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 December 31, 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:  12,137,887 shares of common stock on
February 12, 2001.

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 December 31, 2000
               and March 31, 2000                                              3

          Consolidated  Statements of Operations for the three
               months ended December 31, 2000 and December 31, 1999            4

          Consolidated  Statements of Operations  for the nine
               months ended December 31, 2000 and December 31, 1999            5

          Consolidated  Statements  of Cash Flows for the nine
               months ended December 31, 2000 and December 31, 1999            6

          Notes to Consolidated Financial Statements                           7

ITEM 2.   Management's Discussion and Analysis for the three and
          nine months ended December 31, 2000 compared to three and
          nine months ended December 31, 1999                                 10

                           PART II - OTHER INFORMATION

ITEM 1.   Legal Proceedings                                                   14

ITEM 2.   Changes in Securities                                               14

ITEM 3.   Defaults Upon Senior Securities                                     14

ITEM 4.   Submission of Matters to a Vote of Security Holders                 14

ITEM 5.   Other Information                                                   14

ITEM 6.   Exhibits and Reports on Form 8-K                                    15

SIGNATURES                                                                    15

                                       2
<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1.   Consolidated Financial Statements

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

<TABLE>
<CAPTION>
                                                      December 31,       March 31,
                                                          2000             2000
                                                      ------------     ------------
                                                       (unaudited)
ASSETS
Current assets:
<S>                                                   <C>              <C>
    Cash and cash equivalents                         $         94     $        197
    Receivables, net of allowance for doubtful
         accounts of $143 at December 31, 2000
         and $84 at March 31, 2000                           2,907            1,389
    Inventories, net                                         2,212            2,421
    Prepaid expenses and other                                 102               95
                                                      ------------     ------------
Total current assets                                         5,315            4,102

Property and equipment, net                                    679              654

Goodwill, net                                                8,189               --

Other intangible assets, net                                   284              388

Other                                                          159               52
                                                      ------------     ------------

TOTAL ASSETS                                          $     14,626     $      5,196
                                                      ============     ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable, trade                           $      1,730     $      1,042
    Accrued liabilities:
         Deferred maintenance revenue                        1,208               --
         Deferred gross profit                                 242              358
         Interest                                              384              255
         Other                                                 572              555
    Line of credit                                             768              993
    Notes payable to stockholders                              705              590
    Current maturities of long-term debt, net of
         discount of $909,000 at December 31, 2000           1,591              154
                                                      ------------     ------------
Total current liabilities                                    7,200            3,947

Long-term debt                                                  --              193
                                                      ------------     ------------

Total liabilities                                            7,200            4,140
                                                      ------------     ------------

Stockholders' equity:
  Common stock, $.01 par value; 25,000,000 shares
      authorized; 12,137,887 and 9,977,214 shares
      issued and outstanding, respectively                     121              100
  Additional paid-in capital                                58,955           49,553
  Accumulated deficit                                      (51,650)         (48,597)
                                                      ------------     ------------
Total stockholders' equity                                   7,426            1,056
                                                      ------------     ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY            $     14,626     $      5,196
                                                      ============     ============
</TABLE>

        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)

<TABLE>
<CAPTION>
                                                                 Three Months Ended
                                                           -----------------------------
                                                           December 31,     December 31,
                                                               2000             1999
                                                           ------------     ------------
                                                                    (unaudited)
Revenues:
<S>                                                        <C>              <C>
     Net sales                                             $      3,760     $      2,378
                                                           ------------     ------------
Expenses:
     Cost of sales                                                2,520            1,451
     Amortizaton of goodwill                                        216               --
     Selling, general and administrative                          1,383              836
     Product development                                            318              437
                                                           ------------     ------------
                                                                  4,437            2,724
                                                           ------------     ------------

Operating loss                                                     (677)            (346)

Other  income (expense):
     Other income                                                    19               --
     Interest expense - affiliates                                  (25)             (19)
     Loan discount amortization                                    (212)              --
     Interest expense - other                                       (98)             (27)
                                                           ------------     ------------

