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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 June 30, 2007

OR



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

Commission File Number 0-26634

LeCROY CORPORATION

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 13-2507777                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|700 CHESTNUT RIDGE ROAD CHESTNUT RIDGE, NEW YORK               |  | 10977                               
|(Address of principal executive office)                        |  | (Zip Code)                          

(845) 425-2000

(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:

Common Stock, Par Value $.01 Per Share

(Title of Class)

Indicate by check mark whether the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES  x            NO ̈

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

YES  x            NO ̈

Indicate by check mark whether the registrant: (1) has
filed all reports 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
the 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. ̈

Indicate by check mark (X) whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer ̈Accelerated filer  x            Non-Accelerated filer ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ̈NO  x

The
number of shares outstanding of the registrants Common Stock, as of September 4, 2007, was 12,348,152 shares. The aggregate market value of shares of Common Stock held by non-affiliates as of the last business day of the registrants
most recently completed second fiscal quarter was $131,590,964.

Documents Incorporated by Reference

Portions of the Definitive Proxy Statement for the 2007 Annual Meeting of Stockholders are incorporated by reference in Part III hereof.



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LeCROY CORPORATION

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED JUNE 30, 2007

TABLE OF CONTENTS



|                                                          |  |                                                                                                              |  |    
|--------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------ |  | ---
|Form 10-K Item Number:                                    |  | PageNo.                                                                                                     
|                                                          | 
|Cautionary Statement Regarding Forward-Looking Statements |  | 3                                                                                                           
|                                                          |  |                                                                                                             
|                                                          |  | PART I                                                                                                       |  |    
|Item 1.                                                   |  | Business                                                                                                     |  | 4  
|Item 1A.                                                  |  | Risk Factors                                                                                                 |  | 19 
|Item 1B.                                                  |  | Unresolved Staff Comments                                                                                    |  | 30 
|Item 2.                                                   |  | Properties                                                                                                   |  | 30 
|Item 3.                                                   |  | Legal Proceedings                                                                                            |  | 30 
|Item 4.                                                   |  | Submission of Matters to a Vote of Security Holders                                                          |  | 30 
|                                                          |  |                                                                                                             
|                                                          |  | PART II                                                                                                      |  |    
|Item 5.                                                   |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 31 
|Item 6.                                                   |  | Selected Consolidated Financial Data                                                                         |  | 33 
|Item 7.                                                   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 35 
|Item 7A.                                                  |  | Quantitative and Qualitative Disclosure About Market Risk                                                    |  | 52 
|Item 8.                                                   |  | Financial Statements and Supplementary Data                                                                  |  | 53 
|Item 9.                                                   |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure                         |  | 94 
|Item 9A.                                                  |  | Controls and Procedures                                                                                      |  | 94 
|Item 9B.                                                  |  | Other Information                                                                                            |  | 96 
|                                                          |  |                                                                                                             
|                                                          |  | PART III                                                                                                     |  |    
|Item 10.                                                  |  | Directors, Executive Officers and Corporate Governance of the Registrant                                     |  | 97 
|Item 11.                                                  |  | Executive Compensation                                                                                       |  | 97 
|Item 12.                                                  |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 97 
|Item 13.                                                  |  | Certain Relationships, Related Transactions and Director Independence                                        |  | 97 
|Item 14.                                                  |  | Principal Accounting Fees and Services                                                                       |  | 97 
|                                                          |  |                                                                                                             
|                                                          |  | PART IV                                                                                                      |  |    
|Item 15.                                                  |  | Exhibits and Financial Statement Schedules                                                                   |  | 98 
|                                                          |  | Signatures                                                                                                   |  | 102

LeCroy®, Wavelink, WaveMaster®, WavePro®,
WaveJet®, WaveRunner®, WaveScan, WaveSurfer, WaveExpert, MAUI, CATC and Catalyst are our trademarks, among others not referenced in this document. All other trademarks, servicemarks or tradenames referred to in this
Annual Report on Form 10-K are the property of their respective owners.



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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this report, other than purely
historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally are identified by the words believe, project, expect, anticipate,
estimate, intend, strategy, plan, may, should, will, would, will be, will continue, will likely result, and similar
expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. A detailed discussion of
these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the section entitled Risk Factors (refer to Item 1A). We undertake no
obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.



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PART I

ITEM 1. BUSINESS.

Our Company

LeCroy Corporation (the Company, LeCroy, us, we or our) was founded in 1964 and is incorporated in the State of Delaware. Our principal executive offices and
manufacturing facilities are located at 700 Chestnut Ridge Road, Chestnut Ridge, New York 10977 and our telephone number is (845) 425-2000. Our website is located at www.lecroy.com. We sell our products and provide service worldwide
through wholly-owned subsidiaries, representatives and distributors.

We develop, manufacture, sell and license high-performance
oscilloscopes and global communication protocol analyzers. Our oscilloscopes are tools used by designers and engineers to measure and analyze complex electronic signals in order to develop high-performance systems, validate electronic designs and
improve time to market. We offer six families of oscilloscopes, which address different solutions for the markets we serve: WaveExpert, our line of Sampling Oscilloscopes; WaveMaster, one of our high performance product families; WavePro, which is
targeted at the mid- to high-performance sector; WaveRunner, designed for the mid-performance sector; WaveSurfer, designed for value-oriented users in the low-performance bandwidth sector of the market; and WaveJet, our entry-level oscilloscope
products. Our protocol analyzers are used to reliably and accurately monitor communications traffic and diagnose operational problems in a variety of communications devices to ensure that they comply with industry standards. Our protocol analyzers
are used by designers and engineers whose products are in development and production and also for products deployed in the field.

We
generate revenue in a single segment within the Test and Measurement market, primarily from the sale of our oscilloscopes, protocol analyzers, probes, accessories, and applications solutions. To a lesser extent, we also generate revenue from the
sales of our extended warranty contracts, maintenance contracts and repairs and calibrations on our instruments after their warranties expire. We sell our products into a broad range of end markets, including Computer/Semiconductor/Consumer
Electronics, Data Storage, Automotive/Industrial, and Military/Aerospace. We believe designers in all of these markets are developing products which rely on increasingly complex electronic signals to provide the features and performance their
customers require.

Test and Measurement Market

Test and Measurement equipment is used in the design, development, manufacture, deployment and operation of electronic products and systems. This equipment is required to verify functionality and performance of new
product designs and to ensure compliance to industry standards and overall product quality. These instruments are used across all electronic equipment industries, including computer, semiconductor, communications, consumer, automotive, defense, and
video. In addition, Test and Measurement instruments are utilized to install, maintain and monitor wireless and wire-line communications and broadcast networks. This Test and Measurement equipment aids in the research and development of new
products, testing of products in production, and maintenance and service of products in the field.

According to Prime Data, Inc., an
independent market research firm tracking the Test and Measurement industry, the market for this equipment exceeded $7.5 billion in 2006. Certain segments of the Test and Measurement industry have historically experienced greater volatility than the
overall industry because of their exposure to certain end markets, such as communications, that experienced rapid growth in the late 1990s, followed by rapid declines.

Growth in the Test and Measurement market is driven by improvements in electronic systems performance, growth in the electronics market and emerging technologies and standards. Designers in a wide variety of
industries are being constantly driven to increase the performance of their products and to add new features and capabilities. These improvements rely on advanced semiconductor technology and require the design of faster, more powerful and complex
electronic systems. As a result, the underlying technological advances in communications and



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electronic signals are increasing exponentially in complexity and speed. This is driving the demand for analysis tools that allow designers and manufacturers
of these devices to improve new product cycle time. With each advance in technology, engineers designing next generation technologies and products must contend with both a reduced margin for error and a progressively more difficult task of fully
characterizing new product design.

While the overall market for test and measurement equipment is made up of hundreds of different types
of instruments and measurement tools, one of the largest single product categories is oscilloscopes. We estimate that oscilloscopes represented approximately $1.2 billion of the overall $7.5 billion market in 2006. In addition, protocol analyzers,
an emerging product category, represented approximately $800 million in sales in 2006. Protocol analyzers address specific communications standards in the wide area network (WAN), local area network (LAN), storage area network (SAN), and computer
peripheral interconnect market spaces. LeCroy presently focuses on the storage area network and computer peripheral interconnect space. We believe the potential for these products lies somewhere in the $100 to $200 million range of the total
protocol analyzer product category.

Oscilloscope Product Category

Oscilloscopes are the primary instrument used by engineers for testing and analyzing electronic signals. Historically, oscilloscope products within the
Test and Measurement industry have experienced less volatility than the industry as a whole because of their widespread use across many applications and end markets. Thorough testing of complex electronic signals requires a measurement tool capable
of physically attaching to the signal of interest, capturing data with high resolution for long periods of time and supporting detailed signal analysis while providing additional insight into data characteristics and signal trends over time. An
oscilloscope utilizes a graphical display device that allows an engineer to view an electronic signal. The most basic display of an oscilloscope plots a signals voltage versus time (typically in billionths and trillionths of a second),
providing a user insight into the performance of an electronic circuit. In many cases, a user is trying to either verify that the circuit is behaving as designed or measure the signal to gain a basic understanding of signal performance.

Todays oscilloscopes are digital devices which capture electronic signals and convert the voltage values to digital representations, which are
stored in computer memory, allowing the instrument not only to display the signal on a screen, but also to utilize a computer to analyze the signals characteristics. The ability of an oscilloscope to conduct in-depth analysis of a complex
electronic signals characteristics and trends is referred to as wave shape analysis, which is increasingly important as signals become more complex.

The three primary specifications of an oscilloscope are its bandwidth, or capacity to capture a signal of a particular speed; sample rate, or number of data points that can be captured within a specific time,
typically billions of samples per second in modern oscilloscopes; and memory length, or the number of data points that may be captured at one time. Higher bandwidths allow capture of higher speed signals, increased sample rate improves resolution,
and longer memory allows capture of longer, more complex signals. The merit of a specific oscilloscope depends on the combination of these specifications. Real-time oscilloscopes with bandwidths ranging from 20 Megahertz (MHz) up to 20
Gigahertz (GHz) are currently available. Generally, the prices of oscilloscopes increase as the primary specifications increase. We believe the oscilloscope market can be generally divided into four major categories:



| |  |  | High-end oscilloscopes.The largest part of the market, which we believe currently accounts for slightly more than half of the market based on revenues
generated, comprises instruments with the ability to capture and analyze signals ranging from 300 MHz up to the highest available real-time bandwidths. These instruments generally sell from $4,000 up to over $100,000 depending on their capabilities.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Lower-end oscilloscopes.We believe about one-third of the markets revenue comes from these products which include less complex instruments with the
ability to capture and analyze signals ranging from 20 MHz to 300 MHz. These instruments generally sell for below $5,000.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Handheld oscilloscopes.This includes a variety of handheld oscilloscopes which we believe currently comprise less than 10% of the overall market. Selling
prices for these handheld instruments are generally between $1,000 and $3,000.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Sampling oscilloscopes.For certain high signal speed applications, such as optical communications, instruments with bandwidths of up to 100 GHz are
required. At these speeds, real-time oscilloscopes do not have the ability to track the signal shape in real time and take samples quickly enough to be effective. We believe this category currently comprises less than 10% of the overall market, but
because of their ability to provide extremely high bandwidths, sampling oscilloscopes can range in price generally from $50,000 to $100,000.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Protocol Analyzer Product Category

The demand for digital information has accelerated the
need for communication among multiple electronic devices in various markets, including computers, telecommunications, networking, storage, consumer electronics, aerospace, automotive, industrial automation and medical instrumentation. This growing
demand centers on the widespread need to transmit digital information. Communication among digital devices, or connectivity, occurs over a variety of physical media, such as copper wire and fiber optic cable, as well as over wireless frequencies.

Computer technology initially provided connectivity only among internal devices, such as the processor, memory and storage, and with
external peripheral devices, such as the keyboard, mouse and printer. Today, computer technology also enables connectivity among multiple computing devices and across networks, such as LAN, WAN, SAN, home area networks, personal area networks and
the Internet. Telecommunications technology also enables connectivity among multiple devices, such as telephones, fax machines, pagers and personal digital assistants. Consumer electronics technology is progressively enabling connectivity among
devices, such as Internet appliances, digital cameras, audio systems and televisions.

Digital devices communicate by sending electronic
signals through a transmission channel according to a specified protocol. A protocol is a set of detailed rules that governs and regulates the manner in which the signals are sent, received, and interpreted. The channel and the protocol are both
typically specified in a formal communications standard. For communication to be successful, each device must implement and conform to the same standard.

Early communications standards were relatively simple, typically involving low-speed communications between two simple devices connected directly by copper wire. Current standards are increasingly complex, typically
involving high-speed communications among multiple sophisticated devices indirectly linked to other devices and across various physical media, including copper wire, fiber optic cables, and wireless technologies with rapidly fluctuating frequencies.
As a result, standards that were specified initially in only a few pages of text may now extend to over one thousand pages. The specifications for these standards are broadly available, which facilitates interoperability of hardware and software
products from different manufacturers.

A communication standard is typically introduced by several leading technology and infrastructure
companies. These core promoter companies comprise the nucleus of independent standards groups. These groups are sometimes referred to as implementers forums, trade associations or special interest groups which assist in the development,
implementation, promotion, and compliance with the standards. As commercial interest in a standard increases, the communications standards group typically expands to include system and device manufacturers and service providers. The promoter
companies typically remain closely associated with the standard throughout its lifecycle.

A standard is implemented over a lifecycle that
includes three overlapping phases: development, production and market deployment. During the development phase, key component manufacturers develop and produce important building blocks such as semiconductors, embedded software, protocol stacks and
device drivers which will be used by others in the industry to create products. During the production phase, system and device manufacturers apply these building blocks to construct their unique products and applications. The market deployment phase
includes the introduction and sale of products and applications to end users in the market. Similarly, products associated with a particular standard follow their own unique lifecycle from development through production and deployment.



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Protocol analyzers are standard specific tools; they enable a design engineer to analyze the
conversation between two devices. Many distinct communications standards are emerging to meet the growing demand for digital connectivity in the Computer/Semiconductor/Consumer Electronics, Data Storage, Automotive/Industrial, and
Military/Aerospace industries. The characteristics of each standard, including its principal uses, physical medium, transmission speed and distance covered, vary greatly. Examples of existing and emerging standards supported by our products in the
computer peripheral interconnect and storage space include the following:



| |  |  | Bluetooth®. The Bluetooth standard, or
Bluetooth wireless technology, enables low speed, wireless connectivity among computers, telecommunication devices, such as mobile telephones, and consumer electronics devices, such as personal digital assistants and headphones. Bluetooth was
introduced in 1998. The promoter group consists of Agere, Ericsson, IBM, Intel, Microsoft, Motorola, Nokia and Toshiba. Bluetooth operates through radio waves with rapidly fluctuating frequencies at speeds of up to 1 million bits (megabits) per
second, or Mbps, over distances of up to 100 meters. In 2005, over 500 million Bluetooth chipsets were shipped  primarily in the handset and mobile computing markets. Bluetooth has recently been enhanced further with updates to the
specification to improve the performance and usability of the interface. In March of 2006, the Bluetooth Special Interest Group announced a next generation high-speed Bluetooth wireless technology to be based on the WiMedia Ultra-Wideband platform.
Collaboration between the WiMedia Alliance and the Bluetooth community should help define Bluetooth technology as a key personal area network technology for today and the future.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Fibre Channel.Fibre Channel enables reliable, cost-effective information storage and delivery at very high-speeds. Fibre Channel development started in 1988
and the American National Standards Institute (ANSI) standards body approved the first revision in 1994. Fibre Channel is designed to operate at speeds of 1, 2, and 4 Gbps and gives users the option to develop storage networks with configuration
choices at different price points, levels of scalability and availability. Fibre Channel is a layered protocol that supports additional storage or networking protocols such as SCSI, IP, VI, and ESCON, thus offering many choices for storage
connectivity, cluster computing and network interconnect.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | IEEE 1394.The IEEE 1394 standard, commonly known as 1394, FireWire or i.Link, enables high-speed connectivity among computers, peripheral devices and
consumer electronic devices, including audio systems, television sets, digital cameras, video recorders, video players and game consoles. 1394a was introduced in 1987 and was ratified by the IEEE in 1995. The promoter group includes Apple, Canon,
Hewlett-Packard, IBM, Intel, Microsoft, NEC, Philips, Sony, Sun Microsystems, Texas Instruments and Yamaha. 1394a enables connectivity through copper wire at speeds of up to 400 Mbps over distances of up to four and one-half meters. This speed
increases to up to 3.2 Gbps over distances of up to 100 meters in the 1394b standard approved by the IEEE in April 2002.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | InfiniBand. The InfiniBand standard enables high-speed connectivity inside computers and among computers and storage devices in complex storage area
networks. InfiniBand was introduced in 1999 and is used largely in enterprise database, high performance computing (HPC) and storage applications. The promoter group consists of Dell, Hewlett-Packard, IBM, Intel, Microsoft and Sun Microsystems.
InfiniBand operates over copper wire and fiber optic cable at speeds of up to 10 Gbps over distances of up to ten meters for copper wire and ten kilometers for fiber optic cable.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | PCI Express. PCI Express is an emerging standard first introduced in 2002 and is intended to enhance the Peripheral Connect Interface (PCI) architecture
spanning multiple computer market segments: clients (desktop and mobile), servers (standard and enterprise), embedded computers and communication devices. PCI Express provides system original equipment manufacturers, or OEMs, and peripheral
developers the ability to realize product versatility and market differentiation without the burden of maintaining obsolete interfaces or losing compatibility. The promoter group consists of Hewlett-Packard, Dell, IBM, Intel and Microsoft. PCI
Express runs at 2.5 Gbps per lane in each direction, providing a total bandwidth of 80 Gbps in a 16-lane configuration. The next generation of PCI Express, Generation 2 or Gen 2, runs at 5.0 Gbps per lane in each direction, providing a total
bandwidth of 160 Gbps for a 16-lane configuration. The adoption of PCI Express Gen2 began in the first half of fiscal 2007.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Serial ATA. The Serial ATA standard (SATA) enables high-speed, low-cost internal storage connections for desktops and mobile computers. Serial ATA was
introduced in 2000 and has replaced Parallel ATA, the standard used to connect storage devices such as hard drives, DVD and CD drives to the motherboard. Serial ATA operates over copper wire at speeds up to 3 Gbps over distances of up to one meter.
Broad based adoption of Serial ATA in the storage market has led to the use of SATA in new applications including server, networked storage and consumer electronics devices.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Serial Attached SCSI. Initiated in December 2001 by the Small Computer System Interface (SCSI) Trade Association, Serial Attached SCSI (SAS) was designed to
be the logical evolution of SCSI to satisfy the data center requirements of scalability, performance, reliability and manageability, while leveraging a common low-cost electrical and physical connection interface from Serial ATA. SAS provides
universal interconnect with Serial ATA, while offering logical SCSI compatibility along with the reliability, performance and manageability of parallel SCSI. SAS is positioned primarily for enterprise class storage applications. SAS allows each host
to address up to 4,096 devices via expanders. SASs flexibility allows single or multiple lane communications with devices, with a 3 Gbps four lane wide connection providing 12 Gbps total throughput. The SAS-2 specification initiated in May of
2005 runs at 6.0 Gbps per lane in each direction, providing a total bandwidth of 24 Gbps. Early adopters began sampling 6.0 Gbps devices in the second half of fiscal 2007.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Universal Serial Bus. The Universal Serial Bus standard (USB) enables low, medium and high-speed connectivity between computers and peripheral devices,
including keyboards, mice, printers, scanners, joysticks and cameras, using plug and play technology. In addition, it is becoming widely used as the replacement technology for proprietary cabling on medical and industrial control equipment. USB was
introduced in 1995 and replaces the serial, parallel, mouse and keyboard ports. The specifications for the second version of USB, or USB 2.0, were released in April 2000. The promoter group for USB consists of Agere, Hewlett-Packard, Intel, Lucent,
Microsoft, NEC and Philips. USB enables connectivity through copper wires at speeds of up to 480 Mbps over distances of up to five meters. Market research firm In-Stat forecasts that USB-enabled electronics device annual shipments will double from
1.4 billion in 2005 to 2.8 billion in 2010.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Wireless USB. Certified Wireless USB is the wireless extension to USB that combines the speed and security of wired technology with the ease-of-use of
wireless technology. Certified Wireless USB supports robust high-speed wireless connectivity by utilizing the WiMedia MB-OFDM Ultra-wideband (UWB) radio platform as developed by the WiMedia Alliance. The combination of a low-cost, low-power wireless
transport with the ubiquitous USB protocol layer is expected to become a key enabler for next-generation consumer electronic devices.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

LeCroy is a provider of protocol analyzers for these existing and emerging digital communications standards. Our products are used by semiconductor, device, system and software companies at each phase of their
products lifecycles from development through production and market deployment. We have expertise in the Bluetooth, Fibre Channel, IEEE 1394, InfiniBand, PCI, PCI Express, SCSI, Serial ATA, SAS, USB, and wireless USB standards and are actively
engaged with our customers throughout their development and production processes in order to deliver solutions that meet their needs. Utilizing our easy to use, color-coded expert analysis software called CATC Trace and Catalyst Trace
View, our products generate, capture, filter and analyze high-speed communications traffic, allowing our customers to quickly discover and correct persistent and intermittent errors and flaws in their product design. Our production products are used
during the manufacturing process to ensure that our customers products comply with standards and operate with other devices, as well as assist system manufacturers to download software onto new computers.



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Our Competitive Strengths

We are a leading, worldwide provider of oscilloscopes and protocol analyzers as well as a provider of related test and measurement equipment used by electronic designers and engineers to measure and analyze complex
electronic signals and communication protocols. Our key competitive strengths include:

Technology leadership.We are
a recognized technology leader in the Test and Measurement industry and continue to leverage our core strengths to develop new and innovative products for the changing requirements of the markets we serve. Most recently, we have focused on
incorporating our internally developed operating system and our advanced methodology for enabling high-speed signal acquisition into our entire oscilloscope product line. We are a major participant in the various standards groups found in our
portfolio of supported protocols. Our expertise has helped make it possible for protocol technologies to increase in scope of utility and stability. We believe this has allowed us to transform general purpose oscilloscopes into application-specific
analysis tools, providing a competitive advantage to our products. These, and our other core technologies, are currently protected by 72 U.S. patents. We also have a significant number of pending U.S. patent applications, as well as foreign patents
and applications where we believe seeking such protection will provide us a competitive advantage.

Broad product portfolio.We offer a broad range of oscilloscope and protocol analyzer products which are designed to capture and analyze a wide range of electronic signals and data packets. We believe our breadth of product offerings, coupled with our ability to create
application-specific analysis tools, address the specific needs of design engineers and systems integration teams in many industries.

Leading customer relationships.Our major customers are leaders in a range of industries, including computer/semiconductor/consumer electronics, data storage, automotive/industrial, and military/aerospace. Our ability to work with
innovative, industry-leading customers allows us to continuously refine our products to better address the needs of the latest technologies.

Global sales and distribution.We have a global sales force and distribution structure covering North America, Europe/Middle East, Japan and Asia/Pacific. Each of these regions is a major contributor to our revenue and provided
between approximately 8% and 34% of our revenues in the last three fiscal years. We currently have direct sales personnel in 12 countries and operate in 51 smaller markets through regional managers, distributors and sales representatives. We believe
that our sales engineers are recognized by our customers for their technical expertise. Our sales force often works in tandem with design engineers to create solutions to complex applications.

Experienced management team.Our management team has a long and successful track record in the Test and Measurement industry with an average of
over 17 years of experience in the industry. Our management team has overseen the introduction of many new products over the past four years and has restructured our operations, enhancing our focus on our core markets while developing our ongoing
business strategy, which encourages product innovation.

Our Strategy

In order to enhance our position as a leading provider of oscilloscopes and protocol analyzers, our objective is to grow our company and our market share in the markets in which we operate. In addition, we may pursue
strategic acquisitions that have strong adjacent market positions or complement our current product lines. Key strategic goals include:

Focus on the general purpose oscilloscope market.We have a competitive product offering and ongoing engineering development efforts underway to address customer needs for oscilloscope solutions in market sectors representing the
largest and most profitable portion of the oscilloscope market.

Focus on the market for serial data test applications.The market
for testing important serial data standards including PCI Express, Gen I and Gen II, Serial ATA, SAS, USB2.0, wireless USB and Bluetooth, is a rapidly growing market  on the order of 30% Compound Annual Growth Rates (CAGR) according to
internal estimates.



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The primary tools associated with testing serial data links are oscilloscopes (to test the electrical signals and paths or the physical layer) as
well as specialized protocol analyzers (to observe, decode and verify that the desired data traffic and device specific messages are flowing from node to node). Our high end real-time oscilloscope and sampling oscilloscope development efforts are
aimed primarily at satisfying the needs of customers in this important applications area. We believe our offering in these two primary product categories combined with an intense focus on ensuring the right capability is available to our customers
at the right time in the most important applications will allow us to continue to grow in this market segment.

Products and Services

Oscilloscopes

We currently
offer five major real-time oscilloscope families: WaveMaster, WavePro, WaveRunner, WaveSurfer and WaveJet and one sampling oscilloscope family, WaveExpert. Each oscilloscope model is capable of capturing and analyzing electronic signals at different
bandwidth and performance points in the market. Each oscilloscope family is also offered with a selection of general software packages that expand its capabilities and allow customization of the operation and measurements of the specific product.



|                                        |  |                  |  |                 |  |                       |  |                    
|--------------------------------------- |  | ---------------- |  | --------------- |  | --------------------- |  | -------------------
|Product Family                          |  | Number of Models |  | Bandwidth Range |  | U.S. List Price Range |  | Market Introduction
|WaveExpert Sampling Oscilloscope
Series |  | 3                |  | Up to 100 GHz   |  | $28,000 - $90,000     |  | April 2005         
|WaveMaster/SDA/DDA Series               |  | 22               |  | 3 - 18 GHz      |  | $47,000  $128,000    |  | January 2002       
|WavePro 7000A Series                    |  | 7                |  | 1 - 3 GHz       |  | $20,000 - $33,000     |  | January 2003       
|WaveRunner 6000A Series                 |  | 10               |  | 350 MHz - 2 GHz |  | $8,250 - $19,990      |  | October 2003       
|WaveRunner Xi Series                    |  | 5                |  | 400  2000 MHz  |  | $9,390 - $20,390      |  | January 2006       
|WaveSurfer Xs Series                    |  | 6                |  | 200 - 1000 MHz  |  | $5,740 - $12,740      |  | January 2006       
|WaveSurfer 400 Series                   |  | 11               |  | 200 - 500 MHz   |  | $4,490 - $8,790       |  | April 2004         
|WaveJet 300 Series                      |  | 8                |  | 100 - 500 MHz   |  | $2,890 - $7,490       |  | January 2006       

Supporting Analyzers and Application Software

Our general purpose oscilloscope products are tailored with proprietary software and hardware to create application specific analyzers which function as
industry-specific oscilloscopes for use in:



| |  |  | Data storage applications  Disk Drive Analyzer products and DDA5000 series, using WaveMaster and WavePro platforms;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | Serial data applications  Serial Data Analyzer products, SDA3000 series, SDA4000, SDA5000 series, SDA6000 series, SDA11000 series and the SDA18000 series,
based on the WaveMaster platform;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Automotive applications  Hardware and software applications based on the WaveRunner platform for use in understanding serial communications in automobiles and
industrial systems; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Power measurement applications  Hardware and software applications based on the WaveRunner and WaveSurfer platforms for use in a variety of industries.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



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Protocol Analyzers

Our protocol analyzer products are advanced verification systems that assist hardware and software manufacturers in the efficient design of reliable and
interoperable systems and devices. Most of these systems utilize our proprietary intuitive expert analysis software, the CATC Trace, which displays communications traffic in searchable, color-coded packets. Highlights include:



| |  |  | PETracer Family. The PETracers are advanced verification systems. First introduced in 2003, the PETracer is a high impedance, non-intrusive analyzer,
capturing, processing and analyzing PCI Express traffic. The PETracer ML and EML allow for full bi-directional decode and capture of up to 8 or 16 PCI Express lanes at 2.5 Gbps per lane. These analyzers are based on the UPAS 10K and 100K platforms.
The PETracer Summit, a new high performance platform, allows for full bi-directional decode and capture of up to 16 PCI Express lanes at 5 Gbps per lane.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | PETrainer Family. First introduced in 2003, the PETrainer is a PCI Express exerciser capable of emulating PCI Express root complex and end point
devices. The PETrainer is offered on both the ML and EML platforms supporting x4 up to x16 lane training. It is a critical test and verification tool intended to assist engineers in improving the reliability of their solutions, while providing
advanced capabilities for stress and compliance testing. Together with the CATC PETracer family of analyzers, the PETrainer reduces time to market by enabling users to quickly identify logic and design flaws.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | SPX. The Catalyst SPX analyzer/exerciser family are advanced verification systems offered in a blade form factor. The SPX is a non-intrusive analyzer, capturing,
processing and analyzing PCI Express traffic. The SPX x4 and x8 blades allow for full bi-directional decode and capture of up to 8 or 16 PCI Express lanes at 2.5 Gbps per lane. In addition, the x4 analyzer can also provide traffic generation for up
to x4 lanes. Because of their portability, the SPX is ideal for lab and field protocol analysis.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | SATracer. The SATracer was first introduced in 2001 for SATA 1.5 Gbps speed and the second generation was introduced in the fourth quarter of 2003 for 3 Gbps.
SATracer is a non-intrusive protocol analysis system that facilitates efficient and accurate debug, test and verification of Serial ATA semiconductors, devices and systems.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | SATrainer. The SATrainer, introduced in 2003, is an add-on traffic generation module for our SATracer. It allows designers and validation engineers to
transmit valid and invalid traffic to emulate host or device-side SATA communications. SATrainer features error injection capabilities that permit observation of device behavior under faulty link conditions.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | SASTracer. The SASTracer, our Serial Attached SCSI development product introduced in 2003, is the Companys first system that supports the advanced
protocol analysis of 1.5 and 3 Gbps SAS in 1-, 2- and 4-wide configurations. The SASTracer is able to logically group multiple related bus transactions allowing developers to quickly understand complex SAS transactions. SASTracers features
were especially designed for the multiple ways in which SAS systems can be configured.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Avalanche  The Avalanche is LeCroys next generation serial storage analyzer that captures and displays up to 4 links of 6 Gbps and 3 Gbps SAS; and 6
Gbps, 3 Gbps and 1.5 Gbps SATA traffic. Avalanche features raw bit recording mode allowing capture of low-level bit stream traffic before it is decoded to high-level packets. Avalanche features a 4 GB recording memory and includes triggering and
filtering to optimize memory efficiency further. Avalanche is available in a highly portable form factor and allows SAS and SATA disk drive vendors, silicon developers and storage integrators to quickly identify problems in their products and verify
protocol behavior for faster time-to-market.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | STX Series. The STX SAS Master and SATA Master are integrated analyzer / exerciser systems designed to address the serial storage protocol test and verification
market. The STX 360 offers support Serial ATA (SATA) and Serial Attached SCSI (SAS) 1.5 and 3 Gbps signaling speeds. The flagship STX 460 offers
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | support for 1.5, 3, and 6 Gbps SAS-2 protocol capture. The STX product family also offers target and host emulation enabling full system validation. Both STX
products accommodate a high degree of configurability across protocols, speeds, and target applications.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | USBTracer/Trainer. The USBTracer/Trainer system, introduced in 2001, is LeCroys flagship USB development and test tool that provides two independent
recording channels and captures all USB bus speeds. The USBTrainer is an integrated traffic generator option capable of emulating host or device traffic behaviors. The analyzer / exerciser system is used by PC vendors, USB silicon and device
manufactures to test the robustness of their USB designs. The analyzer / exerciser system can be used for error injection, compatibility testing and compliance verification.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | SBAE-30 Series. The SBAE-30 provides a complete protocol analysis and exerciser system for advanced USB development applications. In addition to supporting all USB
bus speeds, the SBAE-30 provides dual USB recording channels and full support for the latest USB device class decodes. It is available with an integrated traffic generation capability that allows users to emulate USB host and device traffic. The
analyzer / exerciser system can be used for error injection, compatibility testing and compliance verification.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Conquest Series. The Conquest Series is an entry-level USB protocol analyzer that supports all bus speeds, upper level protocol decoding, and an easy-to-use
graphical interface. Targeted at the growing market for embedded USB designs, the Conquest is available in a Classic model for legacy USB 1.1 only protocol capture. The Standard and Advanced models add high-speed USB protocol analysis with
additional features like triggering and device level decoding for more sophisticated applications.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | UWBTracer/Trainer. The UWBTracer system, introduced in 2006, addresses the emerging WiMedia ultra wideband and Certified Wireless USB test and debug
marketplace. The UWBTracer captures and decodes wireless communications transmitted between WiMedia devices. The product is used during development of chipsets, firmware and device drivers to verify functional behavior and compliance with the
specifications. The UWBTrainer is an integrated traffic generation option for the UWBTracer system recently released in August 2007.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | AirCom. The AirCom is an entry-level ultra wideband protocol analyzer that captures WiMedia-based UWB traffic at transfer rates from 53.3 Mbps to 480 Mbps. It
features an easy-to-use graphical interface and includes a frame generator for emulating simple WiMedia traffic patterns. The AirCom features easy-mode recording for fast setup and is designed for developers getting started with WiMedia device
integration.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Other Products and Services

We offer our customers a variety of complementary oscilloscope probes and accessory products. Probes provide the critical physical electrical or optical
connection from the customers circuit to the oscilloscope. We believe our WaveLink high frequency differential probes provide the high bandwidth performance necessary to measure serial data signals in the expanding serial data communications
market. We also offer digitizing modules from 150 MHz to 1 GHz bandwidths.

We also provide support, repairs, maintenance, recalibration
and a variety of post sale upgrades and installations. We maintain field service centers in Chestnut Ridge, New York; Geneva, Switzerland; Tokyo, Japan; Seoul, South Korea; and Shanghai, China.

Our Customers and End Markets

Our products are used
primarily by electronic designers and engineers principally in the research and development of new products. These end users typically employ our oscilloscopes to validate the performance of electronic designs and components. Our protocol analyzers
are used by designers and engineers whose products are



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in development and production and also for products deployed in the field. We currently provide products to customers in four primary end markets, including
Computer/Semiconductor/Consumer Electronics, Data Storage, Automotive/Industrial, and Military/Aerospace. Our customers also include leading original equipment manufacturers.

Computer/Semiconductor/Consumer Electronics.These markets include companies providing components, interfaces, subsystems and complete products
for high speed and general purpose computing, network servers, and related devices and systems. Requirements in this end market have been driven by:



| |  |  | growth in the capability and complexity of devices, which now provide a higher level of integration and functionality;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | a dramatic increase in the use of high speed serial data communications interfaces in both the computer and semiconductor market;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | new interface standards, which enable increased interoperability and higher levels of bandwidth between devices and peripherals, including: PCI Express, Gen I and
Gen II  a high speed serial data interface for connection to high performance subsystems, such as a graphics card, inside a computer; Serial Advanced Technology Attachment (Serial ATA)  a high speed serial data interface for computer
disk drives; USB 2.0  the latest version of the Universal Serial Bus standard, a high speed computer peripheral expansion interface; Wireless USB  new wireless extension to USB that combines the speed and security of wired USB with the
ease of use of wireless; XAUI  a 10 Gigabit Ethernet standard that improves the routing of electrical interconnections; and Firewire  a high-speed serial interface for computer peripheral expansion; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | system-on-a-chip validation.
| | - |  | ----------------------------

Data Storage Devices.This market includes companies that provide magnetic and optical storage devices such as hard disk drives, removable media, tape, CDs and DVDs. Requirements in this end market are being driven by:



| |  |  | continued pressure to reduce product development life cycle time;
| | - |  | -----------------------------------------------------------------



| |  |  | increasing need to store more information on storage media, which requires the encoding of signals to achieve higher density;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | migration of hard disk drives to portable media applications and consumer devices, such as MP3 players and digital video recorders;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | evolution to perpendicular magnetic recording for higher capacity storage; and
| | - |  | ------------------------------------------------------------------------------



| |  |  | adoption of faster point-to-point connections through the use of the Serial ATA, and Serial Attached Storage, or SAS, interface standards.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------

Automotive/Industrial.The automotive market includes automobile OEMs, component suppliers to automobile OEMs and
industrial equipment manufacturers. Requirements in this end market are being driven by:



| |  |  | proliferation of Electronic Control Units, or ECUs, to various automotive subsystems, such as engine control, braking, and traction control;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | progression to networked ECUs;
| | - |  | ------------------------------



| |  |  | serial data topologies managing complex inbound and outbound signals; and
| | - |  | -------------------------------------------------------------------------



| |  |  | evolution to 42 V power systems to provide adequate power with lower current.
| | - |  | -----------------------------------------------------------------------------



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Military/Aerospace.The military and aerospace market includes companies that provide components
and systems for defense and commercial airplane applications. Requirements in this end market are being driven by:



| |  |  | applications that use complex communications signals in challenging environments;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | extraordinarily high need for precision and reliability given the consequences of failure; and
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | need for long-term support due to long military program life.
| | - |  | -------------------------------------------------------------

Sales, Marketing and Distribution

We maintain a direct sales force of highly trained, technically
sophisticated sales engineers who are knowledgeable in the use of oscilloscopes and protocol analyzers and the features and advantages of our products. In addition, because of our focus on high-performance oscilloscopes and protocol analyzers, our
sales engineers are skilled in performing product demonstrations for current and prospective customers.

We sell our oscilloscopes and
protocol analyzers through our own direct sales force and manufacturers representatives in the United States. Internationally, our protocol products are sold through specialized distributors that are aligned with key customers in our end markets as
well as our own direct sales force. The oscilloscope products are sold through a direct sales force in Switzerland, Germany, Italy, France, the United Kingdom, Sweden, China, South Korea and Singapore, with regional sales headquarters located in
Chestnut Ridge, New York; Sunnyvale and Santa Clara, California; and Geneva, Switzerland. In Japan, we sell our products through distributors.

We support our customers through a worldwide network of specialized applications engineers. We maintain service, repair and calibration facilities in Chestnut Ridge, New York; Geneva, Switzerland; Seoul, South Korea; Kugayama, Japan; and
Shanghai, China.

In order to raise market awareness of our products, we maintain an informative website (www.lecroy.com), advertise in
trade publications, distribute promotional materials, conduct marketing programs and seminars, issue press releases regarding new products, publish technical articles and participate in industry trade shows and conferences.

Technology and Product Development

We believe we
are a technology leader in both the oscilloscope and protocol analyzer markets. We have developed core capabilities in the design of high-performance, high-speed signal conditioning, sampling and analog-to-digital conversion circuitry. We believe we
are also a leader in the design of technologies related to the storage, movement and processing of the large amounts of data produced by oscilloscopes and protocol analyzers.

In protocol analyzers, with the acquisition of Computer Access Technology Corporation (CATC) in October 2004 and Catalyst Enterprises
(Catalyst) in October 2006 (See  Managements Discussion and Analysis of Financial Condition and Results of Operations  CATC Acquisition and Catalyst Acquisition), we believe we have a competitive advantage as a
result of our knowledge and expertise in multiple communications standards, computer and software architecture and advanced ASIC and programmable logic design. This expertise is enhanced by our advanced design tools and collaboration among our
various design teams. We have a broad, vertically integrated technology base that includes the knowledge and expertise to design advanced ASICs, use programmable logic in the form of microcontrollers and programmable logic devices in real-time
embedded applications, design electronic circuit boards and systems, and design and develop embedded software, software drivers and software applications. In October of 2006, LeCroy acquired Catalyst Enterprises, Inc. (Catalyst) to
broaden its protocol product line and increase penetration of certain new customer and market segments. The combination of Catalyst with the LeCroy Protocol Solutions Group allows the combined division to bring next-generation products to market
faster, and satisfy more customer requirements.



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Our product development efforts are focused on hardware, software and mechanical development initiatives.
Our hardware product development team is focused on developing innovative signal conditioning, data acquisition and electrical circuit probing technologies that allow better waveform fidelity and circuit connection capabilities. This is accomplished
through the use of advanced integrated circuit techniques and processes, innovative design tools and methodologies and key technology partnerships.

Our software engineering group continues to develop and advance our protocol, wave shape analysis and measurement technologies in order to offer new and innovative analysis tools for our customers. This group also develops application
solutions to perform specific analysis for specific communications protocols, data storage, power measurement, communications and other markets.

We have also entered into technology agreements that have provided us access to technologies that enable extremely high-speed, high-fidelity signal capture capabilities and very high throughput data movement capabilities. We intend to
continue to develop and leverage such key partnerships in areas that complement or enhance our own internal strengths.

Manufacturing and Suppliers

We have consolidated and streamlined our manufacturing and operational activity to focus on our core expertise of oscilloscope and
protocol analyzer product introduction and development. Our WaveMaster, WaveExpert, and WavePro oscilloscopes and related products are manufactured at our facility in Chestnut Ridge, New York. Protocol analyzer products are manufactured in both our
Chestnut Ridge, NY; Santa Clara, and Sunnyvale, California facilities. Our focus on supply chain execution has allowed us to improve the cycle time required to build our instruments as well as reduce the time required to test and deliver products to
our customers. For example, we have partnered with manufacturing companies in the U.S. and Asia that have allowed us to design and develop innovative products at reduced costs. This has allowed us to lower the overall costs of our products to our
customers while improving our overall margin efficiency. Our WaveJet products and WaveSurfer 400s are manufactured by our strategic partner, Iwatsu, and our WaveRunner 6000A, WaveRunner Xi and WaveSurfer Xs products are manufactured by a contract
manufacturer, Plexus Corporation.

We purchase a small number of parts from single-source suppliers. In particular, several key integrated
circuits that we use are made by IBM. Although we have not experienced significant production delays attributable to supply changes, we believe that, for integrated circuits in particular, alternative sources of supply would be difficult to develop
over a short period of time. Because we have no direct control over our third-party suppliers, interruptions or delays in the products and services provided by these third parties may be difficult to remedy in a timely fashion. In addition, if such
suppliers are unable or unwilling to deliver the necessary parts or products, we may be unable to redesign or adapt our technology to work without such parts or find alternative suppliers or manufacturers. In such events, we could experience
interruptions, delays, increased costs or quality control problems and loss of revenues.

Competition

Oscilloscopes

The oscilloscope
market is highly competitive and characterized by rapid and continual advances in technology. Our principal competitors in this market are Tektronix, Inc. (Tektronix) and Agilent Technologies, Inc. (Agilent). Both of our
principal competitors have substantially greater sales and marketing, development and financial resources than we do. We believe that Tektronix, Agilent and other competitors offer a range of products that attempt to address most sectors of the
oscilloscope market.

We believe that the principal bases of competition in the oscilloscope market are a products performance
characterized by the confluence of bandwidth, sample rate, memory length and processing power, its price and quality, the vendors name recognition and reputation, product availability and the quality of post-sale support. We believe that we
currently compete effectively with respect to each of the principal bases of competition in the



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oscilloscope market in the general price range ($2,900 to $128,000) in which our oscilloscopes are focused. We also believe that our success will depend in
part on our ability to maintain and develop the advanced technology used in our oscilloscope products and our ability to offer high-performance products at a favorable price-to-performance ratio.

Protocol Analyzers

Our protocol
analyzer markets are highly competitive, and we expect competition to intensify in the future. We compete with a number of companies, with Agilent and Finisar Corporation representing the largest competitors. These competitors are diverse and offer
a variety of solutions directed at various segments of this marketplace. We believe the principal factors of competition include:



| |  |  | Product functionality;
| | - |  | ----------------------



| |  |  | Time to market with new products;
| | - |  | ---------------------------------



| |  |  | Ease of product use;
| | - |  | --------------------



| |  |  | Product speed, reliability, stability and accuracy;
| | - |  | ---------------------------------------------------



| |  |  | Price performance;
| | - |  | ------------------



| |  |  | Flexibility and programmability of products;
| | - |  | --------------------------------------------



| |  |  | Upgradeability of products;
| | - |  | ---------------------------



| |  |  | Local support and service for products; and
| | - |  | -------------------------------------------



| |  |  | Breadth of product offerings.
| | - |  | -----------------------------

We
believe we compete favorably with respect to each of these factors and have gained significant market share in some of our target markets as a result. We believe our success has been driven by our vertically integrated technology, ability to
generate customer loyalty and ability to anticipate market trends.

Backlog

Our backlog of unshipped customer orders was approximately $6.8 million and $11.2 million as of June 30, 2007 and 2006, respectively. Customers may
cancel or reschedule orders at any time. We believe that our level of backlog at any particular time is not necessarily indicative of our future operating performance.

Patents, Trademarks and Licenses

We rely on a combination of patents, trademarks and trade secret
laws, non-disclosure agreements and other intellectual property protection methods, as well as technical expertise and continuing technological research and development to establish and protect proprietary rights in our products. We believe,
however, that because of the rapid pace of change and advancement in oscilloscope technology, legal intellectual property protection is and will continue to be a less significant factor in our success than our core competency of wave shape analysis
and the experience and expertise of our personnel.

