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, 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 February 11, 2000
----------------------------              ----------------------------
Common Stock, $.10 par value                       24,031,040
Class B Stock, $.10 par value                       2,092,383

                 Total Number of Pages in this Document is 25.

<PAGE>

                        GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES

                                      INDEX

                                                                Page
                                                                ----

Part I.      Financial Information
             Consolidated Balance Sheets -
             December 31, 1999 and September 30, 1999 .........   3

             Consolidated Statements of Operations and
             Accumulated Deficit - For the Three Months
             Ended December 31, 1999 and 1998  ................   4

             Consolidated Statements of Cash Flows - For the
             Three Months Ended December 31, 1999 and 1998......  5

             Notes to Consolidated Financial Statements.........  6

             Management's Discussion and Analysis of
             Financial Condition and Results of Operations...... 15


Part II.     Other Information

             Item 6.  Exhibits and Reports on Form 8-K.........  24


                                 - 2 -

<PAGE>

                          PART I. FINANCIAL INFORMATION

               GENERAL DATACOMM INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                                               December 31,      September 30,
In thousands, except shares                        1999              1999
-------------------------------------------------------------------------------
ASSETS:                                        (Unaudited)
Current assets:
  Cash and cash equivalents                     $3,401              $3,790
  Accounts receivable, less allowance
   for doubtful receivables of $905
   in December and $1,375 in September          30,126              32,795
  Inventories                                   26,671              22,329
  Deferred income taxes                          1,578               1,578
  Other current assets                          11,961              12,624
-------------------------------------------------------------------------------
Total current assets                            73,737              73,116
-------------------------------------------------------------------------------
Property, plant and equipment, net              31,458              32,679
Capitalized software development costs, net     21,815              21,815
Other assets                                    12,690              12,764
-------------------------------------------------------------------------------
                                              $139,700            $140,374
-------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
  Current portion of long-term debt            $ 4,350             $ 4,533
  Accounts payable, trade                       20,463              18,669
  Accrued payroll and payroll-related costs      4,275               4,626
  Deferred income                                5,216               6,082
  Other current liabilities                     17,339              16,449
-------------------------------------------------------------------------------
Total current liabilities                       51,643              50,359
-------------------------------------------------------------------------------
Long-term debt, less current portion            53,855              64,532
Deferred income taxes                            2,206               2,337
Other liabilities                                1,324               1,053
-------------------------------------------------------------------------------
Total liabilities                              109,028             118,281
-------------------------------------------------------------------------------
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 December
    and September                                  209                 209
  Common stock, par value $.10 per share,
    50,000,000 shares authorized; issued
    and outstanding: 22,890,290 in December
    and 20,309,143 in September                  2,289               2,031
  Capital in excess of par value               165,891             151,706
  Accumulated deficit                         (133,863)           (127,472)
  Accumulated other comprehensive loss          (3,227)             (2,736)
  Common stock held in treasury, at cost:
    192,895 shares in December and 330,382
    shares in September                         (1,427)             (2,445)
-------------------------------------------------------------------------------
Total stockholders' equity                      30,672              22,093
-------------------------------------------------------------------------------
                                              $139,700            $140,374
-------------------------------------------------------------------------------
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              1999          1998
   ----------------------------------------------------------------------
   Revenues:
      Net product sales                            $35,362       $27,837
      Service revenue                               11,195        11,982
      Other revenue                                  1,023         2,600
                                               ------------  ------------
                                                    47,580        42,419
   Cost of revenues:
      Cost of product sales                         18,380        14,390
      Cost of service revenue                        8,186         8,221
      Cost of other revenue                             88           485
                                               ------------  ------------
                                                    26,654        23,096

   Gross margin                                     20,926        19,323

   Amortization of capitalized
      software development costs                     3,000         3,162

   Operating expenses:
      Selling, general and administrative           14,603        16,836
      Research and product development               5,172         7,686
      Restructuring of operations                      500         2,000
                                               ------------  ------------
                                                    20,275        26,522

   Operating loss                                   (2,349)      (10,361)

   Other income (expense):
      Debt conversion expense                       (1,524)           --
      Gain on sale of assets                            --         9,001
      Interest, net                                 (2,012)       (1,662)
      Other, net                                       244           234
                                               ------------  ------------
                                                    (3,292)        7,573

   Loss before income taxes                         (5,641)       (2,788)
   Income tax provision                                300           300
                                               ------------  ------------

   Net loss                                        ($5,941)      ($3,088)
                                               ============  ============

   Basic and diluted loss per share                 ($0.29)       ($0.16)
                                               ============  ============

   Weighted average number of common and
    common equivalent shares outstanding            22,271        21,735
                                               ============  ============

   Accumulated deficit at beginning of period    ($127,472)    ($103,066)
   Net loss                                         (5,941)       (3,088)
   Payment of preferred stock dividends               (450)         (450)
                                               ------------  ------------

   Accumulated deficit at end of period          ($133,863)    ($106,604)
                                               ============  ============

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                                             1999         1998
------------------------------------------------------------------------------
Cash flows from operating activities:

