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, 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:  9,897,793 shares of common stock on
February 8, 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 December 31, 1999 and
               April 2, 1999                                                   3

          Consolidated  Statements  of  Operations  for the three
               months ended December 31, 1999 and January 1, 1999              4

          Consolidated  Statements  of  Operations  for the  nine
               months ended December 31, 1999 and January 1, 1999              5

          Consolidated  Statements  of Cash  Flows  for the  nine
               months ended December 31, 1999 and January 1, 1999              6

          Notes to Consolidated Financial Statements                           7

ITEM 2.   Management's   Discussion   and  Analysis  or  Plan  of
          Operations for the three and nine months ended December
          31,  1999  compared  to  three  and nine  months  ended
          January 1, 1999                                                      9

                           PART II - OTHER INFORMATION

ITEM 1.   Legal Proceedings                                                   12

ITEM 2.   Changes in Securities                                               12

ITEM 3.   Defaults Upon Senior Securities                                     12

ITEM 4.   Submission of Matters to a Vote of Security Holders                 12

ITEM 5.   Other Information                                                   12

ITEM 6.   Exhibits and Reports on Form 8-K                                    12

SIGNATURES                                                                    13

<PAGE>

                      PART I - FINANCIAL INFORMATION

Item 1.   Consolidated Financial Statements

                     Computone Corporation and Subsidiaries
                           Consolidated Balance Sheets
                                 (in thousands)
<TABLE>
<CAPTION>
                                                               December 31, 1999   April 2, 1999
                                                               -----------------   -------------
                                                                  (unaudited)
ASSETS
Current assets:
<S>                                                                <C>               <C>
    Cash and cash equivalents                                      $       80        $       18
    Receivables, net of allowance for doubtful accounts
        of $284 at December 31, 1999 and $489 at April 2, 1999          1,671             1,963
    Inventories, net                                                    2,105             2,197
    Prepaid expenses and other                                             49                63
                                                                   ----------        ----------
Total current assets                                                    3,905             4,241

Property, equipment and improvements, net                                 624               591

Intangible assets, net                                                    393               438

Other                                                                      27                38
                                                                   ----------        ----------
TOTAL ASSETS                                                       $    4,949        $    5,308
                                                                   ==========        ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable, trade                                        $      843        $    2,143
    Accrued liabilities:
        Payroll                                                            82                83
        Deferred sales                                                    315               229
        Interest                                                          236               199
        Other                                                             526               430
    Line of credit                                                        810             1,049
    Notes payable to stockholders                                         590               590
    Current maturities of long-term debt                                  151               132
                                                                   ----------        ----------
Total current liabilities                                               3,553             4,855

Long-term debt, less current maturities                                   233               347
                                                                   ----------        ----------

Total liabilities                                                       3,786             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; 9,439,922 and 8,321,674 shares outstanding             94                83
    Additional paid-in capital                                         48,729            47,369
    Accumulated deficit                                               (47,660)          (47,346)
                                                                   ----------        ----------
Total stockholders' equity                                              1,163               106
                                                                   ----------        ----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                         $    4,949        $    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)

                                                      Three Months Ended
                                              ----------------------------------
                                              December 31, 1999  January 1, 1999
                                              -----------------  ---------------
                                                          (unaudited)
Revenues:
     Product sales                                $    2,378       $    1,922
                                                  ----------       ----------
Expenses:
     Cost of products sold                             1,451            1,212
     Selling, general and administrative                 836            1,109
     Product development                                 437              518
                                                  ----------       ----------
                                                       2,724            2,839
                                                  ----------       ----------

Operating loss                                          (346)            (917)

Other  income (expense):
     Interest expense - affiliates                       (19)             (23)
     Interest expense - other                            (27)             (37)
                                                  ----------       ----------

Loss before income taxes                                (392)            (977)

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

Net loss                                          $     (392)      $     (977)
                                                  ==========       ==========

