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, 2001

                                       OR

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

                          Commission File Number 1-8086

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

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

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

         Registrant's phone number, including area code: (203) 758-1811

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

             Yes     X                  No

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

                                                  Number of Shares Outstanding
       Title of Each Class                            at June 30, 2001

 Common Stock, $.10 par value                            30,988,202
 Class B Stock, $.10 par value                            2,057,103

                  Total Number of Pages in this Document is 33.

<PAGE>


                        GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES

                                      INDEX


                                                                       Page

Part I -- FINANCIAL INFORMATION

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

               Consolidated Statements of Operations and
               Accumulated Deficit - For the Three and Nine
               Months Ended June 30, 2001 and 2000  ..................  4

               Consolidated Statements of Cash Flows - For the
               Nine Months Ended June 30, 2001 and 2000 ..............  5

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

               Management's Discussion and Analysis of
               Financial Condition and Results of Operations ......... 23


Part II -- OTHER INFORMATION

        Item 6.  Exhibits and Reports on Form 8-K .................... 32









                                        2


<PAGE>

                          PART I. FINANCIAL INFORMATION

               GENERAL DATACOMM INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                  (Unaudited)

                                                   June 30,       September 30,
                                                     2001             2000
-------------------------------------------------------------------------------
ASSETS:                                          (Unaudited)
 Current assets:
      Cash and cash equivalents                    $ 8,238          $ 3,572
      Accounts receivable, less allowance
        for doubtful receivables of $1,637 in
        June and $2,037 in September                17,507           25,631
      Receivables from sales of divisions
        Due at closing                               7,342               --
        Notes receivable                             7,000               --
      Inventories                                   18,943           31,718
      Deferred income taxes                            307            1,521
      Other current assets                             587            8,311
      Net assets of discontinued operations          2,741               --
-------------------------------------------------------------------------------
 Total current assets                               62,665           70,753
-------------------------------------------------------------------------------
 Property, plant and equipment, net                  2,475           24,140
 Land and buildings held for sale                   10,553            5,518
 Capitalized software development costs, net           468           22,160
 Other assets                                          274           10,512
 Net assets of discontinued operations               1,522               --
-------------------------------------------------------------------------------
                                                   $77,957         $133,083
-------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY:
 Current liabilities:
     Current portion of long-term debt             $50,986          $47,921
     Mortgages on land and buildings held for sale   9,108            4,061
     Accounts payable, trade                        19,657           23,040
     Accrued payroll and payroll-related costs       2,576            4,853
     Deferred income                                    --            6,567
     Other current liabilities                      20,470           14,070
------------------------------------------------------------------------------
 Total current liabilities                          102,797          100,512
------------------------------------------------------------------------------
 Long-term debt, less current portion                 3,000            3,000
 Deferred income taxes                                  644            2,266
 Other liabilities                                      772            1,142
-------------------------------------------------------------------------------
 Total liabilities                                  107,213          106,920
-------------------------------------------------------------------------------
 Commitments and contingent liabilities                  --               --
 Redeemable 5% preferred stock, par value
  $1.00 per share, issued and outstanding:
  120,000 shares in June and 200,000 shares in
  September; $3.2 million liquidation preference      3,178            5,000
 Non-redeemable preferred stock, common stock and
 other stockholders' equity:                             --               --
   Preferred  stock,  par value $1.00 per share,  3,000,000  shares  authorized;
     issued  and  outstanding:  787,900  shares  in June and  800,000  shares in
     September of 9% cumulative convertible  exchangeable preferred stock; $19.7
     million liquidation
     preference                                         788              788
   Class B stock, par value $.10 per share,
     10,000,000 shares authorized; issued
     and outstanding: 2,057,103 in June and September   206              206
   Common stock, par value $.10 per share,
     50,000,000 shares authorized; issued
     and outstanding: 31,182,816 in June
     and 27,709,710 in September                      3,118            2,771
   Capital in excess of par value                   191,182          189,631
   Accumulated deficit                             (223,633)        (165,754)
   Accumulated other comprehensive loss              (2,656)          (5,040)
   Common stock held in treasury, at cost:
    194,614 shares in June and September             (1,439)          (1,439)
-------------------------------------------------------------------------------
 Total non-redeemable preferred stock, common
  stock and other stockholders' equity              (32,434)          21,163
-------------------------------------------------------------------------------
                                                    $77,957         $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)
<TABLE>
<CAPTION>

                                                    Three Months Ended                    Nine Months Ended
                                                         June 30,                             June 30,
-----------------------------------------------------------------------------------------------------------------
In thousands, except per share data                    2001           2000                  2001          2000
-----------------------------------                 -----------------------             -------------------------
<S>                                                 <C>            <C>                  <C>             <C>


 Sales                                              $ 13,788       $ 27,384             $ 49,769        $ 91,848
 Cost of Sales                                        17,340         17,728               45,329          57,373
                                                    --------       --------             --------        --------
 Gross Margin                                         (3,552)         9,656                4,440          34,475

 Operating expenses:
     Selling, general and administrative               7,599         12,609               25,474          37,024
     Research and product development                  2,841          5,299                9,912          15,505
     Other charges                                    16,595          2,000               32,920           2,500
                                                     -------       --------             --------        --------
                                                      27,035         19,908               68,306          55,029
 Operating loss                                      (30,587)       (10,252)             (63,866)        (20,554)

 Other income (expense):
     Interest, net                                    (2,937)        (2,292)              (7,126)         (6,367)
     Gain on sale of Multimedia division               1,346              -                1,346               -
     Legal settlement proceeds, net                        -              -                5,000               -
     Debt conversion expense                               -              -                    -          (2,403)
     Other, net                                            9            167                 (176)            522
                                                      -------       -------               -------         -------
                                                      (1,582)        (2,125)                (956)         (8,248)
 Loss from continuing operations before
      income taxes                                   (32,169)       (12,377)             (64,822)        (28,802)

 Income tax provision                                     10             20                   50              50
                                                     --------       --------             -------         --------
 Net loss from continuing operations                 (32,179)       (12,397)             (64,872)        (28,852)

 Discontinued Operations:
      Income (loss) from discontinued operations,
           net of income taxes                        (1,123)         1,003               (2,390)          2,689

      Gain on sale of discontinued operations,
           net of income taxes                         9,383              -                9,383               -
                                                   ----------     ----------           ----------      ----------
 Net Loss                                          $ (23,919)     $ (11,394)           $ (57,879)      $ (26,163)
                                                   ==========     ==========           ==========      ==========
 Basic and diluted loss per share:
      Continuing Operations                        $   (0.99)     $   (0.49)           $   (2.09)      $   (1.22)
      Discontinued Operations                      $   (0.03)     $    0.04            $   (0.08)      $    0.11
      Gain on sale of discontinued operations      $    0.29      $       -            $    0.30       $       -
                                                   ----------     ----------           ----------      ----------
      Total                                        $   (0.73)     $   (0.45)           $   (1.86)      $   (1.11)
                                                   ==========     ==========           ==========      ==========
 Average number of common and
    common equivalent shares outstanding              32,593         26,463               31,046          24,840
                                                   ==========     ==========           ==========      ===========

 Accumulated deficit at beginning of period        $(199,714)    $ (143,141)          $ (165,754)     $ (127,472)
 Net loss                                            (23,919)       (11,394)             (57,879)        (26,163)
 Payment of preferred stock dividends                     --           (443)                  --          (1,343)
                                                   ----------    -----------          -----------     -----------
 Accumulated deficit at end of period              $(223,633)    $ (154,978)          $ (223,633)     $ (154,978)
                                                   ==========    ===========          ===========     ===========
</TABLE>