  Net loss                                            ($5,941)     ($3,088)
  Adjustments to reconcile net loss to net cash
  provided by operating activities:
    Depreciation and amortization                       5,768        6,493
    Non-cash charge for debt conversion                 1,524           --
    Gain on sale of assets                                 --       (9,001)
    Changes in:
      Accounts receivable                               2,422        7,685
      Inventories                                      (4,383)      (1,022)
      Accounts payable and accrued expenses             1,670        5,015
      Other net current assets                            520       (3,607)
      Other net long-term assets                         (592)        (504)
-------------------------------------------------------------------------------
Net cash provided by operating activities                 988        1,971
-------------------------------------------------------------------------------
Cash flows from investing activities:

  Acquisition of property, plant and equipment, net    (1,211)      (2,301)
  Capitalized software development costs               (3,000)      (3,345)
  Proceeds from sale of assets, net                        --       12,013
-------------------------------------------------------------------------------
Net cash provided by (used in) investing activities    (4,211)       6,367
-------------------------------------------------------------------------------
Cash flows from financing activities:

  Revolver borrowings (repayments), net               (15,111)       5,855
  Proceeds from notes and mortgages                    19,700           --
  Principal payments on notes and mortgages            (1,244)      (1,905)
  Proceeds from issuing common stock                        9           --
  Payment of preferred stock dividends                   (450)        (450)
-------------------------------------------------------------------------------
Net cash provided by financing activities               2,904        3,500
-------------------------------------------------------------------------------
Effect of exchange rates on cash                          (70)         (15)
-------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents     (389)      11,823
Cash and cash equivalents at beginning of period (1)    3,790        3,757
-------------------------------------------------------------------------------
Cash and cash equivalents at end of period (1)         $3,401      $15,580
===============================================================================

(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,  1999,  the
                consolidated  results of their  operations  for the three months
                ended  December 31, 1999 and 1998,  and their cash flows for the
                three months ended December 31, 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
                accounting  principles  generally  accepted in the United States
                requires  management  to make  estimates  and  assumptions  that
                effect  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 unaudited 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, 1999.

                Certain   reclassifications   were  made  to  the  prior  year's
                consolidated  financial  statements  to conform  to the  current
                year's presentation.

NOTE 2.         INVENTORIES

                Inventories consist of (in thousands):

                                December 31, 1999         September 30, 1999
                                -----------------         ------------------

               Raw materials        $   5,521                   $   5,054
               Work-in-process            266                       1,732
               Finished goods          20,884                      15,543
                                    ---------                   ----------
                                     $ 26,671                    $ 22,329
                                    =========                   ==========


                                      - 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):

                                          December 31, 1999   September 30, 1999
                                          -----------------   ------------------

                Land                           $  1,770          $   1,775
                Buildings and improvements       29,856             30,280
                Test equipment, fixtures and
                 field spares                    54,253             54,460
                Machinery and equipment          59,268             58,099
                                              ---------          ---------
                                                145,147            144,614
                Less:  accumulated
                 depreciation                   113,689            111,935
                                              ---------          ---------
                                               $ 31,458           $ 32,679
                                              =========          =========


NOTE 4.         CAPITALIZED SOFTWARE DEVELOPMENT COSTS

                The accumulated amortization of capitalized software development
                costs  amounted to $14,874,000  and  $18,065,000 at December 31,
                1999  and  September  30,  1999,  respectively.   The  reduction
                reflects the write-off of fully amortized capitalized software.

NOTE 5.         LONG-TERM DEBT

                Long-term debt consists of (in thousands):

                                         December 31, 1999    September 30, 1999
                                         -----------------    ------------------

                Revolving credit facility      $   --              $ 15,111
                Notes payable                   37,648               18,543
                7 3/4% convertible senior
                  subordinated debentures       10,520               25,000
                Mortgages payable               10,037               10,411
                                               -------              -------
                                                58,205               69,065
                Less:  current portion           4,350                4,533
                                               -------              -------
                                              $ 53,855             $ 64,532
                                              ========             ========

                                      - 7 -
<PAGE>

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


NOTE 5.         LONG-TERM DEBT (continued)

                Expansion of Credit Facility and Receipt of Proceeds

                On May 14, 1999,  the Company  entered  into a three-year  $40.0
                million  loan  and  security  agreement  with  Foothill  Capital
                Corporation  (the  "Loan  Agreement").  The Loan  Agreement  was
                comprised  of $15.0  million in term  loans and a $25.0  million
                (maximum value) revolving line of credit.  At any point in time,
                up to a maximum of $3.0 million of the outstanding term loan
                balance is convertible into the Company's common stock at a
                price of $5.00 per share.

                On December 30, 1999, the Company  expanded its credit  facility
                to $70.0  million,  as compared to the  previous  $40.0  million
                agreement.  The $30.0  million  increase is comprised of a $20.0
                million term loan (proceeds received on December 31, 1999) and a
                $10.0 million  increase in the revolving  line of credit portion
                of the credit facility. The expansion results in a $70.0 million
                credit facility (New Loan Agreement)  comprised of $35.0 million
                in term loans and a $35.0 million (maximum value) revolving line
                of credit.

                In addition, a financial covenant of the previous Loan Agreement
                was modified to be less  restrictive  to the Company,  requiring
                that stockholders'  equity, as defined, must now equal or exceed
                $10.0 million, as compared to $18.1 previously.