Loss before income taxes                                           (993)            (392)

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

Net loss                                                   $       (993)    $       (392)
                                                           ============     ============

Loss per common share - basic and diluted                  $      (0.08)    $      (0.05)
                                                           ============     ============

Weighted average shares outstanding - basic and diluted          12,138            8,702
                                                           ============     ============
</TABLE>

        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)

<TABLE>
<CAPTION>
                                                                 Nine Months Ended
                                                           -----------------------------
                                                           December 31,     December 31,
                                                               2000             1999
                                                           ------------     ------------
                                                                    (unaudited)
Revenues:
<S>                                                        <C>              <C>
     Net sales                                             $      7,938     $      9,757
                                                           ------------     ------------
Expenses:
     Cost of sales                                                5,407            5,878
     Amortizaton of goodwill                                        436               --
     Selling, general and administrative                          3,443            2,723
     Product development                                          1,007            1,326
                                                           ------------     ------------
                                                                 10,293            9,927
                                                           ------------     ------------

Operating loss                                                   (2,355)            (170)

Other  income (expense):
     Other income                                                    24               --
     Interest expense - affiliates                                  (69)             (57)
     Loan discount amortization                                    (418)              --
     Interest expense - other                                      (235)             (87)
                                                           ------------     ------------

Loss before income taxes                                         (3,053)            (314)

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

Net loss                                                   $     (3,053)    $       (314)
                                                           ============     ============

Loss per common share - basic and diluted                  $      (0.27)    $      (0.04)
                                                           ============     ============

Weighted average shares outstanding - basic and diluted          11,431            8,702
                                                           ============     ============
</TABLE>

        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>
                                                                   Nine Months Ended
                                                             -----------------------------
                                                             December 31,     December 31,
                                                                 2000             1999
                                                             ------------     ------------
                                                                      (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                          <C>              <C>
  Net loss                                                   $     (3,053)    $       (314)
  Adjustments to reconcile net loss to net cash
     provided by (used in) operations:
       Depreciation and amortization                                1,210              354
       Provision for uncollectible accounts receivable                 52               66
       Provision for inventory reserve                                237              112
       Changes in assets and current liabilities net of
        effects from business acquired:
          Receivables                                                (458)             226
          Inventories                                                 307              (20)
          Prepaid expenses and other                                   63               14
          Other assets                                                (99)              11
          Accounts payable and accrued liabilities                   (114)            (391)
                                                             ------------     ------------

Net cash provided by (used in) operations                          (1,855)              58
                                                             ------------     ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Acquisition of business                                         (4,150)              --
   Capitalization of software costs                                   (44)            (216)
   Capital expenditures                                              (232)            (126)
                                                             ------------     ------------

Net cash used in investing activities                              (4,426)            (342)
                                                             ------------     ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from the issuance of long-term debt                      2,500               --
  Repayment of debt                                                  (382)             (95)
  Net repayments under lines of credit                               (225)            (239)
  Capital contribution                                                250               --
  Cost associated with the issuance of common stock                  (325)              --
  Proceeds from exercise of common stock options                       48               11
  Proceeds from issuance of common stock                            4,312              669
                                                             ------------     ------------

Net cash provided by financing activities                           6,178              346
                                                             ------------     ------------

Net increase (decrease) in cash and cash equivalents                 (103)              62
Cash and cash equivalents, beginning of period                        197               18
                                                             ------------     ------------
Cash and cash equivalents, end of period                     $         94     $         80
                                                             ============     ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
    Cash paid during the period for:
        Interest                                             $        166     $         87

SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING AND
  INVESTING ACTIVITIES:
    Common stock issued in settlement of accounts payable    $         --     $        691
    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,
technological developments, new product introductions by competitors, 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 December 31, 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 a portion of the $3,736,442
received from 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 nine months ended
December 31, 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                                   $    9,583     $   17,048
                                                 ==========     ==========
     Net loss                                    $   (3,363)    $     (994)
                                                 ==========     ==========
     Net loss per share - basic and diluted      $    (0.28)    $    (0.09)
                                                 ==========     ==========

