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

                                  FORM 10-QSB/A

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

                 For the quarterly period ended October 3, 1997


[ ]  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 registrant as specified in its charter)

            Delaware                                     23-2472952
-------------------------------             ------------------------------------
(State or other jurisdiction of             (IRS Employer Identification Number)
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

             1100 Northmeadow Parkway, Suite 150, Roswell, GA 30076
             ------------------------------------------------------
              (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 ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEEDING FIVE YEARS

Check mark whether the registrant  has filed all documents and reports  required
to be  filed  by  Section  12,  13 or 15 (d)  of  the  Exchange  Act  after  the
distribution of securities under a plan confirmed by a court.

                               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: 7,403,606 shares of common stock

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

<PAGE>

                                      INDEX

                         PART I - FINANCIAL INFORMATION

ITEM 1.   Financial Statements:

          Balance Sheets as of October 3, 1997, As Restated (Note 2)
          and April 4, 1997, As Restated (Note 2)                              3

          Statements of Operations for the three months ended October
          3, 1997, As Restated (Note 2) and October 4, 1996                    4

          Statements of Operations for the six months ended October 3,
          1997, As Restated (Note 2) and October 4, 1996                       5

          Statements of Cash Flows the six months ended October 3,
          1997, As Restated (Note 2) and October 4, 1996                       6

          Notes to Consolidated Financial Statements                           7

ITEM 2.   Management's Discussion and Analysis or Plan of Operations           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. Financial Statements

                              Computone Corporation
                                 Balance Sheets
              (in thousands except par value and number of shares)

<TABLE>
<CAPTION>
                                                            October 3, 1997   April 4, 1997
                                                            ---------------   -------------
                                                              (unaudited)      As Restated
                                                              As Restated        (Note 2)
                                                                (Note 2)
ASSETS
Current assets:
<S>                                                             <C>              <C>
    Cash and cash equivalents                                   $    329         $     88
    Receivables, net                                               1,821            1,636
    Inventories, net                                               4,905            4,740
    Prepaid expenses and other                                       359              170
                                                                --------         --------
Total current assets                                               7,414            6,634

Property, equipment and improvements, net                            262              276

Intangible assets, net                                               640              655

Other                                                                103               90
                                                                --------         --------
TOTAL ASSETS                                                    $  8,419         $  7,655
                                                                ========         ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable, trade                                     $  1,832         $  2,647
    Accrued liabilities:
         Payroll                                                      99              112
         Deferred sales                                                3                9
         Professional fees                                            44              171
         Other                                                       393              439
   Line of credit                                                    733               --
   Notes payable to stockholders                                     350              250
   Current maturities of long-term debt                              129              603
                                                                --------         --------
Total current liabilities                                          3,583            4,231

Notes payable to stockholders                                        120              120

Long-term debt, less current maturities                              141               --
                                                                --------         --------
Total liabilities                                                  3,844            4,351

Stockholders' Equity
  Convertible redeemable preferred stock, $.01 par value;
      10,000,000 shares authorized; no shares issued                  --               --
  Common stock, $.01 par value; 50,000,000 shares
      authorized; 7,024,370 and 6,712,074 shares outstanding          74               67
  Additional paid-in capital                                      44,365           43,031
  Accumulated deficit                                            (39,864)         (39,794)
                                                                --------         --------
Total stockholders' equity                                         4,575            3,304
                                                                --------         --------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                      $  8,419         $  7,655
                                                                ========         ========
</TABLE>

               See accompanying notes to the financial statements.

                                       3
<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

                              Computone Corporation
                            Statements of Operations
                     (in thousands except per share amounts)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                            Three Months Ended
                                                     --------------------------------
                                                     October 3, 1997  October 4, 1996
                                                     ---------------  ---------------
                                                       As Restated
                                                         (Note 2)

<S>                                                      <C>              <C>
Net sales                                                $ 2,746          $ 3,504
                                                         -------          -------
Expenses:
     Cost of products sold                                 1,805            2,058
     Selling, general and administrative                   1,079              930
     Product development                                     292              265
                                                         -------          -------
                                                           3,176            3,253
                                                         -------          -------

Operating income (loss)                                     (430)             251

Other  income (expense):
     Other income (expense)                                  298                3
     Interest expense - other                                (48)             (36)
                                                         -------          -------

Income (loss) before income taxes                           (180)             218

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

Net (income) loss                                        $  (180)         $   218
                                                         =======          =======

Earnings (loss) per common share:                        $ (0.03)         $  0.03
                                                         =======          =======

Weighted average common shares and
           common share equivalents outstanding            7,191            6,843
                                                         =======          =======
</TABLE>

           See accompanying notes to the financial statements.

