<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 March 31, 1998

                                      OR

(   )   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
                    SECURITIES EXCHANGE ACT OF 1934

           For the Transition Period from __________ to __________

                         Commission File Number:  1-12491


                            LARSCOM INCORPORATED
           (Exact name of registrant as specified in its charter)


                   Delaware                           94-2362692

        (State or other jurisdiction of            (I.R.S. Employer
         incorporation or organization)           Identification No.)

                            1845 McCANDLESS DRIVE
                             MILPITAS, CA  95035
                               (408) 941-4000

    (Address of principal executive offices, zip code and telephone number)

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 April 30, 1998, was 
8,190,000 of Class A Common Stock and 10,000,000 of Class B Common Stock.

                                       
<PAGE>

                             LARSCOM INCORPORATED
                                  FORM 10-Q
                               TABLE OF CONTENTS


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

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

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

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

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

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

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
          AND RESULTS OF OPERATIONS......................................... 9


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

ITEM 1: LEGAL PROCEEDINGS:..................................................16

ITEM 2: CHANGES IN SECURITIES:..............................................16

ITEM 3: DEFAULTS UPON SENIOR SECURITIES:....................................16

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:................16

ITEM 5: OTHER INFORMATION:..................................................16

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

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

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

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


                                       2
<PAGE>

PART I:    FINANCIAL INFORMATION
ITEM I:    FINANCIAL STATEMENTS

                             LARSCOM INCORPORATED

                    CONDENSED CONSOLIDATED BALANCE SHEETS
                               (In thousands)

                                   ASSETS
<TABLE>
<CAPTION>
                                                   MARCH 31,   DECEMBER 31,  
                                                      1998        1997  
                                                   --------    --------
                                                       (Unaudited)
<S>                                                <C>         <C>
Current Assets:
  Cash and cash equivalents                        $  5,376    $  8,254   
  Short-term investments                             14,884      16,598   
  Accounts receivable, net                           14,056      17,070   
  Inventories                                        15,863      13,328   
  Deferred income taxes                               2,741       2,741   
  Prepaid expenses and other current assets           1,261       1,285   
                                                   --------    --------
    Total current assets                             54,181      59,276   
Property and equipment, net                           8,937       9,703   
Intangible assets, net                               10,141      10,658   
Deferred income taxes                                 8,074       8,062   
Other assets                                             40         211   
                                                   --------    --------
    Total assets                                   $ 81,373    $ 87,910   
                                                   --------    --------
                                                   --------    --------

                    LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:            
  Current portion of capital lease obligations     $    266    $    341   
  Accounts payable                                    5,476       8,219   
  Accrued expenses and other current liabilities     10,042      13,562   
  Due to Axel Johnson Inc.                              954       3,243   
                                                   --------    --------
    Total current liabilities                        16,738      25,365   
            
Other non-current liabilities                           366         318   
                                                   --------    --------
Stockholders' equity:            
  Class A Common Stock                                   82          81   
  Class B Common Stock                                  100         100   
  Additional paid-in capital                         81,263      80,929   
  Foreign currency translation adjustment                 3           -   
  Accumulated deficit                               (17,179)    (18,883)  
                                                   --------    --------
    Total stockholders' equity                       64,269      62,227   
                                                   --------    --------
    Total liabilities and stockholders' equity     $ 81,373    $ 87,910
                                                   --------    --------
                                                   --------    --------
</TABLE>

                                       3
<PAGE>

                             LARSCOM INCORPORATED

               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share data)
<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED MARCH 31,
                                              ----------------------------
                                                   1998        1997
                                                 --------    --------
                                                      (Unaudited)
<S>                                              <C>         <C>
Revenues                                         $ 22,330    $ 16,410   
Cost of revenues                                   10,161       7,394   
                                                 --------    --------
  Gross profit                                     12,169       9,016   
                                                 --------    --------
Operating expenses:              
  Research and development                          3,538       2,216   
  Selling, general and administrative               7,370       5,180   
                                                 --------    --------
    Total operating expenses                       10,908       7,396   
                                                 --------    --------