We protect significant technologies, products and processes that we consider important
to our business by, among other things, filing applications for patent protection. We currently hold 72 U.S. patents. We also have a significant number of pending U.S. patent applications, as well as foreign patents and applications. Although none
of our products depends exclusively on any single patent, we believe our patents, in the aggregate, are important to our business and contribute to our competitive advantage.

We license or otherwise acquire key enabling technologies from third parties in order to gain access to technologies that would be too expensive or too
time consuming to develop internally or that would give us a



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competitive advantage or shorten our product development time-to-market. Our key licenses include a license agreement with Perigee LLC pursuant to which we
license fast data readout technology for use in our WaveRunner 6000 Series family of products. This license is perpetual. We also license a patent from William A. Farnbach, which relates to the triggering characteristics of an oscilloscope. This
license extends for the term of the patent, which expires in October 2008. The capabilities licensed or otherwise acquired through these agreements, and additional license agreements we entered into, could be developed by us, but would require
considerable time and expense.

Although we believe that our products and technologies do not infringe the proprietary rights of third
parties, there can be no assurance that third parties will not assert claims against us based on the infringement or alleged infringement of any such rights. Such claims are typically costly to defend, regardless of the legal outcome. There can be
no assurance that we would prevail with respect to any such claim, or that a license to third party rights, if needed, would be available on acceptable terms. In any event, patent and proprietary rights litigation can be extremely protracted and
expensive.

Regulation

As we
manufacture our products in the United States and sell our products and purchase parts, components and sub-assemblies in a number of countries, we are subject to legal and regulatory requirements, particularly the imposition of tariffs and customs,
in a variety of countries. Our products are also subject to United States export control restrictions. In certain cases, we may not be permitted to export products without obtaining an export license. U.S. export laws also prohibit the export of our
products to a number of countries deemed by the United States to be hostile. The export of our high-performance oscilloscopes from the United States is also subject to regulation under the Treaty for Nuclear Non-Proliferation. We cannot be certain
that the U.S. government will approve any pending or future export license requests. In addition, the list of products and countries for which export approval is required, and the regulatory policies with respect thereto, could be revised.

Employees

As of June 30, 2007,
we had 433 full-time employees, 177 of whom work in our Chestnut Ridge, New York facility. Our employees are not represented by a labor union and we have not experienced any work stoppages. We believe that our employee relations are satisfactory.

Investor Information

Our Internet
website address is www.lecroy.com. We make available, free of charge on our website, by clicking on About LeCroy and then selecting the Investor Relations link and the SEC Filings link, our annual report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, 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 (the Exchange Act), as soon
as reasonably practicable after electronically filing such material with, or furnishing it to, the Securities and Exchange Commission, or SEC.

Executive Officers of the Registrant

Unless otherwise set forth, below are the name, age, position, and a brief account of
the business experience of each of our executive officers as of August 31, 2007:



|                      |  |     |  |                                                                          
|--------------------- |  | --- |  | -------------------------------------------------------------------------
|Name                  |  | Age |  | Position(s)                                                              
|Thomas H. Reslewic    |  | 48  |  | President; Chief Executive Officer and Director                          
|Carmine J. Napolitano |  | 39  |  | Vice President, General Manager-Protocol Solutions Group                 
|Roberto Petrillo      |  | 48  |  | Vice President, Sales, Americas, Europe, Middle East and Africa          
|David C. Graef        |  | 50  |  | Vice President, Chief Technology Officer                                 
|Sean B. OConnor      |  | 42  |  | Vice President, Finance; Chief Financial Officer; Secretary and Treasurer
|Conrad J. Fernandes   |  | 46  |  | Vice President, General Manager-Oscilloscope Division                    
|Corey L. Hirsch       |  | 50  |  | Vice President, Chief Information Officer                                



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Thomas H. Reslewicwas named to our Board of Directors in January 2002. He joined us in 1990 and
has served as President and Chief Executive Officer since January 2002. Mr. Reslewic previously served as President from October 2000 until December 2001, and Executive Vice President and Chief Operating Officer from February 1998 until October
2000. Mr. Reslewic has a Bachelor of Science degree in physics from the College of the Holy Cross and a Master of Business Administration degree from the University of Oregon.

Carmine J. Napolitano was appointed Vice President and General Manager of LeCroys Protocol Solutions Group in August 2006. Previously he
held the position of Vice President, President  Serial Data Division, with the acquisition of CATC in November 2004, (See Managements Discussion and Analysis of Financial Condition and Results of Operations  CATC
Acquisition,) having served as a CATC Director, President and Chief Executive Officer since July 2004. Mr. Napolitano joined CATC in September 2002 as Vice President, Chief Financial Officer and Secretary. He was named Chief Legal Officer
in August 2003 and was promoted to President in November 2003. Before joining CATC, from August 1995 until August 2002, Mr. Napolitano was Vice President of Finance & Administration and Chief Financial Officer at Centric Software, a
leader in collaborative product development software. Mr. Napolitano received a Bachelor of Science in Mechanical Engineering from the University of California, Santa Barbara and an Master of Business Administration in Finance from New York
University.

Roberto Petrillo was appointed Vice President Sales, Americas, Europe, Middle East and Africa in January 2007.
Previously he held the position of Vice President - LeCroy EMEA (Europe, Middle East and Africa) since August 2002. Mr. Petrillo held various sales management positions during an 11-year tenure with another leading oscilloscope manufacturer
where he led the European Telecommunication Business Unit and the European Indirect Channel teams that generated $100 million in annual revenue. Earlier in his career, Mr. Petrillo also worked for Hewlett Packard as an Account Manager. Prior to
HP, Mr. Petrillo worked at GTE Telecommunication as an R&D Electronic Engineer. Mr. Petrillo has a Bachelor of Electronic Engineering degree and an MBA from Pacific Western University in California.

David C. Graefhas served as Vice President, Chief Technology Officer since April 2003. Previously, he served as Vice President, Research and
Development from January 1999 through March 2003, Engineering Manager from June 1996 through January 1999 and Senior Engineer from January 1989 through May 1996. Mr. Graef has a Bachelor of Science degree in Electrical Engineering from the
University of Bridgeport.

Sean B. OConnor was appointed Vice President, Finance and Chief Financial Officer in November 2005.
Previously he served as Vice President, Legal Affairs and Chief Compliance Officer and from August 2001 to May 2005, he served as the Companys Tax Director. Prior to joining LeCroy, he was an attorney at the law firm of McDermott Will and
Emory. Previously Mr. OConnor served as Director of Taxation and Finance at Movado Group and as a senior consultant in the New York office of PricewaterhouseCoopers LLP. Mr. OConnor, a CPA, received his B.B.A. from Pace
University and his J.D. from Seton Hall University School of Law.

Conrad J. Fernandeswas appointed Vice President, General
Manager-Oscilloscope Division in April 2007. Previously he served as Vice President of Corporate Development and Strategy from August 2006 through March 2007, and as Vice President, Worldwide Sales from July 2001 to August 2006, Vice President,
International Sales from 1999 until 2000, Director of Asia / Pacific Sales from 1994 until 1999 and Product Marketing Manager from 1990 until 1994. Mr. Fernandes has a Bachelor of Electronic Engineering degree and a Master of Business
Administration degree from City University of London.

Dr. Corey L. Hirsch has served as Vice President, Information
Systems and Facilities since January 2002, and was named Chief Information Officer in May 2005. He joined LeCroy in September 2001, after a 24-year tenure with another leading oscilloscope manufacturer, most recently as Director of European
Operations, and Acting European Vice President. He completed his Doctorate degree in Business Administration from Brunel University, London and his Masters in Business Administration from the University of Oregon, and has recently earned a
Certification in Information Security Management (CISM) from the Information Systems Audit and Control Association (ISACA).



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ITEM 1A. RISK FACTORS

An investment in our common stock involves a high degree of risk. You should
carefully consider the risks described below together with all of the other information included in this Form 10-K when evaluating the Company and its business. If any of the following risks actually occurs, our business, financial condition, or
results of operations could suffer. In that case, the trading price of our common stock and convertible note could decline and you may lose all or part of your investment.

Risks Related to Our Business

Our operating results are expected to continue to fluctuate and may not meet
our financial guidance or published analyst forecasts, which may cause the price of our common stock to decline significantly.

Our
past operating results, including our gross profits, have fluctuated from fiscal period to fiscal period. We expect our future operating results and gross profits will continue to fluctuate from fiscal period to fiscal period due to a number of
factors, many of which are outside our control and any of which could cause our stock price to fluctuate. The primary factors that affect our operating results include the following:



| |  |  | changes in overall demand for our products;
| | - |  | -------------------------------------------



| |  |  | the timing of the announcement, introduction and market acceptance of new products by us or competing companies;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | the timing and magnitude of research and development expenses;
| | - |  | --------------------------------------------------------------



| |  |  | changes in the estimation of the future size and growth rates of our markets;
| | - |  | -----------------------------------------------------------------------------



| |  |  | changes in our production efficiency;
| | - |  | -------------------------------------



| |  |  | disruptions in operations at any of our facilities or the facilities of any of our contract manufacturers for any reason;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in the selling prices of our products; and
| | - |  | --------------------------------------------------



| |  |  | changes in foreign currency exchange risks.
| | - |  | -------------------------------------------

In addition, we have historically experienced somewhat lower activity during our first fiscal quarter than in other fiscal quarters which, we believe, is due principally to the lower level of orders and market activity during the summer
months, particularly in Europe. We believe this seasonal aspect of our business is likely to continue in the future.

Our common stock price may be
subject to significant fluctuations and volatility.

The market price of our common stock fluctuates significantly. The stock price
could fluctuate in the future due to a number of factors, some of which are beyond our control. These factors include:



| |  |  | historically low trading volume in our stock relative to alternative investments;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | announcements of developments related to our business, including additions or departures of key personnel;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | announcements of technological innovations or new products or enhancements by us or our competitors;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | sales by competitors, including sales to our customers;
| | - |  | -------------------------------------------------------



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| |  |  | sales of common stock into the public market, including those by directors and members of management;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | developments in our relationships with our customers, partners, distributors and suppliers;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | shortfalls or changes from analysts expectations in revenue, gross profits, earnings or losses, or other financial results;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | changes to or discontinuance of our recent stock repurchase program;
| | - |  | --------------------------------------------------------------------



| |  |  | regulatory developments;
| | - |  | ------------------------



| |  |  | fluctuations in results of operations;
| | - |  | --------------------------------------



| |  |  | failure to meet our financial obligations under any loans or financing agreements;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | trends in the seasonality of our sales; and
| | - |  | -------------------------------------------



| |  |  | general conditions in our market or the markets served by our customers.
| | - |  | ------------------------------------------------------------------------

In addition, in recent years the stock market in general and the market for shares of technology stocks in particular have experienced extreme price
fluctuations, which have often been due largely to factors other than the operating performance of the affected companies. We cannot ensure that the market price of our common stock will not decline substantially, or otherwise continue to experience
significant fluctuations in the future, including fluctuations that are unrelated to our operating performance.

If demand for our products does not
match manufacturing capacity, we may underutilize our capacity or, alternatively, be unable to fulfill orders in a timely manner, and in either situation our operating results may suffer.

The sale of our products is dependent, to a large degree, on customers whose industries are subject to cyclical trends in the demands for their products.
We may not be able to adapt production capacity and related cost structures to rapidly changing market conditions in a timely manner. When demand does not meet expectations, manufacturing capacity will likely exceed production requirements. We have
at times increased our production capacity and the overhead that supports production based on anticipated market demand which has not always developed as expected. As a result, we have periodically underutilized our capacity, which has adversely
affected our earnings due to existing fixed costs. In addition, conversely, if during a market upturn we cannot increase manufacturing capacity to meet product demand, we will be unable to fulfill orders in a timely manner, which in turn may have a
negative effect on operating results and our overall business.

If our operating results decline in the long-term, we may be required to establish an
additional valuation allowance against our net deferred tax assets.

We evaluate whether our deferred tax assets can be realized
and assess the need for a valuation allowance on an ongoing basis. As of June 30, 2007, we recorded approximately $12.6 million of net deferred tax assets related to the future tax benefit of certain temporary differences between our financial
statements and our tax returns. Realization of our deferred tax assets is mainly dependent on our ability to generate future taxable income. As of June 30, 2007, we recorded a valuation allowance of approximately $1.7 million to reserve for
those deferred tax assets we believe are not more likely than not to be realized in future periods. An additional valuation allowance would be recorded if it was deemed more likely than not that some or all of our deferred assets will not be
realized. If we establish additional valuation allowances, we would record a tax expense in our Consolidated Statements of Operations, which would have an adverse impact on our operating results.



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We face risks from fluctuations in the value of foreign currency versus the U.S. dollar and the cost of currency
exchange, which affect our revenue, cost of revenue and operating margins and could result in exchange losses.

A large portion of
our sales and expenses are denominated in foreign currencies. We purchase materials from suppliers and sell our products around the world and maintain investments in foreign subsidiaries, all denominated in a variety of currencies. As a consequence,
we are exposed to risks from fluctuations in foreign currency exchange rates with respect to a number of currencies, changes in government policies and legal and regulatory requirements, political instability, transportation delays and the
imposition of tariffs and export controls. Changes in the relation of foreign currencies to the U.S. dollar will affect revenues, our cost of revenue and operating margins and could result in exchange losses. Among the more significant potential
risks to us of relative fluctuations in foreign currency exchange rates is the relationship among and between the U.S. dollar, European monetary unit (Euro), Swiss franc, British pound, Swedish krona, Japanese yen, Korean won, and Singapore dollar.

We have a program of entering into foreign exchange forward contracts to minimize the risks associated with currency fluctuations on
assets, liabilities or other transactions denominated in other than the functional currency of us or our subsidiaries. It cannot be assured, however, that this program will effectively offset all of our foreign currency risk related to these assets
or liabilities. These foreign exchange forward contracts do not qualify for hedge accounting. Other than this program, we do not attempt to reduce our foreign currency exchange risks by entering into foreign currency management programs. As a
consequence, there can be no assurance that fluctuations in foreign currency exchange rates in the future will not result in mismatches between local currency revenues and expenses, and will not adversely affect our results of operations. Moreover,
fluctuations in exchange rates could affect the demand for our products.

No assurance can be given that our strategies will prevent future
currency fluctuations from having a material adverse affect on our business, financial condition, results of operations or liquidity.

We face
numerous risks associated with our international operations, which could cause a material adverse effect on our business and results of operations since approximately two-thirds of our revenues are derived from international sales.

We market and sell our products and services outside the United States, and currently have employees located in China, France,
Germany, Italy, Japan, Singapore, South Korea, Sweden, Switzerland and the United Kingdom. Many of our customers and licensees are located outside the United States. As part of our strategy, we have expanded our international sales, particularly in
China. We face numerous risks in doing business outside the United States, including:



| |  |  | dependence on sales representatives or foreign distributors and their sales channels;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | longer accounts receivable collection cycles;
| | - |  | ---------------------------------------------



| |  |  | less effective and less predictable recognition, protection and enforcement of intellectual property rights, specifically in areas of Asia and particularly in
China;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | trade protection measures, import or export licensing requirements, tariffs and other trade barriers;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | highly cyclical business environments;
| | - |  | --------------------------------------



| |  |  | unusual or burdensome foreign laws or regulatory requirements or unexpected changes to those laws or requirements;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | strengthening of the U.S. dollar, which could make our products more expensive;
| | - |  | -------------------------------------------------------------------------------



| |  |  | changes in the political or economic condition of a specific country or region, particularly in emerging markets; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | potentially adverse tax consequences.
| | - |  | -------------------------------------

Such factors could cause our future international sales to decline.



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We may be greatly impacted by the political, economic, and military conditions in China, Taiwan, North
Korea, and South Korea. In the recent past, these countries have conducted military exercises in or near the others territorial waters and airspace. Such disputes may continue or escalate, resulting in economic embargoes, disruptions in
shipping, or even military hostilities. This could severely harm our business by interrupting or delaying shipment of our products to or through these areas and/or reducing our sales in these areas.

Our business practices in international markets subjects us to the requirements of additional regulation. If we or any of our employees are found to have violated
these regulations, we could be subject to significant fines and other penalties.

We manufacture certain products in the United
States, and sell our products and purchase parts, components and sub-assemblies in a number of foreign countries. Our international activities subject us to United States export control restrictions and various significant international, federal,
state and local regulations, including but not limited to health and safety, product content, labor and import/export regulations. In certain cases, we may not be permitted to export products without obtaining an export license. U.S. export laws
also prohibit the export of our products to a number of countries deemed by the United States to be hostile. The export of our high-performance oscilloscopes from the United States, which accounts for a material portion of our internationally
derived revenue, is also subject to regulation under the Treaty for Nuclear Non-Proliferation. However, only a small portion of those oscilloscopes are sold in countries where that treaty restricts the end-user. These restrictions may make foreign
competitors facing less stringent controls on their products more competitive in the global market. We cannot be certain that the U.S. government will approve any pending or future export license requests. In addition, the list of products and
countries for which export approval is required, and the regulatory policies with respect thereto, could be revised. Our international sales and, because approximately two-thirds of our revenue is derived from sales outside the United States, our
sales in general, could be materially harmed by our inability to obtain required licenses or by the costs of compliance.

The regulations
related to our international sales are complex, change frequently and have tended to become more stringent over time. We may be required to incur significant expenses to comply with these regulations or to remedy violations of these regulations. Any
failure by us to comply with applicable government regulations could also result in cessation of our operation or portions of our operations, product recalls or impositions of fines and restrictions on our ability to carryon or expand our
operations. In addition, because many of our products are regulated or sold into regulated industries, we must comply with additional regulations in marketing our products.

We depend on single-source suppliers for some of our products, and the loss of these suppliers could harm our business by interrupting or terminating our manufacture of those products.

We purchase a small number of parts from single-source suppliers. In particular, several key integrated circuits that we use are made by International
Business Machines (IBM). Although we have not experienced significant production delays attributable to supply changes, we believe that, for integrated circuits in particular, alternative sources of supply would be difficult to develop
over a short period of time. Because we have no direct control over our third-party suppliers, interruptions or delays in the products and services provided by these third parties may be difficult to remedy in a timely fashion. In addition, if such
suppliers are unable or unwilling to deliver the necessary parts or products, we may be unable to redesign or adapt our technology to work without such parts or find alternative suppliers or manufacturers. In such events, we could experience
interruptions, delays, increased costs, or quality control problems.

We depend upon key personnel and qualified future hires to implement our
expansion strategy, and if we are unable to retain or attract personnel we may not be able to manage and operate successfully and we may not be able to meet our strategic objectives.

Our success depends on the efforts and abilities of senior management and key employees in the sales, marketing, research and development, and
manufacturing areas. Many of these employees would be difficult to replace. We do not have employment contracts with most of our key personnel. If we cannot retain existing key managers and employ additional qualified senior employees, our business,
financial condition, and results of



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operations could be materially and adversely affected. We do not maintain key man life insurance policies on any of our personnel. Future
expansion of operations will require us to attract, train and retain new personnel. In addition, we may be limited by non-solicitation agreements entered into by our key personnel with respect to hiring employees from our competitors. These factors
could increase our operating expenses. If we are unable to recruit or retain a sufficient number of qualified employees, or the costs of compensation or employee benefits increase substantially, our business, results of operations or financial
condition could be materially and adversely affected.

We may not be successful in protecting our intellectual and proprietary rights, which would
deprive us of a competitive advantage and thereby negatively impact our ability to compete.

As a technology-based company, our
success depends on developing and protecting our intellectual property. We rely generally on patent, copyright, trademark and trade secret laws in the United States and abroad. Electronic equipment as complex as most of our products, however, is
generally not patentable in its entirety. We also license intellectual property from third parties and rely on those parties to maintain and protect their technology. We cannot be certain that actions we take to establish and protect proprietary
rights will be adequate, particularly in countries where intellectual property rights are not highly developed or protected. If we are unable to adequately protect our technology, or if we are unable to continue to obtain or maintain licenses for
protected technology from third parties, it may be difficult to design alternatives to such technology without incurring significant costs. Thus, the loss of intellectual property rights to technology could have a material adverse effect on our
business, results of operations or financial condition. From time to time, in the ordinary course of business, we receive notices from third parties regarding intellectual property infringement or take action against others with regard to
intellectual property rights. Even where we are successful in defending or pursuing such claims, we may incur significant costs. In the event of a successful claim against us, we could lose our rights to needed technology or be required to pay
license fees for the infringed rights, either of which could have an adverse impact on our business.

Catalyst outsources a portion of its research
and development activities to a third party in a foreign jurisdiction; the failure of this third party to adequately protect Catalysts proprietary rights in the technologies developed for us by this third party or a change in the laws of its
jurisdiction may result in the loss of those proprietary rights.

Catalyst currently outsources a portion of its research and
development activities to a third party engineering firm located in the United Arab Emirates. Catalyst does not have any long-term contractual commitment from this engineering firm to continue to provide such services. The discontinuance of such
services on short notice or any significant cost increases in the services they provide could harm our results of operations and slow our introduction of new products. In addition, the failure of this engineering firm to adequately protect
Catalysts proprietary rights in the technologies developed by this firm, including the failure to comply with the intellectual property laws of the United Arab Emirates, may result in the loss of some or all of the proprietary rights in such
technologies. In addition, any changes in the laws of the United Arab Emirates could also result in the loss of some or all of the proprietary rights in technologies developed in that country. It may also be more difficult to obtain a judgment
enforcing our intellectual property rights in the United Arab Emirates than it may be in the United States.

We license certain intellectual property
from third parties, and the loss of these licenses could delay development of future products or prevent the sale or enhancement of existing products.

We rely on licenses of intellectual property for our businesses, including technology used in our products. We cannot ensure that these licenses will be available in the future on favorable terms or at all. The loss
of these licenses or the ability to maintain any of them on acceptable terms could delay development of future products or prevent the further sale or enhancement of existing products. Such loss could adversely affect our business, results of
operations and financial condition.

Potential acquisitions, strategic alliances, and joint ventures may result in financial results that are
different than expected.

In the normal course of business, we engage in discussions with third parties relating to possible
acquisitions, strategic alliances and joint ventures. Some of the businesses we acquire may not have historically accounted for



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their business in the manner we account for our business, which may mean that these financial statements are not representative of what their financial
results would have been if they had been our subsidiary for such periods. For example, on October 2, 2006, we acquired all of the outstanding shares of common stock of Catalyst, an entity that did not maintain its financial statements in
accordance with U.S. GAAP nor did it have audited financial statements. As a result of our acquisition of Catalyst, and other similar transactions that we consummate in the future, our financial results may differ from the investment
communitys expectations in a given quarter and year. In addition, acquisitions and strategic alliances may require us to integrate a different company culture, management team and business infrastructure. We may have difficulty developing,
manufacturing and marketing the products of the newly-acquired company in a way that enhances the performance of our combined businesses or product lines to realize the value from expected synergies. Depending on the size and complexity of an
acquisition, our successful integration of the entity depends on a variety of factors, including:



| |  |  | the retention of key employees;
| | - |  | -------------------------------



| |  |  | the management of facilities and employees in different geographic areas;
| | - |  | -------------------------------------------------------------------------



| |  |  | the retention of key customers; and
| | - |  | -----------------------------------



| |  |  | the integration or coordination of different research and development, product manufacturing and sales programs and facilities.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------

Any impairment of the value of purchased assets or goodwill could have a significant negative impact on our future operating results.

All of these efforts require varying levels of management resources, which may divert our attention from other business operations. Further, if market
conditions or other factors lead us to change our strategic direction, we may not realize the expected value from such transactions. If we do not realize the expected benefits or synergies of such transactions, our consolidated financial position,
results of operations, cash flows and stock price could be negatively impacted.

We may not be able to obtain the capital we need to maintain or grow
our business.

Our ability to execute our long-term strategy may depend to a significant degree on our ability to obtain long-term
debt and equity capital. We have no commitments for additional borrowings at this time, other than $40.6 million available under our revolver with Manufacturers and Traders Trust Company, and the other lenders party thereto, which is subject to
a borrowing base, or for sales of equity, other than under our existing employee benefit plans. We cannot determine the precise amount and timing of our funding needs at this time. We may be unable to obtain future additional financing on terms
acceptable to us, or at all. If we fail to comply with certain covenants relating to our indebtedness, we may need to refinance our indebtedness or repay it. We also may need to refinance our indebtedness at maturity. We may not be able to obtain
additional capital on favorable terms to refinance our indebtedness.

The following factors could affect our ability to obtain additional
financing on favorable terms, or at all:



| |  |  | our results of operations;
| | - |  | --------------------------



| |  |  | general economic conditions and conditions in our industry;
| | - |  | -----------------------------------------------------------



| |  |  | the perception in the capital markets of our business;
| | - |  | ------------------------------------------------------



| |  |  | our ratio of debt to equity;
| | - |  | ----------------------------

| |  |  | our financial condition;
| | - |  | ------------------------



| |  |  | our business prospects; and
| | - |  | ---------------------------



| |  |  | changes in interest rates.
| | - |  | --------------------------



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In addition, certain covenants relating to our $50.0 million credit facility impose limitations on
additional indebtedness. If we are unable to obtain sufficient capital in the future, we may have to curtail our capital expenditures and reduce research and development expenditures. Any such actions could have a material adverse effect on our
business, financial condition, results of operations and liquidity.

We have a credit facility that contains financial covenants, and the failure to
comply with these covenants could harm our financial condition because our credit facility may be unavailable to us.

We have a
$50.0 million credit facility with Manufacturers and Traders Trust Company, a New York Banking Corporation and the other lenders party thereto. The credit facility consists of a $50.0 million revolving loan. We are subject to financial
covenants under this credit facility, including interest coverage ratio, minimum consolidated net worth, senior leverage ratio and fixed charge coverage ratio requirements. Failure to comply with the financial covenants under our credit facility
would cause us to be in default under the facility, which could result in the acceleration of the indebtedness under the credit facility. The acceleration of our indebtedness under the credit facility would adversely affect our business, results of
operations, liquidity and financial condition. The acceleration of our indebtedness under the credit facility would also likely cause an acceleration of the indebtedness due under our notes.

We have significantly increased our leverage as a result of the sale of the notes.

In connection with the sale of our 4.00% Convertible Senior Notes, we have incurred new indebtedness of $72.0 million. The degree to which we are
leveraged could, among other things:



| |  |  | make it difficult for us to make payments on the notes;
| | - |  | -------------------------------------------------------



| |  |  | make it difficult for us to obtain financing for working capital, acquisitions or other purposes on favorable terms, if at all;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | make us more vulnerable to industry downturns and competitive pressures; and
| | - |  | ----------------------------------------------------------------------------



| |  |  | limit our flexibility in planning for, or reacting to changes in, our business.
| | - |  | -------------------------------------------------------------------------------

Our ability to meet our debt service obligations will depend upon our future performance, which will be subject to financial, business and other factors
affecting our operations, many of which are beyond our control.

The notes are effectively subordinated to all liabilities of our subsidiaries and to
our secured debt and do not restrict certain corporate actions such as the payment of dividends and issuance of new debt.

None of
our subsidiaries guarantee our obligations under, or have any obligation to pay amounts due on, the notes. As a result, the notes are structurally subordinated to all indebtedness and other liabilities, including trade payables and lease
obligations, of our existing and future subsidiaries (unless such indebtedness is by its terms subordinated to the notes). In addition, the notes are not secured by any of our assets or those of our subsidiaries. As a result, the notes are
effectively subordinated to our $50.0 million credit facility and any secured debt that we or our subsidiaries incur. In the event of our bankruptcy, liquidation or reorganization or upon acceleration of the notes, payment on the notes could be
less, ratably, than on any secured indebtedness. We may not have sufficient assets remaining to pay amounts due on any or all of the notes then outstanding. After giving effect to the incurrence of indebtedness in connection with the Catalyst
acquisition and the issuance of the notes and the application of proceeds therefrom, at June 30, 2007, the aggregate principal amount of secured debt of LeCroy is approximately $9.4 million and we had approximately $3.5 million of other
indebtedness, excluding the notes, and our subsidiaries had trade payables and other accrued liabilities (excluding obligations that are inter-company in nature) of approximately $9.1 million in the aggregate.

In addition, the indenture does not restrict us or any of our subsidiaries from paying dividends or issuing or repurchasing securities. If we or our
subsidiaries were to incur additional debt or liabilities, our ability to pay our obligations on the notes could be adversely affected. Certain of our other debt instruments may, however, restrict these and other actions.



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We may be unable to repay, repurchase or redeem the notes.

At maturity, the entire outstanding principal amount of the notes will become due and payable by us. Upon a designated event, as defined in the
indenture, or on each of October 15, 2011, October 15, 2016 and October 15, 2021, or upon conversion, the holders may require the Company to repurchase all or a portion of the notes at a repurchase price of 100% of the principal
amount of the notes, plus accrued and unpaid interest and additional interest, if any, to, but excluding, the date of the repurchase of the notes. We cannot assure the note holders that we will have enough funds or be able to arrange for additional
financing to pay the principal at maturity or to repurchase the notes upon a designated event or that our then-existing debt agreements will permit us to repay the principal amount at maturity or repurchase notes.

Our failure to repay the notes at maturity or to repurchase tendered notes upon a designated event or on each of October 15,
2011, October 15, 2016 and October 15, 2021, would constitute an event of default under the indenture that governs the notes and may also constitute an event of default under any other indenture or other agreement governing
then-existing indebtedness, which could prevent us from repurchasing the notes. If a designated event occurred and accelerated our other indebtedness, we cannot assure you that we would have sufficient financial resources, or be able to arrange for
additional financing, to repay the principal amount at maturity or pay the repurchase price for the notes and amounts due under any other indebtedness. The change in control feature of the notes could make it more difficult for a third party to
acquire us, even if such an acquisition would be beneficial to the note holders and our stockholders. Our obligation to offer to repurchase the notes upon a designated event would not necessarily afford protection in the event of a highly leveraged
transaction, reorganization, merger or similar transaction involving us.

If you hold notes, you will not be entitled to any rights with respect to
our common stock, but you will be subject to all changes made with respect to our common stock.

If you hold notes, you will not be
entitled to any rights with respect to our common stock (including, without limitation, voting rights and rights to receive any dividends or other distributions on our common stock), but you will be subject to all changes affecting the common stock.
You will only be entitled to rights on the common stock if and when we deliver shares of common stock to you in exchange for your notes and in limited cases under the anti-dilution adjustments of the notes. For example, in the event that an
amendment is proposed to our certification of incorporation or bylaws requiring stockholder approval and the record date for determine the stockholders of record entitled to vote on the amendment occurs prior to delivery of the common stock, you
will not be entitled to vote on the amendment, although you will nevertheless be subject to any changes in the powers, preferences or special rights of our common stock.

Conversion of the notes will dilute the ownership interest of existing stockholders, including stockholders who had previously converted their notes.

The conversion of the notes into shares of our common stock, to the extent we choose not to deliver all cash for the conversion value in excess of the
principal amount, will dilute the ownership interests of existing stockholders. Any sales in the public market of the common stock issuable upon conversion of the notes could adversely affect prevailing market prices of our common stock. In
addition, the existence of the notes may encourage short selling by market participants due to this dilution or facilitate trading strategies involving the notes and our common stock.

Issuance of shares in connection with financing transactions or under stock plans will dilute current stockholders.

Pursuant to our stock plans, our management is authorized to grant restricted stock awards or stock options to our employees, directors and consultants. Our stockholders will incur dilution upon exercise of any
outstanding stock options. In addition, if we raise additional funds by issuing additional common stock, or securities convertible into or exchangeable or exercisable for common stock, further dilution to our existing stockholders will result, and
new investors could have rights superior to existing stockholders.



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Anti-takeover provisions under our charter documents, stockholder rights plan, and Delaware law could delay or
prevent a change of control and could also limit the market price of our stock.

Our certificate of incorporation, bylaws, and
stockholder rights plan contain provisions that could delay or prevent a change of control of our company that our stockholders might consider favorable. Certain provisions of our certificate of incorporation and bylaws allow us to:



| |  |  | authorize the issuance of preferred stock which can be created and issued by the board of directors without prior stockholder approval, with rights senior to those
of the common stock;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | provide for a classified board of directors, with each director serving a staggered three-year term;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | prohibit stockholders from filling board vacancies, calling special stockholder meetings, or taking action by written consent; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | require advance written notice of stockholder proposals and director nominations.
| | - |  | ---------------------------------------------------------------------------------

Under our stockholder rights plan, if a person or group acquires, in the future, 15% or more of our common stock or announces a tender offer or exchange
offer, the consummation of which would result in the beneficial ownership by a person or group of 15% or more of our common stock, then holders of our common stock, other than the acquirers, are entitled to purchase our common stock at a 50%
discount to the then-current share price.

In addition, we are governed by the provisions of Section 203 of the Delaware General
Corporate Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These and other provisions in our certificate of incorporation, bylaws and stockholder rights plan and Delaware law
could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors, including delay or impede a merger, tender offer, or proxy
contest involving our company. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline. Any of these results could adversely affect the price of our
common stock and, therefore, the price of our notes. We may in the future issue shares of authorized preferred stock at any time.

Because we do not
intend to pay dividends, stockholders will benefit from an investment in our common stock only if it appreciates in value.

We have
never declared or paid any cash dividends on our common stock. For the foreseeable future, it is expected that earnings, if any, generated from our operations will be used to finance the growth of our business, and that no dividends will be paid to
holders of the common stock. As a result, the success of an investment in our common stock will depend upon any future appreciation in its value. There is no guarantee our common stock will appreciate in value.

We could incur substantial costs as a result of violations of or liabilities under environmental laws.

Our operations and products are subject to laws and regulations relating to the protection of the environment, including those governing the discharge of
pollutants into the air or water, the management and disposal of hazardous substances or wastes and the cleanup of contaminated sites. Some of our operations require environmental permits and controls to prevent and reduce air and water pollution,
and these permits are subject to modification, renewal and revocation by issuing authorities. We could incur substantial costs, including cleanup costs, fines and civil or criminal sanctions and third-party claims for property damage and personal
injury as a result of violations of or liabilities under environmental laws or noncompliance with environmental permits.

Our former
subsidiary, Digitech Industries, Inc., has been involved in environmental remediation activities, the liability for which was retained by us and the estimated remediation cost was reserved for after the sale of the Vigilant Networks business and the
residual assets of Digitech. Any liability beyond what is currently expected and reserved for could have a material adverse affect on our results of operations.



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We are subject to laws and regulations governing government contracts, and failure to address these laws and
regulations or comply with government contracts could harm our business by leading to a reduction in revenue associated with these customers.

We have agreements relating to the sale of our products to government entities and, as a result, we are subject to various statutes and regulations that apply to companies doing business with the government. The laws
governing government contracts differ from the laws governing private contracts. For example, many government contracts contain pricing terms and conditions that are not applicable to private contracts. We are also subject to investigation for
compliance with the regulations governing government contracts. A failure to comply with these regulations might result in suspension of these contracts, or administrative penalties.

We face burdens relating to the recent trend toward stricter corporate governance and financial reporting standards.

Adopted or new legislation or regulations that follow the trend of imposing stricter corporate governance and financial reporting standards, including compliance with Section 404 of the Sarbanes-Oxley Act of
2002, have lead to an increase in our costs of compliance. A failure to comply with these new laws and regulations may impact market perception of our financial condition and could materially harm our business. Additionally, it is unclear what
additional laws or regulations may develop, and we cannot predict the ultimate impact of any future changes.

We must successfully execute our
strategy to introduce new products.

One of our key strategies is to expand our addressable portion of the oscilloscope and
protocol analysis markets by introducing new products such as sampling oscilloscopes and protocol exercisers and probes. We have in the past withdrawn product lines due to implementation and financial concerns. The success of our new product
offerings will depend on a number of factors, including our ability to identify customers existing and future needs properly and quickly, timely manufacture and deliver products that address these needs in sufficient volumes, differentiate
offerings from competitors offerings, price products competitively and anticipate competitors development of new products or technological innovations.

Without the timely introduction of competitive products, our products may become technologically obsolete.

We
generally sell our products in industries that are characterized by rapid technological changes, frequent new product announcements and introductions and changing industry standards. The development of new, technologically advanced products is a
complex and uncertain process requiring high levels of innovation, highly skilled engineering and development personnel and accurate anticipation of technological and market trends. Consequently, product development delays are typical in our
industry. If we fail to introduce competitive products timely, customers may defer placing orders in anticipation of future releases or may purchase products from competitors. Product development delays may result from numerous factors, including:



| |  |  | changing product specifications and customer requirements;
| | - |  | ----------------------------------------------------------



| |  |  | unanticipated engineering complexities;
| | - |  | ---------------------------------------



| |  |  | difficulties with or delays by contract manufacturers or suppliers of key components or technologies;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | difficulties in allocating engineering resources and overcoming resource limitations; and
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | difficulties in hiring and retaining necessary technical personnel.
| | - |  | -------------------------------------------------------------------

Without the timely introduction of new products, services and enhancements, our products may become technologically obsolete, in which case our revenue and operating results could suffer.



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If we devote resources to developing products for emerging communications standards that ultimately are not widely
accepted, our business could be harmed.

Our future growth depends, in part, upon our ability to develop, manufacture and sell in
volume advanced verification systems for existing, emerging and yet unforeseen communications standards. We have little or no control over the conception, development or adoption of new standards. Moreover, even in relation to currently emerging
standards, the markets are rapidly evolving and we have virtually no ability to impact the adoption of those standards. As a result, there is significant uncertainty as to whether markets for new and emerging standards ultimately will develop at all
or, if they do develop, their potential size or future growth rate. We may incur significant expenses and dedicate significant time and resources to develop products for standards that fail to gain broad acceptance. Failure of a standard for which
we devote substantial resources to gain widespread acceptance would likely harm our business.

If we fail to maintain and expand our relationships
with the core or promoter companies in our target markets, we may have difficulty developing and marketing certain protocol analyzer products.

It is important to our success that we establish, maintain and expand our relationships with technology and infrastructure leader companies developing emerging communications standards in our target markets. We must
work closely with these companies to gain valuable insights into new market demands, obtain early access to standards as they develop and help us design new or enhanced products. Generally, we do not enter into contracts obligating these companies
to work or share their technology. Industry leaders could choose to work with other companies in the future. If we fail to establish, maintain and expand our industry relationships, we could lose first-mover advantage with respect to emerging
standards and it would likely be more difficult for us to develop and market products that address these standards.

Risks Related to Our Industry

We operate in highly competitive markets and this competition could reduce our market share and harm our business.

The oscilloscope and protocol analysis markets are highly competitive and characterized by rapid and continual advances in technology. Our principal
competitors in these markets are Tektronix and Agilent. Both of our principal competitors have substantially greater sales and marketing, development and financial resources. We believe that Tektronix, Agilent and other competitors each offer a wide
range of products that attempt to address most sectors of the oscilloscope and many sectors of the protocol analysis markets.

We have
historically engaged in intense competition with Tektronix. Some of our senior managers, including our chief executive officer, are former employees of Tektronix. In fiscal 1994, we settled litigation with Tektronix alleging that our oscilloscope
products infringed certain patents held by Tektronix by entering into a license agreement for the right to use that intellectual property. In fiscal 2005, we settled intellectual property litigation with Tektronix in which both sides claimed patent
infringement. This settlement is described in more detail in Note 21 to the Consolidated Financial Statements.

We believe that the
principal bases of competition in the oscilloscope and protocol analysis markets are a products performance (bandwidth, sample rate, memory length and processing power), its price and quality, the vendors name recognition and reputation,
product availability and the quality of post-sale support. If any of our competitors surpass us or are perceived to have surpassed us with respect to one or more of these factors, we may lose customers. We also believe that our success will depend
in part on our ability to maintain and develop the advanced technology used in our oscilloscope products and protocol analyzers and our ability to offer high-performance products timely and at a favorable price-to-performance ratio. We
cannot assure that we will continue to compete effectively.



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A prolonged economic downturn could materially harm our business by decreasing capital spending.

Negative trends in the general economy, including trends resulting from actual or threatened military action by the United States
and threats of terrorist attacks in the United States and abroad, could cause a decrease in capital spending in many of the markets we serve. In particular, a downward cycle affecting the computer and semiconductor, data storage devices, automotive
and industrial, and military and aerospace markets would likely result in a reduction in demand for our products and would have a material adverse effect on our business, results of operations, financial condition and liquidity. In addition, if
customers markets decline, we may not be able to collect outstanding amounts due to us. Such declines could harm our consolidated financial position, results of operations, cash flows and stock price, and could limit our ability to maintain
profitability.

ITEM 1B. UNRESOLVED STAFF COMMENTS

There are no unresolved comments to be reported pursuant to
Item 1B.

ITEM 2. PROPERTIES.

We own our executive offices and manufacturing facility, which is an approximately
88,000 square foot building in Chestnut Ridge, New York. Pursuant to our secured credit agreement with Manufacturers Traders and Trust and other syndicated lenders, we granted the banks a security interest in this property. In addition, we lease
other office space around the world to support our local sales and service operations and to support our research and development activities. Our Santa Clara and Sunnyvale, California premises also serve as a manufacturing facility for a limited
number of products. We believe that our facilities are in good condition and are suitable and sufficient for our current operations.

ITEM 3. LEGAL PROCEEDINGS.

From time to time, the Company is involved in lawsuits, claims, investigations
and proceedings, including patent and environmental matters, which arise in the ordinary course of business. There are no matters pending that the Company expects to be material to its business, results of operations, financial condition or cash
flows.

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

During the fourth quarter of fiscal 2007,
there were no matters submitted to a vote of securities holders, through the solicitation of proxies or otherwise.



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PART II



|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
|------- | -------------------------------------------------------------------------------------------------------------

Price Range of Common Stock

Our common stock is
traded on the NASDAQ Global Market under the symbol LCRY. The following table sets forth, for the periods indicated, the high and low closing prices per share of our common stock as reported on the NASDAQ Global Market. As of
August 29, 2007, there were 376 stockholders of record of our common stock.



|                          |  |      |       |     |   |      
|------------------------- |  | ---- | ----- | --- | - | -----
|                          |  | High |       | Low
|Year Ended June 30, 2006: |  |      |       |     |   |      
|First Quarter             |  | $    | 15.98 |     | $ | 13.72
|Second Quarter            |  |      | 16.32 |     |   | 14.41
|Third Quarter             |  |      | 15.88 |     |   | 13.78
|Fourth Quarter            |  |      | 15.42 |     |   | 11.78
|                          |  |     
|Year Ended June 30, 2007: |  |      |       |     |   |      
|First Quarter             |  | $    | 14.03 |     | $ | 12.30
|Second Quarter            |  |      | 13.88 |     |   | 10.95
|Third Quarter             |  |      | 11.50 |     |   | 8.22 
|Fourth Quarter            |  |      | 9.72  |     |   | 8.24 

Issuer Repurchases of Equity Securities

On May 25, 2006, LeCroys Board of Directors approved the adoption of a share repurchase plan authorizing the Company to purchase up to
2 million shares, not to exceed $25 million, of its common stock. Purchases under this buyback program may be made from time to time on the open market and in privately negotiated transactions. The timing of these purchases is dependent upon
several factors, including market conditions, the market price of the Companys common stock, the effect of the share dilution on earnings, available cash and any other potential risks the Company may encounter. The share repurchase plan may be
discontinued at any time at the discretion of the Company.

The following table sets forth information regarding LeCroys purchases of
its common stock on a monthly basis during fiscal 2007. Share repurchases are recorded on a trade date basis.



|                                        |  |                               |  |                            |       |                                                                             |         |                                                                            |          
|--------------------------------------- |  | ----------------------------- |  | -------------------------- | ----- | --------------------------------------------------------------------------- | ------- | -------------------------------------------------------------------------- | ---------
|Period                                  |  | TotalNumber ofSharesPurchased |  | AveragePrice Paidper Share |       | Total Number ofShares Purchasedas Part of PubliclyAnnounced Plansor
Program |         | Maximum Numberof Shares that MayYet Be PurchasedUnder the Plans orPrograms
|July 2, 2006 to July 31, 2006           |  | 24,000                        |  | $                          | 13.56 |                                                                             | 24,000  |                                                                            | 1,833,717
|August 1, 2006 to August 31, 2006       |  | 22,000                        |  | $                          | 13.01 |                                                                             | 22,000  |                                                                            | 1,811,717
|September 1, 2006 to September 30, 2006 |  |                              |  |                            |      |                                                                             |        |                                                                            | 1,811,717
|October 1, 2006 to October 31, 2006     |  | 850,000                       |  | $                          | 11.64 |                                                                             | 850,000 |                                                                            | 961,717  
|                                        |  |                               |  |                            |       |                                                                             |         |                                                                            |          
|Total                                   |  | 896,000                       |  | $                          | 11.73 |                                                                             | 896,000 |                                                                            | 961,717  
|                                        |  |                               |  |                            |       |                                                                             |         |                                                                            |          

Equity Compensation Plan Information

Information regarding LeCroys equity compensation plans, including both stockholder approved plans and plans not approved by stockholders, is set
forth in the section entitled Executive Compensation  Equity Compensation Plan Information in LeCroys Notice of Annual Meeting of Stockholders and Proxy Statement, to be filed within 120 days after LeCroys fiscal year
end of June 30, 2007 (the Proxy Statement), which information is incorporated herein by reference.



