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

                                   FORM 10-QSB

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

          For the three month period ended September 30, 1999

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


          Commission file number 0-16172

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

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

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

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

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

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days.

                               Yes [X]   No [ ]

                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest  practicable date:  8,546,674 shares of common stock on
November 10, 1999.

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

<PAGE>

                     COMPUTONE CORPORATION AND SUBSIDIARIES

                                      INDEX

                         PART I - FINANCIAL INFORMATION

ITEM 1.   Financial Statements:

          Consolidated Balance Sheets as of September 30,
          1999 and April 2, 1999                                               3

          Consolidated Statements of Operations for the three
          months ended September 30, 1999 and October 2, 1998                  4

          Consolidated Statements of Operations for the six
          months ended September 30, 1999 and October 2, 1998                  5

          Consolidated Statements of Cash Flows for the six
          months ended September 30, 1999 and October 2, 1998                  6

          Notes to Consolidated Financial Statements                           7


ITEM 2.   Management's Discussion and Analysis or Plan of
          Operations for the three and six months ended
          September 30, 1999 compared to three and six months
          ended October 2, 1998                                                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

                                       2
<PAGE>
                      PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

                     Computone Corporation and Subsidiaries
                           Consolidated Balance Sheets
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                     September 30, 1999   April 2, 1999
                                                                     ------------------   -------------
                                                                         (unaudited)
ASSETS
Current assets:
<S>                                                                      <C>                <C>
    Cash and cash equivalents                                            $       38         $       18
    Receivables, net of allowance for doubtful accounts
            of $345 at September 30, 1999 and $489 at April 2, 1999           1,655              1,963
    Inventories, net                                                          2,326              2,197
    Prepaid expenses and other                                                   81                 63
                                                                         ----------         ----------
Total current assets                                                          4,100              4,241

Property, equipment and improvements, net                                       649                591

Intangible assets, net                                                          396                438

Other                                                                            19                 38
                                                                         ----------         ----------

TOTAL ASSETS                                                             $    5,164         $    5,308
                                                                         ==========         ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable, trade                                              $    2,192         $    2,143
    Accrued liabilities:
         Payroll                                                                 60                 83
         Deferred sales                                                         377                229
         Professional fees                                                       82                109
         Other                                                                  673                520
   Line of credit                                                               418              1,049
   Notes payable to stockholders                                                590                590
   Current maturities of long-term debt                                         146                132
                                                                         ----------         ----------
Total current liabilities                                                     4,538              4,855

Long-term debt, less current maturities                                         273                347
                                                                         ----------         ----------

Total liabilities                                                             4,811              5,202
                                                                         ----------         ----------
Stockholders' equity:
  Convertible redeemable preferred stock, $.01 par value;
      10,000,000 shares authorized; no shares issued                             --                 --
  Common stock, $.01 par value; 25,000,000 shares
      authorized; 8,471,674 and 8,321,674 shares outstanding                     85                 83
  Additional paid-in capital                                                 47,536             47,369
  Accumulated deficit                                                       (47,268)           (47,346)
                                                                         ----------         ----------
Total stockholders' equity                                                      353                106
                                                                         ----------         ----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                               $    5,164         $    5,308
                                                                         ==========         ==========
</TABLE>

        See accompanying notes to the consolidated financial statements.

                                       4
<PAGE>

                       PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

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

                                                    Three Months Ended
                                        ----------------------------------------
                                        September 30, 1999       October 2, 1998
                                        ------------------       ---------------
                                                      (unaudited)
Revenues:
     Product sales                         $    2,646              $    2,808
                                           ----------              ----------
Expenses:
     Cost of products sold                      1,577                   1,883
     Selling, general and administrative          946                   1,196
     Product development                          430                     521
                                           ----------              ----------
                                                2,953                   3,600
                                           ----------              ----------

Operating loss                                   (307)                   (792)

Other income (expense):
     Other income (expense)                        --                       2
     Interest expense - affiliates                (18)                    (18)
     Interest expense - other                     (26)                    (11)
                                           ----------              ----------

Loss before income taxes                         (351)                   (819)

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

Net loss                                   $     (351)             $     (819)
                                           ==========              ==========
Loss per common share:
            Basic                          $    (0.04)             $    (0.11)
                                           ==========              ==========
            Diluted                        $    (0.04)             $    (0.11)
                                           ==========              ==========

        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)


                                                      Six Months Ended
                                            ------------------------------------
                                            September 30, 1999   October 2, 1998
                                            ------------------   ---------------
                                                         (unaudited)
Revenues:
     Product sales                              $    7,379         $    5,652
                                                ----------         ----------
Expenses:
     Cost of products sold                           4,427              3,881
     Selling, general and administrative             1,887              2,525
     Product development                               889                957
                                                ----------         ----------
                                                     7,203              7,363
                                                ----------         ----------

