PART I Page #s ------ ------- Item 1. Description of Business...........................................................3 Risk Factors.....................................................................11 Item 2. Properties.......................................................................19 Item 3. Legal Proceedings................................................................19 Item 4. Submission of Matters to a Vote of Security Holders..............................19 PART II ------- Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities........................................19 Item 6. Selected Financial Data..........................................................20 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................22 Item 7A. Quantitative and Qualitative Disclosures about Market Risk .....................33 Item 8. Financial Statements and Supplementary Data......................................34 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.........................................................60 Item 9A. Controls and Procedures..........................................................60 Item 9B. Other Information ...............................................................60 PART III -------- Item 10. Directors and Executive Officers of the Registrant...............................60 Item 11. Executive Compensation...........................................................62 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters......................................................65 Item 13. Certain Relationships and Related Transactions...................................69 Item 14. Principal Accounting Fees and Services..........................................70 PART IV ------- Item 15. Exhibits and Financial Statement Schedules......................................70UNITED STATES

~~(In~~SECURITIES AND ~~thousands~~EXCHANGE except share data) Years ended September 30, 2004 2003 2002 2001 2000 ------------------------- ---- ---- ---- ---- ---- Revenues: Net sales $ 15,381 $ 23,905 $ 27,681 $ 59,874 $ 114,941 Service revenue -- -- -- 33,438 48,807 ----------------------------------------------------------------------- 15,381 23,905 27,681 93,312 163,748 Cost of revenues: Cost of product sales 6,801 10,968 15,178 59,391 73,589 Cost of service revenue -- -- -- 29,108 36,140 ----------------------------------------------------------------------- 6,801 10,968 15,178 88,499 109,729 Gross margin 8,580 12,937 12,503 4,813 54,019 Operating expenses: Selling, general and administrative 6,016 8,744 7,721 35,873 56,935 Research and product development 2,739 3,082 3,600 11,964 20,490 Impairment and restructuring charges -- -- (446) 39,583 2,000 ----------------------------------------------------------------------- 8,755 11,826 10,875 87,420 79,425 Operating income (loss) (175) 1,111 1,628 (82,607) (25,406) Other income (expense): Interest expense (contractual interest of $4,097 in 2003 and $5,097 in 2002) (3,524) (4,213) (3,399) (8,912) (8,660) Other financial expenses -- (2,202) -- -- -- Gain on early extinguishment of mortgage debt -- -- 1,967 -- -- Gain on sale of multimedia division -- -- -- 2,863 -- Gain on sale of service division -- -- -- 11,289 -- Debt conversion expense -- -- -- -- (2,403) Gain on sale of real estate -- 329 919 -- -- Gain on legal settlements -- 7,182 -- 5,000 -- Other, net 208 177 342 (475) 573 ----------------------------------------------------------------------- (3,316) 1,273 (171) 9,765 (10,490) Income (loss) from continuing operations before reorganization items and income taxes (3,491) 2,384 1,457 (72,842) (35,896) ----------------------------------------------------------------------- Reorganization items: Professional fees -- (3,462) (3,032) -- -- Claims adjustments 2,118 429 495 -- -- Gain on debt restructuring -- 5,283 -- -- -- ----------------------------------------------------------------------- 2,118 2,250 (2,537) -- -- Income (loss) from continuing operations before income taxes (1,373) 4,634 (1,080) (72,842) (35,896) Income tax provision 23 10 10 100 1,800 ----------------------------------------------------------------------- Income (loss) from continuing operations (1,396) 4,624 (1,090) (72,942) (37,696) Income (loss) from discontinued operations, net of income taxes -- -- -- (592) 757 ----------------------------------------------------------------------- Net income (loss) (1,396) $ 4,624 $ (1,090) $ (73,534) (36,939) Dividends applicable to preferred stock (1,780) (1,910) (1,914) (1,990) (1,343) ======================================================================= Net income (loss) applicable to common and Class B stock $ (3,176) $ 2,714 $ (3,004) $ (75,524) $ (38,282) ======================================================================= Basic and diluted earnings (loss) per share: From continuing operations $ (0.80) $ 0.80 $ (0.89) $ (23.73) $ (15.40) From discontinued operations -- -- -- (0.19) 0.30 ======================================================================= Total $ (0.80) $ 0.80 $ (0.89) $ (23.92) $ (15.10) ======================================================================= Average number of common and Class B shares outstanding, basic and diluted 3,966,259 3,401,295 $ 3,380,474 3,157,864 2,540,000 =======================================================================COMMISSION

~~2004 2003 2002 2001 2000 ---- ---- ---- ---- ---- Balance Sheet and Other Data: ----------------------------- Unrestricted Cash and Cash Equivalents $ 586 $ 2~~Washington,113 $ 3,235 $ 766 $ 3,572 Total Current Assets 7,059 11,626 16,428 29,509 70,753 Total Current Liabilities 47,997 13,227 66,026 86,234 100,512 Working Capital (Deficit) (40,938) (1,601) (49,598) (56,725) (29,759) Total Assets 11,264 15,939 22,688 43,986 133,083 Long-term Debt, including current portion 37,281 39,817 30,986 48,964 54,982 Total Liabilities 49,298 52,698 66,026 86,234 106,920 Redeemable 5% Preferred Stock -- 1,825 2,825 2,875 5,000 Stockholders' Equity (Deficit) (38,034) (38,584) (46,163) (45,123) 21,163 Employees, end of year 78 111 112 210 1,019 D.C. 20549

~~PAYMENTS DUE BY PERIOD (in thousands) Fiscal Years Fiscal Years Total Fiscal 2005 2006 and 2007 2008 and 2009~~ FORM 10------------- ------------- ------------- ------------- Long-Term Debt, including current portion $ 18,045 $ 4,191 $ 8,677 $ 5,177 Priority Tax Claims 1,693 589 589 515 Debentures 29,822 -- -- 29,822 Operating Leases 18 13 5 -- ------------- ------------- ------------- ------------- Total Contractual Cash Obligations $ 49,578 $ 4,793 $ 9,271 $ 35,514 ============= ============= ============= =============K

~~(In~~T ANNUAL REPORT ~~thousands~~PURSUANT ~~except~~TO ~~shares)~~SECTION ~~September~~13 ~~30,~~OR 2004 2003 ---------------------------------------------------------------------------------------------------------- Assets: Current assets: Cash and cash equivalents $ 586 $ 2,113 Restricted cash -- 325 Accounts receivable, less allowance for doubtful receivables of $586 in 2004 and $514 in 2003 2,136 3,431 Notes receivable 11 136 Inventories 4,110 4,744 Other current assets 216 877 ---------------------------------------------------------------------------------------------------------- Total current assets 7.059 11,626 ========================================================================================================== Property, plant and equipment, net 4,205 4,309 Other asset -- 4 ---------------------------------------------------------------------------------------------------------- Total Assets $ 11,264 $ 15,939 ========================================================================================================== Liabilities and Stockholders' Deficit: Current liabilities: Current portion of long-term debt (~~$1,600 owed to related parties in 2004~~d) $OF ~~37,281~~THE $SECURITIES ~~3,000~~EXCHANGE ~~Accounts~~ACT payable 1,662 1,579 Accrued payroll and payroll-related costs 271 1,104 Other current liabilities 8,783 7,544 ---------------------------------------------------------------------------------------------------------- Total current liabilities 47,997 13,227 ========================================================================================================== Long-term debt, less current portion -- 36,817 Other liabilities 1,301 2,654 ---------------------------------------------------------------------------------------------------------- Total Liabilities 49,298 52,698 ========================================================================================================== Commitments and contigencies (see Note 18 and 19) Redeemable 5% preferred stock, par value $1.00 per share, authorized, issued and outstanding. No shares at September 30, 2004 and 73,000 shares at September 30, 2003 -- 1,825 ---------------------------------------------------------------------------------------------------------- Stockholders' deficit: 9% Preferred stock, par value $1.00 per share, 3,000,000 shares authorized; issued and outstanding: 787,900 shares in 2004 and 2003: $27.2 million liquidation preference at September 30, 2004 788 788 Class B common stock, par value $.01 per share, 5,000,000 shares authorized; 664,978 issued and outstanding in 2004 and 2003 7 7 Common stock, par value $.01 per share, 25,000,000 shares authorized; issued 3,305,833 in 2004 and 3,278,736 in 2003 33 33 Capital in excess of par value 198,433 196,487 Accumulated deficit (237,150) (235,754) Common stock held in treasury, at cost: 1,961 shares in 2004 and 2003 (145) (145) ========================================================================================================== Total Stockholders' Deficit (38,034) (38,584) ========================================================================================================== Total Liabilities and Stockholders' Deficit $ 11,264 $ 15,939 ==========================================================================================================OF 1934

~~(In~~For ~~thousands~~the ~~except~~fiscal ~~share~~year ~~data) Year~~ ended September 30, 2004 2003 2002 ------------------------------------------------------------------------------------------------------------------ Revenues $ 15,381 $ 23,905 $ 27,681 Cost of revenues 6,801 10,968 15,178 ------------------------------------------------------------------------------------------------------------------ Gross margin 8,580 12,937 12,503 Operating expenses: Selling, general and administrative 6,016 8,744 7,721 Research and product development 2,739 3,082 3,600 Impairment and restructuring charges -- -- (446) ------------------------------------------------------------------------------------------------------------------ 8,755 11,826 10,875 Operating income (loss) (175) 1,111 1,628 Other income (expense): Interest expense (contractual interest of $4.097 in 2003 and $5,097 in 2002) (3,524) (4,213) (3,399) Other financial expense -- (2,202) -- Gain on early extinguishment of debt -- -- 1,967 Gain on sale of real estate -- 329 919 Gain on legal settlements -- 7,182 -- Other, net 208 177 342 ------------------------------------------------------------------------------------------------------------------ (3,316) 1,273 (171) Income (loss) before reorganization items and income taxes (3,491) 2,384 1,457 ------------------------------------------------------------------------------------------------------------------ Reorganization items: Professional fees -- (3,462) (3,032) Claims adjustments 2,118 429 495 Gain on debt restructuring -- 5,283 -- ------------------------------------------------------------------------------------------------------------------ 2,118 2,250 (2,537) Income (loss) before income taxes (1,373) 4,634 (1,080) Income tax provision 23 10 10 ------------------------------------------------------------------------------------------------------------------ Net income (loss) (1,396) 4,624 (1,090) Less: Dividends applicable to preferred stock (1,780) (1,910) (1,914) ================================================================================================================== Net income (loss) applicable to common and Class B stock $ (3,176) $ 2,714 $ (3,004) ================================================================================================================== Basic and diluted earnings (loss) per share (Note 12) $ (0.80) $ 0.80 $ (0.89) ================================================================================================================== Weighted average number of common and Class B shares outstanding, basic and diluted 3,966,259 3,401,295 3,380,474 ==================================================================================================================2008

9% Preferred Stock Class B Stock Common Stock Capital ------------------- ------------------- --------------------- in Excess Shares Amount Shares Amount Shares Amount of Par Balance, September 30, 2001 787,900 788 205,710 2 3,158,334 31 194,783 ------------------------------------------------------------------------------------------------------------------------ Conversion of redeemable 5% preferred stock to common stock 55,555 1 49 Net loss Balance, September 30, 2002 787,900 788 205,710 2 3,213,889 32 194,832 ------------------------------------------------------------------------------------------------------------------------ Treasury stock issued (1,263) Stock awards and grants 459,268 5 50,000 1 1,918 Conversion of redeemable 5% preferred stock to common stock 14,847 1,000 Net income ------------------------------------------------------------------------------------------------------------------------ Balance September 30, 2003 787,900 788 664,978 7 3,278,736 33 196,487 Warrants issued in connection with loans from related parties 121 Conversion of redeemable 5% preferred stock to common stock 27,097 1,825 Net loss ======================================================================================================================== Balance September 30, 2004 787,900 $ 788 664,978 $ 7 3,305,833 $ 33 $ 198,433 ======================================================================================================================== Accumulated Treasury Stock Other Total ------------------- Accumulated Comprehensive Stockholders' Shares Amount Deficit Income (Loss) Deficit Balance, September 30, 2001 19,461 (1,439) (239,288) -- (45,123) --------------------------------------------------------------------------------------------------- Conversion of redeemable 5% preferred stock to common stock 50 Net loss (1,090) (1,090) Balance, September 30, 2002 19,461 (1,439) (240,378) -- (46,163) --------------------------------------------------------------------------------------------------- Treasury stock issued (17,500) 1,294 -- 32 Stock awards and grants 1,923 Conversion of redeemable 5% preferred stock to common stock 1,000 Net income 4,624 4,624 --------------------------------------------------------------------------------------------------- Balance September 30, 2003 1,961 (145) (235,754) -- (38,584) Warrants issued in connection with loans from related parties 121 Conversion of redeemable 5% preferred stock to common stock 1,825 Net loss (1,396) (1,396) =================================================================================================== Balance September 30, 2004 1,961 $ (145) $(237,150) -- $ (38,034) ===================================================================================================or

~~(In~~£ TRANSITION REPORT ~~thousands)~~PURSUANT ~~Year~~TO ~~ended~~SECTION September 30, 2004 2003 2002 ----------------------------------------------------------------------------------------- Cash flows from operating activities: Net income (loss) $ (1,396) $ 4,624 $ (1,090) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation and amortization 194 180 373 Stock compensation expense -- 1,955 -- Other financial expense -- 2,202 -- Gain on debt restructuring -- (5,283) -- Gain on legal settlements -- (4,702) -- Gain on claim reductions (2,118) -- -- Impairment of property and equipment -- -- 950 Gain on sale of real estate -- (329) (919) Gain on early extinguishment of debt -- -- (1,967) Changes in: Accounts receivable 1,295 114 6,663 Inventories 634 888 1,617 Accounts payable 58 516 (545) Accrued payroll and payroll-related costs (740) 407 (558) Other net current liabilities 2,172 (678) 237 Other net long-term assets (209) 2,777 838 ----------------------------------------------------------------------------------------- Net cash (used) provided by operating activities (110) 2,671 5,599 ========================================================================================= Cash flows from investing activities: Acquisition of property, plant and equipment, net (90) (8) -- Net proceeds from the sales of assets -- 1,917 6,821 Notes receivable collections 125 2,253 6,479 ----------------------------------------------------------------------------------------- Net cash provided by investing activities 35 4,162 13~~,300~~ ~~=========================================================================================~~OR ~~Cash flows from financing activities: Principal payments on term loan obligations~~ 15(~~3,377~~d) ~~(7.572)~~OF ~~(8,912)~~THE ~~Proceeds~~SECURITIES ~~from~~EXCHANGE ~~notes~~ACT payable to related parties 1,600 -- -- Principal payments on mortgages -- (58) (7,518) ----------------------------------------------------------------------------------------- Net cash used by financing activities (1,777) (7,630) (16,430) ========================================================================================= Net (decrease) increase in cash and cash equivalents (1,852) (797) 2,469 Cash and cash equivalents, beginning of year 2,438 3,235 766 ----------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 586 $ 2,438 $ 3,235 ========================================================================================= Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 994 $ 4,169 $ 3,746 Income and franchise taxes $ 9 $ -- -- Reorganization items $ 473 $ 1,519 2,555 =========================================================================================OF 1934

~~2004~~For ~~2003~~the ~~2002~~transition ~~----~~period ~~----~~from ---- Net income (loss), as reported $ (1,396) $ 4,624 $ (1,090) Add: stock-based employee compensation expenses included in reported net income (loss) -- 1,955 -- Deduct: stock-based employee compensation expense determined under fair value based method for all awards (84) (2,023) (216) ---------------------------------------------------------------------------------------------------------- Proforma net income (loss) (1,480) 4,556 1,306 Dividends applicable to preferred stock (1,780) (1,910) (1,914) ---------------------------------------------------------------------------------------------------------- Proforma net income (loss) applicable to common and Class B stock $ (3,260) $ 2,646 $ (3,220) ========================================================================================================== Proforma earnings (loss) per share (basic and diluted) $ (0.82) $ 0.78 $ (0.95) ==========================================================================================================

~~Estimated~~Commission ~~September~~File ~~30,~~number ~~2004 2003 Useful Life ------------------------------------------------------------------------------------------ Land $~~ 1~~,000 $ 1,000~~ -- Buildings and improvements 7,115 7,115 10 to 30 years Test equipment, fixtures and field spares 4,284 4,679 3 to 10 years Property and equipment 5,413 5,341 2 to 10 years ------------------------------------------------------------------------------------------ 17,812 18,135 Less: accumulated depreciation 13,607 13,826 ------------------------------------------------------------------------------------------ $ 4,205 $ 4,309 ==========================================================================================8086

