SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q
 
               X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


                For the quarterly period ended December 31, 1998

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

                          Commission File Number 1-8086

                        GENERAL DATACOMM INDUSTRIES, INC.
             (Exact name of registrant as specified in its charter)

       Delaware                                           06-0853856         
(State or other jurisdiction of           (I.R.S. Employer Identification No.)
 incorporation or organization)

         Middlebury, Connecticut                       06762-1299
  (Address of principal executive offices)             (Zip Code)

      Registrant's phone number, including area code: (203) 574-1118

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 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

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date: 

                                                   Number of Shares Outstanding
     Title of Each Class                               at December 31, 1998     

     Common Stock, $.10 par value                         19,642,190
     Class B Stock, $.10 par value                         2,093,083

                  Total Number of Pages in this Document is 23.



<PAGE>

                        GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES
                                      INDEX
 

 
                                                                 Page No.

Part I.      Financial Information

             Consolidated Balance Sheets -
             December 31, 1998 and September 30, 1998               3
 
             Consolidated Statements of Operations and
             Accumulated Deficit - For the Three Months
             Ended December 31, 1998 and 1997                       4
 
             Consolidated Statements of Cash Flows - For the
             Three Months Ended December 31, 1998 and 1997          5
 
             Notes to Consolidated Financial Statements             6

             Management's Discussion and Analysis of
             Financial Condition and Results of Operations         12


Part II.     Other Information

             Item 6. Exhibits and Reports on Form 8-K              22

 
                                      - 2 -
   
<PAGE>


                     PART I. FINANCIAL INFORMATION


               GENERAL DATACOMM INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


                                                   December 31,    September 30,
In thousands except shares                            1998               1998
------------------------------------------------------------------------------
ASSETS:                                             (Unaudited)
 Current assets:
   Cash and cash equivalents                          $15,580         $3,757
   Restricted cash                                      1,000             -
   Accounts receivable, less allowance for 
    doubtful receivables of $1,426 in December
    and $1,442 in September                            22,473         30,013
   Inventories                                         31,196         30,574
   Deferred income taxes                                1,675          1,675
   Other current assets                                 7,068          7,030
-------------------------------------------------------------------------------
Total current assets                                   78,992         73,049
===============================================================================
Property, plant and equipment, net                     40,181         40,553
Capitalized software development costs, net            21,636         24,286
Other assets                                           11,028         11,650
-------------------------------------------------------------------------------
                                                     $151,837       $149,538
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
 Current portion of long-term debt                    $11,936         $8,133
 Accounts payable, trade                               12,501         12,763
 Accrued payroll and payroll-related costs              4,608          5,896
 Deferred income                                        4,852          6,034
 Other current liabilities                             20,112         15,122
-------------------------------------------------------------------------------
Total current liabilities                              54,009         47,948
===============================================================================
Long-term debt, less current portion                   52,781         52,679
Deferred income taxes                                   2,578          2,589
Other liabilities                                         466            364
-------------------------------------------------------------------------------
Total liabilities                                     109,834        103,580
===============================================================================
Commitments and contingent liabilities                      -              -
 Stockholders' equity:
   Preferred stock, par value $1.00 per share, 
    3,000,000 shares authorized; issued and 
    outstanding: 800,000 shares of 9%cumulative
    convertible exchangeable preferred stock with a
    $20 million liquidation preference                    800            800
   Class B stock, par value $.10 per share,
    35,000,000 shares authorized; issued
    and outstanding: 2,093,083 in December
    and September                                         209            209
   Common stock, par value $.10 per share,
    35,000,000 shares authorized; issued
    and outstanding: 19,972,572 in December
    and 19,968,280 in September                         1,997          1,997
   Capital in excess of par value                     151,052        151,052
   Accumulated deficit                               (106,604)      (103,066)
   Cumulative foreign currency translation adjustment  (3,002)        (2,589)
   Common stock held in treasury, at cost:
    330,382 shares in December and September           (2,449)        (2,445)
-------------------------------------------------------------------------------
Total stockholders' equity                             42,003         45,958
-------------------------------------------------------------------------------
                                                     $151,837       $149,538
===============================================================================
The accompanying notes are an integral part of these consolidated financial 
statements.

                                      -3-
<PAGE>


               GENERAL DATACOMM INDUSTRIES, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS AND
                               ACCUMULATED DEFICIT
                                   (Unaudited)


                                                          Three Months Ended
                                                             December 31,
                                                    ---------------------------
In thousands, except per share data                      1998          1997
-------------------------------------------------------------------------------
Revenues:
 Net product sales                                     $27,837        $36,373
 Service revenue                                        11,982          9,481
 Other revenue                                           2,600          2,365
-------------------------------------------------------------------------------
                                                        42,419         48,219
-------------------------------------------------------------------------------
Costs and expenses:
 Cost of product sales                                  14,390         18,836
 Amortization of capitalized
  software development costs                             3,162          3,000
 Cost of service revenue                                 8,221          6,763
 Cost of other revenue                                     485            137
 Selling, general and administrative                    16,836         20,242
 Research and product development                        7,686          8,934
 Restructuring of operations                             2,000          2,500
-------------------------------------------------------------------------------
                                                        52,780         60,412
-------------------------------------------------------------------------------
Operating loss                                         (10,361)       (12,193)
-------------------------------------------------------------------------------

Other income (expense):
 Gain on sale of assets                                  9,001             --
 Interest, net                                          (1,662)        (1,396)
 Other, net                                                234            (71)
-------------------------------------------------------------------------------
                                                         7,573         (1,467)
-------------------------------------------------------------------------------
Loss before income taxes                                (2,788)       (13,660)
Income tax provision                                       300            200
-------------------------------------------------------------------------------
Net loss                                               ($3,088)      ($13,860)
===============================================================================
Basic and diluted loss per share                        ($0.16)        ($0.67)
===============================================================================
Weighted average number of common and
common equivalent shares outstanding                    21,735         21,389
===============================================================================
Accumulated deficit at beginning of period           ($103,066)      ($67,874)
Net loss                                                (3,088)       (13,860)
Payment of preferred stock dividends                      (450)          (450)
-------------------------------------------------------------------------------
Accumulated deficit at end of period                 ($106,604)      ($82,184)
===============================================================================
The accompanying notes are an integral part of these consolidated
financial statements.

