<PAGE>   1

                      SECURITIES AND EXCHANGE COMMISSION


                              WASHINGTON, DC 20549


                                    FORM 10-Q



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

                For the quarterly period ended September 30, 1998



                                       OR



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

             for the transition period from __________to __________



                         Commission file number 0-11402



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



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



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



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


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

At September 30, 1998, there were 16,124,297 outstanding shares of the
Registrant's $.01 par value Common Stock.


<PAGE>   2



                               TELXON CORPORATION
        INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




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

<S>        <C>                                                                                         <C>
PART I.       FINANCIAL INFORMATION:

     Item 1:  Consolidated Financial Statements
                         Balance Sheet..................................................................    3
                         Statement of Operations........................................................    4
                         Statement of Cash Flows........................................................    5
                         Notes to Consolidated Financial Statements.....................................  6-10

     Item 2:  Management's Discussion and Analysis of Financial
                         Condition and Results of Operations............................................  11-19

PART II.      OTHER INFORMATION:

     Item 1:  Legal Proceedings.........................................................................   20

     Item 4:  Submission of Matters to a Vote of Security Holders.......................................   20

     Item 6:  Exhibits and Reports on Form 8-K..........................................................  20-27
</TABLE>

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

                                       2
<PAGE>   3

PART I. FINANCIAL INFORMATION

ITEM 1:  CONSOLIDATED FINANCIAL STATEMENTS

                       TELXON CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

                     (In thousands except per share amounts)
<TABLE>
<CAPTION>
                                                                September 30,     March 31,
                                                                    1998            1998
                                                                -------------     ---------
                                                                 (Unaudited)
<S>                                                             <C>             <C>      
ASSETS

Current assets:
  Cash (including cash equivalents of $12,000 and
    $6,778) ................................................      $  37,586       $  27,500
  Accounts receivable, net of allowance for
    doubtful accounts of $1,203 and $1,142 .................        114,140         125,739
  Notes and other accounts receivable ......................         18,970          22,949
  Inventories ..............................................        104,336         108,178
  Prepaid expenses and other ...............................         14,337          11,307
                                                                  ---------       ---------
     Total current assets ..................................        289,369         295,673
Property and equipment, net ................................         62,936          52,108
Intangibles and other assets, net ..........................         47,563          42,758
                                                                  ---------       ---------
     Total .................................................      $ 399,868       $ 390,539
                                                                  =========       =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Notes payable ............................................      $  17,580       $   3,000
  Capital lease obligations due within one year ............            855             968
  Accounts payable .........................................         50,726          58,634
  Income taxes payable .....................................          2,623           3,390
  Accrued liabilities ......................................         39,720          41,034
                                                                  ---------       ---------
     Total current liabilities .............................        111,504         107,026
Capital lease obligations ..................................          1,923           1,876
Convertible subordinated notes and debentures ..............        106,913         107,224
Other long-term liabilities ................................          6,942           6,897
                                                                  ---------       ---------
     Total liabilities .....................................        227,282         223,023

Minority interest ..........................................          2,811           2,791

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, 16,234 and 16,219 shares issued .....            162             162
  Additional paid-in capital ...............................         88,369          87,994
  Retained earnings ........................................         87,712          85,053
  Equity adjustment for foreign currency translation .......         (4,294)         (4,929)
  Unearned compensation relating to restricted stock awards            (344)           (493)
  Treasury stock; 110 and 162 shares of common stock at cost         (1,830)         (3,062)
                                                                  ---------       ---------
     Total stockholders' equity ............................        169,775         164,725
                                                                  ---------       ---------
Commitments and contingencies ..............................             --              --
                                                                  ---------       ---------
     Total .................................................      $ 399,868       $ 390,539
                                                                  =========       =========
</TABLE>


See accompanying notes to consolidated financial statements.



                                       3
<PAGE>   4


                       TELXON CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF OPERATIONS

                     (In thousands except per share amounts)

                                   (Unaudited)
<TABLE>
<CAPTION>

                                                             Three Months                    Six Months
                                                          Ended September 30,            Ended September 30,
                                                         1998            1997            1998           1997
                                                      ---------       ---------       ---------       --------
<S>                                                 <C>             <C>             <C>             <C>      
Revenues:
     Product, net ..............................      $ 103,133       $  91,138       $ 197,210       $ 177,829
     Customer service, net .....................         21,236          19,182          42,206          37,404
                                                      ---------       ---------       ---------       ---------
              Total net revenues ...............        124,369         110,320         239,416         215,233

Cost of revenues:
     Product ...................................         62,411          54,276         119,722         106,836
     Customer service ..........................         13,502          12,336          26,327          23,462
                                                      ---------       ---------       ---------       ---------
              Total cost of revenues ...........         75,913          66,612         146,049         130,298
                                                      ---------       ---------       ---------       ---------

     Gross profit ..............................         48,456          43,708          93,367          84,935

Operating expenses:
     Selling expenses ..........................         20,317          18,677          41,678          36,776
     Product development and engineering
          expenses .............................          9,261           9,525          18,191          18,651
     General and administrative expenses .......         10,425           9,843          19,862          19,547
                                                      ---------       ---------       ---------       ---------
              Total operating expenses before
                other operating items............        40,003          38,045          79,731          74,974
                                                      ---------       ---------       ---------       ---------

Other operating items:
     Take-over defense costs ...................          1,830            --             3,579            --
     Charge related to transaction with business
     partner ...................................           --              --             1,950            --
                                                      ---------       ---------       ---------       ---------
              Total other operating items ......          1,830            --             5,529            --
                                                      ---------       ---------       ---------       ---------

              Income from operations ...........          6,623           5,663           8,107           9,961

Interest income ................................            164             420             343             917
Interest expense ...............................         (2,617)         (1,811)         (4,329)         (3,602)
Other non-operating (expense) income, net ......           --                (7)            460            (165)
                                                      ---------       ---------       ---------       ---------

              Income before income taxes .......          4,170           4,265           4,581           7,111

Provision for income taxes .....................          1,672           1,877           1,837           3,129
                                                      ---------       ---------       ---------       ---------

              Net income .......................      $   2,498       $   2,388       $   2,744       $   3,982
                                                      =========       =========       =========       =========

Net income per common share:
                           Basic ...............      $     .16       $     .15       $     .17       $     .25
                                                      =========       =========       =========       =========
                           Diluted .............      $     .15       $     .15       $     .16       $     .25
                                                      =========       =========       =========       =========

Average number of common shares outstanding:
                           Basic ...............         16,065          15,772          16,095          15,646
                                                      =========       =========       =========       =========
                           Diluted .............         16,559          16,278          16,764          16,042
                                                      =========       =========       =========       =========
</TABLE>

See accompanying notes to consolidated financial statements.



                                       4
<PAGE>   5

                       TELXON CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS

                                 (In thousands)

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                              Six Months Ended September 30,
                                                              ------------------------------
                                                                   1998           1997
                                                                 --------       --------
<S>                                                            <C>            <C>     
Cash flows from operating activities:
     Net income ...........................................      $  2,744       $  3,982
     Adjustments to reconcile net income to
         net cash provided by (used in) operating activities:
              Depreciation and amortization ...............        12,534         12,183
              Amortization of restricted stock
                  awards, net .............................           149             96
              Provision for doubtful accounts .............           369            395
              Provision for inventory obsolescence ........         4,086          3,548
              Deferred income taxes .......................             3            172
              Loss on disposal of property and equipment...           238            528
              Minority interest ...........................            20              8
              Changes in assets and liabilities:
                   Accounts and notes receivable ..........         8,989          7,597
                   Inventories ............................          (280)        (7,032)
                   Prepaid expenses and other .............        (2,318)        (2,231)
                   Intangibles and other assets ...........           531         (1,748)
                   Accounts payable and accrued liabilities        (9,381)       (21,341)
                   Other long-term liabilities ............            44           (225)
                                                                 --------       --------
                             Total adjustments ............        14,984         (8,050)
                                                                 --------       --------
     Net cash provided by (used in) operating activities ..        17,728         (4,068)

Cash flows from investing activities:
     Additions to property and equipment ..................       (18,848)       (12,212)
     Software and other investments .......................        (2,939)        (2,279)
     Proceeds from the sale of property and equipment .....          --              866
     Additions to long-term notes receivable ..............          (608)          (140)
                                                                 --------       --------
     Net cash used in investing activities ................       (22,395)       (13,765)

Cash flows from financing activities:
     Borrowings (repayments) on notes payable, net ........        14,580            (50)
     Principal payments on capital leases .................          (343)          (318)
     Purchase of treasury stock ...........................          (488)        (3,256)
     Proceeds from exercise of stock options
         (includes tax benefit) ...........................         1,222          4,863
                                                                 --------       --------
     Net cash provided by financing activities ............        14,971          1,239

