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 months ended September 30, 2001

[ ]  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                                   (IRS Employer
of incorporation or organization)                            Identification No.)

          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:  13,676,738 shares of common stock on
November 13, 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:

          Unaudited Consolidated Balance Sheets as of September 30, 2001
          and March 31, 2001                                                   3

          Unaudited Consolidated Statements of Operations for the three
          months ended September 30, 2001 and September 30, 2000               4

          Unaudited Consolidated Statements of Operations for the six
          months ended September 30, 2001 and September 30, 2000               5

          Unaudited Consolidated Statements of Cash Flows for the six
          months ended September 30, 2001 and September 30, 2000               6

          Notes to Unaudited Consolidated Financial Statements                 7

ITEM 2.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations                                           13

                           PART II - OTHER INFORMATION

ITEM 1.   Legal Proceedings                                                   17

ITEM 2.   Changes in Securities                                               17

ITEM 3.   Defaults Upon Senior Securities                                     17

ITEM 4.   Submission of Matters to a Vote of Security Holders                 17

ITEM 5.   Other Information                                                   17

ITEM 6.   Exhibits and Reports on Form 8-K                                    17

SIGNATURES                                                                    18

                                        2
<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1.   Consolidated Financial Statements

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

<TABLE>
<CAPTION>
                                                                            September 30,      March 31,
                                                                                 2001             2001
                                                                             ------------     ------------
ASSETS
Current assets:
<S>                                                                          <C>              <C>
    Cash and cash equivalents                                                $         96     $        264
    Receivables, net of allowance for doubtful accounts
       of $116 as of September 30, 2001 and $150 as of March 31, 2001               1,176            1,297
    Inventories, net                                                                1,692            2,173
    Prepaid expenses and other                                                         75              163
                                                                             ------------     ------------
Total current assets                                                                3,039            3,897

Property and equipment, net                                                           506              606

Goodwill                                                                            8,078            8,078

Software development costs, net of accumulated amortization
   of $346 as of September 30, 2001 and $687 as of March 31, 2001                     192              242

Other                                                                                  45              127
                                                                             ------------     ------------

Total assets                                                                 $     11,860     $     12,950
                                                                             ============     ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable, trade                                                  $      1,814     $      2,056
    Accrued liabilities:
         Deferred maintenance revenue                                               1,029              848
         Deferred enterprise management revenue                                       293               --
         Deferred gross profit                                                         67              112
         Interest                                                                     107              163
         Other                                                                        460              621
   Line of credit                                                                      --              587
   Notes payable to stockholders                                                      537              495
   Current maturities of long-term debt, net of discount of
     $237 as of September 30, 2001 and $691 as of March 31, 2001                    2,263            1,809
                                                                             ------------     ------------
Total current liabilities                                                           6,570            6,691
                                                                             ------------     ------------

Commitments and contingencies

Series A redeemable convertible preferred stock, $10 stated value;
  400,000 shares authorized; 80,768 and no shares issued and outstanding,
   as of September 30, 2001 and March 31, 2001, respectively                          716               --
                                                                             ------------     ------------

Stockholders' equity:
  Common stock, $.01 par value; 25,000,000 shares authorized;
   13,674,126 and 12,853,577 shares issued and outstanding,
   as of September 30, 2001 and March 31, 2001, respectively                          137              129
  Additional paid-in capital                                                       60,318           59,150
  Accumulated deficit                                                             (55,881)         (53,020)
                                                                             ------------     ------------
Total stockholders' equity                                                          4,574            6,259
                                                                             ------------     ------------

Total liabilities and stockholders' equity                                   $     11,860     $     12,950
                                                                             ============     ============
</TABLE>

     See accompanying notes to unaudited consolidated financial statements.

                                        3
<PAGE>

                         PART I - FINANCIAL INFORMATION

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

<TABLE>
<CAPTION>
                                                                              For the three months ended
                                                                             -----------------------------
                                                                             September 30,    September 30,
                                                                                 2001             2000
                                                                             ------------     ------------

Revenues:
<S>                                                                          <C>              <C>
     Connectivity products                                                   $        829     $      1,536
     Service and support                                                            1,479            1,404
                                                                             ------------     ------------
                                                                                    2,308            2,940
                                                                             ------------     ------------
Expenses:
     Cost of connectivity products                                                    581            1,001
     Cost of service and support                                                      975              960
     Amortization of goodwill                                                          --              215
     Selling, general and administrative (includes a $855
        non-cash charge for consulting services in 2001)                            1,956            1,261
     Product development                                                              406              331
                                                                             ------------     ------------
                                                                                    3,918            3,768
                                                                             ------------     ------------

Operating loss                                                                     (1,610)            (828)

Other  income (expense):
     Loan discount amortization                                                      (231)            (206)
     Interest expense - affiliates                                                    (13)             (25)
     Interest expense - other                                                         (67)             (83)
     Other income (expense)                                                            (3)               7
                                                                             ------------     ------------

Loss before income taxes                                                           (1,924)          (1,135)

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

Net loss                                                                           (1,924)          (1,135)

Preferred stock dividend                                                              (14)              --
                                                                             ------------     ------------


Net loss available to common stockholders                                    $     (1,938)    $     (1,135)
                                                                             ============     ============

Loss per common share - basic and diluted                                    $      (0.15)    $      (0.09)
                                                                             ============     ============

Weighted average shares outstanding - basic and diluted                            12,953           12,116
                                                                             ============     ============
</TABLE>

     See accompanying notes to unaudited consolidated financial statements.