                                      - 4 -
<PAGE>

               GENERAL DATACOMM INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)


                                                    Increase (Decrease) in Cash
                                                        and Cash Equivalents
                                                    ---------------------------
                                                         Three Months Ended
                                                            December 31,
                                                    ---------------------------
In thousands                                            1998            1997
-------------------------------------------------------------------------------
Cash flows from operating activities:
  Net loss                                             ($3,088)       ($13,860)
  Adjustments to reconcile net loss to net cash
   (used in) operating activities:
     Depreciation and amortization                       6,493           6,971
     Gain on sale                                       (9,001)             --
     Decrease in accounts receivable                     7,527             988
     (Increase) decrease in inventories                   (625)            944
     Increase in accounts payable
      and accrued expenses                               5,015           1,487
     (Increase) decrease in other net current assets    (3,846)          1,095
     (Increase) decrease in other net long-term assets    (504)          1,499
-------------------------------------------------------------------------------
Net cash provided by (used in)operating activities       1,971            (876)
-------------------------------------------------------------------------------
Cash flows from investing activities:
  Acquisition of property, plant and equipment, net     (2,301)         (2,455)
  Capitalized software development costs                (3,345)         (3,000)
-------------------------------------------------------------------------------
Net cash (used in) investing activities                 (5,646)         (5,455)
-------------------------------------------------------------------------------
Cash flows from financing activities:
 Proceeds from revolver borrowings                      45,796              --
 Payments on revolver borrowings                       (39,941)         (4,799)
 Proceeds from sale of assets, net                      12,013              --
 Proceeds from notes and mortgages                         --           14,338
 Principal payments on notes and mortgages              (1,905)         (2,022)
 Payment of preferred stock dividends                     (450)           (450)
-------------------------------------------------------------------------------
Net cash provided by financing activities               15,513           7,067
--------------------------------------------------------------------------------
Effect of exchange rates on cash                           (15)            (14)
-------------------------------------------------------------------------------
Net increase in cash and cash equivalents               11,823             722
Cash and cash equivalents at beginning of period -(1)    3,757          21,526
-------------------------------------------------------------------------------
Cash and cash equivalents at end of period -(1)        $15,580         $22,248
===============================================================================
(1) - The Corporation considers all highly liquid investments purchased with a
 maturity of three months or less to be cash equivalents.

The accompanying notes are an integral part of these consolidated financial 
statements.

                                       -5-
<PAGE>
                        GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)



NOTE 1.   BASIS OF PRESENTATION

In the opinion of management,  the accompanying unaudited consolidated financial
statements contain all adjustments  necessary to fairly present the consolidated
financial  position of General DataComm  Industries,  Inc. and subsidiaries (the
"Corporation" or "Company") as of December 31, 1998, the consolidated results of
their  operations  for the three  months ended  December 31, 1998 and 1997,  and
their cash flows for the three  months ended  December  31, 1998 and 1997.  Such
adjustments are generally of a normal recurring  nature and include  adjustments
to certain accruals and asset reserves to appropriate levels.

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  periods
presented. Actual results could differ from those estimates. The markets for the
Company's products are characterized by intense competition, rapid technological
development,  and frequent new product introductions,  all of which could impact
the future value of the Company's inventory,  capitalized software,  and certain
other assets.

The  consolidated  financial  statements  contained  herein  should  be  read in
conjunction with the consolidated financial statements and related notes thereto
filed with Form 10-K for the year ended September 30, 1998.
           
Certain  reclassifications  were made to the prior years' consolidated financial
statements to conform to the current year's presentation.

NOTE 2.   INVENTORIES

          Inventories consist of (in thousands):

                           December 31, 1998      September 30, 1998
                           -----------------      ------------------

          Raw materials        $10,646                 $10,945
          Work-in-process        3,505                   3,611
          Finished goods        17,045                  16,018
                               -------                 -------
                               $31,196                 $30,574
                               =======                 =======


                                       - 6 -
<PAGE>

                        GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


NOTE 3.  PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of (in thousands):

                                          December 31, 1998  September 30, 1998
                                          -----------------  ------------------

Land                                          $1,778           $  1,784
Buildings and improvements                    30,003             30,134
Test equipment, fixtures and field spares     55,383             54,897
Machinery and equipment                       60,404             59,957
                                             -------            -------
                                             147,568            146,772
Less:  accumulated depreciation and
 amortization                                107,387            106,219
                                            --------           --------
                                            $ 40,181           $ 40,553
                                            ========           ========
 

NOTE 4. CAPITALIZED SOFTWARE DEVELOPMENT COSTS

The accumulated  amortization of capitalized software development costs amounted
to  $19,590,000  and  $17,972,000  at December 31, 1998 and  September 30, 1998,
respectively.

