SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q

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


                  For the quarterly period ended June 30, 1998

                                       OR

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

                          Commission File Number 1-8086

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

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                    X Yes              No

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

                                               Number of Shares Outstanding
 Title of Each Class                                at June 30, 1998
 ------------------                            ---------------------------

Common Stock, $.10 par value                             19,447,138
Class B Stock, $.10 par value                             2,095,033

            Total Number of Pages in this Document is 21.


<PAGE>

                        GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES
                                      INDEX


                                                                  Page No.
                                                                  -------

Part I.      Financial Information

             Consolidated Balance Sheets -
             June 30, 1998 and September 30, 1997                     3

             Consolidated Statements of Operations and
             Accumulated Deficit - For the Three and Nine Months
             Ended June 30, 1998 and 1997                             4

             Consolidated Statements of Cash Flows - For the
             Nine Months Ended June 30, 1998 and 1997                 5

             Notes to Consolidated Financial Statements               6

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

Part II.     Other Information

             Item 6. Exhibits and Reports on Form 8-K                20


                                      - 2 -

<PAGE>

                          PART I. FINANCIAL INFORMATION


               GENERAL DATACOMM INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS



                                                         June 30, September 30,
In thousands except shares                                 1998        1997
-------------------------------------------------------------------------------
ASSETS:                                                (Unaudited)
Current assets:
  Cash and cash equivalents                                $10,901      $21,526
  Accounts receivable, less allowance for doubtful
    receivables of $1,459  in June and $1,703 in September  28,195       33,193
  Inventories                                               34,632       41,749
  Deferred income taxes                                      1,774        2,244
  Other current assets                                       6,400        7,903
-------------------------------------------------------------------------------
Total current assets                                        81,902      106,615
===============================================================================
  Property, plant and equipment, net                        41,918       46,427
  Capitalized software development costs, net               23,961       23,500
  Other assets                                              10,910       10,793
-------------------------------------------------------------------------------
                                                          $158,691     $187,335
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
  Current portion of long-term debt                         $8,231       $7,569
  Accounts payable, trade                                   12,793       15,245
  Accrued payroll and payroll-related costs                  7,203        6,990
  Deferred income                                            5,409        6,527
  Other current liabilities                                 16,889       18,358
-------------------------------------------------------------------------------
Total current liabilities                                   50,525       54,689
===============================================================================
Long-term debt, less current portion                        52,920       49,293
Deferred income taxes                                        2,964        2,789
Other liabilities                                              348          536
-------------------------------------------------------------------------------
Total liabilities                                          106,757      107,307
===============================================================================
Commitments and contingent liabilities                           -            -
Stockholders' equity:
 Preferred stock, par value $1.00 per share, 3,000,000
  shares authorized; issued and outstanding: 800,000
  shares of 9% cumulative convertible exchangeable
  preferred stock with a $20 million liquidation preference    800          800
 Class B stock, par value $.10 per share, 35,000,000 shares
  authorized; issued and outstanding: 2,095,033 in June
  and 2,136,933 in September                                   209          214
 Common stock, par value $.10 per share, 35,000,000 shares
  authorized; issued and outstanding: 19,777,520 in June
  and 19,582,661 in September                                1,978        1,958
 Capital in excess of par value                            150,605      149,864
 Accumulated deficit                                       (96,429)     (67,874)
 Cumulative foreign currency translation adjustment         (2,784)      (2,489)
 Common stock held in treasury, at cost:
  330,382 shares in June and September                      (2,445)      (2,445)
-------------------------------------------------------------------------------
Total stockholders' equity                                  51,934       80,028
-------------------------------------------------------------------------------
                                                          $158,691     $187,335
===============================================================================

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

                                       -3-

<PAGE>

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

                                          Three Months Ended  Nine Months Ended
                                                June 30,           June 30,
                                          -----------------   -----------------
                                           1998        1997    1998      1997
                                          -----------------   -----------------
In thousands, except per share data
------------------------------------------------------------  -----------------
Revenues:
 Net product sales                        $37,706    $35,262  $112,637 $123,500
 Service revenue                            9,221     10,046    28,406   28,967
 Lease revenue                              1,104      1,278     3,538    3,933
------------------------------------------------------------  -----------------
                                           48,031     46,586   144,581  156,400
------------------------------------------------------------  -----------------
Costs and expenses:
 Cost of product sales                     17,761     17,693    54,399   59,702
 Amortization of capitalized
  software development costs                2,921      3,000     8,893    9,000
 Cost of service revenue                    6,709      6,519    20,119   20,131
 Cost of lease revenue                        144        152       391      481
 Selling, general and administrative       17,788     21,518    56,208   64,654
 Research and product development           7,396     10,582    24,503   30,897
 Restructuring of operations                    -          -     2,500        -
-------------------------------------------------------------  ----------------
                                           52,719     59,464   167,013  184,865
-------------------------------------------------------------  ----------------
Operating loss                             (4,688)   (12,878)  (22,432) (28,465)
-------------------------------------------------------------  ----------------
Other income (expense):
 Interest                                  (1,530)      (637)   (4,341)  (1,475)
 Other, net                                    32       (205)      168     (972)
-------------------------------------------------------------  ----------------
                                           (1,498)      (842)   (4,173)  (2,447)
-------------------------------------------------------------  ----------------
Loss before income taxes                   (6,186)   (13,720)  (26,605) (30,912)
Income tax provision                          100        100       600      300
-------------------------------------------------------------  ----------------
Net loss                                  ($6,286)  ($13,820) ($27,205)($31,212)
=============================================================  ================
Loss per share                             ($0.31)    ($0.67)   ($1.33)  ($1.55)
=============================================================  ================
Weighted average number of common and
 common equivalent shares outstanding      21,542     21,148    21,458   21,063
=============================================================  ================
Accumulated deficit at beginning of
 period                                  ($89,693)  ($41,615) ($67,874)($23,323)
Net loss                                   (6,286)   (13,820)  (27,205) (31,212)
Payment of preferred stock dividends         (450)      (450)   (1,350)  (1,350)
-------------------------------------------------------------  ----------------
Accumulated deficit at end of period     ($96,429)  ($55,885) ($96,429)($55,885)
=============================================================  ================