                                        4
<PAGE>

                         PART I - FINANCIAL INFORMATION

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

<TABLE>
<CAPTION>
                                                                              For the three months ended
                                                                             -----------------------------
                                                                             September 30,    September 30,
                                                                                 2001             2000
                                                                             ------------     ------------

Revenues:
<S>                                                                          <C>              <C>
     Connectivity products                                                   $      1,906     $      2,714
     Service and support                                                            3,171            1,464
                                                                             ------------     ------------
                                                                                    5,077            4,178
                                                                             ------------     ------------
Expenses:
     Cost of connectivity products                                                  1,305            1,891
     Cost of service and support                                                    2,068              997
     Amortization of goodwill                                                          --              220
     Selling, general and administrative (includes a $855
        non-cash charge for consulting services in 2001)                            2,981            2,060
     Product development                                                              792              688
                                                                             ------------     ------------
                                                                                    7,146            5,856
                                                                             ------------     ------------

Operating loss                                                                     (2,069)          (1,678)

Other  income (expense):
     Loan discount amortization                                                      (455)            (206)
     Interest expense - affiliates                                                    (29)             (44)
     Interest expense - other                                                        (144)            (137)
     Other income (expense)                                                             1                5
                                                                             ------------     ------------

Loss before income taxes                                                           (2,696)          (2,060)

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

Net loss                                                                           (2,696)          (2,060)

Preferred stock dividend                                                              (22)              --

Dividend associated with preferred stock beneficial
  conversion feature                                                                 (143)              --
                                                                             ------------     ------------

Net loss available to common stockholders                                    $     (2,861)    $     (2,060)
                                                                             ============     ============

Loss per common share - basic and diluted                                    $      (0.22)    $      (0.19)
                                                                             ============     ============

Weighted average shares outstanding - basic and diluted                            12,904           11,075
                                                                             ============     ============
</TABLE>

     See accompanying notes to unaudited consolidated financial statements.

                                        5
<PAGE>

                         PART I - FINANCIAL INFORMATION

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

<TABLE>
<CAPTION>
                                                                              For the three months ended
                                                                             -----------------------------
                                                                             September 30,    September 30,
                                                                                 2001             2000
                                                                             ------------     ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                          <C>              <C>
  Net loss                                                                   $     (2,696)    $     (2,060)
  Adjustments to reconcile net loss to net cash used in operations:
       Common stock issued for consulting services                                    855               --
       Depreciation and amortization                                                  655              661
       Provision for uncollectible accounts receivable                                  9               25
       Provision for inventory reserve                                                 84              130
       Changes in current assets and current liabilities, net of effects
        from business acquired
          Receivables                                                                 112               34
          Inventories                                                                 397              325
          Prepaid expenses and other                                                  170              (41)
          Accounts payable and accrued liabilities                                    102           (1,005)
                                                                             ------------     ------------

Net cash used in operations                                                          (312)          (1,931)
                                                                             ------------     ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Acquisition of business                                                             --           (4,150)
   Capitalization of software costs                                                   (18)             (41)
   Capital expenditures                                                               (33)            (163)
                                                                             ------------     ------------

Net cash used in investing activities                                                 (51)          (4,354)
                                                                             ------------     ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from the issuance of debt                                                  200            2,500
  Repayment of debt                                                                   (58)            (347)
  Net repayments under lines of credit                                               (587)            (197)
  Capital contribution                                                                 --              250
  Proceeds from issuance of preferred stock                                           686               --
  Cost associated with the issuance of preferred stock                                (46)              --
  Proceeds from issuance of common stock                                               --            4,312
  Cost associated with the issuance of common stock                                    --             (325)
  Proceeds from exercise of common stock options                                       --               48
                                                                             ------------     ------------

Net cash provided by financing activities                                             195            6,241
                                                                             ------------     ------------

Net decrease in cash and cash equivalents                                            (168)             (44)
Cash and cash equivalents, beginning of year                                          264              197
                                                                             ------------     ------------
Cash and cash equivalents, end of period                                     $         96     $        153
                                                                             ============     ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
    Cash paid during the period for:
        Interest                                                             $         77     $         54
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
    Preferred stock issued for settlement of accounts payable and
     accrued liabilities                                                     $        100     $         --
    Warrants associated with the issuance of preferred stock                           46               --
    Divided associated with preferred stock beneficial conversion feature             143               --
    Preferred stock issued for dividends                                               22               --
    Common stock issued for settlement of debt                                        128               --
    Common stock issued for settlement of accounts payable                              3               10
    Common stock issued for business acquired                                          --            3,800
    Common stock issued for consulting services                                       855               --
</TABLE>

     See accompanying notes to unaudited consolidated financial statements.

                                        6
<PAGE>

                     COMPUTONE CORPORATION AND SUBSIDIARIES
              UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     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,  the ability of the Company to continue as a going concern, the
ability  of the  Company  to fund  operations,  expand  sales  volume  and sales
personnel,  the  ability  of the  Company  to  improve  revenue  throughout  the
remainder of fiscal 2002,  future supply and demand for the Company's  products,
changes in business and economic  conditions,  availability of raw materials and
parts,  and other risks that may be  described  from time to time in reports the
Company  files  with the  Securities  and  Exchange  Commission  ("SEC").  Undue
reliance should not be placed on any such forward-looking statements.

1.   BASIS OF PRESENTATION

     The financial statements included in this Form 10-QSB Quarterly Report have
been  prepared  by  the  Company,  without  audit,  pursuant  to the  rules  and
regulations of the SEC. Certain information and footnote  disclosures,  normally
included in financial  statements prepared in accordance with generally accepted
accounting principles,  have been condensed, or omitted,  pursuant to such rules
and regulations.  These financial  statements should be read in conjunction with
the  financial  statements  and related notes  included in the Company's  Annual
Report on Form 10-KSB for its fiscal year ended March 31, 2001.

