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, 2001 OR  ̈ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition
Period fromto Commission File
Number: 1-12491 LARSCOM INCORPORATED(Exact name of registrant as specified in its
charter) Delaware
  94-2362692(State or other jurisdiction of
  incorporation or organization)
  (IRS Employer
  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. YesxNo ̈ The
number of the registrants shares outstanding as of May 1, 2001, was 8,804,095
of Class A Common Stock and 10,000,000 of Class B Common Stock.   LARSCOM
INCORPORATED
FORM 10-QTABLE OF CONTENTS



Part I:

  Financial InformationItem 1:

  Financial Statements (Unaudited)Condensed Consolidated Balance SheetsCondensed Consolidated Statements of
  OperationsCondensed Consolidated Statements of
  Cash FlowsNotes to Condensed Consolidated
  Financial StatementsItem 2:

  Managements Discussion and Analysis of
  Financial Condition and Results of OperationsItem 3:

  Quantitative and Qualitative
  Disclosures about Market RiskPart II:

  Other InformationItem 1:

  Legal ProceedingsItem 2:

  Changes in SecuritiesItem 3:

  Defaults
  upon Senior SecuritiesItem 4:

  Submission of Matters to a Vote of
  Security HoldersItem 5:

  Other InformationItem 6:

  Exhibits and Reports on Form 8-Ka: Exhibitsb: Reports on Form 8-KSignatures

Part I:               Financial Information

Item 1:              Financial Statements

LARSCOM INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS(In
thousands) (Unaudited)

March 31,
  2001
  December 31,
  2000ASSETSCurrent
  assets:Cash and cash equivalents
  $8,464
  $7,741Short-term investments
  18,327
  20,238Accounts receivable, net
  6,350
  7,044Inventories
  6,543
  6,816Deferred income taxes
  3,896
  4,040Income taxes receivable
  241
  192Prepaid expenses and other current assets
  3,675
  4,154Total
  current assets
  47,496
  50,225Property
  and equipment, net
  4,328
  4,111Deferred
  income taxes
  12,553
  11,750Other non-current assets, net
  178
  234Total assets
  $64,555
  $66,320LIABILITIES AND STOCKHOLDERS' EQUITYCurrent
  liabilities:Accounts payable
  $3,786
  $4,482Accrued expenses and other current liabilities
  8,212
  8,348Due to Axel Johnson Inc
  229
  -Total current liabilities
  12,227
  12,830Other
  non-current liabilities
  504
  448Total liabilities
  12,731
  13,278Stockholders'
  equity:Class A Common Stock
  88
  87Class B Common Stock
  100
  100Additional paid-in capital
  82,872
  82,598Accumulated other comprehensive loss
  2
  (1)Accumulated deficit
  (31,238)
  (29,742)Total stockholders' equity
  51,824
  53,042Total liabilities and stockholders'
  equity
  $64,555
  $66,320The
accompanying footnotes are an integral part of these financial statements

LARSCOM INCORPORATED

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

Three months ended
  March 31,2001
  2000Revenues
  $12,214
  $13,036Cost of
  revenues
  6,594
  5,992Gross profit
  5,620
  7,044Operating
  expenses:Research and development
  2,096
  2,571Selling, general and administrative
  6,064
  5,900Total operating expenses
  8,160
  8,471Loss from
  operations
  (2,540)
  (1,427)Interest and other income
  409
  401Loss
  before income taxes
  (2,131)
  (1,026)Income tax benefit
  (635)
  (296)Net loss
  $(1,496)
  $(730)Basic and
  diluted net loss per share
  $(0.08)
  $(0.04)Basic and
  diluted weighted average shares
  18,773
  18,471The
accompanying footnotes are an integral part of these financial statements

LARSCOM INCORPORATED

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

Three months ended March 31,2001
  2000Cash flows
  from operating activities:Net loss
  $(1,496)
  $(730)Depreciation and amortization
  573
  660Increase in deferred income taxes
  (659)
  (132)Net decrease/(increase) in other working
  capital accounts
  565
  (286)Net cash
  used by operating activities
  (1,017)
  (488)Cash flows
  from investing activities:Purchases of property and equipment
  (734)
  (221)Purchases of short-term investments
  (10,836)
  (7,998)Sales of short-term investments
  -
  1,700Maturities of short-term investments
  12,747
  15,302Net cash
  provided by investing activities
  1,177
  8,783Cash flows
  from financing activities:Advances from Axel Johnson Inc
  229
  85Increase/(decrease) in capital lease
  obligations
  56
  (35)Proceeds from issuances of Class A Common
  Stock
  275
  278Net cash
  provided by financing activities
  560
  328Effect of
  foreign exchange rates on cash
  3
  -Increase
  in cash and cash equivalents
  723
  8,623Cash and
  cash equivalents at beginning of period
  7,741
  7,009Cash and
  cash equivalents at end of period
  $8,464
  $15,632Supplemental
  disclosure of cash flow informationInterest
  paid
  $1
  $3Income
  taxes paid
  $62
  $58The
accompanying footnotes are an integral part of these financial statements