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


                                   4
<PAGE>

                                    RESTATED
               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                                             2001         2000
-------------------------------------------------------------------------------
Cash flows from operating activities:
   Net loss                                             ($57,879)    ($26,163)
   Adjustments to reconcile net loss to net cash
   used in operating activities:
  Depreciation and amortization                           12,191       16,827
  Other non-cash items:
    Asset impairment write-down                           26,595           --
    Gain on sale of assets and discontinued operations   (10,729)          --
    Capitalized software write-down                        5,929           --
    Write-down of real estate held for sale                4,500           --
    Debt conversion into common stock                         --        2,403
    Lease receivable write-off                                --        2,000
  Changes in:
    Accounts receivable                                    6,651        5,209
    Inventories                                            4,473      (11,660)
   Accounts payable and accrued expenses                     552        5,291
   Other net current assets                                1,895        2,649
-------------------------------------------------------------------------------
   Other net long-term assets                              1,752       (3,390)
-------------------------------------------------------------------------------
Net cash used in operating activities                     (4,070)      (6,834)
-------------------------------------------------------------------------------
Cash flows from investing activities:
   Acquisition of property, plant and equipment, net        (604)      (5,041)
   Capitalized software development costs                 (5,163)      (9,117)
   Proceeds from sales of assets                           6,369           --
-------------------------------------------------------------------------------
Net cash provided by (used in) investing activities          602      (14,158)
-------------------------------------------------------------------------------
Cash flows from financing activities:
   Revolver borrowings, net                               13,527        2,822
   Proceeds from notes and mortgages                          --       20,700
   Principal payments on notes and mortgages              (5,432)      (3,197)
   Proceeds from issuing common stock                         82          791
   Payment of preferred stock dividends                       --       (1,343)
-------------------------------------------------------------------------------
Net cash provided by financing activities                  8,177       19,773
-------------------------------------------------------------------------------
Effect of exchange rates on cash                             (43)         (94)
-------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents       4,666       (1,313)
Cash and cash equivalents at beginning of period - (1)     3,572        3,790
-------------------------------------------------------------------------------
Cash and cash equivalents at end of period - (1)          $8,238       $2,477
===============================================================================

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

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

                                       5
<PAGE>
                        GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)




NOTE 1.         BASIS OF PRESENTATION

                The  accompanying   financial   statements  have  been  prepared
                assuming that the Company will continue as a going  concern.  As
                discussed in Note 2, "Business  Conditions and Financial Plans,"
                the Company has suffered recurring losses and cash deficits from
                operations  that raise  substantial  doubt  about its ability to
                continue as a going concern.  Management's plans regarding these
                matters,  which are also discussed in Note 2, are dependent upon
                several factors  including,  among others, the Company's ability
                to sell  certain  remaining  assets  (see  Notes 8, 9 and 13 for
                discussion of assets already  sold),  increase  revenue  levels,
                restructure  operations to generate positive cash flows,  retain
                access to funds under its  existing  primary  loan and  security
                agreement ("Loan Agreement") and to obtain additional financing.
                The  financial  statements  as  presented  do  not  include  any
                adjustments  which  might  result  from  the  outcome  of  these
                uncertainties.

                In the  opinion of  management  and  subject  to the  discussion
                above,  the  accompanying   unaudited   consolidated   financial
                statements  contain all adjustments  necessary to fairly present
                on a going-concern basis the consolidated  financial position of
                General  DataComm   Industries,   Inc.  and  subsidiaries   (the
                "Corporation"   or   "Company")   as  of  June  30,  2001,   the
                consolidated  results of their operations for the three and nine
                months  ended June 30,  2001 and 2000,  and their cash flows for
                the nine months ended June 30, 2001 and 2000. Such  adjustments,
                excluding the unique charges referred in Note 8, 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 of
                America  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.

                                       6
<PAGE>
                       GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

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

                For   purposes  of  these   financial   statements,   continuing
                operations are comprised of the Network Access  Division and the
                Broadband   Systems   Division.   Discontinued   operations  are
                comprised of the Vital  Network  Services  and DataComm  Leasing
                business segments.

                Other  information  regarding  financial  statement presentation
                include:  (1) the Company's  Multimedia division (which was part
                of the Broadband  Systems  Division) was sold in June 2001;  and
                (2) the Company's  Asynchronous  Transfer Mode ("ATM")  business
                (also part of the Broadband Systems Division) was sold on August
                13, 2001.  However,  due to the existence of a significant  note
                receivable associated with this ATM transaction,accounting rules
                prevent the Company from  recording  the  transaction  as a sale
                retroactive   to  the   quarter   ended  June  30,  2001  (as  a
                discontinued  operation).  Accordingly,  the  Broadband  Systems
                Division has been presented as part of continuing operations.

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

                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

                Default Conditions and Availability of Funds:

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

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

                unqualified  opinion expressing  uncertainty about the Company's
                ability to continue as a going concern.

                Furthermore, a financial covenant of the Loan Agreement requires
                that  stockholders'  equity,  as  defined,  must equal or exceed
                $10.0  million.  At June 30,  2001,  such  stockholders'  equity
                amounted to a deficit of $33.0 million. In addition, at June 30,
                2001  (and as of the  date of this  filing),  an  "over-advance"
                condition  exists  whereby  borrowings   outstanding  under  the
                Company's revolving line of credit portion of the Loan Agreement
                exceeded  the maximum  amounts  available  per terms of the Loan
                Agreement.  As a result,  the Company has received an additional
                notice of  default  from its  primary  lenders  for  failure  to
                satisfy these covenant requirements.

                Despite these default issues,  the Company's primary lenders had
                not (until  recently)  terminated  the revolving  line of credit
                portion of the Loan  Agreement,  pursuant to which advances were
                being made on a discretionary  basis.  However,  the lenders did
                (at all times)  reserve their right to (1) declare such advances
                due and payable and/or limit the amount of such future advances;
                and (2) closely monitor such advances. In addition,  the lenders
                have  increased  the interest  rates on such  advances  (and the
                outstanding term loans).

                The Company  recently  received  notice from its primary lenders
                that such lenders  will not commit to make any further  advances
                to the Company. Unless its primary lenders continue to make such
                advances,  the Company does not have  another  source of capital
                available to funds its  operations.  Furthermore,  as long as an
                event of  default  exists,  there can be no  assurance  that the
                lenders  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  defaults,  all  outstanding
                indebtedness  whose  maturity  could  be  accelerated  has  been
                classified as a current liability at June 30, 2001 and September
                30, 2000.

                Mortgage  Covenant  Default:    To allow for time to potentially
                resolve  the  default  of  a  financial   covenant  relating  to
                maintaining  minimum  levels of tangible net worth,  as defined,
                per terms of certain mortgage  agreements,  the mortgage holders
                have waived  default  through  October 31, 2001.  Such mortgages
                relate to the Company's former executive office property,  which
                is currently vacant, and to its Naugatuck, Connecticut property,
                where its remaining  manufacturing  operations  are located (the
                Company's former Vital Network Services division is also leasing
                a portion of the Naugatuck  facility  from the  Company).  As of
                June  30,  2001,  the  Company  owed  $8.7  million  under  such
                mortgages.  Under current  tangible net worth  requirements,  an
                equity infusion of approximately  $51.5 million,  payment of the
                entire outstanding  mortgage balance,  or a combination  thereof
                would be  required  to satisfy the  covenant  requirement  after
                October 31, 2001.  Refer to Note 6,  "Long-Term  Debt," for more
                detailed  discussion.

                                       8
<PAGE>
                       GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                The Company is pursing  opportunities  to
                sell the properties  (the Company plans to vacate the Naugatuck,
                Connecticut  facility over the next year due to downsizing).  In
                addition, the Company is pursing the possibility of transferring
                ownership  of the two  properties  in question  to the  mortgage
                holders in exchange for relief of the Company's related mortgage
                obligations,  in  addition  to other  provisions.  Such  sale or
                transfer, if consummated, would benefit the Company by improving
                cash flows,  reducing  debt and disposing of excess real estate.
                Any such  transactions  are subject to formal  approval from the
                Company's primary lenders.

                In the event required  corrective actions are not executed on or
                before  November 1, 2001,  or consent of the  Company's  primary
                lenders is not obtained, the mortgage holders may accelerate the
                mortgage loans,  and this action would result in further default
                under the Company's primary Loan Agreement.

