UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-QSB

(Mark One)

x Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2007

o Transition report under Section 13 or 15(d) of the Exchange Act

For the transition period from __________ to __________

Commission file number 1-8086

General DataComm Industries, Inc.

(Exact Name of Small Business Issuer as Specified in its Charter)

Delaware	06-0853856
(State of Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

6 Rubber Avenue, Naugatuck, CT 06770

(Address of Principal Executive Offices)

203-729-0271

(Issuer’s Telephone Number, Including Area Code)

_____________________________________________________________

(Former Name, Former Address and Former Fiscal Year, if Changed

Since Last Report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 o

APPLICABLE ONLY TO ISSUERS INVOLVED IN

BANKRUPTCY PROCEEDINGS DURING THE

PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes x No o

APPLICABLE ONLY TO CORPORATE ISSUER

State the number of shares outstanding of each of the issuer’s classes of common equity, as of July 31, 2007:

3,474,373 shares of Common Stock

647,715 shares of Class B Stock

Transitional Small Business Disclosure Format (check one): Yes o No x

GENERAL DATACOMM INDUSTRIES, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-QSB

		Page

PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets as of
	June 30, 2007 and September 30, 2006	3
	Condensed Consolidated Statements of Operations for
	the Three and Nine Months Ended June 30, 2007 and 2006	4
	Condensed Consolidated Statements of Cash Flows for
	the Nine Months Ended June 30, 2007 and 2006	5
	Notes to the Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis or Plan of Operation	14

Item 3.	Controls and Procedures	26

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27

Item 3.	Defaults Upon Senior Securities	27

Item 4.	Submission of Matters of a Vote of Security Holders	27

Item 5.	Other Information	27

Item 6.	Exhibits	27

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

General DataComm Industries, Inc.

Condensed Consolidated Balance Sheets

(in thousands except shares)

June 30, September 30,

	June 30,			September 30,
	2007			2006*
	(Unaudited)
Assets:
Current assets:
Cash and cash equivalents	$	522		$	246
Accounts receivable, less allowance for doubtful accounts of $300 at June 30, 2007 and $489 at September 30, 2006		1,430			2,486
Inventories		2,931			2,554
Other current assets		332			591
Total current assets		5,215			5,877
Property, plant and equipment, net		3,735			3,973
Total Assets	$	8,950		$	9,850

Liabilities and Stockholders’ Deficit:
Current liabilities:
Current portion of long-term debt ($2,324 at June 30, 2007 and $2,026 at September 30, 2006 owed to related parties)	$	2,396		$	29,051
Accounts payable		2,897			2,658
Accrued payroll and payroll-related costs		488			596
Accrued interest		402			7,904
Other current liabilities		4,466			4,700
Total current liabilities		10,649			44,909
Long-term debt		23,933			-
Accrued interest on long-term debt		7,388			-
Other liabilities		546			539
Total Liabilities		42,516			45,448

Commitments and contingencies		-			-

Stockholders’ deficit:
9% Preferred stock, par value $1.00 per share, 3,000,000 shares authorized, 781,996 shares issued and outstanding at June 30, 2007 and September 30, 2006; $31.9 million liquidation preference at June 30, 2007		782			782
Class B common stock, par value $.01 per share, 5,000,000 shares authorized; issued and outstanding: 647,715 shares at June 30, 2007 and 653,947 shares at September 30, 2006		7			7
Common stock, par value $.01 per share, 25,000,000 shares authorized; issued and outstanding : 3,474,373 shares at June 30, 2007 and 3,468,141 shares at September 30, 2006		35			35
Capital in excess of par value		198,960			198,751
Accumulated deficit		(233,368	)		(235,183	)
Accumulated other comprehensive income		18			10
Total Stockholders’ Deficit		(33,566	)		(35,598	)
Total Liabilities and Stockholders’ Deficit	$	8,950		$	9,850

* Derived from the Company’s audited consolidated balance sheet at September 30, 2006.

The accompanying notes are an integral part of these

condensed consolidated financial statements.

General DataComm Industries, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands except share data)

Three Months Ended

Nine Months Ended

June 30,

2007

2006

2007

2006

Revenues

Product

2,172

2,597

7,626

9,416

Service

613

608

1,776

1,895

Total

2,785

3,205

9,402

11,311

Cost of revenues

944

1,331

3,526

4,672

Gross margin

1,841

1,874

5,876

6,639

Operating expenses:

Selling, general and administrative

1,493

4,253

4,589

Research and product development

628

787

1,851

2,502

2,121

2,280

6,104

7,091

Operating loss

(280

)

(406

)

(228

)

(452

)

Other income (expense):

Interest expense

(727

)

(813

)

(2,284

)

(2,448

)

Gain on restructuring of debt

4,062

Recovery of lease receivable, net

425

Loss on extinguishment of debt

(389

)

Other, net

161

265

177

(566

)

(792

)

2,043

(2,235

)

Income (loss) before income taxes

(846

)

(1,198

)

1,815

(2,687

)

Income tax provision (benefit)

)

Net income (loss)

(840

)

(1,201

)

1,815

(2,696

)

Dividends applicable to preferred stock

(440

)

(440

)

(1,320

)

(1,320

)

Net income (loss) applicable to common and Class B stock

(1,280

)

(1,641

)

495

(4,016

)

Earnings (loss) per share:

Basic-common stock

(0.31

)

(0.40

)

0.14

(0.99

)

Diluted - common stock

(0.31

)

(0.40

)

0.12

(0.99

)

Basic - Class B stock

(0.31

)

(0.40

)

0.11

(0.99

)

Diluted - Class B stock

(0.31

)

(0.40

)

0.11

(0.99

)

Weighted average number of common and Class B shares outstanding:

Basic-common stock

3,474,373

3,468,050

3,472,899

3,398,668

Diluted - common stock

3,474,373

3,468,050

4,122,088

3,398,668

Basic - Class B stock

647,715

653,947

649,189

653,947

Diluted - Class B stock

647,715

653,947

647,715

653,947

The accompanying notes are an integral part of these

condensed consolidated financial statements.

General DataComm Industries, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

	Nine Months Ended June 30,
	2007			2006

Cash flows from operating activities:
Net income (loss)	$	1,815		$	(2,696	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		275			286
Loss on extinguishment of debt		-			389
Stock compensation expense		209
Gain on restructuring of debt		(4,062	)		-
Changes in:
Accounts receivable		1,056			(142	)
Inventories		(377	)		623
Accounts payable		214			1,144
Accrued payroll and payroll-related costs		(108	)		(156	)
Accrued interest		1,667			1,785
Other net current liabilities		86			(30	)
Other net long-term assets		15			(202	)

Net cash provided by operating activities		790			1001

Cash flows from investing activities:
Acquisition of property, plant and equipment, net		(10	)		(75	)
Net cash used by investing activities		(10	)		(75	)

Cash flows from financing activities:
Proceeds from notes payable to related parties		270			250
Proceeds from other notes payable		222			303
Principal payments on other notes payable		(152	)		(189	)
Principal payments on term obligation		(844	)		(1,742	)

Net cash used by financing activities		(504	)		(1,378	)

Net increase (decrease) in cash and cash equivalents		276			(452	)

Cash and cash equivalents, beginning of period		246			878

Cash and cash equivalents, end of period	$	522		$	426

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	321		$	330
Income and franchise taxes		6			1
Reorganization items		260			269

The accompanying notes are an integral part of these

condensed consolidated financial statements.

GENERAL DATACOMM INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Basis of Presentation and Liquidity

The accompanying unaudited interim financial statements of General DataComm Industries, Inc. (the “Company”) have been prepared on a going concern basis, in accordance with generally accepted accounting principles in the United States for interim financial information, the instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for year end financial statements. In the opinion of management, these statements include all adjustments, consisting of normal and recurring adjustments, considered necessary for a fair presentation of the results for the periods presented. The results of operations for the periods presented are not necessarily indicative of results which may be achieved for the entire fiscal year ending September 30, 2007. The unaudited interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s annual report on Form 10-KSB for the fiscal year ended September 30, 2006 as filed with the Securities and Exchange Commission.

On November 2, 2001, General DataComm Industries, Inc. and its domestic subsidiaries filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. The Company continued in possession of its properties and the management of its business as debtors in possession.

The Company emerged from Chapter 11 effective on September 15, 2003 pursuant to a court-approved plan of reorganization. Under this plan, the Company was to pay all creditors 100% of their allowed claims based upon a five year business plan. However, the Company has not met its business plan objectives since emerging from Chapter 11 and, therefore, there can be no assurance that any such outstanding claims will be paid. The Company has no current ability to borrow additional funds. It must, therefore, fund operations from cash balances and cash generated from operating activities. In order to meet its obligations the Company must achieve revenue growth while at the same time limiting investments in inventories and capital assets.