     The financial statements presented herein as of September 30, 2001 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.   GOING CONCERN UNCERTAINTY

     The accompanying  consolidated financial statements as of and for the three
and six months ended  September  30, 2001 have been  prepared  assuming that the
Company will continue as a going concern,  which contemplates the realization of
assets and the  settlement  of  liabilities  in the normal  course of  business.
During fiscal 2001,  the Company  incurred a net loss of  $4,423,000,  operating
cash flow deficiency of $1,279,000,  and as of March 31, 2001, the Company had a
working capital deficit of $2,794,000.  As of March 31, 2001, the Company was in
violation of the working capital ratio covenant of its line of credit  ("Line").
In April 2001, the lender demanded  payment of the Line's  $587,000  outstanding
balance and  terminated  the Line. As of March 31, 2001, the Company was also in
violation of the cross  default  provision of its 11%  $2,500,000  note payable.
During the six months ended September 30, 2001, the Company  incurred a net loss
of $2,696,000  and as of September 30, 2001,  the Company had a working  capital
deficit of  $3,531,000.  In addition,  as of September 30, 2001, the Company had
$3,037,000  in  outstanding  principal  on  long-term  debt  (exclusive  of debt
discount  of  $237,000)  of which  $2,500,000  matures in December  2001.  These
matters raise  substantial  doubt about the  Company's  ability to continue as a
going concern.  Management's plans concerning these matters are described below.
The accompanying  consolidated financial statements for the three and six months
ended September 30, 2001 do not include any  adjustments  that might result from
the outcome of this uncertainty.

     During the six months ended  September 30, 2001,  the Company raised equity
capital  through sales of its Series A redeemable  convertible  preferred  stock
("Preferred Stock") in the amount of $640,000, net of issuance costs of $46,000,
to help fund  operations.  During this period,  the Company  also issued  10,000
shares of  Preferred  Stock in  settlement  of $100,000 in accounts  payable and
accrued  interest due to an officer and a director.  In August 2001, the Company
reached an agreement to convert $100,000 of debt and $28,000 of accrued interest
into 217,514 shares of common stock.  Although the Company  continues to attempt
to extend the due dates on a portion of its remaining debt, no assurances can be
given that such extensions will be obtained.

                                        7
<PAGE>

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

2.   GOING CONCERN UNCERTAINTY, CONTINUED

     The Company intends to seek additional equity capital, as required, to fund
its  operations  in fiscal  2002 and to repay  indebtedness.  Also,  the Company
intends to seek financing  alternatives as its $2.5 million note payable matures
in December 2001.  However,  no assurances can be given that the Company will be
able to obtain additional equity capital or alternative  financing in sufficient
amounts and/or under terms favorable to the Company.

     On June 22, 2001,  the Company paid in full all  obligations  due under its
line of credit and the line was terminated.  As a result,  the default under the
cross  default  provision  of the  Company's  11%  $2,500,000  note  payable was
eliminated.  On October 29, 2001, the Company entered into a $750,000  factoring
agreement  with a lender.  The  agreement  enables the Company to sell  selected
accounts  receivable  invoices  to the lender  with full  recourse  against  the
Company.  Although the Company has established this new borrowing  facility,  no
assurances  can be  given  that  the  Company  has  enough  capital  to fund its
operations.

     During the second quarter of fiscal 2002, the Company continued to ship the
4 port and 8 port  versions  of its  remote  access  server  ("RAS")  and remote
console management ("RCM") products.  Additionally, the Company shipped units of
the new RCM product  available in 16, 32, 48 and 64 port  versions.  Several new
customers  have placed orders for these products and  evaluations  continue with
several other new and existing customers.  The Company will continue to identify
new  opportunities  to  expand  sales  volume  by  adding  sales  personnel  and
leveraging the Company's existing distribution channels.  However, no assurances
can be given that the  Company  will  increase  its  revenues  in fiscal 2002 to
generate sufficient cash flow to fund its operations.

3.   ACQUISITION

     On April 12, 2000, the Company entered into an agreement to acquire 100% of
the stock of Multi-User Solutions,  Ltd. ("Multi-User"),  a Georgia-based system
support and integration  company,  for an initial  purchase price of $7,945,000,
including  $145,000 in expenses,  consisting  of  $4,145,000 in cash and 800,000
shares of the Company's common stock valued at $3,800,000.  On June 28, 2000 the
Company  consummated  the  acquisition  and placed into escrow initial  purchase
consideration  of $200,000 in cash and 100,000  shares of the  Company's  common
stock valued at $475,000  pending  resolution of certain  matters as detailed in
the purchase  agreement.  On March 9, 2001,  upon  resolution of the above noted
matters,  the $200,000 escrow cash was paid to the Multi-User  shareholders  and
the 100,000  escrow  shares were returned to the Company in exchange for 500,000
new shares of the  Company's  common  stock  valued at  $359,000.  The  purchase
consideration  is subject to increase by up to $1,500,000,  payable half in cash
and half in the Company's common stock, contingent upon Multi-User's achievement
of  specified   performance   objectives  through  June  2003.  The  performance
objectives had not been achieved through September 30, 2001.

     The cash portion of the acquisition was financed through the issuance of an
11%, $2,500,000 note payable (see Note 8) and a portion of the $3,736,000 in net
proceeds  received  from  the  issuance  of  the  Company's  common  stock.  The
acquisition has been accounted for using the purchase method of accounting.  The
Company  recorded  goodwill of  $8,730,000 as a result of the  acquisition.  The
Company  amortized  $652,000 of this goodwill thru March 31, 2001 (see Note 11).
The consolidated statements of operations include the operations of the business
since the acquisition date.