~~September~~GENERAL ~~30,~~DATACOMM ~~2004 2003 -------------------------------------------------------------------------------------------------- Term Obligation $ 11~~INDUSTRIES,~~398~~ $INC. ~~14,775~~(Exact ~~PIK~~name ~~Obligation 2,500 2,500 Notes Payable to Related Parties, net~~ of ~~debt~~registrant ~~discount~~as ofspecified ~~$121~~in ~~1,479~~its ~~-- Debentures (see Note 4~~charter) 21,904 22,542 -------------------------------------------------------------------------------------------------- 37,281 39,817 Less current portion 37,281 3,000 -------------------------------------------------------------------------------------------------- $ 0 $ 36,817 --------------------------------------------------------------------------------------------------

10. Segment and Geographical Information For the years ended September 30, 2004, 2003 and 2002, the Company operated in one reportable segment Consolidated revenue and long-lived asset information by geographic area is as follows: Revenue Long-Lived Assets ------- ----------------- Year ended September 30, 2004 2003 2002 2004 2003 2002 ---------------------------------------------------------------------------------------------------- United States $ 10,705 $ 16,456 $ 20,608 $ 4,205 $ 4,313 $ 4,558 Foreign $ 4,676 $ 7,449 $ 7,073 $ -0- $ -0- $ 1,702

Delaware	06-0853856
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

6 Rubber Avenue, Naugatuck, Connecticut	06770
(Address of principal executive offices)	(Zip Code)

~~Weighted~~Registrant’s telephone ~~Average Shares Exercise Price ------------------------------------------------------------------------------------------------------------- Options outstanding~~number, ~~September~~including ~~30,~~area ~~2001~~ code: (~~235,491 exercisable~~203) ~~330,608 $ 44.32 Options granted 0 0.00 Options exercised 0 0.00 Options canceled or expired (194,393) 38.49~~ -729------------------------------------------------------------------------------------------------------------ Options outstanding, September 30, 2002 (114,239 exercisable) 136,215 $ 52.63 Options granted 232,061 0.64 Options exercised 0 0.00 Options canceled or expired (84,966) 62.92 ------------------------------------------------------------------------------------------------------------- Options outstanding, September 30, 2003 (234,792 exercisable) 283,310 6.96 Options granted 0 0.00 Options exercised 0 0.00 Options cancelled or expired (5,703) 36.00 ------------------------------------------------------------------------------------------------------------- Options outstanding, September 30, 2004 (248,203 exercisable) 277,607 $ 6.36 =============================================================================================================0271

Options Outstanding Options Exercisable ---------------------------------------------------------------------- ------------------------- Range of Number of Weighted Contractual Number of Weighted Exercise Prices Shares Average Life Shares Average Exercise Price (Years) Exercise Price ---------------------------------------------------------------------- ------------------------- $ 0.01 - $ 0.01 195,400 $ 0.01 1.50 195,400 $ 0.01 3.50 - 3.55 4,000 3.53 6.62 3,000 3.53 4.00 - 4.00 43,713 4.00 8.44 15,934 4.00 4.35 - 24.38 8,851 18.33 5.28 8,226 19.47 26.88 - 37.50 10,601 30.97 4.20 10,601 30.97 40.00 - 67.50 9,742 53.81 4.80 9,742 53.81 68.44 - 80.00 1,225 77.60 3.20 1,225 77.60 82.50 - 82.50 605 82.50 2.39 605 82.50 96.25 - 96.25 300 96.25 2.08 300 96.25 100.94 - 100.94 200 100.94 5.45 200 100.94 123.13 - 123.13 2.970 123.13 1.03 2,970 123.13 ================================================================================================== $ 0.01 - $ 123.13 277,607 $ 6.36 3.01 248,203 $ 6.64 ==================================================================================================__________________________

~~16.~~Securities registered ~~Quarterly~~under ~~Financial~~Section ~~Information The following table summarizes selected quarterly financial information for the two fiscal years ended September 30, 2004.~~ 12(~~Unaudited~~b) ~~(in thousands, except per share amounts) Fiscal 2004 Quarters -------------------- First Second Third Fourth Results~~ of ~~Operations~~the ~~Data:~~Exchange --------------------------- Revenues $ 5,101 $ 4,094 $ 3,605 $ 2,581 Gross profit 2,922 2,398 2,061 1,199 Operating expenses 2,676 2,380 1,826 1,873 Operating income (loss) 246 18 235 (674) Net income (loss) (567) 497 110 (1,436) Net income (loss) per shareAct: ~~basic and diluted $ (0.26) $ 0.01 $ (0.08) $ (0.47)~~None

~~Fiscal~~Securities ~~2003~~registered ~~Quarters~~under ~~--------------------~~Section First Second Third Fourth Results of Operations Data: --------------------------- Revenues $ 4,856 $ 5,983 $ 6,992 $ 6,074 Gross profit 2,587 2,969 3,732 3,649 Operating expenses 2,566 2,437 2,629 4,194 Operating income 12(~~loss~~g) 21of ~~532~~the ~~1,103~~Exchange ~~(545)~~Act: ~~Net~~Common ~~income (loss) 880 (1~~Stock,~~175)~~ ~~(655) 5,574 Net income (loss) per share: basic and diluted~~ $ 0.1201 $par ~~(0.49)~~value $ (~~0.33)~~Title $of ~~1.50~~class)

~~Number~~Indicate by ofcheck ~~Securities~~mark ~~Underlying~~if ~~Unexercised~~the ~~Options~~registrant atis ~~Value~~a ~~of Unexcercised In~~well-~~The~~known ~~Fiscal~~seasoned -Money Options at Fiscal Year End (#) Year-End ($) ------------ ------------ Shares Acquired on Value Names Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable ----- ------------ ------------ ----------- ------------- ----------- ------------- Howard S. Modlin 0 0 1issuer,~~550~~ 0as 0defined 0in Rule ~~William~~405 G.of ~~Henry~~the 0Securities ~~0 37,814 7,689 5,000 0 George M~~Act. ~~Gray 0 0 30,500 7,500 5,000 0 George T. Best 0 0 32,500 2,500 2,500 0~~

The following Summary Compensation Table sets forth the compensation paid or awarded for the fiscal years ended September 30, 2004, 2003 and 2002 to the Company's Chief Executive Officer and the next most highly compensated executive officers whose compensation for the fiscal year ended September 30, 2004 exceeded $l00,000: SUMMARY COMPENSATION TABLE -------------------------- Annual Long Compensation(1) Term Compensation --------------- ----------------- Name and Fiscal Other Annual #Options All Other Principal Position Year Salary Bonus Compensation Granted Compensation ------------------ ---- ---------- ------- ------------ --------- ------------ Howard S. Modlin(2) 2004 -- -- -- -- -- Chairman of the 2003 -- -- -- -- $ 376,600 Board of Directors 2002 -- -- -- -- -- and Chief Executive Officer William G. Henry(3) 2004 $ 180,548 -- $ 8,190 -- -- Vice President, Finance and 2003 180,744 -- 7,900 35,250 -- Administration 2002 174,835 -- 7,166 -- -- and Chief Financial Officer George M. Gray(3) 2004 $ 167,137 -- $ 7,245 -- -- Vice President, Operations 2003 166,475 -- 6,900 35,000 -- and Chief Technology Officer 2002 166,475 -- 6,900 -- -- George T. Best(3) 2004 $ 142,764 -- $ 29,078 -- -- Vice President, Sales and 2003 142,693 -- 36,100 25,000 -- Marketing 2002 143,068 -- 41,322 -- --£Yes TNo

~~Comparison~~Indicate by ofcheck ~~Five-Year~~mark ~~Cumulative~~if ~~Total~~the Return*registrant ~~General~~is ~~DataComm~~not ~~Industries,~~required ~~Inc.,~~to ~~Standard~~file &reports ~~Poors~~pursuant ~~500~~to Section ~~and~~13 ~~Value~~or ~~Line~~Section ~~Computer & Peripherals Index~~ 15(~~Performance Results Through 9/30/04~~d) ~~[GRAPHIC~~of ~~CHART~~the ~~OMITTED] 1999 2000 2001 2002 2003 2004 ------- ------- ------- ------- ------- ------- General DataComm Industries, Inc~~Act. ~~$100.00 $184.51 $ 4.62 $ 1.60 $ 12.79 $ 0.70 Standard & Poors 500 $100.00 $111.99 $ 81.15 $ 63.56 $ 77.65 $ 86.89 Computer & Peripherals $100.00 $222.79 $108.03 $ 93.34 $165.30 $176.12~~

Amount and Nature Name and Address of of Beneficial Title of Class Beneficial Owner Ownership Percent of Class Percent of All Classes -------------- ---------------- --------- ---------------- ---------------------- Class B Stock, Howard S. Modlin 459,943* 69.2% 11.6% $.01 per value General DataComm Naugatuck, CT 06770 Common Stock, Howard S. Modlin 1,874,573* 36.3% -- $.01 per value General DataComm Naugatuck, CT 06770 Common Stock, Howard M. Benedek 167,170** 5.1% 4.2% $.01 par value Investor£Yes TNo

~~Shares~~Indicate by ofcheck ~~Common~~mark ~~Shares~~whether ofthe ~~Class~~registrant ~~B Percent of All Name Stock Owned Percent of Class Stock Owned~~ (1) ~~Percent~~has offiled ~~Class~~all ~~Classes~~reports ~~----~~required ~~-----------~~to ~~----------------~~be filed ~~---------------~~by ~~----------------~~Section ~~-------~~13 ~~Howard~~or ~~S. Modlin 1,874,573 36.3% 459,943 69.2% 40.0% William G. Henry 36,543~~15(3d)~~(4)~~ ~~1.1%~~of --the --Securities ~~0.9%~~Exchange ~~George~~Act M.of ~~Gray~~1934 ~~30,000(4)~~during ~~0.9%~~the preceding --12 --months ~~0.8% George T. Best 27,250~~(4)or ~~0.8%~~for --such --shorter ~~0.7%~~period ~~Lee~~that M.the ~~Paschall~~registrant ~~26,550(5)~~was ~~0.8%~~required to ~~577~~file ~~0.1%~~such ~~0.7% John L. Segall 535,309(6~~reports), ~~14.0% -- -- 11.9% Aletta Richards -- -- -- -- -- Directors~~ and ~~2,530,225~~(72) ~~43.8%~~has ~~460,520(7)~~been ~~69.3%~~subject ~~46.4%~~to ~~Officers~~such asfiling arequirements ~~group~~for the (6past ~~individuals~~90 ~~including the above)~~days.

~~Equity~~YES ~~Compensation~~T NO Plan Information Number of securities to be Weighted-average Number of securities issued upon exercise of exercise price of remaining available for outstanding options, outstanding options, future issuance under Plan Category warrants and rights warrants and rights equity compensation plans ------------- ------------------- ------------------- ------------------------- Equity compensation plans approved by security holders 18,421 $ 54.90 None Equity compensation plans not approved by security holders 259,186 2.91 343,525 ---------- ---------- ---------- Total 277,607 $ 6.36 343,525 ---------- ---------- ----------£

~~SCHEDULE~~Indicate by IIcheck -mark ~~VALUATION~~if ~~AND~~disclosure ~~QUALIFYING~~of ~~ACCOUNTS~~delinquent ~~AND~~filers ~~RESERVES~~pursuant ~~(in thousands) Balance at Additions Deductions Balance at Beginning Charged~~ to ~~from~~Item ~~End~~405 of Regulation ~~Year Income Reserves(2) of Year Inventory Reserves (1): Year ended September 30, 2004 $ 4,177 $ 78 $ 1,692 $ 2,563 Year ended September 30, 2003 6,199~~ S--K ~~2,022~~is ~~4,177~~not contained ~~Year ended September 30~~herein, ~~2002~~and ~~6,233~~will --not 24be 6contained,~~199~~ ~~Allowance~~to the ~~for~~best ~~Doubtful~~of ~~Accounts~~the ~~(1):~~registrant’s ~~Year ended September 30~~knowledge, ~~2004~~in $definitive ~~514~~proxy $or ~~100~~information statements $incorporated 28by $reference ~~586~~in ~~Year~~Part ~~ended~~III ~~September~~of ~~30,~~this ~~2003~~Form ~~821 334 641 514 Year ended September 30, 2002 770 738 687 821 Allowance for Notes Receivable (1): Year ended September 30, 2004 $ 15,132 $~~ 10--K $or --any amendment $to ~~15,132~~this ~~Year~~Form ~~ended September 30, 2003 15,132~~ 10-~~- -- 15,132 Year ended September 30, 2002 15,132 -- -- 15,132~~K. T

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer £	Accelerated filer £
Non-accelerated filer £	Smaller reporting company T

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

£ Yes £ No

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, as of the last business day of the registrant’s most recently completed second fiscal quarter (March 31, 2008):$536,691.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of December 15, 2008:

3,487,473 Shares of Common Stock

634,615 Shares of Class B Stock

DOCUMENTS INCORPORATED BY REFERENCE: None

GENERAL DATACOMM INDUSTRIES, INC.

INDEX TO ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2008

PART I		Page #s

Item 1.	Business	4
Item 1A.	Risk Factors	9
Item 2.	Properties	16
Item 3.	Legal Proceedings	6
Item 4.	Submission of Matters to a Vote of Security Holders	16

PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	17
Item 6.	Selected Financial Data	17
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 8.	Financial Statements and Supplementary Data	26
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	46
Item 9A(T).	Controls and Procedures	46
Item 9B.	Other Information	47

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	47
Item 11.	Executive Compensation	49
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	52
Item 13.	Certain Relationships and Related Transactions, and Director Independence	55
Item 14.	Principal Accountant Fees and Services	56

PART IV

Item 15.	Exhibits, Financial Statement Schedules	57

SIGNATURES		59

Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act: No annual report or proxy material has been sent to security holders.

Subsidiaries of the Registrant

Certification of Chief Executive Officer

Certification of Chief Financial Officer

Certification of CEO and CFO

PART I

ITEM 1.

BUSINESS

General DataComm Industries, Inc. was incorporated in 1969 under the laws of the State of Delaware. Unless the context otherwise requires, the terms “General DataComm”, “Company” and “GDC” as used here and in the following pages mean General DataComm Industries, Inc. and its subsidiaries. In addition, in the following business discussion “TDM” refers to Time Division Multiplexing technology, “ATM” refers to Asynchronous Transfer Mode cell switching technology, “LAN” refers to Local Area Network, “WAN” refers to Wide Area Network, “IP” refers to Internet Protocol technology, “MPLS” refers to Multi-Protocol Label Switching, “Ethernet” refers to a LAN transmission standard and “SNMP” refers to Simple Network Management Protocol.

Reference is made to Note 1 to the Notes to Consolidated Financial Statements presented in Item 8 of this Form 10-K, and to “Risk Factors” presented below.

Overview

General DataComm Industries, Inc., based in Naugatuck, Connecticut, is a provider of networking and telecommunications products, services and solutions. The Company is focused on providing multi-service provisioning solutions using multi-service access and switching products. The Company designs, assembles, markets, installs and maintains products that enable telecommunications common carriers, corporations, and governments to build, improve and more cost effectively manage their global telecommunications networks.

The Company’s products and services are marketed worldwide through a combination of direct sales and distribution channels. The Company sells its products, services and solutions through its own sales organizations to common carriers (telephone and cable companies), as well as corporations and governments, system integrators, local distributors, and value-added resellers. International sales represented approximately 30% of the total Company revenues in fiscal 2008 as compared to 49% in fiscal 2007.

The Company’s user base includes: local exchange carriers, including AT&T, Bell Canada, Qwest and Verizon; inter-exchange carriers; corporate end users; and government entities including NATO, NASA, U.S. Department of Defense and other U.S. Government Departments, the FAA, the U.K. Ministry of Defense and the Italian Ministry of Defense. Multinational distributors and integrators deliver General DataComm products to markets in Asia, Europe and Latin America.

The Company’s executive offices are located at 6 Rubber Avenue, Naugatuck, Connecticut 06770, and its telephone number is (203) 729-0271.

The Company leverages the sales resources of distributors, value-added resellers, integrators and telecommunication provider channels in an effort to achieve greater sales coverage both domestically and internationally. The Network Access products produced by the Company for the most part have an inherently short selling cycle. However, the Company estimates that it takes approximately six to eighteen months to get these products approved for use in the central offices of telephone companies. Configured system products, such as multi-service switches and multiplexers, have a longer sales cycle and require a greater level of ongoing customer support.