                The new $20.0 million term loan bears  interest at the higher of
                13.5% or the prime rate of interest  plus 5.0% (on  December 31,
                1999, the applicable  prime rate of interest was 8.5%),  payable
                monthly.  Commencing in March 2001, quarterly principal payments
                in the amount of $1.0 million become  payable,  and the new term
                loan is due and payable in full upon  termination  or expiration
                of the New Loan Agreement. At any point in time, up to a maximum
                of $4.0  million  of the  outstanding  new term loan  balance is
                convertible  into the  Company's  common  stock at a  conversion
                price of $9.00 per share.

                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 December 31, 1999, the Company
                would have been able to borrow  approximately  $25.9 million. No
                borrowings were outstanding on the line of credit as of December
                31, 1999 (as compared to $15.1 million  outstanding at September
                30, 1999).

                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 8.5% at
                December 31, 1999.

                                      - 8 -

<PAGE>

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


NOTE 5.         LONG-TERM DEBT (continued)

                Conversion of Debentures into Equity

                In  December  1999  approximately  $14.5  million  of the  $25.0
                million  in   Convertible  7  3/4%   Debentures   ("Debentures")
                outstanding  at  September  30,  1999  were  converted  into and
                exchanged  for  common  stock,   thereby  reducing   outstanding
                indebtedness    and   increasing    stockholders'    equity   by
                approximately $14.5 million and $14.0 million, respectively. The
                increase in  stockholders'  equity is comprised of approximately
                $16.0 million of equity securities issued less a non-cash charge
                of $1.5 million for debt conversion  expense  (discussed  below)
                and $0.5 million of deferred debenture offering costs which were
                charged to paid-in  capital.  Annual  interest  expense  savings
                resulting from the conversions will approximate $1.1 million.

                In three separate,  unsolicited and negotiated transactions, the
                Company issued an aggregate of 2,716,280  shares of common stock
                in exchange for the $14.5 million of Debentures,  as compared to
                2,483,279   shares   issuable   under  the  original   debenture
                conversion  terms.  Issuance of the incremental  233,001 shares
                resulted  in a non-cash charge of $1.5 million for debt
                conversion  expense in the quarter ended December 31, 1999.

                Subsequent to December 31, 1999,  an additional  $7.0 million of
                Debentures  were  converted into and exchanged for common stock,
                thereby further reducing outstanding indebtedness and increasing
                stockholders' equity. Refer to Note 11, "Subsequent Events," for
                further  discussion.  After  giving  effect to these  additional
                conversions,  outstanding Debentures  approximated $3.5 million
                as compared to $25.0 million at September 30, 1999.

                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,  1999 for  further
                disclosures  applicable to all (other) outstanding  indebtedness
                of the Corporation.

                                      - 9 -

<PAGE>

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


NOTE 6.         RESTRUCTURING OF OPERATIONS

                On  September  30, 1999,  the Company  entered into an agreement
                with the Matco Electronics  Group, Inc. ("Matco") to outsource a
                substantial  portion  of  its  manufacturing  operations.   This
                strategic decision,  executed to reduce  manufacturing costs and
                more  effectively  focus the  Company  on  product  development,
                marketing and sales  activity,  resulted in the  elimination  of
                approximately 100 manufacturing  positions. The net loss for the
                quarter  ended  December  31,  1999  includes  a charge  of $0.5
                million,  or $0.02  per  share,  primarily  for  post-employment
                benefits  under  the  Company's  severance  plan.  Most  of  the
                benefits are expected to be paid in the quarter ending March 31,
                2000.

                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,  both of which  supplement  the existing VITAL
                Network  Services  business unit,  which was launched in October
                1997. The  reorganization  resulted in a workforce  reduction of
                approximately  200  persons.  The net loss for the three  months
                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, which were paid in fiscal 1999.

NOTE 7.         SALE OF TECHNOLOGY ALLIANCE GROUP  DIVISION

                On  December  30,  1998,  the  Company  sold the  assets  of its
                Technology Alliance Group ("TAG") division, which was identified
                as non-strategic to the reorganized business units referenced in
                Note 6  above.  TAG,  which  developed,  patented  and  licensed
                advanced  modem  and  access   technologies,   was   principally
                comprised of scientists and engineers and held rights to certain
                technologies  patented by the  division.  The sale resulted in a
                pre-tax gain of approximately $9.0 million,  or $0.41 per share,
                in the three-month  period ended December 31, 1998 and generated
                cash proceeds,  net of expenses, of approximately $12.0 million.
                Technology  licensing revenues from the TAG division amounted to
                $695,000 in the three months ended December 31, 1998  (licensing
                revenues  are  reported  as  "Other  Revenue"  in the  Company's
                Consolidated Statements of Operations).

                                     - 10 -

<PAGE>

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

NOTE 8.         SEGMENT INFORMATION - INTERIM DISCLOSURES

                The Company  reorganized in December 1998, creating distinct and
                independently  managed  Strategic  Business  Units  ("SBUs") for
                specified  groups of products  and  services.  Each SBU has been
                identified as a reportable segment, as summarized below:

                  o Broadband Systems Division
                  o Network Access Division
                  o VITAL Network Services, L.L.C.
                  o DataComm Leasing Corporation

                The  accounting  policies of the  segments are the same as those
                described  in Note 1,  "Description  of Business  and Summary of
                Significant  Accounting Policies," in the Company's consolidated
                financial  statements  filed  with Form 10-K for the year  ended
                September 30, 1999, except for capitalized  software accounting.
                Such  costs  are  treated  as a period  expense  when  measuring
                divisional performance.

