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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission file number: 1-12491

Larscom Incorporated

(510) 492-0800

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

     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 þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     þ

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rules 12b-2.     Yes o          No þ

      The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2003, was approximately $10,518,000.

      The number of the registrant’s shares outstanding as of March 8, 2004, was 5,100,255 shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE:

      Portions of the to-be-filed Proxy Statement for the Registrant’s 2003 Annual Meeting of Stockholders (the “Proxy Statement”) are incorporated by reference in Part III of this Annual Report on Form 10-K.

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PART I

      This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The actual results that we achieve may differ materially from those indicated in any forward-looking statements due to the risks and uncertainties set forth under the “Certain Factors Affecting Future Operating Results” section (in Part II, Item 7) and elsewhere in this Form 10-K. 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 carefully review and consider the various disclosures made by us in this report, and in our other reports filed with the Securities and Exchange Commission (the “SEC”), that attempt to advise interested parties on the risks and factors that may affect our business.

      You are advised to read this Form 10-K in conjunction with other reports and documents that we file from time-to-time with the SEC. In particular, please read our Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K that we may file from time-to-time. You may obtain copies of these reports directly from us or from the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W. Washington, D.C. 20549, and you may obtain information about obtaining access to the Reading Room by calling the SEC at

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      Orion 5000, Orion 5001, Orion 5003, Orion 7400, eLink-300, Integrator-300, MX-600, Mega-T/ E, Orion 2000, Orion 4000, Larscom 6000, TerraMux, TerraUno, TerraBoss, Orion 200, Access-T, Business OfficeXchange, LineLearn and Access-T 1500 are U.S. registered trademarks of Larscom Incorporated.

Overview

      Larscom Incorporated manufactures and markets high-speed network-access products for telecommunication service providers (“SPs”), and corporate enterprise users. Our product offerings support bandwidth requirements ranging from full and fractional T1/ E1 to OC-3 (1.5 Mbps to 155 Mbps). Additionally, our solutions support a number of networking protocols such as frame relay, asynchronous transfer mode (“ATM”), inverse multiplexing over ATM (“IMA”), Ethernet and the Internet Protocol (“IP”).

      Prior to Larscom’s initial public offering in December 1996, Larscom was a wholly-owned subsidiary of Axel Johnson, Inc. (“Axel Johnson”). Upon consummation of that offering Axel Johnson owned 55% of the Class A and B Common Stock of Larscom and controlled 83% of the voting interest. On June 5, 2003, we completed an acquisition in which we acquired VINA Technologies, Inc. (“VINA”) in a stock-for-stock transaction. VINA was acquired pursuant to an Agreement and Plan of Merger, dated as of March 17, 2003 (the “Merger Agreement”), by and among Larscom, VINA and London Acquisition Corp., a wholly owned subsidiary of Larscom (“Merger Sub”). Pursuant to the Merger Agreement, Merger Sub was merged with and into VINA, with VINA being the surviving corporation (the “Merger”). As a result of the Merger, VINA became a wholly owned subsidiary of Larscom. In connection with the Merger: (a) each outstanding share of VINA common stock was exchanged for 0.2659 shares of Larscom common stock, resulting in the issuance of an aggregate of 2,393,624 shares of Larscom common stock for all outstanding shares of VINA common stock (after giving effect to a 1-for-7 reverse stock split implemented immediately prior to the merger) and (b) all options and warrants to purchase shares of VINA common stock outstanding immediately prior to the consummation of the Merger were converted into options and warrants to purchase shares of Larscom’s common stock. Additionally, prior to the merger, and at the election of Axel Johnson, their Class B Common Stock with special voting rights was converted into Common Stock with each share holding a single voting right. Therefore, Axel Johnson controlled approximately 28% of the voting interest as of December 31, 2003.

Industry Overview

      As corporate users continue to seek out new and innovative ways to reduce their expenses and improve their productivity through networking solutions, SPs and carriers continue to expand their service portfolios to meet growing customer demands. Local area networks (“LANs”) in today’s enterprises are a necessity for connecting in-building PCs, servers, and voice applications. However, it is less and less often the case that the information and tools required by the business all reside within a single building or campus. This, coupled with the increasingly global nature of business and the need to move information quickly, has led to a greater reliance and need for strong corporate wide area networks (“WANs”).

