<PAGE>
                                 UNITED STATES
                                       
                      SECURITIES AND EXCHANGE COMMISSION
                                       
                            Washington D.C.  20549
                                       
                                   FORM 10-Q
                                       
                                  (Mark One)
                                       
  ( X )   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                             EXCHANGE ACT OF 1934
                                       
               For the Quarterly Period Ended September 30, 1997
                                       
                                      OR
                                       
 (   )   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                             EXCHANGE ACT OF 1934
                                       
                  For the Transition Period from _________ to _________
                                       
                       Commission File Number:  1-12491
                                       
                             LARSCOM INCORPORATED
            (Exact name of registrant as specified in its charter)
                                       
                 Delaware                                   94-2362692
                                       
      (State or other jurisdiction of                   (I.R.S. Employer
     incorporation or organization)                    Identification No.)
                                       
                             1845 MCCANDLESS DRIVE
                              MILPITAS, CA  95035
                                (408) 941-4000
                                       
    (Address of principal executive offices, zip code and telephone number)
                                       

                           4600 PATRICK HENRY DRIVE 
                            SANTA CLARA, CA 95054   
                                                    
                              (Former Address)      

Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months (or for such shorter period that the 
registrant was required to file such reports), and (2) has been subject to 
such filing requirements for the past 90 days.         Yes  X    No 
                                                           ---      ---

The number of the registrant's shares outstanding as of October 31, 1997, was 
8,137,287 of Class A Common Stock and 10,000,000 of Class B Common Stock.

<PAGE>

                             LARSCOM INCORPORATED

                                  FORM 10-Q
                              TABLE OF CONTENTS


PART I:  FINANCIAL INFORMATION............................................   3

ITEM I:  FINANCIAL STATEMENTS.............................................   3

  CONDENSED CONSOLIDATED BALANCE SHEETS...................................   3

  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS.........................   4

  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS.........................   5

  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS....................   6

ITEM 2:   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS...........................................   8

PART II:  OTHER INFORMATION...............................................  16

ITEM 6:   EXHIBITS AND REPORTS ON FORM 8-K:...............................  16

  A: Exhibits.............................................................  16

  B: Form 8-K.............................................................  16

  SIGNATURES..............................................................  17


                                       2
<PAGE>

PART I:        FINANCIAL INFORMATION

ITEM I:        FINANCIAL STATEMENTS


                            LARSCOM INCORPORATED
                   CONDENSED CONSOLIDATED BALANCE SHEETS
                               (In thousands)

<TABLE>
<CAPTION>
                                   ASSETS
                                                        SEPTEMBER 30,  DECEMBER 31,
                                                        -------------  ------------
                                                            1997           1996
                                                        -------------  ------------
Current assets:                                                (UNAUDITED)
<S>                                                     <C>            <C>
  Cash and cash equivalents                              $  25,530     $  46,403
  Short-term investments                                    23,732             -
  Accounts receivable, net                                  11,299         9,478
  Inventories                                               11,483         8,654
  Deferred income taxes and income taxes receivable          2,589         2,026
  Prepaid expenses and other assets                          3,240           722
                                                         ---------     ---------
    Total current assets                                    77,873        67,283
Property and equipment, net                                  6,313         5,530
Other assets                                                   216           230
                                                         ---------     ---------
    Total assets                                         $  84,402     $  73,043
                                                         ---------     ---------
                                                         ---------     ---------

                    LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                       $   4,270     $   2,569
  Accrued expenses and other current liabilities             7,217         7,441
  Due to Axel Johnson Inc.                                     597         1,329
                                                         ---------     ---------
    Total current liabilities                               12,084        11,339
                                                         ---------     ---------

Deferred income taxes                                            -           259
                                                         ---------     ---------
Stockholders' equity:
  Class A Common Stock                                          81            70
  Class B Common Stock                                         100           107
  Additional paid-in capital                                80,929        76,392
  Accumulated deficit                                       (8,792)      (15,124)
                                                         ---------     ---------
    Total stockholders' equity                              72,318        61,445
                                                         ---------     ---------
    Total liabilities and stockholders' equity           $  84,402     $  73,043
                                                         ---------     ---------
                                                         ---------     ---------
</TABLE>

                                       3
<PAGE>

                             LARSCOM INCORPORATED
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share data)

<TABLE>
<CAPTION>

                                                     THREE MONTHS ENDED SEPTEMBER 30,   NINE MONTHS ENDED SEPTEMBER 30,
                                                     --------------------------------   -------------------------------
                                                           1997           1996               1997          1996
                                                        ----------     ----------         ----------    ----------
                                                                                (UNAUDITED)
<S>                                                  <C>               <C>                <C>           <C>
Revenues                                                $  19,336      $  18,357          $  54,894     $  48,981
Cost of revenues                                            8,235          8,201             23,815        21,961
                                                        ---------      ---------          ---------     ---------
 Gross profit                                              11,101         10,156             31,079        27,020
                                                        ---------      ---------          ---------     ---------

