LTX CORP, 10-K405, 2000-10-02

LTX CORP
10-K405, 2000-10-02
INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________

FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended July 31, 2000

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File No. 000-10761

LTX Corporation
(Exact name of registrant as specified in its charter)

MASSACHUSETTS 04-2594045
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)

University Avenue
Westwood, Massachusetts 02090
(781) 461-1000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

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

Title of each class Name of each exchange
------------------- on which registered
None -------------------
None

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

Common Stock, par value $0.05 per share

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

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

The aggregate market value of the Common Stock held by non-affiliates of
the registrant on September 1, 2000 was $1,242,176,583.

Number of shares outstanding of each of the issuer's classes of Common
Stock as of September 1, 2000:

Common Stock, Par Value $0.05 Per Share, 47,706,047 shares.

___________

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement in connection with its 2000
Annual Meeting of Stockholders are incorporated by reference into Part III of
this Form 10-K Report. The Compensation Committee Report and Stock Performance
Graph of the Registrant's Proxy Statement are expressly not incorporated herein
by reference.

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LTX CORPORATION
INDEX

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PART I
Item 1. Business Introduction....................................................................... 1
Industry Overview.................................................................................. 1
Fusion(R), the LTX Solution........................................................................ 3
The LTX Business Strategy.......................................................................... 3
Product Overview................................................................................... 4
Service............................................................................................ 6
Engineering and Product Development................................................................ 6
Sales and Distribution............................................................................. 6
Strategic Alliances................................................................................ 7
Customers.......................................................................................... 7
Manufacturing and Supply........................................................................... 7
Competition........................................................................................ 8
Backlog............................................................................................ 8
Proprietary Rights................................................................................. 8
Employees.......................................................................................... 9
Facilities....................................................................................... 9
Environmental Affairs.............................................................................. 9
Item 2. Properties.................................................................................. 9
Item 3. Legal Proceedings........................................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders......................................... 9

PART II
Item 5. Market Value for the Registrant's Common Stock and Related Security Holder Matters.......... 10
Item 6. Selected Consolidated Financial Data........................................................ 11
Item 7. Management's Discussion and Analysis of Financial Condition And Results of Operations....... 11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................................. 21
Item 8. Financial Statements and Supplementary Data................................................. 23
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........ 42
PART III
Item 10. Directors and Executive Officers of The Registrant.......................................... 42
Item 11. Executive Compensation...................................................................... 42
Item 12. Security Ownership of Certain Beneficial Owners and Management.............................. 42
Item 13. Certain Relationships and Related Transactions.............................................. 42
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................. 42
Financial Statements........................................................................ 42
Schedules................................................................................... 43
Exhibits.................................................................................... 44
Listing of Exhibits......................................................................... 44
Reports on Form 8-K......................................................................... 45
Exhibits.................................................................................... 46
Signatures.................................................................................. 47
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LTX(R), HiPer(R), Fusion(R) and enVision(TM) are all trademarks of LTX
Corporation.
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PART I

Item 1. Business Introduction

LTX designs, manufactures, markets and services semiconductor test
equipment. We sell our test systems to semiconductor designers and manufacturers
worldwide, such as Texas Instruments, STMicroelectronics, Philips Semiconductor,
National Semiconductor, Motorola, Lucent Technologies, Infineon Technologies,
and Hitachi. These customers use semiconductor test equipment to test every
semiconductor device at two different stages during the manufacturing process.
These devices are incorporated in a wide range of products, including data
communications equipment such as switches, routers and servers, broadband access
products such as cable modems and Ethernet accessories, personal communication
devices such as cell phones and personal digital assistants, consumer products
such as televisions, videogame systems, digital cameras and automobile
electronics, and personal computer accessory products such as disk drives and 3D
graphics accelerators.

We offer our customers the LTX Fusion platform, which combines our
enVision++ software with either our Fusion HF or Fusion HT/AC products. We
believe that Fusion HF is the first of a new class of test systems that can test
system-on-a-chip, or SOC, devices in a single test step. With Fusion HF, we
believe we have the only test system capable of testing a broad range of analog,
digital, and mixed signal (a combination of digital and analog) devices, and
most importantly, SOC devices, on a single platform. We have over 100 customers
in more than 15 countries, to which we provide test systems, global applications
consulting, repair services and operational support. We design and assemble our
test systems in Westwood, Massachusetts and in San Jose, California.

In late 1996, we changed our strategic focus to develop a solution for the
testing needs of the then emerging SOC market. Building on our twenty-year
semiconductor test experience, we realigned our separate digital and mixed
signal research and development organizations to work together to develop and
deliver a single test platform incorporating our mixed signal test expertise
with our extensive digital test technology and embedded memory test capability.
We also restructured our operations and reorganized our management consistent
with our new strategic focus. Our Fusion platform is the result of this change
in strategy.

Industry Overview

The testing of devices is a critical step during the semiconductor
production process. Typically, semiconductor companies test each device at two
different stages during the manufacturing process to ensure its functional and
electrical performance prior to shipment to the device user. These companies use
semiconductor testing equipment to first test a device after it has been
fabricated but before it has been packaged to eliminate non-functioning parts.
Then, after the functioning devices are packaged, they are tested again to
determine if they fully meet performance specifications. Testing is an important
step in the manufacturing process because it allows devices to be fabricated at
both maximum density and performance--a key to the competitiveness of
semiconductor manufacturers. Shown below is a schematic depiction of the major
steps in the semiconductor fabrication and test process.

[graph appears here]

Two rectangular fields, the first representing the front end of the
manufacturing process and the second representing the back end of the
manufacturing process, each step represented by a particular graphic. The
process begins with "wafer fabrication," proceeds to a "wafer," through the
"probe test tester," to a "wafer cut," and ends with a "sorted die." The back
end field includes a second five-step process which continues the front end
process, each step also represented by a particular graphic. The back end
process begins with "device assembly and packaging," proceeds to a "packaged
device," through the "final test tester," to a "good device," and ends in
"shipment".

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Three primary factors ultimately drive demand for semiconductor test
equipment:

. increases in unit production of semiconductor devices;

. increases in the complexity and performance level of devices used in
electronic products; and

. the emergence of next generation device technologies, such as SOC.

In recent years, increases in unit production resulted primarily from the
proliferation of the personal computer and the continued growth of the
telecommunications industry. We expect that future unit production growth will
be led by a series of Internet hardware and software applications, Internet
infrastructure performance increases, and Internet access device simplification
and miniaturization. We also expect the continued proliferation of, and new
applications in, communication products and consumer electronics. These
increases in unit production in turn lead to a corresponding increase in the
need for test equipment. According to Prime Research Group, in 1999 device
manufacturers spent over $3 billion on test equipment. Prime Research Group
expects such spending to grow to over $6 billion in 2001.

Furthermore, demand is increasing worldwide for smaller, more sophisticated
electronic products, such as cellular phones, laptop computers, camcorders,
wireless networking equipment and mobile Internet terminals. This has led to
ever higher performance and more complex semiconductor devices, which, in turn,
results in a corresponding increase in the demand for equally sophisticated test
equipment.

Finally, the introduction and adoption of a new generation of end-user
products requires the development of next generation device technologies. For
example, access to information is migrating from the standalone desktop
computer, which might be physically linked to a local network, to the seamless,
virtual network of the Internet, which is accessible from anywhere by a variety
of new portable electronic communication products. A critical enabling
technology for this network and multimedia convergence is SOC. SOC provides the
benefits of lower cost, smaller size and higher performance by combining
advanced digital, analog and embedded memory technologies on a single device.
These discrete technologies were, until recently, available only on several
separate semiconductor devices, each performing a specific function. By
integrating these functions on a single device, SOC enables lower cost, smaller
size, higher performance, and lower power consumption.

According to Prime Research Group, the market for SOC test equipment
accounted for approximately 50% of the $4.0 billion semiconductor test equipment
market in 1999. In 2001, Prime Research forecasts the semiconductor test
equipment market will grow to more than $6.0 billion with SOC test equipment
still expected to represent 50% of this market.

Although the SOC concept had been in development for several years, until
recently manufacturers did not have an efficient and comprehensive method of
testing these devices. Historically, device manufacturers used several narrowly
focused testers, each designed to test only digital, only memory, or only mixed
signal devices, but incapable of testing all three. SOC does not fit into any
one of these categories because it represents the convergence of these three
technologies and requires new testing technology.

The increases in unit production of devices, the increase in complexity of
those devices, and, ultimately, the emergence of new semiconductor device
technology have mandated changes in the design, architecture and complexity of
such test equipment. Semiconductor device manufacturers must still be able to
test the increasing volume and complexity of devices in a reliable, cost-
effective, efficient and flexible manner. However, the increased pace of
technological change, together with the large capital investments required to
achieve economies of scale, are changing the nature and urgency of the
challenges faced by device designers and manufacturers.

Designers and manufacturers historically have not been able to use their
test floors at peak efficiency because they had to use several separate digital
and mixed signal testers to perform all of their required testing. This
increases their costs of ownership due to increased working hours, greater floor
space, decreased utilization and slower throughput. Furthermore, manufacturers
cannot fully test new SOC designs because their current testing

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equipment cannot test a sufficiently broad range of mixed signal
instrumentation. Manufacturers are subject to further increased testing costs if
their testing equipment lacks the flexibility and capacity to run parallel tests
on multiple devices at one time, or multi-site testing. These problems are
exacerbated when volume production of devices increases.

Fusion(R), the LTX Solution

Our solution is the Fusion test platform. Fusion tests new generations of
highly-integrated mixed signal devices, advanced digital devices, and most
importantly, SOC devices, which incorporate these technologies. The testing
requirements of digital and mixed signal devices are essentially a subset of the
testing requirements of SOC devices. The test requirements of all of these
semiconductor devices are well within the range of Fusion's capability. The
Fusion HF single test platform allows our customers to use a single integrated
hardware and software system to test all of these devices, rather than the
multiple test systems typically required. By using a single testing platform,
our customers are able to optimize their asset utilization, thereby increasing
their manufacturing flexibility and lowering the overall cost of their testing
processes.

Fusion is a unique solution to the SOC test challenge because it provides
all of the following:

A single test platform. Thoroughly testing an SOC device on more than
one tester is either technically infeasible, because the device is not
partitioned for its mixed signal, digital and embedded memory functions to
operate independently from each other, or economically impractical due to
the significantly more expensive cost of multiple testers and insertions
required for comprehensive testing. Our Fusion test platform combines our
test station hardware with our enVision++ software to provide a flexible,
scalable test environment. By integrating the testing of mixed signal,
digital and embedded memory functions, Fusion provides better test
performance and lower cost of ownership for our customers. Our customers
are also using Fusion to raise the utilization rates of their test floors
in testing their digital and mixed signal devices. Not only have these
customers selected Fusion as part of their SOC strategy, but they are also
purchasing Fusion for capacity expansion on these traditional devices,
eliminating the need for separate digital and mixed signal testers.

Multi-site test capability. Multi-site testing, the parallel testing
of more than one device (of the same type) on one testing machine at a
given time, lowers the overall cost of testing devices by making possible
the more efficient use of each testing machine. We designed Fusion to make
multi-site testing easier for the test designer. Earlier generations of
testing equipment required testing engineers to write specific software
programs to run tests in parallel. Our enVision++ software allows testing
engineers to expand single-site testing programs into multi-site testing
programs with ease. Fusion can also be configured with a sufficient number
of instruments to perform multi-site testing even on highly complex SOC
devices.

