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 March 31, 2001

                                       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) 758-1811
                                                         --------------

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 March 31, 2001
 ----------------------                      -----------------------------

 Common Stock, $.10 par value                        30,355,291
 Class B Stock, $.10 par value                        2,057,103

                  Total Number of Pages in this Document is 31.

<PAGE>


                        GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES

                                      INDEX


                                                                         Page

Part I -- FINANCIAL INFORMATION

               Consolidated Balance Sheets - As Of
               March 31, 2001 and September 30, 2000 ....................  3

               Consolidated Statements of Operations and
               Accumulated Deficit - For the Three and Six
               Months Ended March 31, 2001 and 2000  ....................  4

               Consolidated Statements of Cash Flows - For the
               Six Months Ended March 31, 2001 and 2000 .................  5

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

               Management's Discussion and Analysis of
               Financial Condition and Results of Operations ............. 18


Part II -- OTHER INFORMATION

        Item 4.  Submission of Matters to a Vote of Security-Holders.....  30

        Item 6.  Exhibits and Reports on Form 8-K .......................  30




                                        2

<PAGE>
                          PART I. FINANCIAL INFORMATION


               GENERAL DATACOMM INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


                                              March 31,         September 30,
In thousands, except shares                     2001               2000
-----------------------------------------------------------------------------
ASSETS:                                       (Unaudited)
  Current assets:
   Cash and cash equivalents                    $770              $3,572
   Accounts receivable, less allowance for
    doubtful receivables of $1,948 in March
      and $2,037 in September                 23,454              25,631
   Inventories                                29,810              31,718
   Deferred income taxes                       1,521               1,521
   Other current assets                        8,539               8,311
------------------------------------------------------------------------------
Total current assets                          64,094              70,753
------------------------------------------------------------------------------
Property, plant and equipment, net            21,915              29,658
Capitalized software development costs, net   16,819              22,160
Other assets                                   7,839              10,512
------------------------------------------------------------------------------
                                            $110,667            $133,083
-------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY:
  Current liabilities:
   Current portion of long-term debt         $58,535             $51,982
   Accounts payable, trade                    24,374              23,040
   Accrued payroll and payroll-related costs   3,723               4,853
   Deferred income                             5,498               6,567
   Other current liabilities                  15,000              14,070
-------------------------------------------------------------------------------
Total current liabilities                    107,130             100,512
-------------------------------------------------------------------------------
Long-term debt, less current portion           3,000               3,000
Deferred income taxes                          2,244               2,266
Other liabilities                              1,166               1,142
------------------------------------------------------------------------------
Total liabilities                            113,540             106,920
------------------------------------------------------------------------------
Commitments and contingent liabilities         --                  --
Redeemable 5% preferred stock, par value
  $1.00 per share, issued and outstanding:
  130,000 shares in March and 200,000
  shares in September; $3.3 million
  liquidation preference                      3,250                5,000
Non-redeemable preferred stock, common
stock and other stockholders' equity:
  Preferred stock, par value $1.00 per share
  3,000,000 shares authorized; issued and
  outstanding:  787,900 shares in March and
  800,000 shares in September of 9%
  cumulative convertible exchangeable
  preferred stock; $19.7 million
  liquidation preference                        788                  788
Class B stock, par value $.10 per share,
  10,000,000 shares authorized; issued
  and outstanding: 2,057,103 in March and
  September                                      206                 206
Common stock, par value $.10 per share,
  50,000,000 shares authorized; issued
  and outstanding: 30,549,905 in March
  and 27,709,710 in September                  3,055               2,771
Capital in excess of par value               191,173             189,631
Accumulated deficit                         (194,489)           (165,754)
Accumulated other comprehensive loss          (5,417)             (5,040)
Common stock held in treasury, at cost:
  194,614 shares in March and September       (1,439)             (1,439)
-------------------------------------------------------------------------------
Total non-redeemable preferred stock,
common stock and other stockholders' equity   (6,123)             21,163
-------------------------------------------------------------------------------
                                            $110,667            $133,083
-------------------------------------------------------------------------------

 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      Six Months Ended
                                            March 31,            March 31,
In thousands, except per share data     2001       2000       2001        2000
-------------------------------------------------------------------------------
Revenues:
   Net product sales                  $19,235    $29,060    $35,910     $64,422
   Service revenue                     10,658     11,378     22,820      22,573
   Other revenue                          592        949      1,193       1,972
                                       ------     ------     ------      ------
                                       30,485     41,387     59,923      88,967

Cost of revenues:
   Cost of product sales              12,557      15,276     23,370      33,656
   Cost of service revenue             8,851       8,710     18,781      16,896
   Cost of other revenue                  39          49         83         137
                                      ------      ------     ------      ------
                                      21,447      24,035     42,234      50,689

Gross margin                           9,038      17,352     17,689      38,278

Amortization of capitalized
   software development costs          2,153       2,993      4,619       5,993

Operating expenses:
   Selling, general and
     administrative                   10,833      14,922     23,460      29,525
   Research and product development    2,256       5,034      7,071      10,206
   Restructuring and other charges     1,700          --      6,600         500
                                      ------      ------     ------      ------
                                      14,789      19,956     37,131      40,231

Operting loss                         (7,904)     (5,597)   (24,061)     (7,946)

Other income (expense):
   Interest, net                      (2,180)     (2,063)    (4,189)     (4,075)
   Write-down of real estate
     assets held for sale             (4,500)         --     (4,500)         --
   Debt conversion expense               --         (879)        --      (2,403)
   Legal settlement proceeds, net        --           --      5,000          --
   Other, net                            140         111       (185)        355
                                       -----      -------      -----     -------
                                      (6,540)     (2,831)    (3,874)     (6,123)

Loss before income taxes             (14,444)     (8,428)   (27,935)    (14,069)

Income tax provision                     400         400        800         700
                                       -----      -------   --------    --------

Net loss                            ($14,844)    ($8,828)  ($28,735)   ($14,769)
                                    =========    ========  =========   =========


Basic and diluted loss per share      ($0.48)     ($0.36)    ($0.95)     ($0.65)
                                    =========    ========  =========   =========
Weighted average number of common
 and common equivalent
 shares outstanding                   30,986      25,815     30,272      24,054
                                    =========    ========  =========    ========

Accumulated deficit at beginning
 of period                         ($179,645)  ($133,863) ($165,754)  ($127,472)
Net loss                             (14,844)     (8,828)   (28,735)    (14,769)
Payment of preferred stock
  dividends                                -        (450)         -        (900)
                                   ----------  ----------- ---------   ---------
Accumulated deficit at end
 of period                         ($194,489)  ($143,141) ($194,489)  ($143,141)
                                   ==========  ========== ==========  ==========


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
                                                     ---------------------------
                                                            Six Months Ended
                                                                March 31,
                                                     ---------------------------
In thousands                                              2001          2000
-------------------------------------------------------------------------------
Cash flows from operating activities:
  Net loss                                             ($28,735)    ($14,769)
  Adjustments to reconcile net loss to net cash
  used in operating activities:
    Depreciation and amortization                         8,613       11,432
    Non-cash charge for capitalized
     software write-down                                  5,100           --
    Non-cash charge for write-down of real estate
     assets held for sale                                 4,500           --
    Non-cash charge for debt conversion                     --         2,403
    Changes in:
      Accounts receivable                                 1,947          288
      Inventories                                         1,833       (5,178)
      Accounts payable and accrued expenses                 365         (974)
      Other net current assets                             (384)       1,231
      Other net long-term assets                          2,166       (3,111)
-------------------------------------------------------------------------------
Net cash used in operating activities                    (4,595)      (8,678)
-------------------------------------------------------------------------------
Cash flows from investing activities:
  Acquisition of property, plant and equipment, net        (436)      (2,438)
  Capitalized software development costs                 (4,378)      (6,084)
-------------------------------------------------------------------------------
Net cash used in investing activities                    (4,814)      (8,522)
-------------------------------------------------------------------------------
Cash flows from financing activities:
  Revolver borrowings, net                                9,563       (1,477)
  Proceeds from notes and mortgages                          --       20,700
  Principal payments on notes and mortgages              (2,995)      (2,162)
  Proceeds from issuing common stock                         82          719
  Payment of preferred stock dividends                       --         (900)
-------------------------------------------------------------------------------
Net cash provided by financing activities                 6,650       16,880
-------------------------------------------------------------------------------
Effect of exchange rates on cash                            (43)         (80)
-------------------------------------------------------------------------------
Net decrease in cash and cash equivalents                 (2,802)        (400)
Cash and cash equivalents at beginning of period - (1)     3,572        3,790
-------------------------------------------------------------------------------
Cash and cash equivalents at end of period - (1)            $770       $3,390
===============================================================================

(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

                The Company's independent auditors have not yet completed their
                review  of  the financial  statements included in this Report.
                In the event amendment of this Report is required upon
                completion of such review, the Company will do so immediately.

