**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-QSB**





(Mark
      One)





x
      Quarterly report under
      Section 13 or 15(d) of the Securities Exchange Act of 1934





For
      the
      quarterly period ended March
      31,
      2007





o
      Transition report under
      Section 13 or 15(d) of the Exchange Act





For
      the
      transition period from __________ to __________





Commission
      file number 1-8086





General
      DataComm Industries, Inc.


(Exact
      Name of Small Business Issuer as Specified in its Charter)


Delaware
              06-0853856(State
                  of Other Jurisdiction of Incorporation or Organization)
              (I.R.S.
                  Employer Identification No.)




6
      Rubber Avenue, Naugatuck, CT 06770


(Address
      of Principal Executive Offices)




203-729-0271


(Issuer’s
      Telephone Number, Including Area Code)




_______________________________________________________


(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
o





**APPLICABLE
      ONLY TO ISSUERS INVOLVED IN**


**BANKRUPTCY
      PROCEEDINGS DURING THE**


**PRECEDING
      FIVE YEARS**





Check
      whether the registrant 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
o





**APPLICABLE
      ONLY TO CORPORATE ISSUER**





State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of April 30, 2007:





3,474,373
      shares of Common Stock


647,715
      shares of Class B Stock





Transitional
      Small Business Disclosure Format (check one):   Yes
o 
No
x









**GENERAL
      DATACOMM INDUSTRIES, INC.**





**INDEX
      TO QUARTERLY REPORT ON FORM 10-QSB**


**Page****PART
                  I**
              
              **FINANCIAL
                  INFORMATION****Item
                  1**.
              
              **Financial
                  Statements**(unaudited):Condensed
                  Consolidated Balance Sheets as of March 31, 2007 and September
                  30,
                  2006
              
              3Condensed
                  Consolidated Statements of Operations for the Three and Six Months
                  Ended
                  March 31, 2007 and 2006
              
              4Condensed
                  Consolidated Statements of Cash Flows for the Six Months Ended
                  March 31,
                  2007 and 2006
              
              5Notes
                  to the Condensed Consolidated Financial Statements
              
              6**Item
                  2**.
              
              **Management’s
                  Discussion and Analysis or Plan of Operation**
              
              13**Item
                  3.**
              
              **Controls
                  and Procedures**
              
              26**PART
                  II**
              
              **OTHER
                  INFORMATION****Item
                  1**.
              
              **Legal
                  Proceedings**
              
              27**Item
                  2**.
              
              **Unregistered
                  Sales of Equity Securities and Use of Proceeds**
              
              27**Item
                  3**.
              
              **Defaults
                  Upon Senior Securities**
              
              27**Item
                  4**.
              
              **Submission
                  of Matters of a Vote of Security Holders**
              
              27**Item
                  5**.
              
              **Other
                  Information**
              
              27**Item
                  6**.
              
              **Exhibits**
              
              27




2




**PART
      I. FINANCIAL INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS**





**General
      DataComm Industries, Inc.**


***Condensed
      Consolidated Balance Sheets***


***(in
      thousands except shares)***




**March
                31,**
            
            **September
                30,****2007**
            
            **2006*****(Unaudited)****Assets:***Current
                assets:*Cash
                and cash equivalents
            
            **$**
            **479**
            
            **$**
            **246**Accounts
                receivable, less allowance for doubtful accounts of
              $364
                at March 31, 2007 and $489 at September 30, 2006
            
            
            **2,484**
            
            
            **2,486**Inventories
            
            
            **2,347**
            
            
            **2,554**Other
                current assets
            
            
            **300**
            
            
            **591**Total
                current assets
            
            
            **5,610**
            
            
            **5,877**Property,
                plant and equipment, net
            
            
            **3,813**
            
            
            **3,973**Total
                Assets
            
            **$**
            **9,423**
            
            **$**
            **9,850****Liabilities
                and Stockholders’ Deficit:***Current
                liabilities:*Current
                portion of long-term debt ($2,315 at March 31, 2007 and
              $2,026
                September 30, 2006 owed to related parties)
            
            **$**
            **26,660**
            
            **$**
            **29,051**Accounts
                payable
            
            
            **3,064**
            
            
            **2,658**Accrued
                payroll and payroll-related costs
            
            
            **590**
            
            
            **596**Accrued
                interest
            
            
            **7,243**
            
            
            **7,904**Other
                current liabilities
            
            
            **4,113**
            
            
            **4,700**Total
                current liabilities
            
            
            **41,670**
            
            
            **44,909**Other
                liabilities
            
            
            **540**
            
            
            **539**Total
                Liabilities
            
            
            **42,210**
            
            
            **45,448**Commitments
                and contingencies
            
            
            **-**
            
            
            **-**Stockholders’
                deficit:9%
                Preferred stock, par value $1.00 per share, 3,000,000 shares
              authorized,
                781,996 shares issued and outstanding at March 31, 2007
              and
                September 30, 2006; $31.4 million liquidation preference
              at
                March 31, 2007
            
            
            **782**
            
            
            **782**Class
                B common stock, par value $.01 per share, 5,000,000 shares
              authorized;
                647,715 shares issued and outstanding at March 31, 2007
              and
                653,947 shares at September 30, 2006
            
            
            **7**
            
            
            **7**Common
                stock, par value $.01 per share, 25,000,000 shares authorized;
              issued:
                3,474,373 shares at March 31, 2007 and 3,468,141 shares at
              September
                30, 2006
            
            
            **35**
            
            
            **35**Capital
                in excess of par value
            
            
            **198,900**
            
            
            **198,751**Accumulated
                deficit
            
            
            **(232,528**
            **)**
            
            **(235,183**
            **)**Accumulated
                other comprehensive income
            
            
            **17**
            
            
            **10**Total
                Stockholders’ Deficit
            
            
            **(32,787**
            **)**
            
            **(35,598**
            **)**Total
                Liabilities and Stockholders’ Deficit
            
            **$**
            **9,423**
            
            **$**
            **9,850**





*
            Derived
                from the Company’s audited consolidated balance sheet at September 30,
                2006.




The
      accompanying notes are an integral part of these


condensed
      consolidated financial statements.




3




**General
      DataComm Industries, Inc.**


***Condensed
      Consolidated Statements of Operations (Unaudited)***


***(in
      thousands except share data)*** ****




**Three
                Months
                Ended**
            
            **Six
                Months
                Ended****March
                31,**
            
            **March
                31,****2007**
            
            **2006**
            
            **2007**
            
            **2006****Revenues**Product
            
            **$**
            **2,489**
            
            **$**
            **4,245**
            
            **$**
            **5,454**
            
            **$**
            **6,819**Service
            
            
            **569**
            
            
            **816**
            
            
            **1,163**
            
            
            **1,287**Total
            
            
            **3,058**
            
            
            **5,061**
            
            
            **6,617**
            
            
            **8,106**Cost
                of revenues
            
            
            **1,269**
            
            
            **1,974**
            
            
            **2,582**
            
            
            **3,341****Gross
                margin**
            
            
            **1,789**
            
            
            **3,087**
            
            
            **4,035**
            
            
            **4,765*****Operating
                expenses:***Selling,
                general and administrative
            
            
            **1,421**
            
            
            **1,604**
            
            
            **2,760**
            
            
            **3,096**Research
                and product development
            
            
            **615**
            
            
            **858**
            
            
            **1,223**
            
            
            **1,715****2,036**
            
            
            **2,462**
            
            
            **3,983**
            
            
            **4,811****Operating
                income (loss)**
            
            
            **(247**
            **)**
            
            **625**
            
            
            **52**
            
            
            **(46**
            **)*****Other
                income (expense):***Interest
                expense
            
            
            **(762**
            **)**
            
            **(818**
            **)**
            
            **(1,557**
            **)**
            
            **(1,635**
            **)**Gain
                on restructuring of debt
            
            
            **4,062**
            
            
            **-**
            
            
            **4,062**
            
            
            **-**Recovery
                of lease receivable, net
            
            
            **-**
            
            
            **425**
            
            
            **-**
            
            
            **425**Loss
                on extinguishment of debt
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **(389**
            **)**Other,
                net
            
            
            **60**
            
            
            **88**
            
            
            **104**
            
            
            **156****3,360**
            
            
            **(305**
            **)**
            
            **2,609**
            
            
            **(1,443**
            **)****Income
                (loss) before income taxes**
            
            
            **3,113**
            
            
            **320**
            
            
            **2,661**
            
            
            **(1,489**
            **)**Income
                tax provision
            
            
            **3**
            
            
            **3**
            
            
            **6**
            
            
            **6****Net
                income (loss)**
            
            
            **3,110**
            
            
            **317**
            
            
            **2,655**
            
            
            **(1,495**
            **)**Dividends
                applicable to preferred stock
            
            
            **(440**
            **)**
            
            **(440**
            **)**
            
            **(880**
            **)**
            
            **(880**
            **)****Net
                income (loss) applicable to common and Class B stock**
            
            **$**
            **2,670**
            
            **$**
            **(123**
            **)**
            **$**
            **1,775**
            
            **$**
            **(2,375**
            **)**


**Earnings
                  (loss) per share:**
                **Basic-common
                  stock**
                **Diluted
                  - common stock**
                **Basic
                  - Class B stock**
                **Diluted
                  - Class B stock**
              
              **$**
                **$**
                **$**
                **$**
              **0.66**
                **0.65**
                **0.59**
                **0.59**
              
              **$**
                **$**
                **$**
                **$**
              **(0.03**
                **(0.03**
                **(0.03**
                **(0.03**
              **)**
                **)**
                **)**
                **)**
              **$**
                **$**
                **$**
                **$**
              **0.44**
                **0.43**
                **0.39**
                **0.39**
              
              **$**
                **$**
                **$**
                **$**
              **(0.59**
                **(0.59**
                **(0.59**
                **(0.59**
              **)**
                **)**
                **)**
                **)****Weighted
                  average number of common and Class B shares
                  outstanding:**
                **Basic-common
                  stock**
                **Diluted
                  - common stock**
                **Basic
                  - Class B stock**
                **Diluted
                  - Class B stock**
              
              
              **3,473,542**
                **4,122,088**
                **648,546**
                **648,546**
              
              
              **3,386,072**
                **3,386,072**
                **653,947**
                **653,947**
              
              
              **3,472,163**
                **4,122,088**
                **649,925**
                **649,925**
              
              
              **3,363,978**
                **3,363,978**
                **653,947**
                **653,947**







The
      accompanying notes are an integral part of these


condensed
      consolidated financial statements.




4




***General
      DataComm Industries, Inc.***


***Condensed
      Consolidated Statements of Cash Flows (Unaudited)***


(In
      thousands)


****


**Six
                Months Ended********March
                31****,****2007**
            
            **2006***Cash
                flows from operating activities:*Net
                income (loss)
            
            **$**
            **2,655**
            
            **$**
            **(1,495**
            **)**Adjustments
                to reconcile net income (loss) to net cash
              provided
                by operating activities:Depreciation
                and amortization
            
            
            **186**
            
            
            **192**Loss
                on extinguishment of debt
            
            
            **-**
            
            
            **389**Stock
                compensation expense
            
            
            **149**Gain
                on restructuring of debt
            
            
            **(4,062**
            **)**
            
            **-**Changes
                in:Accounts
                receivable
            
            
            **2**
            
            
            **(774**
            **)**Inventories
            
            
            **207**
            
            
            **607**Accounts
                payable
            
            
            **381**
            
            
            **1,026**Accrued
                payroll and payroll-related costs
            
            
            **(6**
            **)**
            
            **(72**
            **)**Accrued
                interest
            
            
            **1,120**
            
            
            **1,095**Other
                net current liabilities
            
            
            **(235**
            **)**
            
            **(388**
            **)**Other
                net long-term assets
            
            
            **8**
            
            
            **(214**
            **)****Net
                cash provided by operating activities**
            
            
            **405**
            
            
            **366***Cash
                flows from investing activities:*Acquisition
                of property, plant and equipment, net
            
            
            **(8**
            **)**
            
            **(46**
            **)****Net
                cash used by investing activities**
            
            
            **(8**
            **)**
            
            **(46**
            **)***Cash
                flows from financing activities:*Proceeds
                from notes payable to related parties
            
            
            **270**
            
            
            **250**Proceeds
                from notes payable
            
            
            **222**
            
            
            **303**Principal
                payments on notes payable
            
            
            **(83**
            **)**
            
            **(76**
            **)**Principal
                payments on term obligation
            
            
            **(573**
            **)**
            
            **(1,268**
            **)****Net
                cash used by financing activities**
            
            
            **(164**
            **)**
            
            **(791**
            **)****Net
                increase (decrease) in cash and cash equivalents**
            
            
            **233**
            
            
            **(471**
            **)**Cash
                and cash equivalents, beginning of period
            
            
            **246**
            
            
            **878****Cash
                and cash equivalents, end of period**
            
            **$**
            **479**
            
            **$**
            **407***Supplemental
                disclosures of cash flow information:*Cash
                paid during the period for:Interest
            
            **$**
            **192**
            
            **$**
            **244**Income
                and franchise taxes
            
            
            **3**Reorganization
                items
            
            
            **260**
            
            
            **262**




The
      accompanying notes are an integral part of these


condensed
      consolidated financial statements.