A full range of mixed signal instrumentation. Testing different types
of SOC input/output interfaces requires radio frequency (RF), digital
signal processing (DSP), power, time measurement, and other instruments.
Fusion provides customers with the broad range of mixed signal
instrumentation necessary to test these devices to the customer's desired
specifications. Mixed signal test expertise is in short supply in the
industry and one of our strengths in SOC testing is the depth of our mixed
signal intellectual property, based on our heritage as a pioneer in this
field.

State of the art digital test capability. SOC devices require the
advanced digital testing performance, including embedded memory testing,
found in traditional high-end, standalone digital testers. Fusion delivers
this capability in an integrated platform.

Easy-to-use software for test program development. Our enVision++
software provides the customer's test engineer with an expandable library
of prepackaged, reusable test program modules and debugging tools, all
accessible through an easy-to-use graphical user interface. In most other
testers, test engineers can reuse test code only by cutting and pasting
lines of program code. enVision++ encapsulates test techniques into
software objects that are added to the library for reuse in subsequent test
programs. The test engineer can use these software objects when designing
new test programs simply by dragging them with a mouse into the program
flow. The ease-of-use of our software accelerates our customers'
development process, which allows them to introduce their semiconductor
devices to market more rapidly.

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The LTX Business Strategy

LTX's objective is to be the leading supplier of semiconductor test
equipment. Key elements of our strategy include:

Extend our technological lead in single platform testing. We intend to
continue to focus our resources on a single integrated hardware and
software test platform solution. Rather than diluting our resources with a
multiple platform strategy, we believe our resources will provide a higher
return on investment by focusing on a single test platform for the advanced
digital, mixed signal, and SOC markets. In addition, we believe our
customers' requirements are better served by employing a single test
platform solution to address the test requirements of their various
devices.

Maintain our focus on the SOC test market. We believe that the fastest
growing segment of the semiconductor industry over the next several years
will be SOC. We designed our Fusion test platform specifically to provide
optimal test capability for this class of devices. We intend to maintain
and enhance our SOC test position by continuing to concentrate our
development efforts on advanced functions and options for Fusion.

Concentrate our sales, applications consulting, and service efforts on
key accounts. We have organized our selling, field service, and field
applications organizations around key customers, and located these
resources close to their facilities. We recognize that large, diversified
semiconductor device manufacturers and certain offshore test and assembly
companies purchase most of the world's test equipment, and that the level
of support we are able to provide to them has a direct impact on future
business. We believe that focusing our sales and support resources on these
customers is the most efficient way to maximize revenue. We have also
developed collaborative relationships with key customers and vendors that
help guide us in developing future applications and system options. We have
also begun the second phase of our Fusion selling strategy by focusing
selling efforts on key accounts in the subcontract test and assembly
market. We believe this market represents an area of potential growth for
us that will be at least partially driven by our success with the
integrated diversified semiconductor manufacturers that use subcontract
test and assembly services since they substantially influence what test
systems are purchased by test and assembly companies.

Further improve the flexibility of our business model. To improve our
responsiveness to customer needs, reduce fixed costs and working capital
requirements, and manage the cyclicality of our industry more effectively,
we have implemented a more flexible business model. We have consolidated
our manufacturing operations to our Westwood, Massachusetts facility and
transformed it into an assembly, system integration, and test operation,
with most other manufacturing functions outsourced to third parties. We
engage contract employees to address periods of peak demand. We have
implemented additional international distribution and sub-contracted repair
and support functions. We intend to continue to identify and implement
programs which improve our customer responsiveness and reduce costs.

Build on our strategic alliances. Ando Electric Company, Ltd., a
subsidiary of NEC Corporation, Japan's largest semiconductor manufacturer,
is a leading test equipment manufacturer in Japan. We entered into a
strategic alliance with Ando in April 1998 to expand the market in Japan
for the Fusion testing platform, increase our research and development
capacity, and obtain the benefits of their research and development
activities. With Ando, Fusion became, we believe, the first and only test
platform that will be produced by two suppliers, reducing the risk to our
customers that their production requirements would not be met. In addition
to Ando, we have established strategic alliances with companies
specializing in different aspects of our business such as board repair and
local sales and service. These alliances allow us to focus our resources on
the development of Fusion, maintain flexibility in our business model, and
expand our ability to provide our customers throughout the world with local
support.

Product Overview

Since late 1996, we have focused on designing, developing, marketing and
servicing the Fusion test platform with its enabling technology for testing a
broad range of devices, including SOC.

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Fusion Test Platform

Fusion offers a unique solution for testing the full spectrum of SOC, mixed
signal, and digital devices. The Fusion test platform provides customers with
the highly reliable test performance and cost-efficiency in their efforts to
accelerate their time-to-market for SOC, mixed signal, and digital devices.

The Fusion test platform combines our test station hardware with our
enVision++ software. The Fusion platform is available in the Fusion HF and
Fusion HT/AC configurations. These configurations depend primarily on the
complexity of the device to be tested.

enVision++

Our enVision++ software helps customers design device test programs faster
and more efficiently by providing a customer's test engineer with an expandable
library of prepackaged, reusable test program modules and debugging tools, all
accessible through an easy-to-use graphical user interface. In most other
testers, test engineers can reuse test code only by cutting and pasting lines of
program code. enVision++ software circumvents much of this laborious process by
encapsulating test techniques into software objects that are added to the
library for reuse in subsequent test programs. The test engineer can use these
software objects when designing new test programs simply by dragging them with a
mouse into the program flow.

Fusion HF

Introduced in July 1998, our Fusion HF is one of the most advanced testers
available. Before the advent of Fusion HF, semiconductor manufacturers required
several narrowly focused testers, designed to test only digital, only memory, or
only mixed signal devices, but not all three. Since the Fusion HF single
platform can efficiently test complex devices ranging from mixed signal to
digital to SOC, it eliminates the need for mutually exclusive testers.

The Fusion HF test system offers the broadest range of leading-edge test
capability in a single platform, including advanced mixed signal, high-speed
digital, digital signal processing, RF wireless, embedded memory, power, and
time measurement. This range of instrumentation on a single platform allows
semiconductor manufacturers to optimize their asset utilization, thereby
increasing their manufacturing flexibility and lowering the overall cost of
their testing processes.

Fusion's modular architecture has been designed so that it can keep pace
with today's rapid changes in test technology. As new generations of devices
require more advanced test capabilities, customers can easily upgrade their
Fusion testers to accommodate these requirements.

Fusion HT/AC

The Fusion HT/AC test systems are used for high throughput testing of mixed
signal devices primarily to satisfy capacity needs of customers using our prior
generation Synchro HT and Synchro AC products. These manufacturers are producing
the advanced mixed signal devices that are the precursors to, and the
foundations of, the next generation of SOC devices. As with Fusion HF, Fusion HT
and Fusion AC use the enVision++ development software, allowing customers to
easily upgrade to Fusion HF.

The Fusion HT features up to 48 digital pins, RF test instruments, and
power management test technology. Typical device types tested on the Fusion HT
include radio frequency/wireless, power management and consumer video and audio.
The Fusion HT, powered by enVision++, is fully compatible with our previous
generation mixed signal product, the Synchro HT.

The Fusion AC features up to 96 digital pins and high-speed DSP
instruments. Typical device types tested on the Fusion AC include those used in
high-speed local area networks, disk drives and data communications. The Fusion
AC is also powered by enVision++, and is fully compatible with our previous
generation mixed signal product, the Synchro AC.

Other Products

The Delta/STE, introduced in 1995, is our previous generation digital
tester. The Synchro HT and Synchro AC testers are our previous generation of
mixed signal products. While still supported by our service organization, we

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no longer manufacture or market the Synchro HT and Synchro AC. All of the
installed base of Synchro applications are fully compatible with Fusion HT/AC
testers.

iPTest Division

Consistent with our business strategy to focus on the Fusion product
family, we sold the iPTest product line in fiscal 2000. The iPTest division
manufactured systems used to test specialized semiconductor components, such as
power transistors. The percentage of net sales contributed by iPTest, compared
to our total net sales, was 1.2%, or $3.8 million for the fiscal year ended July
31, 2000, 3.2%, or $5.1 million, for the fiscal year ended July 31, 1999, and
2.9%, or $5.6 million, for the fiscal year ended July 31, 1998.

Service

We consider service to be an important aspect of our business. Our
worldwide service organization is capable of performing installations and all
necessary maintenance of test systems sold by us, including routine servicing of
components manufactured by third parties. We provide various parts and labor
warranties on test systems or options designed and manufactured by us, and labor
warranties on components that have been purchased from other manufacturers and
incorporated into our test systems. We also provide training on the maintenance
and operation of test systems we sell. Service revenue totaled $32.0 million, or
10.5% of net sales, in fiscal 2000, $28.9 million, or 18.4% of net sales, in
fiscal 1999, and $32.2 million, or 16.4% of net sales, in fiscal 1998.

We offer a wide range of service contracts, which gives our customers the
flexibility to select the maintenance program best suited to their needs.
Customers may purchase service contracts which extend maintenance beyond the
initial warranty provided. Many customers enter into annual or multiple-year
service contracts over the life of the equipment. The pricing of contracts is
based upon the level of service provided to the customer and the time period of
the service contract. As the installed base of our test systems has grown,
service revenues have been increasing on an annual basis. We believe that
service revenues should be less affected by the cyclical nature of the
semiconductor industry than sales of test equipment. We maintain service centers
around the world.

Engineering and Product Development

The test equipment market is characterized by rapid technological change
and new product introductions, as well as advancing industry standards. Our
competitive position will depend upon our ability to successfully enhance Fusion
and develop new instrumentation, and to introduce these new products on a timely
and cost-effective basis. We devote a significant portion of personnel and
financial resources to the continued development of our single platform SOC
capabilities, including embedded memory, digital and mixed signal core
competencies. We also seek to maintain close relationships with our customers in
order to be responsive to their product needs. Our expenditures for engineering
and product development were $50.6 million, $34.8 million, and $47.8 million,
during fiscal 2000, 1999, and 1998, respectively. In addition, through our
alliance with Ando, we benefit from the engineering and product development
resources that Ando is applying to the development of new options for Fusion at
no incremental expense to us.

Our engineering strategy is to focus on development of the Fusion HF single
test platform. We also intend to develop our future test systems in an
evolutionary manner so that they may be progressively upgraded. This approach
preserves our customers' substantial investments in our pre-existing test
programs, and, in general, helps us maintain market acceptance for our test
systems. We work closely with our customers to define new product features and
to identify emerging applications for our products.

Sales and Distribution

We sell our products primarily through a worldwide sales organization. Our
sales organization is structured around key accounts, with a sales force of 22
people. In Japan, we sell, service and support Fusion and digital products
through our alliance with Ando. We use a small number of independent sales
representatives and distributors in certain other regions of the world.

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Our sales to customers outside the United States are primarily denominated
in United States dollars. Sales outside North America were 62%, 61%, and 60%, of
total sales in fiscal 2000, 1999, and 1998, respectively.

Strategic Alliances

We entered into a development, manufacturing and marketing agreement with
Ando, a Japanese test equipment manufacturer and an affiliate of NEC
Corporation, in April 1998. The agreement has an initial term of six years. We
granted Ando exclusive rights to manufacture and sell Fusion in Japan but
retained exclusive rights to manufacture and sell Fusion to certain customers in
Japan and to manufacture and sell Fusion outside of Japan. We also granted Ando
a license to develop Fusion improvements for certain specific purposes, and,
subject to certain conditions, a license to use, manufacture, and sell these
improvements in Japan. We were granted rights to use, improve or modify these
Ando improvements outside Japan. Ando is required to pay quarterly royalties on
sales of Fusion in Japan.

