UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

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

     For the three month period ended September 30, 2000


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

     Commission file number 0-16172

                              COMPUTONE CORPORATION
        (Exact name of small business issuer as specified in its charter)

            Delaware                                      23-2472952
-------------------------------                ---------------------------------
(State or other jurisdiction of                (IRS Employer Identification No.)
 incorporation or organization)

          1060 Windward Ridge Parkway, Suite 100, Alpharetta, GA 30005
          ------------------------------------------------------------
                    (Address of principal executive offices)

         Issuer's telephone number, including area code: (770) 625-0000

                                       N/A
                                       ---
              (Former name, former address and former fiscal year,
                         if changed since last report)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 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 [ ]

                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:  12,137,786 shares of common stock on
November 1, 2000.

Transitional Small Business Disclosure Format (check one):  Yes [ ]  No [X]

<PAGE>

                     COMPUTONE CORPORATION AND SUBSIDIARIES

                                      INDEX

                         PART I - FINANCIAL INFORMATION

ITEM 1.   Financial Statements:


          Consolidated Balance Sheets as of September 30, 2000 and
            March 31, 2000                                                     3

          Consolidated Statements of Operations for the three months
            ended September 30, 2000 and September 30, 1999                    4

          Consolidated Statements of Operations for the six months
            ended September 30, 2000 and September 30, 1999                    5

          Consolidated Statements of Cash Flows for the six months
            ended September 30, 2000 and September 30, 1999                    6

          Notes to Consolidated Financial Statements                           7

ITEM 2.   Management's Discussion and Analysis for the three and
          six months ended September 30, 2000 compared to three and
          six months ended September 30, 1999                                 10

                           PART II - OTHER INFORMATION

ITEM 1.   Legal Proceedings                                                   13

ITEM 2.   Changes in Securities                                               13

ITEM 3.   Defaults Upon Senior Securities                                     13

ITEM 4.   Submission of Matters to a Vote of Security Holders                 13

ITEM 5.   Other Information                                                   13

ITEM 6.   Exhibits and Reports on Form 8-K                                    13

SIGNATURES                                                                    14

                                       2
<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1.   Consolidated Financial Statements

                     Computone Corporation and Subsidiaries
                           Consolidated Balance Sheets
                        (in thousands, except share data)

                                                    September 30,     March 31,
                                                        2000            2000
                                                    -----------     -----------
                                                    (unaudited)
ASSETS
Current assets:
    Cash and cash equivalents                       $       153     $       197
    Receivables, net of allowance for doubtful
      accounts of $102 at September 30, 2000 and
      $84 at March 31, 2000                               2,442           1,389
    Inventories, net                                      2,301           2,421
    Prepaid expenses and other                              102              95
                                                    -----------     -----------
Total current assets                                      4,998           4,102

Property and equipment, net                                 684             654

Goodwill, net                                             8,405              --

Other intangible assets, net                                327             388

Other                                                       164              52
                                                    -----------     -----------

TOTAL ASSETS                                        $    14,578     $     5,196
                                                    ===========     ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable, trade                         $       836     $     1,042
    Accrued liabilities:
         Deferred maintenance revenue                     1,265              --
         Deferred gross profit                              267             358
         Interest                                           298             255
         Other                                              579             555
   Line of credit                                           796             993
   Notes payable to stockholders                            740             590
   Current maturities of long-term debt                      --             154
                                                    -----------     -----------
Total current liabilities                                 4,781           3,947

Long-term debt, less current maturities, net of
  discount of $1,122 at September 30, 2000                1,378             193
                                                    -----------     -----------

Total liabilities                                         6,159           4,140
                                                    -----------     -----------
Stockholders' equity:
  Common stock, $.01 par value; 25,000,000 shares
      authorized; 12,137,786 and 9,977,214 shares
      issued  and outstanding, respectively                 121             100
  Additional paid-in capital                             58,955          49,553
  Accumulated deficit                                   (50,657)        (48,597)
                                                    -----------     -----------
Total stockholders' equity                                8,419           1,056
                                                    -----------     -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY          $    14,578     $     5,196
                                                    ===========     ===========

        See accompanying notes to the consolidated financial statements.

