SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q

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


                For the quarterly period ended December 31, 2000

                                       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 February 13, 2001

     Common Stock, $.10 par value                            28,708,217
     Class B Stock, $.10 par value                            2,057,103

                  Total Number of Pages in this Document is 28.

<PAGE>


                        GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES

                                      INDEX

                                                                        Page

Part I -- FINANCIAL INFORMATION

          Consolidated Balance Sheets -
          December 31, 2000 and September 30, 2000 ..................... 3

          Consolidated Statements of Operations and
          Accumulated Deficit - For the Three Months
          Ended December 31, 2000 and 1999  ...........................  4

          Consolidated Statements of Cash Flows - For the
          Three Months Ended December 31, 2000 and 1999 ...............  5

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

          Management's Discussion and Analysis of
          Financial Condition and Results of Operations ............... 16


Part II -- OTHER INFORMATION

        Item 6.  Exhibits and Reports on Form 8-K ..................... 27



                                        2

<PAGE>

                          PART I. FINANCIAL INFORMATION


               GENERAL DATACOMM INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS



                                                 December 31,     September 30,
 In thousands, except shares                         2000             2000
 ------------------------------------------------------------------------------
 ASSETS:                                              (Unaudited)
  Current assets:
       Cash and cash equivalents                  $2,344              $3,572
       Accounts receivable, less allowance
       for doubtful receivables of $1,913
       in December and $2,037 in September        23,508              25,631
       Inventories                                32,782              31,718
       Deferred income taxes                       1,525               1,521
       Other current assets                        8,438               8,311
 ------------------------------------------------------------------------------
 Total current assets                             68,597              70,753
 ------------------------------------------------------------------------------
 Property, plant and equipment, net               28,324              29,658
 Capitalized software development costs, net      17,532              22,160
 Other assets                                      9,021              10,512
 ------------------------------------------------------------------------------
                                                $123,474            $133,083
 ------------------------------------------------------------------------------

 LIABILITIES AND STOCKHOLDERS' EQUITY:
  Current liabilities:
      Current portion of long-term debt          $54,365             $51,982
      Accounts payable, trade                     24,294              23,040
      Accrued payroll and payroll-related costs    4,219               4,853
      Deferred income                              6,069               6,567
      Other current liabilities                   15,501              14,070
 ------------------------------------------------------------------------------
 Total current liabilities                       104,448             100,512
 ------------------------------------------------------------------------------
 Long-term debt, less current portion              3,000               3,000
 Deferred income taxes                             2,272               2,266
 Other liabilities                                 1,066               1,142
 ------------------------------------------------------------------------------
 Total liabilities                               110,786             106,920
 ------------------------------------------------------------------------------
 Commitments and contingent liabilities               --                  --
 Stockholders' equity:
   Preferred  stock,  par value $1.00 per share,
     3,000,000  shares  authorized;
     issued  and  outstanding:  787,900  shares
     of  9%  cumulative  convertible
     exchangeable   preferred   stock  and
     200,000   shares  of  5%  cumulative
     convertible preferred stock; total
      liquidation  preference of $24.7 million       988                 988
   Class B stock, par value $.10 per share,
     10,000,000 shares authorized; issued
     and outstanding: 2,057,103 in
     December and in September                       206                 206
   Common stock, par value $.10 per share,
     50,000,000 shares authorized; issued
     and outstanding: 27,710,710 in December
     and 27,709,710 in September                   2,771               2,771
   Capital in excess of par value                194,433             194,431
   Accumulated deficit                          (179,645)           (165,754)
   Accumulated other comprehensive loss           (4,626)             (5,040)
   Common stock held in treasury, at cost:
     194,614 shares in December and in September  (1,439)             (1,439)
 ------------------------------------------------------------------------------
 Total stockholders' equity                       12,688              26,163
 ------------------------------------------------------------------------------
                                                $123,474            $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
                                                          December 31,
-------------------------------------------------------------------------------
      In thousands, except per share data            2000           1999
-------------------------------------------------------------------------------
       Revenues:
          Net product sales                            $16,675        $35,362
          Service revenue                               12,162         11,195
          Other revenue                                    601          1,023
                                                        ------         ------
                                                        29,438         47,580
       Cost of revenues:
          Cost of product sales                         10,813         18,380
          Cost of service revenue                        9,930          8,186
          Cost of other revenue                             44             88
                                                        ------         ------
                                                        20,787         26,654

