<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, 2001

                                       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                     (IRS 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)

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 November 5, 2001, was
8,832,863 of Class A Common Stock and 10,000,000 of Class B Common Stock.

                                        1

<PAGE>

                              LARSCOM INCORPORATED
                                    FORM 10-Q

                                TABLE OF CONTENTS

<TABLE>
     <S>                                                                      <C>
     Part I:   Financial Information ......................................    3

     Item 1:   Financial Statements (Unaudited) ...........................    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 ........................   10

     Item 3:   Quantitative and Qualitative Disclosures about
               Market Risk ................................................   17


     Part II:  Other Information ..........................................   18

     Item 1:   Legal Proceedings ..........................................   18

     Item 2:   Changes in Securities ......................................   18

     Item 3:   Defaults upon Senior Securities ............................   18

     Item 4:   Submission of Matters to a Vote of Security Holders ........   18

     Item 5:   Other Information ..........................................   18

     Item 6:   Exhibits and Reports on Form 8-K ...........................   18

               a: Exhibits ................................................   18
               b: Reports on Form 8-K .....................................   18

     Signatures ...........................................................   19
</TABLE>

                                        2

<PAGE>

Part I:    Financial Information

Item 1:    Financial Statements

                              LARSCOM INCORPORATED
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                           (In thousands) (Unaudited)

<TABLE>
<CAPTION>
                                                                      September 30,   December 31,
                                                                          2001            2000
                                                                      -------------   ------------
<S>                                                                   <C>             <C>
                                             ASSETS

Current assets:
     Cash and cash equivalents ...................................    $       8,643   $      7,741
     Short-term investments ......................................           14,454         20,238
     Accounts receivable, net ....................................            4,123          7,044
     Inventories .................................................            4,198          6,816
     Deferred income taxes .......................................                -          4,040
     Due from Axel Johnson Inc. ..................................              677             72
     Prepaid expenses and other current assets ...................            1,733          4,274
                                                                      -------------   ------------
        Total current assets .....................................           33,828         50,225
Property and equipment, net ......................................            3,480          4,111
Deferred income taxes ............................................                -         11,750
Other non-current assets, net ....................................               56            234
                                                                      -------------   ------------
        Total assets .............................................    $      37,364   $     66,320
                                                                      =============   ============

                              LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable ............................................    $       2,351   $      4,482
     Accrued expenses and other current liabilities ..............            8,963          8,348
                                                                      -------------   ------------
        Total current liabilities ................................           11,314         12,830
Other non-current liabilities ....................................            1,876            448
                                                                      -------------   ------------
        Total liabilities ........................................           13,190         13,278
                                                                      -------------   ------------

Stockholders' equity:
     Class A Common Stock ........................................               88             87
     Class B Common Stock ........................................              100            100
     Additional paid-in capital ..................................           82,965         82,598
     Accumulated other comprehensive loss ........................               (1)            (1)
     Accumulated deficit .........................................          (58,978)       (29,742)
                                                                      -------------   ------------
        Total stockholders' equity ...............................           24,174         53,042
                                                                      -------------   ------------
        Total liabilities and stockholders' equity ...............    $      37,364   $     66,320
                                                                      =============   ============
</TABLE>

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

                                        3

<PAGE>

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

<TABLE>
<CAPTION>
                                                          Three Months Ended          Nine Months Ended
                                                             September 30,               September 30,
                                                       ------------------------   ------------------------
                                                          2001          2000          2001         2000
                                                       ------------  ----------   ------------  ----------
<S>                                                    <C>           <C>          <C>           <C>
Revenues ...........................................   $    10,375   $   13,793      $ 33,861   $    41,631
Cost of revenues ...................................         5,305        6,595        21,077        19,556
                                                       ------------  -----------   -----------  ------------
      Gross profit .................................         5,070        7,198        12,784        22,075
                                                       ------------  -----------   -----------  ------------

Operating expenses:
  Research and development .........................         1,697        2,431         5,814         7,426
  Selling, general and administrative ..............         4,909        6,198        16,606        18,194
  Restructuring ....................................             -            -         4,761             -
                                                       ------------  -----------   -----------  ------------
      Total operating expenses .....................         6,606        8,629        27,181        25,620
                                                       ------------  -----------   -----------  ------------

Loss from operations ...............................        (1,536)      (1,431)      (14,397)       (3,545)
      Interest and other income ....................           284          463         1,057         1,300
                                                       ------------  -----------   -----------  ------------
Loss before income taxes ...........................        (1,252)  $     (968)      (13,340}       (2,245)
      Income tax provision (benefit) ...............            26         (268)       15,896          (645)
                                                       ------------  -----------   -----------  ------------
Net loss ...........................................   $    (1,278)  $     (700)   $  (29,236)  $    (1,600)
                                                       ============  ===========   ===========  ============

Basic and diluted net loss per share ...............   $     (0.07)  $    (0.04)   $    (1.56)  $     (0.09)
                                                       ============  ===========   ===========  ============

Basic and diluted weighted average shares ..........        18,823       18,635        18,800        18,554
                                                       ============  ===========   ===========  ============
</TABLE>

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

                                        4

<PAGE>

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

<TABLE>
<CAPTION>
                                                                         Nine Months Ended September 30,
                                                                         ------------------------------
                                                                           2001                  2000
                                                                         --------              --------
<S>                                                                      <C>                   <C>
Cash flows from operating activities:
    Net loss ........................................................    $(29,236)             $ (1,600)
    Depreciation and amortization ...................................       1,624                 1,855
    Non-cash restructuring and cost of revenues charges .............       2,280                    --
    Decrease/(increase) in deferred income taxes ....................      15,790                  (283)
    Net decrease/(increase) in other working capital accounts .......       6,050                  (317)
                                                                         --------              --------
Net cash used in operating activities ...............................      (3,492)                 (345)
                                                                         --------              --------

