Gross Profit. Our total gross margin dollars for the first quarter of 2003 were $2,251,000 versus $4,669,000 for the same period of 2002. The reduction in gross margin dollars for the 2003 period versus the 2002 period was due to sales volume declines ($2,129,000) as well as an 8% decline in gross margin percentage ($289,000). Our gross profit percentage in last year’s first quarter was 61% or 8 percentage points higher than this year’s first-quarter result of 53%. The 8 percentage point decline in gross margin was largely due to the impact of higher per unit overhead costs on lower first quarter 2003 sales volumes ($497,000), favorable manufacturing variances in the first quarter of 2002 ($64,000) partially offset by improved materials cost from services representing a larger part of sales and lower overall sales discounts ($272,000).

     Research and Development. Research and development expenses totaled $1,107,000 for the first quarter of 2003, which was $128,000 or 13% higher than the first quarter 2002 spending of $979,000. The expense increase in the first quarter was primarily due to higher spending on new product development projects in the first quarter of 2003.

     Selling, General and Administrative. Selling, general and administrative expenses decreased 20% to $3,418,000 during the three months ended March 31, 2003, as compared to $4,286,000 for the same period in 2002. The reduced spending level was mainly due to lower salaries and related benefits ($324,000), resulting from our workforce reductions in 2001 and 2002, lower relocation costs ($304,000), primarily from the relocation of two officers in 2002 and an reduction to the bad debts reserve ($184,0000), reflecting our improved collections for the first quarter of 2003.

     Selling, general and administrative expenses include contractual charges from Axel Johnson for providing certain services to us related to treasury, accounting, tax, internal audit, legal and human resources. The costs of these services have been allocated to us based on estimates by Axel Johnson of actual costs incurred. We believe that such allocations are reasonable. Such charges and allocations are not necessarily indicative of the costs that would have been incurred if we had internally provided such services. The allocated costs of these services amounted to $91,000 for the first quarter 2003, versus $116,000 for the first quarter of 2002.

     Restructuring. During the first quarter of 2003, we reduced our restructuring expenses by $61,000 compared to the first quarter of 2002 as a result of rental income we received for subleasing our leased facility in Durham, North Carolina.

     Interest and Other Income. Interest and other income amounted to $47,000 for the first quarter of 2003, as compared to $85,000 for the same period of 2002. Interest income, which is the major component of interest and other income, was $65,000 for the first quarter of 2003, compared to $115,000 for the same period in 2002. The lower interest income for the three-month period was attributed to lower average interest rates (1% versus 2%) and lower average cash and short-term investment balances ($18 million versus $21 million). Our investment portfolio generally is comprised of commercial paper rated A1/P1; bank certificates of deposit rated A- or better and corporate bonds and medium-term notes rated A- or better.

     Provision for Income Taxes. In the first quarter of 2003, we recorded an income tax provision of $17,000 versus an income tax benefit of $1,874,000 in the first quarter of 2002. The tax benefit of $1,874,000 for the three-month period ended March 31, 2002 was comprised primarily of an income tax refund as a result of a 2002 change in the federal income tax code. The tax code change allows corporations with certain tax losses to file for refunds for taxes paid in previous years. The tax benefit of $1,874,000 is mainly due to our filing for total refunds of $1,894,000 for taxes paid in 1996, 1997 and 1998.

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     Net (Loss)/Income. The net loss in the first quarter of 2003 was $2,183,000 as compared to the net income of $1,363,000 in the first quarter of 2002. The net loss was principally due to lower revenues in the first quarter of 2003, partially offset by lower operating expenses. The net income reported in the first quarter of 2002 was the result of the benefit of income tax refunds for the years 1996, 1997 and 1998 more than offsetting our operating loss.

Liquidity and Capital Resources

     At March 31, 2003, we had cash and cash equivalents of $17,542,000 and no short-term investments. Cash and cash equivalents increased by approximately 12% from $15,643,000 on December 31, 2002. The increase in cash and cash equivalents in the first three months of 2003 reflects the movement between cash and short-term investments based on the timing of maturities of the investment securities.

     Cash and cash equivalents and short-term investments declined by $115,000 or 1% on March 31, 2003 from December 31, 2002. The net loss less non-cash items of depreciation and amortization used $1,838,000 of cash. Largely offsetting the cash usage were decreases to accounts receivable from collection efforts ($1,147,000), and inventories from control programs ($485,000) as well as an increase to amounts owed Axel Johnson ($219,000).