5




**GENERAL
      DATACOMM INDUSTRIES, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


(Unaudited)





**Note
      1 - Basis of Presentation and Liquidity**





The
      accompanying unaudited interim financial statements of General DataComm
      Industries, Inc. (the “Company”) have been prepared on a going concern basis, in
      accordance with generally accepted accounting principles in the United States
      for interim financial information, the instructions to Form 10-QSB and Article
      10 of Regulation S-X. Accordingly, they do not include all of the information
      and footnotes required by generally accepted accounting principles for year
      end
      financial statements. In the opinion of management, these statements include
      all
      adjustments, consisting of normal and recurring adjustments, considered
      necessary for a fair presentation of the results for the periods presented.
      The
      results of operations for the periods presented are not necessarily indicative
      of results which may be achieved for the entire fiscal year ending September
      30,
      2007. The unaudited interim financial statements should be read in conjunction
      with the consolidated financial statements and notes thereto contained in the
      Company’s annual report on Form 10-KSB for the fiscal year ended September 30,
      2006 as filed with the Securities and Exchange Commission.





On
      November 2, 2001, General DataComm Industries, Inc. and its domestic
      subsidiaries filed a voluntary petition for relief under Chapter 11 of the
      Bankruptcy Code in the United States Bankruptcy Court for the District of
      Delaware. The Company continued in possession of its properties and the
      management of its business as debtors in possession.





The
      Company emerged from Chapter 11 effective on September 15, 2003 pursuant to
      a
      court-approved plan of reorganization. Under this plan, the Company was to
      pay
      all creditors 100% of their allowed claims based upon a five year business
      plan.
      However, the Company has not met its business plan objectives since emerging
      from Chapter 11 and, therefore, there can be no assurance that any such
      outstanding claims will be paid. The Company has no current ability to borrow
      additional funds. It must, therefore, fund operations from cash balances and
      cash generated from operating activities. In order to meet its obligations
      the
      Company must achieve revenue growth while at the same time limiting investments
      in inventories and capital assets.





At
      March
      31, 2007 the Company had a stockholders’ deficit of approximately $32.8 million.
      In addition, it had a working capital deficit of approximately $36.1 million,
      and the Company’s principal source of liquidity was cash and cash equivalents of
      $479,000. The large negative working capital reflects the classification of
      all
      long-term debt as current liabilities as described below.





The
      Company’s quarterly operating results are subject to fluctuations due to a
      number of factors resulting in more variability and less predictability in
      the
      Company’s quarter-to-quarter sales and operating results. Such factors include
      (but are not limited to): dependence on a small number of customers, short
      delivery times, dependence on subcontract manufacturers, low order backlog,
      ability to timely develop new products and market acceptance of new products.
      Because operating results can fluctuate significantly the Company may not be
      able to generate positive cash flow from operations in the future. Should the
      need arise, it may become necessary to borrow additional funds or otherwise
      raise additional capital. However, since the Company does not have any source
      of
      additional funds or capital in place, any such requirement could have a material
      adverse effect on the Company. As of September 30, 2006, as a result of not
      making certain required principal payments on its Term Obligation, the Company
      was in default under its senior loan agreement and accordingly, all long term
      debt and related accrued interest was classified as current liabilities at
      such
      date. In January 2007, such default was waived by the senior lender as part
      of a
      loan amendment (see Note 4). Based on the uncertainty as to whether the Company
      will achieve sufficient cash flows from operations to meet its monthly loan
      payments required under its senior loan agreement as amended, the Company’s
      long-term debt and related accrued interest continue to be classified as current
      liabilities in the accompanying consolidated balance sheet at March 31,
      2007.




6




The
      events and circumstances described above raise substantial doubt about the
      Company’s ability to continue as a going concern. The Company’s independent
      auditors have expressed uncertainty about the Company’s ability to continue as a
      going concern in their opinion on the Company’s fiscal 2006 financial
      statements.





Management
      has responded to its liquidity and cash flow risks as part of an ongoing
      strategy, by restructuring the sales force, increasing factory shutdown time,
      containing expenses, and reducing the size of the employee workforce. In
      addition, the Company has had to rely upon loans from related parties in the
      amount of $2,274,000, including $270,000 in the quarter ended March 31, 2007,
      in
      order to make payments on its senior debt and in January 2007 obtained an
      amendment to its senior loan agreement which reduced required principal payments
      on its Term Obligation (see Note 4). The Company is pursuing the sale, lease
      or
      financing of its headquarters land and building, the proceeds of which would
      be
      used to reduce secured debt and taxes, and related interest.





While
      the
      Company is aggressively pursuing opportunities and corrective actions, there
      can
      be no assurance that the Company will be successful in its efforts to generate
      sufficient cash from operations or obtain additional funding sources. The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern and do not include any adjustments
      that may result from the outcome of these uncertainties.




**Note
      2 - Earnings (Loss) Per Share**





Basic
      earnings per share is computed by allocating net income available to common
      stockholders and to Class B shares based on their contractual participation
      rights to share in such net income as if all the income for the year had been
      distributed. Such allocation reflects that common stock is entitled to cash
      dividends, if and when paid, 11.11% higher per share than Class B stock.
      However, a net loss is allocated evenly to all shares. The income (loss)
      allocated to each security is divided by the respective weighted average number
      of common and Class B shares outstanding during the period. Diluted earnings
      per
      common share assumes the conversion of Class B Stock into common stock. 
Diluted earnings per share gives effect to all potential dilutive common shares
      outstanding during the period. In computing diluted earnings per share, which
      only applies in the event there is net income, the average price of the
      Company’s common stock for the period is used in determining the number of
      shares assumed to be purchased from exercise of stock options and warrants.
      Dividends applicable to preferred stock represent accumulating dividends that
      are not declared or accrued. The following table sets forth the computation
      of
      basic and diluted earnings (loss) applicable to common and Class B stock for
      the
      three and six months ended March 31, 2007 and 2006 (in thousands, except shares
      and per share data):





**Three
                Months Ended**
              **March
                31,**
            
            **Six
                Months Ended**
              **March
                31,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Net
                income (loss)
            
            $
            3,110
            
            $
            317
            
            $
            2,655
            
            $
            (1,495
            )Dividends
                applicable to preferred stock
            
            
            (440
            )
            
            (440
            )
            
            (880
            )
            
            (880
            )Net
                income (loss) applicable to common and Class B stock
            
            $
            2,670
            
            $
            (123
            )
            $
            1,775
            
            $
            (2,375
            )Net
                income (loss) applicable to common stock - basic
            
            $
            2,286
            
            $
            (103
            )
            $
            1,519
            
            $
            (1,988
            )Net
                income (loss) applicable to Class B stock-basic
            
            $
            384
            
            $
            (20
            )
            $
            256
            
            $
            (387
            )




**Three
                  Months Ended March 31,****2007**
              
              **2006**
              
              **2007**
              
              **2006****Common
                  Stock**
              
              **Class
                  B Stock**Numerator
                  for basic earnings per share-net income (loss)
              
              **$**
              **2,286**
              
              **$**
              **(103**
              **)**
              **$**
              **384**
              
              **$**
              **(20**
              **)**Reallocation
                  of net income for potential dilutive common shares
              
              
              **384**
              
              
              **-**
              
              
              **-**
              
              
              **-**Numerator
                  for diluted earnings per share - net income (loss)
              
              
              **2,670**
              
              
              **(103**
              **)**
              
              **384**
              
              
              **(20**
              **)**Denominator
                  for basic earnings per share - weighted average
                outstanding
                  shares
              
              
              **3,473,542**
              
              
              **3,386,072**
              
              
              **648,546**
              
              
              **653,947**Effect
                  of dilutive securities:
                Class
                  B stock
              
              
              **648,546**
              
              
              **-**
              
              
              **-**
              
              
              **-**Denominator
                  for diluted earnings (loss) per share
              
              
              **4,122,088**
              
              
              **3,386,072**
              
              
              **648,546**
              
              
              **653,947**Basic
                  earnings (loss) per share
              
              **$**
              **0.66**
              
              **$**
              **(0.03**
              **)**
              **$**
              **0.59**
              
              **$**
              **(0.03**
              **)**Diluted
                  earnings (loss) per share
              
              **$**
              **0.65**
              
              **$**
              **(0.03**
              **)**
              **$**
              **0.59**
              
              **$**
              **(0.03**
              **)**




7




**Six
                  Months Ended March 31,****2007**
              
              **2006**
              
              **2007**
              
              **2006****Common
                  Stock**
              
              **Class
                  B Stock**Numerator
                  for basic earnings per share-net income (loss)
              
              **$**
              **1,519**
              
              **$**
              **(1,988**
              **)**
              **$**
              **256**
              
              **$**
              **(387**
              **)**Reallocation
                  of net income for potential dilutive common
                shares
              
              
              **256**
              
              
              **-**
              
              
              **-**
              
              
              **-**Numerator
                  for diluted earnings per share - net income (loss)
              
              
              **1,775**
              
              
              **(1,988**
              **)**
              
              **256**
              
              
              **(387**
              **)**Denominator
                  for basic earnings per share - weighted average
                outstanding
                  shares
              
              
              **3,472,163**
              
              
              **3,363,978**
              
              
              **649,925**
              
              
              **653,947**Effect
                  of dilutive securities:
                Class
                  B stock
              
              
              **649,925**
              
              
              **-**
              
              
              **-**
              
              
              **-**Denominator
                  for diluted earnings (loss) per share
              
              
              **4,122,088**
              
              
              **3,363,978**
              
              
              **649,925**
              
              
              **653,947**Basic
                  earnings (loss) per share
              
              **$**
              **0.44**
              
              **$**
              **(0.59**
              **)**
              **$**
              **0.39**
              
              **$**
              **(0.59**
              **)**Diluted
                  earnings (loss) per share
              
              **$**
              **0.43**
              
              **$**
              **(0.59**
              **)**
              **$**
              **0.39**
              
              **$**
              **(0.59**
              **)**







In
      the
      six months ended March 31, 2007 and 2006, no effect has been given to all
      outstanding options and warrants, convertible securities and contingently
      issuable shares in computing diluted (loss) per share as their effect would
      be
      antidilutive. Such share amounts which could potentially dilute basic earnings
      per share are as follows:





**No.
                of Shares****Six
                Months Ended March 31,********2007**
            
            **2006**Stock
                warrants
            
            
            4,093,251
            
            
            3,184,251Stock
                options
            
            
            2,645,197
            
            
            1,847,426Convertible
                preferred stock
            
            
            143,223
            
            
            143,314Contingently
                issuable shares*
            
            
            2,200,752
            
            
            1,843,002Total
            
            
            9,082,423
            
            
            7,017,993




*
      Common
      stock contingently issuable to the Company’s senior secured lenders in the event
      of default or if certain payment terms are not met are excluded from the
      computation of earnings per share because the contingency defined in the loan
      agreement has not taken place (for further discussion of these items, see Note
      4).