                                       3
<PAGE>

                         PART I - FINANCIAL INFORMATION

                     Computone Corporation and Subsidiaries
                      Consolidated Statements of Operations
                      (in thousands, except per share data)

                                                       Three Months Ended
                                                  -----------------------------
                                                  September 30,    September 30,
                                                      2000             1999
                                                  ------------     ------------
                                                           (unaudited)
Revenues:
     Net sales                                    $      2,940     $      2,646
                                                  ------------     ------------
Expenses:
     Cost of sales                                       1,960            1,577
     Amortizaton of goodwill                               215               --
     Selling, general and administrative                 1,261              946
     Product development                                   332              430
                                                  ------------     ------------
                                                         3,768            2,953
                                                  ------------     ------------

Operating loss                                            (828)            (307)

Other income (expense):
     Other income                                            7               --
     Interest expense - affiliates                         (25)             (18)
     Loan discount amortization                           (206)              --
     Interest expense - other                              (83)             (26)
                                                  ------------     ------------

Loss before income taxes                                (1,135)            (351)


Provision for income taxes                                  --               --
                                                  ------------     ------------

Net loss                                          $     (1,135)    $       (351)
                                                  ============     ============

Loss per common share - basic and diluted         $      (0.09)    $      (0.04)
                                                  ============     ============

Weighted average shares outstanding -
  basic and diluted                                     12,116            8,472
                                                  ============     ============

        See accompanying notes to the consolidated financial statements.

                                       4
<PAGE>

                         PART I - FINANCIAL INFORMATION

                     Computone Corporation and Subsidiaries
                      Consolidated Statements of Operations
                      (in thousands, except per share data)

                                                        Six Months Ended
                                                  -----------------------------
                                                  September 30,    September 30,
                                                      2000             1999
                                                  ------------     ------------
                                                           (unaudited)
Revenues:
     Net sales                                    $      4,178     $      7,379
                                                  ------------     ------------
Expenses:
     Cost of sales                                       2,887            4,427
     Amortizaton of goodwill                               220               --
     Selling, general and administrative                 2,060            1,887
     Product development                                   689              889
                                                  ------------     ------------
                                                         5,856            7,203
                                                  ------------     ------------

Operating income (loss)                                 (1,678)             176

Other  income (expense):
     Other income                                            5               --
     Interest expense - affiliates                         (44)             (38)
     Loan discount amortization                           (206)              --
     Interest expense - other                             (137)             (60)
                                                  ------------     ------------

Income (loss) before income taxes                       (2,060)              78

Provision for income taxes                                  --               --
                                                  ------------     ------------

Net income (loss)                                 $     (2,060)    $         78
                                                  ============     ============

Earnings (loss) per common share -
  basic and diluted                               $      (0.19)    $       0.01
                                                  ============     ============

Weighted average shares outstanding - basic             11,075            8,468
                                                  ============     ============

Weighted average shares outstanding - diluted           11,075            8,487
                                                  ============     ============

        See accompanying notes to the consolidated financial statements.

                                       5
<PAGE>

                         PART I - FINANCIAL INFORMATION

                     Computone Corporation and Subsidiaries
                      Consolidated Statements of Cash Flows
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                  Six Months Ended
                                                            -----------------------------
                                                            September 30,    September 30,
                                                                2000             1999
                                                            ------------     ------------
                                                                     (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                         <C>              <C>
  Net income (loss)                                         $     (2,060)    $         78
  Adjustments to reconcile net income (loss) to net cash
     provided by (used in) operations:
       Depreciation and amortization                                 661              219
       Provision for uncollectible accounts receivable                25               63
       Provision for inventory reserve                               130              100
       Changes in current assets and current liabilities
         net of effects from business acquired:
          Receivables                                                 34              245
          Inventories                                                325             (229)
          Prepaid expenses and other                                  63              (18)
   Other assets                                                     (104)              19
          Accounts payable and accrued liabilities                (1,005)             300
                                                            ------------     ------------