                Since  the  Company  does not  currently  have  any  alternative
                sources of funds,  these matters raise  substantial  doubt about
                the  Company's  ability  to  continue  as a going  concern.  The
                Company's continued existence is dependent upon several factors,
                including the Company's ability to sell certain remaining assets
                (see Notes 8, 9 and 13 for  discussion of assets  already sold),
                increase  revenue  levels,  restructure  operations  to generate
                positive  cash flows,  retain access to funds under its existing
                Loan  Agreement and to obtain  additional  financing.  Potential
                financing  sources  include  the sale of  assets,  technologies,
                existing  businesses,  the Company's  common and preferred stock
                and the issuance of  additional  debt  securities.  Although the
                Company  has   historically   been  able  to  satisfy  its  cash
                requirements,  there can be no  assurance  that such  efforts to
                obtain sufficient financing for operations will be successful in
                the future.

                Historical Financial Performance
                --------------------------------
                In recent years (and in the three- and nine-month  periods ended
                June 30, 2001), 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,  including the Company's
                weakened  financial  condition),  the  Company  may  continue to
                suffer  net losses  and a  negative  cash flow from  operations.
                Preferred  stock  dividends have not been paid or declared since
                June 30, 2000.

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

                                      9
<PAGE>

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

                actions  resulted in a workforce  reduction of 731  persons,  or
                42%, during the three-year period ended September 30, 2000.

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

                In  addition to the  restructuring  and cost  reduction  actions
                taken,  in June 2000,  the Company  engaged  CIBC World  Markets
                ("CIBC") to provide strategic direction, including the potential
                sale of one or more business units or the entire Company. Due to
                a lack of results and other factors,  the specific engagement of
                CIBC  terminated in the quarter  ended March 31, 2001;  however,
                the Company continued to actively pursue all opportunities which
                had been  identified  and  aggressively  identify and pursue new
                opportunities  through both  internal  resources and through the
                engagement of outside  consultants  to assist with such efforts.
                As a result of such  efforts,  the Company  sold its  Multimedia
                division  in  June  2001  and,  in  August   2001,   consummated
                transactions  involving  the sale of its  Asynchronous  Transfer
                Mode ("ATM") and Vital  Network  Services  business  operations.
                Refer to Notes 8, 9 and 13 for further discussion regarding such
                transactions.

                In addition to the division sales already executed,  the Company
                will  continue to consider the  potential  sale of certain other
                non-critical   assets  including,   among  others,  its  leasing
                portfolio and buildings  owned in the U.K.  While the Company is
                aggressively  pursuing such  opportunities  and other corrective
                actions to improve the  financial  performance  of its remaining
                Network  Access  Division,  there can be no  assurance  that the
                Company will be successful in its efforts to sell the referenced
                non-critical  assets,   achieve  future  profitable  operations,
                generate   sufficient   cash  from   operations   and/or  obtain
                additional  funding  sources.  The  financial   statements,   as
                presented,  do not include any adjustments  that may result from
                the outcome of these uncertainties.


                                       10

<PAGE>

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


NOTE 3.         INVENTORIES

                Inventories consist of (in thousands):

                                            June  30, 2001   September 30, 2000
                                            --------------   ------------------
                  Raw materials               $ 4,516            $  7,852
                  Work-in-process               2,673               3,504
                  Finished goods               11,754              20,362
                                              -------            --------
                                              $18,943            $ 31,718

NOTE 4.         PROPERTY, PLANT AND EQUIPMENT

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

                                             June 30, 2001   September 30, 2000
                                             -------------   ------------------

                Land                         $  1,735               $  1,746
                Buildings and improvements     29,617                 30,177
                Test equipment, fixtures
                 and field spares              34,000                 53,818
                Machinery and equipment        49,398                 57,995
                                              -------                -------
                                              114,750                143,736
                Less:  accumulated
                 depreciation                 101,722                114,078
                                             --------               --------
                                             $ 13,028               $ 29,658
                                             ========               ========

               At June 30, 2001 and  September  30, 2000,  land,  buildings  and
               improvements with a net book value of approximately $10.6 million
               and $5.5 million,  respectively,  were being held for sale.  (See
               Note 8, for  discussion  of the  write-down of real estate assets
               held for sale  recorded in the  nine-month  period ended June 30,
               2001).

NOTE 5.         CAPITALIZED SOFTWARE DEVELOPMENT COSTS

                As a result of  restructuring  operations,  certain  development
                projects were cancelled,  resulting in non-cash  charges of $0.8
                million  and  $5.9  million  for the  write-off  of  capitalized
                software  development costs in the three- and nine-month periods
                ended June 30, 2001, respectively.

                The accumulated amortization of capitalized software development
                costs  amounted to $7,648,000  and  $15,630,000 at June 30, 2001
                and September 30, 2000, respectively.

                                       11
<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):

                                             June 30, 2001    September 30, 2000

                Revolving credit facility       $20,484             $ 6,957
                Notes payable                    30,502              35,452
                7-3/4% convertible senior
                  subordinated debentures         3,000               3,000
                Real estate mortgages             9,108               9,573
                                                -------              ------
                                                 63,094              54,982
                Less:  current portion           60,094              51,982
                                                -------              ------
                                                $ 3,000             $ 3,000

                The Company has a $70 million credit  facility with the Foothill
                Capital Corporation, which is comprised of $35.0 million in term
                loans (original loan values) and a $35.0 million (maximum value)
                revolving  line  of  credit  ("Loan  Agreement").   However,  as
                discussed below, the Company is currently in default of specific
                requirements  of the Loan  Agreement  including,  among  others,
                being in an  "over-advance"  position on its  revolving  line of
                credit.   Most  assets  of  the  Company,   including   accounts
                receivable,  inventories and property,  plant and equipment, are
                pledged as collateral under the Loan Agreement.

                Reference  is  made  to  the  Company's  consolidated  financial
                statements  and related  notes  thereto and exhibits  filed with
                Form 10-K for the year  ended  September  30,  2000 for  further
                disclosures applicable to the Loan Agreement.  Separately, refer
                to  Note 2,  "Business  Conditions  and  Financial  Plans,"  for
                discussion  regarding defaults under terms of the Loan Agreement
                and other important discussion.

                Under  the  revolving   line  of  credit  portion  of  the  Loan
                Agreement,  funds are advanced subject to satisfying a borrowing
                base formula  related to levels of certain  accounts  receivable
                and  inventories   and  the   satisfaction  of  other  financial
                covenants.  Under  this  formula  and  prior  to any  additional
                reserves  being  imposed  by the  lenders as a result of claimed
                default  conditions,  at June 30, 2001,  the Company  would have
                been able to have up to $16.2  million in total  borrowings  and
                letters  of  credit.   Actual  borrowings   outstanding  on  the
                revolving line of credit portion of the Loan Agreement  amounted
                to $20.5  million at June 30, 2001 (as  compared to $7.0 million
                at September  30,  2000).  In addition,  outstanding  letters of
                credit  amounted  to $50,000  and  $110,000 at June 30, 2001 and
                September 30, 2000,  respectively.  As a result of the above, as
                of June 30, 2001 (and  through the date of this  filing,  before
                giving the Company  credit for notes  received  from the sale of
                divisions),   an   "over-advance"   condition   exists   whereby
                borrowings  outstanding  under the revolving credit line portion
                of  the  Loan  Agreement  exceeded  the  amounts  available  for
                borrowing under formal terms of the Loan Agreement.

                                       12
<PAGE>
                       GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


                A  financial  covenant  of  the  Loan  Agreement  requires  that
                stockholders'  equity,  as defined,  must equal or exceed  $10.0
                million. At June 30, 2001, such stockholders' equity amounted to
                a deficit of $33.0  million,  representing a default under terms
                of the Loan Agreement.

                As  a  result  of  the  existing   defaults,   all   outstanding
                indebtedness  whose  maturity  could  be  accelerated  has  been
                classified as a current liability at June 30, 2001 and September
                30,  2000 (the  long-term  portion  of such debt  which has been
                classified  as  current  amounted  to $51.4  million  and  $43.3
                million at June 30, 2001 and September 30, 2000,  respectively).
                In addition,  the defaults  resulted in the interest rates under
                the Loan  Agreement  being  increased by 2 percent.  At June 30,
                2001,  the interest rate on the revolving  credit portion of the
                loan is at prime (6.75%) plus 2-5/8%,  and the weighted  average
                interest rate on the term loans was 14.6%.