Cash flows from investing activities:
    Purchases of property and equipment .............................      (1,195)                 (939)
    Purchases of short-term investments .............................     (15,066)              (22,049)
    Sales and maturities of short-term investments ..................      20,851                22,002
                                                                         --------              --------
Net cash provided by/(used in) investing activities .................       4,590                  (986)
                                                                         --------              --------

Cash flows from financing activities:
    Repayments to Axel Johnson Inc. .................................        (605)                  (30)
    Increase/(decrease) in capital lease obligations ................          42                   (47)
    Proceeds from issuances of Class A Common Stock .................         367                   651
                                                                         --------              --------
Net cash (used in)/provided by financing activities .................        (196)                  574
                                                                         --------              --------
Effect of foreign exchange rates on cash ............................          --                     4
                                                                         --------              --------
Increase/(decrease) in cash and cash equivalents ....................         902                  (753)
Cash and cash equivalents at beginning of period ....................       7,741                 7,009
                                                                         --------              --------
Cash and cash equivalents at end of period ..........................    $  8,643              $  6,256
                                                                         ========              ========

Supplemental disclosure of cash flow information
Interest paid .......................................................    $      2              $      5
                                                                         --------              --------
Income taxes paid ...................................................    $     69              $     71
                                                                         --------              --------
</TABLE>

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

                                        5

<PAGE>

                              LARSCOM INCORPORATED

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1--Basis of Presentation:

     The condensed consolidated financial statements for the three months and
nine months ended September 30, 2001 and 2000, presented in this Quarterly
Report on Form 10-Q, are unaudited. In the opinion of management, these
statements include all 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 Larscom Incorporated ("Larscom")
Report on Form 10-K for the year ended December 31, 2000. The results of
operations for the three months and nine months ended September 30, 2001 are not
necessarily indicative of the results to be expected for the full year.

Note 2--Inventories:

     Inventories consist of the following (in thousands):

                                            September 30, December 31,
                                                2001          2000
                                            ------------  -----------
Raw materials ........................       $     2,300   $    3,470
Work-in-process ......................               309          747
Finished goods .......................             1,589        2,599
                                            ------------  -----------
                                             $     4,198   $    6,816
                                            ============  ===========

Note 3--Restructuring and Cost of Revenues Charges:

     On June 22, 2001, we announced a corporate restructuring program in
response to our own reduced revenues, negative macro-economic conditions and
declining demand in our markets. This initiative was focused on improving
operating performance by reducing expenses. The restructuring program included a
workforce reduction of approximately 25%, the closing of our facility in North
Carolina and a write-down of fixed assets due primarily to the workforce
reduction and facility closing. The effect of implementing this program was a
one-time charge to results in the second quarter of $4,761,000.

     Because of the decline in business conditions, we reassessed the realizable
value of certain prepaid royalties in accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." As a result, we recorded a
second-quarter 2001, non-cash charge to cost of revenues of $1,912,000. This
charge was derived by measuring the amount by which the carrying value of the
prepaid royalties exceeded the net present value of the estimated future cash
flows from the associated products.

     During the second quarter of 2001, we recorded a $1,093,000 charge to cost
of sales for excess inventory. This additional inventory reserve was due to a
sudden and significant decrease in our forecasted revenue, and was calculated
consistent with our policy for providing reserves for inventory in excess of
twelve months of projected demand.

                                        6

<PAGE>

     Details of the restructuring and cost of revenues charges are as follows:

                                  Restructuring  Cost of Revenues     Total
                                 --------------  ----------------   ----------
                                                  (in thousands)

Employee termination costs        $      2,293    $             -    $  2,293
Real estate lease reserve                2,080                  -       2,080
Fixed asset write-down                     388                  -         388
Prepaid royalty impairment                   -              1,912       1,912
Inventory reserve                            -              1,093       1,093
                                 --------------  -----------------  ----------
Total                             $      4,761    $         3,005    $  7,766
                                 ==============  =================  ==========


     Cash expenditures for the employee termination costs will be substantially
paid out in 2001. Amounts related to the expense due to the closing of the North
Carolina facility will be paid over the term of the lease that expires in
January, 2007. We had substantially completed the implementation of our June
2001 restructuring program at the end of September 2001.

     The following table provides details on the activity and remaining balances
of the June 2001 restructuring charges as of September 30, 2001:

                                                                      Reserve
                                 Total      Cash       Non-Cash    September 30,
                                Charges    Charges     Charges         2001
                               ---------  ---------   ---------    ------------
                                              (in thousands)

Employee termination costs     $   2,293  $  (1,312)  $     (20)    $       961
Real estate lease reserve          2,080       (138)          -           1,942
Fixed asset write-down               388          -        (388)              -
                               ---------  ---------   ---------    ------------
Total                          $   4,761  $  (1,450)  $    (408)    $     2,903
                               =========  =========   =========    ============


     On October 18, 2001, we announced an additional round of layoffs. See Note
10.