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, 2001 and 2000 presented in this Quarterly Report on Form 10-Q are
unaudited.  In the opinion of
management, these statements include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair statement of the results for the
interim periods presented.  The
condensed consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in the
Larscom Incorporated (Larscom) Report on Form 10-K for the year ended
December 31, 2000.  The results of
operations for the first three months of 2001 are not necessarily indicative of
the results to be expected for the full year.

Note 2Inventories:

Inventories
consist of the following (in thousands):

March 31,
  2001
  December 31,
  2000Raw
  materials
  $3,085
  $3,470Work-in-process
  827
  747Finished
  goods
  2,631
  2,599$6,543
  $6,816Note 3Deferred tax asset:

At
March 31, 2000, we had deferred tax assets of $16,449,000.  These assets largely relate to future
expected tax benefits from the amortization of intangible assets associated
with the acquisition of NetEdge Systems Inc. in 1997.  The amortization of the intangible assets is deductible for tax
purposes in equal annual amounts over the next 12 years.  The remaining deferred tax assets consists
mainly of inventory reserves and accrued expenses.  We have not recorded a valuation allowance (for financial
reporting purposes) against the deferred tax assets because we believe it is
more likely than not that the benefits are realizable.  However, realization of these assets depends
on our ability to generate taxable income in the future.  Our belief in the likelihood of being able
to use the deferred tax assets is based on the following factors:

            A
significant portion of the deferred tax assets is deductible over the next 12
years.

Tax
losses can be carried forward for 20 years.

For
the 2000 tax filing, a small portion of the losses can be carried back to a
prior year.

If
we were to significantly reduce our estimate of future taxable income, we would
have to record an allowance against our deferred tax assets.  Such a charge could have a material adverse
effect on our reported results of operations and financial condition.  We will continue to review whether a
valuation allowance is warranted.

Note 4Net
Loss Per Share:

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

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

Three Months Ended2001
  2000Net loss
  $(1,496)
  $(730)Weighted
  average Class A and B Common Stock outstanding
  18,773
  18,471Basic and
  diluted loss per share
  $(0.08)
  $(0.04)Weighted
  average Class A Common Stock diluted options outstanding excluded from the
  basic and diluted loss per share calculation
  268
  1,690Note 5Comprehensive
Income:

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

Note 6Commitments
and Contingencies:

On September 21, 2000, we signed a
five-year software license agreement with Issanni Communications, Inc.  Under the terms of the agreement, we
acquired the exclusive rights in North America and Western Europe and
nonexclusive rights elsewhere to Broadband Remote Access Server (B-RAS)
technology developed by Issanni Communications, Inc.  We have incorporated this technology in our new Larscom 3000
subscriber management system.  We have
paid an upfront nonrefundable license fee of $2,000,000.  If products shipped utilizing the Issanni
Communications, Inc. B-RAS technology exceed the allocation provided by the
up-front fee, a quarterly payment will be made to Issanni Communications, Inc.
based on a percentage of net sales for these products.

Because
of component obsolescence involving some of our suppliers, we have been required
to place last-time-buy purchase orders to cover the expected demand for these
components.  These purchase commitments
generally cover between one and two years of expected demand for these
components.  As of March 31, 2001, we
were obligated to purchase $287,000 of these components by the end of this
year. We plan to redesign some of our products, if required by customer demand,
as supplies of obsolete components dwindle.

On
October 12, 2000, we signed a six-year lease agreement with Technology IX, LLC
and Keystone Corporation for 27,234 square feet of office space in Durham,
North Carolina. The leased facility will house certain marketing, customer
service and research and development functions.  This agreement replaces the lease from Alexandria Real Estate
Equities, Inc. for the Research Triangle Park, North Carolina property that was
terminated in February of 2001.