The Company’s quarterly operating results are subject to fluctuations due to a number of factors resulting in more variability and less predictability in the Company’s quarter-to-quarter sales and operating results. Such factors include (but are not limited to): dependence on a small number of customers, short delivery times, dependence on subcontract manufacturers, low order backlog, ability to timely develop new products and market acceptance of new products. Because operating results can fluctuate significantly the Company may not be able to generate positive cash flow from operations in the future. Should the need arise, it may become necessary to borrow additional funds or otherwise raise additional capital. However, since the Company does not have any source of additional funds or capital in place, any such requirement could have a material adverse effect on the Company. As of September 30, 2006, as a result of not making certain required principal payments on its Term Obligation, the Company was in default under its senior loan agreement and accordingly, all-long term debt and related accrued interest were classified as current liabilities at such date. Such default was waived by the senior lenders in January 2007 as part of a loan amendment. Furthermore, on July 30, 2007, GDC Naugatuck, Inc., a subsidiary of General DataComm Industries, Inc., obtained mortgage financing in the amount of $4,500,000 which was used to refinance and replace the Term Obligation and PIK Obligation owed to the senior lender. Such mortgage financing requires payments of interest (only) until it matures on July 31, 2009 and contains no financial covenants (see Note 9).

As a result of the refinancing and replacement of the Company’s senior indebtedness subsequent to June 30, 2007, together with the reduction in debt service and the absence of financial covenants, the Term Obligation, the PIK Obligation and Debentures along with accrued interest thereon ($7,388,358) were re-classified to long-term liabilities in the accompanying financial statements at June 30, 2007.

The events and circumstances described above raised substantial doubt about the Company’s ability to continue as a going concern. The Company’s independent auditors have expressed uncertainty about the Company’s ability to continue as a going concern in their opinion on the Company’s fiscal 2006 financial statements.

Management has responded to its liquidity and cash flow risks by first amending and later replacing its senior debt. In January 2007, the Company’s senior loan was amended to provide for, among other items, a waiver of the payment default mentioned above (See Note 4). Thereafter, on July 30,2007, the senior debt was paid off and replaced by a mortgage financing on the Naugatuck, CT property. Such mortgage financing requires payments of interest (only) and contains no financial covenants (see Note 9). In addition, Management has implemented operational changes: restructuring the sales force, increasing factory shutdown time, constraining expenses, and reducing the size of the employee workforce. The Company also continues to pursue the sale or lease of its headquarters land and building in Naugatuck, CT.

While the Company is aggressively pursuing opportunities and corrective actions, there can be no assurance that the Company will be successful in its efforts to generate sufficient cash from operations or obtain additional funding sources or sell the Naugatuck property. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that may result from the outcome of these uncertainties.

“Accumulated Other Comprehensive Income”, comprised solely of foreign currency translation adjustments, was not significant in the three and nine month periods ended June 30, 2007 and 2006. There is no income tax expense or benefit associated with such adjustments.

Note 2 - Earnings (Loss) Per Share

Basic earnings per share is computed by allocating net income available to common stockholders and to Class B shares based on their contractual participation rights to share in such net income as if all the income for the year had been distributed. Such allocation reflects that common stock is entitled to cash dividends, if and when paid, 11.11% higher per share than Class B stock. However, a net loss is allocated evenly to all shares. The income (loss) allocated to each security is divided by the respective weighted average number of common and Class B shares outstanding during the period. Diluted earnings per common share assumes the conversion of Class B stock into common stock. Diluted earnings per share gives effect to all potential dilutive common shares outstanding during the period. In computing diluted earnings per share, which only applies in the event there is net income, the average price of the Company’s common stock for the period is used in determining the number of shares assumed to be purchased from exercise of stock options and warrants. Dividends applicable to preferred stock represent accumulating dividends that are not declared or accrued. The following table sets forth the computation of basic and diluted earnings (loss) applicable to common and Class B stock for the three and nine months ended June 30, 2007 and 2006 (in thousands, except shares and per share data):

	Three Months Ended June 30,						Nine Months Ended June 30,
	2007			2006			2007			2006
Net income (loss)	$	(840	)	$	(1,201	)	$	1,815		$	(2,696	)
Dividends applicable to preferred stock		(440	)		(440	)		(1,320	)		(1,320	)
Net income (loss) applicable to common and Class B stock	$	(1,280	)	$	(1,641	)	$	495		$	(4,016	)
Net income (loss) applicable to common stock - basic	$	(1,079	)	$	(1,381	)	$	424		$	(3,368	)
Net income (loss) applicable to Class B stock-basic	$	( 201	)	$	( 260	)	$	71		$	( 648	)

Three Months Ended June 30,

2007

2006

2007

2006

Common Stock

Class B Stock

Numerator for basic and diluted loss per share-net loss

(1,079

)

(1,381

)

( 201

)

( 260

)

Denominator for basic loss per share - weighted average outstanding shares

3,474,373

3,468,050

647,715

653,947

Basic loss per share

(0.31

)

(0.40

)

(0.31

)

(0.40

)

Diluted loss per share

(0.31

)

(0.40

)

(0.31

)

(0.40

)

	Nine Months Ended June 30,
	2007		2006			2007		2006
	Common Stock					Class B Stock

Numerator for basic earnings (loss) per share-net income (loss)	$	424	$	(3,368	)	$	71	$	(648	)
Reallocation of net income for potential dilutive common shares		71		-			-		-
Numerator for diluted earnings (loss) per share - net income (loss)		495		(3,368	)		71		(648	)
Denominator for basic earnings per share - weighted average outstanding shares		3,472,899		3,398,668			649,189		653,947
Effect of dilutive securities: Class B stock		649,189		-			-		-
Denominator for diluted earnings (loss) per share		4,122,088		3,398,668			649,189		653,947

Basic earnings (loss) per share	$	0.14	$	(0.99	)	$	0.11	$	(0.99	)
Diluted earnings (loss) per share	$	0.12	$	(0.99	)	$	0.11	$	(0.99	)

In the nine months ended June 30, 2007 and 2006, no effect has been given to outstanding options and warrants, convertible securities and contingently issuable shares in computing diluted income (loss) per common share as their effect would be antidilutive. Such share amounts which could potentially dilute basic earnings per common share are as follows:

	No. of Shares
	Nine Months Ended June 30,
	2007		2006
Stock warrants		4,093,251		3,945,845
Stock options		2,636,167		1,857,926
Convertible preferred stock		143,223		143,314
Contingently issuable shares*		2,198,946		2,141,657
Total		9,071,587		8,088,742

* Warrants for common stock contingently issuable to the Company’s senior secured lenders in the event of default or if certain payment terms are not met are excluded from the computation of earnings per share because the contingency defined in the loan agreement has not taken place. Such warrants were cancelled when the senior loan was paid off on July 30, 2007 (see Note 9).

3. Inventories

Inventories consist of (in thousands):

	June 30,		September 30,
	2007		2006
Raw materials	$	589	$	637
Work-in-process		1,522		945
Finished goods		820		972
	$	2,931	$	2,554

Inventories are stated at the lower of cost or market using a first-in, first-out method. Reserves in the amount of $3,084,000 and $3,442,000 were recorded at June 30, 2007 and September 30, 2006, respectively, for excess and obsolete inventories.

4. Long-Term Debt

	June 30,		September 30,
Long-term debt consists of (in thousands):	2007		2006

Term Obligation	$	1,480	$	2,602
PIK Obligation		3,000		2,500
Notes Payable to Related Parties, net of debt discount of $27 at
June 30, 2007 and $54 at September 30, 2006		2,324		2,026
Debentures		19,453		21,923
Note Payable		72
		26,329		29,051
Less current portion		2,396		29,051
	$	23,933	$	0

At September 30, 2006, the Company was in default under its senior loan agreement as a result of not making required principal payments on its Term Obligation. Accordingly, all long-term debt along with accrued interest thereon ($7,525,245) were classified as current liabilities at such date. Such default was waived by the senior lenders in January 2007 as part of a loan amendment. Furthermore, on July 30, 2007, GDC Naugatuck, Inc., a subsidiary of General DataComm Industries, Inc., obtained mortgage financing in the amount of $4,500,000 which was used to refinance and replace the Term Obligation and PIK Obligation owed to the senior lender. Such mortgage financing requires payments of interest (only) until it matures on July 31, 2009 and contains no financial covenants (see Note 9).

As a result of the refinancing and replacement the Company’s senior indebtedness subsequent to June 30, 2007, together with the reduction in debt service and the absence of financial covenants, the Term Obligation, the PIK Obligation and Debentures along with accrued interest thereon ($7,388,358) were re-classified to long-term liabilities in the accompanying balance sheet at June 30, 2007.