Ando has established a new SOC division, charged with marketing, sales,
applications, engineering and customer support for the Fusion product line in
Japan. The division employs over 45 people who are developing digital test
options for Fusion HF and software enhancements for enVision++, without
additional expense to us. Other benefits of the alliance include a united
research and development effort to develop jointly new options and capabilities
for Fusion and a joint marketing plan for Fusion in Japan. In addition, we each
represent a second supply source for the other's customers.

We have also established additional alliances that we believe will allow us
to achieve strategic goals such as focusing our resources on the further
development of Fusion, maintaining flexibility in our business model and
expanding our ability to provide our customers throughout the world with local
support. These alliances have also allowed us to provide more localized support.
For example, DI Corporation, our partner in Korea, provides local sales and
support to the Korean market resulting in improved communications for our
customers and better market access for us. Flextech Holdings, based in
Singapore, provides board repair services for our customers, providing quick
repair turnarounds for our Asian customers and allowing us to focus on new
product development.

Customers

Our customers include many of the world's leading semiconductor device
manufacturers. In fiscal year 2000, Texas Instruments accounted for 19%, Philips
Semiconductor accounted for 13% and Vitesse Semiconductor Corporation accounted
for 11% of net sales. No single customer accounted for 10% or more of net sales
in fiscal 1999 or 1998. Customers that have ordered Fusion products include the
following:

Acer Labs Lucent Technologies Samsung
Amkor Maxim Integrated Devices Siliconware
AMS International Motorola STATS
ASE National Semiconductor STMicroelectronics
Hitachi On Semiconductor Texas Instruments
Hyundai Philips Semiconductor UTAC
Infineon Technologies Qlogic Vitesse Semiconductor

Because the semiconductor industry consists of a small number of device
manufacturers, we believe that sales to a limited number of customers will
continue to account for a high percentage of net sales for the foreseeable
future. The loss of or reduction or delay in orders from a significant customer
could hurt our business and financial results.

Manufacturing and Supply

Our principal manufacturing operations consist of final assembly, system
integration, and testing at our facilities in Westwood, Massachusetts. We also
perform some limited testing and assembly in our San Jose facility.

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During times of peak demand, we anticipate that the alliance with Ando will
enable us to satisfy customers requirements as a second supply source for
Fusion. We outsource certain components and subassemblies to contract
manufacturers. We use standard components and prefabricated parts manufactured
to our specifications. We assemble these components and subassemblies to produce
testers in configurations specified by our customers. Most of the components for
our products are available from a number of different suppliers; however,
certain components are purchased from a single supplier or a limited group of
suppliers. Although we believe that all single source components currently are
available in adequate amounts, we cannot be certain that shortages will not
develop in the future. We are dependent on two semiconductor device
manufacturers, Vitesse Semiconductor and Maxtech Components, who are sole source
suppliers of custom components for our products, although Vitesse has two
separate manufacturing facilities capable of manufacturing our custom
components. We have no written supply agreements with these sole suppliers and
purchase our custom components through individual purchase orders. We are in the
process of evaluating sources for our custom components. We cannot assure you
that such alternative sources will be qualified or available to us.

Competition

Many other domestic and foreign companies participate in the markets for
each of our products and the industry is highly competitive. We compete
principally on the basis of performance, cost of test, reliability, customer
service, applications support, price and ability to deliver our products on a
timely basis. Our principal competitors in the market for test systems are
Agilent Technologies (formerly a division of Hewlett-Packard), Credence Systems,
Schlumberger Limited, and Teradyne. Most of our major competitors are also
suppliers of other types of automatic test equipment and have greater financial
and other resources than we do. We expect our competitors to enhance their
current products and they may introduce new products with comparable or better
price and performance. In addition, new competitors, including semiconductor
manufacturers themselves, may offer new technologies, which may in turn reduce
the value of our product lines.

Backlog

At July 31, 2000, our backlog of unfilled orders for all products and
services was $236.8 million, compared with $116.6 million at July 31, 1999. In
current business conditions, test systems generally ship within six months of
receipt of a customer's purchase order. While backlog is calculated on the basis
of firm orders, all orders are subject to cancellation or delay by the customer
with limited or no penalty. Our backlog at any particular date, therefore, is
not necessarily indicative of actual sales which may be generated for any
succeeding period. Historically, our backlog levels have fluctuated based upon
the ordering patterns of our customers and changes in our manufacturing
capacity.

Proprietary Rights

The development of our products is largely based on proprietary
information. We rely upon a combination of contract provisions, copyright,
trademark and trade secret laws to protect our proprietary rights in products.
We also have a policy of seeking U.S. patents on technology considered of
particular strategic importance. Although we believe that the copyrights,
trademarks and patents we own are of value, we believe that they will not
determine our success, which depends principally upon our engineering,
manufacturing, marketing and service skills. However, we intend to protect our
rights when, in our view, these rights are infringed upon.

We license some software programs from third party developers and
incorporate them in our products. Generally, these agreements grant us non-
exclusive licenses with respect to the subject program and terminate only upon a
material breach by us. We believe that such licenses are generally available on
commercial terms from a number of licensors.

The use of patents to protect hardware and software has increased in the
test equipment industry. We have at times been notified of claims that we may be
infringing patents issued to others. Although there are no pending actions
against us regarding any patents, no assurance can be given that infringement
claims by third parties will not negatively impact our business and results of
operations. As to any claims asserted against us, we may seek or be required to
obtain a license under the third party's intellectual property rights. There can
be no assurance, however,

8
<PAGE>

that a license will be available under reasonable terms or at all. In addition,
we could decide to resort to litigation to challenge such claims or a third
party could resort to litigation to enforce such claims. Such litigation could
be expensive and time consuming and could negatively impact our business and
results of operations.

Employees

At July 31, 2000, we employed 717 employees and 116 temporary workers. None
of our employees are represented by a labor union, and we have experienced no
work stoppages. Many of our employees are highly skilled, and we believe our
future success will depend in large part on our ability to attract and retain
these employees. We consider relations with our employees to be good.

Environmental Affairs

The Company's manufacturing facilities are subject to numerous laws and
regulations designed to protect the environment. The Company does not anticipate
that compliance with these laws and regulations will have a material effect on
its capital expenditures, earnings or competitive position.

Item 2. Properties

All of our facilities are leased. We have achieved worldwide ISO 9001
certification at our facilities. We maintain our headquarters in Westwood,
Massachusetts, where corporate administration, sales and customer support and
manufacturing and engineering are located in a 167,500 square foot facility
under a lease which expires in 2009. In May 1995, we subleased to a third party
a 208,000 square foot facility in Westwood, Massachusetts for a ten year term.
Our lease of this facility expires in 2010. We also maintain an additional
development facility in a 71,000 square foot building in San Jose, California.
Our lease of this facility expires in 2004. We also lease sales and customer
support offices at various locations in the United States totaling approximately
40,000 square feet.

Our European headquarters is located in Woking, United Kingdom. We also
maintain sales and support offices at other locations in Europe and in Asia.
Office space leased in Asia and Europe totals approximately 113,816 square feet.

We believe that our existing facilities are adequate to meet our current
and foreseeable future requirements.

Item 3. Legal Proceedings

The Company has no material pending legal proceedings other than routine
litigation relating to its business.

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

There were no matters submitted to a vote of stockholders during the fourth
quarter of fiscal 2000.

9
<PAGE>

PART II

Item 5. Market Value for the Registrant's Common Stock and Related Security
Holder Matters Market Prices for Common Stock

Our common stock is quoted on the Nasdaq National Market under the symbol
"LTXX". The following table shows the high and low closing sale prices per share
of our common stock, as reported on the Nasdaq National Market, for the periods
indicated:

<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal Year Ended July 31, 2000:
First Quarter............................................................ $16 11/16 $10 3/8
Second Quarter........................................................... 33 1/8 15 15/16
Third Quarter............................................................ 52 1/4 25
Fourth Quarter........................................................... 48 5/8 20 5/8
Fiscal Year Ended July 31, 1999:
First Quarter .......................................................... $ 3 7/8 $ 1
Second Quarter ......................................................... 4 7/16 2
Third Quarter .......................................................... 6 29/32 3 7/16
Fourth Quarter ......................................................... 14 1/2 6 1/8
</TABLE>

We have never declared or paid any dividends on our common stock. We do not
anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain future earnings to fund the development and growth of our
business. In addition, our credit agreement with a bank contains certain
covenants which prohibit us from paying cash dividends.

As of September 1, 2000, we had approximately 1,052 stockholders of record
of our common stock.

10
<PAGE>

Item 6. Selected Consolidated Financial Data

The following table contains our selected consolidated financial data and
is qualified by the more detailed consolidated financial statements and notes
thereto included elsewhere in this report. The selected consolidated financial
data for and as of the end of each of the five fiscal years in the period ended
July 31, 2000 are derived from our consolidated financial statements, which have
been audited by Arthur Andersen LLP, independent public accountants. Prior
period financial statements have been reclassified to conform to the fiscal year
2000 presentation. The reclassification had no impact on earnings for any
period.

<TABLE>
<CAPTION>
Fiscal Years ended July 31
--------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
(in thousands, except per share data and statistics)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Sales................................................. $266,476 $194,343 $196,227 $157,326 $305,535
Cost of sales......................................... 150,319 119,699 127,837 93,451 161,078
Inventory provisions.................................. 3,600 9,250 40,718 -- --
Engineering and product development expenses.......... 34,402 35,521 47,757 34,828 50,582
Selling, general and administrative expenses.......... 46,787 39,049 50,772 31,517 38,477
Restructuring charges................................. -- 6,750 6,272 -- --
-------- -------- -------- -------- --------
Income (loss) from operations......................... 31,368 (15,926) (77,129) (2,470) 55,398
Net interest (expense) income......................... 297 433 (21) (941) 3,123
Gain on liquidation/sale of business units............ -- -- -- 3,786 --
Provision (benefit) for income taxes.................. 1,395 416 1,130 -- (20,214)
-------- -------- -------- -------- --------
Net income (loss)..................................... $ 30,270 $(15,909) $(78,280) $ 375 $ 78,735
======== ======== ======== ======== ========
Net income (loss) per share:
Basic............................................... $ 0.89 $ (0.45) $ (2.15) $ 0.01 $ 1.84
Diluted............................................. $ 0.82 $ (0.45) $ (2.15) $ 0.01 $ 1.70
Weighted-average common shares used in computing
net income (loss) per shares:
Basic............................................... 34,011 35,476 36,401 35,696 42,897
Diluted............................................. 36,755 35,476 36,401 36,958 46,201
Consolidated Balance Sheet Data:
Working capital....................................... $137,619 $115,118 $ 33,958 $ 47,915 $307,887
Property and equipment, net........................... 37,880 42,958 35,427 31,942 38,125
Total assets.......................................... 235,319 213,546 141,019 147,993 456,504
Total debt............................................ 36,348 32,372 25,476 27,477 26,108
Stockholders' equity.................................. 155,039 140,198 55,950 58,928 339,676
Other Information (unaudited):
Current ratio......................................... 3.44 3.19 1.49 1.71 3.92
Asset turnover........................................ 1.13 0.91 1.39 1.06 0.67
Debt as a percentage of total capitalization.......... 19.0% 18.8% 31.3% 31.8% 7.1%
Additions to property and equipment (net)............. $ 20,006 $ 16,116 $ 8,795 $ 9,636 $ 17,850
Depreciation and amortization......................... 10,533 11,038 12,510 11,291 10,613
</TABLE>

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations

The following discussion should be read together with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this annual report
on Form 10-K. This report contains forward-looking statements that involve risks
and uncertainties. Actual results may differ materially from those indicated in
such forward-looking statements. See "Business Risks".

