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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

OR

¨    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to            

Commission File Number: 1-12491

LARSCOM INCORPORATED

(Exact name of registrant as specified in its charter)

(408) 941-4000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

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

Class A Common Stock, $.01 par value

(Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x  No  ¨

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.  x

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

The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 28, 2002, was approximately $5,980,000.

The number of the registrant’s shares outstanding as of February 28, 2003, was 8,867,295 shares of Class A Common Stock and 10,000,000 shares of Class B Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the to-be-filed Proxy Statement for the Registrant’s 2002 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

Item 1.    Business

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 1-800-SEC-0330. In addition, the SEC maintains information for electronic filers (including us) at its web site www.sec.gov. We make available free of charge on or through our Internet website our SEC filings on Form 10-K, 10-Q and 8-Ks and amendments thereto as soon as reasonably practicable after electronic filing with the SEC.

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 OC3. Additionally, our solutions support a number of networking protocols such as frame relay, asynchronous transfer mode (“ATM”), inverse multiplexing over ATM (“IMA”) 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. As of December 31, 2002, Axel Johnson owned 53% of the Class A and B Common Stock of Larscom and controlled 82% of the voting interest.

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 PC’s, 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 and wireless services, all to enhance the productivity of their employees. Increased pressure on service providers to deploy these new services quickly and efficiently has been a significant catalyst for growth in the market for advanced management solutions.

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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 private lines dedicated to individual businesses to greater use of public WANs (often Internet or IP based). While reliance on the public infrastructure can often facilitate both deployment and access, it requires additional security measures to ensure traffic integrity. As this transition occurs, SPs, such as Internet service providers and network service providers are being asked to provide an increasing variety of transmission and network management services. In addition, corporate users in many cases require SPs to assume full responsibility for the operation and monitoring of the network and to guarantee certain levels of service.

SPs and corporate users want the ability to add more services and high-speed applications in a rapid and affordable manner. Accordingly, SPs and corporate users require telecommunications equipment that supports a broad range of services and operates reliably, flexibly and consistently on a global basis.

2001 and 2002 were difficult years for many SPs. As a result, the overall capital spending for wire-line infrastructure significantly declined and it is anticipated that further reductions are likely in 2003. This significant reduction in capital expenditures has impacted the telecommunications and data communications equipment industry negatively.

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:

Multiplexers:

Orion 5000.    The Orion 5000 multiplexer is designed for high-density, optical-friendly traffic aggregation. With direct interface to both TDM and Synchronous Optical Network (“SONET”)/Synchronous Digital Hierarchy (“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 RU 23-inch chassis, the Orion 5000 is one of the densest M13 multiplexers on the market. The M13 multiplexer also has a programmable capability for either DS3 or STS-1 traffic. Taking T1/E1 traffic aggregation to the next evolutionary step, direct optical access is provided by the Orion 5000’s OC3/STM-1 interface. The Orion 5000 consolidates up to three DS3s into an OC3/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; creating an ideal fit for both co-location and carrier deployment.

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 ideal for deployment at the customers’ premises. The Orion 5003 offers field-programmable multiplexing, and extensive monitoring and diagnostic capabilities. Management and redundant OC-3/STM-1 service modules provide protection from failure. NEBS level 3 compliance, low power consumption, and absence of fans make the Orion 5003 ideal for co-location and carrier deployment.

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, e-mail 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.

Orion 4000.    The Orion 4000 is a versatile broadband access multiplexer with network connections that range from T1 or E1 to T3. The Orion 4000 is designed to enable functionality to be added in a modular and cost-effective fashion. It is available in both 5-slot and 12-slot shelf configurations for both domestic and international markets. The Orion 4000 is distinctive in the role that it can play in providing an economical migration path from low to high bandwidth, thereby ensuring protection of a customer’s legacy equipment investment.

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

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to consolidate several fractional T3 applications onto a single T3 circuit, to act as a DS3 crossconnect, 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 and are fully interoperable with our Access-T45 products.

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 ideal 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, Larscom Access-T45 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 loopback and test pattern options.

Orion 200/400/800.    The Orion 200/400/800 family is a set of advanced T1 and E1 access multiplexers that can accommodate from two to eight data ports and two network ports. Its primary application is LAN interconnection, often coupled with digital PBX traffic as well as videoconferencing. The Orion 200/400/800 family can operate in both T1 and E1 networks, and can also perform a conversion between T1 and E1 circuits.

Access-T45.    The Access-T45 is a single-port or dual-port 45 Mbps multiplexer that provides a clear channel T3 network interface. It is used for high-speed LAN inter-networking, for Internet access and backbones and for frame-relay access. The Access-T45 allocates bandwidth in increments of 3 Mbps, a function that has been used by SPs to control bandwidth assignment for their customers. The asymmetrical Access-T45 allows customers to subscribe to varying amounts of bandwidth for transmit and receive applications.

Access-T and Split-T Products.    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. The Split-T is a stand-alone T1/FT1 CSU/DSU. It has a front panel that incorporates a liquid crystal display user interface for local configuration and is primarily used for LAN interconnection and digital PBX traffic.

Inverse Multiplexers:

Mega-T/E.    We 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. This algorithm also allows the data transmission rate to be lowered automatically in the event that individual T1 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.