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

Note 7Geographic
Information:

Revenue
and long-lived assets related to operations in the United States and other
countries for the three months ended and as of March 31, 2001and 2000 are as
follows (in thousands):

Revenues (a)
  Long-lived AssetsThree Months Ended
  March 31,
  as of March 31,2001
  2000
  2001
  2000United
  States
  $10,235
  $11,090
  $4,493
  $4,813Other
  countries
  1,979
  1,946
  13
  12Total
  $12,214
  $13,036
  $4,506
  $4,825(a) Revenues
are reported by shipment to the final destination as determined by records
required to comply with US Department of Commerce regulations.

Note 8Recent
Accounting Pronouncements:

Effective
January 1, 2001, we adopted FAS 133, which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and hedging activities.  All derivatives, whether designated in hedging relationships or
not, are required to be recorded on the balance sheet at fair value.  The adoption of FAS 133 on January 1, 2001
had no impact on us as we currently have no derivative instruments.

In
March 2000, the FASB issued Interpretation No. 44 (FIN 44) Accounting for
Certain Transactions involving Stock Compensation  an Interpretation of APB
Opinion No. 25.  FIN 44 clarifies the
application of APB Opinion No. 25 (Opinion 25) for (a) the definition of an
employee for purposes of applying Opinion 25, (b) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award and (d) the accounting for an exchange of stock compensation
awards in a business combination.  FIN
44 was effective July 1, 2000 but certain conclusions cover specific events
that occur after either December 15, 1998 or January 12, 2000.  The adoption of FIN 44 has not resulted in a
material effect on our financial position or results of operations.

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

Results of Operations

Revenues.  Our consolidated revenues of $12,214,000 for
the first quarter ended March 31, 2001 declined 6% from 2000s first-quarter
revenues of $13,036,000.  Inverse
Multiplexers and ATM products accounted for the major portion of the decrease
from last year with a combined revenue reduction of $902,000.  Partially offsetting the lower revenues on
these products were $186,000 in additional revenues from two new products, the
Larscom 6000 mutilink frame relay product and the Larscom 3000 subscriber
management system.

By
channel of distribution, the bulk of the revenue reduction for the first three
months of 2001 versus the comparable period of 2000 was attributable to direct
sales to network service providers (NSPs) and domestic distributors.  Shipments to international locations
represented 16% of total revenues during the first quarter of 2001 and were 2%
ahead of the same period of 2000.

The
combined revenues from WorldCom, Inc. and AT&T, our two largest customers,
accounted for 42% of the total revenues for the first quarter of 2001 versus
39% for the first quarter of 2000.

Gross Profit.  As a percentage of revenues, gross profit
for the three months ended March 31, 2001 dropped by eight percentage points to
46%, as compared to 54% for the same period of 2000.  The percentage point decline in gross margins was attributed to
higher manufacturing variances, a change in product mix and the impact of lower
sales volume on overhead per unit cost.

Research and Development.  Research and development expenses totaled
$2,096,000 for the first quarter of 2001, $475,000 or 18% below the first
quarter 2000 spending of $2,571,000. 
The reduction was mainly due to lower expenditures in 2001 for software
related to new products.  Also, during
the first quarter of 2001, there was more expense transferred to product cost
in support of our legacy products.

Selling, General and
Administrative.  Selling, general and administrative expenses
increased 3% to $6,064,000 during the three months ended March 31, 2001, as
compared to $5,900,000 in 2000.  The
increase was due primarily to higher salaries and associated employee
benefits.  Selling, general and
administrative expenses include charges from Axel Johnson Inc. (Axel Johnson)
for legal, accounting, tax, treasury, human resources and administrative
services of  $116,000 for the first
quarter of 2001 and $113,000 for the first quarter of 2000.

Interest and Other
Income.Interest and other income was $409,000 for
the first quarter of 2001 as compared to $401,000 for the first quarter of
2000.  Interest income, which is the
major component of Interest and Other Income, was $428,000 for the first
quarter of 2001, as against $425,000 for the same period in 2000.  Our
investment portfolio generally is comprised of commercial paper rated A1/P1,
bank certificates of deposit rated AA or better and corporate medium-term notes
rated AA or better.

Provision for Income Taxes.  The effective tax benefit rate was 30% for
the first quarter of 2001 as compared to 29% for the same period of 2000.  The tax rate differs from the federal
statutory rate primarily because of state income taxes.