Term Obligation, PIK Obligation and Gain on Restructuring of Debt

On January 17, 2007, pursuant to an amendment to the senior loan agreement (“Loan Agreement”), the Company and its senior secured lender, Ableco Finance LLC (“Ableco”) agreed to the following changes:

(a)	to reduce the principal amortization of the Term Obligation (and thereafter, the PIK Obligation) to $100,000 a month commencing January 15, 2007 (previously the principal amortization payments ranged between $250,000 and $393,750 a month);

(b)	to reduce and fix the outstanding amount of the PIK Obligation including principal and interest, at $3,000,000 as of January 16, 2007;

(c)	to provide for a further reduction of the PIK Obligation by 50%, or $1,500,000, if both the Term Obligation and $1,500,000 of the PIK Obligation are repaid by December 31, 2007;

(d)	to extend the maturity date of the Loan Agreement from December 31, 2007 to December 31, 2008 and to extend dates in the existing warrants issued to Ableco Affiliates from December 31, 2007 to December 31, 2008;

(e)	to eliminate the minimum EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) financial covenant;

(f)	to waive any prior defaults related to required loan amortization payments and to satisfying the minimum EBITDA financial covenant;

(g)	to provide for certain affiliates of Ableco to sell Debentures with a face value approximating $2,471,000 together with accrued interest of $824,694 to the Company for consideration of $1.00; and

(h)	to permit Howard S. Modlin, the company’s CEO, to make up to $2,000,000 in additional loans to the Company; repayment of principal of all such loans requires Ableco approval.

Certain provisions of the foregoing amendment were approved by the Bankruptcy Court which had retained jurisdiction to finally determine the amount of the PIK Obligation.

As a result of the Debenture purchase which closed on January 17, 2007 and the adjustment to PIK Obligation which was effective on such date, the Company recorded a gain on restructuring of debt in the amount of $4,062,000 in the quarter ended March 31, 2007. The amendment eliminates the loan default referred to in the Company’s Form 10-KSB Report for the year ended September 30, 2006 as filed with the Securities and Exchange Commission. Interest continued to be payable monthly at the greater of (i) 7.25% and (ii) the prime rate plus 2.5% (the prime rate was 8.25% on June 30, 2007). The Term Obligation and PIK Obligation were collateralized by all of the Company’s assets and proceeds from the potential sales of non-core assets and certain other proceeds had to be used to reduce the Term Obligation and PIK Obligation.

Debentures

The Debentures were issued to unsecured creditors as part of the Company’s 2003 Plan of Reorganization. Debentures together with accrued interest mature on October 1, 2008. However, no principal or interest is payable on the Debentures until the senior secured lenders’ obligations (represented by the Term Obligation, PIK Obligation and Notes Payable to Related Parties at June 30, 2007, and thereafter by the Mortgage at July 30, 2007) are paid in full and, therefore, no such principal or interest has been paid as of June 30, 2007. Interest accrues at the annual rate of 10%, but such rate shall be reduced (in increments to 7 ¼ %) if the Debentures are paid in full on or before September 15, 2007.

Debentures previously held by affiliates of the Company’s senior secured lender in the face amount of approximately $2,471,000 were sold to the Company for consideration of $1.00 as part of an amendment to the senior loan agreement described above.

Notes Payable to Related Parties and Loss on Extinguishment of Debt

On December 9, 2005, the Company entered into amendments of its loan arrangements with Howard S. Modlin, Chairman of the Board and Chief Executive Officer, and John Segall, a Director. Pursuant to such amendments, an aggregate of $1,600,000 plus accrued interest thereon in secured loans from such directors maturing between September 29, 2005 and September 29, 2006 were extended. Such amendments generally provided that 50% of each such amended and restated note was to be payable one and two years from the original due dates. The conversion features of four notes held by Mr. Modlin, which were convertible into an aggregate of 1,103,897 shares of common stock, and three notes held by Mr. Segall, which were convertible into an aggregate of 508,659 shares of common stock, were eliminated, and unpaid accrued interest aggregating $230,945, was added to the amended and restated notes. Interest accrues at the rate of 10% per annum from December 9, 2005 and the first interest payment on the amended and restated notes was due May 1, 2006 (payment of principal and interest on the amended loans has been deferred indefinitely in agreement with Mr. Segall and Mr. Modlin). In connection with the transactions, Mr. Modlin and Mr. Segall each received seven year warrants expiring December 8, 2012 to purchase common stock at $0.575 per share covering 2,084,204 shares and 1,100,047 shares, respectively. The transactions were unanimously approved by the Company’s Board of Directors on December 9, 2005. In connection with the restructuring of the loans, in the quarter ended December 31, 2005, the Company recorded a non-cash loss on extinguishment of debt of $389,000 representing the value of the warrants issued. Such warrant value was determined based upon an appraisal by an outside consultant.

On February 17, 2006, the Company borrowed $250,000 from Mr. Modlin in the form of a demand note which bore interest at the rate of 10% per annum. On April 20, 2006, the Corporation entered into an amendment of its loan arrangement with Mr. Modlin whereby the $250,000 demand loan made by Mr. Modlin on February 17, 2006 was amended and restated into a term note, 50% of which was payable February 17, 2007 and 50% of which is payable February 17, 2008. Mr. Modlin received a seven year warrant expiring April 19, 2013 to purchase 909,000 shares of common stock at $0.275 per share. The warrant was valued at $69,000 based upon an appraisal by an outside consultant and was recorded as debt discount and is being amortized as additional interest expense over the term of the debt. All loans made by Mr. Modlin and Mr. Segall are secured by all the assets of the Company behind the first lien of the Company’s senior lenders.

As permitted under the new senior loan amendment, Mr. Modlin made demand loans to the Company totaling $270,000 in the quarter ended March 31, 2007.

No principal or interest payments required under the terms of the above loans have been made to Mr. Modlin or Mr. Segall.

Note 5. Accounting for Stock-Based Compensation

At June 30, 2007, the Company has two stock-based employee compensation plans, which are described more fully in Note 6. Prior to October 1, 2006, the Company accounted for those plans under the recognition and measurement provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations, as permitted by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation. No stock-based employee compensation cost was recognized in the Statement of Operations for the year ended September 30, 2006, as all options granted under those plans had an exercise price equal to or greater than the market value of the underlying common stock on the date of grant.

Effective October 1, 2006, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 (R), “Accounting for Stock-Based Compensation” (“SFAS No. 123R”) using the modified prospective transition method. Under that transition method, compensation cost recognized in fiscal 2007 includes: (a) compensation cost for all share-based payments (including stock options) granted prior to, but not yet vested as of October 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, and (b) compensation cost for all share-based payments granted subsequent to October 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R. Results for prior periods have not been restated. Compensation cost is recorded over the stock options’ vesting periods. As a result of adopting SFAS No. 123R, compensation cost recognized in the three and nine months ended June 30, 2007 was $60,000 and $209,000, respectively ($0.01 per share and $0.05 per share, respectively). The following table reflects the effect on net income (loss) and per share data, if the fair value based method had been applied to all outstanding and unvested stock options for the three and nine months ended June 30, 2006.

	Three Months Ended			Nine Months Ended
	June 30,			June 30,
	2006			2006
Net loss, as reported	$	(1,201	)	$	(2,696	)
Add: stock-based employee compensation expense included
in reported net loss		-			-
Deduct: total stock-based employee compensation expense
determined under fair value based method for all awards
		(81	)		(246	)
Proforma net loss	$	(1,282	)	$	(2,942	)
Dividends applicable to preferred stock		(440	)		(1,320	)
Proforma net loss applicable to common and Class B stock	$	(1,722	)	$	(4,262	)
Proforma loss per share:
Basic and diluted-common stock	$	(0.42	)	$	(1.03	)
Basic and diluted-Class B stock	$	(0.42	)	$	(1.03	)

The value of options is estimated using the Black-Scholes method to compute the proforma amounts presented above.

Note 6. Employee Incentive Plans

The Company had previously adopted a 2003 Stock and Bonus Plan (“2003 Plan”) reserving 459,268 shares of Class B Stock and 459,268 shares of common stock. On January 25, 2005, the Board of Directors adopted a new 2005 Stock and Bonus Plan (“2005 Plan”) covering 1,200,000 shares of common stock. The provisions of the 2005 plan are similar to the 2003 Plan, except that no shares of Class B stock are authorized under the 2005 Plan. On November 22, 2005, the Board of Directors amended the 2005 Plan to increase the options available for grant by 1,200,000. Officers and key employees may be granted incentive stock options at an exercise price equal to or greater than the market price on the date of grant and non-incentive stock options at an exercise price equal to, greater than or less than the market price on the date of grant. While individual options can be issued under various provisions, most options, once granted, generally vest in increments of 20% a year over a five-year period and expire within ten years. At June 30, 2007 there were 519,798 options available for future issuance under both plans.

On October 10, 2006, the Stock Option Committee of the Board of Directors granted qualified stock options pursuant to the Corporation’s 2005 Plan to purchase 363,400 shares of Common Stock at 18 cents per share, including grants of 30,000 Plan shares to each of Lee M. Paschall, Aletta Richards and John L. Segall, Directors, William G. Henry, Vice President, Finance and Administration and Principal Financial Officer and George Gray, Vice President, Operations and Chief Technology Officer, and an aggregate of 213,400 of such options to all of its employees other than its officers and directors. The committee also granted to Howard S. Modlin, Chairman and Chief Executive Officer, a stock option under the Plan to purchase 551,121 shares at 20 cents a share. All such options vest in increments of 20% a year over a five year period and expire ten years after grant.