11
<PAGE>

Results of Operations

The following table sets forth for the periods indicated the principal
items included in the Consolidated Statement of Operations as percentages of
total net sales.

<TABLE>
<CAPTION>
Percentage of Net Sales
-----------------------
Year Ended July 31
------------------
1998 1999 2000
----- ----- -----
<S> <C> <C> <C>
Net Sales:.................................................. 100.0% 100.0% 100.0%
Cost of sales:............................................ 65.1 59.4 52.7
Inventory provisions................................... 20.8 0.0 0.0
Gross profit........................................... 14.1 40.6 47.3

Engineering and product development expenses................ 24.3 22.1 16.6
Selling, general and administrative expenses................ 25.9 20.0 12.6
Restructuring charges....................................... 3.2 0.0 0.0
Income (loss) from operations............................... NM NM 18.1

Interest expense............................................ NM NM (0.7)
Interest income............................................. 1.0 0.4 1.7
Gain on liquidation/sale of business units.................. 0.0 2.4 0.0
Income (loss) before income taxes........................... NM 0.2 19.1
Provision (benefit) for income taxes ...................... 0.6 0.0 (6.6)
Net income (loss)........................................... NM 0.2 25.7
</TABLE>

Fiscal 2000 Compared to Fiscal 1999.

Net Sales. Net sales consist of both semiconductor test equipment and
related hardware and software support and maintenance services, net of returns
and allowances. Net sales increased $148.2 million to $305.5 million in fiscal
2000 from $157.3 million in fiscal 1999, an increase of 94.2%. The increase in
net sales was principally a result of the STE, or semiconductor test equipment,
and semiconductor industries experiencing an increase in demand combined with
key new sales account wins with Fusion. Service revenue, consisting of sales of
replacement and spare parts and labor charges, totaled $32.0 million, or 10.5%
of net sales, in fiscal 2000 and $28.9 million, or 18.4% of net sales, in fiscal
1999. Geographically, sales to customers outside the United States were $189.2
million, or 62% of net sales, in fiscal 2000 and $95.7 million, or 61% of net
sales, in fiscal 1999.

Cost of Sales. Cost of sales consists of material, labor, depreciation and
associated overhead. Cost of sales increased by $67.6 million to $161.1 million
in fiscal 2000 from $93.5 million in fiscal 1999. As a percentage of net sales,
cost of sales was 52.7% of net sales in fiscal 2000 as compared to 59.4% in
fiscal 1999. The major reason for the year-to-year improvement in margin
percentage relates to gaining the full benefits of our consolidation of our
manufacturing operations and lower product cost as a percentage of net sales for
our Fusion product line. Net sales of our Fusion products increased sequentially
in each quarter in fiscal 1999 and fiscal 2000 which resulted in improved profit
margins. Effective November 1, 1999, we changed our accounting policy to
classify certain applications and engineering development costs previously
reported in cost of sales to research and development expenses in our quarter
ending January 31, 2000. Financial results for all prior periods have been
reclassified to conform to the January 31, 2000 presentation. Under the prior
method of classification, cost of sales would have been 57.2% and 65.5% of net
sales for the year ended July 31, 2000 and July 31, 1999, respectively.

Engineering and Product Development Expenses. Engineering and product
development expenses were $50.6 million, or 16.6% of net sales, in fiscal 2000
as compared to $34.8 million, or 22.1% of net sales in fiscal 1999. The
increase in expenditures is principally a result of a higher level of
development expenses and key account support costs for our Fusion product line.
Engineering and product development expenses include the reclassified
applications and engineering development costs described in the previous
paragraph. Under the prior method of classification, engineering and product
development expenses would have been $36.8 million or 12.0% of net sales, and
$25.2 million, or 16.0% of net sales, for fiscal 2000 and fiscal 1999,
respectively.

12
<PAGE>

Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $38.5 million or 12.6% of net sales in fiscal 2000
as compared to $31.5 million, or 20.0% of net sales in fiscal 1999. The
increase in the selling, general and administrative expenses of $7.0 million for
fiscal 2000 related to the marketing and selling expenses of the Fusion product
line and support of key accounts, as well as $3.2 million of employee profit
sharing.

Interest Expense. Interest expense for fiscal year 2000 was $2.1 million
as compared to $1.5 million for fiscal year 1999. The increase in expense is a
result of an increase in outstanding bank loan balances with our domestic bank.
The increased borrowings were used to support growth in working capital.

Interest Income. Interest income was $5.2 million for fiscal 2000 as
compared to $585,000 for fiscal 1999. The increase in interest income occurred
because of the increase in our cash balance.

Other. We recorded gains of $3.8 million during the second quarter of
fiscal 1999. These transactions consisted of the liquidation of our majority-
owned Japanese subsidiary, a joint venture with Sumitomo Metal Industries, Ltd.,
which resulted in a gain of $1.7 million and the sale of a portion of our legacy
board repair business in Singapore which resulted in a gain of $2.1 million.
Both transactions are consistent with our strategic commitment to the Fusion
strategy and our focus on reducing costs.

Income Tax. In fiscal year 2000 we recorded a tax benefit of $20.2 million
and recorded deferred tax assets. Realization of the net deferred tax assets is
dependent on our ability to generate future taxable income. Management believes
that it is more likely than not that the assets will be realized, based on
forecasted income. However, there can be no assurance that we will meet our
expectations of future income. The remaining valuation allowance in fiscal 2000
relates to certain foreign losses and tax credits for which the reliability of
future tax benefits is uncertain. No tax provision was recorded in fiscal 1999.

Fiscal 1999 Compared to Fiscal 1998

Net Sales. Net sales consist of both semiconductor test equipment and
related hardware and software support and maintenance services, net of returns
and allowances. Net sales decreased $38.9 million to $157.3 million in fiscal
1999 from $196.2 million in fiscal 1998. The decrease in net sales was
principally due to the industry-wide slowdown in the semiconductor industry
which began in the latter half of fiscal 1998 and carried over to the first half
of fiscal 1999. Net sales increased each quarter in fiscal 1999, as conditions
in the semiconductor industry began to improve and as we began shipping Fusion
products in increasing volumes to customers. Net sales in the four quarters of
fiscal 1999 were $27.0 million, $33.7 million, $43.2 million, and $53.4 million.
The last two quarters of fiscal 1999 reflected an industry-wide increase in
demand for test equipment in general and an increase in demand for Fusion in
particular. Net sales from our strategic alliance with Ando were $8.5 million of
revenue in fiscal 1999 and $7.4 million in fiscal 1998, relating to the transfer
of technology. Service revenue, consisting of sales of replacement and spare
parts and labor charges, totaled $28.9 million, or 18.4% of net sales, in fiscal
1999 and $32.2 million, or 16.4% of net sales, in fiscal 1998. Geographically,
sales to customers outside the United States were $95.7 million, or 60.8% of net
sales, in fiscal 1999 and $118.3 million, or 60.2% of net sales, in fiscal 1998.

Cost of Sales. Cost of sales consists of material, labor, depreciation and
associated overhead. Cost of sales decreased by $34.3 million to $93.5 million
in fiscal 1999 from $127.8 million in fiscal 1998. As a percentage of net sales,
cost of sales was 59.4% of net sales in fiscal 1999 as compared to 65.1% in
fiscal 1998. The major reason for the year-to-year improvement in cost
percentage on lower sales volume relates to consolidations of operations and
workforce reductions, which resulted in a reduction in fixed overhead expenses
and improved product margins as we began to ship Fusion products in increasing
volumes starting in the second quarter of fiscal 1999.

Effective November 1, 1999, we changed our accounting policy to classify
certain applications and engineering development costs previously reported in
cost of sales to research and development expenses in our quarter ending January
31, 2000. Financial results for all prior periods have been reclassified to
conform to the January 31, 2000 presentation. Under the prior method of
classification, cost of sales would have been 65.5% and 72.0% for the fiscal
years ended July 31, 1999 and July 31, 1998, respectively.

Engineering and Product Development Expenses. Engineering and product
development expenses decreased by $13.0 million to $34.8 million, or 22.1% of
net sales, in fiscal 1999 from $47.8 million, or 24.3% of net sales, in

13
<PAGE>

fiscal 1998. During fiscal 1998, we invested resources in the development of our
Fusion single test platform for testing SOC devices. The level of development
expenditures decreased year to year as important Fusion-related projects were
completed. We intend to maintain and enhance our SOC test position by continuing
to concentrate our future engineering and product development expenses on
advanced functions and options for Fusion.

Engineering and product development expenses include the reclassified
applications and engineering development costs described in the previous
paragraph. Under the prior method of classification, engineering and product
development expenses would have been $25.2 million, or 16.0% of net sales, and
$34.3 million, or 17.5% of net sales, for the fiscal years ended July 31, 1999
and July 31, 1998, respectively.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by $19.3 million to $31.5 million, or 20.0% of
net sales, in fiscal 1999 from $50.8 million, or 25.9% of net sales, in fiscal
1998. In fiscal 1999, we continued our focus on reducing expense levels, which
included reduction of 48 employees in our sales and administration organization,
elimination of major trade show expenditures, and decreased travel expenses and
sales commissions. During fiscal 1998, there was also a higher level of
expenses, such as travel, promotional activities, and trade show expenditures,
related to the marketing of Fusion.

Income Tax. We did not record a tax provision in fiscal 1999. The fiscal
1998 provision related to the write-off of a deferred asset previously recorded
by us, net of certain tax adjustments.

Liquidity and Capital Resources

At July 31, 2000, we had $207.0 million in cash and equivalents and working
capital of $307.9 million as compared to $19.9 million in cash and equivalents
and $47.9 million of working capital at July 31, 1999. The increase in cash
balance was primarily a result of net cash proceeds received from two public
offerings of common stock totaling approximately $179.6 million, which were
completed in October 1999 and April 2000. Working capital increased as a result
of the increase in cash and increases in our accounts receivables and
inventories in support of the growth in sales revenue in our Fusion product
line.

Accounts receivable from trade customers were $74.9 million at July 31,
2000, as compared to $37.0 million at July 31, 1999. The principal reason for
the increase is a result of increasing sales revenue for Fusion products to new
and existing accounts, along with increased sales as a result of higher demand
generally in the STE and semiconductor industries. The reserve for sales returns
allowances and doubtful accounts was $3.6 million, or 4.6% of gross accounts
receivable on July 31, 2000 and $2.0 million, or 5.1% of gross accounts
receivable, on July 31, 1999.

Inventory increased by $27.1 million to $75.7 million at July 31, 2000 as
compared to $48.6 million at July 31, 1999. The increase is directly
attributable to the production ramp in the Fusion product as sales in that
product line have increased sequentially each quarter since the quarter ended
October 31, 1998.

Capital expenditures totaled $17.9 million in fiscal 2000 as compared to
$9.6 million for fiscal year 1999. The principal reason for the $8.3 million
increase in expenditures relate to the addition of board test equipment and
system test cell capacity supporting the growth of the Fusion product line.
Capital investments were made to improve the efficiencies of our test and
integration cycle time.