                                        8
<PAGE>

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

3.   ACQUISITION, CONTINUED.

     The  following  unaudited  pro forma  information  for the six months ended
September  30, 2000 gives effect to the  acquisition  of Multi-User as if it had
occurred on April 1, 2000 (in thousands, except per share data):

                                                               Six months ended
                                                              September 30, 2000
                                                              ------------------

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

4.   REVENUE RECOGNITION

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

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

5.   INVENTORIES

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

     Inventories,  net of a reserve for obsolete,  excess and non-salable items,
consisted  of the  following  at  September  30,  2001 and  March  31,  2001 (in
thousands):

                                                 September 30,        March 31,
                                                     2001                2001
                                                  ----------          ----------
Inventories:
     Finished goods                               $      442          $      540
     Work in process                                     146                 147
     Raw materials                                     1,104               1,486
                                                  ----------          ----------
                                                  $    1,692          $    2,173
                                                  ==========          ==========

                                        9
<PAGE>

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

6.   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.  For purposes of
computing  diluted EPS, the Company  excluded the effects of outstanding  common
stock options, warrants and the conversion of Preferred Stock totaling 4,949,417
and  1,758,047  in  the  three  months  ended   September  30,  2001  and  2000,
respectively,  as their  effect  is  anti-dilutive.  As a result  of the sale of
Preferred  Stock (see Note 10),  the  Company  recorded  $14,000  and $22,000 in
dividends  during  the three  and six  months  ended  September  30,  2001 and a
one-time  $143,000  dividend  associated with the Preferred  Stock's  beneficial
conversion  feature  during  the  six  months  ended  September  30,  2001.  The
beneficial  conversion  feature  was  accounted  for as a debit  to  accumulated
deficit  offset  against  additional  paid-in  capital.  These  Preferred  Stock
dividends increased the net loss available to common stockholders.

7.   INCOME TAXES

     At  March  31,  2001,  the  Company  had net  operating  and  capital  loss
carryforwards totaling $39.0 million which expire at various dates through 2015,
including a predecessor company preacquisition operating loss carryforward. 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 these loss carryforwards.

8.   LONG-TERM DEBT AND LINE OF CREDIT

     Through March 31, 2001,  the Company had a revolving  line of credit with a
bank that provided for  borrowings  of up to  $1,400,000  based on the available
borrowing base, as defined (the "Line"). Borrowings under the Line bore interest
at prime plus 2%. As of March 31, 2001,  the Company had $587,000 in outstanding
borrowings  under  the  Line.  The  Line  was  collateralized  primarily  by the
Company's  accounts  receivable  and inventory.  The Line contained  minimum net
working  capital and tangible net worth covenants and, as of March 31, 2001, the
Company was in violation of the minimum net working capital  covenant.  In April
2001, the lender made demand for immediate  payment of all outstanding  balances
under the Line and terminated the Line. On June 22, 2001, the Company repaid all
remaining Line borrowings.

     On  October  29,  2001,  the  Company  entered  into a  $750,000  factoring
agreement with a lender.  The agreement  enables the Company to factor  selected
accounts  receivable  invoices  with the lender with full  recourse  against the
Company and bears interest at prime plus 3% with a minimum  interest rate of 8%.
The Company will factor the selected  invoices for an initial  advance of 80% of
the total invoice balance and will be charged a .30% to 3.00%  factoring  charge
depending on the number of days the invoices remain outstanding.

     On June 28, 2000,  the Company  entered into an agreement  with a lender to
issue a  $2,500,000,  11% note payable due on December 28, 2001 (the "Note") the
proceeds of which were used to fund the Multi-User acquisition and the Company's
general  working  capital  needs.  The Note also required the Company to issue a
warrant to purchase 392,577 shares of its common stock  exercisable at $3.25 per
share.  The warrant is currently  exercisable in whole or in part and expires in
June 2003. The agreement called for the warrant exercise price to be adjusted in
the event the Company issued any additional shares of common stock,  warrants or
options exercisable at less the $3.25 per share price. As of September 30, 2001,
the adjusted  exercise  price of the warrant was $2.80.  Exercise of the warrant
may be either in cash or by  surrender of the warrant to the Company in exchange
for the Company's  common stock equal to the value of the warrants as defined in
the warrant agreement.  The fair value of the warrant of $1,328,000,  determined
through  the use of the Black  Sholes  valuation  model,  was  accounted  for as
additional  paid-in-capital  (debt  discount) in the  accompanying  consolidated
balance sheet.

                                       10
<PAGE>

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

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

     Through June 22, 2001,  the Note was  subordinated  to the Company's  Line.
Effective October 29, 2001, the Note is subordinated to the Company's  factoring
agreement.  The  Note  is  guaranteed  by  the  Company  and  its  wholly  owned
subsidiaries  and  places  restrictions  on the  Company's  ability  to sell its
business or its product lines,  incur  additional  indebtedness,  declare or pay
dividends,  consolidate,  merge or sell its business and make  investments.  The
Note also includes a cross default provision whereby a default on the Note would
occur  if the  Company  was in  default  of any  covenants  of any of its  other
financing arrangements in excess of $50,000.

     As of March 31,  2001,  the Company was in  violation  of the Note's  cross
default  provision.  On June 22, 2001, the Company paid in full all  obligations
due under  its line of  credit  and the line was  terminated.  As a result,  the
default under the cross default  provision of the Company's 11% $2,500,000  note
payable was eliminated.

