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 June 30, 1999


[ ]  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:  8,471,674 shares of common stock on
August 11, 1999.

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 June 30, 1999
               and April 2, 1999                                               3

          Consolidated Statements of Operations for the
               three months ended June 30, 1999 and July 3, 1998               4

          Consolidated Statements of Cash Flows for the three
               months ended June 30, 1999 and July 3, 1998                     5

          Notes to Consolidated Financial Statements                           6

ITEM 2.   Management's Discussion and Analysis or Plan of
          Operations for the three months ended June 30, 1999
          compared to three months ended July 3, 1998                          8


                           PART II - OTHER INFORMATION

ITEM 1.   Legal Proceedings                                                   10

ITEM 2.   Changes in Securities                                               10

ITEM 3.   Defaults Upon Senior Securities                                     10

ITEM 4.   Submission of Matters to a Vote of Security Holders                 10

ITEM 5.   Other Information                                                   10

ITEM 6.   Exhibits and Reports on Form 8-K                                    10

SIGNATURES                                                                    11

                                       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>
                                                                   June 30, 1999      April 2, 1999
                                                                   -------------      -------------
                                                                    (unaudited)
ASSETS
Current assets:
<S>                                                                 <C>                <C>
    Cash and cash equivalents                                       $         61       $         18
    Receivables, net of allowance for doubtful accounts
            of $468 at June 30, 1999 and $489 at April 2, 1999             2,878              1,963
    Inventories, net                                                       2,224              2,197
    Prepaid expenses and other                                                48                 63
                                                                    ------------       ------------
Total current assets                                                       5,211              4,241

Property, equipment and improvements, net                                    600                591

Intangible assets, net                                                       408                438

Other                                                                         27                 38
                                                                    ------------       ------------
TOTAL ASSETS                                                        $      6,246       $      5,308
                                                                    ============       ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable, trade                                          $      2,770       $      2,143
   Accrued liabilities:
         Payroll                                                              60                 83
         Deferred sales                                                      433                229
         Professional fees                                                    62                109
         Other                                                               733                520
   Line of credit                                                            440              1,049
   Notes payable to stockholders                                             590                590
   Current maturities of long-term debt                                      132                132
                                                                    ------------       ------------
Total current liabilities                                                  5,220              4,855

Long-term debt, less current maturities                                      322                347
                                                                    ------------       ------------
Total liabilities                                                          5,542              5,202
                                                                    ------------       ------------
Stockholders' equity:
  Convertible redeemable preferred stock, $.01 par value;
      10,000,000 shares authorized; no shares issued                          --                 --
  Common stock, $.01 par value; 25,000,000 shares
      authorized; 8,471,674 and 8,321,674 shares outstanding                  85                 83
  Additional paid-in capital                                              47,536             47,369
  Accumulated deficit                                                    (46,917)           (47,346)
                                                                    ------------       ------------
Total stockholders' equity                                                   704                106
                                                                    ------------       ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                          $      6,246       $      5,308
                                                                    ============       ============
</TABLE>

        See accompanying notes to the consolidated financial statements.

                                       3
<PAGE>

                        PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

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

<TABLE>
<CAPTION>
                                                         Three Months Ended
                                                   -----------------------------
                                                   June 30, 1999    July 3, 1998
                                                   -------------    ------------
                                                             (unaudited)
Revenues:
<S>                                                  <C>             <C>
     Product sales                                   $    4,733      $    2,844
                                                     ----------      ----------
Expenses:
     Cost of products sold                                2,849           1,998
     Selling, general and administrative                    942           1,329
     Product development                                    459             436
                                                     ----------      ----------
                                                          4,250           3,763
                                                     ----------      ----------

Operating income (loss)                                     483            (919)
Other expense:
     Interest expense - affiliates                           20              10
     Interest expense - other                                34              21
                                                     ----------      ----------

Income (loss) before income taxes                           429            (950)

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

Net income (loss)                                    $      429      $     (950)
                                                     ==========      ==========

Income (loss) per common share:
            Basic                                    $     0.05      $    (0.13)
                                                     ==========      ==========
            Diluted                                  $     0.05      $    (0.13)
                                                     ==========      ==========
</TABLE>

        See accompanying notes to the consolidated financial statements.