     Capital expenditures for the first three months of 2003 were $5,000. These expenditures consisted principally of the purchase of computers, software and test equipment. We anticipate capital expenditures to total approximately $603,000 for 2003.

     We have a revolving line of credit of $15,000,000 under a credit agreement with Axel Johnson Inc. (the “Credit Agreement”). The Credit Agreement expires in December 2003. This agreement contains various representations, covenants, conditions and events of default typical for financing a business of a similar size and nature, including a condition to any drawdown that no material adverse change has occurred in our financial condition or results of operation. We currently have a letter from Axel Johnson Inc. dated August 8, 2002, stating that it is Axel Johnson’s intent to allow borrowings under the credit line, provided we do not experience any material adverse change after August 8, 2002. Upon an event of default or upon election by Axel Johnson if it no longer holds at least a majority of our outstanding voting power or it has elected less than a majority of our directors, any borrowings under the line of credit shall become payable in full. If the pending merger with VINA Technologies, Inc. is approved, Axel Johnson will no longer hold a majority of our outstanding voting power as specified in the Credit Agreement. To date we have not found it necessary to use this line of credit. In addition to the Credit Agreement, we and Axel Johnson Inc. have an administrative service agreement and a tax-sharing agreement for the purposes of defining the on-going relationship between the two entities. As of March 31, 2003 Axel Johnson owned 53% of our Class A and Class B Common Stock, representing 82% of the outstanding voting power.

     We believe our cash and short-term investments, after consideration of future operations, will be sufficient to fund our cash requirements, at least through the next 12 months. Nonetheless, future events, such as the potential use of cash to fund any significant losses that we might incur or acquisitions we might undertake, might require us to request borrowings under our credit line with Axel Johnson Inc. or seek additional capital from other sources. In that event, it is possible we would not be able to make the representations and warranties necessary to effect a borrowing under the Axel Johnson Inc. Credit Agreement, or if the merger with VINA Technologies, Inc. is consummated, Axel Johnson will hold less than a majority of voting power and may elect to cease making loans under the agreement, or we may not be able to obtain adequate capital from other sources.

     Our current contractual commitments consist principally of operating leases for real estate and ongoing commitments for manufacturing services, product inventories and other general services related to the normal operation of the business. We also have a commitment to pay a technology-licensing fee, dependent on our decision to incorporate certain technologies in a product currently under development.

     Our operating lease commitments relate principally to our buildings in Milpitas, California and Durham, North Carolina and have terms that expire in 2004 and 2007, respectively. Our total rent expense in the first quarter of 2003 and 2002, was $507,000 and $487,000, respectively. Sublease rental income was $155,000 and $240,000 in

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the first quarter of 2003 and 2002, respectively. Our future annual minimum lease payments under all non-cancelable operating leases and sublease rental income as of March 31, 2003 are as follows (in thousands):

     We have purchase orders and contracts outstanding for goods and services incurred in the normal course of business as well as a contingent technology licensing agreement explained above. The following table discloses our obligations under guarantees as of March 31, 2003 (in thousands):

     The effects of inflation on our revenues and operating income have not been material to date.

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.

     As part of the strategy for growth and expansion of our business, we may make acquisitions that could disrupt our business or harm our financial condition. As part of our business strategy, we may invest in or acquire other businesses, technologies or assets, or enter into strategic relationships with third parties. For such acquisitions, we may issue additional stock, incur debt, assume liabilities, incur impairment charges related to goodwill and other intangible assets or incur other large and immediate write-offs. With the exception of our acquisition of NetEdge in 1997, we have no recent experience in integrating acquired businesses with our existing business.

     We, London Acquisition Corp., our wholly owned subsidiary (“Merger Sub”), and VINA Technologies, Inc. (“VINA”) entered into an Agreement and Plan of Merger, dated as of March 17, 2003, pursuant to which Merger Sub will merge with and into VINA (the “Merger”). The consummation of the Merger is subject to the approval of our and Vina’s stockholders and other customary closing conditions. The integration of the companies will be complex, time consuming and expensive and may disrupt our and VINA’s businesses. The combined company will need to overcome significant challenges in order to realize any benefits or synergies from the merger. These challenges include the timely, efficient and successful execution of a number of post-Merger events, including:

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	•		integrating the operations and technologies of the two companies;
	•		retaining and assimilating the key personnel of each company;
	•		retaining existing customers of both companies and attracting additional customers;
	•		retaining strategic partners of each company and attracting new strategic partners; and
	•		creating uniform standards, controls, procedures, policies and information systems.