Operating income (loss)                                176             (1,711)

Other  income (expense):
     Other income (expense)                             --                  2
     Interest expense - affiliates                     (38)               (28)
     Interest expense - other                          (60)               (32)
                                                ----------         ----------

Income (loss) before income taxes                       78             (1,769)

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

Net income (loss)                               $       78         $   (1,769)
                                                ==========         ==========
Income (loss) per common share:
            Basic                               $     0.01         $    (0.23)
                                                ==========         ==========
            Diluted                             $     0.01         $    (0.23)
                                                ==========         ==========

        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>
                                                                          Six Months Ended
                                                                ------------------------------------
                                                                September 30, 1999   October 2, 1998
                                                                ------------------   ---------------
                                                                             (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                 <C>                <C>
  Net income (loss) from operations                                 $       78         $   (1,769)
  Adjustments to reconcile income (loss) from operations
     to net cash provided by (used in) operations:
       Depreciation and amortization                                       219                224
       Provision for uncollectible accounts                                 63                 26
       Provision for inventory reserve                                     100                 60
       Changes in current assets and current liabilities:
          Accounts receivable                                              245                985
          Inventories                                                     (229)             1,210
          Prepaid expenses and other                                       (18)               (16)
          Accounts payable and accrued liabilities                         300               (392)
                                                                    ----------         ----------

Net cash provided by operations                                            758                328
                                                                    ----------         ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Decrease (increase) in other assets                                      19               (450)
   Capitalization of software costs                                        (75)               (88)
   Capital expenditures                                                   (160)               (94)
                                                                    ----------         ----------

Net cash used in investing activities                                     (216)              (632)
                                                                    ----------         ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings from affiliates                                                --                400
  Repayment of debt - net                                                  (60)               (25)
  Net repayments (borrowings) under lines of credit - others              (631)              (943)
  Exercise of common stock options and warrants                            169                  3
  Issuance of common stock                                                  --                829
                                                                    ----------         ----------

Net cash (used in) provided by financing activities                       (522)               264
                                                                    ----------         ----------

Net increase in cash and cash equivalents                                   20                (40)
Cash and cash equivalents, beginning of period                              18                146
                                                                    ----------         ----------
Cash and cash equivalents, end of period                            $       38         $      106
                                                                    ==========         ==========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid during the year for:
       Interest                                                     $       60         $       60
</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,  the
resolution  of a Securities  and Exchange  Commission  ("SEC")  complaint  filed
against the Company and certain of its former  officers on  September  28, 1999,
changes in business and economic  conditions,  availability of raw materials and
parts,  possible  disruptions of normal business activity from year 2000 issues,
and other risks that may be  described  from time to time in reports the Company
files  with  the  SEC.  Undue  reliance   should  not  be  placed  on  any  such
forward-looking statements.

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

     The financial statements included in this Form 10-QSB Quarterly Report have
been  prepared  by  the  Company,  without  audit,  pursuant  to the  rules  and
regulations of the SEC. Certain information and footnote  disclosures,  normally
included in financial  statements prepared in accordance with generally accepted
accounting principles,  have been condensed, or omitted,  pursuant to such rules
and regulations.  These financial  statements should be read in conjunction with
the  financial  statements  and related notes  included in the Company's  Annual
Report on Form 10-KSB for its fiscal year ended April 2, 1999.

     The financial statements presented herein as of September 30, 1999 reflect,
in the opinion of management,  all adjustments necessary for a fair presentation
of financial  position and the results of operations for the periods  presented.
The results of operations for any interim period are not necessarily  indicative
of the results for the full year.

2.   REVENUE RECOGNITION
     -------------------

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

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

3.   INVENTORIES
     -----------

     Inventories are valued at the lower of cost or market, with cost determined
on the first-in, first-out method.

     Raw materials that have no planned  production  life or exceed 18 months of
anticipated  supply are deemed excess and are fully reserved.  Reserves are also
established,   as  management  deems  appropriate,   for  obsolete,  excess  and
non-salable inventories, including finished goods inventories.

     Inventories are net of a reserve for obsolete, excess and non-salable items
of $762,000 and $908,000 at September 30, 1999 and April 2, 1999, respectively.