9.   REDEEMABLE CONVERTIBLE PREFERRED STOCK AND COMMON STOCK

     In March 2001, the Company's board of directors  authorized the issuance of
up to  400,000  shares  of  its  Preferred  Stock.  The  Preferred  Stock  has a
liquidation  preference of $10 per share plus accrued but unpaid dividends.  The
Preferred  Stock  provides for dividends  equal to $.60 per share per annum paid
quarterly  commencing June 30, 2001,  increasing to $.80 per share per annum 120
days  after  issuance  of the  Preferred  Stock  if  the  shares  issuable  upon
conversion to common stock are not then  registered  for resale and remaining at
$.80 per share until such common stock is registered. Between March 31, 2001 and
February 28, 2003,  the Company has the option to pay dividends in shares of the
Company's  Preferred  Stock at $10 per share.  Dividends are cumulative and have
preference over payments on any of the Company's other equity securities.

     Each share of Preferred Stock is convertible  upon issuance,  at the option
of the  holder,  into 17  shares  of the  Company's  common  stock,  subject  to
adjustment  as provided in the  certificate  of  designation  for the  Preferred
Stock.  Each share of Preferred  Stock has voting  rights equal to the number of
common shares on an as converted basis.

     The Company has the option to redeem the Preferred Stock  commencing  March
1, 2003 for $11.50 per share,  March 1, 2004 for $11.00 per share, March 1, 2005
for $10.50 per share, and March 1, 2006 and thereafter for $10.00 per share. The
Company  also has the option to redeem the  Preferred  Stock at $10.00 per share
commencing  one year after  issuance if the fair value of the  Company's  common
stock equals or exceeds  $2.00 for any 20  consecutive  days  subsequent to that
date and the shares issuable upon conversion are  registered.  In addition,  the
Preferred  Stock  holders  have the option to require  the Company to redeem the
Preferred  Stock upon a change of control if the market  value of the  Company's
common  stock is less than the  Conversion  Price,  as defined in the  Preferred
Stock agreement, for $11.50 per share.

     During the three  months  ended June 30, 2001,  the Company  issued  78,600
shares of Preferred Stock valued at $786,000 for cash proceeds of $640,000,  net
of issuance  costs of $46,000,  and for settlement of $100,000 due to an officer
and a director.  During the three months ended  September 30, 2001,  the Company
issued 2,168 shares of Preferred  Stock to pay  dividends  earned during the six
months ended  September  30, 2001.  The  Preferred  Stock  contains a beneficial
conversion  feature.  In conjunction with this issuance,  the Company recorded a
one-time  $143,000  dividend  associated with the Preferred  Stock's  beneficial
conversion  feature.  The beneficial  conversion  feature was accounted for as a
debit to accumulated deficit offset against additional paid-in capital.

                                       11
<PAGE>

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

9.   REDEEMABLE CONVERTIBLE PREFERRED STOCK AND COMMON STOCK, CONTINUED.

     In  conjunction  with the  issuance  of the  Preferred  Stock,  the Company
granted a warrant to PMG Capital Corp.,  ("PMG"), an affiliated entity acting as
the placement  agent, to purchase 38,335 shares of its common stock  exercisable
at $.5883 per share.  The warrant is currently  exercisable  in whole or in part
and expires in March 2006. The fair value of the warrant of $46,000,  determined
through the use of the Black Sholes  valuation  model,  was  accounted  for as a
reduction in Preferred  Stock and an increase in additional  paid-in-capital  in
the accompanying consolidated balance sheet.

     During  September  2001,  the Company issued 600,000 shares of common stock
valued at $855,000 as compensation  for consulting  services to be provided over
future  periods.  The Company  recorded  the expense in the three  months  ended
September 30, 2001. The consultant shall provide services concerning management,
marketing, consulting, strategic planning, corporate organization and structure,
financial  matters in  connection  with the  operation  of the  business  of the
Company,  expansion of services,  acquisitions and business  opportunities,  and
shall review and advise the Company  regarding its overall  progress,  needs and
condition.

10.  SEGMENT INFORMATION

     The Company  identifies  its  reportable  segments  based on the  segment's
product  offerings.  Prior to June 28, 2000, the Company had only one reportable
segment,  Connectivity Products. As a result of the June 28, 2000 acquisition of
Multi-User,  the Company created an additional segment associated with operating
system support,  systems integration and on site hardware  maintenance  (Service
and Support  segment).  Segment  information  for the three and six months ended
September 30, 2001 and 2000, respectively, is as follows:

                                           Connectivity   Service   Consolidated
                                             Products   and Support    Totals
                                             --------     --------    --------

Three Months Ended September 30, 2001
Revenue                                      $    829     $  1,479    $  2,308
Operating Income (Loss)                        (1,789)         179      (1,610)
Total Assets                                    2,721        9,139      11,860

Six Months Ended September 30, 2001
Revenue                                      $  1,906     $  3,171    $  5,077
Operating Income (Loss)                        (2,555)         486      (2,069)
Total Assets                                    2,721        9,139      11,860

Three Months Ended September 30, 2000
Revenue                                      $  1,536     $  1,404    $  2,940
Operating Income (Loss)                          (678)        (150)       (828)
Total Assets                                    4,779        9,799      14,578

Six Months Ended September 30, 2000
Revenue                                      $  2,714     $  1,464    $  4,178
Operating Income (Loss)                        (1,531)        (147)     (1,678)
Total Assets                                    4,779        9,799      14,578