Note 4--Deferred Tax Assets:

     At September 30, 2001, we had total gross deferred tax assets of
$20,571,000, consisting of $20,209,000 from prior quarters and $362,000 from the
third quarter of 2001. These assets included temporary differences related to
intangible assets associated with the acquisition of NetEdge Systems Inc. in
1997, inventory reserves, accrued expenses and net operating losses which carry
forward. In the second quarter ended June 30, 2001, we concluded that a deferred
tax asset valuation allowance should be established due to the uncertainty of
realizing the tax loss carry-forwards and other deferred tax assets in
accordance with Statement of Financial Accounting Standards No. 109 ("SFAS
109"), "Accounting for Income Taxes." Our assessment was based principally on
the historical losses experienced by the Company in the U.S., lower than
expected operating results in the second quarter of 2001, unfavorable
macro-economic conditions and capital expenditure reductions announced by
several network service providers. The establishment of the deferred tax asset
valuation allowance is the reason for the reduction in the deferred tax assets
line items on the accompanying condensed consolidated balance sheets for the
period ended September 30, 2001 as compared to the December 31, 2000 balances.

     SFAS 109 requires the establishment of a valuation allowance for deferred
tax assets when it is more likely than not that these assets will not be
realized. The deferred tax assets will be recognized in future periods to the
extent that we can reasonably expect such assets to be realized. We will
evaluate the probability of realizing our deferred tax assets on a quarterly
basis. If we determine that a portion or all of the deferred tax assets are
realizable, we will reduce the income tax valuation allowance accordingly.

                                        7

<PAGE>

Note 5--Net Loss Per Share:

     Basic net loss per share is computed using the weighted-average number of
common shares outstanding during the period. Diluted net loss per share is
computed using the weighted-average number of common shares outstanding and the
dilutive effect of options to purchase common shares. The effect of options to
purchase common shares is excluded from the computation as their effect is
antidilutive.

     The following table shows how basic and diluted net loss per share are
computed (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                           Three Months Ended          Nine Months Ended
                                                             September 30,               September 30,
                                                         ---------------------      ----------------------
                                                           2001         2000          2001          2000
                                                         --------     --------      --------      --------
<S>                                                      <C>          <C>           <C>           <C>
Net loss ............................................    $ (1,278)    $   (700)     $(29,236)     $ (1,600)
                                                         ========     ========      ========      ========

Weighted average Class A and B
     Common Stock outstanding .......................      18,823       18,635        18,800        18,554

Basic and diluted loss per share ....................    $  (0.07)    $  (0.04)     $  (1.56)     $  (0.09)
                                                         ========     ========      ========      ========

Weighted average in-the-money Class A Common
     Stock options outstanding excluded from
     the basic and diluted loss per share
     calculation ....................................          --        1,418           251         1,521
</TABLE>

Note 6--Comprehensive Income:

     "Comprehensive Income" includes all changes in equity from non-owner
sources during the period. The only item of adjustment from net loss to
comprehensive loss for the periods presented related to foreign currency
translation adjustments. Such amounts were immaterial for the periods presented.

Note 7--Commitments and Contingencies:

     Because of component obsolescence involving some of our suppliers, we have
been required to place last-time-buy purchase orders to cover the expected
demand for these components. These purchase commitments generally cover between
one and two years of expected demand. As of September 30, 2001, we were
obligated to purchase $116,000 of these components by December 31, 2001. We plan
to redesign some of our products, if required by customer demand, as supplies of
obsolete components dwindle.

     In our distribution agreements, we typically agree to indemnify our
customers for any expenses or liabilities resulting from claimed infringements
of patents, trademarks or copyrights of third parties. We made no material
payments for indemnification of customers under these agreements for the third
quarter and first nine months ended September 30, 2001.

                                        8

<PAGE>
Note 8--Geographic Information:

     Revenue and long-lived assets related to operations in the United States
and other countries for the three and nine months ended and as of September 30,
2001 and 2000 are as follows (in thousands):

<TABLE>
<CAPTION>
                                               Three Months Ended            Nine Months Ended
               Revenues (a)                       September 30,                 September 30,
               ------------                ----------------------------  ---------------------------
                                               2001           2000          2001           2000
                                           -------------  -------------  ------------   ------------
<S>                                        <C>            <C>            <C>            <C>
United States..........................    $       9,096  $      11,777  $     28,184   $     36,031
Other countries .......................            1,279          2,016         5,677          5,600
 ......................................    -------------  -------------  ------------   ------------
Total                                      $      10,375  $      13,793  $     33,861   $     41,631
                                           =============  =============  ============   ============
</TABLE>

(a) Revenues are reported by shipment to the final destination as determined by
records required to comply with US Department of Commerce regulations.

                                                      As of
            Long-Lived Assets                     September 30,
            -----------------              ----------------------------
                                               2001           2000
                                           -------------  -------------
United States..........................    $       3,525  $       4,291
Other countries .......................               11             16
                                           -------------  -------------
Total .................................    $       3,536  $       4,307
                                           =============  =============

Note 9--Recent Accounting Pronouncements:

     In October 2001, the Financial Accounting Standards Board ("FASB") issued
Statement No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of
Long-Lived Assets." This statement supersedes FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of" and certain provisions of APB Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," for the disposal of a segment of a business (as previously
defined in that Opinion). The provisions of SFAS 144 are effective for fiscal
years beginning after December 15, 2001. We do not anticipate that the adoption
of SFAS 144 will have a material impact on our consolidated financial
statements.