                The  accompanying   financial   statements  have  been  prepared
                assuming that the Company will continue as a going  concern.  As
                discussed in Note 2, "Business  Conditions and Financial Plans,"
                the Company has suffered recurring losses and cash deficits from
                operations  that raise  substantial  doubt  about its ability to
                continue as a going concern.  Management's plans regarding these
                matters,  which are also discussed in Note 2, are dependent upon
                several factors  including,  among others, the Company's ability
                to sell one or more operating  units,  increase  revenue levels,
                restructure  operations to generate positive cash flows,  retain
                access to funds under its  existing  primary  loan and  security
                agreement ("Loan Agreement") and to obtain additional financing.
                The  financial  statements  as  presented  do  not  include  any
                adjustments  which  might  result  from  the  outcome  of  these
                uncertainties.

                In the  opinion of  management  and  subject  to the  discussion
                above,  the  accompanying   unaudited   consolidated   financial
                statements  contain all adjustments  necessary to fairly present
                on a going-concern basis the consolidated  financial position of
                General  DataComm   Industries,   Inc.  and  subsidiaries   (the
                "Corporation"   or  "Company")   as  of  March  31,  2001,   the
                consolidated  results of their  operations for the three and six
                months  ended March 31, 2001 and 2000,  and their cash flows for
                the six months ended March 31, 2001 and 2000.  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
                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   inventories,   capitalized  software
                development costs, and certain other assets.

                In the  first  quarter  of  fiscal  2001,  the  Company  adopted
                Statement  of  Financial  Accounting  Standards  No.  133 ("SFAS
                133"),   "Accounting  for  Derivative  Instruments  and  Hedging
                Activities,"   which   establishes   accounting   and  reporting
                standards for derivative instruments and hedging activities. The
                Company has not historically entered into derivative instruments
                and/or hedging contracts.  As a result, adoption of SFAS 133 did
                not have an impact on the Company's  reported financial position
                or results of operations.

                Securities and Exchange Commission Staff Accounting Bulletin No.
                101 ("SAB 101"), "Revenue Recognition in Financial  Statements,"
                provides the SEC staff's

                                        6
<PAGE>

                views in applying  generally  accepted accounting principles to
                selected revenue  recognition  issues.    The Company is in the
                process of  evaluating  SAB 101;  however, implementation of SAB
                101 is not  presently  expected to have a material impact on the
                Company's  reported financial position or results of operations.
                The Company is required to adopt SAB 101 in the fourth quarter
                of fiscal 2001.

                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 fiscal year ended September 30, 2000.

NOTE 2.         BUSINESS CONDITIONS AND FINANCIAL PLANS

                Potential Default Conditions and Availability Of Funds:

                Primary Loan Agreement:  Due to certain activities which were in
                process and could have  impacted  disclosures  in the  Company's
                financial  statements for the year ended September 30, 2000, the
                independent audit of such financial statements was not completed
                until January 9, 2001. On January 5, 2001, the Company's primary
                lenders served the Company with a notice of default on the basis
                that the Company  did not  provide  such  lenders  with  Company
                financial  statements and an unqualified  opinion within 90 days
                of its  fiscal  year end,  as  required  in the  Company's  Loan
                Agreement.  However,  the Company has since provided its lenders
                with such financial  statements for the year ended September 30,
                2000  along with an  unqualified  opinion  from its  independent
                auditors.  The Company's  independent auditors also set forth an
                explanatory   paragraph   in  their   report   following   their
                unqualified  opinion expressing  uncertainty about the Company's
                ability to continue as a going concern.

                A  financial  covenant  of  the  Loan  Agreement  requires  that
                stockholders'  equity,  as defined,  must equal or exceed  $10.0
                million.  At March 31, 2001, such stockholders'  equity amounted
                to $3.8  million  and,  therefore,  the  Company may at any time
                receive a notice of default from its primary lenders for failure
                to satisfy this  covenant.  In addition,  as of May 17, 2001, an
                "over-advance"  condition exists whereby borrowings  outstanding
                under the Company's revolving line of credit portion of the Loan
                Agreement  exceeded the maximum  amounts  available per terms of
                the Loan Agreement.

                Despite these potential  default issues,  the Company's  primary
                lenders have not terminated the revolving line of credit portion
                of the Loan  Agreement,  pursuant  to which  advances  are still
                continuing.  However,  the lenders have reserved  their right to
                declare such advances due and payable and/or limit the amount of
                such future advances,  are closely  monitoring such advances and
                have  increased  the interest  rates on such  advances  (and the
                outstanding term loans). When an event of default exists,  there
                can be no assurance  that the lenders will continue to make such
                advances  or that  they  will not  accelerate  the  maturity  of
                amounts due under the

                                        7
<PAGE>

                Loan  Agreement.  Acceleration  of such
                amounts  may in turn result in the  acceleration  of maturity of
                debt  owed  to  other  creditors.  As a  result  of the  claimed
                default,  all outstanding  indebtedness  whose maturity could be
                accelerated has been classified as a current  liability at March
                31, 2001 and September 30, 2000.

                Mortgage  Covenant  And Waiver of Default:  To allow for time
                to  potentially  resolve  a  default  of  a  financial  covenant
                relating to maintaining minimum levels of tangible net worth, as
                defined,  per terms of certain mortgage  agreements, the agent
                for the mortgage holders has recommended to such holders to
                waive default through June 5, 2001.  The Company is awaiting
                this response and completion of the paperwork for such waiver.
                Such mortgages relate to the Company's former executive office
                property,  which is  currently   vacant  and  available  for
                sale,  and  to  its Naugatuck,   Connecticut  property,   where
                its  VITAL  Network Services main offices and its remaining
                manufacturing operations are  located  (refer  to  Note 6,
                "Long-Term  Debt,"  for  more detailed  discussion).
                As of March 31,  2001,  the Company owed $8.8 million under
                such mortgages.

                The Company  has  presented  a plan to the  mortgage  holders to
                resolve the default. Such mortgage holders approval of this plan
                is subject to  receiving  the consent of the  Company's  primary
                lenders.  The  Company  has  requested  such  approval  from its
                primary  lenders.  The plan,  if  accepted,  would result in the
                transfer of ownership of the two  properties  in question to the
                mortgage  holders  and  relieve  the  Company  of  its  mortgage
                obligations,  in addition  to other  provisions.  Such  transfer
                would benefit the Company by improving cash flows, reducing debt
                and  disposing  of  excess  real  estate.

                In the event such a plan is not accepted by the mortgage holders
                and/or the consent of the primary  lenders is not obtained,  the
                mortgage  holders may  accelerate the mortgage  loans,  and this
                action would result in an automatic  default under the Company's
                primary Loan Agreement.

                Since  the  Company  does not  currently  have  any  alternative
                sources of funds,  these matters raise  substantial  doubt about
                the  Company's  ability  to  continue  as a going  concern.  The
                Company's continued existence is dependent upon several factors,
                including  the Company's  ability to sell one or more  operating
                units,  increase  revenue  levels,   restructure  operations  to
                generate  positive cash flows,  retain access to funds under its
                existing  Loan  Agreement  and to obtain  additional  financing.
                Potential   financing   sources  include  the  sale  of  assets,
                technologies,  existing  businesses,  the  Company's  common and
                preferred stock and the issuance of additional debt  securities.
                Although the Company has  historically  been able to satisfy its
                cash  requirements,  there can be no assurance that such efforts
                to obtain sufficient financing for operations will be successful
                in the future.