NOTE 5. LONG-TERM DEBT

Long-term debt consists of (in thousands):

                                        December 31, 1998    September 30, 1998
                                        -----------------    ------------------
Revolving credit facility                   $  7,442             $   1,587
Notes payable                                 21,395                23,173
7-3/4% convertible senior subordinated
 debentures                                   25,000                25,000
Mortgages payable                             10,880                11,052
                                            --------              --------
                                              64,717                60,812
Less:  current portion                        11,936                 8,133
                                            --------              --------
                                            $ 52,781              $ 52,679
                                            ========              ========


                                      - 7 -

                                       
<PAGE>


                        GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 5. LONG-TERM DEBT (continued)

Revolving Credit Facility
-------------------------

On October 22, 1997, the Company  entered into a $40.0 million loan and security
agreement (the "Loan  Agreement")  which provided the Company with $15.0 million
in proceeds  (received  on October 22,  1997) from a five-year  term loan and an
additional  $25.0  million  (maximum  value)  revolving  line  of  credit  for a
three-year period ending in October 2000, subject to extension.  Availability of
such funds is subject to satisfying a borrowing  base formula  related to levels
of certain  accounts  receivable  and  inventories,  and  satisfaction  of other
financial covenants.

Maximum  funds  available  for borrowing  under the  revolving  credit  facility
amounted to $18,611,000  and  $25,000,000 at December 31, 1998 and September 30,
1998, respectively.
 
Terms of the Loan  Agreement  required that the Company raise a minimum of $10.0
million in net  proceeds on or before  March 31, 1999 through the sale of assets
or execution of an equity  offering.  The Company  satisfied  this $10.0 million
covenant  requirement  on  December  31,  1998 (see Note 8, "Sale of  Technology
Alliance Group Division," for further  discussion of the transaction  involved).
In  accordance  with terms of the Loan  Agreement,  $4.3 million of the proceeds
received  from the  transaction  were applied to reduce  borrowings  outstanding
(under the term loan portion of the Loan  Agreement) in January 1999.  Such $4.3
million was included in the caption  "current  portion of long-term debt" on the
Company's consolidated balance sheet as of December 31, 1998.

Reference is made to the Company's consolidated financial statements and related
notes thereto and exhibits filed with Form 10-K for the year ended September 30,
1998 for further disclosures  applicable to the above-referenced Loan Agreement,
including related  financial  covenant  requirements,  and all other outstanding
indebtedness of the Corporation.

NOTE 6.   VITAL NETWORK SERVICES, L.L.C. EXPANDED PARTNERSHIP WITH OLICOM, INC.

On October 15, 1998, the Company's  VITAL Network  Services  ("VITAL")  business
unit  entered  into  an  agreement  with  Olicom,  Inc.  whereby  VITAL  assumed
responsibility for Olicom's service operations in Marlborough, Massachusetts and
Olicom assigned or transferred its service contract business in North America to
VITAL. In addition to the assumption of obligations for a leased facility, VITAL
will pay Olicom a percentage (25% in the first year, 20% thereafter) of revenues
derived from  Olicom's  business  over a three-year  period,  not to exceed $3.8
million.  As part of the  agreement,  VITAL  acquired the capital assets used in
Olicom's  service  business.  VITAL recorded the acquisition  using the purchase
method of accounting and, due to the conditional nature of the payments owing to
Olicom,  no liability or  corresponding  asset (goodwill) was recorded for these
payments at the date of acquisition.  If such  contingencies are resolved in the
future, the corresponding asset will be recorded by VITAL at that time.


                                      - 8 -
<PAGE>

                        GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


NOTE 7.   RESTRUCTURING OF OPERATIONS

In December 1998, the Company  restructured  its operations  into three distinct
business  units  to  increase  product  line  focus  and move  toward  operating
autonomy.  Two new business  units resulted from the  reorganization:  Broadband
Systems (ATM and Internetworking products) and Network Access (Access products).
The new business  units will  supplement  the existing  VITAL  Network  Services
business  unit,  which was  launched  in October  1997 to  provide  professional
services on multi-vendor networking equipment on a worldwide basis.

The  reorganization,  when  completed,  is  expected  to result  in a  workforce
reduction of more than 200 persons.  The net loss for the quarter ended December
31, 1998  includes a charge of $2.0 million,  or $0.09 per share,  primarily for
post-employment benefits under the Company's severance plan.

The net loss for the quarter  ended  December 31, 1997 includes a charge of $2.5
million,  or $0.12 per share, which is comprised of a $1.0 million provision for
post-employment  benefits  under the  Company's  severance  plan  related to the
elimination of  approximately  200 full-time  positions and $1.5 million for the
write-off of intangibles  assets and other costs associated with the elimination
of low-volume product lines.

NOTE 8.   SALE OF TECHNOLOGY ALLIANCE GROUP DIVISION ("TAG")

On December 31, 1998,  the Company  reported the sale of its TAG  division.  The
Company had been actively  pursuing the sale of its TAG division since it is not
strategic to the  reorganized  business  units  described  in Note 7 above.  The
division,  which  developed,  patented  and licensed  advanced  modem and access
technologies, was principally comprised of scientists and engineers and held the
rights to certain technologies patented by the division.  The sale resulted in a
pre-tax gain of $9.0 million and generated  cash proceeds,  net of expenses,  of
approximately $12.0 million in the quarter ended December 31, 1998.

The  Company's  primary loan  agreement  provides that a portion of the proceeds
(approximately  $4.3 million) be used to reduce  outstanding  indebtedness under
this agreement, and this occurred in January 1999.


