##### Table of Contents

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



---

FORM 10-Q



---



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

For the quarterly period ended September 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)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)



---

Indicate by check mark (X) whether the
registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve 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 (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
(X) whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES ̈NO  x

Indicate the number of shares outstanding of each of the issuers
classes of common stock, as of the latest practicable date.



|                                   |  |                                
|---------------------------------- |  | -------------------------------
|CLASS                              |  | OUTSTANDING AT November 1, 2007
|Common stock, par value $.01 share |  | 12,373,520                     



---



---

##### Table of Contents

LeCROY CORPORATION

FORM 10-Q

INDEX



|          |  |                                                                                                          |  |         
|--------- |  | -------------------------------------------------------------------------------------------------------- |  | --------
|          |  |                                                                                                          |  | Page No.
|PART I    |  | FINANCIAL INFORMATION                                                                                    |  |         
|          |  |                                                                                                         
|Item 1.   |  | Financial Statements:                                                                                    |  |         
|          |  | Consolidated Balance Sheets (Unaudited) as of September 30, 2007 and June 30, 2007                       |  | 3       
|          |  | Consolidated Statements of Operations (Unaudited) for the Three Months ended September 30, 2007 and 2006 |  | 4       
|          |  | Consolidated Statements of Cash Flows (Unaudited) for the Three Months ended September 30, 2007 and 2006 |  | 5       
|          |  | Notes to Consolidated Financial Statements (Unaudited)                                                   |  | 6       
|Item 2.   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                    |  | 23      
|Item 3.   |  | Quantitative and Qualitative Disclosures About Market Risk                                               |  | 32      
|Item 4.   |  | Controls and Procedures                                                                                  |  | 32      
|          |  |                                                                                                         
|PART II   |  | OTHER INFORMATION                                                                                        |  |         
|          |  |                                                                                                         
|Item 1.   |  | Legal Proceedings                                                                                        |  | 33      
|Item 1A.  |  | Risk Factors                                                                                             |  | 33      
|Item 2.   |  | Unregistered Sales of Equity Securities and Use of Proceeds                                              |  | 33      
|Item 6.   |  | Exhibits                                                                                                 |  | 34      
|          |  |                                                                                                         
|Signature |  |                                                                                                          |  | 35      

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 Form 10-Q are the property of their respective owners.



2



---

##### Table of Contents

PART I. FINANCIAL INFORMATION



|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------

LeCROY CORPORATION

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



|                                                                                                                                                                   |  |                    |         |   |               |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------ | ------- | - | ------------- | - | -------
|In thousands, except par value and share data                                                                                                                      |  | September 30, 2007 |         |   | June 30, 2007
|ASSETS                                                                                                                                                             |  |                    |         |   |               |   |        
|Current assets:                                                                                                                                                    |  |                    |         |   |               |   |        
|Cash and cash equivalents                                                                                                                                          |  | $                  | 8,793   |   |               | $ | 10,448 
|Accounts receivable, net of reserves of $760 and $882 at September 30, 2007 and June 30, 2007, respectively                                                        |  |                    | 33,954  |   |               |   | 31,941 
|Inventories, net                                                                                                                                                   |  |                    | 36,761  |   |               |   | 38,645 
|Other current assets                                                                                                                                               |  |                    | 10,860  |   |               |   | 9,608  
|                                                                                                                                                                   |  |                    |         |   |               |   |        
|Total current assets                                                                                                                                               |  |                    | 90,368  |   |               |   | 90,642 
|                                                                                                                                                                   |  |                   
|Property and equipment, net                                                                                                                                        |  |                    | 20,262  |   |               |   | 20,339 
|Goodwill                                                                                                                                                           |  |                    | 105,771 |   |               |   | 105,885
|Other non-current assets                                                                                                                                           |  |                    | 14,229  |   |               |   | 14,453 
|                                                                                                                                                                   |  |                    |         |   |               |   |        
|Total assets                                                                                                                                                       |  | $                  | 230,630 |   |               | $ | 231,319
|                                                                                                                                                                   |  |                    |         |   |               |   |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                               |  |                    |         |   |               |   |        
|Current liabilities:                                                                                                                                               |  |                    |         |   |               |   |        
|Accounts payable                                                                                                                                                   |  | $                  | 13,096  |   |               | $ | 16,905 
|Accrued expenses and other current liabilities                                                                                                                     |  |                    | 13,854  |   |               |   | 15,408 
|Note payable- related party                                                                                                                                        |  |                    | 3,500   |   |               |   | 3,500  
|Current portion of long-term debt and capital leases                                                                                                               |  |                    |        |   |               |   | 119    
|                                                                                                                                                                   |  |                    |         |   |               |   |        
|Total current liabilities                                                                                                                                          |  |                    | 30,450  |   |               |   | 35,932 
|                                                                                                                                                                   |  |                   
|Long-term debt                                                                                                                                                     |  |                    | 9,410   |   |               |   | 9,410  
|Convertible notes                                                                                                                                                  |  |                    | 72,000  |   |               |   | 72,000 
|Deferred revenue and other non-current liabilities                                                                                                                 |  |                    | 4,116   |   |               |   | 1,246  
|                                                                                                                                                                   |  |                    |         |   |               |   |        
|Total liabilities                                                                                                                                                  |  |                    | 115,976 |   |               |   | 118,588
|                                                                                                                                                                   |  |                   
|Commitments and contingencies                                                                                                                                      |  |                    |         |   |               |   |        
|                                                                                                                                                                   |  |                   
|Stockholders equity:                                                                                                                                              |  |                    |         |   |               |   |        
|Preferred stock, $.01 par value (authorized 5,000,000 shares; none issued and outstanding as of September 30, 2007 and June 30,
2007)                              |  |                    |        |   |               |   |       
|Common stock, $.01 par value (authorized 45,000,000 shares; 12,337,974 issued at September 30, 2007 and 12,342,809 shares issued and
outstanding at June 30, 2007) |  |                    | 123     |   |               |   | 123    
|Additional paid-in capital                                                                                                                                         |  |                    | 109,781 |   |               |   | 108,713
|Accumulated other comprehensive income                                                                                                                             |  |                    | 2,032   |   |               |   | 1,409  
|Retained earnings                                                                                                                                                  |  |                    | 3,052   |   |               |   | 2,486  
|Treasury stock, at cost (46,000 and 0 shares at September 30, 2007 and June 30, 2007, respectively)                                                                |  |                    | (334    | ) |               |   |       
|                                                                                                                                                                   |  |                    |         |   |               |   |        
|Total stockholders equity                                                                                                                                         |  |                    | 114,654 |   |               |   | 112,731
|                                                                                                                                                                   |  |                    |         |   |               |   |        
|Total liabilities and stockholders equity                                                                                                                         |  | $                  | 230,630 |   |               | $ | 231,319
|                                                                                                                                                                   |  |                    |         |   |               |   |        