Operating expenses:
 Research and development                                   2,436          2,101              7,052         5,732
 Selling, general and administrative                        5,220          5,223             15,411        14,132
                                                        ---------      ---------          ---------     ---------
  Total operating expenses                                  7,656          7,324             22,463        19,864
                                                        ---------      ---------          ---------     ---------

Income from operations                                      3,445          2,832              8,616         7,156
Interest expense charged by Axel Johnson Inc.                 (19)          (195)               (56)         (195)
Interest income                                               413              -              1,333             -
                                                        ---------      ---------          ---------     ---------
Income before income taxes                                  3,839          2,637              9,893         6,961
Provision for income taxes                                  1,382          1,083              3,561         2,860
                                                        ---------      ---------          ---------     ---------
Net income                                              $   2,457      $   1,554          $   6,332     $   4,101
                                                        ---------      ---------          ---------     ---------
                                                        ---------      ---------          ---------     ---------

Net income per share (1)                                $    0.14      $    0.11          $    0.35     $    0.29

Shares used to compute net income per share                18,098         14,193             18,058        14,193

</TABLE>

(1)  Net income per share for the three and nine months ended September 30, 
1996 is supplemental and is calculated as described in Note 1 of the Notes to 
the Consolidated Financial Statements included under Item 8 of the Company's 
Report on Form 10-K for the year ended December 31, 1996.

                                       4
<PAGE>



                              LARSCOM INCORPORATED
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (In thousands)

<TABLE>
<CAPTION>
                                                     NINE MONTHS ENDED SEPTEMBER 30,
                                                     -------------------------------
                                                           1997           1996      
                                                        ----------     ----------   
                                                              (UNAUDITED)
<S>                                                  <C>               <C>           
Cash flows from operating activities
 Net income                                             $   6,332      $  4,101
 Depreciation and amortization                              1,796         1,818
 Loss on disposal of property and equipment                   198             -
 Net increase in working capital                           (6,251)       (5,587)
                                                        ----------     ----------   
Net cash provided by operating activities                   2,075           332
                                                        ----------     ----------   

Cash flows from investing activities:
 Purchases of short-term investments                     (191,944)            -
 Maturities of short-term  investments                    119,110             -
 Sales of short-term investments                           49,102             -
 Purchase of property and equipment                        (2,719)       (2,081)
                                                        ----------     ----------   
Net cash used by investing activities                     (26,451)       (2,081)
                                                        ----------     ----------   

Cash flows from financing activities:
  (Repayments to) advances from Axel Johnson Inc.            (732)        1,750
 Proceeds from issuance of Class A Common Stock             4,235             -
                                                        ----------     ----------   
Net cash provided by financing activities                   3,503         1,750
                                                        ----------     ----------   
(Decrease) increase in cash and cash equivalents          (20,873)            1
Cash and cash equivalents at beginning of period           46,403            30
                                                        ----------     ----------   
Cash and cash equivalents at end of period              $  25,530      $     31
                                                        ----------     ----------   
                                                        ----------     ----------   

Supplemental disclosure of cash flow information
Interest paid                                           $      56      $    195
                                                        ----------     ----------   
Income taxes paid                                       $   4,368      $  3,297
                                                        ----------     ----------   

Supplemental disclosure of non-cash financing 
  activities
Shares issued in connection with cancellation 
  of the Company's Long-Term Incentive Plans            $     306      $      -
                                                        ----------     ----------   
Dividend declared                                       $       -      $ 25,000
                                                        ----------     ----------   

</TABLE>

                                       5


<PAGE>

                             LARSCOM INCORPORATED

            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--BASIS OF PRESENTATION:

     The condensed consolidated financial statements for the three and nine 
months ended September 30, 1997 and 1996 presented in this Quarterly Report 
on Form 10-Q are unaudited.  In the opinion of management these statements 
include all adjustments (consisting only of normal recurring adjustments) 
necessary for a fair statement of the results for the interim periods 
presented.  The condensed consolidated financial statements should be read in 
conjunction with the audited consolidated financial statements and notes 
thereto included in the Annual Report on Form 10-K of Larscom Incorporated 
(the "Company") for the year ended December 31, 1996. The results of 
operations for the first nine months of 1997 are not necessarily indicative 
of the results to be expected for the full year or any future period.

NOTE 2--INVENTORIES:

Inventories consist of the following:

                                                September 30,  December 31,
                                                -------------  ------------
                                                     1997         1996
                                                -------------  ------------
                                                      (In thousands)
Inventories:
 Raw materials                                    $  2,463      $  1,508
 Work in process                                     2,724         1,823
 Finished goods                                      6,296         5,323
                                                -------------  ------------
                                                  $ 11,483      $  8,654
                                                -------------  ------------
                                                -------------  ------------

NOTE 3--COMMON STOCK OFFERING:

     In December 1996, the Company completed an initial public offering of 
7,000,000 shares of Class A Common Stock at a price of $12 per share, of 
which 5,800,000 shares were sold by the Company and 1,200,000 shares were 
sold by Axel Johnson Inc.  After deducting the underwriting discount of 
$4,872,000 and issuance costs of $1,449,000, the Company received net 
proceeds of $63,279,000 in December 1996.  Subsequent to December 31, 1996, 
the underwriters exercised their over-allotment option and sold an additional 
1,050,000 shares, of which 350,000 were sold by the Company and 700,000 were 
sold by Axel Johnson Inc. Net proceeds to the Company in January 1997 were 
$3,827,000 after deducting the underwriting discount of $294,000 and 
additional issuance costs of $79,000.