                                       4
<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

                              Computone Corporation
                            Statements of Operations
                     (in thousands except per share amounts)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                              Six Months Ended
                                                     --------------------------------
                                                     October 3, 1997  October 4, 1996
                                                     ---------------  ---------------
                                                       As Restated
                                                         (Note 2)

<S>                                                      <C>              <C>
Net sales                                                $ 6,240          $ 6,529
                                                         -------          -------

Expenses:
     Cost of products sold                                 3,926            3,910
     Selling, general and administrative                   2,038            1,734
     Product development                                     568              539
                                                         -------          -------
                                                           6,532            6,183
                                                         -------          -------

Operating income (loss)                                     (292)             346

Other  income (expense):
     Other income (expense)                                  296                3
     Interest expense - other                                (74)             (66)
                                                         -------          -------

Income (loss) before income taxes                            (70)             283

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

Net income (loss)                                        $   (70)         $   283
                                                         =======          =======

Earnings (loss) per common share:                        $ (0.01)         $  0.04
                                                         =======          =======

Weighted average common shares and
           common share equivalents outstanding            7,191            6,843
                                                         =======          =======
</TABLE>

            See accompanying notes to the financial statements.

                                       5
<PAGE>

                        PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

                              Computone Corporation
                            Statements of Cash Flows
                                 (in thousands)
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                  For the six months ended
                                                              --------------------------------
                                                              October 3, 1997  October 4, 1996
                                                              ---------------  ---------------
                                                                As Restated
                                                                 (Note 2)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                              <C>              <C>
Income (loss) from continuing operations                         $    (70)        $    283
  Adjustments to reconcile loss from operations
     to net cash provided by (used in) operations:
       Depreciation and amortization                                  224              340
       Provision for possible losses                                  (55)              78
       Changes in current assets and current liabilities:
          Accounts receivable                                        (169)            (747)
          Inventories                                                (126)            (224)
          Prepaid expenses and other                                 (188)             (26)
          Accounts payable and accrued liabilities                 (1,007)             (18)
                                                                 --------         --------

Net cash provided by (used in) operations                          (1,391)            (314)
                                                                 --------         --------

CASH FLOWS FROM INVESTING ACTIVITIES:
   (Increase) Decrease in other assets                                (11)              (4)
   Capitalization of software costs                                  (143)             (75)
   Capital expenditures                                               (54)             (30)
                                                                 --------         --------

Net cash used in investing activities                                (208)            (109)
                                                                 --------         --------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Repayment of debt - net                                            (500)            (115)
  Net borrowings under lines of credit                                733              150
  Net borrowings under term loan                                      192                0
  Net borrowings from affiliates                                       75              250
  Issuance of common stock                                          1,320                0
Exercise of common stock options and warrants                          20               16
                                                                 --------         --------

Net cash provided by financing activities                           1,840              301
                                                                 --------         --------

Net decrease in cash and cash equivalents                             241             (122)
Cash and cash equivalents, beginning of period                         88              143
                                                                 --------         --------
Cash and cash equivalents, end of period                         $    329         $     21
                                                                 ========         ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid during the year for:
        Interest                                                 $     74         $     66
</TABLE>

              See accompanying notes to the financial statements.

                                       6
<PAGE>

                              COMPUTONE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

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

     The financial  statements included in this Form 10-QSB/A have been prepared
by the Company,  without  audit,  pursuant to the rules and  regulations  of the
Securities   and  Exchange   Commission.   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 Fiscal 1997 Form 10-KSB.

