.A. de C.V.
                                    and Productos y Servicios de Telxon, S.A. de
                                    C.V., a subsidiary of Registrant, for
                                    premises in Ciudad Juarez, Chihuahua,
                                    Mexico, made and entered into as of April
                                    10, 1997, incorporated herein by reference
                                    to Exhibit 10.2.4 to Registrant's Form 10-K
                                    for the year ended March 31, 1998.

                  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
                                    (refinanced, and replaced by the Loan and
                                    Security Agreement included as Exhibit
                                    10.3.3 below), 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   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.

                                    10.3.1.c   Amendment No. 3, dated as of
                                               December 12, 1997, to the
                                               Agreement included as Exhibit
                                               10.3.1 above, included herein by
                                               reference to Exhibit 10.3.1.d to
                                               Registrant's Form 10-K for the
                                               year ended March 31, 1998.

                                    10.3.1.d   Waiver and Agreement, dated as of
                                               December 29, 1998, with respect
                                               to the Agreement included as
                                               Exhibit 10.3.1 above,
                                               incorporated herein by reference
                                               to Exhibit 10.3.1.e to
                                               Registrant's Form 10-Q for the
                                               quarter ended December 31, 1998.


                                       51
<PAGE>   52

                                    10.3.1.e   Waiver Extension and Agreement,
                                               dated as of February 12, 1999,
                                               with respect to the Agreement
                                               included as Exhibit 10.3.1 above,
                                               incorporated herein by reference
                                               to Exhibit 10.3.1.f to
                                               Registrant's Form 10-Q for the
                                               quarter ended December 31, 1998.

                                    10.3.1.f   Second Waiver Extension Agreement
                                               and Amendment No. 4, dated as of
                                               March 26, 1999, with respect to
                                               the Agreement included as Exhibit
                                               10.3.1 above , incorporated
                                               herein by reference to Exhibit
                                               10.3.1.a to  Registrant's Form
                                               8-K dated April 1, 1999.

                                    10.3.1.g   Amended and Restated Security
                                               Agreement, dated as of March 26,
                                               1999, by and among Registrant and
                                               The Bank of New York, as Agent
                                               for the Lenders from time to time
                                               party to the Agreement included
                                               as Exhibit 10.3.1 above
                                               (terminated in connection with
                                               the refinancing obtained pursuant
                                               to the Loan and Security
                                               Agreement included as Exhibit
                                               10.3.3 below), incorporated
                                               herein by reference to Exhibit
                                               10.3.1.b to Registrant's Form 8-K
                                               dated April 1, 1999.

                                    10.3.1.h   Deed of Trust, Assignment of
                                               Leases and Rents, Security
                                               Agreement, Fixture Filing and
                                               Financing Statement, dated as of
                                               March 26, 1999, by Registrant to
                                               First American Title Insurance
                                               Company as Trustee for the
                                               benefit of The Bank of New York,
                                               as Agent for the Lenders from
                                               time to time party to the
                                               Agreement included as Exhibit
                                               10.3.1 above (terminated in
                                               connection with the refinancing
                                               obtained pursuant to the Loan and
                                               Security Agreement included as
                                               Exhibit 10.3.3 below),
                                               incorporated herein by reference
                                               to Exhibit 10.3.1.h to
                                               Registrant's Form 10-K for the
                                               year ended March 31, 1999.

                                    10.3.1.i   Patent and Trademark Security
                                               Agreement, dated as of March 26,
                                               1999, by Registrant and certain
                                               of its subsidiaries to The Bank
                                               of New York, as Agent for the
                                               benefit of the Lenders from time
                                               to time party to the Agreement
                                               included as Exhibit 10.3.1
                                               above, (terminated in connection
                                               with the refinancing obtained
                                               pursuant to the Loan and
                                               Security  Agreement included as
                                               Exhibit 10.3.3 below),
                                               incorporated herein by reference
                                               to Exhibit 10.3.1 to
                                               Registrant's Form 10-K for the
                                               year ended March 31, 1999.

                                    10.3.1.j   Pledge Agreement, dated as of
                                               March 26, 1999, by Registrant to
                                               The Bank of New York, as Agent


                                       52
<PAGE>   53

                                               for the benefit of the Lenders
                                               from time to time party to the
                                               Agreement included as Exhibit
                                               10.3.1 above (terminated in
                                               connection with the refinancing
                                               obtained pursuant to the Loan and
                                               Security Agreement included as
                                               Exhibit 10.3.3 below),
                                               incorporated herein by reference
                                               to Exhibit 10.3.1.j to
                                               Registrant's Form 10-K for the
                                               year ended March 31, 1999.

                                    10.3.1.k   Third Waiver Extension Agreement
                                               and Amendment No. 5, dated as of
                                               June 29, 1999, with respect to
                                               the Agreement included as Exhibit
                                               10.3.1 above, incorporated herein
                                               by reference to Exhibit 10.3.1.a
                                               to Registrant's Form 8-K dated
                                               July 1, 1999.

                           10.3.2   Business Purpose Revolving Promissory Note
                                    (Swing Line) made by Registrant in favor of
                                    Bank One, NA, dated August 4, 1998
                                    (refinanced and replaced by the Loan and
                                    Security Agreement included as Exhibit
                                    10.3.3 below), incorporated herein by
                                    reference to Exhibit 10.3.4 to Registrant's
                                    Form 10-Q for the quarter ended June 30,
                                    1998.

                                    10.3.2.a   Consent, dated as of December 29,
                                               1998, with respect to the Note
                                               included as Exhibit 10.3.2 above,
                                               incorporated herein by reference
                                               to Exhibit 10.3.4.a to
                                               Registrant's Form 10-Q for the
                                               quarter ended December 31, 1998.