      The increased demand for greater WAN speed and capacity has been accompanied by increased demand for reliable, high-speed network-access solutions. In addition to dedicated 56/64 Kbps and T1/ E1 services, enterprise customers are now using private and public frame relay, ATM, digital subscriber line (“DSL”), cable, wireless and optical services, all to enhance the productivity of their employees. Because of the general availability of excess capacity and high speeds in LAN networks and in core telecommunications networks, there is increased pressure on technologies currently used to deliver service between these two networks, the portion of SP’s networks often referred to as the “last mile.” At present, these services are often delivered at T1/ E1 (1.5 to 2.0 Mbps) or E3/ T3 (34-45 Mbps or less), speeds generally much slower than either the LANs or core telecommunications networks they connect. Higher speed connections for the “last mile” are often uneconomical or unavailable outside of core metropolitan areas.

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      As a result of the increased demand for greater WAN capacity and the complexity and continuing evolution of service offerings, businesses have been transitioning from the use of traditional T1/ E1 services to T3/ E3 services as well as newer optical services delivered over SONET/ SDH networks. SPs and corporate users want the ability to rapidly and efficiently make more services and bandwidth available as needs increase. Accordingly, SPs and corporate users require telecommunications equipment, which supports a broad range of higher-speed services as well as traditional legacy services and that operates reliably, economically, flexibly and consistently, on a global basis.

      2001, 2002 and 2003 were difficult years for many SPs. As a result, the overall capital spending for wire-line infrastructure significantly declined. However, with the recent increase in economic activity, principally in the U.S, industry analysts are projecting modest increases to SP’s capital spending. We expect capital spending to increase in at least two markets that we serve:

	•	High speed applications using optical networks — as most business users continue to increase their adoption of bandwidth-intensive applications such as enterprise requirement planning systems (“ERP”), partner extranets, eCommerce, international communications with subsidiaries or branch offices, and other productivity enhancing applications, we expect significant growth to occur for high-speed services provided by optical technologies like synchronous optical network (“SONET”) and synchronous digital hierarchy (“SDH”). Providers are now starting to investigate a new standard called Ethernet over SONET (“EoS”) for offering greater-than-T1 bandwidth services in incremental levels based on the Ethernet protocol. However, we don’t believe carriers are ready to abandon prior technologies based on time-division multiplexing (“TDM”) services and are seeking single-platform solutions that can accommodate both Ethernet and TDM.
	•	Simple integrated voice and data transmission solutions — The small and medium business users (“SMBs”) segment of the market appears to be focused on simple solutions that offer integrated voice and data services across a single network connection rather than separate solutions for voice and data transmission needs. We expect SPs to increase their use of integrated access devices (“IADs”) to solve the needs of this market segment.

Products

      We help make our customers successful in their business through the use of reliable products that are backed by our service and support organization. The following describes the applications for each of our five product groups:

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      Specific products that fall under each product grouping are discussed below:

      Orion 5000. The Orion 5000 multiplexer is designed for high-density, optical-friendly traffic aggregation. With direct interface to both TDM and SONET/ SDH network architectures, the Orion 5000 is designed to enable the migration to fiber-based transports. Able to house up to seven redundant programmable M13 multiplexers (aggregating up to 196 T1 lines or 147 E1 lines) in a compact two rack unit 23-inch chassis, the Orion 5000 is one of the highest density M13 multiplexers on the market. The M13 multiplexer also has a programmable capability for either DS3 (45 Mbps) or STS-1 (51.84 Mbps) traffic. Taking T1/ E1 traffic aggregation to the next evolutionary step, direct optical access is provided by the Orion 5000’s OC-3/ STM-1 interface. The Orion 5000 consolidates up to three DS3s into an OC-3/ STM-1 connection.

      Orion 5001. The Orion 5001 provides M13 multiplexing in a compact, efficient form factor. Designed specifically to deliver a cost-effective solution with carrier-class reliability, the Orion 5001 multiplexes 28 T1s into a single T3. The compact Orion 5001 fits well as a replacement for traditional bulky M13 multiplexers wherever rack space is at a premium. While SPs backhaul traffic between central offices on a T3, the Orion 5001 allows the enterprise to seamlessly distribute T1 service across its campus. Where mission critical applications require an always-on connection, the twin M13 modules provide 1:1 redundancy. Rapid, configurable switching between modules minimizes frame loss. We believe that the Orion 5001 M13 multiplexer is among the most power-efficient products in its class. The carrier-class Orion 5001 is NEBS level 3 compliant; making it well-suited for both co-location and carrier deployments.