     In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 141 ("SFAS 141"), "Business Combinations", and No. 142 ("SFAS
142"), "Goodwill and Other Intangible Assets." SFAS 141 addresses financial
accounting and reporting for business combinations and supersedes APB16,
"Business Combinations." The provisions of SFAS 141 were required to be adopted
July 1, 2001. The most significant changes made by SFAS 141 were: (1) requiring
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001, (2) establishing specific criteria for the
recognition of intangible assets separately from goodwill and (3) requiring
unallocated negative goodwill to be written off immediately as an extraordinary
gain. SFAS 142 primarily addresses accounting for goodwill and intangible assets
subsequent to their acquisition and supersedes APB 17, "Intangible Assets." The
provisions of SFAS 142 are required to be adopted in fiscal years beginning
after December 15, 2001. However, early adoption of SFAS 142 will be permitted
for companies with a fiscal year beginning after March 15, 2001, provided their
first-quarter financial statements have not been previously issued. In all
cases, SFAS 142 must be adopted at the beginning of a fiscal year. The most
significant changes made by SFAS 142 are: (1) goodwill and indefinite-lived
intangible assets will no longer be amortized, (2) goodwill will be tested for
impairment at least annually at the reporting-unit level, (3) intangible assets
deemed to have an indefinite life will be tested for impairment at least
annually and (4) the amortization period of intangible assets with finite lives
will no longer be limited to forty years.

                                        9

<PAGE>

     We adopted SFAS 141 effective July 1, 2001, which will result in our
accounting for any business combination consummated on or after that date under
the purchase method of accounting. The adoption of SFAS 141 will not change the
method of accounting used in previous business combinations. We will adopt SFAS
142 effective January 1, 2002 and, at that date, we do not expect to have any
goodwill remaining on our books.

Note 10--Subsequent Event:

     On October 18, 2001, due to the continued decline in the telecommunications
business and the difficult economic environment, we announced a further
reduction in force to align our expenses with our anticipated revenue levels. We
expect to report pretax restructuring and other nonrecurring charges of up to
$1.5 million in the fourth quarter of 2001.

Item 2:   Management's Discussion and Analysis of Financial Condition and
          Results of Operations

     Generally, our domestic business is suffering due to the slowdown in the
telecommunications equipment business. To respond to the business slowdown, we
significantly restructured our business operations at the end of the second
quarter. As a result, we recognized employee termination costs, North Carolina
real estate lease reserves, inventory reserves, reserves for the impairment of
prepaid royalties and other restructuring charges for a total of $7,766,000. We
also took a 100% reserve against the net operating loss carry-forward and other
deferred tax assets on our balance sheet, totaling $20,209,000.

     On October 18, 2001, due to the continued decline in the telecommunications
business and the difficult economic environment, we announced a further
reduction in force to align our expenses with our anticipated revenue levels. We
expect to report pretax restructuring and other nonrecurring charges of up to
$1.5 million in the fourth quarter of 2001.

Results of Operations

     Revenues. Our consolidated revenues of $10,375,000 for the third quarter
ended September 30, 2001 were 25% lower than 2000's third quarter revenues of
$13,793,000. Our Multiplexer and Inverse Multiplexer product lines accounted for
the major portion of the decrease from last year's third quarter with a combined
revenue reduction of $3,026,000. For the nine months ending September 30, 2001,
revenues totaled $33,861,000, which was 19% below the comparable nine-month
period of 2000 when total revenues were $41,631,000. The Multiplexer and Inverse
Mutiplexer product lines were also the primary contributors to the lower
revenues in the first nine months of 2001 versus the first nine months of 2000.

     By channel of distribution, the bulk of the revenue reduction for the third
quarter and first nine months of 2001 versus the comparable periods of 2000 was
attributable to lower direct sales to network service providers ("NSPs") and
domestic distributors. Shipments to international locations represented 12% of
total revenues during the third quarter of 2001 and were 37% below the same
period of 2000. For the nine-month period, international revenues were 17% of
total revenues versus 13% for the first nine months of 2000. Also, on a
nine-month comparative basis, 2001 international revenues were 1% greater than
2000 international revenues.

     The combined revenues from WorldCom, Inc. and AT&T, our two largest
customers, accounted for 46% of the total revenues for the first nine months of
2001 versus 38% for the first nine months of 2000.

     Gross Profit. As a percentage of revenues, gross profit for the three
months ended September 30, 2001 dropped by three percentage points to 49%, as
compared to 52% for the same period of 2000. Gross profits for the first nine
months were 38% of sales for 2001 versus 53% of sales for the same period of
2000. The percentage point decline in gross profits for the third quarter of
2001, as compared to the third quarter of 2000, was largely related to higher
manufacturing costs paid to our supplier, Oasys Telecom,

                                       10

<PAGE>
Inc., for the Larscom 5000 M1-3 mutiplexer product. The nine-month percentage
point decline from the same period in 2000 was primarily attributed to increased
expenses related to excess and obsolete inventory, asset impairment charges and
the impact of lower sales volume on overhead per unit cost.

     Research and Development. Research and development expenses totaled
$1,697,000 for the third quarter of 2001, which was $734,000 or 30% below the
third quarter 2000 spending of $2,431,000. So far this year, research and
development costs totaled $5,814,000 as compared to spending for last year's
first nine months of $7,426,000, which represents a 22% decline from the first
nine months of 2000. The reduction in both the third-quarter and nine-month
comparatives was mainly due to lower staffing levels, lower software expenses
and a decline in material cost. The June 2001 restructuring program and the
October 2001 reduction in force are expected to lower our research and
development expenses for the remainder of this year.

