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 June 30, 1999

                                       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 June 30, 1999
       -------------------                      ----------------------------

   Common Stock, $.10 par value                       19,828,321
   Class B Stock, $.10 par value                       2,092,383

                  Total Number of Pages in this Document is 26.

<PAGE>


                        GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES
                                      INDEX



                                                                      Page No.
                                                                      --------
Part I. Financial Information

        Consolidated Balance Sheets - June 30, 1999 and
        September 30, 1998                                                3

        Consolidated Statements of Operations and Accumulated
        Deficit - For the Three and Nine Months Ended
        June 30, 1999 and 1998                                            4

        Consolidated Statements of Cash Flows - For the Nine Months
        Ended June 30, 1999 and 1998                                      5

        Notes to Consolidated Financial Statements                        6

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


Part II.Other Information

        Item 4. Submission of Matters to a Vote of Security-Holders      25

        Item 6. Exhibits and Reports on Form 8-K                         25




                                      - 2 -

<PAGE>

                          PART I. FINANCIAL INFORMATION

               GENERAL DATACOMM INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


                                                 June 30,         September 30,
In thousands, except shares                        1999               1998
-------------------------------------------------------------------------------
ASSETS:                                        (Unaudited)
Current assets:
 Cash and cash equivalents                       $ 3,580            $ 3,757
 Restricted cash                                   1,000                 -
 Accounts receivable, less allowance
  for doubtful receivables of $1,720 in
  June and $1,442 in September                    26,871             30,013
 Inventories                                      30,309             30,574
 Deferred income taxes                             1,499              1,675
 Other current assets                              9,315              7,030
-------------------------------------------------------------------------------
Total current assets                              72,574             73,049
===============================================================================
Property, plant and equipment, net                37,205             40,553
Capitalized software development costs, net       21,815             24,286
Other assets                                      12,693             11,650
-------------------------------------------------------------------------------
                                                $144,287           $149,538
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
 Current liabilities:
  Current portion of long-term debt              $ 4,370             $8,133
  Accounts payable, trade                         14,479             12,763
  Accrued payroll and payroll-related costs        6,377              5,896
  Deferred income                                  4,908              6,034
  Other current liabilities                       21,125             15,122
-------------------------------------------------------------------------------
Total current liabilities                         51,259             47,948
===============================================================================
Long-term debt, less current portion              64,131             52,679
Deferred income taxes                              2,240              2,589
Other liabilities                                  1,131                364
-------------------------------------------------------------------------------
Total liabilities                                118,761            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,
  10,000,000 shares authorized; issued and
  outstanding: 2,092,383 in June and 2,093,083
  in September                                       209                209
Common stock, par value $.10 per share,
  50,000,000 shares authorized; issued and
  outstanding: 20,158,703 in June and
  19,968,280 in September                          2,016               1,997
Capital in excess of par value                   151,413             151,052
Accumulated deficit                             (123,117)           (103,066)
Cumulative foreign currency translation
  adjustment                                      (3,346)             (2,589)
Common stock held in treasury, at cost:
  330,382 shares in June and September            (2,449)             (2,445)
-------------------------------------------------------------------------------
Total stockholders' equity                        25,526              45,958
-------------------------------------------------------------------------------
                                                $144,287            $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   Nine Months Ended
                                             June 30,               June 30,
                                       ----------------      -----------------
In thousands, except per share data       1999     1998        1999       1998
-------------------------------------------------------      ------------------
Revenues:
  Net product sales                     $30,163   $37,154    $83,779   $108,889
  Service revenue                        11,112     9,221     34,565     28,406
  Other revenue                           1,094     1,656      5,221      7,286
---------------------------------------------------------    ------------------
                                         42,369    48,031    123,565    144,581
---------------------------------------------------------    ------------------
Costs and expenses:
  Cost of product sales                  15,504    17,761     42,962    54,399
  Amortization of capitalized
   software development costs             3,000     2,921      9,172     8,893
  Cost of service revenue                 7,984     6,709     23,996    20,119
  Cost of other revenue                      87       144        696       391
  Selling, general and administrative    14,514    17,788     45,967    56,208
  Research and product development        6,402     7,396     21,223    24,503
  Restructuring of operations                 -         -      2,000     2,500
---------------------------------------------------------    ------------------
                                         47,491    52,719    146,016   167,013
---------------------------------------------------------    ------------------
Operating loss                           (5,122)   (4,688)   (22,451)  (22,432)
---------------------------------------------------------    ------------------
Other income (expense):
  Gain on sale of assets                     -         -       9,001         -
  Interest, net                          (1,801)   (1,530)    (4,999)   (4,341)
  Other, net                                 49        32        448       168
---------------------------------------------------------    ------------------
                                         (1,752)   (1,498)     4,450    (4,173)
---------------------------------------------------------    ------------------
Loss before income taxes                 (6,874)   (6,186)   (18,001)  (26,605)
Income tax provision                        200       100        700       600
---------------------------------------------------------    ------------------
Net loss                                ($7,074)  ($6,286)  ($18,701) ($27,205)
=========================================================    ==================
Basic and diluted loss per share         ($0.34)   ($0.31)    ($0.92)   ($1.33)
=========================================================    ==================
Weighted average number of common and
 common equivalent shares outstanding    21,918    21,542     21,819    21,458
=========================================================    ==================
Accumulated deficit at beginning
 of period                            ($115,593) ($89,693) ($103,066) ($67,874)
Net loss                                 (7,074)   (6,286)   (18,701)  (27,205)
Payment of preferred stock dividends       (450)     (450)    (1,350)   (1,350)
---------------------------------------------------------    ------------------
Accumulated deficit at end of period  ($123,117) ($96,429) ($123,117) ($96,429)
=========================================================    ==================