                                       7
<PAGE>

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

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

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

                                          September 30, 1999   April 2, 1999
                                          ------------------   -------------

     Finished goods                           $      599         $      165
     Work in progress                                513                877
     Raw materials                                 1,214              1,155
                                              ----------         ----------
                                              $    2,326         $    2,197
                                              ==========         ==========

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

     Basic EPS  excludes  dilution  and is computed by  dividing  income  (loss)
available to common shareholders by the weighted average number of common shares
outstanding  for the period.  Diluted EPS reflects the  potential  dilution that
could  occur  if  securities  or other  contracts  to issue  common  stock  were
exercised or converted  into common stock.  For purposes of computing  basic and
diluted EPS, the net income (loss) for each period  presented (the numerator) is
divided  by the  weighted  average  number of  common  shares  outstanding  (the
denominator).  Basic and  diluted  EPS was a loss of $0.04 for the three  months
ended  September 30, 1999 and a loss of $0.11 for the three months ended October
2, 1998. The weighted  average number of common shares  outstanding  used in the
basic EPS  calculation  are  8,468,359 and 7,468,000 for the three month periods
ended  September  30, 1999 and October 2, 1998,  respectively.  For  purposes of
computing  diluted EPS for these three months period,  the Company  excluded the
effects of  outstanding  common  stock  options and  warrants  because they were
anti-dilutive.  Basic  and  diluted  EPS was  $0.01  for the  six  months  ended
September 30, 1999 and a loss of $0.23 for the six months ended October 2, 1998.
The weighted  average number of common shares  outstanding used in the basic EPS
calculation  are  8,468,359  and  7,468,000  for  the  1999  and  1998  periods,
respectively.  The weighted average number of common shares  outstanding used in
the  diluted  EPS  calculation  is  8,487,025  for the six  month  period  ended
September  30, 1999.  For  purposes of  computing  diluted EPS for the six month
period ended October 2, 1998,  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  ($418,000  outstanding  at September  30, 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 SIX MONTHS ENDED  SEPTEMBER  30, 1999  COMPARED TO THE THREE
          AND SIX MONTHS ENDED OCTOBER 2, 1998.

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

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
---------------------------------------------

     The Company  reported a net loss for the three month period ended September
30, 1999 of $351,000 compared to a net loss of $819,000 for the comparable three
month period of the prior fiscal year. The Company's  operating  results for the
three months ended September 30, 1999 were favorably affected by increased gross
margins  and  decreased  general and  administrative  expenses  and  unfavorably
affected by a reduction in shipments described below.

     Product sales  revenue for the three month period ended  September 30, 1999
totaled approximately $2,646,000 compared to $2,808,000 for the comparable three
month  period of the prior  fiscal  year,  a decrease of  $162,000,  or 6%. This
slight decrease is due to lower sales to the Company's VAR customers,  partially
offset by higher sales to major  customers.  In addition,  some  customers  have
postponed  projects  until  the  first  quarter  of next  year due to year  2000
considerations.

     Cost of products  sold for the three month period ended  September 30, 1999
amounted to $1,577,000,  or 60% of product sales revenues, versus $1,883,000, or
67%, 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 $946,000, or 36%
of product sales revenue,  for the three months ended  September 30, 1999 versus
$1,196,000,  or 43%, for the  comparable  three months of the prior fiscal year.
The decrease in selling,  general and  administrative  expenses during the three
month period ended September 30, 1999 versus the same period of the prior fiscal
year is attributable to decreases in compensation costs due to staff reductions,
reduced  legal costs due to  settlement  of litigation in the prior fiscal year,
and the successful implementation of other cost reduction efforts.

     Product development expenses amounted to $430,000,  or 16% of product sales
revenue, for the three months ended September 30, 1999 versus $521,000,  or 19%,
for the  comparable  three month period of the prior  fiscal  year.  The Company
expects that product development expenses will continue at the current level for
the remainder of the fiscal year.

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999
-------------------------------------------

     The Company  reported net income for the six month  period ended  September
30, 1999 of $78,000  compared to a net loss of $1,769,000 for the comparable six
month period of the prior fiscal year. The Company's  operating  results for the
six months ended  September 30, 1999 were favorably  affected by increased sales
volumes, higher gross margins and decreased general and administrative expenses.

     Product  sales  revenue for the six month period ended  September  30, 1999
totaled  approximately  $7,379,000 compared to $5,652,000 for the comparable six
month period of the prior fiscal year,  an increase of  $1,727,000  or 31%. This
increase is attributable to higher sales through the distribution channel and to
major customers.

                                       9
<PAGE>

     Cost of products  sold for the six month  period ended  September  30, 1999
amounted to $4,427,000,  or 60% of product sales revenues versus $3,881,000,  or
69%, for the comparable six 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.


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

     Selling, general and administrative expenses amounted to $1,887,000, or 26%
of product  sales  revenue,  for the six months ended  September 30, 1999 versus
$2,525,000,  or 45%, for the comparable six months of the prior fiscal year. The
$638,000 decrease in selling, general and administrative expenses during the six
month period ended September 30, 1999 versus the same period of the prior fiscal
year is attributable to decreases in compensation costs due to staff reductions,
reduced  legal costs due to  settlement  of litigation in the prior fiscal year,
and the successful implementation of other cost reduction efforts.