31



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##### Table of Contents

Convertible Notes

On October 12, 2006, the Company sold and issued $72.0 million in convertible senior subordinated notes to qualified institutional buyers pursuant to Rule 144A of the Securities Act of 1933, as amended (the
Notes). The Notes bear interest at a rate of 4.00% per annum, payable in cash semi-annually in arrears on each April 15 and October 15, beginning April 15, 2007. The Notes mature on October 15, 2026 unless
earlier redeemed, repurchased or converted. Holders of the Notes will have the right to require the Company to repurchase for cash all or a portion of their Notes on each of October 15, 2011, October 15, 2016 and October 15,
2021, at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased plus accrued and unpaid interest, if any, up to but not including, the repurchase date. In addition, the Company may redeem the Notes for cash, either
in whole or in part, anytime after October 20, 2011 at a redemption price equal to 100% of the principal amount of the Notes to be redeemed plus accrued and unpaid interest, if any, up to but not including the redemption date. The Notes are
convertible into Company common stock by the holders at an initial conversion rate equal to 68.7285 shares per $1,000 principal amount of the Notes (equal to an initial conversion price of approximately $14.55 per share), subject to adjustment as
described in the indenture.

Dividend Policy

We have never declared or paid cash dividends on our common stock and do not anticipate paying any dividends in the foreseeable future. We currently intend to retain future earnings, if any, to operate and expand our business. Subject to
the terms of our revolving credit agreement, our payment of any future dividends will be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating results, cash needs and
growth plans. Under the terms of our bank credit agreement, we are not permitted to declare or pay dividends other than dividends payable solely in additional shares of our equity securities.

Performance Graph

The performance graph set forth
below compares the cumulative total stockholder return of our Common Stock for the last five fiscal years through the fiscal year ended June 30, 2007 with that of the U.S. Nasdaq® stock market index, and a peer group comprising the S&P
Information Technology index. The graph assumes an investment of $100 on June 30, 2002 and the reinvestment of dividends (where applicable). The comparisons in this table are set forth in response to SEC disclosure requirements, and are not intended
to forecast or be indicative of future performance of the Common Stock.

LOGO



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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.

The following selected consolidated financial data as of
and for the year ended for each fiscal year presented has been derived from our consolidated financial statements for each of the years in the five-year period ended June 30, 2007. The following information should be read in conjunction with
Managements Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K.

Consolidated Statements of Operations Data:



|                                                                           |  |                     |         |   |         |   |         |         |  |   |         |   |  |      |         |   |  |   |         |  
|-------------------------------------------------------------------------- |  | ------------------- | ------- | - | ------- | - | ------- | ------- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                                           |  | Year Ended June 30, |        
|                                                                           |  | 2007(5)(6)          |         |   | 2006(5) |   |         | 2005(5) |  |   | 2004    |   |  | 2003 |        
|(In thousands, except per share amounts)                                   |  |                     |         |   |         |   |         |         |  |   |         |   |  |      |         |   |  |   |         |  
|                                                                           |  |                     |         |   |        
|Revenues:                                                                  |  |                     |         |   |         |   |         |         |  |   |         |   |  |      |         |   |  |   |         |  
|Test and measurement products                                              |  | $                   | 144,651 |   |         | $ | 153,441 |         |  | $ | 156,440 |   |  | $    | 117,290 |   |  | $ | 98,281  |  
|Service and other(1)                                                       |  |                     | 6,649   |   |         |   | 7,095   |         |  |   | 8,538   |   |  |      | 7,650   |   |  |   | 9,578   |  
|                                                                           |  |                     |         |   |         |   |         |         |  |   |         |   |  |      |         |   |  |   |         |  
|Total revenues                                                             |  |                     | 151,300 |   |         |   | 160,536 |         |  |   | 164,978 |   |  |      | 124,940 |   |  |   | 107,859 |  
|Cost of revenues(2)(7)                                                     |  |                     | 69,419  |   |         |   | 63,476  |         |  |   | 73,632  |   |  |      | 52,594  |   |  |   | 50,989  |  
|                                                                           |  |                     |         |   |         |   |         |         |  |   |         |   |  |      |         |   |  |   |         |  
|Gross profit                                                               |  |                     | 81,881  |   |         |   | 97,060  |         |  |   | 91,346  |   |  |      | 72,346  |   |  |   | 56,870  |  
|Operating expenses:                                                        |  |                     |         |   |         |   |         |         |  |   |         |   |  |      |         |   |  |   |         |  
|Selling, general and administrative(3)(7)                                  |  |                     | 55,369  |   |         |   | 51,622  |         |  |   | 57,341  |   |  |      | 43,997  |   |  |   | 41,422  |  
|Legal settlement                                                           |  |                     |        |   |         |   | 2,792   |         |  |   | 1,000   |   |  |      |        |   |  |   |        |  
|Research and development(4)(7)                                             |  |                     | 36,685  |   |         |   | 30,123  |         |  |   | 28,050  |   |  |      | 15,760  |   |  |   | 18,226  |  
|                                                                           |  |                     |         |   |         |   |         |         |  |   |         |   |  |      |         |   |  |   |         |  
|Total operating expenses                                                   |  |                     | 92,054  |   |         |   | 84,537  |         |  |   | 86,391  |   |  |      | 59,757  |   |  |   | 59,648  |  
|                                                                           |  |                     |         |   |         |   |         |         |  |   |         |   |  |      |         |   |  |   |         |  
|Operating (loss) income                                                    |  |                     | (10,173 | ) |         |   | 12,523  |         |  |   | 4,955   |   |  |      | 12,589  |   |  |   | (2,778  | )
|Loss on extinguishment of debt                                             |  |                     | (997    | ) |         |   |        |         |  |   |        |   |  |      |        |   |  |   |        |  
|Interest income                                                            |  |                     | 124     |   |         |   | 813     |         |  |   | 564     |   |  |      | 716     |   |  |   | 912     |  
|Interest expense                                                           |  |                     | (4,293  | ) |         |   | (3,096  | )       |  |   | (2,742  | ) |  |      | (720    | ) |  |   | (675    | )
|Other, net                                                                 |  |                     | (99     | ) |         |   | (204    | )       |  |   | 238     |   |  |      | (7      | ) |  |   | (321    | )
|                                                                           |  |                     |         |   |         |   |         |         |  |   |         |   |  |      |         |   |  |   |         |  
|(Loss) income from continuing operations before income taxes               |  |                     | (15,438 | ) |         |   | 10,036  |         |  |   | 3,015   |   |  |      | 12,578  |   |  |   | (2,862  | )
|Benefit from (provision for) income taxes                                  |  |                     | 2,231   |   |         |   | (3,463  | )       |  |   | (872    | ) |  |      | (4,653  | ) |  |   | 1,059   |  
|                                                                           |  |                     |         |   |         |   |         |         |  |   |         |   |  |      |         |   |  |   |         |  
|(Loss) income from continuing operations                                   |  |                     | (13,207 | ) |         |   | 6,573   |         |  |   | 2,143   |   |  |      | 7,925   |   |  |   | (1,803  | )
|Gain from discontinued operations, net of tax                              |  |                     |        |   |         |   |        |         |  |   |        |   |  |      | 119     |   |  |   | 129     |  
|                                                                           |  |                     |         |   |         |   |         |         |  |   |         |   |  |      |         |   |  |   |         |  
|Net (loss) income                                                          |  |                     | (13,207 | ) |         |   | 6,573   |         |  |   | 2,143   |   |  |      | 8,044   |   |  |   | (1,674  | )
|Charges related to convertible preferred stock                             |  |                     |        |   |         |   |        |         |  |   |        |   |  |      |        |   |  |   | 2,069   |  
|Redemption of convertible preferred stock                                  |  |                     |        |   |         |   |        |         |  |   |        |   |  |      | 7,665   |   |  |   |        |  
|                                                                           |  |                     |         |   |         |   |         |         |  |   |         |   |  |      |         |   |  |   |         |  
|Net (loss) income applicable to common stockholders                        |  | $                   | (13,207 | ) |         | $ | 6,573   |         |  | $ | 2,143   |   |  | $    | 379     |   |  | $ | (3,743  | )
|                                                                           |  |                     |         |   |         |   |         |         |  |   |         |   |  |      |         |   |  |   |         |  
|Net (loss) income per common share  basic:                                |  |                     |         |   |         |   |         |         |  |   |         |   |  |      |         |   |  |   |         |  
|(Loss) income from continuing operations applicable to common stockholders |  | $                   | (1.13   | ) |         | $ | 0.54    |         |  | $ | 0.18    |   |  | $    | 0.02    |   |  | $ | (0.37   | )
|Gain from discontinued operations, net of tax                              |  |                     |        |   |         |   |        |         |  |   |        |   |  |      | 0.01    |   |  |   | 0.01    |  
|Net (loss) income applicable to common stockholders                        |  |                     | (1.13   | ) |         |   | 0.54    |         |  |   | 0.18    |   |  |      | 0.04    |   |  |   | (0.36   | )
|Net (loss) income per common share  diluted:                              |  |                     |         |   |         |   |         |         |  |   |         |   |  |      |         |   |  |   |         |  
|(Loss) income applicable to common stockholders                            |  | $                   | (1.13   | ) |         | $ | 0.53    |         |  | $ | 0.17    |   |  | $    | 0.02    |   |  | $ | (0.37   | )
|Gain from discontinued operations, net of tax                              |  |                     |        |   |         |   |        |         |  |   |        |   |  |      | 0.01    |   |  |   | 0.01    |  
|Net (loss) income applicable to common stockholders                        |  |                     | (1.13   | ) |         |   | 0.53    |         |  |   | 0.17    |   |  |      | 0.03    |   |  |   | (0.36   | )
|Weighted average number of common shares:                                  |  |                     |         |   |         |   |         |         |  |   |         |   |  |      |         |   |  |   |         |  
|Basic                                                                      |  |                     | 11,702  |   |         |   | 12,218  |         |  |   | 11,774  |   |  |      | 10,754  |   |  |   | 10,364  |  
|Diluted                                                                    |  |                     | 11,702  |   |         |   | 12,474  |         |  |   | 12,258  |   |  |      | 11,074  |   |  |   | 10,364  |  
|                                                                           | 
|                                                                           |  | As of June 30,      |        
|                                                                           |  | 2007                |         |   | 2006    |   |         | 2005    |  |   | 2004    |   |  | 2003 |        
|(In thousands)                                                             |  |                     |         |   |         |   |         |         |  |   |         |   |  |      |         |   |  |   |         |  
|Consolidated Balance Sheet Data:                                           |  |                     |         |   |         |   |         |         |  |   |         |   |  |      |         |   |  |   |         |  
|Cash and cash equivalents and marketable securities, current               |  | $                   | 10,448  |   |         | $ | 16,972  |         |  | $ | 13,866  |   |  | $    | 38,100  |   |  | $ | 30,851  |  
|Working capital                                                            |  |                     | 54,710  |   |         |   | 46,997  |         |  |   | 44,313  |   |  |      | 69,916  |   |  |   | 62,831  |  
|Total assets                                                               |  |                     | 231,319 |   |         |   | 201,974 |         |  |   | 193,168 |   |  |      | 129,793 |   |  |   | 122,152 |  
|Total debt and capital leases                                              |  |                     | 85,029  |   |         |   | 38,130  |         |  |   | 45,489  |   |  |      | 196     |   |  |   | 291     |  
|Redeemable convertible preferred stock                                     |  |                     |        |   |         |   |        |         |  |   |        |   |  |      |        |   |  |   | 15,335  |  
|Total stockholders equity                                                 |  |                     | 112,731 |   |         |   | 129,703 |         |  |   | 116,818 |   |  |      | 101,608 |   |  |   | 80,514  |  



33



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---

|(1) | Service and other revenue in each of fiscal 2005, 2004, and 2003 includes the recognition of $1.3 million of revenue that was deferred with the adoption of the Securities and
Exchange Commissions Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, (SAB 101) as of the beginning of fiscal 2001. Fiscal 2006 includes recognition of the remaining balance of $0.7
million of previously deferred revenue under SAB 101. Also included in service and other revenue in fiscal 2003 is a technology license fee of $3.0 million.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Cost of revenues in fiscal 2007 includes a $0.4 million charge for severance and other related charges. Cost of revenues in fiscal 2006 includes a $0.1 million charge for severance
and other related charges. Cost of revenues in fiscal 2005 includes $2.7 million of charges for inventory write-downs related to a change in our long-term product support, $1.8 million in other inventory write-downs, $1.5 million of asset impairment
charges, and a $0.1 million charge for severance and other related charges. Included in cost of revenues in fiscal 2003 is $2.3 million of asset impairment charges and a $0.1 million charge for severance.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | In Selling, general and administrative expense in fiscal 2007, 2006 and 2005, we recorded a charge for severance and other related costs of $1.4 million, $0.2 million and $1.5
million, respectively. Included in selling, general and administrative expense in fiscal 2004 is the reversal of an unused 2002 restructuring reserve of $0.1 million. In fiscal 2003, we recorded a $0.3 million charge related to the cost of closing
our Beaverton, Oregon facility and a $2.4 million charge for severance, partially offset by the reversal of an unused 2002 restructuring reserve of $0.1 million.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Research and development in each of fiscal 2007, 2006, 2005, 2004 and 2003 includes severance-related charges of $0.5 million, $0.1 million, $0.1 million, zero, $0.7 million and
$0.2 million, respectively.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Results for fiscal 2007, 2006 and 2005 include Computer Access Technology Corporation (CATC) acquired October 29, 2004 (See CATC Acquisition in
Managements Discussion and Analysis of Financial Condition and Results of Operations).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | Results for fiscal 2007 include Catalyst Enterprises, Inc. (Catalyst) acquired October 2, 2006 (See Catalyst Acquisition in Managements Discussion
and Analysis of Financial Condition and Results of Operations).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | Results for fiscal 2007 and 2006 include the effect of SFAS 123(R), Share-based Compensation, which was adopted by the Company on July 3, 2005. Total share-based
compensation expense recorded in the Consolidated Statement of Operations for the years ended June 30, 2007 and 2006 was $5.2 million and $5.3 million, respectively. In fiscal 2007, share-based compensation expense of approximately $0.1 million
was recorded to Cost of revenue, $3.4 million was recorded to Selling, general and administrative, and $1.6 million was recorded to Research and development. Additionally, in fiscal 2006, share-based compensation expense of approximately $0.1
million was recorded to Cost of revenue, $3.6 million was recorded to Selling, general and administrative, and $1.7 million was recorded to Research and development. See Note 14 to our Consolidated Financial Statements for further information.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|------- | --------------------------------------------------------------------------------------

The following discussion and analysis should be read in conjunction with the other financial information and consolidated financial statements and
related notes appearing elsewhere in this Form 10-K and the documents incorporated by reference herein. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those
anticipated in the forward-looking statements as a result of a variety of factors, including those discussed in Risk Factors and elsewhere in this Form 10-K.

We utilize fiscal years that end on the Saturday nearest to June 30. For clarity of presentation, we have described all fiscal years as if they
end on June 30. Fiscal years 2007 and 2006 each include 52 weeks. Fiscal year 2005 includes 53 weeks.

Overview

We were founded in 1964 to develop, manufacture and sell high performance signal analysis tools to scientists engaged in high-energy physics research. In
1985 we introduced our first oscilloscope using our core competency of designing signal acquisition and digitizing technology.

We are a
leading, worldwide provider of oscilloscopes and protocol analyzers as well as a provider of related test and measurement equipment and currently operate as one business segment in the Test and Measurement market. Our oscilloscopes are tools used by
designers and engineers to measure and analyze complex electronic signals in order to develop high-performance systems, to validate electronic designs and to improve time to market. We currently offer six families of oscilloscopes, which address
different solutions to the markets we serve: WaveExpert, a powerful family of sampling oscilloscopes and modules; WaveMaster, one of our high performance product families; WavePro, which is targeted at the mid- to high-performance sector;
WaveRunner, designed for the mid-performance sector; WaveSurfer, designed for value-oriented users in the low-performance bandwith sector of the market; and WaveJet, our entry-level oscilloscope products. Our protocol analyzers are tools used by
designers and engineers to generate and monitor traffic over high speed serial data interfaces, including USB2.0, Bluetooth, PCI Express, Serial ATA, Serial Attached SCSI (SAS), Wireless USB, and others.

We sell our products into a broad range of end markets, including Computer/Semiconductor/Consumer Electronics, Data Storage, Automotive/Industrial, and
Military/Aerospace markets. We believe that our products offer the strongest value proposition in these markets by providing advanced analysis capabilities coupled with innovative and proprietary technology features. We believe designers in all of
these markets are developing products which rely on increasingly complex electronic signals to provide the features and performance their customers require.

We employ a direct sales model utilizing a highly skilled global sales force where it makes economic sense to do so. We supplement our direct sales force with a combination of manufacturers representatives and
distributors in certain geographic areas. We divided the world into four areas  North America, Europe/Middle East, Japan and Asia/Pacific. In North America we sell our products directly in the United States and are in the early stages of
developing a strong manufacturers representative channel. In Europe/Middle East, we sell our products directly in Switzerland, Germany, Italy, France, the United Kingdom and Sweden. In Japan, we sell our products through distributors. In
Asia/Pacific, we sell our products directly in South Korea, Singapore and five regions in China.

We generate revenue in a single segment
within the Test and Measurement market, primarily from the sale of our oscilloscopes, protocol analyzers, probes, accessories, and applications solutions. To a lesser extent, we also generate revenue from the sales of our extended warranty,
maintenance contracts and repairs and calibrations on our instruments after their warranties expire.

Generally, we transact revenues and
pay our operating expenses in the local currencies of the countries in which we have a direct distribution presence or other operations, with limited exceptions, most notably in China where our sales and operating expenses are denominated in U.S.
dollars. In Europe/Middle East, we transact



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business in Euros, Swiss francs, British pounds, Swedish krona and U.S. dollars. In Japan, we transact business in Japanese yen. In South Korea, we transact
business in Korean won and in Singapore, we transact business in both U.S. dollars and Singapore dollars. For a discussion of our foreign currency exchange rate exposure, see below, Item 7A of this Part II entitled Quantitative and
Qualitative Disclosure About Market Risk.

Historically, we have, at times, experienced lower levels of demand during our first
fiscal quarter than in other fiscal quarters which, we believe, have been principally due to the lower level of general market activity during the summer months, particularly in Europe.

Cost of revenues represents manufacturing and service costs, which primarily comprise materials, labor and factory overhead. Gross profit represents
revenues less cost of revenues. Additional factors integral to gross profit earned on our products are mix, as the list prices of our products range from $2,900 to $128,000, and the effects of foreign currencies, as approximately two-thirds of our
revenues are derived overseas, much of which is denominated in local currencies while product manufacturing costs are primarily U.S. dollar denominated.

Selling, general and administrative expenses consist of salaries and related overhead costs for sales, marketing and administrative personnel as well as legal, accounting and other professional services.

Research and development expenses consist primarily of salaries and related overhead costs associated with employees engaged in research, design and
development activities, as well as the cost of masks, wafers and other materials and related test services and equipment used in the development process.

Our results of operations and financial condition are affected by a variety of factors. As discussed below, we believe the most significant recurring factors are the economic strength of the technology markets into
which we sell our products, our ability to identify market demands and develop competitive products to meet those demands, the announcements and actions of our competitors and our ability to enter into new markets and broaden our presence in
existing markets.

Our sales are largely dependent on the health and growth of technology companies whose operations tend to be cyclical.
Consequently, demand for our products tends to coincide with the increase or decrease in capital spending in the technology industry.

In
addition, in response to fluctuations in the technology markets we target, we continually assess and adopt programs aimed at positioning us for long-term success. These programs may include streamlining operations, discontinuing older and less
profitable product lines, changing our future product strategy, and reducing operating expenses from time to time. As an example, in fiscal 2007 and 2006 we implemented restructuring and business realignment plans intended to reduce costs and more
efficiently allocate product development resources. For a more detailed discussion of our restructuring efforts in fiscal 2007 and 2006, see the Section entitled Restructuring and Asset Impairment, below.

We face significant competition in our target markets. We believe that in order to continue to compete successfully, we need to timely anticipate,
recognize and respond to changing market demands by providing products that serve our customers needs as they arise at prices acceptable to the market. We believe that we compete favorably with our competition in each of these areas.
Consequently, we are constantly reviewing our product development strategy and invest time, resources and capital in development projects we deem most likely to succeed.

In furtherance of our drive to meet our customers changing demands, we also look outside our organization for opportunities to expand our markets. Accordingly, on October 29, 2004 and October 2, 2006,
we completed the acquisitions of Computer Access Technology Corporation (CATC) and Catalyst Enterprises, Inc. (Catalyst), respectively, to complement our expanding portfolio of serial data test solutions. This division,
Protocol Solutions Group (PSG), now represents about 20% of our total business. The acquisitions of CATC and Catalyst are described more fully below. In March 2006, we completed purchase and settlement agreements with Iwatsu Electric
Corporation that included the rights to a new low-end product line, ViewGo, re-engineered and launched as the WaveJet Family of products, as well as unrelated intellectual property designs and a 10-year non-compete agreement.



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Also in fiscal 2006, we transformed our entire low and mid-range product lines by introducing a new line
of WaveRunners and WaveSurfers and adding the new WaveJet product line noted above. Additionally, we expanded our high-end product line by introducing the SDA18000. We believe that our diversified product mix strategically positions us to expand our
presence in the oscilloscope market.

CATC Acquisition

On October 29, 2004, we completed our acquisition of 100% of the outstanding common stock of CATC (the CATC Merger). CATC is a provider of advanced verification systems for existing and emerging
digital communications standards. CATCs products are used by semiconductor, device, system and software companies at each phase of their products lifecycles from development through production and market deployment. CATC had
approximately 70 employees at the time of the CATC Merger.

Total consideration paid to acquire CATC was approximately $130.0 million.
The CATC Merger was recorded under the purchase method of accounting, which requires that the total consideration be allocated to the assets acquired and liabilities assumed based on their fair values. On the effective date of the CATC Merger, each
share of CATC common stock issued and outstanding immediately prior thereto was canceled and converted into the right to receive $6.00 in cash. In addition, we paid cash to the holders of CATCs outstanding, vested, in-the-money stock options
and employee stock purchase plan purchase rights. Further, we assumed CATCs outstanding unvested stock options, as well as certain vested but unexercised stock options, by granting to CATC employees a total of 648,284 options to purchase
LeCroy common stock (the LeCroy Options). The LeCroy Options were recorded at their fair values using the Black-Scholes option pricing model based on a stock price of $16.83 per share, which was the closing price of LeCroy common stock
on October 29, 2004, less the intrinsic value of unvested options, which was to be charged as compensation expense to operations as earned by employees over their remaining vesting periods. As a result of the adoption of SFAS No. 123
(revised 2004), Share-Based Payment (SFAS 123R), which requires that the cost resulting from all share-based payment transactions be recognized in the financial statements at their fair values, the remaining unamortized
deferred compensation was eliminated against Additional paid-in capital in the Consolidated Balance Sheet in the first fiscal quarter of 2006 and the fair value of remaining unvested LeCroy options is being recognized in our consolidated financial
statements over the remaining requisite service period. (See Critical Accounting Policies below). LeCroy paid cash of $80.4 million, net of cash acquired, using $30.4 million of cash on hand and borrowings of $50.0 million under our
$75.0 million senior, secured, five-year credit agreement entered into on October 29, 2004, with the lenders listed therein and JP Morgan Chase Bank, N.A., successor to The Bank of New York, as administrative agent for such lenders. For more
information see Notes 2 and 13 to the Consolidated Financial Statements.

Catalyst Acquisition

On September 29, 2006, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) among the Company, 2006 Franklin
Congress Corporation, a California corporation and a wholly owned subsidiary of the Company (Sub), Catalyst, and Nader Salehomoum, as Equityholder Representative, pursuant to which Sub merged with and into Catalyst (the Catalyst
Merger), with Catalyst continuing as the surviving corporation and as a 100% owned subsidiary of the Company. Catalyst is a manufacturer of data bus analysis and emulation tools for advanced serial data communications and strengthens the
Companys position in protocol solutions.

The Catalyst Merger was recorded under the purchase method of accounting, which requires
that the total consideration be allocated to the assets acquired and liabilities assumed based on their fair values. On October 2, 2006, the effective date of the Catalyst Merger, all shares of common stock of Catalyst issued and outstanding
immediately prior to the Catalyst Merger were exchanged for approximately $26.7 million in cash immediately. In addition, pursuant to the terms of the Merger Agreement, 10% of the stated consideration was placed into escrow for the twelve-month
period following the closing of the Catalyst Merger to secure certain indemnification obligations under the terms of the Merger Agreement.

LeCroy paid cash of $31.5 million, including direct transaction costs of $2.6 million, net of cash acquired of $1.0 million, using proceeds from the Revolver under the Prior Credit Agreement (Note 13  Long-term Debt and



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Capital Leases), issued a $3.5 million, 6% promissory note payable on January 2, 2008, to Nader Salehomoum, the former sole shareholder of Catalyst and
current employee of the Company and assumed the fair value of certain vested Catalyst stock options totaling $0.5 million. For more information see Notes 3 and 13 to the Consolidated Financial Statements.

Restructuring and Related Asset Impairment

In the
fourth quarter of fiscal 2007, we changed our sales strategy in Japan which resulted in the closure of certain office facilities, which included lease termination costs, and headcount reductions of four employees or 0.9% of the workforce as compared
to June 30, 2006. As a result, we recorded severance and related expenses, of approximately $0.1 million, and facility closure costs of approximately $0.2 million. As of June 30, 2007, approximately $8,000 has been paid in cash and
approximately $0.2 million remains in Accrued expenses and other current liabilities on the Consolidated Balance Sheet. Severance and other related amounts under this plan are estimated to be paid by the end of the second quarter of fiscal 2008.
Additionally, in the fourth quarter of fiscal 2007, an intangible asset failed the impairment test due to a change in the Companys product strategy and, accordingly, the Company took a $0.3 million non-cash charge to Cost of revenues for the
impairment.

In the third quarter of fiscal 2007, prompted by the acquisition of Catalyst, we evaluated certain business processes and
staffing requirements. As a result, we recorded severance and related expenses, of approximately $1.6 million. The implementation of this plan resulted in headcount reductions of 33 employees or 7.2% of the workforce as compared to
June 30, 2006. As of June 30, 2007, approximately $0.8 million has been paid in cash and approximately $0.7 million remains in Accrued expenses and other current liabilities, and approximately $0.1 million remains in Deferred revenue and
other non-current liabilities on the Consolidated Balance Sheet. Severance and other related amounts under this plan are estimated to be paid by the end of the first quarter of fiscal 2009.

In the second quarter of fiscal 2007, as a result of a change in the Companys organization stemming from the Catalyst acquisition, the Company
recorded severance and related expenses of approximately $0.4 million. The implementation of this plan resulted in headcount reductions of eleven employees or 2.4% of the workforce as compared to June 30, 2006. Severance and other related
amounts under this plan were fully paid by the end of fiscal 2007.

During the fourth quarter of fiscal 2006, the Company realigned some of
its business processes and as a result, incurred severance and related expenses of approximately $0.4 million. The implementation of this plan resulted in headcount reductions of sixteen employees or 3.5% of the workforce as compared to
June 30, 2005. As of June 30, 2007, severance and other related amounts under this plan were fully paid.

During the fourth
quarter of fiscal 2005, the Company realigned some of its business processes and, as a result, incurred expenses of approximately $1.0 million, consisting of $0.7 million of severance and related expenses and $0.3 million of facility closure
expenses which included lease termination costs and asset write-downs. As of June 30, 2007, severance and other related amounts under this plan were fully paid and assets have been written-off.

Finally, during the second quarter of fiscal 2005, as a result of the CATC Merger, the Company adopted a plan to restructure its organization and refine
its product strategy. In connection with the adoption of this plan, the Company recorded a charge for severance and related expenses in fiscal 2005 of approximately $0.6 million. The implementation of this plan resulted in headcount reductions of
six employees or approximately 2% of the workforce as compared to June 30, 2004. As of June 30, 2007, severance and other related amounts under this plan were fully paid. Additionally, in the second quarter of fiscal 2005, as a result of a
change in the Companys organization stemming from the CATC Merger and a subsequent change in the Companys low to mid-range oscilloscope manufacturing strategy, the Company took a $1.5 million non-cash charge to Cost of revenues for the
impairment of a related intangible asset.



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The below table summarizes our restructuring charges and related asset impairment for the fiscal years
ended June 30, 2007, 2006 and 2005 (in thousands):



|                                    |  |             |       |      |   |      |  |   |      
|----------------------------------- |  | ----------- | ----- | ---- | - | ---- |  | - | -----
|                                    |  | Fiscal Year
|                                    |  | 2007        |       | 2006 |   | 2005
|Charges for:                        |  |             |       |      |   |      |  |   |      
|Impaired intangible assets          |  | $           | 250   |      | $ |    |  | $ | 1,500
|Service center closure              |  |             |     |      |   |    |  |   | 59   
|Severance and related costs         |  |             | 358   |      |   | 77   |  |   | 18   
|                                    |  |             |       |      |   |      |  |   |      
|Cost of revenues                    |  | $           | 608   |      | $ | 77   |  | $ | 1,577
|                                    |  |             |       |      |   |      |  |   |      
|Charges for:                        |  |             |       |      |   |      |  |   |      
|Severance and related costs         |  | $           | 467   |      | $ | 127  |  | $ | 77   
|                                    |  |             |       |      |   |      |  |   |      
|Research and development            |  | $           | 467   |      | $ | 127  |  | $ | 77   
|                                    |  |             |       |      |   |      |  |   |      
|Charges for:                        |  |             |       |      |   |      |  |   |      
|Severance and related costs         |  | $           | 1,248 |      | $ | 176  |  | $ | 1,328
|Facility closure                    |  |             | 156   |      |   |    |  |   | 171  
|                                    |  |             |       |      |   |      |  |   |      
|Selling, general and administrative |  | $           | 1,404 |      | $ | 176  |  | $ | 1,499
|                                    |  |             |       |      |   |      |  |   |      

These restructuring and business realignment charges represent our best efforts to respond to the
current demands in our industry. However, these and future cost reductions, or other benefits expected from the restructuring, may be insufficient to align our operations with customer demand and the changes affecting our industry, or may be more
costly or extensive than currently anticipated.

Critical Accounting Policies

The discussion and analysis of our financial position and results of operations are based upon our consolidated financial statements, which have been
prepared in accordance with U.S. generally accepted accounting principles. Our significant accounting policies are described in Note 1 to the consolidated financial statements. The preparation of these consolidated financial statements requires us
to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in the consolidated financial statements and accompanying notes. These
estimates and assumptions are based on managements judgment and available information and, consequently, actual results could differ from these estimates. The accounting policies that we believe are the most critical in understanding and
evaluating our reported financial results include the following:

Revenue Recognition. We enter into agreements to sell products,
services, and other arrangements that include combinations of products and services. Revenue from product sales, net of allowances for anticipated returns, is recognized provided that persuasive evidence of an arrangement exists, delivery has
occurred, the selling price is fixed or determinable, and collectibility is reasonably assured. Delivery is considered to have occurred when title and risk of loss have transferred to the customer, or when services have been provided. The price is
considered fixed or determinable when it is not subject to refund or adjustments.

In the first quarter of fiscal 2006, in an effort to
provide end-user customers an alternative to purchasing the Companys higher end products under its standard terms and conditions, the Company began offering customers an opportunity to enter into sales-type or direct financing leases for these
products. The Company is accounting for these leases in accordance with Statement of Financial Accounting Standards (SFAS) No. 13, Accounting for Leases. Lease and rental revenues are reported within Test and measurement product
revenue.

Through March 31, 2005, we deferred revenue on shipments of our WaveSurfer family of oscilloscopes until they were sold by
the distributor to their customers (sell-through method) because of the associated uncertainty about sell-through volumes which precluded us from being able to sufficiently estimate the amounts of potential



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product returns due to the fact that this was a new product distributed via a new channel. In the fourth quarter of fiscal 2005, since we had four full
quarters of experience with this product and channel with no significant returns, we had sufficient data to estimate potential returns. Therefore, in accordance with SFAS No. 48, we recognized previously deferred revenue of approximately $2.6
million in the fourth quarter of fiscal 2005.

Revenue from services is deferred and recognized on a straight-line basis over the
contractual period or as services are rendered and accepted by the customer. When arrangements include multiple elements, we use relative fair values to allocate revenue to the elements and recognize revenue when the criteria for revenue recognition
have been met for each element. The amount of revenue recognized is affected by our judgments as to whether an arrangement includes multiple elements and if so, whether objective and reliable evidence of fair value exists for those elements. Changes
to the elements in an arrangement and the ability to establish objective and reliable evidence of fair value for those elements could affect the timing of the revenue recognition.

Due to the significant software content of our protocol analyzer products, we recognize revenue on the sale of these products in accordance with American
Institute of Certified Public Accountants Statement of Position 97-2, Software Revenue Recognition (SOP 97-2) as amended by Statement of Position 98-9, upon shipment provided there is persuasive evidence of an arrangement,
the product has been delivered, the price is fixed or determinable and collectibility is probable. Software maintenance support revenue is deferred based on its vendor specific objective evidence of fair value (VSOE) and recognized
ratably over the maintenance support periods. Provisions for warranty costs are recorded at the time products are recognized as revenue. Revenues from protocol analyzer products are included in Test and measurement products in the Consolidated
Statements of Operations.

Net Reserves on Accounts Receivable.We maintain an allowance for doubtful accounts relating to the
portion of the accounts receivable which we estimate is non-collectible. We analyze historical bad debts, customer concentrations, customer creditworthiness, current economic trends and changes in customer payment patterns when evaluating the
adequacy of the allowance for doubtful accounts. The allowance for doubtful accounts, which includes the allowance for anticipated returns, was approximately $0.9 million and $0.5 million at June 30, 2007 and 2006, respectively. Changes in the
overall economic environment or in the financial condition of our customers may require adjustments to the allowance for doubtful accounts which could have a material adverse effect on our financial condition, results of operations and cash flows.

Allowance for Excess and Obsolete Inventory. We assess the valuation of our inventory on a quarterly basis and provide an allowance
for the value of estimated excess and obsolete raw materials and work in process inventory. Our marketing department plays a key role in our inventory review process by providing updated sales forecasts, managing product rollovers and working with
our manufacturing department to maximize recovery of excess inventory. Based upon managements forecast, inventory items no longer expected to be used in the future are considered obsolete and the difference between an inventorys quantity
and its forecasted usage are classified as excess. The allowance for excess and obsolete inventory was $2.7 million and $1.6 million at June 30, 2007 and 2006, respectively. If actual market conditions are less favorable than those projected by
management, additional inventory allowances for excess or obsolete inventory may be required.

Deferred Tax Assets.We have recorded
approximately $17.6 million of deferred tax assets as of June 30, 2007 for the future tax benefits of certain expenses reported for financial statement purposes that have not yet been deducted on our tax returns. Significant components of our
deferred tax assets are federal, state and foreign net operating loss and credit carryforwards, inventory reserves and other reserves. The recognition of this deferred tax asset is based on the assessment that it is more likely than not that we will
be able to generate sufficient future taxable income within statutory carryforward periods to realize the benefit of these tax deductions. The factors that management considers in assessing the likelihood of realization include the forecast of
future taxable income, reversal of taxable temporary differences, and available tax planning strategies that could be implemented to realize the deferred tax assets. Based on this information, we have recorded a valuation allowance of $1.7 million
as of June 30, 2007 to reserve for certain tax credits and foreign net operating loss carryforwards due to the uncertainty surrounding the utilization of these deferred tax assets. Adjustments to the valuation allowance may be made in the
future if it is determined that the realizable amount of net operating losses and other deferred tax assets is greater or less than the amount recorded. Such adjustments may be material to our results of operations when made.



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Valuation of Long-Lived and Intangible Assets.We assess the recoverability of our long-lived
assets and intangible assets with finite lives (including technology, manufacturing and distribution rights and patents and other intangibles) whenever events or changes in circumstances indicate that the carrying values may not be recoverable, but
not less than once annually. When such events or changes in circumstances occur, we assess the recoverability of long-lived assets and intangible assets by determining whether the carrying values of such assets will be recovered through undiscounted
expected future cash flows. Management estimates the undiscounted cash flows of these rights on the basis of actual and forecasted production units as well as the average selling price and standard costs of the related products after the
amortization of the rights to determine profitability. If the undiscounted cash flows are less than the carrying amounts, an impairment loss is recorded to the extent that the carrying amounts exceed the fair value. Factors which could trigger an
impairment review include the following: significant underperformance by us relative to historical or projected operating results; significant changes in the manner of our use of the assets or the strategy for the overall business; and significant
negative industry or economic trends. We recognized intangible asset impairments of $0.3 million and $1.5 million in fiscal 2007 and 2005, respectively, due to changes in product strategy, which eliminated the usefulness and value of the assets.
There were no impairment indicators during the fiscal year ended June 30, 2006.

Goodwill.SFAS No. 142, Goodwill
and Other Intangible Assets, requires goodwill to be tested for impairment annually under a two-step approach, or more frequently, if events or changes in circumstances indicate that the asset might be impaired. Impairment is assessed at the
reporting unit level by applying a fair value-based test. A reporting unit is defined as the same as or one level below the operating segment level as described in SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information. We have one reporting unit for the purposes of SFAS No. 142 because none of the components of our operating segment constitute a business for which discrete financial information is available and for which segment
management regularly reviews the results of operations.

The first step is to identify if an impairment of goodwill has occurred by
comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired. If the carrying amount of the
reporting unit exceeds its fair value, the second step of the goodwill test is performed to measure the amount of the impairment loss, if any. In this second step, the implied fair value (as defined in SFAS No. 142) of the reporting
units goodwill is compared with the carrying amount of the goodwill. If the carrying amount of the reporting units goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that
excess, not to exceed the carrying amount of the goodwill. We completed the annual impairment test required under SFAS No. 142 during the fourth quarter of fiscal 2007 after completion of our annual financial operating plan and determined that
there was no impairment to our recorded goodwill balance of $105.9 million at June 30, 2007. We use a fair value-based test using our market capitalization to estimate the Companys fair value. There were no impairment indicators during
the fiscal year ended June 30, 2007. We did, however, during the fourth quarter of fiscal 2007 and 2006, reduce our CATC goodwill by approximately $0.1 million and $0.4 million, respectively, as a result of a reversal of a pre-acquisition tax
contingency reserve.

Warranty. Provisions for estimated expenses related to product warranties are made at the time products are
sold. These estimates are derived from historical data of product reliability and for new products, published (by a third party) expected failure rates. The expected failure is arrived at in terms of units, which are then converted into labor hours
to which an average fully burdened cost per hour is applied to derive the amount of accrued warranty required. On a quarterly basis, we study trends of warranty claims, review estimates of costs to repair and take action to improve the quality of
our products and minimize our warranty exposure. The warranty reserve was $1.2 million, $1.0 million and $1.0 million at June 30, 2007, 2006 and 2005, respectively. Management believes that the warranty reserve is appropriate; however, actual
claims incurred could differ from the original estimates, requiring adjustments to the reserve.

Share-based Compensation Expense.
In the first quarter of fiscal 2006, we adopted the provisions of SFAS 123R, Share-based Payment, which requires that the cost resulting from all share-based payment transactions be recognized in the financial statements at their fair
values. We adopted SFAS 123R using the modified prospective application method under which the provisions of SFAS 123R apply to new awards and to awards modified,



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repurchased, or cancelled after the adoption date. We use the Black-Scholes option pricing model to estimate the fair value of options on the date of grant
which requires certain estimates by management including the expected volatility and expected term of the option. Management also makes decisions regarding the risk free interest rate used in the model and makes estimates regarding forfeiture rates.
Actual forfeitures and fluctuations in the market that affect these estimates could have an impact on the resulting compensation cost. Additionally, compensation cost for the portion of awards for which the requisite service had not been rendered
that were outstanding as of the adoption date is being recognized over the remaining service period after the adoption date. Total share-based compensation expense recorded in the Consolidated Statement of Operations for the year ended June 30,
2007 was $5.2 million.

Results of Operations

The following table sets forth certain operating data as a percentage of our total revenues for the fiscal years indicated:



|                                          |  |                     |    |  |       |   |  |       |  
|----------------------------------------- |  | ------------------- | -- |  | ----- | - |  | ----- | -
|                                          |  | Year Ended June 30, |   
|                                          |  | 2007                |    |  | 2006  |   |  | 2005  |  
|Revenues:                                 |  |                     |    |  |       |   |  |       |  
|Test and measurement products             |  | 95.6                | %  |  | 95.6  | % |  | 94.8  | %
|Service and other                         |  | 4.4                 |    |  | 4.4   |   |  | 5.2   |  
|                                          |  |                     |    |  |       |   |  |       |  
|Total revenues                            |  | 100.0               |    |  | 100.0 |   |  | 100.0 |  
|Cost of revenues                          |  | 45.9                |    |  | 39.5  |   |  | 44.6  |  
|                                          |  |                     |    |  |       |   |  |       |  
|Gross profit                              |  | 54.1                |    |  | 60.5  |   |  | 55.4  |  
|Operating expenses:                       |  |                     |    |  |       |   |  |       |  
|Selling, general and administrative       |  | 36.6                |    |  | 32.2  |   |  | 34.8  |  
|Legal settlement                          |  |                    |    |  | 1.7   |   |  | 0.6   |  
|Research and development                  |  | 24.2                |    |  | 18.8  |   |  | 17.0  |  
|                                          |  |                     |    |  |       |   |  |       |  
|Total operating expenses                  |  | 60.8                |    |  | 52.7  |   |  | 52.4  |  
|Operating (loss) income                   |  | (6.7                | )  |  | 7.8   |   |  | 3.0   |  
|Interest income                           |  | 0.1                 |    |  | 0.5   |   |  | 0.3   |  
|Interest expense                          |  | (2.8                | )  |  | (1.9  | ) |  | (1.7  | )
|Loss on extinguishment of debt            |  | (0.7                | )  |  |      |   |  |      |  
|Other, net                                |  | (0.1                | )  |  | (0.1  | ) |  | 0.2   |  
|                                          |  |                     |    |  |       |   |  |       |  
|Other expense, net                        |  | (3.5                | )  |  | (1.5  | ) |  | (1.2  | )
|                                          |  |                     |    |  |       |   |  |       |  
|(Loss) income before income taxes         |  | (10.2               | )  |  | 6.3   |   |  | 1.8   |  
|Benefit from (provision for) income taxes |  | 1.5                 |    |  | (2.2  | ) |  | (0.5  | )
|                                          |  |                     |    |  |       |   |  |       |  
|Net (loss) income                         |  | (8.7                | )% |  | 4.1   | % |  | 1.3   | %
|                                          |  |                     |    |  |       |   |  |       |  

Comparison of Fiscal Years 2007 and 2006

Total revenues were $151.3 million for the year ended June 30, 2007, compared to $160.5 million in the prior year, a net decrease of 5.8%, or $9.2
million. The total decrease in revenue was partially offset by revenue derived from the Catalyst acquisition which mitigated the impact by 5.6% and favorable currency fluctuation of 1.9%. Revenues from Test and measurement products decreased 5.7% to
$144.7 million in fiscal 2007 from $153.4 million in fiscal 2006. The decrease in Test and measurement products was mainly due to a reduction in shipments to our disk drive customers as a result of decreased demand, the longer than anticipated time
to finalize our new distributor arrangement in Japan, and the reduction in the average selling prices in our high-end products which have been impacted by competitive pressure in the marketplace. Additionally, mid- and low-end products have not
penetrated the market fully, and there has been lower than expected demand from our next generation products and serial data protocol solutions. These decreases were partially offset by the addition of revenue from our September 2006 acquisition of
Catalyst as noted above.



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Service and other revenues consist primarily of service revenue and license and maintenance fees. Service
revenue decreased by 6.3%, or $0.4 million, to $6.6 million in fiscal 2007 from $7.1 million in fiscal 2006, primarily as a result of a reduction in the amount recognized of previously deferred revenue from the adoption of the SECs Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements. The fiscal year ended June 30, 2007 did not include revenue related to this previously deferred revenue as it was fully amortized
as of March 31, 2006. Fiscal 2006 included $0.7 million of revenue recognized from previously deferred revenue.

