<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, 1999

                                       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 July 31, 1999, was
8,366,000 of Class A Common Stock and 10,000,000 of Class B Common Stock.

<PAGE>

                              LARSCOM INCORPORATED
                                    FORM 10-Q
                                TABLE OF CONTENTS

<TABLE>

<S>                                                                    <C>
PART I:  FINANCIAL INFORMATION                                          3

ITEM I:  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                                                   19

PART II: OTHER INFORMATION                                             20

ITEM 1:  LEGAL PROCEEDINGS:                                            20

ITEM 2:  CHANGES IN SECURITIES:                                        20

ITEM 3:  DEFAULTS UPON SENIOR SECURITIES:                              20

ITEM 4:  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:          20

ITEM 5:  OTHER INFORMATION:                                            21

ITEM 6:  EXHIBITS AND REPORTS ON FORM 8-K:                             21

     A: Exhibits                                                       21
     B: Form 8-K                                                       21
     SIGNATURES                                                        22

</TABLE>

<PAGE>

PART I:           FINANCIAL INFORMATION
ITEM 1:           FINANCIAL STATEMENTS


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

<TABLE>
<CAPTION>

                                                            June 30,        December 31,
                                                              1999             1998
                                                          -------------    -------------
<S>                                                       <C>              <C>
                                             ASSETS
Current assets:
     Cash and cash equivalents                                $ 17,592         $ 10,265
     Short-term investments                                      7,303           13,902
     Accounts receivable, net                                    7,587            7,539
     Inventories                                                 5,837            8,613
     Deferred income taxes                                       5,227            4,607
     Income taxes receivable                                     3,465            2,508
     Due from Axel Johnson Inc.                                    430                -
     Prepaid expenses and other current assets                   1,190            1,542
                                                          -------------    -------------
        Total current assets                                    48,631           48,976
Property and equipment, net                                      5,538            6,920
Intangible assets, net                                             569              687
Deferred income taxes                                           11,163           11,486
Other non-current assets                                            34               34
                                                          -------------    -------------
        Total assets                                          $ 65,935         $ 68,103
                                                          =============    =============

                              LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Current portion of long-term debt                        $    119            $ 194
     Accounts payable                                            2,759            3,705
     Accrued expenses and other current liabilities              8,379            7,390
     Due to Axel Johnson Inc.                                        -              547
                                                          -------------    -------------
        Total current liabilities                               11,257           11,836

Other non-current liabilities                                      463              416
                                                          -------------    -------------

Stockholders' equity:
     Class A Common Stock                                           83               83
     Class B Common Stock                                          100              100
     Additional paid-in capital                                 81,738           81,637
     Accumulated other comprehensive income                        (14)               2
     Accumulated deficit                                       (27,692)         (25,971)
                                                          -------------    -------------
        Total stockholders' equity                              54,215           55,851
                                                          -------------    -------------
        Total liabilities and stockholders' equity            $ 65,935         $ 68,103
                                                          =============    =============

</TABLE>

      See accompanying Notes to Condensed Consolidated Financial Statements

<PAGE>

                                           LARSCOM INCORPORATED

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

<TABLE>
<CAPTION>

                                                     Three months ended June 30, Six months ended June 30,
                                                     -------------------------   --------------------------
                                                        1999          1998          1999          1998
                                                     -----------   -----------   -----------   ------------
<S>                                                  <C>           <C>           <C>           <C>
Revenues                                               $ 13,198      $ 18,639      $ 25,444       $ 40,969
Cost of revenues                                          7,077        10,199        13,635         20,360
                                                     -----------   -----------   -----------   ------------
    Gross profit                                          6,121         8,440        11,809         20,609
                                                     -----------   -----------   -----------   ------------

Operating expenses:
    Research and development                              2,116         2,765         4,456          6,303
    Selling, general and administrative                   5,446         6,391        10,740         13,761
                                                     -----------   -----------   -----------   ------------
      Total operating expenses                            7,562         9,156        15,196         20,064
                                                     -----------   -----------   -----------   ------------

Income (loss) from operations                            (1,441)         (716)       (3,387)           545
Interest expense charged by Axel Johnson Inc.               (19)          (19)          (38)           (38)
Interest and other income                                   291           185           557          1,691
                                                     -----------   -----------   -----------   ------------
Income (loss) before income taxes                        (1,169)         (550)       (2,868)         2,198
Income tax provision (benefit)                             (467)         (209)       (1,147)           835
                                                     -----------   -----------   -----------   ------------
Net income (loss)                                        $ (702)       $ (341)     $ (1,721)       $ 1,363
                                                     ===========   ===========   ===========   ============

Basic and diluted earnings (loss) per share             $ (0.04)      $ (0.02)      $ (0.09)        $ 0.07
                                                     ===========   ===========   ===========   ============

Basic and diluted weighted average shares                18,313        18,188        18,305         18,180
                                                     ===========   ===========   ===========   ============