       Gross margin                                      8,651         20,926

       Amortization of capitalized
          software development costs                     2,466          3,000

       Operating expenses:
          Selling, general and administrative           12,627         14,603
          Research and product development               4,815          5,172
          Restructuring and other charges                4,900            500
                                                       -------         ------
                                                        22,342         20,275

       Operating loss                                  (16,157)        (2,349)

       Other income (expense):
          Interest, net                                 (2,009)        (2,012)
          Legal settlement proceeds, net                 5,000             --
          Debt conversion expense                           --         (1,524)
          Other, net                                      (325)           244
                                                       --------        -------
                                                         2,666         (3,292)

       Loss before income taxes                        (13,491)        (5,641)
       Income tax provision                                400            300
                                                       --------       --------
       Net loss                                       ($13,891)       ($5,941)
                                                      =========       ========
       Basic and diluted loss per share                 ($0.47)        ($0.29)

       Weighted average number of common and
        common  equivalent shares outstanding           29,573         22,271
                                                     =========      =========

       Accumulated deficit at beginning of period    ($165,754)     ($127,472)
       Net loss                                        (13,891)        (5,941)
       Payment of preferred stock dividends                 --           (450)
                                                     ----------     ----------
       Accumulated deficit at end of period          ($179,645)     ($133,863)
                                                     ==========     ==========

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

                                        4
<PAGE>

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


                                                   Increase (Decrease) in Cash
                                                       and Cash Equivalents
                                                   ----------------------------
                                                      Three Months Ended
                                                          December 31,
                                                  ---------------------------
In thousands                                           2000         1999
------------------------------------------------------------------------------
Cash flows from operating activities:
  Net loss                                             ($13,891)      ($5,941)
  Adjustments to reconcile net loss to net cash
  used in operating activities:
    Depreciation and amortization                        4,478         5,768
    Non-cash charge for write-off of capitalized
     software development costs                          4,300            --
    Non-cash charge for debt conversion expense            --          1,524
    Changes in:
      Accounts receivable                                2,124         2,422
      Inventories                                       (1,049)       (4,383)
      Accounts payable and accrued expenses              1,362         1,670
      Other net current assets                              12           520
      Other net long-term assets                         1,532          (592)
------------------------------------------------------------------------------
Net cash provided by (used in) operating activities     (1,132)          988
------------------------------------------------------------------------------
Cash flows from investing activities:
  Acquisition of property, plant and equipment, net       (366)       (1,211)
  Capitalized software development costs                (2,138)       (3,000)
-------------------------------------------------------------------------------
Net cash used in investing activities                   (2,504)       (4,211)
-------------------------------------------------------------------------------
Cash flows from financing activities:
  Revolver borrowings (repayments), net                  3,763       (15,111)
  Proceeds from notes and mortgages                         --        19,700
  Principal payments on notes and mortgages             (1,411)       (1,244)
  Proceeds from issuing common stock                         2             9
  Payment of preferred stock dividends                      --          (450)
-------------------------------------------------------------------------------
 Net cash provided by financing activities               2,354         2,904
 ------------------------------------------------------------------------------
 Effect of exchange rates on cash                           54           (70)
 ------------------------------------------------------------------------------
 Net decrease in cash and cash equivalents              (1,228)         (389)
 Cash and cash equivalents at beginning
   of period - (1)                                       3,572         3,790
 ------------------------------------------------------------------------------
 Cash and cash equivalents at end of period - (1)       $2,344        $3,401
 ==============================================================================

(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)

 1.         BASIS OF PRESENTATION

                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  the  Company's
                ability to  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 presented
                financial statements  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
                the  consolidated  financial  position of General DataComm
                Industries,  Inc. and subsidiaries (the "Corporation" or
                "Company") as of December 31, 2000, the consolidated results of
                their operations for the three months  ended  December  31,
                2000 and 1999,  and their cash flows for the three months ended
                December 31, 2000 and 1999.  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>
                       GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                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

                In recent years (and in the quarter  ended  December 31,  2000),
                the  Company  has  experienced  recurring  net losses  and, as a
                result, has consumed cash 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) and high  investments in
                product   development,   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.

                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. As
                a result,  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.