                Historical Financial Performance
                --------------------------------
                In recent  years (and in the three- and six-month  periods ended
                March 31,  2001),  the Company  has  experienced  recurring  net
                losses and, as a result, has consumed cash

                                        8
<PAGE>

                in  operating  and
                investing  activities.  In  addition,  as a  result  of  reduced
                product  shipment levels  (resulting from a general economic and
                industry   slowdown,   technology  changes  and  other  factors,
                including  the  Company's  weakened  financial  condition),  the
                Company  may  continue  to suffer  significant  net losses and a
                negative cash flow from  operations.  Preferred  stock dividends
                have not been paid or declared since June 30, 2000.

                Corrective Actions Taken and Future Risks
                -----------------------------------------
                In response to current  conditions  and as a part of its ongoing
                corporate  strategy,  the Company has pursued (and is continuing
                to pursue) several  initiatives  intended to increase  liquidity
                and better  position the Company to compete under current market
                conditions.   Refer  to  the  Company's  consolidated  financial
                statements  and related  notes  thereto filed with Form 10-K for
                the fiscal  year ended  September  30,  2000 for  discussion  of
                various  actions taken by the Company  since January 1998.  Such
                actions  resulted in a workforce  reduction of 731  persons,  or
                42%, during the three- year period ended September 30, 2000.

                Furthermore, since September 30, 2000, the Company has announced
                a  workforce   reduction  in  November   2000  and  a  strategic
                reorganization  in January  2001  which,  on a  combined  basis,
                resulted in a workforce  reduction of approximately 300 persons,
                or 30% of the Company's workforce as of September 30, 2000. Such
                strategic  actions were targeted at improving  profitability and
                cash  flow  performance  on a  long-term  basis  (after  certain
                divisions are sold), subject to the Company's ability to achieve
                revenue growth. These workforce reductions and other cost saving
                actions  initiated by the Company are expected to result in cash
                savings of approximately  $32 million per year  (unaudited).  In
                addition,  the Company  implemented a four-day workweek for U.S.
                employees  effective  April 23,  2001 in an  effort  to  further
                reduce  compensation costs and preserve cash resources while the
                Company pursues the sale of divisions.

                In  addition to the  restructuring  and cost  reduction  actions
                taken,  in June 2000,  the Company  engaged  CIBC World  Markets
                ("CIBC") to provide  strategic  direction,  which may ultimately
                involve  the sale of one or more  business  units or the  entire
                Company.  To date this  initiative  has not been  successful  in
                identifying viable  opportunities and the specific engagement of
                CIBC is no longer  active.  However,  the Company  continues  to
                actively pursue all opportunities  that have been identified and
                is aggressively  looking to identify new  opportunities  through
                both internal  resources  and through the  engagement of outside
                consultants to assist with such efforts.

                While the Company is  aggressively  pursuing  opportunities  and
                corrective   actions,  as  discussed  above,  there  can  be  no
                assurance  that the Company will be successful in its efforts to
                sell assets or divisions,  achieve future profitable operations,
                generate   sufficient   cash  from   operations   and/or  obtain
                additional  funding  sources.  The  financial   statements,   as
                presented, do not include any adjustments that may result

                                        9
<PAGE>

                from the outcome of these uncertainties.

NOTE 3.         INVENTORIES

                Inventories consist of (in thousands):

                                March 31, 2001              September 30, 2000
                                --------------              ------------------

  Raw materials                 $   7,481                      $   7,852
  Work-in-process                   3,953                          3,504
  Finished goods                   18,376                         20,362
                                ---------                      ---------
                                 $ 29,810                      $  31,718
                                 ========                      =========


NOTE 4.         PROPERTY, PLANT AND EQUIPMENT

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

                                          March 31, 2001     September 30, 2000
                                          --------------     ------------------

  Land                                      $   1,737         $   1,746
  Buildings and improvements                   29,867            30,177
  Test equipment, fixtures and field spares    53,754            53,818
  Machinery and equipment                      57,263            57,995
                                             --------          --------
                                              142,621           143,736
  Less:  accumulated depreciation             120,706           114,078
                                             --------           -------
                                             $ 21,915          $ 29,658
                                             ========          ========

At March 31, 2001 and September 30, 2000, land,  buildings and improvements with
a net book value of approximately  $8.8 million and $5.6 million,  respecitvely,
were  being  held for sale (see Note 8,  "Restructuring  and  Other  Income  and
Expense",  for  discussion  of the writedown of real estate assets held for sale
taken in the quarter ended March 31, 2001).

NOTE 5.         CAPITALIZED SOFTWARE DEVELOPMENT COSTS

                As a result of  restructuring  operations,  certain  development
                projects were cancelled,  resulting in non-cash  charges of $0.8
                million  and  $4.3  million  for the  write-off  of  capitalized
                software  development costs in the quarters ended March 31, 2001
                and December 31, 2000, respectively, or $5.1 million for the six
                months ended March 31, 2001.

                The accumulated amortization of capitalized software development
                costs amounted to $16,846,000  and $15,630,000 at March 31, 2001
                and September 30, 2000, respectively.

                                       10
<PAGE>

NOTE 6.         LONG-TERM DEBT

                Long-term debt consists of (in thousands):

                                             March 31, 2001   September 30, 2000
                                             --------------   ------------------

 Revolving credit facility                    $ 16,520              $ 6,957
 Notes payable                                  32,761               35,452
 7 3/4% convertible senior subordinated
   debentures                                    3,000                3,000
 Real estate mortgages                           9,254                9,573
                                              --------             --------
                                                61,535               54,982
 Less:  current portion                         58,535               51,982
                                              --------             ---------
                                              $  3,000             $  3,000
                                              ========            ========

                The Company has a $70 million credit  facility with the Foothill
                Capital  Corporation which is comprised of $35.0 million in term
                loans (original loan values) and a $35.0 million (maximum value)
                revolving  line  of  credit  ("Loan  Agreement").   However,  as
                discussed below, the Company is in an "over-advance" position on
                its  revolving  credit.  Most assets of the  Company,  including
                accounts  receivable,   inventories  and  property,   plant  and
                equipment, are pledged as collateral under the 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,  2000 for  further
                disclosures applicable to the Loan Agreement.  Separately, refer
                to  Note 2,  "Business  Conditions  and  Financial  Plans,"  for
                discussion  regarding  claimed (and  potential)  defaults  under
                terms  of  the  Loan   Agreement   terms  and  other   important
                discussion.

                As  a  result  of  the  claimed  and  potential  defaults,   all
                outstanding indebtedness whose maturity could be accelerated has
                been  classified  as a current  liability  at March 31, 2001 and
                September 30, 2000 (the long-term portion of such debt which has
                been  classified as current  amounted to $49.6 million and $43.3
                million at March 31, 2001 and September 30, 2000, respectively).
                In  addition,  interest  rates  under  the Loan  Agreement  were
                increased by two percentage points effective January 5, 2001.

                Under  the  revolving   line  of  credit  portion  of  the  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  and  prior  to any  additional
                reserves being imposed by the lenders as a result of any claimed
                default  conditions,  at March 31, 2001,  the Company would have
                been able to have up to $19.7  million in total  borrowings  and
                letters  of  credit.   Actual  borrowings   outstanding  on  the
                revolving line of credit portion of the Loan Agreement  amounted
                to $16.5 million at March 31, 2001 (as

                                       11
<PAGE>

                compared to $7.0 million  at September  30,  2000).
                In addition,  outstanding  letters of credit  amounted to
                $50,000  and  $110,000 at March 31, 2001 and September 30, 2000,
                respectively.  However, as of May 17, 2001, an   "over-advance"
                condition   exists   whereby   borrowings outstanding  under the
                revolving credit line portion of the Loan Agreement  exceeded
                the  accounts  payable per terms of the Loan Agreement.

                A  financial  covenant  of  the  Loan  Agreement  requires  that
                stockholders'  equity,  as defined,  must equal or exceed  $10.0
                million.  At March 31, 2001, such stockholders'  equity amounted
                to $3.8  million  and,  therefore,  the  Company may at any time
                receive a notice of default from its primary lenders for failure
                to satisfy this covenant.