                The  Company  evaluates  the  performance  of its  segments  and
                resource   allocation  based  upon  operating   income,   before
                capitalized  software  accounting,   restructuring  charges  and
                executive level general  corporate costs (i.e.,  chief executive
                officer,  chief  operating  officer,  chief  financial  officer,
                corporate strategic planning,  investor relations,  etc.). There
                are no intersegment  revenues, and BSD and NAD recognize revenue
                for the sale of their product lines only (i.e.,  BSD  recognizes
                no revenue for the sale of NAD product and vice versa).

                For additional information,  including a description of the type
                of business  conducted by each  respective SBU, refer to Note 11
                in the Company's  consolidated  financial  statements filed with
                Form 10-K for the year ended September 30, 1999.

                The tables below present  financial  performance  information by
                reportable segment (in thousands):

                                      -11-
<PAGE>

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

NOTE 8.         SEGMENT INFORMATION - INTERIM DISCLOSURES (continued)

                                                      Three Months Ended
                                                         December 31,
                                                     --------------------
                                                     1999          1998
                                                     --------------------
                Revenue:
                -------
                   Network Access Division          $ 17,928      $ 13,556
                   Broadband Systems Division         17,450        15,116
                   VITAL Network Services, L.L.C.     11,195        11,982
                   DataComm Leasing Corporation        1,007         1,070
                   Other                                 --            695
                                                    --------      --------
                     Total                          $ 47,580      $ 42,419
                                                    ========      ========

                Operating Income (Loss):
                -----------------------
                   Network Access Division          $  1,737      $ (2,551)
                   Broadband Systems Division         (3,959)       (7,375)
                   VITAL Network Services, L.L.C.        596         1,692
                   DataComm Leasing Corporation          750           756
                   Other                                   0             0
                                                    --------       -------
                     Total                          $   (876)     $ (7,478)
                                                    ========      =========



                Reconciliations  of operating income (loss),  as reported above,
                to consolidated loss before income taxes are summarized below:

                   Operating loss, per above        $   (876)     $ (7,478)
                   Capitalized software
                      activity, net                       --           183
                   General corporate expenses           (973)       (1,066)
                   Restructuring of operations          (500)       (2,000)
                   Debt conversion expense            (1,524)           --
                   Gain on sale of assets                 --         9,001
                   Other income (expense)             (1,768)       (1,428)
                                                     --------      --------
                   Loss Before Income Taxes         $ (5,641)     $ (2,788)
                                                    =========     =========



                                      -12-
<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,
                                                         1999           1998
                                                         --------------------
                Numerator:
                ---------
                   Net loss                              $ (5,941)    $ (3,088)
                   Preferred stock dividends                  450          450
                                                         ---------    ---------
                   Numerator for basic and diluted
                       loss per share - loss applicable
                       to common stockholders            $ (6,391)   $  (3,538)
                                                         =========   ==========

                Denominator:
                -----------
                   Denominator for basic and diluted
                      loss per share - weighted
                      average shares outstanding           22,271       21,735
                                                         ---------   ---------

                Basic and diluted loss per share         $ (0.29)    $  (0.16)
                                                         =========   ==========

                The net loss reported for three months ended December 31, 1999
                includes  restructuring charges of $0.5 million (or $0.02 per
                share) and debt conversion charges of $1.5 million (or $0.07
                per share).  The net loss reported for the three months ended
                December 31, 1998 includes restructuring charges of $2.0 million
                (or $0.09 per share) and a gain on sale of assets of $9.0
                million (or $0.41 per share).

                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 7, 10
                and 12, respectively,  in the Company's  consolidated  financial
                statements filed with Form 10-K for the year ended September 30,
                1999. Weighted average employee stock options outstanding during
                the three months ended December 31, 1999 approximated  3,995,000
                shares,  of which  1,191,000  would  not have been  included  in
                diluted  earnings  per share  calculations  for the three months
                ended December 31, 1999 (if the Company  reported net income for
                the referenced period) because the effect would be antidilutive.

                                     - 13 -
<PAGE>

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


NOTE 10.        COMPREHENSIVE INCOME (LOSS)

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

                                                        Three Months Ended
                                                           December 31,
                                                   -------------------------
                                                       1999             1998
                                                       ----             ----
                Net loss                           $ (5,941)        $ (3,088)
                Other comprehensive (loss),
                net of tax:
                  Foreign currency translation
                  adjustments                          (491)            (413)
                                                   ------------     ----------
                Comprehensive loss                 $ (6,432)        $ (3,501)
                                                   ============     ==========


NOTE 11.        SUBSEQUENT EVENTS

                Additional Conversions of Debentures into Equity, Subsequent to
                December 31, 1999:

                Subsequent to December 31, 1999,  approximately  $7.0 million of
                the   $10.5   million   in   Convertible   7   3/4%   Debentures
                ("Debentures")  outstanding  at December 31, 1999 were converted
                into and exchanged for common stock,  thereby  further  reducing
                outstanding  indebtedness and increasing stockholders' equity by
                approximately $7.0 million.