A summary of option activity under the Plans as of June 30, 2007, and changes during the nine months then ended is presented below:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Yrs)		Aggregate Intrinsic Value
Options outstanding, September 30, 2006		1,782,226		$	1.26
Options granted		914,521			0.19
Options exercised		-			-
Options cancelled or expired		(60,580	)		6.56
Options outstanding, June 30, 2007		2,636,167			0.77		8.35	$	0
Vested or expected to vest at June 30, 2007		2,366,452			0.70		8.35		0
Exercisable at June 30, 2007		622,080			1.99		7.64		0

As of June 30, 2007, there was $346,884 of total unrecognized compensation cost related to nonvested options which is expected to be recognized over a weighted-average period of 1.79 years.

The weighted-average grant-date fair value of options granted during the nine months ended June 30, 2007 was $0.19 per share, which was estimated using the Black-Scholes model and the following weighted average assumptions:

Risk-free interest rate	4.54
Volatility (%)	277	%
Expected life (in years)	6.5
Dividend yield rate	Nil

Expected volatility is based on historical volatility in the Company’s stock price over the expected life of the options. The risk-free interest rate is based on the annual yield on the measurement date of a zero coupon U.S. Treasury Bond, the maturity of which equals the options’ expected life. The weighted average expected life of 6.5 years reflects the alternative simplified method permitted by SEC Staff Accounting Bulletin No. 107, which defines the expected life as the average of the contractual term of the options and the weighted average vesting period for all option tranches. The dividend yield assumption is based on the Company’s intent not to issue a dividend.

Note 7. Non-Redeemable 9% Preferred Stock

At June 30, 2007 and September 30, 2006 there were 781,996 of the Company’s 9% Cumulative Convertible Exchangeable Preferred Stock (“9% Preferred Stock”) outstanding. The 9% Preferred Stock accrues dividends at a rate of 9% per annum, cumulative from the date of issuance and payable quarterly in arrears. Dividends were paid through June 20, 2000; dividends in arrears, which are not accrued for financial reporting purposes since they have not been declared by the Company, amounted to $12,316,437 at June 30, 2007 and are included in the liquidation value disclosed in the accompanying balance sheet. Such arrearages entitle the holders of the 9% Preferred Stock to elect two directors until all arrearages are paid, but no such designation has been made or requested. The 9% Preferred Stock can be converted into common stock at $136.50 per share, or the equivalent of .18315 shares of common stock for each share of 9% Preferred Stock.

Note 8. Recent Accounting Pronouncements

In June 2006, the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes,” which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with FASB Statement No. 109, “ Accounting for Income Taxes”. FIN 48 provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact of this standard on the consolidated financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements”. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of this standard on the consolidated financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”, SFAS No. 159 provides an option to report selected financial assets and financial liabilities using fair value. The standard establishes required presentation and disclosures to facilitate comparisons with companies that use different measurements for similar assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, with early adoption allowed only if SFAS No. 157 is also adopted. The Company is currently evaluating the impact of this standard on the consolidated financial statements.

Note 9. Subsequent Event

On July 30, 2007, GDC Naugatuck, Inc., a subsidiary of General DataComm Industries, Inc. obtained mortgage financing in the amount of $4,500,000 from Atlas Partners Mortgage Investors, LLC, secured by the subsidiary’s real estate property where the Company conducts its operations in Naugatuck, Connecticut.

The mortgage requires monthly payment of interest commencing August 1, 2007, at the rate of 30-day LIBOR (currently 5.32%) plus 6%, such rate being established two business days prior to the commencement of each month, and remaining fixed for such month. The mortgage matures on July 31, 2009 at which time the principal amount of $4,500,000 becomes due. The loan does not have any financial covenants.

The proceeds of the mortgage were used to refinance and replace the remaining balance owed on the senior secured debt of Ableco Finance LLC. Pursuant to an amendment to the senior loan agreement with Ableco dated January 17, 2007, Ableco agreed that the Company’s loan obligations would be reduced by $1,500,000 if such loan obligations were repaid in full by December 31, 2007. Therefore, the Company will realize a gain in the amount of $1,500,000 in the quarter and fiscal year ending September 30, 2007. Also as a result of the satisfaction of the Ableco debt, Ableco surrendered contingent warrants to purchase the Company’s common stock that had been provided in the senior loan agreement.

The remaining proceeds will be used primarily to pay real estate taxes, legal and other costs associated with obtaining the mortgage. Two of the Company’s directors, Howard S. Modlin and John Segall, subordinated their mortgage on the property to the mortgage of Atlas.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

THE FOLLOWING DISCUSSION AND ANALYSIS OF THE COMPANY’S FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-QSB AND IN THE COMPANY’S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED SEPTEMBER 30, 2006 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.

THIS REPORT ON FORM 10-QSB CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. FOR THIS PURPOSE, STATEMENTS CONTAINED HEREIN THAT ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE FOREGOING, THE WORDS “BELIEVES”, “ANTICIPATES”, “PLANS”, “EXPECTS” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES AND ARE NOT GUARANTEES OF FUTURE PERFORMANCE. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE INDICATED IN SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH UNDER THE HEADING “RISK FACTORS” BELOW. UNLESS REQUIRED BY LAW, THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS OR REASONS WHY ACTUAL RESULTS MAY DIFFER.

Unless otherwise stated, all references to “Notes” in the following discussion of “Results of Operations” and “Liquidity and Capital Resources” are to the “Notes to Condensed Consolidated Financial Statements” included in Item 1 in this Form 10-QSB.

RESULTS OF OPERATIONS

Revenues

	Three Months Ended June 30,				Nine Months Ended June 30,
(in thousands)	2007		2006		2007		2006

Product	$	2,172	$	2,597	$	7,626	$	9,416
Service		613		608		1,776		1,895
Total Revenues	$	2,785	$	3,205	$	9,402	$	11,311

Revenues for the three months ended June 30, 2007 decreased $420,000, or 13.1%, to $2,785,000 from $3,205,000 reported for the three months ended June 30, 2006. Product revenues decreased $425,000, or 16.4%, while service revenues increased slightly by $5,000.

The Company was awarded a contract to supply its high-end multi-service switches and related services for a network transport system application in Europe. Shipments under this contract accounted for approximately 30% of product revenues in the quarter. Without this order, product revenue would have declined by over $1.0 million from the prior year’s quarter due to reduced demand for the Company’s access products across North American markets. Multi-service switches represented more than 50% of the 2007 quarter’s product revenue.

Service revenue, which is generated primarily from support contracts for multi-service switches and recognized over the term of the contract, increased slightly in the quarter over the prior year.

Revenues for the nine months ended June 30, 2007 decreased $1,909,000, or 16.9%, to $9,402,000 from $11,311,000 reported for the nine months ended June 30, 2006. Product revenues decreased $1,760,000, or 18.7%, while service revenues decreased by $119,000, or 6.3%. Also included in the current nine-month period were shipments generated for the European application mentioned above, representing approximately 25% of the nine-month revenues. These revenues were offset by a reduction of over $3.8 million from the prior year nine-month period due to a large order in fiscal 2006 placed by a distributor for a government application that did not repeat in fiscal 2007, coupled with reduced demand generally for all products across both domestic and international markets.

Service revenue declined in the year-to-year comparison primarily due to project management services provided in the prior year related to the government order.

The Company anticipates that demand for its legacy network access products will continue to decline and due to the “Risk Factors” mentioned below, there can be no assurance that orders for new products and products with enhanced features will increase to offset this decline. Accordingly, the ability to forecast future revenue trends in the current environment is difficult.

Gross Margin

	Three Months Ended June 30,						Nine Months Ended June 30,
(in thousands)	2007			2006			2007			2006
Product	$	1,464		$	1,478		$	4,761		$	5,248
Service		377			396			1,115			1,391
Total Gross Margin	$	1,841		$	1,874		$	5,876		$	6,639
Percentage of Revenues		66.1	%		58.5	%		62.5	%		58.7	%

Gross Margin, as a percentage of revenues, in the three months ended June 30, 2007 was 66.1% as compared to 58.5% in the three months ended June 30, 2006. Product gross margin, as a percentage of product revenues, increased 10.5% due to the favorable impact of selling inventories previously written down (+21.4%), sales of lower-margined products (-7.1%), higher percentage of fixed production costs due to lower production levels (-4.5%) and other items (+0.7%). Service gross margin, as a percentage of service revenues, declined 3.6% due to the impact of higher costs resulting from additional personnel and other strategic investments in the service area.

Gross margin, as a percentage of revenues, in the nine months ended June 30, 2007 was 62.5% as compared to 58.7% in the nine months ended June 30, 2006. Product gross margin, as a percentage of product revenues, increased 6.7% due primarily to the favorable impact of selling inventories previously written down (+7.3%). In addition, favorable product sales mix contributed 0.6% and lower materials costs contributed 0.8% offset by a higher percentage of fixed production costs due to lower production levels (-1.9%) and other items (-0.1%). Service gross margin, as a percentage of service revenues, declined 10.6% due to the impact of lower revenues and higher operating costs resulting from strategic investments in the service area.