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

                                      - 4 -

<PAGE>

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


                                                   Increase (Decrease) in Cash
                                                        and Cash Equivalents
                                                   ---------------------------
                                                         Nine Months Ended
                                                             June 30,
                                                   ---------------------------
In thousands                                            1998           1997
-------------------------------------------------------------------------------
Cash flows from operating activities:
 Net loss                                            ($27,205)      ($31,212)
 Adjustments to reconcile net loss to net cash
  provided by (used in) operating activities:
   Depreciation and amortization                       19,963         20,413
   Decrease in accounts receivable                      4,488          8,881
   (Increase) decrease in inventories                   6,770         (1,061)
   (Decrease) in accounts payable
     and accrued expenses                              (2,694)          (460)
   (Increase) decrease in other net current assets         89           (259)
   (Increase) in other net long-term assets              (355)        (1,729)
-------------------------------------------------------------------------------
Net cash provided by (used in) operating activities     1,056         (5,427)
-------------------------------------------------------------------------------
Cash flows from investing activities:
 Acquisition of property, plant and equipment, net     (5,247)        (8,661)
 Capitalized software development costs                (9,354)        (9,107)
-------------------------------------------------------------------------------
Net cash (used in) investing activities               (14,601)       (17,768)
-------------------------------------------------------------------------------
Cash flows from financing activities:
 Revolver repayments                                   (4,799)             -
 Proceeds from notes and mortgages                     15,094          5,584
 Principal payments on notes and mortgages             (6,517)        (5,830)
 Proceeds from issuing common stock                       534          1,133
 Payment of preferred stock dividends                  (1,350)        (1,350)
-------------------------------------------------------------------------------
Net cash provided by (used in) financing activities     2,962           (463)
-------------------------------------------------------------------------------
Effect of exchange rates on cash                          (42)          (201)
-------------------------------------------------------------------------------
Net decrease in cash and cash equivalents             (10,625)       (23,859)
Cash and cash equivalents at beginning of period -(1)  21,526         26,264
-------------------------------------------------------------------------------
 Cash and cash equivalents at end of period -(1)      $10,901         $2,405
===============================================================================

(1)   - The Corporation considers all highly liquid investments purchased with a
      maturity of three months or less to be cash equivalents.

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

                                       -5-
<PAGE>

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



NOTE 1. BASIS OF PRESENTATION

               In  the  opinion  of  management,   the  accompanying   unaudited
          consolidated financial statements contain all adjustments necessary to
          fairly present the consolidated financial position of General DataComm
          Industries,  Inc. and subsidiaries (the "Corporation" or "Company") as
          of June 30, 1998, the consolidated results of their operations for the
          three and nine  months  ended June 30,  1998 and 1997,  and their cash
          flows  for the  nine  months  ended  June  30,  1998  and  1997.  Such
          adjustments  are  generally of a normal  recurring  nature and include
          adjustments  to certain  accruals  and asset  reserves to  appropriate
          levels.

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

               The consolidated  financial statements contained herein should be
          read in conjunction  with the  consolidated  financial  statements and
          related  notes  thereto  filed  with  Form  10-K  for the  year  ended
          September 30, 1997.

NOTE 2. INVENTORIES

               Inventories consist of (in thousands):

                                   June 30, 1998            September 30, 1997
                                   -------------            ------------------

               Raw materials             $14,347                   $16,075
               Work-in-process             3,025                     4,914
               Finished goods             17,260                    20,760
                                         -------                   -------
                                         $34,632                   $41,749
                                         =======                   =======


                                      - 6 -
<PAGE>

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


NOTE 3.   PROPERTY, PLANT AND EQUIPMENT

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

                                           June 30, 1998     September 30, 1997
                                           -------------     ------------------

          Land                                $  1,779              $  1,770
          Buildings and improvements            30,098                29,716
          Test equipment, fixtures and
            field spares                        55,523                55,858
          Machinery and equipment               58,654                56,165
                                              --------               -------
                                               146,054               143,509
          Less: accumulated depreciation 
            and amortization                   104,136                97,082
                                              --------              --------
                                              $ 41,918              $ 46,427
                                              ========              ========

