<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 June 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 August 6, 2001, was
8,831,863 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 ..............................   9

Item 3:   Quantitative and Qualitative Disclosures about
          Market Risk ......................................................  16


Part II:  Other Information ................................................  17

Item 1:   Legal Proceedings ................................................  17

Item 2:   Changes in Securities ............................................  17

Item 3:   Defaults upon Senior Securities ..................................  17

Item 4:   Submission of Matters to a Vote of Security Holders ..............  17

Item 5:   Other Information ................................................  17

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>
                                                                                                      June 30,          December 31,
                                                                                                        2001                2000
                                                                                                    -------------      -------------
<S>                                                                                                 <C>                <C>
                                             ASSETS
Current assets:
     Cash and cash equivalents ...........................................................            $  4,401             $  7,741
     Short-term investments ..............................................................              18,512               20,238
     Accounts receivable, net ............................................................               6,747                7,044
     Inventories .........................................................................               4,915                6,816
     Deferred income taxes ...............................................................                   -                4,040
     Income taxes receivable .............................................................                 218                  192
     Due from Axel Johnson Inc ...........................................................                 315                   72
     Prepaid expenses and other current assets ...........................................               1,591                4,082
                                                                                                      --------             --------
        Total current assets .............................................................              36,699               50,225
Property and equipment, net ..............................................................               3,787                4,111
Deferred income taxes ....................................................................                   -               11,750
Other non-current assets, net ............................................................                 122                  234
                                                                                                      --------             --------
        Total assets .....................................................................            $ 40,608             $ 66,320
                                                                                                      ========             ========

                              LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable ....................................................................            $  3,195             $  4,482
     Accrued expenses and other current liabilities ......................................              11,656                8,348
                                                                                                      --------             --------
        Total current liabilities ........................................................              14,851               12,830
Other non-current liabilities ............................................................                 350                  448
                                                                                                      --------             --------
        Total liabilities ................................................................              15,201               13,278
                                                                                                      --------             --------

Stockholders' equity:
     Class A Common Stock ................................................................                  88                   87
     Class B Common Stock ................................................................                 100                  100
     Additional paid-in capital ..........................................................              82,919               82,598
     Accumulated other comprehensive income/(loss) .......................................                  (1)
     Accumulated deficit .................................................................             (57,701)             (29,742)
                                                                                                      --------             --------
        Total stockholders' equity .......................................................              25,407               53,042
                                                                                                      --------             --------
        Total liabilities and stockholders' equity .......................................            $ 40,608             $ 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                    Six Months Ended
                                                                             June 30,                             June 30,
                                                                    ---------------------------          --------------------------
                                                                      2001              2000                2001            2000
                                                                    ---------          --------          --------          --------
<S>                                                                 <C>               <C>                <C>              <C>
Revenues ...................................................        $  11,272          $ 14,802          $ 23,486          $ 27,838
Cost of revenues ...........................................            9,178             6,969            15,772            12,961
                                                                    ---------          --------          --------          --------
      Gross profit .........................................            2,094             7,833             7,714            14,877
                                                                    ---------          --------          --------          --------

Operating expenses:
    Research and development ...............................            2,021             2,424             4,117             4,995
    Selling, general and administrative ....................            5,633             6,096            11,697            11,996
    Restructuring ..........................................            4,761                --             4,761               --
                                                                    ---------          --------          --------          --------
      Total operating expenses .............................           12,415             8,520            20,575            16,991
                                                                    ---------          --------          --------          --------

Loss  from operations ......................................          (10,321)             (687)          (12,861)           (2,114)
 Interest and other income .................................              364               435               773               836
                                                                    ---------          --------          --------          --------
Loss before income taxes ...................................           (9,957)             (252)          (12,088)           (1,278)
      Income tax provision (benefit) .......................           16,505               (82)           15,870              (378)
                                                                    ---------          --------          --------          --------
Net loss ...................................................        $ (26,462)         $   (170)         $(27,958)         $   (900)
                                                                    =========          ========          ========          ========

Basic and diluted net loss per share .......................        $   (1.41)         $  (0.01)         $  (1.49)         $  (0.05)
                                                                    =========          ========          ========          ========

Basic and diluted weighted average shares ..................           18,804            18,556            18,789            18,513
                                                                    =========          ========          ========          ========
</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>

                                                                                                Six Months Ended June 30,
                                                                                            ---------------------------------
                                                                                                2001                 2000
                                                                                            ----------            -----------
<S>                                                                                        <C>                   <C>

Cash flows from operating activities:
    Net loss .........................................................................      $  (27,958)           $      (900)
    Depreciation and amortization ....................................................           1,163                  1,294
    Non-cash restructuring and cost of revenues charges ..............................           2,280                     --
    Increase/(decrease) in deferred income taxes .....................................          15,790                   (173)
    Net decrease in other working capital accounts ...................................           4,631                    708
                                                                                            ----------            -----------
Net cash (used in)/provided by operating activities ..................................          (4,094)                   929
                                                                                            ----------            -----------