In future periods, the Company’s gross margin will vary depending upon a number of factors, including the mix of products sold, the cost of products manufactured at subcontract facilities, the channels of distribution, the price of products sold, discounting practices, price competition, increases in material costs and changes in other components of cost of sales. As and to the extent the Company introduces new products, it is possible that such products may have lower gross profit margins than other established products in higher volume production. Accordingly, gross margin as a percentage of revenues is expected to vary.

Selling, General and Administrative

	Three Months Ended June 30,						Nine Months Ended June 30,
(in thousands)	2007			2006			2007			2006

Selling, general and administrative	$	1,493		$	1,493		$	4,253		$	4,589
Percentage of revenues		53.6	%		46.6	%		45.2	%		40.6	%

Selling, general and administrative (“SG&A”) expenses were the same at $1,493,000, but increased to 53.6% of revenues in the three months ended June 30, 2007 as compared to 46.6% of revenues in the three months ended June 30, 2006 due to the lower revenue level. Lower salesmen’s commission expenses directly related to lower revenue levels ($94,000) and reduced travel by the sales organization ($31,000) was offset by $52,000 of stock compensation expense, $27,000 of additional payroll costs due to new hires in the sales organization, $17,000 due to higher utility rates and other net increases of $29,000.

For the nine months ended June 30, 2007, SG&A expenses decreased to $4,253,000, or 45.2% of revenues from $4,589,000 or 40.6% of revenues in the nine months ended June 30, 2006. The decrease of $336,000 was due to lower professional fees than the prior year when litigation to recover monies was active ($217,000), lower commission expenses directly related to lower revenue levels ($190,000) and reduced travel by the sales organization ($98,000), offset by $158,000 of stock compensation expense and other net increases of $11,000.

Research and Product Development

	Three Months Ended June 30,						Nine Months Ended June 30,
(in thousands)	2007			2006			2007			2006

Research and product development	$	628		$	787		$	1,851		$	2,502
Percentage of revenues		22.5	%		25.2	%		19.7	%		22.1	%

Research and product development (“R&D”) expenses decreased to $628,000, or 22.5% of revenues in the three months ended June 30, 2007 as compared to $787,000 or 25.2% of revenues in the three months ended June 30, 2006. The decrease of $159,000 was due to a reduction in engineering staff ($93,000) and in use of outside consultants ($53,000) as development projects were completed,offset by $7,000 of stock compensation expense. Other net reductions were $20,000.

R&D expenses decreased to $1,851,000, or 19.7% of revenues in the nine months ended June 30, 2007 as compared to $2,502,000 in the nine months ended June 30, 2006. The decrease of $651,000 was due to a reduction in engineering staff ($357,000) and use of outside consultants ($278,000) as development projects were completed,offset by $26,000 of stock compensation expense. Other net reductions were $42,000.

Other Income (Expense)

Interest expense decreased to $727,000 in the three months ended June 30, 2007 from $813,000 in the three months ended June 30, 2006. Interest expense decreased to $2,284,000 in the nine months ended June 30, 2007 from $2,448,000 in the nine months ended June 30, 2006. The lower interest charges resulted from lower debt levels as a result of both principal payments made by the Company and a repurchase of debentures from the Company’s senior lender as part of a debt restructuring. The effect of lower debt levels was offset in part by higher variable interest rates on senior and other secured debt due to increases in the bank prime lending rate.

Other income (expense) of $161,000 for the three months ended June 30, 2007 includes $101,000 resulting from settlement of a Canadian sales tax audit, $21,000 from a settlement with a component supplier, $12,000 from a tradename license, and $27,000 of other net items. For the three months ended June 30, 2006, other income (expense) of $21,000 included $12,000 received from a tradename license and $9,000 of other net items.

Other items included in other income (expense) for the nine months ended June 30, 2007 and 2006 totaled $4,327,000 and $213,000 respectively. The 2007 amount includes $4,062,000 from restructuring of debt with the Company’s Senior lender (as described more fully in Note 4 to the Condensed Consolidated Financial Statements), $101,000 resulting from settlement of a Canadian sales tax audit, $62,000 received from a tradename license, $46,000 in sales of components no longer used, $21,000 from a settlement with a component supplier and $35,000 of other net items. The 2006 amount includes $389,000 of loss from extinguishment of debt offset by $425,000 from the recovery of a lease receivable, $85,000 in sales of components no longer used, $46,000 received from a tradename license and other net items totaling $46,000.

Provision for Income Taxes

Income tax provisions for each of the three and nine months ended June 30, 2007 and 2006 reflect current state tax provisions and adjustments only. No federal income tax provisions or tax benefits were provided in the three or nine months ended June 30, 2007 and 2006 due to the reduction in 2007 and increase in 2006 of the valuation allowance provided against the net change in deferred tax assets. The Company established a full valuation allowance against its net deferred tax assets due to the uncertainty of realization of benefits of the net operating loss carryforwards from prior years. The Company has federal tax credit and net operating loss carryforwards of approximately $11.9 million and $214.2 million, respectively, as of September 30, 2006.

Liquidity and Capital Resources

	June 30,			September 30,
(in thousands)	2007			2006

Cash and cash equivalents	$	522		$	246
Working capital (deficit)		(5,434	)		(39,032	)
Total assets		8,950			9,850
Long-term debt, including current portion		26,329			29,051
Total liabilities		42,516			45,448

	Nine Months Ended June 30,
(in thousands)	2007			2006

Net cash provided (used) by:
Operating activities	$	790		$	1,001
Investing activities		(10	)		(75	)
Financing activities		(504	)		(1,378	)

Note: Significant risk factors exist due to the Company’s limited financial resources and dependence on achieving future positive cash flows in order to satisfy its obligations and avoid a default under its loan and debenture obligations. See “Risk Factors” below for further discussion.

Cash Flows

Net cash provided by operating activities totaled $790,000 in the nine months ended June 30, 2007. The net income in the period was $1,815,000. Included in this net income were a non-cash gain of $4,062,000 resulting from an amendment of the Company’s senior loan agreement, and non-cash expenses for depreciation and amortization of $275,000 and stock compensation expense of $209,000. A decrease in accounts receivable due to customers collections being higher than new sales levels resulted in a source of cash of $1,056,000. Inventories were higher and resulted in a use of cash of $377,000 as the Company was preparing to ship a large international order. Unpaid interest which accrued on the Company’s debt increased $1,667,000 as a source of cash. The Company received the proceeds of a prior year legal settlement ($213,000), a final settlement of claims in a subsidiary liquidation ($137,000) and a final settlement of a Canadian sales tax audit ($10l,000). The Company paid the third of six installments of prior year tax claims in the amount of $223,000. All other changes net to a use of funds of $21,000.

Net cash provided by operating activities totaled $1,001,000 in the nine months ended June 30, 2006. The net loss in the period was $2,696,000. Included in this net loss were non-cash expenses for loss on extinguishment of debt of $389,000 and for depreciation and amortization of $286,000. An increase in accounts receivable due to new sales levels being higher than customers collections resulted in a use of cash of $142,000. Inventories were lower by $623,000 as the Company was able to achieve shipments of on-hand inventories to satisfy new customer orders and generate a source of cash through reduced purchasing. Other sources of cash include interest which accrued on the Company’s debt which increased $1,785,000 and an increase in unpaid vendor liabilities. Other net sources of cash were $125,000.

Net cash used by investing activities in the nine months ended June 30, 2007 and 2006 was $10,000 and $75,000, respectively, representing the acquisition of equipment.

Cash used by financing activities of $504,000 in the 2007 nine-month period is comprised of payments on notes payable of $152,000 and on secured debt of $844,000, offset in part by proceeds from notes payable to related parties of $270,000 and proceeds from other notes payable of $222,000.

Cash used by financing activities of $1,378,000 in the 2006 nine-month period is comprised of payments on notes payable of $189,000 and on secured debt of $1,742,000 offset in part by proceeds from notes payable to related parties of $250,000 and from other notes payable of $303,000.

Liquidity

At June 30, 2007 the Company had a stockholders’ deficit of approximately $33.6 million. In addition, it had a working capital deficit of approximately $5.4 million, and the Company’s principal source of liquidity was cash and cash equivalents of $522,000. The Company’s quarterly operating results are subject to fluctuations due to a number of factors resulting in more variability and less predictability in the Company’s quarter-to-quarter sales and operating results. Such factors include (but are not limited to): dependence on a small number of customers, short delivery times, dependence on subcontract manufacturers, low order backlog, ability to timely develop new products and market acceptance of new products. Because operating results can fluctuate significantly the Company may not be able to generate positive cash flow from operations in the future. Should the need arise, it may become necessary to borrow additional funds or otherwise raise additional capital. However, since the Company does not have any source of additional funds or capital in place, any such requirement could have a material adverse effect on the Company. As of September 30, 2006, as a result of not making certain required principal payments on its Term Obligation, the Company was in default under its senior loan agreement and accordingly, all long-term debt and related accrued interest were classified as current liabilities at such date.