On October 1, 1999, we renegotiated our $10.0 million domestic credit
facility with our current lender. The facility is secured by all of our assets
and bears interest at the bank's prime rate plus 0.5%. Borrowing availability
under the facility is based on a formula of eligible domestic accounts
receivable. In addition, we entered into an agreement with the same bank that
provides us with a $5.0 million line of credit that bears interest at prime plus
0.5%. Borrowing availability under this facility is based on a formula of
eligible foreign accounts receivable and inventories and is guaranteed by the
Export-Import Bank of the United States. Outstanding borrowings at July 31,

14
<PAGE>

2000 were $5.7 million under the domestic credit facility and $4.0 million under
the foreign accounts receivable line facility. We anticipate that cash flow from
operations combined with available cash balances and credit facility
enhancements will be adequate to fund our currently proposed operating
activities for the next twelve months.

Recent Accounting Pronouncements

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities amended by SFAS 137 Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of SFAS
No.133 - Amendment of SFAS No. 133 (combined "SFAS 133")". This statement
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. The statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting. SFAS No. 133 is effective for fiscal years beginning after
June 15, 2000. A company may also implement the statement as of the beginning of
any fiscal quarter after issuance (that is, fiscal quarters beginning June 16,
1998 and thereafter). SFAS No. 133 cannot be applied retroactively. SFAS No. 133
must be applied to (a) derivative instruments and (b) certain derivative
instruments embedded in hybrid contracts that were issued, acquired, or
substantively modified after December 31, 1997 (and, at the company's election,
before January 1, 1998). This statement could increase volatility in earnings
and other comprehensive income for companies with applicable contracts. The
Company does not use derivative financial instruments for speculative trading
purposes, and does not currently hedge foreign currency exposure to offset the
effects of changes in foreign exchange rates. Therefore, the Company does not
expect this statement to have a material impact on the Financial Statements.

In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - An interpretation of APB Opinion No. 25 ("FIN 44")". FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25; the criteria for determining whether a plan qualifies as a non-
compensatory plan; the accounting consequence of various modifications to the
terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The Company
does not expect the application of FIN 44 to have a material impact on the
Company's financial position or results of operations.

The Securities and Exchange Commission ("SEC") released Staff Accounting
Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements," on
December 3, 1999. On June 26, 2000 the SEC staff announced that they are
delaying the required implementation date for SAB No. 101 with the issuance of
SAB No. 101B. The SAB provides additional guidance on the accounting for revenue
recognition, including both broad conceptual discussions as well as certain
industry-specific guidance. The new guidance concerning customer acceptance and
installation terms may have a significant impact on the timing of the Company's
revenue recognition. The Company expects additional SEC guidance on SAB 101
shortly and will evaluate possible changes to its acceptance and installation
practices. The SEC guidance will be adopted in the fourth quarter of fiscal year
2001 by recording the effect of any prior revenue transaction affected as a
"cumulative effect of change of a change in accounting principle" as of
May 1, 2001.

BUSINESS RISKS

This report includes or incorporates forward-looking statements that
involve substantial risks and uncertainties and fall within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. You can identify these forward-looking statements by our
use of the words "believes," "anticipates," "plans," "expects," "may," "will,"
"would," "intends," "estimates," and similar expressions, whether in the
negative or affirmative. We cannot guarantee that we actually will achieve these
plans, intentions or expectations. Actual results or events could differ
materially from the plans, intentions and expectations disclosed in the forward-
looking statements we make. We have included important factors in the cautionary
statements, particularly under the heading "Business Risks," that we believe
could cause our actual results to differ materially from the forward-looking
statements that we make. We do not assume any obligation to update any forward-
looking statement we make.

15
<PAGE>

Our Sole Market Is the Highly Cyclical Semiconductor Industry, Which Causes
a Cyclical Impact On Our Financial Results.

We sell capital equipment to companies that design, manufacture, assemble,
and test semiconductor devices. The semiconductor industry is highly cyclical,
causing in turn a cyclical impact on our financial results. Any significant
downturn in the markets for our customers' semiconductor devices or in general
economic conditions would likely result in a reduction in demand for our
products and would hurt our business.

Most recently, our revenue and operating results declined in fiscal 1998 as
a result of a sudden and severe downturn in the semiconductor industry
precipitated by the recession in several Asian countries. Downturns in the
semiconductor test equipment industry have been characterized by diminished
product demand, excess production capacity and accelerated erosion of selling
prices. We believe the markets for newer generations of devices, including SOC,
will also experience similar characteristics. In the past, we have experienced
delays in commitments, delays in collecting accounts receivable and significant
declines in demand for our products during these downturns, and we cannot be
certain that we will be able to maintain or exceed our current level of sales.
Additionally, as a capital equipment provider, our revenue is driven by the
capital expenditure budgets and spending patterns of our customers who often
delay or accelerate purchases in reaction to variations in their businesses.
Because a high proportion of our costs are fixed, we are limited in our ability
to reduce expenses quickly in response to revenue short-falls. In a contraction,
we may not be able to reduce our significant fixed costs, such as continued
investment in research and development and capital equipment requirements.

We May Not Be Able to Deliver Custom Hardware Options and Software
Applications to Satisfy Specific Customer Needs in a Timely Manner.

We must develop and deliver customized hardware and software to meet our
customers' specific test requirements. Our test equipment may fail to meet our
customers' technical or cost requirements and may be replaced by competitive
equipment or an alternative technology solution. Our inability to provide a test
system that meets requested performance criteria when required by a device
manufacturer would severely damage our reputation with that customer. This loss
of reputation may make it substantially more difficult for us to sell test
systems to that manufacturer for a number of years. We have, in the past,
experienced delays in introducing some of our products and enhancements.

Our Dependence on International Sales and Non-U.S. Suppliers Involves
Significant Risk.

International sales have constituted a significant portion of our net sales
in recent years, and we expect that this composition will continue.
International sales accounted for 62% of our net sales in fiscal year 2000, 61%
of our net sales in fiscal year 1999, and 60% of our net sales in fiscal year
1998. In addition, we rely on non-U.S. suppliers for several components of the
equipment we sell. As a result, a major part of our net sales and the ability to
manufacture our products are subject to the risks associated with international
commerce. A reduction in net sales or a disruption or increase in the cost of
our manufacturing materials could hurt our operating results. These
international relationships make us particularly sensitive to changes in the
countries from which we derive sales and obtain supplies. International sales
and our relationships with suppliers may be hurt by many factors, including:

. changes in law or policy resulting in burdensome government controls,
tariffs, restrictions, embargoes or export license requirements;

. political and economic instability in our target international
markets;

. longer payment cycles common in foreign markets;

. difficulties of staffing and managing our international operations;

. less favorable foreign intellectual property laws making it harder to
protect our technology from appropriation by competitors; and

. difficulties collecting our accounts receivable because of the
distance and different legal rules.

16
<PAGE>

In the past, we have incurred expenses to meet new regulatory requirements
in Europe, experienced periodic difficulties in obtaining timely payment from
non-U.S. customers, and been affected by the recession in several Asian
countries.

Our foreign sales are typically invoiced and collected in U.S. dollars. A
strengthening in the dollar relative to the currencies of those countries where
we do business would increase the prices of our products as stated in those
currencies and could hurt our sales in those countries. Significant fluctuations
in the exchange rates between the U.S. dollar and foreign currencies could cause
us to lower our prices and thus reduce our profitability. These fluctuations
could also cause prospective customers to push out or delay orders because of
the increased relative cost of our products. In the past, there have been
significant fluctuations in the exchange rates between the dollar and the
currencies of countries in which we do business.

Our Sales and Operating Results Have Fluctuated Significantly From Period
to Period, Including From One Quarter to Another, and They May Continue to Do
So.

Our quarterly and annual operating results are affected by a wide variety
of factors that could adversely affect sales or profitability or lead to
significant variability in our operating results or our stock price. This may be
caused by a combination of factors, including the following:

. sales of a limited number of test systems account for a substantial
portion of our net sales in any particular fiscal quarter, and a small
number of transactions could therefore have a significant impact;

. order cancellations by customers;

. lower gross margins in any particular period due to changes in:

-- our product mix,

-- the configurations of test systems sold, or

-- the customers to whom we sell these systems;

. the high selling prices of our test systems (which typically result in
a long selling process); and

. changes in the timing of product orders due to:

-- unexpected delays in the introduction of products by our customers,

-- shorter than expected lifecycles of our customers' semiconductor
devices, or

-- uncertain market acceptance of products developed by our customers.

We cannot predict the impact of these and other factors on our sales and
operating results in any future period. Results of operations in any period,
therefore, should not be considered indicative of the results to be expected for
any future period. Because of this difficulty in predicting future performance,
our operating results may fall below expectations of securities analysts or
investors in some future quarter or quarters. Our failure to meet these
expectations would likely adversely affect the market price of our common stock.

The Market for Semiconductor Test Equipment is Highly Concentrated, and We
Have Limited Opportunities to Sell Our Products.

The semiconductor industry is highly concentrated, and a small number of
semiconductor device manufacturers and contract assemblers account for a
substantial portion of the purchases of semiconductor test equipment generally,
including our test equipment. Sales to our ten largest customers accounted for
74% of net sales in fiscal year 2000, 60% of net sales in fiscal year 1999, and
55% of net sales in fiscal year 1998. Our customers may cancel orders with few
or no penalties. If a major customer reduces orders for any reason, our net
sales, operating results, and financial condition will be hurt. In addition, our
ability to increase our sales will depend in part upon our ability to obtain
orders from new customers. Semiconductor manufacturers select a particular
vendor's test system for testing the manufacturer's new generations of devices
and make substantial investments to develop related test program software and
interfaces. Once a manufacturer has selected one test system vendor for a
generation of devices, that manufacturer is more likely to purchase test systems
from that vendor for that generation of devices, and, possibly, subsequent
generations of devices as well.

Our Future Rate of Growth is Highly Dependent on the Growth of the SOC
Market.

17
<PAGE>

In 1996, we refocused our business strategy on the development of our
Fusion HF product, which is primarily targeted towards addressing the needs of
the SOC market. If the SOC market fails to grow as we expect, our ability to
sell our Fusion HF product will be hampered.

Our Market Is Highly Competitive, and We Have Limited Resources to Compete.

The test equipment industry is highly competitive in all areas of the
world. Many other domestic and foreign companies participate in the markets for
each of our products, and the industry is highly competitive. Our principal
competitors in the market for semiconductor test equipment are Agilent
Technologies (formerly a division of Hewlett-Packard), Credence Systems,
Schlumberger Limited, and Teradyne. Most of these major competitors have
substantially greater financial resources and more extensive engineering,
manufacturing, marketing, and customer support capabilities.

We expect our competitors to enhance their current products and to
introduce new products with comparable or better price and performance. The
introduction of competing products could hurt sales of our current and future
products. In addition, new competitors, including semiconductor manufacturers
themselves, may offer new testing technologies, which may in turn reduce the
value of our product lines. Increased competition could lead to intensified
price-based competition, which would hurt our business and results of
operations. Unless we are able to invest significant financial resources in
developing products and maintaining customer support centers worldwide, we may
not be able to compete.

Development of Our Products Requires Significant Lead-Time, and We May Fail
to Correctly Anticipate the Technical Needs of Our Customers.

Our customers make decisions regarding purchases of our test equipment
while their devices are still in development. Our test systems are used by our
customers to develop, test and manufacture their new devices. We therefore must
anticipate industry trends and develop products in advance of the
commercialization of our customers' devices, requiring us to make significant
capital investments to develop new test equipment for our customers well before
their devices are introduced. If our customers fail to introduce their devices
in a timely manner or the market does not accept their devices, we may not
recover our capital investment through sales in significant volume. In addition,
even if we are able to successfully develop enhancements or new generations of
our products, these enhancements or new generations of products may not generate
revenue in excess of the costs of development, and they may be quickly rendered
obsolete by changing customer preferences or the introduction of products
embodying new technologies or features by our competitors. Furthermore, if we
were to make announcements of product delays, or if our competitors were to make
announcements of new test systems, these announcements could cause our customers
to defer or forego purchases of our existing test systems, which would also hurt
our business.