GDC continues to shift its priorities in the overall access and multiservice switching markets. These priorities are governed by the accelerated growth of Internet-based services, packet-based (IP) voice and data services and Ethernet, all of which require increased attention to network management, performance, quality and network security. In addition, GDC has developed a Multiprotocol Label Switching (MPLS) platform that evolves its multiservice switch family into packet based services including Metro Ethernet Forum compliant services as well as TDM, IP, ATM, and Frame Relay services.

Principal Products and Services

GDC is focused on products it believes to be targeted at market growth areas. Specifically, GDC’s switching, routing and Ethernet extension solutions, networking products including integrated access systems for digital and analog transport, multiplexers and multi-service switches for network consolidation, satellite bandwidth management and legacy to MPLS migration constitute the major product elements serving to meet emerging market requirements. The Company does this by delivering products to target specific applications to provide solutions that are intended to be superior in price and performance to the competition.

These product solutions are offered across three distinct focused market segments: Carrier, Enterprise and Government.

SpectraComm: The SpectraComm product line consists of products that are NEBS Level 3 Certified for deployment in mission critical applications in telephone company central offices and government applications. See “The Significance of NEBS Certification” below.

Multiplexers: GDC’s multiplexer products have been long known for their reliability and flexibility. They are deployed in large enterprise and government networks worldwide.

Multiservice Switches: The Multiservice switching family known as “Xedge”, manage multiple applications over various transport technologies and are installed in enterprise and government networks for mission critical applications.

GDC specializes in converging and migrating legacy TDM, ATM, Frame Relay and other services to packet based (Ethernet, IP, MPLS) architectures.

Professional Services: GDC provides a full range of Network Services from total out-sourced services to network monitoring, on site maintenance, and network security evaluations, to assist customers in managing their networks.

Product Suites

Multiservice Switches - Xedge6000

GDC’s flagship Xedge6000 multiservice platform now supports packet based MPLS and Ethernet transmission as well as ATM based multiservices. GDC has introduced its Packet Cell Switch (PCx) that enables multiservices (native Frame Relay, TDM, Ethernet, ATM, and IP) over MPLS, ATM, or Ethernet trunk interfaces. The technology allows service providers and private network operators to offer converged solutions while reducing capital and operational expenditures. The PCx plugs into any of GDC’s flagship Xedge6000 family of multiservice switches including the new Xedge6002 two slot shelf. GDC’s network manager, ProSphere, facilitates the provisioning and monitoring of the converged service network.

GDC Xedge6000 of switches and related Xedge products deliver cost-effective solutions for public network providers and large private network operators in government, transportation, utilities, energy, and education sectors. GDC also resells other products (video codecs, integrated access devices, routers, among others) that extend the solution application reach of the Xedge6000. The ProSphere network management system provides a useful means of managing not only the Xedge family of switches, but also applications such as video-conferencing.

Multiplexers

General DataComm supplies a line of multiplexing products. The TMS-3000 is a network managed bandwidth management system for high-speed wide area networks. The TMS-3000 is primarily sold to system integrators, government agencies and enterprise customers to build or expand fault tolerant resilient backbone networks. GDC also provides an access product into the TMS-3000 network for smaller branch or regional offices via the OCM feeder and Minimux platforms. The OCM platform offers connectivity to a variety of digital carrier services and uses the same bandwidth optimization techniques as the TMS-3000 to efficiently transport a changing mix of applications, LAN to WAN integration, image and video along with traditional voice and data traffic. Minimux platforms provide a data and voice solution for satellite applications where minimum latency and maximum efficiency are mandatory.

H3C

The Company in 2007 signed an agreement with H3C to resell its distinguished portfolio of enterprise IP routers and Ethernet switches. Under the terms of the agreement, GDC will resell H3C products to customers in North America. H3C is a leading manufacturer and supplier of Ethernet, IP routing equipment, and related technologies worldwide.

The addition of the H3C technology to GDC’s portfolio broadens GDC’s converged solution capabilities and expands our support for enterprise networks. GDC will also provide technical assistance and Professional Services to customers who purchase H3C products and integrated solutions.

SpectraComm Family

General DataComm’s SpectraComm family of NEBS Level 3 modems, digital service units and LAN products support a wide range of applications. These include T3 broadband applications including M13, T1/FT1, E1/FE1 wide-band applications, 2.4 kbps - 64 kbps DDS (Digital Data Service) narrow-band applications, switched or private line analog applications and Local Area Network applications (Ethernet Extension and Ethernet switching). The flexible, expandable design of the SpectraComm system accommodates network growth, spanning from a single card enclosure to a robust 16-slot shelf system. This modularity maximizes the use of network facilities and helps to reduce network management complexity. The SpectraComm Manager provides SNMP Management for an entire shelf and is compliant with the Industry Standard HP OpenView®. GDC’s SpectraComm devices provide unmatched packaging flexibility, meaning that any of the SpectraComm devices (from 202 to V34 to T1 to T3 to IP) will fit, and are interchangeable between the various enclosures platforms. This interchangeability allows flexible inventories, lower sparing and easier deployment, and are designed for low power usage, all of which result in overall lower costs.

The Significance of NEBS Certification

A requirement for Central Office equipment located in North American Public Switched Network centers, the rigorous NEBS requirements are a universal measure of network product excellence for carriers. NEBS includes criteria for operational continuity, protection of property, and personnel safety. NEBS is the major test of quality and safety that is required for organizations supplying or purchasing network equipment for public network high density applications.

Specifically, the NEBS criteria are intended to:

·	Ensure equipment compatibility with telephone industry standards

·	Simplify equipment planning and installation

·	Guard against service outages

·	Prevent interference to close proximity telecommunications equipment

·	Minimize the risk of fire spread

·	Ensure equipment operation under stressful environmental conditions

·	Protect personnel from injury - surge, shock and toxicity

Telcordia has grouped NEBS criteria into three functional groups or levels, with Level 3 being the most stringent. Anything less than Level 3 certification can restrict deployment in certain carrier environment applications. By meeting NEBS Level 3 requirements, GDC products can be deployed in all interior carrier environments. The NEBS Level 3 certification of GDC’s SpectraComm products is a key requirement for our Carrier and Service Provider customers. SpectraComm CSU/DSUs, Modems, LAN Extension and Ethernet switching devices function in their mission critical internal network infrastructures and central office applications, providing secure, remote network management, SS7 Signal Transport, Cell Site to CO access, and CPE provisioning.

Professional Services

Since GDC aims to sell application solutions to its customers, it offers a range of professional services to help customers apply technology efficiently through design and consulting, diagnose and remedy problems efficiently with third level technical expert support, as well as offer training, installation and project management services as required.

General DataComm has field-proven experience in the successful design, deployment, monitoring and security testing and maintenance and support of voice and data networking equipment. Flexible and responsive to customer specific needs, General DataComm provides nation-wide complete outsourced services, installation, maintenance and product repair services for the complete line of network access products along with services such as project management, training, coordination, staging and network testing. GDC offers a range of guaranteed maintenance response plans: two- four- or eight-hour and next day on-site service. Unlike most industry-offered training programs, which deliver off-the-shelf, packaged courses, GDC creates a custom training solution to fit a customer’s specific needs in terms of course content and duration. GDC’s Factory Direct repair facility provides product and warranty repair at our repair center in Naugatuck, Connecticut.

Sales and Marketing

Effectively employing networking technology has become a key factor in developing a successful business. Communications networks have emerged as valuable assets that generate revenue and provide competitive advantage. General DataComm over the past 39 years has helped many of the world’s largest enterprises harness the power of networking. Electronic channels of commerce have been established, and reliable public and private communication links are essential to any organization’s survival. GDC’s full range of products and services can support this growing network challenge. The Company’s products are sold worldwide via a dedicated domestic sales force and through a domestic and international distributor network, augmented by original equipment manufacturers (OEM’s), value-added resellers, system integrators and alternate service providers.

GDC’s customer base includes: local exchange carriers, including, AT&T, Qwest, Verizon and Bell Canada; inter-exchange carriers; corporate end users; and government entities including state, local and foreign governments. The Company’s top five customers accounted for 54% of revenue in fiscal 2008.

Research and Development

The Company focuses its development efforts on providing enhanced functionality to its existing products, and the development of additional software-based features and functionality. Extensive product development input is obtained directly from customers and extensive monitoring of end-user needs as well as changes in the marketplace. The Company’s current product development focus has been on developing IP and Ethernet access solutions and completing new products and enhancements to existing products. Company management believes that our success will depend, in part, on our ability to develop and introduce in a timely fashion new products and enhancements to our existing product lines. GDC has in the past made, and intends to continue making, significant investments in product and technological development. Research and product development activities are performed at the Company’s facility in Naugatuck, Connecticut.

The Company’s inability to develop new products or enhancements to existing products on a timely basis, or the failure of these new products or enhancements to achieve market acceptance, could have a material adverse effect on the Company’s business.

GDC’s expenditures for research and development activities amounted to $3,232,000 and $2,515,000 for fiscal 2008 and 2007, respectively.

Manufacturing

GDC’s manufacturing operations consist of materials planning and procurement, final assembly, product assurance testing, quality control, and packaging and shipping. GDC currently uses several independent manufacturers to provide certain printed circuit boards, chassis and subassemblies. The Company believes that the efficiency of its manufacturing process to date is largely due to product architecture and commitment to manufacturing process design. GDC has spent significant engineering resources producing customized software to assure consistent high product quality. Products are tested after the assembly process using internally developed product assurance testing procedures.

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. 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 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, 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 affect the Company’s operating results and business.

Backlog

The Company’s order backlog, while one of several useful financial statistics, is however, a limited indicator of the Company’s future revenues. Because of normally short delivery requirements, the Company’s sales in each quarter primarily depend upon orders received and shipped in that same quarter.

In addition, since product shipments are historically heavier in the last month of each quarter, quarterly revenues can be adversely or beneficially impacted by several events including: unforeseen delays in product shipments; large sales that close at the end of the quarter; sales order changes or cancellations; changes in product mix; new product announcements by the Company or its competitors; and the capital spending trends of customers.

Competition

The telecommunications and networking industry is intensely competitive. Each competitor offers its own solutions and all are formidable. Many of the Company’s current and prospective competitors including ADC, Cisco, Adtran, Network Equipment Technologies and Alcatel/Lucent, have greater name recognition, a larger installed base of networking products, more extensive engineering, manufacturing, marketing, distribution and support capabilities and greater financial, technological and personnel resources. There can be no assurance that the Company will be able to maintain or grow its market share of multi-service switches, network access and other products.

Patents and Related Rights

The Company presently owns one domestic patent, has a non-exclusive, royalty-free license to 35 domestic patents and has no additional applications pending. The Company believes that certain features relating to its equipment for which it has obtained patent rights are important to its business, but does not believe that its success is dependent upon its ability to obtain and defend such patents. Because of the extensive patent coverage in the communications industry and the rapid issuance of new patents, certain equipment of the Company may involve infringement of existing patents not known to the Company. See the “Risk Factors” section below and the caption titled “Limited Protection of Intellectual Property” included therein.

Employees

At November 30, 2008, the Company employed 71 persons, of whom 15 were research and development positions, 14 were manufacturing positions, 21 were sales and marketing positions, 9 were service support positions and 12 were general management and support positions, including information technology, accounting, human resources, facilities maintenance and other miscellaneous functions. No Company employees are covered by collective bargaining agreements. The Company has never experienced a work stoppage. Many employees are highly skilled, and the Company’s success depends in part upon its ability to attract and retain such employees. Due to the Company’s limited financial resources, the Company’s employee benefit programs are likely not to be equivalent to those offered by our competitors. While to date management does not believe this to have resulted in significant difficulties in hiring and retaining skilled personnel, this may not be the case in the future.

ITEM 1A.

RISK FACTORS

THIS ANNUAL REPORT ON FORM 10-K 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 THIS HEADING.

The Financial Statements are Unaudited. As discussed in Item 8 which follows, the financial statements included in this Form 10-K have not yet been audited. While the Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the fair presentation of financial statements in accordance with generally accepted accounting principles, because of its inherent limitations such internal control may not prevent or detect misstatements that may arise in an audit by an independent accounting firm.

GDC’s Negative Operating History Since Emerging from Bankruptcy. The Company emerged from Bankruptcy on September 15, 2003. 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.

Non-payment of Debentures. The Company has outstanding debentures in the principal amount of approximately $19.5 million which, together with accrued interest thereon matured on October 1, 2008. While a subordinated security agreement signed by the indenture trustee on behalf of the debenture holders provides that no payments may be made to debenture holders and that no event of default may be declared under the indenture while the senior secured debt, including debt owed to Mr. Modlin and Mr. Segall (Chairman and Chief Executive Officer, and Director, respectively), is outstanding, in the absence of such restrictions the Company does not presently have the ability to repay the debentures. A failure to pay the debentures when they become due and payable as described above, could result in an event of default being declared under the indenture governing the debentures. Together with the other conditions described in the Liquidity section which follows, such condition raises substantial doubt about the Company’s ability to continue as a going concern.

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. Sales of the Company’s legacy products, primarily digital service unit and V.34 lines, declined to approximately 26% of product sales in fiscal 2008 from 30% in fiscal 2007. The Company anticipates that net sales from legacy products will continue to 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 result in customers purchasing 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. The Company’s customers include local exchange carriers, inter-exchange carriers, wireless service providers, and resellers who sell to these customers. Such 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. In the past, resources made available for such capital acquisitions have varied along with 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 (see Item 1. Business – Sales and Marketing). Sales to the Company’s top five customers accounted for 54% and 67% of revenues in fiscal 2008 and 2007. 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 2008 and beyond. The loss of one or more of our service provider customers, such as occurred in the past 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.

In December 2007, a sole supplier of a proprietary component critical to one of the Company’s products announced the discontinuation of the component and rejected previously accepted orders that had been placed for the component by the Company. The Company implemented a plan to allow for a transition to a new component without a disruption in customer deliveries and is substantially along in this process. However, the Company has incurred and expects to further incur increased product development costs by reason of such transition plans. In the event that the Company is unable to transition to the new component in time to meet its customer requirements and/or is unable to generate the liquidity required to pay the increased costs, such events could have a material adverse effect on the company’s business, financial condition and results of operations.

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 and Annual 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 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 digital service units portion of the SpectraComm line 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 new products introduced in the SpectraComm line and other products designed for telecommunications carrier networks 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 Will 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 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 limited experience in international markets with the exception of a few direct customers and resellers/integrators and sales into Western Europe through its subsidiary in France, 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, difficulties 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 fluctuations in foreign currency exchange rates. In order to sell its products internationally, the Company must meet standards established by telecommunications authorities in various countries. 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 and has licensed certain U.S., Canadian and other foreign patents with respect to certain products, including licenses granted under patents sold in 2008. There can be no assurance that third parties have not or will not develop equivalent technologies or products without infringing the Company’s patents and/or patent licenses or that a court having jurisdiction over a dispute involving such patents would hold the Company’s patents and/or licenses 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. In particular, Mr. 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 73% of the Company’s outstanding shares of Class B stock and has stock options and warrants that would upon exercise allow him to own approximately 58% of the Company’s common stock, although all such options and warrants have exercise prices which are substantially over the market price of the common stock on December 30, 2008. 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 may be designated by the debenture 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. In the event of a payment default under the debentures which is not cured within 60 days after written notice, the debenture trustee shall be entitled to select a majority of the Board of Directors. Accordingly, in the absence of a payment default under the debentures, 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 debenture 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 the Company’s common stock, thereby making it less likely that a stockholder will receive a premium in any sale of shares. To date, the holders of the 9% Preferred Stock have not designated any directors.

ITEM 2.

DESCRIPTION OF PROPERTY

The principal facilities of the Company are as follows:

Naugatuck, Connecticut —

executive offices and operations, a 360,000 square foot facility owned by the Company (approximately 60% is vacant). Such property is currently for sale or lease. If such sale were to occur, the Company would intend to lease facilities in the same geographical area.

ITEM 3.

LEGAL PROCEEDINGS

A former employee has filed a lawsuit in a French court claiming additional compensation owed relating to his dismissal, in the approximate amount of 560,000 Euros (or approximately $760,000 U.S. dollars as of December 31, 2008). The Company believes that the claims are without merit and the Company’s French counsel has advised that the claims are unjustified.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

PART II

ITEM 5.