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
                                                  ----------------------------
                                                        Nine Months Ended
                                                            June 30,
                                                  ----------------------------
In thousands                                         1999            1998
------------------------------------------------------------------------------
Cash flows from operating activities:
 Net loss                                         ($18,701)       ($27,205)
 Adjustments to reconcile net loss to
  net cash used in operating activities:
   Depreciation and amortization                    19,574          19,963
   Gain on sale of assets                           (9,001)              -
   Changes in:
    Accounts receivable                              2,936           4,488
    Inventories                                        329           6,770
    Accounts payable and accrued expenses            7,098          (2,694)
    Other net current assets                        (2,588)             89
    Other net long-term assets                      (2,176)           (355)
------------------------------------------------------------------------------
Net cash provided by (used in) operating
 activities                                         (2,529)          1,056
------------------------------------------------------------------------------
Cash flows from investing activities:
 Acquisition of property, plant and equipment, net  (6,282)         (5,247)
 Capitalized software development costs             (9,534)         (9,354)
------------------------------------------------------------------------------
Net cash used in investing activities              (15,816)        (14,601)
------------------------------------------------------------------------------
Cash flows from financing activities:
 Proceeds from revolver borrowings                 120,646               -
 Payments on revolver borrowings                  (109,211)         (4,799)
 Proceeds from sale of assets, net                  12,013               -
 Proceeds from notes and mortgages                  14,679          15,094
 Principal payments on notes and mortgages         (18,898)         (6,517)
 Proceeds from issuing common stock                    380             534
 Payment of preferred stock dividends               (1,350)         (1,350)
------------------------------------------------------------------------------
Net cash provided by financing activities           18,259           2,962
------------------------------------------------------------------------------
Effect of exchange rates on cash                       (91)            (42)
------------------------------------------------------------------------------
Net decrease in cash and cash equivalents             (177)        (10,625)
Cash and cash equivalents at beginning
  of period - (1)                                    3,757          21,526
------------------------------------------------------------------------------
Cash and cash equivalents at end of period - (1)    $3,580         $10,901
==============================================================================
(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 June 30, 1999, the consolidated
               results of their  operations  for the three and nine months ended
               June 30, 1999 and 1998,  and their cash flows for the nine months
               ended June 30, 1999 and 1998. 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.  In addition,  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):

                                       June 30, 1999     September 30, 1998
                                       -------------     ------------------

             Raw materials               $10,612             $10,945
             Work-in-process               3,003               3,611
             Finished goods               16,694              16,018
                                        --------             -------
                                         $30,309             $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 consists of (in thousands):

                                            June 30, 1999   September 30, 1998
                                            -------------   ------------------

               Land                            $  1,763          $  1,784
               Buildings and improvements        29,939            30,134
               Test equipment, fixtures
                and field spares                 56,970            54,897
               Machinery and equipment           60,849            59,957
                                               --------          --------
                                                149,521           146,772
               Less:  accumulated
                depreciation and
                amortization                    112,316           106,219
                                               $ 37,205          $ 40,553
                                               ========          ========


NOTE 4.        CAPITALIZED SOFTWARE DEVELOPMENT COSTS

               The accumulated  amortization of capitalized software development
               costs  amounted to $18,356,000  and  $17,972,000 at June 30, 1999
               and September 30, 1998, respectively.


NOTE 5.        LONG-TERM DEBT

               Long-term debt consists of (in thousands):

                                              June 30, 1999  September 30, 1998
                                              -------------  -----------------

               Revolving credit facility        $13,022           $ 1,587
               Notes payable                     19,945            23,173
               7-3/4% convertible senior
                 subordinated debentures         25,000            25,000
               Mortgages payable                 10,534            11,052
                                                -------           -------
                                                 68,501            60,812
               Less:  current portion             4,370             8,133
                                                -------           -------
                                                $64,131           $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
               Through May 14,  1999,  the Company had a $40.0  million loan and
               security agreement (the "Loan Agreement") in place which provided
               the Company with $15.0 million in proceeds 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 the  revolving  line of
               credit funds was subject to  satisfying a borrowing  base formula
               related to levels of certain accounts  receivable and inventories
               and the satisfaction of other financial covenants.

               On May 14, 1999, the Company entered into a new three-year  $40.0
               million loan and security  agreement  (the "New Loan  Agreement")
               with Foothill Capital Corporation to provide additional funds for
               operations and replace the Company's  existing bank group.  Under
               provisions  of  the  New  Loan  Agreement,   the  Company's  cash
               availability  increased by $6.3 million  (before  related closing
               costs  incurred),  as a result of the refinancing of the existing
               term loan, which had an outstanding balance of approximately $8.7
               million,  with  $15.0  million  in new term  loans.  Furthermore,
               financial  covenants and formulas in the New Loan  Agreement were
               restructured to be less restrictive to the Company.