     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 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  December  31,  2000  and  March  31,  2000 (in
thousands):

                                               DECEMBER 31,      MARCH 31,
                                                   2000            2000
                                               ------------    ------------
     Inventories:
        Finished goods                         $        554    $        597
        Work in process                                 191             206
        Raw materials                                 1,467           1,618
                                               ------------    ------------
                                               $      2,212    $      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 951,941
and 84,071  options and warrants that were deemed to be dilutive at December 31,
2000 and 1999,  respectively.  For  purposes  of  computing  diluted EPS for the
three-month  and  nine-month  periods  ended  December 31, 2000 and December 31,
1999, 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.  The Company only
had one reportable  segment prior to the  acquisition of the Service and Support
line on June 28, 2000.

     Segment  information  for the three and nine months ended December 31, 2000
follows:

                                      CONNECTIVITY      SERVICE     CONSOLIDATED
                                        PRODUCTS      AND SUPPORT      TOTALS
                                       ----------     ----------     ----------

THREE MONTHS ENDED DECEMBER 31, 2000
Revenue                                $    2,113     $    1,647     $    3,760
Operating Loss                               (519)          (158)          (677)
Total Assets                                4,910          9,716         14,626

NINE MONTHS ENDED DECEMBER 31, 2000
Revenue                                $    4,826     $    3,112     $    7,938
Operating Loss                             (2,051)          (304)        (2,355)
Total Assets                                4,910          9,716         14,626

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.   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").  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. On November 15,
2000,  the Company and the lender agreed to extend the expiration to January 17,
2001. On January 15, 2001, the Company extended the term of the Line to November
17,  2001.  At  December  31,  2000,  the Company  had  $768,000 in  outstanding
borrowings leaving $308,000 available under the Line. The Line is collateralized
primarily  by  the  Company's  Connectivity  Products  accounts  receivable  and
inventory. At December 31, 2000, the Company was in violation of the minimum net
working  capital  convenant  of  the  Line  due  to  certain  subordinated  debt
("Subordinated  Debt"),  as  described  below,  being  transferred  to a current
liability classification. Such debt is due on December 28, 2001.

                                       9
<PAGE>

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

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

     The Company is seeking to cure the convenant violation through an amendment
to the Subordinated Debt agreement and by obtaining additional equity financing.
The Company has received a term sheet from the holder of the  Subordinated  Debt
to  extend  the due  date to  December  28,  2002  and to  increase  the debt by
$500,000.  The term sheet is subject to the Company  raising  $500,000 of equity
financing and the  performance  by the lender of due diligence  procedures.  The
Company is currently seeking equity financing.

     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,  on June  28,2001,  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 is being amortized
over the  life of the note  payable  using  the  interest  method.  The  Company
recorded $212,000 and $418,000 of note payable discount  amortization during the
three-month and nine-month  periods ended December 31, 2000,  respectively.  The
Company has recorded the note payable,  net of discount,  as a current liability
on the balance sheet dated December 31, 2000.

9.   NEW ACCOUNTING PRONOUNCEMENTS
     -----------------------------

     In June 1998, the Financial Accounting Standards Board issued Statement No.
133,  "Accounting For Derivative  Instruments and Hedging Activities" ("SFAS No.
133"). This statement (as amended by SFAS No. 137 and 138) is effective in 2001.
This statement  establishes  accounting  and reporting  standards for derivative
instruments   including  certain  derivative   instruments   embedded  in  other
contracts, and for hedging activities.  It requires that an entity recognize all
derivatives  as either assets or  liabilities  in the balance sheet  measured at
fair value.  The Company  will adopt SFAS No. 133 on April 1, 2001.  The Company
expects no material  effect on  consolidated  results of  operations,  financial
position, cash flows or stockholders' equity upon adoption of SFAS 133.