NOTE 4.  CAPITALIZED SOFTWARE DEVELOPMENT COSTS

         Capitalized software development costs consist of (in thousands):

                                            June 30, 1998    September 30, 1997
                                            -------------    ------------------

         Original cost                         $39,220               $39,627
         Less:  accumulated amortization        15,259                16,127
                                               -------               -------
                                               $23,961               $23,500
                                               =======               =======

NOTE 5.  LONG-TERM DEBT

         Long-term debt consists of (in thousands):

                                           June 30, 1998     September 30, 1997
                                           -------------     ------------------

         Revolving credit facility            $    --                $ 4,799
         Notes payable                         24,957                 15,353
         7-3/4% convertible senior
          subordinated debentures              25,000                 25,000
         Mortgages payable                     11,194                 11,710
                                               ------                -------
                                               61,151                 56,862
         Less:  current portion                 8,231                  7,569
                                              -------                -------
                                              $52,920                $49,293
                                              =======                =======


                                   - 7 -

<PAGE>

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

NOTE 5.  LONG-TERM DEBT (continued)

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

               On October 22, 1997,  the Company  entered  into a $40.0  million
          loan and security agreement (the "Loan Agreement") with a new group of
          financing  institutions.  The Loan Agreement provided $15.0 million in
          proceeds  (received  on October 22,  1997) from a five-year  term loan
          (included in "notes  payable" in the chart  above).  In addition,  the
          Loan Agreement  provides for a $25.0 million (maximum value) revolving
          line of credit for a three-year period ending in October 2000, subject
          to  extension.  Availability  of such funds is subject to satisfying a
          borrowing  base  formula   related  to  levels  of  certain   accounts
          receivable and  inventories,  which may limit available  borrowings to
          less than $25.0 million (at June 30, 1998, the total amount  available
          for borrowings and letters of credit was $25.0  million).  Most assets
          of  the  Company,  including  accounts  receivable,   inventories  and
          property, plant and equipment, are pledged as collateral.

               No revolving line of credit borrowings was outstanding as of June
          30, 1998, as compared to $4.8 million of such  borrowings  outstanding
          (under a previous  credit  facility) as of September  30, 1997.  There
          were $975,000 of letters of credit outstanding as of June 30, 1998.

               The Loan Agreement  includes  covenants which may limit access to
          future   borrowings  and  may  accelerate   payment   requirements  on
          outstanding  borrowings.  The most restrictive  covenant  requires the
          maintenance  of a  minimum  balance  of $80.0  million  for the sum of
          stockholders'  equity  (excluding  both foreign  currency  translation
          adjustments subsequent to September 30, 1997 and restructuring charges
          up  to  $3.0  million)  and  outstanding  7  3/4%  convertible  senior
          subordinated  debentures,  issued in September  1997.  As such minimum
          balance  at June 30,  1998 is  calculated  to be $80.0  million,  this
          covenant  will be violated if the Company  realizes  any losses in the
          future.   Therefore,   it  is  anticipated  that  financial   covenant
          modifications  in the form of an amendment to the Loan  Agreement will
          be required to satisfy financial  covenant  requirements in the future
          and such  modifications  are being  pursued.  In  addition to the loan
          covenant  modifications,  the Company is assessing  various  alternate
          financing  arrangements  so that  it may  continue  strategic  product
          developments.

               In the event of non-compliance with financial or other covenants,
          the  Company  would  have to  obtain a waiver  or  amendment  from the
          lenders.  However,  there is no assurance  that the lender would grant
          such a waiver or amendment  and in such case the Company would have to
          pursue other sources of financing.  In the past the Company has relied
          on its ability to offer for sale its common  stock,  preferred  stock,
          convertible  debentures and/or warrants as viable alternative  sources
          of  financing.  The  availability  and terms of 

                                     - 8 -
<PAGE>

NOTE 5.  LONG-TERM DEBT (continued)

          such  offerings  in the future  will  depend on such items as the
          Company's  future financial  performance  and/or market demand for the
          Company's  technologies.  As  a  result,  these  sources  may  not  be
          available, or may be available on less favorable terms, in the future.
          The  Company's  inability to have access to the Loan  Agreement  funds
          and/or  alternative  financing  sources would have a material  adverse
          effect on the Company's financial condition.


          7 3/4% Convertible Senior Subordinated Debentures
          -------------------------------------------------

               On  September  26,  1997,  the Company  issued  $25.0  million of
          convertible senior subordinated debentures ("Debentures") which mature
          on  September  30,  2002 (if not  converted  or  redeemed)  and accrue
          interest  at a rate of 7 3/4% per  annum.  The  Debentures,  issued to
          qualified institutional buyers and accredited institutional investors,
          are convertible  into shares of the Company's  common stock originally
          at a conversion  price of $6.86 per share,  or the equivalent of 145.8
          shares of common stock for each $1,000 principal amount of Debentures.
          Under the terms of the  Debentures,  on March 30, 1998, the conversion
          price was reset to $6.279 per share, or the equivalent of 159.3 shares
          of common stock for each $1,000 principal  amount of Debenture.  Under
          certain  conditions,  such  conversion  price  may again be reset to a
          reduced price per share on September 30, 1999, but in no event may the
          conversion  price  be  reset  at a  price  below  85% of the  original
          conversion  price.  As of June 30, 1998 and September 30, 1997,  $25.0
          million of Debentures were outstanding.