                However,  as  discussed  in Note  2,  "Business  Conditions  and
                Financial Plans," despite the referenced  default issues and the
                Company's  over-borrowed  status,  the Company's primary lenders
                have not  terminated the revolving line of credit portion of the
                Loan Agreement, pursuant to which advances are still continuing.
                However,  the lenders have reserved  their right to declare such
                advances due and payable  and/or limit the amount of such future
                advances,   are  closely   monitoring  such  advances  and  have
                increased   the  interest   rates  on  such  advances  (and  the
                outstanding term loans). Refer to Note 2 for further discussion.

                Mortgage Covenant Requirement

                As of March 31, 2001,  the Company had $8.8 million in mortgages
                outstanding with one lending group. Such mortgages relate to the
                Company's former  executive office property,  which is currently
                vacant and available for sale, and to its Naugatuck, Connecticut
                property,  where its VITAL Network Services main offices and its
                remaining manufacturing operations are located.

                The Company has requested a waiver through June 5, 2001 to allow
                time to  potentially  resolve a default  relating to maintaining
                minimum levels of tangible net worth,  as defined,  per terms of
                the mortgage agreements. The agent for the mortgage holders has
                recommended to such holders to issue the waiver, and the Company
                is awaiting their response.

                The Company  has  presented  a plan to the  mortgage  holders to
                resolve the default. Such mortgage holders approval of this plan
                is subject to  receiving  the consent of the  Company's  primary
                lenders.  The  Company  has  requested  such  approval  from its
                primary  lenders.  The plan,  if  accepted,  would result in the
                transfer of ownership of the two  properties  in question to the
                mortgage  holders  and  relieve  the  Company  of  its  mortgage
                obligations,  in addition  to other  provisions.  Such  transfer
                would benefit the Company by improving cash flows, reducing debt
                and  disposing  of  excess  real  estate.   From  an  accounting
                perspective,  the Company would  recognize a non-cash  charge of
                approximately $3 million to $4 million on the transfer.

                In the event such a plan is not accepted by the mortgage holders
                and/or the consent of the primary  lenders is not obtained,  the
                mortgage holders may accelerate the

                                       12
<PAGE>

                mortgage  loans,  and this action would result in an automatic
                default under the Company's primary  Loan  Agreement.   In  the
                interim,   the  Company  is continuing  to  pursue  the  sale
                of  its  previous   Corporate Headquarters facility located in
                Middlebury, Connecticut.

                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,  2000 for  further
                disclosures  applicable to the  outstanding  indebtedness of the
                Corporation.

NOTE 7.         5% PREFERRED STOCK ACTIVITY

                In July 2000,  the Company sold 200,000  shares of 5% Cumulative
                Convertible   Preferred   Stock  ("5%   Preferred   Stock")  for
                $5,000,000.  The 5% Preferred  Stock was originally  convertible
                into one million  shares of Common Stock at $5.00 per share,  or
                five  shares of  common  stock  for each  share of 5%  Preferred
                Stock.  Pursuant to the governing provisions of the 5% Preferred
                Stock,  commencing with the three-month period ended January 31,
                2001,  the conversion  price is reset every three months,  based
                upon the average closing price of the Company's common stock for
                the last 10 trading days of each three-month period.

                On January 31, 2001 the conversion price was reset to $0.651 per
                common share, or  approximately  38.4 shares of common stock for
                each  share of 5%  Preferred  Stock.  Furthermore,  on April 30,
                2001, the conversion  price was again reset to $0.378 per common
                share,  or  approximately  66.14 shares of common stock for each
                share of 5% Preferred Stock.

                During the six months ended March 31, 2001, 70,000 shares of the
                5%  Preferred  Stock were  converted  into  2,688,172  shares of
                common stock at a conversion  price of $0.651 per common  share.
                As of March 31, 2001,  130,000 shares of the 5% Preferred  Stock
                remained outstanding and could become convertible into 4,992,320
                shares of common stock. However,  effective with the price reset
                on April 30, 2001, the same 130,000 shares of 5% Preferred Stock
                could become convertible into 8,597,884 of common stock, subject
                to the restrictions discussed below.

                As of April 30, 2001, only 4,686,703 shares of common stock have
                been  registered,  of which  2,688,172  have already been issued
                upon conversion of 5% Preferred Stock and 1,998,531 of which are
                issuable (upon conversion) to holders of the 5% Preferred Stock.
                On July 31, 2002, any outstanding 5% Preferred Stock must either
                be redeemed by the Company or the remaining  6,599,353 shares of
                common stock must be registered and issued by the Company.

                Due to the reduced conversion price, the total number of common
                shares issuable upon conversion of the 5% Preferred Stock now
                exceeds 20% of the total common shares outstanding. As a result,
                if the Company opts not to redeem the 5% Preferred Stock on July
                31, 2002, registration of the additional 6,599,353 shares of
                common stock will require shareholder approval.  Since such
                shareholder approval is not solely within the control of the
                Company, such 5% Preferred Stock has been classified as redeem-
                able preferred stock at March 31, 2001 and September 30, 200.

NOTE 8.         RESTRUCTURING AND OTHER INCOME AND EXPENSES

                Restructuring  of  Operations  - In  January  2001  the  Company
                continued  its ongoing
                                       13
<PAGE>

                restructuring  efforts,  resulting  in a
                workforce  reduction  of 200 persons in the quarter  ended March
                31, 2001. Related  restructuring costs amounted to $1.7 million,
                or $0.06 per share, comprised of: (1) $0.9 million, or $0.03 per
                share,  for  costs  incurred  to  satisfy  employment  contracts
                (mostly  international) and for extended health benefits offered
                to terminated  employees; and (2) a $0.8  million, or $0.06  per
                share,   charge  for  the  write-off  of  capitalized   software
                development costs applicable to development  projects which were
                cancelled as a result of the restructuring activities.

                The six months  ended  March 31,  2001  include a  restructuring
                charge of $6.6 million, or $0.22 per share,  comprised of: (1) a
                $0.9  million  charge  for  the  200  person  reduction-in-force
                referenced  above; (2) a $0.6 million charge for severance costs
                applicable  to a 100 person  reduction-in-force  executed in the
                preceding  quarter;  and  (3) a  $5.1  million  charge  for  the
                write-off of capitalized  software  development costs applicable
                to development  projects which were cancelled as a result of the
                restructuring   activities.   Approximately   $0.5   million  of
                restructuring costs were unpaid as of March 31, 2001.

                The above  actions,  which  included the  elimination of several
                layers  of  management  and a number of  administrative  support
                positions,  is intended to better match  employment  levels with
                customer demand for products and services.

                In the  previous  fiscal  year,  the  Company  made a  strategic
                decision to outsource a substantial portion of its manufacturing
                operations.  This strategic decision resulted in the elimination
                of approximately 100 persons and a corresponding  charge of $0.5
                million,  or $0.02 per share, for the six months ended March 31,
                2000, primarily for post-employment benefits under the Company's
                severance plan.

                Writedown of Real Estate Assets Held for Sale  -  The Company
                plans to vacate  its Naugatuck,  Connecticut facility, which it
                owns, over the  next  year  due to  announced  downsizing  of
                operations and planned sale of divisions. The Company previuosly
                had vacated  its  former headquarters building  in  Middlebury,
                Connecticut, and has actively  listed that  property  for sale.
                The  Company  estimates  that  the  fair market value of such
                properties  is  less  than  their  carrying  values  and   has
                accordingly  recorded  a  writedown  of  $4.5  million  and  a
                corresponding  charge  to  earnings  in  the  quarter  ended
                March 31, 2001.

                Legal Settlement  Proceeds - The six months ended March 31, 2001
                includes  income  of $5.0  million,  or  $0.17  per  share,  for
                proceeds received (net of expenses) from a legal settlement.