     In March 1997, 25,518 shares of Class A Common Stock were issued to 
certain employees at a cost of $12 per share in connection with the 
cancellation of the Company's Long-Term Incentive Plans.  An additional 
61,769 shares of Class A Common Stock were issued in August 1997 for 
consideration of $408,000 to employees under the Company's Employee Stock 
Purchase Plan.

NOTE 4--COMMITMENTS AND CONTINGENCIES:

     There are potential unasserted claims against the Company relating to 
pricing deficiencies under two product supply contracts subject to General 
Services Administration ("GSA") regulations.  Management has completed an 
assessment of its performance under the GSA contracts, assessed its potential 
liability with the assistance of the Company's outside experts and legal 
counsel, and voluntarily disclosed the identified pricing deficiencies to the 
GSA contracting officer responsible for the Company's contracts. Although the 
ultimate resolution of this matter potentially could involve purchase price 
rebates and associated legal, audit and other costs of up to an aggregate of 
approximately $1,300,000 or more,


                                     6

<PAGE>

                               LARSCOM CORPORATION


management believes, after consultation with its outside experts and legal 
counsel, that the Company's exposure for this matter is not likely to exceed 
$800,000, which includes estimated purchase price rebates and associated 
legal, audit and other costs, and prior to December 31, 1996, the Company 
established a reserve for this amount less an initial payment of $268,000 
made in December 1996.  In August 1997 the Company was notified by the GSA 
that they were commencing the audit of certain GSA contracts.  This audit 
commenced in September 1997 but has not yet been finalized.  In management's 
opinion, the ultimate resolution of this matter will not have a material 
adverse effect on the Company's financial position or results of operations.

     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.

NOTE 5--NEW LEASE COMMITMENTS:

     On March 20, 1997, the Company entered into an operating lease under 
which the Company agreed to pay approximately $164,000 per month for 119,000 
square feet of space located in Milpitas, California, near to the Company's 
previous facilities in Santa Clara, California.  The lease commenced in 
September 1997 and lasts for seven years.  The Company has an option to 
extend the lease for a period of five years subject to certain conditions.  
These facilities have replaced the Company's previous facilities in Santa 
Clara.  Of the 119,000 square feet the Company is currently occupying 80,000 
square feet of the new building and has entered into a sublease for a portion 
of the remaining space.

NOTE 6--SHORT-TERM INVESTMENTS

     The Company accounts for its short-term investments in accordance with 
SFAS No. 115 "Accounting for Certain Investments in Debt and Equity 
Securities."  Accordingly, the Company determines the appropriate 
classification of its investments in debt and equity securities at the time 
of purchase and reevaluates such determinations at each balance sheet date.  
All of the securities owned by the Company, which consist primarily of fixed 
and variable rate municipal debt securities, have been classified as 
available-for-sale.  Due to the short-term nature of such securities, fair 
value approximates carrying amount.  Gains and losses on sales of 
available-for-sale securities have been immaterial.


                                      7

<PAGE>
                                     6

<PAGE>

                               LARSCOM CORPORATION


ITEM 2:    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS

     THE STATEMENTS CONTAINED IN THIS REPORT ON FORM 10-Q THAT ARE NOT PURELY 
HISTORICAL ARE FORWARD- LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A 
OF THE SECURITIES ACT OF 1933, AS AMENDED AND SECTION 21E OF THE SECURITIES 
EXCHANGE ACT OF 1934, AS AMENDED, INCLUDING STATEMENTS REGARDING THE 
COMPANY'S EXPECTATIONS, HOPES, INTENTIONS OR STRATEGIES REGARDING THE FUTURE. 
ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS DOCUMENT ARE BASED ON 
INFORMATION AVAILABLE TO THE COMPANY ON THE DATE HEREOF, AND THE COMPANY 
ASSUMES NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS. THE 
FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE SUBJECT TO CERTAIN FACTORS 
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH 
FORWARD-LOOKING STATEMENTS.  SUCH FACTORS INCLUDE BUT ARE NOT LIMITED TO THE 
FACTORS SET FORTH IN THE COMPANY'S 1996 ANNUAL REPORT ON FORM 10-K AND THIS 
QUARTERLY REPORT ON FORM 10-Q .