Income from operations                              1,261       1,620   
Interest expense charged by Axel Johnson Inc.         (19)        (19)  
Interest and other income                           1,506         451   
                                                 --------    --------
Income before income taxes                          2,748       2,052   
Provision for income taxes                          1,044         718   
                                                 --------    --------
Net income                                       $  1,704    $  1,334   
                                                 --------    --------
                                                 --------    --------
Basic and diluted earnings per share             $   0.09    $   0.07   

Basic weighted average shares                      18,172      17,996   
Diluted weighted average shares                    18,180      17,996
</TABLE>

                                       4
<PAGE>

                             LARSCOM INCORPORATED

               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (In thousands)
<TABLE>
<CAPTION>
                                                      THREE MONTHS ENDED MARCH 31,
                                                      ----------------------------
                                                          1998          1997
                                                        --------      --------
                                                             (Unaudited)    
<S>                                                     <C>           <C>
Cash flows from operating activities:              
  Net income                                            $  1,704      $  1,334 
  Depreciation and amortization                            1,515           783 
  Gain from sale of building                              (1,329)            - 
  Net increase in working capital                         (5,896)       (2,150)
                                                        --------      --------
Net cash used by operating activities                     (4,006)          (33)

Cash flows from investing activities:              
  Purchases of property and equipment                       (236)         (428)
  Proceeds from sale of building                           1,700             - 
  Purchases of short-term investments                    (33,576)            - 
  Sales of short-term investments                         20,065             - 
  Maturities of short-term investments                    15,225             - 
                                                        --------      --------
Net cash provided (used) by investing activities           3,178          (428)

Cash flows from financing activities:              
  Advances from (repayments to) Axel Johnson Inc.         (2,289)        1,063 
  Payment of capital lease obligations                       (99)            - 
  Proceeds from issuances of Class A Common Stock            335         3,827 
                                                        --------      --------
Net cash provided (used) by financing activities          (2,053)        4,890 
Effect of exchange rates on cash                               3             - 
                                                        --------      --------
(Decrease) increase in cash and cash equivalents          (2,878)        4,429 
Cash and cash equivalents at beginning of period           8,254        46,403 
                                                        --------      --------
Cash and cash equivalents at end of period              $  5,376      $ 50,832 
                                                        --------      --------
                                                        --------      --------
Supplemental disclosure of cash flow information              
Interest paid                                           $     19      $     19 
                                                        --------      --------
Income taxes paid                                       $  1,368      $    148 
                                                        --------      --------
Supplemental disclosure of non-cash financing 
  activities Shares issued in connection with 
  cancellation of the Company's Long-Term Incentive 
  Plans                                                 $      -      $    306
                                                        --------      --------
</TABLE>

                                       5
<PAGE>

                             LARSCOM INCORPORATED

            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1--BASIS OF PRESENTATION:
  
     The condensed consolidated financial statements for the three months 
ended March 31, 1998 and 1997 presented in this Quarterly Report on Form 10-Q 
are unaudited.  In the opinion of management, these statements include all 
adjustments (consisting only of normal recurring adjustments) necessary for a 
fair statement of the results for the interim periods presented.  The 
condensed consolidated financial statements should be read in conjunction 
with the audited consolidated financial statements and notes thereto included 
in Larscom Incorporated's (the "Company") Report on Form 10-K for the year 
ended December 31, 1997. The results of operations for the first three months 
of 1998 are not necessarily indicative of the results to be expected for the 
full year.

NOTE 2--INVENTORIES:

     Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
                             MARCH 31,   DECEMBER 31,
                                1998        1997 
                              -------     -------
<S>                          <C>         <C>
Raw materials                 $ 3,697     $ 4,266 
Work in process                 3,894       3,047 
Finished goods                  8,272       6,015 
                              -------     -------
                              $15,863     $13,328 
                              -------     -------
                              -------     -------
</TABLE>

NOTE 3--COMMON STOCK ISSUANCES:

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

     In March 1997, 25,518 shares were issued to certain employees, at a cost 
of $12 per share, in connection with the cancellation of the Company's 
Long-Term Incentive Plans.  In August 1997, the Company issued 61,769 shares 
of Class A Common Stock for consideration of $408,000 under the Company's 
Employee Stock Purchase Plan.  In January 1998, the Company issued 50,762 
shares of Class A Common Stock for consideration of $335,000 under the 
Company's Employee Stock Purchase Plan.