     Selling, General and Administrative. Selling, general and administrative
expenses decreased 21% to $4,909,000 during the three months ended September 30,
2001, as compared to $6,198,000 for the same period of 2000. Year to date
selling, general and administrative expenses were $16,606,000 compared to
$18,194,000 for the same period of 2000, which represents a $1,588,000 or 9%
reduction from the same period of last year. The lower spending was due
primarily to reductions in staff levels, employee benefits cost, commission
expense, advertising expense and tax and license expense. We expect to report
lower selling, general and administrative cost for the rest of the year due to
the effects of the June 2001 restructuring program and the October 2001
reduction in force.

     Selling, general and administrative expenses include contractual charges
from Axel Johnson Inc. ("Axel Johnson") for legal, accounting, tax, treasury,
human resources and administrative services of $116,000 for the third quarter
and $349,000 for the first nine months of 2001, as compared to $113,000 for the
third quarter and $339,000 for the first nine months of 2000.

     Restructuring. On June 22, 2001, we announced a corporate restructuring
program in response to our own reduced revenues, negative macro-economic
conditions and declining demand in our markets. This initiative was designed to
focus our business on improving operating performance by reducing expenses. The
restructuring program included a workforce reduction of approximately 25%, the
closing of our facility in North Carolina and a write-down of fixed assets
largely due to the workforce reduction and facility closing. The effect of
implementing this program was a one-time charge to results in the second quarter
of $4,761,000, consisting of: $2,293,000 for employee termination costs,
$2,080,000 for the closing of our facility in North Carolina and $388,000 for a
fixed asset write-down.

      On October 18, 2001, due to the continued decline in the
telecommunications business and the difficult economic environment, we announced
a further reduction in force to align our expenses with our anticipated revenue
levels. We expect to report pretax restructuring and other nonrecurring charges
of up to $1.5 million in the fourth quarter of 2001.

     Interest and Other Income. Interest and other income amounted to $284,000
and $1,057,000 for the third quarter and first nine months of 2001 as compared
to $463,000 and $1,300,000 for the same periods of 2000, respectively. Interest
income, which is the major component of Interest and Other Income, was $297,000
for the third quarter of 2001, as against $484,000 for the same period in 2000.
For the first nine months of 2001, interest income was $1,083,000 versus
$1,361,000 for the first nine months of 2000. The lower interest income for the
three-month period was directly attributed to lower average investment balances
whereas that for the nine-month period was primarily the result of lower
interest rates. Our investment portfolio generally is comprised of commercial
paper rated A1/P1; bank certificates of deposit rated A+ or better and corporate
bonds and medium-term notes rated A- or better.

     Provision for Income Taxes. In June 2001, we recorded a non-cash charge of
$20,209,000 to provide a full-valuation allowance against the deferred tax
assets in compliance with SFAS 109. In the third quarter of 2001, we recorded an
additional non-cash valuation allowance of $362,000. SFAS 109 requires

                                       11

<PAGE>

the establishment of a valuation allowance for deferred tax assets when it is
more likely than not that these assets will not be realized. We will continue to
review whether a valuation allowance is warranted.

Liquidity and Capital Resources

     Operating activities used cash of $3,492,000 in the first nine months of
2001, primarily due to our net loss. Partially offsetting the impact of our net
loss were non-cash items consisting of a deferred tax asset valuation allowance,
a reduction in working capital, write-downs in pre-paid royalties and property
and equipment and charges for depreciation and amortization.

     Capital expenditures in the first nine months were $1,195,000. These
expenditures consisted principally of the purchase of computers, software and
test equipment. We anticipate capital expenditures will total $1,300,000 for
2001.

     We have a revolving line of credit of $15,000,000 under a credit agreement
with Axel Johnson (the "Credit Agreement"). The Credit Agreement expires in
December 2001. This agreement contains various representations, covenants and
events of default typical for financing a business of a similar size and nature.
Upon an event of default, any borrowings under the line of credit shall become
payable in full. To date we have not found it necessary to use this line of
credit. We expect to negotiate an extension or replacement of this Credit
Agreement with Axel Johnson during the fourth quarter of this year. In addition
to the Credit Agreement, Larscom Incorporated and Axel Johnson have an
administrative service agreement and a tax-sharing agreement for the purposes of
defining the on-going relationship between the two entities.

     At September 30, 2001, we had cash and cash equivalents of $8,643,000 and
short-term investments of $14,454,000. We believe our liquidity position is
currently adequate.

Recent Accounting Pronouncements

     In October 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of
Long-Lived Assets." This statement supersedes FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of" and certain provisions of APB Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," for the disposal of a segment of a business (as previously
defined in that Opinion). The provisions of SFAS 144 are effective for fiscal
years beginning after December 15, 2001. We do not anticipate that the adoption
of SFAS 144 will have a material impact on our consolidated financial
statements.

     In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 141 ("SFAS 141"), "Business Combinations", and No. 142 ("SFAS
142"), "Goodwill and Other Intangible Assets." SFAS 141 addresses financial
accounting and reporting for business combinations and supersedes APB16,
"Business Combinations." The provisions of SFAS 141 were required to be adopted
July 1, 2001. The most significant changes made by SFAS 141 were: (1) requiring
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001, (2) establishing specific criteria for the
recognition of intangible assets separately from goodwill and (3) requiring
unallocated negative goodwill to be written off immediately as an extraordinary
gain. SFAS 142 primarily addresses accounting for goodwill and intangible assets
subsequent to their acquisition and supersedes APB 17, "Intangible Assets." The
provisions of SFAS 142 are required to be adopted in fiscal years beginning
after December 15, 2001. However, early adoption of SFAS 142 will be permitted
for companies with a fiscal year beginning after March 15, 2001, provided their
first-quarter financial statements have not been previously issued. In all
cases, SFAS 142 must be adopted at the beginning of a fiscal year. The most
significant changes made by SFAS 142 are: (1) goodwill and indefinite-lived
intangible assets will no longer be amortized, (2) goodwill will be tested for
impairment at least annually at the reporting-unit level, (3) intangible assets
deemed to

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<PAGE>
have an indefinite life will be tested for impairment at least annually and (4)
the amortization period of intangible assets with finite lives will no longer be
limited to forty years.