At
March 31, 2000, we had deferred tax assets of $16,449,000.  These assets largely relate to future
expected tax benefits from the amortization of intangible assets associated
with the acquisition of NetEdge Systems Inc. in 1997.  The amortization of the intangible assets is deductible for tax
purposes in equal annual amounts over the next 12 years.  The remaining deferred tax assets consists
mainly of inventory reserves and accrued expenses.  We have not recorded a valuation allowance (for financial
reporting purposes) against the deferred tax assets because we believe it is
more likely than not that the benefits are realizable.  However, realization of these assets depends
on our ability to generate taxable income in the future.  Our belief in the likelihood of being able
to use the deferred tax assets is based on the following factors:

A
significant portion of the deferred tax assets is deductible over the next 12
years.

Tax
losses can be carried forward for 20 years.

For
the 2000 tax filing, a small portion of the losses can be carried back to a
prior year.

If
we were to significantly reduce our estimate of future taxable income, we would
have to record an allowance against our deferred tax assets.  Such a charge could have a material adverse
effect on our reported results of operations and financial condition.  We will continue to review whether a
valuation allowance is warranted.

Liquidity and Capital Resources

Operating
activities used cash of $1,017,000 in the first quarter primarily due to our
net loss.  Partially offsetting the
impact of our net loss were non-cash items consisting of depreciation and
amortization and a reduction in working capital.

Capital
expenditures in the first quarter were $734,000.  These expenditures consisted principally of the purchase of
computers, software and test equipment. 
We anticipate capital expenditures to total $1,700,000 in 2001.

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

At
March 31, 2001, we had cash and cash equivalents of $8,464,000 and short-term
investments of $18,327,000.  We believe
that working capital, together with our line of credit and funds generated from
operations, will provide adequate liquidity to meet our operating and capital
requirements at least through 2001. 
There can, however, be no assurance that future events, such as the
potential use of cash to fund any significant losses that we might incur or
acquisitions we might undertake, will not require us to seek additional capital
and, if so required, that adequate capital will be available on terms acceptable
to us, or at all.

Certain Factors
Affecting Future Operating Results

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

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

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

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

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

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

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

We are experiencing current losses
as we implement our growth initiatives.The Board of Directors, on November 17, 1999, approved funding
for an aggressive program to develop new products and expand into new markets.
We reported operating losses for 2000 partly as a result of these strategic
initiatives.  Our continued emphases on
new product development and expansion into new markets are expected to result
in continued losses for 2001.  In
addition, if our strategic initiatives are not successful we may also have
losses in future years.

Continuing
losses could cause us to record allowances against our deferred tax asset.  Such a charge could have a material adverse
effect on our reported results of operations and financial condition.  We will continue to review whether a
valuation allowance is warranted.

We depend on
recently-introduced products and products under development.We expect sales of our established products
to decline over time.  Therefore, our
future operating results are highly dependent on market acceptance of our
recently-introduced products and products that may be introduced in the
future.  These include, for example, the
Larscom 3000, the Larscom 6000 and the Larscom 4800, which have only recently
been introduced, and our proposed future intelligent access products.  There can be no assurance that such products
will achieve widespread market acceptance, and, in fact, some other products we
introduced in recent years have failed to meet our sales expectations.  In addition, we have, in the past,
experienced delays in the development of new products and the enhancement of
existing products, and such delays may occur in the future.  Inability to develop and introduce new
products or product versions in a timely manner, due to resource constraints or
technological or other reasons, or to achieve timely and widespread market
awareness and acceptance of our new products or releases would have a material
adverse effect on our business and operating results.

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

Rapid technological change
could hurt our ability to compete.The
telecommunications equipment industry is characterized by rapidly-changing
technologies and frequent new product introductions.  The rapid development of new technologies increases the risk that
current or new competitors could develop products that would reduce the
competitiveness of our products.  Our
success will depend to a substantial degree upon our ability to respond to
changes in technology and customer requirements.  This will require the timely development and marketing of new
products and enhancements on a cost-effective basis.  There can be no assurance that we will be successful in
developing, introducing or managing the transition to new or enhanced products
or that any such products will be responsive to technological changes or will
gain market acceptance.  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.  For
example, we are aware of a competing technology with network monitoring
capabilities that can be used instead of the Split-T product that we sell
primarily to WorldCom, Inc.  If WorldCom
Inc. customers were to opt for the alternative technology as part of their
services, our business and operating results would be materially adversely
affected.