                                       12
<PAGE>

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

11.  NEW ACCOUNTING PRONOUNCEMENTS

     In July 2001, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards No. ("SFAS") 142,  "Accounting for
Goodwill and Other  Intangible  Assets",  effective  for fiscal years  beginning
after  December 15, 2001.  SFAS 142  establishes  new  accounting  standards for
goodwill and  continues to require the  recognition  of goodwill as an asset but
does not permit  amortization  of goodwill as previously  required by Accounting
Principles  Board Opinion No.  ("APB") 17,  "Intangible  Assets".  SFAS 142 also
establishes  a new  method of  testing  goodwill  for  impairment.  It  requires
goodwill to be separately  tested for impairment at a reporting unit level.  The
amount of  goodwill  determined  to be  impaired  would be  expensed  to current
operations.  As of April  1,  2001,  the  Company  adopted  SFAS  No.  142.  The
provisions  of  this  accounting  standard  also  require  the  completion  of a
transitional impairment test within six months of adoption, with any impairments
identified  treated as a cumulative effect of a change in accounting  principle.
The Company  performed a transitional  fair value based  impairment  test on its
goodwill and  determined  that the fair value  exceeded  the  recorded  value at
September 30, 2001.  Therefore,  no impairment  loss was recorded during the six
months ended  September 30, 2001.  In accordance  with SFAS No. 142, the Company
discontinued the amortization of goodwill  effective April 1, 2001. The net loss
for the three and six months  periods  ended  September 30, 2000 would have been
decreased by approximately $215,000 and $220,000,  respectively, if the recorded
goodwill amortization were reversed. Basic and diluted loss per share would have
been  decreased by $0.02 for both the three and six months ended  September  30,
2000 if the recorded goodwill amortization were reversed.

     In  August  2001,  the  FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment  or Disposal  of  Long-Lived  Assets".  The  pronouncement  addresses
financial  accounting and reporting for the impairment or disposal of long-lived
assets and  supersedes  SFAS No.  121 and APB  Opinion  No. 30.  SFAS No. 144 is
effective  beginning  January 1, 2002 for the Company's  first quarter of fiscal
2003,  and  is  not  expected  to  have  a  material  impact  on  the  Company's
consolidated financial statements.

                                       13
<PAGE>

     In June  1998,  the  FASB  issued  SFAS  133,  "Accounting  For  Derivative
Instruments And Hedging Activities". The Company adopted SFAS 133 (as amended by
SFAS' 137 and 138) on April 1, 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's  April 1, 2001 adoption of
SFAS 133 had no  impact  on the  Company's  financial  position  or  results  of
operations as the Company has no derivative instruments.

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

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

THREE  MONTHS  ENDED  SEPTEMBER  30,  2001  COMPARED TO THE THREE  MONTHS  ENDED
--------------------------------------------------------------------------------
SEPTEMBER 30, 2000
------------------

     During the three months ended  September 30, 2001,  the Company  incurred a
net loss of  $1,924,000  on net sales of  $2,308,000  compared  to a net loss of
$1,135,000  during the three  months  ended  September  30, 2000 on net sales of
$2,940,000.

     Net sales of Connectivity  Products  decreased from  $1,536,000  during the
three months ended  September 31, 2000 to $829,000 during the three months ended
September 30, 2001. This decrease in  Connectivity  Products sales was primarily
due  to  lower  sales  to  the  Company's  largest  non-distribution   customer.
Additionally,  the company  continues  to  experience  a decline in sales of its
legacy products resulting in reduced revenues due to erosion in the asynchronous
product  market.  Net sales from  Service and  Support  segment  increased  from
$1,404,000 during the three months ended September 30, 2000 to $1,479,000 during
the three months ended September 30, 2001. This slight increase is due to annual
service contracts signed with new customers.

     Cost of  Connectivity  Products  totaled  $581,000,  or 70% of Connectivity
Product sales (30% gross margin),  for the three months ended September 30, 2001
compared to $1,001,000, or 65% of Connectivity Product sales (35% gross margin),
for the three months ended  September 30, 2000.  The decrease in gross margin in
the current  year  period on  Connectivity  Products  compared to the prior year
period is primarily due to the  continuation  of certain fixed  operating  costs
that were not affected by the  reduction  in sales  volume.  These  factors were
partially offset by increased  margins on the Company's newer products.  Cost of
sales for Service and Support  totaled  $975,000,  or 66% of Service and Support
revenue  (34% gross  margin),  for the three  months  ended  September  30, 2001
compared to $960,000,  or 68% of Service and Support revenue (32% gross margin),
for the three months ended September 30, 2000.

     In the three  months  ended  September  30,  2000,  the Company  recorded a
non-cash  expense  of  $215,000  for  amortization  of  goodwill  related to the
acquisition of the Service and Support line of business. In accordance with SFAS
142, the Company  discontinued the  amortization of goodwill  effective April 1,
2001.  Instead,  goodwill was reviewed for impairment with no adjustment  deemed
necessary.

     Selling,  general and administrative  ("SGA") expenses for the three months
ended September 30, 2001 totaled $1,956,000 compared to $1,261,000 for the three
months ended September 30, 2000. SGA expenses  related to Connectivity  Products
increased  by $750,000 or 85% in the current  year's  three-month  period.  This
increase is  attributable to the $855,000  non-cash charge the Company  recorded
for the issuance of 600,000 shares of common stock for consulting services. This
increase was offset by the Company's cost containment  efforts. SGA expenses for
Service and Support were $325,000 for the three months ended  September 30, 2001
compared to  $380,000  for the three  months  ended  September  30,  2000.  This
decrease of $55,000, or 14%, is also the result of cost containment efforts.

                                       14
<PAGE>

     Product  development  costs  charged to expense for the three  months ended
September  30, 2001  totaled  $406,000,  or 18% of total net sales,  compared to
$331,000,  or 11% of total net sales for the three month period ended  September
30, 2000.  This  increase of $75,000,  or 23%, is primarily  due to increases in
product development personnel.

     Interest expense charged by others for the three months ended September 30,
2001 totaled  $67,000  compared to $83,000 for the three months ended  September
30, 2000.  This decrease of $16,000 is due to the repayment of debt.  During the
three months ended September 30, 2001, the Company expensed  $231,000 related to
amortization  of the discount on the 11%,  $2,500,000  note payable  compared to
$206,000 during the three months ended September 30, 2000.