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



3



---

##### Table of Contents

LeCROY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



|                                          |  |                                 |        |   |      |   |        |  
|----------------------------------------- |  | ------------------------------- | ------ | - | ---- | - | ------ | -
|                                          |  | Three Months EndedSeptember 30, |       
|In thousands, except per share data       |  | 2007                            |        |   | 2006 |  
|Revenues:                                 |  |                                 |        |   |      |   |        |  
|Test and measurement products             |  | $                               | 37,580 |   |      | $ | 35,298 |  
|Service and other                         |  |                                 | 1,120  |   |      |   | 1,743  |  
|                                          |  |                                 |        |   |      |   |        |  
|Total revenues                            |  |                                 | 38,700 |   |      |   | 37,041 |  
|                                          |  |                                
|Cost of revenues                          |  |                                 | 16,391 |   |      |   | 14,823 |  
|                                          |  |                                 |        |   |      |   |        |  
|Gross profit                              |  |                                 | 22,309 |   |      |   | 22,218 |  
|                                          |  |                                
|Operating expenses:                       |  |                                 |        |   |      |   |        |  
|Selling, general and administrative       |  |                                 | 12,735 |   |      |   | 12,846 |  
|Research and development                  |  |                                 | 7,277  |   |      |   | 7,652  |  
|                                          |  |                                 |        |   |      |   |        |  
|Total operating expenses                  |  |                                 | 20,012 |   |      |   | 20,498 |  
|                                          |  |                                 |        |   |      |   |        |  
|Operating income                          |  |                                 | 2,297  |   |      |   | 1,720  |  
|                                          |  |                                
|Other (expense) income:                   |  |                                 |        |   |      |   |        |  
|Interest income                           |  |                                 | 73     |   |      |   | 39     |  
|Interest expense                          |  |                                 | (1,143 | ) |      |   | (822   | )
|Other, net                                |  |                                 | (225   | ) |      |   | (6     | )
|                                          |  |                                 |        |   |      |   |        |  
|Other expense, net                        |  |                                 | (1,295 | ) |      |   | (789   | )
|                                          |  |                                 |        |   |      |   |        |  
|Income before income taxes                |  |                                 | 1,002  |   |      |   | 931    |  
|Provision for income taxes                |  |                                 | 338    |   |      |   | 322    |  
|                                          |  |                                 |        |   |      |   |        |  
|Net income                                |  | $                               | 664    |   |      | $ | 609    |  
|                                          |  |                                 |        |   |      |   |        |  
|Net income per common share:              |  |                                 |        |   |      |   |        |  
|Basic                                     |  | $                               | 0.06   |   |      | $ | 0.05   |  
|Diluted                                   |  | $                               | 0.06   |   |      | $ | 0.05   |  
|                                          |  |                                
|Weighted average number of common shares: |  |                                 |        |   |      |   |        |  
|Basic                                     |  |                                 | 11,730 |   |      |   | 12,217 |  
|Diluted                                   |  |                                 | 11,913 |   |      |   | 12,459 |  

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



4



---

##### Table of Contents

LeCROY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



|                                                                              |  |                                 |        |   |      |   |        |  
|----------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ---- | - | ------ | -
|                                                                              |  | Three months endedSeptember 30, |       
|In thousands                                                                  |  | 2007                            |        |   | 2006 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                         |  |                                 |        |   |      |   |        |  
|Net income                                                                    |  | $                               | 664    |   |      | $ | 609    |  
|Adjustments to reconcile net income to net cash used in operating activities: |  |                                 |        |   |      |   |        |  
|Depreciation and amortization                                                 |  |                                 | 1,826  |   |      |   | 1,820  |  
|Share-based compensation                                                      |  |                                 | 1,164  |   |      |   | 1,672  |  
|Amortization of debt issuance costs                                           |  |                                 | 176    |   |      |   | 95     |  
|Deferred income taxes                                                         |  |                                 | (47    | ) |      |   | 164    |  
|Gain on disposal of property and equipment, net                               |  |                                 |       |   |      |   | 24     |  
|Change in operating assets and liabilities:                                   |  |                                 |        |   |      |   |        |  
|Accounts receivable                                                           |  |                                 | (1,724 | ) |      |   | (1,840 | )
|Inventories                                                                   |  |                                 | 1,342  |   |      |   | (1,321 | )
|Other current and non-current assets                                          |  |                                 | (211   | ) |      |   | (321   | )
|Accounts payable, accrued expenses and other liabilities                      |  |                                 | (4,152 | ) |      |   | (3,553 | )
|                                                                              |  |                                 |        |   |      |   |        |  
|Net cash used in operating activities                                         |  |                                 | (962   | ) |      |   | (2,651 | )
|                                                                              |  |                                 |        |   |      |   |        |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                         |  |                                 |        |   |      |   |        |  
|Purchase of property and equipment                                            |  |                                 | (558   | ) |      |   | (1,950 | )
|                                                                              |  |                                 |        |   |      |   |        |  
|Net cash used in investing activities                                         |  |                                 | (558   | ) |      |   | (1,950 | )
|                                                                              |  |                                 |        |   |      |   |        |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                         |  |                                 |        |   |      |   |        |  
|Borrowings under credit agreement                                             |  |                                 |       |   |      |   | 30,750 |  
|Repayment of borrowings under credit agreement and capital leases             |  |                                 | (119   | ) |      |   | (5,837 | )
|Payment of debt issuance costs                                                |  |                                 |       |   |      |   | (196   | )
|Proceeds from employee stock purchase and option plans                        |  |                                 | 18     |   |      |   | 59     |  
|Purchase of treasury shares                                                   |  |                                 | (216   | ) |      |   | (614   | )
|                                                                              |  |                                 |        |   |      |   |        |  
|Net cash (used in) provided by financing activities                           |  |                                 | (317   | ) |      |   | 24,162 |  
|                                                                              |  |                                 |        |   |      |   |        |  
|Effect of exchange rate changes on cash and cash equivalents                  |  |                                 | 182    |   |      |   | (53    | )
|                                                                              |  |                                 |        |   |      |   |        |  
|Net (decrease) increase in cash and cash equivalents                          |  |                                 | (1,655 | ) |      |   | 19,508 |  
|Cash and cash equivalents at beginning of the period                          |  |                                 | 10,448 |   |      |   | 16,972 |  
|                                                                              |  |                                 |        |   |      |   |        |  
|Cash and cash equivalents at end of the period                                |  | $                               | 8,793  |   |      | $ | 36,480 |  
|                                                                              |  |                                 |        |   |      |   |        |  
|Supplemental Cash Flow Disclosure                                             |  |                                 |        |   |      |   |        |  
|Cash paid during the period for:                                              |  |                                 |        |   |      |   |        |  
|Interest                                                                      |  | $                               | 293    |   |      | $ | 569    |  
|Income taxes                                                                  |  |                                 | 145    |   |      |   | 414    |  
|Non-cash investing and financing transactions:                                |  |                                 |        |   |      |   |        |  
|Transfer of inventory into property and equipment                             |  |                                 | 640    |   |      |   | 266    |  
|Treasury stock purchased but unpaid at September 30, 2007                     |  |                                 | 118    |   |      |   |       |  
|Stock options exercised by employee but unpaid at September 30, 2007          |  |                                 | 10     |   |      |   |       |  

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



5



---

##### Table of Contents

LeCROY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Basis of Presentation

The accompanying interim Consolidated Financial Statements include all the accounts of LeCroy Corporation (the Company or
LeCroy) and its wholly-owned subsidiaries. These Consolidated Financial Statements are unaudited and should be read in conjunction with the audited Consolidated Financial Statements included in the Companys Annual Report on Form
10-K for the fiscal year ended June 30, 2007. The accompanying Consolidated Balance Sheet as of June 30, 2007 has been derived from those audited Consolidated Financial Statements. Inter-company transactions and balances have been
eliminated in consolidation.

The Companys Consolidated Financial Statements have been prepared in accordance with U.S. Generally
Accepted Accounting Principles (US GAAP), 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 estimation of warranty liabilities. These estimates and assumptions are based on
managements judgment and available information and, consequently, actual results could differ from these estimates.

These unaudited
Consolidated Financial Statements reflect all adjustments, of a normal recurring nature, that are, in the opinion of management, necessary for a fair presentation of the financial position and the results of operations for the interim periods.
Interim period operating results may not be indicative of the operating results for a full year.

The Companys fiscal periods end on
the Saturday closest to the end of the period, which resulted in reporting periods ended on September 29, 2007, September 30, 2006, and June 30, 2007. For clarity of presentation, period-end references are stated as
September 30 and June 30.

On October 29, 2004, the Company completed the acquisition of 100% of the outstanding common
stock of Computer Access Technology Corporation (CATC). CATC is a provider of advanced verification systems for existing and emerging digital communications standards.

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.

2. Share-Based Compensation

The Company follows the provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS
123R), which requires that the costs resulting from all share-based payment transactions be recognized in the financial statements at their fair values.

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



6



---

##### Table of Contents

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.

Stock Options

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 behaviour 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 three months ended September 30, 2007 and 2006:



|                                               |  |                                       |  |                                      
|---------------------------------------------- |  | ------------------------------------- |  | -------------------------------------
|                                               |  | Three Months Ended September 30, 2007 |  | Three Months Ended September 30, 2006
|Expected holding period (years)                |  | 5.0                                   |  | 5.0                                  
|Risk-free interest rate                        |  | 4.03% - 4.57%                         |  | 4.74% - 4.75%                        
|Weighted average risk-free interest rate       |  | 4.23%                                 |  | 4.75%                                
|Dividend yield                                 |  | 0.0%                                  |  | 0.0%                                 
|Expected volatility                            |  | 47.54% - 48.64%                       |  | 54.20%                               
|Weighted average expected volatility           |  | 47.91%                                |  | 54.20%                               
|Fair value of options granted                  |  | $3.47 - $3.91                         |  | $6.63 - $6.69                        
|Weighted average fair value of options granted |  | $3.60                                 |  | $6.69                                

The Company maintains stock incentive plans for selected employees. As of September 30, 2007,
there were 4,886,277 shares of the Companys common stock reserved for stock options, of which 1,802,570 were reserved for outstanding options. Except for certain options assumed in the Catalyst and CATC acquisitions, under the terms of the
stock incentive plans, stock options are granted at an option price not less than the market value at the date of grant. The vesting and exercise periods for each option is at the discretion of the Compensation Committee. The option price for the
Catalyst and CATC options assumed was the historical exercise price multiplied by the conversion ratio.