                However,  as  discussed  in Note  2,  "Business  Conditions  and
                Financial Plans," despite the referenced  default issues and the
                Company's  over-borrowed  status,  the Company's primary lenders
                had not (until recently) terminated the revolving line of credit
                portion of the Loan  Agreement,  pursuant to which advances were
                being made.  However,  the lenders did (at all times)  reserve
                their right to (1)  declare  such  advances  due and payable
                and/or  limit the amount of such future  advances;  and (2)
                closely  monitor  such advances.  In addition,  the lenders
                have increased the interest rates on such advances (and the
                outstanding term loans).

                The Company  recently  received  notice from its primary lenders
                that such lenders  will not commit to make any further  advances
                to the Company. Unless its primary lenders continue to make such
                advances,  the Company does not have  another  source of capital
                available  to fund its  operations.  Furthermore,  as long as an
                event of  default  exists,  there can be no  assurance  that the
                lenders  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  defaults,  all  outstanding
                indebtedness  whose  maturity  could  be  accelerated  has  been
                classified as a current liability at June 30, 2001 and September
                30, 2000. Refer to Note 2 for further discussion.

                Mortgage Covenant Requirement

                As of June 30, 2001,  the Company owed $8.7 million in mortgages
                outstanding with one lending group. Such mortgages relate to the
                Company's former  executive office property,  which is currently
                vacant, and to its Naugatuck,  Connecticut  property,  where its
                remaining  manufacturing  operations  are located (the Company's
                former Vital Network Services division is also leasing a portion
                of the Naugatuck facility from the Company).

                To  allow  for  time  to  potentially  resolve  a  default  of a
                financial  covenant  relating to

                                       13
<PAGE>
                       GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


                maintaining  minimum levels of tangible net worth,  as defined,
                per terms of certain  mortgage agreements, the mortgage  holders
                have waived  default  through October 31, 2001.    Under current
                tangible  net  worth requirements,  an  equity  infusion  of
                approximately  $51.5 million,  payment of the  entire
                outstanding  mortgage  balance,  or  a  combination  thereof
                would  be  required to satisfy the  covenant  requirement after
                October 31, 2001.

                The Company is  pursuing  opportunities  to sell the  properties
                (the Company plans to vacate the Naugatuck, Connecticut facility
                over the next year due to downsizing).  In addition, the Company
                is pursuing the possibility of transferring ownership of the two
                properties  in question to the mortgage  holders in exchange for
                relief  of  the  Company's  related  mortgage  obligations,   in
                addition  to  other  provisions.   Such  sale  or  transfer,  if
                consummated,  would benefit the Company by improving cash flows,
                reducing  debt and  disposing  of excess real  estate.  Any such
                transactions  are subject to formal  approval from the Company's
                primary lenders.

                In the event required corrective actions are not executed on or
                before November  1, 2001  (with the  consent of the  Company's
                primary lenders),  the  mortgage  holders may  accelerate  the
                mortgage loans, and this action would result in further default
                under the Company's primary 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  outstanding  indebtedness of the
                Corporation.  In addition, refer to Note 2, "Business Conditions
                and Financial Plans," for further  discussion of risks involved,
                including the Company's ability to continue as a going concern.

NOTE 7.         5% PREFERRED STOCK ACTIVITY

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

                On January  31,  2001,  April 30,  2001 and July 31,  2001,  the
                conversion  price was reset to $0.651 per common  share,  $0.395
                per common share, and $0.32 per common share, respectively. As a
                result,  effective July 31, 2001, the conversion  price of $0.32
                per common share would  result in the issuance of  approximately
                78.125  shares of common  stock for each  share of 5%  Preferred
                Stock converted.

                                       14
<PAGE>

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


                During the nine months ended June 30, 2001, 80,000 shares of the
                5%  Preferred  Stock were  converted  into  3,321,080  shares of
                common  stock at an  average  conversion  price of  $0.6022  per
                common share.  Based upon the new conversion  price of $0.32 per
                common share  effective on July 31, 2001, the remaining  120,000
                shares of 5% Preferred Stock  outstanding at June 30, 2001 could
                become  convertible  into  9,375,000  shares  of  common  stock,
                partially subject to Company  shareholder  approval.  As of June
                30,  2001,  of  such  9,375,000  shares,  1,365,623  shares  are
                registered and available for conversion through July 31, 2002.

                On July 31,  2002,  any  outstanding  5%  Preferred  Stock  plus
                accumulated  dividends  (accrued  and recorded as an increase to
                the 5%  Preferred  Stock at June 30,  2001) must be  redeemed or
                converted. Options available to the Company regarding redemption
                and/or  conversion  include:  (a) conversion  into common stock,
                subject to shareholder approval if additional  authorized shares
                are  required at that time;  (b)  redemption  by the Company for
                cash; or (c) a combination thereof.

                Since the need for shareholder  approval to authorize additional
                common shares at a future date is a  contingency  outside of the
                Company's  control,  the 5% Preferred Stock is presented outside
                of permanent equity.

                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 regarding terms of the 5% Preferred Stock.

NOTE 8.     OTHER CHARGES AND OTHER INCOME (EXPENSES)

               The  following  items are  included  in the  operating  loss from
               continuing operations for the periods presented:

                                        Three Months Ended    Nine Months Ended
                                            June  30,              June  30,
                                        ------------------    -----------------
                                        2001          2000    2001         2000
                                        ------------------    -----------------

    Impairment of Broadband
     Systems Division assets            $21,370    $   --     $26,595     $  --
    Write-down of capitalized software
     development costs                      829        --       5,929        --
    Restructuring of operations              --        --       1,500       500
    Write-down of real estate assets
     held for sale                           --        --       4,500        --
    Uncollectible lease receivables and
     related costs attributable to
     customer bankruptcy                     --     2,000         --      2,000
                                         ------    ------      ------    ------
        Sub-total                        22,199     2,000      38,524     2,500
    Less: portion reported in
    "Cost of Sales"                      (5,604)       --      (5,604)      --
                                         ------    ------     --------   ------

    Portion reported as "Other Charges" $16,595   $ 2,000     $32,920    $2,500
                                        =======   =======     =======    ======

                                  15
<PAGE>
                       GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


                Impairment of Broadband  Systems  Division ("BSD") Assets -   In
                accordance with Financial  Accounting  Standards Board Statement
                No. 121, "Accounting for the Impairment of Long-Lived Assets and
                for Long-Lived Assets to Be Disposed Of," the Company recorded a
                non-cash  charge of $21.4  million,  or $0.66 per share,  in the
                quarter ended June 30, 2001 to write down the carrying  value of
                assets associated with the Broadband  Systems Division.  Similar
                charges  for the nine  months  ended June 30,  2001  amounted to
                $26.6 million, or $0.87 per share.

                The  estimated  fair value of the Company's BSD assets are based
                upon the  Company's  estimate of how much such  assets  could be
                sold for (less related  closing costs) in a current  transaction
                between willing  parties.  The impairment loss for each material
                asset category is summarized as follows:

                                           Three Months Ended  Nine Months Ended
                                               June 30, 2001    June 30, 2002
                                           ------------------  ----------------

                  Goodwill                   $   --              $   3,400
                  Capitalized software         11,905               13,730
                  Property, plant and
                     equipment                  3,689                3,689
                  Other current assets            172                  172
                  Inventory                     5,604                5,604
                                             --------             --------
                                             $ 21,370             $ 26,595
                                             ========             ========

                The inventory-related  portion of the write-down was reported in
                cost of  sales.  Refer  to Note  13,  "Subsequent  Events,"  for
                discussion  regarding  sale of the  Company's  ATM  business  on
                August 13, 2001.

                Write-down of Capitalized  Software  Development Costs - Charges
                of $0.8 million,  or $0.03 per share, and $5.9 million, or $0.19
                per share,  were recorded in the three- and  nine-month  periods
                ended  June  30,  2001,  respectively,   for  the  write-off  of
                capitalized software development costs applicable to development
                projects  which  were  cancelled  as a result  of  restructuring
                activities.