                Although the primary lenders have served a notice of default,
                such 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 monitoring such advances and
                have  increased  the  interest  rates on such  advances  and the
                outstanding  term  loans.  If 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 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

                                       7
<PAGE>
                       GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                liability at December 31, 2000 and September 30, 2000.

                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 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.  Furthermore,  the Company  could
                violate covenant or default  provisions of other debt agreements
                during  fiscal  2001,  which could  accelerate  the  maturity of
                amounts due under such agreements.

                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  achieving  cash  neutral
                operational  performance  for the  Company  on or about June 30,
                2001, and  profitability and positive cash flow on a longer-term
                basis,  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.

                In  addition to the  restructuring  and cost  reduction  actions
                taken,  in June 2000, the Company  engaged CIBC World Markets 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.

                However,  the Company continues to actively pursue opportunities
                that are presented and is  aggressively  looking to identify new
                opportunities.   To  more   aggressively   pursue  the  sale  of
                divisions,  the Company  has more  recently  engaged  additional
                consultants to assist with such efforts.



                                       8

<PAGE>

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

                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
                achieve future profitable  operations,  generate sufficient cash
                from  operations and obtain additional funding  sources.  The
                financial statements, as presented, do not include  any
                adjustments   that  may  result   from  the outcome  of  these
                uncertainties.

NOTE 3.         INVENTORIES

                Inventories consist of (in thousands):

                                  December 31, 2000     September 30, 2000
                                  -----------------     ------------------

                Raw materials       $ 8,788                $  7,852
                Work-in-process       4,111                   3,504
                Finished goods       19,883                  20,362
                                    -------                --------
                                    $32,782                $ 31,718
                                    =======                ========


NOTE 4.         PROPERTY, PLANT AND EQUIPMENT

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

                                          December 31, 2000  September 30, 2000
                                          ----------------   ------------------

                Land                            $ 1,749           $ 1,746
                Buildings and improvements       30,251            30,177
                Test equipment, fixtures
                 and field spares                54,064            53,818
                Machinery and equipment          58,217            57,995
                                                -------           -------
                                                144,281           143,736
                Less: accumulated depreciation  115,957           114,078
                                                -------           -------
                                                $28,324           $29,658
                                                =======           =======

               At December 31, 2000, land, buildings and improvements with a net
               book value of  approximately  $5.6  million  are vacant and being
               held for sale.

NOTE 5.         CAPITALIZED SOFTWARE DEVELOPMENT COSTS

                As a result of restructuring operations, certain development
                projects were cancelled resulting in a $4.3 million non-cash
                charge for the write-off of capitalized software development
                costs in the  quarter  ended December 31, 2000.

                The accumulated amortization of capitalized software development
                costs  amounted to $16,318,000  and  $15,630,000 at December 31,
                2000  and  September  30,  2000,  respectively.

                                       9
<PAGE>

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


NOTE 6.         LONG-TERM DEBT

                Long-term debt consists of (in thousands):

                                           December 31, 2000  September 30, 2000
                                           -----------------  ------------------

                Revolving credit facility   $ 10,720                $ 6,957
                Notes payable                 34,161                 35,452
                7 3/4% convertible senior
                  subordinated debentures      3,000                  3,000
                Real estate mortgages          9,484                  9,573
                                            --------                 ------
                                              57,365                 54,982
                Less:  current portion        54,365                 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").  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 a default notice received by the Company on
                January  5,  2001.  As a  result  of the  claimed  default,  all
                outstanding indebtedness whose maturity could be accelerated has
                been classified as a current  liability at December 31, 2000 and
                September 30, 2000 (such long-term debt which has been
                classified as current amounted to $45.0 million and $43.3
                million at December 31, 2000 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, at December 31, 2000, the Company
                would  have  been  able to have up to  $21.5  million  in  total
                borrowings and letters of credit.  Borrowings outstanding on the
                revolving line of credit portion of the Loan Agreement  amounted
                to $10.7  million at  December  31,  2000 (as  compared  to $7.0
                million at September 30, 2000). In addition, outstanding letters
                of  credit  amounted  to  $110,000  at  December  31,  2000  and
                September 30, 2000.

                A financial covenant of the Loan Agreement requires that
                stockholders' equity,  as

                                       10
<PAGE>

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

                defined,  must equal or exceed $10.0  million.  At December 31,
                2000, such  stockholders'  equity amounted to $14.1 million.