Our Success Depends on Attracting and Retaining Key Personnel.

Our success will depend on our ability to attract and retain highly
qualified managers and technical personnel. Competition for such specialized
personnel is intense, and it may become more difficult for us to hire or retain
them. Our volatile business cycles only aggravate this problem. Our layoffs in
the last industry downturn could make it more difficult for us to hire or retain
qualified personnel.

Our Dependence on Subcontractors and Sole Source Suppliers May Prevent Us
From Delivering an Acceptable Product on a Timely Basis.

We rely on subcontractors to manufacture many of the components and
subassemblies for our products, and we rely on sole source suppliers for certain
components. Our reliance on subcontractors gives us less control over the
manufacturing process and exposes us to significant risks, especially inadequate
capacity, late delivery, substandard quality, and high costs.

In addition, the manufacture of certain of these components and
subassemblies is an extremely complex process. If a supplier became unable to
provide parts in the volumes needed or at an acceptable price, we would have to
identify and qualify acceptable replacements from alternative sources of supply,
or manufacture such

18
<PAGE>

components internally. The process of qualifying subcontractors and suppliers is
a lengthy process. We are dependent on two semiconductor device manufacturers,
Vitesse Semiconductor and Maxtech Components. Each is a sole source supplier of
components manufactured in accordance with our proprietary design and
specifications. We have no written supply agreements with these sole source
suppliers and purchase our custom components through individual purchase orders.
Vitesse Semiconductor is also a Fusion customer.

Economic Conditions in Asia May Hurt Our Sales.

Asia is an important region for our customers in the semiconductor
industry, and many of them have operations there. In recent years, Asian
economies have been highly volatile and recessionary, resulting in significant
fluctuations in local currencies and other instabilities. These instabilities
may continue or worsen, which could have a material adverse impact on our
financial position and results of operations, as approximately 48% of our net
sales in fiscal year 2000 and 45% of our net sales in fiscal 1999 were derived
from this region. In light of the recent economic downturn in Asia, we may not
be able to obtain additional orders and may experience cancellations of orders.
If conditions do not continue to improve, our future financial condition,
revenues, and operating results could be hurt.

We May Not Be Able to Protect Our Intellectual Property Rights.

Our success depends in part on our ability to obtain intellectual property
rights and licenses and to preserve other intellectual property rights covering
our products and development and testing tools. To that end, we have obtained
certain domestic patents and may continue to seek patents on our inventions when
appropriate. We have also obtained certain trademark registrations. To date, we
have not sought patent protection in any countries other than the United States,
which may impair our ability to protect our intellectual property in foreign
jurisdictions. The process of seeking intellectual property protection can be
time consuming and expensive. We cannot ensure that:

. patents will issue from currently pending or future applications;

. our existing patents or any new patents will be sufficient in scope or
strength to provide meaningful protection or any commercial advantage
to us;

. foreign intellectual property laws will protect our intellectual
property rights; or

. others will not independently develop similar products, duplicate our
products or design around our technology.

If we do not successfully enforce our intellectual property rights, our
competitive position could suffer, which could harm our operating results.

We also rely on trade secrets, proprietary know-how and confidentiality
provisions in agreements with employees and consultants to protect our
intellectual property. Other parties may not comply with the terms of their
agreements with us, and we may not be able to adequately enforce our rights
against these people.

Third Parties May Claim We Are Infringing Their Intellectual Property, and
We Could Suffer Significant Litigation Costs, Licensing Expenses or Be Prevented
from Selling Our Products.

Intellectual property rights are uncertain and involve complex legal and
factual questions. We may be unknowingly infringing on the intellectual property
rights of others and may be liable for that infringement, which could result in
significant liability for us. If we do infringe the intellectual property rights
of others, we could be forced to either seek a license to intellectual property
rights of others or alter our products so that they no longer infringe the
intellectual property rights of others. A license could be very expensive to
obtain or may not be available at all. Similarly, changing our products or
processes to avoid infringing the rights of others may be costly or impractical.

We are responsible for any patent litigation costs. If we were to become
involved in a dispute regarding intellectual property, whether ours or that of
another company, we may have to participate in legal proceedings. These types of
proceedings may be costly and time consuming for us, even if we eventually
prevail. If we do not prevail, we might be forced to pay significant damages,
obtain licenses, modify our products or processes, stop making products or stop
using processes.

19
<PAGE>

Our Stock Price Is Volatile.

In the twelve month period ended July 31, 2000, the closing sale price per
share of our stock ranged from a low of $10.38 to a high of $52.25. The price of
our common stock has been and likely will continue to be subject to wide
fluctuations in response to a number of events and factors, such as:

. quarterly variations in operating results;

. variances of our quarterly results of operations from securities
analyst estimates;

. changes in financial estimates and recommendations by securities
analysts;

. announcements of technological innovations, new products, or strategic
alliances; and

. news reports relating to trends in our markets.

In addition, the stock market in general, and the market prices for
semiconductor-related companies in particular, have experienced significant
price and volume fluctuations that often have been unrelated to the operating
performance of the companies affected by these fluctuations. These broad market
fluctuations may adversely affect the market price of our common stock,
regardless of our operating performance.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Financial instruments that potentially subject us to concentrations of
credit-risk consist principally of investments in cash equivalents, short-term
investments and trade receivables. We place our investments with high-quality
financial institutions, limit the amount of credit exposure to any one
institution and have established investment guidelines relative to
diversification and maturities designed to maintain safety and liquidity.

Our primary exposures to market risks include fluctuations in interest
rates on our short-term and long-term debt of approximately $26.1 million as of
July 31, 2000 and in foreign currency exchange rates. We do not use derivative
financial instruments. We are subject to interest rate risk on our short-term
borrowings under our credit facilities. Our short term bank debt bears interest
at a variable rate of prime plus 1%. Long term debt interest rates are fixed for
the term of the notes.

Foreign Exchange Risk

Operating in international markets involves exposure to movements in
currency exchange rates. Currency exchange rate movements typically also reflect
economic growth, inflation, interest rates, government actions and other
factors. We transact business in various foreign currencies and, accordingly, we
are subject to exposure from adverse movements in foreign currency exchange
rates. As currency exchange rates fluctuate, translation of the statements of
operations of our international businesses into U.S. dollars may affect year-
over-year comparability and could cause us to adjust our financing and operating
strategies. To date, the effect of changes in foreign currency exchange rates on
revenues and operating expenses have not been material. Substantially all of our
revenues are invoiced and collected in U.S. dollars. Our trade receivables
result primarily from sales to semiconductor manufacturers located in North
America, Japan, the Pacific Rim and Europe. In fiscal 2000, our revenues derived
from sales outside the United States constituted 62% of our total revenues.
Revenues invoiced and collected in currencies other than U.S. dollars comprises
9% of our fiscal 2000 revenues. Receivables are from major corporations or are
supported by letters of credit. We maintain reserves for potential credit losses
and such losses have been immaterial.

Based on a hypothetical ten percent adverse movement in interest rates and
foreign currency exchange rates, the potential losses in future earnings, fair
value of risk-sensitive financial instruments, and cash flows are immaterial,
although the actual effects may differ materially from the hypothetical
analysis.

We do not use derivative financial instruments for speculative trading
purposes, nor do we currently hedge our foreign currency exposure to offset the
effects of changes in foreign exchange rates. We intend to assess the need to
utilize financial instruments to hedge currency exposures on an ongoing basis.

20
<PAGE>
Interest Rate Risk

Historically, we have had no material interest rate risk associated with
debt used to finance our operations due to limited borrowings. Subsequent to
this offering, we intend to manage our interest rate exposure using a mix of
fixed and floating interest rate debt and, if appropriate, financial derivative
instruments.

On October 1, 1999, the Company renegotiated its $10.0 million domestic
credit facility with its current lender. The facility is secured by all assets
of the Company and bears interest at the bank's prime rate plus 0.5%. Borrowing
availability under the facility is based on a formula of eligible domestic
accounts receivable. In addition, the Company entered into an agreement with the
same bank that provides the Company with a $5.0 million line of credit that
bears interest at prime plus 0.5%. Borrowing availability under this facility is
based on a formula of eligible foreign accounts receivable and inventories and
is guaranteed by the Export-Import Bank of the United States. As of July 31,
2000, $9.7 million was outstanding under this facility and the interest rate was
10.0%. Based on this balance, an immediate change of 1% in the interest rate
would cause a change in interest expense of approximately $97,000 on an annual
basis. Our objective in maintaining these variable rate borrowings is the
flexibility obtained regarding early repayment without penalties and lower
overall cost as compared with fixed-rate borrowings.

21
<PAGE>

Item 8. Financial Statements and Supplementary Data

LTX CORPORATION

CONSOLIDATED BALANCE SHEET
(In thousands, except share data)

<TABLE>
<CAPTION>
July 31,
---------------------------
1999 2000
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents.......................................................... $ 19,936 $ 206,973
Accounts receivable, net of allowances of $2,027 and $3,648................... 37,043 74,940
Accounts receivable--other.................................................... 4,324 6,875
Inventories................................................................... 48,551 75,671
Deferred tax asset............................................................ - 38,795
Other current assets.......................................................... 5,795 10,222
--------- ---------
Total current assets..................................................... 115,649 413,476
Property and equipment, net........................................................ 31,942 38,125
Other assets....................................................................... 402 4,903
--------- ---------
Total assets............................................................. $ 147,993 $ 456,504
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable................................................................. $ 5,472 $ 9,725
Current portion of long-term debt............................................. 674 5,144
Accounts payable.............................................................. 37,439 43,042
Deferred revenues and customer advances....................................... 11,391 23,096
Accrued restructuring charges................................................. 2,263 2,263
Other accrued expenses........................................................ 10,495 22,319
--------- ---------
Total current liabilities................................................ 67,734 105,589
Long-term debt, less current portion............................................... 14,023 11,239
Convertible subordinated debentures................................................ 7,308 --
Stockholders' equity:
Common stock, $0.05 par value:
100,000,000 shares authorized; 38,732,540 and 50,131,240 shares issued;
36,185,040 and 47,583,740 shares outstanding............................... 1,936 2,518
Additional paid-in capital......................................................... 199,778 401,209
Accumulated deficit................................................................ (131,025) (52,290)
Less--Treasury stock (2,547,500 shares), at cost................................... (11,761) (11,761)
--------- ---------
Total stockholders' equity............................................... 58,928 339,676
--------- ---------
Total liabilities and stockholders' equity............................... $ 147,993 $ 456,504
========= =========
</TABLE>