MARKET FOR THE COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s common stock is quoted on The Pink Sheets under the symbol “GNRD”. The following table sets forth the range of high and low sales prices for the Company’s common stock for the periods indicated:

Fiscal 2008	High		Low

First Quarter	$	.25 $.27	$	.12
Second Quarter		.16		.12
Third Quarter		.18		.14
Fourth Quarter		.16		.10

Fiscal 2007	High		Low

First Quarter	$	.19	$	.09
Second Quarter		.16		.09
Third Quarter		.27		.13
Fourth Quarter		.30		.25

As of November 30, 2008, the Company had approximately 471 common stockholders of record. The closing sales price of the Company’s common stock on December 30, 2008 was $0.03 per share.

No shares of common stock or Class B stock were sold by the Company for cash during the two year period ending September 30, 2008.

Reference is made to Note 3 in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for description of warrants issued that were associated with loans from related parties, and to Note 9 for description of awards, grants and options issued pursuant to the Company’s stock and bonus plans. All such warrants and stock options are at exercise prices substantially over the market price of the common stock at December 30, 2008.

No equity securities were repurchased by the Company during its fiscal years ended September 30, 2008 and 2007.

Dividend Policy

The Company has never paid cash dividends. GDC cannot declare or pay any dividends on its common stock in the foreseeable future due to provisions governing the 9% Preferred Stock which prohibit the payment of such dividends until all arrearages are paid in full. In any event, the Company presently intends to retain all earnings, if any, to invest in operations.

ITEM 6.

SELECTED FINANCIAL DATA

Not applicable

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 ANNUAL REPORT ON FORM 10-K.

General

The Company is conducting operations from its owned facility in Naugatuck, Connecticut and as of November 30, 2008 has 71 employees.

All references to “Notes” in the following discussion of “Results of Operations” and “Liquidity and Capital Resources” are to the “Notes to Consolidated Financial Statements” included in Item 8 in this Form 10-K.

Results of Operations – Fiscal Year Ended September 30, 2008 (unaudited)

The Company’s revenues were $11.2 million in fiscal 2008, compared to $14.1 million in fiscal 2007. The Company is operating on internally generated cash flows supplemented with loans from related parties. There is no commitment from any related parties to provide loans in the future. 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 senior secured debt. Such mortgage financing requires payments of interest (only) until it matures on July 31, 2010, as amended, and contains no financial covenants (see Note 3).

The Company has over the recent years demonstrated the ability to introduce new products and services, maintain customer relationships and introduce manufacturing cost efficiencies. However, the ability of the Company to generate sufficient operating cash flow is dependent on achieving satisfactory revenue levels, customer collections, new product and product feature development, the ability to operate with minimal investment in capital equipment and software and other significant risks. Reference is made to Item 1A, “Risk Factors” and the “Liquidity” section below in this Form 10-K for further discussion of these items.

A significant portion of the Company’s product revenues in recent years were derived from the sale of network access and wide area network equipment which include legacy products, primarily analog and digital data sets. Approximately 26% of product revenues in fiscal 2008 were provided by such legacy products. The Company anticipates that sales of legacy products will decline over the next several years while sales of new products will increase over the same period with significant fluctuations possible and without assurance that sales of new products will increase over the same period.

Approximately 38% and 53% of sales of products in fiscal 2008 and 2007, respectively, were made through integrators, distributors and resellers. Such parties are normally responsible for warehousing products and fulfilling product orders as well as identifying potential service providers and other customers. The balance of the product sales were made through direct sales to service providers and enterprise customers.

The Company’s results from operations have fluctuated significantly from period-to-period in the past and this is expected to continue in the future. As a result, the Company believes that period-to-period comparisons of its financial results should not be relied upon as an indication of future performance.

Revenues

	Year Ended September 30,
(in thousands)	2008		2007

Product	$	9,041	$	11,596
Service		2,147		2,544
Total Revenues	$	11,188	$	14,140

Revenues for the fiscal year ended September 30, 2008 decreased $2,952,000, to $11,188,000 from $14,140,000 reported for the fiscal year ended September 30, 2007. Product revenues decreased $2,555,000, while service revenues decreased $397,000 from the prior year. As discussed below, in fiscal 2007 one international customer had a significant positive impact on revenues generated by the Company’s newer multi-service switches. However, while business with this customer continued in fiscal 2008, it did not attain the same high level as in fiscal 2007.

In fiscal 2007 the Company was awarded a contract to supply its high end multi-service switches and related services for a network transport system application in Central Asia. Shipments under this contract accounted for approximately 36% of product revenues in fiscal 2007and resulted in $4.0 million of incremental revenues. Sales to this same customer in fiscal 2008 were lower by $2.5 million and were the primary reason for the decline in product revenues in fiscal 2008. In addition, the Company continued to experience a drop in legacy access products which had historically been sold to large telecommunications carriers, due to such carriers’ migration to different technologies, offset by higher demand for high-end multi-service switches.

Service revenues declined due to the cancellation of a maintenance support contract in Europe for $450,000 where the customer transitioned equipment, offset in part by revenue of $178,000 generated from new sub-contract work from a major telephone company. Additional net decreases in project and support contracts amounted to $125,000.

A decline in demand for the Company’s products began in fiscal 2001 due to economic and industry-wide factors affecting the telecommunications industry, including financial constraints affecting customers and over-capacity in customers’ markets. Furthermore, since that time orders for the Company’s products from telecommunications carriers have continued to decline and the customer base has migrated to a higher percentage of commercial and government agency end-users. The general economic downturn in 2008 has resulted in significant uncertainty about future revenue levels. Accordingly, the ability to forecast future revenue trends in the current environment is difficult.

The Company’s business is characterized by a concentration of sales to a limited number of key customers. Sales to the Company’s top five customers accounted for 54% and 67% of revenues in fiscal 2008 and 2007, respectively. The Company’s customers who accounted for 10% or more of revenues in fiscal 2008 were: Thales Communications who is a large integrator in France (15%) and the City of Los Angeles (14%). The Company’s customer who accounted for 10% or more of revenue in fiscal 2007 was Thales Communications (30%).

The Company sells its products and services in the United States and Canada primarily through a direct sales force and through a variety of resellers, integrators, and distributors. Sales to resellers, distributors and integrators accounted for approximately 38% and 53% of product sales in fiscal 2008 and 2007, respectively. The balance of the sales of products and services were made through direct sales to service providers and enterprise customers. Foreign revenues were 30% and 49% of total revenue in the fiscal years ended September 30, 2008 and 2007, respectively.

Gross Margin

	Year Ended September 30,
(in thousands)	2008			2007

Product	$	4,523		$	7,163
Service		644			1,418
Total Gross Margin		5,167			8,581
Percentage of Product Revenues		50.0	%		61.8	%
Percentage of Service Revenues		30.0	%		55.7	%
Percentage of Total Revenues		46.2	%		60.7	%

Gross margin, as a percentage of revenues, in the fiscal year ended September 30, 2008 was 46.2% as compared to 60.7% in the fiscal year ended September 30, 2007, a decrease of 14.5%.

Product gross margin, as a percentage of product revenues, decreased 11.8%. The decrease was due to the greater favorable impact in the prior year of selling inventories previously written down (-7.7%), low margin sales of security software products in fiscal 2008 (-5.1%) and manufacturing inefficiencies resulting from lower volumes (-2.9%). Offsetting these decreases was the successful procurement of components at reduced prices (+2.9%) and other net items contributing 1.0%.

Service gross margin, as a percentage of service revenues, declined 25.7%. The decline in service revenue, as described above, contributed a reduction of 13.4% in gross margin percent. Higher costs, associated with employee and contractor costs to support new subcontract work from a major telephone company and other net staffing changes, contributed to an additional reduction of 12.3% in gross margin percent.

In future periods, the Company’s gross margin will vary depending upon a number of factors, including the mix of products and services sold, the cost of products manufactured at subcontract facilities, the channels of distribution, the price of products and services 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 sales may vary.

Selling, General and Administrative

	Year Ended September 30,
(in thousands)	2008			2007

Selling, general and administrative	$	6,253		$	5,388
Percentage of revenues		55.9	%		38.1	%

The Company’s selling, general and administrative expenses increased to $6,253,000, or 55.9% of revenues in the fiscal year ended September 30, 2008 from $5,388,000, or 38.1% of revenues in the fiscal year ended September 30, 2007. The increase in spending in the year of $865,000, or 16.0%, was due to higher compensation costs of $528,000 resulting from new hires in the sales and marketing force and from salary increases that were initiated earlier in the fiscal year and later reduced. The Company also incurred increased legal fees for litigation work that was primarily responsible for a $346,000 increase overall in professional fees. Other increases of $99,000 resulted primarily from increases in inflation in general operating expenses due to higher energy costs and higher European travel costs. These increases were offset by a $108,000 gain resulting from the favorable resolution of a property tax liability.

Research and Product Development

	Year Ended September 30,
(in thousands)	2008			2007

Research and product development	$	3,232		$	2,515
Percentage of revenues		28.9	%		17.8	%

Research and product development expenses increased to $3,232,000, or 28.9% of revenue in the fiscal year ended September 30, 2008 as compared to $2,515,000, or 17.8% of revenue in the fiscal year ended September 30, 2007. The increase in spending in the year of $717,000, or 28.5% was due to additions to the staff and salary adjustments which resulted in an increase in engineering compensation costs of $549,000, an increase in the use of contract engineers of $203,000 and other net decreases of $35,000. Both the additions to staff and the contract engineers were required to accelerate the completion of critical and strategic product development programs.

Interest Expense

Interest expense decreased to $2,904,000 in the fiscal year ended September 30, 2008 from $3,038,000 in the fiscal year ended September 30, 2007. The lower interest charges of $134,000 resulted from a reduction in debt levels due to a repurchase of debentures in fiscal 2007 and lower variable interest rates in fiscal 2008.

Other Income (Expense)

Other income (expense) for the fiscal year ended September 30, 2008 and 2007 totaled $4,018,000 and $5,881,000, respectively. The 2008 amount includes $3,891,000 from the gain on the sale of patents, $64,000 received from a tradename license and $100,000 from a negotiated professional fee reduction, offset by $37,000 in other net expenses. The 2007 amount includes $4,062,000 from restructuring of debt, $1,500,000 from refinancing of debt , $101,000 resulting from settlement of a Canadian sales tax audit, $21,000 from a settlement with a component supplier, $83,000 received from a tradename license, $35,000 in sales of components no longer used and $79,000 of other net items of income.

Provision for Income Taxes

The income tax benefit for the fiscal year ended September 30, 2008 in the amount of $176,000 reflects current state tax provisions of $7,000 offset by a reduction of $176,000 of possible liabilities deemed no longer required due to the expiration of time. The income tax provision for the fiscal year ended September 30, 2007 reflects a benefit of $67,000 primarily due to possible foreign tax liabilities deemed no longer required due to expiration of time in which to make claims and to a lower level of potential foreign claims, partially offset by a current state tax provision of $6,000.

No federal income tax provisions or other tax benefits were provided in fiscal 2008 and 2007 due to the valuation allowance provided against 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 carry forwards from prior years and the net loss incurred in fiscal 2008. The Company has federal tax credit and net operating loss carry forwards of approximately $11.9 million and $217.7 million, respectively, at September 30, 2008.

Critical Accounting Policies

The Company’s financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States of America, the instructions to Form 10-K and Regulation S-X. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Management bases its estimates and judgments 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 judgments. See Note 2 in Notes to Consolidated Financial Statements in Item 8 in this Form 10-K for a summary of the Company’s significant accounting policies.

Revenue Recognition. The Company recognizes a sale when the product is shipped or thereafter, 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 maintain a stock of the Company’s products. Service revenue is either recognized 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 our customers depending on the specific product and the terms of our 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 customer’s ability and intent to pay, and are based on historical trends, general economic conditions and current customer data. Should 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 they 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 year.

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 SFAS No. 144. The Company's long-lived assets consist of real estate, equipment and other personal property. At September 30, 2008, real estate represented the most significant long-lived asset that has not been fully depreciated or written down for impairment.

Recent Accounting Pronouncements

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.

Liquidity and Capital Resources

	September 30,

(in thousands)	2008			2007

Cash and cash equivalents	$	136		$	1,296
Working capital (deficit)		(32,992	)		(2,798	)
Total assets		8,422			10,136
Long-term debt, including current portion		26,472			26,308
Total liabilities		42,774			41,868

	Year Ended September 30,
	2008			2007
Net cash provided (used) by:
Operating activities	$	(4,939	)	$	108
Investing activities		3,625			(24	)
Financing activities		154			966

Note: Significant risk factors exist due to the Company’s limited financial resources and its present inability to repay its debentures and related interest, which matured on October 1, 2008. See Item 1A, “Risk Factors” for further discussion.

Fiscal 2008

Net cash used in operating activities totaled $4,939,000 in the fiscal year ended September 30, 2008.

The net loss in the period was $3,035,000. Included in this net loss were a net gain of $3,891,000 related to the sale of patents and non-cash expenses for depreciation and amortization of $309,000 and stock compensation expense of $230,000. Unpaid interest which accrued on the Company’s debt increased $1,644,000 as a result of additional interest charges of $2,920,000 reduced by interest payments to related parties of $458,000 and to others of $818,000. A decrease in accounts receivable due to customer collection levels being higher than new sales levels resulted in a source of cash of $718,000. Inventories were higher and resulted in a use of cash of $407,000 as the Company prepared to ship anticipated orders with short delivery times. Other net uses of cash included a reduction in accounts payable and accrued expenses of $295,000 due to payments of installments of prior year tax claims in the amount of $178,000 and net reductions in amounts owed to suppliers and others. Other sources of cash totaled $212,000.

Net cash provided by investing activities of $3,625,000 in the year ended September 30, 2008 is comprised of net proceeds from the sale of patents of $3,891,000, offset in part by $266,000 used for the acquisition of equipment.

Net cash provided by financing activities of $154,000 in the year ended September 30, 2008 is comprised of proceeds from notes payable to related parties of $550,000 and from other notes payable of $226,000, offset in part by payments on notes payable to related parties of $395,000 and on other notes payable of $227,000.

Fiscal 2007

Net cash provided by operating activities was $108,000 in the fiscal year ended September 30, 2007. The net income in fiscal 2007 was $3,582,000. Non-cash items included in net income were expenses for depreciation and amortization of $346,000 and stock compensation expense of $269,000 and non-cash income recorded as a result of an amendment of the Company’s senior loan agreement of $4,062,000, the gain on refinancing of such agreement with a mortgage financing of the Company’s Naugatuck, Connecticut property of $1,500,000 and a reduction in liability for income taxes of $67,000. A decrease in accounts receivable due to customer’s collections being higher than new sales levels resulted in a source of cash of $775,000. Inventories were higher and resulted in a use of cash of $212,000, as the Company was preparing to ship a large international order. Unpaid interest which accrued on the Company’s debt increased $2,179,000 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 ($101,000). The Company paid the third of six installments of prior year tax claims in the amount of $223,000 and paid delinquent real estate property taxes of $931,000. Other net uses of cash were $499,000.

Cash used by investing activities in the fiscal year ended September 30, 2007 was $24,000 for the acquisition of equipment.

Net cash provided by financing activities of $966,000 in the fiscal year ended September 30, 2007 is comprised of proceeds from a mortgage financing of $4,500,000, proceeds from notes payable to related parties of $270,000 and from other notes payable of $222,000, offset in part by payments on senior debt including final pay-off of a loan of $3,827,000 and on notes payable of $199,000.

Liquidity

The Company incurred a net loss and used a significant amount of cash in its operating activities for the twelve months ended September 30, 2008. The Company has no current ability to borrow additional funds. It must, therefore, fund operations from cash balances, cash generated from operating activities and any cash that may be generated from the sale of non-core assets such as real estate and others. As discussed in the “Risk Factors” section that follows, the Company has outstanding $19.5 million of debentures and accrued interest thereon of $9.8 million which matured on October 1, 2008. The liquidity risks described above raise substantial doubt about the Company’s ability to continue as a going concern.

Management has responded to its liquidity and cash flow risks in 2008 by selling its patents for proceeds of $4,000,000 while retaining rights to use the patented technologies. In 2007 senior debt was replaced with mortgage debt on more favorable terms. In addition, management has implemented operational changes: reducing certain salaries, restructuring the sales force, increasing factory and office shutdown time, constraining expenses and reducing the employee workforce. The Company also continues to pursue the sale or lease of its headquarters land and building in Naugatuck, CT.