     Effect of exchange rate changes on cash ..............          (218)          (157)
                                                                 --------       --------

     Net increase (decrease) in cash and cash equivalents .        10,086        (16,751)
     Cash and cash equivalents at beginning of period .....        27,500         45,386
                                                                 --------       --------
     Cash and cash equivalents at end of period ...........      $ 37,586       $ 28,635
                                                                 ========       ========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       5
<PAGE>   6


                       TELXON CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                (In thousands except share and per share amounts)


1.       Management Representation

         The consolidated financial statements of Telxon Corporation ("Telxon")
         and its subsidiaries (collectively with Telxon, the "Company") have
         been prepared without audit 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 six months ended September 30, 1998, are not necessarily
         indicative of the results that may be achieved for the year ending
         March 31, 1999. The statements, including the March 31, 1998, balance
         sheet data derived from audited financial statements, do not include
         all of the information and notes required by generally accepted
         accounting principles for complete financial statements and should be
         read in conjunction with the audited consolidated financial statements
         as contained in the Company's Annual Report on Form 10-K, as amended by
         Amendments No. 1 and No. 2 on Form 10-K/A, for the fiscal year ended
         March 31, 1998.


2.       Earnings Per Share

         Computations of basic and diluted earnings per share of common stock
         have been made in accordance with the Financial Accounting Standards
         Board's (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
                 (Dollars in thousands except per-share amounts)

In the following table, net income represents the numerator and the shares 
represent the denominator in the Earnings per Share Calculation.
<TABLE>
<CAPTION>
                                           For the Quarter ended                        For the Quarter ended
                                             September 30, 1998                           September 30, 1997
                                       ----------------------------------          -----------------------------------
                                                                Per-Share                                    Per-Share
                                       Income       Shares        Amount           Income       Shares         Amount
                                       ------       ------      ---------          ------       ------       ---------
                                                  (Unaudited)                                 (Unaudited)
<S>                                <C>           <C>          <C>                 <C>         <C>             <C>
Net income                              $2,498                                     $2,388

BASIC EPS
Income available to
   Common stockholders                  $2,498     16,065          $0.16           $2,388        15,772         $0.15
                                                                   =====                                        =====

EFFECT OF DILUTIVE SECURITIES
Options                                               494                                           506
                                                   ------                                         -----

DILUTED EPS
Income available to
   Stockholders of common shares
   and common stock equivalents         $2,498     16,559          $0.15           $2,388        16,278         $0.15
                                        ======     ======          =====           ======        ======         =====
</TABLE>


                                       6
<PAGE>   7
<TABLE>
<CAPTION>


                                           For the Six Months ended                  For the Six Months ended
                                              September 30, 1998                          September 30, 1997
                                       ----------------------------------         -----------------------------------
                                                                Per-Share                                   Per-Share
                                       Income       Shares        Amount          Income       Shares         Amount
                                       ------       ------      ---------         ------       ------       ---------
                                                  (Unaudited)                                (Unaudited)
<S>                                    <C>       <C>            <C>              <C>          <C>             <C>
Net income                              $2,744                                    $3,982

BASIC EPS
Income available to
   Common stockholders                  $2,744     16,095          $0.17          $3,982        15,646         $0.25
                                                                   =====                                       =====

EFFECT OF DILUTIVE SECURITIES
Options                                               669                                          396
                                                   ------                                       ------

DILUTED EPS
Income available to
   Stockholders of common shares
   and common stock equivalents         $2,744     16,764          $0.16          $3,982        16,042         $0.25
                                        ======     ======          =====          ======        ======         =====
</TABLE>

         Options to purchase 35,000 shares of common stock at a weighted average
         exercise price of $30.88 per share were outstanding at September 30,
         1998, but were not included in the computation of diluted earnings per
         share because the options' exercise price was greater that the average
         market price for the common shares during fiscal 1999 to date. 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 September 30, 1998 and 1997, would have had an
         anti-dilutive effect on earnings.


3.       Comprehensive Income

         Beginning with the first quarter of fiscal 1999, the Company was
         required to adopt the provisions of the FASB's Statement of Financial
         Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
         No. 130"). SFAS No. 130 establishes standards for reporting
         comprehensive income, which has been defined as the change in equity of
         an entity during a period from transactions and other events and
         circumstances from nonowner sources. SFAS No. 130 requires the
         Company's foreign currency translation adjustment to be included in
         other comprehensive income. Refer to the "Consolidated Statement of
         Operations" for details on the components of net income.


         Total comprehensive income consisted of the following:
<TABLE>
<CAPTION>

                                                                     Six Months
                                                                 Ended September 30,
                                                             -------------------------
                                                             1998                 1997
                                                             ----                 ----
                                                                     (Unaudited)
<S>                                                       <C>                  <C>
         Net income                                         $2,744               $3,982

         Other comprehensive income:
         Foreign Currency Translation Adjustment               635                 (990)
                                                            ------               ------

         Total comprehensive income                         $3,379               $2,992
                                                            ======               ======
</TABLE>

                                       7
<PAGE>   8


4.       Inventories

         Inventories consisted of the following:
<TABLE>
<CAPTION>
                                                                                    September 30,
                                                                                        1998                 March 31,
                                                                                     (Unaudited)               1998
                                                                                    -------------            ---------
<S>                                                                                 <C>                    <C>                   
         Purchased components                                                          $47,770               $ 49,514
         Work-in-process                                                                33,979                 37,375
         Finished goods                                                                 22,587                 21,289
                                                                                      --------               --------
                                                                                      $104,336               $108,178
                                                                                      ========               ========
</TABLE>

5.       Accrued Liabilities

         Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>

                                                                                    September 30,
                                                                                        1998                  March 31,
                                                                                     (Unaudited)                1998
                                                                                    -------------             ---------          
<S>                                                                                 <C>                     <C>    
         Deferred customer service revenues                                           $14,195                 $13,448
         Accrued payroll and other employee compensation                               10,326                  12,353
         Other accrued liabilities                                                     15,199                  15,233
                                                                                      -------                 -------
                                                                                      $39,720                 $41,034
                                                                                      =======                 =======
</TABLE>

6.       Supplemental Cash Flow Information
<TABLE>
<CAPTION>
                                                                                                   Six Months
                                                                                               Ended September 30,
                                                                                            -------------------------
                                                                                             1998               1997
                                                                                             ----               ----
                                                                                                   (Unaudited)
<S>                                                                                      <C>               <C>    
         Cash paid during the period for:
         Interest                                                                           $4,676            $ 3,674
         Income taxes                                                                        3,009              4,985
</TABLE>


         Capital lease additions of $276 for manufacturing equipment in fiscal
         1999 have been excluded from the accompanying consolidated statement of
         cash flows as a non-cash transaction.

         The Company's re-issuance of treasury stock during the first half of
         fiscal 1999 to satisfy exercises of stock options under the Company's
         stock option plans has been excluded from the accompanying consolidated
         statement of cash flows as non-cash transactions.  See Note 10 - Other
         Debt and Equity Transactions for further details of the first half of
         fiscal 1999 re-issuances.

         The Company's re-issuances of treasury stock during the second quarter
         of fiscal 1999 and 1998 to satisfy purchases made by employees through
         the Telxon Corporation 1995 Employee Stock Purchase Plan have been
         excluded from  the accompanying consolidated statement of cash flows
         as non-cash transactions.  See Note - Other Debt and Equity
         Transactions for further details of the second quarter fiscal 1999
         re-issuances.

7.       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, 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 his brief in opposition to the Motion on May 2, 1994, and the
         defendants filed a final responsive brief. The Motion was argued before
         the Court on March 29, 1995, and on July 18, 1995, the Court issued its
         ruling. The Court dismissed all of the claims relating to the
         plaintiff's allegations of corporate waste; however, the claims
         relating to breach of fiduciary duty survived the Motion to Dismiss.
        
         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 


                                       8
<PAGE>   9
         Officer and director at the time of the first acquisition transaction,
         as a new defendant. The defendants opposed the Motion of 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, and no
         deadline for the completion of the discovery has yet been set by the
         Court.

         The defendants believe that the post-intervention claims lack merit,
         and they intend to continue vigorously defending this action. While the
         ultimate outcome of this action cannot presently be determined, the
         Company does not anticipate that this matter will have a material
         adverse effect on the Company's consolidated financial position,
         results of operations or cash flows and accordingly has not made
         provisions for any loss or related insurance recovery in the
         accompanying consolidated financial statements.