                                    10.3.2.b   Further Consent, dated as of
                                               February 12, 1999, with respect
                                               to the Note included as Exhibit
                                               10.3.2 above, incorporated herein
                                               by reference to Exhibit 10.3.4.a
                                               to Registrant's Form 10-Q for the
                                               quarter ended December 31, 1998.

                                    10.3.2.c   Second Further Consent and
                                               Agreement, dated as of March 26,
                                               1999, with respect to the Note
                                               included as Exhibit 10.3.2 above,
                                               incorporated herein by reference
                                               to Exhibit 10.3.4.c b to
                                               Registrant's Form 8-K dated April
                                               1, 1999.

                                    10.3.2.d   Amended and Restated Security
                                               Agreement, dated as of March 26,
                                               1999, by and among Registrant and
                                               Bank One, NA with respect to the
                                               Note included as Exhibit 10.3.2
                                               above (terminated in connection
                                               with the refinancing obtained
                                               pursuant to the Loan and Security
                                               Agreement included as Exhibit
                                               10.3.3 below), incorporated
                                               herein by reference to Exhibit
                                               10.3.2.d to Registrant's Form
                                               10-K for the year ended March 31,
                                               1999.


                                       53
<PAGE>   54


                                         10.3.2.e   Deed of Trust, Assignment of
                                                    Leases and Rents, Security
                                                    Agreement, Fixture Filing
                                                    and Financing Statement,
                                                    dated as of March 26, 1999,
                                                    by Registrant to First
                                                    American Title Insurance
                                                    Company as Trustee for the
                                                    benefit of Bank One, NA with
                                                    respect to the Note included
                                                    as Exhibit 10.3.2 above
                                                    (terminated in connection
                                                    with the refinancing
                                                    obtained pursuant to the
                                                    Loan and Security Agreement
                                                    included as Exhibit 10.3.3
                                                    below), incorporated herein
                                                    by reference to Exhibit
                                                    10.3.2.e to Registrant's
                                                    Form 10-K for the year ended
                                                    March 31, 1999.

                                         10.3.2.f   Patent and Trademark
                                                    Security Agreement, dated as
                                                    of March 26, 1999, by
                                                    Registrant and certain of
                                                    its subsidiaries to Bank
                                                    One, NA with respect to the
                                                    Note included as Exhibit
                                                    10.3.2 above (terminated in
                                                    connection with the
                                                    refinancing obtained
                                                    pursuant to the Loan and
                                                    Security Agreement included
                                                    as Exhibit 10.3.3 below),
                                                    incorporated herein by
                                                    reference to Exhibit
                                                    10.3.2.f to Registrant's
                                                    Form 10-K for the year ended
                                                    March 31, 1999.


                                         10.3.2.g   Third Further Consent and
                                                    Note Modification Agreement,
                                                    dated as of June 29, 1999,
                                                    with respect to the Note
                                                    included as Exhibit 10.3.2
                                                    above, incorporated herein
                                                    by reference to Exhibit
                                                    10.3.2.g b to Registrant's
                                                    Form 8-K dated July 1, 1999.

                               10.3.3    Loan and Security Agreement, dated as
                                         of August 26, 1999, by and between the
                                         Registrant, the Lenders party thereto,
                                         and Foothill Capital Corporation, as
                                         Agent, incorporated by reference to
                                         Exhibit 10.3.3 to Registrant's Form 8-K
                                         dated August 30, 1999.

                                         10.3.3.a   Pledge Agreement, dated as
                                                    of August 26, 1999, between
                                                    Foothill Capital
                                                    Corporation, as Agent for
                                                    the Lenders from time to
                                                    time party to the Loan and
                                                    Security Agreement included
                                                    as Exhibit 10.3.3 above,
                                                    pledging, among other
                                                    assets, the stock owned by
                                                    Registrant in Aironet
                                                    Wireless Communications,
                                                    Inc. and Registrant
                                                    subsidiaries to Agent as
                                                    collateral to secure
                                                    Registrant's obligations
                                                    under the Loan and Security
                                                    Agreement, incorporated
                                                    herein by reference to
                                                    Exhibit 10.3.3.a to
                                                    Registrant's Form 10-Q for
                                                    the quarter ended September
                                                    30, 1999.

                                         10.3.3.b   Real Property Deed of Trust
                                                    (Harris County, Texas), made
                                                    as of August 26, 1999 by
                                                    Registrant unto Joseph C.
                                                    Mathews as trustee for the
                                                    benefit of Foothill Capital
                                                    Corporation, as Agent for
                                                    the Lenders from time to
                                                    time party to the Loan and
                                                    Security Agreement included
                                                    as Exhibit 10.3.3 above,
                                                    incorporated herein by
                                                    reference to Exhibit
                                                    10.3.3.b to Registrant's
                                                    Form 10-Q for the quarter
                                                    ended September 30, 1999.

                                         10.3.3.c   Patent, Trademark, Copyright
                                                    and License Mortgage, made
                                                    as of August 26, 1999, by
                                                    Registrant in favor of
                                                    Foothill Capital
                                                    Corporation, as Agent for
                                                    the Lenders from time to
                                                    time party to the Loan and
                                                    Security Agreement included
                                                    as Exhibit 10.3.3 above,
                                                    incorporated herein by
                                                    reference to Exhibit
                                                    10.3.3.c to Registrant's
                                                    Form 10-Q for the quarter
                                                    ended September 30, 1999.

                                         10.3.3.d   First Amendment, dated as of
                                                    November 18, 1999, to the
                                                    Loan and Security Agreement
                                                    included as Exhibit 10.3.3
                                                    above, filed herewith.