                Mortgage Covenant Requirement

                As of  December  31,  2000,  the  Company  had $8.9  million  in
                mortgages  outstanding  with one lending  group on its  previous
                Corporate headquarters  property,  which is currently vacant and
                available for sale, and on its Naugatuck,  Connecticut property,
                where its VITAL Network  Services main offices and its remaining
                manufacturing  operations  are located.  To maintain  compliance
                with  the  tangible  net  worth  covenant  requirement  of these
                mortgage   agreements,   the   Company   intends   to   increase
                stockholders' equity by a minimum of $10.4 million or reduce the
                mortgage balance by a minimum of $4.2 million on or before April
                14,  2001  (the  Company  believes  that the sale of the  vacant
                premises  during the cure period would satisfy the  compliance).
                If  the  Company  continues  to  report  net  losses  in  future
                quarters,  additional actions to increase  stockholders'  equity
                and/or reduce the outstanding  mortgage balance will be required
                to remain in compliance with the covenant requirement.

                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.         OTHER INCOME AND EXPENSES

                Restructuring  of Operations - As a result of  restructuring  of
                operations,  in the quarter  ended  December  31,  2000  certain
                development  projects were  cancelled  which  resulted in a $4.3
                million  (non-cash)  charge  for the  write-off  of  capitalized
                software   development  costs.  In  addition,   severance  costs
                attributable to a 100 person reduction-in-force amounted to $0.6
                million  in  the  quarter   ended   December  31,  2000.   Total
                restructuring  charges  amounted to $4.9  million,  or $0.17 per
                share,  in the quarter  ended  December  31,  2000.  Most of the
                severance costs were paid as of December 31, 2000.

                During  the  same  quarter  one year  ago,  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,  primarily  for
                post-employment benefits under the Company's severance plan.

                Legal Settlement  Proceeds - The quarter ended December 31, 2000
                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 $1.5

                                       11

<PAGE>

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

                million,  or $0.07 per share, 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 8.         SEGMENT INFORMATION - INTERIM DISCLOSURES

                The following represent the Company's reportable segments:

                  . Broadband Systems Division ("BSD")
                  . Network Access Division ("NAD")
                  . VITAL Network Services, L.L.C.
                  . DataComm Leasing Corporation

                Results of the  Company's  Multimedia  Division  are reported as
                part of the  Broadband  Systems  Division  since BSD remains the
                primary  sales  channel  for  the   Multimedia   division.   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 SBU, 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
                                                            December 31,
                                                        --------------------
                                                          2000         1999
                                                        --------------------
                Revenue:
                   Broadband Systems Division           $ 8,985      $17,450
                   Network Access Division                7,714       17,928
                   VITAL Network Services, L.L.C.        12,162       11,195
                   DataComm Leasing Corporation             577        1,007
                                                        -------      -------
                      Total                             $29,438      $47,580
                                                        =======      =======


                                       12
<PAGE>

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

                Operating Income (Loss):
                   Broadband Systems Division          $(7,893)      $(3,959)
                   Network Access Division              (2,234)        1,737
                   VITAL Network Services, L.L.C.         (147)          596
                   DataComm Leasing Corporation            413           750
                                                       --------      --------
                      Total                            $(9,861)      $  (876)
                                                       ========      ========

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

                   Operating loss, per above           $(9,861)        $(876)
                   Capitalized software activity, net     (328)           --
                   General corporate expenses           (1,068)         (973)
                   Restructuring of operations          (4,900)         (500)
                   Legal settlement proceeds, net        5,000           --
                   Debt conversion expense                  --        (1,524)
                   Other expense                        (2,334)       (1,768)
                                                      ---------      --------

                   Loss Before Income Taxes           $(13,491)      $(5,641)
                                                      =========      ========

NOTE 9.         LOSS PER SHARE

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

                                                          Three Months Ended
                                                              December 31,
                                                      ------------------------
                                                      2000                1999
                                                      ------------------------
                Numerator:
                   Net loss                           $(13,891)        $(5,941)
                   Preferred stock dividends                --            (450)
                                                      ---------        --------

                   Numerator for basic and diluted
                     loss per share - loss applicable
                     to common stockholders           $(13,891)        $(6,391)
                                                      =========        =======
                Denominator:
                   Denominator for basic and diluted
                      loss per share - weighted
                      average shares outstanding        29,573          22,271
                                                      --------        ---------

                Basic and diluted loss per share      $ (0.47)        $ (0.29)
                                                      ========        ========

                                       13
<PAGE>

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

                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 three months ended December 31, 2000 approximated  4,378,746
                shares,  of which  3,265,711  would  not have been  included  in
                diluted  earnings  per share  calculations  for the three months
                ended December 31, 2000 (if the Company  reported net income for
                the referenced period) because the effect would be antidilutive.