     The execution of these post-Merger events will involve considerable risks and may not be successful. These risks include:

	•		the potential disruption of the combined company’s ongoing business and distraction of its management;
	•		the potential strain on the combined company’s financial and managerial controls and reporting systems and procedures;
	•		unanticipated expenses and potential delays related to integration of the operations, technology and other resources of the two companies;
	•		the impairment of relationships with employees, suppliers and customers as a result of any integration of new management personnel;
	•		greater than anticipated costs and expenses related to restructuring, including employee severance or relocation costs and costs related to vacating leased facilities; and
	•		potential unknown liabilities associated with the merger and the combined operations.

     The combined company may not succeed in addressing these risks or any other problems encountered in connection with the Merger. The inability to successfully integrate the operations, technology and personnel, or any significant delay in achieving integration, could have a material adverse effect on the combined company after the merger and, as a result, on the market price of our Common Stock.

     In addition, the pending Merger involves other risks and uncertainties to us, including:

	•		if the benefits to the Merger do not exceed the associated costs, our financial results could be materially harmed;
	•		the Merger could cause us to lose key personnel, which could materially affect our business and require us to incur substantial costs to recruit replacements for lost personnel;
	•		general uncertainty related to the Merger could harm us by causing customers to delay or defer purchasing decisions or increasing the volatility of our share price;
	•		during the pendency of the Merger we may not be able to enter into a merger or business combination with another party at a favorable price because of the restrictions of the Merger Agreement; and
	•		failure to complete the Merger may result in our paying a termination fee and could harm our Common Stock price and future business and operations.

     Our entire industry is in an extended downturn. The downturn for the United States economy and the rapid and severe downturn for the domestic telecommunications industry, beginning in late 2000, have negatively affected demand for our products. In addition to the deteriorating domestic economic environment, the worldwide telecommunications market is experiencing reduced demand. This decreased demand has led to fluctuating order forecasts from some of our customers. There can be no certainty as to the degree of severity or duration of this economic downturn or the reduced demand in the telecommunications industry. We also cannot predict the extent and timing of the impact of the economic downturn in the United States and the worldwide downturn for the telecommunications industry on economies in Canada, Europe and other countries and geographic regions. For the quarter ended March 31, 2003, order demand from our customers continued to decline as they experienced the impact of the downturn in the telecommunications market.

     We expect to continue to incur operating losses and may not be profitable in the future. We have experienced substantial net losses, including a net loss of $2,183,000 in the first quarter of 2003, $4,895,000 in 2002 and $30,879,000 in 2001 and had an accumulated deficit of $67,699,000 as of March 31, 2003. A continued decrease in

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revenues could have an adverse impact on our finances. There can be no assurance as to when or if we will achieve profitability.

     Our prospects for growth depend on recently-introduced products, products under development and products licensed from others. 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, products that may be introduced in the future and products that we license from others. These include, for example, the Larscom 6200 and the Orion 5000, 5001 and 5003 and the Orion 4500, all of which have only recently been introduced. 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. The industry-wide downturn has caused sales of new products, such as ours, to be well below expectations. In addition, we have licensed the intellectual property and development rights for the Orion 5000, 5001 and 5003. Our dependence on others for the initial design of this product increases the risk that we may not be successful with future enhancements to the product line. We have, in the past, experienced delays and changes in course in the development of new products and the enhancement of existing products, and such delays and changes in course may occur in the future. Our 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 conducted four rounds of restructuring/layoffs in the past two years. Our June 22, 2001 restructuring included a workforce reduction of approximately 25% (53 people) and the closure of our North Carolina facility. On October 18, 2001, we announced additional reductions in force of approximately 17% (35 people) of the base 2001 workforce. On May 31, 2002 we announced another reduction in force of approximately 13% (16 people) of our remaining workforce. On October 21, 2002, we announced an additional reduction of 13% of our workforce (14 people). Thirty-three percent (39 people) of the total reductions in employees were from engineering personnel. Although the restructuring actions taken have lowered our expense base, we expect operating losses to continue in 2003. Therefore, there can be no assurance that another material restructuring and/or workforce reduction will not be required. In addition, our workforce reductions may deprive us of the human capital we would need to take full advantage of any upturn in the business cycle in our industry. There can be no assurance that we will not lose employees in the future as a result of the restructuring/layoffs, or that we will be able to recruit suitable replacements.