Stock option transactions for the
three months ended September 30, 2007 under all plans are as follows:



|                                                  |  |                  |   |  |                                 |       |                                                   |      |                                                    |   |    
|------------------------------------------------- |  | ---------------- | - |  | ------------------------------- | ----- | ------------------------------------------------- | ---- | -------------------------------------------------- | - | ---
|                                                  |  | Number of Shares |   |  | Weighted Average Exercise Price |       | WeightedAverageRemainingContractual Terms (Years) |      | Aggregate Intrinsic Value as of September 30, 2007
|                                                  |  |                  |   |  |                                 |       |                                                   |      | ($000)                                            
|Outstanding at June 30, 2007                      |  | 2,012,655        |   |  | $                               | 14.49 |                                                   |      |                                                    |   |    
|                                                  |  |                  |   | 
|Granted                                           |  | 31,500           |   |  | $                               | 7.64  |                                                   |      |                                                    |   |    
|Exercised                                         |  | (35,874          | ) |  | $                               | 0.76  |                                                   |      |                                                    |   |    
|Expired                                           |  | (172,498         | ) |  | $                               | 18.73 |                                                   |      |                                                    |   |    
|Forfeited                                         |  | (33,213          | ) |  | $                               | 15.94 |                                                   |      |                                                    |   |    
|                                                  |  |                  |   |  |                                 |       |                                                   |      |                                                    |   |    
|Outstanding at September 30, 2007                 |  | 1,802,570        |   |  | $                               | 14.21 |                                                   | 3.97 |                                                    | $ | 753
|                                                  |  |                  |   |  |                                 |       |                                                   |      |                                                    |   |    
|Vested and expected to vest at September 30, 2007 |  | 1,748,309        |   |  | $                               | 14.41 |                                                   | 3.66 |                                                    | $ | 753
|                                                  |  |                  |   |  |                                 |       |                                                   |      |                                                    |   |    
|Exercisable at September 30, 2007                 |  | 1,551,514        |   |  | $                               | 14.79 |                                                   | 3.46 |                                                    | $ | 352
|                                                  |  |                  |   |  |                                 |       |                                                   |      |                                                    |   |    



7



---

##### Table of Contents

The weighted-average grant-date fair value of the stock options granted during the three months ended
September 30, 2007 and 2006 was $3.60 and $6.69 per option, respectively. The total intrinsic value of stock options exercised during the three months ended September 30, 2007 and 2006 was $0.2 million and $0.1 million, respectively.

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



|                            |  |                                           |  |                                           |       |                                                     |      |                  |           |                                 |   |      
|--------------------------- |  | ----------------------------------------- |  | ----------------------------------------- | ----- | --------------------------------------------------- | ---- | ---------------- | --------- | ------------------------------- | - | -----
|                            |  | Options Outstanding at September 30, 2007 |  | Options Exercisable at September 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 - $10.49            |  | 470,451                                   |  | $                                         | 7.29  |                                                     | 5.02 |                  | 359,961   |                                 | $ | 8.28 
|$10.50 - $14.75             |  | 471,968                                   |  | $                                         | 13.02 |                                                     | 4.31 |                  | 430,116   |                                 | $ | 13.04
|$14.76 - $18.25             |  | 452,415                                   |  | $                                         | 16.28 |                                                     | 4.06 |                  | 361,334   |                                 | $ | 16.18
|$18.26 - $37.00             |  | 407,736                                   |  | $                                         | 21.26 |                                                     | 2.26 |                  | 400,103   |                                 | $ | 21.27
|                            |  |                                           |  |                                           |       |                                                     |      |                  |           |                                 |   |      
|Total                       |  | 1,802,570                                 |  | $                                         | 14.21 |                                                     | 3.97 |                  | 1,551,514 |                                 | $ | 14.79
|                            |  |                                           |  |                                           |       |                                                     |      |                  |           |                                 |   |      

Of the total stock options outstanding, 1,551,514 and 1,706,322 options were exercisable at
September 30, 2007 and June 30, 2007, respectively. Stock options and restricted stock awards available for grant under all plans were 433,612 and 506,303 at September 30, 2007 and June 30, 2007, respectively.

As of September 30, 2007, there was approximately $2.0 million of total unrecognized compensation cost (net of estimated forfeitures) related to
stock options granted under the plans. That cost is expected to be recognized over a remaining weighted-average period of 2.0 years. No compensation cost related to stock options was capitalized in inventory or any other assets for the three months
ended September 30, 2007 or 2006.

Compensation cost for restricted stock (referred to as non-vested stock) is recognized ratably over
the associated requisite service period, giving effect to estimated forfeitures. The fair value of new grants is determined based on the closing price on the date of grant. During the three months ended September 30, 2007 and 2006 there were
34,241 shares and 189,464 shares, respectively, of restricted stock granted. The shares granted in fiscal 2008 were issued under the 2003 Plan and have 4-year ratable vesting.

The following table summarizes transactions related to non-vested stock for the three months ended September 30, 2007:



|                                       |  |                  |   |  |                                        |      
|-------------------------------------- |  | ---------------- | - |  | -------------------------------------- | -----
|                                       |  | Number of Shares |   |  | Weighted Average Grant Date Fair
Value
|Non-vested stock at June 30, 2007      |  | 647,141          |   |  | $                                      | 14.61
|                                       |  |                 
|Granted                                |  | 34,241           |   |  | $                                      | 7.48 
|Vested                                 |  | (49,163          | ) |  | $                                      | 12.88
|Forfeited                              |  | (31,222          | ) |  | $                                      | 12.29
|                                       |  |                  |   |  |                                        |      
|Non-vested stock at September 30, 2007 |  | 600,997          |   |  | $                                      | 14.46
|                                       |  |                  |   |  |                                        |      

As of September 30, 2007, there was approximately $5.0 million of total unrecognized
compensation cost related to non-vested stock granted under the plans. That cost is expected to be recognized over a remaining weighted-average period of 2.37 years.



8



---

##### Table of Contents

Employee Stock Purchase Plan

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 of 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 September 30, 2007 and June 30, 2007, there was approximately $0.1
million and $41,000 of liability classified share-based compensation expense for the ESPP included in Accrued expenses and other current liabilities on the Consolidated Balance Sheet.

Stock Appreciation Rights

On
August 20, 2007, the Board of Directors adopted and approved the 2007 Stock Appreciation Plan (the SAR Plan). Under the SAR Plan, the Compensation Committee of the Board of Directors may award stock appreciation rights to eligible
employees. Each stock appreciation right (a SAR) awarded represents the right to receive an amount of cash equal to the excess of the fair market value of a share of the Companys common stock on the date that a participant
exercises such right over the fair market value of a share of the Company common stock on the date that such SAR was awarded. Awards of SARs will vest in four successive annual installments of 25% of the SARs subject to such award on the
anniversary of the date of the grant of such award. The employee will have four years from the date of vesting of an installment in which to exercise such installment. The Plan will terminate on August 20, 2017.

On August 20, 2007, the Company granted 712,000 SARs. The exercise price of the SARs was set at $7.60 per share, which equals the closing price of
the Companys common stock at the grant date. The fair value at grant date was $3.61, using the Black-Scholes option pricing model. Expected volatilities are calculated based on the historical volatility of the Companys stock. Management
monitors award exercise and employee termination patterns to estimate forfeiture rates. The expected holding period of SARs represents the period of time that SARs 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 other such period that most closely equals the expected term of the SARs.