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

We are controlled by Axel Johnson.Holders of Class
A Common Stock are entitled to one vote per share and holders of Class B Common
Stock are entitled to four votes per share, subject to adjustment to preserve
the initial voting ratio.  Axel Johnson
is the sole holder of the Class B Common Stock.  As a result, Axel Johnson has sufficient combined voting power to
control the direction and policies of Larscom Incorporated absolutely,
including mergers, the payment of dividends, consolidations, the sale of all or
substantially all of the assets of Larscom Incorporated and the election of the
Board of Directors of Larscom Incorporated, and to prevent or cause a change in
control of Larscom Incorporated.

It is difficult to hire all the qualified personnel we need.To grow our business, we must continue to attract, train,
motivate and manage new employees successfully, integrate new management and
employees into our overall operations and continue to improve our operational,
financial and management systems. 
Availability of qualified sales and technical personnel is limited, and
competition for experienced sales and technical personnel in the
telecommunications equipment industry is intense.  We have had past difficulty in filling all our hiring
requisitions.  Our failure to manage any
expansion or contraction effectively could have a material adverse effect on
our business and operating results.

We are trying to enter more
international markets, which results in operational difficulties and risks.Salesoutside
the US approximated 16% of our revenues for the first quarter of 2001.  The conduct of business outside the US is
subject to certain customary risks, including unexpected changes in regulatory
requirements and tariffs, difficulties in staffing and managing foreign
operations, longer payment cycles, greater difficulty in accounts receivable
collection, currency fluctuations, expropriation and potentially adverse tax
consequences.  In addition, to sell our
products internationally, we must meet standards established by
telecommunications authorities in a variety of countries, as well as
recommendations of the International Telecommunications Union.  A delay in obtaining, or the failure to
obtain, certification of our products in countries outside the US could inhibit
or preclude our marketing and sales efforts in such countries, which could have
a material adverse effect on our business and operating results.

We
have developed an indirect distribution channel for sales to domestic
customers.This channel consists primarily of a small
group of master distributors, such as Tech Data, and a number of authorized
resellers.  (Sales to large NSPs and
ISPs continue to be handled by our direct sales force.)  As part of this strategy we have appointed
certain sales people to sign up resellers and assist them in their sales
efforts.  There are a number of risks
associated with an indirect distribution channel.  The risks include a reduction in our ability to forecast sales,
reduced average selling prices, managements inexperience in establishing and
managing a distribution channel, potential reductions in customer satisfaction,
loss of contact with users of our products, a potential build-up of inventories
at resellers and new methods of advertising and promoting products which will
result in additional expenses.

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

We must comply with regulations and evolving industry
standards.  The market for our products is characterized
by the need to comply with a significant number of communications regulations
and standards, some of which are evolving as new technologies are deployed.  In the US, our products must comply with
various regulations defined by the Federal Communications Commission and
standards established by Underwriters Laboratories, as well as industry
standards established by various organizations.  As standards for services such as ATM and DSL evolve, we may be
required to modify our existing products or develop and support new versions of
our products.  The failure of our
products to comply, or delays in compliance, with the various existing and
evolving industry standards could delay introduction of or affect the marketability
of our products, which in turn could have a material adverse effect on our
business and operating results.

We may acquire businesses or technologies that are difficult
to integrate.  As part of our efforts to grow our business,
we review acquisition and strategic alliance prospects that would potentially
complement our existing product offerings, augment our market coverage, enhance
our technological capabilities or offer growth opportunities.  Any future acquisitions by us could result
in potentially dilutive issuances of equity securities and/or the issuances of
debt and the assumption of contingent liabilities, any of which could have a
material adverse effect on our business and operating results and/or the price
of our Class A Common Stock.  In addition,
it is possible a business we would acquire might be cash-flow negative which
could hurt our liquidity as well as our operating results.  As a result of the ownership interest of
Axel Johnson in Larscom, we 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 typically associated with purchase accounting.  Any future strategic alliance may entail
illiquid and risky investments in the equity of private companies, and the
payment of substantial up-front fees to obtain rights to technologies which
have not yet been tested in the marketplace. 
For example, in 2000 we paid $2,000,000 to privately-held Issanni
Communications, Inc. to license the technology which is the basis for the
Larscom 3000. Acquisitions and strategic alliances 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 we have limited or no prior experience and
potential loss of key employees of acquired organizations.  No assurance can be given as to our ability
to integrate successfully any businesses, products, technologies or personnel
that might be acquired or licensed in the future.