                Debt Conversion  Expense - Prior year results include a non-cash
                charge of $0.9  million,  or $0.03 per  share,  for the  quarter
                ended March 31, 2000 and a non-cash  charge of $2.4 million,  or
                $0.10 per share,  for the six months  ended  March 31,  2000 for
                debt  conversion  expense.  Reference is made to Form 10-K filed
                with the Securities  and Exchange  Commission for the year ended
                September  30,  2000,  Note  8,  "Long-Term  Debt,"  for a  more
                detailed discussion of the debt-to-equity conversions.

NOTE 9.         SEGMENT INFORMATION - INTERIM DISCLOSURES

                The following represent the Company's reportable segments:

                  - Broadband Systems products ("BSP")

                                       14
<PAGE>

                  - Network Access  products ("NAP")
                  - VITAL Network  Services, L.L.C. ("Vital")
                  - DataComm Leasing Corporation ("DLC")

                Results of the  Company's  Multimedia  Division  are reported as
                part of the Broadband Systems products. Separately, although the
                Company's  fiscal 2001  reorganization  efforts  resulted in the
                combination of the previous Network Access and Broadband Systems
                Divisions,  the  Company  continues  to  separately  monitor the
                financial  performance  of each  product  line.  The  accounting
                policies of the segments are the same as those described in Note
                2,   "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,
                2000, except for capitalized software accounting. Such costs are
                treated  as  a  period   expense   when   measuring   divisional
                performance.

                For additional information,  including a description of the type
                of business  conducted by each respective product line, refer to
                Note 12 in the Company's consolidated financial statements filed
                with Form 10-K for the year ended September 30, 2000.

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

                                Three Months Ended             Six Months Ended
                                    March 31,                     March 31,

                                 2001           2000         2001        2000
                                 ---------------------      -------------------
 Revenue:
 -------
  Broadband Systems               $6,382       $14,607        $15,367   $32,057
  Network Access                  12,877        14,479         20,591    32,407
  VITAL Network Services, L.L.C.  10,658        11,378         22,820    22,573
  DataComm Leasing Corporation       568           923          1,145     1,930
                                --------       -------        -------   --------
                    Total        $30,485       $41,387         $59,923  $88,967
                                ========       =======         =======  =======

 Operating Income (Loss):
 -----------------------
  Broadband Systems             $(6,348)      $(6,510)      $(14,241)  $(10,469)
  Network Access                  1,607           962            (627)     2,699
  VITAL Network Services, L.L.C.   (378)          259            (525)       855
  DataComm Leasing Corporation     (372)          751               41     1,501
                                --------      --------       ---------   -------
                    Total       $(5,491)      $(4,538)       $(15,352)  $(5,414)
                                ========      ========        ========  ========

                                       15

<PAGE>

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

Operating loss, per above            $(5,491)    $(4,538)   $ (15,352)  $(5,414)
Capitalized software activity, net        87          91         (241)       91
General corporate expenses              (800)     (1,150)      (1,868)   (2,123)
Restructuring of operations           (1,700)         --       (6,600)     (500)
Writedown of real estate assets
 held for sale                        (4,500)         --       (4,500)       --
Debt conversion expense                   --        (879)          --    (2,403)
Other expense                         (2,040)     (1,952)         626    (3,720)
                                     --------     -------       ------  -------
Loss Before Income Taxes            $(14,444)    $(8,428)    $(27,935) $(14,069)
                                     ========    ========    ========  ========

NOTE 10.        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        Six Months Ended
                                    March 31,                 March 31,
                               2001         2000         2001           2000
                               ------------------        -------------------

Numerator:
---------
  Net loss                     $(14,844)    $(8,828)   $(28,735)     $(14,769)
  Preferred stock dividends         --         (450)         --          (900)
                               --------     --------   ---------     ---------
  Numerator for basic and
    diluted loss per share -
    loss applicable to
    common stockholders         $(14,844)   $(9,278)   $(28,735)      $(15,669)
                               =========    ========   =========      =========

Denominator:
-----------
 Denominator for basic and
   diluted loss per share -
   weighted average shares
   outstanding                   30,986      25,815      30,272        24,054
                               --------     -------    -----------    ---------

Basic and diluted loss per
  share                        $ (0.48)    $  (0.36)    $ (0.95)      $  (0.65)
                               ========    =========    ========     ==========


                                       16

<PAGE>

                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 8, 11
                and 13, respectively,  in the Company's  consolidated  financial
                statements filed with Form 10-K for the year ended September 30,
                2000. Weighted average employee stock options outstanding during
                the six  months  ended  March 31,  2001  approximated  4,161,000
                shares,  of which  4,146,000  would  not have been  included  in
                diluted earnings per share calculations for the six months ended
                March 31,  2001 (if the  Company  reported  net  income  for the
                referenced period) because the effect would be antidilutive.

NOTE 11.        COMPREHENSIVE LOSS

                The following table sets forth the computation of  comprehensive
                loss:

                                   Three Months Ended      Six Months Ended
                                      March 31,                March 31,
                                   2001          2000      2001          2000
                                   ------------------      -------------------

Net loss                          $(14,844)   $(8,828)      $(28,735)  $(14,769)
Other comprehensive loss,
 net of tax:
Foreign currency translation
adjustments                           (791)      (385)         (377)      (876)
                                  ---------   ---------     ---------   -------

Comprehensive loss                $(15,635)   $(9,213)     $(29,112)  $(15,645)
                                  =========   ========     =========  =========


                                       17
<PAGE>
                        GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS


Business Conditions and Financial Plans

The  Company  is  facing   challenges  to  continue  in  operation.   Due  to  a
deterioration  in its financial  condition,  potential  defaults  exist with its
primary lenders and with its mortgage  lenders.  To satisfy its primary lenders,
the  company  anticipates  that it  will be  required  to sell a  number  of its
operating units. In addition, substantial actions have been taken to reduce cash
consumption  and the need for borrowing while the operating unit sales are being
pursued.  To satisfy  its  mortgage  lenders,  plans are  underway  to  transfer
ownership of the buildings involved to these lenders, subject to approval of the
primary  lenders.  The Company does not anticipate a long-term  requirement  for
these buildings due to the anticipated sale of operating units.

The primary  lenders have not terminated the revolving line of credit portion of
the Loan Agreement,  pursuant to which advances are still  continuing.  However,
the lenders have  reserved  their right to declare such advances due and payable
and/or limit the amount of such future  advances,  are closely  monitoring  such
advances  and  have  increased  the  interest  rates  on such  advances  and the
outstanding term loans. There can be no assurance that the lenders will continue
to make such advances or that they will not  accelerate  the maturity of amounts
due under the Loan Agreement. Acceleration of such amounts may in turn result in
the  acceleration  of maturity of debt owed to other  creditors.  As a result of
these  circumstances,  all  outstanding  indebtedness  whose  maturity  could be
accelerated  has been  classified as a current  liability at both March 31, 2001
and September 30, 2000.

Since the Company  does not  currently  have any  alternative  to the sources of
funds provided by its primary  lenders,  these matters raise  substantial  doubt
about the Company's ability to continue as a going concern. Reference is made to
Note 1, "Basis of  Presentation,"  Note 2,  "Business  Conditions  and Financial
Plans" and Note 6, "Long-Term  Debt," for more detailed  discussions,  including
risks and Company plans.

Summary Highlights

Revenues in the current quarter were disappointing,  down $10.9 million or 26.3%
from the same quarter last year.  The Company  believes that the current  fiscal
quarter's revenues were affected by several factors, including: (1) a tightening
of capital spending for telecom  equipment by service providers and enterprises;
(2)  deterioration  in the  Company's  financial  condition;  (3)  diversion  of
management and others to pursuing sales of operating  units; and (4) distraction
associated with the reorganization and layoffs which occurred in the quarter.

Although operating expenses, excluding one-time charges, were down $6.9 million,
or 34.4%,  from the prior year,  this only partially  offset the effect of lower
revenues and margins.  Lower product margin percentages result from the costs of
managing product supply being absorbed over a reduced revenue base.