RESULTS OF OPERATIONS

     The Company's products can be split into two main categories - broadband 
and digital access, based upon the bandwidth of the products supplied.  The 
Company sells these products primarily through a direct sales force and to a 
lesser extent through a variety of resellers including original equipment 
manufacturers, value added resellers, system integrators and distributors.  
An increasing proportion of the Company's sales are made to network service 
providers ("NSPs").  The other significant trend in revenues is that 
broadband product sales represent an increasing percentage of total revenues 
although this trend did not continue in the third quarter of 1997.

     REVENUES.  Revenues were $19,336,000 and $54,894,000 for the three and 
nine months ended September 30, 1997, respectively, representing increases of 
5% and 12% over revenues of $18,357,000 and $48,981,000 for the comparable 
periods in 1996.  During the three months ended September 30, 1997, broadband 
product sales increased to 36% of total revenues as compared to 32% in the 
comparable period of 1996.  During the nine months ended September 30, 1997, 
broadband product sales were 36% of total revenues, as compared to 27% of 
total revenues in the nine months ended September 30, 1996.  The increases in 
broadband product sales were due primarily to higher unit sales to NSPs. 
Average selling prices have decreased slightly in some product lines, 
primarily in the digital access product family.

     GROSS PROFIT.  As a percentage of revenues, gross profit for the three 
months ended September 30, 1997 increased to 57% as compared to 55% in the 
comparable period in 1996.  Gross profit for the nine months ended September 
30, 1997 increased to 57% as compared to 55% in the comparable period in 
1996. This increase was primarily the result of increased sales of higher 
margin broadband products partially offset by lower average unit selling 
prices of digital access products.  Costs per unit remained relatively stable 
for digital access products but decreased slightly for broadband products due 
to the Company's ability to purchase certain components overseas at lower 
costs, as well as economies of scale associated with higher production levels.

     RESEARCH AND DEVELOPMENT.  Research and development expenses increased 
16% to $2,436,000 in the three months ended September 30, 1997 from 
$2,101,000 in the comparable period of 1996.  During the first nine months of 
1997 research and development expenses increased 23% from $5,732,000 to 
$7,052,000.  The growth in research and development expenses in the 1997 
periods as compared to 1996 was due primarily to increased headcount and 
therefore higher personnel related costs associated with the development of 
the Company's broadband product line.  The Company expects that research and 
development expenses will continue to increase in absolute dollars in the 
future, but may vary as a percentage of sales.


                                     8

<PAGE>

                               LARSCOM CORPORATION


     SELLING, GENERAL AND ADMINISTRATIVE.  Selling, general and 
administrative expenses decreased slightly to $5,220,000 for  the three 
months ended September 30, 1997 as compared to $5,223,000 in the comparable 
1996 period.  During the first nine months of 1997, selling, general and 
administrative expenses increased 9% to $15,411,000 from $14,132,000 during 
the comparable period in 1996.  The increase in absolute dollars for the 
first nine months of 1997 was due to additional headcount and personnel costs 
associated with expansion of the Company's sales and marketing resources, as 
well as higher selling expenses, associated with higher revenues.  The 
Company anticipates that selling, general and administrative expenses will 
increase in absolute dollars in the future as a result of the Company's 
continued investment in the expansion of its sales, service and support 
organizations, and the development of its distribution channels (particularly 
outside the United States) as well as the legal, accounting, human resources 
and administrative expenses associated with being a public company.

     Selling, general and administrative expenses include charges from Axel 
Johnson Inc. ("Axel Johnson") for legal, accounting, tax, treasury and 
administrative services of $468,000 and $395,000 during the nine months ended 
September 30, 1997 and 1996, respectively.

     INTEREST EXPENSE CHARGED BY AXEL JOHNSON.  Interest expense for the nine 
months ended September 30, 1997, includes a commitment fee for the unused 
portion of the line of credit available under the Credit Agreement that the 
Company entered into with Axel Johnson in December 1996.  See Liquidity and 
Capital Resources for more details.  Interest expense incurred during 1996 
relates to interest on a note payable to Axel Johnson of $25,000,000 which 
was subsequently paid with the proceeds of the Company's common stock 
offering in December 1996.

       INTEREST INCOME.  Interest income of $413,000 and $1,333,000 for the 
three and nine months ended September 30, 1997, respectively, represents 
principally federal income tax exempt interest from the Company's cash 
equivalents and short-term investments.

     PROVISION FOR INCOME TAXES.  The 1997 rate of 36% is higher than the 
federal statutory rate of 34% primarily due to state taxes which were offset 
by non-taxable interest income received on the Company's cash equivalents and 
short-term investments.  The effective rate of 41% for the nine months ended 
September 30, 1996 differed from the federal statutory rate of 34% primarily 
as a result of state taxes and to a lesser extent non-deductible goodwill 
amortization which were partially offset by research and development tax 
credits.  The tax rate of 36% for the nine months ended September 30, 1997 
was lower than the rate for the same period in 1996, primarily as a result of 
non-taxable interest income.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's operating activities generated $2,075,000 of cash during 
the nine months ended September 30, 1997, primarily due to net income and 
increases in accounts payable, offset in part by increases in accounts 
receivable, inventory and non-reimbursable payments made related to leasehold 
improvements on the Company's new building and decreases in accrued expenses 
and other current liabilities.