Our geographic
breakdown of revenues by area in total dollars and as a percentage of total revenues is as follows (in thousands):



|                     |  |                     |         |      |   |                     |  |                      |  |       |      |  |       |  
|-------------------- |  | ------------------- | ------- | ---- | - | ------------------- |  | -------------------- |  | ----- | ---- |  | ----- | -
|                     |  | Year Ended June 30, |         |      |   | Year Ended June 30, | 
|                     |  | 2007                |         | 2006 |   |                     |  | 2007                 |  |       | 2006 | 
|North America        |  | $                   | 50,891  |      | $ | 51,795              |  | North America        |  | 33.6  | %    |  | 32.3  | %
|Europe / Middle East |  |                     | 51,899  |      |   | 48,767              |  | Europe / Middle East |  | 34.3  |      |  | 30.4  |  
|Japan                |  |                     | 16,929  |      |   | 22,043              |  | Japan                |  | 11.2  |      |  | 13.7  |  
|Asia / Pacific       |  |                     | 31,581  |      |   | 37,931              |  | Asia / Pacific       |  | 20.9  |      |  | 23.6  |  
|                     |  |                     |         |      |   |                     |  |                      |  |       |      |  |       |  
|Total revenues       |  | $                   | 151,300 |      | $ | 160,536             |  | Total revenues       |  | 100.0 | %    |  | 100.0 | %
|                     |  |                     |         |      |   |                     |  |                      |  |       |      |  |       |  

Our geographic revenues were lower in North America, Japan and Asia/Pacific. This decrease was
mainly attributable to a slower than anticipated ramp up of sales via our indirect selling channel of our mid- to low-end product line, the longer than anticipated time to finalize our distribution strategy in Japan, as well as a decrease in the
average selling prices in the high-end product line. Europe/Middle East was the exception where our operations have incorporated our diverse product lines through indirect and direct channels more effectively.

Gross profit for the year ended June 30, 2007 was $81.9 million, or 54.1% gross margin, compared to $97.1 million, or 60.5% gross margin, for the
same period last year. The lower gross margin in fiscal 2007 was primarily attributable to $3.4 million of costs associated with inventory write-downs and the elimination of a product line, $0.3 million charge for the impairment of an intangible
asset, $0.4 million relating to the implementation of a restructuring plan and the balance primarily due to lower sales volume and the impact of lower average selling prices on our high end products, partially offset by incremental profit from sales
of Catalyst protocol analyzers. In the fiscal 2006 period there were no similar write-downs affecting gross margin; however, in 2006, we received price reductions from a vendor for inventory purchases which increased our overall gross margin on
resulting product sales by 1.0%.

Selling, general and administrative (SG&A) expense increased 7.3%, or $3.7 million, from
$51.6 million in fiscal 2006 to $55.4 million in fiscal 2007. The increase was primarily attributable to $1.4 million of restructuring charges prompted by the acquisition of Catalyst as well as the reorganization of our Japan facility, $1.9 million
of increased commissions for the addition of the manufacturers representative channel and employee commission, $0.7 million of freight expenses and additional SG&A expenses related to Catalyst. These increases were primarily offset by a
decrease of $0.7 million related to non-cash share-based compensation expense and a decrease of approximately $1.0 million related to legal and consulting expenses. As a percentage of sales, SG&A expense increased from 32.2% in the year ended
June 30, 2006 to 36.6% in the year ended June 30, 2007.

Legal settlement expense of $2.8 million, for the year ended
June 30, 2006, is related to the settlement of a dispute with Iwatsu pertaining to the ownership rights of certain intellectual property and other assets relating to Iwatsus ViewGo product line. There was no similar charge in
the fiscal 2007 period. (See Note 20 to the Consolidated Financial Statements for more information.)

Research and development
(R&D) expense increased 21.8%, or $6.6 million, from $30.1 million in fiscal 2006 to $36.7 million in fiscal 2007. This increase in expense is primarily due to a $4.0 million charge for acquired in-process research and development
(IPR&D) related to the Catalyst acquisition, $0.3 million of restructuring charges and additional expenses related to Catalyst. Additionally, expenses incurred for prototype materials and



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supplies used for several product launches in the beginning of the year contributed to the overall increase. There was no similar IPR&D charge in the
fiscal 2006 period. As a percentage of total revenues, research and development expense increased from 18.8% in fiscal 2006 to 24.4% in fiscal 2007.

Other expense, net, which consists primarily of interest income and expense and foreign exchange gains and losses, was approximately $5.3 million for the year ended June 30, 2007, compared to $2.5 million for
fiscal 2006. Other expense, net for the current year is comprised primarily of interest expense of approximately $4.3 million, compared to approximately $3.1 million last year, which increase is due to a the issuance of $72.0 million of convertible
notes in October 2006. (See Note 13 to the Consolidated Financial Statements for more information). Interest expense for both periods also includes interest on capital lease agreements and bank debt. Interest expense was partially offset by interest
income of approximately $0.1 million and $0.8 million for the years ended June 30, 2007 and 2006, respectively. Included in Other, net were foreign exchange losses of $0.3 million for both of the years ended June 30, 2007 and 2006,
resulting from the changes in our foreign exchange forward contracts and on transactions denominated in other than our functional currency or that of our subsidiaries. The Loss on extinguishment of debt of $1.0 million relates to the write-off of
deferred financing costs associated with the repayment of the term loan and revolver under the Prior Credit Agreement.

A tax benefit of
$2.2 million was recorded in fiscal 2007, compared to a tax provision of $3.5 million in fiscal 2006. The Companys effective tax rate was 14.5% and 34.5% in fiscal 2007 and fiscal 2006, respectively. The effective income tax benefit rate
differs from prior year principally due to discrete tax items for the non-deductible purchased IPR&D charges associated with the Catalyst acquisition, and a $1.4 million increase to the valuation allowance for deferred tax assets related to a
change in judgment regarding the realizability of certain state investment tax credits and certain foreign net operating losses.

Comparison of Fiscal
Years 2006 and 2005

Total revenues were $160.5 million for the year ended June 30, 2006, compared to $165.0 million in the prior
year, a decrease of 2.7%, or $4.4 million. Foreign currency fluctuations reduced total revenues by approximately $2.7 million in fiscal 2006 compared to fiscal 2005. Revenues from Test and measurement products decreased 1.9% to $153.4 million in
fiscal 2006 from $156.4 million in fiscal 2005. This decrease in product revenue was mainly attributable to a decline in shipments of our WaveSurfer and WaveRunner product lines. In anticipation of our new lower-end product introductions, we
experienced a delay in customer orders which significantly contributed to this decline. Product revenue was also impacted from lower average selling prices due to increased competition in the low-end oscilloscope market. Additionally, in fiscal 2006
there was a decrease in product revenue for component parts as we limited our relationship with a third party manufacturer. This decrease was partially offset by continued strong sales of our high-end oscilloscopes and the introduction of the
WaveJet. Our Protocol Solutions Group (PSG), for the full 2006 fiscal year contributed to total revenue of approximately 4.4% over the comparable prior year period which only included eight months of PSG revenue.

Service and other revenues consist primarily of service revenue and license and maintenance fees. Service revenue decreased by 16.9%, or $1.4 million, to
$7.1 million in fiscal 2006 from $8.5 million in fiscal 2005, primarily from a lower volume of locally provided items in our foreign operations. The decrease was also the result of a reduction in the amount recognized of previously deferred revenue
from the adoption of the Securities and Exchange Commissions Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements, as of the beginning of fiscal 2001. The fiscal year ended
June 30, 2006 included $0.7 million of revenue recognized from previously deferred revenue compared to $1.3 million in fiscal 2005.



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Our geographic breakdown of revenues by area in total dollars and as a percentage of total revenues is as
follows (in thousands):



|                     |  |                     |         |      |   |                     |  |                      |  |       |      |  |       |  
|-------------------- |  | ------------------- | ------- | ---- | - | ------------------- |  | -------------------- |  | ----- | ---- |  | ----- | -
|                     |  | Year Ended June 30, |         |      |   | Year Ended June 30, | 
|                     |  | 2006                |         | 2005 |   |                     |  | 2006                 |  |       | 2005 | 
|North America        |  | $                   | 51,795  |      | $ | 52,500              |  | North America        |  | 32.3  | %    |  | 31.8  | %
|Europe / Middle East |  |                     | 48,767  |      |   | 49,650              |  | Europe / Middle East |  | 30.4  |      |  | 30.1  |  
|Japan                |  |                     | 22,043  |      |   | 26,209              |  | Japan                |  | 13.7  |      |  | 15.9  |  
|Asia / Pacific       |  |                     | 37,931  |      |   | 36,619              |  | Asia / Pacific       |  | 23.6  |      |  | 22.2  |  
|                     |  |                     |         |      |   |                     |  |                      |  |       |      |  |       |  
|Total revenues       |  | $                   | 160,536 |      | $ | 164,978             |  | Total revenues       |  | 100.0 | %    |  | 100.0 | %
|                     |  |                     |         |      |   |                     |  |                      |  |       |      |  |       |  

Our geographic revenues remained consistent with prior year except for Japan which was impacted by
the decrease in component part revenue as we limited our relationship with a third party manufacturer.

Gross profit for the year ended
June 30, 2006 was $97.1 million, or 60.5% gross margin, compared to $91.3 million, or 55.3% gross margin, for the same period last year. The lower gross margin in fiscal 2005 was primarily attributable to the second fiscal quarter
Merger-related non-cash charges of $2.7 million for the write-down of inventory related to the changes in our long-term product support policy and product roadmap strategy as well as $1.5 million for the impairment of an intangible asset due to a
change in our manufacturing strategy and $1.8 million for the write-down of inventory, primarily related to a lower cost or market adjustment. In the fiscal 2006 period there were no similar write-downs affecting gross margin; however, we received
price reductions from a vendor for inventory purchases which positively impacted our overall gross margin by 1.0% on resulting product sales. In addition, gross margins benefited from higher PSG margins which increased gross margin by approximately
6.5% over the full twelve month period in fiscal 2006 as compared to an immaterial impact for the twelve-month period in fiscal 2005 that included only eight months of PSG activity offset by the related write-up of acquired inventory to its fair
value.

Selling, general and administrative (SG&A) expense decreased 10.0%, or $5.7 million, from $57.3 million in fiscal
2005 to $51.6 million in fiscal 2006. The decrease was mainly attributable to $4.0 million of decreases in personnel-related and general expenses due to a prior year restructuring and office closures, a $1.6 million decrease in bonus and commission
expenses as well as $1.7 million decrease in legal and consulting expenses. These decreases were partially offset by an increase of $0.6 million in non-cash share-based compensation expense and increases of $0.9 million mainly in travel and
entertainment expense and freight expense. As a percentage of sales, SG&A expense decreased from 34.8% in the year ended June 30, 2005 to 32.2% in the year ended June 30, 2006. This decrease as a percentage of revenues was primarily
due to our continued ability to leverage expenses. In fiscal 2007, we expect selling, general and administrative expense will increase when compared to fiscal 2006 due to increased variable selling costs on higher forecasted revenues.

Legal settlement expense of $2.8 million, for the year ended June 30, 2006, is related to the settlement of a dispute with Iwatsu pertaining to the
ownership rights of certain intellectual property and other assets relating to Iwatsus ViewGo product line. (See Note 20 to the Consolidated Financial Statements for more information). Legal settlement expense of $1.0 million, for
the year ended June 30, 2005, was related to the patent litigation settlement agreement reached with Tektronix, Inc. (Tektronix) on May 11, 2005. (See Note 21 to the Consolidated Financial Statements for more information.)

Research and development (R&D) expense increased 7.4%, or $2.1 million, from $28.1 million in fiscal 2005 to $30.1 million
in fiscal 2006. There was approximately $3.5 million of increased expense primarily attributable to a full year of personnel-related expenses as a result of the Merger compared to only eight months of expenses in the comparable prior year period.
Additionally, non-cash share-based compensation expense increased R&D expense by $0.8 million. These increases were partially offset by a $2.2 million charge for in process research & development (IPR&D) included in the
second fiscal quarter of 2005 in connection with the Merger. There is no similar charge in the fiscal 2006 period. As a percentage of total revenues, research and development expense increased from 17.0% in fiscal 2005 to 18.8% in fiscal 2006. In
fiscal 2007, we intend to continue to invest a substantial percentage of our revenues in R&D. We plan to focus on product improvement and feature



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enhancements designed to increase the comparative value of our oscilloscopes in the market. We anticipate a number of new product announcements during fiscal
2007 which capitalize on our wave shape analysis capabilities and are aimed at increasing our value and number of scope users in the market.

Other expense, net, which consists primarily of interest income and expense and foreign exchange gains and losses, was approximately $2.5 million for the year ended June 30, 2006, compared to $1.9 million for fiscal 2005. Other
expense, net for the current year is comprised primarily of interest expense of approximately $3.1 million, compared to approximately $2.7 million last year, which increase is due to a full year of interest on the $50.0 million Term Loan outstanding
under our current Credit Agreement as compared to only eight months in the prior year. Interest expense for both periods also includes interest on capital lease agreements and, for the fiscal 2005 period only, the write-off of unamortized fees
associated with a previous credit facility. Interest expense was partially offset by interest income of approximately $0.8 million and $0.6 million for the years ended June 30, 2006 and 2005, respectively. Included in Other, net were foreign
exchange (losses) gains of approximately ($0.3) million and $0.2 million for the years ended June 30, 2006 and 2005, respectively, resulting from the changes in our foreign exchange forward contracts and on transactions denominated in other
than our functional currency or that of our subsidiaries.

A tax provision of $3.5 million was recorded in fiscal 2006, compared to a tax
provision of $0.9 million in fiscal 2005. The Companys effective tax rate was 34.5% and 28.9% in fiscal 2006 and fiscal 2005, respectively. Our effective tax rate for the fiscal 2006 period includes the effect of certain non-deductible
share-based compensation costs in connection with the adoption of SFAS 123R. The net statutory tax rate for the year ended June 30, 2005 was 35.0%, increased by a discrete nondeductible IPR&D tax expense of $767,000 associated with the
Merger, and decreased by two discrete tax benefits aggregating $950,000 associated with the reversal of a prior year valuation allowance related to a favorable conclusion to a tax audit and a fiscal 2004 provision-to-return adjustment determined
when we filed our fiscal 2004 tax returns.

Liquidity and Capital Resources

Cash and cash equivalents at June 30, 2007 were approximately $10.4 million, compared to approximately $17.0 million at June 30, 2006.

Net cash (used in) operating activities for the year ended June 30, 2007 was ($0.6) million compared to $16.0 million provided by
operations for the year ended June 30, 2006. The $16.6 million decrease from the prior year primarily represents the decrease in net income. Cash consumed by working capital in fiscal 2007 mainly resulted from an increase in accounts receivable
primarily due to a relative increase in shipments to Asia where collection terms run longer and an increase in inventory associated with new product introductions. In addition, the reduction in accounts payable, accrued expenses, and other
liabilities was due to a decrease in accounts payable levels.

Net cash (used in) investing activities was ($35.7) million in fiscal 2007
compared to ($5.6) million in fiscal 2006. Net cash used in the fiscal 2007 period was mainly for the acquisition of Catalyst, but also included the purchase of property and equipment. (See Catalyst Acquisition in this Managements
Discussion and Analysis of Financial Condition and Results of Operations above). Net cash used in the fiscal 2006 period was mainly for the purchase of property and equipment, but also included the purchase of intangible assets resulting from the
agreements with Iwatsu.

Net cash provided by financing activities was $30.1 million for the year ended June 30, 2007 as compared to
net cash (used in) financing activities of approximately ($6.9) million for the year ended June 30, 2006. Net cash provided by financing activities in fiscal 2007 was mainly from the issuance of the convertible notes of $72.0 million, and net
borrowings under the revolving credit lines of $5.9 million partially offset by the repayments of the $34.1 million term loan, $3.8 million in financing fees related to the notes and new credit facility, and an additional $10.5 million of cash paid
for the purchase of common stock in conjunction with the Companys treasury stock buy back program.

As of June 30, 2007, the
Company has a $50.0 million credit agreement. The terms of the New Credit Agreement provide LeCroy with a $50.0 million revolving credit facility (Revolver), which includes a $5,0 million swingline loan subfacility and a $5.0 million
letter of credit subfacility. The performance by LeCroy of its



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obligations under the New Credit Agreement is secured by all of the assets of LeCroy and its domestic subsidiaries, and is guaranteed by LeCroys
domestic subsidiaries. As of June 30, 2007, the Company has borrowed $9.4 million against the Revolver and nothing against the letter of credit subfacility or the swingline loan subfacility. Effective as of April 26, 2007, LeCroy, in
accordance its original $40.0 million senior, secured, credit agreement with the lenders listed therein and Manufacturers and Traders Trust Company, as administrative agent for such lenders (the Credit Agreement), entered into a First
Modification and Lender Joinder Agreement (Joinder Agreement). This Joinder Agreement increased the Companys credit limit to $50.0 million and added North Fork Bank to the Credit Agreement. In addition to their $10.0 million
revolving commitment under the amendment, North Fork Bank accepted an assignment of $5.0 million of the lending obligations from Manufacturers and Traders Trust Company.

The proceeds of the borrowings under the New Credit Agreement may be used for general corporate purposes, including the financing of working capital requirements, capital expenditures, and potential acquisitions.

Borrowings under the New Credit Agreement bear interest at variable rates equal to, at LeCroys election, (1) the higher of
(a) the prime rate or (b) the federal funds rate plus 0.5% plus an applicable margin based on LeCroys leverage ratio or (2) LIBOR plus an applicable margin based on LeCroys leverage ratio. In addition, LeCroy must pay
commitment fees during the term of the New Credit Agreement at rates dependent on LeCroys leverage ratio.

The New Credit Agreement
contains, among other things, conditions precedent, covenants, representations and warranties and events of default customary for facilities of this size type and purpose. Negative covenants include certain restrictions or limitations on, among
other things, the incurrence of indebtedness; liens; consolidations and mergers; investments, loans, advances, guarantees and acquisitions; sales of assets (subject to customary exceptions for sales of inventory in the ordinary course and sales of
equipment in connection with the replacement thereof in the ordinary course); sale and lease-back transactions; hedging agreements; and restricted payments, including dividends and stock repurchases.

Under the New Credit Agreement, the Company is required to comply with certain financial covenants, measured quarterly, including a minimum interest
coverage ratio, minimum total net worth, maximum leverage ratio, minimum fixed charge coverage ratio and limitations on capital expenditures. As of June 30, 2007, the Company was in compliance with its financial covenants under the New Credit
Agreement.

The New Credit Agreement will expire on July 15, 2011, unless, in the absence of any default, extended by LeCroy to
April 1, 2012, contingent on the waiver or extension of the first redemption date of the Companys convertible notes.

The
Company incurred approximately $0.5 million of deferred financing costs in connection with entering into the New Credit Agreement, which were deferred and are being amortized, on a straight line basis, over the term of the New Credit Agreement. At
June 30, 2007, approximately $0.1 million of deferred financing costs were included in other current assets, and approximately $0.4 million were included in other non-current assets on the Consolidated Balance Sheets.

On October 29, 2004, the Company entered into a $75.0 million senior, secured, five-year credit agreement with the lenders listed therein and JP
Morgan Chase Bank, N.A., successor to The Bank of New York, as administrative agent for such lenders (the Prior Credit Agreement). The terms of the Prior Credit Agreement, as amended thereafter, provided us with a $50.0 million term loan
and a $50.0 million revolving credit facility, which includes a $1.0 million swing-line loan sub-facility and a $1.0 million letter of credit sub-facility. On March 30, 2007 the Company entered into the New Credit Agreement and terminated the
Prior Credit Agreement, which resulted in a $1.0 million Loss on extinguishment of debt related to the write-off of deferred finance charges associated with the Prior Credit Agreement that was fully repaid during the fiscal year.

On October 12, 2006, the Company sold and issued $72.0 million in convertible senior subordinated notes to qualified institutional buyers
pursuant to Rule 144A of the Securities Act of 1933, as amended (the Notes). The Notes bear interest at a rate of 4.00% per annum, payable in cash semi-annually in arrears on each April 15 and October 15, beginning
April 15, 2007. The Notes are direct, unsecured, senior subordinated obligations of the



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Company and rank: (i) subordinate in right of payment to all of the Companys existing and future secured indebtedness; (ii) equal in right of
payment with all of our existing and future senior unsecured indebtedness, and (iii) senior in right of payment to all of our existing and future subordinated indebtedness, except that the Notes rank equally with the $3.5 million note issued in
connection with the Catalyst acquisition, which is subordinated to the Companys credit facility. In connection with the issuance and sale of the Notes, the Company entered into an indenture dated as of October 12, 2006, with U.S. Bank
National Association as trustee. The terms of the Notes are governed by the indenture.

The Notes mature on October 15, 2026 unless
earlier redeemed, repurchased or converted. Holders of the Notes will have the right to require the Company to repurchase for cash all or a portion of their Notes on each of October 15, 2011, October 15, 2016 and October 15,
2021, at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased plus accrued and unpaid interest, if any, up to but not including, the repurchase date. In addition, the Company may redeem the Notes for cash, either
in whole or in part, anytime after October 20, 2011 at a redemption price equal to 100% of the principal amount of the Notes to be redeemed plus accrued and unpaid interest, if any, up to but not including the redemption date. The Notes are
convertible into Company common stock by the holders at an initial conversion rate equal to 68.7285 shares per $1,000 principal amount of the Notes (equal to an initial conversion price of approximately $14.55 per share), subject to adjustment as
described in the indenture. Upon conversion, the Company will deliver for each $1,000 principal amount of Notes, an amount consisting of cash equal to the lesser of $1,000 and the conversion value (as defined in the indenture) and, to the extent
that the conversion value exceeds $1,000, at the Companys election, cash or shares of Company common stock in respect of the remainder. Prior to September 15, 2026, holders may convert their notes into cash and shares of the
Companys common stock, if any, at the applicable conversion rate, at their option, only under limited circumstances described in the indenture. On or after September 15, 2026, holders may convert their notes into cash and shares of the
Companys common stock, if any, at the applicable conversion price, at their option, at any time prior to the close of business on the business day immediately preceding the maturity date.

If the Company undergoes a change in control (as defined in the indenture), holders of the Notes will have the right, subject to certain
conditions, to require the Company to repurchase for cash all or a portion of their Notes at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased plus accrued and unpaid interest, if any.

In connection with the sale of its Notes, the Company also entered into a Registration Rights Agreement. Pursuant to the Registration Rights Agreement,
the Company filed a shelf registration statement, which has been declared effective by the Securities and Exchange Commission, covering resales by holders of the Notes and any common stock issuable upon conversion of such Notes (subject to certain
conditions specified in the Registration Rights Agreement). The Company has agreed to use its commercially reasonable efforts to keep the registration statement effective until the earliest of the following has occurred: ( i) all securities covered
by the registration statement have been sold pursuant to the registration statement or Rule 144 under the Securities Act; (ii) the holders of the Notes and the shares of our common stock issuable upon conversion of the Notes that are not our
affiliates are able to sell all such securities immediately pursuant to Rule 144(k) under the Securities Act; (iii) the date when all of the Notes and shares of common stock issuable upon conversion have ceased to be outstanding; and
(iv) October 12, 2008. The Company will pay predetermined additional interest on notes that are registerable securities if the shelf registration statement is unavailable for periods in excess of those permitted under the indenture.

In October 2006, in conjunction with our issuance of the Notes the Company repaid approximately $31.9 million and $20.8 million due as
term debt and as revolving debt, respectively, under the Prior Credit Agreement. The term debt was fully repaid during the second fiscal quarter of 2007.

We also maintain certain short-term foreign credit facilities, principally with two Japanese banks totaling 150.0 million yen (approximately $1.2 million as of June 30, 2007). No amounts were outstanding
under these facilities as of June 30, 2007. Our Swiss subsidiary, LeCroy S.A., also has an overdraft facility totaling 1.0 million Swiss francs (approximately $0.8 million as of June 30, 2007). As of both June 30, 2007 and 2006,
approximately 0.4 million Swiss francs were held against supplier obligations leaving an available balance of 0.6 million Swiss



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francs under this credit facility. These obligations to Swiss suppliers, such as rent and utilities, are payable under the credit facility only in the event
that the subsidiary is unable to meet its financial obligations to those suppliers.

On May 25, 2006, the Board of Directors approved
the adoption of a share purchase plan authorizing the Company to purchase up to 2 million shares, for an aggregate amount not to exceed $25.0 million, of its common stock for the treasury. Purchases under this buyback program may be made from
time to time on the open market and in privately negotiated transactions, including pursuant to the terms of a 10b5-1 plan. A 10b5-1 plan allows a company to purchase shares during a blackout period, provided the company communicates its share
purchase instructions to the broker prior to the blackout period, pursuant to written plan that may not be changed. The timing of these purchases is dependent upon several factors, including market conditions, the market price of the Companys
common stock, the effect of the share dilution on earnings, available cash and any other potential risks we may encounter. The share repurchase plan may be discontinued at any time at our discretion. As of June 30, 2007, we have spent $12.4
million to purchase 1,038,283 shares under this buyback program. All treasury shares were legally retired as of June 30, 2007.

We
believe that our cash on hand, cash flow generated by our continuing operations and availability under our revolving credit lines will be sufficient to fund our operations, working capital, debt repayment and capital expenditure requirements for the
foreseeable future and provide funds for potential acquisition opportunities.

Off-Balance Sheet Arrangements

Our 4% notes payable are convertible into shares of our common stock at a conversion price of $14.55 per share and pose a reasonable likelihood of
potential significant dilution. The maximum potential dilutive effect of conversion of the 4% notes is 4.9 million shares. Notes payable are discussed in greater detail in Liquidity and Capital Resources above and in the notes to our
consolidated financial statements.

In addition, stock options to purchase 2.0 million shares of our common stock at a weighted
average exercise price of $14.49 per share and 0.6 million restricted stock units were outstanding at June 30, 2007 that represent additional potential dilution.

Contractual Obligations and Other Commitments

Our contractual obligations and commitments include
obligations associated with our capital and operating leases, employee severance agreements, supplier agreements, note payable, Revolver and convertible note obligations as set forth in the table below (in thousands):



|                            |  |                                            |        |                  |   |           |  |           |       |                   |   |        |  |   |   
|--------------------------- |  | ------------------------------------------ | ------ | ---------------- | - | --------- |  | --------- | ----- | ----------------- | - | ------ |  | - | --
|                            |  | Payments due by period as of June 30, 2007
|                            |  | Total                                      |        | Less than 1 Year |   | 1-3 Years |  | 3-5 Years |       | More than 5 Years
|                            |  | (In thousands)                            
|Capital leases              |  | $                                          | 119    |                  | $ | 119       |  | $         |      |                   | $ |       |  | $ |  
|Severance                   |  |                                            | 877    |                  |   | 717       |  |           | 160   |                   |   |       |  |   |  
|                            |  |                                            |        |                  |  
|Operating lease obligations |  |                                            | 3,627  |                  |   | 1,952     |  |           | 1,487 |                   |   | 152    |  |   | 36
|Supplier agreements         |  |                                            | 1,701  |                  |   | 1,701     |  |           |      |                   |   |       |  |   |  
|Note payable                |  |                                            | 3,500  |                  |   | 3,500     |  |           |      |                   |   |       |  |   |  
|Revolving credit obligation |  |                                            | 9,410  |                  |   |          |  |           |      |                   |   | 9,410  |  |   |  
|Convertible notes           |  |                                            | 72,000 |                  |   |          |  |           |      |                   |   | 72,000 |  |   |  
|                            |  |                                            |        |                  |   |           |  |           |       |                   |   |        |  |   |   
|Total                       |  | $                                          | 91,234 |                  | $ | 7,989     |  | $         | 1,647 |                   | $ | 81,562 |  | $ | 36
|                            |  |                                            |        |                  |   |           |  |           |       |                   |   |        |  |   |   

Recent Accounting Pronouncements

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, (SFAS 154) which was effective for
LeCroy for reporting changes in accounting principles for correction of errors beginning in fiscal year 2007. SFAS 154 changes the reporting of a change in accounting principle to require retrospective application to prior periods financial
statements, unless explicit transition provisions are provided for in new accounting pronouncements or existing pronouncements that are in the transition phase when SFAS 154 becomes effective. There was no impact on our consolidated financials
statements from the adoption of SFAS 154 in fiscal 2007.



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On February 16, 2006, the FASB issued SFAS No. 155 (SFAS 155), Accounting for
Certain Hybrid Instruments, an amendment of FASB Statements No. 133 and 140. SFAS 155 allows financial instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to separate the derivative from its
host) if the holder elects to account for the whole instrument on a fair value basis. It also clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS133; establishes a requirement to evaluate
interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring separation; clarifies that concentrations of credit risk in the
form of subordination are not embedded derivatives; and amends Statement 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another
derivative financial instrument. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of an entitys first fiscal year that begins after September 15, 2006. Management is currently evaluating the
effect of the adoption of SFAS 155, however we do not believe the adoption will have a material impact on our consolidated financial statements.

In June 2006, the Emerging Issues Task Force (EITF) issued EITF Abstract 06-2 (EITF 06-2), Accounting for Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement No. 43. EITF 06-2
provides guidance that an employees right to a compensated absence under a sabbatical or other similar benefit arrangement should be accrued over the requisite service period. EITF 06-2 is effective for fiscal years beginning after
December 15, 2006. EITF 06-2 allows for adoption through retrospective application to all prior periods or through a cumulative-effect adjustment to retained earnings. Management is currently evaluating the effect that adoption of this
consensus will have on our consolidated financial position and results of operations.

In June 2006, the FASB ratified the Emerging Issues
Task Force consensus on Issue No. 06-3, How Sales Taxes Collected From Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross Versus Net Presentation) (EITF 06-3). EITF 06-3
requires disclosure of a companys accounting policy regarding presentation of taxes, including any tax assessed by a governmental authority that is imposed concurrently on a specific revenue-producing transaction between a seller and a
customer. If taxes included in gross revenues are significant, a company should disclose the amount of such taxes for each period for which an income statement is presented. EITF 06-3 was effective for the Company beginning in the third quarter of
fiscal year 2007. The Company presents sales net of applicable sales and valued added taxes. The adoption of EITF 06-3 did not cause the Company to change its accounting policy for recording sales and valued added taxes and therefore did not have a
material effect on the Companys consolidated financial statements.

In July 2006, the Financial FASB issued FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes  An Interpretation of FASB Statement No. 109, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return. FIN 48 is effective for fiscal years beginning after December 15, 2006. Management is currently evaluating the effect that adoption of this interpretation will have on our
consolidated financial position and results of operations; however, management does not believe that the adoption of FIN 48 will have a material impact on the Companys consolidated financial statements.

In September 2006 the FASB issued SFAS No. 157, Fair Value Measurements, (SFAS 157). SFAS 157 defines fair value,
establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. SFAS 157 requires companies to disclose the fair value of their financial instruments according to a fair value hierarchy as defined in
the standard. Additionally, companies are required to provide enhanced disclosure regarding financial instruments in one of the categories, including a reconciliation of the beginning and ending balances separately for each major category of assets
and liabilities. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Management is currently evaluating the effect that adoption of this
statement will have on the Companys consolidated financial position and results of operations.

In September 2006, the Securities and
Exchange Commission issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current year Financial Statements (SAB 108), which provides interpretive
guidance on the consideration of the effects of prior year



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misstatements in quantifying current year misstatements for the purpose of a materiality assessment. SAB 108 is effective as of the end of the Companys
2007 fiscal year, allowing a one-time transitional cumulative effect adjustment to beginning retained earnings as of July 1, 2006 for errors that were not previously deemed material, but are material under the guidance in SAB 108. The Company
adopted SAB 108 in fiscal 2007, which had no effect on the consolidated financial statements.

In December 2006, the FASB issued FASB Staff
Position EITF 00-19-2, Accounting for Registration Payment Arrangements (FSP EITF 00-19-2). FSP EITF 00-19-2 specifies that registration payment arrangements should play no part in determining the initial classification and
subsequent accounting for the securities to which they relate. FSP EITF 00-19-2 requires the contingent obligation in a registration payment arrangement to be separately analyzed under SFAS No. 5, Accounting for Contingencies, and
FASB Interpretation No. 14, Reasonable Estimations of the Amount of a Loss. If payment in a registration payment arrangement is probable and can be reasonably estimated, a liability should be recorded. FSP EITF 00-19-2 is effective
for fiscal years beginning after December 15, 2006. Management is currently evaluating the effect that adoption of this FSP will have on the on the Companys consolidated financial position and results of operations however, we do not
believe that the adoption of FSP EITF 00-19-2 will have a material impact on our consolidated financial statements.

In February 2007, the
FASB issued SFAS No. 159 (SFAS No. 159), The Fair Value Option for Financial Assets and Financial Liabilities  Including an Amendment of FASB Statement No. 115. This statement permits entities to choose
to measure many financial instruments and certain other items at fair value. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities, applies to all entities with available-for-sale and trading securities. SFAS No. 159 is effective as of the beginning of an entitys first fiscal year that begins after
November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provision of SFAS No. 157. Management is currently evaluating
the effect that adoption of SFAS No. 159 will have on the Companys consolidated financial position and results of operations.

In May 2007, the FASB issued FASB Staff Position No. FIN 48-1, Definition of Settlement in FASB Interpretation No. 48 (FSP-FIN 48-1). FSP-FIN 48-1 further clarifies if it is appropriate for an entity to
recognize a previously unrecognized tax benefit when the only change since the initial determination is the completion of an examination or audit by a taxing authority. FSP-FIN 48-1 provides the determination of whether the position is effectively
settled should be taken on a case by case basis; however, positions may be grouped by tax year and considered effectively settled. Management is currently evaluating the effect that adoption of this position in conjunction with adopting FIN 48 will
have on the Companys consolidated financial position and results of operations; however management does not believe that adoption of this position will have a material impact on our consolidated financial statements.

In June 2007, the Emerging Issues Task Force (EITF) issued EITF 07-3, Accounting for Nonrefundable Advance Payments for Goods or
Services to Be Used in Future Research and Development Activities (EITF 07-3). EITF 07-3 addresses the diversity that exists with respect to the accounting for the non-refundable portion of a payment made by a research and
development entity for future research and development activities. The EITF concluded that an entity must defer and capitalize non-refundable advance payments made for research and development activities until the related goods are delivered or the
related services are performed. EITF 07-3 is effective for interim or annual reporting periods in fiscal years beginning after December 15, 2007. Management is currently evaluating the impact of adopting EITF 07-03 on its financial statements
and results of operations; however, we do not expect it will have a material effect on our consolidated financial condition or results of operations.

Forward-Looking Information

This Form 10-K contains forward-looking statements. When used in this Form 10-K, the words
anticipate, believe, estimate, will, plan, intend, and expect and similar expressions identify forward-looking statements. Although we believe that our plans,
intentions, and expectations reflected in any forward-looking statements are reasonable, these plans, intentions, or expectations may not be achieved. Our actual results, performance, or achievements could differ materially from those contemplated,
expressed, or implied, by the



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forward-looking statements contained in this Form 10-K. Important factors that could cause actual results to differ materially from our forward-looking
statements are set forth in this Form 10-K, including under the heading Risk Factors. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary
statements set forth in this Form 10-K. Except as required by federal securities laws, we are under no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

We purchase materials from suppliers
and sell our products around the world and maintain investments in foreign subsidiaries, all denominated in a variety of currencies. As a consequence, we are exposed to risks from fluctuations in foreign currency exchange rates with respect to a
number of currencies, changes in government policies and legal and regulatory requirements, and political instability. Among the more significant potential risks to us of relative fluctuations in foreign currency exchange rates is the relationship
among and between the U.S. dollar, Euro, Swiss franc, British pound, Swedish krona, Japanese yen, Korean won and Singapore dollar.

We have
a program of entering into foreign exchange forward contracts to minimize the risks associated with currency fluctuations on assets or liabilities denominated in other than the functional currency of us or our subsidiaries. It cannot be assured,
however, that this program will effectively offset all of our foreign currency risk related to these assets or liabilities. These foreign exchange forward contracts do not qualify for hedge accounting in accordance with SFAS No. 133,
Accounting for Derivative Investments and Hedging Activities (SFAS No. 133).

Other than this program, we do
not attempt to reduce our foreign currency exchange risks by entering into foreign currency management programs. As a consequence, there can be no assurance that fluctuations in foreign currency exchange rates in the future resulting in mismatches
between local currency revenues and expenses, the translation of foreign currencies into the U.S. dollar, our financial reporting currency, or otherwise, will not adversely affect our results of operations. Moreover, fluctuations in exchange rates
could affect the demand for our products.

During fiscal 2007, 2006 and 2005, foreign currency exchange net gains (losses) on these
derivatives and on transactions denominated in other than their functional currencies were ($0.3) million, ($0.3) million, and $0.2 million, respectively. These net gains (losses) are included in Other, net in the Consolidated Statements of
Operations. At June 30, 2007 and 2006, the notional amounts of the Companys open foreign exchange forward contracts, all with maturities of less than six months, were approximately $10.1 million and $14.6 million, respectively.

We performed a sensitivity analysis for the fourth quarter of fiscal 2007 assuming a hypothetical 10% adverse change in foreign currency
exchange rates on our foreign exchange forward contracts and our assets and liabilities denominated in other than their functional currencies. In managements opinion, a 10% adverse change in foreign currency exchange rates would have an
immaterial effect on these instruments and therefore, on our consolidated results of operations, financial position, and cash flows from operations.

On October 15, 2006, the Company completed the sale of $72.0 million of 4.00% convertible senior notes (the Notes) due October 15, 2026. The Notes will pay interest semiannually through maturity
and will be convertible at an initial conversion rate of 68.7285 shares of common stock per $1,000 principal amount of Notes, which is equivalent to a conversion price of approximately $14.55 per share of the Companys common stock. The
conversion rate will be subject to adjustment upon the occurrence of specified events. Upon conversion of the Notes, holders will receive cash up to the principal amount of each note, and any excess conversion value will be delivered in cash or
shares of LeCroys common stock, at the Companys option. As of June 30, 2007, the market value of the convertible notes was $68.1 million.

We are exposed to adverse changes in interest rates primarily due to our investment in cash and cash equivalents as well as our $50.0 million credit facility. Market risk is estimated as the potential change in fair
value resulting from a hypothetical 1% adverse change in interest rates, which would have been immaterial to our results of operations, financial position or cash flows in fiscal 2007. Please refer to Note 13  Long Term Debt and Capital Leases
for specifics related to our credit facility.



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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

LeCROY CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                                  |  |   
|----------------------------------------------------------------------------------------------------------------- |  | --
|Report of Independent Registered Public Accounting Firm                                                           |  | 54
|                                                                                                                  | 
|Consolidated Balance Sheets as of June 30, 2007 and 2006                                                          |  | 55
|                                                                                                                  | 
|Consolidated Statements of Operations for the years ended June 30, 2007, 2006 and 2005                            |  | 56
|                                                                                                                  | 
|Consolidated Statements of Stockholders Equity for the years ended June 30, 2007, 2006 and 2005                  |  | 57
|                                                                                                                  | 
|Consolidated Statements of Cash Flows for the years ended June 30, 2007, 2006 and 2005                            |  | 58
|                                                                                                                  | 
|Notes to Consolidated Financial Statements                                                                        |  | 59
|                                                                                                                  | 
|Financial Statement Schedule  Valuation and Qualifying Accounts for the years ended June 30, 2007, 2006 and 2005 |  | 93



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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

LeCroy Corporation:

We have audited the accompanying
consolidated balance sheets of LeCroy Corporation and subsidiaries as of June 30, 2007 and 2006, and the related consolidated statements of operations, stockholders equity, and cash flows for each of the years in the three-year period
ended June 30, 2007. In connection with our audits of the consolidated financial statements, we also have audited the valuation and qualifying accounts financial statement schedule. These consolidated financial statements and the financial
statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for
our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of LeCroy Corporation and subsidiaries as of June 30, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 2007, in conformity with U.S.
generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

As discussed in Notes 1 and 14 to the consolidated financial statements, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 123R, Share-Based Payment, effective July 1, 2005.

We also have
audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), LeCroy Corporation and subsidiaries internal control over financial reporting as of June 30, 2007, based on criteria established
in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated September 13, 2007 expressed an unqualified opinion on the effectiveness of LeCroy
Corporation and subsidiaries internal control over financial reporting. This report includes a paragraph stating that management excluded from its assessment of the effectiveness of LeCroy Corporation and subsidiaries internal control
over financial reporting as of June 30, 2007, Catalyst Enterprises, Inc.s internal control over financial reporting associated with total assets of approximately $2.8 million as of June 30, 2007 and total revenues of approximately
$8.4 million for the year ended June 30, 2007.

/s/ KPMG LLP

Short Hills, New Jersey

September 13, 2007



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LeCROY CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value and share data)



|                                                                                                                                                             |  |          |         |      |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------- | ------- | ---- | - | ------- | -
|                                                                                                                                                             |  | June 30, |        
|                                                                                                                                                             |  | 2007     |         | 2006 |  
|ASSETS                                                                                                                                                       |  |          |         |      |   |         |  
|Current assets:                                                                                                                                              |  |          |         |      |   |         |  
|Cash and cash equivalents                                                                                                                                    |  | $        | 10,448  |      | $ | 16,972  |  
|Accounts receivable, net of reserves of $882 and $458 at June 30, 2007 and 2006, respectively                                                                |  |          | 31,941  |      |   | 28,867  |  
|Inventories, net                                                                                                                                             |  |          | 38,645  |      |   | 34,041  |  
|Other current assets                                                                                                                                         |  |          | 9,608   |      |   | 13,237  |  
|                                                                                                                                                             |  |          |         |      |   |         |  
|Total current assets                                                                                                                                         |  |          | 90,642  |      |   | 93,117  |  
|                                                                                                                                                             |  |         
|Property and equipment, net                                                                                                                                  |  |          | 20,339  |      |   | 20,359  |  
|Goodwill                                                                                                                                                     |  |          | 105,885 |      |   | 78,473  |  
|Other non-current assets                                                                                                                                     |  |          | 14,453  |      |   | 10,025  |  
|                                                                                                                                                             |  |          |         |      |   |         |  
|Total assets                                                                                                                                                 |  | $        | 231,319 |      | $ | 201,974 |  
|                                                                                                                                                             |  |          |         |      |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                         |  |          |         |      |   |         |  
|Current liabilities:                                                                                                                                         |  |          |         |      |   |         |  
|Accounts payable                                                                                                                                             |  | $        | 16,905  |      | $ | 19,282  |  
|Accrued expenses and other current liabilities                                                                                                               |  |          | 15,408  |      |   | 13,408  |  
|Short-term bank debt                                                                                                                                         |  |          |        |      |   | 3,500   |  
|Note payable  related party                                                                                                                                 |  |          | 3,500   |      |   |        |  
|Current portion of long-term debt and capital leases                                                                                                         |  |          | 119     |      |   | 9,930   |  
|                                                                                                                                                             |  |          |         |      |   |         |  
|Total current liabilities                                                                                                                                    |  |          | 35,932  |      |   | 46,120  |  
|                                                                                                                                                             |  |         
|Long-term bank debt                                                                                                                                          |  |          | 9,410   |      |   | 24,700  |  
|Convertible notes                                                                                                                                            |  |          | 72,000  |      |   |        |  
|Deferred revenue and other non-current liabilities                                                                                                           |  |          | 1,246   |      |   | 1,451   |  
|                                                                                                                                                             |  |          |         |      |   |         |  
|Total liabilities                                                                                                                                            |  |          | 118,588 |      |   | 72,271  |  
|                                                                                                                                                             |  |         
|Commitments and contingencies                                                                                                                                |  |          |         |      |   |         |  
|                                                                                                                                                             |  |         
|Stockholders equity:                                                                                                                                        |  |          |         |      |   |         |  
|Preferred stock, $.01 par value (authorized 5,000,000 shares; none issued and outstanding as of June 30, 2007 and 2006)                                      |  |          |        |      |   |        |  
|Common stock, $.01 par value (authorized 45,000,000 shares; 12,342,809 shares issued and outstanding at June 30, 2007 and 12,883,664
issued at June 30, 2006 |  |          | 123     |      |   | 129     |  
|Additional paid-in capital                                                                                                                                   |  |          | 108,713 |      |   | 114,447 |  
|Accumulated other comprehensive income                                                                                                                       |  |          | 1,409   |      |   | 1,292   |  
|Retained earnings                                                                                                                                            |  |          | 2,486   |      |   | 15,693  |  
|Treasury stock, at cost (0 and 142,283 shares at June 30, 2007 and 2006, respectively)                                                                       |  |          |        |      |   | (1,858  | )
|                                                                                                                                                             |  |          |         |      |   |         |  
|Total stockholders equity                                                                                                                                   |  |          | 112,731 |      |   | 129,703 |  
|                                                                                                                                                             |  |          |         |      |   |         |  
|Total liabilities and stockholders equity                                                                                                                   |  | $        | 231,319 |      | $ | 201,974 |  
|                                                                                                                                                             |  |          |         |      |   |         |  

The accompanying notes are an integral part of these consolidated financial statements.