The Company’s contractual cash obligations including interest, as of September 30, 2008, are as follows:

	PAYMENTS DUE BY PERIOD
	(in thousands)
	Total		Fiscal 2009		Fiscal 2010

Real Estate Mortgage	$	5,504	$	548	$	4,956
Related Parties		2,873		2,873		-
Priority Tax Claims		542		542		-
Debentures		29,282		29,282		-
Note Payable		22		22		-
Operating Leases		69		54		15

Total Contractual Cash Obligations	$	38,292	$	33,321	$	4,971

The real estate mortgage, related party debt and debentures are subject to acceleration in the event of a payment default by the Company that is not cured. The related party debt repayment has been deferred indefinitely per agreement with the parties. There can be no assurance that the Company will be able to avoid a payment default in the future. Furthermore, the Company has not paid priority tax claims in the amount of $214,000 that were due September 15, 2008.

The real estate mortgage, entered into July 30, 2007, provides for monthly payments of interest only and the principal amount is payable in full on July 31, 2010, as amended.

Debenture interest accrues at the rate of 10% and the outstanding balance of principal and interest matured on October 1, 2008. For discussion of a potential default on debentures, see “Risk Factors” in Section 1A of this Form 10-K.

See Notes 3 and 14 in the Notes to Consolidated Financial Statements included in Item 8 in this Form 10-K for additional information on certain contractual cash obligations.

The Company has no off balance sheet arrangements.

ITEM 7A.

QUANTITIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of loss that impacts the Company’s financial position, results of operations or cash flows due to adverse changes in financial and commodity market prices and interest rates.

Historically the Company has had little or no exposure to market risk in the area of changes in foreign currency except to the extent the Company invoices customers in foreign currencies and is, therefore, subject to foreign currency exchange rate risk on any individual invoice while it remains unpaid, a period that normally is less than 90 days. At September 30, 2008 such accounts receivable were not significant.

The interest rate on the Company’s $4.5 million real estate mortgage is based upon the London Interbank Borrowing Rate which may result in a different rate of interest being charged than if such interest was based on the U.S. bank prime lending rate.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

The financial statements of the Company for fiscal 2008 which follow have not yet been audited. The Company has limited financial resources and had been negotiating audit fees with its audit firm. The negotiations delayed the start of the fiscal 2008 audit and on January 5, 2009 the audit firm terminated its audit relationship with the Company. The Company filed a Form 8-K to disclose this matter. The predecessor audit firm had not commenced its audit of the Company’s 2008 year-end financial statements, but had completed its reviews of the Company’s condensed financial statements included in Form 10-Q for each of the first three quarters of fiscal 2008. The Company is in the process of appointing new auditors. The predecessor audit firm’s report on the Company’s fiscal 2007 financial statements is expected to be reissued in connection with the completion of the audit of the Company’s fiscal 2008 financial statements

	PAGE


CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED):

CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2008 AND 2007	27

CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 2008 and 2007	28

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT FOR THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007	29

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007	30

General DataComm Industries, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

(In thousands except shares)
September 30,
	2008			2007
Assets:
Current assets:
Cash and cash equivalents		136		$	1,296
Accounts receivable, less allowance for doubtful receivables of $228 in 2008 and $250 in 2007		993			1,711
Inventories		3,173			2,766
Other current assets		482			676
Total current assets		4,784			6,449
Property, plant and equipment, net		3,638			3,687
Total Assets		8,422		$	10,136

Liabilities and Stockholders’ Deficit:
Current liabilities:
Current portion of long-term debt (including $2,505 owed to related parties in 2008and $2,351 in 2007)		21,972		$	2,355
Accounts payable		2,580			2,810
Accrued payroll and payroll-related costs		552			565
Accrued interest		10,015			466
Other current liabilities		2,657			3,051
Total current liabilities		37,776			9,247
Long term debt, less current portion		4,500			23,953
Accrued interest		-			7,946
Other liabilities		498			722
Total Liabilities		42,774			41,868

Commitments and contingencies (Notes 14 and 15)

Stockholders’ deficit:
9% Preferred stock, par value $1.00 per share, 3,000,000 shares authorized; 781,996shares issued and outstanding; $34.1 million liquidation preference at September 30, 2008		782			782
Class B stock, par value $.01 per share, 5,000,000 shares authorized;634,615 issued and outstanding in 2008 and 647,715 in 2007		6			6
Common stock, par value $.01 per share, 25,000,000 shares authorized; issued and outstanding: 3,487,473 in 2008 and 3,474,373 in 2007		35			35
Capital in excess of par value		199,251			199,021
Accumulated deficit		(234,486	)		(231,601	)
Accumulated other comprehensive income		60			25
Total Stockholders’ Deficit		(34,352	)		(31,732	)
Total Liabilities and Stockholders’ Deficit	$	8,422		$	10,136

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

General DataComm Industries, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)


(In thousands except share data)
Year ended September 30,	2008			2007

Revenues:
Product	$	9,041		$	11,596
Service		2,147			2,544
Total		11,188			14,140

Cost of revenues
Product		4,518			4,433
Service		1,503			1,126
Total		6,021			5,559

Gross margin		5,167			8,581

Operating expenses:
Selling, general and administrative		6,253			5,388
Research and product development		3,232			2,515
		9,485			7,903
Operating income (loss)		(4,318	)		678

Interest expense		(2,904	)		(3,038	)
Other income, net		4,018			5,881

Income (loss) before income taxes		(3,204	)		3,521
Income tax benefit		(169	)		(61	)

Net income (loss)		(3,035	)		3,582
Dividends applicable to preferred stock		(1,760	)		(1,760	)
Net income (loss) applicable to common and Class B stock	$	(4,795	)	$	1,822

Earnings (loss) per share:
Basic-common stock	$	(1.16	)	$	0.45
Basic – Class B stock	$	(1.16	)	$	0.40
Diluted –common stock	$	(1.16	)	$	0.44
Diluted – Class B stock	$	(1.16	)	$	0.40

Weighted average number of common and Class B shares outstanding:
Basic – common stock		3,483,071			3,473,271
Basic – Class B stock		639,017			648,817
Diluted – common stock		3,483,071			4,122,088
Diluted – Class B stock		639,017			648,817

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

General DataComm Industries Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Deficit

(Unaudited)

(in Thousands, Except Share Data)

	Comprehensive Income			9% Preferred Stock				Class B Stock						Common Stock				Capital In Excess		Accumulated			Accumulated Other Comprehensive		Total Stock- holders
	(Loss)			Shares		Amount		Shares			Amount			Shares		Amount		of Par		Deficit			Income*		Deficit
Balance September 30, 2006					781,996	$	782		653,947		$	7			3,468,141	$	35	$	198,751	$	(235,183	)	$	10	$	(35,598	)
Comprehensive income
Net Income	$	3,582																			3,582					3,582
Foreign currency translation adjustments		15																						15		15
Comprehensive income	$	3,597
Conversion of Class B stock to common stock									(6,232	)		(1	)		6,232				1
Stock compensation expense																			269							269
Balance September 30, 2007					781,996		782		647,715			6			3,474,373		35		199,021		(231,601	)		25		(31,732	)
Adoption of FIN 48																					150					150
Comprehensive income (loss)
Net loss	$	(3,035	)																		(3,035	)				(3,035	)
Foreign currency translation adjustments		35																						35		35
Comprehensive (loss)	$	(3,000	)
Conversion of Class B stock to common stock									(13,100	)		-			13,100		-
Stock compensation expense																			230							230
Balance September 30, 2008					781,996	$	782		634,615		$	6			3,487,473	$	35	$	199,251	$	(234,486	)	$	60	$	(34,352	)

“Accumulated Other Comprehensive Income” is comprised solely of foreign currency translation adjustments; there is no income tax expense or benefit associated with such adjustments.

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

General DataComm Industries, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)


(In thousands)
Year ended September 30,	2008			2007

Cash flows from operating activities:
Net income (loss)	$	(3,035	)	$	3,582
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Depreciation and amortization		309			346
Stock compensation expense		230			269
Gain on sale of patents		(3,891	)		-
Gain on restructuring of debt		-			(4,062	)
Gain on forgiveness of debt		-			(1,500	)
Reduction in liability for income taxes		(176	)		(67	)
Changes in:
Accounts receivable		718			775
Inventories		(407	)		(212	)
Accounts payable		(230	)		127
Accrued payroll and payroll-related costs		(13	)		(31	)
Accrued interest		1,644			2,179
Other net current liabilities		168			(1,062	)
Other net long-term assets		(256	)		(236	)
Net cash provided (used) by operating activities		(4,939	)		108

Cash flows from investing activities:
Acquisition of property, plant and equipment, net		(266	)		(24	)
Net proceeds from sale of patents		3,891			-
Net cash provided (used) by investing activities		3,625			(24	)

Cash flows from financing activities:
Proceeds from notes payable to related parties		550			270
Principal payments on notes payable to related parties		(395	)		-
Proceeds from other notes payable		226			222
Principal payments on other notes payable		(227	)		(199	)
Principal payments on senior loan obligations		-			(3,827	)
Proceeds from real estate mortgage		-			4,500

Net cash provided by financing activities		154			966

Net increase (decrease) in cash and cash equivalents		(1,160	)		1,050

Cash and cash equivalents, beginning of year		1,296			246

Cash and cash equivalents, end of year	$	136		$	1,296



Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	980		$	394
Income and franchise taxes	$	6		$	6

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

General DataComm Industries, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation and Liquidity

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. Debentures were issued to unsecured creditors as part of the plan of reorganization. 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 incurred a net loss and used a significant amount of cash in its operating activities for the year ended September 30, 2008. The Company has no current ability to borrow additional funds. It must, therefore, fund operations from cash balances, cash generated from operating activities and any cash that may be generated from the sale of non-core assets such as real estate and others. In addition, at September 30, 2008 the Company had a stockholders’ deficit of $34.3 million and a working capital deficit of $33.0 million, including debentures in the principal amount of $19.5 million, together with accrued interest thereon ($9.8 million), which matured on October 1, 2008. While a subordinated security agreement signed by the indenture trustee on behalf of the debenture holders provides that no payments may be made to debenture holders, and that no event of default may be declared under the indenture, while senior secured debt is outstanding, in the absence of such restrictions the Company does not have the ability to repay the debentures. As of September 30, 2008, senior secured debt consists of notes payable to related parties and a mortgage payable. A failure to pay the debentures when they become due and payable as described above could result in an event of default being declared under the indenture governing the debentures.

The conditions described above raise substantial doubt about the Company’s ability to continue as a going concern. To continue operations, management has responded in 2008 by selling its patents for proceeds of $4,000,000 while retaining rights to use the patented technologies. In addition, management has implemented operational changes, including reducing certain salaries, restructuring the sales force, increasing factory and office shutdown time, constraining expenses and reducing the employee workforce. The Company also continues to pursue the sale or lease of its headquarters’ land and building in Naugatuck, CT. In 2007 senior debt was replaced with mortgage debt on more favorable terms.

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 asset sales, obtain additional funding sources or resolve the repayment of the debentures. 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 this uncertainty.

2. Description of Business and Summary of Significant Accounting Policies

Description of Business

The Company is a provider of networking and telecommunications products, services and solutions to domestic and international customers. The Company is focused on providing multi-service provisioning solutions using multi-service access and switching products. The Company designs, assembles, markets, installs and maintains products that enable telecommunications common carriers, corporations and governments to build, improve and more cost effectively manage their global telecommunications networks. For further description of the business, refer to Item 1 “Business” in Part I of this Form 10-K.

Principles of Consolidation

The consolidated financial statements include the accounts of General DataComm Industries, Inc. and its majority-owned subsidiary companies. Intercompany accounts, transactions and profits have been eliminated in consolidation.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Inventories

Inventories are stated at the lower of cost or market using the first-in, first-out method (see Note 4).

Property, Plant and Equipment

Property, plant and equipment are stated at cost and are depreciated or amortized using the straight-line method over their estimated useful lives. The cost of internally constructed assets (test fixtures) includes the cost of materials, internal labor and overhead costs (see Note 5).

Revenue Recognition

The Company recognizes a sale when the product is shipped or thereafter and the following four criteria are met: (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) collectability 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.

Promotion and Advertising Costs

Promotion and advertising costs, which include internal staff costs, are charged to selling, general and administrative expense in the period in which they are incurred. Promotion and advertising costs amounted to $65,000 and $292,000 in fiscal years 2008 and 2007, respectively.

Research and Product Development

Research and product development is expensed in the period incurred.

Income Taxes

The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards No. 109 (“SFAS 109”), “Accounting for Income Taxes,” which requires the use of the asset and liability method of accounting for deferred income taxes (see Note 6).

On October 1, 2007, the Company adopted the provisions of FASB 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 SFAS 109. 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. Prior to implementation of FIN 48, the Company had a liability for unrecognized foreign and state tax benefits amounting to $313,000 provided in its balance sheet, all of which, if recognized, would affect the Company’s effective tax rate. In adopting FIN 48, the liability for unrecognized tax benefits was reduced by $180,000 and interest and penalties as of September 30, 2007 aggregating $30,000 related to unrecognized tax benefits were accrued, resulting in a net reduction of $150,000 to the accumulated deficit at October 1, 2007. The Company files a consolidated federal income tax return with its subsidiaries. In addition, the Company and/or its subsidiaries file in various states and foreign jurisdictions. The Company is no longer subject to examination by taxing authorities for fiscal years before September 30, 2004 and therefore reduced its liability by $136,000. The Company classifies interest and penalties as selling, general and administrative expenses. Interest and penalties recognized in the fiscal year ended September 30, 2008 amounted to a reduction of approximately $132,000 and accrued interest and penalties included in the balance sheet at September 30, 2008 amounted to approximately $17,800 .

The provision for income taxes includes federal, foreign, state and local income taxes currently payable, benefits associated with favorable resolution of tax claims and deferred taxes resulting from temporary differences between the financial statement and tax bases of assets and liabilities. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.

Foreign Currency

Transactions denominated in foreign currencies are recorded on a monthly basis using the average of the prior and current month end exchange rates. Assets and liabilities denominated in foreign currencies are translated at the balance sheet dates using the closing rates of exchange between those foreign currencies and the U.S. dollar with any transaction gains or losses reported in income. Adjustments that result from translating financial statements of the Company’s subsidiary in France are recorded in accumulated other comprehensive income or loss.

Earnings (Loss) Per Share

Basic and diluted earnings (loss) per share are computed in accordance with Statement of Financial Accounting Standards No. 128, “Earnings Per Share” (see Note 10).

Concentrations of Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash instruments and accounts receivable. The Company places its cash investments with high-quality U.S. financial institutions. Approximately $425,000, or 43%, of accounts receivable at September 30, 2008 ($808,000, or 41%, at September 30, 2007) were concentrated in telephone companies or distributors to such companies primarily in North America and $389,000, or 39%, ($884,000, or 45%, at September 30, 2007) were concentrated in large integrators to government agencies in North America and Europe. Two integrators each represented 20% and 10% of accounts receivable at September 30, 2008 and two integrators each represented 15% and 14% of accounts receivable at September 30, 2007. These receivables are not collateralized due to the Company’s assessment of limited risk and favorable history of payments from such customers.

Post-Retirement and Post-Employment Benefits

The Company does not offer post-retirement and post-employment benefits to its current employees other than federally required programs which are fully funded by such employees.

The Company does provide health and long-term care benefits to five former long-term executives of the Company who retired in November 2001. The Company recorded the liability for such benefits based on actuary-provided life expectancies, known fixed annual costs and estimated variable costs and adjusts the liability based on actual experience. The liability for such expenses was $562,000 and $571,000 at September 30, 2008 and 2007, respectively.

Accounting for Stock-Based Compensation

At September 30, 2008, the Company has stock-based employee compensation plans in effect, which are described more fully in Note 9.

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 123R”) using the modified prospective transition method. Under that transition method, compensation cost recognized in fiscal 2008 and 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 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 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 123R, compensation cost recognized in the years ended September 30, 2008 and 2007 was $230,000 and $269,000, respectively.

Comprehensive Income

The Company has adopted Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income” (“SFAS 130”) which establishes standards for reporting comprehensive income and its components in a Company’s financial statements. The Company reported foreign currency translation gain as other comprehensive income as defined in SFAS 130 in the fiscal years ended September 30, 2008 and 2007.

Accumulated Other Comprehensive Income” is comprised solely of foreign currency translation adjustments. There is no income tax expense or benefit associated with such adjustments.