                                       6
<PAGE>

NOTE 4--EARNINGS PER SHARE:

     In 1997, the Financial Accounting Standards Board issued Statement of 
Financial Accounting Standard No. 128 "Earnings per Share" ("SFAS 128") which 
established a different method of computing earnings per share.  Under SFAS 
128, the Company is required to present both basic earnings per share and 
diluted earnings per share. Earnings per share for prior periods have been 
restated in accordance with SFAS 128.  The following table sets forth the 
computation of basic and diluted earnings per share (in thousands, except per 
share data):

<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED MARCH 31,
                                                       ----------------------------
                                                            1998        1997
                                                          --------    --------
<S>                                                       <C>         <C>
 Net income                                               $  1,704    $  1,334 
      
 Weighted average Class A and B Common Stock outstanding    18,172      17,996 
 Dilutive effect of options                                      8           - 
                                                          --------    --------
 Diluted average shares                                     18,180      17,996 
                                                          --------    --------
 Basic and diluted earnings per share                     $   0.09    $   0.07 
</TABLE>

NOTE 5--COMPREHENSIVE INCOME:

     As of January 1, 1998, the Company adopted Statement of Financial 
Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income."  
SFAS 130 establishes new rules for the reporting and display of comprehensive 
income and its components; however, the adoption of this Statement had no 
material impact on the Company's net income or stockholders' equity.  SFAS 
130 requires separate reporting of comprehensive income which is defined as 
"the change in equity of a business enterprise during a period from 
transactions and other events and circumstances from nonowner sources".  The 
only item included in other comprehensive income is foreign currency 
translation adjustment.  To date unrealized gains or losses on the Company's 
available-for-sale securities, which would otherwise have been included in 
other comprehensive income, have not been material.

     The components of comprehensive income are as follows:

<TABLE>
<CAPTION>
                                                   QUARTERS ENDED MARCH 31,
                                                   ------------------------
                                                   1998               1997
                                                 -------             -------
<S>                                              <C>                 <C>
Net income                                       $ 1,704             $ 1,334 
Other comprehensive income:        
  Foreign currency translation adjustment              3                   - 
                                                 -------             -------
Comprehensive income                             $ 1,707             $ 1,334 
                                                 -------             -------
                                                 -------             -------
</TABLE>

     The components of accumulated other comprehensive income, net of related 
tax effects, are as follows:

<TABLE>
<CAPTION>
                                                 MARCH 31,          DECEMBER 31,
                                                   1998                1997
                                                 -------             -------
<S>                                              <C>                <C>
Foreign currency translation adjustment          $     3             $     - 

</TABLE>

NOTE 6--COMMITMENTS AND CONTINGENCIES:

     There are potential unasserted claims against the Company relating to 
pricing deficiencies under two product supply contracts subject to General 
Services Administration ("GSA") regulations.  The Company completed an 
internal audit of these contracts and in December 1996 made a payment to GSA 
in the amount of the internally determined price deficiency.  GSA has 
recently completed its audit of the Company's GSA contract pricing and to 
date has not assessed any additional liability or penalties against the 
Company.  


                                       7
<PAGE>

Although the GSA continues to have the right to make such a determination 
against the Company in the future, in management's opinion, based upon 
discussions with GSA to date, the ultimate resolution of this matter will not 
have a material adverse affect on the Company's financial position or result 
of operations.

     On December 31, 1997 the Company completed its acquisition of NetEdge
Systems, Inc. A portion of the purchase consideration was paid into escrow
pending resolution of certain matters including purchase price adjustments and
other representations and warranties.