         On February 17, 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. The complaint alleges counts for breach of contract
         and temporary and permanent injunctive relief, all related to alleged
         environmental contamination at the Wynnwood property, and seeks
         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. No hearing has been had on, or is
         currently scheduled for, plaintiff's claim for temporary injunctive
         relief. Pursuant to the Court's Scheduling Order for this action, trial
         is set for March 8, 1999. If 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. Telxon
         believes that these claims lack merit, and it intends to vigorously
         defend this action.

         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 current Board of Directors, namely, Frank
         E. Brick, Robert A. Goodman, Dr. Raj Reddy, John H. Cribb, Richard J.
         Bogomolny, and Norton W. Rose.

         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. This action is in its early stages, with no scheduling order
         having been issued by the Court; discovery has not yet commenced. The
         defendants believe that these claims lack merit and intend to
         vigorously defend the consolidated action.

         In the normal course of its operations, the Company is subject to
         performance under contracts and assertions that technologies it
         utilizes may infringe third party intellectual properties, and has
         various legal actions and certain contingencies pending. In
         management's opinion, all such matters have either been reflected in
         the consolidated financial statements, are covered by insurance or
         would not have a material adverse effect on the Company's consolidated
         financial position, results of operations or cash flows.


8.       Income Taxes

         The Company's consolidated effective income tax rate reflects income
         before taxes increased by non-deductible goodwill amortization and the
         tax effect of unutilized subsidiary net operating loss benefits, which
         sum is multiplied by the United States statutory rate and increased by
         foreign tax rate differentials. The effective income tax rate was
         decreased by a credit for 


                                       9
<PAGE>   10

         research and development and the favorable tax treatment of the
         Company's foreign sales corporation.


9.       Subsidiary Stock Transactions

         During the first quarter of fiscal 1999, the Company entered into a
         series of transactions with a business partner. The Company repurchased
         the voting common shares of its Metanetics subsidiary ("Metanetics"), a
         development stage subsidiary that develops image processing technology,
         for $1,950. The Company has assessed the additional expenditure of cash
         for the increased investment in such subsidiary because of in-process
         product development and the historical financial losses and future
         funding requirements for its operations. As a result of this
         assessment, a pre-tax loss of $1,950 was recorded in the accompanying
         consolidated statement of operations. 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. Giving
         effect to the repurchase of 400,000 shares of the subsidiary at $4.875
         per share, the Company's interest in the voting common stock of such
         subsidiary was 60% at June 30, 1998.

         During the first quarter of fiscal 1999, the Company's Aironet Wireless
         Communications, Inc. ("Aironet") subsidiary, a developer, manufacturer,
         and marketer of wireless LAN systems, 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 $2.50 warrants 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 voting common stock of
         Aironet at September 30, 1998, was 76%.

10.      Other Debt and Equity Transactions

         During the first quarter of fiscal 1999, $311 in aggregate principal
         amount of the Company's 7-1/2% Convertible Subordinated Debentures were
         surrendered for conversion into 11,621 shares of the Company's Common
         Stock, $.01 par value per share. The surrendered Convertible
         Subordinated Debentures have been cancelled effective as of their
         conversion into common stock.

         During the second quarter of fiscal 1999, the Company repurchased
         24,500 shares of its common stock, at a weighted average price of      
         $19.91 per share, pursuant to its open market repurchase program.

         During the first half of fiscal 1999, the Company re-issued 53,349
         shares of treasury stock, at a weighted average cost of $14.87, to
         satisfy options exercised under the Company's stock option plans.

         During the first half of fiscal 1999, the Company re-issued 23,775
         shares of treasury stock, at a weighted average cost of $14.88, to
         satisfy purchases made by employees through the Telxon Corporation 1995
         Employee Stock Purchase Plan.

         During the second quarter of fiscal 1999, the Company extended to
         August 3, 1999, the $20.0 million in bank credit which it maintains
         under its business purpose revolving promissory note in addition to its
         ongoing $100.0 million credit agreement.


11.      Subsequent Events

         Subsequent to September 30, 1998, the Company re-issued 25,419 shares
         of treasury stock to satisfy stock options exercised under the
         Company's stock option plans.

         Subsequent to September 30, 1998, the Company repurchased 38,800 shares
         of its common stock pursuant to its open market repurchase program.

12.      Reclassifications

         Certain items in the fiscal 1998 consolidated financial statements and
         notes thereto have been reclassified to conform to the fiscal 1999
         presentation.



                                       10
<PAGE>   11


                       TELXON CORPORATION AND SUBSIDIARIES

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

IN ADDITION TO DISCUSSING AND ANALYZING THE COMPANY'S RECENT HISTORICAL
FINANCIAL RESULTS AND CONDITION, THE FOLLOWING MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INCLUDES STATEMENTS
REGARDING CERTAIN TRENDS OR OF OTHER FORWARD-LOOKING INFORMATION CONCERNING THE
COMPANY'S ANTICIPATED REVENUES, COSTS, FINANCIAL RESOURCES OR OTHERWISE
AFFECTING OR RELATING TO THE COMPANY WHICH ARE INTENDED TO QUALIFY FOR THE
PROTECTIONS AFFORDED "FORWARD-LOOKING STATEMENTS" UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995, PUBLIC LAW 104-67. THE FORWARD-LOOKING
STATEMENTS MADE HEREIN AND ELSEWHERE IN THIS FORM 10-Q ARE INHERENTLY SUBJECT
TO RISKS AND UNCERTAINTIES, WHICH COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS. THE SUMMARY OF CERTAIN
OF THE  RISKS AND OTHER IMPORTANT FACTORS WHICH MAY AFFECT THE COMPANY'S
BUSINESS, OPERATING RESULTS AND FINANCIAL AND OTHER CONDITION UNDER "FACTORS
THAT MAY AFFECT FUTURE RESULTS" BELOW SHOULD BE READ IN CONJUNCTION WITH THE
MORE COMPLETE DISCUSSION OF THOSE AND OTHER RISKS AND IMPORTANT FACTORS
AFFECTING THE BUSINESS, OPERATING RESULTS AND CONDITION OF THE COMPANY UNDER
"ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION - FACTORS THAT MAY AFFECT FUTURE RESULTS", AND OTHER
CAUTIONARY STATEMENTS APPEARING UNDER "ITEM 1. BUSINESS" AND ELSEWHERE, IN THE
COMPANY'S ANNUAL REPORT ON FORM 10-K, AS AMENDED BY AMENDMENTS NO. 1 AND NO. 2
ON FORM 10-K/A, FOR THE FISCAL YEAR ENDED MARCH 31, 1998.

Overview

The Company recorded net income of $2.5 million or $.15 per common share
(diluted) and $2.7 million or $.16 per common share (diluted) for the second
quarter and first half of fiscal 1999, respectively. In comparison, the Company
recorded net income of $2.4 million or $.15 per common share (diluted) and $4.0
or $.25 per common share (diluted) for the second quarter and first half of
fiscal 1998, respectively. The results for the first half of fiscal 1999 include
after-tax charges of $2.1 million or $.13 per common share (diluted) for costs
incurred in response to an unsolicited takeover proposal and $1.0 million or
$.06 per common share (diluted) related to transactions in the voting common
stock and warrants of two of the Company's subsidiaries.

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

Factors That May Affect Future Results

The Company's business, operating results and financial and other condition may
be affected by a number of risks and other important factors, including,
without limitation, the following, some of which are inherently difficult to
identify and predict and/or are beyond the Company's control: general and
industry-specific economic conditions; the identification and implementation of
appropriate cost saving and operational efficiency initiatives; sales and
manufacturing cycles from quarter to quarter and within each quarter; serving
markets characterized by increasingly rapid technological change and associated
changes in market demand and product obsolescence and by price erosion; intense
competition; 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 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, including the possible affects of the adoption of the "evro";
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 are also subject to the
possible adverse effects of certain pending litigation and other contingencies
discussed in Note 7 to the accompanying consolidated financial statements
included in Item 1 above.












Readiness for the Year 2000

As the end of the twentieth century nears, there is 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, many computer
applications may fail to treat year dates intended to represent years in the
twenty-first century as such but instead treat them as still in the twentieth
century, potentially resulting 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 affect virtually all companies and organizations.





                                       11
<PAGE>   12
Year 2000 issues affect 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 involves not only its corporate
information systems but also computer-based systems used directly in the conduct
of its business ("Business Function 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 are being funded from the Company's operating cash flows.