Net cash provided by (used in) operations                         (1,931)             777
                                                            ------------     ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Acquisition of business                                        (4,150)              --
   Capitalization of software costs                                  (41)             (75)
   Capital expenditures                                             (163)            (160)
                                                            ------------     ------------

Net cash used in investing activities                             (4,354)            (235)
                                                            ------------     ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from the issuance of long-term debt                     2,500               --
  Repayment of debt                                                 (347)             (60)
  Net repayments under lines of credit                              (197)            (631)
  Capital contribution                                               250               --
  Cost associated with the issuance of common stock                 (325)              --
  Proceeds from exercise of common stock options                      48              169
  Proceeds from issuance of common stock                           4,312               --
                                                            ------------     ------------

Net cash provided by (used in) financing activities                6,241             (522)
                                                            ------------     ------------

Net increase (decrease) in cash and cash equivalents                 (44)              20
Cash and cash equivalents, beginning of period                       197               18
                                                            ------------     ------------
Cash and cash equivalents, end of period                    $        153     $         38
                                                            ============     ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid during the period for:
        Interest                                            $        137     $         60

SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING AND
  INVESTING ACTIVITIES:
        Common stock issued for business acquired           $      3,800     $         --
        Common stock issued for professional services                 10               --
</TABLE>

        See accompanying notes to the consolidated financial statements.

                                        6
<PAGE>

                     COMPUTONE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

     All statements  contained in this Form-10QSB  Quarterly Report that are not
historical  facts  are  based  on  current  expectations.  Such  statements  are
forward-looking  (as defined in the Private Securities  Litigation Reform Act of
1995) in nature and involve a number of risks and uncertainties.  Actual results
could vary  materially.  The  factors  that could cause  actual  results to vary
materially  include:  the ability of the Company to obtain and maintain adequate
working capital, future supply and demand for the Company's products, changes in
business and economic  conditions,  availability of raw materials and parts, and
other risks that may be described from time to time in reports the Company files
with the Securities and Exchange Commission  ("SEC").  Undue reliance should not
be placed on any such forward-looking statements.

1.   BASIS OF PRESENTATION
     ---------------------

     The financial statements included in this Form 10-QSB Quarterly Report have
been  prepared  by  the  Company,  without  audit,  pursuant  to the  rules  and
regulations of the SEC. Certain information and footnote  disclosures,  normally
included in financial  statements prepared in accordance with generally accepted
accounting principles,  have been condensed, or omitted,  pursuant to such rules
and regulations.  These financial  statements should be read in conjunction with
the  financial  statements  and related notes  included in the Company's  Annual
Report on Form 10-KSB for its fiscal year ended March 31, 2000.

     The financial statements presented herein as of September 30, 2000 reflect,
in the  opinion  of  management,  all  adjustments  (consisting  only of  normal
recurring  adjustments)  necessary for a fair presentation of financial position
and the  results  of  operations  for the  periods  presented.  The  results  of
operations for any interim period are not necessarily  indicative of the results
for the full year.

2.   ACQUISITION
     -----------

     On June 28,  2000,  the Company  acquired  100% of the stock of  Multi-User
Solutions Ltd.  ("Multi-User"),  a Georgia-based  system support and integration
company for $7,945,000, including $145,000 in expenses, consisting of $4,145,000
in cash and 800,000  shares of the Company's  $.01 par value common stock valued
at $3,800,000.  The acquisition  was financed  through the issuance of 1,249,671
shares of the Company's $.01 par value common stock, net of $325,000 in issuance
costs,  and the  issuance  of a  $2,500,000  11%  note  payable  (Note  8).  The
acquisition  has been  accounted  for using the purchase  method of  accounting.
Goodwill arising from the acquisition of $8,625,000 is being amortized using the
straight-line  method over 10 years. The  consolidated  statements of operations
include the operations of the business since the acquisition date.

     The  following  unaudited  pro forma  information  for the six months ended
September 30, 2000 and 1999 gives effect to the  acquisition of Multi-User as if
it had occurred on April 1 of each respective year:

                                                   2000             1999
                                               ------------     ------------

     Net sales                                 $      5,823     $     12,542
                                               ============     ============
     Net loss                                  $     (2,370)    $       (307)
                                               ============     ============
     Net loss per share - basic and diluted    $      (0.20)    $      (0.03)
                                               ============     ============

     The unaudited pro forma  information is not  necessarily  indicative of the
results  of  operations  that  would  have been  reported  had such  acquisition
occurred on such date, nor is it indicative of the Company's future operations.