     The financial statements presented herein, as of October 3, 1997 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.   RESTATEMENT OF FINANCIAL DATA
     -----------------------------

     The Company has restated its financial  statements  for the fiscal  quarter
ended  October  3,  1997  (as  presented  herein)  as a  result  of the  ongoing
investigation by the Securities and Exchange Commission (SEC) in matters focused
principally  on  the  Company's  revenue   recognition   policies  and  internal
accounting  controls.  Since March 1996,  the Company has been the subject of an
investigation  by the SEC  pursuant to a Formal  Order of Private  Investigation
relating to the Company. Since that date, certain former and current officers of
the Company have testified in the  investigation.  On June 22, 1998, the Company
was advised by the Staff of the SEC of the Staff's  intention  to  recommend  an
enforcement  action  against the Company for alleged  violations  of the federal
securities  laws and to  recommend  the filing of a complaint  in federal  court
seeking a permanent  injunction  against the Company for violations arising from
the Company's  reporting of certain revenues in violation of generally  accepted
accounting  principles in periodic  filings made during certain of the quarterly
and annual  filings by the Company in the five year period ending April 3, 1998.
As a result of the foregoing,  the Company is required,  among other things,  to
restate certain previously issued financial information. The Company has advised
the  Staff  of the  Company's  intention  to  negotiate  a  mutually  acceptable
settlement of this matter.

     In  response  to the  forgoing,  the  Company  has  taken a number of steps
including  (a)  changing  the  application  of its revenue  recognition  policy,
effective  with the fourth  quarter of the fiscal year ended  April 3, 1998,  to
defer  recognition  of  revenue  to  customers  who are not the end users of the
Company's  product  until such time as the product has been sold  through to the
end user;  (b) improving  its quarterly and fiscal year end cut-off  procedures;
(c) accepting the  resignation  of the  Company's  previous  president and chief
executive officer subsequent to April 3, 1998; and (d) accepting the resignation
of the Company's  previous chief financial officer  subsequent to April 3, 1998.
The Company believes that these steps will provide reasonable assurance that the
aforementioned accounting errors do not recur.

     This  restatement  of  financial  data for the  periods  reported on herein
results from the improper recognition of revenue on certain sales, which had the
effects on the results of operations as follows:

                                              Quarter Ended October 3, 1997
                                              -----------------------------
                                             As Reported         As Restated
                                             -----------         -----------
                                         (in thousands except per share amounts)

Revenues                                       $ 3,511             $ 2,746
Operating Income (Loss)                        $    30             $  (430)
Net Income (Loss)                              $   280             $  (180)
Earnings (Loss) Per Share                      $   .04             $  (.03)

                                       7
<PAGE>

                              COMPUTONE CORPORATION
                    NOTES TO FINANCIAL STATEMENTS, CONTINUED
                                   (UNAUDITED)

2.   RESTATEMENT OF FINANCIAL DATA, CONTINUED
     ----------------------------------------

                                          Six Month Period Ended October 3, 1997
                                          --------------------------------------
                                             As Reported         As Restated
                                             -----------         -----------
                                         (in thousands except per share amounts)

Revenues                                       $ 7,005             $ 6,240
Operating Income (Loss)                        $   168             $  (292)
Net Income (Loss)                              $   390             $   (70)
Earnings (Loss) Per Share                      $   .06             $  (.01)

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

     Inventories,  net of a reserve for obsolete,  excess and non-salable items,
consisted of the following at October 3, 1997 and April 4, 1997 (in thousands):

                                              October 3, 1997   April 4, 1997
                                              ---------------   -------------
                                                As Restated      As Restated
                                                  (Note 2)         (Note 2)

     Finished goods                               $  1,818         $  1,880
     Work in progress                                  665              725
     Raw materials                                   2,422            2,135
                                                  --------         --------
                                                  $  4,905         $  4,740
                                                  ========         ========

4.   INCOME PER SHARE
     ----------------

     Income per common  share is computed by dividing net income  applicable  to
common stock by the weighted average number of shares of common stock and common
share equivalents outstanding during each period.

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

     Income  taxes  are  calculated  using the  liability  method  specified  by
Statement of Financial Accounting  Standards No.109 (SFAS 109),  "Accounting for
Income Taxes".  Management  provides a valuation  allowance against its deferred
tax assets to the extent that  management  concludes that it is more likely than
not that the Company will not benefit from the  utilization of such deferred tax
assets.