</TABLE>

      See accompanying Notes to Condensed Consolidated Financial Statements

<PAGE>

                                         LARSCOM INCORPORATED

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

<TABLE>
<CAPTION>

                                                                          Six months ended June 30,
                                                                       --------------------------------
                                                                           1999              1998
                                                                       --------------    --------------
<S>                                                                    <C>               <C>
Cash flows from operating activities:
    Net income (loss)                                                       $ (1,721)          $ 1,363
    Depreciation and amortization                                              1,818             3,113
    Gain from sale of building                                                     -            (1,329)
    Deferred income taxes                                                       (297)              (16)
    Net (increase) decrease in working capital                                 2,368            (5,482)
                                                                       --------------    --------------
Net cash provided (used) by operating activities                               2,168            (2,351)
                                                                       --------------    --------------

Cash flows from investing activities:
    Purchases of property and equipment                                         (418)             (868)
    Proceeds from sale of building                                                 -             1,700
    Purchases of short-term investments                                      (13,719)          (53,609)
    Sales of short-term investments                                           20,318            30,499
    Maturities of short-term investments                                           -            22,870
                                                                       --------------    --------------
Net cash provided by investing activities                                      6,181               592
                                                                       --------------    --------------

Cash flows from financing activities:
    Repayments to Axel Johnson Inc.                                             (977)           (2,921)
    Payment of capital lease obligations                                        (129)             (281)
    Proceeds from issuances of Class A Common Stock                              101               335
                                                                       --------------    --------------
Net cash used by financing activities                                         (1,005)           (2,867)
                                                                       --------------    --------------
Effect of exchange rates on cash                                                 (17)                2
                                                                       --------------    --------------
Increase (decrease) in cash and cash equivalents                               7,327            (4,624)
Cash and cash equivalents at beginning of period                              10,265             8,254
                                                                       --------------    --------------
Cash and cash equivalents at end of period                                  $ 17,592           $ 3,630
                                                                       ==============    ==============

Supplemental disclosure of cash flow information
Interest paid                                                               $     38           $    38
                                                                       --------------    --------------
Income taxes paid                                                           $     89           $ 3,575
                                                                       --------------    --------------

</TABLE>

      See accompanying Notes to Condensed Consolidated Financial Statements

<PAGE>

                              LARSCOM INCORPORATED

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--BASIS OF PRESENTATION:

     The financial statements for the six months ended June 30, 1999 and 1998
presented in this Quarterly Report on Form 10-Q are unaudited. Management
believes, however, that these financial statements fairly present the results
for the periods covered, including all normally recurring adjustments. These
financial statements should be read together with our audited annual
financial statements and notes, which are included in the Company's Report on
Form 10-K for the year ended December 31, 1998. Results of operations for the
first six months of the year are not necessarily indicative of the results
the Company will achieve for the full year.

NOTE 2--INVENTORIES:

     Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>

                                          June 30,      December 31,
                                            1999           1998
                                        -------------   ------------
<S>                                     <C>             <C>
Raw materials                                $ 1,628        $ 3,021
Work in process                                  946          1,053
Finished goods                                 3,263          4,539
                                        -------------   ------------
                                             $ 5,837        $ 8,613
                                        =============   ============

</TABLE>

NOTE 3--RESTRUCTURING:

     The Company undertook a corporate restructuring in the fourth quarter of
1998 that included a workforce reduction of approximately 16%. The
restructuring reduced expenses to better match those expenses against
anticipated revenues. In connection with this restructuring, the Company
tightened its focus on opportunities that it believes offer the best
long-term growth potential. Details of the restructuring expense are as
follows:

<TABLE>
<CAPTION>

                                                             Asset
                                            Employee         Write
                                           Severance         Downs          Other           Total
                                           -----------    ------------   ------------    ------------
                                                                 (in thousands)
<S>                                        <C>            <C>            <C>             <C>
Restructuring charge                            $ 876            $ 89          $ 249         $ 1,214
Payments to date                                  864              89            148           1,101
                                           -----------    ------------   ------------    ------------
Balance at June 30, 1999                         $ 12             $ -          $ 101           $ 113
                                           ===========    ============   ============    ============

</TABLE>

     The Company expects to have paid all of these remaining liabilities by
September 30, 1999.

<PAGE>

NOTE 4--EARNINGS (LOSS) PER SHARE:

     Basic earnings per share are computed using the weighted-average number of
common shares outstanding during the period. Diluted earnings per share are
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 if their effect is
antidilutive.

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

<TABLE>
<CAPTION>

                                                Three Months Ended         Six Months Ended
                                                     June 30,                  June 30,
                                               ----------------------    ----------------------
                                                  1999        1998          1999        1998
                                               ----------  ----------    ----------  ----------
<S>                                            <C>         <C>           <C>         <C>
Net income (loss)                                 $ (702)     $ (341)     $ (1,721)     $1,363
                                               ==========  ==========    ==========  ==========

Weighted average Class A and B
     Common Stock outstanding                     18,313      18,188        18,305      18,180
Dilutive effect of options                             -           -             -           -
                                               ----------  ----------    ----------  ----------
Diluted average shares                            18,313      18,188        18,305      18,180
                                               ==========  ==========    ==========  ==========

Basic and diluted earnings (loss) per share      $ (0.04)    $ (0.02)      $ (0.09)     $ 0.07
                                               ==========  ==========    ==========  ==========

</TABLE>

NOTE 5--COMPREHENSIVE INCOME:

     The Company adopted a new accounting standard in 1998, Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). "Comprehensive income" includes all changes in equity from
non-owner sources during the period. The only item of comprehensive income
for the periods presented related to foreign currency translation
adjustments. Such amounts were immaterial for the periods presented.