                                      - 9 -
<PAGE>


                        GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


NOTE 9.    EARNINGS (LOSS) PER SHARE

The  following  table sets forth the  computation  of basic and diluted loss per
share (in thousands, except per share amounts):

                                                      Three Months Ended
                                                         December 31,
                                                  --------------------------
                                                    1998                1997 
                                                    ----                ----
 Numerator:
   Net loss                                       $(3,088)          $(13,860)
   Preferred stock dividends                         (450)              (450)  
   Numerator for basic and diluted                --------          ---------
     loss per share - loss applicable
     to common stockholders                       $(3,538)          $(14,310)  
                                                  ========          =========
 Denominator:
   Denominator for basic and diluted
   loss per share - weighted average
   shares outstanding                              21,735             21,389
                                                  =======             ======

 Basic and diluted loss per share                 $(0.16)            $(0.67)
                                                  =======            =======    

The net loss reported for the quarters  ended December 31, 1998 and 1997 include
restructuring  charges of $2.0 million (or $0.09 per share) and $2.5 million (or
$0.12 per share), respectively.  Refer to Note 7, "Restructuring of Operations,"
for further discussion.

Outstanding  securities (not included in the above computations because of their
antidilutive  impact on reported loss per share) which could potentially  dilute
earnings per share in the future  include  convertible  debentures,  convertible
preferred  stock  and  employee  stock  options  and  warrants.  For  additional
disclosure information,  including conversion terms, refer to Notes 6, 9 and 11,
respectively, in the Company's consolidated financial statements filed with Form
10-K for the year ended  September 30, 1998.  Weighted  average  employee  stock
options  outstanding  during the quarter  ended  December 31, 1998  approximated
3,626,200  shares,  of which  3,426,930  would not have been included in diluted
earnings per share  calculations for the quarter (if the Company reported net
income in the quarter) because the effect would be antidilutive.


                                     - 10 -

<PAGE>

                        GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)



NOTE 10.   COMPREHENSIVE INCOME (LOSS)

Statement of Financial  Accounting  Standards No. 130, "Reporting  Comprehensive
Income," ("SFAS No. 130") establishes standards for the reporting and display of
"comprehensive  income," and becomes  effective  for the Company in fiscal 1999.
Comprehensive income is defined as "all changes in equity during a period except
those resulting from  investments by owners and  distributions to owners." Under
various accounting pronouncements, certain changes in assets and liabilities are
not  reported  in a  statement  of  operations  for the period in which they are
recognized,  but instead are included in balances within a separate component of
stockholders'  equity in a  statement  of  financial  position.  The sum of such
changes,  along with other activity previously captured in a company's statement
of operations,  in effect represents comprehensive income as defined by SFAS No.
130.

The following table sets forth the computation of comprehensive income (loss):

                                                       Three Months Ended
                                                          December 31,    
                                                     -----------------------
                                                      1998            1997   
                                                      ----            ----
         Net loss                                    $(3,088)      $(13,860)
         Other comprehensive income
         (loss), net of tax:
           Foreign currency translation
           adjustments                                  (413)            37    
                                                     --------      ---------
         Comprehensive loss                          $(3,501)      $(13,823)
                                                     ========      =========


                                     - 11 -

<PAGE>


                        GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS


Results of Operations

The following table sets forth selected consolidated  financial data stated as a
percentage of total revenues (unaudited):

                                                       Three months ended
                                                          December 31,   
                                                       ------------------
                                                      1998           1997  

Revenues:
    Net product sales                                 65.6%         75.4%
    Service revenue                                   28.3          19.7
    Other revenue                                      6.1           4.9
                                                     -----         -----
                                                     100.0         100.0
Costs and expenses:
    Cost of revenues                                  54.4          53.4
    Amortization of capitalized
      software development costs                       7.5           6.2
    Selling, general and administrative               39.7          42.0
    Research and product development                  18.1          18.5
    Restructuring of operations                        4.7           5.2
                                                     -----         -----
Operating loss                                       (24.4)        (25.3)
                                                     -----         -----
Net loss                                              (7.3)%       (28.7)%
                                                     ======        ======

Summary comments are as follows: (1) product sales declines,  as discussed under
"Revenues" below, resulted in the lower product revenue percentage;  separately,
service revenue increased 26.4%; (2) cost of revenues,  measured as a percent of
revenue,  was up 1.0 percentage  point, due primarily to lower revenues overall;
(3) operating  expenses  (excluding  restructuring  charges),  despite a reduced
revenue base, were reduced to 57.8% of revenue in the quarter ended December 31,
1998 as  compared  to 60.5% for the same  period  one year ago,  reflecting  the
benefits of a cost reduction plan; more specifically, operating expenses for the
quarter were down $4.5 million, or 14%; (4) the net loss was reduced, reflecting
the net impact of reduced  revenues,  the positive  results of implemented  cost
reductions and a gain of $9.0 million from the sale of a division.


                                     - 12 -

<PAGE>


Revenues
--------
                                       Three months ended
                                          December 31,  
                                     ---------------------
                                     1998             1997
                                     ----             ----      

  Revenues                         $42,419          $48,219
  Percent Change                   (12.0)%              --

Revenues in the quarter  ended  December 31, 1998  decreased  $5.8  million,  or
12.0%,  compared to the prior year.  Product revenues declined $8.5 million,  or
23.5%,  offset in part with service  revenue  growth of $2.5 million,  or 26.4%.
Both the Network Access  Division (down $3.0 million,  or 18%) and the Broadband
Systems Division (down $5.5 million,  or 28%) contributed to the product revenue
shortfall.  The Network Access business unit experienced a reduction in domestic
Telco  business  and  weakness in other  international  markets.  The  Broadband
Systems  business unit experienced a downturn in the  international  marketplace
(principally Latin America).  The entire Broadband reduction was attributable to
older internetworking (TMS or multiplexer) products; the Division's ATM business
($10.4 million) was relatively unchanged from the prior year.

The VITAL Network  Services  business unit  experienced  strong service  revenue
growth  from the prior  year,  reflecting  success in its efforts to procure new
third party service  business,  including  VITAL's new partnership  with Olicom,
Inc. (refer to Note 6 for details).