With respect to its products, the Company has identified those that are or will
be made Year 2000 ready. Those already- or to-be-made-Year 2000 ready products
represent the existing products which management believes will continue to be a
significant part of the Company's ongoing product line. Customers may continue
to order the Company's other existing products, but with no assurance from the
Company as to their Year 2000 readiness or the feasibility or availability of an
upgrade path to readiness. All new products are being designed to be Year 2000
ready.

The Company has substantially completed the initial writing of the
software/firmware upgrades for the products which are not presently, but are to
be made, Year 2000 ready, and has completed a majority of the testing of those
upgrades. Subject to negotiated contractual commitments, the Company will make
the upgrades available free of charge for products purchased after December 31,
1997, but customers will be responsible for installing the upgrades (or they may
retain the Company to do so for a fee). The costs to date of upgrading the
Company's products to Year 2000 readiness have not been, and the Company does
not expect that the remaining cost of doing so will be, material to the
Company's financial position or results of operations.

As further discussed under "FINANCIAL CONDITION - Cash Flows from Investing
Activities" below, the Company has purchased and is working with outside
contractors to develop and install new corporate-wide information systems.
Though the new systems were identified as a strategic business initiative
independent of Year 2000 considerations, they are also being designed to make
the Company's Information Systems Year 2000 ready. During the second quarter of
fiscal 1999, the Company completed the first phase of the new systems
installation, encompassing the Company's key financial reporting and the
accounting systems. While the new information systems will be dynamic ones
permitting ongoing improvements as business needs are identified, the basic
remaining operational systems are expected to be substantially completed during
the first quarter of fiscal 2000 at a total estimated capital expenditure of
approximately $24.6 million and accelerated expenditures for the replacement of
computer hardware of $2.4 million. To date, the Company has spent approximately
$18.0 million in capital expenditures and $.5 million on computer hardware
replacement. Those time and cost targets are management's current best estimates
based on presently available information and numerous assumptions. Given the
uncertainties and complexities inherent in any new system installation, there
can be no assurance that the project will be completed within the expected time
and cost parameters.

The Company has engaged an outside consultant to evaluate the Year 2000
readiness of its engineering, manufacturing and customer maintenance and service
Business Function Systems. The consultant's findings and recommendations are to
be delivered to the Company by January 1, 1999 and will be reviewed and acted
upon by the Company team overseeing the study, which includes senior management
from each of the affected functional areas. To the extent any Year 2000 issues
are identified, remediation options will include re-writing the affected
software or replacing the affected hardware or software with hardware or
software that is Year 2000 ready. The Company believes that, in general,
replacement, Year 2000 ready hardware and software for its Business Function
Systems are readily available, making that the most likely means of addressing
any remediation needs identified by the consultant. The estimated cost of the
study is immaterial but until the results of the consultant's study are received
and evaluated by the Company, the timetable and cost (though not expected to be
material) for any remediation that may ultimately be required with respect to
the Company's Business Function Systems cannot be estimated.

To the extent that the re-writing of affected software is selected as the means
for remediating any Year 2000 issues, whether in preparing upgrades to Company
products, making Business Function Systems Year 2000 ready or otherwise, given
the technical nature of the task of isolating and correcting non-compliant
programming and the limited internal resources available, and the increasing
demand for available external resources, to perform the work, there can be no
assurances as to if, when and at what cost any such software work can be
completed.

The Company's own Year 2000 readiness is also 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. Insofar as no single customer has accounted
for more than ten percent of the Company's revenues in recent fiscal years, the
Company does not anticipate that its operating results will be materially
adversely affected by the failure of any particular customer to itself be Year
2000 ready. The volume of Year 2000 inquiries which the Company has received
from its customers regarding the Year 2000 readiness of the Company products
they use further suggests that the Company's customers are addressing their Year
2000 issues. The Company has made Year 2000 readiness inquiries of the current
suppliers to its engineering, manufacturing and service functions and is
beginning the process of assessing the responses which are being received. The
Company has also made readiness inquires of its providers of facilities and
related equipment and services (elevators, HVAC, utilities, etc.) and while
still in the process of receiving and assessing the providers' responses, has
not to date indentified any significant Year 2000 issues. 

There are several possible scenarios which, alone or in aggregate effect, could,
depending on the particular circumstances, materially adversely affect 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 such as the Company engaged in some facet of the
computer industry, there is a risk that the Company's customers may, in advance
of or after the change in the millennium, 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
other compensation for their resulting losses; such legal actions, even if not
ultimately determined adversely 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
this time, the Company does not believe that the likelihood of any of the above
scenarios occurring can be reliably predicted, or that the nature or extent of
their possible adverse effects on the Company, can be reasonably estimated.
Though the Company currently does not have formal contingency plans in place to
address any particular possible Year 2000 scenario, the Company intends to
develop appropriate contingency plans if and when any significant risks relating
to its Year 2000 readiness can be more definitely indentified. 


                                       12
<PAGE>   13


RESULTS OF OPERATIONS

Revenues
--------

<TABLE>
<CAPTION>
                                                           Quarter ended September 30,                   Increase
                                                          -----------------------------                  --------
                                                            1998                1997            Dollar          Percentage
                                                            ----                ----            ------          ----------
                                                                          (in thousands)
<S>                                                     <C>                  <C>               <C>               <C>  
Net Revenues:
  Product, net                                            $103,133             $ 91,138         $11,995            13.2%
  Customer service, net                                     21,236               19,182           2,054            10.7%
                                                          --------             --------         -------
  Total net revenues                                      $124,369             $110,320         $14,049            12.7%
                                                          ========             ========         =======



                                                         Six Months ended September 30,                  Increase
                                                         ------------------------------                  --------
                                                            1998                1997            Dollar          Percentage
                                                            ----                ----            ------          ----------
                                                                          (in thousands)
Net Revenues:
  Product, net                                            $197,210             $177,829          $19,381           10.9%
  Customer service, net                                     42,206               37,404            4,802           12.8%
                                                          --------             --------         --------
  Total net revenues                                      $239,416             $215,233          $24,183           11.2%
                                                          ========             ========          =======
</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 system integration
and project management.

The increase in the second quarter fiscal 1999 consolidated product revenues
from fiscal 1998 levels was due primarily to a 11.2% increase in PTC unit volume
and a .9% increase in the average selling price per PTC unit. The increase in
consolidated PTC unit volume was the result of a substantial increase in
shipments of PTC 960 units in the second quarter of fiscal 1999 as compared to
the second quarter of fiscal 1998. This was the result of the Company's
continued successful penetration of the retail market.

The increase in the first half of fiscal 1999 consolidated product revenues
from fiscal 1998 levels was due primarily to a 8.0% increase in PTC unit volume
and a 2.9% increase in the average selling price per PTC unit. The increase in
consolidated PTC unit volume was the result of a substantial increase in
shipments of PTC 960 units in the first half of fiscal 1999 and the             
approximately 400% increase in shipments of pen-based units as compared to the
first half of fiscal 1998. The Company expects consolidated product revenues
for the remainder of fiscal 1999 to increase from fiscal 1998 levels.

The increase in the second quarter and first half of fiscal 1999 consolidated
customer service revenues from the fiscal 1998 levels was primarily the result
of the continued increase in the installed base of the Company's products. The
Company anticipates increased consolidated customer service revenues for the
remainder of fiscal 1999.

Revenues from the Company's international operations (including Canada)
increased $2.3 million or 7.5% and $3.8 million or 6.2% in the second quarter
and first half of fiscal 1999, respectively, as compared to fiscal 1998 levels.
This increase was attributable primarily to the increased revenues recorded by
the Company's European operations. Changes in foreign exchange rates did not
have a material impact on the results of the Company's international
operations. The European Economic and Monetary Union and a new currency, the
"euro," will begin in Europe on January 1, 1999 as participating countries
adopt the euro as their home currency. As the Company operates in certain of
these countries, the adoption of the euro may have an impact on its financial   
results. While the Company's initial assessment is that the adoption of the
euro will not have a material adverse affect on the Company, the Company will   
continue to monitor trends, issues and events related to the adoption of the
euro and their potential impact on the Company and its financial results and
operations.