ITEM  2.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  FOR THE THREE AND NINE MONTHS
          ENDED  DECEMBER  31, 2000  COMPARED TO THE THREE AND NINE MONTHS ENDED
          DECEMBER 31, 1999.

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

THREE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO THE THREE MONTHS ENDED DECEMBER
--------------------------------------------------------------------------------
31, 1999
--------

     During the three-month period ended December 31, 2000, the Company incurred
a net loss of  $993,000  on net sales of  $3,760,000  compared  to a net loss of
$392,000 during the  three-month  period ended December 31, 1999 on net sales of
$2,378,000.  The results for the  three-month  period  ended  December  31, 2000
include the Service and Support line of business for the full period.

     Net sales of Connectivity Products decreased from $2,378,000 to $2,113,000.
A substantial  portion of this decrease is attributable to lower sales to one of
the Company's major customers.  During the prior year's three-month period, this
customer was involved in projects to replace  competitor's  equipment and expand
the use of the  Company's  products  in  additional  applications.  Net sales of
Connectivity  Products in the current quarter  increased by $578,000 or 38% over
the immediately preceding quarter. A substantial portion of this increase is due
to higher  sales to the  Company's  largest  OEM  customer.  The net sales  from
Service  and  Support,  a line of  business  acquired  on June  28,  2000,  were
$1,647,000 during the current year's three-month  period. Net sales of this line
of business

                                       10
<PAGE>

ITEM 2.   MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  FOR THE THREE AND NINE MONTHS
          ENDED  DECEMBER  31, 2000  COMPARED TO THE THREE AND NINE MONTHS ENDED
          DECEMBER 31, 1999 (CONTINUED).

increased  by  $243,000  or 17% over the  immediately  preceding  quarter.  This
increase is primarily due to providing  repair service for computer systems sold
by a leading computer manufacturer.

     Cost of sales for the  three-month  period ended December 31, 2000 amounted
to $2,520,000  versus  $1,451,000 for the three-month  period ended December 31,
1999. Cost of sales for  Connectivity  Products was  $1,355,000,  resulting in a
gross margin of 36%. This slight  decrease in gross margin compared to the prior
year of 39% 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 was
$1,165,000  resulting in a gross margin of 29%.  The  Company's  gross margin is
dependent 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 December 31, 2000, the Company  recorded a
non-cash  expense  of  $216,000  for  amortization  of  goodwill  related to the
acquisition of the Service and Support line of business.

     Selling, general and administrative ("SGA") expenses amounted to $1,383,000
for the  three-month  period  ended  December  31, 2000 versus  $836,000 for the
comparable  three-month period in the prior fiscal year. SGA expenses related to
Connectivity Products increased by $123,000 or 15% from the comparable period in
the prior fiscal year as a result of higher marketing and advertising  expenses.
SGA expenses for Service and Support were  $424,000 for the  three-month  period
ended December 31, 2000.

     Product development  expenses amounted to $318,000,  or 15% of net sales of
Connectivity  Products for the three-month period ended December 31, 2000 versus
$437,000,  or 18%,  for the  comparable  three-month  period of the prior fiscal
year.  This  decrease in expense  amount of $119,000 is  primarily  due to lower
compensation costs due to staff reductions and decreases in costs of third party
engineering services.

NINE MONTHS ENDED  DECEMBER 31, 2000 COMPARED TO THE NINE MONTHS ENDED  DECEMBER
--------------------------------------------------------------------------------
31, 1999
--------

     During the nine-month  period ended December 31, 2000, the Company incurred
a net loss of  $3,053,000  on revenues of  $7,938,000  compared to a net loss of
$314,000  during the  nine-month  period ended  December 31, 1999 on revenues of
$9,757,000.

     Net sales of Connectivity Products decreased from $9,757,000 to $4,826,000.
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  nine-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 $3,112,000 for the current year's nine-month period.