**3.
      Inventories**





Inventories
      consist of (in thousands):




**March
                31,**
            
            September
                30,**2007**
            
            2006Raw
                materials
            
            **$**
            **663**
            
            $
            637Work-in-process
            
            
            **1,051**
            
            
            945Finished
                goods
            
            
            **633**
            
            
            972**$**
            **2,347**
            
            $
            2,554





Inventories
      are stated at the lower of cost or market using a first-in, first-out method.
      Reserves in the amount of $3,398,000 and $3,442,000 were recorded at March
      31,
      2007 and September 30, 2006, respectively, for excess and obsolete inventories.





**4.
      Long-Term Debt**





Long-term
      debt consists of (in thousands):


**March
                  31,**
              
              September
                  30,**2007**
              
              2006Term
                  Obligation
              
              **$**
              **1,753**
              
              $
              2,602PIK
                  Obligation
              
              
              **3,000**
              
              
              2,500Notes
                  Payable to Related Parties, net of debt discount of $36 at
                March
                  31, 2007 and $54 at September 30, 2006
              
              
              **2,315**
              
              
              2,026Debentures
              
              
              **19,453**
              
              
              21,923Note
                  Payable
              
              
              **139****26,660**
              
              
              29,051Less
                  current portion
              
              
              **26,660**
              
              
              29,051**$**
              **0**
              
              **$**
              **0**


****


8




At
      September 30, 2006 the Company was in default under its senior loan agreement
      as
      a result of not making required principal payments on its Term Obligation.
      Accordingly, all long-term debt was classified as current liabilities at such
      date. Such default was waived by the senior lenders in January 2007 as part
      of a
      loan amendment. However, as there is uncertainty whether the Company can achieve
      sufficient cash flow from operations to satisfy the debt service requirements
      of
      its senior loan agreement as amended, the senior secured debt (the Term
      Obligation and PIK Obligation) and the Debentures and Notes Payable to Related
      Parties, which contain cross default provisions, are classified as current
      liabilities on the accompanying balance sheet at March 31, 2007.





Interest
      on the PIK Obligation (prior to the loan amendment on January 17, 2007) and
      Debentures was not required to be paid currently. Such accrued interest amounted
      to $6,931,356 and $7,525,245, at March 31, 2007 and September 30, 2006,
      respectively, and is classified as a current liability along with the
      corresponding debt.





Long-term
      debt at March 31, 2007 matures in amounts totaling $3,654,000 in one year,
      and
      the balance of $23,006,000 in the second year, assuming that there is no
      acceleration in the future due to an event of default. However, Notes Payable
      to
      Related Parties in the amount of $2,315,000 that mature in one year, and
      Debentures in the amount of $19,453,000 that mature in the second year, may
      not
      be paid until both the Term Obligation and PIK Obligation are repaid in
      full.





**Term
      Obligation, PIK Obligation and Gain on Restructuring of Debt**





On
      January 17, 2007, pursuant to an amendment to the senior loan agreement (“Loan
      Agreement”), the Company and Ableco agreed to the following
      changes:





(a)
            to
                reduce the principal amortization of the Term Obligation (and thereafter,
                the PIK Obligation) to $100,000 a month commencing January 15, 2007
                (previously the principal amortization payments ranged between $250,000
                and $393,750 a month);


(b)
            to
                reduce and fix the outstanding amount of the PIK Obligation including
                principal and interest, at $3,000,000 as of January 16,
                2007;


(c)
            to
                provide for a further reduction of the PIK Obligation by 50%, or
                $1,500,000, if both the Term Obligation and $1,500,000 of the PIK
                Obligation are repaid by December 31,
                2007;


(d)
            to
                extend the maturity date of the Loan Agreement from December 31,
                2007 to
                December 31, 2008 and to extend dates in the existing warrants issued
                to
                Ableco Affiliates from December 31, 2007 to December 31,
                2008;


(e)
            to
                eliminate the minimum EBITDA (Earnings Before Interest, Taxes,
                Depreciation and Amortization) financial
                covenant;


(f)
            to
                waive any prior defaults related to required loan amortization payments
                and to satisfying the minimum EBITDA financial
                covenant;


(g)
            to
                provide for certain affiliates of Ableco to sell Debentures with
                a face
                value approximating $2,471,000 together with accrued interest of
                $824,694
                to the Company for consideration of $1.00;
                and


(h)
            to
                permit Howard S. Modlin, the company’s CEO, to make up to $2,000,000 in
                additional loans to the Company; repayment of principal of all such
                loans
                requires Ableco approval.





Certain
      provisions of the foregoing amendment were approved by the Bankruptcy Court
      which had retained jurisdiction to finally determine the amount of the PIK
      Obligation.





As
      a
      result of the Debenture purchase which closed on January 17, 2007 and the
      adjustment to PIK Obligation which was effective on such date, the Company
      recorded a gain on restructuring of debt in the amount of $4,062,000 in the
      quarter ended March 31, 2007. The amendment eliminates the loan default referred
      to in the Company’s Form 10-KSB Report for the year ended September 30, 2006 as
      filed with the Securities and Exchange Commission.





Interest
      continues to be payable monthly at the greater of (i) 7.25% and (ii) the prime
      rate plus 2.5% (the prime rate was 8.25% on March 31, 2007). The Term Obligation
      and PIK Obligation are collateralized by all of the Company’s assets and
      proceeds from the potential sales of non-core assets and certain other proceeds
      must be used to reduce the Term Obligation and PIK Obligation.




9




The
      Company’s senior secured lenders have warrants to purchase 10% of the Company’s
      common stock at $0.01 per share. Such lenders may also purchase an additional
      10% of the Company’s common stock at $0.01 per share in the event of a default
      under the loan agreement. However, both such warrants and any common stock
      issued thereunder will be canceled if the secured lender’s outstanding debt is
      fully paid by December 31, 2008 (December 31, 2007 prior to the loan amendment
      on January 17, 2007). No amounts have been ascribed to the warrants issued
      to
      the secured lenders. Due to the nominal exercise price of the warrants, the
      underlying common shares are being accounted for as contingent interest.
      Accordingly, upon an event of default under the Term Obligation or the PIK
      Obligation, or the nonpayment of indebtedness in full by December 31, 2008, the
      then quoted market price of the common shares which become issuable will be
      charged to operations.





The
      PIK
      Obligation was originally entered into in the principal amount of $5 million,
      subject to adjustment, and was due December 31, 2007. Interest accrued at the
      same rates as the Term Obligation. Principal in the amount of $2.5 million
      and
      accrued interest thereon were forgiven based on reductions in the Term
      Obligation under terms of an agreement which expired on December 31, 2004,
      leaving the principal balance owed of $2.5 million at September 30, 2006.
      However, the amount owing under the PIK Obligation was adjusted effective with
      the amendment to the senior loan agreement described above.





**Debentures**





Debentures
      together with accrued interest mature on October 1, 2008. The Debentures were
      issued to unsecured creditors as part of the Company’s 2003 Plan of
      Reorganization. No principal or interest is payable on the Debentures until
      the
      senior secured lenders’ obligations are paid in full and, therefore, no such
      principal or interest has been paid as of March 31, 2007. Interest accrues
      at
      the annual rate of 10%, but such rate shall be reduced (in increments to 7
1⁄4 %)
      if the Debentures are paid in full on or before September 15, 2007.





As
      discussed above, Debentures previously held by affiliates of the Company’s
      senior secured lender in the face amount of approximately $2,471,000 were sold
      to the Company for consideration of $1.00 as part of an amendment to the senior
      loan agreement described above.





**Notes
      Payable to Related Parties and Loss on Extinguishment of
      Debt**





On
      December 9, 2005, the Company entered into amendments of its loan arrangements
      with Howard S. Modlin, Chairman of the Board and Chief Executive Officer, and
      John Segall, a Director. Pursuant to such amendments, an aggregate of $1,600,000
      plus accrued interest thereon in secured loans from such directors maturing
      between September 29, 2005 and September 29, 2006 were extended. Such amendments
      generally provided that 50% of each such amended and restated note was to be
      payable one and two years from the original due dates. The conversion features
      of four notes held by Mr. Modlin, which were convertible into an aggregate
      of
      1,103,897 shares of common stock, and three notes held by Mr. Segall, which
      were
      convertible into an aggregate of 508,659 shares of common stock, were
      eliminated, and unpaid accrued interest aggregating $230,945, was added to
      the
      amended and restated notes. Interest accrues at the rate of 10% per annum from
      December 9, 2005 and the first interest payment on the amended and restated
      notes was due May 1, 2006 (payment of interest on the amended loans has been
      deferred indefinitely in agreement with Mr. Segall and Mr. Modlin). In
      connection with the transactions, Mr. Modlin and Mr. Segall each received seven
      year warrants expiring December 8, 2012 to purchase common stock at $0.575
      per
      share covering 2,084,204 shares and 1,100,047 shares, respectively. The
      transactions were unanimously approved by the Company’s Board of Directors on
      December 9, 2005. In connection with the restructuring of the loans, in the
      quarter ended December 31, 2005, the Company recorded a non-cash loss on
      extinguishment of debt of $389,000 representing the value of the warrants
      issued. Such warrant value was determined based upon an appraisal by an outside
      consultant.





On
      February 17, 2006, the Company borrowed $250,000 from Mr. Modlin in the form
      of
      a demand note which bore interest at the rate of 10% per annum. On April 20,
      2006, the Corporation entered into an amendment of its loan arrangement with
      Mr.
      Modlin whereby the $250,000 demand loan made by Mr. Modlin on February 17,
      2006
      was amended and restated into a term note, 50% of which is payable February
      17,
      2007 and 50% of which is payable February 17, 2008. Mr. Modlin received a seven
      year warrant expiring April 19, 2013 to purchase 909,000 shares of common stock
      at $0.275 per share. The warrant was valued at $69,000 based upon an appraisal
      by an outside consultant and was recorded as debt discount and is being
      amortized as additional interest expense over the term of the debt. All loans
      made by Mr. Modlin and Mr. Segall are secured by all the assets of the Company
      behind the first lien of the Company’s senior lenders.




10




As
      permitted under the new senior loan amendment, Mr. Modlin made demand loans
      to
      the Company totaling $270,000 in the quarter ended March 31, 2007.




**Note
      5. Accounting for Stock-Based Compensation**





At
      March
      31, 2007, the Company has two stock-based employee compensation plans, which
      are
      described more fully in Note 6. Prior to October 1, 2006, the Company accounted
      for those plans under the recognition and measurement provisions of APB Opinion
      No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations,
      as permitted by Statement of Financial Accounting Standards No. 123, Accounting
      for Stock-Based Compensation. No stock-based employee compensation cost was
      recognized in the Statement of Operations for the year ended September 30,
      2006,
      as all options granted under those plans had an exercise price equal to or
      greater than the market value of the underlying common stock on the date of
      grant.





Effective
      October 1, 2006, the Company adopted the fair value recognition provisions
      of
      Statement of Financial Accounting Standards No. 123 (R), “Accounting for
      Stock-Based Compensation” (“SFAS No. 123R”) using the modified prospective
      transition method. Under that transition method, compensation cost recognized
      in
      fiscal 2007 includes: (a) compensation cost for all share-based payments
      (including stock options) granted prior to, but not yet vested as of October
      1,
      2006, based on the grant date fair value estimated in accordance with the
      original provisions of SFAS No. 123, and (b) compensation cost for all
      share-based payments granted subsequent to October 1, 2006, based on the
      grant-date fair value estimated in accordance with the provisions of SFAS No.
      123R. Results for prior periods have not been restated. Compensation cost is
      recorded over the stock options’ vesting periods. As a result of adopting SFAS
      No. 123R, compensation cost recognized in the three and six months ended March
      31, 2007 was $58,000 and $149,000, respectively, and both basic and diluted
      net
      income for such periods was decreased by such amounts ($0.01 per share and
      $0.03
      per share, respectively). The following table reflects the effect on net income
      (loss) and per share data, if the fair value based method had been applied
      to
      all outstanding and unvested stock options for the three and six months ended
      March 31, 2006.