                                         10.3.3.e   Second Amendment, dated as
                                                    of February 11, 2000, to the
                                                    Loan and Security Agreement
                                                    included as Exhibit 10.3.3
                                                    above, filed herewith.

                  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, 1998.

                  10.5     License, Rights, and Supply Agreement between Aironet
                           Wireless Communications, Inc. and Registrant,
                           dated as of March 31, 1998, incorporated herein by
                           reference to Exhibit 10.5 to Registrant's Form 10-K
                           for the year ended March 31, 1998.

                           10.5.1        First Amendment, dated as of March 8,
                                         1996, to the Agreement included as
                                         Exhibit 10.5 above, incorporated
                                         herein by reference to Exhibit 10.5.1
                                         to Registrant's Form 10-K for the year
                                         ended March 31, 1999.

                           10.5.2        Agreement, dated as of November 8,
                                         1999, by and among Registrant, Cisco
                                         Systems, Inc. and Aironet Wireless
                                         Communications, Inc., incorporated
                                         herein by reference to Exhibit 10.5.2
                                         to Registrant's Form 10-Q for the
                                         quarter ended September 30, 1999.

                  10.6     Asset Purchase Agreement by and among Dynatech
                           Corporation, IAQ Corporation, Registrant and Itronix
                           Corporation, then a 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.

                  10.7     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



                                       54
<PAGE>   55

                           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.

                  10.8     Stock Purchase Agreement by and among Registrant and
                           FED Corporation, dated as of March 31, 1998, with
                           respect to FED Corporation's purchase of all of the
                           stock of Virtual Vision, Inc. (fka Vision Newco,
                           Inc.), incorporated herein by reference to Exhibit
                           10.7 to Registrant's Form 10-K for the year ended
                           March 31, 1998.

                           10.8.1        Escrow Agreement by and among FED
                                         Corporation, Registrant and First Union
                                         National Bank, with respect to the
                                         transactions under the Stock Purchase
                                         Agreement included as Exhibit 10.7
                                         above, incorporated herein by reference
                                         to Exhibit 10.7.1 to Registrant's Form
                                         10-K for the year ended March 31, 1998.

                  10.9     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.

                  10.10    Amended and Restated Shareholder Agreement by and
                           among Metanetics Corporation fka New Meta Licensing
                           Corporation, and its Shareholders, including the
                           officers of Registrant party to the Agreement
                           included as Exhibit 10.8 above, dated as of March 28,
                           1996, incorporated herein by reference to Exhibit
                           10.9.3 to Registrant's Form 10-K for the year ended
                           March 31, 1996.

                           10.10.1       First Amendment, dated as of March 30,
                                         1996, to the Agreement included as
                                         Exhibit 10.9 above, incorporated herein
                                         by reference to Exhibit 10.9.4 to
                                         Registrant's Form 10-K for the year
                                         ended March 31, 1996.

                  10.11    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.

                  10.12    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.

                  10.13    Stock Purchase Agreement, dated as of January 19,
                           2000, between Registrant, Accipiter Corporation
                           and Accipiter II, Inc., filed herewith.

                  10.14    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.


                                       55
<PAGE>   56

                  10.15    Subscription Agreement by and among Aironet Wireless
                           Communications, Inc., a subsidiary of Registrant, and
                           the investors who executed the same, dated as of
                           March 31, 1998, incorporated herein by reference to
                           Exhibit 10.14 to Registrant's Form 10-K for the year
                           ended March 31, 1998.

                           10.15.1       Form of Warrant issued pursuant to the
                                         Subscription Agreement included as
                                         Exhibit 10.14 above, incorporated
                                         herein by reference to Exhibit 10.14.1
                                         to Registrant's Form 10-K for the year
                                         ended March 31, 1998.

                           10.15.2       Stockholders Agreement by and among
                                         Aironet Wireless Communications, Inc.
                                         and its Stockholders party thereto,
                                         including Registrant and the investors
                                         party to the Subscription Agreement
                                         included as Exhibit 10.14 above,
                                         entered into as of March 31, 1998 in
                                         connection with the transactions under
                                         the Subscription Agreement,
                                         incorporated herein by reference to
                                         Exhibit 10.14.2 to Registrant's Form
                                         10-K for the year ended March 31, 1998.

                           10.15.3       Registration Rights Agreement by and
                                         among Aironet Wireless Communications,
                                         Inc. and certain of its security
                                         holders, including Registrant and the
                                         investors party to the Subscription
                                         Agreement included as Exhibit 10.14
                                         above, entered into as of March 31,
                                         1998 in connection with the
                                         transactions under the Subscription
                                         Agreement, incorporated herein by
                                         reference to Exhibit 10.14.3 to
                                         Registrant's Form 10-K for the year
                                         ended March 31, 1998.

                  10.16    Stockholder Agreement, made as of November 8, 1999
                           between Cisco Systems, Inc., Osprey Acquisition
                           Corporation and Registrant, and related Irrevocable
                           Proxy, executed by Registrant as a stockholder of
                           Aironet Wireless Communications, Inc. as an
                           inducement toward the entry by Cisco Systems, Inc.
                           and Osprey Acquisition Corporation into an Agreement
                           and Plan of Merger and Reorganization dated of even
                           date providing for the acquisition of Aironet by
                           Cisco, and Joinder thereto by, and related
                           Irrevocable Proxy of, The Retail Technology
                           Group, Inc., a wholly owned subsidiary of Registrant,
                           filed herewith.

                  10.17    DFS Vendor Agreement between Registrant and Deutsche
                           Financial Services Corporation, dated as of September
                           30, 1998, incorporated herein by reference to Exhibit
                           10.15 to Registrant's Form 10-Q for the quarter ended
                           December 31, 1998.