               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,  1997,  for  further  
          disclosures   applicable  to  the above-referenced Loan Agreement and
          Debentures.

NOTE 6.  RESTRUCTURING OF OPERATIONS

               The net loss for the nine months  ended June 30, 1998  includes a
          charge of $2.5 million,  or $(0.12) per share, which is comprised of a
          $1.0  million  provision  for   post-employment   benefits  under  the
          Company's  severance plan related to the elimination of  approximately
          200  full-time  positions  and  $1.5  million  for  the  write-off  of
          intangible  assets and other costs  associated with the elimination of
          low-volume product lines.

NOTE 7.   IMPLEMENTATION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 
            128, "EARNINGS PER SHARE" (EPS)

               In  1997,  the  Financial   Accounting   Standards  Board  issued
          Statement of Financial

                                     - 9 -
<PAGE>

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

NOTE 7.  IMPLEMENTATION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 
           128, "EARNINGS PER SHARE"  (EPS) (continued)

          Accounting  Standards  ("SFAS")  No. 128,  "Earnings  Per Share."
          SFAS 128 replaced the previously  reported  primary and fully diluted
          earnings per share with basic and  diluted  earnings  per share,  
          respectively.  Unlike primary  earnings per share, basic earnings per
          share excludes any dilutive effects of options,  warrants and 
          convertible securities. Diluted earnings per share is very similar to
          the previously  reported fully diluted earnings per share. SFAS 128 
          requires restatement of all prior  period  earnings  per share
          information  to conform to the new reporting  requirements.  The
          Company  implemented SFAS 128, including new disclosure requirements,
          in the quarter ended December 31, 1997.

               Under  current  and  prior  accounting  standards,  common  stock
          equivalents are not factored into earnings per share  calculations for
          companies  reporting net losses.  As a result,  implementation of SFAS
          128 did not have an impact on the  Company's  reported  loss per share
          information  for the three and nine month  periods ended June 30, 1998
          and 1997,  and will not have an impact  until  the  Company  reports a
          quarterly profit.

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

                                     Three Months Ended      Nine Months Ended
                                          June 30,               June 30,
                                    1998           1997      1998         1997
                                    -------------------     -------------------
 Numerator:

   Net loss                         $(6,286)    $(13,820)   $(27,205)  $(31,212)
   Preferred stock dividends           (450)        (450)     (1,350)    (1,350)
   Numerator for basic and diluted  --------    ---------   ---------  ---------
    loss per share - loss applicable
    to common stockholders          $(6,736)    $(14,270)   $(28,555)  $(32,562)
                                    ========    =========   =========  ========
Denominator:

   Denominator for basic and diluted
    loss per share - weighted average
    shares outstanding               21,542       21,148      21,458     21,063
                                     ======       ======      ======     ======

Basic and diluted loss per share    $(0.31)       $(0.67)     $(1.33)    $(1.55)
                                    ======        =======     =======    =======

                                     - 10 -
<PAGE>

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

NOTE 7.  IMPLEMENTATION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 
           128, "EARNINGS PER SHARE"  (EPS) (continued)

               Outstanding securities which could potentially effect diluted EPS
          in the future,  when the Company reports a quarterly  profit,  include
          convertible  debentures,  convertible  preferred  stock,  warrants and
          employee  stock  options.  For  additional   disclosure   information,
          including  conversion terms, refer to Notes 5, 8 and 10, respectively,
          in the Company's  consolidated  financial  statements  filed with Form
          10-K for the year ended September 30, 1997. The  approximate  weighted
          average number of employee stock options  outstanding at June 30, 1998
          was  3,100,000  shares,  2,100,000  shares  of  which  would  not have
          otherwise been included in diluted earnings per share calculations for
          the nine months  ended June 30, 1998,  because the  options'  exercise
          price was greater than the average market price of the common shares.


NOTE 8.  NEW ACCOUNTING STATEMENT

               In  June  1998,   Statement  of  Financial  Accounting  Standards
          ("SFAS") No. 133,  "Accounting for Derivative  Instruments and Hedging
          Activities," was issued to be effective for fiscal quarters  beginning
          after June 15, 1999. SFAS No. 133 establishes accounting and reporting
          standards for derivative  instruments and for hedging activities.  The
          Company  historically has not entered into hedge contracts or any form
          of derivative  investment  and,  therefore,  should not be impacted by
          this  new  statement.  However,  the  Company  is in  the  process  of
          evaluating the effect of adoption on future results and the disclosure
          under this standard.