      Orion 5003. A natural extension to the Orion 5000 family of optical multiplexers, the Orion 5003 provides, optical-friendly DS3 or STS-1 traffic aggregation. With direct interfaces to both TDM and SONET/ SDH network architectures, the Orion 5003 is designed to enable the migration to fiber-based transport. This OC-3/ STM-1 multiplexer provides programmable support for DS3 or STS-1 traffic, allowing support of redundant automatic protection switching (“APS”) optical pairs and multi-node Unidirectional Path-Switching Ring (“UPSR”) applications. The Orion 5003 multiplexes up to three DS3/ STS-1 (channelized or clear channel) data streams. With built-in OC-3/ STM-1 module redundancy, a SONET GR-253 standard interface, and NEBS compliance, the Orion 5003 provides carrier-class DS3 traffic aggregation in a compact, one-RU, 19-inch chassis, making it well-suited for deployment at the “customers’ premise” or for co-location and carrier deployments.

      Orion 7400. The new Orion 7400 family of next generation SONET multi-service access platforms is designed to allow service providers to capitalize on an increasing corporate demand for services based on the Ethernet protocol. The Orion 7400 enables service providers to deliver both Ethernet and TDM services across an existing SONET infrastructure. Standards-based Ethernet over SONET (“EoS”) achieves high bandwidth efficiency and enables remote provisioning of bandwidth “on demand” in increments as small as

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      eLink-300. The eLink-300 provides an easy-to-use solution for delivering integrated voice, data, and Internet services across a single T1 WAN connection to SMBs. The eLink-300 eliminates the need for multiple devices at the “customer premise” by combining a channel bank and advanced call handling for voice connections, a CSU/ DSU for line termination, a DHCP server for dynamic IP address management, a firewall for LAN security, and an IP router in a single, compact unit. The eLink-300 delivers full line-rate T1 performance and advanced call handling, including caller ID pass-through, distinctive ringing, and support for multi-line phones. The eLink-300 protects the customer’s capital investment with the ability to upgrade the service delivered (voice-only, data-only, integrated voice and data) as well as providing scalable voice capacity by activating ports. With ePorts, the customer buys only the ports they need now and can later activate additional ports “on demand” (up to 24) as the business grows. A unique automatic installation, configuration, and provisioning feature called “AutoCAP” has the potential to eliminate “truck rolls” by the service provider when signing up new customers. The AutoCAP feature automatically detects and sets all system parameters, significantly cutting typical set-up and installation time.

      Integrator-300. The Integrator-300 IAD provides easy and cost-effective integration of any type of voice and data services on a single, T1 network connection. The Integrator-300 eliminates the need for multiple devices at the customer premise by combining a channel bank and advanced call handling for voice connections, a CSU/ DSU for line termination, a DHCP server for IP address management, a firewall for LAN security, and an IP router in a single, compact unit. It provides up to 24 analog voice interfaces with as many as three 4- or 8-port FXS or FXO cards. Customers can start with 4 or 8 ports and easily grow capacity as the business grows. Business OfficeXchange^TM (“BOX”) software allows flexible call management with local call routing (“LCR”) and ensures performance with service level agreement software.

      MX-600. The MX-600 is a modular, high-density solution for delivering integrated voice, data, and Internet access services to SMBs via a single or dual T1 WAN connection. This flexible, chassis-based IAD simplifies network architecture and lowers operating expenses by combining a sophisticated telephony terminal, an IP router, a CSU/ DSU, a DHCP server, and a firewall in a single unit. The MX-600 provides up to 48 analog voice interfaces, plus an option for connecting to private branch exchange (“PBX”) or Key Systems via an FT1/ DSX-1 port. Three slots support any combination of 8-port FXS or FXO or 16-port FXS cards. It also includes two network T1 ports, a V.35 port, and a 10/100 Base-T LAN port. BOX software allows flexible call management with Local Call Routing (“LCR”) and ensures performance with service level agreement software.