Geographically,  international  revenues accounted for 47% of total consolidated
revenues  in the  quarter  ended  December  31,  1998 as compared to 52% for the
comparable period one year ago.


Cost of Revenues:
----------------
                                                     Three months ended
                                                        December 31,      
                                                     ------------------
                                                     1998          1997   
                                                     ----          ----
        Cost of revenues                           $23,096       $25,736
        As a percent of revenues                     54.4%         53.4%

        Amortization of capitalized
           software development costs              $ 3,162       $ 3,000
        As a percent of revenues                      7.5%          6.2%

Cost of revenues,  measured as a percent of revenues,  were slightly higher (1.0
percentage  point) for the quarter  ended  December  31, 1998 as compared to the
corresponding  quarter in fiscal 1998. This increase reflects higher engineering
contract costs  associated with "other  revenue,"  partially  offset with strong
improvement in service margins (up 2.7 percentage points).  The improved service
margins  reflect the absorption of VITAL's costs over a larger revenue base. The
amount  of  amortization   of  capitalized   software   development   costs  was
approximately the same in each of the quarters ended December 31, 1998 and 1997.

                                     - 13 -
<PAGE>


High  technology  products in particular are subject to sales price pressures as
competition  grows and sales cycles  reach  maturity.  The Company  continues to
partially  offset the effect of such sales price  pressures with the negotiation
of reduced material  component prices,  improvements in manufacturing  costs and
efficiency  and the  introduction  of new generation  products  which  generally
provide higher margins.

Selling, General and Administrative Expenses
-------------------------------------------- 
                                                    Three months ended
                                                       December 31,   
                                                    -------------------
                                                   1998            1997
                                                   ----            ----
        Selling, general, and
          administrative expenses                $16,836        $20,242
        Percent change                           (16.8)%            --
        As a percent of revenues                   39.7%          42.0%

The  Company's  cost  reduction  plan  (refer  to  Note  7,   "Restructuring  of
Operations")  contributed  to a $3.4  million,  or 16.8%,  reduction in selling,
general and administrative  costs for the quarter ended December 31, 1998 versus
the same period one year ago. Cost reductions were achieved in both domestic and
international  operations,  despite  ongoing  salary merit  increases  and other
inflationary   increases.   The  cost   reductions   are  comprised  of  reduced
compensation,  fringe  benefit  and travel  costs,  a more  effectively  managed
promotion and advertising  program and a reduced level of  depreciation  expense
resulting from effective management of the Company's capital investment program.
Despite  a   significantly   reduced   revenue   base,   selling,   general  and
administrative  expenses were also down 2.3 percentage points when measured as a
percent of revenue.

Research and Product Development Costs
--------------------------------------
                                                    Three months ended
                                                       December 31,   
                                                    -------------------
                                                    1998           1997  
                                                    ----           ----

      Gross expenditures                           $11,031      $11,934
      Percent change                                (7.6)%            -
      As percent of revenues                         26.0%         24.7%
      ------------------------------------------------------------------
      Capitalized software costs                   $ 3,345       $ 3,000
      As a percent of gross expenditures             30.3%         25.1%
      -------------------------------------------------------------------      
      Net research and product
        development costs                          $ 7,686        $8,934
      Percent change                               (14.0)%             -
      As a percent of revenues                       18.1%         18.5%
      ------------------------------------------------------------------
                                                                         
                                   - 14 -
<PAGE>

The Company  continued  to invest  heavily in research  and product  development
during the first quarter of fiscal 1999,  with gross spending  approximating  an
annual rate of $44  million,  or 26.0  percent of revenue.  The  Company's  cost
reduction program,  including decisions not to replace non-critical positions as
employee  attrition occurs,  resulted in a $0.9 million,  or 7.6%,  reduction in
gross research and development  spending for the quarter ended December 31, 1998
as compared to the same period one year ago.  The  decrease is  attributable  to
lower  compensation  costs  resulting from a reduction in worldwide  engineering
headcount,  reflecting  a Company  strategy of reducing  development  activities
targeted at sustaining  legacy products and limiting the investment of new funds
into projects  considered to have only the highest likelihood of success.  Gross
research and product development spending amounted to 26.0% and 24.7% of revenue
in the quarters  ended December 31, 1998 and 1997,  respectively.  The increase,
when measured as a percent of revenue, is attributable to a reduced revenue base
in the first quarter of fiscal 1999.

Spending in the ATM area by the Broadband  Systems  business unit  accounted for
59% and 54% of  total  product  development  spending  for  the  quarters  ended
December 31, 1998 and 1997,  respectively.  The complexity of the ATM technology
has in the past demanded, and will continue to demand,  significant research and
product development investment.

Capitalized  software development costs were higher than the previous year ($3.3
million as compared to $3.0 million in the same period one year ago), indicating
that software  development  activities  represent a greater  proportion of total
research and product development spending.

The  Company  conducts  research  and  product  development  activities  at four
locations, with the largest pool of resource located in Middlebury, Connecticut,
and remote facilities located in Boston, Montreal and England.

Restructuring of Operations
---------------------------

Results for the  three-month  periods  ended  December 31, 1998 and 1997 include
restructuring charges of $2.0 million and $2.5 million,  respectively.  Refer to
Note 7,  "Restructuring  of  Operations,"  for  more  detailed  discussion.  The
restructuring  effort  executed in the quarter ended  December 31, 1998 involved
the  creation  of two new and  distinct  business  units,  the  Network  Access
Division and the Broadband  Systems  Division.  In an effort to improve  product
line focus and overall operational productivity, each business unit is comprised
of a  dedicated  general  manager  and  dedicated  marketing,  sales and product
development functions.