The Company records compensation expense ratably over the service period and adjusts for changes in the fair value of SARs at each reporting period. Based on the fair value of the SARs on September 30, 2007,
there was approximately $2.2 million of unrecognized compensation cost (net of estimated forfeitures) related to SARs, which is expected to be recognized over a weighted average period of approximately 3.9 years. The fair value of the SARs is
liability classified because the awards are payable in cash. As of September 30, 2007, there was approximately $63,000 of liability classified share-based compensation expense for the SARs included in Accrued expenses and other current
liabilities on the Consolidated Balance Sheet.

Total share-based compensation expense recorded in the Consolidated Statement of Operations
for the three months ended September 30, 2007 and 2006 is approximately $1.2 million and $1.7 million, respectively.



9



---

##### Table of Contents

3. Revenue Recognition

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.

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
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 SFAS Statement No. 13,  Accounting
for Leases. Lease and rental revenues are reported within Test and measurement product revenue and were immaterial for the three months ended September 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 revenues 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.



10



---

##### Table of Contents

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 calibration 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 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 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.

4. Restructuring

In the first quarter of fiscal 2008, the Company recorded severance of approximately $0.6 million, which was expensed to Selling, general and
administrative. This resulted from headcount reductions of twelve employees or 2.7% of the workforce as compared to June 30, 2007. As of September 30, 2007, approximately $76,000 has been paid in cash and approximately $0.5 million remains
in Accrued Expenses and other current liabilities on the Consolidated Balance Sheet. Severance is estimated to be paid by the end of the first quarter of fiscal 2009.

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
September 30, 2007, approximately $0.2 million has been paid in cash and no accrual remains on the Consolidated Balance Sheet.

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 thirty-three employees or 7.2% of the workforce as compared to June 30, 2006. As of September 30, 2007, approximately $1.0 million has been paid in cash, approximately $0.6
million remains in Accrued expenses and other current liabilities, and approximately $48,000 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 second quarter of fiscal 2009.

5. Derivatives

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 on the type of hedging relationship. The Companys foreign exchange forward contracts and past interest rate
swap agreements are not accounted for as hedges in accordance



11



---

##### Table of Contents

with SFAS 133; therefore, any changes in fair value of these contracts are recorded in Other expense, net in the Consolidated Statements of Operations.

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

Interest Rate Swap

As required by the terms of the Companys Prior Credit Agreement (See Note 13Long-term Debt and Capital Leases), 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, the Company terminated its interest rate swap with M&T Bank.
The net interest income earned on the swap was approximately $0.1 million during the three months ended September 30, 2006 and was recognized in Interest expense in the Consolidated Statements of Operations.

As of September 30, 2007, the Company has the following derivative instruments:

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.

The net losses or gains resulting from changes in the fair value of these derivatives and on
transactions denominated in other than their functional currencies were net losses of approximately $0.2 million for the three months ended September 30, 2007 as compared to net losses of $7,000 for the three months ended September 30,
2006. These amounts are included in Other, net in the Consolidated Statements of Operations. At September 30, 2007 and June 30, 2007, the notional amounts of the Companys open foreign exchange forward contracts, all with maturities
of less than six months, were approximately $12.0 million and $10.4 million, respectively.

6. Comprehensive Income

The following table presents the components of comprehensive income (in thousands):



|                                         |  |                    |       |      |   |      |  
|---------------------------------------- |  | ------------------ | ----- | ---- | - | ---- | -
|                                         |  | Three months ended |      
|                                         |  | September 30,      |      
|                                         |  | 2007               |       | 2006 |  
|Net income                               |  | $                  | 664   |      | $ | 609  |  
|Foreign currency translation gain (loss) |  |                    | 623   |      |   | (228 | )
|                                         |  |                    |       |      |   |      |  
|Comprehensive income                     |  | $                  | 1,287 |      | $ | 381  |  
|                                         |  |                    |       |      |   |      |  



12



---

##### Table of Contents

7. Accounts Receivable, net

The allowance for doubtful accounts and sales returns was approximately $0.8 million and $0.9 million as of September 30, 2007 and June 30, 2007, respectively.

8. Inventories, net

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):



|                |  |                    |        |               |   |       
|--------------- |  | ------------------ | ------ | ------------- | - | ------
|                |  | September 30, 2007 |        | June 30, 2007
|Raw materials   |  | $                  | 8,992  |               | $ | 9,312 
|Work in process |  |                    | 6,558  |               |   | 7,354 
|Finished goods  |  |                    | 21,211 |               |   | 21,979
|                |  |                    |        |               |   |       
|                |  | $                  | 36,761 |               | $ | 38,645
|                |  |                    |        |               |   |       

The value of demonstration units included in finished goods was $13.5 million and $13.6 million at
September 30, 2007 and June 30, 2007, 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 $2.1 million and $2.7 million at September 30, 2007 and June 30, 2007, respectively.

9. Other Current Assets

Other current assets consist
of the following (in thousands):



|                           |  |                    |        |               |   |      
|-------------------------- |  | ------------------ | ------ | ------------- | - | -----
|                           |  | September 30, 2007 |        | June 30, 2007
|Deferred tax assets, net   |  | $                  | 5,575  |               | $ | 4,863
|Prepaid taxes              |  |                    | 680    |               |   | 381  
|Other receivables          |  |                    | 1,532  |               |   | 1,371
|Value-added tax receivable |  |                    | 1,190  |               |   | 808  
|Other                      |  |                    | 1,883  |               |   | 2,185
|                           |  |                    |        |               |   |      
|                           |  | $                  | 10,860 |               | $ | 9,608
|                           |  |                    |        |               |   |      

10. Goodwill and Other Non-current Assets

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



|                                             |  |                    |         |               |   |        
|-------------------------------------------- |  | ------------------ | ------- | ------------- | - | -------
|                                             |  | September 30, 2007 |         | June 30, 2007
|Goodwill                                     |  | $                  | 105,771 |               | $ | 105,885
|                                             |  |                    |         |               |   |        
|Intangibles, net                             |  | $                  | 2,512   |               | $ | 3,032  
|Deferred tax assets, net                     |  |                    | 8,287   |               |   | 7,809  
|Deferred financing costs on convertible note |  |                    | 2,504   |               |   | 2,642  
|Other                                        |  |                    | 926     |               |   | 970    
|                                             |  |                    |         |               |   |        
|                                             |  | $                  | 14,229  |               | $ | 14,453 
|                                             |  |                    |         |               |   |        



13



---

##### Table of Contents

Under SFAS No. 142 Goodwill and Other Intangible Assets, (SFAS 142) goodwill
is not amortized but reviewed for impairment annually or more frequently if certain indicators arise. 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 to the recorded goodwill balances. No impairment indicators arose during the first three months of fiscal 2008.

The decrease in
Goodwill is attributable to the Companys adoption of FASB Interpretation No. 48 (FIN No. 48), Accounting for Uncertainty in Income Taxes, which clarifies the accounting and disclosure for uncertain income tax positions.
As a result of the adoption, the Company reduced some of its accruals for uncertain tax positions related to the acquisition of CATC, resulting in a decrease to goodwill of approximately $0.1 million (See Note 17  Income Taxes for more
information).

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:



|                                                  |  |                                 |  |                    |        |   |               |   |        |  
|------------------------------------------------- |  | ------------------------------- |  | ------------------ | ------ | - | ------------- | - | ------ | -
|                                                  |  | Original Weighted Average Lives |  | September 30, 2007 |        |   | June 30, 2007 |  
|Amortizable intangible assets:                    |  |                                 |  |                    |        |   |               |   |        |  
|Technology, manufacturing and distribution rights |  | 2.9 years                       |  | $                  | 8,296  |   |               | $ | 8,296  |  
|Accumulated amortization                          |  |                                 |  |                    | (7,056 | ) |               |   | (6,599 | )
|                                                  |  |                                 |  |                    |        |   |               |   |        |  
|Net carrying amount                               |  |                                 |  | $                  | 1,240  |   |               | $ | 1,697  |  
|                                                  |  |                                 |  |                    |        |   |               |   |        |  
|Patents and other intangible assets               |  | 5.9 years                       |  | $                  | 1,592  |   |               | $ | 1,592  |  
|Accumulated amortization                          |  |                                 |  |                    | (1,020 | ) |               |   | (957   | )
|                                                  |  |                                 |  |                    |        |   |               |   |        |  
|                                                  |  |                                 |  | $                  | 572    |   |               | $ | 635    |  
|                                                  |  |                                 |  |                    |        |   |               |   |        |  
|Net carrying amount                               |  |                                 |  | $                  | 1,812  |   |               | $ | 2,332  |  
|                                                  |  |                                 |  |                    |        |   |               |   |        |  

Amortization expense for intangible assets, all with finite lives, was $0.5 million and $0.6
million for the three months ended September 30, 2007 and 2006, respectively. The cost of an amortizable intangible asset is amortized on a straight-line basis over the estimated economic life of the asset.