                                     - 11 -
<PAGE>

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


Results of Operations
---------------------

               The following  table sets forth selected  consolidated  financial
          data stated as a percentage of total revenues (unaudited):
                             
                                  Three months  ended         Nine months ended
                                       June 30,                    June 30,
                                  1998           1997         1998         1997
                                  ----           ----         ----         ----
Revenues:
    Net product sales             78.5%          75.7%        77.9%        79.0%
    Service revenue               19.2           21.6         19.6         18.5
    Leasing revenue                2.3            2.7          2.4          2.5
                                 -----          -----        -----        -----
                                 100.0          100.0        100.0        100.0
Costs and expenses:
    Costs of revenues             51.3           52.3         51.8         51.3
    Amortization of capitalized
      software development costs   6.1            6.4          6.2          5.8
    Selling, general and 
      administrative              37.0           46.2         38.9         41.3
    Research and product
      development                 15.4           22.7         16.9         19.8
    Restructuring of operations     --             --          1.7           --
Operating loss                    (9.8)         (27.6)       (15.5)       (18.2)
                                 -----          ------       ------       -----

Net (loss)                       (13.1)%        (29.7)%      (18.8)%     (20.0)%
                                 ======         =======      =======     ======

               Summary  comments are as follows:  (1) although  revenues for the
          third fiscal  quarter  showed a modest  increase over the prior year's
          quarter,  there was a shift  toward a higher  percentage  of  revenues
          generated  from  product  sales and a lower  percentage  from  service
          revenues;  (2) cost of  revenues,  measured  as a percent of  revenue,
          improved  in the quarter  due to a greater  proportion  of sales being
          composed of high-end ATM products which generate better  margins;  (3)
          operating  expenses  were  reduced to 52.4% of revenue in the  quarter
          ended June 30,  1998 as compared to 68.9% for the same period one year
          ago, as a result of cost reductions  begun in the first quarter;  on a
          year-to-date  basis,  operating expenses  (excluding  restructuring of
          operations  costs) declined from 61.1% to 55.8% of revenues  despite a
          reduction in revenues of $11.8  million due to the positive  effect of
          $14.8 million in expense reductions.

                                     - 12 -
<PAGE>

Revenues
--------
                               Three months ended          Nine months ended
                                    June 30,                    June 30,
                               1998          1997          1998          1997
                               ----          ----          ----          ----

      Revenues                $48,031      $46,586       $144,581     $156,400
      Percent Change             3.1%           --         (7.6)%           --

Quarter - Revenues in the quarter  increased $1.4 million  compared to the prior
year. Product revenues,  which include  technology  license revenues,  increased
$2.4  million  offset by a $0.8 million  reduction  in service  revenue and $0.2
million reduction in lease revenue.

A shift  occurred in product line revenues  whereby ATM product sales  increased
$4.5 million,  or 54%,  while  shipments of legacy analog and all other products
dropped $1.1 million and $1.0 million,  respectively.  Growing  domestic  market
interest  in new voice  and  video  applications,  particularly  with  alternate
communications  carriers,  along with  expansion of networks in Europe and a new
network in Mexico, account for the strength in ATM revenues.

In addition,  technology license revenues dropped $0.9 million due to reductions
in  volumes of  computer  chips  being sold by  manufacturers  who  license  the
Company's  technology;  this  business is  expected  to improve as the  positive
impact is  realized of  separating  and  focusing  these  activities  into a new
division, called the Technology Alliance Group, which was formed in the quarter.

Service  revenues  dropped $0.8 million,  reflecting a transition from servicing
exclusively  General  DataComm  products  to  also  servicing  other  companies'
products.  While  positive  developments  are occurring in the new Vital Network
Services  subsidiary toward securing new third-party  business,  this has yet to
translate into meaningful  service revenues.  This is expected to improve in the
near term as new third-party business begins converting to revenue.

Geographically,  international  revenues accounted for 48% of total consolidated
revenues  in the  quarter  ended  June  30,  1998  as  compared  to 51%  for the
comparable period one year ago.

Year-to-Date  - The $11.8  million,  or 7.6%,  revenue  decline is  attributable
primarily to reduced product revenue levels ($10.9 million),  with both domestic
and  international  markets  contributing  to the decline ($4.4 million and $6.5
million, respectively). The product revenue reduction was experienced across the
Access and  Internetworking  product lines, which were down $6.6 million (11.9%)
and $10.4 million (29.0%), respectively.  Licensing revenues were also down $0.2
million.  ATM revenues are ahead of last year's level by $6.3 million, or 21.9%.
Access revenues  reflect a continued  reduction in sales of the Company's legacy
analog and  low-speed  products,  with  sales  growth  from new  Access  product
introductions not offsetting such declines.  The  internetworking  (multiplexer)
business  decline  reflects  weakness  in Asian  markets  which accounts for
almost half, or $4.8 million, of the decline.  In addition there is a  general 
market shift toward frame relay and ATM  technologies  and away from  
multiplexing technology.

In total,  international revenues approximated 49% and 50% of total revenues for
the nine months ended June 30, 1998 and 1997, respectively.

     
                                - 13 -

<PAGE>

Cost of Revenues:
                                     Three months ended      Nine months ended
                                          June 30,                June 30,
                                       1998          1997      1998        1997
                                       ----          ----      ----        ----

        Cost of revenues              $24,614     $24,364    $74,909    $80,314
        As a percent of revenue         51.3%       52.3%      51.8%      51.3%

        Amortization of capitalized
         software development costs    $2,921      $3,000     $8,893     $9,000
        As a percent of revenue          6.1%        6.4%       6.2%        5.8%

Quarter - Cost of revenues,  measured as a percent of revenues,  were lower (1.0
percentage  point)  for the  quarter  ended  June 30,  1998 as  compared  to the
corresponding  quarter in fiscal 1997.  This  improvement  was related to higher
margins achieved on ATM products compared to other product lines which more than
offset the negative impact of lower technology license and service revenues. The
amount  of  amortization   of  capitalized   software   development   costs  was
approximately the same in each of the quarters ended June 30, 1998 and 1997.