Loss per common share:
    Basic                                         $    (0.05)      $    (0.13)
                                                  ==========       ==========
    Diluted                                       $    (0.05)      $    (0.13)
                                                  ==========       ==========

        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 Operations
                      (in thousands, except per share data)

                                                      Nine Months Ended
                                            ------------------------------------
                                            December 31, 1999    January 1, 1999
                                            -----------------    ---------------
                                                         (unaudited)
Revenues:
    Product sales                               $    9,757         $    7,574
                                                ----------         ----------
Expenses:
    Cost of products sold                            5,878              5,092
    Selling, general and administrative              2,723              3,635
    Product development                              1,326              1,475
                                                ----------         ----------
                                                     9,927             10,202
                                                ----------         ----------

Operating loss                                        (170)            (2,628)

Other income (expense):
    Other income                                        --                  2
    Interest expense - affiliates                      (57)               (51)
    Interest expense - other                           (87)               (70)
                                                ----------         ----------

Loss before income taxes                              (314)            (2,747)

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

Net loss                                        $     (314)        $   (2,747)
                                                ==========         ==========
Loss per common share:
    Basic                                       $    (0.04)        $    (0.36)
                                                ==========         ==========
    Diluted                                     $    (0.04)        $    (0.36)
                                                ==========         ==========

        See accompanying notes to the consolidated financial statements.

                                       5
<PAGE>

                    PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

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

<TABLE>
<CAPTION>
                                                                                 Nine Months Ended
                                                                       -----------------------------------
                                                                       December 31, 1999   January 1, 1999
                                                                       -----------------   ---------------
                                                                                    (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                        <C>                <C>
  Net loss from operations                                                 $     (314)        $   (2,747)
  Adjustments to reconcile loss from operations
     to net cash provided by (used in) operations:
       Settlement of accounts payables in exchange for common stock               691                 --
       Depreciation and amortization                                              354                336
       Provision for uncollectible accounts                                        66                110
       Provision for inventory reserve                                            112                 70
       Changes in current assets and current liabilities:
          Accounts receivable                                                     226                993
          Inventories                                                             (20)             1,632
          Prepaid expenses and other                                               14                 22
          Accounts payable and accrued liabilities                             (1,082)              (275)
                                                                           ----------         ----------
Net cash provided by operations                                                    47                141
                                                                           ----------         ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Decrease (increase) in other assets                                             11               (450)
   Capitalization of software costs                                              (216)              (136)
   Capital expenditures                                                          (126)              (114)
                                                                           ----------         ----------
Net cash used in investing activities                                            (331)              (700)
                                                                           ----------         ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings from affiliates                                                       --                545
  Repayment of debt - net                                                         (95)              (167)
  Net repayments under lines of credit                                           (239)              (820)
  Exercise of common stock options and warrants                                    11                  3
  Issuance of common stock                                                        669                905
                                                                           ----------         ----------
Net cash provided by financing activities                                         346                466
                                                                           ----------         ----------

Net increase (decrease) in cash and cash equivalents                               62                (93)
Cash and cash equivalents, beginning of period                                     18                146
                                                                           ----------         ----------
Cash and cash equivalents, end of period                                   $       80         $       53
                                                                           ==========         ==========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
    Cash paid during the year for:
        Interest                                                           $       87         $       70

SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES:
       Common stock issued in settlement of accounts payables              $      691         $       --
</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 April 2, 1999.