                                       18

<PAGE>

In  anticipation of revenue  shortfalls and downward market trends,  the Company
acted in November 2000 to reduce the Company's  workforce by  approximately  100
positions for annualized  saving of  approximately $6 million.  In addition,  in
January  2001 the  Company  initiated  a  restructuring  plan  resulting  in the
elimination of an additional 200 positions and incremental  annualized saving of
$14 million.  The combined  reductions are expected to result in payroll-related
savings of $20 million per year. In addition, the restructuring plan is expected
to result in a reduced  level of  (non-payroll)  operating  expenses and capital
expenditures,  for an estimated total cash savings of approximately  $32 million
per year.

Anticipated  savings are due in part to the elimination of redundant  management
positions,  the consolidation of marketing,  sales and engineering resources, an
improved product  development  focus, and a reduction of overall  expenses.  The
merger of the Broadband  Systems and Network Access  divisions in particular has
resulted in increased organizational efficiency.

To conserve future cash  consumption,  further reduce expenses and allow time to
complete the sale of operating  units,  in April 2001,  the Company  initiated a
four-day  work week for  substantially  all U.S.  workers (with the exception of
only those providing critical services) for an estimated savings of $500,000 per
month while the shortened work week continues.

The Company believes that it has made important  progress in its efforts to sell
assets and/or divisions.  Such actions,  if and when executed,  will result in a
reduction of debt to improve the Company's financial position.

The Company is able to sustain  operations  only as long as the primary  lenders
continue  to  advance  funds  under  the Loan  Agreement  or  until  the sale of
operating units reduces indebtedness such that additional  borrowings may become
available. There can be no assurance that efforts to obtain sufficient financing
for operations will be successful in the future.

Results Of Operations

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

                                       19
<PAGE>



<TABLE>

                                                         Three Months Ended                  Six Months Ended
                                                               March 31,                         March 31,

                                                           2001           2000                2001      2000
<CAPTION>
                                                      -------------------------            --------------------
<S>                                                     <C>             <C>              <C>              <C>

Revenues:
    Net product sales                                     63.1%         70.2%             59.9%           72.4%
    Service revenue                                       35.0          27.5              38.1            25.4
    Other revenue                                          1.9           2.3               2.0             2.2
                                                         -------       ------           ------          ------
                                                         100.0           100.0           100.0           100.0
Cost of revenues                                          70.4          58.1              70.5            57.0
                                                         -------       ------           ------          ------
Gross margin                                              29.6          41.9              29.5            43.0
Amortization of capitalized
  software development costs                               7.1           7.2               7.7             6.7
Selling, general and administrative                       35.5          36.1              39.2            33.2
Research and product development                           7.4          12.2              11.8            11.5
                                                          -----         ----              ----            ----

Operating loss before restructuring charges              (20.4)        (13.5)            (29.2)           (8.4)

Restructuring of operations                               (5.5)             --           (11.0)           (0.5)
                                                        --------       ---------          -----         -------


Operating loss                                           (25.9)%       (13.5)%           (40.2)%          (8.9)%
                                                        -------        ------            ------           -----

Net loss excluding unique items*                         (28.4)%       (19.2)%           (37.8)%         (13.3)%
                                                        -------        ------            ------          ------

Net loss                                                 (48.7)%       (21.3)%           (48.0)%         (16.6)%
                                                         ======        ======            ======          ======

</TABLE>

--------------------
*Current  year unique items are  comprised of  restructuring  charges and income
from a legal settlement.  Prior year unique items are comprised of restructuring
charges and debt conversion expense.

Summary  comments  are as follows:  (1)  product  revenue  represents  a reduced
portion of total revenue,  reflecting the impact of a 33.8% reduction in product
revenues in the  quarter  (44.3%  reduction  year-over-year);  (2) gross  margin
erosion is primarily  the result of the costs of managing  product  supply being
absorbed  over a reduced  revenue  base;  service  margins  were also down;  (3)
year-to-date  operating  expenses,  which were  reduced as compared to the prior
year when measured in dollars,  are higher when measured as a percent of revenue
due the reduced revenue base; it should be noted,  however, that current quarter
operating expenses (measured as a percent of revenue),  are lower than the prior
year,  despite the  reduced  revenue  base;  it should be noted,  however,  that
current quarter  operating  expenses  (measured as a percent of revenue),  which
include the impact of workforce reductions executed in November 2000 and January
2001, are lower than the prior year,  despite the reduced  revenue base; and (4)
restructuring  of  operations  includes  a $0.8  million  charge in the  current
quarter  ($5.1  million  or 11.0%  of  revenue  for the  current  year)  for the
write-off of capitalized software development costs applicable to projects which
were cancelled as a result of a Company restructuring.

                                       20
<PAGE>

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 9, "Segment Information - Interim
Disclosures," for further discussion and disclosure.

Summary  financial  results by product type and business  unit for three and six
months  ended  March  31,  2001 and 2000,  along  with a  reconciliation  to the
reported net loss, follows ($ in millions):
<TABLE>
<CAPTION>

                                                   Three Months Ended              Six Months Ended
                                                         March 31,                      March 31,
                                                      2001           2000          2001         2000
<S>                                              <C>                <C>            <C>           <C>
                                                ------------------------------    ----------------------
         Revenues
         Broadband Systems                         $6.4             $14.6            $15.4        $32.1
         Network Access                            12.9              14.5             20.6         32.4
         VITAL Network Services                    10.7              11.4             22.8         22.6
         Other                                      0.5               0.9              1.1          1.9
                                                -------           -------         --------      -------
              Total                               $30.5             $41.4            $59.9        $89.0

         Operating Income (Loss)
         Broadband Systems                        $(6.3)            $(6.5)          $(14.2)      $(10.5)
         Network Access                             1.6               1.0             (0.6)         2.7
         VITAL Network Services                    (0.4)              0.3             (0.5)         0.9
         Other                                     (0.4)              0.7               --          1.5
                                              ----------         ---------          -------      ------
              Total                                (5.5)             (4.5)           (15.3)        (5.4)

          Reconciliation to net loss:
         General corporate expenses                (0.8)             (1.2)            (1.9)        (2.1)
         Interest expense, net                     (2.2)             (2.1)            (4.2)        (4.1)
         Restructuring costs                       (1.7)             --               (6.6)        (0.5)
         Write-down of real estate assets          (4.5)             --               (4.5)           --
         Legal settlement proceeds, net             --               --                5.0         --
         Debt conversion expense                    --               (0.9)            --           (2.4)
         Other, net                                 0.3               0.3             (0.4)         0.4
                                                -------           --------          ---------      ----
          Net loss before tax                    $(14.4)            $(8.4)          $(27.9)      $(14.1)
          Income tax provision                      0.4               0.4              0.8          0.7
                                              ----------          -------             ----          ---
          Net loss                              $ (14.8)            $(8.8)          $(28.7)      $(14.8)
                                                ========            ======          =======      =======
</TABLE>

Results going forward will be further  impacted by headcount and cost reductions
implemented  as part of a  restructuring  program in January 2001.  See "Summary
Highlights" for further discussion.

                                       21
<PAGE>

Broadband Systems Products ("BSP")

The networking  industry generally has reported a slowdown in product orders and
this appeared to be true for the BSP customer base as well.  BSP sales  declined
56.3% in the quarter comparison and 52.1% year-over-year.  About a third of this
decline is attributable to sales of older generation products which have been on
a downward trend in recent years.  Geographically,  about 80% of the BSP revenue
loss was  experienced  in Europe where BSP has its largest  customer  base.  The
resulting gross margin loss more than offset operating cost savings achieved for
the March quarter and exceeded such savings for the six month comparison.

Broadband  System products and results include both ATM  (Asynchronous  Transfer
Mode) and legacy TDM (Time Division  Multiplexing) products in addition to video
products developed by the Company's Multimedia Division.

Network Access Products ("NAP")

Revenues for the NAP were down $1.6 million, or 11.1%, from the same quarter one
year ago and down $11.8  million,  or 36.5%,  for the six months of the  current
fiscal  year as  compared  to the  prior  fiscal  year.  The  revenue  loss  was
experienced  in both  domestic and  international  markets.  NAP  revenues  were
negatively  impacted by: (1) a significant  slowdown in capital  expenditures by
the division's  incumbent  telephone  company  customer base; and (2) prior year
revenues were unusually strong as a result of sales to one specific customer for
the six month  comparison.  NAP sales and resulting margin losses have more that
offset  operating cost savings achieved by the division.  However,  a sequential
rebound in revenue in the current  quarter (from $7.7 million to $12.9 million),
when  combined  with  cost  reductions,  resulted  in  operating  income of $1.6
million, or 12.5% of revenue.