                  27.      Financial Data Schedule as of December 31, 1999,
                           filed herewith.



                                       56
<PAGE>   57


                               TELXON CORPORATION

                                    SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934,the
registrant has duly caused this Form 10-Q to be signed and on its behalf by the
undersigned thereunto duly authorized.


Date:             February 11, 2000


                                             TELXON CORPORATION
                                             (Registrant)



                                             /s/ WOODY M. MCGEE
                                             -----------------------
                                             Woody M. McGee,
                                             Vice President and Chief
                                               Financial Officer



                                       57

<PAGE>   58



                               TELXON CORPORATION



                                    EXHIBITS

                                       TO

                                    FORM 10-Q

                     FOR THE QUARTER ENDED DECEMBER 31, 1999


<PAGE>   59


                                INDEX TO EXHIBITS

Where
Filed
-----

*                 3.1      Restated Certificate of Incorporation of Registrant,
                           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.

*                 3.2      Amended and Restated By-Laws of Registrant, as
                           amended, incorporated herein by reference to Exhibit
                           3.2 to Registrant's Form 10-K for the year ended
                           March 31, 1999.

*                 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 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.

*                 4.2      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


<PAGE>   60

                                       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
                           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, as amended, incorporated
                                       herein by reference to Exhibit 10.1.1 to
                                       Registrant's Form 10-K for the year ended
                                       March 31, 1999.

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


<PAGE>   61

**                          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 10.1.4 to
                                       Registrant's Form 10-K for the year ended
                                       March 31, 1999.

**                                     10.1.4.a   Description of amendments
                                                  extending the term of the
                                                  Agreement included as
                                                  Exhibit 10.1.4 above,
                                                  filed herewith.

*                           10.1.5     1992 Restricted Stock Plan of Registrant,
                                       as amended, incorporated herein by
                                       reference to Exhibit 10.1.5 to
                                       Registrant's Form 10-Q for the quarter
                                       ended December 31, 1998.

*                           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.

*                                      10.1.7.a   Amended and Restated 1996
                                                  Stock Option Plan for
                                                  employees, directors and
                                                  advisors of Aironet Wireless
                                                  Communications, Inc.,
                                                  incorporated herein by
                                                  reference to Exhibit 10.1.7.a
                                                  to Registrant's Form 10-K for
                                                  the year ended March 31, 1998.

*                                      10.1.7.b   First Amendment to Amended and
                                                   Restated 1996 Stock Option
                                                   Plan for employees, directors
                                                   and advisors of Aironet
                                                   Wireless Communications,
                                                   Inc., incorporated herein by
                                                   reference to Exhibit 10.1.7.b
                                                   to Registrant's Form 10-K for
                                                   the year ended March 31,
                                                   1999.

*                          10.1.8   1999 Stock Option Plan for Non-Employee
                                    Directors of Aironet Wireless
                                    Communications, Inc., incorporated herein by
                                    reference to Exhibit 10.1.8 to Registrant's
                                    Form 10-Q for the quarter ended
                                    September 30, 1999.

*                          10.1.9   Non-Competition Agreement by and between
                                    Registrant and Robert F. Meyerson, effective
<PAGE>   62


                                    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.

*                           10.1.10 Employment Agreement between Registrant and
                                    John W. Paxton, Sr., effective as of March
                                    22, 1999, incorporated herein by reference
                                    to Exhibit 10.1.10 to Registrant's Form 10-K
                                    for the year ended March 31, 1999.

*                           10.1.11 Employment Agreement between Registrant and
                                    Kenneth A. Cassady, effective as of June 7,
                                    1999, incorporated herein by reference to
                                    Exhibit 10.1.11 to Registrant's Form 10-K
                                    for the year ended March 31, 1999.

*                           10.1.12 Employment Agreement between Registrant and
                                    Woody M. McGee, effective as of June 1,
                                    1999, incorporated herein by reference to
                                    Exhibit 10.1.12 to Registrant's Form 10-K
                                    for the year ended March 31, 1999.

**                         10.1.13  Employment Agreement between Registrant and
                                    David M. Biggs, effective as of June 7,
                                    1999, filed herewith.

**                         10.1.14  Offer and acceptance of employment between
                                    Registrant and Gene Harmegnies, effective
                                    as of January 31, 2000, filed herewith.

*                          10.1.15  Description of Key Employee Retention
                                    Program, incorporated herein by reference to
                                    Exhibit 10.1.15 to Registrant's Form 10-K
                                    for the year ended March 31, 1998.

*                                   10.1.15.a  Form of letter agreement made
                                               with key employees selected under
                                               the retention program described
                                               in Exhibit 10.1.15 above,
                                               incorporated herein by reference
                                               to Exhibit 10.1.15.a to
                                               Registrant's Form 10-K for the
                                               year ended March 31, 1998.

*                          10.1.16  Employment Agreement, effective as of April
                                    1, 1997, between Registrant and Frank E.
                                    Brick, a former executive officer,
                                    incorporated herein by reference to Exhibit
                                    10.1.9 to Registrant's Form 10-K for the
                                    year ended March 31, 1998.

*                          10.1.17  Amended and Restated Employment Agreement,
                                    effective as of April 1, 1997, between
                                    Registrant and James G. Cleveland, a former
                                    executive officer, incorporated herein by
                                    reference to Exhibit 10.1.10 to Registrant's
                                    Form 10-K for the year ended March 31, 1998.