     The financial  statements presented herein as of December 31, 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. Revenue on
sales to customers who are not end users of the Company's  products are deferred
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 $589,000 and $908,000 at December 31, 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  December  31,  1999  and  April  2,  1999  (in
thousands):

                          December 31, 1999   April 2, 1999
                          -----------------   -------------

     Finished goods          $      513        $      165
     Work in progress               489               877
     Raw materials                1,103             1,155
                             ----------        ----------
                             $    2,105        $    2,197
                             ==========        ==========

4.   LOSS PER SHARE
     --------------

     Basic loss per share  excludes  dilution  and is computed by dividing  loss
available to common shareholders by the weighted average number of common shares
outstanding  for the  period.  Diluted  loss per share  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  loss  per  share,  the net loss for  each  period  presented  (the
numerator)  is  divided  by  the  weighted   average  number  of  common  shares
outstanding (the  denominator)  resulting in basic and diluted loss per share of
$0.05 for the  three  months  ended  December  31,  1999 and $0.13 for the three
months ended January 1, 1999.  The basic and diluted loss per share for the nine
months  ended  December  31, 1999 is $0.04 and $0.36 for the nine  months  ended
January 1, 1999.  For  purposes of  computing  diluted loss per share during the
three and nine month  periods,  the Company  excluded the effects of outstanding
common stock options and warrants because they were anti-dilutive.

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

     The Company had  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 that is  primarily  collateralized  by the
Company's  accounts  receivable and  inventory.  On October 1, 1999, the Company
renewed this financing  agreement.  The renewed agreement provides for a line of
credit up to $1,400,000 ($810,000 outstanding at December 31, 1999) and is based
on the available  borrowing base, at an interest rate of prime plus 2.00%.  This
financing arrangement expires in November 2000.

                                       8
<PAGE>

ITEM 2.   MANAGEMENT'S  DISCUSSION  AND ANALYSIS OR PLAN OF  OPERATIONS  FOR THE
          THREE AND NINE MONTHS ENDED  DECEMBER  31, 1999  COMPARED TO THE THREE
          AND NINE MONTHS ENDED JANUARY 1, 1999.

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

FOR THE THREE MONTHS ENDED DECEMBER 31, 1999
--------------------------------------------

     The Company  reported a net loss for the three month period ended  December
31, 1999 of $393,000 compared to a net loss of $977,000 for the comparable three
month period of the prior fiscal year. The Company's  operating  results for the
three  months  ended  December  31, 1999 were  favorably  affected by  increased
shipments,   increased  gross  margins,  decreased  general  and  administrative
expenses, and decreased product development costs.

     Product  sales  revenue for the three month period ended  December 31, 1999
totaled approximately $2,378,000 compared to $1,922,000 for the comparable three
month  period of the prior fiscal year,  an increase of $456,000,  or 24%.  This
increase  is  attributable  to the  Company's  continued  focus on  distribution
channels and a larger than normal order from an OEM customer.

     Cost of products  sold for the three month period  ended  December 31, 1999
amounted to $1,451,000,  or 61% of product sales revenues, versus $1,212,000, or
63%, 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, lower component costs and a change in product mix.

     Selling,  general and administrative  expenses amounted to $836,000, or 35%
of product sales  revenue,  for the three months ended  December 31, 1999 versus
$1,109,000,  or 58%, for the  comparable  three months of the prior fiscal year.
The decrease in selling,  general and  administrative  expenses during the three
month period ended  December 31, 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 $437,000,  or 18% of product sales
revenue,  for the three months ended December 31, 1999 versus $518,000,  or 27%,
for the comparable  three month period of the prior fiscal year. The decrease in
product  development  expenses  during the three month period ended December 31,
1999  versus  the same  period  of the  prior  fiscal  year is  attributable  to
decreases  in costs of third party  engineering  services,  partially  offset by
increases in development of prototypes and testing of new products.  The Company
expects that product development expenses will continue at the current level for
the remainder of the fiscal year.

FOR THE NINE MONTHS ENDED DECEMBER 31, 1999
-------------------------------------------

     The Company  reported a net loss for the nine month period  ended  December
31, 1999 of $314,000 compared to $2,747,000 for the comparable nine month period
of the prior fiscal year.  The Company's  operating  results for the nine months
ended  December 31, 1999 were  favorably  affected by increased  sales  volumes,
higher  gross  margins,  decreased  general  and  administrative  expenses,  and
decreased product development costs.