Operating Segments

The Company has adopted Statement of Financial Accounting Standards No. 131, “Disclosures About Segments of an Enterprise and Related Information” (“SFAS 131”), which utilizes a “management” approach to segment reporting. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the Company’s reportable segments. For the years ended September 30, 2008 and 2007, the Company operated in one reportable segment. SFAS 131 also requires enterprise-wide disclosures about products and services, geographic areas, and major customers (see Note 8).

Use of Estimates

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

Recent Accounting Pronouncements

3. Long-Term Debt

Long-term debt consists of (in thousands):


September 30,	2008		2007

Notes Payable to Related Parties, net of debt discount of $19 in 2007 (none in 2008)	$	2,505	$	2,332
Other Note Payable		14		23
Debentures maturing October 1, 2008		19,453		19,453
Real Estate Mortgage due July 31, 2010		4,500		4,500
		26,472		26,308
Less current portion		21,972		2,355
	$	4,500	$	23,953

The Company believes that the values of the other note payable and real estate mortgage approximate their respective fair values due to the recent placement of such debt. Also, notes payable to related parties in the amounts of $2.5 million and $2.3 million at September 30, 2008 and 2007, respectively, are considered to approximate fair value. However, the estimated fair value of debentures, with a face value totaling $19.5 million is considered to be substantially lower than carrying value due to the debentures being subordinated to both the real estate and related party debt. However, due to the extremely limited market (if any) for the debentures, the Company is unable to determine the current fair value.

Long-term debt matures in amounts totaling $21,972,000 in fiscal 2009, and $4,500,000 in fiscal 2010. Debentures in the amount of $19,453,000 mature October 1, 2008, but are restricted from being paid until the senior debt is paid (see discussion below).

Notes Payable to Related Parties and Warrants

On December 9, 2005 Mr. Howard S. Modlin, Chairman of the Board and Chief Executive Officer, and Mr. John Segall, a Director, restructured existing loans and entered into new senior secured loans with the Company in the principal amount of $1,198,418 and $632,527, respectively. Interest accrues at the rate of 10% per annum. 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.

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 was payable February 17, 2008 (such payments were deferred until July 30, 2009 in agreement with Mr. Modlin). 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 was amortized as additional interest expense over the term of the debt.

In the quarter ended March 31, 2007, Mr. Modlin made demand loans to the Company totaling $270,000 and $125,000, respectively, and which bore interest at the annual rate of 10%. Such loans were paid off in the quarter ended March 31, 2008. On April 30, May 13, July 9 and September 18, 2008, Mr. Modlin made demand loans to the Company in the amounts of $175,000, $75,000, $110,000 and $175,000 respectively. Such loans bear interest at the annual rate of 10%. The loan made on July 9, 2008 was repaid on July 17, 2008. (See Note 16, “Subsequent Events” for reference to a loan and receivable purchases made by Mr. Modlin to the Company after September 30, 2008.

Accrued interest on all such loans amounted to $111,866 and $389,748 at September 30, 2008 and 2007, respectively. All loans made by Mr. Modlin and Mr. Segall are collateralized by all the assets of the Company.

Debentures

Debentures together with accrued interest matured on October 1, 2008. The debentures were issued to unsecured creditors in 2003 as part of the Company’s plan of reorganization. No principal or interest is payable on the debentures until the senior lenders’ claims are paid in full and no principal or interest has been paid as of September 30, 2008. Interest accrues at the annual rate of 10% and totaled $9,829,000 at September 30, 2008. See Note 1 “Basis of Presentation and Liquidity”.

Real Estate Mortgage

The real estate mortgage entered into July 30, 2007 in the amount of $4,500,000 is secured by the Company’s premises in Naugatuck, CT. The mortgage required monthly payments of interest at the rate of 30-day LIBOR plus 6% (such interest was 8.49% at September 30, 2008). No principal payments are required until the full amount of the mortgage matures. Such date was extended from July 30, 2009 to July 30, 2010 as part of an amendment to the mortgage dated December 8, 2008. The mortgage contains no financial covenants. (See Note 16, “Subsequent Events” for further discussion of the mortgage amendment, including higher interest rate effective January 1, 2009.)

4. Inventories

Inventories consist of (in thousands):

September 30,	2008		2007

Raw materials		160	$	665
Work-in-process		1,286		1,020
Finished goods		1,727		1,081
	$	3,173	$	2,766

Inventories are stated at the lower of cost or market using the first-in-first out method. Reserves in the amount of $3,033,000 and $2,883,000 were recorded at September 30, 2008 and 2007, respectively, for excess and obsolete inventories.

5. Property, Plant and Equipment

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

September 30,	2008		2007		Estimated Useful Life
Land	$	1,000	$	1,000	—
Buildings and improvements		7,115		7,115	10 to 30 years
Test equipment, fixtures and field spares		3,595		3,595	3 to 10 years
Other equipment		4,625		4,349	2 to 10 years
		16,335		16,059
Less: accumulated depreciation		12,697		12,372
	$	3,638	$	3,687

Depreciation expense amounted to $328,000 and $308,000 in fiscal 2008 and 2007, respectively.

The Company’s property in Naugatuck, Connecticut, which is the location of the Company’s operations, has a net book value of $3,399,000 and $3,579,000 at September 30, 2008 and 2007, respectively. Although the Company has been actively trying to sell the building since 2001, due to its inability to do so, such building is not reflected as an asset held for sale in the accompanying balance sheets. In addition such property is collateral for the indebtedness under the Company’s mortgage note, which has a first lien, as well as notes payable to related parties collateralized by a subordinate mortgage and subordinated rights of debentures to any remaining proceeds.

6. Income Taxes

Income (loss) before income taxes in the years ended September 30, 2008 and 2007 consists primarily of domestic income (loss) generated in the United States. The income tax benefits in fiscal 2008 and 2007 reflect a benefit of $176,000 and $1,352,000 respectively, primarily due to expiration of time in which to make claims by the taxing authorities, offset in part by current state tax provisions of $7,000 for fiscal 2008 and $6,000 for fiscal 2007.

The following reconciles the U.S. statutory income tax rate to the Company’s effective rate:

Year ended September 30,	2008			2007

Federal statutory rate		(34.0	)%		34.0	%
Reduction of accruals for prior years’ taxes		(5.5	)		(1.8	)
Change in valuation allowance		34.0			(34.0	)
State income tax effects		.2			0.1
Effective income tax rate		(5.3	)%		(1.7	)%

For regular income tax reporting purposes at September 30, 2008, domestic federal tax credit and net operating loss carryforwards amounted to approximately $11.9 million and $217.6 million, respectively. Domestic federal tax credit and net operating loss carryforwards expire in various amounts between fiscal 2008 and 2026. Domestic state loss carryforwards of approximately $48.9 million expire in various amounts between fiscal 2009 and 2028, but most expire by 2023. Utilization of the net operating loss carryforwards may be subject to limitation due to the changes in ownership provisions under section 382 of the Internal Revenue Code and similar state provisions. The Company’s subsidiary in France has approximately $191,000 in net operating loss carryforwards.

The tax effects of the significant temporary differences and carryforwards comprising the deferred tax assets and liabilities at September 30, 2008 and 2007 were as follows (in thousands):

	2008			2007
Deferred Tax Assets
Bad debt reserve	$	90		$	100
Inventory reserve		7,315			7,388
Other accruals		490			568
Loss carryforward		77,893			77,168
Tax credits		11,872			11,991
		97,660			97,215
Valuation allowance		(97,660	)		(97,215	)
Net deferred tax assets		0			0

The deferred tax asset related to the inventory reserve includes inventory written off for book purposes which is not yet deductible for tax reporting purposes.

Statement of Financial Accounting Standard No. 109, “Accounting For Income Taxes,” requires a valuation allowance against deferred tax assets if, based on available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company believes that uncertainty exists with respect to the future realization of deferred tax assets and, as a result, carries a valuation allowance for such items. The valuation allowances, disclosed in the deferred tax summary above, increased by $445 in fiscal 2008 and decreased by $1,243,000 in fiscal 2007.

On October 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”. See Note 2 for further discussion.

7. Capital Stock

Common Stock and Class B Stock

In addition to regular common stock, the Company’s capital structure includes Class B stock which, under certain circumstances, has greater voting power in the election of directors. However, common stock is entitled to cash dividends, if and when paid, 11.11% higher per share than Class B stock. The Company has never declared or paid cash dividends on its common stock. So long as there are arrearages in payment of dividends on the Company’s 9% Preferred Stock, the Company is prohibited from paying cash dividends on its common stock and Class B stock. Class B stock has limited transferability and is convertible into common stock at any time on a share-for-share basis. There were 634,615 and 647,715 shares of Class B stock outstanding at September 30, 2008 and 2007, respectively.

9% Preferred Stock

At September 30, 2008 and 2007, there were 781,996 shares 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 30, 2000; dividends in arrears, which are not accrued for financial reporting purposes since they have not been declared by the Company, amounted to $14,515,801 at September 30, 2008 ($18.56 per share) and are included in the liquidation value disclosed in the accompanying fiscal 2008 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.

8. Segment and Geographical Information

For the years ended September 30, 2008 and 2007, the Company operated in one reportable segment.

Consolidated revenue and long-lived asset information by geographic area is as follows (in thousands):

	Revenue				Long-Lived Assets
Year ended September 30,	2008		2007		2008		2007

United States	$	7,805	$	7,175		3,623	$	3,616
Foreign		3,383		6,965		15		71
Total	$	11,188	$	14,140		3,638	$	3,687

Foreign revenue is determined based on the country in which the revenue originated (where the customer placing the order is domiciled).

Customers accounting for more than 10% of the Company’s revenues in fiscal, 2008 were Thales Communications (France) at 15% and City of Los Angeles at 14% and in fiscal 2007 such customer was Thales Communications at 30%.

9. Employee Incentive Plans

Stock Awards, Grants and Options

The Company has adopted a 2003 Stock and Bonus Plan (“2003 Plan”) reserving 459,268 shares of Class B stock and 459,268 shares of common stock and a 2005 Stock and Bonus Plan (“2005 Plan”) reserving 2,400,000 shares of common stock. No shares of Class B stock are authorized under the 2005 Plan. Officers and key employees may be granted 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% per year over a five-year period and expire within ten years. At September 30, 2008 there were 0443,596 options available for future issuance under the plans.

On October 10, 2006, the Stock Option Committee of the Board of Directors granted stock options pursuant to the Company’s 2005 Plan to purchase 363,400 shares of Common Stock at the quoted market price of $.18 per share, including grants of 30,000 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 2005 Plan to purchase 551,121 shares at $.20 a share. All such options vest in increments of 20% a year over a five year period and expire ten years after grant.

On October 11, 2007, the Stock Option Committee of the Board of Directors granted stock options pursuant to the Company’s 2005 Plan to purchase 312,900 shares of common stock at the quoted market price of $.25 per share, including grants of 30,000 shares to 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 192,900 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 with terms similar to the options granted under the 2005 Plan to purchase 551,121 shares at $.275 a share. All such options vest in increments of 20% per year over a five year period and expire ten years after grant.

A summary of stock options outstanding under the Company’s stock plans as of September 30, 2008 and changes during the twelve months ended September 30, 2007 and 2008 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		(60,940	)		6.68
Options outstanding, September 30, 2007		2,635,807			0.77		8.10	$	0
Options granted		864,021			0.27
Options exercised		-			-
Options cancelled or expired		(129,157	)		2.24
Options outstanding, September 30, 2008		3,370,671			0.59		7.58		0
Vested or expected to vest at September 30, 2008		2,834,738			0.51		7.49		0
Exercisable at September 30, 2008		1,090,814			1.13		6.76		0

As of September 30, 2008, there was $241,394 of total unrecognized compensation cost related to nonvested options which is expected to be recognized over a weighted-average period of 1.61 years.

The weighted-average grant-date fair value of options granted during the twelve months ended September 30, 2008 was $0.23 per share, which was estimated using the Black Scholes model and the following weighted average assumptions:

Risk-free interest rate (%)		3.76	%
Volatility (%)		133	%
Expected life (in years)		6.50
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 6.50 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.

Employee Retirement Savings and Deferred Profit Sharing Plan

Under the retirement savings provisions of the Company’s retirement plan established under Section 401(k) of the Internal Revenue Code, employees are generally eligible to contribute to the plan after three months of continuous service in amounts determined by the plan. The Company does not make matching contributions and, therefore, no amounts have been charged to expense.

The deferred profit sharing portion of the plan provides that the Company may make contributions to the plan out of profits at the discretion of the Company. There were no such contributions in the two fiscal years ended September 30, 2008.

10. Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by allocating net income (loss) available to common stockholders to common and 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. 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 share gives effect to all potential dilutive common shares outstanding during the period. In computing diluted earnings per share, 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 years ended September 30, 2008 and 2007 (in thousands, except shares and per share data):


	Year Ended September 30,
	2008			2007
Net income (loss)	$	(3,035	)	$	3,582
Dividends applicable to preferred stock		(1,760	)		(1,760	)
Net income (loss) applicable to common and Class B stock	$	(4,795	)		1,822
Net income (loss) applicable to common stock – basic	$	(4,052	)	$	1,560
Net income (loss) applicable to Class B stock – basic	$	(743	)	$	262

	Year Ended September 30,
	2008			2007		2008			2007
	Common Stock					Class B Stock
Numerator for basic earnings per share - net income (loss)		(4,052	)		1,560		(743	)		262
Reallocation of net income for potential dilutive common shares		-			262		-			-
Numerator for diluted earnings per share - net income (loss)		(4,052	)		1,822		(74 3	)		262

Denominator for basic earnings per share - weighted average outstanding shares		3,483,071			3,473,271		639,017			648,817
Effect of dilutive securities:
Class B stock					648,817		-			-
Denominator for diluted earnings per share		3,483,071			4,122,088		639,017			648,817

Basic earnings (loss) per share	$	(1.16	)	$	0.45	$	(1.16	)	$	0.40
Diluted earnings (loss) per share	$	(1.16	)	$	0.44	$	(1.16	)	$	0.40

In fiscal 2008 and 2007, no effect has been given to certain 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 share are as follows:

	No. of Shares
	2008		2007
Stock warrants		4,093,251		4,093,251
Stock options		3,370,671		2,635,807
Convertible preferred stock		143,223		143,223
Total		7,607,145		8,174,785

11. Related Party Transactions

Mr. Howard Modlin, Secretary and a Director of the Company since 1969 and Chairman of the Board of Directors of the Company since November 2001 and currently Chairman, President and Chief Executive Officer, is also President of the law firm of Weisman Celler Spett & Modlin, P.C. (“WCSM”) to whom the Company was indebted for legal services of $2,179,000 for work performed prior to the Company’s bankruptcy filing in November 2001 and in settlement for which the Company issued subordinated debentures. The bankruptcy court also approved $294,000 for work performed by WCSM while the Company operated in bankruptcy. Furthermore, the Company was indebted to Mr. Modlin for fees for Company director meetings for which he received subordinated debentures in the total amount of $16,400. Thereafter, WCSM agreed to work on a specific litigation matter on a contingency basis. WCSM has outstanding amounts owed totaling $1,183,000 for work performed for the Company between September 15, 2003 and September 30, 2008.

See Note 3 regarding loans made to the Company by Messrs. Howard Modlin and John L. Segall, and Note 16 regarding a loan and receivable purchases made by Mr. Modlin after September 30, 2008.

12. Other Current Liabilities and Other Long-Term Liabilities

Other current liabilities are comprised of the following (in thousands):
September 30,	2008		2007

Liabilities for foreign tax obligations	$	96	$	433
Accrued professional fees (unbilled)		566		461
Accrued post retirement benefits		106		70
Accrued property taxes		254		241
Deferred income		642		527
Priority tax claims (short-term portion)		463		428
Other		530		891
	$	2,657	$	3,051

Other long-term liabilities at September 2008 and 2007 in the amounts of $498,000 and $722,000, respectively, consist primarily of the long-term portion of accrued post retirement benefits.

13. Other Income, Net

Other income, net is comprised of the following (in thousands):

Year ended September 30,	2008		2007

Gain on sale of patents	$	3,891	$	-
Gain on restructuring of debt		-		4,062
Gain on forgiveness of debt		-		1,500
Other, net		127		319

	$	4,018	$	5,881

Gain on Sale of Patents

On February 5, 2008, the Company completed the sale of selected patents and patent applications to an unrelated party for proceeds of $4,000,000. The patents and patent applications sold relate to the Company’s product lines, and the Company retains a non-exclusive, royalty-free license under the patents for all its product lines.