               The New Loan  Agreement  is  comprised  of $15.0  million in term
               loans  and a $25.0  million  (maximum  value)  revolving  line of
               credit.  The term loans will bear  interest  at an annual rate of
               12.5%  during the first year,  13.0% in the second year and 14.0%
               thereafter,  payable  monthly.  Commencing in June 2000,  monthly
               principal payments in the amount of $312,000 become payable,  and
               the term loans are due and  payable in full upon  termination  of
               the New Loan  Agreement.  One term loan is  convertible  into the
               Company's  common stock at a conversion price of $5.00 per share,
               or a maximum of 600,000 shares.

               Under  the  revolving  line of  credit  portion  of the New  Loan
               Agreement,  funds are advanced  subject to satisfying a borrowing
               base formula related to levels of certain accounts receivable and
               inventories and the  satisfaction  of other financial  covenants.
               Under this formula, at June 30, 1999, the Company would have been
               able to borrow up to the full $25.0  million.  The actual  amount
               borrowed at June 30, 1999 was $13.0 million.

               Most  assets  of  the  Company,  including  accounts  receivable,
               inventories  and  property,  plant and  equipment  are pledged as
               collateral  under the New Loan  Agreement.  Interest  on revolver
               borrowings is payable monthly at the greater of prime plus 0.625%
               or 7.0% per annum. The applicable prime rate was 7.75% at June
               30, 1999.


                                      - 8 -
<PAGE>


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

NOTE 5.   LONG-TERM DEBT (continued)

               Financial  covenants of the New Loan  Agreement  require that the
               Company's reported stockholders' equity,  excluding the impact of
               any foreign currency translation adjustments occurring subsequent
               to  March  31,  1999,   equal  or  exceed  $18.1   million  (such
               stockholders'  equity,  as defined,  amounted to $25.6 million at
               June 30,  1999).  Separately,  annual  capital  expenditures  are
               limited  to a  maximum  of  $12.0  million  under  the  New  Loan
               Agreement.

               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 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 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
                assets (including  goodwill) were recorded for these payments at
                the date of acquisition. Subsequent to the acquisition, VITAL is
                recording  the  assets  and  corresponding  liabilities  as such
                amounts become unconditional.

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 Division and Network
                Access  Division.  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  resulted  in  a  work  force  reduction  of
                approximately  200  persons.  The net loss  for the nine  months
                ended June 30, 1999 includes a charge of $2.0 million,  or $0.09
                per share,  primarily  for  post-employment  benefits  under the
                Company's  severance  plan, of which $667,000 was unpaid at June
                30, 1999; the Company  expects to pay such unpaid amounts during
                fiscal 1999 or the early part of fiscal 2000.

                                      - 9 -
<PAGE>


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

NOTE 7.    RESTRUCTURING OF OPERATIONS (continued)

               The net loss for the nine months  ended June 30, 1998  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 intangible  assets and other costs  associated  with
               the elimination of low-volume product lines.


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

               In  December  1998,  the  Company  reported  the  sale of its TAG
               division.  The Company had been actively pursuing the sale of its
               TAG  division  since  it was 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 nine months  ended June 30,  1999.  Of such
               $12.0 million, $1.0 million was being held in escrow and reported
               as  restricted  cash at June 30, 1999;  the Company  received the
               $1.0 million of escrowed funds in July 1999.

               The Company's  previous Loan Agreement provided that a portion of
               the  proceeds  (approximately  $4.3  million)  be used to  reduce
               outstanding  indebtedness  under  the  Loan  Agreement,  and this
               occurred in January 1999.


                                     - 10 -
<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        Nine Months Ended
                                         June 30,                  June 30,
                                    1999           1998       1999         1998
                                    -------------------       -----------------
   Numerator:
      Net loss                   $(7,074)    $(6,286)    $(18,701)    $(27,205)
      Preferred stock dividends      450         450        1,350        1,350

      Numerator for basic and
       diluted loss per share -
       loss applicable to common
       stockholders              $(7,524)    $(6,736)    $(20,051)    $(28,555)
                                 ========    ========    =========    =========

   Denominator:
       Denominator for basic and
       diluted loss per share -
       weighted average shares
       outstanding                21,918      21,542       21,819       21,458
                                  ------     -------       -------     -------
   Basic and diluted loss per
   share                          $(0.34)    $(0.31)       $(0.92)     $(1.33)
                                  =======    =======       =======     =======

                The net loss reported for the nine-month  periods ended June 30,
                1999 and 1998 includes 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  dilutive  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 nine  months  ended  June 30,  1999  approximated  3,508,400
                shares,  of which  3,263,900  would  not have been  included  in
                diluted  earnings  per share  calculations  for the nine  months
                ended June 30, 1999 (if the Company  reported net income for the
                referenced period) because the effect would be antidilutive.