                In five separate,  unsolicited and negotiated transactions,  the
                Company issued an aggregate of 1,306,820  shares of common stock
                in exchange for the $7.0 million of  Debentures,  as compared to
                1,203,910   shares   issuable   under  the  original   debenture
                conversion terms.  Issuance of the incremental 102,910 shares is
                expected to result in a non-cash  charge of  approximately  $0.9
                million for debt conversion  expense in the quarter ending March
                31, 2000.

                Including  the  above,  cumulative  debt-to-equity   conversions
                amount  to $21.5  million,  leaving  $3.5  million  of the
                original  $25.0  million  in  Debentures  outstanding.  Interest
                expense will be reduced by approximately $1.7 million annually.

                                     - 14 -

<PAGE>

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


Summary Discussion

The Company's  operating  performance  and financial  resources  improved in the
first quarter of fiscal year 2000 as compared to the same quarter one year ago.

Both the current and prior years' quarters  include  unique  items that are
unrelated to ongoing operations. These items include a non-cash charge of $(1.5)
million for debt conversion  expense in the current quarter, a $9.0 million gain
on the sale of a division in the prior year's quarter and restructuring  charges
of $(0.5) million and $(2.0) million in the quarters ended December 31, 1999 and
1998, respectively, all of which are discussed later.

Excluding these unique items,  the operating loss in the current quarter is $1.8
million versus an operating loss of $8.4 million in the corresponding quarter of
fiscal 1999, an improvement of $6.6 million,  or 79%;  similar  improvement  was
achieved in the Company's  reported net loss,  which amounted to $3.9 million as
compared to $10.1  million in the same quarter one year ago, an  improvement  of
$6.2 million, or 61%.

In the current  quarter,  the  Company  improved  its access to working  capital
resources  by expanding  its credit  facility to $70.0  million,  as compared to
$40.0 million at September  30, 1999. In addition,  in December 1999 the Company
improved its financial  position when  approximately  $14.5 million of the $25.0
million in Convertible 7 3/4% Debentures ("Debentures") outstanding at September
30, 1999 were  converted into and exchanged for common stock,  thereby  reducing
outstanding  indebtedness  and  increasing  stockholders'  equity.  Furthermore,
subsequent  to December  31, 1999,  the Company  converted  an  additional  $7.0
million of Debentures into equity. The Debenture reductions ($21.5 million) will
result in an interest expense reduction of $1.7 million annually.

Descriptions of the current  quarter's  results as compared to the corresponding
period of the previous fiscal year are included below.

                                     - 15 -

<PAGE>

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,
                                                1999           1998
                                                ----           ----
Revenues:

    Net product sales                           74.3%          65.6%
    Service revenue                             23.5           28.3
    Other revenue                                2.2            6.1
                                                ----           ----
                                               100.0          100.0

Cost of revenues                                56.0           54.4
                                               ------          ----
Gross margin                                    44.0           45.6
Amortization of capitalized
  software development costs                     6.3            7.5
Selling, general and administrative             30.7           39.7
Research and product development                10.9           18.1
                                               -----          -----

Operating loss before restructuring charges     (3.9)         (19.7)

Restructuring of operations                      1.0            4.7
                                               -----          -----

Operating loss                                  (4.9)%        (24.4)%
                                               ------         -----

Net loss before unique items*                   (8.2)%        (23.8)%
                                               ------         ------
Net loss                                       (12.5)%         (7.3)%
                                               ======         =======
--------------------
*Unique items are comprised of restructuring  charges,  debt conversion expense
  and gain on sale of assets.

Summary  comments  are as follows:  (1) the revenue mix  reflects  the  combined
impact of 27% product  revenue growth and a service  revenue  decline of 6.6% as
compared to the prior  year's  quarter;  (2) other  revenue  represents  a lower
percentage  of  total  revenue   reflecting  a  reduction  in  royalty   revenue
attributable  to a division  being sold in  December  1998  (refer to Note 7 for
details);  (3)  current  quarter  cost of  revenues,  measured  as a percent  of
revenue,  increased 1.6 percentage points,  principally  reflecting the combined
impact of a reduction in (higher  margin)  royalty  revenue and reduced  service
margins;  (4)  current  quarter  operating  expenses  (excluding   restructuring
charges) are down more than 16  percentage  points when measured as a percent of
revenue,  reflecting the positive  impact of current  quarter revenue growth and
the  Company's  fiscal  1999  restructuring  efforts;  (5)  the  current  year's
operating loss, excluding the impact of restructuring charges,  improved by 15.8
percentage  points measured as a percent of revenue;  (6) current and prior year
net loss  percentages,  excluding  the unique  items  discussed  in the  summary
discussion above,  reflect a similar  improvement of 15.6 points  measured as a
percent of revenue.

                                     - 16 -
<PAGE>

Consolidated Results

The Company's operating loss,  excluding  restructuring  charges, was reduced to
$1.8 million in the current  quarter as compared to $8.4 million in same quarter
one year ago, a reduction of $6.6 million,  or 79%. The improved  performance is
comprised of a $1.6 million increase in gross margin,  a $0.2 million  reduction
in capitalized software amortization and a $4.7 million, or 19.4%,  reduction in
operating expenses.