                Restructuring  of Operations - During  fiscal 2001,  the Company
                continued   restructuring   efforts,   resulting  in  cumulative
                workforce  reductions  of 300 persons in the  nine-month  period
                ended June 30, 2001.  Related  restructuring  costs  amounted to
                $1.5 million, or $0.05 per share, comprised of costs incurred to
                satisfy  employment  contracts  (mostly  international)  and for
                extended health benefits offered to terminated employees.

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

                                       16
<PAGE>
                       GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


                In the  previous  fiscal  year,  the  Company  made a  strategic
                decision to outsource a substantial portion of its manufacturing
                operations.  This strategic decision resulted in the elimination
                of approximately 100 persons and a corresponding  charge of $0.5
                million,  or $0.02 per share, for the nine months ended June 30,
                2000, primarily for post-employment benefits under the Company's
                severance plan.

                All restructuring costs were paid as of June 30, 2001.

                Write-down of Real Estate Assets Held for Sale  -    The Company
                plans to vacate its Naugatuck,  Connecticut  facility,  which it
                owns,  over  the  next  year  due  to  announced  downsizing  of
                operations and the sale of divisions. The Company previously had
                vacated  its  former   headquarters   building  in   Middlebury,
                Connecticut  and has actively listed that property for sale. The
                Company estimates that the fair 8market value of such properties
                was less than their carrying values and has accordingly recorded
                a  write-down  of $4.5  million  and a  corresponding  charge to
                earnings in the nine months ended June 30, 2001.

                Uncollectible  Lease Receivables and Related Costs  Attributable
                to Customer Bankruptcy - The three- and nine-month periods ended
                June 30, 2000 include a charge of $2.0 million for uncollectible
                lease  receivables and related costs  attributable to a customer
                bankruptcy.

                In addition to the above items, the following items are included
                in the other income (expense) from continuing  operations (below
                the operating loss line):

                Gain on Sale Of Multimedia Division   -   On June 28,  2001, the
                Company  sold  technology  and other  assets  applicable  to its
                Multimedia  division  (which was previously  reported as part of
                the Broadband  Systems Division) for $8.5 million and reported a
                gain of $1.3 million,  or $0.04 per share,  in the quarter ended
                June 30,  2001.  Net  proceeds  from the sale  amounted  to $6.4
                million after related fees, expenses and liabilities. As part of
                the transaction, the buyer purchased General DataComm, Ltd., the
                Company's   Canadian   subsidiary.   (All  Canadian  assets  and
                personnel  supporting the Company's Network Access business were
                transferred  to the  Company's  domestic  operating  subsidiary,
                General DataComm, Inc.)

                In  addition  to the $8.5  million,  the  Company  will  receive
                payments equal to 20% of multimedia-related revenues achieved by
                the buyer,  less  costs of  approximately  $900,000,  during the
                two-year  period  ending June 30,  2003.  Such  amounts  will be
                recorded as revenue when earned or received.

                Legal Settlement  Proceeds - The nine months ended June 30, 2001
                includes  income  of $5.0  million,  or  $0.16  per  share,  for
                proceeds received (net of expenses) from a legal settlement.

                                       17
<PAGE>
                       GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


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

  NOTE 9.   DISCONTINUED OPERATIONS

                On August 30, 2001,  the Company  disposed of its Vital  Network
                Services  business unit  ("Vital"),  retroactively  effective to
                July 1, 2001.  The sale was  recorded in the quarter  ended June
                30,  2001.  Gross  compensation  on the sale,  before  expenses,
                amounted to $23.5  million,  comprised  of $6.4 million in cash,
                $7.0 million in interest-free  (through November 30, 2001) notes
                receivable  due on or before  December 31, 2001 ($6.0 million of
                which is  guaranteed  by  letters  of  credit)  and the  buyer's
                assumption  of $10.1  million in  liabilities,  including  trade
                accounts payable and deferred income.  The $7.0 million of notes
                receivable was, at the option of the buyer of Vital,  payable in
                the form of cash or common  stock of the  buyer;  however,  this
                option terminated subsequent to the sale due to the cancellation
                of a planned transaction by the buyer, and such note is now
                payable in cash.

                In addition to the $23.5 million, the Company retained rights to
                collect the first $8.0  million of Vital's  accounts  receivable
                outstanding  as of  June  30,  2001.  The  Vital  division  sale
                resulted in a net gain of $9.4 million,  or $0.29 per share,  in
                the quarter  ended June 30, 2001.  As a result of this  business
                segment being sold prior to release of the  Company's  financial
                statements  for the quarter ended June 30, 2001,  the segment is
                presented as a discontinued operation.

                In addition to Vital, the Company's DataComm Leasing Corporation
                ("DLC") was discontinued in the quarter ended June 30, 2001. The
                Company  will no  longer  offer  customers  the  option to lease
                product  through DLC. In  addition,  the Company will pursue the
                potential  sale  of  DLC's  lease  receivable  portfolio.  DLC's
                remaining  net  assets  as of  June  30,  2001  are  principally
                comprised of lease receivables.

                Revenues  and  net  income  from  discontinued   operations  are
                summarized  below (no interest expense has been allocated to the
                operating results of these discontinued operations):

                                       18
<PAGE>

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


                                         Three Months Ended   Nine Months Ended
                                              June  30,          June  30,
                                         ------------------   -----------------
                                         2001         2000    2001         2000
                                         ------------------   -----------------
   Revenue:
     Vital Network Services              $ 8,824   $13,004    $31,644   $35,577
     DataComm Leasing Corporation            479       773      1,601     2,703
                                         -------   -------    -------   -------
      Total                              $ 9,303   $13,777    $33,245   $38,280

   Net Income (Loss):
     Vital Network Services              $(1,327)  $   615    $(2,602)  $ 1,170
     DataComm Leasing Corporation            204       388        212     1,519
                                         -------   -------    -------   -------
      Total                              $(1,123)  $ 1,003    $(2,390)  $ 2,689
                                         =======   =======    =======   =======

  Income tax provisions included in the net income (loss) above are as follows:

     Vital Network Services              $   200   $   300    $   950   $   600
     DataComm Leasing Corporation             90       180        100       550
                                         -------   -------    -------   -------
      Total                              $   290   $   480    $ 1,050   $ 1,150

NOTE 10.  SEGMENT INFORMATION - INTERIM DISCLOSURES

                The following represent the Company's  reportable segments as of
                June 30, 2001:

                  - Broadband Systems products
                  - Network Access products

                Results of the Company's  Multimedia division (which was sold on
                June 28,  2001)  and of its ATM  product  line  (which  was sold
                August 13, 2001) are reported as part of the  Broadband  Systems
                products.  Although  the  Company's  fiscal 2001  reorganization
                efforts  resulted in the  combination  of the  previous  Network
                Access  and  Broadband  divisions,   the  Company  continues  to
                separately  monitor the  financial  performance  of each product
                line.  The  accounting  policies of the segments are the same as
                those described in Note 2,  "Description of Business and Summary
                of   Significant   Accounting   Policies,"   in  the   Company's
                consolidated  financial  statements filed with Form 10-K for the
                year ended September 30, 2000,  except for capitalized  software
                accounting.  Such  costs are  treated as a period  expense  when
                measuring divisional performance.