                                     - 11 -
<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
                became  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  reported  in the  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      Nine Months Ended
                                        June 30,                  June 30,
                                    1999      1998           1999        1998
                                   -------   --------      --------   ---------

Net loss                          $(7,074)   $(6,286)      $(18,701)  $(27,205)
Other comprehensive income
 (loss), net of tax:
Foreign currency translation
 adjustments                          (93)      (261)          (757)      (295)
                                  --------   --------      ---------  ---------
Comprehensive loss                $(7,167)   $(6,547)      $(19,458)  $(27,500)
                                  ========   ========      =========  =========



                                     - 12 -
<PAGE>


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


General Summary Discussion

The quarter ended June 30, 1999  represents the second fiscal quarter  completed
since the Company  restructured  its  business  operations  into three  distinct
business units in December 1998, and the new business units have started to show
improved  results when compared to the preceding  quarter ended March 31, 1999.
The  Network  Access  business  unit  achieved  product  revenue  growth of $1.5
million,  or 10%, and the  Broadband  Systems  business  unit  achieved  product
revenue growth of $2.9 million, or 26%.

In addition,  the business units were able to reduce expenses in accordance with
plans.  When compared to the preceding  quarter ended March 31, 1999,  operating
expenses were reduced by $836,000,  or approximately  4%.  Furthermore,  in July
1999, the Company decided to suspend product development  activities in its U.K.
Advanced Research Centre.  All  documentation and intellectual  property will be
transferred  to the U.S.  research  and  development  operation.  The  Company's
operating expenses will be reduced by, approximately, an additional $1.0 million
per quarter, or $4.0 million annually, as a result of this action.

On May 14, 1999,  the Company  signed a new $40.0  million loan  agreement  with
Foothill Capital Corporation ("New Loan Agreement"). Under provisions of the New
Loan Agreement, the Company received an immediate cash infusion of $6.3 million.
Furthermore, financial covenants and formulas in the the New Loan Agreement were
restructured to be less  restrictive to the Company (refer to Note 5, "Long-Term
Debt" for additional information).

Descriptions of current quarter and fiscal  year-to-date  results as compared to
the corresponding periods of the previous fiscal year are included below.

Results of Operations

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


                                     - 13 -
<PAGE>


                                  Three months ended         Nine months ended
                                       June 30,                   June 30,
                                  1999         1998         1999          1998
                                  ----         ----         ----          ----
Revenues:
    Net product sales            71.2%        77.4%        67.8%         75.3%
Service revenue                  26.2         19.2         28.0          19.7
    Other revenue                 2.6          3.4          4.2           5.0
                                 ----         ----         ----          ----
                                100.0        100.0        100.0         100.0
Costs and expenses:
    Cost of revenues             55.6         51.2         54.8          51.8
    Amortization of capitalized
      software development costs  7.1          6.1          7.4           6.2
    Selling, general and
      administrative             34.3          37.1        37.2          38.9
    Research and product
      development                15.1         15.4         17.2          16.9
    Restructuring of operations   --            --          1.6           1.7
                                -------      -------      -------       ------
Operating loss                  (12.1)        (9.8)       (18.2)        (15.5)
                                -------      -------      -------       -------
Net loss                        (16.7)%      (13.1)%      (15.1)%       (18.8)%
                                =======      =======      =======       =======

Summary  comments are as follows:  (1) quarter and  year-to-date  product  sales
declined,  offset in part with growth in service  revenue  (refer to  "Revenues"
caption below for further discussion); as a result, product revenue represents a
reduced  percentage  of total  revenue,  while  service  revenue  represents  an
increased percentage of total revenue; (2) other revenue also represents a lower
percentage  of  total  revenue   reflecting  a  reduction  in  royalty   revenue
attributable to the Company's TAG division being sold in December 1998 (refer to
Note 8 for details); (3) quarter and year-to-date cost of revenues,  measured as
a percent of revenue,  increased  from the prior year  reflecting  the  combined
impact of (lower margin)  service  revenue  representing a higher  percentage of
total revenue,  reduced amounts of (higher margin) royalty revenue  attributable
to the sale of TAG, and some product margin erosion; (4) year-to-date  operating
expenses (excluding  restructuring  charges) are down when measured as a percent
of revenue, despite lower revenue bases in fiscal 1999; this reflects the impact
of the Company's  restructuring and cost reduction  actions,  which have reduced
operating  expenses by $13.5  million,  or 16.8%,  as compared to the first nine
months of fiscal 1998; (5) the year-to-date 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 TAG.

Revenues
                            Three months ended            Nine months ended
                                  June 30,                     June 30,
                            1999          1998            1999          1998
                            ----          ----            ----          ----
        Revenues           $42,369      $48,031          $123,565    $144,581
        Percent change     (11.8)%          --             (14.5)%       --


                                     - 14 -
<PAGE>


Revenues in the quarter ended June 30, 1999  decreased  $5.7 million,  or 11.8%,
compared  to the prior  year,  reflecting  a  product  revenue  decline  of $7.0
million,  or 18.8%,  offset in part with service revenue growth of $1.9 million,
or 20.5%; other revenue was down $0.6 million from the prior year,  reflecting a
reduction  in royalty  revenue  attributable  to the sale of the TAG division in
December 1998 (refer to Note 8 for details).  The entire product revenue decline
occurred  in the  Broadband  Systems  Division,  whose  revenues  were down $7.2
million,  or 33%;  the  Division's  older  legacy  internetworking  product line
accounted  for  most  ($5.2  million)  of  the  reduction.  Geographically,  the
Broadband  Systems  Division  revenue loss was  experienced in Central  America,
Latin America and Asia. The Network Access Division  experienced  modest revenue
growth of $0.2 million.