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LeCROY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)



|                                          |  |                      |         |   |            |   |         |            |  |   |         |  
|----------------------------------------- |  | -------------------- | ------- | - | ---------- | - | ------- | ---------- |  | - | ------- | -
|                                          |  | Years Ended June 30, |        
|                                          |  | 2007                 |         |   | 2006       |   |         | 2005       | 
|                                          |  | (52 Weeks)           |         |   | (52 Weeks) |   |         | (53 Weeks) | 
|Revenues:                                 |  |                      |         |   |            |   |         |            |  |   |         |  
|Test and measurement products             |  | $                    | 144,651 |   |            | $ | 153,441 |            |  | $ | 156,440 |  
|Service and other                         |  |                      | 6,649   |   |            |   | 7,095   |            |  |   | 8,538   |  
|                                          |  |                      |         |   |            |   |         |            |  |   |         |  
|Total revenues                            |  |                      | 151,300 |   |            |   | 160,536 |            |  |   | 164,978 |  
|                                          |  |                      |        
|Cost of revenues                          |  |                      | 69,419  |   |            |   | 63,476  |            |  |   | 73,632  |  
|                                          |  |                      |         |   |            |   |         |            |  |   |         |  
|Gross profit                              |  |                      | 81,881  |   |            |   | 97,060  |            |  |   | 91,346  |  
|                                          |  |                      |         |   |            |   |         |            |  |   |         |  
|Operating expenses:                       |  |                      |         |   |            |   |         |            |  |   |         |  
|Selling, general and administrative       |  |                      | 55,369  |   |            |   | 51,622  |            |  |   | 57,341  |  
|Legal settlements                         |  |                      |        |   |            |   | 2,792   |            |  |   | 1,000   |  
|Research and development                  |  |                      | 36,685  |   |            |   | 30,123  |            |  |   | 28,050  |  
|                                          |  |                      |         |   |            |   |         |            |  |   |         |  
|Total operating expenses                  |  |                      | 92,054  |   |            |   | 84,537  |            |  |   | 86,391  |  
|                                          |  |                      |         |   |            |   |         |            |  |   |         |  
|Operating (loss) income                   |  |                      | (10,173 | ) |            |   | 12,523  |            |  |   | 4,955   |  
|                                          |  |                      |        
|Other (expense) income:                   |  |                      |         |   |            |   |         |            |  |   |         |  
|Loss on extinguishment of debt            |  |                      | (997    | ) |            |   |        |            |  |   |        |  
|Interest income                           |  |                      | 124     |   |            |   | 813     |            |  |   | 564     |  
|Interest expense                          |  |                      | (4,293  | ) |            |   | (3,096  | )          |  |   | (2,742  | )
|Other, net                                |  |                      | (99     | ) |            |   | (204    | )          |  |   | 238     |  
|                                          |  |                      |         |   |            |   |         |            |  |   |         |  
|Other expense, net                        |  |                      | (5,265  | ) |            |   | (2,487  | )          |  |   | (1,940  | )
|                                          |  |                      |         |   |            |   |         |            |  |   |         |  
|(Loss) income before income taxes         |  |                      | (15,438 | ) |            |   | 10,036  |            |  |   | 3,015   |  
|Benefit from (provision for) income taxes |  |                      | 2,231   |   |            |   | (3,463  | )          |  |   | (872    | )
|                                          |  |                      |         |   |            |   |         |            |  |   |         |  
|Net (loss) income                         |  | $                    | (13,207 | ) |            | $ | 6,573   |            |  | $ | 2,143   |  
|                                          |  |                      |         |   |            |   |         |            |  |   |         |  
|Net (loss) income per common share:       |  |                      |         |   |            |   |         |            |  |   |         |  
|Basic                                     |  | $                    | (1.13   | ) |            | $ | 0.54    |            |  | $ | 0.18    |  
|Diluted                                   |  | $                    | (1.13   | ) |            | $ | 0.53    |            |  | $ | 0.17    |  
|                                          |  |                      |        
|Weighted average number of common shares: |  |                      |         |   |            |   |         |            |  |   |         |  
|Basic                                     |  |                      | 11,702  |   |            |   | 12,218  |            |  |   | 11,774  |  
|Diluted                                   |  |                      | 11,702  |   |            |   | 12,474  |            |  |   | 12,258  |  



The accompanying notes are an
integral part of these consolidated financial statements.



56



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##### Table of Contents

LeCROY CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(In thousands)



|                                                                                                                  |  |              |   |  |                     |     |   |                          |   |        |                                     |  |                           |         |   |                  |   |       |               |   |        |       |  |   |         |   |  |   |         |   |  |   |         |  
|----------------------------------------------------------------------------------------------------------------- |  | ------------ | - |  | ------------------- | --- | - | ------------------------ | - | ------ | ----------------------------------- |  | ------------------------- | ------- | - | ---------------- | - | ----- | ------------- | - | ------ | ----- |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                                                                                  |  | Common Stock |   |  | CommonStockWarrants |     |   | AdditionalPaid-inCapital |   |        | AccumulatedOtherComprehensiveIncome |  | DeferredStockCompensation |         |   | RetainedEarnings |   |       | TreasuryStock |   |        | Total | 
|                                                                                                                  |  | Shares       |   |  | Amount              |     |   |                          |   |        |                                     |  |                          
|Balance at June 30, 2004                                                                                          |  | 11,974       |   |  | $                   | 120 |   |                          | $ | 2,165  |                                     |  | $                         | 98,421  |   |                  | $ | 434   |               | $ | (6,509 | )     |  | $ | 6,977   |   |  | $ |        |   |  | $ | 101,608 |  
|                                                                                                                  |  |              |   |  |                     |     |   |                          |  
|Comprehensive income:                                                                                             |  |              |   |  |                     |     |   |                          |   |        |                                     |  |                           |         |   |                  |   |       |               |   |        |       |  |   |         |   |  |   |         |   |  |   |         |  
|Net income                                                                                                        |  |             |   |  |                     |    |   |                          |   |       |                                     |  |                           |        |   |                  |   |      |               |   |       |       |  |   | 2,143   |   |  |   |        |   |  |   | 2,143   |  
|Foreign currency translation                                                                                      |  |             |   |  |                     |    |   |                          |   |       |                                     |  |                           |        |   |                  |   | 325   |               |   |       |       |  |   |        |   |  |   |        |   |  |   | 325     |  
|Reclassification adjustment for loss on marketable securities included in net income, (net of tax benefit of $12) |  |             |   |  |                     |    |   |                          |   |       |                                     |  |                           |        |   |                  |   | 20    |               |   |       |       |  |   |        |   |  |   |        |   |  |   | 20      |  
|                                                                                                                  |  |              |   |  |                     |     |   |                          |   |        |                                     |  |                           |         |   |                  |   |       |               |   |        |       |  |   |         |   |  |   |         |   |  |   |         |  
|Total comprehensive income                                                                                        |  |              |   |  |                     |     |   |                          |   |        |                                     |  |                           |         |   |                  |   |       |               |   |        |       |  |   |         |   |  |   |         |   |  |   | 2,488   |  
|                                                                                                                  |  |              |   |  |                     |     |   |                          |   |        |                                     |  |                           |         |   |                  |   |       |               |   |        |       |  |   |         |   |  |   |         |   |  |   |         |  
|                                                                                                                  |  |              |   |  |                     |     |   |                          |  
|Additional direct costs related to public sale of common stock, net                                               |  |             |   |  |                     |    |   |                          |   |       |                                     |  |                           | (7      | ) |                  |   |      |               |   |       |       |  |   |        |   |  |   |        |   |  |   | (7      | )
|Exercise of stock options and employee stock purchases                                                            |  | 394          |   |  |                     | 4   |   |                          |   |       |                                     |  |                           | 4,589   |   |                  |   |      |               |   |       |       |  |   |        |   |  |   |        |   |  |   | 4,593   |  
|Modification of director stock option grants                                                                      |  |             |   |  |                     |    |   |                          |   |       |                                     |  |                           | 64      |   |                  |   |      |               |   |       |       |  |   |        |   |  |   |        |   |  |   | 64      |  
|Issuance of restricted stock to employees                                                                         |  | 182          |   |  |                     | 2   |   |                          |   |       |                                     |  |                           | 2,939   |   |                  |   |      |               |   | (2,941 | )     |  |   |        |   |  |   |        |   |  |   |        |  
|Forfeitures of restricted stock for terminated employees                                                          |  | (2           | ) |  |                     |    |   |                          |   |       |                                     |  |                           | (24     | ) |                  |   |      |               |   | 19     |       |  |   |        |   |  |   |        |   |  |   | (5      | )
|Issuance of vested restricted stock to employees in lieu of cash bonus                                            |  | 86           |   |  |                     | 1   |   |                          |   |       |                                     |  |                           | 1,205   |   |                  |   |      |               |   |       |       |  |   |        |   |  |   |        |   |  |   | 1,206   |  
|Issuance of LeCroy stock options in Merger                                                                        |  |             |   |  |                     |    |   |                          |   |       |                                     |  |                           | 3,166   |   |                  |   |      |               |   |       |       |  |   |        |   |  |   |        |   |  |   | 3,166   |  
|Assumption of unvested options in Merger                                                                          |  |             |   |  |                     |    |   |                          |   |       |                                     |  |                           | 1,945   |   |                  |   |      |               |   | (1,945 | )     |  |   |        |   |  |   |        |   |  |   |        |  
|Reversal of deferred stock compensation on assumed unvested options for terminated employees                      |  |             |   |  |                     |    |   |                          |   |       |                                     |  |                           | (126    | ) |                  |   |      |               |   | 126    |       |  |   |        |   |  |   |        |   |  |   |        |  
|Amortization of employee stock compensation                                                                       |  |             |   |  |                     |    |   |                          |   |       |                                     |  |                           |        |   |                  |   |      |               |   | 2,648  |       |  |   |        |   |  |   |        |   |  |   | 2,648   |  
|Tax benefit from exercise of stock options                                                                        |  |             |   |  |                     |    |   |                          |   |       |                                     |  |                           | 1,057   |   |                  |   |      |               |   |       |       |  |   |        |   |  |   |        |   |  |   | 1,057   |  
|                                                                                                                  |  |              |   |  |                     |     |   |                          |   |        |                                     |  |                           |         |   |                  |   |       |               |   |        |       |  |   |         |   |  |   |         |   |  |   |         |  
|Balance at June 30, 2005                                                                                          |  | 12,634       |   |  | $                   | 127 |   |                          | $ | 2,165  |                                     |  | $                         | 113,229 |   |                  | $ | 779   |               | $ | (8,602 | )     |  | $ | 9,120   |   |  | $ |        |   |  | $ | 116,818 |  
|                                                                                                                  |  |              |   |  |                     |     |   |                          |  
|Comprehensive income:                                                                                             |  |              |   |  |                     |     |   |                          |   |        |                                     |  |                           |         |   |                  |   |       |               |   |        |       |  |   |         |   |  |   |         |   |  |   |         |  
|Net income                                                                                                        |  |             |   |  |                     |    |   |                          |   |       |                                     |  |                           |        |   |                  |   |      |               |   |       |       |  |   | 6,573   |   |  |   |        |   |  |   | 6,573   |  
|Foreign currency translation                                                                                      |  |             |   |  |                     |    |   |                          |   |       |                                     |  |                           |        |   |                  |   | 513   |               |   |       |       |  |   |        |   |  |   |        |   |  |   | 513     |  
|                                                                                                                  |  |              |   |  |                     |     |   |                          |   |        |                                     |  |                           |         |   |                  |   |       |               |   |        |       |  |   |         |   |  |   |         |   |  |   |         |  
|Total comprehensive income                                                                                        |  |              |   |  |                     |     |   |                          |   |        |                                     |  |                           |         |   |                  |   |       |               |   |        |       |  |   |         |   |  |   |         |   |  |   | 7,086   |  
|                                                                                                                  |  |              |   |  |                     |     |   |                          |   |        |                                     |  |                           |         |   |                  |   |       |               |   |        |       |  |   |         |   |  |   |         |   |  |   |         |  
|                                                                                                                  |  |              |   |  |                     |     |   |                          |  
|Exercise of stock options and employee stock purchases                                                            |  | 209          |   |  |                     | 2   |   |                          |   |       |                                     |  |                           | 2,382   |   |                  |   |      |               |   |       |       |  |   |        |   |  |   |        |   |  |   | 2,384   |  
|Issuance of restricted stock to employees                                                                         |  | 73           |   |  |                     |    |   |                          |   |       |                                     |  |                           |        |   |                  |   |      |               |   |       |       |  |   |        |   |  |   |        |   |  |   |        |  
|Forfeitures of restricted stock for terminated employees                                                          |  | (33          | ) |  |                     |    |   |                          |   |       |                                     |  |                           |        |   |                  |   |      |               |   |        |       |  |   |        |   |  |   |        |   |  |   |        |  
|Reclass warrants to additional paid-in capital                                                                    |  |             |   |  |                     |    |   |                          |   | (2,165 | )                                   |  |                           | 2,165   |   |                  |   |      |               |   |        |       |  |   |        |   |  |   |        |   |  |   |        |  
|Reclass deferred stock compensation to additional paid-in capital upon adoption of SFAS 123R                      |  |             |   |  |                     |    |   |                          |   |       |                                     |  |                           | (8,602  | ) |                  |   |      |               |   | 8,602  |       |  |   |        |   |  |   |        |   |  |   |        |  
|Purchase of treasury shares                                                                                       |  |             |   |  |                     |     |   |                          |   |        |                                     |  |                           |         |   |                  |   |       |               |   |        |       |  |   |         |   |  |   | (1,858  | ) |  |   | (1,858  | )
|Share-based compensation expense                                                                                  |  |             |   |  |                     |    |   |                          |   |       |                                     |  |                           | 5,273   |   |                  |   |      |               |   |       |       |  |   |        |   |  |   |        |   |  |   | 5,273   |  
|                                                                                                                  |  |              |   |  |                     |     |   |                          |   |        |                                     |  |                           |         |   |                  |   |       |               |   |        |       |  |   |         |   |  |   |         |   |  |   |         |  
|Balance at June 30, 2006                                                                                          |  | 12,883       |   |  | $                   | 129 |   |                          | $ |       |                                     |  | $                         | 114,447 |   |                  | $ | 1,292 |               | $ |       |       |  | $ | 15,693  |   |  | $ | (1,858  | ) |  | $ | 129,703 |  
|                                                                                                                  |  |              |   |  |                     |     |   |                          |  
|Comprehensive loss:                                                                                               |  |              |   |  |                     |     |   |                          |   |        |                                     |  |                           |         |   |                  |   |       |               |   |        |       |  |   |         |   |  |   |         |   |  |   |         |  
|Net loss                                                                                                          |  |             |   |  |                     |    |   |                          |   |       |                                     |  |                           |        |   |                  |   |      |               |   |       |       |  |   | (13,207 | ) |  |   |        |   |  |   | (13,207 | )
|Foreign currency translation                                                                                      |  |             |   |  |                     |    |   |                          |   |       |                                     |  |                           |        |   |                  |   | 117   |               |   |       |       |  |   |        |   |  |   |        |   |  |   | 117     |  
|                                                                                                                  |  |              |   |  |                     |     |   |                          |   |        |                                     |  |                           |         |   |                  |   |       |               |   |        |       |  |   |         |   |  |   |         |   |  |   |         |  
|Total comprehensive loss                                                                                          |  |              |   |  |                     |     |   |                          |   |        |                                     |  |                           |         |   |                  |   |       |               |   |        |       |  |   |         |   |  |   |         |   |  |   | (13,090 | )
|                                                                                                                  |  |              |   |  |                     |     |   |                          |   |        |                                     |  |                           |         |   |                  |   |       |               |   |        |       |  |   |         |   |  |   |         |   |  |   |         |  
|                                                                                                                  |  |              |   |  |                     |     |   |                          |  
|Exercise of stock options and employee stock purchases                                                            |  | 156          |   |  |                     | 1   |   |                          |   |       |                                     |  |                           | 957     |   |                  |   |      |               |   |       |       |  |   |        |   |  |   |        |   |  |   | 958     |  
|Issuance of restricted stock to employees                                                                         |  | 406          |   |  |                     | 3   |   |                          |   |       |                                     |  |                           | (3      | ) |                  |   |      |               |   |       |       |  |   |        |   |  |   |        |   |  |   |        |  
|Forfeitures of restricted stock for terminated employees                                                          |  | (64          | ) |  |                     |    |   |                          |   |       |                                     |  |                           |        |   |                  |   |      |               |   |       |       |  |   |        |   |  |   |        |   |  |   |        |  
|Issuance of LeCroy stock options in Merger                                                                        |  |             |   |  |                     |    |   |                          |   |       |                                     |  |                           | 451     |   |                  |   |      |               |   |       |       |  |   |        |   |  |   |        |   |  |   | 451     |  
|Purchase of treasury shares                                                                                       |  |             |   |  |                     |    |   |                          |   |       |                                     |  |                           |        |   |                  |   |      |               |   |       |       |  |   |        |   |  |   | (10,508 | ) |  |   | (10,508 | )
|Retirement of treasury shares                                                                                     |  | (1,038       | ) |  |                     | (10 | ) |                          |   |        |                                     |  |                           | (12,356 | ) |                  |   |       |               |   |        |       |  |   |         |   |  |   | 12,366  |   |  |   |        |  
|Share-based compensation expense                                                                                  |  |             |   |  |                     |    |   |                          |   |       |                                     |  |                           | 5,217   |   |                  |   |      |               |   |       |       |  |   |        |   |  |   |        |   |  |   | 5,217   |  
|                                                                                                                  |  |              |   |  |                     |     |   |                          |   |        |                                     |  |                           |         |   |                  |   |       |               |   |        |       |  |   |         |   |  |   |         |   |  |   |         |  
|Balance at June 30, 2007                                                                                          |  | 12,343       |   |  | $                   | 123 |   |                          | $ |       |                                     |  | $                         | 108,713 |   |                  | $ | 1,409 |               | $ |       |       |  | $ | 2,486   |   |  | $ |        |   |  | $ | 112,731 |  
|                                                                                                                  |  |              |   |  |                     |     |   |                          |   |        |                                     |  |                           |         |   |                  |   |       |               |   |        |       |  |   |         |   |  |   |         |   |  |   |         |  

The accompanying notes are an integral part of these consolidated statements.



57



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##### Table of Contents

LeCROY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                                                            |  |                      |         |   |      |   |         |      |  |   |         |  
|----------------------------------------------------------------------------------------------------------- |  | -------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                            |  | Years Ended June 30, |        
|                                                                                                            |  | 2007                 |         |   | 2006 |   |         | 2005 | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                       |  |                      |         |   |      |   |         |      |  |   |         |  
|Net (loss) income                                                                                           |  | $                    | (13,207 | ) |      | $ | 6,573   |      |  | $ | 2,143   |  
|Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:          |  |                      |         |   |      |   |         |      |  |   |         |  
|Write-off of acquired in-process research and development                                                   |  |                      | 4,000   |   |      |   |        |      |  |   | 2,190   |  
|Depreciation and amortization                                                                               |  |                      | 8,127   |   |      |   | 7,558   |      |  |   | 8,241   |  
|Share-based compensation                                                                                    |  |                      | 5,217   |   |      |   | 5,315   |      |  |   | 3,913   |  
|Amortization of deferred financing costs                                                                    |  |                      | 530     |   |      |   | 377     |      |  |   | 370     |  
|Deferred income taxes                                                                                       |  |                      | 2,691   |   |      |   | 2,282   |      |  |   | (921    | )
|Loss on extinguishment of debt                                                                              |  |                      | 997     |   |      |   |        |      |  |   |        |  
|Impairment of intangible assets                                                                             |  |                      | 250     |   |      |   |        |      |  |   | 1,500   |  
|Loss on disposals of property and equipment, net                                                            |  |                      | 176     |   |      |   | 196     |      |  |   | 194     |  
|Recognition of deferred license revenue                                                                     |  |                      |        |   |      |   | (665    | )    |  |   | (1,296  | )
|Tax benefit from exercise of stock options                                                                  |  |                      |        |   |      |   |        |      |  |   | 1,057   |  
|Change in operating assets and liabilities, net of assets acquired and liabilities assumed in acquisitions: |  |                      |         |   |      |   |         |      |  |   |         |  
|Accounts receivable                                                                                         |  |                      | (1,977  | ) |      |   | (65     | )    |  |   | (1,435  | )
|Inventories                                                                                                 |  |                      | (1,337  | ) |      |   | (7,731  | )    |  |   | (3,669  | )
|Other current and non-current assets                                                                        |  |                      | (1,677  | ) |      |   | (1,636  | )    |  |   | 447     |  
|Accounts payable, accrued expenses and other liabilities                                                    |  |                      | (4,414  | ) |      |   | 3,790   |      |  |   | (11     | )
|                                                                                                            |  |                      |         |   |      |   |         |      |  |   |         |  
|Net cash (used in) provided by operating activities                                                         |  |                      | (624    | ) |      |   | 15,994  |      |  |   | 12,723  |  
|                                                                                                            |  |                      |         |   |      |   |         |      |  |   |         |  
|                                                                                                            |  |                      |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                                       |  |                      |         |   |      |   |         |      |  |   |         |  
|Purchase of property and equipment                                                                          |  |                      | (4,143  | ) |      |   | (4,823  | )    |  |   | (3,687  | )
|Business acquisition costs, net of acquired cash                                                            |  |                      | (31,512 | ) |      |   |        |      |  |   | (80,363 | )
|Purchase of intangible assets                                                                               |  |                      |        |   |      |   | (812    | )    |  |   | (100    | )
|Proceeds from the sale of marketable securities                                                             |  |                      |        |   |      |   |        |      |  |   | 9,534   |  
|                                                                                                            |  |                      |         |   |      |   |         |      |  |   |         |  
|Net cash used in investing activities                                                                       |  |                      | (35,655 | ) |      |   | (5,635  | )    |  |   | (74,616 | )
|                                                                                                            |  |                      |         |   |      |   |         |      |  |   |         |  
|                                                                                                            |  |                      |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                                       |  |                      |         |   |      |   |         |      |  |   |         |  
|Repayment of term loan                                                                                      |  |                      | (34,076 | ) |      |   | (10,300 | )    |  |   | (5,624  | )
|Borrowings under credit lines                                                                               |  |                      | 40,160  |   |      |   | 3,500   |      |  |   | 50,000  |  
|Repayments under credit lines                                                                               |  |                      | (34,250 | ) |      |   |        |      |  |   |        |  
|Payment of deferred financing costs                                                                         |  |                      | (3,826  | ) |      |   | (187    | )    |  |   | (1,378  | )
|Proceeds from issuance of convertible notes                                                                 |  |                      | 72,000  |   |      |   |        |      |  |   |        |  
|Purchase of treasury shares                                                                                 |  |                      | (10,508 | ) |      |   | (1,715  | )    |  |   |        |  
|Repayment of borrowings on capitalized leases                                                               |  |                      | (391    | ) |      |   | (562    | )    |  |   | (414    | )
|Payment related to issuance of common stock                                                                 |  |                      |        |   |      |   |        |      |  |   | (7      | )
|Payment of seller-financed intangible assets                                                                |  |                      |        |   |      |   |        |      |  |   | (250    | )
|Proceeds from employee stock purchase and option plans                                                      |  |                      | 958     |   |      |   | 2,384   |      |  |   | 4,593   |  
|                                                                                                            |  |                      |         |   |      |   |         |      |  |   |         |  
|Net cash provided by (used in) financing activities                                                         |  |                      | 30,067  |   |      |   | (6,880  | )    |  |   | 46,920  |  
|                                                                                                            |  |                      |         |   |      |   |         |      |  |   |         |  
|Effect of exchange rate changes on cash and cash equivalents                                                |  |                      | (312    | ) |      |   | (373    | )    |  |   | 273     |  
|                                                                                                            |  |                      |         |   |      |   |         |      |  |   |         |  
|Net (decrease) increase in cash and cash equivalents                                                        |  |                      | (6,524  | ) |      |   | 3,106   |      |  |   | (14,700 | )
|Cash and cash equivalents, beginning of year                                                                |  |                      | 16,972  |   |      |   | 13,866  |      |  |   | 28,566  |  
|                                                                                                            |  |                      |         |   |      |   |         |      |  |   |         |  
|Cash and cash equivalents, end of year                                                                      |  | $                    | 10,448  |   |      | $ | 16,972  |      |  | $ | 13,866  |  
|                                                                                                            |  |                      |         |   |      |   |         |      |  |   |         |  
|Supplemental Cash Flow Disclosure                                                                           |  |                      |         |   |      |   |         |      |  |   |         |  
|Cash paid during the year for:                                                                              |  |                      |         |   |      |   |         |      |  |   |         |  
|Interest                                                                                                    |  | $                    | 1,184   |   |      | $ | 2,541   |      |  | $ | 1,984   |  
|Income taxes                                                                                                |  |                      | 695     |   |      |   | 1,805   |      |  |   | 1,215   |  
|Non-cash investing and financing transactions:                                                              |  |                      |         |   |      |   |         |      |  |   |         |  
|Issuance of note payable to related party for business acquisition                                          |  |                      | 3,500   |   |      |   |        |      |  |   |        |  
|Issuance of LeCroy stock options for business acquisitions                                                  |  |                      | 451     |   |      |   |        |      |  |   | 3,166   |  
|Transaction costs for business acquisition, unpaid at June 30, 2007                                         |  |                      | 99      |   |      |   |        |      |  |   |        |  
|Acquisition of seller-financed intangible assets                                                            |  |                      |        |   |      |   |        |      |  |   | 1,331   |  
|Treasury stock purchased but unpaid at June 30, 2006                                                        |  |                      |        |   |      |   | 143     |      |  |   |        |  
|Property and equipment acquired under capital lease                                                         |  |                      |        |   |      |   | 125     |      |  |   |        |  
|Transfer of inventory into property and equipment                                                           |  |                      | 1,024   |   |      |   | 1,550   |      |  |   | 503     |  

The accompanying notes are an integral part of these consolidated financial statements.



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LeCROY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

1.    Summary of Significant Accounting Policies

Organization

LeCroy Corporation (the Company or LeCroy), was founded and incorporated in the State of New York in 1964 and reincorporated in
the State of Delaware in 1995. The Company develops, manufactures, sells and licenses high-performance oscilloscopes and global communications protocol analyzers. Oscilloscopes are tools used by designers and engineers to measure and analyze complex
electronic signals in order to develop high-performance systems, to validate electronic designs and to improve time to market. Protocol analyzers are tools used by designers and engineers to generate and monitor traffic over high speed serial data
interfaces, including USB2.0, Bluetooth, PCI Express, Serial ATA, Serial Attached SCSI (SAS), Wireless USB, and others. The Companys products are sold world wide into a broad range of end markets, including computer/semiconductor/consumer
electronics, data storage, automotive/industrial, and military/aerospace. Revenues are also generated from the sale of probes, accessories, and applications solutions, and to a lesser extent, extended warranty and maintenance contracts, repairs and
calibrations performed on instruments after the expiration of their warranties.

Basis of Presentation and Use of Estimates

The consolidated financial statements include the accounts of LeCroy and its wholly-owned subsidiaries. Intercompany balances and
transactions have been eliminated in consolidation. Certain reclassifications have been made to prior-years amounts to conform to the current-year presentation.

The Companys consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the revenues and expenses reported during
the period. The most significant of these estimates and assumptions relate to revenue recognition, reserves for accounts receivable, allowance for excess and obsolete inventory, valuation of long-lived and intangible assets, goodwill and deferred
tax assets, share-based compensation expense and warranty. These estimates and assumptions are based on managements judgment and available information and, consequently, actual results could differ from these estimates.

Fiscal Year Ending Dates

The
Companys fiscal year ends on the Saturday closest to June 30 (June 30, 2007, July 1, 2006 and July 2, 2005). Fiscal years 2007 and 2006 represented 52-week periods and fiscal year 2005 represented a 53-week period. For
clarity of presentation, the consolidated financial statement year-end references are stated as June 30.

Revenue

LeCroy recognizes product and service revenue, net of allowances for anticipated returns, provided that (1) persuasive
evidence of an arrangement exists, (2) delivery has occurred, (3) the selling price is fixed or determinable and (4) collection is reasonably assured. Delivery is considered to have occurred when title and risk of loss have
transferred to the customer, or when services have been provided. The price is considered fixed or determinable when it is not subject to refund or adjustments.

The Company maintains an allowance for doubtful accounts relating to accounts receivable estimated to be non-collectible. The Company analyzes historical bad debts, customer concentrations, customer creditworthiness,
current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. In addition, the Company maintains an allowance for anticipated sales returns. The Company analyzes historical return
trends as well as in-transit product returns to evaluate the adequacy of the allowance for anticipated returns.



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Test and measurement products revenue.The Company generates Test and measurement product revenue
from the sales of oscilloscopes and application solutions, protocol analyzers, probes and accessories. Provisions for warranty costs are recorded at the time products are shipped.

Application solutions, which provide oscilloscopes with additional analysis capabilities, are either delivered via compact disc or are already loaded in
the oscilloscopes and activated via a key code after the sale is made to the customer. No post-contract support is provided on the oscilloscope application solutions. All sales of test and measurement products are based upon separately established
prices for the items and are recorded as revenue according to the above revenue recognition criteria. Revenues from oscilloscope products are included in revenues from Test and measurement products in the Consolidated Statements of Operations.
Certain software is embedded in the Companys oscilloscopes, but the embedded software component is considered incidental.

In fiscal
2006, in an effort to provide end-user customers an alternative to purchasing the Companys higher end products under its standard terms and conditions, the Company began offering customers an opportunity to enter into sales-type or direct
financing leases for these products. The Company is accounting for these leases in accordance with Statement of Financial Accounting Standards (SFAS) No. 13, Accounting for Leases. Lease and rental revenues are reported
within Test and measurement product revenue and were immaterial for the years ended June 30, 2007 and 2006.

Due to the significant
software content of its protocol analyzer products, the Company recognizes revenue on the sale of these products, in accordance with American Institute of Certified Public Accountants Statement of Position 97-2, Software Revenue
Recognition (SOP 97-2), as amended by Statement of Position 98-9, Modifications of SOP 97-2 with Respect to Certain Transactions (SOP 98-9), upon shipment, provided there is persuasive
evidence of an arrangement, the product has been delivered, the price is fixed or determinable and collectibility is probable. Software maintenance support revenue is deferred based on its vendor specific objective evidence of fair value
(VSOE) and recognized ratably over the maintenance support periods. In limited circumstances where VSOE does not exist for software maintenance support, the Company recognizes revenue and accrues costs, if applicable, under the
appropriate provisions of SOP 97-2 determined by the facts and circumstances of each transaction. Provisions for warranty costs are recorded at the time products are recognized as revenue. Revenues from protocol analyzer products are included in
Test and measurement products in the Consolidated Statements of Operations.

Service and other revenue.Service and other revenue
includes extended warranty contracts, software maintenance agreements and repairs and calibrations performed on instruments after the expiration of their normal warranty period. The Company records deferred revenue for extended warranty contracts,
software maintenance agreements and calibrations services and then recognizes such revenue on a straight-line basis over the related service period. When arrangements include multiple elements, the Company uses relative fair values in accordance
with Emerging Issues Task Force (EITF) Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, to allocate revenue to the elements and recognizes revenue when the criteria for revenue recognition have been met for
each element.

Deferred product revenue. During the third quarter of fiscal 2004, the Company began shipping the WaveSurfer
oscilloscope product line. One component of the Companys strategy for distributing this product line was the use of a buy-sell distribution channel. This was the Companys initial entry into this distribution channel and, because of the
associated uncertainty about sell-through volumes, the Company was unable to sufficiently estimate the amounts of potential product returns. In the fourth quarter of fiscal 2005, having had four full quarters of experience with this product and
channel with no significant returns, the Company had sufficient data to estimate potential returns and, in accordance with SFAS No. 48, Revenue Recognition When Right of Return Exists (SFAS 48), recognized previously
deferred revenue of $2.6 million. Revenue related to WaveSurfers sold to distributors, beginning with the fourth quarter of fiscal 2005, is recognized upon shipment to the distributor, rather than upon the sale of the unit by the distributor to the
end user and a provision for expected returns is recognized.

Deferred license revenue. Revenue from license fees under
agreements that have exclusivity clauses and, from the licensees perspective, have ongoing requirements or expectations that are more than perfunctory, are



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recognized on a straight-line basis over the terms of the related agreements. An ongoing requirement or expectation would be considered more than perfunctory
if any party to the contract considers it to be essential to the functionality of the delivered product or service or failure to complete the activities would result in the customer receiving a full or partial refund or rejecting the
products delivered or services performed to date.

Beginning in fiscal 2001 with the adoption of the SECs Staff Accounting Bulletin,
(SAB) No. 101 (SAB 101), Revenue Recognition in Financial Statements, (superseded by SAB 104), certain previously recognized license fee revenue was deferred and recognized in future periods over the terms of
the agreements. The adoption of SAB 101 was recorded as of the beginning of fiscal 2001 and resulted in a non-cash charge for the cumulative effect of an accounting change of $4.4 million, net of a tax benefit of $2.7 million. The deferred revenue
was being amortized into revenue on a straight-line basis over 5.5 years, the remaining terms of the license agreements. The Company recognized pretax license fee revenue of zero, $0.7 million and $1.3 million during fiscal years 2007, 2006 and
2005, respectively. Such license fees are included in Service and other revenue in the Consolidated Statements of Operations. As of June 30, 2006, there was no remaining deferred license revenue from the adoption of SAB 101.

Share  Based Compensation

In the first quarter of fiscal 2006, the Company adopted the provisions of SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123R) which requires that the cost resulting from all share-based payment
transactions be recognized in the financial statements at their fair values. The Company adopted SFAS 123R using the modified prospective application method under which the provisions of SFAS 123R apply to new awards and to awards modified,
repurchased, or cancelled after the adoption date. The fair value of the compensation cost is recognized on a straight-line basis over the requisite service period of the award. Additionally, compensation cost for the portion of the awards for which
the requisite service had not been rendered that were outstanding as of the adoption date is recognized in the Consolidated Statement of Operations over the remaining service period after the adoption date based on the awards original estimate
of fair value. The Company uses the Black-Scholes option pricing model to estimate the fair value of options on the date of grant which requires certain estimates by management including the expected volatility and expected term of the option.
Management also makes decisions regarding the risk free interest rate used in the model and makes estimates regarding forfeiture rates. Fluctuations in the market that affect these estimates could have an impact on the resulting compensation cost.
The fair value of restricted stock grants (referred to as non-vested stock) is determined based on the closing price of the Companys common stock on the date of grant. Related compensation expense is recognized ratably over the associated
requisite service period, giving effect to estimated forfeitures. (See Note 14  Share-based Compensation for additional information.)

On November 10, 2005, the Financial Accounting Standards Board (FASB) issued FASB Staff Position 123(R)-3 (FSP 123R-3), Transition Election Related to Accounting for the Tax Effects of Share-based Payment
Awards, that provided an elective alternative transition method of calculating the pool of excess tax benefits available to absorb tax deficiencies recognized subsequent to the adoption of SFAS 123R (the APIC Pool) to the method
otherwise required by paragraph 81 of SFAS 123R. During the second quarter of fiscal 2007, the Company made the election to use the alternative method; however, the alternative method does not have an impact on the Companys results of
operations or financial condition due to the Companys net operating loss position.

Historically, through fiscal 2005, the Company
accounted for stock-based compensation under the recognition and measurement principles of Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees (APB 25), and related
interpretations. No compensation expense related to stock options was reflected in the Companys Consolidated Statements of Operations, with the exception of the LeCroy (CATC) Plans, as all options had an exercise price equal to the market
value of the underlying common stock on the date of grant. Compensation cost for restricted stock (non-vested stock) was recorded based on its market value on the date of grant and was expensed in the Companys Consolidated Statements of
Operations ratably over the vesting period. Upon the grant of restricted stock, deferred stock compensation was recorded as an offset to additional paid-in capital and was amortized on a straight-line basis as compensation expense over the vesting
period. (See Note 14  Share-based Compensation for additional information.)



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Warranty

The Company provides a warranty on its products, typically extending three years after delivery, and accounts for warranty obligations in accordance with SFAS No. 5, Accounting for Contingencies.
Estimated future warranty obligations related to products are provided by charges to Cost of revenues in the period that the related revenue is recognized. These estimates are derived from historical data of product reliability and, for new
products, published (by a third party) expected failure rates. The expected failure rate is arrived at in terms of units, which are then converted into labor hours to which an average fully burdened cost per hour is applied to derive the amount of
accrued warranty required. On a quarterly basis, the Company studies trends of warranty claims and performance of specific products and adjusts its warranty obligation through charges or credits to Cost of revenues (See Note 11  Warranties and
Guarantees for additional information).

Shipping and handling costs

The Company records the costs and fees associated with transporting its products to customers as a component of Selling, general and administrative
expense in the Consolidated Statements of Operations. These costs totaled $4.2 million, $3.5 million and $3.1 million for the fiscal years ended June 30, 2007, 2006 and 2005, respectively.

Advertising Costs

The costs
of general advertising, promotion and marketing programs are charged to Selling, general and administrative expense in the Consolidated Statements of Operations in the fiscal year incurred. The costs of advertising related to new product
introductions are deferred until such advertising first takes place, which generally coincides with product introduction. Advertising expense for the fiscal years ended June 30, 2007, 2006 and 2005 was $3.0 million, $2.6 million and $2.7
million, respectively.

Research and Development

Research and development costs are expensed as incurred. The Company evaluates the requirement to capitalize certain software development costs for
protocol analyzers in accordance with SFAS No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed (SFAS 86). Under SFAS 86, costs incurred to develop or significantly enhance
computer software products are charged to research and development expense as incurred until technological feasibility has been established. The nature of the Companys development for protocol analyzers is generally such that the Company can
measure technological feasibility most effectively using the working model method where the time between establishment of a working model and general availability is of short duration which results in very little or no costs that qualify for
capitalization. As such, the Company has not capitalized any software development costs for the years ended June 30, 2007, 2006 or 2005.

Cash and Cash Equivalents

Cash in excess of current operating requirements are invested in cash equivalents, which
are short-term, highly liquid interest bearing investments with maturities of three months or less at the date of purchase and are stated at cost, which approximates market value.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Replacements, maintenance and repairs which do not improve or extend the life of the respective asset are expensed as incurred. Depreciation and amortization of
property and equipment is provided on a straight-line basis over the assets estimated useful life or related lease term, if shorter, as follows:



|                                   |  |            
|---------------------------------- |  | -----------
|Building and improvements          |  | 10-32 years
|Furniture, machinery and equipment |  | 2-10 years 
|Computer software and hardware     |  | 2-7 years  



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Inventories

Inventories, with the exception of demonstration units in finished goods, are stated at the lower of cost (first-in, first-out method) or market. Demonstration units are stated at lower of cost (specific
identification method) or market.

Impairment of Long-Lived Assets and Acquired Intangible Assets

The Company monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets, including amortizable intangible
assets, may not be recoverable. When such events or changes in circumstances occur, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected
future cash flows. If the undiscounted cash flows are less than the carrying amount, an impairment loss is recorded to the extent that the carrying amount exceeds the fair value. During fiscal 2005, an intangible asset that provided for
manufacturing rights to, and the use of, certain intellectual property failed the impairment test due to a change in product strategy and, accordingly, a $1.5 million pre-tax loss was recognized in Cost of revenues in the fiscal 2005 Consolidated
Statement of Operations. During fiscal 2006, there were no impairment indicators. During fiscal 2007, an intangible asset failed the impairment test due to a change in the Companys product strategy and, accordingly, a $0.3 million pre-tax loss
was recognized in Cost of revenues in the fiscal 2007 Consolidated Statement of Operations.

Goodwill

Goodwill is recognized for the excess of the purchase price over the fair value of assets acquired and liabilities assumed in a purchase business
combination. The Company tests goodwill for impairment annually under a two-step approach, or more frequently, if events or changes in circumstances indicate that the asset might be impaired.

The first step is to identify if an impairment of goodwill has occurred by comparing the fair value of a reporting unit with its carrying amount,
including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired. If the carrying amount of the reporting unit exceeds its fair value, the second step of the goodwill
test is performed to measure the amount of the impairment loss, if any. In this second step, the implied fair value (as defined in SFAS No. 142, Goodwill and Other Intangible Assets) of the reporting units goodwill
is compared with the carrying amount of the goodwill. If the carrying amount of the reporting units goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess, not to exceed the
carrying amount of the goodwill. Impairment is assessed at the reporting unit level by applying a fair value-based test using the Companys market capitalization. The Company has one reporting unit for the purposes of impairment
testing.

The Company completed the annual impairment test during the fourth quarter of fiscal 2007 and determined that there was no
impairment to its recorded goodwill balance of $105.9 million at June 30, 2007. There were no impairment indicators identified during fiscal years 2007, 2006 or 2005.

Concentration of Credit Risk

The Company develops, manufactures, sells and licenses high-performance oscilloscopes, serial data analyzers and global communication protocol test solutions. The Companys products are sold into a broad range of end markets, including
computer/semiconductor/consumer electronics, data storage, automotive/industrial, and military/aerospace markets. Sales occur in all regions of the United States as well as a many foreign countries. No customer accounted for more than 10% of the
Companys consolidated revenues in any of the last three fiscal years. There is no significant concentration of the Companys accounts receivable portfolio in any customer or geographical region that presents a risk to the Company based on
that concentration. Credit losses have been minimal in fiscal 2007, 2006 and 2005.

Income Taxes

Deferred tax assets and liabilities are recognized under the asset and liability method based upon the difference between the amounts reported for
financial reporting and tax purposes. These deferred taxes are measured by



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applying current enacted tax rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that
includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the period in which related temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this
assessment. The Companys policy is not to provide for U.S. taxes on undistributed earnings of foreign subsidiaries to the extent such earnings are determined to be permanently invested outside the United States. The Company establishes
accruals for tax contingencies when, notwithstanding the reasonable belief that our tax return positions are supported fully, management believes that certain filing positions are likely to be challenged and, moreover, that such filing positions are
not probable of being sustained. The Company continually evaluates its tax contingency accruals and will adjust such amounts in light of changing facts and circumstances, including but not limited to emerging case law, tax legislation, rulings by
relevant tax authorities and the progress of ongoing tax audits.

Foreign Exchange

The Companys foreign subsidiaries use their local currency as the functional currency and translate all assets and liabilities at fiscal year-end
exchange rates and all income and expenses at average fiscal year exchange rates with translation adjustments recorded in Accumulated other comprehensive income, a separate component of stockholders equity in the Consolidated Balance Sheets.
Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in Other, net in the Consolidated Statements of Operations. Foreign currency
transaction gains and losses, related to short-term intercompany loans, are recorded in the Consolidated Statements of Operations as incurred. Intercompany loans that are of a long-term nature are accounted for in accordance with SFAS No. 52,
Foreign Currency Translation, (SFAS 52) whereby foreign currency transaction gains and losses are recorded in Accumulated other comprehensive income, a component of stockholders equity. For the years 2006 and 2005
certain intercompany loans to foreign subsidiaries were considered long-term in nature. During fiscal 2007, management changed its intention for one long-term intercompany loan to be short-term in nature, and, as required under SFAS 52, foreign
exchange gains and losses subsequent to this change in intent are recorded in the Consolidated Statements of Operations as incurred.

Financial Instruments

Cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other
current liabilities, short-term bank debt, and note payable  related party reported in the Consolidated Balance Sheets equal or approximate their fair value due to their short term to maturity. Borrowings under the revolving line of credit
have variable interest rates and their carrying amounts are considered by management to be a reasonable estimate of their fair value. On October 12, 2006, the Company sold and issued $72.0 million 4.0% convertible senior subordinated notes
which is included in Senior convertible notes at June 30, 2007. The market value of the convertible notes was $68.1 million at June 30, 2007. Fair value is determined through information obtained from a third party using the latest available
market data.

Derivative Instruments

The Company accounts for derivatives and hedging activities in accordance with SFAS No. 133, Accounting for Derivative Investments and Hedging Activities, as amended (SFAS 133), which
requires that all derivative instruments be recorded on the balance sheet at their respective fair values. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument is dependent upon whether the derivative has
been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. The Companys foreign exchange forward contracts and interest rate swap agreements are not accounted for as hedges in accordance
with SFAS 133; therefore, any changes in fair value of these contracts are recorded in the Consolidated Statements of Operations. These derivatives are also recorded on the Consolidated Balance Sheets at fair value.

The Company enters into foreign exchange forward contracts to minimize the risks associated with foreign currency fluctuations on assets or liabilities
denominated in other than the functional currency of the Company or its



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subsidiaries. The fair value of the foreign exchange forward contracts is a loss of approximately ($36,000) at June 30, 2007 as compared to a loss of
approximately ($0.2) million at June 30, 2006. The change in fair value of these contracts are recorded in Other expense, net in the Consolidated Statements of Operations.

The changes in fair value of the foreign exchange contracts are highly inversely correlated to changes in the value of certain of the Companys
foreign currency-denominated assets and liabilities. At June 30, 2007 and 2006, the notional amounts of the Companys open foreign exchange forward contracts, all with maturities of less than six months, were approximately $10.4 million
and $14.6 million, respectively.