NOTE 6--COMMITMENTS AND CONTINGENCIES:

     In April 1998, the General Services Administration ("GSA") notified the
Company that they had completed their audit of our two product supply
contracts that were subject to GSA regulations. The Company had previously
established a reserve of $532,000 to cover potential pricing deficiencies,
associated audit and legal costs, and penalties under these contracts.
Because of the notification by GSA, the Company released the reserve of
$532,000 in the second quarter of 1998. This resulted in a reduction in
selling, general, and administrative expenses for the year. The Company
believes that no additional liabilities will result from this matter.

     At the end of 1998, three vendors of integrated circuits ("ICs") used in
our products notified us that they intended to cease production of these ICs.
Because the Company believed it would continue to use these ICs, it entered
into commitments to purchase approximately $1,250,000 of these ICs in the
aggregate, representing between one and two years' expected demand for these
components. At June 30, 1999, $690,000 of those commitments remained. The
Company believes it will use all of the quantities it agreed to purchase;
however there can be no assurance that these estimates are correct. Any
excess quantities over expected needs in the future could result in a charge
to net income.

     The Company typically indemnifies its customers for any expenses or
liabilities resulting from claims by third parties that our products infringe
the patents, trademarks or copyrights of third parties.

<PAGE>

NOTE 8--ACQUISITION:

     The Company acquired NetEdge Systems Inc. ("NetEdge"), by merger on
December 31, 1997. The Company paid total merger consideration of $25,793,000
in cash, and incurred acquisition costs of $1,182,000, and assumed
liabilities of $9,782,000.

     Of the cash consideration, $6,300,000 was placed into escrow pending
resolution of certain matters. These matters included potential purchase price
adjustments and potential claims for breach of representations and warranties.
In September 1998, $600,000 of the escrow amount was paid to us as a result of
certain claims we made, and $400,000 was released to the shareholders of
NetEdge. In January 1999 an additional $647,000 was released to the shareholders
of NetEdge. There remained $4,653,000 in escrow on June 30, 1999.


NOTE 9--SALE OF BUILDING:

     In March 1998, the Company recorded a one-time gain of $1,329,000,
before tax, as a result of the sale of our former headquarters by a
partnership in which it held a one-third interest.

<PAGE>

                              LARSCOM INCORPORATED

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

     EXCEPT FOR THE HISTORICAL STATEMENTS CONTAINED HEREIN, 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. THE ACTUAL RESULTS THAT THE COMPANY ACHIEVES
MAY DIFFER MATERIALLY FROM THOSE INDICATED IN ANY FORWARD-LOOKING STATEMENTS DUE
TO THE RISKS AND UNCERTAINTIES SET FORTH UNDER "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," "RISK FACTORS" AND
ELSEWHERE IN THIS FORM 10-Q. THE COMPANY UNDERTAKES 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 CAREFULLY REVIEW AND
CONSIDER THE VARIOUS DISCLOSURES MADE BY THE COMPANY IN THIS REPORT AND IN THE
COMPANY'S REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION THAT ATTEMPT
TO ADVISE INTERESTED PARTIES ON THE RISKS AND FACTORS THAT MAY AFFECT THE
COMPANY'S BUSINESS.

RESULTS OF OPERATIONS

     We split our products into two main categories - network systems
(broadband) and digital access (narrow band) - based upon the bandwidth of the
products supplied. We sell these products primarily through a direct sales force
and, to a lesser extent, through a variety of resellers. Our resellers include
original equipment manufacturers, value-added resellers, system integrators and
distributors. A high proportion of our sales are made to a limited number of
voice and data network service providers. We are seeking to develop alternative
distribution channels, particularly for the digital access group products, but
sales to distributors have been limited to date.

     REVENUES. Our revenues were $13,198,000 for the three months ended June 30,
1999. This was a 29% decrease from revenues of $18,639,000 during the comparable
period in 1998. Our revenues were $25,444,000 for the six months ended June 30,
1999, a 38% decrease from revenues of $40,969,000 during the comparable period
in 1998. During the most recent quarter, our sales of network systems products
were $6,567,000, down from $8,945,000 in the comparable quarter of a year ago.
Our sales of digital access products in the most recent quarter were $5,557,000,
lower than the $8,628,000 a year ago. For the six months ended June 30, 1999,
network systems sales were $12,159,000, down from $21,522,000 for the same
period in 1998. Digital access product sales for the six months ended June 30,
1999 were $11,148,000, down from $17,525,000 for the same period of 1998. The
decrease in network systems sales in the second quarter of 1999 was primarily
due to lower sales of Orion 4000 and Access-T45 products. The decrease in
network system sales in the six months ended June 30, 1999 was primarily due to
lower sales of Orion 4000, EDGE and Access-T45 products. The decrease in digital
access product sales in the second quarter of 1999 was primarily due to lower
sales of Access-T products. The decrease in digital access product sales in the
first half of 1999 was primarily due to lower sales of Access-T and Split-T
products.