*                          10.1.18  Amended and Restated Employment Agreement,
                                    effective as of April 1, 1997, between
                                    Registrant and Kenneth W. Haver, a former
                                    executive officer, incorporated herein by
                                    reference to Exhibit 10.1.11 to Registrant's
                                    Form 10-K for the year ended March 31, 1998.
<PAGE>   63

*                          10.1.19  Amended and Restated Employment Agreement,
                                    effective as of April 1, 1997, between
                                    Registrant and David W. Porter, a former
                                    executive officer, incorporated herein by
                                    reference to Exhibit 10.1.13 to Registrant's
                                    Form 10-K for the year ended March 31, 1998.

*                          10.1.20  Amended and Restated Employment Agreement,
                                    effective as of April 1, 1997, between
                                    Registrant and Danny R. Wipff, a former
                                    executive officer, incorporated herein by
                                    reference to Exhibit 10.1.14 to Registrant's
                                    Form 10-K for the year ended March 31, 1998.

*                          10.1.21  Letter agreement of Registrant with Robert
                                    A. Goodman, dated as of December 29, 1997
                                    and executed and delivered January 20, 1998,
                                    for continued consulting services following
                                    certain changes in his law practice,
                                    incorporated herein by reference to Exhibit
                                    10.1.17 to Registrant's Form 10-K for the
                                    year ended March 31, 1998.

*                          10.1.22  Letter agreement of Registrant with R. Dave
                                    Garwood, dated August 30, 1999, for MRP-II
                                    consulting services, incorporated herein by
                                    reference to Exhibit 1.1.20 to Registrant's
                                    Form 10-Q for the quarter ended September
                                    30, 1999.

                  10.2     Material Leases of Registrant.

*                           10.2.1  Lease between Registrant and 3330 W. Market
                                    Properties, dated as of December 30, 1986,
                                    for premises at 3330 West Market Street,
                                    Akron, Ohio, incorporated herein by
                                    reference to Exhibit 10.2.1 to Registrant's
                                    Form 10-K for the year ended March 31, 1999.

*                          10.2.2   Lease Agreement between The Woodlands
                                    Commercial Properties Company, L.P. and
                                    Registrant, made and entered into as of
                                    January 16, 1998, including Rider No. 1
                                    thereto, for premises at 8302 New Trails
                                    Drive, The Woodlands, Texas, incorporated
                                    herein by reference to Exhibit 10.2.2 to
                                    Registrant's Form 10-K for the year ended
                                    March 31, 1998.

*                          10.2.3   Standard Office Lease (Modified Net Lease)
                                    between Registrant and John D. Dellagnese
                                    III, dated as of July 19, 1995, for premises
                                    at 3875 Embassy Parkway, Bath, Ohio,
                                    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.

*                                   10.2.3.a   Second Addendum, dated as of
                                               October 5, 1995, to the Lease
                                               included as Exhibit 10.2.3 above,
                                               incorporated herein by reference
                                               to Exhibit 10.2.4.a to
                                               Registrant's Form 10-K for the
                                               year ended March 31, 1996.

*                                   10.2.3.b   Third Addendum, dated as of March
                                               1, 1996, to the Lease included as
                                               Exhibit 10.2.3 above,
                                               incorporated herein by reference
                                               to Exhibit 10.2.4.b to
                                               Registrant's Form 10-K for the
                                               year ended March 31, 1996.

*                                   10.2.3.c   Fourth Addendum, dated as of
                                               April 16, 1996, to the Lease
                                               included as Exhibit 10.2.3 above,
                                               incorporated herein by


<PAGE>   64

                                               reference to Exhibit 10.2.2.c to
                                               Registrant's Form 10-Q for the
                                               quarter ended June 30, 1997.

*                                   10.2.3.d   Fifth Addendum, dated as of June
                                               24, 1997, to the Lease included
                                               as Exhibit 10.2.3 above,
                                               incorporated herein by reference
                                               to Exhibit 10.2.2.d to
                                               Registrant's Form 10-Q for the
                                               quarter ended June 30, 1997.

*                                   10.2.3.e   Sixth Addendum, dated as of
                                               March, 1998, to the Lease
                                               included as Exhibit 10.2.3 above,
                                               incorporated herein by reference
                                               to Exhibit 10.2.3.e to
                                               Registrant's Form 10-Q for the
                                               quarter ended September 30, 1998.

*                                   10.2.3.f   Seventh Addendum, dated as of
                                               July 20, 1998, to the Lease
                                               included as Exhibit 10.2.3 above,
                                               incorporated herein by reference
                                               to Exhibit 10.2.3.f to
                                               Registrant's Form 10-Q for the
                                               quarter ended September 30, 1998.

*                                   10.2.3.g   Eighth Addendum, dated as of
                                               September 8, 1998, to the Lease
                                               included as Exhibit 10.2.3 above,
                                               incorporated herein by reference
                                               to Exhibit 10.2.3.g to
                                               Registrant's Form 10-Q for the
                                               quarter ended September 30, 1998.

*                                   10.2.3.h   Sublease Agreement, dated as of
                                               September 1, 1998, between
                                               Registrant and Aironet Wireless
                                               Communications, Inc. for the
                                               premises subject to the Lease
                                               included as Exhibit 10.2.3 above,
                                               as amended through the Eighth
                                               Addendum thereto included as
                                               Exhibit 10.2.3.g above,
                                               incorporated herein by reference
                                               to Exhibit 10.2.3.h to
                                               Registrant's Form 10-K for the
                                               year ended March 31, 1999.

*                                   10.2.3.i   Renewal, dated June 16, 1999,
                                               with respect to the Sublease
                                               Agreement included as Exhibit
                                               10.2.3.h above, incorporated
                                               herein by reference to Exhibit
                                               10.2.3.i to Registrant's Form
                                               10-K for the year ended
                                               March 31, 1999.