The VITAL Network  Services  business unit's revenue growth of $1.9 million,  or
20.5%,  reflects an  increase in its  third-party  service  business,  including
VITAL's  new  partnership  with  Olicom,  Inc.  (refer  to Note 6 for  details),
partially  offset with a decline in services  related to the  installed  base of
GDC's legacy products.

Geographically,  international  revenues accounted for 44% of total consolidated
revenues  for  the  quarter  ended  June  30,  1999 as  compared  to 48% for the
comparable  period  one  year  ago,  principally  reflecting  the  revenue  loss
experienced in Central America, Latin America and Asia.

Year-to-date:  Revenues  for the nine months  ended June 30, 1999  decreased  by
$21.0  million,  or 14.5%,  as compared to the prior year,  reflecting a product
revenue decline of $25.1 million,  or 23.1%, offset in part with service revenue
growth of $6.2 million,  or 21.7%;  other revenue was down $2.1 million from the
prior year,  primarily  reflecting  the sale of TAG referenced  above.  Both the
Broadband  Systems  Division  (down $19.9  million,  or 33%) and Network  Access
Division (down $5.2 million,  or 11%)  contributed to the  year-to-date  product
revenue  decline.  A  significant  portion of the Broadband  Systems  Division's
revenue decline ($14.4 million) was  attributable to the division's older legacy
internetworking  product line. The division's  ATM revenue  decline  amounted to
$5.5 million on a  year-to-date  basis.  Geographically,  most of the  Broadband
Systems Division's  revenue loss occurred in Central America,  Latin America and
Asia. The Network Access Division's revenue loss was principally  experienced in
the domestic  (Telco)  marketplace;  internationally,  strong  revenue growth in
Canada offset reductions in Central America, Latin America and Europe.

The above discussion  regarding VITAL's  third-party revenue growth also applies
to the $6.2 million,  or 21.7%,  revenue growth which VITAL Network Services has
achieved on a year-to-date basis.

Geographically,  international  revenues  accounted  for 46%  and  49% of  total
consolidated  revenues for the nine-month  periods ended June 30, 1999 and 1998,
respectively,  again reflecting reduced revenue levels in Central America, Latin
America and Asia.

                                     - 15 -
<PAGE>

Cost of Revenues:

                                      Three months ended     Nine months ended
                                          June 30,               June 30,

                                       1999         1998     1999        1998
                                       ----         ----     ----         ----

         Cost of revenues             $23,575     $24,614   $67,654     $74,909
         As a percent of revenues       55.6%       51.2%     54.8%       51.8%

         Amortization of capitalized
           software development costs  $3,000     $2,921    $9,172      $8,893
         As a percent of revenues        7.1%       6.1%      7.4%        6.2%

Cost of revenues,  measured as a percent of revenues, for the quarter ended June
30, 1999  increased  by 4.4 points as compared to the same quarter one year ago.
The margin loss is  attributable  to revenue mix and some product margin erosion
in the domestic marketplace. Regarding revenue mix, high margin royalty revenues
are down as a result  of the sale of TAG;  separately,  service  revenue,  which
generates lower margin than product sales,  accounted for  approximately  26% of
total revenue in the current  quarter as compared to 19% of total revenue in the
same  quarter  one year ago.  Service  margins  are up 0.9 points  from the same
quarter one year ago, reflecting the division's increased revenue base.

Year-to-date:  Cost of revenue,  measured as a percent of revenue, for the first
nine months of fiscal 1999 increased by 3.0 percentage points as compared to the
corresponding  period of fiscal 1998.  Most of the  year-to-date  margin loss is
attributable to the revenue mix issues  discussed  above.  Year-to-date  service
margins are up 1.4 points from the prior year,  again  reflecting the division's
increased revenue base.

Amortization of capitalized software development costs did not change materially
from the prior year. However, due to the lower revenues,  such costs represented
a higher  percentage of revenue in both the three- and nine-month  periods ended
June 30, 1999 as compared to the corresponding periods of fiscal 1998.

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
efficiencies,  and the  introduction of new generation  products which generally
provide higher margins.


                                     - 16 -
<PAGE>


Selling, General and Administrative Expenses

                                  Three months ended         Nine months ended
                                       June 30,                  June 30,
                                  1999          1998         1999        1998
                                  ----          ----         ----        ----

Selling, general, and
  administrative expenses        $14,514      $17,788       $45,967   $56,208
Percent change                   (18.4)%           --       (18.2)%       --
As a percent of revenues          34.3%         37.0%        37.2%      38.9%

The  Company's  cost  reduction  plans  (refer  to  Note  7,  "Restructuring  of
Operations") have been effective in reducing selling, general and administrative
expenses. Selling, general and administrative expenses are down $3.3 million, or
18.4%, for the quarter ended June 30, 1999 and $10.2 million,  or 18.2%, for the
nine-month period ended June 30, 1999 as compared to the  corresponding  periods
of fiscal 1998. 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  capital  spending  and  related  depreciation
expense resulting from effective  management of the Company's capital investment
program.  Despite a significantly  reduced revenue base,  year-to-date  selling,
general and  administrative  expenses were also down 1.7 percentage  points when
measured as a percent of revenue.