<PAGE>

     The primary reason for the decreases in product sales described above was
reduced orders from the Company's three largest customers. This was due
primarily to changes in the demand for voice and data services which use our
equipment, increased competition and a lack of new products. These customers
collectively represented 44% of revenues in the first six months of 1999 as
compared to 56% in the corresponding period in 1998. MCI Worldcom (including
UUNET), which accounted for 31% of revenue in the first six months of 1999,
accounted for 36% of revenue in the first six months of 1998. The reduced orders
from MCI Worldcom primarily affected sales of the Split-T, Orion 4000,
Access-T45 and EDGE products. We expect MCI Worldcom orders of the Split-T
product to decline in the third quarter of 1999 because of changes in their
inventory management practices. AT&T (including IBM Global Network, which was
acquired by AT&T effective May 1999) accounted for 11% and 12% of revenues in
the first six months of 1999 and 1998, respectively. Reduced orders from AT&T
primarily affected sales of Access-T and Access-T45 products. A third customer
accounted for 2% of revenue in the first six months of 1999 sales and 8% in the
first six months of 1998. This customer's reduced orders primarily affected
sales of the Orion 4000 product.

     International sales represented 12% of total revenues during the first half
of 1999 as compared to 5% in the same period of 1998. This increase was
primarily due to higher sales of the Mega-E and Orion 4000 products in Europe.

     GROSS PROFIT. Gross profit, as a percentage of revenues, was lower during
the first six months of 1999 than the first six months of 1998. Gross margin for
the three months and six months ended June 30, 1999 was 46% as compared to 45%
in the second quarter of 1998 and 50% in the first half of 1998. This decrease
from 1998 primarily resulted from additional inventory reserves, lower
production volumes and lower average unit selling prices, offset by lower
intangible asset amortization.

     RESEARCH AND DEVELOPMENT. Research and development expenses declined by
23% to $2,116,000 in the three months ended June 30, 1999 from $2,765,000 in
the three months ended June 30, 1998. Research and development expenses
declined by 29% to $4,456,000 in the six months ended June 30, 1999 from
$6,303,000 in the six months ended June 30, 1998. The declines were primarily
due to lower headcount, following our late 1998 restructuring. We believe
that a continued commitment to research and development, particularly related
to emerging technologies, will be required to respond to customer demand and
to remain competitive. Accordingly, we do not anticipate any significant
further reduction in research and development spending.

     SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses decreased 15% to $5,446,000 during the three months ended June 30,
1999, as compared to $6,391,000 in the comparable 1998 period. Selling, general
and administrative expenses decreased 22% to $10,740,000 during the six months
ended June 30, 1999, as compared to $13,761,000 in the comparable 1998 period.
The decrease was due to lower headcount as we sought to reduce overall expense
levels.

<PAGE>

     Selling, general and administrative expenses include charges from Axel
Johnson for legal, accounting, tax, treasury, human resources and administrative
services as follows (in thousands):

<TABLE>
<CAPTION>

                                                     1999           1998
                                                 -------------   ------------
<S>                                              <C>             <C>
Three months ended June 30,                           $ 110          $ 106
Six months ended June 30,                             $ 219          $ 212

</TABLE>

     INTEREST EXPENSE CHARGED BY AXEL JOHNSON. Interest expense includes credit
line fees paid to Axel Johnson under the Credit Agreement. See Liquidity and
Capital Resources for more details.

     INTEREST AND OTHER INCOME. Interest income was $291,000 for the three
months ended June 30, 1999, as compared to $185,000 for the same period in 1998.
Interest income was $557,000 for the six months ended June 30, 1999, as compared
to $362,000 for the same period in 1998. We invested primarily in taxable
securities during the six months ended June 30, 1999, in order to reduce our
taxable loss. This caused interest income to be higher than the same period in
1998. During 1998, we were investing primarily in federal-income-tax-exempt
securities. In March 1998, we also recorded a gain of $1,329,000 arising from
the sale of our former headquarters by a partnership in which we held a
one-third interest.

     PROVISION FOR INCOME TAXES. The effective tax benefit rate of 40% for the
three months ended June 30, 1999 differs from the federal statutory rate
primarily because of state income taxes.

     At June 30, 1999, we had deferred tax assets of $16,390,000. This asset
primarily relates to expected future tax benefits from the amortization of
intangible assets. The amortization of intangible assets is deductible for
tax purposes in equal amounts over the next 14 years. The remaining tax
benefit relates to inventory reserves and accrued expenses. We have not taken
a valuation allowance against the deferred tax assets because we believe it
is more likely than not that they are realizable. However, realization of
these assets is primarily dependent on our ability to generate taxable income
in the future. If we significantly reduce our estimate of future taxable
income, we would probably have to record an allowance against our deferred
tax asset. Such a change could have a material adverse effect on our results
of operations and financial condition.