<PAGE>   65

*                          10.2.4   Lease Contract between Desarrollos \
                                    Inmobiliarios Paso del Norte, S.A. de C.V.
                                    and Productos y Servicios de Telxon, S.A. de
                                    C.V., a subsidiary of Registrant, for
                                    premises in Ciudad Juarez, Chihuahua,
                                    Mexico, made and entered into as of April
                                    10, 1997, incorporated herein by reference
                                    to Exhibit 10.2.4 to Registrant's Form 10-K
                                    for the year ended March 31, 1998.

                  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
                                    (refinanced, and replaced by the Loan and
                                    Security Agreement included as Exhibit
                                    10.3.3 below), 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   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.

*                                   10.3.1.c   Amendment No. 3, dated as of
                                               December 12, 1997, to the
                                               Agreement included as Exhibit
                                               10.3.1 above, included herein by
                                               reference to Exhibit 10.3.1.d to
                                               Registrant's Form 10-K for the
                                               year ended March 31, 1998.

*                                   10.3.1.d   Waiver and Agreement, dated as of
                                               December 29, 1998, with respect
                                               to the Agreement included as
                                               Exhibit 10.3.1 above,
                                               incorporated herein by reference
                                               to Exhibit 10.3.1.e to
                                               Registrant's Form 10-Q for the
                                               quarter ended December 31, 1998.

*                                   10.3.1.e   Waiver Extension and Agreement,
                                               dated as of February 12, 1999,
                                               with respect to the Agreement
                                               included as Exhibit 10.3.1 above,
                                               incorporated herein by reference
                                               to Exhibit 10.3.1.f to
                                               Registrant's Form 10-Q for the
                                               quarter ended December 31, 1998.



<PAGE>   66

*                                   10.3.1.f   Second Waiver Extension Agreement
                                               and Amendment No. 4, dated as of
                                               March 26, 1999, with respect to
                                               the Agreement included as Exhibit
                                               10.3.1 above, incorporated herein
                                               by reference to Exhibit 10.3.1.a
                                               to Registrant's Form 8-K dated
                                               April 1, 1999.

*                                   10.3.1.g   Amended and Restated Security
                                               Agreement, dated as of March 26,
                                               1999, by and among Registrant and
                                               The Bank of New York, as Agent
                                               for the Lenders from time to time
                                               party to the Agreement included
                                               as Exhibit 10.3.1 above
                                               (terminated in connection with
                                               the refinancing obtained pursuant
                                               to the Loan and Security
                                               Agreement included as Exhibit
                                               10.3.3 below), incorporated
                                               herein by reference to Exhibit
                                               10.3.1.b to Registrant's Form 8-K
                                               dated April 1, 1999.

*                                   10.3.1.h   Deed of Trust, Assignment of
                                               Leases and Rents, Security
                                               Agreement, Fixture Filing and
                                               Financing Statement, dated as of
                                               March 26, 1999, by Registrant to
                                               First American Title Insurance
                                               Company as Trustee for the
                                               benefit of The Bank of New York,
                                               as Agent for the Lenders from
                                               time to time party to the
                                               Agreement included as Exhibit
                                               10.3.1 above (terminated in
                                               connection with the refinancing
                                               obtained pursuant to the Loan and
                                               Security Agreement included as
                                               Exhibit 10.3.3 below),
                                               incorporated herein by reference
                                               to Exhibit 10.3.1.h to
                                               Registrant's Form 10-K for the
                                               year ended March 31, 1999.

*                                   10.3.1.i   Patent and Trademark Security
                                               Agreement, dated as of March 26,
                                               1999, by Registrant and certain
                                               of its subsidiaries to The Bank
                                               of New York, as Agent for the
                                               benefit of the Lenders from time
                                               to time party to the Agreement
                                               included as Exhibit 10.3.1
                                               above, (terminated in connection
                                               with the refinancing obtained
                                               pursuant to the Loan and
                                               Security Agreement included as
                                               Exhibit 10.3.3 below),
                                               incorporated herein by reference
                                               to Exhibit 10.3.1 to
                                               Registrant's Form 10-K for the
                                               year ended March 31, 1999.

                                    10.3.1.j   Pledge Agreement, dated as of
*                                              March 26, 1999, by Registrant to
                                               The Bank of New York, as Agent
                                               for the benefit of the Lenders
                                               from time to time party to the
                                               Agreement included as Exhibit
                                               10.3.1 above (terminated in
                                               connection with the refinancing
                                               obtained pursuant to the Loan and
                                               Security Agreement included as
                                               Exhibit 10.3.3 below),
                                               incorporated herein by reference
                                               to Exhibit 10.3.1.j to
                                               Registrant's Form 10-K for the
                                               year ended March 31, 1999.




<PAGE>   67

*                                   10.3.1.k   Third Waiver Extension Agreement
                                               and Amendment No. 5, dated as of
                                               June 29, 1999, with respect to
                                               the Agreement included as Exhibit
                                               10.3.1 above, incorporated herein
                                               by reference to Exhibit 10.3.1.a
                                               to Registrant's Form 8-K dated
                                               July 1, 1999.

*                          10.3.2   Business Purpose Revolving Promissory Note
                                    (Swing Line) made by Registrant in favor of
                                    Bank One, NA, dated August 4, 1998
                                    (refinanced and replaced by the Loan and
                                    Security Agreement included as Exhibit
                                    10.3.3 below), incorporated herein by
                                    reference to Exhibit 10.3.4 to Registrant's
                                    Form 10-Q for the quarter ended June 30,
                                    1998.

*                                   10.3.2.a   Consent, dated as of December 29,
                                               1998, with respect to the Note
                                               included as Exhibit 10.3.2 above,
                                               incorporated herein by reference
                                               to Exhibit 10.3.4.a to
                                               Registrant's Form 10-Q for the
                                               quarter ended December 31, 1998.