      Mega-T/ E. Larscom pioneered inverse-multiplexing solutions with the Mega-T, the first inverse multiplexer to bridge the bandwidth gap between T1 and T3. It provides economical access to greater-than-T1 bandwidth for high-speed applications, delivering a data channel of up to 6 Mbps from four T1 circuits. We also manufacture and market an E1 version of the product, the Mega-E, to bridge the bandwidth gap between E1 and E3. Our patented inverse-multiplexing algorithm used for the Mega-T/ E handles alignment of the individual T1s or E1s and allows for differential delay between individual T1s or E1s. This algorithm also allows the data transmission rate to be lowered automatically in the event that individual T1/ EI circuits fail and to be raised automatically when the circuits are restored. The Mega-T/ E has the ability to identify individual T1/ E1 circuits, thereby simplifying troubleshooting. The Mega-T/ E is primarily used for transport for high-speed LAN Internetworking, as well as frame-relay network-access above T1 or E1 speeds and real-time compressed voice traffic. The Mega-T241 transports an E1 signal over two T1 lines to connect local E1 voice and data applications directly to public or private T1 networks or to extend an E1 circuit across a T1 network.

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      Orion 2000. The Orion 2000 ATM inverse multiplexer (“IMA”) is designed for SPs wishing to provide either native ATM services or ATM extensions at economical prices. It is compliant with the ATM Forum IMA specification and can interface directly with an OC-3 or DS3 ATM user-to-network interface or network-to-network interface on any ATM device. The Orion 2000 offers ATM connectivity at speeds up to 12 Mbps (8 x T1) or up to 16 Mbps (8 x E1), with data packets having extremely low cell-delay variation, which is a requirement for delay-sensitive traffic such as video. The unit has ASCII terminal and SNMP interfaces that enable local or remote configuration, performance monitoring, alarm notification and diagnostic testing. In addition, an optional graphical user interface offers point-and-click monitoring and control.

      The Orion 4000 is able to support full and fractional T3 networks. Its T1 and E1 inverse multiplexing modules provide transparent channels for applications such as LAN interconnection or video transmission. The T3 Mux and T1 Mux modules provide flexibility in transporting T1 circuits across the network. They can be used to consolidate several fractional T3 applications onto a single T3 circuit, to act as a DS3 cross connect, to combine T1 traffic from a digital private branch exchange (“PBX”) or to serve as a T1 multiplexer with inverse multiplexed data. The T3 Clear single-density and double-density modules provide clear channel 45 Mbps transmission. The T2E844 module provides a leading high-density solution for delivering E1 services over T1 facilities for up to 32 E1s in a 12-slot chassis.

      Larscom 6000. The Larscom 6000 is an intelligent access device using the Frame-Relay Forum’s standards for multilink frame relay (“MFR”) to provide inverse multiplexing benefits to frame-relay customers. The Larscom 6000 assists SPs in offering advanced services at a low total cost of operation. The Larscom 6000 also provides integrated service level agreement management without any additional hardware or monitoring/reporting systems, allowing customers to monitor performance statistics and to deliver them in a standardized format directly to a variety of core-management systems. SNMP management and web-based device monitoring allows users to view the status of the Larscom 6000 from any web-enabled computer.

      TerraMux. The TerraMux drop-and-insert multiplexing DSU is designed for businesses needing both voice and data services. By multiplexing two data ports and a voice port onto one full or fractional T1 or E1 line, TerraMux simplifies the network and reduces access costs. With its unique “LineLearn” capability that automatically discerns how many and what types of lines are connected to a device, TerraMux automatically configures the network and drop-and-insert ports and sets the speed of the primary data port to make network access simple and efficient. Management options include a built-in graphical test set, email alerts for trouble-ticketing, web browser, Telnet access and simple network management protocol (“SNMP”). The TerraMux can be used to manage up to nine TerraUnos or TerraMuxes.

      TerraUno. The TerraUno T1/ E1 DSU is a network-access device optimized for connecting routers, bridges and other high-speed devices to E1 or T1 public network services such as the Internet and frame relay. The TerraUno is easy to install with its plug-and-play LineLearn capability.

      TerraBoss. The TerraBoss has the same functionality as the TerraUno, plus extensive management features including SNMP, Telnet and web browsing with email alerts. The TerraBoss can be used to manage up to nine TerraUno systems.

      Orion 4500. Linking one or two high-speed applications across a DS3 or E3 line, the Orion 4500 T3/ E3 CSU/ DSU Access Multiplexer serves a wide range of broadband applications. It is optimized for Internet backbones, scalable, fractional DS3/ E3 Internet access services, and corporate and public organizations needing the broad bandwidth of DS3 or E3 for WAN connections. The Orion 4500 splits the DS3 or E3 bandwidth between two high-speed serial ports. Each port can be configured in multiples of 3.158 Mbps (DS3 compatibility), 3.759 Mbps (E3 G.751 standard), or 3.072 Mbps (E3 G.832 standard), or one port can be used in clear-channel or unframed mode for full payload-line bandwidth. In addition, the Orion 4500 can automatically reconfigure bandwidth allocation for peak and non-peak usage. The flexibility of the Orion 4500 extends to its management options, which includes an integral SNMP agent plus a menu-driven terminal interface with an ASCII graphical test set. The Orion 4500 also provides detailed 24-hour performance histories, alarm logging and dial-out, and extensive loop-back and test pattern options.