As a result of the sale, the Company recorded a gain in the amount of $3,891,000 in the quarter ended March 31, 2008. The Company used the funds for general corporate purposes, including payment of debt and interest and for working capital.

Gain on Restructuring of Debt

On January 17, 2007, pursuant to an amendment to the senior loan agreement the Company and its senior lender, agreed, among other matters, to the following changes:

(a)

to reduce and fix the outstanding amount of a term note obligation, including principal and interest, at $3,000,000 as of January 16, 2007;

(b)

to provide for certain affiliates of the senior lender 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.

As a result of the debenture purchase and the adjustment to the term note obligation, the Company recorded a gain on restructuring of debt in the amount of $4,062,000 in the quarter ended March 31, 2007.

Gain on Forgiveness of Debt

The proceeds of a real estate mortgage closed on July 30, 2007 were used to retire and replace the remaining balance owed on senior debt in the amount of $4,379,252. Pursuant to an amendment to the senior loan agreement described above and as consideration for retiring the senior debt, the Company’s loan obligations were reduced by $1,500,000 resulting in a gain on forgiveness of debt of $1,500,000 in the quarter and fiscal year ended September 30, 2007. As further consideration, the senior lender surrendered contingent warrants to purchase the Company’s common stock that had been provided in the senior loan agreement.

14. Operating Leases

At September 30, 2008 the Company had non-cancelable leases for sales offices with annual rent of $53,649 which expire through January 12, 2010. Aggregate remaining rentals under these leases at September 30, 2008 amount to approximately $68,791.

Net rental expense for fiscal 2008 and 2007 was approximately $77,171 and $79,688, respectively.

15. Contingencies

Component Supply

On December 19, 2007, a sole supplier of a proprietary component critical to one of the Company’s products announced the discontinuation of the component and rejected previously accepted orders that had been placed for the component by the Company. Thereafter, the Company filed a legal claim in Connecticut Superior court against the supplier. On July 7, 2008, a financial settlement was reached with the supplier, the financial impact of which was not significant.

The Company believes that it has a plan in place to allow for a transition to a new component without a disruption in customer deliveries. However, the Company has incurred and expects to further incur increased product development costs by reason of such transition plans. In the event that the Company is unable to transition to the new component in time to meet its customer requirements and/or is unable to generate the liquidity required to pay the increased costs, such events could have a material adverse effect on the Company’s business, financial condition and results of operations.

Litigation

16. Subsequent Events

Related Party Loan

On October 1, 2008, the Company borrowed $250,000 from Howard S. Modlin, Chairman of the Board and Chief Executive Officer, reflected by a demand promissory note bearing interest at the rate of 10% per annum from the date of loan secured by the assets of the Company.

Maturity of Debentures

Debentures in the principal amount of $19,453,000 matured on October 1, 2008. While a subordinated security agreement signed by the indenture trustee on behalf of the debenture holders provides that no payments may be made to debenture holders and that no event of default may be declared under the indenture while senior secured debt is outstanding, in the absence of such restrictions the Company does not have the ability to repay the debentures. Senior secured debt in the principal amount of $7,255,945 was outstanding at October 1, 2008. Therefore, no payments to debenture holders have been made as of the maturity date.

Receivable Sales Agreement with Related Party

On October 24, 2008, the Company’s Subsidiary, General DataComm, Inc. entered into a Receivable Sales Agreement with Howard S. Modlin, the Company’s Chief Executive Officer, pursuant to which Mr. Modlin initially purchased receivables with a face value of $256,242 for an aggregate purchase price of $250,000, representing a 2.5% discount. Thereafter, Mr. Modlin made additional purchases in November and December of 2008 and January 2009 for an aggregate purchase price of $1,379,000 under this agreement.

Real Estate Mortgage

On December 8, 2008 the Company finalized an amendment of its subsidiary’s mortgage loan with Atlas Partners Mortgage Investors, LLC, for the purpose of extending the maturity of such mortgage loan from July 31, 2009 to July 31, 2010. As consideration for the extension, the interest rate was increased effective January 1, 2009 to 30-day LIBOR plus 8% from 30-day LIBOR plus 6%, the minimum 30-day LIBOR was set at 4%, and an extension fee of $45,000 is payable August 1, 2009. All other terms and conditions remain the same.

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

The Company is in discussions with an audit firm to perform the audit of its financial statements for the year ended September 30, 2008, to replace Eisner LLP who resigned as the Company’s independent registered public accounting firm on January 5, 2009. The Company has limited financial resources and is seeking to obtain audit and related services at a lower annual cost. As a result of delays associated with this transition, the accompanying financial statements included in Item 8 in this Form 10-K, are unaudited. The Company intends to file audited financial statements by amendment when available.

ITEM 9A(T).

CONTROLS AND PROCEDURES

The registrant carried out an evaluation, under the supervision and with the participation of the registrant’s management, including the registrant’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the registrant’s disclosure controls and procedures, as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the registrant’s disclosure controls and procedures as of September 30, 2008 were effective to ensure that information required to be disclosed by the registrant in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Management’s Annual Report on Internal Control over Financial Reporting. The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f) under the Securities Exchange Act). Under supervision and with the participation of management, including the principal executive officer and chief financial officer, an evaluation was conducted of the effectiveness of the Company’s internal control over financial reporting based on the framework in “Internal Control over Financial Reporting – Guidance for Smaller Public Companies” issued by the Committee of Sponsoring Organizations of the Treadway Commission.

The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the preparation and fair presentation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i)pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets: (ii)provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and directors; and (iii)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on the Company’s evaluation under the framework in “Internal Controls over Financial Reporting - Guidance for Smaller Public Companies”, management concluded that the Company’s internal control over financial reporting was effective as of September 30, 2008.

This annual report does not include an attestation report of a registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by a registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

There were no changes in the registrant’s internal control over financial reporting that occurred during the quarter ended September 30, 2008 that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

ITEM 9B.

OTHER INFORMATION

(b)	Reports on Form 8-K.

The following report on Form 8-K was filed during the last quarter of the period covered by this

report:

None

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

Name	Position	Age

Howard S. Modlin	Chairman of the Board of Directors,	77
	Chief Executive Officer, President and Secretary

William G. Henry	Vice President, Finance and Administration and	59
	Chief Financial Officer

George M. Gray	Vice President, Operations and	58
	Chief Technical Officer

John L. Segall	Director	82

Aletta P. Richards	Director	56

Mr. Howard S. Modlin, Chairman of the Board and Chief Executive Officer was elected to such position in November 2001 following the death of Charles P. Johnson, the Company’s founder. Mr. Modlin was also elected President in April 2003. Mr. Modlin is an attorney and President of the firm of Weisman Celler Spett & Modlin, P.C., and has been Secretary, a Director and counsel to the Company since its formation.

Mr. William G. Henry, Vice President, Finance and Administration and Chief Financial Officer, joined the Company as Corporate Controller in January 1984, was appointed an officer of the Company in June 1989, was elected Vice President in February 1996, was promoted to Vice President, Finance and Chief Financial Officer in February 1999 and to his present positions in April 2003.

Mr. George M. Gray, Vice President, Operations and Chief Technical Officer, has held positions of major responsibility within the Company since September 18, 2000 and has served in executive capacities since September 15, 2003.

Mr. John L. Segall has been a Director of the Company since 1994. He is a consultant, former Vice Chairman of GTE from 1991 to 1994 and former Vice Chairman of Contel Corp. from 1989 to 1994.

Ms. Aletta P. Richards has been a Director of the Company since September 15, 2003 and is the director designee on behalf of the Trustee under the Indenture governing the Company’s debentures. During the past five years she has been Corporate Credit Manager of Sanmina Corporation.

AUDIT COMMITTEE

The Audit Committee is comprised of one director who is not an officer or employee of the Company. The Audit Committee had four meetings during the 2008 fiscal year to review and approve the fiscal 2008 interim unaudited financial statements and fiscal 2007 audited financial statements.

AUDIT COMMITTEE FINANCIAL EXPERT

The Company’s Board of Directors does not have an “audit committee financial expert”. Mr. Lee Paschall was previously an audit committee financial expert and an independent director, as that term is used in Item 7 (d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934. Mr. Paschall died on December 17, 2006 and has not been replaced.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

The Corporation’s executive officers and directors are required under Section 16(a) of the Securities Exchange Act of 1934 to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Copies of those reports must also be furnished to the Corporation.

Based solely on a review of the copies of reports furnished to the Corporation and discussions with the Corporation’s executive officers and directors, the Corporation believes that during the preceding year, all filing requirements applicable to executive officers and directors were met.

CODE OF CONDUCT AND ETHICS

We have adopted a Code of Conduct and Ethics (“Code”) that applies to all of the Company’s employees. The Code is located on the Company’s website (www.gdc.com). Any amendments or waivers to the Code will be promptly disclosed on our website as required by applicable laws, rules and regulations of the Securities and Exchange Commission.

ITEM 11.

EXECUTIVE COMPENSATION

Reference is made to Item 1A of this Report on Form 10-K to the discussion of Risk Factors, relating to the ability of certain persons or groups to elect designees to the Board of Directors which could result in a change in control.

The following Summary Compensation Table sets forth the compensation paid or awarded to the named executive officers of the registrant for the fiscal years ended September 30, 2008, 2007 and 2006:

SUMMARY COMPENSATION TABLE

	Annual Compensation							Long Term Compensation
								Awards			Payouts
						Other				Securities
						Amount		Restricted		Underlying			All Other-
Name and						Compens-		Stock		Optional	LTIP		Compen-
Principal Position	Year	Salary		Bonus		ation		Awards		SARS	Payouts		sation
	($)	($)		($)		($)		($)		(#)	($)		($)

Howard S. Modlin(1)	2008	$	46,030		-	$	1,385		-	-		-		-
Chairman of the	2007		-		-		-		-	-		-		-
Board of Directors and	2006		-		-		-		-	-		-		-
Chief Executive Officer

William G. Henry(2)	2008	$	165,377		-	$	8,190		-	-		-		-
Vice President,	2007	$	151,592		-	$	8,190		-	-		-		-
Finance and	2006	$	150,302		-	$	8,190		-	-		-		-
Administration and
Chief Financial Officer

George M. Gray(2)	2008	$	153,843		-	$	7,545		-	-		-		-
Vice President,	2007	$	139,630		-	$	7,545		-	-		-		-
Operations and Chief	2006	$	144,345		-	$	7,545		-	-		-		-
Technology Officer

George T. Best(2)	2008		-		-		-		-	-		-		-
Vice President, Sales	2007		-		-		-		-	-		-		-
and Marketing	2006	$	93,942		-	$	18,441		-	-		-		-

(1)

Except for a four week period in 2008, Mr. Modlin has served without salary or bonus since he assumed such positions in November 2001 following the death of the Company’s founder and Chairman, Charles P. Johnson. The Company is paying the annual premium on a $5,000,000 life insurance policy which the Company owns, on Mr. Modlin's life at an approximate annual cost of $45,400. Such amounts are not included in All Other Compensation as the Company is the owner of said policy.

(2)

Mr. Henry became Vice President, Finance and Administration in April 2003. He was elected Vice President, Finance and Chief Financial Officer in fiscal 1999. Messrs. Gray and Best became executive officers on September 15, 2003. Mr. Best resigned his position on August 18, 2006.

(3)

Other Annual Compensation is comprised of the following:

		Car Allowance		Term Life Insurance		Commissions		Total

Howard S. Modlin	2008	$	1,385	$	-	$	-	$	1,385
William G. Henry	2008		6,900		1,290		-		8,190
	2007		6,900		1,290		-		8,190
	2006		6,900		1,290		-		8,190
George M. Gray	2008		6,900		645		-		7,545
	2007		6,900		645		-		7,545
	2006		6,900		645		-		7,545
George T. Best	2006		4,379		792		13,270		18,441

Reference is made to Notes 3, 11 and 16 in the Notes to Consolidated Financial Statements in Item 8 of this Report on Form 10-K for description of related party transactions and loans and receivables purchases made by Messrs. Modlin and Segall to the Company:

The following table sets forth information concerning individual grants of stock options made during the fiscal year ended September 30, 2008.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

(Individual Grants)

	Number of		Percent Of
	Securities		Total Options
	Underlying		SARs Granted			Exercise Or
	Options/SARs		To Employees			Base Price
Name	Granted		In Fiscal Year			(SARs)		Expiration Date

Howard S. Modlin, CEO		551,121		63.8	%	$	0.275	October 10, 2017
William G. Henry		30,000		3.5	%	$	0.25	October 10, 2017
George M. Gray		30,000		3.5	%	$	0.25	October 10, 2017

The following table sets forth certain summary information covering each exercise of stock options to purchase the Company’s common stock during the fiscal year ended September 30, 2008 by each of the named executive officers and the value of unexercised options as of September 30, 2008:

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND

FISCAL YEAR-END OPTION/SAR VALUES

					Number of Securities Underlying Unexercised Options at Fiscal Year End (#)				Value of Unexercised In-The–Money Options at Fiscal Year-End ($)
Name	Shares Acquired on Exercise (#)		Value Realized ($)		Exercisable		Unexercisable		Exercisable		Unexercisable

Howard S. Modlin, CEO		0		0		661,947		1,543,137		0		0
William G. Henry		0		0		51,751		84,000		0		0
George M. Gray		0		0		49,000		84,000		0		0

The following table sets forth that there were no awards made to each named executive officer during the fiscal year ended September 30, 2008 under any Long-Term Incentive Plan (“LTIP”):

LONG-TERM INCENTIVE PLANS – AWARDS IN LAST FISCAL YEAR

Preference or Other

Estimated Future Payouts Under

Number of

Period Until

Non-Stock Price-Based Plans

Name

Shares #

Maturities or Payment

Threshold

Target

Maximum

Howard S. Modlin, CEO

None

William G. Henry

None

George M. Gray

None

George T. Best

None

Director Compensation

No fees were paid to Directors for attendance at Board and Committee Meetings for the fiscal year ended September 30, 2008.

Employment Contracts

The Company has no employment contracts with any of its executives.

Stock Option Plans

Under the terms of the Company's Stock Option Plans in effect prior to 2003, officers and key employees under those plans selected by the Chairman of the Board or the Stock Option Committee, as the case may be, may be granted incentive stock options at an exercise price equal to or greater than the fair market value per share on the date of grant and non-incentive stock options at an exercise price equal to, greater than or less than the fair market value per share on the date of grant. While individual options can be issued under various provisions, options cannot be exercised during the first year, generally vest in increments of 25% per year over a four-year period and expire within ten years for outstanding options granted under the older plans. The Chairman or the Stock Option Committee, as the case may be, determines the number of stock options to be granted to any person, subject to the limitations on incentive stock options in Section 422A of the Internal Revenue Code of l986, as amended ("Code").

On September 15, 2003 the Company adopted the 2003 Stock and Bonus Plan (“2003 Plan”) reserving 459,268 shares of Class B stock and 459,268 shares of common stock for grant by the Stock Option Committee of the Board of Directors. The 2003 Plan provides for outright stock grants, conditional stock grants and non-incentive stock options.

On January 26, 2005, the Board of Directors adopted the 2005 Stock and Bonus Plan (“2005 Plan”) covering 1,200,000 shares of common stock, and the Stock Option Committee authorized certain options pursuant to the 2005 Plan. 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 October 11, 2007, the Stock Option Committee of the Board of Directors granted stock options pursuant to the Corporation’s 2005 Plan to purchase 312,900 shares of common stock at the quoted market price of $.25 per share, including grants of 30,000 shares to each of 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 192,900 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 with terms similar to options granted under the Plan to purchase 551,121 shares at $.275 a share. All such options vest in increments of 20% a year over a five year period and expire ten years after grant.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth information as of November 30, 2008 with respect to the beneficial ownership of the Corporation’s Class B stock and common stock by all persons known by the Corporation to own more than 5% of the Corporation’s outstanding Class B stock or common stock who are deemed to be such beneficial owners of the Corporation's Class B stock or common stock under Rule 13d-3. The Percent of Class and Percent of All Classes presented are based upon shares outstanding at November 30, 2008and all outstanding options and warrants are at exercise prices that are higher than the market price for common stock on November 30, 2008. Class B stock is convertible into common stock at any time on a share-for-share basis.