NOTE 10.        COMPREHENSIVE INCOME (LOSS)

                The following table sets forth the computation of comprehensive
                loss:

                                                         Three Months Ended
                                                            December 31,
                                                         ------------------
                                                         2000          1999

                Net loss                              $(13,891)      $(5,941)
                Other comprehensive loss,
                net of tax:
                  Foreign currency translation
                  adjustments                              420          (491)
                                                      ---------      --------
                Comprehensive loss                    $(13,471)      $(6,432)
                                                      =========      ========

NOTE 11.        SUBSEQUENT EVENTS

                Notice Of Default

                On January 5, 2001,  the Company's  primary  lenders  served the
                Company  with a notice  of  default  under  the  Company's  Loan
                Agreement  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. 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.  Refer to Note 2, "Business Conditions and
                Financial  Plans"  and Note 6,  "Long-Term  Debt,"  for  further
                discussion.

                                       14
<PAGE>

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

                Restructuring Of Operations
                ---------------------------
                On January 17, 2001, the Company  announced that it has embarked
                on a  comprehensive  restructuring  plan designed to restore its
                operations to financial health. Subsequent to December 31, 2000,
                the Company  executed a  restructuring  plan which resulted in a
                workforce  reduction of  approximately  200 persons (the Company
                does not  expect  to pay  severance  costs  as a result  of such
                workforce   reduction).   When  combined  with  the  100  person
                reduction-in-force  completed  in November  2000,  total  annual
                payroll  savings are expected to  approximate  $20  million.  In
                addition,  the Company  estimates that  non-payroll cash savings
                will approximate $12 million per year, for total cash savings of
                approximately $32 million per year.

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

                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,
                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. As a result, effective January
                31, 2001,  the $5 million of 5% Preferred  Stock  outstanding at
                December  31, 2000 could  become  convertible  into a maximum of
                7,680,491  shares of common  stock (as  compared  to one million
                shares of common stock prior to the reset).

                However,  at January 31, 2001,  only 4,686,703  shares of common
                stock have been registered and are issuable (upon conversion) to
                the  holders  of 5%  Preferred  Stock.  On July  31,  2002,  any
                outstanding  5%  Preferred  Stock must either be redeemed by the
                Company or the remaining  2,993,788  shares of common stock must
                be registered and issued by the Company.

                As of February 13, 2001, 50,000 shares of the 5% Preferred Stock
                have been converted into 1,920,121 shares of common stock.

                                       15
<PAGE>

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


Business Conditions and Financial Plans

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. As a result,  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.

Although the primary lenders have served a notice of default,  such 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 monitoring such advances and have increased
the interest rates on such advances and the outstanding  term loans. If 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 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 December 31, 2000 and
September 30, 2000.

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. Reference is made to Note 2, "Business Conditions and Financial
Plans" and Note 6, "Long-Term  Debt," for more detailed  discussions,  including
risks and Company plans.

Summary Highlights

Product revenues in the current quarter were  disappointing,  down $18.7 million
or 53%. 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) continued  problems
with the Company's  manufacturing  outsourcing program; and (3) some distraction
associated with the layoffs that occurred in the quarter.

Although operating expenses, excluding one-time charges, were down $2.3 million,
or 11.8%,  from the prior year,  this only partially  offset the effect of lower
product revenues and margins.  Lower product margin  percentages result from the
costs of managing  product  supply being absorbed over a reduced revenue base.

                                       16


<PAGE>

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

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 total cash savings of approximately $32 million per year.

The  Company is  targeting  to  achieve  breakeven  cash flow by June 30,  2001.
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.  The Company has targeted the
broadband  access  market as  strategically  important to its future  growth and
business  success  using the  combined  expertise  of our Access  and  Broadband
engineering groups.