Management has responded to its liquidity and cash flow risks by first amending and later replacing its senior debt. In January 2007, the Company’s senior loan agreement was amended to provide for, among other items, a waiver of the payment default mentioned above (See Note 4). Thereafter, on July 30, 2007, the senior debt was paid off and replaced by a mortgage financing on the Naugatuck, CT property. Such mortgage financing requires payments of interest (only) and contains no financial covenants (See Note 9). In addition, management has implemented operational changes: restructuring the sales force, increasing factory shutdown time, containing expenses, and reducing the size of the employee workforce. The Company also continues to pursue the sale or lease of its headquarters land and building in Naugatuck, CT. While the Company is aggressively pursuing opportunities and corrective actions, there can be no assurance that the Company will be successful in its efforts to generate sufficient cash from operations or obtain additional funding sources or sell the Naugatuck property.

Critical Accounting Policies

The Company’s financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States, the instructions to Form 10-QSB and Article 10 of Regulation S-X. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Management bases its estimates and judgements on historical experience and on various other factors that are believed to be reasonable under the circumstances. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods might be based upon amounts that differ from those estimates. The following represent what the Company believes are among the critical accounting policies most affected by significant management estimates and judgements. See Note 2 in Notes to Consolidated Financial Statements in Item 7 in Form 10-KSB for the year ended September 30, 2006 as filed with the Securities and Exchange Commission for a summary of the Company’s significant accounting policies.

Revenue Recognition. The Company recognizes a sale when the product is shipped and the following four criteria are met upon shipment: (1) persuasive evidence of an arrangement exists; (2) title and risk of loss transfers to the customer; (3) the selling price is fixed or determinable; and (4) collectibility is reasonably assured. A reserve for future product returns is established at the time of the sale based on historical return rates and return policies including stock rotation for sales to distributors that stock the Company’s products. Service revenue is recognized either when the service is performed or, in the case of maintenance contracts, on a straight-line basis over the term of the contract.

Warranty Reserves. The Company offers warranties of various lengths to its customers depending on the specific product and the terms of its customer purchase agreements. Standard warranties require the Company to repair or replace defective product returned during the warranty period at no cost to the customer. An estimate for warranty related costs is recorded based on actual historical return rates and repair costs at the time of sale. On an on-going basis, management reviews these estimates against actual expenses and makes adjustments when necessary. While warranty costs have historically been within expectations of the provision established, there is no guarantee that the Company will continue to experience the same warranty return rates or repair costs as in the past. A significant increase in product return rates or the costs to repair our products would have a material adverse impact on the Company’s operating results.

Allowance for Doubtful Accounts. The Company estimates losses resulting from the inability of its customers to make payments for amounts billed. The collectability of outstanding invoices is continually assessed. Assumptions are made regarding the customers ability and intent to pay, and are based on historical trends, general economic conditions and current customer data. Should our actual experience with respect to collections differ from these assessments, there could be adjustments to the allowance for doubtful accounts.

Inventories. The Company values inventory at the lower of cost or market. Cost is computed using standard cost, which approximates actual cost on a first-in, first-out basis. Agreements with certain customers provide for return rights. The Company is able to reasonably estimate these returns and such estimates are accrued for at the time of shipment. Inventory quantities on hand are reviewed on a quarterly basis and a provision for excess and obsolete inventory is recorded based primarily on product demand for the preceding twelve months. Historical product demand may prove to be an inaccurate indicator of future demand in which case the Company may increase or decrease the provision required for excess and obsolete inventory in future periods. Furthermore, if the Company is able to sell inventory in the future that has been previously written down or off, such sales will result in higher than normal gross margin.

Deferred Tax Assets. The Company has provided a full valuation allowance related to its deferred tax assets. In the future, if sufficient evidence of the Company’s ability to generate sufficient future taxable income in certain tax jurisdictions becomes apparent, the Company will be required to reduce its valuation allowances, resulting in income tax benefits in the Company’s consolidated statement of operations. Management evaluates the realizability of the deferred tax assets and assesses the need for the valuation allowance each period.

Impairment of Long-Lived Assets. The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable under the guidance prescribed by Statement of Financial Accounting Standards No. 144. The Company's long-lived assets consist of real estate, property and equipment. At both June 30, 2007 and September 30, 2006, real estate represented the only significant remaining long-lived asset that has not been fully written down for impairment.

Recent Accounting Pronouncements

RISK FACTORS

GDC Limited and Negative Operating History Since Emerging from Bankruptcy. The Company emerged from Bankruptcy on September 15, 2003. The Company had voluntarily filed for protection under Chapter 11 of the US Bankruptcy Code on November 2, 2001, after incurring seven consecutive years of losses and selling three of its four operating divisions in 2001. Accordingly, an investor in the Company’s common stock must evaluate the risks, uncertainties, and difficulties frequently encountered by a company emerging from Chapter 11 and that operates in rapidly evolving markets such as the telecommunications equipment industry.

Due to the Company’s limited and negative operating history and poor performance since emergence, the Company may not successfully implement any of its strategies or successfully address these risks and uncertainties. As described by the following factors, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.

Limited Financial Resources and Risk of Default. The Company has no current banking arrangement under which it may borrow additional funds. It must, therefore, substantially fund operations from cash balances and cash generated from operating activities. The Company has significant outstanding obligations and commitments (see Item 6 in the Company’s annual report on Form 10-KSB for the year ended September 30, 2006 as filed with the Securities and Exchange Commission, in the section on “Liquidity” for additional discussion of this risk factor and the Company’s contractual cash obligations as of September 30, 2006). Furthermore, the ability of the Company to meet cash flow and loan payment requirements is directly affected by the factors described in this “Risk Factors” section.

The Company’s failure to make required payments under its mortgage in effect at July 30, 2007 would constitute an event of default. (See Notes 4 and 9 to Notes to Condensed Consolidated Financial Statements included in Item 1 in this Form 10-QSB).

There can be no assurance that the Company will be able to avoid an event of default on its mortgage agreement. If there is such a default, the mortgage lender may accelerate payment of the outstanding debt ($4.5 million at July 30, 2007) and exercise its security interests which likely would require the Company to again file for bankruptcy protection. An acceleration by the mortgage lender would also result in a default and acceleration by the debenture holders ($19.4 million principal balance outstanding at June 30, 2007).

Dependence on Legacy and Recently Introduced Products and New Product Development. The Company’s future results of operations are dependent on market acceptance of existing and future applications for the Company’s current products and new products in development. The majority of sales continue to be provided by the Company’s legacy products, primarily the DSU/CSU, V.34 lines which represented approximately 44% of net sales in fiscal 2006. The Company anticipates that net sales from legacy products will decline over the next several years and net sales of new products will increase at the same time, with significant quarterly fluctuations possible, and without assurance that sales of new products will increase at the same time.

Market acceptance of the Company’s recently introduced and future product lines is dependent on a number of factors, not all of which are in the Company’s control, including the continued growth in the use of bandwidth intensive applications, continued deployment of new telecommunication services, market acceptance of multiservice access devices, the availability and price of competing products and technologies, and the success of the Company’s sales and marketing efforts. Failure of the Company’s products to achieve market acceptance would have a material adverse effect on the Company’s business, financial condition and results of operations. Failure to introduce new products in a timely manner in order to replace sales of legacy products could cause customers to purchase products from competitors and have a material adverse effect on the Company’s business, financial condition and results of operations.

New products under development may require additional development work, enhancement and testing or further refinement before the Company can make them commercially available. The Company has in the past experienced delays in the introduction of new products, product applications and enhancements due to a variety of internal factors, such as reallocation of priorities, financial constraints, difficulty in hiring sufficient qualified personnel, and unforeseen technical obstacles, as well as changes in customer requirements. Such delays have deferred the receipt of revenue from the products involved. If the Company’s products have performance, reliability or quality shortcomings, then the Company may experience reduced orders, higher manufacturing costs, delays in collecting accounts receivable, and additional warranty and service expenses.

Customer Concentration. Our historical customers have consisted primarily of Regional Bell Operating Companies, long distance service providers, wireless service providers, and resellers who sell to these customers. The market for the services provided by the majority of these service providers has been influenced largely by the passage and interpretation of the Telecommunications Act of 1996 (the “1996 Act”). Service providers require substantial capital for the development, construction, and expansion of their networks and the introduction of their services. The ability of service providers to fund such expenditures often depends on their ability to budget or obtain sufficient capital resources. Over the past several years, resources made available by these customers for capital acquisitions have declined, particularly due to recent negative market conditions in the United States. If the Company’s current or potential service provider customers cannot successfully raise the necessary funds, or if they experience any other adverse effects with respect to their operating results or profitability, their capital spending programs may be adversely impacted which could materially adversely affect the Company’s business, financial condition and results of operations.