     Our determination of our ability to use our deferred tax assets is based on
a number of factors, including:

     -    our earnings history;
     -    a significant portion of the deferred tax assets are deductible
          over 14 years;
     -    tax losses can be carried forward for 20 years; and
     -    a portion of the losses can be carried back to prior years.

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

     Our operating activities provided cash of $2,168,000 during the six
months ended June 30, 1999. This compares with cash used by operating
activities of $2,351,000 in the corresponding period in 1998. The cash
provided by operations during the 1999 period was generated primarily by net
income before depreciation and amortization and a decrease in inventory and
an increase in accrued expenses.

     Historically, we have met our operating and capital cash requirements
primarily from cash flow from operations and advances from Axel Johnson. We do
not expect capital expenditures during 1999 to exceed $2,000,000. We spent
approximately $418,000 on capital equipment in the six months ended June 30,
1999.

     We have a $15 million revolving line of credit with Axel Johnson. This line
of credit expires in December 2000. The credit agreement contains various
representations, covenants, and events of default typical for financing a
business of a similar size and nature. If we default under the agreement, any
borrowings under the line of credit become payable in full. We have not used
this line of credit to date. Larscom and Axel Johnson have also entered into an
administrative service agreement and a tax-sharing agreement for the purposes of
defining the on-going relationship between them.

     As of June 30, 1999, we had cash and cash equivalents of $17,592,000,
short-term investments of $7,303,000 and other net working capital of
$12,479,000. We believe that these assets, together with the line of credit and
funds generated from operations, will provide adequate liquidity to meet our
operating and capital requirements for at least the next 12 months. Nonetheless,
future events could require us to seek additional capital at an earlier date.
These events could include any significant future losses or acquisitions for
cash. If we do need additional capital in the future, we may not be able to
obtain adequate capital on terms acceptable to us, or at all.

<PAGE>

RISK FACTORS

     EXCEPT FOR THE HISTORICAL STATEMENTS CONTAINED HEREIN, 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 WE DESCRIBE IN THIS REPORT AND IN OTHER REPORTS WE FILE
WITH THE SECURITIES AND EXCHANGE COMMISSION.

     CUSTOMER CONCENTRATION. Our revenues largely come from a small number of
customers. During 1998, 1997 and 1996, two customers, MCI WorldCom and its
subsidiaries (including UUNET) and AT&T (including IBM Global Network which was
purchased by AT&T effective May 1999) together accounted for 44%, 55% and 53% of
revenues, respectively. Therefore, our results are highly dependent on continued
orders from these two customers and we believe that our relationships with these
and other large customers will be critical to our future success.

     None of Larscom's customers is contractually obligated to purchase any
quantity of products in any particular period. Product sales to major customers
have varied widely from quarter to quarter and year to year. For example, in one
quarter of 1998 sales to one of our largest customers varied by $4.4 million
from sales in the previous quarter. Reductions in orders from certain large
customers contributed significantly to the Company's lower revenues over the
past year. The primary reasons for these reductions were as follows:

     -    changes in the demand for voice and data services
     -    increased competition
     -    competing products that incorporate certain of the functionality of
          our products

     We may continue to experience declines in orders from our large customers
as a result of continuing consolidation in their businesses and competitive
factors. We also face the risk that we could lose all of the business of one or
more of these customers. Our operating revenues and financial condition could be
materially and adversely affected if we lose all or a significant portion of the
business of any of our large customers.

<PAGE>

     FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The results of operations for
any quarter are not necessarily indicative of results in any future period. Our
operating results have been subject to quarterly fluctuations because of a
number of factors, many of which are beyond our control. These factors include:

     -   increased competition in the networking industry;
     -   the overall trend toward industry consolidation;
     -   the introduction and market acceptance of new technologies and
         standards;
         -   variations in sales channels, product costs, or mix of products
             sold;
         -   customer concentration;
         -   orders are large and have short delivery times;
         -   limited backlog;
         -   manufacturing lead times; and
         -   changes in general economic conditions and specific economic
             conditions in the computer and networking industries.

<PAGE>

     RESTRUCTURING. On October 15, 1998, we announced a corporate restructuring
plan designed to reduce expenses in light of lower anticipated revenues. The
restructuring included a workforce reduction of approximately 16%. A number of
engineers have resigned since the restructuring. Although we do not believe that
those resignations have had a significant impact on our research and development
efforts, we could lose more employees in the future. Market demand for quality
engineers and other personnel is very high. As a result, we could lose
additional employees and have difficulty recruiting new employees. In November
1998, to help retain and motivate existing employees we canceled the existing
employee stock options and issued replacement options with exercise prices equal
to the then fair market value of the Company's Class A Common Stock.