Separately,  the Company has made  progress in its efforts to sell assets and/or
divisions.  Such  actions,  if and when  executed,  could  improve the Company's
financial  position,  which in turn could  improve  our  ability to attract  and
retain customers and employees.

At December  31,  2000,  the Company  would have been able to borrow up to $21.5
million  under the  revolving  line of  credit  portion  of its Loan  Agreement.
Borrowings outstanding on the revolving line of credit amounted to $10.7 million
at  December  31, 2000 (as  compared to $7.0  million at  September  30,  2000),
leaving an  additional  $10.8  million  available  for borrowing at the close of
business on December 31,  2000.  It should be noted,  however,  that the Company
does not currently have sufficient  funds to sustain  operations for an extended
period.  In order to obtain  such funds the  Company  will be  required  to sell
additional  stock,  take on additional debt or sell assets,  such as one or more
divisions.  Such actions will also be required to satisfy covenant  requirements
under the Company's Loan Agreement and under a mortgage agreement.  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.

Results Of Operations

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

                                       17

<PAGE>

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

                                                          Three Months Ended
                                                               December 31,
                                                           2000          1999
                                                       -----------------------
Revenues:
    Net product sales                                     56.7%         74.3%
    Service revenue                                       41.3          23.5
    Other revenue                                          2.0           2.2
                                                         -------       ------
                                                         100.0         100.0
Cost of revenues                                          70.6          56.0
                                                         -------       ------
Gross margin                                              29.4          44.0
Amortization of capitalized
  software development costs                               8.4           6.3
Selling, general and administrative                       42.9          30.7
Research and product development                          16.4          10.9
                                                         ------         ----

Operating loss before restructuring charges              (38.3)         (3.9)
Restructuring of operations                               16.6           1.0
                                                         ------         -----

Operating loss                                           (54.9)%        (4.9)%
                                                        -------         -----

Net loss excluding unique items*                         (47.5)%        (8.2)%
                                                        -------         -----

Net loss                                                 (47.2)%       (12.5)%
                                                         ======        ======
--------------------
*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 significantly
reduced  portion  of total  revenue,  reflecting  the  combined  impact of a 53%
reduction in product revenues and 8.6% service revenue growth;  (2) gross margin
erosion  primarily  result  from the  costs of  managing  product  supply  being
absorbed  over a reduced  revenue  base;  service  margins  were also down;  (3)
operating  expenses,  which have 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; and (4) current year restructuring of operations  includes
a $4.3  million  charge  (14.6% of revenue)  for the  write-off  of  capitalized
software  development  costs  applicable to projects  which were  cancelled as a
result of a Company restructuring.

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

                                       18


<PAGE>

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

Summary  financial  results by business unit for three months ended December 31,
2000 and 1999, along with a reconciliation to the reported net loss,  follows
($ in millions):
                                                        Three Months Ended
                                                           December 31,
                                                      2000           1999
                                                ------------------------------
         Revenues
         --------
         Broadband Systems Division               $ 9.0             $17.5
         Network Access Division                    7.7              17.9
         VITAL Network Services                    12.2              11.2
         Other                                      0.5               1.0
                                                -------            ------
              Total                               $29.4             $47.6

         Operating Income (Loss)
         -----------------------
         Broadband Systems Division               $(7.9)            $(4.0)
         Network Access Division                   (2.2)              1.7
         VITAL Network Services                    (0.1)              0.6
         Other                                      0.3               0.8
                                               --------          ---------
              Total                                (9.9)             (0.9)


         Reconciliation to net loss:
         --------------------------
         General corporate expenses                (1.1)             (1.0)
         Interest expense, net                     (2.0)             (2.0)
         Restructuring costs                       (4.9)             (0.5)
         Legal settlement proceeds, net             5.0              --
         Debt conversion expense                   --                (1.5)
         Other, net                                (0.6)              0.3
                                               ---------          --------
          Net loss before tax                   $ (13.5)            $(5.6)
          Income tax provision                      0.4               0.3
                                               ---------          -------
          Net loss                              $ (13.9)            $(5.9)
                                                ========           ======

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

Broadband Systems Division (BSD)
--------------------------------

BSD's $8.5 million revenue reduction was attributable to a slowdown in orders in
the networking  industry which has also been noted by other companies,  and this
appeared to be true for BSD's customer base as well.  Sales of older  generation
products have been on a downward  trend in recent  years.  Most of BSD's revenue
loss was  experienced  in Europe where BSD has its largest  customer  base.  The
resulting gross margin loss more than offset  operating cost savings achieved by
the division.