As of September 30, 2007 and June 30, 2007, there was $0.7 million for the Catalyst tradename, an asset with an indefinite life, included in
Intangibles, net on the Consolidated balance sheet.



14



---

##### Table of Contents

11. Accrued Expenses and Other Current Liabilities

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



|                                                  |  |                    |        |               |   |       
|------------------------------------------------- |  | ------------------ | ------ | ------------- | - | ------
|                                                  |  | September 30, 2007 |        | June 30, 2007
|Compensation and benefits, including severance    |  | $                  | 6,967  |               | $ | 6,494 
|Income taxes                                      |  |                    | 526    |               |   | 1,996 
|Warranty                                          |  |                    | 1,185  |               |   | 1,190 
|Deferred revenue, current portion                 |  |                    | 1,073  |               |   | 1,195 
|Accrued interest on debt                          |  |                    | 1,629  |               |   | 1,033 
|Retained liabilities from discontinued operations |  |                    | 160    |               |   | 160   
|Other current liabilities                         |  |                    | 2,314  |               |   | 3,340 
|                                                  |  |                    |        |               |   |       
|                                                  |  | $                  | 13,854 |               | $ | 15,408
|                                                  |  |                    |        |               |   |       

12. Warranties

The Company provides a warranty on its products, typically extending three years after delivery and accounted for 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. 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.

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



|                                                       |  |                                  |       |   |      |   |       |  
|------------------------------------------------------ |  | -------------------------------- | ----- | - | ---- | - | ----- | -
|                                                       |  | Three months ended September 30, |      
|                                                       |  | 2007                             |       |   | 2006 |  
|Balance at beginning of period                         |  | $                                | 1,190 |   |      | $ | 1,005 |  
|Accruals for warranties entered into during the period |  |                                  | 172   |   |      |   | 141   |  
|Warranty costs incurred during the period              |  |                                  | (177  | ) |      |   | (160  | )
|                                                       |  |                                  |       |   |      |   |       |  
|Balance at end of period                               |  | $                                | 1,185 |   |      | $ | 986   |  
|                                                       |  |                                  |       |   |      |   |       |  

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.

13. Long-term Debt and Capital Leases

Credit Agreement

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



15



---

##### Table of Contents

entered into on October 29, 2004 and subsequently amended. The terms of the New Credit Agreement (since amended) provided 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 September 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 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 repurchase of all or a portion of the convertible notes, dividends and stock repurchases.

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 September 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, which were deferred and are being amortized, on a straight line basis, over the term of the New Credit Agreement. At September 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.

Convertible Debt

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 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



16



---

##### Table of Contents

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 the Companys 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. Upon conversion of each $1,000 principal amount of notes, the holder will receive an amount in cash equal to the lesser of (i) $1,000 or (ii) the conversion value, as described in the indenture; if the conversion value
exceeds $1,000 on the conversion date, the Company will also deliver, at the Companys election, cash or common stock or combination of each with a value equal to such excess. As of September 30, 2007, the market value of the convertible
notes was $61.7 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.



17



---

##### Table of Contents

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. The Company believes the likelihood of occurrence of such event is remote and, as such, the Company has not recorded a liability at
September 30, 2007. In the event that it becomes probable that the Company would have to pay additional interest under the registration rights agreement, the Company estimates the maximum potential amount as of September 30, 2007 to be
approximately $0.3 million per year.

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 September 30, 2007, the total $2.5 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 $1.3 million as of September 30, 2007). No amounts were outstanding under these facilities as of September 30, 2007 and June 30, 2007. The
Companys Swiss subsidiary, also has an overdraft facility totaling 1.0 million Swiss francs (approximately $0.9 million as of September 30, 2007). As of September 30, 2007 and June 30, 2007, 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.

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 September 30, 2007 and June 30, 2007, the Companys outstanding
balances under these agreements were zero and $0.1 million, respectively.

14. Commitments and Contingencies

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 have a material adverse affect on its business, results of operations, financial condition or cash flows.

15. Treasury Stock

In May 2006, the Companys
Board of Directors approved the adoption of a share repurchase plan authorizing the Company to purchase up to 2.0 million shares of its common stock. To date, the Company has purchased approximately 1.0 million shares under the plan. In
the first quarter of fiscal 2008, 46,000 were repurchased at an average price of $7.28 per share.

16. Earnings per Common Share

The following is a presentation of the numerators and the denominators of the basic and diluted net income per common share computations for the three
months ended September 30, 2007 and 2006:



18



---

##### Table of Contents

|                                     |  |                                 |        |      |   |       
|------------------------------------ |  | ------------------------------- | ------ | ---- | - | ------
|                                     |  | Three months endedSeptember 30,
|                                     |  | 2007                            |        | 2006
|Numerator:                           |  |                                 |        |      |   |       
|Net income                           |  | $                               | 664    |      | $ | 609   
|                                     |  |                                 |        |      |   |       
|Denominator:                         |  |                                 |        |      |   |       
|Weighted average shares outstanding: |  |                                 |        |      |   |       
|Basic                                |  |                                 | 11,730 |      |   | 12,217
|Employee stock options and other     |  |                                 | 183    |      |   | 242   
|                                     |  |                                 |        |      |   |       
|Diluted                              |  |                                 | 11,913 |      |   | 12,459
|                                     |  |                                 |        |      |   |       

The computations of diluted net income per common share for the three months ended
September 30, 2007 and 2006 do not include approximately 1.9 million and 1.7 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 earnings per share.

17. Income Taxes

The effective income tax rate for the three months ended September 30, 2007 was 33.7%, compared to an effective income tax rate of 34.6% for the three months ended September 30, 2006. The Company calculates income tax
expense based upon an annual effective tax rate forecast, including estimates and assumptions that could change during the year. The differences between the effective tax rate and the U.S. federal statutory rate of 35% principally result from the
Companys geographical distribution of taxable income, and differences between the book and tax treatment of certain items.

Effective
July 1, 2007, the Company adopted Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, as amended by FASB Staff Position No. 48-1 (FSP-FIN 48-1),
Definition of Settlement in FASB Interpretation 48. FIN 48 prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the company has taken
or expects to take on a tax return. FIN 48 states that a tax benefit from an uncertain tax position may be recognized only if it is more likely than not that the position is sustainable, based on its technical merits. The tax benefit of
a qualifying position is the largest amount of tax benefit greater than 50% likely of being realized upon settlement with a taxing authority having full knowledge of all relevant information. A tax benefit from an uncertain position was previously
recognized if it was probable of being sustained. Under FIN 48, the liability for unrecognized tax benefits is classified as non-current unless the liability is expected to be settled in cash within twelve months of the reporting date. The impact of
adopting FIN 48 and FSP-FIN 48-1 on the Companys consolidated financial statements is summarized below:



|                                                   |  |                        |  |                  |   |  |                      
|-------------------------------------------------- |  | ---------------------- |  | ---------------- | - |  | ---------------------
|                                                   |  | Balance atJune 30,2007 |  | FIN 48Adjustment |   |  | Balance atJuly 1,2007
|Goodwill                                           |  | 105,885                |  | (114             | ) |  | 105,771              
|Other non-current assets                           |  | 14,453                 |  | 1,057            |   |  | 15,510               
|Accrued expenses and other current liabilities     |  | 15,408                 |  | (1,968           | ) |  | 13,440               
|Deferred revenue and other non-current liabilities |  | 1,246                  |  | 2,853            |   |  | 4,099                
|Retained earnings                                  |  | 2,486                  |  | 58               |   |  | 2,544                



19



---

##### Table of Contents

The Company operates in multiple taxing jurisdictions, both within the United States and outside of the
United States, and faces audits from various tax authorities regarding the deductibility of certain expenses, intercompany transactions, as well as other matters. At July 1, 2007, the total amount of liability for unrecognized tax benefits related
to federal, state and foreign taxes and accrued interest was approximately $10.1 million (of which approximately $7.5 million would impact the effective tax rate if recognized). Approximately $2.6 million of the total unrecognized tax benefits are
related to the CATC acquisition, and would reduce goodwill if recognized.