6.   DEBT
     ----

     On June 20, 1997,  the Company  entered into a financing  arrangement  with
Heller  Financial  to  provide a term loan in the  amount of  $254,000  which is
collateralized  by  the  Company's  inventory  and a  line  of  credit  of up to
$2,500,000,  based  on  the  available  borrowing  base,  collateralized  by the
Company's accounts  receivable.  The term loan bears interest at a rate of prime
plus 1.50% and is payable in monthly  installments  of  $4,233.00  plus  accrued
interest for the first  thirty-five  months with a final monthly  payment in the
amount of the entire then outstanding principal plus accrued interest.  The line
of credit bears interest at a rate of prime plus 1.25%.  At October 3, 1997, the
balance outstanding on the term loan was approximately  $192,000 and the balance
under the terms of the line of credit was approximately  $733,000. The available
borrowings  under the line of  credit at  October  3,  1997 were  $529,000.  The
Company  also  paid in full,  on June  20,  1997,  its  outstanding  balance  to
NationsBank in the amount of $447,000.

                                       8
<PAGE>

ITEM 2.   MANAGEMENT'S  DISCUSSION  AND ANALYSIS OR PLAN OF  OPERATIONS  FOR THE
          THREE AND SIX MONTHS ENDED OCTOBER 3, 1997.

SEE NOTE 2 IN ITEM 1 - RESTATEMENT OF FINANCIAL DATA

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

For the Three Months Ended October 3, 1997
------------------------------------------

     The Company  reported an operating  loss for the quarter  ended  October 3,
1997 of $430,000  compared to operating  income of $251,000  for the  comparable
quarter of the prior  fiscal year.  The  decrease in income is due  primarily to
product mix shortages  resulting  from  delivery  delays by one of the Company's
major  outsourcing  vendors.  These  delays  were  the  result  of the  vendor's
inability to procure certain long lead time components in a timely enough manner
to provide the Company with sufficient products to meet its open orders.

     In addition to the income from operations, the Company recorded $250,000 in
net   non-operating   income  for  the  quarter  ended  October  3,  1997.  This
non-operating income was the net of $313,000 in investment income resulting from
the Company's  participation in an initial public offering,  $48,000 in interest
expense and $15,000 in one-time  late  charges.  This compares to $33,000 in net
non-operating   expenses,   predominately  interest  expense,  during  the  same
three-month period of the prior fiscal year.

     Product  sales  revenue from  continuing  operations  for the quarter ended
October 3, 1997 totaled approximately  $2,746,000 compared to $3,504,000 for the
comparable quarter of the prior fiscal year, a decrease of 22%. This decrease in
product sales  revenue can be  attributed  to the  Company's  delay in receiving
products from its outsourcing vendors.

     Cost of products  sold for the quarter  amounted  to  $1,805,000  or 66% of
product sales revenues  versus  $2,058,000 or 59% for the comparable  quarter of
the prior year.  The increase in cost of products  sold can be attributed to the
increase in sales of remote access products with a lower gross margin.

     Selling,  general and administrative expenses amounted to $1,079,000 or 39%
of product  sales  revenue  for the three  months  ended  October 3, 1997 versus
$930,000 or 27% of product sales revenue for the comparable  three months of the
prior fiscal year. The increase in expenses  during the quarter ended October 3,
1997 versus the same period of the prior  fiscal  year can be  attributed  to an
increase in headcount in the areas of sales and  customer  service.  The Company
experienced an increase in selling  related costs  associated with the Company's
efforts to sell the remote access  products  that were sold to a major  customer
during last fiscal year and returned to the Company  during this fiscal  period.
The impact on the  Company's  earnings for this period was minimal as no revenue
was  recognized on the shipment of these  products  during the last fiscal year.
The Company has implemented additional sales promotions in an effort to sell the
remaining products associated with this transaction.

     Product  development  expenses amounted to $292,000 or 11% of product sales
revenue for the three  months  ended  October 3, 1997  versus  $265,000 or 9% of
product sales revenue for the comparable  three month period of the prior fiscal
year.

For the Six Months Ended October 3, 1997
----------------------------------------

     The Company  reported an operating loss for the six months ended October 3,
1997 of $292,000 compared to operating income of $346,000 for the comparable six
months of the prior  fiscal  year.  The  decrease in income is due  primarily to
product mix shortages  resulting  from  delivery  delays by one of the Company's
major  outsourcing  vendors.  These  delays  were  the  result  of the  vendor's
inability to procure certain long lead time components in a timely enough manner
to provide the Company  with  sufficient  products to meet its open  orders.  At
October 3, 1997, the Company had open orders in excess of $225,000.