SIX MONTHS ENDED  SEPTEMBER 30, 2001 COMPARED TO THE SIX MONTHS ENDED  SEPTEMBER
--------------------------------------------------------------------------------
30, 2000
--------

     During the six months ended September 30, 2001, the Company  incurred a net
loss  of  $2,696,000  on net  sales  of  $5,077,000  compared  to a net  loss of
$2,060,000  during  the six  months  ended  September  30,  2000 on net sales of
$4,178,000.

     Net sales of Connectivity Products decreased from $2,714,000 during the six
months  ended  September  31,  2000 to  $1,906,000  during the six months  ended
September 30, 2001. This decrease in  Connectivity  Products sales was primarily
to lower sales to the Company's largest non-distribution customer. Additionally,
the Company  continues to  experience a decline in sales of its legacy  products
resulting in reduced revenues due to erosion in the asynchronous product market.
Net sales from Service and Support segment  increased from $1,464,000 during the
six months ended  September 31, 2000 to  $3,171,000  during the six months ended
September 30, 2001.  Due to the June 28, 2000  acquisition  of  Multi-User,  the
prior year six-month  period only included  three months of operations  from the
Service and Support segment.

     Cost  of  Connectivity   Products  sold  totaled  $1,305,000,   or  68%  of
Connectivity  Product  sales  (32%  gross  margin),  for  the six  months  ended
September 2001 compared to $1,891,000, or 70% of Connectivity Product sales (30%
gross margin),  for the six months ended  September 2000. The slight increase in
gross margin in the current year period on Connectivity Products compared to the
prior year period is primarily due to increased  margins on the Company's  newer
products.  This was offset by the  continuation of certain fixed operating costs
that were not  affected  by the  reduction  in sales  volume.  Cost of sales for
Service and Support  totaled  $2,068,000,  or 65% of Service and Support revenue
(35%  gross  margin),  for the six  months  ended  September  2001  compared  to
$997,000,  or 68% of Service and Support revenue (32% gross margin), for the six
months ended September 2000. Due to the June 28, 2000 acquisition of Multi-User,
the prior year six-month  period only included  three months of operations  from
the Service and Support segment.

     In the six months ended September 30, 2000, the Company recorded a non-cash
expense of $220,000 for  amortization of goodwill  related to the acquisition of
the Service and Support  line of  business.  In  accordance  with SFAS 142,  the
Company  discontinued  the  amortization  of goodwill  effective  April 1, 2001.
Instead,  goodwill  was  reviewed  for  impairment  with  no  adjustment  deemed
necessary.

     Selling,  general and  administrative  ("SGA")  expenses for the six months
ended September 30, 2001 totaled  $2,126,000  compared to $2,060,000 for the six
months ended September 30, 2000. SGA expenses  related to Connectivity  Products
increased  by $698,000  or 42% in the  current  year's  six-month  period.  This
increase is  attributable to the $855,000  non-cash charge the Company  recorded
for the issuance of 600,000 shares of common stock for consulting services. This
increase was offset by the Company's cost containment  efforts. SGA expenses for
Service and Support were  $617,000 for the six months ended  September  30, 2001
compared to $394,000 for the six months  ended  September  30, 2000.  Due to the
June 28, 2000  acquisition of Multi-User,  the prior year six-month  period only
included three months of operations from the Service and Support segment.

     Product development costs charged to expense for the six month period ended
September  30, 2001  totaled  $792,000,  or 16% of total net sales,  compared to
$688,000, or 16% of total net sales for the six month period ended September 30,
2000.  This  increase of  $104,000,  or 15%, is  primarily  due to  increases in
product development personnel.

                                       15
<PAGE>

     Interest  expense  charged by others for the six months ended September 30,
2001 totaled  $144,000  compared to $137,000 for the six months ended  September
30, 2000.  The increase is primarily  due to the issuance of new debt related to
the June 28, 2000 acquisition of Multi-User. This was offset by repayment of the
Company's  Line.  During the six months ended  September  30, 2001,  the Company
expensed $455,000 related to amortization of the discount on the 11%, $2,500,000
note  payable  compared to $206,000  during the six months ended  September  30,
2000.

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

     During  fiscal  2001,  the  Company  incurred  a net  loss  of  $4,423,000,
operating  cash flow  deficiency of  $1,279,000,  and as of March 31, 2001,  the
Company had a working capital  deficit of $2,794,000.  As of March 31, 2001, the
Company was in violation of the working  capital  ratio  covenant of its line of
credit.  In April  2001,  the lender  demanded  payment  of the Line's  $587,000
outstanding  balance and  terminated the Line. As of March 31, 2001, the Company
was also in violation of the cross default  provision of its 11% $2,500,000 note
payable.  During the six months ended September 30, 2001, the Company incurred a
net loss of $2,696,000  and as of September 30, 2001,  the Company had a working
capital  deficit of  $3,531,000.  In  addition,  as of September  30, 2001,  the
Company had $3,037,000 in outstanding  principal on long-term debt (exclusive of
debt discount of $237,000) of which  $2,500,000  matures in December 2001. These
matters raise  substantial  doubt about the  Company's  ability to continue as a
going concern. Management's plans concerning these matters are described below.

     During the six months ended  September 30, 2001,  the Company raised equity
capital through sales of its Preferred  Stock in the amount of $640,000,  net of
issuance  costs of $46,000,  to help fund  operations.  During this period,  the
Company also issued 10,000  shares of Preferred  Stock in settlement of $100,000
in accounts  payable and accrued  interest due to an officer and a director.  In
August 2001,  the Company  reached an agreement to convert  $100,000 of debt and
$28,000 of accrued  interest into 217,514  shares of common stock.  Although the
Company  continues  to  attempt  to extend  the due  dates on a  portion  of its
remaining  debt,  no  assurances  can be  given  that  such  extensions  will be
obtained.