                                       13
<PAGE>   14


Cost of Revenues
----------------
<TABLE>
<CAPTION>
                                                             Quarter ended September 30,                Increase
                                                             ---------------------------                --------
                                                               1998              1997           Dollar         Percentage
                                                               ----              ----           ------         ----------
                                                                          (in thousands)
<S>                                                         <C>               <C>               <C>          <C>  
Cost of Revenues:
  Product                                                     $62,411           $54,276           $8,135         15.0%
  Customer service                                             13,502            12,336            1,166          9.5%
                                                              -------           -------           ------
  Total cost of revenues                                      $75,913           $66,612           $9,301         14.0%
                                                              =======           =======           ======

Cost of product revenues as a
  percentage of product revenues,
  net                                                            60.5%             59.6%

Cost of customer service revenues
  as a percentage of customer
  service revenues, net                                          63.6%             64.3%


                                                           Six Months ended September 30,               Increase
                                                           ------------------------------               --------
                                                               1998              1997           Dollar         Percentage
                                                               ----              ----           ------         ----------
                                                                            (in thousands)

Cost of Revenues:
  Product                                                    $119,722          $106,836          $12,886         12.1%
  Customer service                                             26,327            23,462            2,865         12.2%
                                                             --------          --------           ------
  Total cost of revenues                                     $146,049          $130,298          $15,751         12.1%
                                                             ========          ========          =======

Cost of product revenues as a
  percentage of product revenues,
  net                                                            60.7%             60.1%

Cost of customer service revenues
  as a percentage of customer
  service revenues, net                                          62.4%             62.7%
</TABLE>


Consolidated product gross margins decreased to 39.5% in the second quarter of
fiscal 1999 from 40.4% in the second quarter of fiscal 1998. Consolidated
product gross margins decreased to 39.3% during the first half of fiscal 1999
from 39.9% during the first half of fiscal 1998. These decreases were due
primarily to an increase in the average cost per PTC unit, which increased 8.2%
and 6.0% during the second quarter and first half of fiscal 1999 from   
comparable fiscal 1998 averages, and the result of a shift in product mix to
large retail customers, which tend to carry lower margins. 

At September 30, 1998, consolidated inventory allowance accounts decreased to
$11.0 million from $11.5 million at March 31, 1998. As a percentage of
consolidated gross inventories, the Company's consolidated inventory allowances
decreased to 9.4% at September 30, 1998, from 9.5% at March 31, 1998. The       
allowance accounts decreased due to the physical scrapping of obsolete
materials in excess of amounts provided during the first half of fiscal 1999.
Consolidated provisions for excess and obsolete material were $4.1 million for
the first half of fiscal 1999. The Company anticipates continuing to provide
for inventory obsolescence resulting from technological change.

Operating Expenses
------------------
<TABLE>
<CAPTION>
                                                            Quarter ended September 30,             Increase/(Decrease)
                                                            ---------------------------             -------------------
                                                               1998              1997            Dollar        Percentage
                                                               ----              ----            ------        ----------
                                                                           (in thousands)
<S>                                                         <C>               <C>               <C>           <C> 
Operating Expenses:
  Selling expenses                                            $20,317           $18,677           $1,640           8.8%
  Product development and
    engineering expenses                                        9,261             9,525             (264)        (2.8)%
  General and administrative
    expenses                                                   10,425             9,843              582           5.9%
                                                              -------           -------           ------     
Total operating expenses before other operating items         $40,003           $38,045           $1,958           5.1%
                                                              =======           =======           ======
Other operating items:
    Take-over defense costs                                   $ 1,830           $     -           $1,830           N.M.
                                                              -------           -------           ------
Total other operating items                                   $ 1,830           $     -           $1,830           N.M.
                                                              =======           =======           ======
</TABLE>

                                       14
<PAGE>   15
<TABLE>
<CAPTION>
                                                           Six Months ended September 30,         Increase/(Decrease)
                                                           ------------------------------         -------------------
                                                               1998              1997            Dollar       Percentage
                                                               ----              ----            ------       ----------
                                                                           (in thousands)
<S>                                                         <C>               <C>               <C>          <C>  
Operating Expenses:
  Selling expenses                                            $41,678           $36,776           $4,902         13.3%
  Product development and
    engineering expenses                                       18,191            18,651             (460)       (2.5)%
  General and administrative
    expenses                                                   19,862            19,547              315          1.6%
                                                              -------           -------           ------
Total operating expenses before other operating items         $79,731           $74,974           $4,757          6.3%
                                                              =======           =======          =======
  Other operating items:
    Take-over defense costs                                     3,579                 -            3,579          N.M.
    Charge related to transaction with
       business partner                                         1,950                 -            1,950          N.M.
                                                              -------           -------           ------
  Total other operating items                                 $ 5,529           $     -          $ 5,529          N.M.
                                                              =======           =======          =======
</TABLE>

Selling expenses as a percentage of total revenues decreased to 16.3% in the
second quarter of fiscal 1999 from 16.9% in the second quarter of fiscal 1998.
Selling expenses as a percentage of total revenues increased to 17.4% in the
first half of fiscal 1999 from 17.1% in the first half of fiscal 1998. Selling
expenses as a percentage of total revenues for the second quarter of fiscal 1999
decreased due to the spreading of fixed expenses over a higher revenue base. The
increase in consolidated selling expenses for the first half of fiscal 1999 from
fiscal 1998 levels was due primarily to investments in personnel and resources
to support the revenue growth of the Company and its investment in indirect
channel distribution. Due to these investments, the Company expects selling
expenses as a percentage of total revenues for the remainder of fiscal 1999 to
be slightly higher than the comparable fiscal 1998 levels.

Product development and engineering expenses as a percentage of total revenues
decreased to 7.6% in the first half of fiscal 1999 from 8.7% in the first half
of fiscal 1998. This decrease primarily resulted from the absence of
amortization related to the acquisition of, and of research and development
expenditures related to, a technical subsidiary disposed of in fiscal 1998, and
cost reductions related to consolidation and relocation of certain of the
Company's engineering and product development operations from Akron, Ohio to
Houston, Texas. These decreases were partially offset by increased engineering
and development expenses for new pen-based product introductions. The Company
expects product development and engineering expenses, as a percentage of total
revenues, for the remainder of fiscal 1999 to be below the corresponding fiscal
1998 levels.

During the first half of fiscal 1999, the Company capitalized internal software
development costs in accordance with the requirements of Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
Be Sold, Leased, or Otherwise Marketed" aggregating $2.7 million, offset by
amortization of $3.7 million. The Company anticipates the dollar amount of
internal software development cost capitalized during the remainder of fiscal
1999 to remain generally consistent with the fiscal 1998 level.

General and administrative expenses as a percentage of total revenues decreased
to 8.3% in the first half of fiscal 1999 from 9.1% in the first half of fiscal
1998, while general and administrative expenses increased slightly in dollar
terms. General and administrative expenses as a percentage of total revenues for
the first half of fiscal 1999 decreased due the spreading of fixed expenses over
a higher revenue base. The dollar increase in general and administrative
expenses was primarily due to increased costs related to the Company's
installation of its new corporate-wide information systems. These increases were
partially offset by a decrease in expenses due to the absence of certain
international operations which were curtailed during fiscal 1998.

During the second quarter and first half of fiscal 1999 the Company recorded
$1.8 and $3.6 million, respectively, related to costs incurred in response to an
unsolicited takeover proposal by Symbol Technologies, Inc. ("Symbol") in the
first quarter and to a proxy contest initiated by a stockholder of the Company
late in the first quarter which was settled during the second quarter. In the
proxy contest, the stockholders, citing the Company's rejection of the Symbol
proposal, proposed to present six proposals to reform the Company's corporate
governance structure, particularly as it relates to takeover proposals such as
Symbol's, and to nominate a director at the Company's 1998 annual meeting of
stockholders held September 15, 1998. The Terms of the proxy contest settlement
included an agreement kept by the Company that, from September 1, 1998, to May
31, 1999, it will take all actions necessary to declare its shareholder rights
plan inapplicable to any fully financed, all-cash tender offer that, among other
things, ensures holders of the Company's common stock a price per share that is
in excess of $40 or 140% of the average closing price per share of the Company's
common stock during a 


                                       15
<PAGE>   16

specified period ending before the announcement of the tender offer. 

During the first quarter of fiscal 1999, the Company entered into a series of
transactions with a business partner. The Company repurchased the voting common
shares of its Metanetics subsidiary ("Metanetics"), a development stage
subsidiary that develops image processing technology for $1,950. The Company has
assessed the additional expenditure of cash for the increased investment in such
subsidiary because of in-process product development and the historical
financial losses and future funding requirements for its operations. As a result
of this assessment, a pre-tax loss of $1,950 was recorded in the accompanying
consolidated statement of operations. 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. Giving effect to the repurchase of 400,000
shares of the subsidiary at $4.875 per share, the Company's interest in the
voting common stock of such subsidiary was 60% at June 30, 1998.