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

22
<PAGE>

LTX CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

<TABLE>
<CAPTION>
Year ended July 31,
------------------------------------
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Net sales................................................................. $196,227 $157,326 $305,535
Cost of sales............................................................. 127,837 93,451 161,078
Inventory provisions...................................................... 40,718 -- --
-------- -------- --------
Gross profit.............................................................. 27,672 63,875 144,457
Engineering and product development expenses.............................. 47,757 34,828 50,582
Selling, general and administrative expenses.............................. 50,772 31,517 38,477
Restructuring charges..................................................... 6,272 -- --
-------- -------- --------
Income (loss) from operations............................................. (77,129) (2,470) 55,398
Other income (expense):
Interest expense..................................................... (1,898) (1,526) (2,065)
Interest income...................................................... 1,877 585 5,188
Gain on liquidation/sale of business units........................... -- 3,786 --
-------- -------- --------
Income (loss) before income taxes......................................... (77,150) 375 58,521
Provision (benefit) for income taxes...................................... 1,130 -- (20,214)
-------- -------- --------
Net income (loss)......................................................... $(78,280) $ 375 $ 78,735
======== ======== ========
Net income (loss) per share:
Basic................................................................ $ (2.15) $ 0.01 $ 1.84
======== ======== ========
Diluted.............................................................. $ (2.15) $ 0.01 $ 1.70
======== ======== ========
Weighted-average common shares used in computing net income (loss)
per share:
Basic................................................................... 36,401 35,696 42,897
======== ======== ========
Diluted................................................................. 36,401 36,958 46,201
======== ======== ========
</TABLE>

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

23
<PAGE>

LTX CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share data)

<TABLE>
<CAPTION>
For the Three Years Ended July 31, 2000

Additional Total
Common Stock Paid-In Accumulated Treasury Stockholders'
------------
Shares Amount Capital Deficit Stock Equity
------ ------ ------- ------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1997................ 36,677,168 1,881 195,798 (53,120) (4,361) 140,198
---------- ------ -------- --------- -------- --------
Exercise of stock options............... 108,515 6 301 -- -- 307
Issuance of shares under
employees' stock purchase
plan................................... 291,257 15 1,110 -- -- 1,125
Acquisition of treasury stock........... (1,600,000) -- -- -- (7,400) (7,400)
Net loss................................ -- -- -- (78,280) -- (78,280)
---------- ------ -------- --------- -------- --------
Balance at July 31, 1998................ 35,476,940 1,902 197,209 (131,400) (11,761) 55,950
Exercise of stock options............... 411,854 20 975 -- -- 995
Issuance of shares under
employees' stock purchase
plan................................... 296,246 14 969 -- -- 983
Amortization of deferred
Compensation........................... -- -- 625 -- -- 625
Net income.............................. -- -- -- 375 -- 375
---------- ------ -------- --------- -------- --------
Balance at July 31, 1999................ 36,185,040 1,936 199,778 (131,025) (11,761) 58,928
Common stock offerings.................. 9,173,270 459 179,091 -- -- 179,550
Exercise of stock options............... 1,701,796 85 5,268 -- -- 5,353
Tax benefit from the exercise of stock
options................................ -- -- 8,211 -- -- 8,211

Conversion of subordinated debentures to
common stock........................... 405,984 20 7,178 -- -- 7,198

Issuance of shares, under
employees' stock purchase
plan................................... 117,650 18 1,683 -- -- 1,701
Net income.............................. -- -- -- 78,735 -- 78,735
---------- ------ -------- --------- -------- --------
Balance at July 31, 2000................ 47,583,740 $2,518 $401,209 $ (52,290) $(11,761) $339,676
========== ====== ======== ========= ======== ========
</TABLE>

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

24
<PAGE>

LTX CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands except share data)

<TABLE>
<CAPTION>
Year ended July 31,
-----------------------------------------
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:

Net income (loss).............................................................. $(78,280) $ 375 $ 78,735
Add (deduct) non-cash items:
Depreciation and amortization.............................................. 12,510 11,291 10,613
Deferred tax benefit....................................................... -- -- (21,200)
Gain on liquidation/sale of business units................................. -- (3,786) --
Charge for excess inventory................................................ 40,718 -- --
Translation loss (gain).................................................... (47) 737 (239)
(Increase) decrease in:
Accounts receivable.......................................................... 2,842 (2,983) (36,876)
Inventories.................................................................. (21,529) (11,204) (37,079)
Other current assets......................................................... 383 (2,154) (4,418)
Other assets................................................................. 313 (51) (1,268)
Increase (decrease) in:
Accounts payable............................................................. 1,753 11,560 5,526
Accrued expenses and restructuring charges................................... 1,124 (8,322) 2,371
Deferred revenues and customer advances...................................... 9,889 (9,449) 5,446
-------- -------- --------
Net cash used in operating activities........................................ (30,324) (13,986) (1,611)
-------- -------- --------
Cash Flows from Financing Activities:
Proceeds from sale of business unit........................................... -- 2,000 --
Expenditures for property and equipment....................................... (8,795) (9,636) (17,850)
-------- -------- --------
Net cash used in investing activities......................................... (8,795) (7,636) (17,850)
-------- -------- --------
Cash Flows from Financing Activities:
Proceeds from stock plans:
Employees' stock purchase plan............................................... 1,124 983 1,701
Exercise of stock options.................................................... 308 995 5,353
Proceeds of equity offerings.................................................. -- -- 179,550
Advances of short-term notes payable.......................................... -- 33,204 50,010
Payment of short-term notes payable........................................... (520) (28,499) (46,093)
Proceeds from lease financing................................................. 1,451 10,615 12,744
Payments of long-term debt.................................................... (5,253) (1,174) (141)
-------- -------- --------
Net cash provided by (used in) financing activities........................... (2,890) 16,124 203,124
-------- -------- --------
Effect of exchange rate changes on cash........................................ (682) 325 152
-------- -------- --------
Net (decrease) increase in cash and equivalents............................... (42,691) (5,173) 187,037
Cash and equivalents at beginning of year...................................... 67,800 25,109 19,936
-------- -------- --------
Cash and equivalents at end of year............................................ $ 25,109 $ 19,936 $206,973
======== ======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid (received) during the year for:
Interest..................................................................... $ 2,062 $ 1,263 $ (2,398)
======== ======== ========
Income taxes................................................................. $ 716 $ 757 $ 1,536
======== ======== ========
Supplemental Disclosure of Non-Cash Financing Activities:
1,600,000 shares of LTX Common Stock received by LTX as consideration
for certain marketing, sales and manufacturing rights and held in
treasury..................................................................... $ 7,400 $ -- $ --
======== ======== ========
</TABLE>

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

25
<PAGE>

LTX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY

LTX Corporation ("LTX" or the "Company") designs, manufactures, and markets
automatic test equipment for the semiconductor industry that is used to test
system-on-a-chip, digital, analog, and mixed signal (a combination of digital
and analog) integrated circuits ("ICs"). The Company's newly introduced Fusion
product is a single test platform that can be configured to test system-on-a-
chip devices, digital VLSI devices including microprocessors and
microcontrollers, and analog/mixed signal devices. The Company also sells
hardware and software support and maintenance services for its test systems. The
semiconductors tested by the Company's systems are widely used in the computer,
communications, automotive and consumer electronics industries. The Company
markets its products worldwide to manufacturers of system-on-a-chip, digital,
analog and mixed signal ICs. The Company is headquartered, and has development
and manufacturing facilities, in Westwood, Massachusetts, a development facility
in San Jose, California, and worldwide sales and service facilities to support
its customer base.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of the Company
and its wholly owned domestic subsidiaries and wholly owned and majority-owned
foreign subsidiaries. All significant intercompany transactions and balances
have been eliminated in consolidation.

Preparation of Financial Statements

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of income and expenses during the reporting
periods. Operating results in the future could vary from the amounts derived
from management's estimates and assumptions.

Foreign Currency Translation

The financial statements of the Company's foreign subsidiaries are
translated in accordance with Statement of Financial Accounting Standards No.
52, Foreign Currency Translation. The Company's functional currency is the U.S.
dollar. Accordingly, the Company's foreign subsidiaries translate monetary
assets and liabilities at year-end exchange rates while non-monetary items are
translated at historical rates. Income and expense accounts are translated at
the average rates in effect during the year, except for sales, cost of sales and
depreciation, which are primarily translated at historical rates. Net realized
and unrealized gains and losses resulting from foreign currency remeasurement
and transaction gains and losses were a gain of $239,000, a loss of $737,000,
and a gain of $47,000 in fiscal 2000, 1999, and 1998 respectively. The gain of
$239,000 in fiscal 2000 was principally due to transaction gains relating to
fluctuations in the Japanese yen. Transaction gains and losses are included in
the consolidated results of operations.

Revenue Recognition

Revenue from product sales and related warranty costs are recognized at the
time of shipment. Service revenues are recognized over the applicable
contractual periods or as services are performed. Service revenue totaled $32.0
million, or 10.5% of net sales, in fiscal 2000, $28.9 million, or 18.4% of net
sales, in fiscal 1999, and $32.2 million, or 16.4% of net sales, in fiscal 1998.
Revenue from engineering contracts are recognized over the contract period on a
percentage of completion basis.

26
<PAGE>

LTX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

During April 1998 Ando Electric Co., Ltd. (Ando) paid the Company $17.4
million in cash and LTX Common Stock for the rights to manufacture, market and
develop LTX's Fusion product for Japanese customers. The Company recognized $7.4
million of revenue during fiscal 1998 for the sale of its marketing and
development rights. The Company deferred $10.0 million of revenue related to the
manufacturing rights and transfer of technology knowledge. The $10.0 million is
being recognized on a percentage of completion basis over the period in which
the Company completes the transfer of the manufacturing and technology rights.
The Company recognized $8.5 million of the deferred revenue in fiscal 1999 and
recognized the remaining $1.5 million in the first quarter of fiscal 2000. In
addition, the Company will receive future royalty payments which will be
recognized as revenue in the period earned.

The Securities and Exchange Commission ("SEC") released Staff Accounting
Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements", on
December 3, 1999. On June 26, 2000 the SEC staff announced that they are
delaying the required implementation date for SAB No. 101 with the issuance of
SAB No. 101B. The SAB provides additional guidance on the accounting for revenue
recognition, including both broad conceptual discussions as well as certain
industry-specific guidance. The new guidance concerning customer acceptance and
installation terms may have a significant impact on the timing of the Company's
revenue recognition. The Company expects additional SEC guidance on SAB 101
shortly and will evaluate possible changes to its acceptance and installation
practices. The SEC guidance will be adopted in the fourth quarter of fiscal year
2001 by recording the effect of any prior revenue transaction affected as a
"cumulative effect of change of a change in accounting principle" as of May 1,
2001.

Engineering and Product Development Costs

The Company expenses all engineering, research and development costs as
incurred. Expenses subject to capitalization in accordance with the Statement of
Financial Accounting Standards No. 86, Accounting for the Costs of Computer
Software To Be Sold, Leased or Otherwise Marketed, relating to certain software
development costs, were insignificant.

Income Taxes

Deferred income taxes are recorded for temporary differences between the
financial reporting and tax basis of assets and liabilities. Research and
development tax credits are recognized for financial reporting purposes to the
extent that they can be used to reduce the tax provision. The Company has not
provided for federal income taxes on the cumulative undistributed earnings of
its foreign subsidiaries, which were not significant, in the past since it
reinvested those earnings. In fiscal year 2000 a tax benefit of $20.2 million
for certain deferred tax assets was recorded. Realization of the net deferred
tax assets is dependent on our ability to generate future taxable income.
Management believes that it is more likely than not that the assets will be
realized, based on forecasted income. However, there can be no assurance that
the Company will meet our expectations of future income. The remaining valuation
allowance in fiscal 2000 relates to certain foreign losses and tax credits for
which the realization of future tax benefits is uncertain. No tax provision was
recorded in fiscal 1999.

Net Income (Loss) per Share

Basic net income (loss) per common share is computed by dividing net income
(loss) available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted income (loss) per common share
reflects the maximum dilution that would have resulted from the assumed exercise
and share repurchase related to dilutive stock options and is computed by
dividing net income (loss) by the weighted average number of common shares and
all dilutive securities outstanding.