     We experienced a slight improvement in orders in the second quarter of 1999
as compared to the first quarter. However, the improvement was modest and we may
not be able to continue to improve our revenue levels. Nonetheless, we have
decided to maintain current levels of investment in research and development and
market development. Other operating expenses are relatively fixed in the short
term. Consequently, we expect to remain unprofitable in the second half of 1999.
There can be no assurances that we will realize the increased sales levels
required to return to profitability. Indeed, there can be no assurance that we
will return to profitability at all, even if we were to undertake further
spending cuts.

     DEVELOPMENT OF ALTERNATIVE DISTRIBUTION CHANNELS. We are currently seeking
to develop an indirect distribution channel for sales to domestic customers.
This channel will consist primarily of a small group of master distributors,
such as Tech Data, and a number of authorized resellers. We give some of these
customers the right to return inventory and to receive credits for changes in
our selling prices. We believe we maintain appropriate accruals and allowances
for such exposures.

     Our initial intent was primarily to sell digital access products through
this distribution channel, particularly the WANmaker product line. Sales to
large voice and data network service providers will 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 the development of an indirect
distribution channel that could cause results of operations and financial
condition to be materially adversely affected. These factors include:

     -   a reduction in our ability to forecast sales;
     -   reduced average selling prices;
     -   increased credit risk;
     -   management's inexperience in establishing and managing a distribution
         channel;
     -   potential reductions in customer satisfaction;
     -   loss of contact with end users of our products; and
     -   new methods of advertising and promoting the products which will result
         in additional expenses.

     We market our products internationally primarily through non-exclusive
distribution agreements with VARs and systems integrators. To date we have not
been particularly successful in selling through the international channels. To
focus on sales to Europe, the Middle East and Africa, we have created a regional
sales and service team, headquartered in the United Kingdom. The United Kingdom
team focuses on direct sales to large customers while also supporting its
distributors for sales to smaller customers. We may not be able to generate
increased international sales through these efforts.

<PAGE>

     DEPENDENCE ON RECENTLY INTRODUCED PRODUCTS AND PRODUCTS UNDER DEVELOPMENT.
Our future operating results will be largely dependent on the market success of
recently introduced products and products that may be introduced in the future.
Products under development include the recently introduced WANmaker and the
Orion 2000 product lines. There can be no assurance that these products will
achieve widespread market acceptance. In the past, we have experienced delays in
the development of new products and the enhancement of existing products, and
such delays may occur in the future. If we are unable to develop new products,
or new versions of existing products, in a timely manner, it could have a
materially adverse effect on our business and operating results.

     YEAR 2000. As the year 2000 approaches, the challenges associated with
moving into a new millennium have become a critical business concern around the
world. We recognize the importance of addressing this situation in a timely,
proactive manner. In early 1998, we established a Year 2000 compliance program
to ensure that our products and internal systems continue to function properly
into the next century. We have verified that all of our current product
offerings are Year 2000 ready. In those cases where products not currently
offered were found not to be in compliance, the information was communicated to
customers via written notification. In most cases, we provided an upgrade path
to these customers.

     We are currently operating on a live version of our primary business system
that we think is Year 2000 ready. Additionally, we have completed our assessment
of all other areas of the Company's business that could be impacted. These
include manufacturing plant floor equipment, system test laboratories,
engineering laboratories and the building infrastructure. We found no major
problems that would inhibit normal operations in the Year 2000 and beyond. Any
necessary remediation efforts are complete.

     Based on assessments completed to date and compliance plans in process, we
do not expect that the Year 2000 issue, including the cost of making products
and critical systems compliant, will have a material effect on our business
operations or cash flow. Direct costs related to all Year 2000 compliance
testing and remediation are estimated to be approximately $465,000 over a
two-year period, of which approximately $412,000 had been incurred as of June
30, 1999.

     We have contacted all of our critical suppliers and sought to assess their
ability to continue to deliver products and services in the Year 2000. Based on
the responses we received, we have no reason to expect that any interruption in
business will result from any Year 2000 issues among our suppliers.

     Based on current progress and future plans, Larscom believes that the Year
2000 date change will not significantly affect Larscom's ability to deliver
products and services to its customers on a timely basis. However, there can be
no assurances that the Year 2000 date change will not have a materially adverse
affect on our results of operations or financial condition. As a result, we are
in the process of creating contingency plans to safeguard against failures of
our own products, suppliers and vendors and internal information systems related
to the Year 2000 issue. These contingency plans will be completed on or before
September 1999.

<PAGE>

     DEPENDENCE ON COMPONENT AVAILABILITY AND KEY SUPPLIERS. We depend on our
suppliers to provide components and subsystems in a timely manner, to meet our
production needs. We obtain certain of our essential components and license
certain embedded software from single sources. We do not believe we would be
able to develop alternative sources for these essential components if the
supplier were not to meet our production needs. For most of the other components
we believe alternative sources are available, but there is no guarantee that
they will be available without incurring substantial costs, or that they will be
available at all. Any inability of suppliers to meet our demand, or any
prolonged interruption in supply, or a significant price increase of one or more
components or software, would likely have a materially adverse effect on our
business and operating results. We generally do not have any long-term contracts
with such suppliers. As such, there can be no assurance that these suppliers
will continue to be able and willing to meet our requirements.