**Three
                  Months Ended**
              
              **Six
                  Months Ended****March
                  31,**
              
              **March
                  31,****2006**
              
              **2006**Net
                  income (loss), as reported
              
              $
              317
              
              $
              (1,495
              )Add:
                  stock-based employee compensation
                expense
                  included in reported net loss
              
              
              -
              
              
              -Deduct:
                  total stock-based employee
                compensation
                  expense determined under fair
                value
                  based method for all awards
              
              
              (87
              )
              
              (164
              )Proforma
                  net income (loss)
              
              $
              230
              
              $
              (1,659
              )Dividends
                  applicable to preferred stock
              
              
              (440
              )
              
              (880
              )Proforma
                  net loss applicable to common and Class B stock
              
              $
              (210
              )
              $
              (2,539
              )Proforma
                  loss per share:
                Basic
                  and diluted-Common Stock
              
              $
              (0.06
              )
              $
              (0.75
              )Basic
                  and diluted-Class B Stock
              
              $
              (0.06
              )
              $
              (0.75
              )





The
      value
      of options is estimated using the Black-Scholes method to compute the proforma
      amounts presented above.





11




**Note
      6. Employee Incentive Plans**





The
      Company had previously adopted a 2003 Stock and Bonus Plan (“2003 Plan”)
      reserving 459,268 shares of Class B Stock and 459,268 shares of common stock.
      On
      January 25, 2005, the Board of Directors adopted a new 2005 Stock and Bonus
      Plan
      (“2005 Plan”) covering 1,200,000 shares of common stock. The provisions of the
      2005 plan are similar to the 2003 Plan, except that no shares of Class B stock
      are authorized under the 2005 Plan. On November 22, 2005, the Board of Directors
      amended the 2005 Plan to increase the options available for grant by 1,200,000.
      Officers and key employees may be granted incentive stock options at an exercise
      price equal to or greater than the market price on the date of grant and
      non-incentive stock options at an exercise price equal to, greater than or
      less
      than the market price on the date of grant. While individual options can be
      issued under various provisions, most options, once granted, generally vest
      in
      increments of 20% a year over a five-year period and expire within ten years.
      At
      March 31, 2007 there were 513,793 options available for future issuance under
      both plans.





In
      October 10, 2006, the Stock Option Committee of the Board of Directors granted
      qualified stock options pursuant to the Corporation’s 2005 Plan to purchase
      363,400 shares of Common Stock at 18 cents per share, including grants of 30,000
      Plan shares to each of Lee M. Paschall, Aletta Richards and John L. Segall,
      Directors, William G. Henry, Vice President, Finance and Administration and
      Principal Financial Officer and George Gray, Vice President, Operations and
      Chief Technology Officer, and an aggregate of 213,400 of such options to all
      of
      its employees other than its officers and directors. The committee also granted
      to Howard S. Modlin, Chairman and Chief Executive Officer, a stock option under
      the Plan to purchase 551,121 shares at 20 cents a share. All such options vest
      in increments of 20% a year over a five year period and expire ten years after
      grant.





A
      summary
      of option activity under the Plans as of March 31, 2007, and changes during
      the
      six months then ended is presented below:




Shares
            
            
            Weighted
              Average
              Exercise
                Price
            
            
            Weighted
                Average Remaining Contractual Term (yrs)
            
            
            Aggregate
              Intrinsic
                ValueOptions
                outstanding, September 30, 2006
            
            
            1,782,226
            
            $
            1.26Options
                granted
            
            
            914,521
            
            
            0.19Options
                exercised
            
            
            -
            
            
            -Options
                cancelled or expired
            
            
            (51,550
            )
            
            2.92Options
                outstanding, March 31, 2007
            
            
            2,645,197
            
            
            0.86
            
            
            8.59
            
            $
            0.00Vested
                or expected to vest at March 31, 2007
            
            
            2,361,024
            
            
            0.77
            
            
            8.61
            
            $
            0.00Exercisable
                at March 31, 2007
            
            
            629,760
            
            
            2.36
            
            
            7.85
            
            $
            0.00





As
      of
      March 31, 2007, there was $412,656 of total unrecognized compensation cost
      related to nonvested options which is expected to be recognized over a
      weighted-average period of 1.78 years.





The
      weighted-average grant-date fair value of options granted during the six months
      ended March 31, 2007 was $0.19 per share, which was estimated using the Black
      Scholes model and the following weighted average assumptions:


Risk-free
                  interest rate
              
              
              4.54Volatility
                  (%)
              
              
              277
              %Expected
                  life (in years)
              
              
              6.50Dividend
                  yield rate
              
              
              Nil




Expected
      volatility is based on historical volatility in the Company’s stock price over
      the expected life of the options. The risk-free interest rate is based on the
      annual yield on the measurement date of a zero coupon U.S. Treasury Bond, the
      maturity of which equals the options’ expected life. The weighted average
      expected life of 6.50 years reflects the alternative simplified method permitted
      by SEC Staff Accounting Bulletin No. 107, which defines the expected life as
      the
      average of the contractual term of the options and the weighted average vesting
      period for all option tranches. The dividend yield assumption is based on the
      Company’s intent not to issue a dividend.




12




**Note
      7. Non-Redeemable 9% Preferred Stock**





At
      March
      31, 2007 and September 30, 2006 there were 781,996 of the Company’s 9%
      Cumulative Convertible Exchangeable Preferred Stock (“9% Preferred Stock”)
      outstanding. The 9% Preferred Stock accrues dividends at a rate of 9% per annum,
      cumulative from the date of issuance and payable quarterly in arrears. Dividends
      were paid through June 20, 2000; dividends in arrears, which are not accrued
      for
      financial reporting purposes since they have not been declared by the Company,
      amounted to $11,876,564 at March 31, 2007 and are included in the liquidation
      value disclosed in the accompanying balance sheet. Such arrearages entitle
      the
      holders of the 9% Preferred Stock to elect two directors until all arrearages
      are paid, but no such designation has been made or requested. The 9% Preferred
      Stock can be converted into common stock at $136.50 per share, or the equivalent
      of .18315 shares of common stock for each share of 9% Preferred
      Stock.





**Note
      8. Recent Accounting Pronouncements**





In
      June
      2006, the FASB issued Interpretation No. 48 (“FIN 48”), *“Accounting
      for Uncertainty in Income Taxes,”* which
      clarifies the accounting for uncertainty in income taxes recognized in the
      financial statements in accordance with FASB Statement No. 109, *“
      Accounting for Income Taxes”* .  FIN
      48
      provides guidance on the financial statement recognition and measurement of
      a
      tax position taken or expected to be taken in a tax return. FIN 48 also provides
      guidance on derecognition, classification, interest and penalties, accounting
      in
      interim periods, disclosures, and transition. FIN 48 is effective for fiscal
      years beginning after December 15, 2006. The Company is currently evaluating
      the
      impact of this standard on the consolidated financial statements.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      (SFAS) No. 157, *“Fair
      Value Measurements”* .
      SFAS
      No. 157 defines fair value, establishes a framework for measuring fair value
      and
      expands disclosures about fair value. SFAS No. 157 is effective for fiscal
      years
      beginning after November 15, 2007. The Company is currently evaluating the
      impact of this standard on the consolidated financial statements.





In
      February 2007, the FASB issued Statement of Financial Accounting Standards
      (SFAS) No. 159, *“The
      Fair Value Option for Financial Assets and Financial
      Liabilities”* ,
      SFAS
      No. 159 provides an option to report selected financial assets and financial
      liabilities using fair value. The standard establishes required presentation
      and
      disclosures to facilitate comparisons with companies that use different
      measurements for similar assets and liabilities. SFAS No. 159 is effective
      for
      fiscal years beginning after November 15, 2007, with early adoption allowed
      only
      if SFAS No. 157 is also adopted. The Company is currently evaluating the impact
      of this standard on the consolidated financial statements.




**ITEM
      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION**





THE
      FOLLOWING DISCUSSION AND ANALYSIS OF THE COMPANY’S FINANCIAL CONDITION AND THE
      RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
      STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS QUARTERLY REPORT ON
      FORM 10-QSB AND IN THE COMPANY’S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED
      SEPTEMBER 30, 2006 AS FILED WITH THE SECURITIES AND EXCHANGE
      COMMISSION.





THIS
      REPORT ON FORM 10-QSB CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
      OF
      SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. FOR THIS
      PURPOSE, STATEMENTS CONTAINED HEREIN THAT ARE NOT STATEMENTS OF HISTORICAL
      FACT
      MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE FOREGOING,
      THE WORDS “BELIEVES”, “ANTICIPATES”, “PLANS”, “EXPECTS” AND SIMILAR EXPRESSIONS
      ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING
      STATEMENTS INVOLVE RISKS AND UNCERTAINTIES AND ARE NOT GUARANTEES OF FUTURE
      PERFORMANCE. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE INDICATED IN SUCH
      FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS INCLUDING, BUT NOT
      LIMITED TO, THOSE SET FORTH UNDER THE HEADING “RISK FACTORS” BELOW. UNLESS
      REQUIRED BY LAW, THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE ANY
      FORWARD-LOOKING STATEMENTS OR REASONS WHY ACTUAL RESULTS MAY
      DIFFER.




13




Background





As
      of
      March 31, 2007 the Company had an accumulated deficit from net losses totaling
      $232.5 million. In 2001, after implementing a number of restructuring and cost
      reduction programs in an attempt to better align operating cost structure with
      revenues, three of the Company’s four business units were sold. However, due to
      the impact of a general economic downturn and a decline in the telecommunication
      industry in particular, and to defaults in payments by the purchasers of the
      three business units, the Company did not realize sufficient proceeds from
      the
      sales to satisfy its secured debt obligations.





As
      a
      result of its inability to meet its debt obligations, on November 2, 2001
      General DataComm Industries, Inc. and its domestic subsidiaries filed a
      voluntary petition for relief under Chapter 11 of the Bankruptcy Code. Pursuant
      to a reorganization plan approved by the Bankruptcy Court, the Company emerged
      from bankruptcy on September 15, 2003.





The
      Company has consolidated its operations into its owned facility in Naugatuck,
      Connecticut and downsized its staff and operating assets to more properly
      reflect its reduced operating requirements. As of March 31, 2007 the Company
      has
      89 employees.





Unless
      otherwise stated, all references to “Notes” in the following discussion of
“Results of Operations” and “Liquidity and Capital Resources” are to the “Notes
      to Condensed Consolidated Financial Statements” included in Item 1 in this Form
      10-QSB.




**RESULTS
      OF OPERATIONS**





**Revenues**





Three
                Months Ended March
              31,
            
            Six
                Months Ended March
              31,(in
                thousands)
            
            ******2007**
            
            2006
            
            ******2007**
            
            2006Product
            
            **$**
            **2,489**
            
            $
            4,245
            
            **$**
            **5,454**
            
            $
            6,819Service
            
            
            **569**
            
            
            816
            
            
            **1,163**
            
            
            1,287Total
                Revenues
            
            **$**
            **3,058**
            
            $
            5,061
            
            **$**
            **6,617**
            
            $
            8,106





Revenues
      for the three months ended March 31, 2007 decreased $2,003,000, or 39.6%, to
      $3,058,000 from $5,061,000 reported for the three months ended March 31, 2006.
      Product revenues decreased $1,756,000, or 41.4%, while service revenues
      decreased $247,000, or 30.3%.





The
      fiscal 2006 quarter included a large order (approximately $1.0 million) placed
      by a distributor for a government application that did not repeat in the fiscal
      2007 quarter. This decrease combined with continued erosion in sales of network
      access products to foreign and domestic telecommunication carriers accounts
      for
      the decline in product revenue in the quarter. Service revenue declined in
      the
      quarter-to-quarter comparison primarily due to project management services
      provided in the prior year related to the government order.





For
      principally the same reasons, revenues for the six months ended March 31,2007
      decreased $1,489,000, or 18.4%, to $6,617,000 from $8,106,000 reported for
      the
      six months ended March 31, 2006. Product revenues decreased $1,365,000, or
      20.0%, while service revenues decreased by $124,000, or 9.6%.