Cash flows from investing activities:
    Purchases of property and equipment ..............................................          (1,097)                  (589)
    Purchases of short-term investments ..............................................         (14,021)               (14,348)
    Sales and maturities of short-term investments ...................................          15,747                 21,003
                                                                                            ----------            -----------
Net cash provided by investing activities ............................................             629                  6,066
                                                                                            ----------            -----------

Cash flows from financing activities:
    Repayments to Axel Johnson Inc ...................................................            (244)                  (747)
    Increase/(decrease) in capital lease obligations .................................              45                    (45)
    Proceeds from issuances of Class A Common Stock ..................................             322                    341
                                                                                            ----------            -----------
Net cash provided by/(used in) financing activities ..................................             123                   (451)
                                                                                            ----------            -----------
Effect of foreign exchange rates on cash .............................................               2                      2
                                                                                            ----------            -----------
(Decrease)/increase in cash and cash equivalents .....................................          (3,340)                 6,546
Cash and cash equivalents at beginning of period .....................................           7,741                  7,009
                                                                                            ----------            -----------
Cash and cash equivalents at end of period ...........................................      $    4,401            $    13,555
                                                                                            ==========            ===========

Supplemental disclosure of cash flow information
Interest paid ........................................................................      $        2            $         4
                                                                                            ----------            -----------
Income taxes paid ....................................................................      $       67            $        64
                                                                                            ----------            -----------
</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
six months ended June 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 six months of 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):


                                            June 30,         December 31,
                                              2001              2000
                                        -----------------   -------------
Raw materials ......................... $           2,333   $       3,470
Work-in-process .......................               777             747
Finished goods ........................             1,805           2,599
                                        -----------------   -------------
                                        $           4,915   $       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 is focused on improving
operating performance by reducing expenses. The restructuring program includes 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 anticipate substantially completing the implementation of our
restructuring program by the end of September, 2001.

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

                                                                    Reserve
                                 Total        Cash      Non-Cash    June 30,
                                Charges      Charges     Charges      2001
                              ------------  ----------  ----------  ----------
                                               (in thousands)
Employee termination costs        $ 2,293      $ (160)      $ (40)     $2,093
Real estate lease reserve           2,080           -           -       2,080
Fixed asset write-down                388           -        (368)         20
                              ------------  ----------  ----------  ----------
Total                             $ 4,761      $ (160)     $ (408)     $4,193
                              ============  ==========  ==========  ==========

Note 4--Deferred Tax Assets:

     At June 30, 2001, we had total gross deferred tax assets of $20,209,000,
consisting of $16,450,000 from prior quarters and $3,759,000 from the second
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. During 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." Accordingly, we recorded a non-cash
charge of $20,209,000 to provide a full valuation allowance for the U.S.
deferred tax assets. 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 June 30, 2001.

     SFAS No. 109, "Accounting for Income Taxes," 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
provision 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      Six Months Ended
                                                              June 30,               June 30,
                                                       --------------------   --------------------
                                                         2001        2000       2001        2000
                                                       --------    --------   --------    --------
<S>                                                    <C>       <C>        <C>         <C>
Net loss............................................   $(26,462)   $   (170)  $(27,958)   $   (900)
                                                       ========    ========   ========    ========

Weighted average Class A and B
     Common Stock outstanding.......................     18,804      18,556     18,789      18,513

Basic and diluted loss per share....................   $  (1.41)   $  (0.01)  $  (1.49)   $  (0.05)
                                                       ========    ========   ========    ========

Weighted average Class A Common Stock diluted
      options outstanding excluded from the basic
      and diluted loss per share calculation........        207       1,307        339       1,574
</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 June 30, 2001, we were obligated to
purchase $359,000 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 second
quarter and first six months of 2001.




Note 8--Geographic Information:

                                       8
<PAGE>

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

                          Three Months Ended             Six Months Ended
                               June 30,                       June 30,
                     ----------------------------   ---------------------------
                         2001           2000           2001           2000
                     -------------  -------------   ------------  -------------
United States......        8,853       $13,164        $19,088        $24,254
Other countries....        2,419         1,638          4,398          3,584
                     -------------  -------------   ------------  -------------
Total..............       11,272       $14,802        $23,486        $27,838
                     =============  =============   ============  =============

(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
                               June 30,
                     ----------------------------
                          2001           2000
                     -------------  -------------
United States......    $   3,897       $ 4,543
Other countries....           12            15
                     -------------  -------------
Total..............    $   3,909       $ 4,558
                     =============  ==============

Note 9--Recent Accounting Pronouncements:

     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 are required to be adopted
July 1, 2001. The most significant changes made by SFAS 141 are: (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.