     Product development expenses amounted to $889,000,  or 12% of product sales
revenue, for the three months ended September 30, 1999 versus $957,000,  or 17%,
for the  comparable  six month  period of the prior  fiscal  year.  The  Company
expects that product development expenses will continue at the current level for
the remainder of the fiscal year.

LIQUIDITY
---------

     On November 17,  1998,  the Company  entered  into a financing  arrangement
which  provides  for a line of credit 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  ($418,000  outstanding  at September  30, 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 September 30, 1999, the
borrowing availability under this line of credit was $262,000.

     The  Company's  primary cash  commitments  in fiscal 2000 include  payments
under non-cancelable operating leases ($293,000), short-term debt ($736,000) and
investments  in research and  development  ($889,000 in the six months of fiscal
year 2000).  With respect to notes  payable and current  maturities of long-term
debt,  approximately  $590,000 of the  $736,000 is due to related  parties,  the
payment terms of which the Company believes can be extended as needed.

     Cash provided by  operations  amounted to $758,000 for the six months ended
September  30, 1999  compared to $328,000  for the six months  ended  October 2,
1998.  The increase in cash  provided by  operations  compared to the prior year
fiscal period primarily  reflects the fact that the Company operated at a profit
in the 1999 period compared to a loss in the 1998 period.

     Cash used in investing  activities  amounted to $216,000 for the six months
ended September 30, 1999 compared with $632,000 for the six months ended October
2,  1998.  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 used in financing activities during the six months ended September 30,
1999 was $522,000  versus cash provided by financing  activities of $264,000 for
the six months  ended  October 2, 1998.  This  decrease  is  primarily  due to a
decrease in cash received from the issuance of common stock.

     The Company is endeavoring to raise $1.0 to $1.5 million in equity capitial
by the end of the  Company's  fiscal year by offering  for sale,  to  accredited
investors,   up  to  1,500,000  shares  of  the  Company's  common  stock  under
Regulatiion D of the  Securities Act of 1993. The funds will be used for working
capital purposes and to

                                       10
<PAGE>

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 maintain
profitability or positive cash flow.

     Working  capital was a deficit of $438,000 at  September  30, 1999 versus a
deficit of $614,000 at April 2, 1999, an improvement  of $176,000.  The ratio of
current  assets to current  liabilities  at  September  30, 1999 was .90 to 1.00
compared to .87 to 1.00 at April 2, 1999.

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

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

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

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

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

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

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

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

                                       11
<PAGE>

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

     Management  believes  that new or  redesigned  products  will  enhance  the
Company's  ability to  increase  its sales in fiscal  2000.  The new "Gold" card
family of products are high performance,  cost effective PCI controller products
specifically  designed  to meet  the  needs of the  remote  access  market.  The
Intelliserver  RAS-2000  Powerrack  is a redesign of the  Powerrack  family with
enhanced performance, remote access server features and configurations added.

     During the first half of fiscal 2000, the Company's  backlog decreased from
$2,573,000  at April 2, 1999 to $281,000 at September  30, 1999.  On November 9,
1999, the backlog was $443,000.  The backlog at April 2, 1999 was  significantly
higher than would normally be expected. During the fourth quarter of fiscal year
1999,  the  Company  resolved  a  payment  issue  with  its  principal  contract
manufacturing  supplier.  However, due to long lead times for certain components
the supplier was unable to make significant  deliveries during the later portion
of fiscal  year 1999.  The Company  anticipates  that  substantially  all of its
backlog at September 30, 1999 will be shipped during the third quarter of fiscal
year 2000.

                           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  initiated  discussions  to  attempt to
          settle  this  matter,  and the  Company  believes  this  matter can be
          resolved by December 31, 1999.

ITEM 2.   CHANGES IN SECURITIES

          Not Applicable.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

          Not Applicable.

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

          The  Company  held,  on  August  12,  1999,   its  Annual  Meeting  of
          Shareholders at which the following actions were taken:

          1.   Four  directors  were  elected  to serve  until  the 2000  Annual
               Meeting of Shareholders and until their successors are elected:

          Name                             For                         Withheld
          ----                             ---                         --------
          John D. Freitag                  4,526,159                   9,736
          Richard A. Hansen                4,526,142                   9,753
          Erik Monninkhof                  4,526,159                   9,736
          Perry J. Pickerign               4,526,159                   9,736

          2.   A proposal to adopt the Company's 1998 Equity  Incentive Plan for
               officers and employees was approved:

          For                              Against                     Abstain
          ---                              -------                     -------
          4,472,243                        29,306                      34,346

ITEM 5.   OTHER INFORMATION

          Not Applicable.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

          Not Applicable.

                                       12
<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 12, 1999       By:  /s/ Perry J. Pickerign
                                    ----------------------
                                    Perry J. Pickerign
                                    President and Chief Executive Officer
                                    (Principal Executive Officer)


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