                                       9
<PAGE>

     Product  sales  revenue for the six months  ended  October 3, 1997  totaled
approximately $6,240,000 compared to $6,529,000 for the comparable six months of
the prior fiscal year, a decrease of 4%. This  decrease in product sales revenue
can be  attributed  to the  Company's  delay  in  receiving  products  from  its
outsourcing vendors.


ITEM 2.   MANAGEMENT'S  DISCUSSION  AND ANALYSIS OR PLAN OF  OPERATIONS  FOR THE
          THREE AND SIX MONTHS ENDED OCTOBER 3, 1997.

RESULTS OF OPERATIONS (CONTINUED)
---------------------------------

For the Six Months Ended October 3, 1997 (continued)
----------------------------------------------------

     Cost of products  sold for the six months  amounted to $3,926,000 or 63% of
product sales revenues versus $3,910,000 or 60% for the comparable six months of
the prior year.  The increase in cost of products  sold can be attributed to the
increase in product  sales  revenue,  along with the  Company's  sales of remote
access products with a higher cost.

     Selling,  general and administrative expenses amounted to $2,038,000 or 33%
of product  sales  revenue  for the six  months  ended  October  3, 1997  versus
$1,734,000 or 27% of product sales revenue for the  comparable six months of the
prior fiscal year. The increase in expenses  during the six months ended October
3, 1997 versus the same period of the prior fiscal year can be  attributed to an
increase in headcount in the areas of sales and  customer  service.  The Company
experienced an increase in selling  related costs  associated with the Company's
efforts to sell the remote access  products  that were sold to a major  customer
during last fiscal year and returned to the Company  during this fiscal  period.
The impact on the  Company's  earnings for this period was minimal as no revenue
was recognized on the shipment of these products during the last fiscal year.

     Product  development  expenses  amounted to $568,000 or 9% of product sales
revenue  for the six months  ended  October  3, 1997  versus  $539,000  or 8% of
product  sales revenue for the  comparable  six month period of the prior fiscal
year.

LIQUIDITY
---------

     In response to the Company's  working capital needs,  on June 20,1997,  the
Company entered into a funding  arrangement  with Heller  Financial to provide a
term loan in the amount of $254,000  which is  collateralized  by the  Company's
inventory  and a line of  credit  of up to  $2,500,000,  based on the  available
borrowing  base,  collateralized  by the Company's  accounts  receivable.  As of
October 3, 1997,  $529,000 was available for borrowing under the line of credit.
The Company  believes  that the working  capital  provided by Heller  Financial,
together  with   anticipated   funds  expected  to  be  generated  by  operating
activities,  should be reasonably  sufficient to cover operating  expenses to be
incurred  during fiscal 1998.  Cash  commitments  for  non-cancelable  long-term
operating real and personal  property leases during fiscal 1998 is approximately
$262,000.  The  Company  has  no  plans  for  any  major  capital  improvements.
Relationships  with major vendors are satisfactory  although the Company is on a
"Cash On Delivery" status with a significant number of raw materials vendors.

     Cash used in  continuing  operations  amounted  to  $1,391,000  for the six
months ended October 3, 1997  compared to cash used in continuing  operations of
$314,000 for the  comparable  six months ended October 4, 1996.  The increase in
cash used in  continuing  operations as compared to the prior year fiscal period
primarily  reflects  the  decrease in accounts  payable and accrued  liabilities
resulting  from the  working  capital  which was made  available  by the line of
credit and private placement proceeds.

     Cash used in investing activities amounted to $208,000 for the three months
ended October 3, 1997 compared  with $109,000 used in financing  activities  for
the  comparable  three months of the prior fiscal year.  This  increase from the
same period of the prior fiscal year can be  attributable to the purchases fixed
assets to be used in the  Company's  new  facility  along  with an  increase  in
capitalized software development costs.

                                       10
<PAGE>

ITEM 2.   MANAGEMENT'S  DISCUSSION  AND ANALYSIS OR PLAN OF  OPERATIONS  FOR THE
          THREE AND SIX MONTHS ENDED OCTOBER 3, 1997.