A small number of customers have historically accounted for a majority of the Company’s sales. Sales to the Company’s top five customers accounted for 45% and 55% of sales in fiscal 2006 and 2005, respectively. In the quarter ended June 30, 2007, one customer represented over 50% of the quarter’s revenue. There can be no assurance that the Company’s current customers will continue to place orders with the Company, that orders by existing customers will continue at the levels of previous periods, or that the Company will be able to obtain orders from new customers. GDC expects the economic climate and conditions in the telecommunication equipment industry to remain unpredictable in fiscal 2007, and possibly beyond. The loss of one or more service provider customers, such as occurred during the past three years through industry consolidation or otherwise, could have a material adverse effect on our sales and operating results. A bankruptcy filing by one or more of the Company’s major customers could materially adversely affect the Company’s business, financial condition and results of operations.

Dependence on Key Personnel. The Company’s future success will depend to a large extent on the continued contributions of its executive officers and key management, sales, and technical personnel. Each of the Company’s executive officers, and key management, sales and technical personnel would be difficult to replace. The Company does not have employment contracts with its key employees. The Company implemented significant cost and staff reductions in recent years, which may make it more difficult to attract and retain key personnel. The loss of the services of one or more of the Company’s executive officers or key personnel, or the inability to attract qualified personnel, could delay product development cycles or otherwise could have a material adverse effect on the Company’s business, financial condition and results of operations.

Dependence on Key Suppliers and Component Availability. The Company generally relies upon several contract manufacturers to assemble finished and semi-finished goods. The Company’s products use certain components, such as microprocessors, memory chips and pre-formed enclosures that are acquired or available from one or a limited number of sources. Component parts that are incorporated into board assemblies are sourced directly by the Company from suppliers. The Company has generally been able to procure adequate supplies of these components in a timely manner from existing sources.

While most components are standard items, certain application-specific integrated circuit chips used in many of the Company’s products are customized to the Company’s specifications. None of the suppliers of components operate under contract. Additionally, availability of some standard components may be affected by market shortages and allocations. The Company’s inability to obtain a sufficient quantity of components when required, or to develop alternative sources due to lack of availability or degradation of quality, at acceptable prices and within a reasonable time, could result in delays or reductions in product shipments which could materially affect the Company’s operating results in any given period. In addition, as referenced above the Company relies heavily on outsourcing subcontractors for production. The inability of such subcontractors to deliver products in a timely fashion or in accordance with the Company’s quality standards could materially adversely affect the Company’s operating results and business.

The Company uses internal forecasts to manage its general finished goods and components requirements. Lead times for materials and components may vary significantly, and depend on factors such as specific supplier performance, contract terms, and general market demand for components. If orders vary from forecasts, the Company may experience excess or inadequate inventory of certain materials and components, and suppliers may demand longer lead times and higher prices. From time to time, the Company has experienced shortages and allocations of certain components, resulting in delays in fulfillment of customer orders. Such shortages and allocations may occur in the future, and could have a material adverse effect on the Company’s business, financial condition and results of operations.

Fluctuations in Quarterly Operating Results. The Company’s sales are subject to quarterly and annual fluctuations due to a number of factors resulting in more variability and less predictability in the Company’s quarter-to-quarter sales and operating results. As a small number of customers have historically accounted for a majority of the Company’s sales, order volatility by any of these major customers has had and may have an impact on the Company in the prior, current and future fiscal years.

Most of the Company’s sales require short delivery times. The Company’s ability to affect and judge the timing of individual customer orders is limited. Large fluctuations in sales from quarter-to-quarter could be due to a wide variety of factors, such as delay, cancellation or acceleration of customer projects, and other factors discussed below. The Company’s sales for a given quarter may depend to a significant degree upon planned product shipments to a single customer, often related to specific equipment or service deployment projects. The Company has experienced both acceleration and slowdown in orders related to such projects, causing changes in the sales level of a given quarter relative to both the preceding and subsequent quarters.

Delays or lost sales can be caused by the Company’s lack of financial resources to procure components and pay subcontractors, or by other factors beyond the Company’s control, including late deliveries by the third party subcontractors the Company is using to outsource its manufacturing operations and by vendors of components used in a customer’s products, slower than anticipated growth in demand for the Company’s products for specific projects or delays in implementation of projects by customers and delays in obtaining regulatory approvals for new services and products. Delays and lost sales have occurred in the past and may occur in the future. The Company believes that sales in the past have been adversely impacted by merger and restructuring activities by some of its top customers. These and similar delays or lost sales could materially adversely affect the Company’s business, financial condition and results of operations. See “Customer Concentration” and “Dependence on Key Suppliers and Component Availability”.

The Company’s backlog at the beginning of each quarter typically is not sufficient to achieve expected sales for that quarter. To achieve its sales objectives, the Company is dependent upon obtaining orders in a quarter for shipment in that quarter. Furthermore, the Company’s agreements with certain of its customers typically provide that they may change delivery schedules and cancel orders within specified timeframes, typically up to 30 days prior to the scheduled shipment date, without significant penalty. Some of the Company’s customers have in the past built, and may in the future build, significant inventory in order to facilitate more rapid deployment of anticipated major projects or for other reasons. Decisions by such customers to reduce their inventory levels could lead to reductions in purchases from the Company in certain periods. These reductions, in turn, could cause fluctuations in the Company’s operating results and could have an adverse effect on the Company’s business, financial condition and results of operations in the periods in which the inventory is reduced.

Operating results may also fluctuate due to a variety of factors, including market acceptance of the Company’s new lines of products, delays in new product introductions by the Company, market acceptance of new products and feature enhancements introduced by the Company, changes in the mix of products and or customers, the gain or loss of a significant customer, competitive price pressures, changes in expenses related to operations, research and development and marketing associated with existing and new products, and the general condition of the economy.

All of the above factors are difficult for the Company to forecast, and these or other factors can materially and adversely affect the Company’s business, financial condition and results of operations for one quarter or a series of quarters. The Company’s expense levels are based in part on its expectations regarding future sales and are fixed in the short term to a certain extent. Therefore, the Company may be unable to adjust spending in a timely manner to compensate for any unexpected shortfall in sales. Any significant decline in demand relative to the Company’s expectations or any material delay of customer orders could have a material adverse effect on the Company’s business, financial condition, and results of operations. There can be no assurance that the Company will be able to sustain profitability on a quarterly or annual basis. In addition, the Company has had, and in some future quarter may have operating results below the expectations of public market analysts and investors. In such event, the price of the Company’s common stock would likely be materially and adversely affected. See “Potential Volatility of Stock Price”.

Competition. The markets for telecommunications network access and multi-service equipment addressed by the Company’s products can be characterized as highly competitive, with intensive equipment price pressure. These markets are subject to rapid technological change, wide-ranging regulatory requirements, the entrance of low cost manufacturers and the presence of formidable competitors that have greater name recognition and financial resources. Certain technology such as the V.34 and DSU/CSU portion of the SpectraComm and InnovX lines are not considered new and the market has experienced decline in recent years.

Industry consolidation could lead to competition with fewer, but stronger competitors. In addition, advanced termination products are emerging, which represent both new market opportunities, as well as a threat to the Company’s current products. Furthermore, basic line termination functions are increasingly being integrated by competitors, such as Cisco, Alcatel-Lucent and Nortel Networks, into other equipment such as routers and switches. To the extent that current or potential competitors can expand their current offerings to include products that have functionality similar to the Company’s products and planned products, the Company’s business, financial condition and results of operations could be materially adversely affected. Many of the Company’s current and potential competitors have substantially greater technical, financial, manufacturing and marketing resources than the Company. In addition, many of the Company’s competitors have long-established relationships with network service providers. There can be no assurance that the Company will have the financial resources, technical expertise, manufacturing, marketing, distribution and support capabilities to compete successfully in the future.

Rapid Technological Change. The network access and telecommunications equipment markets are characterized by rapidly changing technologies and frequent new product introductions. The rapid development of new technologies increases the risk that current or new competitors could develop products that would reduce the competitiveness of the Company’s products. The Company’s success will depend to a substantial degree upon its ability to respond to changes in technology and customer requirements. This will require the timely selection, development and marketing of new products and enhancements on a cost-effective basis. The development of new, technologically advanced products is a complex and uncertain process, requiring high levels of innovation. The Company may need to supplement its internal expertise and resources with specialized expertise or intellectual property from third parties to develop new products.

Furthermore, the communications industry is characterized by the need to design products that meet industry standards for safety, emissions and network interconnection. With new and emerging technologies and service offerings from network service providers, such standards are often changing or unavailable. As a result, there is a potential for product development delays due to the need for compliance with new or modified standards. The introduction of new and enhanced products also requires that the Company manage transitions from older products in order to minimize disruptions in customer orders, avoid excess inventory of old products and ensure that adequate supplies of new products can be delivered to meet customer orders. There can be no assurance that the Company will be successful in developing, introducing or managing the transition to new or enhanced products, or that any such products will be responsive to technological changes or will gain market acceptance. The Company’s business, financial condition and results of operations would be materially adversely affected if the Company were to be unsuccessful, or to incur significant delays in developing and introducing such new products or enhancements. See “Dependence on Legacy and Recently Introduced Products and New Product Development”.