Year-to-Date  - Cost of revenues,  measured as a percent of revenues,  increased
0.5 percentage points as compared to the corresponding  period last fiscal year.
The   improvement  in  ATM  product  margins  in  the  current  quarter  brought
year-to-date  product margins in line with the prior year.  Service margins were
down  slightly  (0.3  percentage  points) from the prior year.  Due to the lower
revenue base, amortization of capitalized software development costs, which were
relatively consistent in amounts year-to-year, now represent a larger percentage
of revenues.

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

Selling, General and Administrative Expenses
--------------------------------------------

                                   Three months ended       Nine months ended
                                        June 30,                 June 30,
                                   1998          1997       1998          1997
                                   ----          ----       ----          ----
        Selling, general, and
          administrative expenses $17,788     $21,518       $56,208    $64,654
        Percent change            (17.3)%          --       (13.1)%         --
        As a percent of revenue     37.0%       46.2%         38.9%      41.3%

Quarter - The Company's  cost  reduction  plan  implemented  in the first fiscal
quarter contributed to a $3.7 million, or 17.3%,  reduction in selling,  general
and administrative costs for the quarter ended June 30, 1998, as compared to the
same period one year ago. The cost reductions were achieved in both domestic and
international  operations,  despite  ongoing  salary merit  increases  and other
inflationary increases. The

                                     - 14 -
<PAGE>

cost reductions are comprised of reduced  compensation  and travel costs, a more
effectively managed promotion and advertising program and lower sales commission
costs attributable to reduced product revenues.  The lower expense levels, along
with  a  3.1%   increase  in   revenues,   resulted  in  selling,   general  and
administrative  expenses  decreasing  by 9.2% when  measured as a percentage  of
revenue  for the quarter  ended June 30,  1998 as  compared to the prior  year's
quarter.

Year-to-Date  -  Year-to-date  selling,   general  and  administrative  expenses
decreased $8.4 million, or 13.1%, from the corresponding  period of fiscal 1997.
The  same  cost  reductions  noted  above  also  contributed  favorably  to  the
year-to-date  results.  However,  due to a 7.6%  decline in  revenues,  selling,
general and  administrative  expenses,  when measured as a percentage of revenue
for the nine  months  ended June 30,  1998,  reflected a decline of only 2.4% as
compared to the prior year.

Research and Product Development Costs
--------------------------------------

                                     Three months ended       Nine months ended
                                         June 30,                 June 30,
                                     1998         1997        1998         1997
                                     ----         ----        ----         ----

      Gross expenditures             $10,737    $13,582       $33,857   $40,004
      Percent change                 (20.9)%        --        (15.4)%       --
      As percent of revenue            22.4%      29.2%         23.4%     25.6%
      ------------------------------------------------------------------------
      Capitalized software costs      $3,341     $3,000        $9,354   $9,107
      As a percent of gross
        expenditures                   31.1%      22.1%         27.6%    22.8%
      -------------------------------------------------------------------------
      Net research and product
        development costs             $7,396    $10,582       $24,503  $30,897
      Percent change                 (30.1)%        --        (20.7)%       --
      As a percent of revenue          15.4%      22.7%         16.9%     19.8%
      -------------------------------------------------------------------------

Quarter - The  Company  continues  to invest a high  percentage  of  revenue  in
research  and product  development,  although  lower than the prior  year.  As a
percentage of revenue,  gross product research and development decreased by 6.8%
to 22.4% in the second quarter of fiscal 1998 from 29.2% in the same quarter one
year ago. Cost  reduction  efforts have  resulted in a $2.8  million,  or 20.9%,
reduction in gross research and development  spending for the quarter ended June
30,  1998 as  compared  to the same  period  one year  ago.  This  decrease  was
primarily  attributable to reduced usage of outside services and consultants and
lower compensation costs due to lower worldwide engineering headcount associated
in part with the elimination of low-volume products.

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


                                     - 15 -
<PAGE>

Year-to-Date - Year-to-date  product research and development spending displayed
similar trends.  Gross spending for the nine months ended June 30, 1998 and 1997
amounted to $33.9 million and $40.0  million,  respectively,  a decrease of $6.1
million, or 15.4%.

Capitalized  software  development costs for the nine months ended June 30, 1998
amounted  to $9.4  million as compared  to $9.1  million  for the  corresponding
period of fiscal 1997.

The complexity of the ATM technology has in the past demanded, and will continue
to demand, significant research and product development investment. To retain an
effective pool of available  engineering  talent,  the Company operates research
and  development  facilities in four locations:  the United States  (Middlebury,
Connecticut and Boston, Massachusetts), Canada and the United Kingdom.

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

The nine months  ended June 30,  1998  includes a  restructuring  charge of $2.5
million for a cost reduction  plan,  implemented  in the Company's  first fiscal
quarter,  involving  a  reduction  in the number of  employees,  elimination  of
low-volume products and other expense reductions.