                                       7
<PAGE>

                     COMPUTONE CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

3.   REVENUE RECOGNITION
     -------------------

     The Company  generally  recognizes  revenue  when  products are shipped and
services are performed, net of an allowance for estimated sales returns. At this
point,  persuasive evidence of a sale arrangement exists, delivery has occurred,
the Company's price to the buyer is fixed and  collectibility  of the associated
receivable is reasonably assured.  The Company's  recognition policy is to defer
recognition  of revenue and cost of products  sold on sales to customers who are
not end users of the Company's  products until such time as the  distributor has
sold the  product.  The Company  receives  non-refundable  advance  payments for
operating system and hardware  support service  contracts for varying periods of
no more than one year. The Company defers these payments and recognizes  revenue
on these  contracts  on a  straight-line  basis  over  the  term of the  related
contract.

     The Company  generally  provides a warranty  of five years on all  products
originally  manufactured  by the  Company.  A warranty  reserve of less than one
percent of sales, to cover the estimated costs of correcting product defects, is
accrued at the date of shipment.

4.   INVENTORIES
     -----------

     Inventories are valued at the lower of cost or market, with cost determined
on the first-in, first-out method. Raw materials that have no planned production
life or exceed 18 months of  anticipated  supply are deemed excess and are fully
reserved.  Reserves are also established,  as management deems appropriate,  for
obsolete,   excess  and  non-salable   inventories,   including  finished  goods
inventories.

     Inventories,  net of a reserve for obsolete,  excess and non-salable items,
consisted  of the  following  at  September  30,  2000 and  March  31,  2000 (in
thousands):

                                               September 30,     March 31,
                                                   2000            2000
                                               ------------    ------------
     Inventories:
        Finished goods                         $        729    $        597
        Work in process                                 205             206
        Raw materials                                 1,616           1,618
                                               ------------    ------------
                                               $      2,550    $      2,421
                                               ============    ============

5.   EARNINGS PER SHARE
     ------------------

     Basic  earnings  per share  ("EPS")  excludes  dilution  and is computed by
dividing income (loss) available to common  shareholders by the weighted average
number of common  shares  outstanding  for the period.  Diluted EPS reflects the
potential  dilution that could occur if  securities or other  contracts to issue
common stock were exercised or converted  into common stock.  There were 751,358
and 18,666 options and warrants that were deemed to be dilutive at September 30,
2000 and 1999,  respectively.  For  purposes  of  computing  diluted EPS for the
three-month  period ended  September 30, 2000 and September 30, 1999 and for the
six-month  period ended September 30, 2000, the Company  excluded the effects of
outstanding common stock options and warrants because they were anti-dilutive.

                                       8
<PAGE>

                     COMPUTONE CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

6.   SEGMENT INFORMATION
     -------------------

     With the acquisition of Multi-User, the Company currently generates revenue
from two lines of  business:  1) network  connectivity  products  ("Connectivity
Products") and 2) operating  system  support,  systems  integration  and on-site
hardware  maintenance  ("Service  and  Support").  The  Company  identifies  its
reportable segments based on the segment's product offerings.

     Segment  information for the three and six months ended September 30, 2000,
as well as the year ended March 31, 2000, follows:

<TABLE>
<CAPTION>
                                              CONNECTIVITY       SERVICE      CONSOLIDATED
                                                PRODUCTS        & SUPPORT        TOTALS
                                              -------------   -------------   ------------

     THREE MONTHS ENDED SEPTEMBER 30, 2000
<S>                                             <C>             <C>             <C>
     Revenue                                    $   1,536       $   1,404       $   2,940
     Operating Loss                                  (678)           (150)           (828)
     Total Assets                                   4,779           9,799          14,578