     To date,  the  Company  has  financed  its  operations  and met its working
capital  requirements  through the issuance of $640,000 of Preferred Stock and a
$627,000  prepayment from one of its customers.  If cash generated by operations
are insufficient to satisfy the Company's cash requirements for the remainder of
the fiscal year ending March 31, 2002,  the Company will be required to consider
other  financing  alternatives,  such  as  selling  additional  equity  or  debt
securities  or  obtaining  long or  short-term  credit  facilities,  although no
assurances can be given that the Company could obtain such  financing.  Any sale
of additional  equity or convertible  debt  securities will result in additional
dilution of the Company's stockholders.

     On June 22, 2001,  the Company paid in full all  obligations  due under its
line of credit and the line was terminated.  As a result,  the default under the
cross  default  provision  of the  Company's  11%  $2,500,000  note  payable was
eliminated.  On October 29, 2001, the Company entered into a $750,000  factoring
agreement  with a lender.  The  agreement  enables the Company to sell  selected
accounts  receivable  invoices  to the lender  with full  recourse  against  the
Company.  Although the Company has established this new borrowing  facility,  no
assurances  can be  given  that  the  Company  has  enough  capital  to fund its
operations.

     During the second  quarter of fiscal 2002,  the Company  shipped its 4 port
and 8 port  versions of its remote  access  server  ("RAS")  and remote  console
management ("RCM") products.  Additionally, the Company shipped units of the new
RCM product available in 16, 32, 48 and 64 port versions.  Several new customers
have placed  orders for these  products and  evaluations  continue  with several
other new and  existing  customers.  The Company  will  continue to identify new
opportunities  to expand sales volume by adding sales  personnel and  leveraging
the Company's  existing  distribution  channels.  However,  no assurances can be
given that the Company  will  increase  its  revenues in fiscal 2002 to generate
sufficient cash flow to fund its operations.

                                       16
<PAGE>

     Cash used by  operating  activities  amounted  to  $312,000  during the six
months ended  September 30, 2001  compared to  $1,931,000  during the six months
ended  September 30, 2000. A portion the cash  consumed by operating  losses for
the six months  ended  September  30, 2001 was offset by  decreases  in accounts
receivables  and  inventory  and  increases  in  accounts  payables  and accrued
liabilities as well as higher depreciation and amortization expenses.

     Cash used in investing activities amounted to $51,000 during the six months
ended  September  30,  2001  compared  to  $4,354,000  for the six months  ended
September 30, 2000.  The prior year amount was consisted  primarily of cash used
in the June 28, 2000 acquisition of Multi-User.

     Cash provided by financing  activities  amounted to $195,000 during the six
months ended September 30, 2001 compared to cash used in financing activities of
$6,241,000  during the six months ended  September 30, 2000. The decrease in net
cash inflow resulted from a reduction in proceeds collected from the issuance of
stock and a note  payable in the prior year period as well as the  repayment  of
the Company's line of credit in the current year period.

     Working  capital  deficit  amounted to  $3,531,000  at  September  30, 2001
compared to $2,794,000 at March 31, 2001. The ratio of current assets to current
liabilities  at September  30, 2001 was 0.46 to 1.00 compared to 0.58 to 1.00 at
March 31, 2001.

OUTLOOK FOR REMAINDER OF FISCAL YEAR 2002
-----------------------------------------

     The Company made  shipments  on five new  products  during the three months
ended  September 30, 2001.  Three of the new products are the next generation of
console  management  products  with  In-Band,  Out-of-Band  and  Remote  Console
Management  capabilities.  The other products strengthen the popular line of the
Company's server products.  Additionally, the Company entered into a new lending
agreement  in October  2001.  The  Company has made  significant  changes in its
management during the last eight months with a new president and chief executive
officer, a new executive vice president and chief technology officer,  and a new
vice  president of North American  sales.  The Company has also added members to
the  Board  of  Directors  thereby  strengthening  its  financial  and  advisory
resources.  The  Company  has doubled the size of its sales force and added four
new development engineers.

                           PART II - OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

          Not Applicable.

ITEM 2.   CHANGES IN SECURITIES

          Not Applicable.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

          Not Applicable.

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

          Not Applicable.

ITEM 5.   OTHER INFORMATION

          Not Applicable.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

          Number    Description of Exhibit
          ------    ----------------------

          3.1(i)    Certificate  of Amendment  of  Registrant's  Certificate  of
                    Incorporation  and  amendments   thereto   (Incorporated  by
                    reference to Exhibit  3.1(i) to the  Registrant's  Report on
                    Form 10-QSB for the period ended January 2, 1998)

          3.1(ii)   By-laws of Registrant

          4.1       Certificate  of  designations,  preferences  and  rights  of
                    Series A Cumulative Convertible Preferred Stock

          10.96     Factoring  Agreement  between the  Company and  Presidential
                    Financial Corporation dated October 29, 2001

          10.97     Form of Consulting  Agreement  (Incorporated by reference to
                    Exhibit 4.1 to the  Registrant's  Registration  Statement on
                    Form S-8 filed August 30, 2001)

                                       17
<PAGE>

                                   SIGNATURES

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

                              COMPUTONE CORPORATION


Date: November 14, 2001       By:  /s/ E. Leo Bebeau
                                   -------------------
                                   E. Leo Bebeau
                                   President and Chief Executive Officer
                                   (Principal Executive Officer)


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

                                       18