Total revenue growth amounted to $5.2 million, or 12.2%, reflecting the combined
impact of product  revenue growth of $7.5 million,  or 27.0%, a service  revenue
decline of $0.8  million,  or 6.6%,  and a  reduction  in other  revenue of $1.5
million,  or 60.7%.  Both the Broadband Systems Division ("BSD") and the Network
Access Division ("NAD") contributed to the product revenue growth. The reduction
in other income is attributable  to a $0.7 million  reduction in royalty revenue
resulting  from a division  being  sold in  December  1998  (refer to Note 7 for
details)  and $0.8  million of  contractual  research  and  development  revenue
recorded in the prior year's first fiscal  quarter (no such revenue was recorded
in the current  quarter).  Gross  margins,  measured as a percent of revenue and
excluding capitalized software amortization,  were down 1.6 percentage points as
compared to the prior year,  reflecting  the combined  impact of  reductions  in
service revenue and royalty revenue. Geographically,  international revenues
accounted  for 53% and 47% of total  consolidated  revenues for the  three-month
periods ended December 31, 1999 and 1998, respectively.

The $4.7 million,  or 19.4%,  reduction in operating expenses is attributable to
the Company's  fiscal 1999  restructuring  efforts,  including the December 1998
reorganization  into three  distinct  business  units with  increased  operating
autonomy  (refer to Note 6,  "Restructuring  of  Operations,"  in this quarterly
report and Note 2, "Restructuring of Operations," in the Company's  consolidated
financial  statements filed with Form 10-K for the year ended September 30, 1999
for further discussion). The reduction is comprised of a $2.2 million, or 13.3%,
reduction in selling,  general and administrative expense and a $2.5 million, or
32.7% reduction in research and development  expense.  The selling,  general and
administrative  reduction  principally reflects headcount and other related cost
reductions resulting from the Company's December 1998 reengineering of its sales
and marketing  strategy,  including an increased focus on sales activity through
distributors  and other  channels,  a reduced focus on direct-sell  activity and
more productive marketing initiatives. The reduction in research and development
expense  reflects the shutdown of a non-strategic  remote  technology  center in
England in July 1999, the sale of a non-strategic division and reduced costs
associated  with more defined and focused development programs.

The Company  continues to channel a high  percentage  of its  revenues  into new
product  development.  Gross  spending for the quarter  ended  December 31, 1999
amounted to $8.2 million, or 17.2% 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, to limit the investment of new funds into projects

                                     - 17 -
<PAGE>

considered  to have only the  highest  likelihood  of success and to use outside
development engineers to complement internal development  activities,  all in an
effort to focus development efforts and improve productivity.

Restructuring of Operations:  The Company recorded restructuring charges of $0.5
million  and $2.0  million in the  quarters  ended  December  31, 1999 and 1998,
respectively.  Refer to Note 6,  "Restructuring  of  Operations,"  for  detailed
discussion.

Interest  and Other Income and  Expense:  Other  income for the current  quarter
ended December 31, 1999 includes a non-cash charge of $1.5 million, or $0.07 per
share,  for  debt  conversion  expense.  Details  regarding  the  debt-to-equity
conversions,  which  increased  stockholders'  equity  and  reduced  outstanding
indebtedness by  approximately  $14.5 million in the first fiscal  quarter,  are
discussed  in  Note  5,  "Long-Term  Debt."  Furthermore,   refer  to  Note  11,
"Subsequent   Events,"  for   discussion  of  an  additional   $7.0  million  of
debt-to-equity conversions occurring subsequent to December 31, 1999.

Prior year other  income  includes a gain of $9.0  million,  or $0.41 per share,
from the sale of a division. Refer to Note 7, "Sale of Technology Alliance Group
Division," for further discussion.  Separately, current quarter interest expense
amounted to $2.0  million as compared  to $1.7  million in the same  quarter one
year  ago;  the  increase  is  attributable  to a higher  level  of  outstanding
borrowings  during the quarter,  prior to the  debt-to-equity  conversions which
occurred at the end of the quarter.

Income Taxes:  Tax provisions  recorded by the Company,  principally for foreign
income and  domestic  state taxes,  amounted to $300,000 in the  quarters  ended
December 31, 1999 and 1998.  The Company has  significant  federal net operating
loss carryforwards available to offset future liabilities. However, based on 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.

Operating Segments:  Discussion and analysis of the financial performance of the
Company's  reportable operating segments is presented below (such discussions do
not  include  the impact of charges  for  restructuring  of  operations,  as the
Company does not segregate  such charges by business  unit).  In the case of all
operating segments,  reference is made to Note 8, "Segment Information - Interim
Disclosures," for further discussion and disclosure.

Network Access Division

NAD's current quarter  operating  income amounted to $1.7 million as compared to
an operating  loss of $(2.6)  million in the same quarter one year ago. The $4.3
million  improvement and turnaround reflects the net effect of revenue growth of
$4.4 million,  or 32.3%,  resulting  gross margin  growth of $1.6  million,  and
operating  expense  reductions of $2.7 million,  or 30.3%. The revenue growth is
primarily attributable to NAD's effort to penetrate the European market.