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      Orion 200. The Orion 200 combines the features of a multiplexer, a multi-port DSU, and a performance monitor with support for full and fractional E1 and T1 services. This product is designed to provide global network access. The Orion 200 multiplexes two high-speed serial applications at multiples of 56 or 64 Kbps, using standard interfaces. Any combination of E1 or T1 network ports can be installed — including E1-to-T1 or T1-to-E1 conversions. Its primary application is LAN interconnection, often coupled with digital PBX traffic as well as videoconferencing.

      Access-T and Access-T 1500. The Access-T family is a series of T1/ FT1 multiplexing CSU/ DSUs. The primary use of the Access-T family is for LAN interconnection, often coupled with the multiplexing of digital PBX traffic onto a single T1/ FT1 circuit. The Access-T 1500 is a shelf-based version of the Access-T that utilizes a hub and spoke architecture, allowing centralized network nodes to serve units at dispersed sites and to concentrate traffic in a single location where network hubs are constrained by lack of space. Network management is simplified with centralized configuration, performance monitoring, and diagnostics. Management options include integral SNMP, Telnet, and a terminal interface. Up to 30 units can be chained together with Access-T 1500 units. Designed to cut maintenance costs and maximize uptime, the Access-T family allows customers to make efficient use of existing bandwidth without increasing the network infrastructure.

Customers

      Our primary customers are SPs, distributors, systems integrators, value-added resellers (“VARs”), federal, state and local government agencies and end-user corporations.

      We believe that our relationship with large customers, particularly the SPs, will be critical to our future success. Our customers prefer to purchase the majority of their network access solutions from a single vendor, which might benefit us if we broaden and enhance our product line. In 2003, 2002 and 2001 SPs represented 53%, 42% and 51%, respectively, of our total revenues. The following table summarizes the percentage of total revenues for customers accounting for more than 10% of our revenues:

*	Less than 1%.

      Our revenues from Lucent increased due to the addition of our IAD product line, acquired in our merger with VINA in June 2003. None of our customers are 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 year-to-year. There can be no assurance that our current customers will continue to place orders with us, that orders from existing customers will continue at the levels of previous periods or that we will be able to obtain orders from new customers. Loss of, or a material reduction in, orders by one or more of our major customers could have a material adverse effect on our business and operating results.

Backlog

      Our backlog at any point in time is usually small. Accordingly, sales in any quarter are largely dependent on orders received during that quarter. Furthermore, agreements with our customers typically provide that they can change delivery schedules and cancel orders within specified time frames, typically up to 30 days before the scheduled shipment date, without penalty. Our 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 (including misjudgments about levels of future demand for their own services). Decisions by such customers to reduce their inventory levels could lead to reductions in purchases from us. Customer decisions to delay delivery, cancel orders or reduce purchases could have a material adverse effect on our business and operating results.

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Marketing and Sales

      We sell our products in the U.S. primarily through our direct sales organization and to a lesser extent through distributors, VARs and systems integrators. Sales to large SPs are handled by our direct sales force. We continue to develop 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. There are a number of risks associated with the reliance upon an indirect distribution channel. These include a reduction in our ability to forecast sales, potential reductions in customer satisfaction, loss of contact with users of our products and methods of advertising and promoting the products, which will result in additional expenses. These, and other factors, could adversely impact our business.

      We market our products internationally through non-exclusive international distributors and systems integrators. We rely on a small portion of our U.S. sales force to maintain these relationships.

      SPs require that products undergo extensive lab testing and field trials prior to their deployment in the network. Accordingly, we continually submit successive generations of our current products as well as new products to our customers for evaluation and approval. Additionally, sales to international customers require products that meet country-specific certification standards for safety, emissions and network connectivity. The length of the various approval processes is affected by a number of factors, including the complexity of the product involved, the priorities and budgetary constraints of customers and regulatory issues.