     Cost of sales for the nine-month period ended December 31, 2000 amounted to
$5,407,000  versus $5,878,000 for the nine-month period ended December 31, 1999.
Cost of sales for Connectivity Products for the nine-month period ended December
31, 2000 was  $3,246,000  resulting in a gross  margin of 33%. 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  nine-month  period ended December
31, 2000 was $2,161,000 resulting in a gross margin of 31%.

     In the nine-month  period ended  December 31, 2000, the Company  recorded a
non-cash  expense  of  $436,000  for  amortization  of  goodwill  related to the
acquisition of the Service and Support line of business.

     SGA  expenses  amounted  to  $3,443,000  for the  nine-month  period  ended
December 31, 2000 versus $2,723,000 for the comparable  nine-month period in the
prior fiscal year. SGA expenses  related to Connectivity  Products  decreased by
$99,000 or 4% from the comparable period in the prior fiscal year as a result of
the

                                       11
<PAGE>

ITEM 2.   MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  FOR THE THREE AND NINE MONTHS
          ENDED  DECEMBER  31, 2000  COMPARED TO THE THREE AND NINE MONTHS ENDED
          DECEMBER 31, 1999 (CONTINUED).

continuing  implementation of cost reduction  efforts.  SGA expenses for Service
and Support were $819,000 for the nine-month period ended December 31, 2000.

     Product development  expenses amounted to $1,007,000 or 21% of net sales of
Connectivity  Products for the nine-month  period ended December 31, 2000 versus
$1,326,000  or 14%,  for the  comparable  nine-month  period of the prior fiscal
year.  This  decrease in expense of $319,000 is  primarily  due to  decreases in
compensation costs due to staff reductions and 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").  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. On November 15,
2000,  the Company and the lender agreed to extend the expiration to January 17,
2001. On January 15, 2001, the Company extended the term of the Line to November
17,  2001.  At  December  31,  2000,  the Company  had  $768,000 in  outstanding
borrowings leaving $308,000 available under the Line. The Line is collateralized
primarily  by  the  Company's  Connectivity  Products  accounts  receivable  and
inventory. At December 31, 2000, the Company was in violation of the minimum net
working  capital  convenant  of  the  Line  due  to  certain  subordinated  debt
("Subordinated  Debt"),  as  described  below,  being  transferred  to a current
liability classification. Such debt is due on December 28, 2001.

     The Company is seeking to cure the convenant violation through an amendment
to the Subordinated  Debt agreement and obtaining  additional  equity financing.
The Company has received a term sheet from the holder of the  Subordinated  Debt
to  extend  the due  date to  December  28,  2002  and to  increase  the debt by
$500,000.  The term sheet is subject to the Company  raising  $500,000 of equity
financing and the  performance  by the lender of due diligence  procedures.  The
Company is currently seeking equity financing.

     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,  on June  28,2001,  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 is being amortized
over the  life of the note  payable  using  the  interest  method.  The  Company
recorded $212,000 and $418,000 of note payable discount  amortization during the
three-month and nine-month  periods ended December 31, 2000,  respectively.  The
Company has recorded the note payable,  net of discount,  as a current liability
on the balance sheet dated December 31, 2000.

     Cash used in operating activities amounted to $1,855,000 for the nine-month
period ended December 31, 2000 compared to cash provided by operating activities
of $58,000 for the  nine-month  period ended December 31, 1999. A portion of the
cash consumed by the loss from operations was offset by decreases in inventories
and prepaid expenses.  In addition,  depreciation and amortization  increased to
$1,210,000  during  the  current  nine-month  period  from  $354,000  during the
comparable  period in the prior fiscal year due to the  amortization of goodwill
related to the acquisition of the Service and Support product line.

     Cash used in investing activities amounted to $4,426,000 for the nine-month
period ended December 31, 2000 compared with $342,000 for the nine-month  period
ended  December 31, 1999.  The increase in net cash outflow  resulted  primarily
from the acquisition of the Service and Support product line.