                                       19


<PAGE>

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

During the quarter ended December 31, 2000, BSD remained the primary channel for
the sale of product  by the  Multimedia  Division  ("MMD");  as a result,  MMD's
results continue to be reported as part of the BSD.

Network Access Division (NAD)
-----------------------------

Revenues for the NAD were down $10.2 million,  or 57%, from the same quarter one
year ago. The revenue loss was  experienced  in both domestic and  international
markets.  NAD revenues for the current quarter were negatively impacted by three
major  influences:  (1) a significant  slowdown in capital  expenditures  by the
division's  incumbent  telephone  company  customer  base;  (2) the inability to
provide  timely  deliveries  as  a  result  of  problems  experienced  with  the
division's primary outsource vendor (the division is currently transitioning its
manufacturing  requirements to other vendors);  and (3) prior year revenues were
unusually strong as a result of sales to one specific customer.  NAD's sales and
resulting  margin losses more that offset operating cost savings achieved by the
division.

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

In the  quarter  ended  December  31,  2000,  VITAL  reported  revenues of $12.2
million,  an increase of approximately $1.0 million, or 9%, over the same period
one year ago. Revenues a year ago were negatively effected by the "Y2K" slowdown
in  revenues.  VITAL's  operating  loss of $0.1  million in the current  quarter
compares to an  operating  profit of $0.6 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., and increased  operating costs due to
investments  made in computer systems and other  operations.  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 82% of all new business booked. This is
slightly higher than the immediately  preceding quarter and continues to reflect
an increasing  level of  independence  (from GDC) with regard to VITAL's revenue
stream.

DataComm Leasing Corporation (DLC)
----------------------------------

DLC's  operating   income,   derived  from  both  operating  and  finance  lease
activities, amounted to $0.3 million and $0.8 in the quarters ended December 31,
2000  and  1999,  respectively.   The  reduced  level  of  operating  income  is
attributable  to the  expiration  of  older  leases  and the  lack of new  lease
financing required by the Company's customer base.

Restructuring of Operations:  The Company recorded restructuring charges of $4.9
million  and $0.5  million in the  quarters  ended  December  31, 2000 and 1999,
respectively.  Refer  to Note 7,  "Other  Income  and  Expenses,"  for  detailed
discussion.

                                      20


<PAGE>

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

Interest Expense and Other Income and Expense: Interest expense amounted to $2.0
million in the  quarters  ended  December  31,  2000 and 1999.  Separately,  the
quarter ended  December 31, 2000 includes  income of $5.0 million,  or $0.17 per
share, for proceeds received,  net of expenses,  from a legal settlement.  Prior
year results include a non-cash charge of $1.5 million,  or $0.07 per share, 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.

Income Taxes:  Tax provisions  recorded by the Company,  principally for foreign
income and  domestic  state  taxes,  amounted  to $400,000  and  $300,000 in the
quarters  ended  December  31,  2000 and 1999,  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 $(347,000) and $252,000 for the quarters
ended December 31, 2000 and 1999, 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.

                                       21


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

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

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. As a result,  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.

Although the primary lenders have served a notice of default,  such 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 monitoring such advances and have increased
the interest rates on such advances and the outstanding  term loans. If 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 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 December 31, 2000 and
September 30, 2000.

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. Reference is made to Note 2, "Business Conditions and Financial
Plans" and Note 6, "Long-Term  Debt," for more detailed  discussions,  including
risks and Company plans.

Subject to the  above-referenced  risks, future cash requirements are planned to
be satisfied  from a combination  of cash balances ($2.3 million at December 31,
2000),  additional  borrowings  available under the Company's  revolving line of
credit and, possibly,  other funds resulting from new borrowings and/or the sale
of assets and/or  securities.  Based upon the  provisions of the Company's  Loan
Agreement,  $10.8  million  of  additional  funds  were  available  to borrow at
December 31, 2000.