Customer Service and Support

      Our products are required to meet rigorous standards imposed by both customers and internal product quality assurance testing procedures. The warranty period for most of our products is three to five years. We have service contracts with many of our major customers, and provide rapid-response service via arrangements with our service partner worldwide, NextiraOne Solutions. These contracts typically establish response time and level of service commitments, without penalties for non-performance. We maintain a 24-hour, 7-day a week technical assistance support center, and provide rapid response with contracted response times, plus a wide range of repair programs. We also provide technical applications assistance, installation services and training.

Research and Development

      We believe that our future success depends on our ability to achieve technological leadership through timely enhancements of existing products and development of new products that meet customer needs. Our continued commitment to research and development, particularly related to emerging technologies, will be required for us to remain competitive.

      Our product families are designed specifically to meet the demands of our larger customers. Relationships with these customers provides us with insight into their evolving needs and allows us to anticipate new technology requirements. Enhancements to our product families are developed by including our major customers’ responses to our interview questions in the product definition and review process. Timely customer feedback is important to us in making modifications to existing products and designing new products.

      The development of new, technologically-advanced products is a complex and uncertain process, requiring high levels of innovation. Expertise is required in the general areas of telephony, data networking and network management, as well as specific technologies such as Ethernet, DSL, ATM, SONET and SDH. Further, the telecommunications industry is characterized by the need to design products that meet industry standards. Such industry standards are often changing or incomplete as new and emerging technologies and service offerings are introduced by SPs. As a result, there is a potential for delays in product development due to the need to comply with new or modified standards. The introduction of new and enhanced products also requires that we manage the transitions from older products so as to minimize disruptions in customer orders, avoid excess inventory of old products and ensure that adequate supplies of new products can be delivered to meet customer orders. 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 acceptance in the market place.

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Manufacturing and Quality Assurance

      Our manufacturing operations consist of materials procurement, third-party assembly of printed circuit boards and chassis, product testing and inspection and system configuration for shipment. We have recently consolidated our third-party manufacturing primarily with one local source and have been able to implement quality control systems through the entire manufacturing process, including statistically monitored process control programs. We utilize traditional procurement methods with our suppliers, using standard purchase orders and blanket orders for scheduling and commitments. Most purchase-order payment terms are standard, with payment due in 30 days and with some orders negotiated to net 45 days payment terms. We use automated functional product testing to remain flexible to customers’ needs while maintaining control of the quality of the manufacturing process.

      Turnkey-based manufacturing is utilized primarily for our higher-volume, repetitive production assemblies. In turnkey manufacturing, unlike manufacturing on consignment, the contract manufacturer is responsible for procuring the components utilized in the manufacturing process. This approach transfers some of the economic risks of material cost fluctuation, excess inventory, scrap, inventory obsolescence and working capital management to the vendor. Consigned kits may be utilized on lower-volume assemblies. We are, in most cases, required to commit to purchase certain volumes within various time frames. Although we believe that the benefits of turnkey manufacturing outweigh the risks, it is possible that our dependence on turnkey manufacturing will impact our ability to alter the manufacturing schedule rapidly enough to satisfy changes in customer demand, especially in an environment of increasing component lead times. We continue to perform final assembly and testing of non-turnkey finished products.

      On-time delivery of our products is dependent upon the availability of components used in our products. We purchase parts and components for assembly from a variety of pre-approved suppliers through a worldwide procurement-sourcing program. We attempt to manage risks by developing alternate sources and by maintaining long-term relationships with our suppliers. We acquire certain components from sole sources, either to achieve economies of scale or because of proprietary technical features designed into our products. To date, we have been able to obtain adequate supplies of required components in a timely manner from existing sources or, when necessary, from alternate sources. A substantial portion of our shipments in any fiscal period relate to orders received in that period. In addition, a significant percentage of our orders are shipped within three business days of receiving the order. To meet this demand, we maintain a supply of finished goods inventories at our manufacturing facility. There can be no assurance that interruptions or delays in supplies of key components will not occur. Any interruptions or delays in supplies of key components could have an adverse impact on our business and operating results.

      We have achieved and maintain ISO 9001:2000 quality certification and employ a comprehensive quality control program. However, complex products such as ours might contain undetected errors or failures when first introduced or as new versions are released. Despite testing by our customers and us, there can be no assurance that existing or future products will not contain undetected errors or failures when first introduced or as new versions are released. We provide a three-year or five-year warranty for most of our products.