                                     - 18 -
<PAGE>

Broadband Systems Division

The Broadband  Systems  Division's  ("BSD's")  current  quarter  operating  loss
amounted to $(4.0) million as compared to $(7.4) million in the same quarter one
year ago, an improvement of $3.4 million, or 46.3%. The $3.4 million improvement
reflects the net effect of revenue growth of $2.3 million,  or 15.4%,  resulting
margin growth of $1.4 million, and operating expense reductions of $2.0 million,
or 13.0%.

BSD's ATM product revenue growth amounted to $2.9 million, or 27.8%, across both
domestic and international  markets; TDM product revenue was up $0.2 million, or
6.0%;  however,  such product  revenue  growth was partially  offset with a $0.8
million reduction in contractual research and development revenue.

VITAL Network Services, L.L.C. ("VITAL")

VITAL's  revenue  for the quarter  ended  December  31,  1999  amounted to $11.2
million, down $0.8 million, or 6.6% as compared to the corresponding quarter one
year ago. The Company attributes the revenue reduction to Year 2000 concerns and
hesitancy  on the part of  customers  to install new systems as a result of such
concerns. Operating expenses for the current quarter were up $0.3 million, or
16.6%,  as compared to the prior year,  reflecting  investments  in  information
systems and an expansion of the sales organization.

DataComm Leasing Corporation

DataComm  Leasing   Corporation   ("DLC")  offers  BSD  and  NAD  customers  the
opportunity  to lease rather than purchase  products.  DLC's  operating  income,
derived  from both  operating  and finance  lease  activities,  was $750,000 and
$756,000 in the quarters ended December 31, 1999 and 1998, respectively. Most of
DLC's  leases are with BSD  customers  due to the more  expensive  nature of BSD
products and customers' desire to finance such equipment through leases.

Foreign Currency Risk

The Company's foreign  subsidiaries are exposed to foreign currency fluctuations
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  is  recorded as a component  of "Other  Income and  Expense" in the
Company's  consolidated  statements of  operations  and resulted in net currency
exchange  gains of $252,000 and $227,000 in the quarters ended December 31, 1999
and 1998, respectively.

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.  Therefore,  the Company historically has not
entered into hedge  contracts or any form of derivative  or similar  investment.
Separately, the introduction of the Euro as a common currency for members of the
European  Monetary Union,  which occurred during fiscal 1999, is not expected to
significantly  impact the Company's  exposure to foreign currency  transactions.
See "Market Risk" below for further discussion of foreign currency risk.

                                     - 19 -
<PAGE>

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),  and dependence upon a limited number of
major distributors and resellers.  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,
1999, Item 7, Management's  Discussion and Analysis of Results of Operations and
Financial Condition, under the caption "Interest Risk."

Liquidity and Capital Resources

Future cash  requirements are planned to be satisfied from a combination of cash
balances ($3.4 million at December 31, 1999) and borrowings  under the Company's
revolving line of credit,  which the Company's  lenders have  authorized up to a
maximum of $35.0  million;  no  borrowings  were  outstanding  on the  Company's
revolving  line of credit as of December 31, 1999,  as compared to $15.1 million
of such  borrowings  outstanding  at September 30, 1999. In addition,  alternate
financing sources may also be available,  if required.  Such alternate financing
sources include, among other items, the sale of assets,  technologies,  existing
businesses and/or the Company's common stock.

On December 30, 1999, the Company expanded its credit facility to $70.0 million,
as compared to $40.0 million at September 30, 1999.  The $30.0 million  increase
is comprised of a $20.0  million  term loan  (proceeds  received on December 31,
1999) and a $10.0 million  increase in the revolving  line-of-credit  portion of
the credit  facility.  The expansion  results in a $70.0 million credit facility
comprised of $35.0  million in term loans and a $35.0  million  (maximum  value)
revolving  line of credit  (New  Loan  Agreement).  Refer to Note 5,  "Long-Term
Debt,"  for a  detailed  discussion  of the New  Loan  Agreement  and the  terms
thereof.

Under the revolving line of credit portion of the Company's New Loan  Agreement,
availability  of funds is subject to satisfying a borrowing base formula related
to levels of certain accounts receivable and inventories and the satisfaction of
other  financial  covenants.  Therefore,  maximum funds  available for borrowing
under  the  revolving  line of credit  portion  of the New Loan  Agreement  will
fluctuate as sales and collections efforts affect accounts receivable  balances.
Such maximum  availability  amounted to $25.9 million at December 31, 1999. Most
assets of the Company, including accounts receivable,  inventories and property,
plant and  equipment  are  pledged as  collateral.  Amounts  outstanding  on the
revolving  line of credit are payable in full upon  termination  of the New Loan
Agreement.  Separately, letters of credit reduce the availability of funds under
the  revolving  line of credit;  letters of credit in the amount of $214,000 and
$267,000  were  outstanding  at  December  31,  1999  and  September  30,  1999,
respectively.