     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. In the past, some of the products we have planned and introduced have not met our sales expectations.

     Our business could be materially and adversely affected by shifts in the use of technology common throughout the industry today. Three shifts affecting our products and industry are: the integration of CSU/DSU technology into routers and switches, a move from T1/E1 services to more Ethernet-based services and the increase in demand for more managed, customer-premise-based services. The failure to accommodate these shifts in technology could impact sales of our products and have a material adverse affect on our business and operating results.

     The absence of long-term backlog makes us vulnerable in periods of weak demand. 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 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. Over the last several years, there has been a reduction of equipment demand throughout the telecommunications industry. Because of our limited backlog, this

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tends to have an immediate negative effect on our operations, which we cannot fully offset on a timely basis by implementing reductions in expenses.

     We depend upon a small number of customers. A small number of customers have accounted for a significant percentage of our sales. Therefore, sales for a given quarter generally depend on 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 in the past 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 orders with short delivery times to a limited number of customers, our backlog and consequently our 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, or other unanticipated factors, our business and operating results would be materially adversely affected. Our largest customer, MCI/WorldCom, filed for bankruptcy in 2002, which could lead to a substantial loss in their customer base or a major reorganization, all of which could influence their order levels to us. In 2002 revenue from sales to MCI/WorldCom decreased 71% from sales to MCI/WorldCom in 2001.

     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. 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,
	•		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 or contract our sales and marketing organizations 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 financial performance below the expectations of public market analysts and investors, the price of our Class A Common Stock could be materially adversely affected.

     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 several single sources. We do not believe we would be able to develop alternative sources for certain essential components used in our products without incurring significant costs. 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 there can be no assurance that we would be able to do so, in a timely manner without incurring substantial additional costs, if required. Any inability by our suppliers to meet our demand or any

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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 an adverse impact on our business and operating results. We generally do not have any long-term contracts with our suppliers and, in fact, we have made a recent decision to change our major supplier for contract manufacturing. It is possible that our new major contract supplier and other suppliers will not continue to be able and willing to meet our future requirements.

     The market for our products is intensely competitive, and our failure to compete effectively could reduce our revenues and margins. Competition in the market place for high-speed network-access products is intense. 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. Many of our competitors have more broadly developed distribution channels and have made greater advances than we have in emerging technologies. Cisco Systems and Altcatel are two of the largest communications 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.

     We are controlled by Axel Johnson Inc. 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 Inc. is the sole holder of the Class B Common Stock. As a result, Axel Johnson Inc. has sufficient voting power to control the direction and policies of Larscom absolutely, including mergers, the payment of dividends, consolidations, the sale of all or substantially all of the assets of Larscom and the election of the Board of Directors of Larscom, and to prevent or cause a change in control of Larscom.

     During growth periods, 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 during times when business in the telecommunications equipment industry is strong. In the past, we have had difficulty in filling all of our hiring requisitions. Our failure to manage the retention of key employees effectively could have a material adverse effect on our business and operating results.

     We are significantly engaged in selling in international markets, which results in operational difficulties and risks. Sales outside the U.S. approximated 18% of our revenues for 2002 and 16% for the first quarter of 2003. The conduct of business outside the U.S. 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, possible 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 U.S. could inhibit or preclude our marketing and sales efforts in such countries, which could have an adverse impact on our business and operating results.

     We have recently reorganized our sales force. In October 2002, we reorganized our sales force to concentrate on four account types:

•		major accounts,
•		carrier accounts,
•		US indirect channels (distributors and resellers) and enterprise customers and
•		overseas accounts.

As part of this reorganization we have reassigned certain of our sales people to different, specific customer accounts and different types of customers. There is a risk that the new relationships with customers resulting from the reorganization might not be as productive as the prior organization in the near term or at all. Failure of the new organization to achieve sales productivity goals could have an adverse impact on our business and operating results.