LIQUIDITY (CONTINUED)
---------------------

     Cash provided by financing  activities  during the six months ended October
3, 1997 was $1,840,000 versus $301,000 of cash provided by financing  activities
for the six months ended  October 4, 1996.  This change can be attributed to the
Company's  aforementioned new financing  arrangement with Heller Financial along
with the proceeds from the private placement.

     Working  capital  amounted to $3,831,000 at October 3, 1997, an increase of
$1,428,000,  since  April 4,  1997.  The  ratio of  current  assets  to  current
liabilities  at  October  3, 1997 was 2.07 to 1.00  compared  to 1.57 to 1.00 at
April 4, 1997.

OUTLOOK FOR REMAINDER OF FISCAL YEAR 1998
-----------------------------------------

SALES BY PRODUCT LINE
---------------------

     The Company  continues to  experience  growth in its sales of remote access
products following its decision to strategically aligned its sales focus towards
this marketplace versus sales of input\output devices. The sales information for
the  second  quarter  of fiscal  1998  ended  October  3, 1997 is listed  below.
Management  is  fairly  optimistic  that the  level of  sales of  remote  access
products as a  percentage  of net  revenue  will  continue to increase  over the
remainder of the current fiscal year and should approach the level of 60% of net
revenues by the end of the fiscal year.

<TABLE>
<CAPTION>
                      Remote Access Servers                Input\Output Devices              Total
                 Sales $ (000's)     % of Total       Sales $ (000's)    % of Total     Sales $ (000's)   % of Total
                 ---------------    -----------       ---------------    ----------     ---------------   ----------

<S>                   <C>               <C>                 <C>              <C>              <C>             <C>
Qtrly Info: 98        1,192             43%                 1,554            57%              2,746           100%
            97        1,033             30%                 2,471            70%              3,504           100%

YTD Info:   98        2,521             40%                 3,719            60%              6,240           100%
            97        2,039             32%                 4,490            68%              6,529           100%
</TABLE>

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

     During the three  months  ended  October 3, 1997,  the Company  initiated a
private  placement of 500,000 shares of Common Stock. As of October 3, 1997, the
Company raised $934,400 and an additional $724,800 through October 16, 1997. The
proceeds  from  this  private  placement  are to be  used to  fund  new  product
development  and provide  additional  working  capital.  The  proceeds  from the
private  placement along with the working capital provided by Heller  Financial,
and the funds  expected  to be  generated  by  operating  activities,  should be
reasonably  sufficient to cover operating  expenses to be incurred during fiscal
1998. Cash commitments for non-cancelable  long-term operating real and personal
property leases during fiscal 1998 is approximately $262,000. The Company has no
plans for any major capital  improvements.  Relationships with major vendors are
satisfactory  although  the  Company is on a "Cash On  Delivery"  status  with a
significant  number  of raw  materials  vendors.  Management  believes  that the
additional  funding  provided by both Heller and the  private  placement  should
allow the Company to re-establish credit  relationships with most of its smaller
vendors.

                                       11
<PAGE>

ITEM 2.   MANAGEMENT'S  DISCUSSION  AND ANALYSIS OR PLAN OF  OPERATIONS  FOR THE
          THREE AND SIX MONTHS ENDED OCTOBER 3, 1997.

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

     The  Company  expects  continued  growth in the sales of its remote  access
products.  At October 3, 1997,  the  Company  had open  orders of  approximately
$227,000.  Management  believes that the  additional  funding raised through the
private  placement  along with the funding  available from the Heller  Financial
relationship  should  provide the Company with the working  capital  required to
grow the Company through new product development and marketing activities.

     On October  11,  1997,  the Company  completed  the  relocation  to its new
headquarters in Alpharetta, Georgia. The new facility is located in a new office
park in the  suburbs of  Atlanta.  The  Company  has a ten-year  lease on 22,000
square feet of a new 40,000 square foot one-story  brick building and expects to
save approximately $170,000 per year in total occupancy costs.


                           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

          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: June 28, 1999            By:  \s\ Perry J. Pickerign
                                    ----------------------
                                    Perry J. Pickerign
                                    President and Chief Executive Officer
                                    (Principal Operating Officer)


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