Research and Product Development Costs

                                 Three months ended          Nine months ended
                                       June 30,                  June 30,

                                   1999       1998           1999         1998
                                   ----       ----           ----         ----

Gross expenditures                 $9,402     $10,737        $30,757    $33,857
Percent change                     (12.4)%        --          (9.2)%        --
As percent of revenues              22.2 %      22.4%          24.9%      23.4%
-------------------------------------------------------------------------------
Capitalized software costs         $3,000     $3,341         $ 9,534     $9,354
As a percent of gross expenditures  31.9%      31.1%           31.0%      27.6%
-------------------------------------------------------------------------------
Net research and product
 development costs                 $6,402     $7,396         $21,223    $24,503
Percent change                    (13.4)%        --          (13.4)%         --
As a percent of revenues           15.1 %      15.4%           17.2%      16.9%


                                     - 17 -


<PAGE>

The Company continues to prioritize the magnitude of investments in research and
product  development  in fiscal  1999,  with gross  spending  for the first nine
months  approximating an annual rate of $41.0 million,  or 25% of revenue.  Such
spending is, however,  being closely  monitored by the Network Access Division's
and Broadband Systems Division's management teams. The strategy of both business
units has been to  significantly  reduce  or  eliminate  development  activities
targeted at  sustaining  legacy  products and,  more  importantly,  to limit the
investment  of new funds  into  projects  considered  to have  only the  highest
likelihood of success.  As a result,  positions  were  eliminated as part of the
December 1998 restructuring process.  Furthermore, the Divisions' management has
been careful to replace only critical,  high  value-added  positions as employee
attrition occurs; use of outside development  engineers has also increased in an
effort to assure focused development efforts and improve productivity.

Gross  spending for the quarter  ended June 30, 1999 was down $1.3  million,  or
12.4%,  as compared  to the  quarter  ended June 30,  1998.  Year-to-date  gross
spending  follows a similar pattern,  down $3.1 million,  or 9.2%, from the same
nine-month  period  one  year  ago.  The  spending  reductions  are  principally
attributable  to  lower  compensation  costs  (resulting  from  a  reduction  in
worldwide engineering headcount), and were achieved despite ongoing salary merit
increases and other  inflationary  increases.  Outside  research and development
service costs were up slightly from the prior year.

Spending in the ATM area by the Broadband  Systems  business unit  accounted for
71% and 54% of total product  development  spending for the quarters  ended June
30, 1999 and 1998,  respectively,  and 67% and 54% of total product  development
spending for the nine-month periods ended June 30, 1999 and 1998,  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,  measured  as a  percentage  of gross
spending,  were higher than the previous year for both the three- and nine-month
periods ended June 30, 1999,  indicating  that software  development  activities
represent  a  greater  proportion  of total  research  and  product  development
spending.

The Company has been conducting 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. As
noted in the  preceding  General  Summary  Discussion,  the Company has recently
decided to suspend product development  activities in the U.K. Advanced Research
Centre.  All documentation and intellectual  property will be transferred to the
U.S. research and development  operation.  Research and development expense will
be reduced by approximately $1.0 million per quarter,  or $4.0 million annually,
as a result of this action.


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

Results  for the  nine-month  periods  ended  June 30,  1999  and  1998  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 December 1998 involved the creation of two new
and distinct  business  units,  the Network  Access  Division and the  Broadband
Systems Division. In an effort


                                     - 18 -


<PAGE>

to  improve  product  line  focus and  overall  operational  productivity,  each
business unit is comprised of a dedicated  general manager and dedicated  sales,
marketing,  product  development  and financial  support  functions.  During the
previous  quarter ended March 31, 1999, the new business units made  significant
progress in defining their business  strategies,  organizational  structures and
operating  procedures,  and further  progress was  achieved  this  quarter.  The
Company anticipates productivity  improvements across all operational areas from
each business unit going forward.  Both business units posted sequential quarter
revenue growth in the quarter ended June 30, 1999.

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

Net interest  expense amounted to $1.8 million and $1.5 million for the quarters
ended  June 30,  1999 and  1998,  respectively.  On a  year-to-date  basis,  net
interest  expense  amounted to $5.0 million and $4.3 million for the nine months
ended June 30, 1999 and 1998,  respectively.  The increases are  attributable to
increased  borrowing  levels,  reduced  amounts of cash available for investment
(and a corresponding  reduction in interest  income) and the amortization of new
loan  origination  costs  incurred  to execute  the new $40.0  million  loan and
security agreement with Foothill Capital Corporation.

The nine months  ended June 30, 1999  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.