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

Net interest  expense amounted to $1.5 million and $0.6 million for the quarters
ended June 30, 1998 and 1997,  respectively.  Year-to-date  net interest expense
amounted  to  $4.3   million  and  $1.5   million  for  fiscal  1998  and  1997,
respectively.  The  increases  are  attributable  to  interest  expense and fees
(including  amortization  of offering  costs)  associated  with $25.0 million of
convertible  senior  subordinated  debentures issued in September 1997 and a new
$15.0 million term loan executed on October 22, 1997. Refer to "Foreign Currency
Risk" below for discussion of other income and expense.

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

Tax  provisions  recorded by the  Company,  principally  for foreign  income and
domestic state taxes,  amounted to $100,000 in both quarters ended June 30, 1998
and 1997.  Year-to-date  tax  provisions  amounted to $600,000  and $300,000 for
fiscal 1998 and 1997,  respectively.  The Company  has  significant  federal net
operating loss carryforwards  available to offset future  liabilities.  However,
based  on the  Company's  past  financial  performance  and the  uncertainty  of
ultimate  realization  of such  carryforwards,  no net  deferred  tax  asset (or
related  deferred  tax  benefit) has been  recorded in the  Company's  financial
statements.

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

The Company's foreign subsidiaries are exposed to foreign currency  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,  to the extent  such  liabilities  are not  deemed to be  permanent
investments,  are recorded as a component  of "Other  Income and Expense" in the
Company's  consolidated  statements of operations.  Such activity  resulted in a
currency  exchange  gain of $168,000 and a currency  exchange loss of $(198,000)
for the  quarters  ended  June 30,  1998 and  1997,  respectively.  Year-to-date
currency

                                     - 16 -
<PAGE>

exchange losses amounted to $(142,000) and $(907,000) for fiscal 1998 and 1997,
respectively.

In addition,  cumulative foreign currency adjustments resulting from translating
foreign  subsidiary  financial  statements into U.S.  dollars are reflected as a
separate component of stockholders' equity on the balance sheet.

No individual  foreign  subsidiary  comprises 10 percent or more of consolidated
revenue or assets. The Company historically has not entered into hedge contracts
or any form of derivative or similar investment.

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

The Company's  cash and cash  equivalents  amounted to $10.9 million at June 30,
1998, as compared to $21.5 million at September 30, 1997.  The Company  believes
its  fiscal  1998 cash  requirements  will be  satisfied  from its cash and cash
equivalents  balance,  from a $25.0 million  revolving loan facility  (discussed
below),  and from  alternative  sources  of funds  such as sales of  technology,
technology  funding  arrangements  and others  that make sense from a  strategic
standpoint.

On October 22, 1997, the Company  entered into a $40.0 million loan and security
agreement (the "Loan Agreement") with a new group of financing institutions. The
Loan Agreement has provided the Company with $15.0 million in proceeds (received
on October 22, 1997) from a five-year term loan. In addition, the Loan Agreement
provides for a $25.0  million  (maximum  value)  revolving  line of credit for a
three-year period ending in October 2000, subject to extension.  Availability of
such funds is subject to satisfying  financial  covenants  and a borrowing  base
formula related to levels of certain accounts receivable and inventories,  which
may limit available borrowings to less than $25.0 million (at June 30, 1998, the
total amount  available for borrowings and letters of credit was $25.0 million).
Most assets of the  Company,  including  accounts  receivable,  inventories  and
property, plant and equipment, are pledged as collateral.

No revolving line of credit  borrowings was outstanding as of June 30, 1998, as
compared to $4.8 million of such borrowings outstanding (under a previous credit
facility) as of September  30,  1997.  There were  $975,000 of letters of credit
outstanding as of June 30, 1998.

The  Loan  Agreement  includes  covenants  which  may  limit  access  to  future
borrowings and may accelerate  payment  requirements on outstanding  borrowings.
The most restrictive  covenant  requires the maintenance of a minimum balance of
$80.0  million  for the sum of  stockholders'  equity  (excluding  both  foreign
currency   translation   adjustments   subsequent  to  September  30,  1997  and
restructuring  charges up to $3.0 million) and  outstanding  7 3/4%  convertible
senior  subordinated  debentures,  issued in  September  1997.  As such  minimum
balance at June 30, 1998 is calculated to be $80.0  million,  this covenant will
be violated if the Company realizes any losses in the future.  Therefore,  it is
anticipated that financial covenant modifications in the form of an amendment to
the Loan Agreement will be required to satisfy financial  covenant  requirements
in the future and such modifications are being pursued.  In addition to the loan
covenant  modifications,  the Company is assessing various  alternate  financing
arrangements so that it may continue strategic product developments.

In the event of  non-compliance  with financial or other covenants,  the Company
would have to obtain a waiver or amendment from the lenders.  However,  there is
no assurance  that the lender would grant such a waiver or amendment and in such
case the Company would have to pursue other  sources of  financing.

                                     - 17 -
<PAGE>

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

Reference is made to the Company's consolidated financial statements and related
notes thereto and exhibits filed with Form 10-K for the year ended September 30,
1997 for further disclosures  applicable to the above-referenced  Loan Agreement
and  other  long-term  debt  obligations,  including  $25.0  million  of 7  3/4%
convertible senior subordinated  debentures  outstanding as of June 30, 1998 and
September 30, 1997.