14




The
      Company anticipates that demand for its legacy network access products will
      continue to decline and due to the “Risk Factors” mentioned below, there can be
      no assurance that orders for new products and products with enhanced features
      will increase to offset this decline. Accordingly, the ability to forecast
      future revenue trends in the current environment is difficult.





**Gross
      Margin**


Three
                    Months Ended March 31,
                
                Six
                    Months Ended March 31,(in
                    thousands)
                
                **2007**
                
                2006
                
                **2007**
                
                2006Product
                
                **$**
                **1,435**
                
                $
                2,476
                
                **$**
                **3,257**
                
                $
                3,787Service
                
                
                **354**
                
                
                611
                
                
                **778**
                
                
                978Total
                    Gross Margin
                
                **$**
                **1,789**
                
                $
                3,087
                
                **$**
                **4,035**
                
                $
                4,765Percentage
                    of Revenues
                
                
                **58.5**
                **%**
                
                61.0
                %
                
                **61.0**
                **%**
                
                58.8
                %




Gross
      margin, as a percentage of revenues, in the three months ended March 31, 2007
      was 58.5% as compared to 61.0% in the three months ended March 31, 2006. Product
      gross margin, as a percentage of product revenues, declined 0.6% due to the
      net
      effect of unfavorable factory utilization costs associated with lower production
      volumes (-9.7%) offset by the favorable impact of selling inventories previously
      written down (+7.9%), the sales of higher margined products and other items
      (+1.2%). Service gross margin, as a percentage of service revenues, declined
      12.7% due to the impact of lower revenues and fixed operating
      costs.





Gross
      margin, as a percentage of revenues, in the six months ended March 31, 2007
      was
      61.0% as compared to 58.8% in the six months ended March 31, 2006. Product
      gross
      margin, as a percentage of product revenues, increased 4.2% due to the net
      effect of sales of higher marginal products (+3.2%) and the favorable impact
      of
      selling inventories previously written down (+2.3%) offset by unfavorable
      factory utilization costs associated with lower production volumes and other
      production cost differences (-1.3%). Service gross margin, as a percentage
      of
      service revenues, declined 9.1% due to the impact of lower revenues and fixed
      operating costs.





In
      future
      periods, the Company’s gross margin will vary depending upon a number of
      factors, including the mix of products sold, the cost of products manufactured
      at subcontract facilities, the channels of distribution, the price of products
      sold, discounting practices, price competition, increases in material costs
      and
      changes in other components of cost of sales. As and to the extent the Company
      introduces new products, it is possible that such products may have lower gross
      profit margins than other established products in higher volume production.
      Accordingly, gross margin as a percentage of revenues is expected to
      vary.





**Selling,
      General and Administrative**


Three
                  Months Ended March 31,
              
              Six
                  Months Ended March 31,(in
                  thousands)
              
              ******2007**
              
              2006
              
              ******2007**
              
              2006Selling,
                  general and administrative
              
              **$**
              **1,421**
              
              $
              1,604
              
              **$**
              **2,760**
              
              $
              3,096Percentage
                  of revenues
              
              
              **46.5**
              **%**
              
              31.7
              %
              
              **41.7**
              **%**
              
              38.2
              %




Selling,
      general and administrative (“SG&A”) expenses decreased to $1,421,000, or
      46.5% of revenues in the three months ended March 31, 2007 from $1,604,000,
      or
      31.7% of revenues in the three months ended March 31, 2006. The decrease in
      spending in the quarter of $183,000 was due to lower commission expense directly
      related to lower revenue levels ($91,000), lower professional fees than the
      prior year when litigation to recover monies was active ($92,000), reduced
      travel by the sales organization ($34,000) and other net decreases of $14,000
      offset by $48,000 of stock compensation expense.





15




For
      the
      six months ended March 31, 2007, SG&A expenses decreased to $2,760,000, or
      41.7% of revenues from $3,096,000 or 38.2% of revenues in the six months ended
      March 31, 2006. The decrease of $336,000 was due to lower professional fees
      ($262,000), reduced travel by the sales organization ($67,000), lower commission
      expenses ($71,000) and other net reductions ($42,000), offset by $106,000 of
      stock compensation expense.





**Research
      and Product Development**


Three
                  Months Ended March 31,
              
              Six
                  Months Ended March 31,(in
                  thousands)
              
              **2007**
              
              2006
              
              **2007**
              
              2006Research
                  and product development
              
              **$**
              **615**
              
              $
              858
              
              **$**
              **1,223**
              
              $
              1,715Percentage
                  of revenues
              
              
              **20.1**
              **%**
              
              16.9
              %
              
              **18.5**
              **%**
              
              21.1
              %




Research
      and product development (“R&D”) expenses decreased to $615,000, or 20.1% of
      revenues in the three months ended March 31, 2007 as compared to $858,000 or
      16.9% of revenues in the three months ended March 31, 2006. The decrease of
      $243,000 was due to a reduction in engineering staff ($117,000) and in use
      of
      outside consultants ($125,000) as development projects were completed. Other
      net
      reductions of $7,000 were offset by additional stock compensation expense of
      $6,000.





R&D
      expenses decreased to $1,223,000, or 18.5% of revenues in the six months ended
      March 31, 2007 as compared to $1,715,000 in the six months ended March 31,
      2006.
      The decrease of $492,000 was due to a reduction in engineering staff ($264,000)
      and in use of outside consultants ($225,000) as development projects were
      completed. Other net reductions of $22,000 were offset by additional stock
      compensation expense of $19,000.





**Other
      Income (Expense)**





Interest
      expense decreased to $762,000 in the three months ended March 31, 2007 from
      $818,000 in the three months ended March 31, 2006. Interest expense decreased
      to
      $1,557,000 in the six months ended March 31, 2007 from $1,635,000 in the six
      months ended March 31, 2006. The lower interest charges resulted from lower
      debt
      levels as a result of both principal payments made by the Company and a
      repurchase of debentures from the Company’s senior lender as part of a debt
      restructuring. The effect of lower debt levels was offset in part by higher
      variable interest rates on senior and other secured debt due to increases in
      the
      bank prime lending rate.





Other
      income (expense) for the three months ended March 31, 2007 also includes a
      gain
      of $4,062,000 from restructuring of debt with the Company’s senior lender (as
      described more fully in Note 4 to the Notes to Condensed Consolidated Financial
      Statements), and the net amount of $60,000 which includes $18,000 in sales
      of
      components no longer used, $24,000 of foreign exchange gains, $12,000 received
      from a tradename license and $6,000 of other items. For the three months ended
      March 31, 2006, other income (expense) included $425,000 from the recovery
      of a
      lease receivable and the net amount of $88,000 which is comprised of $43,000
      in
      sales of components no longer used, foreign exchange gains of $30,000, $12,000
      received from a tradename license and $3,000 of other items.





Other
      items included in other income (expense) for the six months ended March 31,
      2007
      and 2006 totaled $4,166,000 and $192,000, respectively. The 2007 amount includes
      $4,062,000 from restructuring of debt, $45,000 received from a tradename
      license, $40,000 in sales of components no longer used and $19,000 of other
      items. The 2006 amount includes $389,000 of a non-cash loss from extinguishment
      of debt offset by $425,000  from
      the
      recovery of a lease receivable, $79,000 in sales of components no longer used,
      $45,000 received from a tradename license and other items totaling $32,000.





**Provision
      for Income Taxes**





Income
      tax provisions for each of the three and six months ended March 31, 2007 and
      2006 reflect current state tax provisions only. No federal income tax provisions
      or tax benefits were provided in the three or six months ended March 31, 2007
      and 2006 due to the valuation allowance provided against the net change in
      deferred tax assets. The Company established a full valuation allowance against
      its net deferred tax assets due to the uncertainty of realization of benefits
      of
      the net operating loss carryforwards from prior years. The Company has federal
      tax credit and net operating loss carryforwards of approximately $11.9 million
      and $213.3 million, respectively, as of September 30, 2006.




16




**Liquidity
      and Capital Resources**


**March
                  31,**
              
              September
                  30,(in
                  thousands)
              
              **2007**
              
              2006Cash
                  and cash equivalents
              
              **$**
              **479**
              
              $
              246Working
                  capital (deficit)
              
              
              **(36,060**
              **)**
              
              (39,032
              )Total
                  assets
              
              
              **9,423**
              
              
              9,850Long-term
                  debt, including current portion
              
              
              **26,660**
              
              
              29,051Total
                  liabilities
              
              
              **42,210**
              
              
              45,448


Six
                  Months Ended
                March
                  31,(in
                  thousands)
              
              **2007**
              
              2006Net
                  cash provided (used) by:Operating
                  activities
              
              **$**
              **405**
              
              $
              366Investing
                  activities
              
              
              **(8**
              **)**
              
              (46
              )Financing
                  activities
              
              
              **(164**
              **)**
              
              (791
              )





Note:
      Significant risk factors exist due to the Company’s limited financial resources
      and dependence on achieving future positive cash flows in order to satisfy
      its
      obligations and avoid a default under its loan and debenture obligations. See
      “Risk Factors” below for further discussion.





**Cash
      Flows**





Net
      cash
      provided by operating activities totaled $405,000 in the six months ended March
      31, 2007. The net income in the period was $2,655,000. Included in this net
      income were a non-cash gain of $4,062,000 resulting from an amendment of the
      Company’s senior loan agreement, and non-cash expenses for depreciation and
      amortization of $186,000 and stock compensation expense of $149,000. Inventories
      were lower by $207,000 as the Company was able to achieve shipments of on-hand
      inventories to satisfy new customer orders and generate a source of cash through
      reduced purchasing. Unpaid interest which accrued on the Company’s debt
      increased $1,120,000 as a source of cash. The Company received the proceeds
      of a
      prior year legal settlement ($213,000) and a final settlement of claims in
      a
      subsidiary liquidation ($137,000). The Company paid the third of six
      installments of prior year tax claims in the amount of $223,000. All other
      changes net to a source of funds of $23,000.





Net
      cash
      provided by operating activities totaled $366,000 in the six months ended March
      31, 2006. The net loss in the period was $1,495,000. Included in this net loss
      were non-cash expenses for loss on extinguishment of debt of $389,000 and for
      depreciation and amortization of $192,000. An increase in accounts receivable
      due to new sales levels being higher than customers collections resulted in
      a
      use of cash of $774,000. Inventories were lower by $607,000 as the Company
      was
      able to achieve shipments of on-hand inventories to satisfy new customer orders
      and generate a source of cash through reduced purchasing. Other sources of
      cash
      include interest which accrued on the Company’s debt which increased $1,095,000
      and an increase of $389,000 in unpaid vendor liabilities. Other net uses of
      cash
      were $37,000.





Net
      cash
      used by investing activities in the six months ended March 31, 2007 and 2006
      was
      $8,000 and $46,000, respectively, representing the acquisition of equipment.





17





Cash
      used
      by financing activities of $164,000 in the 2007 six-month period is comprised
      of
      payments on notes payable of $83,000 and on secured debt of $573,000, offset
      in
      part by proceeds from other notes payable to related parties of $270,000 and
      proceeds from notes payable of $222,000.





Cash
      used
      by financing activities of $791,000 in the 2006 six-month period is comprised
      of
      payments on notes payable of $76,000 and on secured debt of $1,268,000 offset
      in
      part by proceeds from notes payable to related parties of $250,000 and from
      other notes payable of $303,000.





**Liquidity**





On
      November 2, 2001, General DataComm Industries, Inc. and its domestic
      subsidiaries filed a voluntary petition for relief under Chapter 11 of the
      Bankruptcy Code in the United States Bankruptcy Court for the District of
      Delaware. The Company continued in possession of its properties and the
      management of its business as debtors in possession.





The
      Company emerged from Chapter 11 effective on September 15, 2003 pursuant to
      a
      court-approved plan of reorganization. Under this plan, the Company was to
      pay
      all creditors 100% of their allowed claims based upon a five year business
      plan.
      However, the Company has not met its business plan objectives since emerging
      from Chapter 11 and, therefore, there can be no assurance that any such
      outstanding claims will be paid. The Company has no current ability to borrow
      additional funds. It must, therefore, fund operations from cash balances and
      cash generated from operating activities. In order to meet its obligations
      the
      Company must achieve revenue growth while at the same time limiting investments
      in inventories and capital assets.