*                                   10.3.2.b   Further Consent, dated as of
                                               February 12, 1999, with respect
                                               to the Note included as Exhibit
                                               10.3.2 above, incorporated herein
                                               by reference to Exhibit 10.3.4.a
                                               to Registrant's Form 10-Q for the
                                               quarter ended December 31, 1998.

*                                   10.3.2.c   Second Further Consent and
                                               Agreement, dated as of March 26,
                                               1999, with respect to the Note
                                               included as Exhibit 10.3.2 above,
                                               incorporated herein by reference
                                               to Exhibit 10.3.4.c b to
                                               Registrant's Form 8-K dated April
                                               1, 1999.

*                                   10.3.2.d   Amended and Restated Security
                                               Agreement, dated as of March 26,
                                               1999, by and among Registrant and
                                               Bank One, NA with respect to the
                                               Note included as Exhibit 10.3.2
                                               above (terminated in connection
                                               with the refinancing obtained
                                               pursuant to the Loan and Security
                                               Agreement included as Exhibit
                                               10.3.3 below), incorporated
                                               herein by reference to Exhibit
                                               10.3.2.d to Registrant's Form
                                               10-K for the year ended March 31,
                                               1999

*                                   10.3.2.e   Deed of Trust, Assignment of
                                               Leases and Rents, Security
                                               Agreement, Fixture Filing
                                               and Financing Statement,
                                               dated as of March 26, 1999,
                                               by Registrant to First
                                               American Title Insurance
                                               Company as Trustee for the
                                               benefit of Bank One, NA with
                                               respect to the Note included
                                               as Exhibit 10.3.2 above
                                               (terminated in connection
                                               with the refinancing
                                               obtained pursuant to the
                                               Loan and Security Agreement
                                               included as Exhibit 10.3.3
                                               below), incorporated herein
                                               by reference to Exhibit
                                               10.3.2.e to Registrant's
                                               Form 10-K for the year ended
                                               March 31, 1999.



<PAGE>   68


*                                   10.3.2.f   Patent and Trademark Security
                                               Agreement, dated as of March 26,
                                               1999, by Registrant and certain
                                               of its subsidiaries to Bank One,
                                               NA with respect to the Note
                                               included as Exhibit 10.3.2 above
                                               (terminated in connection with
                                               the refinancing obtained pursuant
                                               to the Loan and Security
                                               Agreement included as Exhibit
                                               10.3.3 below), incorporated
                                               herein by reference to Exhibit
                                               10.3.2.f to Registrant's Form
                                               10-K for the year ended March 31,
                                               1999.

*                                   10.3.2.g   Third Further Consent and Note
                                               Modification Agreement, dated as
                                               of June 29, 1999, with respect to
                                               the Note included as Exhibit
                                               10.3.2 above, incorporated herein
                                               by reference to Exhibit
                                               10.3.2.g b to Registrant's Form
                                               8-K dated July 1, 1999.

*                              10.3.3    Loan and Security Agreement, dated as
                                         of August 26, 1999, by and between the
                                         Registrant, the Lenders party thereto,
                                         and Foothill Capital Corporation, as
                                         Agent, incorporated by reference to
                                         Exhibit 10.3.3 to Registrant's Form 8-K
                                         dated August 30, 1999.

*                                        10.3.3.a   Pledge Agreement, dated as
                                                    of August 26, 1999, between
                                                    Foothill Capital
                                                    Corporation, as Agent for
                                                    the Lenders from time to
                                                    time party to the Loan and
                                                    Security Agreement included
                                                    as Exhibit 10.3.3 above,
                                                    pledging, among other
                                                    assets, the stock owned by
                                                    Registrant in Aironet
                                                    Wireless Communications,
                                                    Inc. and Registrant
                                                    subsidiaries to Agent as
                                                    collateral to secure
                                                    Registrant's obligations
                                                    under the Loan and Security
                                                    Agreement, incorporated
                                                    herein by reference to
                                                    Exhibit 10.3.3.a to
                                                    Registrant's Form 10-Q for
                                                    the quarter ended September
                                                    30, 1999.

*                                        10.3.3.b   Real Property Deed of Trust
                                                    (Harris County, Texas), made
                                                    as of August 26, 1999 by
                                                    Registrant unto Joseph C.
                                                    Mathews as trustee for the
                                                    benefit of Foothill Capital
                                                    Corporation, as Agent for
                                                    the Lenders from time to
                                                    time party to the Loan and
                                                    Security Agreement included
                                                    as Exhibit 10.3.3 above,
                                                    incorporated herein by
                                                    reference to Exhibit
                                                    10.3.3.b to Registrant's
                                                    Form 10-Q for the quarter
                                                    ended September 30, 1999.

*                                        10.3.3.c   Patent, Trademark, Copyright
                                                    and License Mortgage, made
                                                    as of August 26, 1999, by
                                                    Registrant in favor of
                                                    Foothill Capital
                                                    Corporation, as Agent for
                                                    the Lenders from time to
                                                    time party to the Loan and
                                                    Security Agreement included
                                                    as Exhibit 10.3.3 above,
                                                    incorporated herein by
                                                    reference to Exhibit
                                                    10.3.3.c to Registrant's
                                                    Form 10-Q for the quarter
                                                    ended September 30, 1999.

**                                       10.3.3.d   First Amendment, dated as of
                                                    November 18, 1999, to the
                                                    Loan and Security Agreement
                                                    included as Exhibit 10.3.3
                                                    above, filed herewith.

**                                       10.3.3.e   Second Amendment, dated as
                                                    of February 11, 2000, to the
                                                    Loan and Security Agreement
                                                    included as Exhibit 10.3.3
                                                    above, filed herewith.