     Product  sales  revenue for the nine month period  ended  December 31, 1999
totaled approximately  $9,757,000 compared to $7,574,000 for the comparable nine
month period of the prior fiscal year,  an increase of  $2,183,000  or 29%. This
increase  is  attributable  to the  Company's  continued  focus on  distribution
channels and to project-related business from two large customers.

     Cost of products  sold for the nine month  period  ended  December 31, 1999
amounted to $5,878,000,  or 60% of product sales revenues versus $5,092,000,  or
67%, for the  comparable  nine month  period of the prior year.  The decrease in
cost  of  products   sold  as  a  percentage  of  revenues  is  due  to  pricing
improvements, lower component costs and a change in product mix.

<PAGE>

ITEM 2.   MANAGEMENT'S  DISCUSSION  AND ANALYSIS OR PLAN OF  OPERATIONS  FOR THE
          THREE AND NINE MONTHS ENDED  DECEMBER  31, 1999  COMPARED TO THE THREE
          AND NINE MONTHS ENDED JANUARY 1, 1999, CONTINUED.

     Selling, general and administrative expenses amounted to $2,723,000, or 28%
of product  sales  revenue,  for the nine months ended  December 31, 1999 versus
$3,635,000, or 48%, for the comparable nine months of the prior fiscal year. The
$917,000  decrease in selling,  general and  administrative  expenses during the
nine month  period  ended  December 31, 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  $1,326,000,  or 14% of product
sales revenue, for the nine months ended December 31, 1999 versus $1,475,000, or
19%, for the comparable nine month period of the prior fiscal year. The decrease
in product  development  costs during the nine month  period ended  December 31,
1999  versus  the same  period  of the  prior  fiscal  year is  attributable  to
decreases  in costs of third party  engineering  services,  partially  offset by
increases in development of prototypes and testing of new products.  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 that is  primarily  collateralized  by the
Company's  accounts  receivable and  inventory.  On October 1, 1999, the Company
renewed this financing  agreement.  The renewed agreement provides for a line of
credit up to $1,400,000 ($810,000 outstanding at December 31, 1999) and is based
on the available  borrowing base, at an interest rate of prime plus 2.00%.  This
financing  arrangement  expires in November  2000.  At December  31,  1999,  the
borrowing availability under this line of credit was $234,000.

     The  Company's  primary cash  commitments  in fiscal 2000 include  payments
under non-cancelable operating leases ($293,000), short-term debt ($741,000) and
investments in research and development ($1,326,000 for the first nine months of
fiscal year 2000).  With  respect to notes  payable  and current  maturities  of
long-term  debt,  approximately  $590,000  of the  $741,000  is  due to  related
parties,  the  payment  terms of which the Company  believes  can be extended as
needed.

     Cash provided by  operations  amounted to $47,000 for the nine months ended
December  31, 1999  compared to $141,000  for the nine months  ended  January 1,
1999.  The decrease in cash  provided by  operations  compared to the prior year
fiscal period primarily  reflects the fact that the Company reduced its accounts
payable.

     Cash used in investing  activities amounted to $331,000 for the nine months
ended December 31, 1999 compared with $700,000 for the nine months ended January
1,  1999.  This  decrease  from the same  period  of the  prior  fiscal  year is
attributable to the decrease in other assets.  The Company does not anticipate a
significant increase in the level of capital expenditures.

     Cash provided by financing activities during the nine months ended December
31, 1999 was $346,000  compared  with $466,000 for the nine months ended January
1, 1999.  This decrease is primarily due to a decrease in cash received from the
issuance of common stock.