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 $200,000 and $100,000 in the quarters  ended
June 30,  1999  and  1998,  respectively,  and  $700,000  and  $600,000  for the
nine-month periods ended June 30, 1999 and 1998,  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; such activity resulted in a net
currency  exchange gain or (loss) of $42,000 and $168,000 for the quarters ended
June 30,  1999 and 1998,  respectively,  and  $311,000  and  $(142,000)  for the
nine-month periods ended June 30, 1999 and 1998, respectively.



                                    - 19 -
<PAGE>

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. See
"Market Risk" below for further discussion of foreign currency risk.

As a result of lower 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 Mexican peso as the functional  currency  effective
January 1, 1999.  Previously the U.S. dollar had been the designated  functional
currency.  This  change  did not have a material  impact on  current  quarter or
year-to-date  financial results,  and 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.

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

For discussion applicable to 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."


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

The  Company's  cash and cash  equivalents  amounted to $3.6 million at June 30,
1999,  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,  additional  borrowings  under its revolving  credit  facility  ($11.7
million of additional  borrowings available at June 30, 1999) 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  division  and
received  approximately  $12.0  million of net proceeds,  after related  selling
costs. Refer to Note 8,  "Sale of  Technology  Alliance  Group  Division,"  for
further  discussion.)  Other alternative sources could also include the issuance
of new debt instruments, debt arrangements and/or equity securities.

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 purpose of the  restructuring  was to reorganize
into autonomous business units with product focus to deliver higher revenues and
a lower,  more  efficient cost  structure.  Refer to Note 7,  "Restructuring  of
Operations," for further discussion of the business restructuring.

                                     - 20 -

<PAGE>

Through May 14, 1999,  the Company had a loan and security  agreement (the "Loan
Agreement")  in place  which  provided  the Company  with a five-year  term loan
(approximately  $8.7  million owed on May 14,  1999),  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 the revolving  line of
credit  funds was subject to  satisfying  a borrowing  base  formula  related to
levels of certain  accounts  receivable and inventories and the  satisfaction of
other financial covenants.

On May 14, 1999, the Company  entered into a new  three-year  $40.0 million loan
and  security  agreement  (the  "New  Loan  Agreement")  with  Foothill  Capital
Corporation to provide additional funds for operations and replace the Company's
existing bank group.  Under provisions of the New Loan Agreement,  the Company's
cash  availability  increased  by $6.3 million  (before  related  closing  costs
incurred),  as a result of the refinancing of the existing term loan,  which had
an  outstanding  balance of $8.7 million,  with $15.0 million in new term loans.
Furthermore,  financial  covenants and formulas in the New Loan  Agreement  were
restructured to be less restrictive to the Company.

Refer  to  Note  5,  "Long-Term  Debt,"  for  additional  discussion,  including
effective interest rates and principal payment due dates.

Under  the  revolving  line  of  credit  portion  of  the  New  Loan  Agreement,
availability is subject to satisfying a borrowing base formula related to levels
of certain  accounts  receivable and inventories  and the  satisfaction of other
financial covenants. Most assets of the Company,  including accounts receivable,
inventories and property, plant and equipment are pledged as collateral. Maximum
funds  available for borrowing  under the New Loan  Agreement  revolving  credit
facility amounted to $25.0 million at June 30, 1999; maximum funds available for
borrowing under the previous Loan Agreement  revolving credit facility  amounted
to $25.0 million at September  30, 1998.  Outstanding  revolving  line of credit
borrowings  amounted  to $13.0  million  and $1.6  million at June 30,  1999 and
September 30, 1998, respectively. Letters of credit also reduce the availability
of funds under the revolving  line.  Letters of credit in the amount of $253,000
and  $763,000  were  outstanding  at June  30,  1999  and  September  30,  1998,
respectively.

Financial  covenants  of the New  Loan  Agreement  require  that  the  Company's
reported  stockholders'  equity,  excluding  the impact of any foreign  currency
translation  adjustments occurring subsequent to March 31, 1999, equal or exceed
$18.1 million (such stockholders' equity, as defined,  amounted to $25.6 million
at June 30,  1999).  Financial  covenants  also limit annual  capital  equipment
expenditures  to $12.0  million.  The New Loan  Agreement's  covenants  may,  if
violated,   limit  access  to  future  borrowings  and  may  accelerate  payment
requirements  on  outstanding  borrowings under both the New Loan Agreement and
other outstanding loans.

Since the Company  realized  losses of $33.4  million for total  fiscal 1998 and
$18.7 million for the nine months ended June 30, 1999, a combination  of revenue
growth and cost  reductions will be required in the remainder of fiscal 1999 and
in fiscal 2000 to maintain  compliance with the minimum equity balance  covenant
requirement.  Alternatively,  the Company could pursue an equity  financing  to
satisfy the equity covenant.  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


                                     - 21 -
<PAGE>

a waiver or amendment.  Management has  implemented  and is committed to execute
further cost  reduction (or other) actions as necessary to improve the Company's
operating results and maintain compliance with the New 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,  the Company's ability to authorize additional shares of its common
stock  and/or  market  demand for the  Company's  technologies  and/or  security
offerings.  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 New 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 all other outstanding indebtedness of
the Corporation.