     We adopted SFAS 141 effective July 1, 2001, which will result in our
accounting for any business combination consummated on or after that date under
the purchase method of accounting. The adoption of SFAS 141 will not change the
method of accounting used in previous business combinations. We will adopt SFAS
142 effective January 1, 2002 and, at that date, we do not expect to have any
goodwill remaining on our books.

Certain Factors Affecting Future Operating Results

     This Quarterly Report on Form 10-Q contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Our actual results may
differ materially from those indicated in any forward-looking statements, due to
the risks and uncertainties set forth below as well as other risks and
uncertainties we may describe from time to time in other filings with the
Securities and Exchange Commission. We undertake no obligation to revise any
forward-looking statements in order to reflect events or circumstances that may
arise after the date of this report. Readers are urged to review carefully and
consider the various risks and uncertainties described in this report and in
other reports filed with the Securities and Exchange Commission

     We conducted two rounds of restructuring/layoffs in 2001. Our June 22, 2001
restructuring included a workforce reduction of approximately 25% and the
closure of our North Carolina facility. On October 18, 2001, we announced
additional reductions in force of approximately 24%. Overall, our workforce was
reduced from 207 before the first round of layoffs to 119 after the second round
of layoffs. 33% of the net reduction in employees was from engineering
personnel. Although the restructuring actions taken will lower our expense base
in the future, we expect losses for the remainder of 2001, and potentially,
continued losses into 2002. In addition, our June 2001 and October 2001
workforce reductions may deprive us of the human capital we would need to take
full advantage of any upturn in the business cycle in our industry. There can be
no assurance that we will not lose employees in the future as a result of the
restructuring/layoffs, or that we will be able to recruit suitable replacements.

      We believe that our relationships with a few large customers will be
critical to our future success. A small number of customers have accounted for a
majority of our revenues in each of the past several years. During 2000, 1999
and 1998, two customers, WorldCom, Inc. and its subsidiaries and AT&T, together
accounted for 39%, 41% and 44% of our revenues, respectively. For the first nine
months of 2001, it was 46%.

     The absence of long-term backlog makes us vulnerable in periods of weak
demand. None of our customers is contractually obligated to purchase any
quantity of products in any particular period, and product sales to major
customers have varied widely from quarter-to-quarter and from year-to-year. Our
current customers might not continue to place orders with us, orders from
existing customers might not continue at the levels of previous periods and we
might not be able to obtain orders from new customers. Recently, there has been
a reduction of equipment demand throughout the telecommunications industry.
Because of our limited backlog, this has an essentially immediate negative
effect on our operations, which we cannot fully offset on a timely basis by
implementing reductions in expenses.

     Our prospects for growth depend on recently-introduced products and
products under development. We expect sales of our established products to
decline over time. Therefore, our future operating results are highly dependent
on market acceptance of our recently-introduced products and products that may
be introduced in the future. These include, for example, the Larscom 3000, the
Larscom 6000 and the Orion 5000, which have only recently been introduced, and
our proposed future "intelligent access" products. There can be no assurance
that such products will achieve widespread market acceptance, and, in fact, some
other products we introduced in recent years have failed to meet our sales
expectations. In addition, we have, in the past, experienced delays and changes
in course in the development of new products and the enhancement of existing
products, and such delays and changes in course may occur in the future.
Inability to develop and introduce new products or product versions in a timely
manner, due to resource

                                       13

<PAGE>
constraints or technological or other reasons, or to achieve timely and
widespread market awareness and acceptance of our new products or releases,
would have a material adverse effect on our business and operating results.

     Various factors cause fluctuations in our quarterly operating results. Our
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 our control. A small number of customers have accounted
for a significant percentage of our sales. Therefore, sales for a given quarter
generally depend to a significant degree upon orders received from and 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, in addition to the ebbs
and flows in our customers' business conditions and the effect of competitors'
product offerings. We have experienced both accelerations and slowdowns in
orders related to such projects, causing changes in the sales level of a given
quarter relative to both the preceding and subsequent quarters. Since most of
our sales are in the form of large orders with short delivery times to a limited
number of customers, our backlog and consequent ability to predict revenues will
continue to be limited. In addition, announcements by us or our competitors of
new products and technologies could cause customers to defer, limit, or end
purchases of our existing products. In the event that we lose one or more large
customers, anticipated orders from major customers fail to materialize, or
delivery schedules are deferred or canceled as a result of the above, or other
unanticipated factors, our business and operating results would be materially
adversely affected. Consequently, we believe that period-to-period comparisons
of our operating results are not necessarily meaningful and should not be relied
upon as indicative of future performance.

     Results in any period could also be affected by changes in market demand,
competitive market conditions, market acceptance of new or existing products,
increasing sales channel development costs, the cost and availability of
components, the mix of our customer base and sales channels, the mix of products
sold, our sales promotion activities, our ability to expand our sales and
marketing organization effectively, our ability to attract and retain key
technical and managerial employees and general economic conditions. We
established our expense levels for product development and other operating
expenses based on projected sales levels and margins, but expenses are
relatively fixed in the short term. Accordingly, when sales are below
expectations in any given period, our inability to adjust spending
proportionally in the short term may exacerbate the adverse impact of a revenue
shortfall on our operating results.