Orion 2000.    The Orion 2000 ATM inverse multiplexer is designed to be used by SPs wishing to provide either native ATM services or ATM extensions at economical prices. It is compliant with the ATM Forum IMA

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specification and can interface directly with an OC3 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.

Service-Delivery Platforms:

Larscom 6000.    The Larscom 6000 is the first in a family of intelligent access devices, using the Frame-Relay Forum’s new standard for multilink frame relay (“MFR”) to provide inverse multiplexing benefits to frame-relay customers. With the addition of IP-forwarding functions, the Larscom 6000 removes the need for routers, assisting 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. Web-based device monitoring allows users to view the status of the Larscom 6000 from any web-enabled computer.

Larscom 6200.    The Larscom 6200 is a multi-service platform designed for carriers and enterprises worldwide needing connectivity at DS3/E3 speeds. The Larscom 6200 handles traffic with up to 45 megabits per second speeds (DS3/E3) in a single ATM connection, allowing data throughput to be maximized. The Larscom 6200 supports IP filtering and encapsulation over ATM as well as IP transport over ATM.

CSU/DSU:

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 e-mail alerts. The TerraBoss can be used to manage up to nine TerraUno systems.

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 2002, 2001 and 2000 SPs represented 42%, 51% and 54%, respectively, of total revenues. The following table summarizes the percentage of total revenues for customers accounting for more than 10% of our revenues:

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

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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.

The entire telecommunications industry, including our customers, is experiencing a significant slowdown. Our largest customer, WorldCom, filed for bankruptcy in 2002. This slowdown has materially affected our business levels.

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.

Marketing and Sales

We sell our products in the U.S. primarily through our direct sales organization and to a lesser extent through VARs, systems integrators and distributors. 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. As part of this strategy we have appointed certain sales people to sign up resellers and assist them in their sales efforts. There are a number of risks associated with the development of an indirect distribution channel. These include a reduction in our ability to forecast sales, potential reductions in customer satisfaction, loss of contact with users of our products and new 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 our own direct sales force, non-exclusive international distributors and systems integrators. The United Kingdom sales force focuses on sales in Europe, the Middle East and Africa and the Hong Kong sales force focuses on the Asian market.

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 SPs 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 years. We have service contracts with most 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 as well as customer and distributor product maintenance, installation services and training.

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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 provide us with insight into their evolving needs and allow us to anticipate new technology requirements. Enhancements to our product families are being 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.

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 contracted primarily with one local source for our third-party manufacturing 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

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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 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 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” 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.

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 only one U.S. patent to date. 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

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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 US, thus making the possibility of misappropriation of our technology and products more likely.

Employees

As of December 31, 2002, we had 94 full-time employees compared to 120 full-time employees on December 31, 2001. 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.

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 Larscom, 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.

Leonard J. Eisenstein joined Larscom as vice president of worldwide sales in June 2002. Prior to joining Larscom, Mr. Eisenstein was employed by Intel Corporation from January 2001 to May 2002 where he was responsible for Intel’s New Venture Program aimed at developing start-up business and investment. From April 1999 to December 2000, Mr. Eisenstein was Worldwide Sales Director at Trillium Digital Systems (acquired by Intel Corporation). He served as a sales consultant for Hayes Microcomputer from September 1998 to March 1999. From July 1997 to August 1998, he was vice president, worldwide sales at Ariel Corporation. Prior to that, he was vice president of sales at Dagaz Technologies from January 1995 to June 1997. He also held senior sales and marketing positions at Integrated Network Corporation, Telco Systems, Infotron Systems, General DataComm and AT&T. Mr. Eisenstein earned a BS in electrical engineering from the City University of New York and an MBA in finance and marketing from the Bernard Baruch College in New York City.

Gurdip Jande joined Larscom as vice president of marketing in February 2002. Prior to joining Larscom, Mr. Jande served in various positions at Nortel Networks, a voice and date communications equipment

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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 Larscom, 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.

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

Item 2.    Properties

We currently lease 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 and at the Durham, North Carolina facility, the entire 27,000 square-foot facility was sublet effective February 15, 2002. All of our manufacturing, sales, administration, customer service, marketing and research and development are performed at our Milpitas facility. We also occupy various small offices throughout the U.S. for sales activities, one office in the United Kingdom for sales activities in Europe, the Middle East and Africa and an office in Hong Kong for sales activities in Asia. We believe that our existing facilities are adequate for our current needs.

Item 3.    Legal Proceedings

We are not a party to any material legal proceedings.

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

No matters were submitted to a vote of stockholders during the quarter ended December 31, 2002.

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PART II

Item  5.     Market for Registrant’s Common Equity and Related Shareholder Matters

The following table sets forth the high and low bid prices for our Class A Common Stock as reported on the Nasdaq National Market from January 1, 2001 through October 22, 2002 and on the Nasdaq SmallCap Market from October 23, 2002 through December 31, 2002. These prices reflect inter-dealer prices, without retail markup, markdown or commission, and may not necessarily represent actual transactions.

As of February 28, 2003, there were 92 holders of record of our Class A Common Stock and 1 holder of record of our Class B Common Stock. We had an estimated 2,427 beneficial holders of our Class A Common Stock, held in street name, as of February 28, 2003.

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.

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Item  6.     Selected Consolidated Financial Data