Interest and Other Income and Expense
-------------------------------------

Net interest  expense amounted to $1.7 million and $1.4 million for the quarters
ended  December 31, 1998 and 1997,  respectively.  The  increase is  principally
attributable  to a  reduced  level  of  cash  available  for  investment  and  a
corresponding reduction in interest income.

The quarter  ended  December 31, 1998 includes a $9.0 million gain from the sale
of the Company's  Technology Alliance Group Division.  Refer to Note 8, "Sale Of
Technology Alliance Group Division," for further discussion.

                                     - 15 -
<PAGE>


Separately,  refer to "Foreign  Currency  Risk" below for  discussion of foreign
currency exchange activity included in other income and expense.

Income Tax Provisions
---------------------

Tax  provisions  recorded by the  Company,  principally  for foreign  income and
domestic  state taxes,  amounted to $300,000 and $200,000 in the quarters  ended
December 31, 1998 and 1997,  respectively.  The Company has significant  federal
net  operating  loss  carryforwards  available  to  offset  future  liabilities.
However,  based on the Company's past financial  performance and the uncertainty
of ultimate  realization  of such  carryforwards,  no net deferred tax asset (or
related  deferred  tax  benefit) has been  recorded in the  Company's  financial
statements.

Foreign Currency Risk
---------------------

The Company's foreign  subsidiaries are exposed to foreign currency  fluctuation
since they are invoicing  customers in local  currencies  while  liabilities for
product  purchases from the parent Company are transacted in U.S.  dollars.  The
impact  of  foreign  currency  fluctuations  on  these  U.S.  dollar-denominated
liabilities  are  recorded as a component  of "Other  Income and Expense" in the
Company's  consolidated  statements  of  operations  and  resulted in a currency
exchange  gain or (loss) of  $227,000  and  $(250,000)  for the  quarters  ended
December 31, 1998 and 1997, respectively.

The  introduction  of the Euro as a common  currency for members of the European
Monetary Union is scheduled to take place in the Company's fiscal year 1999. The
Company has not  determined  what impact,  if any, the Euro will have on foreign
exchange  exposure.  However,  no  individual  foreign  subsidiary  comprises 10
percent  or  more  of  consolidated  revenue  or  assets,  and  most  subsidiary
operations  represent less than 5 percent of consolidated revenue or assets. The
Company  historically  has not  entered  into  hedge  contracts  or any  form of
derivative or similar investment.

As a result of high inflation in Mexico,  the Company was required to change its
method of  translating  the financial  statements  of its Mexican  subsidiary to
reflect the designation of the U.S. dollar as the functional currency, effective
January 1,  1997.  Mexico  will cease  being  considered  a highly  inflationary
economy for quarters beginning after December 31, 1998 and, effective January 1,
1999,  the  Company  expects to  designate  the Mexican  peso as the  functional
currency  for its  Mexican  operations  (as  compared to the U.S.  dollar).  The
Company  does not  expect  this  change  to have a  material  impact  on  future
financial results.

Market Risk
-----------

The  Company is exposed to various  market  risks,  including  potential  losses
arising  from  adverse  changes  in market  rates and  prices,  such as  foreign
currency  exchange and interest rates. The Company  historically has not entered
into derivatives,  forward exchange contacts or other financial  instruments for
trading, speculation or hedging purposes.


                                     - 16 -
<PAGE>

Interest Risk
-------------

Reference is made to Form 10-K filed with the Securities and Exchange Commission
for the year ended  September  30, 1998,  Item 7,  Management's  Discussion  and
Analysis of Results of  Operations  and Financial  Condition,  under the caption
"Interest Risk" for discussion applicable to interest risk.

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

The Company's  cash and cash  equivalents  amounted to $15.6 million at December
31,  1998,  as compared  to $3.8  million at  September  30,  1998.  Future cash
requirements  are planned to be satisfied  from a  combination  of existing cash
balances  ($15.6  million at  December  31,  1998),  from  borrowings  under its
revolving credit facility ($11.2 million of additional  borrowings  available at
December 31, 1998) and from alternate financing sources. These alternate sources
are  targeted to include the sale of assets,  technologies  and/or  interests in
existing businesses or operations which make sense from a strategic  standpoint.
For example,  in December 1998 the Company  completed the sale of its Technology
Alliance Group, a division  responsible for developing,  patenting and licensing
advanced modem and access  technologies,  for approximately $16.3 million ($12.0
million of net proceeds after related selling costs).  Refer to Note 8, "Sale of
Technology Alliance Group Division," for further discussion.

In addition,  on December 18, 1998, the Company announced a restructuring of its
business  into three primary  operating  units and the intent to sell or partner
certain other  operations.  The Company  anticipates  annual  operating  expense
reductions to exceed $15.0 million when the plan is fully implemented.  Refer to
Note 7,  "Restructuring  Of Operations," for further  discussion of the business
restructuring.

On October 22, 1997, the Company  entered into a $40.0 million loan and security
agreement (the "Loan  Agreement")  which provided the Company with $15.0 million
in proceeds  (received  on October 22,  1997) from a five-year  term loan and an
additional  $25.0  million  (maximum  value)  revolving  line  of  credit  for a
three-year period ending in October 2000, subject to extension.  Availability of
such funds is subject to satisfying a borrowing  base formula  related to levels
of certain  accounts  receivable  and  inventories,  and  satisfaction  of other
financial  covenants.  Such formula and  covenants  were amended on November 25,
1998, along with changes in interest rates and other items, as discussed below.
 