The Company anticipates that approximately $0.1 million of net
unrecognized tax benefits will be recognized during the next twelve months due to the expiration of the statute of limitations and impact the Companys effective tax rate.

The Company recognizes interest and, if applicable, penalties which could be assessed related to unrecognized tax benefits in income tax expense. As of
the adoption date, the total amount of accrued interest and penalties, before federal and, if applicable, state effect, was approximately $57,000.

The Company files income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. For federal and foreign income tax purposes, fiscal 2004 through 2007 tax years remain open for examination by the tax
authorities under the normal three year statute of limitations. For state tax purposes, (principally California and New York) fiscal 2003 through 2007 tax years remain open for examination by the tax authorities under a four year statute of
limitations.

18. Segment and Geographic Revenue

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
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:



|                   |  |                                 |        |      |   |       
|------------------ |  | ------------------------------- | ------ | ---- | - | ------
|                   |  | Three Months EndedSeptember 30,
|                   |  | 2007                            |        | 2006
|North America      |  | $                               | 13,173 |      | $ | 10,946
|Europe/Middle East |  |                                 | 12,779 |      |   | 12,277
|Japan              |  |                                 | 3,142  |      |   | 4,598 
|Asia/Pacific       |  |                                 | 9,606  |      |   | 9,220 
|                   |  |                                 |        |      |   |       
|Total revenues     |  | $                               | 38,700 |      | $ | 37,041
|                   |  |                                 |        |      |   |       

Total assets by geographic area are as follows:



|                   |  |                   |         |              |   |        
|------------------ |  | ----------------- | ------- | ------------ | - | -------
|                   |  | September 30,2007 |         | June 30,2007
|North America      |  | $                 | 210,808 |              | $ | 211,264
|Europe/Middle East |  |                   | 13,700  |              |   | 13,263 
|Japan              |  |                   | 1,888   |              |   | 2,813  
|Asia/Pacific       |  |                   | 4,234   |              |   | 3,979  
|                   |  |                   |         |              |   |        
|Total assets       |  | $                 | 230,630 |              | $ | 231,319
|                   |  |                   |         |              |   |        



20



---

##### Table of Contents

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



|                        |  |                   |         |              |   |        
|----------------------- |  | ----------------- | ------- | ------------ | - | -------
|                        |  | September 30,2007 |         | June 30,2007
|North America           |  | $                 | 130,976 |              | $ | 131,889
|Europe/Middle East      |  |                   | 473     |              |   | 515    
|Japan                   |  |                   | 141     |              |   | 95     
|Asia/Pacific            |  |                   | 385     |              |   | 369    
|                        |  |                   |         |              |   |        
|Total long-lived assets |  | $                 | 131,975 |              | $ | 132,868
|                        |  |                   |         |              |   |        

---

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

19. New Accounting Pronouncements

In February 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 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. The
adoption of SFAS 155 did not have a material effect on our consolidated financial condition or results of operations.

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. The Company adopted EITF 06-2 beginning July 1, 2007 using the cumulative-effect adjustment approach. The
effect of this adoption resulted in a decrease to beginning retained earnings of $0.2 million, a decrease to deferred tax assets of $0.1 million and an increase to Accrued expenses and other current liabilities and Deferred revenue and other
non-current liabilities of $0.2 million and $0.1 million, respectively.

In July 2006, the Financial Accounting Standards Board 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 was effective for fiscal years beginning after December 15, 2006, and was adopted by the Company effective July 1, 2007. See Note 17  Income
Taxes for the impact of the adoption of FIN 48 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



21



---

##### Table of Contents

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 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. The adoption of this FSP did not have a material effect on our consolidated financial position or results of operations.

In February 2007, the FASB issued SFAS No. 159 (SFAS 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 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 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 157. Management is currently evaluating the effect that adoption of SFAS 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. The adoption of this
position on July 1, 2007 did not have a significant impact on the Companys consolidated financial statements (See Note 17  Income Taxes for additional information).

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, the Company does not expect it will have a material effect on the Companys consolidated financial position or results of operations.



22



---

##### Table of Contents

|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

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 the
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 divide 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 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 Item 3 entitled Quantitative and
Qualitative Disclosure About Market Risk below.



23



---

##### Table of Contents

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 profits represent revenues less cost of revenues. Additional factors integral to gross
profit earned are product 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 position
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 see the Section entitled Restructuring 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. 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.



24



---

##### Table of Contents

Also during 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 SDA 18000. We believe that our diversified product mix strategically positions us to
expand our presence in the oscilloscope market.

Restructuring

In the first quarter of fiscal 2008, the Company recorded severance of approximately $0.6 million, which was expensed to Selling, general and administrative. This resulted in headcount reductions of twelve employees
or 2.7% of the workforce as compared to June 30, 2007. As of September 30, 2007, approximately $76,000 has been paid in cash and approximately $0.5 million remains in Accrued expenses and other current liabilities on the Consolidated
Balance Sheet. Severance is estimated to be paid by the end of the first quarter of fiscal 2009.

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 September 30, 2007, approximately $0.2 million has been paid in
cash and no accrual remains on the Consolidated Balance Sheet.

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
thirty-three employees or 7.2% of the workforce as compared to June 30, 2006. As of September 30, 2007, approximately $1.0 million has been paid in cash, approximately $0.6 million remains in Accrued expenses and other current liabilities,
and approximately $48,000 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 second quarter of fiscal 2009.

Critical Accounting Policies

The
preparation of our Consolidated Financial Statements in conformity with U. S. Generally Accepted Accounting Principles requires management 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.

This management discussion and analysis of financial condition and results
of operations should be read in conjunction with the audited Consolidated Financial Statements included in the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2007, which includes a description of our accounting
policies. Our critical accounting policies involve significant judgment by LeCroys management, as described in the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2007 include revenue recognition, reserves on
accounts receivable, allowance for excess and obsolete inventory, valuation of deferred tax assets, valuation of long-lived and intangible assets, valuation of goodwill, estimation of warranty liabilities and share-based compensation expense.

We adopted Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in
Income Taxes, as amended by FASB Staff Position No. 48-1, Definition of Settlement in FASB Interpretation 48. FIN 48 prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its
financial statements uncertain tax positions that the company has taken or expects to take on a tax return. FIN 48 states that a tax benefit from an uncertain tax position may be recognized only if it is more likely than not that the
position is sustainable, based on its technical merits. The tax benefit of a qualifying position is the largest amount of tax benefit greater than 50% likely of being realized upon settlement with a taxing authority having full knowledge of all
relevant information. A tax benefit from an uncertain position was previously recognized if it was probable of being sustained. Under FIN 48, the liability for unrecognized tax benefits is classified as non-current unless the liability is expected
to be settled in cash within twelve months of the reporting date (See Note 17 - Income Taxes for additional information).



25



---

##### Table of Contents

There have been no other changes to our critical accounting policies since June 30, 2007.

Consolidated Results of Operations

The following table indicates the percentage of total revenues represented by each item in the Companys Consolidated Statements of Operations for the three months ended September 30, 2007 and 2006.



|                                    |  |                                 |   |  |       |  
|----------------------------------- |  | ------------------------------- | - |  | ----- | -
|                                    |  | Three months endedSeptember 30, |  
|(Unaudited)                         |  | 2007                            |   |  | 2006  |  
|Revenues:                           |  |                                 |   |  |       |  
|Test and measurement products       |  | 97.1                            | % |  | 95.3  | %
|Service and other                   |  | 2.9                             |   |  | 4.7   |  
|                                    |  |                                 |   |  |       |  
|Total revenues                      |  | 100.0                           |   |  | 100.0 |  
|Cost of revenues                    |  | 42.4                            |   |  | 40.0  |  
|                                    |  |                                 |   |  |       |  
|Gross profit                        |  | 57.6                            |   |  | 60.0  |  
|                                    |  |                                
|Operating expenses:                 |  |                                 |   |  |       |  
|Selling, general and administrative |  | 32.9                            |   |  | 34.7  |  
|Research and development            |  | 18.8                            |   |  | 20.7  |  
|                                    |  |                                 |   |  |       |  
|Total operating expenses            |  | 51.7                            |   |  | 55.4  |  
|                                    |  |                                
|Operating income                    |  | 5.9                             |   |  | 4.6   |  
|                                    |  |                                
|Interest income                     |  | 0.2                             |   |  | 0.1   |  
|Interest expense                    |  | (2.9                            | ) |  | (2.2  | )
|Other, net                          |  | (0.6                            | ) |  | (0.0  | )
|                                    |  |                                 |   |  |       |  
|Other (expense), net                |  | (3.3                            | ) |  | (2.1  | )
|                                    |  |                                
|Income before income taxes          |  | 2.6                             |   |  | 2.5   |  
|Provision for income taxes          |  | 0.9                             |   |  | 0.9   |  
|                                    |  |                                 |   |  |       |  
|Net income                          |  | 1.7                             | % |  | 1.6   | %
|                                    |  |                                 |   |  |       |  