Other Non-Operating Income (Expense), net
-----------------------------------------
<TABLE>
<CAPTION>
                                                              Quarter ended September 30,                Decrease
                                                              ---------------------------                --------
                                                                1998              1997            Dollar        Percentage
                                                                ----              ----            ------        ----------
                                                                          (in thousands)
<S>                                                           <C>               <C>              <C>                 
Non-Operating Income (Expense):
     Gain on sale of subsidiary stock                          $    -             $   -            $   -           N.M.
     Other non-operating (expense)                                  -                (7)               7           N.M.
                                                               ------             -----            -----
Total non-operating income (expense), net                      $    -             $  (7)           $   7           N.M
                                                               ======             =====            =====


                                                             Six Months ended September 30,              Increase
                                                             ------------------------------              --------
                                                               1998              1997            Dollar        Percentage
                                                               ----              ----            ------        ----------
                                                                            (in thousands)
Non-Operating Income (Expense):
     Gain on sale of subsidiary stock                           $ 340             $   -            $ 340            N.M.
     Other non-operating income (expense)                         120              (165)             285          172.7%
                                                                -----             -----            -----
Total non-operating income (expense), net                       $ 460             $(165)           $ 625          378.8%
                                                                =====             =====            =====
</TABLE>


During the first quarter of fiscal 1999, the Company's Aironet Wireless
Communications, Inc. ("Aironet") subsidiary, a developer, manufacturer and
marketer of wireless LAN systems, 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 $340, net of a deferred gain of $47 related to warrants for an
additional 66,667 shares that were also issued, was recorded as other
non-operating income in the accompanying consolidated statement of operations.


Income Taxes
------------
<TABLE>
<CAPTION>
                                                           Quarter ended September 30,                  (Decrease)
                                                           ---------------------------                  ----------
                                                            1998                 1997            Dollar        Percentage
                                                            ----                 ----            ------        ----------
                                                                           (in thousands)
<S>                                                      <C>                   <C>               <C>            <C>    
Income Taxes:
  Provision for income taxes                               $1,672                $1,877            $(205)         (10.9)%

                                                         Six Months ended September 30,                 (Decrease)
                                                         ------------------------------                 ----------
                                                            1998                 1997            Dollar        Percentage
                                                            ----                 ----            ------        ----------
                                                                            (in thousands)
Income Taxes:
  Provision for income taxes                               $1,837                $3,129          $(1,292)         (41.3)%
</TABLE>


The Company's consolidated effective tax rate was 40.1% in the first half of
fiscal 1999 and 44.0% in the first half of fiscal 1998. The consolidated
effective income tax rate for the first half of fiscal 1999 reflects income
before taxes multiplied by the United States federal statutory tax rate. The tax
rate was increased by nondeductible goodwill amortization, international tax
rate differentials and unutilized subsidiary net operating loss benefits. The
effective income tax rate was decreased as a result of the utilization of
research and development credits earned in prior periods and the favorable tax
treatment of the Company's foreign sales corporation.

                                       16
<PAGE>   17

The consolidated effective income tax rate for the first half of fiscal 1998
reflects, income before taxes multiplied by the United States federal statutory
tax rate, increased by nondeductible goodwill amortization, international tax
rate differentials and subsidiaries' net operating loss benefits not currently
utilized. The consolidated effective tax rate was decreased by the favorable tax
treatment of the Company's foreign sales corporation.


FINANCIAL CONDITION

Liquidity
---------
<TABLE>
<CAPTION>
                                                                                                           Dollar
                                                                      September 30,       March 31,       Increase
                                                                          1998              1998         (Decrease)
                                                                          ----              ----         ----------
                                                                               (in thousands except ratios)

<S>                                                                    <C>               <C>              <C>     
Cash and cash equivalents                                                $ 37,586          $ 27,500         $ 10,086
Accounts and notes receivable                                             133,110           148,688          (15,578)
Inventories                                                               104,336           108,178           (3,842)
Other                                                                      14,337            11,307            3,030
                                                                         --------          --------         --------
Total current assets                                                     $289,369          $295,673         $ (6,304)
                                                                         ========          ========         ========

Notes payable                                                            $ 17,580          $  3,000         $ 14,580
Accounts payable                                                           50,726            58,634           (7,908)
Income taxes payable                                                        2,623             3,390             (767)
Accrued liabilities                                                        39,720            41,034           (1,314)
Other                                                                         855               968             (113)
                                                                         --------          --------       -----------
Total current liabilities                                                $111,504          $107,026         $  4,478
                                                                         ========          ========         ========
Working capital (current assets
  less current liabilities)                                              $177,865          $188,647        $ (10,782)
                                                                         ========          ========        =========
Current ratio (current assets divided
  by current liabilities)                                                2.6 to 1          2.8 to 1
</TABLE>

As illustrated in the preceding table, the decrease in the Company's
consolidated working capital at September 30, 1998, from March 31, 1998, was
due primarily to the decreases in accounts and notes receivable and inventories
and increased borrowing of notes payable. These decreases to working capital
were offset by increases in working capital as a result of increases in cash
and cash equivalents, and decreases in accounts payable and accrued
liabilities. The increase in cash was the result of increased borrowing on      
notes payable offset by payments to vendors. The increase in notes payable      
reflect increased borrowings from the Company's revolving credit facilities due
to the timing of cash collections within the quarter. Consolidated days sales
outstanding ("DSO") decreased to 82 days at September 30, 1998, from 85 days at
March 31, 1998. The decrease in inventory was the result of decreased
manufacturing inventories partially offset by increased investments in customer
service inventories in order to support the Company's expanded product base.
Consolidated inventory turns decreased to 2.3 at September 30, 1998, from 2.4
at March 31, 1998.

The Company had $17.6 million outstanding under its bank credit agreements at
September 30, 1998, and was in compliance with all restrictive covenants
contained in those agreements.

The Company believes its existing resources, including available cash and cash
equivalents, internally generated funds and bank credit facilities ($100 million
credit agreement and $20 million promissory note) will be sufficient to meet
working capital requirements for the next twelve months.


                                       17
<PAGE>   18

Cash Flows from Operating Activities
------------------------------------
<TABLE>
<CAPTION>
                                                                                                         
                                                                                                           Dollar     
                                                                                                          Increase    
                                                                                                         (Decrease)   
                                                                     Six Months ended September 30,          in       
                                                                     ------------------------------       Cash Flow  
                                                                           1998            1997            Impact
                                                                           ----            ----            ------
                                                                                      (in thousands)
<S>                                                                     <C>              <C>               <C>     
  Net income                                                              $ 2,744          $  3,982          $(1,238)
  Depreciation and amortization                                            12,534            12,183              351
  Provision for inventory obsolescence                                      4,086             3,548              538
  Deferred income taxes                                                         3               172             (169)
  Accounts and notes receivable                                             8,989             7,597            1,392
  Inventories                                                                (280)           (7,032)           6,752
  Prepaid expenses and other                                               (2,318)           (2,231)             (87)
  Accounts payable and accrued liabilities                                 (9,381)          (21,341)          11,960
  Other                                                                     1,351              (946)           2,297
                                                                          -------          --------         --------
Net cash provided by (used in) operating activities                       $17,728          $ (4,068)         $21,796
                                                                          =======          ========          =======
</TABLE>

As detailed in the preceding table, the increase in the net cash provided by the
Company's consolidated operating activities for the first half of fiscal 1999 as
compared to the first half of fiscal 1998 was the result of the positive cash
flow impacts resulting from the decrease in inventories and the increase in
accounts payable and accrued liabilities. The consolidated inventories have not
grown at the same pace with revenue growth due to improved inventory management
and use of outside processors for certain manufacturing functions. Accounts
payable and accrued liabilities have not decreased as in the prior year due to
improved cash and vendor management.

Cash Flows from Investing Activities
------------------------------------
<TABLE>
<CAPTION>
                                                                                                          
                                                                                                            Dollar   
                                                                                                           Decrease  
                                                                     Six Months ended September 30,           in     
                                                                     ------------------------------        Cash Flow 
                                                                           1998            1997             Impact
                                                                           ----            ----             ------
                                                                                      (in thousands)

<S>                                                                   <C>                <C>               <C>     
  Additions to property and equipment                                   $ (18,848)         $(12,212)         $(6,636)
  Software and other investments                                           (2,939)           (2,279)            (660)
  Proceeds from sale of assets                                                  -               866             (866)
  Other                                                                      (608)             (140)            (468)
                                                                         --------           -------          -------
Net cash used in investing activities                                    $(22,395)         $(13,765)         $(8,630)
                                                                         ========          ========          =======
</TABLE>

As detailed in the preceding table, the increase in the amount of cash used in
the Company's consolidated investing activities in the first half of fiscal 1999
from the first half of fiscal 1998 was due primarily to increased investments in
property and equipment, primarily the capitalization of $5.6 million of
expenditures relating to the installation of new corporate-wide information
systems. As of September 30, 1998, the Company has capitalized $18.0 million of
the total estimated capital expenditures of approximately $24.6 million for the
new systems. The Company anticipates additional capitalization of costs
associated with the new corporate-wide information systems during the remainder
of fiscal 1999.