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

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

We have been required to place
last-time-buy purchases to cover obsolete components.Because of component
obsolescence occurring among our manufacturers, we have been required to place
last-time-buy purchase orders to cover the expected demand for affected
components.  Such purchase commitments
generally cover between one and two years of expected demand for these
components.  As of March 31, 2001, we
are obligated to purchase $287,000 of these components by the end of 2001.  Although we believe that we will use all of
the quantities we have agreed to purchase, there can be no assurance that our
estimates are correct.  If our estimates
are not correct and requirements for a component are less or more than
anticipated, it could have a material adverse effect on our business and
results of operations.

We have not conducted a formal patent search relating
to the technology used in our products.  From time to time, third
parties may assert exclusive patent, copyright, trademark and other
intellectual property rights to technologies that are important to us.  Since patent applications in the US are not
publicly disclosed until the patent is issued, applications may have been filed
by competitors of ours that could relate to our products.  Software comprises a substantial portion of
the technology in our products.  The
scope of protection accorded to patents covering software-related inventions is
evolving and is subject to uncertainty, which may increase the risk and cost to
us if we discover third-party patents related to our software products or if
such patents are asserted against us in the future.  In the event of litigation to determine the validity of any
third-party claims, such litigation, whether or not determined in favor of us,
could result in significant expense to us and divert the efforts of our
technical and management personnel.  In
the event of an adverse ruling in such litigation, we might be required to pay
damages, discontinue the use and sale of infringing products, and expend
significant resources to develop non-infringing technology or obtain licenses
from third parties.  There can be no assurance
that licenses from third parties would be available on acceptable terms, if at
all.  A successful claim against us and
our failure to develop or license a substitute technology could have a material
adverse effect on our business and operating results.

Item
3:              Quantitative and
Qualitative Disclosures About Market Risk

Interest Rate Risk.We
do not use derivative financial instruments in our investment portfolio. Our
investment portfolio has been generally comprised of commercial paper rated
A1/P1, bank certificates of deposit rated AA or better and corporate
medium-term notes rated AA or better. 
These securities mature within one year and are classified as available
for sale in accordance with SFAS # 115, "Accounting for Certain
Investments in Debt and Equity Securities." Investments in both fixed-rate
and floating-rate interest-earning instruments carry a degree of interest rate
risk.  Fixed-rate securities may have
their fair market value adversely impacted due to a rise in interest rates,
while floating-rate securities may produce less income than expected if
interest rates fall.

At
March 31, 2001 our investment portfolio included fixed-income securities, of
the quality described above, with a fair value of approximately $18 million.
These securities are subject to interest rate risk, and will decline in value
if interest rates increase.  Due to the
short duration of our investment portfolio, an immediate, hypothetical 10
percent decrease in interest rates would not have a material effect on our current
year financial condition or results of operations.  Because the securities are so short-term, their principle value
would not be materially affected.  The
new securities we replace them with when they mature would yield us less
interest income, but the amount of the reduction would not be material to
us.  If a 10% reduction occurred on
April 1, 2001 and remained in effect throughout 2001, our interest income and
our cash flow would be reduced by approximately $19,000 in 2001.  We do not hold any long-term fixed
instruments.

Foreign Currency Exchange Rate Risk.Our
international sales are typically made in US dollars and are generally not
subjected to foreign currency exchange rate risk.  However, certain of our sales and marketing expenses are incurred
in local currencies, principally the British Pound.  Consequently, our international results of operations are subject
to foreign exchange rate fluctuations. 
We do not currently hedge against foreign currency rate
fluctuations.  Gains and losses from
such fluctuations have not been material to our consolidated results.

The
effect of an immediate, hypothetical 10 percent change in exchange rate for the
British Pound or any other foreign currency would not be material to us.

Part II:              Other Information

Item 1:              Legal Proceedings.

We
are not currently involved in any material legal proceedings.

Item 2:              Changes in Securities.

Not
Applicable.

Item 3:              Defaults upon Senior Securities.

Not
Applicable.

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

Not
Applicable.

Item 5:              Other Information.

Not
Applicable.

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



a.Exhibits.  None

b.No reports on Form 8-K were filed during the quarter
ended March 31, 2001.

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
  INCORPORATEDDate
  May
  8, 2001
  By
  /s/
  Robert CoackleyRobert
  Coackley
  President and Chief Executive Officer
  (Principal Executive Officer)By
  /s/
  Donald W. MorganDonald
  W. Morgan
  Vice President, Finance and Chief Financial Officer
  (Principal Financial Officer and Principal Accounting Officer)