Comparison of the Three-Month Periods Ended September 30, 2007 and 2006

Total revenues were $38.7 million for the quarter ended September 30, 2007, compared to $37.0 million for the comparable prior year period,
representing an increase of 4.5%, or approximately $1.7 million, primarily as a result of increased sales of Test and measurement products. Foreign currency fluctuations increased total revenues by $0.6 million in the first quarter of fiscal 2008 as
compared to the same period last year. The increase in Test and measurement products was mainly driven by increased oscilloscope product shipments as well as the incremental impact from the Catalyst acquisition which was approximately 7% of revenues
for the quarter ended September 30, 2007. These increases were offset by decreased demand in Japan as well as decreased market demand for next generation protocol analyzer products for PCI  Express Gen 2 and higher speed storage
solutions.

Service and other revenues primarily consist of service revenues and maintenance fees. Service and other revenues were $1.1
million for the quarter ended September 30, 2007, representing a decrease of 35.7% or



26



---

##### Table of Contents

approximately $0.6 million, compared to $1.7 million for the comparable prior year period. The reduction was the result of an overall decrease in service
revenue, primarily from the realignment of our Japan operations.

Revenues by geographic location expressed in dollars and as a percentage
of total revenues were:



|                   |  |                                              |        |   |      |   |        |  
|------------------ |  | -------------------------------------------- | ------ | - | ---- | - | ------ | -
|                   |  | Three months ended September 30, (unaudited) |       
|                   |  | 2007                                         |        |   | 2006 |  
|                   |  | (In thousands)                               |       
|North America      |  | $                                            | 13,173 |   |      | $ | 10,946 |  
|Europe/Middle East |  |                                              | 12,779 |   |      |   | 12,277 |  
|Japan              |  |                                              | 3,142  |   |      |   | 4,598  |  
|Asia/Pacific       |  |                                              | 9,606  |   |      |   | 9,220  |  
|                   |  |                                              |        |   |      |   |        |  
|Total revenues     |  | $                                            | 38,700 |   |      | $ | 37,041 |  
|                   |  |                                              |        |   |      |   |        |  
|                   | 
|                   |  | Three months endedSeptember 30,(unaudited)   |       
|                   |  | 2007                                         |        |   | 2006 |  
|North America      |  |                                              | 34.0   | % |      |   | 29.6   | %
|Europe/Middle East |  |                                              | 33.1   |   |      |   | 33.1   |  
|Japan              |  |                                              | 8.1    |   |      |   | 12.4   |  
|Asia/Pacific       |  |                                              | 24.8   |   |      |   | 24.9   |  
|                   |  |                                              |        |   |      |   |        |  
|Total revenues     |  |                                              | 100.0  | % |      |   | 100.0  | %
|                   |  |                                              |        |   |      |   |        |  

For the three months ended June 30, 2007, geographic revenue was higher in all regions except
Japan. This increase was primarily due to gains in North America related to improved sales productivity as a result of our indirect sales channel as well as incremental sales from the Catalyst acquisition. These gains were supported by strong
distribution channels in Europe/Middle East and Asia/Pacific. These gains were offset by decreases in Japan, primarily resulting from economic conditions as well as the realignment of our Japan operations.

Gross profit for the quarter ended September 30, 2007 was $22.3 million, or 57.6% gross margin, compared to $22.2 million, or 60.0% gross margin,
for the comparable prior year period. Though gross profit dollars remained materially the same, margin percentage decreased due to the impact of lower average selling prices on our high end products.

Selling, general and administrative (SG&A) expense was $12.7 million for the quarter ended September 30, 2007 compared to $12.8
million for the quarter ended September 30, 2006, representing a decrease of 0.9% or $0.1 million. The decrease was mainly due to a reduction in general spending levels, resulting from the prior years cost-cutting and business realignment
efforts which was partially offset by SG&A expense from Catalyst. As a percentage of total revenues, SG&A expense decreased from 34.7% in the first quarter of fiscal 2007 to 32.9% in the first quarter of fiscal 2008.

Research and development (R&D) expense was $7.3 million for the quarter ended September 30, 2007, compared to $7.7 million for the
comparable prior year period, a decrease of 4.9% or $0.4 million. The decrease resulted from the prior years business realignment efforts and a reduction in expenses incurred for prototype materials and supplies. These decreases were partially
offset by Catalyst R&D cost. As a percentage of total revenues, R&D expense decreased from 20.7% in the first quarter of fiscal 2007 to 18.8% in the first quarter of fiscal 2008.

Other (expense) income, net, which consists primarily of net interest income and expense and foreign exchange gains and losses, was an expense of $(1.3)
million in the first quarter of fiscal 2008 compared to $(0.8) million for the first quarter of fiscal 2007. Net interest expense was approximately $(1.1) million for the quarter ended September 30, 2007 as compared to $(0.8) million for the
comparable prior year period. In addition, there was a



27



---

##### Table of Contents

foreign exchange loss of $(0.2) million in the first quarter of fiscal 2008 compared to a foreign exchange loss of $(7,000) in the comparable prior year
period. The interest expense increase reflects the interest on the $72.0 million 4% fixed convertible bond issued in the second quarter of fiscal 2007.

The effective income tax rate for the three months ended September 30, 2007 was 33.7%, compared to an effective income tax rate of 34.6% for the three months ended September 30, 2006. The Company calculates income tax
expense based upon an annual effective tax rate forecast, including estimates and assumptions that could change during the year. The differences between the effective tax rate and the U.S. federal statutory rate of 35% principally result from the
Companys geographical distribution of taxable income, and differences between the book and tax treatment of certain items.

Effective
July 1, 2007, the Company adopted Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, as amended by FASB Staff Position No. 48-1 (FSP-FIN 48-1),
Definition of Settlement in FASB Interpretation 48. FIN 48 prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the company has taken
or expects to take on a tax return. FIN 48 states that a tax benefit from an uncertain tax position may be recognized only if it is more likely than not that the position is sustainable, based on its technical merits. The tax benefit of
a qualifying position is the largest amount of tax benefit greater than 50% likely of being realized upon settlement with a taxing authority having full knowledge of all relevant information. A tax benefit from an uncertain position was previously
recognized if it was probable of being sustained. Under FIN 48, the liability for unrecognized tax benefits is classified as non-current unless the liability is expected to be settled in cash within twelve months of the reporting date. The impact of
adopting FIN 48 and FSP-FIN 48-1 on the Companys consolidated financial statements is summarized below:



|                                                   |  |                        |  |                  |   |  |                      
|-------------------------------------------------- |  | ---------------------- |  | ---------------- | - |  | ---------------------
|                                                   |  | Balance atJune 30,2007 |  | FIN 48Adjustment |   |  | Balance atJuly 1,2007
|Goodwill                                           |  | 105,885                |  | (114             | ) |  | 105,771              
|Other non-current assets                           |  | 14,453                 |  | 1,057            |   |  | 15,510               
|Accrued expenses and other current liabilities     |  | 15,408                 |  | (1,968           | ) |  | 13,440               
|Deferred revenue and other non-current liabilities |  | 1,246                  |  | 2,853            |   |  | 4,099                
|Retained earnings                                  |  | 2,486                  |  | 58               |   |  | 2,544                

We operate in multiple taxing jurisdictions, both within the United States and outside of the
United States, and faces audits from various tax authorities regarding the deductibility of certain expenses, intercompany transactions, as well as other matters. At July 1, 2007, the total amount of liability for unrecognized tax benefits related
to federal, state and foreign taxes and accrued interest was approximately $10.1 million (of which approximately $7.5 million would impact the effective tax rate if recognized). Approximately $2.6 million of the total unrecognized tax benefits are
related to the CATC acquisition, and would reduce goodwill if recognized.