Title of Class	Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership			Percent of Class			Percent of All Classes

Class B Stock, $.01 par value	Howard S. Modlin General DataComm Naugatuck, CT 06770		459,943	(1)		72.5	%		5.1	%

Common Stock, $.01 par value	Howard S. Modlin General DataComm Naugatuck, CT 06770		4,866,805	(1)		58.3	%		59.3	%

Common Stock, $.01 par value	John L. Segall General DataComm Naugatuck, CT 06770		1,185,747	(2)		25.5	%		22.4	%

(1)

The amount of common stock beneficially owned by Howard S. Modlin includes the following: 9,053 shares owned by Mr. Modlin’s law firm pursuant to Rule 13d-3, 909,090 shares deemed owned on exercise of a seven year warrant at $.275 a share issued April 20, 2006, 2,084,204 shares deemed owned on exercise of a seven year warrant at $.575 a share issued December 9, 2005, 761,614 shares deemed owned on exercise of a five year warrant at $.32825 a share issued September 30, 2004, 600 shares deemed owned based on options to purchase common stock which could be exercised by Mr. Modlin at $26.875 per share expiring October 20, 2009, 440,897 shares at $.61 per share deemed owned pursuant to an option granted January 26, 2005, 330,673 shares at $.50 a share under an option granted November 22, 2005, 220,449 shares under an option granted October 10, 2006 and 110,225 shares at $.275 a share under an option granted October 11, 2007. The amount of common stock and Class B stock does not include an aggregate of 93,324 shares of common and Class B stock, or 2.26% of the outstanding shares consisting of (i) 11,200 shares of common stock and 3,400 shares of Class B stock owned by Mr. Modlin’s wife, the beneficial ownership of which Mr. Modlin disclaims, and (ii) an aggregate of 82,124 shares, held as trustee for the benefit of two children of Charles P. Johnson, the Company’s former Chairman, of which Mr. Modlin is the sole trustee, the beneficial ownership of which Mr. Modlin disclaims. Such shares held as trustee consist of 75,684 shares of Class B stock convertible into a like number of shares of common stock, 4,608 shares of common stock and an additional 1,832 shares of common stock if 10,000 shares of the Company’s 9% Cumulative Convertible Exchangeable Preferred Stock are converted into common stock at $136.50 per share. In calculating the aforesaid percentage of excluded shares, the amount of 1,832 shares acquirable on conversion is added to the shares of the Company outstanding at September 30, 2007. The 58.3% of common stock deemed owned is obtained by dividing the number of common stock shares deemed owned by the outstanding common stock increased by adding all shares acquirable on exercise or conversion in the next 60 days. The balance of the shares under the stock options granted January 25, 2005, November 22, 2005 and October 10, 2006 are not included because no such shares may be acquired in the next 60 days. All such exercise prices of warrants and options are substantially higher than the market price for the common stock of $.03 per share on December 30, 2008.

(2)

Pursuant to Rule 13d-3, 1,100,047 shares of common stock are deemed owned by Mr. Segall on the exercise of a seven year warrant issued December 9, 2005, 600 shares are deemed owned based on options to purchase common stock which could be exercised at $26.875 per share expiring October 20, 2009, 24,000 shares pursuant to an option granted January 26, 2005 at $.55 per share, 18,000 shares pursuant to an option granted November 22, 2005 at $.45 a share, 12,000 shares pursuant to an option granted October 10, 2006 at $.18 a share and 6,000 shares pursuant to an option granted October 11, 2007 at $.25 a share.

Each director and each executive officer listed in the Summary Compensation Table in Item 11 of this Form 10-K has advised the Corporation that, as of November 30, 2008 he or she owned beneficially, directly or indirectly, securities of the Corporation in the amounts set forth opposite his or her name as follows:

Name	Shares of Common Stock Owned			Percent of Class			Shares of Class B Stock Owned (1)		Percent of Class			Percent of All Classes

Howard S. Modlin		4,866,805	(2)		58.3	%		459,943		72.5	%		59.3	%

John L. Segall		1,185,747	(3)		25.5	%		-		-			22.4	%

William G. Henry		100,804	(4)		2.8	%		-		-			2.4	%

George M. Gray		98,000	(5)		2.8	%		-		-			2.3	%

Aletta Richards		60,000	(6)		1.7	%		-		-			1.4	%

Directors and Officers as a group (5 individuals)		6,311,356	(7)		65.0	%		459,943		72.5	%		65.4	%

(1)	The Class B stock is convertible into common stock at any time on a share-for-share basis.

(2)	See Note 1 to preceding table listing all persons known to own more than 5% of the Corporation’s common stock or Class B stock.

(3)	See Note 2 to preceding table listing all persons known to own more than 5% of the Corporation’s common stock or Class B stock.

(4)	Includes 25,000 shares owned by Mr. Henry, 75,751 shares which Mr. Henry could acquire by the exercise of stock options within sixty (60) days and 53 shares held in the Corporation’s 401(k) Stock Fund.

(5)	Includes 25,000 shares owned by Mr. Gray and 73,000 shares which Mr. Gray could acquire by the exercise of stock options within sixty (60) days.

(6)	Includes 60,000 shares which Ms. Richards could acquire by the exercise of stock options within sixty (60) days.

(7)

Includes 75,100 shares of common stock owned by persons in the group, 1,372,195 shares of common stock which persons in the group have the right to acquire by the exercise of stock options within sixty (60) days, 53 shares of common stock held in the Corporation’s 401(k) Stock Fund, 9,053 shares of common stock held by Mr. Modlin’s law firm, 761,614 shares acquirable by Mr. Modlin on exercise of a warrant at $0.32825 a share, 2,084,204 shares acquirable by Mr. Modlin on exercise of a warrant at $0.575, 909,090 shares acquirable by Mr. Modlin on exercise of a warrant at $0.275 a share and 1,100,047 shares acquirable by Mr. Segall on exercise of a warrant at $0.575 a share. Does not include 3,400 shares of Class B Stock and 11,200 shares of common stock owned directly by members of the directors’ and officers’ immediate families, the beneficial ownership of which they disclaim. Also does not include 78,683 shares of Class B stock and 6,439 shares of common stock beneficially held in trusts for children of Charles P. Johnson, the Company’s former Chairman, of which Mr. Modlin is the sole trustee, the beneficial ownership of which Mr. Modlin disclaims.

Equity Compensation Plan Information

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans

Equity compensation plans approved by security holders		6,701	$	26.24	None

Equity compensation plans not approved by security holders		3,363,970		0.54		443,596

Total		3,370,671	$	0.59		443,596

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 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% per year over a five-year period and expire within ten years. Under the terms of these stock option plans, the Company has reserved a total of 443,596 shares of common stock at September 30, 2008.

The 2003 Stock and Bonus Plan also provides for outstanding grants of stock as described in Note 11 to the consolidated financial statements. Officers, directors and employees are eligible for such grants under such plan.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Mr. Howard Modlin, Secretary and a Director of the Company since 1969 and Chairman of the Board of Directors of the Company since November 2001 and currently Chairman, President and Chief Executive Officer, is also President of the law firm of Weisman Celler Spett & Modlin, P.C. (“WCSM”) to whom the Company was indebted for legal services of $2,179,000 for work performed prior to the Company’s bankruptcy filing in November 2001 and in settlement for which the Company issued subordinated debentures. The bankruptcy court also approved $294,000 for work performed by WCSM while the Company operated in bankruptcy. Furthermore, the Company was indebted to Mr. Modlin for fees for Company director meetings for which he received subordinated debentures in the total amount of $16,400. Thereafter, WCSM agreed to work on a specific litigation matter on a contingency basis (see Note 15). WCSM has outstanding amounts owed totaling $1,443,000 for work performed for the Company between September 15, 2003 and September 30, 2008.

On September 30, 2003 the Stock Option Committee of the Board of Directors awarded Mr. Modlin 459,268 shares of the Corporation’s Class B stock and Lee M. Paschall and John L. Segall, Directors, 25,000 shares each of the Corporation’s common stock, all subject to registration restrictions. Refer to Note 11, “Employee Incentive Plans” for further discussion. Messrs. Segall and Paschall respectively received subordinated debentures in the total amount of $19,900 and $17,900 in payment for directors fees for Company director meetings they attended prior to November 2001. In addition, Messrs. William G. Henry, Vice President, Finance and Administration, and George M. Gray, Vice President, Manufacturing and Engineering, have been issued subordinated debentures for services and bonuses prior to the Company’s bankruptcy filing in the amounts of $125,000 and $50,000, respectively.

Notes Payable to Related Parties

In the quarter ended March 31, 2007, Mr. Modlin made demand loans to the Company totaling $270,000 and $125,000, respectively, and which bore interest at the annual rate of 10%. Such loans were paid off in the quarter ended March 31, 2008. On April 30, May 13, July 9 and September 18, 2008, Mr. Modlin made demand loans to the Company in the amounts of $175,000, $75,000, $110,000 and $175,000 respectively. Such loans bear interest at the annual rate of 10%. The loan made on July 9, 2008 was repaid on July 17, 2008. (See Note 16, “Subsequent Events” for reference to receivable purchases made by Mr. Modlin to the Company after September 30, 2008.

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The audit for the year ended September 30, 2008 has not been completed and, therefore, the final audit fees have not been determined. The aggregate fees billed to the Company for the year ended September 30, 2007, by its principal accounting firm, Eisner LLP, were as follows:

Audit Fees: The aggregate fee for professional services rendered by Eisner LLP in connection with (i) the audit of annual financial statements (Form 10-KSB), and (ii) reviews of quarterly financial statements (Forms 10-QSB) for the year ended September 30, 2007 was $187,500.

Audit Related Fees: There were no fees for professional services rendered by Eisner LLP for assurance and related services related to the audit services in connection with the Company’s financial statements for the year ended September 30, 2007.

Tax Fees: There were no fees for professional services rendered by Eisner LLP for tax compliance, tax advice and tax planning for the year ended September 30, 2007.

All Other Fees: There were no fees for professional services that were not included in audit fees, audit-related fees and tax fees for the year ended September 30, 2007.

Pre-Approval Policies and Procedures for Audit and Permitted Non-Audit Services.

The Audit Committee has a policy of considering and, if deemed appropriate, approving, on a case by case basis, any audit or permitted non-audit services proposed to be performed by the Company’s independent auditor in advance of the performance of such service. These services may include audit services, audit-related services, tax services and other services. The Audit Committee has not implemented a policy or procedure which delegates the authority to approve, or pre-approve, audit or permitted non-audit services to be performed by the Company’s independent auditor. In connection with making any pre-approval decision, the Audit Committee must consider whether the provision of such permitted non-audit services by the Company’s independent auditor is consistent with maintaining such firm’s status as the Company’s independent auditors.

Consistent with these policies and procedures, the Audit Committee approved all of the services rendered by Eisner LLP during the fiscal year ended September 30, 2007 as described above.

PART IV

ITEM 15.

EXHIBITS

Exhibit No.		Description

3.1		Corrected Certificate of Amended and Restated Certificate of Incorporation of the Corporation 1

3.2		Amended By-Laws of the Corporation 2

4.1		Certificate of the Powers, Designation, Preferences, Rights and Limitations of 9% Cumulative Convertible Exchangeable Preferred Stock 3

4.2		Indenture dated September 15, 2003 covering issued 10% Adjustable Senior Sub-ordinated Debentures due 2007 4

4.3		Promissory Notes in the amounts of $343,315.07, $143,047.95, $146,164.38, $286,095.84 and $279,794.52, issued to Howard S. Modlin 5

4.4		Promissory Notes in the amounts of $343,315.07, $143,047.95 and $146,164.38 issued to John L. Segall 6

4.5		Warrant issued to Howard S. Modlin 7

4.6		Warrant D-2 issued to Howard S. Modlin 8

4.7		Warrant D-3 issued to John L. Segall9

4.8		Promissory Note in the amount of $250,000 issued to Howard S. Modlin10

4.9		Warrant D-4 issued to Howard S. Modlin11

4.10		Promissory Notes in the amounts of $125,000 and $100,000 issued to Howard S. Modlin12

10.1		2003 Stock and Bonus Plan, as amended 13

10.2		Form of Stock Option to employees 14

10.3		Form of Stock Option to Directors 15

10.4		Additional Senior Security Agreement 16

10.5		1998 Stock Option Plan, as amended 17

10.6		2005 Stock Option Plan, as amended 18

10.7		Retirement Savings and Deferred Profit Sharing Plan, and related amendments 19

10.8		Subordinated Security Agreement dated September 15, 2003 20

10.9		Open End Mortgage in favor of Atlas Partners Mortgage Investors, LLC as amended 21

10.10		First Amendment to Open End Mortgage 22

10.11		Mortgage Note in favor of Atlas Partners Mortgage Investors, LLC 23

10.12		Receivable Sales Agreement 24

10.13		Open-End Mortgage Deed (filed herewith)

10.14		First Modification of Open-End Mortgage Deed (filed herewith)

10.15		Eleventh Amendment to Additional Senior Security Agreement dated October 1, 2008 (filed herewith)

10.16		$250,000 Negotiable Promissory Note dated October 1, 2008 (filed herewith)

14.1		Code of Conduct and Ethics25

21		Subsidiaries of the Registrant

31.1		Rule 13a-15(e)/15d-15(e) Certification by Chief Executive Officer.

31.2		Rule 13a-15(e)/15d-15(e) Certification by Chief Financial Officer.

32.1		Section 1350 Certification by Chief Executive Officer.

32.2		Section 1350 Certification by Chief Financial Officer.

Exhibit footnotes

1	Incorporated by reference to Exhibit 3.1 to Form 10KSB for year ended September 30, 2005

2	Incorporated by reference to Exhibit 3.2 to Form 8-K/A dated September 18, 2003.

3	Incorporated by reference to Exhibit 4 to Form dated October 8, 1996.

4	Incorporated by reference to Exhibit 4.1 to Form 8-K dated September 17, 2003.

5	Incorporated by reference to Exhibits 10.2, 10.4, 10.6, 10.8 and 10.9 to Form 8-K dated December 14, 2005.

6	Incorporated by reference to Exhibits 10.3, 10.4 and 10.5 to Form 8-K dated December 14, 2005.

7	Incorporated by reference to Exhibit 10.3 to Form 8-K dated October 4, 2004.

8	Incorporated by reference to Exhibit 4.1 to Form 8-K dated December 14, 2005

9	Incorporated by reference to Exhibit 4.2 to Form 8-K dated December 14, 2005

10	Incorporated by reference to Exhibit 10.2 to Form 8-K dated April 25, 2006

11	Incorporated by reference to Exhibit 4.1 to Form 8-K dated April 25, 2006

12	Incorporated by reference to Exhibits 10.2 and 10.3 to Form 8-K dated March 14, 2007

13	Incorporated by reference to Exhibit 10.1 to Form 10-K for the year ended September 30, 2007

14	Incorporated by reference to Exhibit 4.3 to Registration Statement No. 333-131964

15	Incorporated by reference to Exhibit 4.4 to Registration Statement No. 333-131964

16	Incorporated by reference to Exhibit 10.1 to Form 8-K dated January 8, 2004. The Eighth Amendment thereto incorporating all prior amendments is incorporated by reference to Exhibit 10.1 to Form 8-K dated March 9, 2007.

17	Incorporated by reference to Exhibit 10.6 to Form 10-K for the year ended September 30, 2007

18	Incorporated by reference to Exhibit 10.7 to Form 10-K for the year ended September 30, 2007

19	Incorporated by reference from Form S-8, Registration Statement No. 33-37266. Amendments thereto are incorporated by reference to Exhibit 10.16 to Form 10-Q for the quarter ended December 31, 1996.

20	Incorporated by reference to Exhibit 10.1 to Form 8-K/A dated September 18, 2003.

21	Incorporated by reference to Exhibit 10.1 to Form 8-K dated August 1, 2007.

22	Incorporated by reference to Exhibit 99.2 to Form 8-K dated December 9, 2008.

23	Incorporated by reference to Exhibit 99.2 to Form 8-K dated December 9, 2008.

24	Incorporated by reference to Exhibit 99.2 to Form 8-K dated October 27, 2008.

25	Incorporated by reference to Exhibit 14.1 to Form 10-K for year ended September 30, 2003.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

Signature	Title	Date


/s/ HOWARD S. MODLIN	Chairman of the Board and	January 13, 2009
HOWARD S. MODLIN	Chief Executive Officer


/s/ WILLIAM G. HENRY	Vice President,	January 13, 2009
WILLIAM G. HENRY	Finance & Administration,
	Chief Financial Officer


/s/ JOHN L. SEGALL	Director	January 13, 2009
JOHN L. SEGALL


__________________	Director	January 13, 2009
ALETTA RICHARDS

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