Compliance with Regulations and Evolving Industry Standards. The market for the Company’s products is characterized by the need to meet a significant number of communications regulations and standards, some of which are evolving as new technologies are deployed. In the United States, the Company’s products must comply with various regulations defined by the Federal Communications Commission and standards established by Underwriters Laboratories and Bell Communications Research and certain new products introduced, for example in the SpectraComm line, will need to be NEBS Certified. As standards continue to evolve, the Company will be required to modify its products or develop and support new versions of its products. The failure of the Company’s products to comply, or delays in compliance, with the various existing and evolving industry standards, could delay introduction of the Company’s products, which could have a material adverse effect on the Company’s business, financial condition and results of operations.

GDC May Require Additional Funding to Sustain Operations. The Company emerged from Chapter 11 bankruptcy on September 15, 2003. Under the plan of reorganization, the Company was to pay all creditors 100% of their allowed claims based upon a five year business plan. However, the Company has not met its business plan objectives since emerging from Chapter 11. The ability to meet the objectives of this business plan is directly affected by the factors described in this “Risk Factors” section. The Company cannot assure investors that it will be able to obtain new customers or to generate the increased revenues required to meet its business plan objectives. In addition, in order to execute the business plan, the Company may need to seek additional funding through public or private equity offerings, debt financings or commercial partners. The Company cannot assure investors that it will obtain funding on acceptable terms, if at all. If the Company is unable to generate sufficient revenues or access capital on acceptable terms, it may be required to (a) obtain funds on unfavorable terms that may require the Company to relinquish rights to certain of our technologies or that would significantly dilute our stockholders and/or (b) significantly scale back current operations. Either of these two possibilities would have a material adverse effect on the Company’s business, financial condition and results of operations.

Risks Associated with Entry into International Markets. The Company has little recent experience in international markets with the exception of a few direct customers and resellers/integrators and sales into Western Europe through the former Ahead Communications Systems’ subsidiary in France (now General DataComm SARL), which was acquired by the Company on June 30, 2005. The Company intends to expand sales of its products outside of North America and to enter certain international markets, which will require significant management attention and financial resources. Conducting business outside of North America is subject to certain risks, including longer payment cycles, unexpected changes in regulatory requirements and tariffs, difficulty in supporting foreign customers, greater difficulty in accounts receivable collection and potentially adverse tax consequences. To the extent any Company sales are denominated in foreign currency, the Company’s sales and results of operations may also be directly affected by fluctuation in foreign currency exchange rates. In order to sell its products internationally, the Company must meet standards established by telecommunications authorities in various countries, as well as recommendations of the Consultative Committee on International Telegraph and Telephone. A delay in obtaining, or the failure to obtain, certification of its products in countries outside the United States, could delay or preclude the Company’s marketing and sales efforts in such countries, which could have a material adverse effect on the Company’s business, financial condition and results of operations.

Risk of Third Party Claims of Infringement. The network access and telecommunications equipment industries are characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement. From time to time, third parties may assert exclusive patent, copyright, trademark and other intellectual property rights to technologies that are important to the Company. The Company has not conducted a formal patent search relating to the technology used in its products, due in part to the high cost and limited benefits of a formal search. In addition, since patent applications in the United States are not publicly disclosed until the related patent is issued and foreign patent applications generally are not publicly disclosed for at least a portion of the time that they are pending, applications may have been filed which, if issued as patents, could relate to the Company’s products. Software comprises a substantial portion of the technology in the Company’s products. The scope of protection accorded to patents covering software-related inventions is evolving and is subject to a degree of uncertainty which may increase the risk and cost to the Company if the Company discovers third party patents related to its software products or if such patents are asserted against the Company in the future.

The Company may receive communications from third parties asserting that the Company’s products infringe or may infringe the proprietary rights of third parties. In its distribution agreements, the Company typically agrees to indemnify its customers for any expenses or liabilities resulting from claimed infringements of patents, trademarks or copyrights of third parties. In the event of litigation to determine the validity of any third-party claims, such litigation, whether or not determined in favor of the Company, could result in significant expense to the Company and divert the efforts of the Company’s technical and management personnel from productive tasks. In the event of an adverse ruling in such litigation, the Company might be required to discontinue the use and sale of infringing products, expend significant resources to develop non-infringing technology or obtain licenses from third parties. There can be no assurance that licenses from third parties would be available on acceptable terms, if at all. In the event of a successful claim against the Company and the failure of the Company to develop or license a substitute technology, the Company’s business, financial condition, and results of operations could be materially adversely affected.

Limited Protection of Intellectual Property. The Company relies upon a combination of patent, trade secret, copyright, and trademark laws and contractual restrictions to establish and protect proprietary rights in its products and technologies. The Company has been issued certain U.S. and Canadian patents with respect to certain products. There can be no assurance that third parties have not or will not develop equivalent technologies or products without infringing the Company’s patents or that a court having jurisdiction over a dispute involving such patents would hold the Company’s patents valid, enforceable and infringed. The Company also typically enters into confidentiality and invention assignment agreements with its employees and independent contractors, and non-disclosure agreements with its suppliers, distributors and appropriate customers so as to limit access to and disclosure of its proprietary information. There can be no assurance that these statutory and contractual arrangements will deter misappropriation of the Company’s technologies or discourage independent third-party development of similar technologies. In the event such arrangements are insufficient, the Company’s business, financial condition and results of operations could be materially adversely affected. The laws of certain foreign countries in which the Company’s products are or may be developed, manufactured or sold may not protect the Company’s products or intellectual property rights to the same extent as do the laws of the United States and thus, make the possibility of misappropriation of the Company’s technology and products more likely.

Potential Volatility of Stock Price. The trading price of the Company’s common stock may be subject to wide fluctuations in response to quarter-to-quarter variations in operating results, announcements of technological innovations or new products by the Company or its competitors, developments with respect to patents or proprietary rights, general conditions in the telecommunication network access and equipment industries, changes in earnings estimates by analysts, or other events or factors. In addition, the stock market has experienced extreme price and volume fluctuations, which have particularly affected the market prices of many technology companies and which have often been unrelated to the operating performance of such companies. Company-specific factors or broad market fluctuations may materially adversely affect the market price of the Company’s common stock. The Company has experienced significant fluctuations in its stock price and share trading volume in the past and may continue to do so.

The Company is Controlled by a Small Number of Stockholders and Certain Creditors. Mr. Howard Modlin, Chairman of the Board and Chief Executive Officer, and President of Weisman Celler Spett & Modlin, P.C., legal counsel for the Company, owns approximately 70% of the Company’s outstanding shares of Class B stock and has stock options and warrants that would allow him to acquire approximately 54% of the Company’s common stock. Furthermore, Mr. Modlin is also trustee for the benefit of the children of Mr. Charles P. Johnson, the former Chairman of the Board and Chief Executive Officer, and such trust holds approximately 12% of the outstanding shares of Class B stock. Class B stock under certain circumstances has 10 votes per share in the election of Directors. The Board of Directors is to consist of no less than three and no more than thirteen directors, one of which was designated by the Creditors Committee (and thereafter may be designated by the Trustee). The holders of the 9% Preferred Stock are presently entitled to designate two directors until all arrears on the dividends on such 9% Preferred Stock are paid in full. After all obligations under the loan agreement with Ableco are satisfied in full, in the event of a payment default under the Debentures which is not cured within 60 days after written notice, the Trustee shall be entitled to select a majority of the Board of Directors. Accordingly, in absence of a payment default under the Debenture, Mr. Modlin may be able to elect all members of the Board of Directors not designated by the holders of the 9% Preferred Stock and the Trustee and determine the outcome of certain corporate actions requiring stockholder approval, such as mergers and acquisitions of the Company. This level of ownership by such persons and entities could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of the Company. Such provisions could limit the price that certain investors might be willing to pay in the future for shares of Company’s common stock, thereby making it less likely that a stockholder will receive a premium in any sales of shares. To date, the holders of the 9% Preferred Stock have not designated any directors.

ITEM 3. CONTROLS AND PROCEDURES

For the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chairman and Chief Executive Officer, and Vice President and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Company’s President and Chief Executive Officer, and Vice President and Chief Financial Officer, have concluded that the Company’s disclosure controls and procedures are effective to ensure the information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There have been no significant changes in the Company’s internal controls over financial reporting that occurred during the period covered by this quarterly report on Form 10-QSB that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Payment of dividends on the 9% Cumulative Convertible Exchangeable Preferred Stock were suspended June 30, 2000. Such dividend arrearages total $12,316,437.00 as of June 30, 2007.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

(a) Exhibits Index:

Exhibit Number		Description of Exhibit

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934.

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934

32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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.

August 15, 2007		/s/ William G. Henry
		William G. Henry Vice President, Finance and Administration Chief Financial Officer


Date: August 15, 2007		/s/ Howard S. Modlin
		Howard S. Modlin Chairman of the Board, President and Chief Executive Officer


Date: August 15, 2007		/s/ William G. Henry
		William G. Henry Vice President, Finance and Administration Chief Financial Officer


Date: August 15, 2007		/s/ Howard S. Modlin
		Howard S. Modlin, Chairman of the Board, President and Chief Executive Officer