We anticipate that approximately $0.1 million of net
unrecognized tax benefits will be recognized during the next twelve months due to the expiration of the statute of limitations and impact our effective tax rate.

We recognize interest and, if applicable, penalties which could be assessed related to unrecognized tax benefits in income tax expense. As of the adoption date, the total amount of accrued interest and penalties,
before federal and, if applicable, state effect, was approximately $57,000.

We file income tax returns in the U.S. federal jurisdiction
and various states and foreign jurisdictions. For federal income tax purposes, our fiscal 2004 through 2007 tax years remain open for examination by the tax authorities under the normal three year statute of limitations. For state tax purposes,
(principally California and New York) our fiscal 2003 through 2007 tax years remain open for examination by the tax authorities under a four year statute of limitations.

Liquidity and Capital Resources

Cash and cash equivalents at September 30, 2007 were $8.8
million compared to $10.4 million at June 30, 2007.



28



---

##### Table of Contents

Net cash used in operating activities was $1.0 million in the three months ended September 30, 2007
compared to $2.7 million in the same period last year. The net cash used in operating activities was attributable to working capital requirements of $4.7 million and $7.0 million for the three months ended September 30, 2007 and 2006,
respectively, offset by depreciation, amortization, and non-cash share-based compensation expense. Cash consumed by working capital for the three months ended September 30, 2007 and 2006 resulted primarily from increased payments to trade
vendors for $4.2 million and $3.6 million, respectively.

Net cash used in investing activities was $0.6 million in the three months ended
September 30, 2007 compared to $2.0 million in the same period in fiscal 2007. Net cash used in fiscal 2008 and fiscal 2007 related to the purchase of property and equipment.

Net cash used in financing activities was $0.3 million in the three months ended September 30, 2007 compared to net cash provided by financing
activities of $24.2 million in the same period in fiscal 2007. Net cash used in financing activities in fiscal 2008 was primarily due to repayments of capital leases and purchase of treasury shares for $0.1 million and $0.2 million, respectively.
Net cash provided by financing activities in the fiscal 2007 period was mainly due to borrowings of $30.8 million under our line of credit in anticipation of the acquisition of Catalyst, partially offset by repayments under the Credit Agreement and
capital lease payments of $5.8 million. An additional $0.6 million of cash was consumed in the fiscal 2007 period due to our treasury stock buy back program.

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
(excluding the repurchase of all or a portion of the convertible notes), share repurchases and capital expenditure requirements for the foreseeable future and provide funds for potential acquisition opportunities.

Contractual Obligations and Other Commitments

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



|                            |  |                                                 |        |                  |   |           |  |           |       |                   |   |        |  |   |   
|--------------------------- |  | ----------------------------------------------- | ------ | ---------------- | - | --------- |  | --------- | ----- | ----------------- | - | ------ |  | - | --
|                            |  | Payments due by Period as of September 30, 2007
|(In thousands)              |  | Total                                           |        | Less than 1 Year |   | 1-3 Years |  | 3-5 Years |       | More than 5 Years
|Severance                   |  | $                                               | 1,119  |                  |   | 1,071     |  |           | 48    |                   |   |       |  |   |  
|Supplier agreements         |  |                                                 | 840    |                  |   | 840       |  |           |      |                   |   |       |  |   |  
|Operating lease obligations |  |                                                 | 3,839  |                  |   | 2,089     |  |           | 1,550 |                   |   | 174    |  |   | 26
|Revolving credit obligation |  |                                                 | 9,410  |                  |   |          |  |           |      |                   |   | 9,410  |  |   |  
|Note payable                |  |                                                 | 3,500  |                  |   | 3,500     |  |           |      |                   |   |       |  |   |  
|Convertible notes (1)       |  |                                                 | 72,000 |                  |   |          |  |           |      |                   |   | 72,000 |  |   |  
|                            |  |                                                 |        |                  |   |           |  |           |       |                   |   |        |  |   |   
|Total (2)                   |  | $                                               | 90,708 |                  | $ | 7,500     |  | $         | 1,598 |                   | $ | 81,584 |  | $ | 26
|                            |  |                                                 |        |                  |   |           |  |           |       |                   |   |        |  |   |   
|                            |  |                                                 |        |                  |   |           |  |           |       |                   |   |        |  |   |   

| | (1) | The Convertible notes mature on October 15, 2026. Holders of the Convertible notes have the right require the Company to purchase all or a portion of the Convertible notes on
October 15, 2011, which is reflected above.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | The Contractual Obligations and Other Commitments disclosed in our Form 10-K for the year ended June 30, 2007 did not include any reserves for income taxes under FIN 48.
Because we are unable to reasonably predict the ultimate amount or timing of settlement of our reserves for income taxes, the Contractual Obligations and Other Commitments table has not been updated to include our reserves for income taxes. As of
September 30, 2007, our reserves for income taxes totaled $2.9 million (See Note 17  Income Taxes for additional information).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Recent Accounting Pronouncements



29



---

##### Table of Contents

In February 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 SFAS No. 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. The adoption of SFAS 155 did not have a
material effect on our consolidated financial condition or results of operations.

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. The Company adopted EITF 06-2 beginning July 1, 2007 using the cumulative-effect adjustment approach. The effect of this adoption
resulted in a decrease to beginning retained earnings of $0.2 million, a decrease to deferred tax assets of $0.1 million and an increase to Accrued expenses and other current liabilities and Deferred revenue and other non-current liabilities of $0.2
million and $0.1 million, respectively.

In July 2006, the Financial Accounting Standards Board 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 was effective for fiscal years beginning after December 15, 2006, and was adopted by the Company effective July 1, 2007. See Note 17  Income Taxes for the impact of the
adoption of FIN 48 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 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. The adoption of this FSP did not
have a material effect on our consolidated financial position or results of operations.



30



---

##### Table of Contents

In February 2007, the FASB issued SFAS No. 159 (SFAS 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 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 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 157. Management is currently evaluating the effect that adoption of SFAS 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. The adoption of this position on July 1, 2007 did not have a significant impact on the Companys consolidated financial statements (See Note 16  Income Taxes for additional information).

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 position or results of operations.

Forward-Looking Information

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 our 2007 Annual Report on Form 10-K under the heading Risks Related to Our Business, as well as those risk factors a set forth
in Part II, Item IA herein. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.



31



---

##### Table of Contents

|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

There have been no material changes in market risk since the filing of the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2007.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

Evaluation of Disclosure 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.

Changes in Internal Controls Over Financial Reporting

There have been no 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 September 30, 2007 that have materially affected, or are reasonably likely to materially
affect, its internal control over financial reporting.



32



---

##### Table of Contents

LeCROY CORPORATION

PART II. OTHER INFORMATION



|ITEM 1. | 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 have a material adverse affect on
business, results of operations, financial condition or cash flows.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

There have been no material changes
with respect to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2007.



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

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 the first quarter of fiscal 2008. 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 1, 2007 to July 31, 2007           |  |                              |  |                            |     |                                                                             |       |                                                                            | 961,717
|August 1, 2007 to August 31, 2007       |  |                              |  |                            |     |                                                                             |       |                                                                            | 961,717
|September 1, 2007 to September 30, 2007 |  | 46,000                        |  | $                          | 7.28 |                                                                             | 46,000 |                                                                            | 915,717
|                                        |  |                               |  |                            |      |                                                                             |        |                                                                            |        
|Total                                   |  | 46,000                        |  | $                          | 7.28 |                                                                             | 46,000 |                                                                            | 915,717
|                                        |  |                               |  |                            |      |                                                                             |        |                                                                            |        



33



---

##### Table of Contents

|ITEM 6. | EXHIBITS
|------- | --------

The following exhibits are filed herewith or incorporated
by reference to exhibits previously filed with the SEC.



|              |  |                                                                                                                   
|------------- |  | ------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                       
|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.                                  



34



---

##### Table of Contents

SIGNATURE

Pursuant to the requirements 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.



|                       |  |                                                                    
|---------------------- |  | -------------------------------------------------------------------
|Date: November 8, 2007 |  | LeCROY CORPORATION                                                 
|                       | 
|                       |  | /s/ Sean B. OConnor                                               
|                       |  | Sean B. OConnor                                                   
|                       |  | Vice President and Chief Financial Officer, Secretary and Treasurer



35