Maximum funds available for borrowing under the revolving line of credit portion
of the Loan  Agreement  amounted to $18.6  million and $25.0 million at December
31, 1998 and September 30, 1998,  respectively.  Outstanding  revolving  line of
credit borrowings amounted to $7,442,000 and $1,587,000 at December 31, 1998 and
September 30, 1998, respectively. Separately, letters of credit in the amount of
$784,000 and $763,000  were  outstanding  at December 31, 1998 and September 30,
1998, respectively.  Most assets of the Company,  including accounts receivable,
inventories and property, plant and equipment, are pledged as collateral.

The Loan  Agreement's  covenants  may,  if  violated,  limit  access  to  future
borrowings and may accelerate  payment  requirements on outstanding  borrowings.
The most restrictive covenant requires the Company to maintain specified minimum
balances consisting of the sum of stockholders' equity (excluding foreign


                                     - 17 -
<PAGE>


currency   translation   adjustments   subsequent  to  September  30,  1997  and
restructuring charges recorded in fiscal 1998 or thereafter,  not to exceed $4.5
million) and outstanding 7-3/4% convertible debentures  (hereinafter referred to
as "minimum equity balance"). Minimum equity balance requirements under the Loan
Agreement  amount to $62.9  million,  $59.5  million,  $57.1  million  and $57.0
million on December 31, 1998,  March 31, 1999,  June 30, 1999 and  September 30,
1999,  respectively,  and  increases by $1.0 million per quarter for  subsequent
quarters. As such minimum equity balance at December 31, 1998 approximated $72.6
million,  this covenant  effectively  limits the sum of cumulative future losses
and preferred stock dividend  payments  to $15.6 million for the balance of the
fiscal year ending September 30, 1999. Other covenants  require that the Company
maintain a current  ratio equal to or greater  than 1.4 and that annual  capital
expenditures not exceed $15.0 million.  Separately,  terms of the Loan Agreement
required that the Company raise a minimum of $10.0 million in net proceeds on or
before  March  31,  1999  from the sale of  assets  or  execution  of an  equity
offering.  The Company  satisfied  this $10.0 million  covenant  requirement  on
December 31, 1998 (see Note 8, "Sale of Technology Alliance Group Division," for
further discussion of the transaction involved). In accordance with terms of the
Loan Agreement,  $4.3 million of the proceeds received from the transaction were
applied in January  1999 to reduce  borrowings  outstanding  under the term loan
portion of the Loan Agreement.

Since the Company  realized  losses of $33.4  million for total  fiscal 1998 and
$3.1 million for the quarter  ended  December 31,  1998, a  combination  of cost
reductions  and/or  revenue  growth will be required in the  remainder of fiscal
1999 to maintain compliance with the minimum equity balance covenant.  (Refer to
Note 7,  Restructuring of Operations,  for discussion of cost reduction  efforts
executed in December  1998).  In the event of  non-compliance  with financial or
other covenants, the Company would have to obtain a waiver or amendment from the
lender and there is no  assurance  that the lender  would grant such a waiver or
amendment.  The Company's  inability to have access to the Loan Agreement and/or
alternative  financing  sources  would  have a  material  adverse  effect on the
Company's  financial  condition.  Management has implemented and is committed to
execute  further cost  reduction  actions as necessary to improve the  Company's
operating results and maintain availability of the Loan Agreement.

In the past the  Company  has relied on its ability to offer for sale its common
stock,  preferred  stock,  convertible  debentures  and/or  warrants  as  viable
alternative  sources of financing.  The availability and terms of such offerings
in the  future  will  depend on such  items as the  Company's  future  financial
performance  and/or market demand for the Company's  technologies.  As a result,
these sources may not be available, or may be available on less favorable terms,
in the future.  The  Company's  inability  to have access to the Loan  Agreement
funds and/or alternative  financing sources would have a material adverse effect
on the Company's financial condition.

Reference is made to the Company's consolidated financial statements and related
notes thereto and exhibits filed with Form 10-K for the year ended September 30,
1998 for further disclosures  applicable to the above-referenced  Loan Agreement
and all other outstanding indebtedness of the Corporation.

Total  outstanding  debt  amounted to $64.7  million at December  31,  1998,  as
compared  to $60.8  million at  September  30,  1998.  The net  increase of $3.9
million  is  comprised  of $5.8  million  of new  borrowings  under the  Company
revolving  line of credit,  partially  offset  with $1.9  million  of  principal
payments made to reduce other outstanding borrowings.

                                     - 18 -
                                       
<PAGE>

Operating
---------
Net cash  provided by operating  activities  improved to a positive $2.0 million
for the quarter  ended  December  31, 1998 as compared to net cash usage of $0.9
million for the corresponding period one year ago.

Non-debt working capital,  excluding cash and cash  equivalents,  decreased from
$29.5 million at September  30, 1998 to $21.3 million at December 31, 1998.  The
$8.2 million  reduction is  principally  comprised of, among other items, a $7.5
million  reduction  in accounts  receivable  resulting  from a reduced  level of
revenue and continued  improvement  with  collection  efforts and a $3.8 million
increase in short-term debt, partially offset with reductions in accrued payroll
($1.3 million) and deferred  income ($1.2  million).  The increase in short-term
debt is  attributable  to the $4.3  million  of term loan  which  became due and
payable from  proceeds  received  from the sale of TAG (such payment was made in
January 1999; refer to Note 8, "Sale Of Technology  Alliance Group Division" and
Note 5, "Long-term Debt," for further discussion).

Investing
---------
Investment in property,  plant and  equipment  amounted to $2.3 million and $2.5
million  in  the   three-month   periods  ended  December  31,  1998  and  1997,
respectively.  The Company  continues to closely monitor all capital spending in
an effort to preserve cash and limit such  investment to instances  which appear
to offer the greatest return on investment.  Investments in capitalized software
amounted to $3.3 million and $3.0  million,  respectively,  for the  three-month
periods ended December 31, 1998 and 1997.