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

                                       19
<PAGE>
                       GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


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

                                   Three Months Ended      Nine Months Ended
                                       June  30,              June  30,
                                   ------------------      -----------------
                                   2001         2000       2001        2000
                                   ------------------      -----------------
   Revenue:
     Network Access               $ 8,167    $14,038      $ 28,781   $46,445
     Broadband Systems              5,621     13,346        20,988    45,403
                                  -------    -------      --------   -------
       Total                      $13,788    $27,384      $ 49,769   $91,848

   Operating Income (Loss):
      Network Access              $  (981)   $   338      $ (1,585)  $ 3,037
      Broadband Systems            (4,204)    (9,452)      (18,445)  (19,921)
                                  --------   --------     ---------  --------
       Total                      $(5,185)   $(9,114)     $(20,030) $(16,884)

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

   Operating loss, per above      $(5,185)   $(9,114)     $(20,030) $(16,884)
   Capitalized software activity,
     net                           (1,793)       171        (2,034)      262
   General corporate expenses      (1,410)    (1,309)       (3,278)   (3,432)
   Restructuring of operations         --         --        (1,500)     (500)
   Write-down of real estate
     held for sale                     --         --        (4,500)       --
   Debt conversion expense             --         --            --    (2,403)
   Other charges                  (22,199)        --       (32,524)       --
   Gain on sale of assets           1,346         --         1,346        --
   Legal settlement proceeds           --         --         5,000        --
   Other income (expense)          (2,928)    (2,125)       (7,302)   (5,845)
                                   -------    -------      --------  --------
   Loss Before Income Taxes      $(32,169)  $(12,377)     $(64,822) $(28,802)
                                 =========  =========     ========= =========


NOTE 11.        LOSS PER SHARE

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

                                       20
<PAGE>
                       GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


                                       Three Months Ended   Nine Months Ended
                                           June  30,           June 30,
                                       2001           2000  2001          2000
   Numerator:
     Net loss                         $(23,919)  $(11,394) $(57,879) $(26,163)
     Preferred stock dividends              --       (443)       --    (1,343)
                                      ---------  --------- --------- ---------
     Numerator for basic and diluted
       loss per share - loss applicable
       to common stockholders         $(23,919)  $(11,837) $(57,879)  $(27,506)
                                      =========  ========= =========  =========

   Denominator:
     Denominator for basic and
       diluted loss per
       share - weighted
       average shares outstanding        32,593    26,463    31,046     24,840
                                       --------  --------   -------   ---------

    Basic and diluted loss per share  $  (0.73)  $(0.45)   $ (1.86)  $  (1.11)

                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 nine  months  ended  June 30,  2001  approximated  3,972,000
                shares,  of which  3,914,000  would  not have been  included  in
                diluted  earnings  per share  calculations  for the nine  months
                ended June 30, 2001 (if the Company  reported net income for the
                referenced period) because the effect would be antidilutive.


NOTE 12.        COMPREHENSIVE LOSS

                The following table sets forth the computation of  comprehensive
                loss:

                                    Three Months Ended     Nine Months Ended
                                       June 30,                June 30,
                                    2001          2000     2001         2000

    Net loss                       $(23,919)   $(11,394)   $(57,879)  $(26,163)
    Other comprehensive loss,
    net of tax:
      Foreign currency translation
      adjustments                      (354)       (978)       (731)    (1,854)
                                   ---------   ---------   ---------  ---------
    Comprehensive loss             $(24,273)   $(12,372)   $(58,610)  $(28,017)

                                       21
<PAGE>
                       GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 13.        SUBSEQUENT EVENTS

                Sale of the Company's ATM Business - The Company consummated the
                sale of its  Asynchronous  Transfer  Mode  ("ATM")  business  on
                August 13, 2001 for $20.0 million,  comprised of $3.0 million in
                cash and a $17.0 million  interest-bearing note which matures in
                one year. Under terms of the $17.0 million note receivable,  the
                ATM  business  (and  related  assets,  including  inventory)  is
                pledged as collateral.

                Under current accounting rules, the transaction will be recorded
                in the quarter ended September 30, 2001.As a result, the Company
                expects  financial  results for the quarter ended  September 30,
                2001 to include a charge of  approximately  $8.0 million related
                to the sale; in addition,  the Company's statement of operations
                will  include a net loss of  approximately  $3.0 million for the
                ATM business  financial  activity  from July 1, 2001 through the
                date of sale.

                Additional  Conversion of 5% Preferred Stock into Common Stock -
                On September 4, 2001, an additional 5,000 shares of 5% Preferred
                Stock was  converted  into  390,625  shares of common stock at a
                conversion price of $0.32 per common share. Refer to Note 7, "5%
                Preferred Stock Activity," for further discussion.

                                       22
<PAGE>


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


Business Conditions and Financial Plans

The  Company  is  facing   challenges  to  continue  in  operation.   Due  to  a
deterioration  in its  financial  condition,  defaults  exist  with its  primary
lenders and  potential  defaults  may be declared in the future by its  mortgage
lenders.

Despite  these default  issues,  the  Company's  primary  lenders had not (until
recently) terminated the revolving line of credit portion of the Loan Agreement,
pursuant to which advances were being made on a  discretionary  basis.  However,
the lenders did (at all times)  reserve their right to (1) declare such advances
due and payable and/or limit the amount of such future advances; and (2) closely
monitor such  advances.  In addition,  the lenders have  increased  the interest
rates on such advances (and the outstanding term loans).

The Company recently  received notice from its primary lenders that such lenders
will not commit to make any further advances to the Company.  Unless its primary
lenders continue to make such advances, the Company does not have another source
of capital available to funds its operations.  Furthermore,  as long as an event
of  default  exists,  there  can be no  assurance  that  the  lenders  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 defaults, all outstanding indebtedness whose
maturity could be accelerated has been classified as a current liability at June
30, 2001 and September 30, 2000.

The Company has been focused on a formal  program to divest itself of certain of
its business  units and other assets in order to generate  capital to reduce its
outstanding  debt and to focus on its core business of network access  products.
In June 2001 through  August 2001,  three business units were sold. In addition,
the Company has substantially restructured and downsized to position the Company
for  future  operating  profitability.  However,  the  Company  did not  receive
proceeds from the sale of divisions  sufficient to retire its senior debt due in
part to a general decline in market conditions for technology  companies,  which
negatively  impacted  sales  prices,  and  deferred  proceeds  in  the  form  of
promissory  notes scheduled to be received within one year.  After receiving the
initial proceeds from these sales, the Company's  revolving credit and term loan
debt was  reduced to  approximately  $37  million,  subject  to  further  credit
(reduction)  for notes  received  and  proceeds due in the amount of $24 million
upon  maturity  of the notes.  Although  the  Company  continues  to explore its
options  to  generate  additional  capital  to pay  down  both its  secured  and
unsecured debtors, there is no assurance that such efforts will be successful.

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

                                       23
<PAGE>

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

Summary Highlights

Revenues from continuing  operations  include revenues of the Broadband  Systems
Division and the Network Access Division. Refer to Note 10, "Segment Information
- Interim Disclosures," for this breakdown.

The Broadband  Systems Division was primarily focused on sales of multimedia and
Asynchronous Transfer Mode (ATM) products, which product lines were sold on June
28, 2001 and August 13, 2001, respectively. The Company has been operating under
a plan of asset divestitures and focusing on its core Network Access Division.

Unique  charges are  included in current  fiscal year  results  from  continuing
operations:

|X|  The operating loss for the current  quarter ending June 30, 2001 of $(30.6)
     million  includes  $(21.4) million for impairment of the Broadband  Systems
     Division  (BSD)  assets and $(0.8)  million in  write-down  of  capitalized
     software. For the nine months ended June 30, 2001, BSD asset impairment was
     $(26.6) million;  capitalized software write-down was $(5.9) million;  real
     estate asset write-down was $(4.5) million; and other restructuring charges
     were $(1.5) million;  for a total of $(38.5) million in charges included in
     a total operating loss of $(63.9)million.

|X|  Other income (expense) for the current quarter ended June 30, 2001 includes
     a $1.3  million  gain on the sale of the  Multimedia  Division.  Nine-month
     results also  include  this gain and, in addition,  include $5.0 million in
     legal settlement proceeds.

|X|  Discontinued operations include the results of Vital Network Services (sold
     August  28,  2001,  retroactive  to  July 1,  2001)  and  DataComm  Leasing
     Corporation.  Refer  to  Note 9,  "Discontinued  Operations,"  for  further
     discussion.