                                       12
<PAGE>

ITEM 2.   MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  FOR THE THREE AND NINE MONTHS
          ENDED  DECEMBER  31, 2000  COMPARED TO THE THREE AND NINE MONTHS ENDED
          DECEMBER 31, 1999 (CONTINUED).

     Cash provided by financing  activities  amounted to  $6,178,000  during the
nine-month  period  ended  December  31, 2000  compared  with  $346,000  for the
nine-month  period  ended  December  31,  1999.  The increase in net cash inflow
resulted primarily from the issuance of stock and additional borrowings.

     Working  capital  amounted to a deficit of  $1,885,000 at December 31, 2000
compared to a surplus of $155,000 at March 31, 2000,  a decrease of  $1,730,000.
The  primary  cause  for this  decrease  is the  reclassification  of debt  from
long-term  to current.  The ratio of current  assets to current  liabilities  at
December 31, 2000 was .74 to 1.00 compared to 1.04 to 1.00 at March 31, 2000.

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

     During the third quarter ending  December 31, 2000,  revenue from shipments
of its new IntelliServer  RAS2000  ("RAS2000") product increased by 69% over the
immediately preceding quarter. This product is primarily used for 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. Initial shipments to a major internet
service  provider  and a leading  computer  manufacturer  occurred  in the third
quarter.

     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 has achieved  increased sales revenue in the second and
third quarters of fiscal 2001 over each of the immediately preceding quarters.

     Based upon its current  business plan, the Company will require  additional
debt  and/or  equity  financing  to meet its  liquidity  and  capital  resources
requirements through the remainder of the 2001 fiscal year. While the Company is
optimistic  that such  additional  financing  can be  obtained,  there can be no
assurances  that the Company  will be able to obtain  additional  debt or equity
financing on terms acceptable to the Company.

                                       13
<PAGE>

                           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

          The  Company  held,  on  December  28,  2000,  its  Annual  Meeting of
          Stockholders at which the following actions were taken:

          1.   Five  directors  were  elected  to serve  until  the 2001  Annual
               Meeting of Stockholders and until their successors are elected:

               Name                         For                    Withheld
               ----                         ---                    --------
               John D. Freitag           6,167,157                  53,068
               Richard A. Hansen         6,167,157                  53,068
               Erik Monninkhof           6,167,157                  53,068
               Perry J. Pickerign        6,167,157                  53,068
               David R. Laube            6,167,039                  53,186

          2.   A proposal to adopt the Company's 2000 Equity  Incentive Plan for
               outside directors and consultants:

               For                         Against                  Abstain
               ---                         -------                  -------
               6,056,450                    92,048                  71,727

          3.   A proposal to amend the Company's 1998 Equity  Incentive Plan for
               officers and key employees:

               For                         Against                  Abstain
               ---                         -------                  -------
               6,037,794                   112,418                  70,013

          4.   A proposal  to approve  the  election of Deliotte & Touche LLP as
               independent public accountants for the 2001 fiscal year:

               For                         Against                  Abstain
               ---                         -------                  -------
               6,214,271                     5,949                       5

ITEM 5.   OTHER INFORMATION

          On  February  8, 2001,  the  Company  announced  a change in its Chief
          Executive  Officer  and Chief  Operating  Officer.  Additionally,  the
          Company  announced  the  addition  of  a  newly  created  position  of
          Executive Vice President of Sales and Marketing.  See Item 6. Exhibits
          and Reports on Form 8-K for a copy of the press release.

                                       14
<PAGE>

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

          Exhibit        Description of Exhibit                   Reference
          -------        ----------------------                   ---------

          10.92          February 8, 2001 press release of the    Filed Herewith
                         Company relating to its management
                         changes


                                   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:  February 14, 2001                By: /s/ John Freitag
                                            ---------------------------
                                            John Freitag
                                            Chief Executive Officer
                                            (Principal Executive Officer)


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

                                       15
<PAGE>

                                  EXHIBIT INDEX


Exhibit Number      Description of Exhibit

10.92               February 8, 2001 press  release of the  Company  relating to
                    its management changes