Cash Flows from Financing Activities
------------------------------------
<TABLE>
<CAPTION>
                                                                                                         
                                                                                                            Dollar     
                                                                                                           Increase    
                                                                                                          (Decrease)   
                                                                     Six Months ended September 30,           in       
                                                                     ------------------------------        Cash Flow   
                                                                           1998            1997             Impact
                                                                           ----            ----             ------
                                                                                      (in thousands)
<S>                                                                     <C>               <C>              <C>    
  Notes payable, net                                                      $14,580           $   (50)         $14,630
  Purchase of treasury stock                                                 (488)           (3,256)           2,768
  Proceeds from exercise of stock options                                   1,222             4,863           (3,641)
  Other                                                                      (343)             (318)             (25)
                                                                          -------           -------          -------
Net cash provided by financing activities                                 $14,971          $  1,239          $13,732
                                                                          =======          ========          =======
</TABLE>

As detailed in the preceding table, the increase in the Company's net cash
provided by financing activities for the first half of fiscal 1999 from the
first half of fiscal 1998 was due primarily to 


                                       18
<PAGE>   19

the increase in the level of borrowings from the Company's revolving credit
facilities during the first half of fiscal 1999 and the reduction in the fiscal
1999 period of the cash flow impact of the repurchase of treasury stock during
the first quarter of fiscal 1998, partially offset by the decrease in the cash
flow impact of the proceeds from the exercise of stock options due to the
decrease in the market price of the Company's common stock.


Other Transactions

During the first quarter of fiscal 1999, $311 in aggregate principal amount of
the Company's 7-1/2% Convertible Subordinated Debentures were surrendered for   
conversion into 11,621 shares of the Company's common stock. The surrendered
Convertible Subordinated Debentures have been cancelled effective as of their
conversion into common stock.

During the second quarter of fiscal 1999, the Company repurchased 24,500 shares
of its common stock, at a weighted average price of $19.91 per share, pursuant
to its open market repurchase program.

During the first half of fiscal 1999, the Company re-issued 53,349 shares of
treasury stock, at a weighted average cost of $14.87, to satisfy stock options
exercised under the Company's stock option plans.

During the first half of fiscal 1999, the Company re-issued 23,775 shares of
treasury stock, at a weighted average cost of $14.88, to satisfy purchases made
by employees through the Telxon Corporation 1995 Employee Stock Purchase Plan.

During the second quarter of fiscal 1999, the Company extended to August 3,
1999, the $20.0 million in bank credit which it maintains under its business
purpose revolving promissory note in addition to its ongoing $100.0 million
credit agreement.


Subsequent Events

Subsequent to September 30, 1998, the Company re-issued 25,419 shares of
treasury stock to satisfy stock options exercised under the Company's stock
option plans.

Subsequent to September 30, 1998, the Company repurchased 38,800 shares of its  
common stock pursuant to its open market repurchase program.

                                       19
<PAGE>   20
PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

See Note 7 to the consolidated financial statements included in Part I of this
Quarterly Report on Form 10-Q for a discussion of the material pending legal
proceedings to which the Company is a party, which footnote discussion is
incorporated in this Part II by this reference.

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

                  (a)      The Company held its Annual Meeting of Stockholders
                           on September 15, 1998 (the "Annual Meeting").

                  (b)      The sole matter voted upon by the Company's
                           stockholders at the Annual Meeting was the election
                           of two directors of the class to hold office until
                           the 2001 annual meeting of stockholders. Richard J.
                           Bogomolny and John H. Cribb were nominated by the
                           Board of Directors for re-election to serve as the
                           directors of such class, and they were elected by the
                           Company's stockholders at the Annual Meeting. The
                           other directors of the Company, whose terms of office
                           as directors continued after the Annual Meeting, are
                           Frank E. Brick, Robert A. Goodman, Dr. Raj Reddy and
                           Norton W. Rose.

                  (c)      The following votes were cast for each director 
                           nominee:

                           For the election of Richard J. Bogomolny --
                                    Votes for:           13,131,606
                                    Votes withheld:         519,402; and

                           For the election of John H. Cribb --
                                    Votes for:           13,131,321
                                    Votes withheld:         519,687

                  (d)      Proxy soliciting materials regarding the settlement
                           made by the Company prior to the Annual Meeting
                           terminating a proxy solicitation commenced by a
                           stockholder of the Company with respect to the Annual
                           Meeting have previously been furnished by the Company
                           to its stockholders.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

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

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

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

                           4.1      Portions of the Restated Certificate of
                                    Incorporation of Registrant pertaining to
                                    the rights of holders of Registrant's Common
                                    Stock, par value $.01 per share,
                                    incorporated herein by reference to Exhibit
                                    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, 

                                       20
<PAGE>   21

                                    incorporated herein by reference to 
                                    Exhibit 4.2 to Registrant's Form 10-Q for 
                                    the quarter ended June 30, 1995.

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

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

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

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

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

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

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

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

                           10.1     Compensation and Benefits Plans of 
                                    Registrant.

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

                                            10.1.1.a Amendment, dated January 1,

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

                                       21
<PAGE>   22

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

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

                                    10.1.2  1990 Stock Option Plan for 
                                            employees of Registrant, as
                                            amended, incorporated herein by
                                            reference to Exhibit 10.1.2 to
                                            Registrant's Form 10-Q for the
                                            quarter ended September 30, 1997.

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

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

                                            10.1.4.a Description of 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, incorporated herein by
                                            reference to Exhibit 10.1.17 to
                                            Registrant's Form 10-Q for the
                                            quarter ended December 31, 1993.

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

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

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

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

                                            10.1.7.a Amended and Restated 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.a to
                                                     Registrant's Form 10-K for
                                                     the year ended March 31,
                                                     1998.

                                    10.1.8  Non-Competition Agreement by and
                                            between Registrant and Robert F.
                                            Meyerson, effective February 27,
                                            1997, incorporated herein




                                       22
<PAGE>   23
                   
                                            by reference to Exhibit 10.1.8 to
                                            Registrant's Form 10-K for the year
                                            ended March 31, 1997.

                                    10.1.9  Employment Agreement between 
                                            Registrant and Frank E. Brick,
                                            incorporated herein by reference to
                                            Exhibit 10.1.9 to Registrant's Form
                                            10-K for the year ended March 31,
                                            1998.

                                            10.1.9.a 1997 Section 162(m)
                                                     Performance-Based
                                                     Compensation Plan of
                                                     Registrant with respect to
                                                     its President and Chief
                                                     Executive Officer adopted
                                                     by the Performance-Based
                                                     Compensation Committee of
                                                     Registrant's Board of
                                                     Directors and approved by
                                                     Registrant's Stockholders
                                                     at the Annual Meeting
                                                     thereof, held September
                                                     10, 1997, incorporated
                                                     herein by reference to
                                                     Exhibit 10.1.9.a to
                                                     Registrant's Form 10-K for
                                                     the year ended March 31,
                                                     1998.

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

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

                                    10.1.12  Amended and Restated Employment 
                                             Agreement between Registrant and
                                             David D. Loadman, effective as of
                                             April 1, 1997, incorporated herein
                                             by reference to Exhibit 10.1.12 to
                                             Registrant's Form 10-K for the year
                                             ended March 31, 1998.

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

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

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

                                    10.1.17 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.

                           10.2     Material Leases of Registrant.

                                       23
<PAGE>   24

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

                                    10.2.2   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, 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 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, filed
                                             herewith.

                                    10.2.3.f Seventh Addendum, dated as of July
                                             20, 1998, to the Lease included as
                                             Exhibit 10.2.3 above, filed
                                             herewith.

                                    10.2.3.g Eighth Addendum, dated as of 
                                             September 8, 1998, to the Lease
                                             included as Exhibit 10.2.3 above,
                                             filed herewith.

                                    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 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, 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.

                                       24
<PAGE>   25
                                            10.3.1.b  Security Agreement, dated 
                                                      as of August 6, 1996, by
                                                      and among Registrant and
                                                      The Bank of New York, as
                                                      Agent, incorporated herein
                                                      by reference to Exhibit
                                                      10.3.2.b to Registrant's
                                                      Form 8-K dated August 16,
                                                      1996.

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

                                            10.3.1.d  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.