Total  outstanding  debt amounted to $61.2 million at June 30, 1998, as compared
to $56.9  million at  September  30,  1997.  The net increase of $4.3 million is
comprised of the new $15.0 million term loan  referenced  above and $0.6 million
of capital  equipment  financing,  partially  offset with the  repayment of $4.8
million of borrowings outstanding under a previous revolving credit facility and
$6.5 million in principal payments on other outstanding borrowings.

Operating
---------
Net cash provided by operating  activities improved to $1.1 million for the nine
months ended June 30, 1998 as compared to net cash usage of $5.4 million for the
corresponding period one year ago.

Non-debt working capital,  excluding cash and cash  equivalents,  decreased from
$38.0 million at September 30, 1997 to $28.7 million at June 30, 1998.  The $9.3
million  reduction is primarily  comprised of, among other items, a $7.1 million
managed reduction in inventory,  a $5.0 million reduction in accounts receivable
resulting  from  a  reduced  level  of  sales  and  continued  improvement  with
collection  efforts,  offset by a $2.5  million  reduction  in accounts  payable
(related to the inventory reduction).

Investing
---------
Property,  plant and  equipment  investments  amounted to $5.2  million and $8.7
million in the  nine-month  periods ended June 30, 1998 and 1997,  respectively.
The Company  continues to closely  monitor all capital  spending in an effort to
preserve cash and limit such  investment to instances  which appear to offer the
greatest return on investment.  Investments in capitalized  software amounted to
$9.4 million and $9.1 million,  respectively, for the nine months ended June 30,
1998 and 1997.

Financing
---------
Net cash provided by financing  activities  amounted to $3.0 million in the nine
months  ended June 30,  1998,  reflecting  $4.3  million of net debt  borrowings
($15.6 million in new borrowings less $11.3 million in debt repayments) and $0.5
million of  proceeds  received  from the  issuance of common  stock  pursuant to
employee  stock  programs and other items less $1.4  million in preferred  stock
dividend  payments  and  $0.4  million  of costs  incurred  to  execute  the new
borrowings.  This compares to net cash  consumption  of $0.5 million in the nine
months ended June 30, 1997,  comprised of $1.1 million of proceeds received from
the issuance of common stock pursuant to employee stock programs, offset by $0.2
million of net debt  reduction  and $1.4  million in  preferred  stock  dividend
payments.

                                     - 18 -
<PAGE>

Reference  is made to Note 5 on page 7 for a  condensed  summary of  outstanding
long-term debt as of June 30, 1998 and September 30, 1997. Separately, reference
is made to the consolidated financial statements, Notes 5 and 8, filed with Form
10-K for the year ended September 30, 1997 for further disclosures applicable to
outstanding  long-term debt and the conversion terms applicable to $25.0 million
of 7 3/4% convertible senior subordinated  debentures (Note 5) and $20.0 million
of  convertible  preferred  stock  outstanding  (Note  8),  both of  which  were
outstanding as of June 30, 1998 and September 30, 1997.

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

Continuing Losses: The Company has sustained net losses for the past 15 quarters
ended June 30,  1998.  There can be no  assurance  as to when the  Company  will
achieve net income.

Credit  Availability:  As noted above,  the Company's  Loan  Agreement  requires
compliance  with specific  financial  covenants,  including  restricted net loss
performance,  maintenance  of a current  ratio  which  equals or exceeds 1.5 and
capital spending restrictions.  If the Company fails to comply with the required
covenants and a waiver or amendment is not  obtained,  the Company may be unable
to borrow funds under such agreement.  In such case the Company will be required
to seek other  financing to fund its  operations,  and there can be no assurance
the  Company  will be able to obtain such  financing  or if  obtained,  on terms
deemed  favorable  by the  Company.  Furthermore,  in the event the Company does
default on its new $40.0  million Loan  Agreement  obligation,  such default may
result in payment of other outstanding indebtedness to be accelerated.

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

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
-------------------------------------------------------------------------------

Portions of the  foregoing  discussion  include  descriptions  of the  Company's
expectations regarding future trends affecting its business. The forward-looking
statements  made  in  this  document,  as  well  as  all  other  forward-looking
statements  or  information  provided by the Company or its  employees,  whether
written or oral,  are made in reliance  upon the safe harbor  provisions  of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements and
future  results  are  subject  to, and should be  considered  in light of risks,
uncertainties,  and other factors which may affect future results including, but
not limited to, competition, rapid changing technology,  regulatory requirements
and uncertainties of international trade.


                                     - 19 -
<PAGE>

                        GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES



Part II.     Other Information


          Item 6. Exhibits and Reports on Form 8-K

                      (a) Index of Exhibits

                          None.

                      (b) Reports on Form 8-K

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


                                     - 20 -

<PAGE>

                                   SIGNATURES


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


                                             GENERAL DATACOMM INDUSTRIES, INC.
                                                     (Registrant)

                                             /S/ WILLIAM S. LAWRENCE
                                             William S. Lawrence
                                             Senior Vice President, Finance and
                                             Principal Financial Officer



Dated:  August 14, 1998

                                     - 21 -