     SIX MONTHS ENDED SEPTEMBER 30, 2000
     Revenue                                    $   2,714       $   1,464       $   4,178
     Operating Loss                                (1,531)           (147)         (1,678)
     Total Assets                                   4,779           9,799          14,578

     YEAR ENDED MARCH 31, 2000
     Revenue                                    $  11,198       $      --       $  11,198
     Operating Loss                                (1,055)             --          (1,055)
     Total Assets                                   5,196              --           5,196
</TABLE>

7.   INCOME TAXES
     ------------

     At  March  31,  2000,  the  Company  had net  operating  and  capital  loss
carryforwards totaling $35.0 million which expire at various dates through 2015,
including a predecessor company preacquisition operating loss carryforward. As a
result of several  ownership changes that have occurred since the losses started
to  accumulate,  statutory  provisions  will  substantially  limit the Company's
future use of these loss carryforwards.

8.   LONG-TERM DEBT AND LINE OF CREDIT
     ---------------------------------

     On November  17,  1998,  the Company and a lender  entered into a financing
agreement  that provided for a line of credit of up to  $1,650,000  based on the
available  borrowing  base, as defined (the  "Line").  A portion of the proceeds
from the Line was used to retire debt borrowed  under a June 20, 1997  financing
agreement.  Borrowings under the Line bear interest at prime plus 2%. In October
1999,  the Line was  reduced to  $1,400,000  and the term was  extended  through
November  17,  2000.  At  September  30,  2000,  the  Company  had  $796,000  in
outstanding  borrowings  leaving $123,000  available under the Line. The Line is
collateralized   primarily  by  the  Company's  Connectivity  Products  accounts
receivable  and  inventory.  The Line contains  minimum net working  capital and
tangible net worth  covenants  and, as of September 30, 2000, the Company was in
compliance  with these  covenants.  The  Company  and the lender  have agreed to
extend the expiration  date by up to 90 days in order to modify the Line for the
inclusion of Multi-User's collateral in the borrowing base.

                                       9
<PAGE>

                     COMPUTONE CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

8.   LONG-TERM DEBT AND LINE OF CREDIT, CONTINUED.
     ---------------------------------------------

     On June 28, 2000,  the Company  entered into an agreement  with a lender to
purchase a  $2,500,000,  11% note payable due on December 28, 2001.  The Company
also issued a warrant to the lender to purchase  392,577 shares of the Company's
$.01 par value common stock  exercisable at $3.25 per share. The warrant expires
in June 2003. In accordance with Accounting Principles Board Opinion No. ("APB")
14,  Accounting  for  Convertible  Debt  and Debt  Issued  With  Stock  Purchase
Warrants,  the Company has recorded the fair value of the warrant of  $1,328,000
as a credit to additional paid-in capital and the fair value of the note payable
of $1,172,000 in the accompanying financial statements. The resulting $1,328,000
note payable  discount will be amortized over the life of the note payable using
the interest  method.  The Company  recorded  $206,000 of note payable  discount
amortization  during the three-month  and six-month  periods ended September 30,
2000.


ITEM 2.   MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  FOR THE THREE AND SIX  MONTHS
          ENDED  SEPTEMBER  30, 2000  COMPARED TO THE THREE AND SIX MONTHS ENDED
          SEPTEMBER 30, 1999.

RESULTS OF OPERATIONS
---------------------

THREE  MONTHS  ENDED  SEPTEMBER  30,  2000  COMPARED TO THE THREE  MONTHS  ENDED
--------------------------------------------------------------------------------
SEPTEMBER 30, 1999
------------------

     During the  three-month  period  ended  September  30,  2000,  the  Company
incurred a net loss of $1,135,000  on net sales of $2,940,000  compared to a net
loss of $351,000 during the  three-month  period ended September 30, 1999 on net
sales of $2,646,000.  The results for the three-month period ended September 30,
2000 include the operations of Multi-User for the full period.