     Because of all of the foregoing factors, our operating results in one or
more future periods may be subject to significant fluctuations. In the event
these factors result in financial performance below the expectations of public
market analysts and investors, the price of our Class A Common Stock could be
materially adversely affected.

     Gross profits will not attain earlier levels. We do not expect our gross
profit percentage to reach the levels achieved before 1998, primarily because of
increased competition. In addition, we have developed an indirect distribution
channel, which typically yields lower margins on sales than direct sales. A
number of additional factors could cause gross profits to fluctuate as a
percentage of revenue, including changes in product mix, price discounts given,
costs of components, manufacturing costs and production volume.

     We depend heavily on component availability and key suppliers. On-time
delivery of our products depends upon the availability of components and
subsystems used in our products. We depend upon our suppliers to manufacture,
assemble and deliver components in a timely and satisfactory manner. We obtain
components and license certain embedded software from numerous single sources.
We do not believe we would be able to develop alternative sources for certain
essential components used in our products. In addition, while we believe we
would be able to develop alternative sources for most of the other components
and software used in our products without incurring substantial additional
costs, there can be no assurance that we would be able to do so, if required.
Any inability by our suppliers to meet our demand or any prolonged interruption
in supply, or a significant increase in the price of one or more components or
in the price of software, would likely have a material adverse effect on our
business and

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<PAGE>
operating results. We generally do not have any long-term contracts with our
suppliers. It is possible that our suppliers will not continue to be able and
willing to meet our future requirements.

     Rapid technological change could hurt our ability to compete. 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 our products. Our
success will depend to a substantial degree upon our ability to respond to
changes in technology and customer requirements. This will require the timely
development and marketing of new products and enhancements on a cost-effective
basis. There can be no assurance that we 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. Some of the products we have planned and introduced in recent years
have not met our sales expectations.

     Our business could be materially and adversely affected by the integration
and functionality of switches and routers. New technologies are displacing some
parts of the T1/E1 CSU/DSU product lines, the Inverse Mutiplexer product lines
and the Mutiplexer product lines. For example, symmetrical and high bit rate
digital subscriber line ("SDSL" and "HDSL") are subscriber loop technologies
that enable service providers to deploy high bandwidth services that replace
more traditional T1/FT1 services, upon which most of our products are based.

     We are controlled by Axel Johnson Inc. 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 is the sole holder of the Class B Common Stock. As a result,
Axel Johnson has sufficient combined voting power to control the direction and
policies of Larscom absolutely, including mergers, the payment of dividends,
consolidations, the sale of all or substantially all of the assets of Larscom
and the election of the Board of Directors of Larscom, and to prevent or cause a
change in control of Larscom.

     During growth periods, it is difficult to hire all the qualified personnel
we need. To grow our business, we must continue to attract, train, motivate and
manage new employees successfully, integrate new management and employees into
our overall operations and continue to improve our operational, financial and
management systems. Availability of qualified sales and technical personnel is
limited, and competition for experienced sales and technical personnel in the
telecommunications equipment industry is intense during times when business in
the telecommunications equipment industry is strong. In the past, particularly
in Northern California, we have had difficulty in filling all of our hiring
requisitions. In addition, we are currently searching for a permanent chief
executive officer, which could cause uncertainty and delay in the hiring of
essential personnel. Our failure to manage any expansion or contraction
effectively could have a material adverse effect on our business and operating
results.

     We are trying to enter more international markets, which results in
operational difficulties and risks. Sales outside the U.S. approximated 17% of
our revenues for the first nine months of 2001. The conduct of business outside
the U.S. is subject to certain customary 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, to sell our products internationally, we
must meet standards established by telecommunications authorities in a variety
of countries, as well as recommendations of the International Telecommunications
Union. A delay in obtaining, or the failure to obtain, certification of our
products in countries outside the U.S. could inhibit or preclude our marketing
and sales efforts in such countries, which could have a material adverse effect
on our business and operating results.

     We have developed an indirect distribution channel for sales to domestic
customers. This channel consists primarily of a small group of master
distributors, such as Tech Data, and a number of authorized resellers. (Sales to
large NSPs and ISPs continue to be handled by our direct sales force.) As part
of this

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<PAGE>
strategy we have appointed certain sales people to sign up resellers and assist
them in their sales efforts. There are a number of risks associated with an
indirect distribution channel. The risks include a reduction in our ability to
forecast sales, reduced average selling prices, management's inexperience in
establishing and managing a distribution channel, potential reductions in
customer satisfaction, loss of contact with users of our products, a potential
build-up of inventories at resellers and new methods of advertising and
promoting products which will result in additional expenses.

     We market our products internationally through non-exclusive distribution
agreements with international distributors and systems integrators. To focus on
sales to Europe, the Middle East and Africa, we have created a regional sales
team, headquartered in the United Kingdom. The United Kingdom team focuses on
direct sales to large NSPs while also supporting its distributors for sales to
smaller customers. We have also established sales offices in Hong Kong,
Singapore and Beijing to focus on the Asian market. If these initiatives are not
successful, our results could be materially adversely affected.