Results Of Operations

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

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


                                       24
<PAGE>

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



                                       Three Months Ended    Nine Months Ended
                                            June  30,            June 30,
                                       ------------------    -----------------
                                        2001         2000    2001         2000
                                       ------------------    -----------------
  Revenue:
    Network Access                    $ 8,167   $ 14,038    $ 28,781   $ 46,445
    Broadband Systems                   5,621     13,346      20,988     45,403
                                      -------   --------    --------   --------
     Total                            $13,788   $ 27,384    $ 49,769   $ 91,848
                                      =======   ========    ========   ========
  Operating Income (Loss):
    Network Access                    $  (981)  $    338    $ (1,585)  $  3,037
    Broadband Systems                  (4,204)    (9,452)    (18,445)   (19,921)
                                      --------  ---------   ---------  --------
     Total                            $(5,185)  $ (9,114)   $(20,030)  $(16,884)

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

  Operating loss, per above           $(5,185)  $ (9,114)   $(20,030)  $(16,884)
  Capitalized software activity, net   (1,793)       171      (2,034)       262
  General corporate expenses           (1,410)    (1,309)     (3,278)    (3,432)
  Restructuring of operations              --         --      (1,500)      (500)
  Write-down of real estate
   held for sale                           --         --      (4,500)        --
  Debt conversion expense                  --         --          --     (2,403)
  Other charges                       (22,199)        --     (32,524)        --
  Gain on sale of assets                1,346         --       1,346         --
  Legal settlement proceeds                --         --       5,000         --
  Other income (expense)               (2,928)    (2,125)     (7,302)    (5,845)
                                     ---------  ---------   ---------  --------
    Loss Before Income Taxes         $(32,169)  $(12,377)   $(64,822)  $(28,802)
                                     =========  =========   =========  ========

Broadband Systems Products ("BSP")

The networking  industry generally has reported a slowdown in product orders and
this appeared to be true for the BSP customer base as well.  BSP sales  declined
57.9% in the quarter comparison and 53.8% year-over-year.  About a third of this
decline is attributable to sales of older generation products which have been on
a downward trend in recent years. Geographically,  about 68% of the year-to-date
BSP revenue loss was  experienced  in Europe where BSP has its largest  customer
base.  The resulting  gross margin loss more than offset  operating cost savings
achieved for both the June quarter and nine-month comparison.

Broadband  System products and results include both ATM  (Asynchronous  Transfer
Mode) and legacy TDM (Time Division  Multiplexing) products in addition to video
products developed by the Company's Multimedia Division. The Multimedia Division
was sold June 28, 2001, and the

                                       25
<PAGE>
                       GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS


ATM product line was sold August 13, 2001.  Refer to Note 8, "Other  Charges and
Other Income (Expense)," and to Note 13, "Subsequent Events," respectively,  for
further discussion.

Network Access Products ("NAP")

Revenues for the NAP were down $5.9 million, or 41.8%, from the same quarter one
year ago and down $17.7  million,  or 38%,  for the nine  months of the  current
fiscal  year as  compared  to the  prior  fiscal  year.  The  revenue  loss  was
experienced  in both  domestic and  international  markets.  NAP  revenues  were
negatively  impacted by: (1) a significant  slowdown in capital  expenditures by
the division's  incumbent  telephone  company  customer base; and (2) prior year
revenues were  unusually  strong as a result of sales to one specific  customer.
NAP sales and  resulting  margin  losses  have more than offset  operating  cost
savings achieved by the division.  However,  further cost reduction actions have
been made to lower the  breakeven  point and position the Company for  operating
profits anticipated in fiscal 2002.

For discussion of "Other Charges" and "Other Income  (Expense)" refer to Summary
Highlights above, and to Note 8, "Other Charges and Other Income (Expense)"

Interest Expense:  Interest expense amounted to $2.9 million and $2.3 million in
the  quarters  ended June 30, 2001 and 2000,  respectively.  For the nine months
ended June 30, 2001 and 2000, interest expense amounted to $7.1 million and $6.4
million,  respectively. In January 2000, the Company's primary lenders increased
interest rates charged by 2% as a result of a claimed default.

Income Taxes: Tax provisions  recorded by the Company for continuing  operations
were insignificant. The Company has federal and certain state net operating loss
carryforwards available to offset future 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 of $342,000 and $280,000 for the quarters ended June
30, 2001 and 2000,  respectively  and  $117,000 and $644,000 for the nine months
ended June 30, 2001 and 2000, respectively.

No individual foreign subsidiary has traditionally  comprised 10 percent or more
of consolidated revenue or assets, and most subsidiary operations represent less
than 5 percent of consolidated assets.  Therefore,  the Company historically has
not  entered  into  hedge  contracts  or  any  form  of  derivative  or  similar
investment.  Separately,  the  introduction of the Euro as a common currency

                                       26
<PAGE>
                       GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS


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.  Furthermore,  the sale
of business  segments has  significantly  reduced the  Company's  foreign  asset
exposure.  See "Market Risk" below for further  discussion  of foreign  currency
risk.

Market Risk

The  Company is exposed to various  market  risks,  including  potential  losses
arising  from  adverse  changes  in market  rates and  prices  (such as  foreign
currency  exchange and interest rates),  and dependence upon a limited number of
major distributors and resellers.  The Company historically has not entered into
derivatives,  forward  exchange  contacts  or other  financial  instruments  for
trading, speculation or hedging purposes.

Interest Risk

For discussion applicable to interest risk, reference is made to Form 10-K filed
with the  Securities and Exchange  Commission  for the year ended  September 30,
2000, Item 7, Management's  Discussion and Analysis of Results of Operations and
Financial Condition, under the caption "Interest Risk."

Liquidity and Capital Resources

The  Company  is  facing   challenges  to  continue  in  operation.   Due  to  a
deterioration  in its  financial  condition,  defaults  exist  with its  primary
lenders and  potential  defaults  may be declared in the future by its  mortgage
lenders.

Despite  these default  issues,  the  Company's  primary  lenders had not (until
recently) terminated the revolving line of credit portion of the Loan Agreement,
pursuant to which advances were being made on a  discretionary  basis.  However,
the lenders did (at all times)  reserve their right to (1) declare such advances
due and payable and/or limit the amount of such future advances; and (2) closely
monitor such  advances.  In addition,  the lenders have  increased  the interest
rates on such advances (and the outstanding term loans).

The Company recently  received notice from its primary lenders that such lenders
will not commit to make any further advances to the Company.  Unless its primary
lenders continue to make such advances, the Company does not have another source
of capital available to funds its operations.  Furthermore,  as long as an event
of  default  exists,  there  can be no  assurance  that  the  lenders  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 defaults, all outstanding indebtedness whose
maturity could be accelerated has been classified as a current liability at June
30, 2001 and September 30, 2000.

The Company has been focused on a formal  program to divest itself of certain of
its business  units and other assets in order to generate  capital to reduce its
outstanding  debt and to focus on

                                       27
<PAGE>
                       GENERAL DATACOMM INDUSTRIES, INC.
                                AND SUBSIDIARIES
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

its core business of network access  products.

In June 2001 through  August 2001,  three business units were sold. In addition,
the Company has substantially restructured and downsized to position the Company
for  future  operating  profitability.  However,  the  Company  did not  receive
proceeds from the sale of divisions  sufficient to retire its senior debt due in
part to a general decline in market conditions for technology  companies,  which
negatively  impacted  sales  prices,  and  deferred  proceeds  in  the  form  of
promissory  notes scheduled to be received within one year.  After receiving the
initial proceeds from these sales, the Company's  revolving credit and term loan
debt was  reduced to  approximately  $37  million,  subject  to  further  credit
(reduction)  for notes  received  and  proceeds due in the amount of $24 million
upon  maturity  of the notes.  Although  the  Company  continues  to explore its
options  to  generate  additional  capital  to pay  down  both its  secured  and
unsecured debtors, there is no assurance that such efforts will be successful.

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

Cash  balances  amounted to $8.2  million and $3.6  million at June 30, 2001 and
September 30, 2000, respectively. The cash balance at June 30, 2001 reflects the
receipt of net proceeds  from the sale of the Company's  Multimedia  Division on
June 28, 2001 in the amount of $6.4 million. Such proceeds were immediately used
to reduce the  outstanding  debt level.  However,  an  "over-advance"  condition
continues to exist whereby  borrowings  outstanding  under the revolving line of
credit portion of the Loan Agreement  exceeded the maximum amounts available per
terms of the Loan Agreement.