     In its distribution agreements, the Company typically agrees to
indemnify its customers for any expenses or liabilities resulting from claimed
infringements of patents, trademarks or copyrights of third parties.

NOTE 7--SALE OF BUILDING:

     In March 1998, the Company recorded a gain of $1,329,000, before tax,
resulting from the sale of the Company's former headquarters by a partnership in
which the Company holds a one-third interest.

NOTE 8--RECENT ACCOUNTING PRONOUNCEMENTS:

     In June 1997, the Financial Accounting Standards Board issued Statement No.
131 (SFAS 131), "Disclosures About Segments of An Enterprise and Related
Information." SFAS 131 will require the Company to use the "management approach"
in disclosing segment information. The adoption of this statement will not have
a material impact on the Company's segment disclosures.


                                       8
<PAGE>

                              LARSCOM INCORPORATED

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

     THE STATEMENTS CONTAINED IN THIS REPORT ON FORM 10-Q THAT ARE NOT PURELY 
HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A 
OF THE SECURITIES ACT OF 1933, AS AMENDED AND SECTION 21E OF THE SECURITIES 
EXCHANGE ACT OF 1934, AS AMENDED, INCLUDING STATEMENTS REGARDING THE 
COMPANY'S EXPECTATIONS, HOPES, INTENTIONS OR STRATEGIES REGARDING THE FUTURE. 
ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS DOCUMENT ARE BASED ON 
INFORMATION AVAILABLE TO THE COMPANY ON THE DATE HEREOF, AND THE COMPANY 
ASSUMES NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS. THE 
FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE SUBJECT TO CERTAIN FACTORS 
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH 
FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE BUT ARE NOT LIMITED TO THE 
FACTORS SET FORTH IN THE COMPANY'S 1997 ANNUAL REPORT ON FORM 10-K AND THIS 
QUARTERLY REPORT ON FORM 10-Q.

RESULTS OF OPERATIONS

     The Company's products can be split into two main categories - network
systems (broadband) and digital access (narrow band), based upon the bandwidth
of the products supplied. The Company sells these products primarily through a
direct sales force and to a lesser extent through a variety of resellers
including original equipment manufacturers, value-added resellers, system
integrators and distributors. An increasing proportion of the Company's sales
are made to a limited number of network service providers ("NSPs") and internet
service providers ("ISPs"). Network systems sales represent an increasing
percentage of total revenues, a trend the Company expects to continue.

     REVENUES. Revenues of $22,330,000 for the three months ended March 31, 1998
grew by 36% over revenues of $16,410,000 during the comparable period in 1997.
During the three months ended March 31, 1998, network systems sales were 57% of
total revenues, as compared to 34% of total revenues in the three months ended
March 31, 1997. The increase in network systems sales is primarily due to higher
sales of the Orion 4000 product line and, to a lesser extent, sales of products
related to the acquisition of NetEdge Systems, Inc. in December 1997. Digital
access product sales decreased primarily as a result of lower demand from one of
the Company's large customers. In addition to fluctuations caused by changes 
in demand by large customers digital access product sales have decreased as a 
percentage of total revenues and in absolute dollars, a trend which may 
continue.

     GROSS PROFIT. As a percentage of revenues, gross profit for the three
months ended March 31, 1998 decreased to 54% as compared to 55% in the same
period in 1997. This decrease was primarily the result of amortization of
purchased technology related to the acquisition of NetEdge, lower margins on
sales of finished goods acquired as part of the NetEdge purchase and
manufacturing costs incurred at the NetEdge facility. The latter two items are
not expected to recur in future periods. The decrease was offset in part by
increased sales of higher margin network systems products and lower per unit
material costs. Gross profits as a percentage of revenues in the future may
fluctuate depending upon a number of other factors, but primarily as a result of
any changes in product mix, discounts given and changes in production volume.
The Company is continuing to seek to increase network systems sales and to
reduce the cost of all products. There can be no assurance that such efforts
will be sufficient to offset the anticipated decline in the average selling
prices of both network systems and digital access products.