                                       4
<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

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

<TABLE>
<CAPTION>
                                                                     Three Months Ended
                                                              --------------------------------
                                                              June 30, 1999       July 3, 1998
                                                              -------------       ------------
                                                                         (unaudited)
Cash flows from operating activities:
<S>                                                            <C>                <C>
  Net income (loss) from operations                            $        429       $       (950)
  Adjustments to reconcile income (loss) from operations
     to net cash provided by (used in) operations:
       Depreciation and amortization                                    117                117
       Provision for uncollectible accounts                              38                139
       Provision for inventory reserve                                   70                 30
       Changes in current assets and current liabilities:
          Accounts receivable                                          (953)             1,083
          Inventories                                                   (97)               584
          Prepaid expenses and other                                     15                (35)
          Accounts payable and accrued liabilities                      974               (195)
                                                               ------------       ------------

Net cash provided by operations                                         593                773
                                                               ------------       ------------

Cash flows from investing activities:
   Decrease in other assets                                              11                 --
   Capitalization of software costs                                     (31)               (48)
   Capital expenditures                                                 (65)               (45)
                                                               ------------       ------------

Net cash used in investing activities                                   (85)               (93)
                                                               ------------       ------------

Cash flows from financing activities:
  Repayment of debt - net                                               (25)               (13)
  Net repayments under lines of credit - others                        (609)              (890)
  Exercise of common stock options                                      169                  2
  Issuance of common stock                                               --                572
                                                               ------------       ------------

Net cash used in financing activities                                  (465)              (329)
                                                               ------------       ------------

Net increase in cash and cash equivalents                                43                351
Cash and cash equivalents, beginning of period                           18                146
                                                               ------------       ------------

Cash and cash equivalents, end of period                       $         61       $        497
                                                               ============       ============

Supplemental  disclosures of cash flow information:
  Cash paid during the period for:
        Interest                                               $         34       $         21
</TABLE>

        See accompanying notes to the consolidated financial statements.

                                       5
<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,  the
outcome of a Securities and Exchange Commission ("SEC")  investigation,  changes
in business and economic  conditions,  availability  of raw materials and parts,
possible  disruptions  of normal  business  activity from year 2000 issues,  and
other risks that may be described from time to time in reports the Company files
with the 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 April 2, 1999.

     The financial  statements  presented herein as of June 30, 1999 reflect, in
the opinion of management,  all 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.   REVENUE RECOGNITION
     -------------------

     Product sales are generally  recognized,  net of an allowance for estimated
sales returns and allowances,  when the related products are shipped.  Beginning
with the fourth  quarter of the fiscal  year ended  April 3, 1998,  the  Company
modified the application of its revenue  recognition policy to defer recognition
of revenue on sales to customers who are not end users of the Company's products
until such time as the product has been sold through to the end user.

     A warranty reserve of less than one percent of sales is accrued at the date
of shipment.  The Company generally  provides a warranty of five years on all of
its products sold.

3.   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 are net of a reserve for obsolete, excess and non-salable items
of $978,000 and $908,000 at June 30, 1999 and April 2, 1999, respectively.

                                       7
<PAGE>

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

3.   INVENTORIES, CONTINUED
     ----------------------

     Inventories,  net of a reserve for obsolete,  excess and non-salable items,
consisted of the following at June 30, 1999 and April 2, 1999 (in thousands):

                                                June 30, 1999   April 2, 1999
                                                -------------   -------------

     Finished goods                               $      185      $      165
     Work in progress                                    934             877
     Raw materials                                     1,105           1,155
                                                  ----------      ----------
                                                  $    2,224      $    2,197
                                                  ==========      ==========

4.   INCOME (LOSS) PER SHARE
     -----------------------

     Basic 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.  For purposes of computing  basic and
diluted EPS, the net income  (loss) for each period  presented  (the  numerator)
($429,000 for the three month period ended June 30, 1999 and  $(950,000) for the
three months ended July 3, 1998) is divided by the  weighted  average  number of
common shares outstanding (the denominator).  Basic EPS were $0.05 for the three
months ended June 30, 1999 and a loss of ($0.13) for the three months ended July
3, 1998. The weighted  average number of common shares  outstanding  used in the
basic EPS calculation are 8,464,932 and 7,468,000 for the 1999 and 1998 periods,
respectively.  The weighted average number of common shares  outstanding used in
the diluted EPS  calculation  is 8,751,363 for the 1999 period.  For purposes of
computing  diluted EPS, the Company  excluded the effects of outstanding  common
stock options and warrants in the 1998 period because they were anti-dilutive.

5.   INCOME TAXES
     ------------

     The Company has  available  net  operating  and capital loss  carryforwards
amounting to  approximately  $50 million at April 2, 1999,  including  operating
loss carryforwards which relate to a predecessor company,  which expire in 2014.
As a result of several  ownership  changes which have occurred  since the losses
started  to  accumulate,  statutory  provisions  will  substantially  limit  the
Company's future use of the loss carryforwards.