     In December 1996, the Company sold 5,800,000 shares of Class A Common 
Stock at a price per share of $12 in its initial public offering ("IPO").  
The net proceeds of the IPO were $63,279,000 after issuance costs of 
$1,449,000 and the underwriting discount of $4,872,000, part of which was 
used to repay a $25,000,000 note payable to Axel Johnson, Inc..  In January 
1997, the underwriters exercised their option to sell an additional 350,000 
shares and the Company received net proceeds of  $3,827,000 after deducting 
the underwriting discount of $294,000 and additional issuance costs of 
$79,000.

     Upon consummation of the IPO, the Company entered into a credit agreement
with Axel Johnson (the "Credit Agreement") under which the Company has
available a revolving line of credit of $15,000,000.  As of September 30, 1997,
there were no amounts outstanding under this line of credit.  The Credit
Agreement contains various representations, covenants and events of default
typical for financing a business of a 


                                     9

<PAGE>

                               LARSCOM CORPORATION


similar size and nature.  The events of default under the Credit Agreement 
include any failure to pay punctually any principal or interest due under the 
Credit Agreement, any act of insolvency of the Company and any sale by the 
Company of all or substantially all of its assets.  Upon an event of default, 
any borrowings under the line of credit become payable in full.

     On March 20, 1997, the Company entered into an operating lease under 
which the Company agreed to pay approximately $164,000 per month for 119,000 
square feet of space located in Milpitas, California, near to the Company's 
previous facilities in Santa Clara, California.  The lease commenced in 
September 1997 and lasts for seven years.  The Company has an option to 
extend the lease for a period of five years subject to certain conditions.  
These facilities have replaced the Company's previous facilities in Santa 
Clara.  Of the 119,000 square feet the Company is currently occupying 80,000 
square feet of the new building and has entered into a sublease for a portion 
of the remaining space.

     Capital expenditures in the first nine months of 1997 were $2,719,000, 
and the Company expects approximately $1,800,000 of additional capital 
expenditures in the balance of the year.  As of September 30, 1997, the 
Company's working capital was $65,789,000.  The Company believes that working 
capital, together with the Company's line of credit and funds generated from 
operations will provide adequate liquidity to meet the Company's operating 
and capital requirements for at least the next twelve months.  However, there 
can be no assurance that future events, such as the potential use of cash to 
fund acquisitions, will not require the Company to seek additional capital at 
an earlier date or, if so required, that adequate capital will be available 
on terms acceptable to the Company, if at all.

RECENT ACCOUNTING PRONOUNCEMENTS

     In February 1997, the Financial  Accounting Standards Board issued 
Statement of Financial  Accounting  Standard ("SFAS") No. 128 "Earnings per 
Share" which establishes a different method of computing net income per share 
than is currently  required under the provisions of Accounting Principles 
Board Opinion ("APB") No. 15.  Under SFAS No. 128, the Company will be 
required to present both basic net income per share and diluted net income 
per share. Basic net income per share and diluted net income per share are 
expected to be the same as the earnings per share that are currently 
disclosed under APB No. 15.  The Company plans to adopt SFAS No. 128 in its 
fiscal quarter ending December 31, 1997 and at that time all historical net 
income per share data presented will be restated to conform to the provisions 
of SFAS No. 128.

     In June 1997, the Financial Accounting Standards Board issued Statement 
of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" 
("SFAS 130").  This statement is effective for the Company's fiscal year 
ending June 30, 1999. The statement establishes presentation and disclosure 
requirements for reporting comprehensive income.  Comprehensive income 
includes charges or credits to equity that are not the result of transactions 
with owners.  The Company plans to adopt the disclosure requirements and 
report comprehensive income as part of the Consolidated Statements of 
Shareholders' Equity as required under SFAS 130, and expects there to be no 
material impact on the Company's financial position and results of operations 
as a result of the adoption of this new accounting standard.

     In June 1997, the Financial Accounting Standards Board issued Statement 
of Financial Accounting Standards No. 131 "Disclosures About Segments of An 
Enterprise and Related Information"  ("SFAS 131").  SFAS 131 revises the 
required information regarding the reporting of operating segments.  It also 
establishes standards for related disclosures about products and services, 
geographic areas and major customers. The Company will adopt SFAS 131 
beginning in fiscal 1999 and does not expect such adoption to have a material 
effect on the consolidated financial statements.


                                     10

<PAGE>

                               LARSCOM CORPORATION


CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS

     CERTAIN OF THE STATEMENTS ABOVE ARE FORWARD-LOOKING STATEMENTS.  IN 
ADDITION, THE COMPANY MAY FROM TIME TO TIME MAKE ORAL FORWARD-LOOKING 
STATEMENTS.  THE FOLLOWING ARE IMPORTANT FACTORS THAT COULD CAUSE ACTUAL 
RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED IN ANY SUCH FORWARD-LOOKING 
STATEMENTS.