     Net sales for the  three-month  period  ended  September  30, 2000  totaled
$2,940,000  compared to $2,646,000 for the comparable  three-month period of the
prior fiscal year. Net sales of Connectivity  Products decreased from $2,646,000
to $1,536,000.  A substantial  portion of this decrease is attributable to lower
sales to the Company's two largest non-distribution  customers. During the prior
year's three-month period,  these customers were involved in projects to replace
competitor's  equipment  and  expand  the  use  of  the  Company's  products  in
additional  applications.  The net sales from  Service  and  Support,  a line of
business  acquired on June 28, 2000, were  $1,404,000  during the current year's
three-month  period.  Net sales of Connectivity  Products in the current quarter
increased by $358,000 or 30% over the immediately preceding quarter.

     Cost of sales for the three-month  period ended September 30, 2000 amounted
to $1,960,000 versus  $1,577,000 for the three-month  period ended September 30,
1999. Cost of sales for  Connectivity  Products was  $1,001,000,  resulting in a
gross margin of 35%. The reduction in gross margin compared to the prior year of
40% is primarily due to the  continuation  of certain fixed operating costs that
were not affected by the  reduction in sales volume and a higher  provision  for
inventory  obsolescence.  Cost of sales for Service and Support  were  $960,000,
resulting in a gross margin of 32%. The  Company's  gross margin is dependant on
product costs, product or service mix, vendor costs and overhead expense, all of
which fluctuate from period to period.

     In the three-month  period ended September 30, 2000, the Company recorded a
non-cash  expense  of  $215,000  for  amortization  of  goodwill  related to the
acquisition of the Service and Support line of business.

     Selling, general and administrative ("SGA") expenses amounted to $1,261,000
for the  three-month  period ended  September  30, 2000 versus  $946,000 for the
comparable  three-month period in the prior fiscal year. SGA expenses related to
Connectivity  Products  decreased by $65,000 or 7% from the comparable period in
the prior  fiscal  year as a result  of the  continuing  implementation  of cost
reduction  efforts.  SGA expenses for Service and Support were  $379,000 for the
three-month period ended September 30, 2000.

                                       10
<PAGE>

ITEM 2.   MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  FOR THE THREE AND SIX  MONTHS
          ENDED  SEPTEMBER  30, 2000  COMPARED TO THE THREE AND SIX MONTHS ENDED
          SEPTEMBER 30, 1999 (CONTINUED).

     Product development  expenses amounted to $332,000,  or 22% of net sales of
Connectivity Products for the three-month period ended September 30, 2000 versus
$430,000,  or 16%,  for the  comparable  three-month  period of the prior fiscal
year.  This decrease in expense  amount of $98,000 is primarily due to decreases
in costs of third party engineering services.

SIX MONTHS ENDED  SEPTEMBER 30, 2000 COMPARED TO THE SIX MONTHS ENDED  SEPTEMBER
--------------------------------------------------------------------------------
30, 1999
--------

     During the six-month  period ended September 30, 2000, the Company incurred
a net loss of  $2,060,000  on revenues of  $4,178,000  compared to net income of
$78,000  during the  six-month  period ended  September  30, 1999 on revenues of
$7,379,000.

     Net sales  for the  six-month  period  ended  September  30,  2000  totaled
$4,178,000  compared to $7,379,000  for the comparable  six-month  period of the
prior fiscal year. Net sales of Connectivity  Products decreased from $7,379,000
to $2,714,000. A substantial portion of the decrease in net revenues between the
two  periods  is  attributable  to lower  sales  to the  Company's  two  largest
non-distribution  customers.  During the prior year's  six-month  period,  these
customers were involved in projects to replace competitor's equipment and expand
the use of the Company's products in additional applications. The net sales from
Service and Support were $1,464,000 for the current year's six-month period.

     Cost of sales for the six-month period ended September 30, 2000 amounted to
$2,887,000  versus $4,427,000 for the six-month period ended September 30, 1999.
Cost of sales for Connectivity Products for the six-month period ended September
30, 2000 were  $1,891,000,  resulting in a gross margin of 30%. The reduction in
gross  margin  compared  to  the  prior  year  of 40%  is  primarily  due to the
continuation  of certain  fixed  operating  costs that were not  affected by the
reduction in sales volume and a higher  provision  for  inventory  obsolescence.
Cost of sales for Service and Support for the six-month  period ended  September
30, 2000 were $997,000, resulting in a gross margin of 32%.