During  the nine  months  ended June 30,  2001,  Company  restructuring  actions
resulted in the termination of  approximately  300 employees and the curtailment
of  discretionary  spending.  In  addition,  to further  conserve  cash,  reduce
expenses and allow time to complete the sale of operating  units,  in April 2001
the Company  initiated a four-day  workweek for  substantially  all U.S. workers
(with the exception of only those providing critical services).

Despite  such  actions  taken and the sales of  divisions  in June 2001  through
August  2001,  the Company will require  continued  access to revolving  line of
credit funds under its Loan Agreement and over-advances  thereunder,  as well as
additional  funds  to  sustain  future  operations.  In  order  to  obtain  such
additional funds, the Company will be required to sell additional stock,  secure
additional  debt financing or sell  additional  assets.  The Company is actively
pursuing additional sources of financing,  but the current debt burden makes the
success of such efforts very difficult,  and 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.

Reference  is made  to  Note  1,  "Basis  of  Presentation,"  Note 2,  "Business
Conditions and Financial Plans" and Note 6, "Long-Term  Debt," for more detailed
discussion regarding such

                                       28
<PAGE>


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

Loan Agreement and all other outstanding indebtedness of the Company,  including
potential defaults,  related risks and Company plans. Furthermore,  reference is
made to the  Company's  consolidated  financial  statements  and  related  notes
thereto and exhibits filed with Form 10-K for the year ended  September 30, 2000
for  further   disclosures   applicable  to  outstanding   indebtedness  of  the
Corporation.

Operating

Net cash used in operating  activities amounted to $4.1 million and $6.8 million
in the nine-month  periods ended June 30, 2001 and 2000,  respectively.  Current
year cash consumption is principally comprised of the reported net loss of $57.9
million, offset by net non-cash charges of $38.5 million (including depreciation
expense, the write-down in the value of the Broadband Systems Division's assets,
the gain on the sale of the Multimedia  Division,  the write-down of capitalized
software  costs  due  to the  cancellation  of  development  projects,  and  the
write-down to estimated net  realizable  value of real estate held for sale) and
reductions in accounts  receivable and inventory  levels.  The reduced levels of
accounts  receivable reflect the Company's lower sales levels.  Inventory levels
improved due to efforts to reduce  investments in inventories and preserve cash.
Cash consumption for the nine months ended June 30, 2000 included an increase in
inventory  levels ($11.7 million) and other items which provided a net source of
funds of $4.9 million. The inventory growth resulted from precautionary measures
taken by the Company as it transitioned to outsource the manufacturing  function
last year.

Non-debt working capital, excluding cash and cash equivalents, amounted to $11.7
million at June 30, 2001, as compared to $18.7 million at September 30, 2000

Investing

The Company has  restricted its  investments  to capital  equipment and software
development  considered critical to operations.  Investments in property,  plant
and  equipment  amounted  to $0.6  million  and $5.0  million in the  nine-month
periods ended June 30, 2001 and 2000,  respectively.  Investments in capitalized
software  amounted to $5.2  million and $9.1 million in the  nine-month  periods
ended June 30,  2001 and 2000,  respectively.  All such  investment  activity is
targeted  to  satisfy  minimum   operating   requirements  and  to  embrace  new
undertakings  with the greatest  potential  returns.  The sale of the  Company's
Multimedia Division generated net proceeds at closing of $6.4 million.

Financing

Net cash  provided by  financing  activities  amounted to $8.2 million and $19.8
million in the nine- month periods  ended June 30, 2001 and 2000,  respectively.
Current year  activity is  principally  comprised of $13.5 million of borrowings
under the revolving credit line and payments made on notes and mortgages of $5.4
million.  Fiscal 2000 activity is comprised of $20.3 million of net  borrowings,
$0.8 million in proceeds  received from the issuance of common stock pursuant to
employee  stock  programs  and the payment of $1.3  million in  preferred  stock
dividends.


                                       29
<PAGE>

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


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 27 quarters
ended June 30,  2001.  There can be no  assurance  as to when the  Company  will
achieve net income.

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

Despite  these default  issues,  the  Company's  primary  lenders had not (until
recently) terminated the revolving line of credit portion of the Loan Agreement,
pursuant to which advances were being made on a  discretionary  basis.  However,
the lenders did (at all times)  reserve their right to (1) declare such advances
due and payable and/or limit the amount of such future advances; and (2) closely
monitor such  advances.  In addition,  the lenders have  increased  the interest
rates on such advances (and the outstanding term loans).

The Company recently  received notice from its primary lenders that such lenders
will not commit to make any further advances to the Company.  Unless its primary
lenders continue to make such advances, the Company does not have another source
of capital available to funds its operations.  Furthermore,  as long as an event
of  default  exists,  there  can be no  assurance  that  the  lenders  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 defaults, all outstanding indebtedness whose
maturity could be accelerated has been classified as a current liability at June
30, 2001 and September 30, 2000.

Regarding  the  Company's  mortgage  lenders,  plans are  underway  to  transfer
ownership  of  the  buildings  involved  to  such  mortgage  lenders,   in  full
satisfaction  of its  mortgages.  However,  there can be no assurance  that this
effort  will be  successful  and, if not,  the  mortgage  lenders  may  exercise
foreclosure and other rights.

Reference  is made  to  Note  1,  "Basis  of  Presentation,"  Note 2,  "Business
Conditions and Financial Plans" and Note 6, "Long-Term  Debt," for more detailed
discussions of indebtedness outstanding,  including potential defaults,  related
risks and Company  plans.  In addition,  reference is made to the "Liquidity and
Capital Resources" discussion above.

                                       30
<PAGE>

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

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, 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,  the Company's delisting from the New York Stock Exchange and,
from time to time,  the  volatile  nature of equity  markets.  Any  shortfall in
revenue or earnings from expected levels or restrictions in credit  availability
could have an immediate and  significant  adverse effect on the trading price of
the Company's Common Stock in any given period.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

Portions of the  foregoing  discussion  include  descriptions  of the  Company's
expectations regarding future trends affecting its business. The forward-looking
statements made in this report, as well as all other forward-looking  statements
or  information  provided by the Company or its  employees,  whether  written or
oral,  are made in  reliance  upon the safe  harbor  provisions  of the  Private
Securities Litigation Reform Act of 1995.  Forward-looking statements and future
results  are  subject  to,  and  should  be   considered   in  light  of  risks,
uncertainties,  and other factors which may affect future results including, but
not limited to, competition, rapid changing technology, regulatory requirements,
and  uncertainties of international  trade.  Examples of risks and uncertainties
include, among other things: (i) the Company's ability to retain access to funds
available under all existing loan  agreements and the continued  satisfaction of
related covenant requirements,  including, if necessary,  the ability to achieve
amendments  and/or waivers thereto to maintain  compliance with the terms of all
such  outstanding  indebtedness;   (ii)  the  possibility  that  the  additional
indebtedness  permitted  to be  incurred  under the  revolving  credit  facility
portion of the Loan  Agreement  may not be  sufficient to maintain the Company's
operations; (iii) the Company's ability to satisfy its financial obligations and
to obtain  additional  financial  resources,  if  required;  (iv) the  Company's
ability to effectively restructure its operations and achieve profitability; (v)
the  Company's  ability to retain  existing and obtain new  customers;  (vi) the
Company's ability to maintain existing supply  arrangements and terms; and (vii)
the  Company's  ability to retain key  employees.  Readers are  cautioned not to
place  undue  reliance  on  such  forward-looking   statements,   which  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.

                                       31

<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

          A Form 8-K,  dated October 23, 2001,  was filed on October 30, 2001 to
          announce that the Company has received notice from its primary lenders
          that such lenders  will not commit to make any further  advances to
          the Company.   Unless its primary lenders continue to make such
          advances, the Company does not have another source of capital
          available to fund its operations.


                                       32
<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:  November 1, 2001