     CUSTOMER CONCENTRATION.  The Company believes that its relationships 
with large customers, particularly NSPs and telecommunication companies, will 
be critical to its future success.  A small number of customers have 
accounted for a majority of the Company's revenues in each of the past 
several years.  During the nine months ended September 30, 1997, MCI and 
IBM/Advantis accounted for 26% and 15% of revenue, respectively.  During the 
nine months ended September 30, 1996, the same two customers accounted for 
20% and 14% of revenue, respectively.   None of the Company's customers is 
contractually obliged to purchase any quantity of products in any particular 
period, and product sales to major customers have varied widely from quarter 
to quarter and year to year. There can be no assurance that the Company's 
current customers will continue to place orders with the Company, that orders 
from existing customers will continue at the levels of previous periods or 
that the Company will be able to obtain orders from new customers.  Loss of, 
or a material reduction in orders by, one or more of the Company's major 
customers could have a material adverse effect on the Company's business and 
operating results.

     DEPENDENCE ON RECENTLY INTRODUCED PRODUCTS AND PRODUCTS UNDER 
DEVELOPMENT. The Company's future operating results are highly dependent on 
continuing market acceptance of the Company's newest products, particularly 
in the broadband area.  Broadband product sales represented 36% of revenues 
during the first nine months of 1997 and 27% of revenues during the same 
period of 1996.  Broadband product sales are expected to continue to increase 
as a percentage of overall revenues in the longer term although the 
proportion of broadband sales to total revenues may vary from quarter to 
quarter.  There can be no assurance that these products or any future 
products will continue to achieve widespread market acceptance.  In addition, 
the Company has in the past experienced delays in the development of new 
products and the enhancement of existing products, and such delays may occur 
in the future.  The Company's potential inability to develop and introduce 
new products or versions in a timely manner, due to resource constraints or 
technological or other reasons, or to achieve timely and widespread market 
acceptance of its new products or releases, could have a material adverse 
effect on the Company's business and operating results.

     DEPENDENCE ON COMPONENT AVAILABILITY AND KEY SUPPLIERS.  On-time 
delivery of the Company's products depends upon the availability of 
components and subsystems used in its products.  The Company depends upon its 
suppliers to manufacture, assemble and deliver components in a timely and 
satisfactory manner.  The Company obtains components and licenses certain 
embedded software from numerous single sources.  Other than components and 
software supplied by Waferscale, Vicor and PMC-Sierra, the Company believes 
it would be able to develop alternative sources for components and software 
used in its products without incurring substantial additional costs.  
However, there can be no assurance that the inability of the Company to 
develop alternative sources, if required, an inability by such suppliers to 
meet the Company's demand or a prolonged interruption in supply or a 
significant price increase of one or more components or software will not 
occur, each of which could have a material adverse effect on the Company's 
business and operating results.  The Company generally does not have any 
long-term contracts with such suppliers.  There can be no assurance that 
these suppliers will continue to be able and willing to meet the Company's 
requirements.  Any significant interruption in the supply or degradation in 
the quality of any such item could have a material adverse effect on the 
Company's business and operating results.

     The Company uses internal forecasts to determine its general materials 
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.  In addition, purchase orders 
from the Company's customers frequently require delivery quickly after 
placement of the order. The Company maintains a supply of finished goods 
inventories at its

                                     11

<PAGE>

                               LARSCOM CORPORATION


manufacturing facility, as well as safety stocks of critical components, in 
order to respond quickly to customer needs.  However, there can be no 
assurance that interrupted or delayed supplies of key components will not 
occur which could have a material adverse effect on the Company's business 
and operating results. From time to time, the Company has experienced 
shortages and supplier allocations of certain components, resulting in delays 
in fulfillment of customer orders.  Such shortages and allocations could have 
a material adverse effect on customer order levels and the Company's business 
and operating results.

     RAPID TECHNOLOGICAL CHANGE.  The telecommunications equipment industry 
is 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.  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.  If the Company were to 
be unsuccessful or to incur significant delays in developing and introducing 
such new products or enhancements, the Company's business and operating 
results could be materially adversely affected.

     LIMITED INDEPENDENT OPERATING HISTORY.  The Company was a wholly owned 
subsidiary of Axel Johnson from 1987 until the date of the Company's IPO in 
December 1996 and, accordingly, has had limited independent operating 
history. As a result the Company has been and will continue to be required to 
further develop financial, management, administrative and other resources 
previously provided by Axel Johnson which are necessary to operate 
successfully as an independent public company.  Although the Company and Axel 
Johnson have entered into several agreements that are intended to ease the 
Company's transition to being an independent public company, there can be no 
assurance that the Company will be able to manage this transition or to 
develop these independent resources successfully.  The Company has access, 
subject to certain conditions, to a $15,000,000 credit facility provided by 
Axel Johnson, but there can be no assurance that alternative sources of 
financing will be available upon the expiration or termination of such 
facility or that additional sources of funding will be available on terms 
favorable to the Company if the Company's borrowing requirements exceed the 
amount of the facility.

     FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; ABSENCE OF SIGNIFICANT 
BACKLOG.  The Company's operating results have fluctuated significantly in 
the past and may fluctuate in the future on a quarterly and annual basis as a 
result of a number of factors, many of which are beyond the Company's 
control. In 1995 and 1996, the Company experienced a shift in the purchasing 
behavior of its customers which resulted in higher second and third quarter 
sales relative to fourth quarter sales.  These purchasing patterns and 
resulting cyclicality could continue in the future.  Moreover, the Company's 
sales historically have been concentrated in a small number of customers.  
Therefore, sales for a given quarter may depend to a significant degree upon 
product shipments to a limited number of customers.  Sales to individual 
large customers are often related to the customer's specific equipment 
deployment projects, the timing of which is subject to change on limited 
notice.  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.

     For example, since 1994, sales to MCI, IBM/Advantis, AT&T and other 
current customers have occasionally varied by $1,000,000 or more from quarter 
to quarter.  Since most of the Company's sales are in the form of large 
orders with short delivery times to a limited number of customers, the 
Company's ability to predict revenues is limited.  In addition, announcements 
by the Company or its competitors of new products and technologies could 
cause customers to defer purchases of the Company's existing products.  In 
the event that anticipated orders from major customers fail to materialize, 
or delivery schedules are deferred or canceled as a result of the above 
factors or other unanticipated factors, the Company's business and operating 
results could be materially adversely affected.  As a result, the Company 

                                     12

<PAGE>

                               LARSCOM CORPORATION


believes that period-to-period comparisons of its operating results are not 
necessarily meaningful and should not be relied upon as indicative of future 
performance.

     The Company's backlog at any point in time is typically limited. 
Accordingly, sales in any quarter are largely dependent on orders received 
during that quarter.  Furthermore, the Company's agreements with 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 penalty.  The Company's customers have 
in the past built, and may in the future build, significant inventory 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.  Therefore, customer 
decisions to delay delivery, cancel orders or reduce purchases could have a 
material adverse effect on the Company's business and operating results.

     The Company's gross margin is affected by a number of factors, including 
product mix, product pricing, cost of components and manufacturing costs.  
For example, a price reduction of a particular product in response to 
competitive pressure, which is not offset by a reduction in production costs 
or by sales of other products with higher gross margins, would decrease the 
Company's overall gross margin and could have a material adverse effect on 
the Company's business and operating results.  The Company's anticipated 
increase in overall spending in future periods to pursue new market 
opportunities may also affect operating margins.  The Company establishes its 
expenditure levels for product development and other operating expenses based 
on projected sales levels and margins;  however, expenses are relatively 
fixed in the short term. Accordingly, if sales are below expectations in any 
given period, the adverse impact of the revenue shortfall on the Company's 
operating results may be greater due to the Company's inability to adjust 
spending in the short term to compensate for the shortfall.

     Results in any period could also be affected by changes in market 
demand, competitive market conditions, market acceptance of new or existing 
products, the cost and availability of components, the mix of the Company's 
customer base and sales channels, the mix of products sold, sales promotion 
activities by the Company, the Company's ability to expand its sales and 
marketing organization effectively, the Company's ability to attract and 
retain key technical and managerial employees and general economic 
conditions.  Due to all of the foregoing factors, the Company's operating 
results in one or more future periods may be subject to significant 
fluctuations.  In the event this results in the Company's financial 
performance being below the expectations of public market analysts and 
investors, the price of the Company's Class A Common Stock could be 
materially adversely affected.

     CONTROL BY AXEL JOHNSON.  Holders of Class A Common Stock are entitled 
to one vote per share and holders of Class B Common Stock are entitled to 
four votes per share, subject to adjustment, to preserve the initial voting 
ratio. Axel Johnson owns all of the issued and outstanding Class B Common 
Stock of the Company.  As a result, Axel Johnson has sufficient voting power 
to control the direction and policies of the Company, including mergers, 
consolidations, the sale of all or substantially all of the assets of the 
Company and the election of the Board of Directors of the Company, and to 
prevent or cause a change in control of the Company.  In addition, the 
authorized but unissued capital stock of the Company includes 5,000,000 
shares of preferred stock (the "Preferred Stock").  The Board of Directors is 
authorized to provide for the issuance of Preferred Stock in one or more 
series and to fix the designations, preferences, powers and relative, 
participating, optional or other rights and restrictions thereof.  
Accordingly, the Company may issue a series of Preferred Stock in the future 
that will have preference over both classes of the Company's Common Stock 
with respect to the payment of dividends and upon liquidation, dissolution or 
winding up or which could otherwise adversely affect holders of the Common 
Stock or discourage or make difficult any attempt to obtain control of the 
Company.  Such control by Axel Johnson, or prospective holders of Preferred 
Stock, may have the effect of discouraging certain types of transactions 
involving an actual or potential change of control of the Company, including 
transactions in which the holders of Class A Common Stock might otherwise 
receive a premium for their shares over the then current market price.