6.   DEBT
     ----

     On November 17,  1998,  the Company  entered  into a financing  arrangement
which  provides for a line of credit up to $1,650,000  ($440,000  outstanding at
June 30, 1999) and is based on the available borrowing base, at an interest rate
of prime plus 2.00%. A portion of the proceeds from this line of credit was used
to retire the debt borrowed under a previous  financing  agreement.  The line of
credit is primarily  collateralized  by the Company's  accounts  receivable  and
inventory.  This financing  arrangement  expires in November 1999. The agreement
can be renewed for an additional year with the mutual consent of both parties.

                                       8
<PAGE>

ITEM 2.   MANAGEMENT'S  DISCUSSION  AND ANALYSIS OR PLAN OF  OPERATIONS  FOR THE
          THREE  MONTHS  ENDED JUNE 30, 1999  COMPARED TO THE THREE MONTHS ENDED
          JULY 3, 1998.

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

     The Company  reported  net income for the three month period ended June 30,
1999 of $429,000  compared to a net loss of $950,000  for the  comparable  three
month period of the prior fiscal year. The Company's  operating  results for the
three months ended June 30, 1999 were favorably  affected by increased  sales to
major customers,  higher gross margins, and decreased general and administrative
expenses.

     Product  sales  revenue  for the three  month  period  ended June 30,  1999
totaled approximately $4,733,000 compared to $2,844,000 for the comparable three
month period of the prior fiscal year, an increase of  $1,889,000,  or 66%. This
increase is attributable to higher sales to the Company's two major customers.

     Cost of  products  sold for the three  month  period  ended  June 30,  1999
amounted to $2,849,000,  or 60% of product sales revenues versus $1,998,000,  or
70%, for the  comparable  three month period of the prior year.  The decrease in
cost of products sold as a percentage of revenues is due to pricing improvements
and increased sales volumes.

     Selling,  general and administrative  expenses amounted to $942,000, or 20%
of product  sales  revenue,  for the three  months  ended June 30,  1999  versus
$1,329,000,  or 47%, for the  comparable  three months of the prior fiscal year.
The decrease in selling,  general and  administrative  expenses during the three
month period ended June 30, 1999 versus the same period of the prior fiscal year
is  attributable  to decreases in  compensation  costs due to staff  reductions,
reduced  legal costs due to  settlement  of litigation in the prior fiscal year,
and the successful implementation of other cost reduction efforts.

     Product development expenses amounted to $459,000,  or 10% of product sales
revenue,  for the three months ended June 30, 1999 versus $436,000,  or 15%, for
the comparable  three month period of the prior fiscal year. The Company expects
that product  development  expenses  will  continue at the current level for the
remainder of the fiscal year.

LIQUIDITY
---------

     On November 17,  1998,  the Company  entered  into a financing  arrangement
which  provides for a line of credit up to $1,650,000  ($440,000  outstanding at
June 30, 1999) and is based on the available borrowing base, at an interest rate
of prime  plus  2.00%.  The line of credit is  primarily  collateralized  by the
Company's  accounts  receivable and  inventory.  At June 30, 1999, the borrowing
availability under this line of credit was $589,000.

     The  Company's  primary cash  commitments  in fiscal 2000 include  payments
under non-cancelable operating leases ($293,000), short-term debt ($722,000) and
investments in research and  development  ($459,000 in the first three months of
fiscal year 2000).  With  respect to notes  payable  and current  maturities  of
long-term  debt,  approximately  $590,000  of the  $722,000  is  due to  related
parties,  the  payment  terms of which the Company  believes  can be extended as
needed.

     Cash provided by operations amounted to $593,000 for the three months ended
June 30, 1999 compared to $773,000 for the three months ended July 3, 1998.  The
decrease in cash provided by operations compared to the prior year fiscal period
primarily reflects the increase in accounts receivable and inventories.

         Cash used in  investing  activities  amounted  to $85,000 for the three
months ended June 30, 1999 compared with $93,000 for the three months ended July
3, 1998.  This slight  decrease from the same period of the prior fiscal year is
attributable  the  decrease in other  long-term  assets.  The  Company  does not
anticipate a significant increase in the level of capital expenditures.

                                       9
<PAGE>

ITEM 2.   MANAGEMENT'S  DISCUSSION  AND ANALYSIS OR PLAN OF  OPERATIONS  FOR THE
          THREE  MONTHS  ENDED JUNE 30, 1999  COMPARED TO THE THREE MONTHS ENDED
          JULY 3, 1998, CONTINUED.

LIQUIDITY, CONTINUED
----------

     Cash used in  financing  activities  during the three months ended June 30,
1999 was $465,000  versus $329,000 for the three months ended July 3, 1998. This
increase is primarily due to  repayments  on the Company's  line of credit which
were partially offset by a decrease in cash received from the issuance of common
stock.