     RESEARCH AND DEVELOPMENT. Research and development expenses increased 60%
to $3,538,000 in the first three months of 1998 from $2,216,000 in the first
three months of 1997. The growth in research and development expenses in the
1998 period as compared to 1997 was due primarily to increased headcount
associated with the purchase of NetEdge. The Company expects that research and
development expenses will continue to increase in absolute dollars.


                                       9
<PAGE>

     SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 42% to $7,370,000 during the three months ended March 31,
1998 as compared to $5,180,000 in the comparable 1997 period. The increase in
absolute dollars was due to additional personnel costs associated with the
acquisition of NetEdge, including expenses associated with the office in the UK,
as well as higher selling expenses, in particular commissions, associated with
higher revenues. The Company anticipates that selling, general and
administrative expenses will increase in absolute dollars in the future as a
result of the Company's continued investment in the expansion of its sales,
service and support organizations and the development of its distribution
channels, particularly outside the United States.

     Selling, general and administrative expenses include charges from Axel
Johnson for legal, accounting, tax, treasury and administrative services of
$106,000 and $155,000 during the three months ended March 31, 1998 and 1997,
respectively.

     INTEREST EXPENSE CHARGED BY AXEL JOHNSON. Interest expense includes
charges for the unused portion of the line of credit available under the Credit
Agreement that the Company entered into with Axel Johnson in December 1996. See
Liquidity and Capital Resources for more details.

     INTEREST AND OTHER INCOME. Interest income was $177,000 for the three
months ended March 31, 1998 as compared to $451,000 for the same period in 1997.
The reduction in interest income is due to cash paid upon the acquisition of
NetEdge in December 1997 and the subsequent payment of liabilities assumed. In
March 1998, the Company also recorded a gain of $1,329,000 arising from the sale
of the Company's former headquarters by a partnership in which the Company holds
a one-third interest.

     PROVISION FOR INCOME TAXES. The effective tax rate of 38% and 35% for
the three months ended March 31, 1998 and 1997, respectively, differs from the
federal statutory rate primarily due to state taxes which were offset by
non-taxable interest income received on the Company's cash equivalents and
short-term investments. The higher effective tax rate in the 1998 period is
primarily due to a decrease in non-taxable interest income as a result of
reduced funds available for investment.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's operating activities used cash of $4,006,000 during the
three months ended March 31, 1998 as compared to $33,000 in the same period in
1997. The cash used during the 1998 period was primarily a result of an increase
in inventory and decreases in accounts payable and accrued expenses and other
current liabilities, offset in part by net income and a reduction in accounts
receivable.

     Since its acquisition by Axel Johnson in 1987 and until its initial
public offering in December 1996, the Company met its operating and capital
requirements primarily from cash flow from operations and advances from Axel
Johnson. Upon consummation of the IPO, the Company entered into a credit
agreement with Axel Johnson (the "Credit Agreement") under which the Company has
available a revolving line of credit of $15,000,000 which expires in December
1998. As of March 31, 1998, there were no amounts outstanding under this line of
credit.

     The Company expects capital expenditures during 1998 to be approximately
$4,500,000, of which $236,000 was spent in the three months ended March 31,
1998.

     As of March 31, 1998, the Company's working capital was $37,443,000.
The Company believes that working capital, together with the Company's line of
credit and funds generated from operations will provide adequate liquidity to
meet the Company's operating and capital requirements for at least the next
twelve months. There can, however, be no assurance that future events, such as
the potential use of cash to fund acquisitions, will not require the Company to
seek additional capital at an earlier date or, if so required, that adequate
capital will be available on terms acceptable to the Company, or at all.


                                       10
<PAGE>

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1997, the Financial Accounting Standards Board issued Statement
No. 131 (SFAS 131), "Disclosures About Segments of An Enterprise and Related
Information". SFAS 131 will require the Company to use the "management approach"
in disclosing segment information. The adoption of this statement will not have
a material impact on the Company's segment disclosures.

CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS

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

     YEAR 2000 COMPLIANCE. The Company is aware of the issues associated with
the programming code in existing computer systems as the millennium ("Year
2000") approaches. The Year 2000 problem is pervasive and complex as virtually
every computer operation could be affected in some way by the rollover of the
two-digit year value to 00. Systems that do not properly recognize date
sensitive information when the year changes to 2000 could generate erroneous
data or cause a system to fail. Significant uncertainty exists concerning the
potential effects associated with such compliance. Larscom products use a
two-digit year value rather than a four-digit value. Based on preliminary tests
performed on products that account for substantially all of our revenues we
believe that there will be no significant impact in their performance as the
year changes from 1999 to 2000. This is because the dates carried in the
internal workings of the Company's products do not affect the operation of the
networks of which these products are a part. The Company is in the process of
performing additional testing procedures to clarify any other issues that may
exist related to the Year 2000 and does not believe that the costs of this
testing will be material or that the costs of potential changes to products will
be material. Nonetheless failure of the Company's products to perform, including
system malfunctions due to the onset of the calendar year 2000, could result in
claims against the Company, which could have a material adverse effect on the
Company's business, financial condition and results of operations.

     The Company is also currently in the process of evaluating its
information technology infrastructure for Year 2000 compliance, including
reviewing what actions are required to make all software systems used internally
Year 2000 compliant as well as actions needed to mitigate vulnerability to
problems with suppliers and other third parties' systems. The Company is
assessing the extent of the necessary modifications to its computer software,
and management does not currently anticipate that the Company will incur
significant operating expenses or be required to invest heavily in computer
system improvements to be Year 2000 compliant. However there can be no assurance
that such measures will alleviate the Year 2000 problems which could have a
material adverse effect upon the Company's business, operating results and
financial condition.

     CUSTOMER CONCENTRATION. The Company believes that its relationships with 
large customers, particularly the NSPs and telecommunication companies, will 
be critical to its future success. A small number of customers have accounted 
for a majority of the Company's revenues in each of the past several years. 
During the three months ended March 31, 1998, three customers accounted for 
more than 10% of the Company's revenue. Two of these customers, Worldcom and 
MCI, which accounted for 29% and 14% of revenues respectively, in the first 
quarter of 1998, have agreed to merge, subject to regulatory approval. In 
addition, UUNET, a subsidiary of Worldcom accounted for 10% of the Company's 
revenue in the first quarter of 1998. Accordingly the Company's revenue is 
currently highly dependent on continued orders from one group of related 
companies. None of the Company's customers are contractually obliged to 
purchase any quantity of products in any particular period, and product sales 
to major customers have varied widely from quarter to quarter and year to 
year. There can be no assurance that the Company's current customers will 
continue to place orders with the Company, that orders from existing 
customers will continue at the levels of previous periods or that the Company 
will be able to obtain orders from new customers. Loss of, or a material 
reduction in orders by, one or more of the Company's major customers could 
have a material adverse effect on the Company's business and operating 
results.

                                       11
<PAGE>

     FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; ABSENCE OF SIGNIFICANT
BACKLOG. The Company's operating results have fluctuated significantly in the
past and may fluctuate in the future on a quarterly and annual basis as a result
of a number of factors, many of which are beyond the Company's control. The
Company's sales historically have been concentrated in a small number of
customers. Therefore, sales for a given quarter may depend to a significant
degree upon product shipments to a limited number of customers. Sales to
individual large customers are often related to the customer's specific
equipment deployment projects, the timing of which are subject to change on
limited notice. The Company has experienced both acceleration and slowdown in
orders related to such projects, causing changes in the sales level of a given
quarter relative to both the preceding and subsequent quarters. For example,
since 1994 sales to MCI, IBM/Advantis, AT&T, UUNET and WorldCom and other
current customers (excluding the impact of sales of NetEdge products to the
Company's existing customers) have occasionally varied by up to $1.5 million
from quarter to quarter. Since most of the Company's sales are in the form of
large orders with short delivery times to a limited number of customers, the
Company's backlog and consequent ability to predict revenues is limited. In
addition, announcements by the Company or its competitors of new products and
technologies could cause customers to defer purchases of the Company's existing
products. In the event that anticipated orders from major customers fail to
materialize, or delivery schedules are deferred or canceled as a result of the
above factors or other unanticipated factors, the Company's business and
operating results could be materially adversely affected. As a result, the
Company believes that period to period comparisons of its operating results are
not necessarily meaningful and should not be relied upon as indicative of future
performance.