On October 16, 2006 in conjunction with the repayment of the term loan (See Note 13  Long-term
Debt and Capital Leases for additional information), the Company terminated its interest rate swap with M&T Bank. The net interest income earned on the swap was $0.3 million and $0.1 million for the years ended June 30, 2007 and 2006,
respectively, and is recognized in Interest expense in the Consolidated Statements of Operations. The notional amount as of June 30, 2006 was approximately $19.1 million.

The Company does not use derivative financial instruments for trading or other speculative purposes and does not enter into fair value hedges.

Comprehensive (Loss) Income

Comprehensive (loss) income comprises net (loss) income, foreign currency translation adjustments and unrealized gains and losses on marketable securities classified as available-for-sale, net of reclassification
adjustments for realized gain and losses on marketable securities included in net (loss) income.

New Accounting Pronouncements

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, (SFAS 154) which
was effective for the Company for reporting changes in accounting principles for correction of errors beginning in fiscal year 2007. SFAS 154 changes the reporting of a change in accounting principle to be applied retrospectively to prior
periods financial statements, unless explicit transition provisions are provided for in new accounting pronouncements or existing pronouncements that are in the transition phase when SFAS 154 becomes effective. There was no impact on the
Companys consolidated financial statements from the adoption of SFAS 154 in fiscal 2007.

In February 2006, the FASB issued SFAS
No. 155, Accounting for Certain Hybrid Instruments, an amendment of FASB Statements No. 133 and 140 (SFAS 155). SFAS 155 allows financial instruments that have embedded derivatives to be accounted for as a whole
(eliminating the need to separate the derivative from its host) if the holder elects to account for the whole instrument on a fair value basis. It also clarifies which interest-only strips and principal-only strips are not subject to the
requirements of SFAS 133; establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring
separation; clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and amends Statement 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial
instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of an entitys first fiscal year that begins after
September 15, 2006. Management is currently evaluating the effect of the adoption of SFAS 155, however management does not believe the adoption will have a material impact on the Companys consolidated financial statements.

In June 2006, the Emerging Issues Task Force (EITF) issued EITF Issue 06-2 (EITF 06-2), Accounting for Sabbatical Leave and
Other Similar Benefits Pursuant to FASB Statement No. 43. EITF 06-2 provides guidance that an employees right to a compensated absence under a sabbatical or other similar benefit arrangement should be accrued over the requisite
service period. EITF 06-2 is effective for fiscal years beginning after December 15, 2006. EITF 06-2 allows for adoption through retrospective application to all prior periods or through a cumulative-effect adjustment to retained earnings.
Management is currently evaluating the effect that adoption of this consensus will have on our consolidated financial position and results of operations.



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In June 2006, the FASB ratified the Emerging Issues Task Force consensus on Issue No. 06-3,How
Sales Taxes Collected From Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross Versus Net Presentation) (EITF 06-3). EITF 06-3 requires disclosure of a companys accounting policy
regarding presentation of taxes, including any tax assessed by a governmental authority that is imposed concurrently on a specific revenue-producing transaction between a seller and a customer. If taxes included in gross revenues are significant, a
company should disclose the amount of such taxes for each period for which an income statement is presented. EITF 06-3 was effective for the Company beginning in the third quarter of fiscal year 2007. The Company presents sales net of applicable
sales and valued added taxes. The adoption of EITF 06-3 did not cause the Company to change its accounting policy for recording sales and valued added taxes and therefore did not have a material effect on the Companys consolidated financial
statements.

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes  An
Interpretation of FASB Statement No. 109, (FIN 48) which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a
tax return. FIN 48 is effective for fiscal years beginning after December 15, 2006. Management is currently evaluating the effect that adoption of this interpretation will have on the Companys consolidated financial position and results
of operations; however management does not believe that the adoption of FIN 48 will have a material impact on the Companys consolidated financial statements.

In September 2006 the FASB issued SFAS No. 157, Fair Value Measurements, (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value and requires enhanced
disclosures about fair value measurements. SFAS 157 requires companies to disclose the fair value of their financial instruments according to a fair value hierarchy as defined in the standard. Additionally, companies are required to provide enhanced
disclosure regarding financial instruments in one of the categories, including a reconciliation of the beginning and ending balances separately for each major category of assets and liabilities. SFAS 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Management is currently evaluating the effect that adoption of this statement will have on the Companys consolidated financial position and
results of operations.

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current year Financial Statements (SAB 108), which provides interpretive guidance on the consideration of the effects of prior year
misstatements in quantifying current year misstatements for the purpose of a materiality assessment. SAB 108 is effective as of the end of the Companys 2007 fiscal year, allowing a one-time transitional cumulative effect adjustment to
beginning retained earnings as of July 1, 2006 for errors that were not previously deemed material, but are material under the guidance in SAB 108. The Company adopted SAB 108 in fiscal 2007 which had no effect on the Companys
consolidated financial statements.

In December 2006, the FASB issued FASB Staff Position EITF 00-19-2, Accounting for Registration
Payment Arrangements (FSP EITF 00-19-2). FSP EITF 00-19-2 specifies that registration payment arrangements should play no part in determining the initial classification and subsequent accounting for the securities to which they
relate. FSP EITF 00-19-2 requires the contingent obligation in a registration payment arrangement to be separately analyzed under SFAS No. 5, Accounting for Contingencies, and FASB Interpretation No. 14, Reasonable
Estimations of the Amount of a Loss. If payment in a registration payment arrangement is probable and can be reasonably estimated, a liability should be recorded. FSP EITF 00-19-2 is effective for fiscal years beginning after December 15,
2006. Management is currently evaluating the effect that adoption of this FSP will have on the on the Companys consolidated financial position and results of operations, however management does not believe that the adoption of FSP EITF 00-19-2
will have a material impact on the Companys consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial Liabilities  Including an Amendment of FASB Statement No. 115 (SFAS No. 159). This statement permits entities to choose to measure many financial
instruments and certain other items at fair value. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115,



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Accounting for Certain Investments in Debt and Equity Securities, applies to all entities with available-for-sale and trading securities. SFAS
No. 159 is effective as of the beginning of an entitys first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided
the entity also elects to apply the provision of SFAS No. 157. Management is currently evaluating the effect that adoption of SFAS No. 159 will have on the Companys consolidated financial position and results of operations.

In May 2007, the FASB issued FASB Staff Position No. FIN 48-1, Definition of Settlement in FASB Interpretation No. 48
(FSP-FIN 48-1). FSP-FIN 48-1 further clarifies if it is appropriate for an entity to recognize a previously unrecognized tax benefit when the only change since the initial determination is the completion of an examination or audit by a
taxing authority. FSP-FIN 48-1 provides the determination of whether the position is effectively settled should be taken on a case by case basis; however, positions may be grouped by tax year and considered effectively settled. Management is
currently evaluating the effect that adoption of this position in conjunction with adopting FIN 48 will have on the Companys consolidated financial position and results of operations; however management does not believe that adoption of this
position will have a material impact on the Companys consolidated financial statements.

In June 2007, the Emerging Issues Task Force
(EITF) issued EITF 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities (EITF 07-3). EITF 07-3 addresses the diversity that exists with
respect to the accounting for the non-refundable portion of a payment made by a research and development entity for future research and development activities. The EITF concluded that an entity must defer and capitalize non-refundable advance
payments made for research and development activities until the related goods are delivered or the related services are performed. EITF 07-3 is effective for interim or annual reporting periods in fiscal years beginning after December 15, 2007.
The Company is currently evaluating the impact of adopting EITF 07-03 on its financial statements and results of operations; however, management does not expect it will have a material effect on the Companys consolidated financial condition or
results of operations.

2.    CATC Acquisition

On October 29, 2004, the Company completed its acquisition of 100% of the outstanding common stock of Computer Access Technology Corporation (CATC) via the merger of a newly-formed, wholly-owned
subsidiary of LeCroy with and into CATC, with CATC surviving as a wholly-owned subsidiary of LeCroy (the CATC Merger). CATC is a provider of advanced verification systems for existing and emerging digital communications standards.
CATCs products are used by semiconductor, device, system and software companies at each phase of their products lifecycles from development through production and market deployment. CATC had approximately 70 employees at the time of the
CATC Merger.

Total consideration paid to acquire CATC was approximately $130.0 million. The CATC Merger was recorded under the purchase
method of accounting, in accordance with SFAS No. 141, Business Combinations, (SFAS 141) which requires that the total consideration be allocated to the assets acquired and liabilities assumed based on their fair values.
On the effective date of the CATC Merger, each share of CATC common stock issued and outstanding immediately prior thereto was canceled and converted into the right to receive $6.00 in cash. In addition, LeCroy paid cash to the holders of
CATCs outstanding, vested, in-the-money stock options and employee stock purchase plan (the CATC ESPP) purchase rights. Further, LeCroy assumed CATCs outstanding unvested stock options, as well as certain vested but
unexercised stock options, by granting to CATC employees a total of 648,284 options to purchase LeCroy common stock (the LeCroy Options). The fair value of the assumed options was determined using the Black-Scholes option pricing model
in accordance with EITF 99-12, Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in a Purchase Business Combination. (See Note 14  Share-Based Compensation for further discussion of the
accounting for these options following the Companys adoption of SFAS No. 123R.) LeCroy paid cash of $80.4 million, net of cash acquired, using $30.4 million of cash on hand and borrowings of $50.0 million under the Companys previous



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$75.0 million senior, secured, five-year credit agreement (See Note 13  Long Term Debt and Capital Leases for additional information). The CATC
Merger consideration is summarized below (in thousands):



|                                                                           |  |   |         |  
|-------------------------------------------------------------------------- |  | - | ------- | -
|Cash for shares                                                            |  | $ | 120,242 |  
|Cash for options and CATC ESPP purchase rights                             |  |   | 3,965   |  
|Fair value of stock options assumed                                        |  |   | 5,111   |  
|Intrinsic value of unearned stock compensation on unvested options assumed |  |   | (1,945  | )
|Transaction costs                                                          |  |   | 2,622   |  
|                                                                           |  |   |         |  
|Total purchase price                                                       |  | $ | 129,995 |  
|                                                                           |  |   |         |  

The fair value of tangible and intangible assets acquired and liabilities assumed was established
based upon the unaudited October 28, 2004 Consolidated Balance Sheet of CATC, as well as certain assumptions made regarding fair values. The fair value of finished goods and work in process inventory was valued based on estimated selling prices
less direct costs to sell and a profit margin on the selling effort. The fair value of the in-process research and development (IPR&D), purchased technology, trade name and purchase orders was determined by considering a variety of
factors, including, appraisal and discounted cash flow approaches. The fair value of the IPR&D was based on the total estimated costs to develop the related technologies less the costs incurred to date for the projects, and the intangible asset
values were based on estimates of future cash flows associated with those assets. The purchased technology, trade name and purchase orders related to this acquisition are being amortized over their estimated economic useful lives ranging from two to
twenty-nine months. The excess of the purchase price over the fair value of the net assets acquired was allocated to goodwill. The principle factors that contributed to a purchase price that resulted in the recognition of goodwill was the fair value
of the going-concern element of the CATC business, which included the assembled workforce and their technology position within emerging communication standards, as well as the expected synergies that would be achieved by combining both companies.
The goodwill is not deductible for tax purposes. During the fourth quarter of fiscal 2007 and 2006, the Company reduced its CATC goodwill by approximately $0.1 million and $0.4 million, respectively, as a result of a reversal of a pre-acquisition
tax contingency reserve. The final purchase price allocation is summarized below (in thousands):



|                                    |  |   |         |  
|----------------------------------- |  | - | ------- | -
|Cash                                |  | $ | 46,466  |  
|Accounts receivable                 |  |   | 2,296   |  
|Inventory                           |  |   | 3,710   |  
|Other current assets                |  |   | 133     |  
|Fixed assets                        |  |   | 663     |  
|Other assets                        |  |   | 28      |  
|Deferred tax asset, net             |  |   | 367     |  
|In-process research and development |  |   | 2,190   |  
|Purchased technology                |  |   | 3,080   |  
|Purchased trade name                |  |   | 70      |  
|Purchased purchase orders           |  |   | 90      |  
|Goodwill                            |  |   | 76,499  |  
|Current liabilities assumed         |  |   | (4,945  | )
|Long-term liabilities assumed       |  |   | (652    | )
|                                    |  |   |         |  
|Total purchase price                |  | $ | 129,995 |  
|                                    |  |   |         |  

The following table presents the details of the amortizable intangible assets acquired in the CATC
Merger and their carrying values as of June 30, 2007 (in thousands):



|                               |  |                       |  |      |       |                         |   |                  |  |   |  
|------------------------------ |  | --------------------- |  | ---- | ----- | ----------------------- | - | ---------------- |  | - | -
|                               |  | Weighted AverageLives |  | Cost |       | AccumulatedAmortization |   | NetCarryingValue
|Amortizable intangible assets: |  |                       |  |      |       |                         |   |                  |  |   |  
|Purchased technology           |  | 2.0 years             |  | $    | 3,080 |                         | $ | 3,080            |  | $ | 
|Purchased trade name           |  | 1.0 year              |  |      | 70    |                         |   | 70               |  |   | 
|Purchased purchase orders      |  | 0.2 years             |  |      | 90    |                         |   | 90               |  |   | 
|                               |  |                       |  |      |       |                         |   |                  |  |   |  
|Total intangibles purchased    |  |                       |  | $    | 3,240 |                         | $ | 3,240            |  | $ | 
|                               |  |                       |  |      |       |                         |   |                  |  |   |  



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Amortization expense for intangible assets acquired in the CATC Merger was $0.6 million, $1.3 million,
and $1.3 million for the years ended June 30, 2007, 2006, and 2005, respectively. Amortization expense for the intangible assets acquired in the CATC Merger has been recorded in the Consolidated Statements of Operations as follows (in
thousands):



|                                   |  |                     |     |      |   |       |  |   |      
|---------------------------------- |  | ------------------- | --- | ---- | - | ----- |  | - | -----
|                                   |  | Year Ended June 30, |     |     
|                                   |  | 2007                |     | 2006 |   | 2005 
|Cost of revenues                   |  | $                   | 586 |      | $ | 1,316 |  | $ | 1,268
|General and administrative expense |  |                     |    |      |   | 23    |  |   | 47   
|                                   |  |                     |     |      |   |       |  |   |      
|Total                              |  | $                   | 586 |      | $ | 1,339 |  | $ | 1,315
|                                   |  |                     |     |      |   |       |  |   |      

No amortization expense related to intangible assets acquired in the CATC Merger will be
recognized in fiscal 2008.

The $2.2 million allocated to IPR&D was written off during the second quarter of fiscal 2005 in accordance
with FASB Interpretation No. 4, Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method (FIN 4). This charge was included in Research and development expense in the
Consolidated Statement of Operations for that period.

The Consolidated Statements of Operations include the results of operations of CATC
since October 29, 2004. The following (unaudited) pro forma consolidated results of operations have been prepared as if the CATC Merger had occurred at the beginning of the fiscal year presented (in thousands, except per share data).



|                                                                                            |  |                         |        
|------------------------------------------------------------------------------------------- |  | ----------------------- | -------
|                                                                                            |  | Year EndedJune 30, 2005
|Revenues                                                                                    |  | $                       | 170,002
|Income before non-recurring charges directly attributable to the Merger                     |  | $                       | 1,189  
|Income per share before non-recurring charges directly attributable to the Merger  basic   |  | $                       | 0.10   
|Income per share before non-recurring charges directly attributable to the Merger  diluted |  | $                       | 0.10   

The write-off of IPR&D of $2.2 million is excluded from the calculation of net income and net
income per share in the table shown above as the charge is non-recurring.

The pro forma information is presented for informational
purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the CATC Merger been consummated as of that time, nor is it intended to be a projection of future results.

3.  Catalyst Acquisition

On
September 29, 2006, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) among the Company, 2006 Franklin Congress Corporation, a California corporation and a wholly owned subsidiary of the Company
(Sub), Catalyst, and Nader Salehomoum, as Equityholder Representative, pursuant to which Sub merged with and into Catalyst (the Catalyst Merger), with Catalyst continuing as the surviving corporation and as a 100% owned
subsidiary of the Company. Catalyst is a manufacturer of data bus analysis and emulation tools for advanced serial data communications and strengthens the Companys position in protocol solutions.

The Catalyst Merger was recorded under the purchase method of accounting in accordance with SFAS 141. On October 2, 2006, the effective date of the
Catalyst Merger, all shares of common stock of Catalyst issued and outstanding immediately prior to the Catalyst Merger were exchanged for approximately $26.7 million in cash immediately. In addition, pursuant to the terms of the Merger Agreement,
10% of the stated consideration was placed into escrow for the twelve-month period following the closing of the Catalyst Merger to secure certain indemnification obligations under the terms of the Merger Agreement.



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LeCroy paid cash of $31.6 million, including direct transaction costs of $2.6 million, net of cash
acquired of $1.0 million, using proceeds from the Revolver under the Prior Credit Agreement (Note 13  Long-term Debt and Capital Leases for additional information), issued a $3.5 million, 6% promissory note payable on January 2, 2008, to
Nader Salehomoum, the former sole shareholder of Catalyst and current employee of the Company and assumed the fair value of certain vested Catalyst stock options totaling $0.5 million. Approximately $0.1 million of transaction costs had not yet been
paid as of June 30, 2007. The Catalyst Merger consideration is summarized below (in thousands):



|                                           |  |   |       
|------------------------------------------ |  | - | ------
|Cash for shares and certain vested options |  | $ | 26,650
|Cash paid in escrow                        |  |   | 3,350 
|Note payable to former shareholder         |  |   | 3,500 
|Fair value of vested stock options assumed |  |   | 450   
|Transaction costs                          |  |   | 2,629 
|                                           |  |   |       
|Total purchase price                       |  | $ | 36,579
|                                           |  |   |       

In connection with the Catalyst Merger, LeCroy assumed Catalysts Stock Option Plan. On
October 2, 2006, Catalyst stock option holders approved technical amendments to their stock option grants in anticipation of their assumption by LeCroy pursuant to the Catalyst Merger including, without limitation, amendments reflecting that
any stock option or other award granted thereunder would be exercisable for LeCroy common stock. Pursuant to SFAS No. 123R, of the 136,826 assumed stock options granted by the Company in exchange for the stock options held by the employees of
Catalyst, the fair value of 36,858 vested options or approximately $450,000 was considered part of the purchase price for Catalyst and the fair value of 99,968 unvested options or approximately $1,196,000, will be charged to compensation expense in
operations as earned by employees over their remaining requisite service periods. (See Note 14  Share-Based Compensation for additional information). The fair value of assumed options was determined using the Black-Scholes option pricing model
in accordance with EITF 99-12.

The Company may also be required to grant restricted stock to certain former Catalyst employees contingent
on the continuation of employment and the percentage of the escrow paid to the former shareholders of Catalyst twelve months subsequent to the Catalyst Merger. The maximum value of the restricted shares that may be granted is approximately $0.2
million. Under SFAS 123R, since there has been no grant date, there has been no accounting for these potential shares.

The fair value of
tangible and intangible assets acquired and liabilities assumed was established based upon the unaudited October 1, 2006 balance sheet of Catalyst, as well as certain assumptions made regarding fair values. The fair value of finished goods
inventory is based on estimated selling prices less direct costs to sell and a reasonable profit margin on the selling effort. The fair value of work in process inventory is based on estimated selling prices less cost to complete, direct costs to
sell and a reasonable profit margin on the cost to complete and selling effort. The fair value of the IPR&D, purchased technology, trade name, backlog and manufacturers representative relationships was determined by considering a variety
of factors, including; appraisal, comparable transactions, and discounted cash flow approaches. The fair value of the IPR&D was based on the total estimated costs to develop the related technologies less the costs incurred to date for the
projects, and the intangible asset values were based on estimates of future cash flows associated with those assets. The purchased technology, backlog and manufacturers representative relationships related to this acquisition are being
amortized over their estimated economic useful lives ranging from two to fifteen months. It was determined that the Catalyst trade name has an indefinite life and therefore, the Company will test its carrying value of $0.7 million annually for
impairment.

The excess of the purchase price over the fair value of the net assets acquired has been allocated to goodwill. The principle
factors that contributed to a purchase price that resulted in the recognition of goodwill was the fair value of the going-concern element of the Catalyst business, which includes their technology position within emerging communication standards, as
well as the expected synergies that will be achieved by combining both



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companies. The goodwill is not deductible for tax purposes. The final purchase price allocation is summarized below (in thousands):



|                                    |  |   |        |  
|----------------------------------- |  | - | ------ | -
|Cash                                |  | $ | 1,017  |  
|Accounts receivable                 |  |   | 738    |  
|Inventory                           |  |   | 4,269  |  
|Other assets                        |  |   | 206    |  
|In-process research and development |  |   | 4,000  |  
|Purchased intangibles               |  |   | 2,220  |  
|Goodwill                            |  |   | 27,512 |  
|Current liabilities assumed         |  |   | (1,095 | )
|Deferred tax liability              |  |   | (2,288 | )
|                                    |  |   |        |  
|Total purchase price                |  | $ | 36,579 |  
|                                    |  |   |        |  

The following table presents the details of the amortizable intangible assets acquired in the
Catalyst Merger and their carrying values as of June 30, 2007 (in thousands):



|                                                      |  |                       |  |      |       |                         |   |       |  |   |    
|----------------------------------------------------- |  | --------------------- |  | ---- | ----- | ----------------------- | - | ----- |  | - | ---
|                                                      |  | Weighted AverageLives |  | Cost |       | AccumulatedAmortization |   | Net  
|Amortizable intangible assets:                        |  |                       |  |      |       |                         |   |       |  |   |    
|Purchased technology                                  |  | 0.9 years             |  | $    | 1,030 |                         | $ | 619   |  | $ | 411
|Purchased backlog                                     |  | 0.1 years             |  |      | 450   |                         |   | 450   |  |   |   
|Purchased manufacturers representative relationships |  | 0.0 years             |  |      | 40    |                         |   | 40    |  |   |   
|                                                      |  |                       |  |      |       |                         |   |       |  |   |    
|Total amortizable intangibles purchased               |  |                       |  | $    | 1,520 |                         | $ | 1,109 |  | $ | 411
|                                                      |  |                       |  |      |       |                         |   |       |  |   |    

Amortization expense for intangible assets acquired in the Catalyst Merger was approximately $1.1
million for the year ended June 30, 2007, of which $1.1 million was recorded in Cost of revenues and $40,000 was recorded in Selling, general and administrative expense in the Consolidated Statements of Operations.

The amortization expense related to intangible assets acquired in the Catalyst Merger for fiscal 2008 is expected to be approximately $0.4 million.

The $4.0 million related to IPR&D was written off at the time of the acquisition in accordance with FIN 4. This charge is included in
Research and development expense in the Consolidated Statement of Operations for the year ended June 30, 2007.

The Consolidated
Statements of Operations includes the results of operations of Catalyst since October 2, 2006.

4.  Restructuring and Related Asset
Impairment

In the fourth quarter of fiscal 2007, the Company changed its sales distribution strategy in Japan which resulted in the
closure of certain office facilities, which included lease termination costs, and headcount reductions of four employees or 0.9% of the workforce as compared to June 30, 2006. As a result, the Company recorded severance and related expenses, of
approximately $0.1 million, and facility closure costs of approximately $0.2 million. As of June 30, 2007, approximately $8,000 has been paid in cash and approximately $0.2 million remains in Accrued expenses and other current liabilities on
the Consolidated Balance Sheet. Severance and other related amounts under this plan are estimated to be paid by the end of the second quarter of fiscal 2008. Additionally, in the fourth quarter of fiscal 2007, an intangible asset failed the
impairment test due to a change in the Companys product strategy and, accordingly, a $0.3 million non-cash charge was recorded to Cost of revenues.



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In the third quarter of fiscal 2007, prompted by the acquisition of Catalyst, the Company evaluated
certain business processes and staffing requirements. As a result, the Company recorded severance and related expense, of approximately $1.6 million. The implementation of this plan resulted in headcount reductions of 33 employees or 7.2% of the
workforce as compared to June 30, 2006. As of June 30, 2007, approximately $0.8 million has been paid in cash, approximately $0.7 million remains in Accrued expenses and other current liabilities, and approximately $0.1 million remains in
Deferred revenue and other non-current liabilities on the Consolidated Balance Sheet. Severance and other related amounts under this plan are estimated to be paid by the end of the first quarter of fiscal 2009.

In the second quarter of fiscal 2007, as a result of a change in the Companys organization stemming from the Catalyst acquisition, the Company
recorded severance and related expenses of approximately $0.4 million. The implementation of this plan resulted in headcount reductions of eleven employees or 2.4% of the workforce as compared to June 30, 2006. Severance and other related
amounts under this plan were fully paid by the end of fiscal 2007.

During the fourth quarter of fiscal 2006, the Company realigned some of
its business processes and as a result, incurred severance and related expenses of approximately $0.4 million. The implementation of this plan resulted in headcount reductions of sixteen employees or 3.5% of the workforce as compared to
June 30, 2005. As of June 30, 2007, severance and other related amounts under this plan were fully paid.

During the fourth
quarter of fiscal 2005, the Company realigned some of its business processes and, as a result, incurred expenses of approximately $1.0 million, consisting of $0.7 million of severance and related expenses and $0.3 million of facility closure
expenses which included lease termination costs and asset write-downs. As of June 30, 2007, severance and other related amounts under this plan were fully paid and assets have been written-off.

Finally, during the second quarter of fiscal 2005, as a result of the CATC Merger, the Company adopted a plan to restructure its organization and refine
its product strategy. In connection with the adoption of this plan, the Company recorded a charge for severance and related expenses in fiscal 2005 of approximately $0.6 million. The implementation of this plan resulted in headcount reductions of
six employees or approximately 2% of the workforce as compared to June 30, 2004. As of June 30, 2007, severance and other related amounts under this plan were fully paid. Additionally, in the second quarter of fiscal 2005, as a result of a
change in the Companys organization stemming from the CATC Merger and a subsequent change in the Companys low to mid-range oscilloscope manufacturing strategy, the Company took a $1.5 million non-cash charge to Cost of revenues for the
impairment of a related intangible asset.

The below table summarizes the restructuring charges and related asset impairment for the fiscal
years ended June 30, 2007, 2006 and 2005 (in thousands):



|                                    |  |                             |       |      |   |      |  |   |      
|----------------------------------- |  | --------------------------- | ----- | ---- | - | ---- |  | - | -----
|                                    |  | For the year ended June 30,
|                                    |  | 2007                        |       | 2006 |   | 2005
|Charges for:                        |  |                             |       |      |   |      |  |   |      
|Impaired intangible assets          |  | $                           | 250   |      | $ |     |  | $ | 1,500
|Service center closure              |  |                             |      |      |   |     |  |   | 59   
|Severance and related costs         |  |                             | 358   |      |   | 77   |  |   | 18   
|                                    |  |                             |       |      |   |      |  |   |      
|Cost of revenues                    |  | $                           | 608   |      | $ | 77   |  | $ | 1,577
|                                    |  |                             |       |      |   |      |  |   |      
|Charges for:                        |  |                             |       |      |   |      |  |   |      
|Severance and related costs         |  | $                           | 467   |      | $ | 127  |  | $ | 77   
|                                    |  |                             |       |      |   |      |  |   |      
|Research and development            |  | $                           | 467   |      | $ | 127  |  | $ | 77   
|                                    |  |                             |       |      |   |      |  |   |      
|Charges for:                        |  |                             |       |      |   |      |  |   |      
|Severance and related costs         |  | $                           | 1,248 |      | $ | 176  |  | $ | 1,328
|Facility closure                    |  |                             | 156   |      |   |     |  |   | 171  
|                                    |  |                             |       |      |   |      |  |   |      
|Selling, general and administrative |  | $                           | 1,404 |      | $ | 176  |  | $ | 1,499
|                                    |  |                             |       |      |   |      |  |   |      



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5.  Accounts Receivable, net

As of June 30, 2007 and 2006, the Company had an agreement with one of its customers, who is also a vendor, that provided the Company with the legal
right to offset outstanding accounts receivable balances against outstanding accounts payable balances. At June 30, 2007 the Company did not offset the balances as the amount was immaterial. At June 30, 2006, the Company netted
approximately $25,000 of accounts receivable against accounts payable on the Consolidated Balance Sheet related to this agreement.

The
allowance for doubtful accounts and sales returns was approximately $0.9 million and $0.5 million as of June 30, 2007 and 2006, respectively.

6.  Inventories

Inventories, with the exception of demonstration units in finished goods, are stated at the
lower of cost (first-in, first-out method) or market. Demonstration units are stated at lower of cost (specific identification method) or market. Inventories consist of the following (in thousands):



|                |  |          |        |      |   |       
|--------------- |  | -------- | ------ | ---- | - | ------
|                |  | June 30,
|                |  | 2007     |        | 2006
|Raw materials   |  | $        | 9,312  |      | $ | 7,726 
|Work in process |  |          | 7,354  |      |   | 6,933 
|Finished goods  |  |          | 21,979 |      |   | 19,382
|                |  |          |        |      |   |       
|                |  | $        | 38,645 |      | $ | 34,041
|                |  |          |        |      |   |       

The value of demonstration units included in finished goods was $13.6 million and $10.1 million at
June 30, 2007 and 2006, respectively. The Companys demonstration units are held for sale and are sold regularly in the ordinary course of business through its normal sales distribution channels and existing customer base.The
allowance for excess and obsolete inventory (raw materials and work in progress), included above, amounted to $2.7 million and $1.6 million at June 30, 2007 and 2006, respectively.

In fiscal 2007, the Company made certain operational changes as well as realigned its product strategy. These changes resulted in a write-down of
inventory of approximately $3.4 million which was recorded in Cost of revenues in the Consolidated Statement of Operations.

In fiscal
2005, as a result of the CATC Merger, the Company reviewed the long-term product support policies in place at LeCroy and at CATC prior to the CATC Merger with an aim toward developing one policy to best serve customers. In connection with the
resultant change in policy, as well as changes in the Companys product support strategy, for the year ended June 30, 2005, the Company recorded a $2.7 million charge to Cost of revenues in the Consolidated Statement of Operations for the
write-off of excess parts. In addition, in fiscal 2005 the Company expensed approximately $1.8 million for the write-down of inventory primarily related to a lower of cost or market adjustment due to renegotiated pricing with a particular vendor.

7.  Other Current Assets



|                                                              |  |          |       |      |   |       
|------------------------------------------------------------- |  | -------- | ----- | ---- | - | ------
|                                                              |  | June 30,
|                                                              |  | 2007     |       | 2006
|Other current assets consist of the following (in thousands): |  |          |       |      |   |       
|Deferred tax assets, net                                      |  | $        | 4,863 |      | $ | 8,200 
|Prepaid taxes                                                 |  |          | 381   |      |   | 762   
|Other receivables                                             |  |          | 1,371 |      |   | 488   
|Value-added tax receivables                                   |  |          | 808   |      |   | 433   
|Other                                                         |  |          | 2,185 |      |   | 3,354 
|                                                              |  |          |       |      |   |       
|                                                              |  | $        | 9,608 |      | $ | 13,237
|                                                              |  |          |       |      |   |       



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8.  Property and Equipment, net

Property and equipment consist of the following (in thousands):



|                                                |  |          |         |   |      |   |         |  
|----------------------------------------------- |  | -------- | ------- | - | ---- | - | ------- | -
|                                                |  | June 30, |        
|                                                |  | 2007     |         |   | 2006 |  
|Land, building and improvements                 |  | $        | 17,053  |   |      | $ | 16,890  |  
|Furniture, machinery and equipment              |  |          | 32,915  |   |      |   | 30,153  |  
|Computer software and hardware                  |  |          | 18,233  |   |      |   | 17,250  |  
|                                                |  |          |         |   |      |   |         |  
|                                                |  |          | 68,201  |   |      |   | 64,293  |  
|Less: Accumulated depreciation and amortization |  |          | (47,862 | ) |      |   | (43,934 | )
|                                                |  |          |         |   |      |   |         |  
|                                                |  | $        | 20,339  |   |      | $ | 20,359  |  
|                                                |  |          |         |   |      |   |         |  

Depreciation and amortization expense for the fiscal years ended June 30, 2007, 2006 and 2005
was $5.2 million, $5.0 million and $5.1 million, respectively.

9.  Goodwill and Other Non-Current Assets

Goodwill and Other non-current assets consist of the following (in thousands):



|                                             |  |          |         |      |   |       
|-------------------------------------------- |  | -------- | ------- | ---- | - | ------
|                                             |  | June 30,
|                                             |  | 2007     |         | 2006
|Goodwill                                     |  | $        | 105,885 |      | $ | 78,473
|                                             |  |          |         |      |   |       
|Intangibles, net                             |  | $        | 3,032   |      | $ | 4,022 
|Deferred tax assets, net                     |  |          | 7,809   |      |   | 3,964 
|Deferred financing costs on convertible note |  |          | 2,642   |      |   |      
|Other                                        |  |          | 970     |      |   | 2,039 
|                                             |  |          |         |      |   |       
|                                             |  | $        | 14,453  |      | $ | 10,025
|                                             |  |          |         |      |   |       

Under SFAS 142, goodwill is not amortized but is reviewed for impairment annually or more
frequently if certain indicators arise. No impairment indicators arose during the years ended June 30, 2007, 2006 and 2005. The Company completed the annual impairment test required under SFAS 142 during the fourth quarter and determined that
there was no impairment to the recorded goodwill balances in fiscal 2007 and 2006.

The fiscal 2007 increase in Goodwill is attributable to
the acquisition of Catalyst goodwill of $27.5 million offset by the release of a $0.1 million CATC pre-acquisition tax contingency reserve for rights which expired in fiscal 2007 (See Note 2  CATC Acquisition and Note 3  Catalyst
Acquisition for more information). During the fourth quarter of fiscal 2006 the Company reduced its goodwill by approximately $0.4 million as a result of the reversal of a CATC pre-acquisition tax contingency reserve.

The following table reflects the gross carrying amount and accumulated amortization of the Companys amortizable intangible assets included in Other
non-current assets on the Consolidated Balance Sheets as of the dates indicated (in thousands):



|                                                  |  |                                |      |          |        |      |  |   |        |  
|------------------------------------------------- |  | ------------------------------ | ---- | -------- | ------ | ---- |  | - | ------ | -
|                                                  |  | OriginalWeighted Average Lives |      | June 30, |       
|                                                  |  |                                | 2007 |          |        | 2006 | 
|Amortizable intangible assets:                    |  |                                |      |          |        |      |  |   |        |  
|Technology, manufacturing and distribution rights |  | 2.9 years                      |      | $        | 8,296  |      |  | $ | 7,025  |  
|Accumulated amortization                          |  |                                |      |          | (6,599 | )    |  |   | (3,914 | )
|                                                  |  |                                |      |          |        |      |  |   |        |  
|Net carrying amount                               |  |                                |      | $        | 1,697  |      |  | $ | 3,111  |  
|                                                  |  |                                |      |          |        |      |  |   |        |  
|Patents and other intangible assets               |  | 5.9 years                      |      |          | 1,592  |      |  |   | 1,593  |  
|Accumulated amortization                          |  |                                |      |          | (957   | )    |  |   | (682   | )
|                                                  |  |                                |      |          |        |      |  |   |        |  
|Net carrying amount                               |  |                                |      | $        | 635    |      |  | $ | 911    |  
|                                                  |  |                                |      |          |        |      |  |   |        |  
|Total Net carrying amount                         |  |                                |      | $        | 2,332  |      |  | $ | 4,022  |  
|                                                  |  |                                |      |          |        |      |  |   |        |  



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Purchased intangibles acquired in the Catalyst acquisition totaled $2.2 million of which $1.5 million
related to amortizable intangible assets with finite lives and $0.7 million related to the Catalyst trade name, which is included in Intangibles, net. It was determined that the Catalyst tradename has an indefinite life and therefore, the Company
will test the tradename annually for impairment. No impairment indicators arose on this asset during the year ended June 30, 2007. The Company completed the annual impairment test required under SFAS 142 during the fourth quarter of fiscal 2007
and determined that there was no impairment.

In the fourth quarter of fiscal 2007, the Company realigned its product strategy and
cancelled certain engineering programs. The cancellation of these programs resulted in a non-cash impairment charge of an intangible asset of approximately $0.3 million which was recorded in Cost of revenues in the Consolidated Statement of
Operations.

During the year ended June 30, 2006, the Company completed a purchase and settlement agreement with Iwatsu Electric
Company, Ltd. (Iwatsu) that included a non-compete agreement, whereby Iwatsu agreed not to engage in competition with the Company for a period of ten years and the purchase of certain other intellectual property rights (see Note 20
 Iwatsu Settlement/Purchase Agreement for additional information). The asset for the intellectual property rights has an amortization period of seven years based on the estimated useful life.

Amortization for assets under capital leases is included in total depreciation and amortization expense. The net carrying value of intangible assets
under capital leases is $0.1 million and $0.7 million at June 30, 2007 and 2006, respectively.

Amortization expense for those
intangible assets with finite lives was $3.0 million, $2.6 million, and $3.1 million for fiscal 2007, 2006 and 2005, respectively. The cost of an amortizable intangible asset is amortized on a straight-line basis over the estimated economic life of
the asset. Management estimates intangible assets amortization expense on a straight-line basis in fiscal 2008 through 2012 and beyond will approximate $1.4 million, $0.5 million, $0.1 million, $0.1 million, $0.1 million and $0.2 million,
respectively.

10.  Accrued Expenses and Other Current Liabilities

Accrued expenses and other liabilities consist of the following (in thousands):



|                                                  |  |          |        |      |   |       
|------------------------------------------------- |  | -------- | ------ | ---- | - | ------
|                                                  |  | June 30,
|                                                  |  | 2007     |        | 2006
|Compensation and benefits, including severance    |  | $        | 6,494  |      | $ | 5,450 
|Income taxes                                      |  |          | 1,996  |      |   | 2,718 
|Warranty                                          |  |          | 1,190  |      |   | 1,005 
|Deferred revenue, current portion                 |  |          | 1,195  |      |   | 1,144 
|Accrued interest on debt                          |  |          | 1,033  |      |   | 13    
|Retained liabilities from discontinued operations |  |          | 160    |      |   | 160   
|Other current liabilities                         |  |          | 3,340  |      |   | 2,918 
|                                                  |  |          |        |      |   |       
|                                                  |  | $        | 15,408 |      | $ | 13,408
|                                                  |  |          |        |      |   |       

11.  Warranties and Guarantees

The Company provides a warranty on its products, typically extending three years after delivery, and accounted for in accordance with SFAS No. 5.
Estimated future warranty obligations related to products are provided by charges to Cost of revenue in the period that the related revenue is recognized. These estimates are derived from historical data of product reliability. The expected failure
rate is arrived at in terms of units, which are then converted into labor hours to which an average burdened cost per hour is applied to derive the amount of accrued warranty required. On a quarterly basis, the Company studies trends of warranty
claims and performance of specific products and adjusts its warranty obligation through charges or credits to cost of revenue.



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The following table is a reconciliation of the changes in the Companys aggregate product warranty
liability during the years ended June 30, 2007, 2006 and 2005 (in thousands):



|                                               |  |          |       |   |      |   |       |      |  |   |       |  
|---------------------------------------------- |  | -------- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                               |  | June 30, |      
|                                               |  | 2007     |       |   | 2006 |   |       | 2005 | 
|Balance at beginning of year                   |  | $        | 1,005 |   |      | $ | 971   |      |  | $ | 1,247 |  
|Warranty liability assumed in acquisitions     |  |          | 150   |   |      |   |      |      |  |   | 105   |  
|Accruals for warranties issued during the year |  |          | 850   |   |      |   | 797   |      |  |   | 537   |  
|Warranty costs incurred during the year        |  |          | (815  | ) |      |   | (763  | )    |  |   | (568  | )
|Change in accrual estimate                     |  |          |      |   |      |   |      |      |  |   | (350  | )
|                                               |  |          |       |   |      |   |       |      |  |   |       |  
|Balance at end of year                         |  | $        | 1,190 |   |      | $ | 1,005 |      |  | $ | 971   |  
|                                               |  |          |       |   |      |   |       |      |  |   |       |  

In fiscal 2005, management revisited labor and cost estimates utilized in its existing warranty
model in light of the Companys fiscal 2005 product introductions, and determined that the actual labor and cost estimates to repair the warranty units were lower than previously estimated given the Companys success in reducing the time
and costs necessary to fix the newer models currently under warranty. As a result of this evaluation and conclusion, the Company changed the labor and cost estimates used to calculate the warranty accrual commencing with the period ended
March 31, 2005. This change in estimate was recorded in the quarter ended March 31, 2005, and reduced the accrual required by approximately $350,000.

As is customary in the test and measurement industry, and as provided for by local law in the U.S. and other jurisdictions, the Companys standard terms of sale provide remedies to customers, such as defense,
settlement or payment of a judgment for intellectual property claims related to the use of the Companys products. Such indemnification provisions are accounted for in accordance with SFAS No. 5. To date, there have been no claims under
such indemnification provisions.

12.  Income Taxes

The components of (loss) income before income taxes are as follows (in thousands):



|         |  |             |         |   |               |   |        |  |   |      
|-------- |  | ----------- | ------- | - | ------------- | - | ------ |  | - | -----
|         |  | Years Ended
|         |  | 2007        |         |   | June 30, 2006 |   | 2005  
|Domestic |  | $           | (16,382 | ) |               | $ | 5,896  |  | $ | 142  
|Foreign  |  |             | 944     |   |               |   | 4,140  |  |   | 2,873
|         |  |             |         |   |               |   |        |  |   |      
|         |  | $           | (15,438 | ) |               | $ | 10,036 |  | $ | 3,015
|         |  |             |         |   |               |   |        |  |   |      

The income tax benefit (provision) consists of the following (in thousands):



|                     |  |             |       |   |               |   |        |      |  |   |      |  
|-------------------- |  | ----------- | ----- | - | ------------- | - | ------ | ---- |  | - | ---- | -
|                     |  | Years Ended |      
|                     |  | 2007        |       |   | June 30, 2006 |   |        | 2005 | 
|Current:             |  |             |       |   |               |   |        |      |  |   |      |  
|U.S. federal         |  | $           | (3    | ) |               | $ | (81    | )    |  | $ | (105 | )
|U.S. state and local |  |             | (118  | ) |               |   | (245   | )    |  |   | (161 | )
|Foreign              |  |             | (339  | ) |               |   | (1,289 | )    |  |   | (945 | )
|Deferred:            |  |             |       |   |               |   |        |      |  |   |      |  
|U.S. federal         |  |             | 3,797 |   |               |   | (1,567 | )    |  |   | 89   |  
|U.S. state and local |  |             | (782  | ) |               |   | (322   | )    |  |   | 9    |  
|Foreign              |  |             | (324  | ) |               |   | 41     |      |  |   | 241  |  
|                     |  |             |       |   |               |   |        |      |  |   |      |  
|                     |  | $           | 2,231 |   |               | $ | (3,463 | )    |  | $ | (872 | )
|                     |  |             |       |   |               |   |        |      |  |   |      |  



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The reconciliations between the income tax benefit (provision) at the U.S. federal statutory rate and the
Companys effective tax rate is as follows (in thousands):



|                                                        |  |             |        |   |               |   |        |      |  |   |        |  
|------------------------------------------------------- |  | ----------- | ------ | - | ------------- | - | ------ | ---- |  | - | ------ | -
|                                                        |  | Years Ended |       
|                                                        |  | 2007        |        |   | June 30, 2006 |   |        | 2005 | 
|Benefit (provision) at U.S. federal statutory rate      |  | $           | 5,403  |   |               | $ | (3,512 | )    |  | $ | (1,055 | )
|Difference between U.S. and foreign rates               |  |             | 166    |   |               |   | 214    |      |  |   | 302    |  
|Non-deductible purchased in-process research technology |  |             | (1,400 | ) |               |   |       |      |  |   | (767   | )
|Adjustment of net deferred tax assets                   |  |             | (100   | ) |               |   | 607    |      |  |   | (4,181 | )
|State income taxes, net of federal benefit              |  |             | 384    |   |               |   | (484   | )    |  |   | (114   | )
|(Increase) decrease in valuation allowance              |  |             | (1,397 | ) |               |   | 92     |      |  |   | 4,954  |  
|Non-deductible share-based compensation                 |  |             | (695   | ) |               |   | (514   | )    |  |   |       |  
|Other, net                                              |  |             | (130   | ) |               |   | 134    |      |  |   | (11    | )
|                                                        |  |             |        |   |               |   |        |      |  |   |        |  
|Income tax benefit (provision)                          |  | $           | 2,231  |   |               | $ | (3,463 | )    |  | $ | (872   | )
|                                                        |  |             |        |   |               |   |        |      |  |   |        |  

Significant components of the Companys net deferred tax assets as of June 30, 2007 and
2006 were as follows (in thousands):



|                                               |  |          |        |   |      |   |        |  
|---------------------------------------------- |  | -------- | ------ | - | ---- | - | ------ | -
|                                               |  | June 30, |       
|                                               |  | 2007     |        |   | 2006 |  
|Deferred tax assets:                           |  |          |        |   |      |   |        |  
|U.S. net operating loss carryforwards          |  | $        | 2,414  |   |      | $ | 2,624  |  
|Acquired U.S. net operating loss carryforwards |  |          | 1,902  |   |      |   | 1,902  |  
|Foreign net operating loss carryforwards       |  |          | 370    |   |      |   | 142    |  
|Tax credit carryforwards                       |  |          | 2,813  |   |      |   | 2,813  |  
|Inventory reserves                             |  |          | 1,319  |   |      |   | 400    |  
|Deferred revenue                               |  |          | 300    |   |      |   | 314    |  
|Share-based compensation                       |  |          | 2,056  |   |      |   | 1,863  |  
|Accrued compensation/benefits                  |  |          | 756    |   |      |   | 309    |  
|Deferred research expenses                     |  |          | 6,033  |   |      |   | 3,809  |  
|Other reserves                                 |  |          | 1,317  |   |      |   | 1,536  |  
|                                               |  |          |        |   |      |   |        |  
|Deferred tax assets before valuation allowance |  |          | 19,280 |   |      |   | 15,712 |  
|Valuation allowance                            |  |          | (1,655 | ) |      |   | (258   | )
|                                               |  |          |        |   |      |   |        |  
|Deferred tax assets after valuation allowance  |  |          | 17,625 |   |      |   | 15,454 |  
|                                               |  |          |        |   |      |   |        |  
|Deferred tax liabilities:                      |  |          |        |   |      |   |        |  
|Unrepatriated foreign earnings                 |  |          | (1,622 | ) |      |   | (1,622 | )
|Depreciation and amortization                  |  |          | (2,408 | ) |      |   | (1,142 | )
|Other                                          |  |          | (1,013 | ) |      |   | (686   | )
|                                               |  |          |        |   |      |   |        |  
|Deferred tax liabilities                       |  |          | (5,043 | ) |      |   | (3,450 | )
|                                               |  |          |        |   |      |   |        |  
|Net deferred tax assets                        |  | $        | 12,582 |   |      | $ | 12,004 |  
|                                               |  |          |        |   |      |   |        |  

At June 30, 2007 and 2006, $4.9 million and $8.2 million, respectively, of the Companys
net deferred tax assets were included on the Consolidated Balance Sheets in Other current assets, $7.8 million and $4.0 million, respectively, were included in Other noncurrent assets, and $0.1 million and $0.2 million of foreign deferred tax
liabilities, respectively, were included in Accrued expenses and other current liabilities.