     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.


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

     Generally our 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

                                       9
<PAGE>

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.

Results of Operations

     Revenues. Our consolidated revenues of $11,272,000 for the second quarter
ended June 30, 2001 declined 24% from 2000's second quarter revenues of
$14,802,000. Our Multiplexer and Inverse Multiplexer product lines accounted for
the major portion of the decrease from last year with a combined revenue
reduction of $3,221,000. For the six months ending June 30, 2001, revenues
totaled $23,486,000, which was 16% below the comparable six-month period of 2000
when total revenues were $27,838,000. The Multiplexer and Inverse Mutiplexer
product groups were also the primary contributors to the lower revenues in the
first six months of 2001 versus 2000.

     By channel of distribution, the bulk of the revenue reduction for the
second quarter and first six months of 2001 versus the comparable period of 2000
was attributable to lower direct sales to network service providers ("NSPs") and
domestic distributors. Shipments to international locations represented 21% of
total revenues during the second quarter of 2001 and, contrary to the domestic
trends, were 48% ahead of the same period of 2000, mainly due to a large order
from an NSP for some of its overseas locations. For the six-month period,
international revenues were 19% of total revenues and 23% ahead of the same
period of last year.

     The combined revenues from WorldCom, Inc. and AT&T, our two largest
customers, accounted for 44% of the total revenues for the first six months of
2001 versus 36% for the first six months of 2000.

     Gross Profit. As a percentage of revenues, gross profit for the three
months ended June 30, 2001 dropped by 34 percentage points to 19%, as compared
to 53% for the same period of 2000. Gross profits for the six months were 33%
for 2001 versus 53% for 2000. The percentage point decline in gross profits for
both the second quarter and six month comparatives was primarily attributed to
higher 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
$2,021,000 for the second quarter of 2001, which was $403,000 or 17% below the
second quarter 2000 spending of $2,424,000. So far this year, research and
development costs totaled $4,117,000 as compared to last year's spending of
$4,995,000 for an 18% decline. The reduction in both the second quarter and six-
month comparatives were mainly due to lower staffing levels, lower software
expenses and a decline in material cost. The June 2001 restructuring program is
expected to lower our research and development expenses for the remainder of
this year.

     Selling, General and Administrative. Selling, general and administrative
expenses decreased 8% to $5,633,000 during the three months ended June 30, 2001,
as compared to $6,096,000 in 2000. Year to date, selling, general and
administrative expenses were $11,697,000, compared to $11,996,000 for the same
period of 2000, which represents a $299,000 or 2% reduction from last year. The
reduced spending level was due primarily to lower employee benefits cost,
commission expense, advertising expense and tax and license expense. We expect
to report lower selling, general and administrative costs for the rest of the
year due to the effects of the June 2001 restructuring program.

     Selling, general and administrative expenses include charges from Axel
Johnson Inc. ("Axel Johnson") for legal, accounting, tax, treasury, human
resources and administrative services of $117,000 for the second quarter and
$233,000 for the first six months of 2001, as compared to $113,000 for the
second quarter and $226,000 for the first six 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 will focus our
business on improving operating performance by reducing expenses. The

                                       10
<PAGE>

restructuring program includes 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.

     Interest and Other Income. Interest and other income amounted to $364,000
and $773,000 for the second quarter and first six months of 2001 as compared to
$435,000 and $836,000 for the same periods of 2000, respectively. Interest
income, which is the major component of Interest and Other Income, was $358,000
for the second quarter of 2001, as against $452,000 for the same period in 2000.
For the first six months of 2001, interest income was $786,000 versus $877,000
for the first six months of 2000. The lower interest income for the three-month
and six-month periods was primarily the result of reduced average investment
balances. 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 No.109 "Accounting for Income Taxes." 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. We will
continue to review whether a valuation allowance is warranted.

Liquidity and Capital Resources

     Operating activities used cash of $4,094,000 in the first six months of
2001 primarily due to our net loss. Partially offsetting the impact of our net
loss were non-cash items consisting of write-downs in pre-paid royalties and
property and equipment, as well as the deferred tax asset valuation allowance, a
reduction in working capital, depreciation and amortization.

     Capital expenditures in the first six months were $1,097,000. These
expenditures consisted principally of the purchase of computers, software and
test equipment. We anticipate capital expenditures to total $1,700,000 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. 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 June 30, 2001, we had cash and cash equivalents of $4,401,000 and
short-term investments of $18,512,000. We believe our liquidity position is
currently adequate.

Recent Accounting Pronouncements

     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 are required to be adopted
July 1, 2001. The most significant changes made by SFAS 141 are: (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

                                       11
<PAGE>

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.