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     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. 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, 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 that will result in additional expenses. All of these risk factors could have an adverse impact on our business and operating results.

     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 U.S., 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 Asynchronous Transfer Mode, Frame Relay, Internet Protocol and Synchronous Optical Network/Synchronous Digital Hierarchy 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 an adverse impact on our business and operating results.

     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 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. We have been issued only one U.S. patent to date. 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 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 adversely impacted.

     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 U.S. are not publicly disclosed immediately, applications which we do not know about, 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 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.

     We provide our customers a three-year or longer warranty on most product lines. 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 an adverse impact on our business and operating results.

     Our Class A Common Stock has traded below one dollar and may be subject to de-listing from the Nasdaq SmallCap Market. On July 16, 2002, we received a notice from Nasdaq that our Common Stock had failed to

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maintain the required minimum closing bid price of $1.00 for a period of 30 consecutive trading days as well as the minimum requirements for market value of publicly traded shares on the Nasdaq National Market. As a result, Nasdaq provided us 90 calendar days, or until October 14, 2002 to regain compliance with this requirement or face de-listing from trading on the Nasdaq National Market. Prior to our de-listing, we submitted an application to Nasdaq for transfer to their SmallCap market. The application was approved and our stock began trading on the Nasdaq SmallCap market effective on October 23, 2002. In order for our common stock to continue to remain listed on the Nasdaq SmallCap we must satisfy various listing maintenance standards including a minimum closing bid price of $1.00 and a minimum market value of publicly traded shares.

     We have asked for shareholder approval of a reverse stock split and, if approved by the stockholders, will implement a reverse stock split in connection with the Merger or, even if the Merger is not consummated, may implement a reverse stock split to maintain compliance with the Nasdaq minimum bid price requirements. The effect however, of a reverse stock split on the market price of our Common Stock cannot be predicted and the history of similar stock splits for companies in like circumstances is varied. The market price per share of our Common Stock after the reverse stock split may not rise in proportion to the reduction in the number of shares of Common Stock outstanding resulting from the reverse stock split. Also, the possibility exists that liquidity in shares of Common Stock could be adversely affected by the reduced number of shares that would be outstanding after the reverse stock split. The market price per post reverse stock split share may not exceed or remain in excess of the $1.00 minimum closing bid price requirement and we may not otherwise meet the Nasdaq requirements for continued listing on the Nasdaq SmallCap Market. If we are unable to meet Nasdaq’s SmallCap listing requirements our Class A Common Stock could trade on the OTC Bulletin Board or in the “pink sheets” maintained by the National Quotation Bureau, Inc. Such alternatives are generally considered to be less efficient markets, and our stock price, as well as the liquidity of our Class A Common Stock, could be adversely impacted as a result.

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 generally has been comprised of commercial paper rated A1/P1, bank certificates of deposit rated A- or better and corporate bonds and medium-term notes rated A- or better. These securities mature within one year and are classified as available for sale in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.”

     At March 31, 2003, we had no short-term investments.

     Foreign Currency Exchange Rate Risk. Our international sales are typically made in U.S. 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 % change in the exchange rate for the British Pound or any other foreign currency would not be material to us.

Item 4: Controls and Procedures

	a.		Evaluation of Disclosure Controls and Procedures Based on their evaluation of our disclosure controls and procedures conducted within 90 days of the date of filing this report on Form 10-Q, our Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-14(c) promulgated under the Securities Exchange Act of 1934) are effective.
	b.		Changes in Internal Controls There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

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     a.     Exhibits.

			10.1 Agreement and Plan of Merger by and among Larscom Incorporated, London Acquisition Corp. and VINA Technologies, Inc., dated as of March 17, 2003. (1)
			10.2 VINA Voting Agreement, by and between Larscom Incorporated, and certain stockholders of VINA Technologies, Inc., dated as of March 17, 2003. (2)
			99.1 Periodic Report Certification filed pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. § 1350, as adopted)
			(1) Incorporated by reference to exhibit 2.1 in registrant’s Form 8-K dated March 18, 2003.
			(2) Incorporated by reference to exhibit 2.3 in registrant’s Form 8-K dated March 18, 2003.