     The Company is  endeavoring  to raise $1.5 million in equity capital by the
end of the Company's fiscal year by offering for sale, to accredited  investors,
shares of the Company's common stock under Regulation D of the Securities Act of
1993.  As of  December  31,  1999 the  Company  had raised  $500,000  under this
offering.  The  funds  will be used for  working  capital  purposes  and to fund
investments in research and development and marketing of new products.  However,
no  assurances  can be given  that the  Company  will be  successful  in raising
additional  capital.  Further,  there can be no assurance,  assuming the Company
successfully   raises   additional   funds,   that  the  Company   will  achieve
profitability or maintain positive cash flow.

<PAGE>


ITEM 2.   MANAGEMENT'S  DISCUSSION  AND ANALYSIS OR PLAN OF  OPERATIONS  FOR THE
          THREE AND NINE MONTHS ENDED  DECEMBER  31, 1999  COMPARED TO THE THREE
          AND NINE MONTHS ENDED JANUARY 1, 1999, CONTINUED.

     Working  capital  was  $352,000  at  December  31, 1999 versus a deficit of
$614,000 at April 2, 1999,  an  improvement  of  $965,000.  The ratio of current
assets to current  liabilities at December 31, 1999 was 1.10 to 1.00 compared to
 .87 to 1.00 at April 2, 1999.  This increase is due primarily to the  settlement
of $691,000 of accounts payable through the issuance of common stock.

OUTLOOK FOR REMAINDER OF FISCAL YEAR 2000
-----------------------------------------

     Management  believes  that new or  redesigned  products  will  enhance  the
Company's  ability to  increase  its sales in fiscal  2000.  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.  Shipments
of the Gold 4 and Gold 8  products  began in  January  2000.  The  Intelliserver
RAS-2000  Powerrack  is  a  redesign  of  the  Powerrack  family  with  enhanced
performance,  remote access server features and configurations added.  Shipments
of the RAS-2000  began in October 1999.  Additionally,  during January 2000, the
Company began shipping the enhanced ISA-4RJ Plus product.

     During the first half of fiscal 2000, the Company's  backlog decreased from
$2,573,000  at April 2, 1999 to less than  $100,000 at December  31,  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.  During
fiscal year 2000,  the Company has increased its finished  goods  inventory from
$165,000 at April 2, 1999 to $513,000 at December 31,  1999,  and is now able to
ship most  orders  shortly  after  receipt of the order.  As result,  management
believes  the level of the  Company's  backlog  at  December  31,  1999 is not a
reliable indicator of future sales.

<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

          On September  28, 1999,  the SEC filed a complaint  (Civil  Action No.
          1:99-CV-2496)  in the United  States  District  Court for the Northern
          District of Georgia  against  the Company and five former  officers of
          the Company. The complaint alleges a pervasive effort by former senior
          management  employees to overstate the  Company's  income from October
          1993 through October 1997. The complaint  seeks permanent  injunctions
          against all the defendants, and seek civil money penalties against the
          five former officers,  and  disgorgement  plus  prejudgement  interest
          against one former officer.

          The  Company  and  the  SEC  have  reached  agreement   regarding  the
          settlement  of this matter,  and the  settlement  is in the process of
          being  documented.  The settlement  involves the Company's  consent to
          certain matters,  but does not include any monetary  penalties against
          the Company.

ITEM 2.   CHANGES IN SECURITIES

          In November and  December  1999,  the Company  sold 500,000  shares of
          Common  Stock at a price  of $1.00  per  share to  several  accredited
          investors in a private  placement being effected  through a registered
          broker dealer as placement agent. The private placement is pursuant to
          Regulation D under the  Securities  Act of 1933.  The placement  agent
          will receive shares of the Company's common stock as compensation. The
          number of shares  issued will be  dependent  on the amount of proceeds
          received.  The  aggregate  proceeds from such sales of Common Stock of
          $500,000 were used for working capital items and to partially fund the
          Company's loss from  operations of $393,000  during the fiscal quarter
          ended December 31, 1999.

          In December 1999, the Company issued 325,000 shares of common stock in
          settlement of accounts payable of $691,000.


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.

<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: February 11,  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)