     In the six-month  period ended  September 30, 2000, the Company  recorded a
non-cash  expense  of  $220,000  for  amortization  of  goodwill  related to the
acquisition of the Service and Support line of business.

     SGA  expenses  amounted  to  $2,060,000  for  the  six-month  period  ended
September 30, 2000 versus $1,887,000 for the comparable  six-month period in the
prior fiscal year. SGA expenses  related to Connectivity  Products  decreased by
$221,000 or 12% from the comparable  period in the prior fiscal year as a result
of the continuing  implementation  of cost reduction  efforts.  SGA expenses for
Service and Support were $394,000 for the six-month  period ended  September 30,
2000.

     Product development  expenses amounted to $689,000,  or 25% of net sales of
Connectivity  Products for the six-month period ended September 30, 2000, versus
$889,000,  or 12%, for the comparable six-month period of the prior fiscal year.
This  decrease in expense of $200,000 is primarily  due to decreases in costs of
third party engineering services.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

     On November  17,  1998,  the Company and a lender  entered into a financing
agreement  that provided for a line of credit of up to  $1,650,000  based on the
available  borrowing  base, as defined (the  "Line").  A portion of the proceeds
from the Line was used to retire debt borrowed  under a June 20, 1997  financing
agreement.  Borrowings under the Line bear interest at prime plus 2%. In October
1999,  the Line was  reduced to  $1,400,000  and the term was  extended  through
November  17,  2000.  At  September  30,  2000,  the  Company  had  $796,000  in
outstanding  borrowings  leaving $123,000  available under the Line. The Line is
collateralized primarily by the Company's accounts receivable and inventory. The
Line contains  minimum net working capital and tangible net worth covenants and,
as of September 30, 2000, the Company was in compliance with these covenants.

                                       11
<PAGE>

ITEM 2.   MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  FOR THE THREE AND SIX  MONTHS
          ENDED  SEPTEMBER  30, 2000  COMPARED TO THE THREE AND SIX MONTHS ENDED
          SEPTEMBER 30, 1999 (CONTINUED).

The Company and the lender have agreed to extend the expiration date by up to 90
days in order to modify the Line for the inclusion of Multi-User's collateral in
the borrowing base.

     On June 28, 2000,  the Company  entered into an agreement  with a lender to
purchase a  $2,500,000,  11% note payable due on December 28, 2001.  The Company
also issued a warrant to the lender to purchase  392,577 shares of the Company's
$.01 par value common stock  exercisable at $3.25 per share. The warrant expires
in June 2003. In accordance with Accounting Principles Board Opinion No. ("APB")
14,  Accounting  for  Convertible  Debt  and Debt  Issued  With  Stock  Purchase
Warrants,  the Company has recorded the fair value of the warrant of  $1,328,000
as a credit to additional paid-in capital and the fair value of the note payable
of $1,172,000 in the accompanying financial statements. The resulting $1,328,000
note payable  discount will be amortized over the life of the note payable using
the interest  method.  The Company  recorded  $206,000 of note payable  discount
amortization  during the three-month  and six-month  periods ended September 30,
2000.

     Cash used in operating  activities amounted to $1,931,000 for the six-month
period  ended  September  30,  2000  compared  to  cash  provided  by  operating
activities  of $777,000 for the  six-month  period ended  September  30, 1999. A
portion of the cash  consumed  by  operating  losses and  decreases  in accounts
payables  and  accrued   liabilities  was  offset  by  a  decrease  in  accounts
receivables  and  inventories.   In  addition,   depreciation  and  amortization
increased to $661,000 during the current  six-month  period from $219,000 during
the comparable period in the prior fiscal year.

     Cash used in investing  activities amounted to $4,354,000 for the six-month
period ended September 30, 2000 compared with $235,000 for the six-month  period
ended  September 30, 1999. The increase in net cash outflow  resulted  primarily
from the acquisition of Multi-User.