At
      March
      31, 2007 the Company had a stockholders’ deficit of approximately $32.8 million.
      In addition, it had a working capital deficit of approximately $36.1 million,
      and the Company’s principal source of liquidity was cash and cash equivalents of
      $479,000. The large negative working capital reflects the classification of
      all
      long-term secured debt as current liabilities as described below.





The
      Company’s quarterly operating results are subject to fluctuations due to a
      number of factors resulting in more variability and less predictability in
      the
      Company’s quarter-to-quarter sales and operating results. Such factors include
      (but are not limited to): dependence on a small number of customers, short
      delivery times, dependence on subcontract manufacturers, low order backlog,
      ability to timely develop new products and market acceptance of new products.
      Because operating results can fluctuate significantly the Company may not be
      able to generate positive cash flow from operations in the future. Should the
      need arise, it may become necessary to borrow additional funds or otherwise
      raise additional capital. However, since the Company does not have any source
      of
      additional funds or capital in place, any such requirement could have a material
      adverse effect on the Company. As of September 30, 2006, as a result of not
      making certain required principal payments on its Term Obligation, the Company
      was in default under its senior loan agreement and accordingly, all long term
      debt and related accrued interest was classified as current liabilities at
      such
      date. In January 2007, such default was waived by the senior lender as part
      of a
      loan amendment (see Note 4). Based on the uncertainty as to whether the Company
      will achieve sufficient cash flows from operations to meet its monthly loan
      payments required under its senior loan agreement as amended, the Company’s
      long-term debt and related accrued interest continue to be classified as current
      liabilities in the Company’s consolidated balance sheet at March 31,
      2007.





The
      events and circumstances described above raise substantial doubt about the
      Company’s ability to continue as a going concern. The Company’s independent
      auditors have expressed uncertainty about the Company’s ability to continue as a
      going concern in their opinion on the Company’s fiscal 2006 financial
      statements.





Management
      has responded to its liquidity and cash flow risks as part of an ongoing
      strategy, by restructuring the sales force, increasing factory shutdown time,
      containing expenses, and reducing the size of the employee workforce. In
      addition, the Company has had to rely upon loans from related parties in the
      amount of $2,274,000, including $270,000 in the quarter ended March 31, 2007,
      in
      order to make payments on its senior debt and in January 2007 obtained an
      amendment to its senior loan agreement which reduced required principal payments
      on its Term Obligation (see Note 4). The Company is pursuing the sale, lease
      or
      financing of its headquarters land and building, the proceeds of which would
      be
      used to reduce secured debt and taxes, and related interest.




18




While
      the
      Company is aggressively pursuing opportunities and corrective actions, there
      can
      be no assurance that the Company will be successful in its efforts to generate
      sufficient cash from operations or obtain additional funding
      sources.




**Critical
      Accounting Policies**





The
      Company’s financial statements and accompanying notes are prepared in accordance
      with generally accepted accounting principles in the United States, the
      instructions to Form 10-QSB and Article 10 of Regulation S-X. Preparing
      financial statements requires management to make estimates and assumptions
      that
      affect the reported amounts of assets, liabilities, revenue and expenses.
      Management bases its estimates and judgements on historical experience and
      on
      various other factors that are believed to be reasonable under the
      circumstances. Due to the inherent uncertainty involved in making estimates,
      actual results reported in future periods might be based upon amounts that
      differ from those estimates. The following represent what the Company believes
      are among the critical accounting policies most affected by significant
      management estimates and judgements. See Note 2 in Notes to Consolidated
      Financial Statements in Item 7 in Form 10-KSB for the year ended September
      30,
      2006 as filed with the Securities and Exchange Commission for a summary of
      the
      Company’s significant accounting policies.





*Revenue
      Recognition* .
      The
      Company recognizes a sale when the product is shipped and the following four
      criteria are met upon shipment: (1) persuasive evidence of an arrangement
      exists; (2) title and risk of loss transfers to the customer; (3) the selling
      price is fixed or determinable; and (4) collectibility is reasonably assured.
      A
      reserve for future product returns is established at the time of the sale based
      on historical return rates and return policies including stock rotation for
      sales to distributors that stock the Company’s products. Service revenue is
      recognized either when the service is performed or, in the case of maintenance
      contracts, on a straight-line basis over the term of the contract.





*Warranty
      Reserves.* The
      Company offers warranties of various lengths to its customers depending on
      the
      specific product and the terms of its customer purchase agreements. Standard
      warranties require the Company to repair or replace defective product returned
      during the warranty period at no cost to the customer. An estimate for warranty
      related costs is recorded based on actual historical return rates and repair
      costs at the time of sale. On an on-going basis, management reviews these
      estimates against actual expenses and makes adjustments when necessary. While
      warranty costs have historically been within expectations of the provision
      established, there is no guarantee that the Company will continue to experience
      the same warranty return rates or repair costs as in the past. A significant
      increase in product return rates or the costs to repair our products would
      have
      a material adverse impact on the Company’s operating results.





*Allowance
      for Doubtful Accounts.* The
      Company estimates losses resulting from the inability of its customers to make
      payments for amounts billed. The collectability of outstanding invoices is
      continually assessed. Assumptions are made regarding the customers ability
      and
      intent to pay, and are based on historical trends, general economic conditions
      and current customer data. Should our actual experience with respect to
      collections differ from these assessments, there could be adjustments to the
      allowance for doubtful accounts.





*Inventories* .
      The
      Company values inventory at the lower of cost or market. Cost is computed using
      standard cost, which approximates actual cost on a first-in, first-out basis.
      Agreements with certain customers provide for return rights. The Company is
      able
      to reasonably estimate these returns and such estimates are accrued for at
      the
      time of shipment. Inventory quantities on hand are reviewed on a quarterly
      basis
      and a provision for excess and obsolete inventory is recorded based primarily
      on
      product demand for the preceding twelve months. Historical product demand may
      prove to be an inaccurate indicator of future demand in which case the Company
      may increase or decrease the provision required for excess and obsolete
      inventory in future periods. Furthermore, if the Company is able to sell
      inventory in the future that has been previously written down or off, such
      sales
      will result in higher than normal gross margin.





*Deferred
      Tax Assets.* The
      Company has provided a full valuation allowance related to its deferred tax
      assets. In the future, if sufficient evidence of the Company’s ability to
      generate sufficient future taxable income in certain tax jurisdictions becomes
      apparent, the Company will be required to reduce its valuation allowances,
      resulting in income tax benefits in the Company’s consolidated statement of
      operations. Management evaluates the realizability of the deferred tax assets
      and assesses the need for the valuation allowance each period.




19




*Impairment
      of Long-Lived Assets* .
      The
      Company assesses the impairment of long-lived assets whenever events or changes
      in circumstances indicate that the carrying value may not be recoverable under
      the guidance prescribed by Statement of Financial Accounting Standards No.
      144.
      The Company's long-lived assets consist of real estate, property and equipment.
      At both March 31, 2007 and September 30, 2006, real estate represented the
      only
      significant remaining long-lived asset that has not been fully written down
      for
      impairment.





**Recent
      Accounting Pronouncements**





In
      June
      2006, the FASB issued Interpretation No. 48 (“FIN 48”), *“Accounting
      for Uncertainty in Income Taxes,”* which
      clarifies the accounting for uncertainty in income taxes recognized in the
      financial statements in accordance with FASB Statement No. 109, *“
      Accounting for Income Taxes”* .  FIN
      48
      provides guidance on the financial statement recognition and measurement of
      a
      tax position taken or expected to be taken in a tax return. FIN 48 also provides
      guidance on derecognition, classification, interest and penalties, accounting
      in
      interim periods, disclosures, and transition. FIN 48 is effective for fiscal
      years beginning after December 15, 2006. The Company is currently evaluating
      the
      impact of this standard on the consolidated financial statements.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      (SFAS) No. 157, *“Fair
      Value Measurements”* .
      SFAS
      No. 157 defines fair value, establishes a framework for measuring fair value
      and
      expands disclosures about fair value. SFAS No. 157 is effective for fiscal
      years
      beginning after November 15, 2007. The Company is currently evaluating the
      impact of this standard on the consolidated financial statements.





In
      February 2007, the FASB issued Statement of Financial Accounting Standards
      (SFAS) No. 159, *“The
      Fair Value Option for Financial Assets and Financial
      Liabilities”* ,
      SFAS
      No. 159 provides an option to report selected financial assets and financial
      liabilities using fair value. The standard establishes required presentation
      and
      disclosures to facilitate comparisons with companies that use different
      measurements for similar assets and liabilities. SFAS No. 159 is effective
      for
      fiscal years beginning after November 15, 2007, with early adoption allowed
      only
      if SFAS No. 157 is also adopted. The Company is currently evaluating the impact
      of this standard on the consolidated financial statements.




**RISK
      FACTORS** **





*GDC
      Limited and Negative Operating History Since Emerging from
      Bankruptcy.* The
      Company emerged from Bankruptcy on September 15, 2003. The Company had
      voluntarily filed for protection under Chapter 11 of the US Bankruptcy Code
      on
      November 2, 2001, after incurring seven consecutive years of losses and selling
      three of its four operating divisions in 2001.  Accordingly, an investor in
      the Company’s common stock must evaluate the risks, uncertainties, and
      difficulties frequently encountered by a company emerging from Chapter 11 and
      that operates in rapidly evolving markets such as the telecommunications
      equipment industry.





Due
      to
      the Company’s limited and negative operating history and poor performance since
      emergence, the Company may not successfully implement any of its strategies
      or
      successfully address these risks and uncertainties. As described by the
      following factors, past financial performance should not be considered to be
      a
      reliable indicator of future performance, and investors should not use
      historical trends to anticipate results or trends in future
      periods.





*Limited
      Financial Resources and Risk of Default.* The
      Company has no current ability to borrow additional funds. It must, therefore,
      substantially fund operations from cash balances and cash generated from
      operating activities. The Company has significant outstanding obligations and
      commitments (see Item 6 in the Company’s annual report on Form 10-KSB for the
      year ended September 30, 2006 as filed with the Securities and Exchange
      Commission, in the section on “Liquidity” for additional discussion of this risk
      factor and the Company’s contractual cash obligations as of September 30, 2006).
      Furthermore, the ability of the Company to meet cash flow and loan payment
      requirements is directly affected by the factors described in this “Risk
      Factors” section.




20




The
      Company’s failure to make required payments under the senior loan agreement, as
      amended, would constitute an event of default. (see Note 4 to Notes to Condensed
      Consolidated Financial Statements included in Item 1 in this Form 10-QSB).





There
      can
      be no assurance that the Company will be able to avoid an event of default
      on
      its senior secured loan agreement. If there is such a default, the senior
      secured lenders may accelerate payment of the outstanding debt ($4.8 million
      at
      March 31, 2007) and exercise their security interests which likely would require
      the Company to again file for bankruptcy protection. An acceleration by the
      senior secured lenders would also result in a default and acceleration by the
      debenture holders ($19.4 million principal balance outstanding at March 31,
      2007). Based on the uncertainty of the Company achieving sufficient cash flows
      from operations to meet its monthly loan payment obligations, the Company’s
      long-term debt has been classified as current liabilities in the accompanying
      consolidated balance sheets at both March 31, 2007 and September 30,
      2006.





*Dependence
      on Legacy and Recently Introduced Products and New Product Development.* The
      Company’s future results of operations are dependent on market acceptance of
      existing and future applications for the Company’s current products and new
      products in development. The majority of sales continue to be provided by the
      Company’s legacy products, primarily the DSU/CSU, V.34 lines which represented
      approximately 44% of net sales in fiscal 2006. The Company anticipates that
      net
      sales from legacy products will decline over the next several years and net
      sales of new products will increase at the same time, with significant quarterly
      fluctuations possible, and without assurance that sales of new products will
      increase at the same time.