Total  outstanding  debt  amounted to $68.5  million at June 30,  1999,  as
compared  to $60.8  million at  September  30,  1998.  The net  increase of $7.7
million  is  comprised  of $11.4  million  of new  (net)  borrowings  under  the
Company's  revolving line of credit, $0.9 million of incremental (net) term loan
borrowings and other miscellaneous borrowings of $0.3 million, less $4.9 million
of principal payments made to reduce other outstanding borrowings.

Operating
Net cash used in  operating  activities  amounted  to $2.5  million  in the nine
months ended June 30,  1999,  as compared to positive  cash flow from  operating
activities of $1.1 million for the nine months ended June 30, 1998.

Non-debt working capital, excluding cash and cash equivalents, amounted to $22.1
million and $29.5 million at June 30, 1999 and September 30, 1998, respectively.
The $7.4  million  reduction  is  principally  comprised of an increase in trade
accounts  payable and other accrued  expenses related to the timing of purchases
and other obligations.

Investing
Investment in property,  plant and  equipment  amounted to $6.3 million and $5.2
million in the  nine-month  periods ended June 30, 1999 and 1998,  respectively.
Approximately  $600,000 of fiscal 1999 capital  investments  are  applicable  to
VITAL Network Services'  purchase of Olicom assets,  for use in servicing Olicom
customers (refer to Note 6, "VITAL Network Services, L.L.C. Expanded Partnership
With Olicom,  Inc." for further  discussion).  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 $9.5 million and $9.4 million
for the nine-month periods ended June 30, 1999 and 1998, respectively.

                                     - 22 -
<PAGE>


Financing
Net cash provided by financing  activities in the  nine-month  period ended June
30,  1999  amounted to $18.3  million,  comprised  of $12.0  million of proceeds
received from the sale of TAG, $7.2 million of net debt borrowings, $0.4 million
of proceeds  received  from the  issuance of common  stock  pursuant to employee
stock  programs and the payment of $1.3 million in  preferred  stock  dividends.
This compares to $3.0 million of net cash proceeds  generated in the nine months
ended  June 30,  1998,  reflecting  $3.8  million of net debt  borrowings,  $0.5
million of  proceeds  received  from the  issuance of common  stock  pursuant to
employee  stock  programs  and the payment of $1.3  million in  preferred  stock
dividends.

Reference  is made to Note 5 on page 7 for a  condensed  summary of  outstanding
long-term  debt as of June 30,  1999 and  September  30,  1998,  including a new
three-year $40.0 million loan and security  agreement entered into with Foothill
Capital  Corporation  on May  14,  1999,  which  provided  the  Company  with an
immediate  cash infusion of $6.3 million.  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 June
30, 1999 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.

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.  The
referenced discussion remains current as of June 30, 1999.

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

Continuing  Losses:  The Company has  sustained net losses for the past 19
quarters  ended June 30, 1999.  There can be no assurance as to when the Company
will achieve net income.

Credit  Availability:  As noted above, the Company's New Loan Agreement requires
compliance with specific  financial  covenants,  including the requirement  that
reported  stockholders' equity, as defined,  equal or exceed $18.1 million (such
stockholders'  equity, as defined,  amounted to $25.6 million at June 30, 1999).
If the Company  fails to comply with the  required  covenants,  fails to provide
subordinate  mortgages  on certain  real  estate for which  consent has not been
provided to date by the first mortgage holder, or fails to comply with any other
provisions of the New Loan Agreement which would result in default, 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

                                     - 23 -
<PAGE>

obtained,  on terms deemed favorable by the Company.  Furthermore,  in the event
the Company does  default on its $40.0  million New 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 Company's  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 the covenant requirements of its New Loan Agreement and all other financing
arrangements,  including, if necessary, the ability to achieve amendments and/or
waivers  thereto  to  maintain  compliance  with the  terms of all  outstanding
indebtedness; (ii) the possibility that the additional indebtedness permitted to
be  incurred  under  the  revolving  credit  facility  portion  of the New  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) the Company's ability to retain key employees.

Readers  are  cautioned  not  to  place  undue  reliance on such 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.

                                     - 24 -

<PAGE>


                        GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES



Part II.     Other Information


        Item 4. Submission of Matters to a Vote of Security Holders

                  On June 18, 1999, at the Special  Meeting of  Stockholders  of
                  the Corporation, the stockholders voted to:

                  1. Increase   the   authorized   shares  of  Common  Stock  by
                     15,000,000  shares  from  35,000,000  shares to  50,000,000
                     shares and decrease the authorized  shares of Class B stock
                     by 25,000,000  shares from 35,000,000  shares to 10,000,000
                     shares:

                          Number of votes cast for:               15,997,460
                          Number of votes against:                 3,413,890
                          Number of votes abstained:                  82,828


          Item 6. Exhibits and Reports on Form 8-K

                      (a) Index of Exhibits
                          3.1 Form of Restated  Certificate of Incorporation of
                              the Corporation
                          3.2 Amended   By-Laws   of   the Corporation


                      (b) Reports on Form 8-K:
                          A Form 8-K  dated May 14,  1999,  was filed on May 27,
                          1999, to summarize the terms of the Company's New Loan
                          Agreement;  the actual New Loan Agreement was attached
                          as an exhibit to the Form 8-K.

                                     - 25 -
<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:  August 16, 1999


                                     - 26 -