The Company is required to recognize all or a
portion of its net deferred tax assets if it believes that it is more likely than not, given the weight of all available evidence, that all or a portion of its net deferred tax assets will be realized. Management assesses the realizability of the
net deferred tax assets at each interim and annual balance sheet date based on actual and forecasted operating results. The Company assessed both its positive and negative



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evidence to determine the proper amount of its required valuation allowance. Factors considered include the Companys current losses in certain
jurisdictions and managements projection that the Company expects to utilize its domestic net operating loss carryforwards prior to the initial expiration in fiscal 2022.

During the year ended June 30, 2007, the valuation allowance increased by $1.4 million. The increase was primarily due to a change in state tax law,
which reduced the probability of utilizing state investment tax credit carryforwards, and losses incurred in Asia, which increased foreign net operating loss carryforwards and uncertainty surrounding the utilization of deferred tax assets in Asia.

During the year ended June 30, 2006, the valuation allowance decreased by approximately $0.1 million, primarily due to profits
realized in Europe, resulting in the utilization of foreign net operating loss carryforwards, which accordingly reduced the valuation allowance.

A valuation allowance of approximately $1.7 million and $0.3 million existed as of June 30, 2007 and 2006, respectively, for certain tax credit carryforwards and foreign deferred tax assets due to the uncertainty surrounding the
utilization of these deferred tax assets. As such, management believes that it is more likely than not that the Company will realize the benefits of the Companys net deductible temporary differences, net of the valuation allowance. Management
will continue to assess the realizability of the deferred tax assets at each interim and annual balance sheet date based on actual and forecasted operating results.

Historically, it has been the practice of the Company to reinvest unremitted earnings of foreign subsidiaries. In a previous fiscal year, however, the Company determined that it would repatriate approximately $7.0
million in future periods from its foreign subsidiaries. The Company believes repatriation of these earnings will result in additional taxes in the amount of $1.6 million and provided for that amount in the fiscal 2001 tax provision. The cumulative
amount of all other undistributed earnings of consolidated foreign subsidiaries, for which U.S. federal income tax has not been provided, was approximately $5.7 million and $5.5 million at June 30, 2007 and 2006, respectively. These earnings,
which reflect full provision for non-U.S. income taxes, are anticipated to be reinvested permanently outside the United States. Determining the U.S. income tax liability that might result if these earnings were remitted is not practicable.

At June 30, 2007, the Company had self-generated federal and state net operating loss carryforwards of approximately $9.2 million and
acquired net operating loss carryforwards of $5.3 million available to offset future taxable income. The carryforwards begin to expire at various dates starting in 2022 through 2027. Self-generated Foreign tax net operating loss carryforwards of
approximately $1.0 million at June 30, 2007 are available to offset future taxable income of certain foreign subsidiaries. Approximately $0.6 million of these foreign net operating loss carryforwards expire in 2014, and approximately $0.4
million of these foreign net operating loss carryforwards do not have an expiration period. As of June 30, 2007, the Company has approximately $1.4 million of self-generated foreign tax credit carryforwards, $2.9 million of self-generated state
tax credit carryforwards, $1.2 million of acquired state tax credit carryforwards, $3.7 million of self-generated federal general business tax credit carryforwards, and $0.9 million of acquired federal general business tax credit carryforwards. The
foreign, state and federal tax credits expire at various dates between fiscal 2008 and 2027.

13.  Long Term Debt and Capital Leases

On March 30, 2007, the Company entered into a $40.0 million senior, secured, four-year credit agreement with the lenders listed
therein and Manufacturers and Traders Trust Company (M&T Bank), as administrative agent for such lenders (the New Credit Agreement), which replaced LeCroys existing credit facility that was entered into on
October 29, 2004 and subsequently amended. The terms of the New Credit Agreement provide LeCroy with a $40.0 million revolving credit facility (Revolver), which includes a $5.0 million swingline loan subfacility and a $5.0 million
letter of credit subfacility. The performance by LeCroy of its obligations under the New Credit Agreement is secured by all of the assets of LeCroy and its domestic subsidiaries, and is guaranteed by LeCroys domestic subsidiaries. As of
June 30, 2007, the Company has borrowed $9.4 million against the Revolver and nothing against the letter of credit subfacility or the swingline loan subfacility.



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Effective as of April 26, 2007, LeCroy, in accordance with New Credit Agreement, entered into a
First Modification and Lender Joinder Agreement (Joinder Agreement). This Joinder Agreement increased the Companys credit limit to $50.0 million and added North Fork Bank to the New Credit Agreement.

The proceeds of the borrowings under the New Credit Agreement have been used to pay the outstanding balance under LeCroys previous credit facility
(the Prior Credit Agreement) and for general corporate purposes, including the financing of working capital requirements and capital expenditures.

Borrowings under the New Credit Agreement bear interest at variable rates equal to, at LeCroys election, (1) the higher of (a) the prime rate or (b) the federal funds rate plus 0.5% plus an
applicable margin based on LeCroys leverage ratio or (2) LIBOR plus an applicable margin based on LeCroys leverage ratio. In addition, LeCroy must pay commitment fees during the term of the New Credit Agreement at rates dependent on
LeCroys leverage ratio.

The New Credit Agreement contains, among other things, conditions precedent, covenants, representations and
warranties and events of default customary for facilities of this size type and purpose. Negative covenants include certain restrictions or limitations on, among other things, the incurrence of indebtedness; liens; consolidations and mergers;
investments, loans, advances, guarantees and acquisitions; sales of assets (subject to customary exceptions for sales of inventory in the ordinary course and sales of equipment in connection with the replacement thereof in the ordinary course); sale
and lease-back transactions; hedging agreements; and restricted payments, including dividends and stock repurchases.

Under the New Credit
Agreement, the Company is required to comply with certain financial covenants, measured quarterly, including a minimum interest coverage ratio, minimum total net worth, maximum leverage ratio, minimum fixed charge coverage ratio and limitations on
capital expenditures. As of June 30, 2007, the Company was in compliance with its financial covenants under the New Credit Agreement.

The New Credit Agreement will expire on July 15, 2011, unless, in the absence of any default, extended by LeCroy to April 1, 2012, contingent on the waiver or extension of the first redemption date of the Companys
convertible notes.

The Company incurred approximately $0.6 million of financing costs in connection with entering into the New Credit
Agreement and Amendment, which were deferred and are being amortized, on a straight line basis, over the term of the New Credit Agreement. At June 30, 2007, approximately $0.1 million of deferred financing costs were included in Other current
assets, and approximately $0.4 million were included in Other non-current assets on the Consolidated Balance Sheets.

On October 29,
2004, the Company entered into a $75.0 million senior, secured, five-year credit agreement with the lenders listed therein and JP Morgan Chase Bank, N.A., successor to The Bank of New York, as administrative agent for such lenders (the Prior
Credit Agreement). The terms of the Prior Credit Agreement, as amended thereafter, provided the Company with a $50.0 million term loan and a $50.0 million revolving credit facility, which includes a $1.0 million swing-line loan sub-facility
and a $1.0 million letter of credit sub-facility. Borrowings under the Prior Credit Agreement, reflected interest at variable rates equal to, at the Companys election, (1) the higher of (a) the prime rate or (b) the federal funds rate plus
0.5%, plus an applicable margin of between 0.00% and 1.50% based on the Companys leverage ratio, as defined in the Prior Credit Agreement, or (2) the London Interbank Offering Rate (LIBOR) plus an applicable margin of between 1.25%
and 2.75% based on the Companys leverage ratio. In addition, the Company must pay commitment fees on unused revolver borrowings during the term of the Prior Credit Agreement at rates between 0.375% and 0.5% dependent upon its leverage ratio.
On March 30, 2007, the Company entered into the New Credit Agreement and terminated the Prior Credit Agreement, which resulted in a $1.0 million Loss on extinguishment of debt related to the write-off of deferred finance charges associated with
the Prior Credit Agreement. Amounts borrowed under the Prior Credit Agreement were repaid during fiscal 2007.

On October 12, 2006,
the Company sold and issued $72.0 million in convertible senior subordinated notes to qualified institutional buyers pursuant to Rule 144A of the Securities Act of 1933, as amended (the Notes). The Notes bear interest at a rate
of 4.00% per annum, payable in cash semi-annually in arrears on each April 15 and



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October 15, beginning April 15, 2007. The Notes are direct, unsecured, senior subordinated obligations of the Company and rank:
(i) subordinate in right of payment to all of the Companys existing and future secured indebtedness; (ii) equal in right of payment with all of the Companys existing and future senior unsecured indebtedness, and
(iii) senior in right of payment to all of the Companys existing and future subordinated indebtedness, except that the Notes rank equally with the $3.5 million note issued in connection with the Catalyst acquisition, which is subordinated
to the Companys credit facility. In connection with the issuance and sale of the Notes, the Company entered into an indenture dated as of October 12, 2006, with U.S. Bank National Association as trustee. The terms of the Notes are
governed by the indenture.

The Notes mature on October 15, 2026 unless earlier redeemed, repurchased or converted. Holders of the
Notes will have the right to require the Company to repurchase for cash all or a portion of their Notes on each of October 15, 2011, October 15, 2016 and October 15, 2021, at a repurchase price equal to 100% of the principal
amount of the Notes to be repurchased plus accrued and unpaid interest, if any, up to but not including, the repurchase date. In addition, the Company may redeem the Notes for cash, either in whole or in part, anytime after October 20, 2011 at
a redemption price equal to 100% of the principal amount of the Notes to be redeemed plus accrued and unpaid interest, if any, up to but not including the redemption date. The Notes are convertible into Company common stock by the holders at an
initial conversion rate equal to 68.7285 shares per $1,000 principal amount of the Notes (equal to an initial conversion price of approximately $14.55 per share), subject to adjustment as described in the indenture. Upon conversion, the Company will
deliver for each $1,000 principal amount of Notes, an amount consisting of cash equal to the lesser of $1,000 and the conversion value (as defined in the indenture) and, to the extent that the conversion value exceeds $1,000, at the Companys
election, cash or shares of Company common stock in respect of the remainder. Prior to September 15, 2026, holders may convert their notes into cash and shares of the Companys common stock, if any, at the applicable conversion rate, at
their option, only under limited circumstances described in the indenture. On or after September 15, 2026, holders may convert their notes into cash and shares of the Companys common stock, if any, at the applicable conversion price, at
the Companys option, at any time prior to the close of business on the business day immediately preceding the maturity date. As of June 30, 2007, the market value of the convertible notes was $68.1 million.

The Company evaluated the accounting for the conversion feature in accordance with EITF Issue No. 00-19, Accounting for Derivative Financial
Instruments Indexed to and Potentially Settled in, a Companys Own Stock,, and related issues, at the date of issuance of the Notes and determined that the conversion feature should be classified as equity, and, therefore, it does not
need to be accounted for separately from the Notes. The Company updates its analysis of the accounting for the conversion feature as circumstances warrant. If the conversion feature is required to be bifurcated in the future, changes in the fair
value of the conversion feature would be charged or credited to interest expense in each period.

If the Company undergoes a change
in control (as defined in the indenture), holders of the Notes will have the right, subject to certain conditions, to require the Company to repurchase for cash all or a portion of their Notes at a repurchase price equal to 100% of the
principal amount of the Notes to be repurchased plus accrued and unpaid interest, if any.

In connection with the sale of its Notes, the
Company also entered into a Registration Rights Agreement. Pursuant to the Registration Rights Agreement, the Company filed a shelf registration statement, which has been declared effective by the Securities and Exchange Commission, covering resales
by holders of the Notes and any common stock issuable upon conversion of such Notes (subject to certain conditions specified in the Registration Rights Agreement). The Company has agreed to use its commercially reasonable efforts to keep the
registration statement effective until the earliest of the following has occurred: (i) all securities covered by the registration statement have been sold pursuant to the registration statement or Rule 144 under the Securities Act;
(ii) the holders of the Notes and the shares of the Companys common stock issuable upon conversion of the Notes that are not our affiliates are able to sell all such securities immediately pursuant to Rule 144(k) under the Securities Act;
(iii) the date when all of the Notes and shares of common stock issuable upon conversion have ceased to be outstanding; and (iv) October 12, 2008. The Company will pay predetermined additional interest on notes that are registerable
securities if the shelf registration statement is unavailable for periods in excess of those permitted under the indenture.



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The Company received net proceeds from the sale of the Notes of approximately $69.0 million.
Immediately thereafter, the net proceeds from the sale were used to repay the outstanding term debt balance of approximately $31.9 million under the Companys Prior Credit Agreement, repurchase of 850,000 shares of the Companys
common stock at a cost of approximately $9.9 million and repay approximately $20.8 million of revolving debt under the Companys Prior Credit Agreement that was drawn down to fund the acquisition of Catalyst.

The Company incurred approximately $3.0 million of transaction fees in connection with issuing the Notes, which have been deferred and are being
amortized over the term of the Notes using the effective interest method. The term of the Notes for amortization purposes is considered to be five years in accordance with SAB Topic 3-C, Redeemable Preferred Stock, as that is the first
period in which the redemption feature of the Notes can be executed by either the Noteholders or LeCroy and therefore is considered the mandatory redemption date. At June 30, 2007, the total $2.6 million unamortized fees related to the Notes
was included in Other non-current assets on the Consolidated Balance Sheet.

The Company maintains certain short-term foreign credit
facilities, principally with two Japanese banks totaling 150.0 million yen (approximately $1.2 million as of June 30, 2007). No amounts were outstanding under these facilities as of June 30, 2007 and June 30, 2006. The
Companys Swiss subsidiary, also has an overdraft facility totaling 1.0 million Swiss francs (approximately $0.8 million as of June 30, 2007). As of June 30, 2007 and June 30, 2006, approximately 0.4 million Swiss
francs were held against supplier obligations leaving an available balance of 0.6 million Swiss francs under this credit facility. These obligations to Swiss suppliers, such as rent and utilities, are payable under the credit facility only in
the event that the subsidiary is unable to meet its financial obligations to those suppliers.

The Company had a $2.0 million capital lease
line of credit to fund certain capital expenditures that bore interest at an annual rate of 12.2% on outstanding borrowings. The capital lease line of credit was terminated in the second quarter of fiscal 2007. As of June 30, 2006, the Company
had $0.1 million outstanding under this line of credit, included within Current portion of long-term debt and capital leases on the Consolidated Balance Sheet. No amounts were outstanding as of June 30, 2007.

During fiscal 2005, the Company entered into vendor supplied capital lease agreements for technology rights of $1.3 million. These leases bear interest
at 4.5% to 4.88% with three-year terms. At June 30, 2007, the Companys outstanding balance under these agreements was $0.1 million, included within Current portion of long-term debt and capital leases in the Consolidated Balance Sheet. At
June 30, 2006, the Companys outstanding balance under these lease agreements was $0.6 million of which $0.5 million was included within Current portion of long-term debt and capital leases and $0.1 million was included within Deferred
revenue and other non-current liabilities in the Consolidated Balance Sheet. Under these capital lease obligations the annual payments, including interest, for fiscal year 2008 is $0.1 million.

14.  Share-Based Compensation

Share-Based Compensation

Historically, through fiscal 2005, the Company accounted for stock-based compensation under the
recognition and measurement principles of Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations. No compensation expense related to
stock option plans was reflected in the Companys Consolidated Statements of Operations, with the exception of the LeCroy (CATC) Plans described below, as all options had an exercise price equal to the market value of the underlying common
stock on the date of grant. Compensation cost for restricted stock (non-vested stock) was recorded based on its market value on the date of grant and was expensed in the Companys Consolidated Statements of Operations ratably over the vesting
period. Upon the grant of restricted stock, deferred stock compensation was recorded as an offset to additional paid-in capital and was amortized on a straight-line basis as compensation expense over the vesting period.

On July 3, 2005, the start of the first quarter of fiscal 2006, the Company adopted the provisions of SFAS 123R, which requires that the costs
resulting from all share-based payment transactions be recognized in the financial statements at their fair values. The Company adopted SFAS 123R using the modified prospective application method under which the provisions of SFAS 123R apply to new
awards and to awards modified,



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repurchased, or cancelled after the adoption date. Additionally, compensation cost for the portion of the awards for which the requisite service had not been
rendered that were outstanding as of the adoption date is recognized in the Consolidated Statements of Operations over the remaining service period after the adoption date based on the awards original estimate of fair value. In connection with
the adoption of SFAS 123R, the deferred stock compensation at June 30, 2005 of $8.6 million relating to previous grants of restricted stock and stock options assumed in the CATC Merger was eliminated against additional paid-in capital during
the first quarter of fiscal 2006. Results for prior periods have not been restated. Total share-based compensation expense recorded in the Consolidated Statements of Operations for the years ended June 30, 2007, 2006, and 2005 is $5.2 million,
$5.3 million, and $3.9 million, respectively.

As a result of adopting SFAS 123R, the Companys income before income taxes for the
years ended June 30, 2007 and 2006 are $1.6 million and $2.3 million lower, respectively, than if it had continued to account for share-based compensation under APB No. 25. Net income for the years ended June 30, 2007 and 2006 are $1.3 million
lower, respectively, than if it had continued to account for share-based compensation under APB No. 25. Basic earnings per share for the years ended June 30, 2007 and 2006 are $0.12, lower, respectively, than if the Company had continued to account
for share-based compensation under APB No. 25. Diluted earnings per share for the years ended June 30, 2007 and 2006 are $0.11 and $0.10 lower, respectively, than if the Company had continued to account for share-based compensation under APB No. 25.
Under APB No. 25, restricted stock was historically being expensed although under APB No. 25, forfeitures were accounted for as they occurred.

On November 10, 2005, the FASB issued FASB Staff Position 123(R)-3 (FSP 123R-3), Transition Election Related to Accounting for the Tax Effects of Share-based Payment Awards, that provided an elective alternative
transition method of calculating the pool of excess tax benefits available to absorb tax deficiencies recognized subsequent to the adoption of SFAS 123R (the APIC Pool) to the method otherwise required by paragraph 81 of SFAS 123R.
During the second quarter of fiscal 2007, the Company made the election to use the alternative method, however, the alternative method did not have an impact on the Companys results of operations or financial condition due to the
Companys net operating loss position.

The following table illustrates the effect on net income and net income per common share for
the year ended June 30, 2005, as if the Company had applied the fair value recognition provisions for stock-based employee compensation under SFAS 123, Accounting for Stock-Based Compensation. For purposes of the pro forma
presentation, option and restricted stock forfeitures are accounted for as they occurred and no amounts of compensation expense have been capitalized into inventory or other assets, but instead were considered as period expenses (in thousands,
except per share data):



|                                                                                                                      |  |                         |        |  
|--------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | -
|                                                                                                                      |  | Year EndedJune 30, 2005 |       
|Net income, as reported                                                                                               |  | $                       | 2,143  |  
|Add: stock-based compensation expense included in reported net income, net of income taxes                            |  |                         | 2,547  |  
|Deduct: stock-based compensation expense determined under fair value-based method for all awards, net of income taxes |  |                         | (4,928 | )
|                                                                                                                      |  |                         |        |  
|Pro forma net (loss)                                                                                                  |  | $                       | (238   | )
|                                                                                                                      |  |                         |        |  
|Net income (loss) per common share:                                                                                   |  |                         |        |  
|Basic, as reported                                                                                                    |  | $                       | 0.18   |  
|Diluted, as reported                                                                                                  |  | $                       | 0.17   |  
|Basic, pro forma                                                                                                      |  | $                       | (0.02  | )
|Diluted, pro forma                                                                                                    |  | $                       | (0.02  | )

Prior to the adoption of SFAS 123R, the Company presented all tax benefits of deductions resulting
from the exercise of stock options as operating cash flows in the Consolidated Statement of Cash Flows. SFAS 123R requires the cash flows resulting from tax benefits resulting from tax deductions in excess of the compensation cost



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recognized for those options (excess tax benefits) to be classified as financing cash flows. For each of the years ended June 30, 2007 and 2006, there
were no excess tax benefits recognized resulting from share-based compensation cost.

The fair value of options granted is estimated on the
date of grant using a Black-Scholes option pricing model. Expected volatilities are calculated based on the historical volatility of the Companys stock. Management monitors share option exercise and employee termination patterns to estimate
forfeiture rates. Separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected holding period of options represents the period of time that options granted are expected to
be outstanding. The risk-free interest rate is based on the interest rate of a 5-year U.S. Treasury note in effect on the date of the grant or such other period that most closely equals the expected term of the option.

The table below presents the assumptions used to calculate the fair value of options granted during the years ended June 30, 2007, 2006 and 2005:



|                                               |  |                      |  |               |  |               
|---------------------------------------------- |  | -------------------- |  | ------------- |  | --------------
|                                               |  | Years Ended June 30,
|                                               |  | 2007                 |  | 2006          |  | 2005          
|Expected holding period (years)                |  | 3.7                  |  | 5.0           |  | 3.9           
|Risk-free interest rate                        |  | 4.46% - 4.91%        |  | 3.86% - 4.99% |  | 3.31% - 4.30% 
|Weighted average risk-free interest rate       |  | 4.65%                |  | 4.46%         |  | 3.41%         
|Dividend yield                                 |  | 0.0%                 |  | 0.0%          |  | 0.0%          
|Expected volatility                            |  | 32.0% - 54.2%        |  | 47.3% - 64.9% |  | 41.5% - 74.4% 
|Weighted average expected volatility           |  | 42.3%                |  | 55.4%         |  | 51.2%         
|Fair value of options granted                  |  | $4.12 - $12.24       |  | $6.86 - $8.43 |  | $7.88 - $14.52
|Weighted average fair value of options granted |  | $10.66               |  | $7.64         |  | $8.95         

Additionally, the Company has an Employee Stock Purchase Plan (ESPP) with a look-back
option that allows employees to purchase shares of common stock at 85% of the market value at the lower of either the date of enrollment or the date of purchase. Payment for the ESPP is a fixed amount, set at the beginning of the period, made
through payroll withholding over the enrollment period which is six months. The number of shares the participant can acquire is variable based on the fixed amount withheld and the applicable fair value. SFAS No. 123R requires an ESPP with a
purchase price discount of greater than 5% and a look-back option to be compensatory. The Company accounts for the ESPP in accordance with FASB Technical Bulletin No. 97-1, Accounting under Statement 123 for Certain Employee Stock
Purchase Plans with a Look-Back Option. The fair value of the put and call features of the estimated shares to be purchased are estimated at the beginning of the purchase period using a Black-Scholes option pricing
model. Expected volatilities are calculated based on the historical six-month volatility of the Companys stock. The expected holding period is equal to the six-month enrollment period. The risk-free interest rate is based on the interest rate
of a six-month U.S. Treasury note in effect on the first day of the enrollment period. The fair value of the shares is liability classified until the end of the six-month period at which time the amount is then equity classified. As of June 30,
2007 and 2006, there is approximately $41,000 of liability classified share-based compensation expense included in Accrued expenses and other current liabilities on the Consolidated Balance Sheet.

Company Stock-Based Plans

The
Company maintains share-based payment arrangements under the following plans: (i) the Amended and Restated 1993 Stock Incentive Plan (1993 Plan), (ii) the Amended and Restated 1995 Employee Stock Purchase Plan
(ESPP), (iii) the Amended and Restated 1998 Non-Employee Director Stock Plan (1998 Plan), (iv) the 2003 Stock Incentive Plan (2003 Plan), (v) the 2004 Employment Inducement Stock Plan (2004
Plan), (vi) the LeCroy Corporation (CATC) Special 2000 Stock Option Plan, (vii) the LeCroy Corporation (CATC) 2000 Stock Incentive Plan, (viii) the LeCroy Corporation (CATC) 1994 Stock Option Plan (items (vi), (vii) and
(viii) collectively the LeCroy (CATC) Plans) and (ix) the LeCroy Catalyst 2005 Stock Option Plan. The Company has a policy of issuing new shares of its common stock to satisfy share option exercises.



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Stock Options and ESPP

The 1993 Plan expired on January 4, 2003. All options outstanding under the 1993 Plan at the time of its expiration will continue in full force and
effect in accordance with their terms. The lives of the options are generally ten years from the date of grant. As of June 30, 2007, there were 1,064,452 options outstanding under the 1993 Plan, all of which were fully vested.

The ESPP has reserved for issuance an aggregate of 1,060,000 shares of Common Stock and is set to expire on November 30, 2011. The purpose of the
ESPP is twofold: first, to encourage stock ownership by employees by establishing a program that permits them to purchase shares of Common Stock on a regular basis through payroll deductions; and second, to offer employees an opportunity, without
adverse tax consequences, to purchase stock at a price equal to 85% of the market value on the first or last business day of the offering period. Through June 30, 2007, a total of 665,295 shares have been issued under the ESPP including 94,374,
78,408 and 56,214 shares for the years ended June 30, 2007, 2006 and 2005, respectively. As of June 30, 2007, 394,705 shares are available for future issuance.

In October 1998, the Board of Directors and stockholders terminated the 1995 Non-Employee Director Stock Option Plan (1995 Plan) and adopted the 1998 Plan. As of June 30, 2007, stock options to
purchase 901 shares of Common Stock issued pursuant to the 1995 Plan are outstanding and fully vested. Pursuant to the 1998 Plan, each non-employee director receives upon initial election to the Board of Directors either a stock option grant of
15,000 shares to vest ratably over 36 months, or a restricted stock award of 10,000 shares of Common Stock, subject to such vesting and other conditions and restrictions as the Board may determine at its discretion. Additionally, each non-employee
director will receive annually a restricted stock award of 5,000 shares of Common Stock subject to such vesting and other conditions and restrictions as the Board may determine at its discretion. A total of 500,000 shares of Common Stock can be
issued during the term of the 1998 Plan. As of June 30, 2007, there were 239,571 options outstanding under the 1998 Plan, all of which were fully vested. As of June 30, 2007, 187,330 shares are available for future issuance under the 1998
Plan.

The 2003 Plan provides for the grant of incentive stock options, nonqualified stock options and restricted stock awards to employees
(including officers and employee directors) and consultants. Unless approved by stockholders owning a majority of shares present and entitled to vote at a duly convened meeting of stockholders of the Company, the purchase price of any option granted
under the 2003 Plan may not be less than 100% of the fair value of the Companys common stock on the date of grant. The aggregate number of shares of Common Stock that may be issued or transferred pursuant to options or restricted stock awards
under the 2003 Plan is 1,560,167 shares. The 2003 Plan also allows for awards based on performance criteria which awards may then qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code. The
Compensation Committee of the Board of Directors administers the 2003 Plan and has the authority to determine the terms of such options or awards including the number of shares, exercise or purchase prices and times at which the options become and
remain exercisable or restricted stock is no longer restricted. There have been no performance-based awards granted under the 2003 Plan. The 2003 Plan expires on October 29, 2013. As of June 30, 2007, there were 79,718 options outstanding
under the 2003 Plan, of which 19,135 options were vested. As of June 30, 2007, 318,973 shares are available for future issuance under the 2003 Plan.

In connection with the CATC Merger, on October 29, 2004, the Companys Board of Directors approved the 2004 Plan to promote the interests of the Company and its stockholders by strengthening the
Companys ability to attract and induce persons to become employees of the Company, including certain of CATCs employees. The adoption of the 2004 Plan did not require stockholder approval. The number of shares of LeCroy common stock that
may be issued or transferred pursuant to options or restricted stock awards granted under the 2004 Plan is 750,000 shares. On October 29, 2004, the Company issued the following grants under the 2004 Plan: (i) 70,000 shares of restricted
common stock to certain former officers of CATC, and (ii) options to purchase an aggregate of 230,984 shares of common stock to 61 former CATC employees who became non-officer employees of LeCroy (none of whom received an option grant of more
than 20,000 shares). The options were issued with vesting periods of four to six years. On September 13, 2005, the Board of Directors resolved that no further grants would be made under the 2004 Plan. The 2004 Plan expires on October 29,
2014. As of June 30, 2007, there were 134,874 options outstanding under the 2004 Plan, of which 32,605 were vested.



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In connection with the CATC Merger, LeCroy assumed the LeCroy (CATC) Plans. On October 27, 2004, the
Board of Directors of CATC approved technical amendments to each of the CATC Stock Plans in anticipation of their assumption by LeCroy pursuant to the CATC Merger including, without limitation, amendments reflecting that any stock option or other
award granted thereunder would be exercisable for LeCroy common stock. Pursuant to SFAS No. 141 and FIN 44, the 648,284 unvested stock options, as well as certain vested but unexercised stock options, granted by the Company in exchange for the
stock options held by the employees of CATC were considered part of the purchase price for CATC. The $5.1 million fair value of the new awards was included in the purchase price, less the intrinsic value of unvested options of $1.9 million, which,
during the period from October 29, 2004 to June 30, 2005, was being charged as compensation expense to operations on a straight-line basis as earned by employees over their remaining vesting periods. In connection with the adoption of SFAS
123R, the remaining unamortized deferred compensation was eliminated against additional paid-in capital on the date of adoption and compensation cost for unvested options under the LeCroy (CATC) Plans is being recognized over the remaining vesting
period using the fair value of the options on the date of the CATC Merger. On September 13, 2005, the Board of Directors resolved that no further grants would be made under the LeCroy (CATC) Plans. As of June 30, 2007, there were 397,426
options outstanding under the LeCroy (CATC) Plans, of which 349,721 options were vested.

In connection with the Catalyst Merger, LeCroy
assumed Catalysts 2005 Stock Option Plan. On October 2, 2006, Catalyst stock option holders approved technical amendments to their stock option grants in anticipation of their assumption by LeCroy pursuant to the Catalyst Merger
including, without limitation, amendments reflecting that any stock option or other award granted thereunder would be exercisable for LeCroy common stock. Pursuant to SFAS No. 123R, of the 136,826 assumed stock options granted by the Company in
exchange for the stock options held by the employees of Catalyst, the fair value of 36,858 vested options or approximately $450,000 was considered part of the purchase price for Catalyst and the fair value of 99,968 unvested options or approximately
$1,196,000, will be charged to compensation expense on a straight-line basis as earned by employees over their remaining requisite service periods. As of June 30, 2007, there were 96,614 options outstanding under the Catalyst Plan, of which 838
options were vested.

Stock option transactions for fiscal years 2007, 2006 and 2005 under all plans are as follows:



|                                             |  |                  |   |  |                                 |       |                                                     |      |                                                     |   |      
|-------------------------------------------- |  | ---------------- | - |  | ------------------------------- | ----- | --------------------------------------------------- | ---- | --------------------------------------------------- | - | -----
|                                             |  | Number of Shares |   |  | Weighted Average Exercise Price |       | Weighted Average Remaining Contractual
Life (years) |      | Aggregate Intrinsic Value as of
June 30,2007 ($000)
|Outstanding at June 30, 2004                 |  | 2,339,647        |   |  |                                 | 16.91 |                                                     |      |                                                     |   |      
|Granted                                      |  | 977,736          |   |  |                                 | 12.31 |                                                     |      |                                                     |   |      
|Exercised                                    |  | (337,889         | ) |  |                                 | 11.56 |                                                     |      |                                                     |   |      
|Expired                                      |  | (5,741           | ) |  |                                 | 6.33  |                                                     |      |                                                     |   |      
|Forfeited                                    |  | (189,465         | ) |  |                                 | 15.79 |                                                     |      |                                                     |   |      
|                                             |  |                  |   |  |                                 |       |                                                     |      |                                                     |   |      
|Outstanding at June 30, 2005                 |  | 2,784,288        |   |  |                                 | 16.05 |                                                     |      |                                                     |   |      
|Granted                                      |  | 36,400           |   |  |                                 | 14.64 |                                                     |      |                                                     |   |      
|Exercised                                    |  | (130,398         | ) |  |                                 | 11.29 |                                                     |      |                                                     |   |      
|Expired                                      |  | (31,000          | ) |  |                                 | 18.88 |                                                     |      |                                                     |   |      
|Forfeited                                    |  | (428,442         | ) |  |                                 | 18.13 |                                                     |      |                                                     |   |      
|                                             |  |                  |   |  |                                 |       |                                                     |      |                                                     |   |      
|Outstanding at June 30, 2006                 |  | 2,230,848        |   |  | $                               | 15.85 |                                                     |      |                                                     |   |      
|Granted                                      |  | 172,726          |   |  |                                 | 2.69  |                                                     |      |                                                     |   |      
|Exercised                                    |  | (60,971          | ) |  |                                 | 2.39  |                                                     |      |                                                     |   |      
|Expired                                      |  | (193,080         | ) |  |                                 | 22.70 |                                                     |      |                                                     |   |      
|Forfeited                                    |  | (136,868         | ) |  |                                 | 15.61 |                                                     |      |                                                     |   |      
|                                             |  |                  |   |  |                                 |       |                                                     |      |                                                     |   |      
|Outstanding at June 30, 2007                 |  | 2,012,655        |   |  | $                               | 14.49 |                                                     | 3.97 |                                                     | $ | 1,540
|                                             |  |                  |   |  |                                 |       |                                                     |      |                                                     |   |      
|Vested and expected to vest at June 30, 2007 |  | 1,964,197        |   |  | $                               | 14.59 |                                                     | 3.80 |                                                     | $ | 1,536
|Exercisable at June 30, 2007                 |  | 1,706,322        |   |  | $                               | 15.21 |                                                     | 3.39 |                                                     | $ | 654  

The weighted-average grant-date fair value of the stock options granted during the years ended
June 30, 2007, 2006 and 2005 was $10.66, $7.64 and $8.95 per option, respectively. The total intrinsic value of stock options



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exercised during each of the years ended June 30, 2007, 2006 and 2005 was $0.5 million, $0.5 million and $3.7 million, respectively. Stock options that
vested during the years ended June 30, 2007, 2006 and 2005 had original fair values of $1.8 million, $3.3 million and $2.3 million, respectively.

The following table summarizes information about stock options outstanding at June 30, 2007:



|                            |  |                                      |  |                                      |       |                                                     |      |                  |           |                                 |   |      
|--------------------------- |  | ------------------------------------ |  | ------------------------------------ | ----- | --------------------------------------------------- | ---- | ---------------- | --------- | ------------------------------- | - | -----
|                            |  | Options Outstanding at June 30, 2007 |  | Options Exercisable at June 30, 2007
|Option Exercise Price Range |  | Number of Shares                     |  | Weighted Average Exercise Price      |       | Weighted Average Remaining Contractual
Life (years) |      | Number of Shares |           | Weighted Average Exercise Price
|$ 0.45 - $11.70             |  | 543,143                              |  | $                                    | 7.24  |                                                     | 5.04 |                  | 428,117   |                                 | $ | 8.64 
|$11.71 - $17.50             |  | 899,376                              |  |                                      | 14.59 |                                                     | 4.28 |                  | 720,602   |                                 |   | 14.43
|$17.51 - $23.50             |  | 544,122                              |  |                                      | 21.03 |                                                     | 2.37 |                  | 533,589   |                                 |   | 21.07
|$23.51 - $37.00             |  | 26,014                               |  |                                      | 25.41 |                                                     | 4.10 |                  | 24,014    |                                 |   | 25.56
|                            |  |                                      |  |                                      |       |                                                     |      |                  |           |                                 |   |      
|Total                       |  | 2,012,655                            |  | $                                    | 14.49 |                                                     | 3.97 |                  | 1,706,322 |                                 | $ | 15.21
|                            |  |                                      |  |                                      |       |                                                     |      |                  |           |                                 |   |      

Of the total stock options outstanding, 1,706,322 and 1,792,711 options were exercisable at
June 30, 2007 and 2006 respectively. Shares available for grant under all plans were 506,303 and 1,103,724 at June 30, 2007 and 2006, respectively.

As of June 30, 2007, there was approximately $2.3 million, of unrecognized compensation cost (net of estimated forfeitures) related to stock options granted under the plans. That cost is expected to be recognized
over a weighted-average period of 2.05 years. No compensation cost related to stock options was capitalized in inventory or any other assets for the years ended June 30, 2007, 2006 and 2005.

Restricted Stock

Compensation cost
for restricted stock (referred to as non-vested stock) was historically recorded based on its market value on the date of grant as deferred stock compensation, a component of Stockholders Equity, and then recognized ratably over the associated
service period, the period in which restrictions are removed. Forfeitures were accounted for as they occurred. With the adoption of SFAS 123R, effective July 3, 2005, deferred stock compensation was eliminated against Additional paid-in
capital. The fair value of new grants is determined based on the closing price on the date of grant. Related compensation expense is recognized ratably over the associated requisite service period, giving effect to estimated forfeitures.

During the year ended June 30, 2007, 405,038 shares of restricted stock were granted. Of those shares, 25,000 shares were issued under the 1998
Plan to non-employee directors and were immediately vested and 380,038 shares were issued to employees under the 2003 Plan. Of the shares issued to employees, 45,784 shares were immediately vested, 20,000 shares have 3-year ratable vesting, 294,254
shares have 4-year ratable vesting, 10,000 shares have a 3-year cliff vesting and 10,000 shares have a 5-year cliff vesting. In fiscal 2006 there were 73,500 shares of restricted stock granted. Of these shares, 25,000 were issued under the 1998 Plan
to non-employee directors and were immediately vested and 48,500 shares were issued to employees under the 2003 Plan with 4-year ratable vesting. In fiscal 2005, 198,030 and 70,000 shares of restricted stock were granted under the 2003 Plan and 2004
Plan, respectively, with various vesting conditions ranging from three to four years. During the years ended June 30, 2007, 2006 and 2005, 64,875, 32,375 and 2,300 shares, respectively, of non-vested stock were forfeited as a result of employee
terminations. As of June 30, 2007, 647,141 shares are unvested.



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The following table summarizes transactions related to non-vested restricted stock for the years ended
June 30, 2007, 2006 and 2005:



|                                  |  |                  |   |  |                                        |      
|--------------------------------- |  | ---------------- | - |  | -------------------------------------- | -----
|                                  |  | Number of Shares |   |  | Weighted Average Grant Date Fair
Value
|Non-vested stock at June 30, 2004 |  | 365,000          |   |  | $                                      | 18.01
|Granted                           |  | 268,030          |   |  |                                        | 13.82
|Vested                            |  | (86,130          | ) |  |                                        | 14.00
|Forfeited                         |  | (2,300           | ) |  |                                        | 13.21
|                                  |  |                  |   |  |                                        |      
|Non-vested stock at June 30, 2005 |  | 544,600          |   |  |                                        | 17.39
|Granted                           |  | 73,500           |   |  |                                        | 15.22
|Vested                            |  | (57,650          | ) |  |                                        | 15.33
|Forfeited                         |  | (32,375          | ) |  |                                        | 17.74
|                                  |  |                  |   |  |                                        |      
|Non-vested stock at June 30, 2006 |  | 528,075          |   |  |                                        | 17.33
|Granted                           |  | 405,038          |   |  |                                        | 12.03
|Vested                            |  | (221,097         | ) |  |                                        | 16.08
|Forfeited                         |  | (64,875          | ) |  |                                        | 15.64
|                                  |  |                  |   |  |                                        |      
|Non-vested stock at June 30, 2007 |  | 647,141          |   |  | $                                      | 14.61
|                                  |  |                  |   |  |                                        |      

As of June 30, 2007, there was approximately $5.6 million of unrecognized compensation cost
(net of estimated forfeitures) related to restricted (non-vested) stock granted under the plans. That cost is expected to be recognized over a weighted-average period of 2.46 years. No compensation cost related to restricted stock grants was
capitalized in inventory or any other assets for the years ended June 30, 2007, 2006 and 2005.

15.  Common Stock, Treasury Stock and
Warrants to Purchase Common Stock

On May 25, 2006, the Companys Board of Directors approved the adoption of a share
repurchase plan authorizing the Company to purchase up to 2 million shares, not to exceed $25 million, of its common stock for treasury. During fiscal 2007 the company purchased 896,000 shares for a total consideration of approximately $10.5
million. In fiscal 2006, the Company repurchased 142,283 shares for total consideration of $1.9 million. During the year ended June 30, 2007, the Company retired the remaining 1.0 million shares of its treasury stock. These shares are
authorized but unissued.

Purchases under this buyback program may be made from time to time on the open market and in privately negotiated
transactions, including pursuant to the terms of a 10b5-1 plan. A 10b5-1 plan allows a company to purchase shares during a blackout period, provided the company communicates its share purchase instructions to the broker prior to the blackout period,
pursuant to a written plan that may not be changed. The timing of these purchases is dependent upon several factors, including market conditions, the market price of the Companys common stock, the effect of the share dilution on earnings,
available cash and any other potential risks the Company may encounter. The share repurchase plan may be discontinued at any time at the discretion of the Company.

At June 30, 2006 the Company had outstanding warrants to purchase 28,571 shares of common stock at a purchase price of $17.50 per share. These warrants expired on August 15, 2006. Warrants to purchase
250,000 shares of common stock at a purchase price of $20.00 per share expired on June 30, 2006. No warrants were exercised during the fiscal years ended June 30, 2007, 2006 or 2005, and there are no warrants outstanding as of
June 30, 2007.

16.  (Loss) Income Per Common Share (EPS)

Basic (loss) income per share is computed by dividing net (loss) income by the weighted average number of shares of common stock outstanding during each
period. The computation of diluted (loss) income per share includes the effect of shares from the assumed exercise of dilutive stock options, convertible debt (if dilutive) and



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restricted stock using the treasury stock method. The following is a presentation of the numerators and the denominators of the basic and diluted (loss)
income per common share computations for the years ended June 30, 2007, 2006 and 2005 (in thousands):



|                                     |  |                      |         |   |      |   |        |  |   |       
|------------------------------------ |  | -------------------- | ------- | - | ---- | - | ------ |  | - | ------
|                                     |  | Years Ended June 30,
|                                     |  | 2007                 |         |   | 2006 |   | 2005  
|Numerator:                           |  |                      |         |   |      |   |        |  |   |       
|Net (loss) income                    |  | $                    | (13,207 | ) |      | $ | 6,573  |  | $ | 2,143 
|                                     |  |                      |         |   |      |   |        |  |   |       
|Denominator:                         |  |                      |         |   |      |   |        |  |   |       
|Weighted average shares outstanding: |  |                      |         |   |      |   |        |  |   |       
|Basic                                |  |                      | 11,702  |   |      |   | 12,218 |  |   | 11,774
|Employee stock options and other     |  |                      |        |   |      |   | 256    |  |   | 484   
|                                     |  |                      |         |   |      |   |        |  |   |       
|Diluted                              |  |                      | 11,702  |   |      |   | 12,474 |  |   | 12,258
|                                     |  |                      |         |   |      |   |        |  |   |       

The computations of diluted EPS for the years ended June 30, 2007, 2006 and 2005 do not
include approximately 2.6 million, 1.7 million and 1.6 million, respectively, of stock options, restricted stock and warrants to purchase common stock as the effect of their inclusion would have been anti-dilutive to EPS. For the year
ended June 30, 2007, the Notes had no impact on diluted EPS because the average share price during the year ended June 30, 2007 was below $14.55 per share (the initial conversion price), and accordingly, the Notes, if converted, would have
required only cash at settlement.