*                 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, 1998.

*                 10.5     License, Rights, and Supply Agreement between Aironet
                           Wireless Communications, Inc., a subsidiary of
                           Registrant, and Registrant, dated as of March 31,
                           1998, incorporated herein by reference to Exhibit
                           10.5 to Registrant's Form 10-K for the year ended
                           March 31, 1998.

*                          10.5.1   First Amendment, dated as of March 8, 1996,
                                    to the Agreement included as Exhibit 10.5
                                    above, incorporated herein by reference to
                                    Exhibit 10.5.1 to Registrant's Form 10-K for
                                    the year ended March 31, 1999.

*                          10.5.2   Agreement, dated as of November 8, 1999, by
                                    and among Registrant, Cisco Systems, Inc.
                                    and Aironet Wireless Communications, Inc.,
                                    incorporated herein by reference to Exhibit
                                    10.5.2 to Registrant's Form 10-Q for the
                                    quarter ended September 30, 1999.

*                 10.6     Asset Purchase Agreement by and among Dynatech
                           Corporation, IAQ Corporation, Registrant and Itronix
                           Corporation, then a 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.

*                 10.7     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.

*                 10.8     Stock Purchase Agreement by and among Registrant and
                           FED Corporation, dated as of March 31, 1998, with
                           respect to FED Corporation's purchase of all of the
<PAGE>   69


                           stock of Virtual Vision, Inc. (fka Vision Newco,
                           Inc.), incorporated herein by reference to Exhibit
                           10.7 to Registrant's Form 10-K for the year ended
                           March 31, 1998.

*                          10.8.1      Escrow Agreement by and among FED
                                       Corporation, Registrant and First Union
                                       National Bank, with respect to the
                                       transactions under the Stock Purchase
                                       Agreement included as Exhibit 10.7 above,
                                       incorporated herein by reference to
                                       Exhibit 10.7.1 to Registrant's Form 10-K
                                       for the year ended March 31, 1998.

*                 10.9     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.

*                 10.10    Amended and Restated Shareholder Agreement by and
                           among Metanetics Corporation fka New Meta Licensing
                           Corporation, and its Shareholders, including the
                           officers of Registrant party to the Agreement
                           included as Exhibit 10.8 above, dated as of March 28,
                           1996, incorporated herein by reference to Exhibit
                           10.9.3 to Registrant's Form 10-K for the year ended
                           March 31, 1996.

*                          10.10.1     First Amendment, dated as of March 30,
                                       1996, to the Agreement included as
                                       Exhibit 10.9 above, incorporated herein
                                       by reference to Exhibit 10.9.4 to
                                       Registrant's Form 10-K for the year ended
                                       March 31, 1996.

*                 10.11    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.

*                 10.12    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.

**                10.13    Stock Purchase Agreement, dated as of January 19,
                           2000, between Registrant, Accipiter Corporation
                           and Accipiter II, Inc., filed herewith.

*                 10.14    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.

*                 10.15    Subscription Agreement by and among Aironet Wireless
                           Communications, Inc., a subsidiary of Registrant, and
                           the investors who executed the same, dated as of
                           March 31, 1998, incorporated herein by reference to
                           Exhibit 10.14 to Registrant's Form 10-K for the year
                           ended March 31, 1998.


<PAGE>   70

*                          10.15.1     Form of Warrant issued pursuant to the
                                       Subscription Agreement included as
                                       Exhibit 10.14 above, incorporated herein
                                       by reference to Exhibit 10.14.1 to
                                       Registrant's Form 10-K for the year ended
                                       March 31, 1998.

*                          10.15.2     Stockholders Agreement by and among
                                       Aironet Wireless Communications, Inc. and
                                       its Stockholders party thereto, including
                                       Registrant and the investors party to the
                                       Subscription Agreement included as
                                       Exhibit 10.14 above, entered into as of
                                       March 31, 1998 in connection with the
                                       transactions under the Subscription
                                       Agreement, incorporated herein by
                                       reference to Exhibit 10.14.2 to
                                       Registrant's Form 10-K for the year ended
                                       March 31, 1998.

*                          10.15.3     Registration Rights Agreement by and
                                       among Aironet Wireless Communications,
                                       Inc. and certain of its security holders,
                                       including Registrant and the investors
                                       party to the Subscription Agreement
                                       included as Exhibit 10.14 above, entered
                                       into as of March 31, 1998 in connection
                                       with the transactions under the
                                       Subscription Agreement, incorporated
                                       herein by reference to Exhibit 10.14.3 to
                                       Registrant's Form 10-K for the year ended
                                       March 31, 1998.

**                10.16    Stockholder Agreement, made as of November 8, 1999
                           between Cisco Systems, Inc., Osprey Acquisition
                           Corporation and Registrant, and related Irrevocable
                           Proxy, executed by Registrant as a stockholder of
                           Aironet Wireless Communications, Inc. as an
                           inducement toward the entry by Cisco Systems, Inc.
                           and Osprey Acquisition Corporation into an Agreement
                           and Plan of Merger and Reorganization dated of even
                           date providing for the acquisition of Aironet by
                           Cisco, and Joinder thereto by, and related
                           Irrevocable Proxy of, The Retail Technology Group,
                           Inc., a wholly owned subsidiary of Registrant, filed
                           herewith.

*                 10.17    DFS Vendor Agreement between Registrant and Deutsche
                           Financial Services Corporation, dated as of September
                           30, 1998, incorporated herein by reference to Exhibit
                           10.15 to Registrant's Form 10-Q for the quarter ended
                           December 31, 1998.


**                27.      Financial Data Schedule as of December 31, 1999,
                           filed herewith.


---------------------------------
*        Previously filed

**       Filed herewith