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

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

                                    10.3.3   Business Purpose Revolving
                                             Promissory Note (Swing Line) made
                                             by Registrant in favor of Bank One,
                                             NA (fka Bank One, Akron, N.A.),
                                             dated August 5, 1997 (extending the
                                             credit facility evidenced by the
                                             Note included as Exhibit 10.3.2
                                             above), incorporated herein by
                                             reference to Exhibit 10.3.8 to
                                             Registrant's Form 10-Q for the
                                             quarter ended June 30, 1997.

                                    10.3.4   Business Purpose Revolving
                                             Promissory Note (Swing Line) made
                                             by Registrant in favor of Bank One,
                                             NA (fka Bank One, Akron, N.A.),
                                             dated August 4, 1998 (extending the
                                             credit facility evidenced by the
                                             Note included as Exhibit 10.3.3
                                             above), filed with the Original
                                             Filing.

                           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.

                           10.6     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.

                           10.7     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
                                    Exhibit 10.7 to Registrant's Form 10-K for
                                    the year ended March 31, 1998.

                                    10.7.1  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.



                                       25
<PAGE>   26

                           10.8     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.

                           10.9     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    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 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.

                           10.14    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.

                                    10.14.1    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.

                                    10.14.2    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.

                                    10.14.3    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.

                            27. Financial Data Schedule as of September 30, 
                                1998, filed herewith.

                  (b)       Reports on Form 8-K

                            During the second quarter of fiscal 1999 to which
                            this Form 10-Q relates, the Registrant filed the
                            following Current Reports on Form 8-K: (i) Current
                            Report dated July 20, 1998, attaching the
                            Registrant's press release of that date which
                            announced its financial results for the first
                            quarter of fiscal 1999 (the press release, as
                            incorporated into the Form 8-K, includes
                            consolidated balance sheets for the Registrant for
                            June 30, 1998 (unaudited), and March 31, 1998, and
                            condensed consolidated statements of operations for
                            the three-month periods (unaudited) ended June 30,
                            1998 and 1997); and (ii) Current Report dated August
                            26, 1998, reporting the Registrant's settlement with
                            one of its stockholders over his proposals and
                            director nomination to have been presented at the
                            Registrant's September 15, 1998 annual meeting of
                            stockholders. 



                                       26
<PAGE>   27


                            Subsequent to the end of the first quarter of fiscal
                            1999, the Company filed a Current Report on Form 8-K
                            dated October 20, 1998, attaching the Registrant's
                            press release of that date which announced its
                            financial results for the second quarter of fiscal
                            1999, and the six month period, ended September 30,
                            1998 (the press release, as incorporated in the Form
                            8-K, includes consolidated balance sheets for the
                            Registrant for September 30, 1998 (unaudited), and
                            March 31, 1998, and condensed consolidated
                            statements of operations for the quarterly and six-
                            month periods (unaudited) ended September 30, 1998
                            and 1997).
      

                                       27
<PAGE>   28

                               TELXON CORPORATION

                                    SIGNATURE


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

Date:    November 16, 1998


                                         TELXON CORPORATION
                                         (Registrant)


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


<PAGE>   29



                               TELXON CORPORATION

                                   EXHIBITS TO

                                    FORM 10-Q

                    FOR THE QUARTER ENDED SEPTEMBER 30, 1998


<PAGE>   30



                                INDEX TO EXHIBITS

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

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

*                          4.1      Portions of the Restated Certificate of Incorporation of Registrant pertaining to the
                                    rights of holders of Registrant's Common Stock, par value $.01 per share, incorporated
                                    herein by reference to Exhibit 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 Savings Bank, dated June 11,
</TABLE>



<PAGE>   31
<TABLE>
<S>                      <C>      <C>

                                             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, effective July 1, 1993, incorporated herein by reference to
                                           Exhibit 10.1.1 to Registrant's Form 10-K for the year ended March 31, 1994.

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

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

*                                          10.1.1.c Amendment, dated January 1, 1994, to the Plan included as Exhibit 10.1.1
                                                    above, 
</TABLE>



<PAGE>   32
<TABLE>
<S>                      <C>      <C>
                                                    incorporated herein by reference to Exhibit 10.1.1.c to Registrant's
                                                    Form 10-Q for the quarter ended December 31, 1994.

*                                   10.1.2      1990 Stock Option Plan for employees of Registrant, as amended, incorporated 
                                                herein by reference to Exhibit 10.1.2 to Registrant's Form 10-Q for the
                                                quarter ended September 30, 1997.

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

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

**                                              10.1.4.a Description of 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, incorporated herein by reference to 
                                                Exhibit 10.1.17 to Registrant's Form 10-Q for the quarter ended December
                                                31, 1993.

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

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

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

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

*                                               10.1.7.a Amended and Restated 1996 Stock Option Plan for employees,
                                                         directors and advisors of Aironet Wireless Communications,
                                                         Inc., a subsidiary of 
</TABLE>



<PAGE>   33
<TABLE>
<S>                      <C>      <C>
                                                          Registrant, incorporated herein by reference to Exhibit 10.1.7.a 
                                                          to Registrant's Form 10-K for the year ended March 31, 1998.

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

*                                   10.1.9 Employment Agreement between Registrant and Frank E. Brick, incorporated
                                           herein by reference to Exhibit 10.1.9 to Registrant's Form 10-K for the year
                                           ended March 31, 1998.

*                                          10.1.9.a  1997 Section 162(m) Performance-Based Compensation Plan of
                                                     Registrant with respect to its President and Chief Executive
                                                     Officer adopted by the Performance-Based Compensation
                                                     Committee of Registrant's Board of Directors and approved by
                                                     Registrant's Stockholders at the Annual Meeting thereof, held
                                                     September 10, 1997, incorporated herein by reference to
                                                     Exhibit 10.1.9.a to Registrant's Form 10-K for the year ended
                                                     March 31, 1998.

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

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

*                                   10.1.12 Amended and Restated Employment Agreement between Registrant and David D.
                                            Loadman, effective as of April 1, 1997, incorporated herein by reference to
                                            Exhibit 10.1.12 to Registrant's Form 10-K for the year ended March 31, 1998.

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

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

*                                   10.1.15 Description of Key Employee Retention Program, incorporated herein by
                                            reference to Exhibit 10.1.15 to 
</TABLE>

<PAGE>   34
<TABLE>
<S>                      <C>      <C>
                                             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  Letter of the Audit Committee of Registrant's Board of Directors, dated July
                                             22, 1996, engaging Norton Rose to act as the Committee's delegate to advise
                                             and assist Registrant's management, incorporated herein by reference to
                                             Exhibit 10.1.16 to Registrant's Form 10-K for the year ended March 31, 1997.

*                                   10.1.17  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.

*                          10.2     Material Leases of Registrant.

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

*                                   10.2.2   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, 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.
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 *                                  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
                                             10.2.2 above, incorporated herein by reference to Exhibit 10.2.2.d to
                                             Registrant's Form 10-Q for the quarter ended June 30, 1997.

 **                                 10.2.3.e Sixth Addendum, dated as of March, 1998, to the Lease included as Exhibit
                                             10.2.3 above, filed herewith.

 **                                 10.2.3.f Seventh Addendum, dated as of July 20, 1998, to the Lease included as Exhibit
                                             10.2.3 above, filed herewith.

 **                                 10.2.3.g Eighth Addendum, dated as of September 8, 1998, to the Lease included as
                                             Exhibit 10.2.3 above, filed herewith.

 *                                  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 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, incorporated
                                             herein by reference to Exhibit 10.3.2 to Registrant's Form 10-K for the year
                                             ended March 31, 1996.

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

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

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

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

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

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

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

 *                                  10.3.4  Business Purpose Revolving Promissory Note (Swing Line) made by Registrant in
                                            favor of Bank One, NA (fka Bank One, Akron, N.A.), dated August 5, 1997
                                            (extending the credit facility evidenced by the Note included as Exhibit
                                            10.3.3 above), filed with the Original Filing.

 *                         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.

 *                         10.6  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.

 *                         10.7  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. 
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<PAGE>   37
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                                 (fka Vision Newco, Inc.), incorporated herein by reference Exhibit 10.7 to Registrant's
                                 Form 10-K for the year ended March 31, 1998.

*                                10.7.1   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.

*                          10.8  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.

*                          10.9  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 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 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.

*                          10.14 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.

*                                10.14.1  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.

*                                10.14.2  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 

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                                          herein by reference to Exhibit 10.14.2 to Registrant's Form 10-K for the year
                                          ended March 31, 1998.

*                                10.14.3  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.

**                         27.  Financial Data Schedule as of September 30, 1998, filed herewith.


*        Previously filed

**       Filed herewith
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