Competition

      The markets for our products are intensely competitive and we expect competition to intensify in the future. Our products compete primarily with Quick Eagle Networks, Verilink, Kentrox, Cisco Systems, Alcatel, ADTRAN, RAD, Telco Systems, Carrier Access and Paradyne. We compete to a lesser extent with other telecommunications equipment companies. We believe that our ability to compete successfully depends upon a number of factors, including timely development of new products and features, product quality and performance, price, announcements by competitors, product line breadth, experienced sales, marketing and service organizations and evolving industry standards. Certain competitors have more broadly developed distribution channels and have made greater advances than we have in certain emerging technologies. Cisco Systems and Alcatel are two of the largest telecommunications equipment companies in the world. There can be no assurance that we will be able to continue to compete successfully with existing or new competitors.

      Our business is being materially adversely affected by the integration of CSU/ DSU and inverse multiplexing functionality into switches and routers. New technologies could further displace some parts of the T1/ E1 CSU/ DSU product line. For example, symmetrical and high bit rate digital subscriber line (“SDSL”

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Proprietary Rights

      The telecommunications equipment industry is characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement. 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 two U.S. patents to date and have four patents pending. We believe that the success of our business depends primarily on our proprietary technology, information, processes and expertise, rather than patents. From time to time, third parties may assert exclusive patent, copyright, trademark and other intellectual property rights to technologies that are important to us. We have not conducted a formal patent search relating to the technology used in our products, due in part to the high cost and limited benefits of a formal search. In addition, since patent applications in the U.S. are not publicly disclosed until the patent is issued, applications may have been filed by competitors of ours that could relate to our products. 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 our distribution agreements, we typically agree to indemnify our customers for any expenses or liability resulting from claimed infringements of patents, trademarks or copyrights of third parties. 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 an adverse impact on our business and operating results.

      The laws of certain foreign countries in which our products are or may be developed, manufactured or sold may not protect our products or intellectual property rights as effectively as the laws of the U.S., thus making the possibility of misappropriation of our technology and products more likely.

Employees

      As of December 31, 2003, we had 85 full-time employees compared to 94 full-time employees on December 31, 2002. We have never experienced any work stoppage and none of our employees are represented by a labor union. We believe our relationship with our employees is good.

Available Information

      Larscom Incorporated maintains a site on the web at www.larscom.com; however, information found on the Company’s web site is not incorporated by reference into this report. The Company makes available free of charge on or through the web site the Company’s annual report on form 10K, quarterly reports on form 10Q, current reports on form 8K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the Securities and Exchange Commission.

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Management

      The executive officers of Larscom Incorporated are as follows:

      Daniel L. Scharre has served as president, chief executive officer and a member of the Board since November 2001. Prior to joining us, Mr. Scharre served as chairman, president and chief executive officer of Adaptive Broadband Corp., a provider of high-speed, wireless last-mile access equipment, from April 2001 to October 2001, as president and chief executive officer from January 2001 to April 2001, as president and chief operating officer from July 2000 to January 2001, as executive vice president from April 1998 to June 2000 and as vice president and chief technology officer from September 1997 to April 1998. Adaptive Broadband Corporation filed for bankruptcy in July of 2001. Prior to his four-year tenure at Adaptive Broadband, Mr. Scharre held executive positions at ComStream Inc., Ilex Systems, and Loral Western Development Labs, all providers of digital telecommunications equipment and systems. Mr. Scharre holds a BS in physics from the California Institute of Technology, a Ph.D. in physics from the University of California, Berkeley, and an MBA from Santa Clara University. He previously served on the faculty at Stanford University.

      Gurdip Jande joined us as vice president of marketing in February 2002. Prior to joining us, Mr. Jande served in various positions at Nortel Networks, a voice and date communications equipment manufacturing company, including as vice president, corporate strategic business development from January 2000 to December 2001, vice president marketing, emerging service providers from October 1999 to December 1999, vice president, market development from March 1998 to September 1999, and as director, business development from January 1997 to February 1998. Mr. Jande earned a BS in electrical engineering from the University of Ottawa, Canada, and an MBA from the University of Miami.

      Donald W. Morgan has served as vice president of finance and chief financial officer of Larscom since October 1999. Prior to joining us, Mr. Morgan was an independent tax and financial consultant to several small-business and start-up technology firms from December 1997 to September 1999. He served as vice president of finance and administration for Inrange Technologies Corporation, a data communications equipment manufacturing company from July 1991 to November 1997. Prior to that, Mr. Morgan served in a number of senior financial positions with UNISYS Corporation. Mr. Morgan earned a BS degree in business administration from Northeastern University and an MS degree in finance from the University of Illinois.