Market
      acceptance of the Company’s recently introduced and future product lines is
      dependent on a number of factors, not all of which are in the Company’s control,
      including the continued growth in the use of bandwidth intensive applications,
      continued deployment of new telecommunication services, market acceptance of
      multiservice access devices, the availability and price of competing products
      and technologies, and the success of the Company’s sales and marketing efforts.
      Failure of the Company’s products to achieve market acceptance would have a
      material adverse effect on the Company’s business, financial condition and
      results of operations. Failure to introduce new products in a timely manner
      in
      order to replace sales of legacy products could cause customers to purchase
      products from competitors and have a material adverse effect on the Company’s
      business, financial condition and results of operations.





New
      products under development may require additional development work, enhancement
      and testing or further refinement before the Company can make them commercially
      available. The Company has in the past experienced delays in the introduction
      of
      new products, product applications and enhancements due to a variety of internal
      factors, such as reallocation of priorities, financial constraints, difficulty
      in hiring sufficient qualified personnel, and unforeseen technical obstacles,
      as
      well as changes in customer requirements. Such delays have deferred the receipt
      of revenue from the products involved. If the Company’s products have
      performance, reliability or quality shortcomings, then the Company may
      experience reduced orders, higher manufacturing costs, delays in collecting
      accounts receivable, and additional warranty and service expenses.





*Customer
      Concentration.* Our
      historical customers have consisted primarily of Regional Bell Operating
      Companies, long distance service providers, wireless service providers, and
      resellers who sell to these customers. The market for the services provided
      by
      the majority of these service providers has been influenced largely by the
      passage and interpretation of the Telecommunications Act of 1996 (the “1996
      Act”). Service providers require substantial capital for the development,
      construction, and expansion of their networks and the introduction of their
      services.  The ability of service providers to fund such expenditures often
      depends on their ability to budget or obtain sufficient capital resources. 
Over the past several years, resources made available by these customers for
      capital acquisitions have declined, particularly due to recent negative market
      conditions in the United States.  If the Company’s current or potential
      service provider customers cannot successfully raise the necessary funds, or
      if
      they experience any other adverse effects with respect to their operating
      results or profitability, their capital spending programs may be adversely
      impacted which could materially adversely affect the Company’s business,
      financial condition and results of operations.




21




A
      small
      number of customers have historically accounted for a majority of the Company’s
      sales. Sales to the Company’s top five customers accounted for 45% and 55% of
      sales in fiscal 2006 and 2005, respectively. There can be no assurance that
      the
      Company’s current customers will continue to place orders with the Company, that
      orders by existing customers will continue at the levels of previous periods,
      or
      that the Company will be able to obtain orders from new customers. GDC expects
      the economic climate and conditions in the telecommunication equipment industry
      to remain unpredictable in fiscal 2007, and possibly beyond. The loss of one
      or
      more service provider customers, such as occurred during the past three years
      through industry consolidation or otherwise, could have a material adverse
      effect on our sales and operating results. A bankruptcy filing by one or more
      of
      the Company’s major customers could materially adversely affect the Company’s
      business, financial condition and results of operations.





*Dependence
      on Key Personnel.* The
      Company’s future success will depend to a large extent on the continued
      contributions of its executive officers and key management, sales, and technical
      personnel. Each of the Company’s executive officers, and key management, sales
      and technical personnel would be difficult to replace. The Company does not
      have
      employment contracts with its key employees. The Company implemented significant
      cost and staff reductions in recent years, which may make it more difficult
      to
      attract and retain key personnel. The loss of the services of one or more of
      the
      Company’s executive officers or key personnel, or the inability to attract
      qualified personnel, could delay product development cycles or otherwise could
      have a material adverse effect on the Company’s business, financial condition
      and results of operations.





*Dependence
      on Key Suppliers and Component Availability.* The
      Company generally relies upon several contract manufacturers to assemble
      finished and semi-finished goods. The
      Company’s products use certain components, such as microprocessors, memory chips
      and pre-formed enclosures that are acquired or available from one or a limited
      number of sources. Component
      parts that are incorporated into board assemblies are sourced directly by the
      Company from suppliers. The
      Company has generally been able to procure adequate supplies of these components
      in a timely manner from existing sources.





While
      most components are standard items, certain application-specific integrated
      circuit chips used in many of the Company’s products are customized to the
      Company’s specifications. None of the suppliers of components operate under
      contract. Additionally, availability of some standard components may be affected
      by market shortages and allocations. The Company’s inability to obtain a
      sufficient quantity of components when required, or to develop alternative
      sources due to lack of availability or degradation of quality, at acceptable
      prices and within a reasonable time, could result in delays or reductions in
      product shipments which could materially affect the Company’s operating results
      in any given period. In addition, as referenced above the Company relies heavily
      on outsourcing subcontractors for production. The inability of such
      subcontractors to deliver products in a timely fashion or in accordance with
      the
      Company’s quality standards could materially adversely affect the Company’s
      operating results and business.





The
      Company uses internal forecasts to manage its general finished goods and
      components requirements. Lead times for materials and components may vary
      significantly, and depend on factors such as specific supplier performance,
      contract terms, and general market demand for components. If orders vary from
      forecasts, the Company may experience excess or inadequate inventory of certain
      materials and components, and suppliers may demand longer lead times and higher
      prices. From time to time, the Company has experienced shortages and allocations
      of certain components, resulting in delays in fulfillment of customer orders.
      Such shortages and allocations may occur in the future, and could have a
      material adverse effect on the Company’s business, financial condition and
      results of operations.





*Fluctuations
      in Quarterly Operating Results.* The
      Company’s sales are subject to quarterly and annual fluctuations due to a number
      of factors resulting in more variability and less predictability in the
      Company’s quarter-to-quarter sales and operating results. As a small number of
      customers have historically accounted for a majority of the Company’s sales,
      order volatility by any of these major customers has had and may have an impact
      on the Company in the prior, current and future fiscal years.





Most
      of
      the Company’s sales require short delivery times. The Company’s ability to
      affect and judge the timing of individual customer orders is limited. Large
      fluctuations in sales from quarter-to-quarter could be due to a wide variety
      of
      factors, such as delay, cancellation or acceleration of customer projects,
      and
      other factors discussed below. The Company’s sales for a given quarter may
      depend to a significant degree upon planned product shipments to a single
      customer, often related to specific equipment or service deployment projects.
      The Company has experienced both acceleration and slowdown in orders related
      to
      such projects, causing changes in the sales level of a given quarter relative
      to
      both the preceding and subsequent quarters.




22




Delays
      or
      lost sales can be caused by the Company’s lack of financial resources to procure
      components and pay subcontractors, or by other factors beyond the Company’s
      control, including late deliveries by the third party subcontractors the Company
      is using to outsource its manufacturing operations and by vendors of components
      used in a customer’s products, slower than anticipated growth in demand for the
      Company’s products for specific projects or delays in implementation of projects
      by customers and delays in obtaining regulatory approvals for new services
      and
      products. Delays and lost sales have occurred in the past and may occur in
      the
      future. The Company believes that sales in the past have been adversely impacted
      by merger and restructuring activities by some of its top customers. These
      and
      similar delays or lost sales could materially adversely affect the Company’s
      business, financial condition and results of operations. See “Customer
      Concentration” and “Dependence on Key Suppliers and Component Availability”.





The
      Company’s backlog at the beginning of each quarter typically is not sufficient
      to achieve expected sales for that quarter. To achieve its sales objectives,
      the
      Company is dependent upon obtaining orders in a quarter for shipment in that
      quarter. Furthermore, the Company’s agreements with certain of its customers
      typically provide that they may change delivery schedules and cancel orders
      within specified timeframes, typically up to 30 days prior to the scheduled
      shipment date, without significant penalty. Some of the Company’s customers have
      in the past built, and may in the future build, significant inventory in order
      to facilitate more rapid deployment of anticipated major projects or for other
      reasons. Decisions by such customers to reduce their inventory levels could
      lead
      to reductions in purchases from the Company in certain periods. These
      reductions, in turn, could cause fluctuations in the Company’s operating results
      and could have an adverse effect on the Company’s business, financial condition
      and results of operations in the periods in which the inventory is
      reduced.





Operating
      results may also fluctuate due to a variety of factors, including market
      acceptance of the Company’s new lines of products, delays in new product
      introductions by the Company, market acceptance of new products and feature
      enhancements introduced by the Company, changes in the mix of products and
      or
      customers, the gain or loss of a significant customer, competitive price
      pressures, changes in expenses related to operations, research and development
      and marketing associated with existing and new products,  and
      the
      general condition of the economy.





All
      of
      the above factors are difficult for the Company to forecast, and these or other
      factors can materially and adversely affect the Company’s business, financial
      condition and results of operations for one quarter or a series of quarters.
      The
      Company’s expense levels are based in part on its expectations regarding future
      sales and are fixed in the short term to a certain extent. Therefore, the
      Company may be unable to adjust spending in a timely manner to compensate for
      any unexpected shortfall in sales. Any significant decline in demand relative
      to
      the Company’s expectations or any material delay of customer orders could have a
      material adverse effect on the Company’s business, financial condition, and
      results of operations. There can be no assurance that the Company will be able
      to sustain profitability on a quarterly or annual basis. In addition, the
      Company has had, and in some future quarter may have operating results below
      the
      expectations of public market analysts and investors. In such event, the price
      of the Company’s common stock would likely be materially and adversely affected.
      See “Potential Volatility of Stock Price”.





*Competition.* The
      markets for telecommunications network access and multi-service equipment
      addressed by the Company’s products can be characterized as highly competitive,
      with intensive equipment price pressure. These markets are subject to rapid
      technological change, wide-ranging regulatory requirements, the entrance of
      low
      cost manufacturers and the presence of formidable competitors that have
      greater name recognition and financial resources. Certain
      technology such as the V.34 and DSU/CSU portion of the SpectraComm and InnovX
      lines are not considered new and the market has experienced decline in recent
      years.





Industry
      consolidation could lead to competition with fewer, but stronger competitors.
      In
      addition, advanced termination products are emerging, which represent both
      new
      market opportunities, as well as a threat to the Company’s current products.
      Furthermore, basic line termination functions are increasingly being integrated
      by competitors, such as Cisco, Alcatel-Lucent and Nortel Networks, into other
      equipment such as routers and switches. To the extent that current or potential
      competitors can expand their current offerings to include products that have
      functionality similar to the Company’s products and planned products, the
      Company’s business, financial condition and results of operations could be
      materially adversely affected. Many of the Company’s current and potential
      competitors have substantially greater technical, financial, manufacturing
      and
      marketing resources than the Company. In addition, many of the Company’s
      competitors have long-established relationships with network service providers.
      There can be no assurance that the Company will have the financial resources,
      technical expertise, manufacturing, marketing, distribution and support
      capabilities to compete successfully in the future.




23




*Rapid
      Technological Change.* The
      network access and telecommunications equipment markets are characterized by
      rapidly changing technologies and frequent new product introductions. The rapid
      development of new technologies increases the risk that current or new
      competitors could develop products that would reduce the competitiveness of
      the
      Company’s products. The Company’s success will depend to a substantial degree
      upon its ability to respond to changes in technology and customer requirements.
      This will require the timely selection, development and marketing of new
      products and enhancements on a cost-effective basis. The development of new,
      technologically advanced products is a complex and uncertain process, requiring
      high levels of innovation. The Company may need to supplement its internal
      expertise and resources with specialized expertise or intellectual property
      from
      third parties to develop new products.





Furthermore,
      the communications industry is characterized by the need to design products
      that
      meet industry standards for safety, emissions and network interconnection.
      With
      new and emerging technologies and service offerings from network service
      providers, such standards are often changing or unavailable. As a result, there
      is a potential for product development delays due to the need for compliance
      with new or modified standards. The introduction of new and enhanced products
      also requires that the Company manage transitions from older products in order
      to minimize disruptions in customer orders, avoid excess inventory of old
      products and ensure that adequate supplies of new products can be delivered
      to
      meet customer orders. There can be no assurance that the Company will be
      successful in developing, introducing or managing the transition to new or
      enhanced products, or that any such products will be responsive to technological
      changes or will gain market acceptance. The Company’s business, financial
      condition and results of operations would be materially adversely affected
      if
      the Company were to be unsuccessful, or to incur significant delays in
      developing and introducing such new products or enhancements. See “Dependence on
      Legacy and Recently Introduced Products and New Product Development”.