     At the end of 1998, vendors of three integrated circuits ("ICs")
notified us of their intent to cease production. We anticipated that we will
continue to use these ICs, and therefore entered into commitments to purchase
approximately $1,250,000 of these components in total. This represents
between one and two years expected demand for these components. We will
consider redesigning our products to replace those ICs. We have attempted to
take into account factors such as the ability to replace the particular IC
with a similar part and the estimated life of our products in determining the
quantities to purchase. Although we believe that we will use all of the
quantities we have agreed to purchase, there can be no assurance that these
estimates are correct. If our estimates are not correct and requirements for
these ICs are less than anticipated, we may have to write off the cost of
excess supplies. This could have a materially adverse effect on our results
of operations.

     RAPID TECHNOLOGICAL CHANGE. The telecommunications equipment industry is
characterized by rapidly changing technologies and frequent new product
introductions. The rapid development of new technologies increases the risk
that current or new competitors could develop products that would reduce the
competitiveness of our products. This requires us to continually develop and
introduce new products that meet changing market needs and customer
requirements. We also must be able to market these products in a timely
manner and 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. If we were to be
unsuccessful or to incur significant delays in developing and introducing
such new products or enhancements, our business and operating results could
be materially adversely affected.

     SOURCES OF ADDITIONAL FINANCE. We have access, subject to certain
conditions, to a $15,000,000 credit facility provided by Axel Johnson. In
December 1998, this agreement was amended and extended until December 2000.
There can be no assurance that funding will be available under the terms of
this credit agreement if we need such funding in the future. In addition,
alternative sources of financing may not be available at such time or if
needed after expiration of the Axel Johnson facility in December 2000.

<PAGE>

     MANAGEMENT OF OPERATIONS. The recent downturn in our business and
related restructuring has placed a significant strain on our personnel,
management and other resources. Our future success depends on our ability to
recruit and retain employees following the recent restructuring and our
recent financial performance shortfalls. To grow the 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. Our failure to manage any
expansion effectively could have a materially adverse effect on the business
and operating results.

     CONTROL BY AXEL JOHNSON. Each share of Class B common stock has four
votes and each share of Class A common stock has one vote. Axel Johnson is
the sole holder of the Class B common stock. Consequently, Axel Johnson has
sufficient voting power to control our direction and policies, including:

     -   mergers;
     -   payment of dividends;
     -   consolidations;
     -   the sale of all or substantially all assets;
     -   the election of the Board of Directors; and
     -   to prevent or cause a change in control.

     Our authorized but unissued capital stock includes 5,000,000 shares of
preferred stock. The Board of Directors is authorized to issue and fix the
terms of the preferred stock. Accordingly, we may issue preferred stock in
the future that will have preference over both classes of our common stock
with respect to the payment of dividends and upon liquidation, dissolution or
winding up. This could adversely affect holders of the common stock or
discourage any attempt to obtain control of our company. This control by Axel
Johnson may have the effect of discouraging potential acquisitions preventing
a situation where Class A common stock holders might otherwise receive a
premium for their shares over the then current market price.

     RISKS ASSOCIATED WITH ENTRY INTO INTERNATIONAL MARKETS. We have had
minimal sales to international customers to date, and we have little
experience in international markets. Sales to international customers were
12% of total revenues during the first half of 1999 compared to 5% in the
same period of 1998. Most of the increase was in Europe. The conduct of
business outside the U.S. is subject to certain risks, including:

     -   unexpected changes in regulatory requirements and tariffs;
     -   difficulties in staffing and managing foreign operations;
     -   longer payment cycles;
     -   greater difficulty in accounts receivable collection;
     -   currency fluctuations;
     -   expropriation; and
     -   potentially adverse tax consequences.

     In addition, to sell our products internationally, we must meet
standards established by telecommunications authorities in various 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 deny or preclude our marketing and sales
efforts in such countries, which could have a materially adverse effect on
our business and operating results.

<PAGE>

     COMPLIANCE WITH REGULATIONS AND EVOLVING INDUSTRY STANDARDS. Our
products must comply with a significant number of communications regulations
and standards. Some of these standards are evolving as new technologies are
deployed. In the U.S., we 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. Outside the U.S. we need to meet the standards established by
telecommunications authorities in various countries, as well as
recommendations of the International Telecommunications Union. As standards
for services such as ATM evolve, we may be required to modify our existing
products or develop and support new versions of our products. If we cannot
comply with these standards readily, it could delay introduction of our
products. This could in turn have a materially adverse effect on our business
and operating results.

     RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS. As part of our efforts to
grow our business, from time to time we consider acquisition prospects that
could potentially complement existing product offerings, augment market
coverage, enhance technological capabilities or offer growth opportunities.
We acquired NetEdge in December 1997, but this acquisition has not been a
success. Any future acquisitions could result in potentially dilutive
issuances of equity securities and/or the incurrence of debt and the
assumption of contingent liabilities, any of which could have a materially
adverse effect on the business and operating results. We are currently unable
to use pooling of interests accounting for acquisitions because we do not
meet the requirements of generally accepted accounting principles.
Accordingly, such acquisitions could result in significant accounting charges
for amortization of goodwill and other charges typically associated with
purchase accounting (including the immediate write-off of purchased
in-process research and development). Acquisitions also entail numerous
operating risks, including difficulties in the assimilation of acquired
operations, technologies and products, diversion of management's attention
from other business concerns, risks of entering markets in which we have
limited or no prior experience and potential loss of key employees of
acquired organizations. We can give no assurance as to our ability to
integrate successfully any acquisition.

     LIMITED PROTECTION OF INTELLECTUAL PROPERTY; PROPRIETARY INFORMATION. We
seek to protect our products and technologies primarily through proprietary
technology, information, processes and expertise. We also rely, to a lesser
extent, on a combination of contractual restrictions, copyrights, trademark
laws and patents. We have been issued one U.S. patent to date. 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 successfully, or that competitors will not be able to develop
similar technology independently. We enter into confidentiality and invention
assignment agreements with all of our employees, and enter into
non-disclosure agreements with our suppliers, distributors and appropriate
customers to limit access to and disclosure of its proprietary information.
There can be no assurance that these statutory and contractual arrangements
will deter misappropriation of 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.

<PAGE>

ITEM 3:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     INTEREST RATE RISK. We do not invest in derivative financial
instruments. Our investment portfolio is generally comprised of federal
government securities that mature within one year. We place investments in
instruments that meet high credit standards. These securities are subject to
interest rate risk, and could decline in value if interest rates increase.
Due to the short duration and conservative nature of our investment
portfolio, we do not expect any material loss with respect to our investment
portfolio.

     FOREIGN CURRENCY EXCHANGE RATE RISK. We incur certain sales, service,
and marketing expenses in foreign currencies. Consequently, our international
results of operations are subject to foreign exchange rate fluctuations.
However, our foreign activities have been limited to date. Accordingly, we do
not currently hedge against foreign currency rate fluctuations. Gains and
losses from such fluctuations have not been material to our consolidated
results of operations.

<PAGE>

PART II:          OTHER INFORMATION

Item 1:           Legal Proceedings:

                        The Company is 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 annual meeting of stockholders was held
                        on May 20, 1999. In connection with the meeting,
                        proxies were solicited pursuant to the Securities
                        Exchange Act of 1934. The following are the voting
                        results on proposals considered and voted upon at the
                        meeting, all of which were described in the proxy
                        statement:

                        1.  To elect six (6) directors to serve until the next
                        Annual Meeting of Stockholders or until their
                        successors are elected and qualified.

<TABLE>
<CAPTION>

                                          Class A Common Shares
                               ---------------------------------------------
                                       For                   Withheld
                               --------------------     --------------------
<S>                            <C>                      <C>
Paul E. Graf                        6,955,593                 90,204
Donald E. Green                     6,967,840                 77,957
Donald G. Heitt                     6,947,590                 98,207
Lawrence D. Milligan                6,968,840                 76,957
Harvey L. Poppel                    6,955,140                 90,657
Joseph F. Smorada                   6,955,460                 90,157

<CAPTION>

                                          Class B Common Shares
                               ---------------------------------------------
                                       For                   Withheld
                               --------------------     --------------------
<S>                            <C>                      <C>
Paul E. Graf                       10,000,000                      -
Donald E. Green                    10,000,000                      -
Donald G. Heitt                    10,000,000                      -
Lawrence D. Milligan               10,000,000                      -
Harvey L. Poppel                   10,000,000                      -
Joseph F. Smorada                  10,000,000                      -

</TABLE>

<PAGE>

                        2.  To ratify the appointment of PricewaterhouseCoopers
                        LLP as independent accountants of the Company for the
                        fiscal year ending December 31, 1999.

<TABLE>
<CAPTION>

                                    For              Against           Abstain
                               --------------     --------------    --------------
<S>                            <C>                <C>               <C>
Class A Common Stock             6,967,935             63,839            14,023
Class B Common Stock            10,000,000                  -                 -

</TABLE>

Item 5:           Other Information:

                           Not Applicable.

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

                  A:       Exhibits:

                           27 Financial Data Schedule

                  B:       Reports on Form 8-K:

                           On June 24, 1999, Larscom filed a report on Form 8-K.
                           Under Item 5, "Other Events", the Company reported
                           that it had issued a press release on June 24, 1999,
                           which was attached as an exhibit thereto. In the
                           press release we announced that Lawrence D. Milligan
                           had been appointed Chairman of the Board of Directors
                           following the resignation of Paul E. Graf.

<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, 1999                    BY /s/ Bruce D. Horn
     -----------------                    -------------------------------------
                                               Bruce D. Horn
                                               Vice President, Finance and
                                               Chief Financial Officer
                                               (Principal Financial and
                                               Accounting Officer)