     The Company's backlog at any point in time is typically limited.
Accordingly, sales in any quarter are largely dependent on orders received
during that quarter. Furthermore, the Company's agreements with its customers
typically provide that they may change delivery schedules and cancel orders
within specified timeframes, typically up to 30 days prior to the scheduled
shipment date, without penalty. The Company's customers have in the past built,
and may in the future build, significant inventory to facilitate more rapid
deployment of anticipated major projects or for other reasons. Decisions by such
customers to reduce their inventory levels could lead to reductions in purchases
from the Company. Therefore, customer decisions to delay delivery, cancel orders
or reduce purchases could have a material adverse effect on the Company's
business and operating results.

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

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

     DEPENDENCE ON RECENTLY INTRODUCED PRODUCTS AND PRODUCTS UNDER
DEVELOPMENT. The Company's future operating results are highly dependent on
continuing market acceptance of the Company's newest products, particularly in
the network systems group. Network systems product sales represented 40% of
revenues during 1997 and 57% of revenues in the first quarter of 1998. Network
systems product sales are expected to continue to increase as a percentage of
overall revenues in the longer term although the proportion of network systems
sales to total revenues may vary from quarter to quarter. There can be no
assurance that these products or any future products will continue to achieve
widespread market acceptance. In addition, the Company has in the past
experienced delays in the development of new products and the enhancement of
existing products, and such delays may occur in the future. The Company's
potential inability to develop and introduce new products or versions in a
timely manner, due to resource constraints or technological or other reasons, or
to achieve timely and widespread market acceptance of its new products or
releases could have a material adverse effect on the Company's business and
operating results.

                                 12
<PAGE>

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

     RAPID TECHNOLOGICAL CHANGE. The telecommunications equipment industry is 
characterized by rapidly changing technologies and frequent new product 
introductions. The rapid development of new technologies increases the risk 
that current or new competitors could develop products that would reduce the 
competitiveness of the Company's products. The Company's success will depend 
to a substantial degree upon its ability to respond to changes in technology 
and customer requirements. This will require the timely selection, 
development and marketing of new products and enhancements on a cost 
effective basis. There can be no assurance that the Company will be 
successful in developing, introducing or managing the transition to new or 
enhanced products or that any such products will be responsive to 
technological changes or will gain market acceptance. If the Company were to 
be unsuccessful or to incur significant delays in developing and introducing 
such new products or enhancements, the Company's business and operating 
results could be materially adversely affected.

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

     MANAGEMENT OF EXPANDING OPERATIONS. The growth in the Company's business
has placed a significant strain on the Company's personnel, management and other
resources, and is expected to continue to do so. In order to manage any future
expansion effectively, the Company must attract, train, motivate and manage new


                                       13
<PAGE>

employees successfully, integrate new management and employees into its overall
operations and continue to improve its operational, financial and management
systems, particularly as the Company continues to transition from services
previously provided by Axel Johnson. Availability of qualified sales and
technical personnel is limited, and competition for experienced sales and
technical personnel in the telecommunications equipment industry is intense.
Moreover, the Company expects to increase significantly the size of its domestic
and international sales support staff and expand the scope of its sales and
marketing activities. The Company's failure to manage any expansion effectively,
including the above factors, could have a material adverse effect on the
Company's business and operating results.