                                       22


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

As a result of cost  reduction  actions taken in November 2000 and January 2001,
the Company eliminated  approximately 300 positions and curtailed  discretionary
spending.  The Company estimates such actions will result in annual cash savings
of $32  million.  The  Company has  targeted to become cash  neutral by June 30,
2001.  However,  based upon  current  projections,  the  Company may require (in
addition to continued  access to  revolving  line of credit funds under its Loan
Agreement)  additional  funds in the second fiscal quarter ending March 31, 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 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).

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  currently has a $70 million Loan  Agreement in place,  comprised of
$35 million  (original  amount) in term loans and a $35 million  (maximum value)
revolving line of credit. At December 31, 2000, the Company had $32.8 million in
term loans  outstanding and $10.7 million in revolving line of credit borrowings
outstanding.  Reference is made to Note 2,  "Business  Conditions  and Financial
Plans"  and  Note 6,  "Long-Term  Debt,"  for  further  discussion  of the  Loan
Agreement and other outstanding  indebtedness of the Company,  including actions
required by the Company to remain in compliance  with the covenant  requirements
of a  mortgage  agreement  (such  mortgage  had an  outstanding  balance of $8.9
million at December 31, 2000).  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  provided  by or (used  in)  operating  activities  amounted  to $(1.1)
million and $1.0 million in the three-month  periods ended December 31, 2000 and
1999,  respectively.  Both quarters reflect primarily the impact of reported net
losses offset by non-cash charges,  including  depreciation expense. In addition
to depreciation  expense,  the current quarter  includes a $4.3 million non-cash
charge for the write-off of  capitalized  software  development  costs,  and the
prior year's results include a $1.5 million  non-cash charge for debt conversion
expense.

Non-debt working capital, excluding cash and cash equivalents, amounted to $16.2
million at December 31,  2000,  as compared to $18.7  million at  September  30,
2000.  A  reduction  in  accounts  receivable,   resulting  from  lower  product
shipments, comprised most of the reduction.

                                       23

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

Investing

The  Company  has  restricted  investments  to capital  equipment  and  software
development critical to operations. Investments in property, plant and equipment
amounted to $0.4  million and $1.2 million in the  quarters  ended  December 31,
2000 and 1999,  respectively.  Investments in capitalized  software  amounted to
$2.1 million and $3.0 million in the quarters  ended December 31, 2000 and 1999,
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 $2.4  million and $2.9
million in the quarters ended December 31, 2000 and 1999, respectively.  Current
year activity is solely comprised of $2.4 million of net borrowings. Fiscal 1999
activity  is  comprised  of $3.3  million of net  borrowings  and the payment of
$450,000 in preferred stock dividends.

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 25 quarters
ended  December 31, 2000.  There can be no assurance as to when the Company will
achieve net income.

Credit  Availability:  As noted above, 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.

Although the primary lenders have served a notice of default,  such 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 monitoring such advances and have increased
the interest rates on such advances and the outstanding  term loans. If an event
of

                                       24


<PAGE>

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

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 Loan  Agreement.  Acceleration  of such  amounts  may in turn  result in the
acceleration of maturity of debt owed to other creditors.

Amounts  outstanding  under the Loan  Agreement  amounted  to $43.5  million  at
December 31,  2000.  In  addition,  the  Company's  Loan  Agreement  and certain
mortgage  agreements require compliance with specific  financial  covenants.  As
discussed  above,  actions  resulting  in an increase in reported  stockholders'
equity and/or a reduction in the outstanding  balance of a mortgage loan will be
required for the Company to remain in compliance  with covenant  requirements of
the mortgage loan agreement.  Reference is made to Note 6, "Long-Term Debt," for
more detailed discussions.

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.  Should the lenders  take further  action,  the Company may be
unable to borrow funds under such  agreement.  In such case the Company would be
required to seek other  financing  to fund its  operations,  and there can be no
assurance the Company will be able to obtain such financing or, if obtained,  on
terms deemed  favorable by the Company.  Reference is made to Note 2,  "Business
Conditions and Financial Plans" and Note 6, "Long-Term  Debt," for more detailed
discussions, including risks and Company plans.

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, 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

                                       25



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

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 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 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.

                                       26
<PAGE>


                        GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES


                           PART II. OTHER INFORMATION



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

   a.  Exhibits

            None.

   b.  Reports on Form 8-K

            None.


                                       27

<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:  February 19, 2001

                                       28