Financing
---------
Net cash provided by financing activities in the quarter ended December 31, 1998
amounted to $15.5 million, including $12.0 million of proceeds received from the
sale of TAG, $4.0 million of net debt  borrowings and the payment of $450,000 in
preferred  stock  dividends.  This compares to $7.1 million of net cash proceeds
generated in the quarter ended December 31, 1997, reflecting $7.5 million of net
debt  borrowings  ($15  million  in new  borrowings  less $6.8  million  in debt
repayments  and $0.7 million of costs  incurred to execute the new  borrowings),
less $450,000 in preferred stock dividend payments.

Reference  is made to Note 5 on page 7 for a  condensed  summary of  outstanding
long-term  debt as of December  31, 1998 and  September  30,  1998.  Separately,
reference is made to the consolidated financial statements, Notes 6 and 9, filed
with Form 10-K for the year ended  September  30, 1998 for  further  disclosures
applicable to outstanding  long-term debt and the conversion terms applicable to
$25.0 million of 7-3/4% convertible senior subordinated  debentures (Note 6) and
$20.0  million  of  convertible  preferred  stock  (Note 9),  both of which were
outstanding as of December 31, 1998 and September 30, 1998.

Future Adoption Of New Accounting Statements
--------------------------------------------
Reference is made to the consolidated  financial statements filed with Form 10-K
for the year ended September 30, 1998, Note 1, for discussion  regarding  future
adoption of new accounting pronouncements.

                                     - 19 -

                                       
<PAGE>


Year 2000 Compliance
--------------------
Reference is made to Form 10-K filed with the Securities and Exchange Commission
for the year ended  September  30, 1998,  Item 7,  Management's  Discussion  and
Analysis of Results of  Operations  and Financial  Condition,  under the caption
"Year 2000 Compliance" for year 2000 compliance related discussion.


CERTAIN RISK FACTORS
--------------------

Continuing Losses: The Company has sustained net losses for the past 17 quarters
ended  December 31, 1998.  There can be no assurance as to when the Company will
achieve net income.

Credit  Availability:  As noted above,  the Company's  Loan  Agreement  requires
compliance  with specific  financial  covenants,  including  restricted net loss
performance,  maintenance  of a current  ratio  which  equals or exceeds 1.4 and
capital spending restrictions.  If the Company fails to comply with the required
covenants and a waiver or amendment is not  obtained,  the Company may be unable
to borrow funds under such agreement. In such case the Company would be required
to seek other  financing to fund its  operations,  and there can be no assurance
the Company  will be able to obtain such  financing  or, if  obtained,  on terms
deemed  favorable  by the  Company.  Furthermore,  in the event the Company does
default on its $40.0 million Loan Agreement obligation,  such default may result
in a requirement  to accelerate  the due dates and payment of other  outstanding
indebtedness.

Volatility of Stock Price:  The trading price of the Common Stock has fluctuated
widely in response to quarter-to-quarter operating results, industry conditions,
awards of orders to the  Company  or its  competitors,  new  product  or product
development  announcements  by the  Company or its  competitors,  and changes in
earnings  estimates  by  analysts.  Any  shortfall  in revenue or earnings  from
expected  levels could have an immediate and  significant  adverse effect on the
trading price of the Company's Common Stock in any given period.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
 
Portions of the  foregoing  discussion  include  descriptions  of the  Company's
expectations regarding future trends affecting its business. The forward-looking
statements  made  in  this  document,  as  well  as  all  other  forward-looking
statements  or  information  provided by the Company or its  employees,  whether
written or oral,  are made in reliance  upon the safe harbor  provisions  of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements and
future  results  are  subject  to, and should be  considered  in light of risks,
uncertainties,  and other factors which may affect future results including, but
not limited to, competition, rapid changing technology,  regulatory requirements
and  uncertainties of international  trade.  Examples of risks and uncertainties
include,  among other things:  (i) the Company's ability to maintain  compliance
with its Loan Agreement or other financing  arrangements,  including the ability
to achieve further amendments and/or waivers as required to maintain  compliance
with terms of the Loan Agreement and all other  outstanding  indebtedness;  (ii)
the possibility that the additional indebtedness


                                     - 20 -

                                       
<PAGE>

permitted to be incurred under the revolving credit facility portion of the Loan
Agreement may not be sufficient to maintain the Company's operations;  (iii) the
Company's ability to satisfy its financial  obligations and to obtain additional
indebtedness, if required; (iv) the Company's ability to effectively restructure
its operations and achieve  profitability;  (v) the Company's  ability to retain
customers; (vi) the Company's ability to maintain existing supply arrangements
and terms; and (vii) and the Company's ability to retain key employees.

Readers  are  cautioned  not to place undue  reliance  on these  forward-looking
statements,  which reflect management's analysis only as of the date hereof. The
Company   undertakes  no  obligation   and  does  not  intend  to  update  these
forward-looking  statements to reflect events or circumstances  that arise after
the date hereof.

                                     - 21 -


     
<PAGE>


                        GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES



Part II.     Other Information

 
             Item 6.  Exhibits and Reports on Form 8-K

                      (a) Index of Exhibits

                          None.

                      (b) Reports on Form 8-K

                          No reports on Form 8-K were filed during the quarter
                          for which this report is filed.

                                     - 22 -

                                       
<PAGE>


                                   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.
                                                 (Registrant)


                                            /S/  WILLIAM G. HENRY             
                                            ----------------------
                                                 William G. Henry
                                                 Vice President, Finance and
                                                 Principal Financial Officer



Dated:  February 12, 1999


                                     - 23 -