      Peter Moulds joined us as vice president of worldwide sales in September 2003. Prior to joining us, Mr. Moulds was a venture partner with Lightspeed Venture Partners, an information technology focused venture capital firm from January 2001 until March 2003. From April 1997 to January 1999, he served at the vice president of sales for FreeGate Corporation, which was subsequently acquired by Tut Systems. Prior to that, Mr. Moulds served in a number of senior sales management positions including vice president of sales for Ascend Communications, a provider of wide area network technologies, which later merged with Lucent. Mr. Moulds earned a BS degree in electrical engineering and computer science from the University of California at Berkeley.

      Adam Opoczynski joined Larscom as vice president of engineering in December 2002. Prior to joining Larscom, Mr. Opoczynski served in several senior management positions at ECI Telecom, Inc. a wholly-owned U.S. subsidiary of ECI Limited that is a provider of transmission and voice compression equipment. From January 2001 to January 2002 Mr. Opoczynski served as a vice president of research and development for the North American Transmission Division of ECI, a developer of cross-connect and data aggregation systems. From April 1999 to January 2001 he served as vice president of R&D for the Data Division of ECI, a developer of carrier class frame relay and ATM switching systems. From December 1997 to April 1999 he served as director of engineering for the Access Business Unit of ECI, a developer of low capacity DLC and

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      There is no family relationship among any directors or executive officers of Larscom Incorporated.

      We currently lease a 40,500 square-foot facility located in Newark, California, a 119,000 square-foot facility located in Milpitas, California and a 27,000 square-foot facility in Durham, North Carolina. At the Milpitas facility, 39,000 square feet are sublet. We abandoned the remainder of the Milpitas facility at the end of September 2003 as a result of our merger with VINA and the decision to consolidate our headquarters in Newark, California. The entire Durham, North Carolina facility of 27,000 square-feet was sublet effective February 15, 2002. All of our manufacturing, sales, administration, customer service, marketing and research and development are performed at our Newark facility. We believe that our existing facilities are more than adequate for our current needs and we expect to discontinue the Milpitas and Durham leases at the end of their respective lease terms.

      We are not a party to any material legal proceedings.

      No matters were submitted to a vote of stockholders during the quarter ended December 31, 2003.

PART II

      The following table sets forth the high and low bid prices for our Common Stock as reported on the Nasdaq National Market from January 1, 2002 through October 22, 2002 and on the Nasdaq SmallCap Market from October 23, 2002 through December 31, 2003. These prices reflect inter-dealer prices, without retail markup, markdown or commission, and may not necessarily represent actual transactions.

      As of March 8, 2004, there were 166 holders of record of our Common Stock. We had an estimated 5,223 beneficial holders of our Common Stock, held in street name, as of March 8, 2004.

      We currently intend to retain any future earnings for use in our business and do not anticipate paying any cash dividends in the foreseeable future.

      Please see Item 12 for additional information required by this item.

      On June 3, 2003, our stockholders approved a proposal to reclassify its Class A and Class B Common Stock into a single class of Common Stock. The old Class A shares had rights of one vote per share. The old Class B Common Stock had rights of four votes per share and was owned by one stockholder, Axel Johnson. These additional voting rights gave Axel Johnson control of 82% of the voting interest prior to the merger with VINA. After issuance of 2,393,894 shares in connection with the VINA merger, and the reclassification of the

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      On June 3, 2003 our shareholders approved a proposal to amend our certificate of incorporation to effect a reverse split of our Common Stock in a ratio to be determined by the Board of Directors. The Board subsequently voted on June 5, 2003 to effect a reverse split with a 7-for-1 ratio with effect from June 6, 2003. All share and per share data has been retroactively restated for the reverse stock split.

      As part of the merger with VINA, the existing VINA stock options and warrants were replaced with Larscom stock options and warrants, containing the exact terms, price and earned vesting percentages, as those held immediately prior to the merger (after the post-merger, post-split exchange ratio of 0.03799 shares of Larscom common stock for each share of VINA common stock). The assumption of the VINA options and warrants resulted in the issuance of 454,752 Larscom options and warrants. Additionally, as a result of the change of control resulting from the reclassification of shares previously discussed, and the VINA merger, a large part of the outstanding stock options previously issued by Larscom became fully vested due to a change-in-control provision contained in most of the outstanding option agreements. This acceleration caused 61,818 additional shares to become vested and exercisable on June 5, 2003 with an average exercise price of approximately $19.72.

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