     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

     On June 22, 2001, we announced a corporate restructuring plan. The
restructuring included a workforce reduction of approximately 25% and the
closure of our North Carolina facility. There can be no assurance that we will
not lose employees in the future as a result of the restructuring, or that we
will be able to recruit suitable replacements, particularly since the demand for
such employees is high.

     We believe that our relationships with large customers, particularly NSPs
and ISPs, 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.

     We are vulnerable to industry-wide downturns such as the one occurring now.
Loss of, or a material reduction in, orders from one or more of our major
customers could have a material adverse effect on our business and operating
results. 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.

     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

                                       12
<PAGE>

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 factors 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 our financial performance being 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 are experiencing current losses as we implement our growth initiatives.
The Board of Directors, on November 17, 1999, approved funding for an aggressive
program to develop new products and expand into new markets. We reported
operating losses for 2000 partly as a result of these strategic initiatives. As
a result of unfavorable macro-economic conditions and decreases in demand in our
markets, we restructured our operations in June 2001, which has led us to reduce
our investment in new products and markets. 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 workforce reduction may deprive us of the human capital we would need
to take full advantage of any upturn in the business cycle in our industry.

     We 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, the Orion 5000
and the Larscom 4800, 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 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.

     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

                                       13
<PAGE>

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 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. For example, we are aware of a competing technology with network
monitoring capabilities that can be used instead of the Split-T product that we
sell primarily to WorldCom, Inc. If WorldCom Inc. customers were to opt for the
alternative technology as part of their services, our business and operating
results would be materially adversely affected.

     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. 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.

     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, U.S. which results in
operational difficulties and risks. Sales outside the US approximated 19% of our
revenues for the first six 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

                                       14
<PAGE>

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 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

                                       15
<PAGE>

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.

     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 June 30, 2001, our investment portfolio included fixed-income
securities, of the quality described above, with a fair-market value of
approximately $18 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 percent 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-term,
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 July 1, 2001 and remained in effect throughout 2001, our interest income and
our cash flow would be reduced by approximately $10,000 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 percent
change in exchange rate for the British Pound or any other foreign currency
would not be material to us.

                                       16
<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.

                  The following matters were voted upon at the annual meeting on
May 23, 2001.

                  1.     Election of (6) directors of the Company.


                                                        For         Withheld
                                                      ------------ -------------
                         Robert Coackley               46,772,131     1,572,440
                         Donald G. Heitt               48,323,331        21,420
                         Lawrence D. Milligan          46,771,327     1,573,244
                         Harvey L. Poppel              48,325,881        18,690
                         Richard E. Pospisil           48,327,926        16,645
                         Joseph F. Smorada             46,768,976     1,575,595


                  2.     Ratification of the appointment of
                         PricewaterhouseCoopers LLP as independent accountants
                         of the Company. For 48,322,850, Against 12,395, Abstain
                         9,326.

Item 5:           Other Information.

                  Not Applicable.

                                       17
<PAGE>

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

                          a.        Exhibits.

                                    *10.1 Original Equipment
                                    Manufacturing/Private Label Agreement by and
                                    between Larscom Incorporated and G3M
                                    Corporation dated January 4, 2001.

                                    *10.2 Non-Exclusive OEM Agreement by and
                                    between Larscom Incorporated and Oasys
                                    Telecom, Inc. dated May 1, 2001.

                          b.        Reports.

                                    We filed two reports on Form 8-K during the
                                    second quarter of 2001, for events of June
                                    22 and June 26, 2001, respectively. The
                                    first report, which was filed June 22, 2001,
                                    disclosed that we restructured our
                                    organization in response to a recent and
                                    significant slowdown in business, reducing
                                    our workforce by 25%, closing our North
                                    Carolina facility and recognizing
                                    significant accounting charges in the second
                                    quarter of 2001. Separately, we announced
                                    that George Donohoe, executive vice
                                    president, had decided to retire and Rebecca
                                    Horn, vice president for marketing, located
                                    in North Carolina, would leave the Company.
                                    The second report, which was filed June 26,
                                    2001, announced the resignation of Robert
                                    Coackley as President and Chief Executive
                                    Officer and the appointment of Richard E.
                                    Pospisil to replace him.

* Confidential treatment has been requested as to certain portions of this
agreement. Such omitted confidential information has been designated by an
asterisk and has been filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended, pursuant to an application for confidential treatment.

                                       18
<PAGE>

                                  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   August 13, 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
<PAGE>

                                 EXHIBIT INDEX

*10.1 Original Equipment Manufacturing/Private Label Agreement by and between
Larscom Incorporated and G3M Corporation dated January 4, 2001.

*10.2 Non-Exclusive OEM Agreement by and between Larscom Incorporated and Oasys
Telecom, Inc. dated May 1, 2001.

* Confidential treatment has been requested as to certain portions of this
agreement. Such omitted confidential information has been designated by an
asterisk and has been filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended, pursuant to an application for confidential treatment.

                                      20