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

In the quarter ended March 31, 2000, VITAL reported revenues of $10.7 million, a
decrease of $0.7  million,  or 6.3%,  from the same period one year ago although
they remained  slightly  higher for the six months ended March 31, 2001 compared
to the same period one year ago.  VITAL's  operating loss of $0.4 million in the
current  quarter  compares to an operating  profit of $0.3 million one year ago,
reflecting  the combined  impact of reduced gross margin rates  associated  with
higher subcontract costs and lower productivity in the U.S. For similar reasons,
the six month results also show a $1.4 million reduction in operating income. To
improve  results going  forward,  VITAL also reduced its headcount and operating
costs as part of the Company's restructuring effort executed in January 2001.

VITAL  continues  its  initiative  to take  advantage of the growing  networking
market and manufacturers supplying this market. For the current quarter, VITAL's
non-GDC business  increased,  representing  over 80% of all new business booked.
This continues to reflect an increasing  level of  independence  (from GDC) with
regard to VITAL's revenue stream.

                                       22
<PAGE>

DataComm Leasing Corporation (DLC)

DLC's operating  income (loss) is derived from both operating and financed lease
activities.  The  operating  loss  in  the  quarter  ended  March  31,  2001  is
attributable  to the  write-off  of an $800,000  account  deemed  uncollectible.
Otherwise,  the  general  reduced  level of  revenues  and  operating  income is
attributable  to the  expiration  of  older  leases  and the  lack of new  lease
financing required by the Company's customer base from DLC.

Restructuring of Operations:  The Company recorded restructuring charges of $1.7
million and $6.6  million in the quarter and six months ended March 31, 2001 and
2000,  respectively.  This compares to $500,000 recorded in the six months ended
March 31,  2000.  Refer to Note 8, "Restructuring and Other  Income and
Expenses," for  detailed discussion.

Interest Expense and Other Income and Expense: Interest expense amounted to $2.2
million  and $2.1  million  in the  quarters  ended  March  31,  2001 and  2000,
respectively. For the six months ended March 31, 2001 and 2000, interest expense
amounted to $4.2 million and $4.1 million,  respectively.  In January 2000,  the
primary lenders increased  interest rates charged by 2% as a result of a claimed
default.

The Company received  proceeds of $5.5 million ($5.0 million net of expenses) as
a result of settling a lawsuit in the six months ended March 31, 2001.

Prior year results include non-cash charges of $0.9 million and $2.4 million for
the three- and six-month periods ended March 31, 2000, respectively, relating to
the conversion of convertible  bonds into common stock (more fully  described in
Note 8 "Long-Term Debt" in the Company's Form 10-K filed with the Securities and
Exchange Commission for the year ended September 30, 2000).

Write-down of Real Estate Assets - for discussion of this item, refer to Note 8,
"Restructuring and Other Income and Expenses."

Income Taxes:  Tax provisions  recorded by the Company,  principally for foreign
income and domestic state taxes,  amounted to $0.4 million in the quarters ended
March 31, 2001 and 2000  respectively,  and $0.8 million and $0.7 million in the
six  months  ended  March  31,  2001 and 2000,  respectively.  The  Company  has
significant federal net operating loss carryforwards  available to offset future
federal  income  tax  liabilities.  However,  based  on the  uncertainty  of the
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  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.  Such activity resulted in net
currency  exchange  gains or (losses) of $122,000  and $111,000 for the quarters
ended March 31, 2001 and 2000,  respectively and $(225,000) and $363,000 for the
six months ended March 31, 2001 and

                                       23
<PAGE>

2000 respectively.

No individual foreign subsidiary has traditionally  comprised 10 percent or more
of consolidated revenue or assets, and most subsidiary operations represent less
than 5 percent of consolidated 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, has
not had, and in the future is not expected to have, a significant  impact on the
Company's exposure to foreign currency transactions. See "Market Risk" below for
further discussion of foreign currency risk.

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,
2000, 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  is  facing   challenges  to  continue  in  operation.   Due  to  a
deterioration  in its financial  condition,  potential  defaults  exist with its
primary lenders and with its mortgage  lenders.  To satisfy its primary lenders,
the  company  anticipates  that it  will be  required  to sell a  number  of its
operating units. In addition, substantial actions have been taken to reduce cash
consumption and the need for borrowing while the sale of certain operating units
are being  pursued.  To satisfy  its  mortgage  lenders,  plans are  underway to
transfer  ownership  of the  buildings  involved  to these  lenders,  subject to
approval of the primary  lenders.  The Company  does not  anticipate a long-term
requirement for these buildings due to the anticipated sale of operating units.

The Company's  primary  lenders have not terminated the revolving line of credit
portion of the Loan Agreement,  pursuant to which advances are still continuing.
However,  the lenders have reserved their right to declare such advances due and
payable and/or limit the amount of such future advances,  are closely monitoring
such  advances and have  increased  the interest  rates on such advances and the
outstanding term loans. There can be no assurance that the lenders will continue
to make such advances or that they will not  accelerate  the maturity of amounts
due under the Loan Agreement. Acceleration of such amounts may in turn result in
the  acceleration

                                       24
<PAGE>

of maturity of debt owed to other creditors. As a result of these circumstances,
all  outstanding  indebtedness  whose  maturity  could be  accelerated  has been
classified as a current liability at both March 31, 2001 and September 30, 2000.

The Company is able to sustain  operations  only as long as its primary  lenders
continue  to  advance  funds  under  the Loan  Agreement  or  until  the sale of
operating units reduces indebtedness such that additional  borrowings may become
available. There can be no assurance that efforts to obtain sufficient financing
for  operations  will be  successful  in the future.  Since the Company does not
currently  have any  alternative to the sources of funds provided by its primary
lenders,  these matters raise  substantial  doubt about the Company's ability to
continue  as  a  going  concern.   Reference  is  made  to  Note  1,  "Basis  of
Presentation,"  Note 2, "Business  Conditions  and Financial  Plans" and Note 6,
"Long-Term Debt," for more detailed  discussions,  including potential defaults,
related risks and Company plans.

Cash  balances  amounted to $0.8  million and $3.6 million at March 31, 2001 and
September  30, 2000,  respectively.  Based upon the  provisions of the Company's
Loan Agreement,  approximately  $3.2 million of additional  funds were available
for borrowing at March 31, 2001.  However, as of May 17, 2001, an "over-advance"
condition  exists  whereby  borrowings  outstanding  under the revolving line of
credit portion of the Loan Agreement  exceeded the maximum amounts available per
terms of the Loan Agreement.

During  the six months  ended  March 31,  2001,  Company  restructuring  actions
resulted  in the  elimination  of  approximately  300  positions  and  curtailed
discretionary spending. The Company estimates such actions will result in annual
cash savings of $32 million. In addition,  to further conserve cash consumption,
reduce expenses and allow time to complete the sale of operating units, in April
2001 the  Company  initiated  a four-day  work week for  substantially  all U.S.
workers (with the exception of only those  providing  critical  services).  This
action is expected to result in  estimated  savings of $500,000  per month while
the shortened work week continues.

Despite such actions  taken,  the Company will require (in addition to continued
access  to  revolving  line of  credit  funds  under  its  Loan  Agreement,  and
over-advances  thereunder)  additional funds in the quarter ending June 30, 2001
to sustain future operations. In order to obtain such funds, the Company will be
required to sell  additional  stock,  secure  additional  debt financing or sell
assets,  such  as one or  more  divisions.  The  Company  is  actively  pursuing
additional sources of financing. Although the Company has historically been able
to satisfy its cash requirements, there can be no assurance that such efforts to
obtain sufficient  financing for operations will be successful in the future, or
successful on terms that would be  considered  beneficial to the Company and its
shareholders.