17.  Stockholder Rights Plan

On November 2, 1998, the Companys Board of Directors declared a dividend distribution of one right in respect to each share of LeCroys
Common Stock outstanding at the record date, November 18, 1998. To date, the rights have been traded together with the Common Stock and are not exercisable or separately tradable. The rights will be exercisable if a person or group acquires, in
the future, 15% or more of the Companys common stock or announces a tender offer. Right holders, other than the acquiring person or group, are then entitled to purchase an amount of the Companys common stock at a 50% discount to the
share price at that time. The number of shares of common stock that a right holder is entitled to purchase is based on the exercise price. Under certain circumstances, the right will entitle the stockholder to buy shares in an acquiring entity at a
discount.

The Board of Directors may redeem the rights at a price of $0.001 per right up until 10 days following a public announcement
that any person or group has acquired 15% or more of LeCroys Common Stock. The rights will expire on November 2, 2008, unless redeemed prior to that date.

18.  Employee Benefit Plans

The Company has an employee 401(k) savings plan. It is a
trusted, employee 401(k) savings plan for eligible U.S. employees under which it contributes an unconditional match of up to 50% of employee contributions up to a maximum employer contribution of 5% of the employees eligible compensation, as
defined. For each of the fiscal years 2007, 2006, and 2005, the Company has expensed $0.6 million in matching contributions to this plan.

The Companys subsidiary in Switzerland maintains a defined contribution plan, which requires employee contributions based upon a percentage of the employees earnings, as defined, currently ranging from 4.6% to 8.4%. The Company
makes a matching contribution based also upon a percentage of the employees earnings, as defined, currently ranging from 5.4% to 9.6%. For fiscal 2007, 2006, and 2005, the Company has expensed $0.5 million, $0.4 million, and $0.5 million,
respectively, in matching contributions to this plan.

19.  Segment and Geographic Information

The Company operates in a single-reportable segment in the test and measurement market, in which it develops, manufactures, sells and licenses
high-performance oscilloscopes, serial data analyzers and global



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communication protocol test solutions. These products are used by design engineers and researchers to measure and analyze complex electronic signals in order
to develop high performance systems, to validate electronic designs and to improve time to market. Revenue from the sale of the Companys products, which are similar in nature, are reflected as Test and measurement product revenue in the
Consolidated Statements of Operations.

Revenues are attributed to countries based on customer ship-to addresses. Revenues by geographic
area are as follows:



|                     |  |      |         |      |   |         |  |   |        
|-------------------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                     |  | 2007 |         | 2006 |   | 2005   
|North America        |  | $    | 50,891  |      | $ | 51,795  |  | $ | 52,500 
|Europe / Middle East |  |      | 51,899  |      |   | 48,767  |  |   | 49,650 
|Japan                |  |      | 16,929  |      |   | 22,043  |  |   | 26,209 
|Asia / Pacific       |  |      | 31,581  |      |   | 37,931  |  |   | 36,619 
|                     |  |      |         |      |   |         |  |   |        
|Total revenues       |  | $    | 151,300 |      | $ | 160,536 |  | $ | 164,978
|                     |  |      |         |      |   |         |  |   |        

Total assets by geographic area are as follows:



|                     |  |              |         |              |   |        
|-------------------- |  | ------------ | ------- | ------------ | - | -------
|                     |  | June 30,2007 |         | June 30,2006
|North America        |  | $            | 211,264 |              | $ | 180,070
|Europe / Middle East |  |              | 13,263  |              |   | 12,053 
|Japan                |  |              | 2,813   |              |   | 5,360  
|Asia / Pacific       |  |              | 3,979   |              |   | 4,491  
|                     |  |              |         |              |   |        
|Total assets         |  | $            | 231,319 |              | $ | 201,974
|                     |  |              |         |              |   |        

Total long-lived assets (1) by geographic area are as follows:



|                        |  |              |         |              |   |        
|----------------------- |  | ------------ | ------- | ------------ | - | -------
|                        |  | June 30,2007 |         | June 30,2006
|North America           |  | $            | 131,889 |              | $ | 103,473
|Europe / Middle East    |  |              | 515     |              |   | 581    
|Japan                   |  |              | 95      |              |   | 400    
|Asia / Pacific          |  |              | 369     |              |   | 439    
|                        |  |              |         |              |   |        
|Total long-lived assets |  | $            | 132,868 |              | $ | 104,893
|                        |  |              |         |              |   |        

---

|(1) | Long-lived assets presented in the table above exclude non-current deferred tax assets.
|--- | ---------------------------------------------------------------------------------------

No customer accounted for more than 10% of the Companys consolidated revenues in any of the last three fiscal years.

Revenue attributable to individual countries based on customer ship-to addresses that account for 10% or more of total revenues in fiscal 2007 include the United States ($50.9 million), Japan ($16.9 million) and
Germany ($16.7 million); in fiscal 2006 include the United States ($46.0 million), Japan ($22.0 million) and Germany ($17.3 million); and in fiscal 2005 include the United States ($47.0 million), Japan ($26.2 million) and Germany ($19.4 million).

20.  Iwatsu Settlement/Purchase Agreement

On March 22, 2006, the Company completed a purchase and settlement agreement with Iwatsu Electric Company, Ltd. (Iwatsu) for a total of $3.6 million which included the settlement of an underlying
dispute between the Company and Iwatsu relating to the ownership of intellectual property contained in Iwatsus ViewGo product line, a non-compete agreement, whereby Iwatsu agreed not to engage in competition with the Company for a period of
ten years, and the purchase of certain other intellectual property rights unrelated to the ViewGo product line. The



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Company obtained an independent third-party appraisal to value these elements of the Iwatsu agreement. As a result of the appraisal, in fiscal 2006, the
Company expensed $2.8 million of the total purchase price as a legal settlement. The remaining $0.8 million was recorded as intangible assets of which $0.5 million is being amortized over the 10-year estimated life of the non-compete agreement and
$0.3 million is being amortized over the 7-year estimated useful life of the acquired intellectual property assets. The ViewGo product line was re-engineered by the Company and launched as the WaveJet family of products during the third quarter of
fiscal 2006.

During the years ended June 30, 2007 and 2006, $0.1 million and $31,000, respectively was amortized to Cost of revenues
in the Consolidated Statement of Operations related to the Iwatsu acquired intangibles.

21.  Commitments and Contingencies

Operating Leases and Supplier Agreements

Operating leases covering plant, certain office facilities and equipment expire at various dates through 2013. Future minimum annual lease payments required during the years ending June 30, 2008, 2009, 2010,
2011, 2012 and thereafter, under non-cancelable operating leases having an original term of more than one year, are approximately $2.0 million, $1.1 million and $0.4 million, $0.1 million, $0.1 million and zero, respectively. Aggregate rental
expense on non-cancelable operating leases for the years ended June 30, 2007, 2006 and 2005 approximated $2.6 million, $2.1 million and $2.0 million, respectively.

As of June 30, 2007, the Company is committed to purchase $1.7 million of inventory from a supplier.

Environmental

The Companys former subsidiary, Digitech Industries, Inc. (Digitech), was notified
prior to 1999 by the Connecticut Department of Environmental Protection (the DEP) that it may be responsible for environmental damage that occurred at its previously leased facilities in Ridgefield, Connecticut (the Ridgefield
Site). Based upon recommendations made by the DEP, Digitech engaged environmental consultants to assist it in evaluating the costs associated with the DEPs recommendations for monitoring and remediation of the environmental damage.

In May 1999, LeCroy, Digitech and the former owners of the Ridgefield Site entered into an agreement with the current owners of the
Ridgefield Site. The current owners purchased an insurance policy providing for $2.0 million of coverage against certain environmental liabilities related to the Ridgefield Site. This insurance policy names both LeCroy and Digitech as insured
parties. The current owners of the Ridgefield Site also agreed to remediate all environmental problems associated with the property and to obtain all applicable approvals and certifications from the DEP. The current owners of the Ridgefield Site
also agreed to hold both LeCroy and Digitech harmless in the event of a claim made against them relating to these environmental matters. In return for the above, forty-five days after the DEP has provided written notification to the Company that the
site remediation has been accomplished to its satisfaction, the Company agreed to pay the former owners of the Ridgefield Site $0.2 million as compensation for the reduced sale value of the property due to the environmental problems existing on the
site.

In August 2000, the Company closed the sale of the assets and business of its Vigilant Networks, Inc. subsidiary
(Vigilant) and a portion of the assets and business of its Digitech subsidiary for gross proceeds of $12.0 million. The remaining business of Digitech was classified as discontinued operations. The Company has accrued retained
liabilities from discontinued operations of $0.2 million after the sale of the Vigilant business and the residual assets of Digitech, which amount is recorded in Accrued expenses and other current liabilities on the June 30, 2007 and 2006
Consolidated Balance Sheets.

Legal

On April 28, 2003, Tektronix, Inc. (Tektronix) filed a complaint against the Company in the United States District Court for the District of Oregon claiming that the Company infringed on eight of
Tektronix U.S. patents. In the Companys responsive pleading, the Company denied that it has infringed, or is infringing, any of these patents, and contended that the patents are invalid. The Company furthermore filed a counterclaim on
August 5, 2003, claiming Tektronix is infringing three of the Companys patents. On April 11, 2005, all claims related to two of the



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Tektronix patents were voluntarily dismissed from the Tektronix complaint and the Companys counterclaim. All claims related to one of the
Companys patents were also voluntarily dismissed from the Companys counterclaim. On November 30, 2004, the Company filed a Motion for Summary Judgment of Non-infringement concerning one of the six Tektronix patents. In response,
Tektronix filed a Cross-Motion for Summary Judgment of Infringement by the Company concerning the same patent. By order dated May 4, 2005, the court granted the Companys Motion for Summary Judgment of Non-infringement and denied
Tektronix Cross-Motion for Summary Judgment of Infringement. On May 11, 2005, Tektronix and the Company entered into a cross license and settlement agreement, settling all claims and counterclaims between the parties in connection with
their respective patents. As part of the settlement agreement, the Company paid $1.0 million to Tektronix in fiscal 2005.

On
March 22, 2006, the Company completed a purchase and settlement agreement with Iwatsu Electric Company, Ltd. (Iwatsu) for a total of $3.6 million which included the settlement of an underlying dispute between the Company and Iwatsu
relating to the ownership of intellectual property (See Note 20  Iwatsu Settlement/Purchase Agreement for additional information).

From time to time, the Company may be involved in lawsuits, claims, investigations and proceedings, including patent and environmental matters, which arise in the ordinary course of business. There are no matters pending that the Company
expects to be material to its business, results of operations, financial condition or cash flows.

22.  Related Party Transactions

On October 20, 2000, the Compensation Committee of the Board of Directors approved a $0.3 million five-year loan to Thomas H.
Reslewic, LeCroys Chief Executive Officer and President, secured by Mr. Reslewics non-qualified stock options. The loan accrued interest at 9.5% compounded annually with interest payable at the maturity of the loan. If
Mr. Reslewic remained an employee of LeCroy for the entire five-year term of the loan or was terminated without cause prior to the maturity date of the loan, the Company would forgive the loan principal and all accrued interest. The loan was
amortized on a straight-line basis and the compensation expense was recorded within Selling, general and administrative expenses. The loan reached maturity in the second quarter of fiscal 2006 and was forgiven along with the accrued interest, in
accordance with the agreement.

On July 19, 2005 the Compensation Committee of the Board of Directors approved a $0.3 million
retention bonus to Mr. Reslewic. This retention bonus requires Mr. Reslewic to remain an employee for five years. If Mr. Reslewic terminates his employment earlier than five years, he will be required to repay the bonus in full. The
retention bonus is being amortized over five years on a straight line basis as compensation expense. At June 30, 2007, $0.2 million remains in Other current assets and the remaining balance is in Other non-current assets on the Consolidated
Balance Sheet.

In conjunction with the Catalyst acquisition, the Company issued a $3.5 million, 6% promissory note payable on
January 2, 2008, to Nader Salehomoum, the former sole shareholder of Catalyst and current employee of the Company.

23.  Derivative
Instruments

The Company has or had the following derivative instruments:

Interest Rate Swap

As required by
the terms of the Companys Prior Credit Agreement (See Note 13  Long-term Debt and Capital Leases for additional information), on January 27, 2005 the Company entered into a Master Agreement for an interest rate swap with M&T
Bank, the purpose of which was to protect against rising interest rates during the term of the Credit Agreement.

On October 16, 2006
in conjunction with the repayment of the term loan (See Note 13  Long-term Debt and Capital Leases for additional information), the Company terminated its interest rate swap with M&T Bank. The net



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interest income earned on the swap was $0.3 million and $0.1 million for the years ended June 30, 2007 and 2006, respectively, and is recognized in
Interest expense in the Consolidated Statements of Operations. The notional amount of the interest rate swap as of June 30, 2006 was approximately $19.1 million.

Forward foreign exchange contracts

The Company enters into short-term forward exchange agreements
to purchase foreign currencies at set rates in the future. These foreign currency forward exchange agreements are used to limit exposure to fluctuations in foreign currency exchange rates on assets and liabilities denominated in currencies other
than the Companys functional currency. Subsidiaries may also use forward exchange agreements to offset the foreign currency risk for receivables and payables not denominated in, or indexed to, their functional currencies. The Company records
these short-term forward exchange agreements on the balance sheet at fair value and changes in the fair value are recognized currently in Other (expense) income, net in the Consolidated Statement of Operations.

During fiscal 2007, 2006 and 2005, foreign currency exchange gains (losses) on these derivatives and on transactions denominated in other than their
functional currencies, were ($0.3) million, ($0.3) million and $0.2 million, respectively. These net gains (losses) are included in Other, net in the Consolidated Statements of Operations and include foreign exchange contract gross gains of $0.1
million, $0.6 million and $0.6 million in fiscal 2007, 2006 and 2005, respectively. At June 30, 2007 and 2006, the notional amounts of the Companys open foreign exchange forward contracts, all with maturities of less than six months, were
approximately $10.4 million and $14.6 million, respectively.

24.  Unaudited Quarterly Results of Operations

The Company has quarterly periods ending on the Saturday closest to the end of the month. For clarity of presentation, the quarterly period-ends are
stated as of the last day of the calendar quarter. Summarized unaudited quarterly operating results for fiscal years 2007 and 2006 are as follows (in thousands, except per share data):



|                                             |  |                  |        |   |                  |   |        |               |  |   |                |   |  |               |        |   |               |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|-------------------------------------------- |  | ---------------- | ------ | - | ---------------- | - | ------ | ------------- |  | - | -------------- | - |  | ------------- | ------ | - | ------------- | - | ------ | ------------- |  | - | -------------- | - |  | - | ------ | - |  | - | ------ | -
|                                             |  | Quarters Ended   |       
|                                             |  | Fiscal Year 2007 |        |   | Fiscal Year 2006 |  
|                                             |  | June 30, 2007    |        |   | Mar. 31, 2007    |   |        | Dec. 31, 2006 |  |   | Sept. 30, 2006 |   |  | June 30, 2006 |        |   | Mar. 31, 2006 |   |        | Dec. 31, 2005 |  |   | Sept. 30, 2005 |  
|Revenues                                     |  |                  |        |   |                  |   |        |               |  |   |                |   |  |               |        |   |               |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|Test and measurement products                |  | $                | 35,444 |   |                  | $ | 37,651 |               |  | $ | 36,258         |   |  | $             | 35,298 |   |               | $ | 37,137 |               |  | $ | 37,184         |   |  | $ | 39,996 |   |  | $ | 39,124 |  
|Service and other                            |  |                  | 1,357  |   |                  |   | 1,691  |               |  |   | 1,858          |   |  |               | 1,743  |   |               |   | 1,438  |               |  |   | 1,697          |   |  |   | 2,026  |   |  |   | 1,934  |  
|                                             |  |                  |        |   |                  |   |        |               |  |   |                |   |  |               |        |   |               |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|Total revenues                               |  |                  | 36,801 |   |                  |   | 39,342 |               |  |   | 38,116         |   |  |               | 37,041 |   |               |   | 38,575 |               |  |   | 38,881         |   |  |   | 42,022 |   |  |   | 41,058 |  
|Cost of revenue                              |  |                  | 17,528 |   |                  |   | 18,524 |               |  |   | 18,294         |   |  |               | 14,823 |   |               |   | 15,727 |               |  |   | 15,250         |   |  |   | 16,434 |   |  |   | 16,065 |  
|                                             |  |                  |        |   |                  |   |        |               |  |   |                |   |  |               |        |   |               |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|Gross profit                                 |  |                  | 19,273 |   |                  |   | 20,818 |               |  |   | 19,822         |   |  |               | 22,218 |   |               |   | 22,848 |               |  |   | 23,631         |   |  |   | 25,588 |   |  |   | 24,993 |  
|Selling, general and administrative expenses |  |                  | 12,777 |   |                  |   | 15,065 |               |  |   | 14,681         |   |  |               | 12,846 |   |               |   | 12,424 |               |  |   | 12,361         |   |  |   | 13,594 |   |  |   | 13,243 |  
|Legal settlement                             |  |                  |       |   |                  |   |       |               |  |   |               |   |  |               |       |   |               |   |       |               |  |   | 2,792          |   |  |   |       |   |  |   |       |  
|Research and development expenses            |  |                  | 8,358  |   |                  |   | 8,080  |               |  |   | 12,845         |   |  |               | 7,652  |   |               |   | 7,222  |               |  |   | 7,671          |   |  |   | 7,806  |   |  |   | 7,424  |  
|                                             |  |                  |        |   |                  |   |        |               |  |   |                |   |  |               |        |   |               |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|Operating (loss) income                      |  |                  | (1,862 | ) |                  |   | (2,327 | )             |  |   | (7,704         | ) |  |               | 1,720  |   |               |   | 3,202  |               |  |   | 807            |   |  |   | 4,188  |   |  |   | 4,326  |  
|Other expense, net                           |  |                  | (1,093 | ) |                  |   | (1,677 | )             |  |   | (1,706         | ) |  |               | (789   | ) |               |   | (693   | )             |  |   | (403           | ) |  |   | (682   | ) |  |   | (709   | )
|                                             |  |                  |        |   |                  |   |        |               |  |   |                |   |  |               |        |   |               |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|(Loss) income before income taxes            |  |                  | (2,955 | ) |                  |   | (4,004 | )             |  |   | (9,410         | ) |  |               | 931    |   |               |   | 2,509  |               |  |   | 404            |   |  |   | 3,506  |   |  |   | 3,617  |  
|Benefit from (provision for) income taxes    |  |                  | 730    |   |                  |   | 69     |               |  |   | 1,754          |   |  |               | (322   | ) |               |   | (498   | )             |  |   | (252           | ) |  |   | (1,329 | ) |  |   | (1,384 | )
|                                             |  |                  |        |   |                  |   |        |               |  |   |                |   |  |               |        |   |               |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|Net (loss) income                            |  | $                | (2,225 | ) |                  | $ | (3,935 | )             |  | $ | (7,656         | ) |  | $             | 609    |   |               | $ | 2,011  |               |  | $ | 152            |   |  | $ | 2,177  |   |  | $ | 2,233  |  
|                                             |  |                  |        |   |                  |   |        |               |  |   |                |   |  |               |        |   |               |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|Net (loss) income per common share:          |  |                  |        |   |                  |   |        |               |  |   |                |   |  |               |        |   |               |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|Basic                                        |  | $                | (0.19  | ) |                  | $ | (0.34  | )             |  | $ | (0.67          | ) |  | $             | 0.05   |   |               | $ | 0.16   |               |  | $ | 0.01           |   |  | $ | 0.18   |   |  | $ | 0.18   |  
|Diluted                                      |  | $                | (0.19  | ) |                  | $ | (0.34  | )             |  | $ | (0.67          | ) |  | $             | 0.05   |   |               | $ | 0.16   |               |  | $ | 0.01           |   |  | $ | 0.17   |   |  | $ | 0.18   |  
|Weighted average number of shares:           |  |                  |        |   |                  |   |        |               |  |   |                |   |  |               |        |   |               |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|Basic                                        |  |                  | 11,601 |   |                  |   | 11,499 |               |  |   | 11,492         |   |  |               | 12,217 |   |               |   | 12,297 |               |  |   | 12,275         |   |  |   | 12,195 |   |  |   | 12,106 |  
|Diluted                                      |  |                  | 11,601 |   |                  |   | 11,499 |               |  |   | 11,492         |   |  |               | 12,459 |   |               |   | 12,533 |               |  |   | 12,556         |   |  |   | 12,467 |   |  |   | 12,348 |  



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Schedule II

LeCROY CORPORATION

VALUATION AND QUALIFYING ACCOUNTS

Years Ended June 30, 2007, 2006 and 2005

(In thousands)



|                                                                                |  |                                |  |                               |  |                   |      |  |                         
|------------------------------------------------------------------------------- |  | ------------------------------ |  | ----------------------------- |  | ----------------- | ---- |  | ------------------------
|Description                                                                     |  | Balance at Beginning of
Period |  | Charged to Costs and Expenses |  | Deductions/ Other |      |  | Balance at End of Period
|Against trade receivables  Year ended June 30, 2005Net reserves                |  | 436                            |  | 93                            |  | (149              | )(1) |  | 380                     
|Year ended June 30, 2006Net reserves                                            |  | 380                            |  | 94                            |  | (16               | )(1) |  | 458                     
|Year ended June 30, 2007Net reserves                                            |  | 458                            |  | 576                           |  | (152              | )(1) |  | 882                     
|Against inventories  Year ended June 30, 2005Allowance for excess and obsolete |  | 2,520                          |  | 3,272                         |  | (4,706            | )(2) |  | 1,086                   
|Year ended June 30, 2006Allowance for excess and obsolete                       |  | 1,086                          |  | 543                           |  |                  |      |  | 1,629                   
|Year ended June 30, 2007Allowance for excess and obsolete                       |  | 1,629                          |  | 1,823                         |  | (791              | )    |  | 2,661                   
|Against deferred tax assets  Year ended June 30, 2005Valuation allowance       |  | 5,304                          |  |                              |  | (4,954            | )(3) |  | 350                     
|Year ended June 30, 2006Valuation allowance                                     |  | 350                            |  |                              |  | (92               | )    |  | 258                     
|Year ended June 30, 2007Valuation allowance                                     |  | 258                            |  | 1,443                         |  | (46               | )    |  | 1,655                   

---

|(1) | Uncollectible accounts receivable written-off and change in sales return estimates.
|--- | -----------------------------------------------------------------------------------



|(2) | Inventory disposals and/or impact of foreign currency.
|--- | ------------------------------------------------------



|(3) | Adjustment associated with a change in estimate primarily related to a reduction of certain deferred tax assets.
|--- | ----------------------------------------------------------------------------------------------------------------



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|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
|------- | -------------------------------------------------------------------------------------

None.



|ITEM 9A. | CONTROLS AND PROCEDURES.
|-------- | ------------------------

The Company, under the
supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Companys disclosure controls and procedures
(as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Companys disclosure
controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information relating to the Company and the Companys consolidated subsidiaries required to be disclosed in the Companys reports
filed or submitted under the Exchange Act.

There have not been any changes in the Companys internal control over financial reporting
(as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2007 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

Section 404 of the Sarbanes-Oxley Act of 2002 requires that management document and test the Companys internal controls over financial
reporting and include in this Annual Report on Form 10-K a report on managements assessment of the effectiveness of the Companys internal controls over financial reporting. See Managements Report on Internal Control over
Financial Reporting. In addition, KPMG LLP, an independent registered public accounting firm, has audited the effectiveness of internal control over financial reporting as of June 30, 2007 and has issued their report thereon, also
included in this Annual Report on Form 10-K.

Managements Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and
15d-15(f) of the Exchange Act. The Companys internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting based upon the guidelines established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that
evaluation, our management has concluded that our internal control over financial reporting is effective as of June 30, 2007. In addition, KPMG LLP, our independent registered public accounting firm, has audited the effectiveness of internal
control over financial reporting as of June 30, 2007 and has issued their report thereon. That report appears below.

On
October 2, 2006, we acquired Catalyst Enterprises, Inc. We excluded from our assessment of the effectiveness of internal control over financial reporting as of June 30, 2007, Catalyst Enterprises, Inc.s internal control over
financial reporting associated with total assets of $2.8 million and total revenues of $8.4 million included in our consolidated financial statements as of and for the year ended June 30, 2007.



94



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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

LeCroy Corporation:

We have audited LeCroy Corporation and subsidiaries internal control over financial reporting as of June 30, 2007, based on criteria
established in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). LeCroy Corporations management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements Report on Internal Control over Financial Reporting. Our responsibility is to express an
opinion on the Companys internal control over financial reporting based on our audit.

We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in
all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control, based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors
of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, LeCroy Corporation and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of
June 30, 2007, based on criteria established in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

LeCroy Corporation acquired Catalyst Enterprises, Inc. during the year ended June 30, 2007, and management excluded from its assessment of the
effectiveness of LeCroy Corporation and subsidiaries internal control over financial reporting as of June 30, 2007, Catalyst Enterprises, Inc.s internal control over financial reporting associated with total assets of approximately
$2.8 million and total revenues of approximately $8.4 million included in the consolidated financial statements of LeCroy Corporation and subsidiaries as of and for the year ended June 30, 2007. Our audit of internal control over financial
reporting of LeCroy Corporation and subsidiaries also excluded an evaluation of the internal control over financial reporting of Catalyst Enterprises, Inc.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of LeCroy Corporation and subsidiaries as of June 30, 2007
and 2006, and the related consolidated statements of operations, stockholders equity and cash flows for each of the years in the three-year period ended June 30, 2007, and our report dated September 13, 2007, expressed an unqualified
opinion on those consolidated financial statements.



|                                          
|------------------------------------------
|                                          
|/s/ KPMG LLP                              
|                                          
|Short Hills, New Jersey September 13,
2007



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|ITEM 9B. | OTHER INFORMATION
|-------- | -----------------

None



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PART III



|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE OF THE REGISTRANT.
|-------- | -------------------------------------------------------------------------

Information with respect to our directors will be contained in the section captioned Structure and Compensation of the Board of Directors of the Definitive Proxy Statement relating to our 2007 Annual
Meeting of Stockholders (2007 Proxy Statement), which is scheduled to be held October 31, 2007. Information with respect to Item 405 disclosure of delinquent Form 3, 4 or 5 filers will be contained in the section captioned
Section 16(A) Beneficial Ownership Reporting Compliance in the 2007 Proxy Statement. Those portions of the 2007 Proxy Statement are incorporated herein by reference. The discussion of our executive officers is included in Item 1,
Part I of this report under Executive Officers of the Registrant.

The Company has adopted a code of ethics entitled
Revised Principles of Business Conduct Policy, which applies to its officers, directors and employees. A copy is available to any person without charge upon written request to:

LeCroy Corporation

Attention: Investor
Relations

700 Chestnut Ridge Road

Chestnut Ridge, New York 10977



|ITEM 11. | EXECUTIVE COMPENSATION.
|-------- | -----------------------

A description of
the compensation of our executive officers will be contained in the section captioned Executive Compensation of the 2007 Proxy Statement. That portion of the 2007 Proxy Statement is incorporated herein by reference.



|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
|-------- | -----------------------------------------------------------------------------------------------

A description of the security ownership of certain beneficial owners and management will be contained in the section captioned Security Ownership
of Certain Beneficial Owners and Management of the 2007 Proxy Statement. That portion of the 2007 Proxy Statement is incorporated herein by reference.

Equity Compensation Plan Information

A description of our equity compensation plans will be contained in the section
captioned Executive Compensation and Other Information of the 2007 Proxy Statement. That portion of the 2007 Proxy Statement is incorporated herein by reference.



|ITEM 13. | CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.
|-------- | ----------------------------------------------------------------------

Certain relationships and related transactions with management will be contained in the section captioned Certain Relationships and Related Transactions in the 2007 Proxy Statement. That portion of the
2007 Proxy Statement is incorporated herein by reference.



|ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES.
|-------- | ---------------------------------------

A
description of the principal accounting fees and services will be contained in the section captioned Principal Accounting Fees and Services in the 2007 Proxy Statement. That portion of the 2007 Proxy Statement is incorporated herein by
reference.



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PART IV



|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
|-------- | -------------------------------------------

The
following documents are filed as part of this report:



| | (a) (1) | Financial Statements  See Index to Consolidated Financial Statements at Item 8 of this report.
| | ------- | -----------------------------------------------------------------------------------------------

| | (a) (2) | Financial Statement Schedules See Index to Consolidated Financial Statements at Item 8 of this report (Schedule II).
| | ------- | ---------------------------------------------------------------------------------------------------------------------

Schedules not listed above have been omitted because the information required to be set forth therein is not applicable, not required or is included
elsewhere in the financial statements or notes thereto.



| | (a) (3) | Exhibits
| | ------- | --------

The following exhibits are filed with
this report:



|              |  |                                                                                                                                                                                                                                                                      
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                          
|2.1           |  | Agreement and Plan of Merger, dated as of September 1, 2004, among the Registrant, Cobalt Acquisition Corporation and Computer Access Technology Corporation, filed as Exhibit 2.1 to
Form 8-K dated September 2, 2004, incorporated herein by reference.            
|              | 
|2.2           |  | Agreement and Plan of Merger dated as of September 29, 2006, among the Registrant, 2006 Franklin Congress Corporation, Catalyst Enterprises, Inc., and Nader Salehomoum, filed as Exhibit 2.1 to
Form 8-K filed on October 3, 2006, incorporated herein by reference.
|              | 
|3.1           |  | Certificate of Incorporation of the Registrant as of July 24, 1995, filed as Exhibit 3.1 to Form S-1 Registration Statement No. 33-95620, incorporated herein by reference.                                                                                          
|              | 
|3.2           |  | Amendment to the Certificate of Designation of the Series A Convertible Redeemable Preferred Stock as of April 9, 2001, filed as Exhibit 10.37 to Form 10-Q for the quarterly period ended March
31, 2001, incorporated herein by reference.                         
|              | 
|3.3           |  | By-Laws of the Registrant, as amended, dated August 16, 2000, filed as Exhibit 3.3 to Form 10-Q for the quarterly period ended September 30, 2000, incorporated herein by
reference.                                                                                 
|              | 
|4.1           |  | Purchase Agreement dated October 5, 2006, between LeCroy Corporation and Cowen and Company, LLC, filed as Exhibit 4.1 to Form 8-K filed on October 12, 2006, incorporated herein by reference.                                                                       
|              | 
|4.2           |  | Registration Rights Agreement dated October 12, 2006, between LeCroy Corporation and Cowen and Company, LLC, filed as Exhibit 4.2 to Form 8-K filed on October 12, 2006, incorporated herein by
reference.                                                           
|              | 
|4.3           |  | Indenture dated October 12, 2006, between LeCroy Corporation, as issuer, and U.S. Bank National Association, as trustee, filed as Exhibit 4.3 to Form 8-K filed on October 12, 2006, incorporated
herein by reference.                                               
|              | 
|10.1          |  | Credit Agreement, dated as of October 29, 2004, among the Registrant, the lenders party thereto and The Bank of New York, as Administrative Agent, filed as Exhibit 10.14 to Form 8-K filed on
November 2, 2004, incorporated herein by reference.                   
|              | 
|10.2          |  | LeCroy Corporation Amended and Restated 1993 Stock Incentive Plan filed as Exhibit 10.1 to Form S-1 Registration Statement No. 33-95620, incorporated herein by reference.*                                                                                          
|              | 
|10.3          |  | Amendment to LeCroy Corporation Amended and Restated 1993 Stock Incentive Plan, filed as Exhibit 10.33 to Form 10-Q for the quarterly period ended September 30, 2000, incorporated herein by
reference.*                                                            
|              | 
|10.4          |  | LeCroy Corporation 1995 Non-Employee Director Stock Option Plan filed as Exhibit 10.2 to Form S-1 Registration Statement No. 33-95620, incorporated herein by reference.*                                                                                            



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|              |  |                                                                                                                                                                                                                                                                       
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                           
|              | 
|10.5          |  | LeCroy Corporation 1995 Employee Stock Purchase Plan, filed as Exhibit 10.3 to Form S-1 Registration Statement No. 33-95620, incorporated herein by reference.*                                                                                                       
|              | 
|10.6          |  | LeCroy Corporation 1998 Non-Employee Director Stock Option Plan, incorporated by reference to Appendix A to the Companys Definitive Proxy Statement filed on September 18,
1998.                                                                                     
|              | 
|10.7          |  | Amendment to the LeCroy Corporation 1998 Non-Employee Director Stock Option Plan, dated August 16, 2000, filed as Exhibit 10.34 to Form 10-Q for the quarterly period ended September 30,
2000, incorporated herein by reference.*                                    
|              | 
|10.8          |  | Amendment to the LeCroy Corporation 1998 Non-Employee Director Stock Option Plan, dated October 25, 2000, filed as Exhibit 10.35 to Form 10-Q for the quarterly period ended
September 30, 2000, incorporated herein by reference.*                                   
|              | 
|10.9          |  | LeCroy Corporations 2003 Stock Incentive Plan, incorporated by reference to Appendix A to the Companys Definitive Proxy Statement filed on September 26, 2003.*                                                                                                     
|              | 
|10.10         |  | Form of Restricted Stock Purchase Agreement, filed as Exhibit 10.41 to Form 10-K for the fiscal year ended June 30, 2002, incorporated herein by reference.*                                                                                                          
|              | 
|10.11         |  | LeCroy Corporation Amended and Restated 1995 Employee Stock Purchase Plan, incorporated by reference to Appendix B to the Registrants Definitive Proxy Statement filed on September 26,
2003.*                                                                       
|              | 
|10.12         |  | LeCroy Corporations 2004 Employment Inducement Stock Plan, filed as Exhibit 10.5 to Form 8-K filed on November 2, 2004, incorporated herein by reference.*                                                                                                           
|              | 
|10.13         |  | Computer Access Technology Corporation Special 2000 Stock Option Plan, filed as Exhibit 10.7 to Form 8-K filed on November 2, 2004, incorporated herein by reference.*                                                                                                
|              | 
|10.14         |  | Amendments to Computer Access Technology Corporation 2000 Special Stock Option Plan, filed as Exhibit 10.11 to Form 8-K filed on November 2, 2004, incorporated herein by
reference.*                                                                                 
|              | 
|10.15         |  | Amendment to LeCroy Corporation (CATC) Special 2000 Stock Option Plan, filed as Exhibit 10.2 to Form 8-K filed on November 19, 2004, incorporated herein by reference.*                                                                                               
|              | 
|10.16         |  | Computer Access Technology Corporation 2000 Stock Incentive Plan, filed as Exhibit 10.8 to Form 8-K filed on November 2, 2004, incorporated herein by reference.*                                                                                                     
|              | 
|10.17         |  | Amendments to Computer Access Technology Corporation 2000 Stock Incentive Plan, filed as Exhibit 10.12 to Form 8-K filed on November 2, 2004, incorporated herein by
reference.*                                                                                      
|              | 
|10.18         |  | Amendment to LeCroy Corporation (CATC) 2000 Stock Incentive Plan, filed as Exhibit 10.3 to Form 8-K filed on November 19, 2004, incorporated herein by reference.*                                                                                                    
|              | 
|10.19         |  | Computer Access Technology Corporation 1994 Stock Option Plan, filed as Exhibit 10.9 to Form 8-K filed on November 2, 2004, incorporated herein by reference.*                                                                                                        
|              | 
|10.20         |  | Amendments to Computer Access Technology Corporation 1994 Stock Option Plan, filed as Exhibit 10.13 to Form 8-K filed on November 2, 2004, incorporated herein by
reference.*                                                                                         
|              | 
|10.21         |  | Amendment to LeCroy Corporation (CATC) 1994 Stock Option Plan, filed as Exhibit 10.4 to Form 8-K filed on November 19, 2004, incorporated herein by reference.*                                                                                                       
|              | 
|10.22         |  | Employee Agreement Regarding Inventions, Confidentiality and Non-Competition, dated as of March 28, 1995, between the Registrant and Walter O. LeCroy, Jr., filed as Exhibit 10.13 to Form
S-1 Registration Statement No. 33-95620, incorporated herein by reference.*
|              | 
|10.23         |  | Form of Indemnification Agreement, between the Registrant and each of its executive officers and directors filed as Exhibit 10.29 to Form S-1 Registration Statement No. 33-95620, incorporated
herein by reference.*                                                 



99



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|              |  |                                                                                                                                                                                                                                                                         
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                             
|              | 
|10.24         |  | Employment Agreement, dated August 13, 2001, between the Registrant and R. Scott Bausback, filed as Exhibit 10.38 to Form 10-Q for the quarterly period ended December 31, 2001, incorporated
herein by reference.*                                                     
|              | 
|10.25         |  | Separation Agreement, dated August 19, 2004, between the Registrant and R. Scott Bausback, filed as Exhibit 10.50 to Form 10-K for the fiscal year ended June 30, 2004, incorporated herein by
reference.*                                                              
|              | 
|10.26         |  | Employment Agreement, dated January 1, 2002, between the Registrant and Thomas H. Reslewic, filed as Exhibit 10.40 to Form 10-Q for the quarterly period ended March 31, 2003, incorporated herein
by reference.*                                                       
|              | 
|10.27         |  | Amendment No. 1 to Employment Agreement, dated December 16, 2002, between the Registrant and Thomas H. Reslewic, filed as Exhibit 10.43 to Form 10-Q for the quarterly period ended March 31,
2003, incorporated herein by reference.*                                  
|              | 
|10.28         |  | Separation Agreement, dated August 19, 2004, between the Registrant and Thomas H. Reslewic, filed as Exhibit 10.49 to Form 10-K for the fiscal year ended June 30, 2004, incorporated herein by
reference.*                                                             
|              | 
|10.29         |  | Form of Separation Agreement between the Registrant and certain of its executive officers, filed as Exhibit 10.51 to Form 10-K for the fiscal year ended June 30, 2004, incorporated herein by
reference.*                                                              
|              | 
|10.30         |  | Employment Agreement, dated September 1, 2004 and effective October 29, 2004, between the Registrant and Carmine Napolitano, filed as Exhibit 10.1 to Form 8-K filed on November 2, 2004,
incorporated herein by reference.*                                            
|              | 
|10.31         |  | Amendment No. 1 to Employment Agreement, dated September 30, 2004 and effective October 29, 2004, between the Registrant and Carmine Napolitano, filed as Exhibit 10.2 to Form 8-K filed on
November 2, 2004, incorporated herein by reference.*                        
|              | 
|10.32         |  | Services Agreement, dated August 31, 2004, between Computer Access Technology Corporation and Dan Wilnai, filed as Exhibit 10.3 to Form 8-K filed on November 2, 2004, incorporated herein by
reference.*                                                               
|              | 
|10.33         |  | Employment Agreement, dated August 31, 2004, between Computer Access Technology Corporation and Peretz Tzarnotsky, filed as Exhibit 10.4 to Form 8-K filed on November 2, 2004,
incorporated herein by reference.*                                                      
|              | 
|10.34         |  | Amendment No. 2 to Credit Agreement, dated as of May 9, 2006, among the Registrant, the lenders party thereto and The Bank of New York, as Administrative Agent, filed as Exhibit 10.40 to Form
10-Q filed on May 10, 2006, incorporated herein by reference.           
|              | 
|10.35         |  | Amendment No. 3 to Credit Agreement, dated as of September 26, 2006, among the Registrant, the lenders party thereto and The Bank of New York, as Administrative Agent, filed as Exhibit 10.36 to
Form 10-Q filed on November 9, 2006, incorporated herein by reference.
|              | 
|10.36         |  | Amendment No. 4 to Credit Agreement, dated as of September 28, 2006, among the Registrant, the lenders party thereto and The Bank of New York, as Administrative Agent, filed as Exhibit 10.37 to
Form 10-Q filed on November 9, 2006, incorporated herein by reference.
|              | 
|10.37         |  | Amendment No. 5 to Credit Agreement, dated as of December 29, 2006, among the Registrant, the lenders party thereto and The Bank of New York, as Administrative Agent, filed as Exhibit 10.1 to
Form 8-K filed on December 29, 2006, incorporated herein by reference.* 
|              | 
|10.38         |  | Catalyst Enterprises, Inc. 2005 Stock Option Plan, filed as Exhibit 10.1 to Form 8-K filed on December 22, 2006, incorporated herein by reference.*                                                                                                                     
|              | 
|10.39         |  | Amendments to Catalyst Enterprises, Inc. 2005 Stock Option Plan filed as Exhibit 10.2 to Form 8-K filed on December 22, 2006, incorporated herein by reference.*                                                                                                        



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|              |  |                                                                                                                                                                                                                                                                                          
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                              
|              | 
|10.40         |  | Credit Agreement, dated as of March 30, 2007, among the Registrant, the Lenders listed therein and Manufacturers and Traders Trust Company, as Administrative Agent, filed as Exhibit 10.1 to Form
8-K filed on April 4, 2007, incorporated herein by reference.                         
|              | 
|10.41         |  | First Modification and Lender Joinder Agreement, dated as of April 26, 2007, among Registrant, the Lenders listed therein and Manufacturers and Traders Trust Company, as Administrative Agent,
filed as Exhibit 10.1 to Form 8-K filed on May 2, 2007, incorporated herein by reference.
|              | 
|10.42         |  | Assignment and Acceptance, dated as of April 26, 20007, between Manufacturers and Traders Trust Company and North Fork Bank, filed as Exhibit 10.2 to Form 8-K filed on May 2, 2007, incorporated
herein by reference.                                                                   
|              | 
|10.43         |  | Stock Appreciation Right Plan, filed as Exhibit 10.1 to Form 8-K filed on August 24, 2007, incorporated herein by reference.*                                                                                                                                                            
|              | 
|10.44         |  | Stock Appreciation Right Grant Agreement, filed as Exhibit 10.2 to Form 8-K filed on August 24, 2007, incorporated herein by reference.*                                                                                                                                                 
|              | 
|14.1          |  | Revised Code of Ethics- Principles of Business Conduct dated December 14, 2005, filed as Exhibit 14.1 to Form 10-K for the fiscal year ended June 30, 2006, incorporated herein by
reference.                                                                                            
|              | 
|21.1          |  | Subsidiaries of LeCroy Corporation.                                                                                                                                                                                                                                                      
|              | 
|23.1          |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                
|              | 
|31.1          |  | Certification by the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.                                                                                                                                                                       
|              | 
|31.2          |  | Certification by the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.                                                                                                                                                                       
|              | 
|32.1          |  | Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                                         
|              | 
|32.2          |  | Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                                         

---

|* | Indicates management contract or compensatory plan, contract or arrangement.
|- | ----------------------------------------------------------------------------



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                         |  |  |  |                    |  |                         |  |                                                 
|------------------------ |  |  |  | ------------------ |  | ----------------------- |  | ------------------------------------------------
|                         |  |  |  | LeCroy CORPORATION
|                         |  |  | 
|Date: September 13, 2007 |  |  |  | By                 |  | /S/    SEAN B.
OCONNOR
|                         |  |  |  |                    |  |                         |  | Sean B. OConnor                                
|                         |  |  |  |                    |  |                         |  | Vice President Finance, Chief Financial Officer,
|                         |  |  |  |                    |  |                         |  | Secretary and Treasurer                         

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|                                                     |  |                                                                                                         |  |                   
|---------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------- |  | ------------------
|Signature                                            |  | Title                                                                                                   |  | Date              
|                                                     |  |                                                                                                        
|/S/    CHARLES A. DICKINSON Charles
A. Dickinson     |  | Chairman of the Board of Directors                                                                      |  | September 13, 2007
|                                                     |  |                                                                                                        
|/S/    THOMAS H.
RESLEWIC Thomas H. Reslewic         |  | President, Chief Executive Officer and Director (Principal Executive Officer)                           |  | September 13, 2007
|                                                     |  |                                                                                                        
|/S/    SEAN B.
OCONNOR Sean B. OConnor             |  | Vice President Finance, Chief Financial Officer, Secretary and Treasurer (Principal Accounting Officer) |  | September 13, 2007
|                                                     |  |                                                                                                        
|/S/    ROBERT E.
ANDERSON Robert E. Anderson         |  | Director                                                                                                |  | September 13, 2007
|                                                     |  |                                                                                                        
|/S/    WALTER O. LECROY,
JR. Walter O. LeCroy, Jr.   |  | Director                                                                                                |  | September 13, 2007
|                                                     |  |                                                                                                        
|/S/    NORMAN R. ROBERTSON Norman R.
Robertson       |  | Director                                                                                                |  | September 13, 2007
|                                                     |  |                                                                                                        
|/S/    WILLIAM G.
SCHEERER William G. Scheerer       |  | Director                                                                                                |  | September 13, 2007
|                                                     |  |                                                                                                        
|/S/    ALLYN C. WOODWARD,
JR. Allyn C. Woodward, Jr. |  | Director                                                                                                |  | September 13, 2007



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