     We must comply with regulations and evolving industry standards. The market
for our products is characterized by the need to comply with a significant
number of communications regulations and Internet Protocol ("IP") standards,
some of which are evolving as new technologies are deployed. In the U.S., our
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. As standards for services such as ATM, IP and DSL evolve, we may
be required to modify our existing products or develop and support new versions
of our products. The failure of our products to comply, or delays in compliance,
with the various existing and evolving industry standards could delay
introduction of or affect the marketability of our products, which in turn could
have a material adverse effect on our business and operating results.

     We may not be able to protect our intellectual property and proprietary
information. We rely upon a combination of trade secrets, contractual
restrictions, copyrights, trademark laws and patents to establish and protect
proprietary rights in our products and technologies. We have been issued only
one U.S. patent to date, but we believe that the success of our business depends
primarily on our proprietary technology, information, processes and expertise,
rather than patents. Much of our proprietary information and technology is not
patented and may not be patentable. There can be no assurance that we will be
able to protect our technology or that competitors will not be able to develop
similar technology independently. We have entered into confidentiality and
invention assignment agreements with employees, and entered into non-disclosure
agreements with suppliers, distributors and appropriate customers so as to limit
access to and disclosure of our proprietary information. There can be no
assurance that these statutory and contractual arrangements will deter
misappropriation of our technologies or discourage independent third-party
development of similar technologies. In the event such arrangements are
insufficient, our business and operating results could be materially adversely
affected.

      We have not conducted a formal patent search relating to the technology
used in our products. From time to time, third parties may assert exclusive
patent, copyright, trademark and other intellectual property rights to
technologies that are important to us. Since patent applications in the U.S. are
not publicly disclosed until the patent is issued, applications may have been
filed by competitors of ours that could relate to our products. Software
comprises a substantial portion of the technology in our products. The scope of
protection accorded to patents covering software-related inventions is evolving
and is subject to uncertainty, which may increase the risk and cost to us if we
discover third-party patents related to our software products or if such patents
are asserted against us in the future. In the event of litigation to determine
the validity of any third-party claims, such litigation, whether or not
determined in favor of us, could result in significant expense to us and divert
the efforts of our technical and management personnel. In the event of an
adverse ruling in such litigation, we might be required to pay damages,
discontinue the use and sale of infringing products, and 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. A successful claim against us and our
failure to develop or license a substitute technology could have a material
adverse effect on our business and operating results.

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     We provide our customers a three-year product warranty. Complex products
such as ours might contain undetected errors or failures when first introduced
or as new versions are released. Although we believe that our reserves for
estimated future warranty costs are adequate, our estimates, particularly those
related to products that have been recently introduced, might not be correct.
Warranty claims in excess of those expected could have a material adverse effect
on our business and operating results.

Item 3:   Quantitative and Qualitative Disclosures about Market Risk

     Interest Rate Risk. We do not use derivative financial instruments in our
investment portfolio. Our investment portfolio generally has been comprised of
commercial paper rated A1/P1, bank certificates of deposit rated A+ or better
and corporate bonds and medium-term notes rated A- or better. These securities
mature within one year and are classified as available for sale in accordance
with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities."

     At September 30, 2001, our investment portfolio included fixed-income
securities, of the quality described above, with a fair-market value of
approximately $14 million. These securities are subject to interest-rate risk,
and will decline in value if interest rates rise. Due to the short duration of
our investment portfolio, an immediate, hypothetical 10 % decrease in interest
rates would not have a material effect on our current year financial condition
or results of operations. Because the securities are so short in duration, their
principal value would not be materially affected. The new securities we replace
them with when they mature would yield us less interest income, but the amount
of the reduction would not be material to us. If a 10% reduction occurred on
October 1, 2001 and remained in effect throughout 2001, our interest income and
our cash flow would be reduced by approximately $3,000 in 2001. We do not hold
any long-term fixed instruments.

     Foreign Currency Exchange Rate Risk. Our international sales are typically
made in U.S. dollars and are generally not subjected to foreign currency
exchange rate risk. However, certain of our sales and marketing expenses are
incurred in local currencies, principally the British Pound. Consequently, our
international results of operations are subject to foreign exchange rate
fluctuations. We do not currently hedge against foreign currency rate
fluctuations. Gains and losses from such fluctuations have not been material to
our consolidated results. The effect of an immediate, hypothetical 10 % change
in exchange rate for the British Pound or any other foreign currency would not
be material to us.

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<PAGE>

Part II:    Other Information

Item 1:     Legal Proceedings.

            We are not currently involved in any material legal proceedings.

Item 2:     Changes in Securities.

            Not Applicable.

Item 3:     Defaults upon Senior Securities.

            Not Applicable.

Item 4:     Submission of Matters to a Vote of Security Holders.

            Not Applicable.

Item 5:     Other Information.

            Not Applicable.

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

              a.  Exhibits.

                  None

              b.  Reports.

                  We filed one report on Form 8-K on September 18, 2001.
                  Information regarding the item reported is as follows: Larscom
                  Incorporated issued a press release on September 17, 2001
                  regarding the appointment of Desmond P. Wilson III to its
                  Board of Directors.

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                                   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 7, 2001                     By  /s/ Richard E. Pospisil
      ----------------------                   ---------------------------------

                                               Richard E. Pospisil
                                               President and Chief Executive
                                               Officer
                                               (Principal Executive Officer)

                                           By  /s/ Donald W. Morgan
                                               ---------------------------------

                                               Donald W. Morgan
                                               Vice President, Finance and Chief
                                               Financial Officer
                                               (Principal Financial Officer and
                                               Principal Accounting Officer)

                                       19