The Company has continued its efforts to sell or spin off assets,  including one
or more  divisions.  Although to date this initiative has not been successful in
providing   additional   funds,   the  Company   continues  to  actively  pursue
opportunities  that are presented and is currently  engaged in such discussions.
Such  actions,  if and when  executed,  could  improve the  Company's  financial
position, which in turn may improve the Company's ability to attract new working
capital funds (i.e.,  enter into new or  renegotiate  existing  loan  agreements
and/or effectuate security offerings).

                                       25
<PAGE>

The Company  has a $70 million  Loan  Agreement  in place as of March 31,  2001.
Reference  is made  to  Note 1,  "Basis  of  Presentation,",  Note 2,  "Business
Conditions and Financial Plans" and Note 6, "Long-Term  Debt," for more detailed
discussion regarding such Loan Agreement and all other outstanding  indebtedness
of the Company,  including potential defaults,  related risks and Company plans.
Furthermore,   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, 2000 for further disclosures  applicable to outstanding
indebtedness of the Corporation.

Operating

Net cash used in  operating  activities  amounted  to $(4.6)  million and $(8.7)
million in the six-month  periods  ended March 31, 2001 and 2000,  respectively.
Current  year  consumption  is  principally  comprised of the reported net loss,
partially  offset by  non-cash  charges  (including  depreciation  expense,  the
write-down of capitalized  software development costs and the write-down of real
estate held for sale),  and  reductions  in accounts  receivable  and  inventory
levels.  The reduced  levels of inventory  and accounts  receivable  reflect the
Company's cash  management  efforts.  Cash  consumption for the six months ended
March 31, 2000  includes,  among other items,  an increase in  inventory  levels
($5.2 million) and an increase in  investments in leased assets ($2.2  million).
The inventory growth resulted from  precautionary  measures taken by the Company
as it  transitioned  to outsource  the  manufacturing  function  last year;  the
increased  level of  investments  in leases  reflects  the  impact of some large
operating leases entered into during the quarter ended March 31, 2000.

Non-debt working capital, excluding cash and cash equivalents, amounted to $14.7
million at March 31, 2001, as compared to $18.7 million at September 30, 2000

Investing

The  Company  has  restricted  investments  to capital  equipment  and  software
development  considered critical to operations.  Investments in property,  plant
and equipment amounted to $0.4 million and $2.4 million in the six-month periods
ended March 31, 2001 and 2000, respectively. Investments in capitalized software
amounted to $4.4 million and $6.1 million in the six month  periods  ended March
31, 2001 and 2000, respectively.  All investment activity is targeted to satisfy
minimum operating requirements and to embrace new undertakings with the greatest
potential returns.

Financing

Net cash  provided by  financing  activities  amounted to $6.7 million and $16.9
million in the six month  periods  ended March 31, 2001 and 2000,  respectively.
Current  year  activity  is  principally   comprised  of  $6.6  million  of  net
borrowings.   Fiscal  2000  activity  is  comprised  of  $17.1  million  of  net
borrowings,  $0.7 million in proceeds received from the issuance of common stock
pursuant to employee stock programs and the payment of $0.9 million in preferred
stock dividends.

                                       26
<PAGE>

Future Adoption of New Accounting Statements

Reference is made to Note 1, "Basis Of Presentation,"  for discussion  regarding
the Company's adoption of Statement of Financial  Accounting  Standards No. 133,
"Accounting   for  Derivative   Instruments  and  Hedging   Activities,"   which
establishes  accounting and reporting  standards for derivative  instruments and
hedging activities.  Company plans regarding adoption of Securities and Exchange
Commission Staff Accounting Bulletin No. 101 ("SAB 101"),  "Revenue  Recognition
in Financial Statements," is also discussed therein.

Certain Risk Factors

Continuing Losses: The Company has sustained net losses for the past 26 quarters
ended March 31,  2001.  There can be no  assurance  as to when the Company  will
achieve net income.

Credit Availability: Due to a deterioration in the Company's financial condition
and other matters,  potential  defaults exist with its primary  lenders and with
its mortgage lenders.

Regarding its primary lenders,  the Company anticipates that it will be required
to sell a  number  of its  operating  units.  The  Company  is  able to  sustain
operations only as long as the primary  lenders  continue to advance funds under
the Loan  Agreement or until the sale of operating  units  reduces  indebtedness
such that additional borrowings may become available.  There can be no assurance
that efforts to obtain sufficient financing for operations will be successful in
the future.  Since the Company does not currently  have any  alternative  to the
sources  of  funds  provided  by  its  primary  lenders,   these  matters  raise
substantial doubt about the Company's ability to continue as a going concern.

The primary  lenders have not terminated the revolving line of credit portion of
the Loan Agreement,  pursuant to which advances are still  continuing.  However,
the lenders have  reserved  their right to declare such advances due and payable
and/or limit the amount of such future  advances,  are closely  monitoring  such
advances  and  have  increased  the  interest  rates  on such  advances  and the
outstanding term loans. There can be no assurance that the lenders will continue
to make such advances or that they will not  accelerate  the maturity of amounts
due under the Loan Agreement. Acceleration of such amounts may in turn result in
the acceleration of maturity of debt owed to other creditors.

The Company is able to sustain  operations  only as long as its primary  lenders
continue  to  advance  funds  under  the Loan  Agreement  or  until  the sale of
operating units reduces indebtedness such that additional  borrowings may become
available. There can be no assurance that efforts to obtain sufficient financing
for operations will be successful in the future.

Regarding its mortgage lenders,  plans are underway to transfer ownership of the
buildings involved to such mortgage lenders,  subject to approval of the primary
Loan Agreement lenders.

Reference is made to Note 2, "Business  Conditions and Financial Plans" and Note
6, "Long-

                                       27
<PAGE>

Term Debt," for more detailed discussions of indebtedness  outstanding,
including  potential  defaults,  related risks and Company  plans.  In addition,
reference is made to the "Liquidity and Capital Resources" discussion above.

Reliance on Outsourced  Manufacturing:  During fiscal 1999 and 2000, the Company
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.  The Company's weakening financial position,  including
the above-referenced  notice of default from the Company's primary lenders and a
mortgage lender,  also poses a risk that such manufacturing  outsource suppliers
could become unwilling to continue doing business with the Company.

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 and financial position, industry conditions,  awards of orders
to  the  Company  or  its  competitors,   new  product  or  product  development
announcements by the Company or its competitors,  changes in earnings  estimates
by analysts and, from time to time, the volatile nature of equity  markets.  Any
shortfall in revenue or earnings from expected  levels or restrictions in credit
availability  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 report, 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 retain access to funds
available under all existing loan  agreements and the continued  satisfaction of
related covenant requirements,  including, if necessary,  the ability to achieve
amendments  and/or waivers thereto to maintain  compliance with the terms of all
such  outstanding  indebtedness;   (ii)  the  possibility  that  the  additional
indebtedness  permitted  to be  incurred  under the  revolving  credit  facility
portion of the Loan  Agreement  may not be  sufficient to maintain the Company's
operations; (iii) the Company's ability to satisfy its financial obligations and
to obtain  additional  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

                                       28
<PAGE>

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.



                                       29

<PAGE>
                       GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES


                           PART II. OTHER INFORMATION



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

          On March 1, 2001, at the Annual Meeting of Stockholders of the
          Corporation, the stockholders:

          1. Elected Charles P. Johnson as a director to the Corporation for a
             term of three years:

             Number of votes cast for:               18,579,208
             Number of votes withheld:                6,131,015

          2. Elected Howard S. Modlin as a director to the Corporation for a
             term of three years:

             Number of votes cast for:               18,667,425
             Number of votes withheld:                6,042,798


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

   a.  Exhibits

                None.

b.       Reports on Form 8-K

A Form 8-K,  dated April 16,  2001,  was filed on April 23, 2001 to announce the
implementation of a four-day  workweek for U.S.  employees.  Such action,  which
reduced  compensation for all such U.S. employees  (including  management) by 20
percent,  was  required  in  response  to a general  slowdown  in the market for
networking products and limitations on available  borrowings under the Company's
primary  loan  agreement.  In  addition,  such  actions  represent  an effort to
preserve jobs while the Company is pursuing the sale of divisions.

                                       30
<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)

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


Dated:  May 21, 2001

                                       31