     Cash provided by financing  activities  amounted to  $6,241,000  during the
six-month  period ended  September  30, 2000  compared to cash used in financing
activities of $522,000 during the six-month period ended September 30, 1999. The
increase in net cash inflow resulted  primarily from proceeds collected from the
issuance of stock and additional borrowings.

     Working  capital  amounted to $217,000 at  September  30, 2000  compared to
$155,000 at March 31, 2000, an increase of $62,000.  The ratio of current assets
to current  liabilities  at September 30, 2000 was 1.05 to 1.00 compared to 1.04
to 1.00 at March 31, 2000.

OUTLOOK FOR REMAINDER OF FISCAL YEAR 2001
-----------------------------------------

     At September 30, 2000,  the  Company's  Connectivity  Products  backlog was
$900,000,  an increase of  $633,000  since the  beginning  of the  quarter.  The
Company  anticipates that a substantial  portion of this backlog will be shipped
during the third quarter ending December 31, 2000.

     During the third quarter ending December 31, 2000, the Company  anticipates
increased shipments of its new IntelliServer RAS2000 ("RAS2000") product for use
in remote  console  management.  This feature  allows system  administrators  to
securely administer,  troubleshoot or reboot any server, router or PBX device on
their network from remote  locations  throughout  the world.  For security,  the
RAS2000 provides 128-bit encryption for sensitive data. The RAS2000 is currently
available in a 16-port unit that is expandable to 64 ports.  In the near future,
the Company  will  introduce  4-port and 8-port  versions.  Shipments to a major
internet service provider and two leading computer manufacturers are anticipated
to occur in the third quarter.

     While  the first  half of fiscal  2001 was  impacted  by the  industry-wide
slowdown due partially to the delay in project startups  following the year 2000
changeover,  the Company is optimistic that revenue will continue to increase as
fiscal 2001 progresses.  The substantial  backlog the Company had going into the
third quarter of fiscal 2001 further  increases the Company's  optimism that the
second half of fiscal 2001 will result in higher sales  volumes of  Connectivity
Products  as well as growth in Service and Support  revenues  and secure  remote
console management.

                                       12
<PAGE>

ITEM 2.   MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  FOR THE THREE AND SIX  MONTHS
          ENDED  SEPTEMBER  30, 2000  COMPARED TO THE THREE AND SIX MONTHS ENDED
          SEPTEMBER 30, 1999 (CONTINUED).

     Based upon its current  business  plan,  the Company  expects that cash and
cash equivalents, availability under the Company's Line and/or funds budgeted to
be generated from  operations will be adequate to meet its liquidity and capital
resource  requirements  through the remainder of the fiscal year 2001. Currently
unforeseen future  developments and increased working capital  requirements may,
however,  require the  Company to obtain  additional  debt or equity  financing.
There can be no assurances that the Company will be able to achieve higher sales
volumes of Connectivity  Products,  successfully  modify its Line to include the
collateral  of  Multi-User,  or obtain any  required  additional  debt or equity
financing on terms acceptable to the Company.

                           PART II - OTHER INFORMATION


ITEM 1.   LEGAL PROCEEDINGS

          Not Applicable.

ITEM 2.   CHANGES IN SECURITIES

          Not Applicable.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

          Not Applicable.

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

          Not Applicable.

ITEM 5.   OTHER INFORMATION

          Not Applicable.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

          On July 13, 2000,  the Company filed Form 8-K  reporting  under Item 2
          the June 28, 2000 acquisition of Multi-User, Ltd.

          On September 11, 2000,  the Company filed Form 8-K/A amending the July
          13,  2000  8-K.  This  amendment  included  the  Multi-User  financial
          information and the pro forma combined financial information.

                                       13
<PAGE>

                                   SIGNATURES

     In accordance  with the  requirements  of the Exchange Act, the  registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                COMPUTONE CORPORATION

Date:  November 14, 2000        By: /s/ Perry J. Pickerign
                                    ----------------------
                                    Perry J. Pickerign
                                    President and Chief Executive Officer
                                    (Principal Executive Officer)


                                By: /s/ Keith H. Daniel
                                    -------------------
                                    Keith H. Daniel
                                    Chief Financial Officer
                                    (Principal Financial and Accounting Officer)

                                       14