                                     - 20 -
<PAGE>

Financial  covenants  of the New  Loan  Agreement  require  that  the  Company's
reported  stockholders'  equity,   excluding  the  impact  of  foreign  currency
translation  adjustments occurring subsequent to March 31, 1999, equal or exceed
$10.0 million. Such stockholders' equity, as defined,  amounted to $30.7 million
at December  31, 1999;  in  addition,  such  stockholders'  equity,  as defined,
increased,  on a pro forma basis as of December 31, 1999, to approximately $37.7
million in February 2000, reflecting the impact of an additional $7.0 million of
convertible  debentures  being  converted  into common stock.  Refer to Note 11,
"Subsequent  Events," for additional  discussion.  Other  covenants limit annual
capital  expenditures  to $12.0  million.  Violation of covenants  may result in
limiting access to future borrowings and/or acceleration of payment requirements
on outstanding borrowings.

To  further  improve  the  Company's  financial   position,   in  December  1999
approximately  $14.5  million  of  the  $25.0  million  in  Convertible  7  3/4%
Debentures ("Debentures")  outstanding at September 30, 1999 were converted into
and exchanged for common stock,  thereby reducing  outstanding  indebtedness and
increasing stockholders' equity. Furthermore, as noted above, an additional $7.0
million of  Debentures  were  converted  into equity  subsequent to December 31,
1999. Outstanding Debentures, after such subsequent event conversions,  amounted
to only $3.5  million at February  11,  2000,  as  compared to $25.0  million at
September 30, 1999. The cumulative  Debenture  reductions  ($21.5  million) will
result in interest expense reductions of $1.7 million annually. Refer to Note 5,
"Long-term Debt" and Note 11, "Subsequent Events," for further discussion.

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,
1999 for further disclosures applicable to all other outstanding indebtedness of
the Corporation.

Operating

Net cash  provided by  operating  activities  amounted to $1.0  million and $2.0
million  in  the   three-month   periods  ended  December  31,  1999  and  1998,
respectively.

Non-debt working capital, excluding cash and cash equivalents, amounted to $23.0
million at December 31, 1999 as compared to $23.5 million at September 30, 1999.

Investing

The Company  continues to invest in new  technologies.  Investments in property,
plant and equipment  amounted to $1.2 million in the current quarter as compared
to $2.3 million in the same quarter one year ago.  Approximately $600,000 of the
prior year's  capital  investments  were  applicable to VITAL Network  Services'
purchase of Olicom assets (for  additional  discussion,  refer to Note 4, "VITAL
Network  Services,  L.L.C.  Partnership  With  Olicom,  Inc.," in the  Company's
consolidated  financial  statements  filed  with  Form  10-K for the year  ended
September 30, 1999). Separately, investments in capitalized software amounted to
$3.0 million and $3.3 million in the quarters  ended December 31, 1999 and 1998,
respectively.  All investment  activity is targeted to satisfy minimum operating
requirements  and to  embrace  new  undertakings  with  the  greatest  potential
returns.

                                     - 21 -
<PAGE>

During the  three-month  period ended December 31, 1998,  the Company  generated
$12.0 million in net proceeds  from the sale of the  Technology  Alliance  Group
division,  which was  identified  as a  non-strategic  entity  by the  Company's
strategic  business units.  Refer to Note 7, "Sale of Technology  Alliance Group
Division," for further discussion.

Financing

Net cash  provided  by current  quarter  financing  activities  amounted to $2.9
million, comprised of $3.3 million of net borrowings and the payment of $450,000
in preferred  stock  dividends.  This activity  compares to $3.5 million of cash
provided  by  financing  activities  in the quarter  ended  December  31,  1998,
comprised  of $4.0  million of net  borrowings  and the  payment of  $450,000 in
preferred stock dividends.

Reference is made to Note 5, "Long-Term Debt" and Note 11, "Subsequent  Events,"
for a condensed  summary of  outstanding  long-term debt as of December 31, 1999
and September  30, 1999,  and  discussion  of new  borrowing and debt  reduction
activities  occurring in the quarter ended December 31, 1999, and subsequent
thereto.

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, 1999, 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, 1999,  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 21
quarters ended  December 31, 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, equals or exceeds $10.0 million (such
stockholders'  equity,  as defined,  amounted to $30.7  million at December  31,
1999). Although not anticipated, should the Company ever fail to comply with the
required covenants,  or fail to comply with any other provisions of the New Loan
Agreement  which would  result in a 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  obtained,  on terms  deemed  favorable  by the Company.
Furthermore, in the event the Company does default on its $70.0 million

                                     - 22 -
<PAGE>

New Loan Agreement obligation, such default may result in a requirement  to
accelerate  the due  dates  and  payment  of other  outstanding indebtedness.

Reliance  on  Outsourced  Manufacturing:  On  September  30,  1999,  the Company
announced  that  it  has  outsourced  substantially  all  of  its  manufacturing
operations. Therefore, the Company is largely dependent on third-party suppliers
to meet product delivery  deadlines and quality  requirements.  Any shortfall in
the  satisfaction  of these  requirements  could  negatively  impact revenue and
profitability in that quarter, and possibly thereafter.

Volatility of Stock Price:  The trading price of the Company's  Common Stock has
fluctuated  widely  in  response  to,  among  other  things,  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
financial  resources,  if required;  (iv) the Company's  ability to  effectively
restructure its operations and achieve profitability;  (v) the Company's ability
to retain  existing  and obtain new  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.

                                     - 23 -
<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
              None.

                                     - 24 -
<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 14, 2000

                                     - 25 -