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

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

     COMPLIANCE WITH REGULATIONS AND EVOLVING INDUSTRY STANDARDS. The market
for the Company's products is characterized by the need to meet a significant
number of communications regulations and standards, some of which are evolving
as new technologies are deployed. In the U.S. the Company's products must comply
with various regulations defined by the Federal Communications Commission and
standards established by Underwriters Laboratories, as well as industry
standards established by various organizations. As standards for new services
such as ATM evolve, the Company may be required to modify its existing products
or develop and support new versions of its products. The failure of the
Company's products to comply, or delays in compliance, with the various existing
and evolving industry standards could delay introduction of the Company's
products, which in turn could have a material adverse effect on the Company's
business and operating results.

     RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS. An important element of
the Company's strategy is to review acquisition prospects that would complement
its existing product offerings, augment its market coverage, enhance its
technological capabilities or offer growth opportunities, as evidenced by the
acquisition of NetEdge in December 1997. The Company has no current agreements
or negotiations underway with respect to any such acquisitions. Future
acquisitions by the Company could result in potentially dilutive 


                                       14
<PAGE>

issuances of equity securities and/or the incurrence of debt and the 
assumption of contingent liabilities, any of which could have a material 
adverse effect on the Company's business and operating results and/or the 
price of the Company's Class A Common Stock. In this regard, as a result of 
the ownership interest of Axel Johnson in the Company, the Company will not 
be able to use pooling of interests accounting for any future acquisition. 
Accordingly, such acquisitions could result in amortization of goodwill and 
other charges (including the immediate write-off of purchased research and 
development in process) typically associated with purchase accounting. 
Acquisitions entail numerous risks, including difficulties in the 
assimilation of acquired operations, technologies and products, diversion of 
management's attention from other business concerns, risks of entering 
markets in which the Company has limited or no prior experience and potential 
loss of key employees of acquired organizations. The Company's management has 
limited prior experience in assimilating acquired organizations. No assurance 
can be given as to the ability of the Company to successfully integrate any 
businesses, products, technologies or personnel that might be acquired in the 
future, and the failure of the Company to do so could have a material adverse 
effect on the Company's business and operating results.

     Although it is too early to determine whether the acquisition of
NetEdge has been successful, to date the Company believes that the acquisition
has gone according to plan. Almost all of the finance and administrative and
manufacturing functions have been consolidated into the Company's existing
infrastructure in Milpitas, California. It is not yet possible to determine
whether the Company will be able to sustain or increase current sales of NetEdge
products, or whether the Company will be able to retain key engineering talent
both of which are important factors in the successful completion of the
acquisition.

     LIMITED PROTECTION OF INTELLECTUAL PROPERTY; PROPRIETARY INFORMATION.
The Company relies upon a combination of trade secrets, contractual
restrictions, copyrights, trademark laws and patents to establish and protect
proprietary rights in its products and technologies. Although the Company has
been issued only one U.S. patent to date, it believes that the success of its
business depends primarily on its proprietary technology, information and
processes and know-how, rather than patents. Much of the Company's proprietary
information and technology is not patented and may not be patentable. There can
be no assurance that the Company will be able to protect its technology or that
competitors will not be able to develop similar technology independently. The
Company has entered into confidentiality and invention assignment agreements
with all of its employees, and enters into non-disclosure agreements with its
suppliers, distributors and appropriate customers so as to limit access to and
disclosure of its proprietary information. There can be no assurance that these
statutory and contractual arrangements will deter misappropriation of the
Company's technologies or discourage independent third-party development of
similar technologies. In the event such arrangements are insufficient, the
Company's business and operating results could be materially adversely affected.


                                       15
<PAGE>

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:

                        Not Applicable.

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:

                        An amended report on Form 8-K (File No. 001-12491)
                        was filed pursuant to the Securities Exchange Act of
                        1934, as amended, on March 16, 1998, to include
                        financial statements of NetEdge Systems, Inc. and pro
                        forma financial information as required.


                                       16
<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   May 15, 1998                   BY   /s/ Bruce D. Horn
       --------------                      ----------------------

                                           Bruce D. Horn
                                           Vice President, Finance and Chief 
                                           Financial Officer
                                           (Principal Financial and Accounting 
                                           Officer)


                                       17