     Working  capital  was a deficit of $9,000 at June 30, 1999 versus a deficit
of $614,000 at April 2, 1999, an improvement  of $605,000.  The ratio of current
assets to current  liabilities at June 30, 1999 was 1.00 to 1.00 compared to .87
to 1.00 at April 2, 1999.

YEAR 2000 RISKS
---------------

     The year 2000 issue relates to computer programs and systems that recognize
dates using two digit year data  rather than four digit year data.  As a result,
such programs and systems may fail or provide  incorrect  information when using
dates after December 31, 1999.

     The Company  believes that its current  product  line,  including its Value
Port, Intelliport II, Intelliport Plus,  Intelliport II Expandable,  Intelliport
III and IntelliServer product families,  does not create, access, or depend upon
absolute date information and is, therefore, year 2000 compliant.

     The Company is  continuing  a  comprehensive  program  designed to identify
internal computer and information systems, manufacturing and delivery equipment,
and facilities  equipment to determine  their year 2000  readiness.  The process
includes replacing  equipment that does not meet year 2000 readiness  standards.
In order to improve  operating  efficiencies,  the  Company is in the process of
implementing a new financial and  manufacturing  software  package.  The Company
believes the functions of this software package relating to critical  operations
such as accounting, order entry, purchasing, inventory, production, shipping and
billing are year 2000 compliant. This implementation is expected to be completed
by September 1999.

     The Company is currently  contacting its suppliers,  service  providers and
other business  associates to evaluate their year 2000  readiness.  In the event
any of these  businesses  are unlikely to resolve  their year 2000  issues,  the
Company's  contingency plans include seeking  alternative  sources of supply for
products and services.

     The Company cannot  reasonably  estimate the cost or related  contingencies
that could be incurred if the year 2000 issue results in significant operational
difficulties.

     Many of the factors that would  guarantee  year 2000  compliance are beyond
the control of the Company.  These factors  include the  availability  of vendor
compliant products and services, interface system partner compliance, government
activity   and   suppliers   in  areas   such  as   utilities,   communications,
transportation and other services. Because of the technological  interdependence
of  commercial   activities,   the  Company  cannot   realistically   offer  any
certifications,  representations  or guarantees  of total year 2000  compliance.
Although the Company is  optimistic  that it will be able to timely  address any
year 2000 issues that it  identifies,  there can be no  assurance  that  certain
factors relating to year 2000 compliance issues, including litigation,  will not
have a material adverse effect on the Company's business,  financial  condition,
cash flows or results of operations.

                                       10
<PAGE>

ITEM 2.   MANAGEMENT'S  DISCUSSION  AND ANALYSIS OR PLAN OF  OPERATIONS  FOR THE
          THREE  MONTHS  ENDED JUNE 30, 1999  COMPARED TO THE THREE MONTHS ENDED
          JULY 3, 1998, CONTINUED.

OUTLOOK FOR REMAINDER OF FISCAL YEAR 1999
-----------------------------------------

     Management  believes  that new or  redesigned  products  will  enhance  the
Company's  ability  to  increase  its sales in  fiscal  2000.  The Total  Access
DCS-5000  combines the features of a high  performance  Ethernet  digital remote
access server with up to 12 DSP 24-channel modem cards. The DCS-5000 is intended
for use by internet service providers and medium to large companies that require
high-density  connectivity,  allowing  remote users and locations  access to the
Internet  and  corporate  Intranets.  The new "Gold" card family of products are
high performance,  cost effective PCI controller products  specifically designed
to meet the  needs of the  remote  access  market.  The  Intelliserver  RAS-2000
Powerrack  is a redesign  of the  Powerrack  family with  enhanced  performance,
remote access server features and configurations added.

     During the first quarter of fiscal 2000,  the Company's  backlog  decreased
from  $2,573,000 at April 2, 1999 to $1,485,000 at June 30, 1999. The backlog at
April 2, 1999 was significantly  higher than would normally be expected.  During
the fourth  quarter of fiscal year 1999,  the Company  resolved a payment  issue
with its principal contract  manufacturing  supplier.  However, due to long lead
times for  certain  components  the  supplier  was  unable  to make  significant
deliveries during the later portion of fiscal year 1999. The Company anticipates
that  substantially  all of its backlog at June 30, 1999 will be shipped  during
the second quarter of fiscal year 2000.

                           PART II - OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

          None,  other than those  matters  described in Item 3 to the Company's
          Annual Report on Form 10-KSB for the year ended April 2, 1999.

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

          Not Applicable.

                                       11
<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:  August 11, 1999                 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)

                                       12