*Compliance
      with Regulations and Evolving Industry Standards.* The
      market for the Company’s products is characterized by the need to meet a
      significant number of communications regulations and standards, some of which
      are evolving as new technologies are deployed. In the United States, the
      Company’s products must comply with various regulations defined by the Federal
      Communications Commission and standards established by Underwriters Laboratories
      and Bell Communications Research and certain new products introduced, for
      example in the SpectraComm line, will need to be NEBS Certified. As standards
      continue to evolve, the Company will be required to modify its products or
      develop and support new versions of its products. The failure of the Company’s
      products to comply, or delays in compliance, with the various existing and
      evolving industry standards, could delay introduction of the Company’s products,
      which could have a material adverse effect on the Company’s business, financial
      condition and results of operations.





*GDC
      May Require Additional Funding to Sustain Operations.* The
      Company emerged from Chapter 11 bankruptcy on September 15, 2003. Under the
      plan
      of reorganization, the Company was to pay all creditors 100% of their allowed
      claims based upon a five year business plan. However, the Company has not met
      its business plan objectives since emerging from Chapter 11. The ability to
      meet
      the objectives of this business plan is directly affected by the factors
      described in this “Risk Factors” section. The Company cannot assure investors
      that it will be able to obtain new customers or to generate the increased
      revenues required to meet its business plan objectives. In addition, in order
      to
      execute the business plan, the Company may need to seek additional funding
      through public or private equity offerings, debt financings or commercial
      partners. The Company cannot assure investors that it will obtain funding on
      acceptable terms, if at all. If the Company is unable to generate sufficient
      revenues or access capital on acceptable terms, it may be required to (a) obtain
      funds on unfavorable terms that may require the Company to relinquish rights
      to
      certain of our technologies or that would significantly dilute our stockholders
      and/or (b) significantly scale back current operations. Either of these two
      possibilities would have a material adverse effect on the Company’s business,
      financial condition and results of operations.




24




*Risks
      Associated with Entry into International Markets* .
      The
      Company has little recent experience in international markets with the exception
      of a few direct customers and resellers/integrators and sales into Western
      Europe through the former Ahead Communications Systems’ subsidiary in France
      (now General DataComm SARL), which was acquired by the Company on June 30,
      2005.
      The Company intends to expand sales of its products outside of North America
      and
      to enter certain international markets, which will require significant
      management attention and financial resources. Conducting business outside of
      North America is subject to certain risks, including longer payment cycles,
      unexpected changes in regulatory requirements and tariffs, difficulty in
      supporting foreign customers, greater difficulty in accounts receivable
      collection and potentially adverse tax consequences. To the extent any Company
      sales are denominated in foreign currency, the Company’s sales and results of
      operations may also be directly affected by fluctuation in foreign currency
      exchange rates. In order to sell its products internationally, the Company
      must
      meet standards established by telecommunications authorities in various
      countries, as well as recommendations of the Consultative Committee on
      International Telegraph and Telephone. A delay in obtaining, or the failure
      to
      obtain, certification of its products in countries outside the United States,
      could delay or preclude the Company’s marketing and sales efforts in such
      countries, which could have a material adverse effect on the Company’s business,
      financial condition and results of operations.





*Risk
      of Third Party Claims of Infringement.* The
      network access and telecommunications equipment industries are characterized
      by
      the existence of a large number of patents and frequent litigation based on
      allegations of patent infringement. From time to time, third parties may assert
      exclusive patent, copyright, trademark and other intellectual property rights
      to
      technologies that are important to the Company. The Company has not conducted
      a
      formal patent search relating to the technology used in its products, due in
      part to the high cost and limited benefits of a formal search. In addition,
      since patent applications in the United States are not publicly disclosed until
      the related patent is issued and foreign patent applications generally are
      not
      publicly disclosed for at least a portion of the time that they are pending,
      applications may have been filed which, if issued as patents, could relate
      to
      the Company’s products. Software comprises a substantial portion of the
      technology in the Company’s products. The scope of protection accorded to
      patents covering software-related inventions is evolving and is subject to
      a
      degree of uncertainty which may increase the risk and cost to the Company if
      the
      Company discovers third party patents related to its software products or if
      such patents are asserted against the Company in the future.





The
      Company may receive communications from third parties asserting that the
      Company’s products infringe or may infringe the proprietary rights of third
      parties. In its distribution agreements, the Company typically agrees to
      indemnify its customers for any expenses or liabilities resulting from claimed
      infringements of patents, trademarks or copyrights of third parties. In the
      event of litigation to determine the validity of any third-party claims, such
      litigation, whether or not determined in favor of the Company, could result
      in
      significant expense to the Company and divert the efforts of the Company’s
      technical and management personnel from productive tasks. In the event of an
      adverse ruling in such litigation, the Company might be required to discontinue
      the use and sale of infringing products, expend significant resources to develop
      non-infringing technology or obtain licenses from third parties. There can
      be no
      assurance that licenses from third parties would be available on acceptable
      terms, if at all. In the event of a successful claim against the Company and
      the
      failure of the Company to develop or license a substitute technology, the
      Company’s business, financial condition, and results of operations could be
      materially adversely affected.





*Limited
      Protection of Intellectual Property.* The
      Company relies upon a combination of patent, trade secret, copyright, and
      trademark laws and contractual restrictions to establish and protect proprietary
      rights in its products and technologies. The Company has been issued certain
      U.S. and Canadian patents with respect to certain products. There can be no
      assurance that third parties have not or will not develop equivalent
      technologies or products without infringing the Company’s patents or that a
      court having jurisdiction over a dispute involving such patents would hold
      the
      Company’s patents valid, enforceable and infringed. The Company also typically
      enters into confidentiality and invention assignment agreements with its
      employees and independent contractors, and non-disclosure agreements with its
      suppliers, distributors and appropriate customers so as to limit access to
      and
      disclosure of its proprietary information. There can be no assurance that these
      statutory and contractual arrangements will deter misappropriation of the
      Company’s technologies or discourage independent third-party development of
      similar technologies. In the event such arrangements are insufficient, the
      Company’s business, financial condition and results of operations could be
      materially adversely affected. The laws of certain foreign countries in which
      the Company’s products are or may be developed, manufactured or sold may not
      protect the Company’s products or intellectual property rights to the same
      extent as do the laws of the United States and thus, make the possibility of
      misappropriation of the Company’s technology and products more likely.




25




*Potential
      Volatility of Stock Price.* The
      trading price of the Company’s common stock may be subject to wide fluctuations
      in response to quarter-to-quarter variations in operating results, announcements
      of technological innovations or new products by the Company or its competitors,
      developments with respect to patents or proprietary rights, general conditions
      in the telecommunication network access and equipment industries, changes in
      earnings estimates by analysts, or other events or factors. In addition, the
      stock market has experienced extreme price and volume fluctuations, which have
      particularly affected the market prices of many technology companies and which
      have often been unrelated to the operating performance of such companies.
      Company-specific factors or broad market fluctuations may materially adversely
      affect the market price of the Company’s common stock. The Company has
      experienced significant fluctuations in its stock price and share trading volume
      in the past and may continue to do so.





*The
      Company is Controlled by a Small Number of Stockholders and Certain
      Creditors* .
      Mr.
      Howard Modlin, Chairman of the Board and Chief Executive Officer, and President
      of Weisman Celler Spett & Modlin, P.C., legal counsel for the Company, owns
      approximately 70% of the Company’s outstanding shares of Class B stock and has
      stock options and warrants that would allow him to acquire approximately 54%
      of
      the Company’s common stock. Furthermore, Mr. Modlin is also trustee for the
      benefit of the children of Mr. Charles P. Johnson, the former Chairman of the
      Board and Chief Executive Officer, and such trust holds approximately 12% of
      the
      outstanding shares of Class B stock. Class B stock under certain circumstances
      has 10 votes per share in the election of Directors. The Board of Directors
      is
      to consist of no less than three and no more than thirteen directors, one of
      which was designated by the Creditors Committee (and thereafter may be
      designated by the Trustee). The holders of the 9% Preferred Stock are presently
      entitled to designate two directors until all arrears on the dividends on such
      9% Preferred Stock are paid in full. In addition, until the Company’s primary
      secured loan obligations are paid in full, the primary secured lender, Ableco
      Finance LLC (“Ableco”) is entitled to designate three directors and, upon
      default in its loan, its affiliate shall have the right under the two warrants
      it holds, to (i) acquire up to 10% of the outstanding common stock
      depending  on
      the
      amount of the outstanding secured debt at such time, and (ii) acquire 10% of
      the
      outstanding common stock on a diluted basis. Since Ableco’s loan was not repaid
      in full by September 15, 2006, the Trustee may designate two more directors,
      and
      after Abelco is repaid in full, in the event of a payment default under the
      Debentures which is not cured within 60 days after written notice, the Trustee
      shall be entitled to select a majority of the Board of Directors. Accordingly,
      in absence of a default under Ableco’s loan, or a payment default under the
      Debenture, Mr. Modlin may be able to elect all members of the Board of Directors
      not designated by the holders of the 9% Preferred Stock, Ableco and the Trustee
      and determine the outcome of certain corporate actions requiring stockholder
      approval, such as mergers and acquisitions of the Company. This level of
      ownership by such persons and entities could have the effect of making it more
      difficult for a third party to acquire, or of discouraging a third party from
      attempting to acquire, control of the Company. Such provisions could limit
      the
      price that certain investors might be willing to pay in the future for shares
      of
      Company’s common stock, thereby making it less likely that a stockholder will
      receive a premium in any sales of shares. To date, the holders of the 9%
      Preferred Stock and Ableco have not designated any directors.





**ITEM
      3. CONTROLS AND PROCEDURES**





For
      the
      period covered by this report, the Company carried out an evaluation, under
      the
      supervision and with the participation of the Company’s management, including
      the Company’s Chairman and Chief Executive Officer, and Vice President and Chief
      Financial Officer, of the effectiveness of the design and operation of the
      Company’s disclosure controls and procedures pursuant to Exchange Act Rule
      13a-15. Based upon that evaluation, the Company’s President and Chief Executive
      Officer, and Vice President and Chief Financial Officer, have concluded that
      the
      Company’s disclosure controls and procedures are effective to ensure the
      information required to be disclosed in reports filed or submitted under the
      Securities Exchange Act of 1934 is recorded, processed, summarized and reported
      within the time periods specified in Securities and Exchange Commission rules
      and forms. There have been no significant changes in the Company’s internal
      controls over financial reporting that occurred during the period covered by
      this quarterly report on Form 10-QSB that has materially affected, or is
      reasonably likely to materially affect, the Company’s internal control over
      financial reporting.




26




**PART
      II. OTHER INFORMATION**




**ITEM
      1. LEGAL PROCEEDINGS**





None





**ITEM
      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS**





Not
      applicable





**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**





Payment
      of dividends on the 9% Cumulative Convertible Exchangeable Preferred Stock
      were
      suspended June 30, 2000. Such dividend arrearages total $11,876,564.25 as of
      March 31, 2007.





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





Not
      applicable





**ITEM
      5. OTHER INFORMATION**





None





**ITEM
      6. EXHIBITS**





(a)
      Exhibits Index:




Exhibit
                  Number
              
              Description
                  of Exhibit31.1
              
              Certification
                  of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a)
                  under the Securities Exchange Act of 1934.31.2
              
              Certification
                  of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a)
                  under the Securities Exchange Act of 193432.1
              
              Certification
                  of Chief Executive Officer and Chief Financial Officer pursuant
                  to 18
                  U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002




**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the Registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.


**GENERAL
                DATACOMM INDUSTRIES INC.****May
              15,
              2007**
            
            **/s/
              William G. Henry****William
                G. Henry****Vice
                President, Finance and Administration**
                **Chief
                  Financial Officer**




27