                                     13

<PAGE>

                               LARSCOM CORPORATION


     RISKS ASSOCIATED WITH ENTRY INTO INTERNATIONAL MARKETS.  The Company has 
had minimal sales to international customers to date, and has had little 
experience in international markets.  The conduct of business outside the 
U.S. is subject to certain risks, including unexpected changes in regulatory 
requirements and tariffs, difficulties in staffing and managing foreign 
operations, longer payment cycles, greater difficulty in accounts receivable 
collection, currency fluctuations, expropriation and potentially adverse tax 
consequences.  In addition, in order to sell its products internationally, 
the Company must meet standards established by telecommunications authorities 
in various countries, as well as recommendations of the International 
Telecommunications Union.  Any delay in obtaining, or the failure to obtain, 
certification of its products in countries outside the U.S. could impair the 
Company's marketing and sales efforts in such countries, which could have a 
material adverse effect on the Company's business and operating results.

     MANAGEMENT OF EXPANDING OPERATIONS.  The growth in the Company's 
business has placed a significant strain on the Company's personnel, 
management and other resources, and is expected to continue to do so. To 
manage any future expansion effectively, the Company must attract, train, 
motivate and manage new employees successfully, integrate new management and 
employees into its overall operations and continue to improve its 
operational, financial and management systems, particularly as the Company 
transitions from services provided to date by Axel Johnson.  Availability of 
qualified sales and technical personnel is limited, and competition for 
experienced sales and technical personnel in the telecommunications  
equipment industry is intense.  Moreover, the Company expects to increase 
significantly the size of its domestic and international sales support staff 
and expand the scope of its sales and marketing activities. The Company's 
failure to manage any expansion effectively, including the above factors, 
could have a material adverse effect on the Company's business and operating 
results.

     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 U.S., the Company's 
products must comply with various regulations defined by the Federal 
Communications Commission and standards established by Underwriters 
Laboratories, as well as industry standards established by various 
organizations domestically and overseas.  As standards for new services such 
as ATM evolve, the Company may be required to modify its existing 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 in turn could have a material adverse effect on the 
Company's business and operating results.

     RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS.  An important element of 
the Company's strategy is to acquire businesses that would complement its 
existing product offerings, augment its market coverage, enhance its 
technological capabilities or offer growth opportunities.  Future 
acquisitions by the Company could result in potentially dilutive issuance of 
equity securities and/or the incurrence of debt and the assumption of 
contingent liabilities, any of which could have a material adverse effect on 
the Company's business and operating results and/or the price of the 
Company's Class A Common Stock.  In this regard, as a result of the ownership 
interest of Axel Johnson in the Company, the Company will not be able to use 
pooling of interests accounting for any future acquisitions.  Accordingly, 
such acquisitions could result in amortization of goodwill and other charges 
(including the immediate write-off of purchased research and development in 
process) typically associated with purchase accounting.  Acquisitions entail 
numerous risks, including difficulties in the assimilation of acquired 
operations, technologies and products, diversion of management's attention to 
other business concerns, risks of entering markets in which the Company has 
limited or no prior experience and potential loss of key employees of 
acquired organizations.  The Company's management has limited prior 
experience in assimilating acquired organizations. No assurance can be given 
as to the ability of the Company to successfully integrate any businesses, 
products, technologies or personnel of any company that might be acquired in 
the future, and the failure of the Company to do so could have a material 
adverse effect on the Company's business and operating results.


                                     14

<PAGE>

                               LARSCOM CORPORATION


     LIMITED PROTECTION OF INTELLECTUAL PROPERTY; PROPRIETARY INFORMATION.  
The Company relies upon a combination of trade secrets, contractual 
restrictions, copyrights, trademarks and patents to establish and protect 
proprietary rights in its products and technologies.  Although the Company 
has been issued only one U.S. patent to date, it believes that the success of 
its business depends primarily on its proprietary technology, information, 
processes and know-how, rather than patents.  Much of the Company's 
proprietary information and technology is not patented and may not be 
patentable.  There can be no assurance that the Company will be able to 
protect its technology or that competitors will not be able to develop 
similar technology independently.  The Company has entered into 
confidentiality and invention assignment agreements with all of its 
employees, and enters into 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 and operating results could be materially adversely 
affected.


                                     15

<PAGE>

                               LARSCOM CORPORATION


PART II:  OTHER INFORMATION

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

          A:   Exhibits:

               11.1  Statements Regarding Computation of Net Income Per Share
               27    Financial Data Schedule

          B:   Reports on Form 8-K:

               There were no reports on Form 8-K filed during the quarter ended
               September 30, 1997.



                                     16

<PAGE>

                               LARSCOM CORPORATION


                                   SIGNATURES

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

                                  LARSCOM INCORPORATED




Date  November 12, 1997       By  /s/ Bruce D. Horn
      ---------------------       -------------------------------------------
                                  Bruce D. Horn
                                  Vice President, Finance and Chief Financial
                                  Officer (Principal Financial and Accounting
                                  Officer)





                                     17