27
<PAGE>

LTX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

A reconciliation between basic and diluted earnings per share is as
follows:

<TABLE>
<CAPTION>
Fiscal Year Ended July 31,
-------------------------------------
(in thousands, except per share data)
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Net income (loss)................................................... $(78,280) $ 375 $ 78,735
Basic EPS
Basic common shares.............................................. 36,401 35,696 42,897
Basic EPS........................................................ $ (2.15) $ .01 $ 1.84
Diluted EPS
Basic common shares.............................................. 36,401 35,696 42,897
Plus: impact of stock options and warrants....................... -- 1,262 3,304
-------- -------- --------
Diluted common shares............................................... 36,401 36,958 46,201
Diluted EPS...................................................... $ (2.15) $ .01 $ 1.70
</TABLE>

Options to purchase 112,500 shares of common stock in 2000, 60,000 shares
in 1999 and 3,966,793 in 1998 were outstanding during the years then ended, but
were not included in the year to date calculation of diluted net income per
share because either the options' exercise price was greater than the average
market price of the common shares during those periods, or the effect of
including the options would have been anti-dilutive in effect.

Financial Instruments

Cash and Short-Term Investments

The Company considers all highly liquid investments that are readily
convertible to cash and that have original maturity dates of three months or
less to be cash equivalents. Cash equivalents consist primarily of repurchase
agreements and commercial paper. In accordance with the Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities, investments in debt securities are classified as trading,
available-for-sale or held-to-maturity. Investments are classified as held-to-
maturity when the Company has the positive intent and ability to hold those
securities to maturity. Held-to-maturity securities are stated at amortized cost
with premiums and discounts amortized to interest income over the life of the
investment.

The Company has no short-term investments as of July 31, 2000 and July 31,
1999. The fair market value of cash equivalents and short-term investments is
substantially equal to the amortized cost, due to the short period of time to
maturity, which is less than one year.

Fair Value

Statement of Financial Accounting Standards No. 107, Disclosures About Fair
Value of Financial Instruments, requires that disclosure be made of estimates of
the fair value of financial instruments. The fair value of the Company's notes
payable and long-term liabilities is estimated based on quoted market prices for
the same or similar issues or on current rates offered to the Company for debt
of the same remaining maturities. At July 31, 2000 and 1999, the carrying value
of $9,725,000 and $5,472,000, respectively, for short-term bank debt and
$16,383,000 and $14,697,000, respectively, for long-term debt, including current
portion, approximates fair value. During fiscal year 2000 the Company called the
$7,308,000 of its 7/1//4% Convertible Subordinated Debentures due 2011 for
redemption. These debentures had a conversion price of $18.00 and all of these
outstanding debentures were converted into 405,984 shares of common stock of the
Company. For all other balance sheet financial instruments, the carrying amount
approximates fair value.

28
<PAGE>

LTX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Inventories

Inventories are stated at the lower of cost or market, cost being
determined on the first-in, first-out method, and include materials, labor and
manufacturing overhead. Inventories consist of the following:

As of July 31,
---------------------------
(in thousands)
1999 2000
-------- --------
Raw materials....................... $ 22,380 $ 31,085
Work-in-process..................... 18,107 30,194
Finished goods...................... 8,064 14,392
-------- --------
$ 48,551 $ 75,671
======== ========

Property and Equipment

Property and equipment is recorded at cost. The Company provides for
depreciation and amortization on the straight-line method. Charges are made to
operating expenses in amounts that are sufficient to amortize the cost of the
assets over their estimated useful lives. Property and equipment are summarized
as follows:

<TABLE>
<CAPTION>
As of July 31,
------------------------------ Depreciable
(in thousands) -----------
Life in Years
-------------
1999 2000
-------- --------
<S> <C> <C>
Machinery and equipment.............................. $ 97,670 $111,308 3-5
Office furniture and equipment....................... 11,395 8,388 3-7
Leasehold improvements............................... 7,638 9,760 10 or term of lease
-------- --------
116,703 129,456
Less: Accumulated depreciation and amortization...... (84,761) (91,331)
-------- --------
$ 31,942 $ 38,125
======== ========
</TABLE>

Reclassifications

Prior year financial statements have been reclassified to conform to the
1999 presentation. The reclassification had no impact on earnings for the prior
period.

Recent Accounting Pronouncements

29
<PAGE>

LTX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

statement could increase volatility in earnings and other comprehensive income
for companies with applicable contracts. The Company does not use derivative
financial instruments for speculative trading purposes, and does not currently
hedge foreign currency exposure to offset the effects of changes in foreign
exchange rates. Therefore, the Company does not expect this statement to have a
material impact on the financial statements.

3. NOTES PAYABLE

On October 1, 1999, the Company renegotiated its $10.0 million domestic
credit facility with the current lender. The facility is secured by all of our
assets and bears interest at the bank's prime rate plus 0.5%. Borrowing
availability under the facility is based on a formula of eligible domestic
accounts receivable. In addition, the Company entered into an agreement with the
same bank that provides the Company with a $5.0 million line of credit that
bears interest at prime plus 0.5%. Borrowing availability under this facility is
based on a formula of eligible foreign accounts receivable and inventories and
is guaranteed by the Export-Import Bank of the United States. Outstanding
borrowings at July 31, 2000 were $5.7 million under the domestic credit facility
and $4.0 million under the foreign accounts receivable line facility.

4. LONG-TERM DEBT

Long-term debt consist of the following:

<TABLE>
<CAPTION>
As of July 31,
(in thousands)
----------------------
1999 2000
-------- --------
<S> <C> <C>
Subordinated note payable.................................................... $ 12,000 $ 12,000
Lease purchase obligations at various interest rates, net of deferred
interest................................................................. 2,697 4,383
-------- --------
14,697 16,383
Less: current portion........................................................ (674) (5,144)
-------- --------
$14,023 $ 11,239
======= ========
</TABLE>

The subordinated note payable bears interest at 5.5% at July 31, 2000 and
at July 31, 1999, which is payable semi-annually and has semi-annual principal
payments of $2,000,000, which began in January 1997. The Company renegotiated
the terms of the note in fiscal 1999 and principal payments were deferred until
January 2001 at which time semi-annual installments in the amount of $2.0
million will begin until the note's maturity date of July 2003. The note is
unsecured and is subordinated in right of payment to senior indebtedness of the
Company. In connection with this note, the Company issued a warrant to purchase
up to 2,000,000 shares of common stock during the term of the note (see Note 7).
Lease purchase obligations of $4,383,000 and $2,697,000 at July 31, 2000 and
July 31, 1999 represent capital leases on equipment.

30
<PAGE>

LTX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

5. CONVERTIBLE SUBORDINATED DEBENTURES

On April 25, 1986, the Company issued and sold at par $35,000,000 of
71/4% Convertible Subordinated Debentures due 2011. As of March 24, 2000 the
Company called the remaining $7,308,000 of the original issue of $35,000,000
Convertible Subordinated Debentures. These debentures had a conversion price of
$18.00 and all of these outstanding debentures were converted into 405,984
shares of common stock of the Company. Interest was payable semi-annually on
April 15 and October 15. Since the debentures were called in March, 2000 only
one interest payment was paid this fiscal year.

6. INCOME TAXES

The components of the provision (benefit) for income taxes consist of the
following:

<TABLE>
<CAPTION>
Year ended July 31,
(in thousands)
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Currently payable:
Federal..................................................... $ (818) -- --
State....................................................... (526) -- --
Foreign..................................................... 274 -- 986
-------- -------- --------
Total current.................................................. $ (1,070) -- $ 986
-------- -------- --------
Deferred:
Federal..................................................... $ 2,200 -- $(18,853)
State....................................................... -- -- (2,347)
Foreign..................................................... -- -- --
-------- -------- --------
Total deferred................................................. $ 2,200 -- $(21,200)
-------- -------- --------
Total tax provision (benefit).................................. $ 1,130 -- ($ 20,214)
======== ======== ========
</TABLE>

Reconciliations of the U.S. federal statutory rate to the Company's
effective tax rate are as follows:

<TABLE>
<CAPTION>
Year ended July 31,
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
U.S. Federal statutory rate.................................... (35.0)% 35.0% 35.0%
State income taxes, net of Federal income tax effect........... (0.7) 6.0 5.0
Foreign income taxes........................................... 0.4 1.3 0.0
Change in valuation allowance.................................. 31.5 2,490.0 (65.4)
Net foreign losses not benefited/(gains) not provided.......... 4.5 (2,532.3) 0.0
Tax credits.................................................... -- -- (5.1)
Other, net..................................................... 0.8 -- (4.0)
Effective tax rate............................................. 1.5% 0.0% (34.5)%
</TABLE>

The temporary differences and carryforwards that created the deferred tax
assets and liabilities as of July 31, 2000, and 1999 are as follows:

<TABLE>
<CAPTION>
As of July 31,
(in thousands)
1999 2000
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward............................. $ 31,276 $ 8,814
Tax credits................................................. 2,400 12,248
Disqualifying dispositions on stock options................. -- 8,211
Inventory valuation reserves................................ 5,654 3,286
Restructuring charges....................................... 774 884
Spares amortization......................................... 2,446 1,598
Unearned service revenues................................... 2,364 8,940
Other....................................................... 2,495 3,917
Total deferred tax assets...................................... 47,409 47,898
</TABLE>

31
<PAGE>

LTX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<TABLE>
<S> <C> <C>
Valuation allowance......................................... (47,335) (9,103)
-------- --------
Net deferred tax assets........................................ 74 38,795
Deferred tax liabilities:
Depreciation................................................ (74) --
Total deferred tax liabilities........................... (74) --
-------- --------
Net deferred taxes recorded.................................... $ -- $ 38,795
======== ========
</TABLE>

The remaining valuation allowance in fiscal 2000 relates to certain foreign
losses and tax credits for which the reliability of future test benefits is
uncertain. The valuation allowance in fiscal 1999 related to the uncertainty
surrounding the realization of the deferred tax assets.

7. STOCKHOLDERS' EQUITY

Treasury Stock

In April 1998, the Company entered into an agreement with the subordinated
note holder to market and develop the Company's Fusion product line. As part of
this agreement, the subordinated note holder delivered to the Company 1,600,000
shares of the Company's common stock. The Company recorded this stock in
treasury at its then fair market value of $7,400,000.

Warrants

In July 1994, in connection with the issuance of a subordinated note, the
Company issued a warrant to purchase up to 2,000,000 shares of common stock at
the then fair market value of $2.31 per share during the term of the note (see
Note 4). In June 1996, 1,000,000 shares of common stock were exercised under
this warrant. In July 1997, the remaining 1,000,000 shares under this warrant
were exercised.

Rights Agreement

The Board of Directors of the Company adopted a Rights Agreement, dated as
of April 30, 1999, between the Company and Bank Boston, N.A., as rights agent,
to replace its 1989 rights plan. In connection therewith, the Board distributed
one common share purchase right for each share of common stock then or
thereafter outstanding. The rights will become exercisable only if a person or
group acquires 15% or more of the Company's common stock or announces a tender
offer that would result in ownership of 15% or more of the common stock.
Initially, each right will entitle a stockholder to buy one share of common
stock of the Company at a purchase price of $45.00 per share, subject to
significant adjustment depending on the occurrence thereafter of certain events.
Before any person or group has acquired 15% or more of the common stock of the
Company, the rights are redeemable by the Board of Directors at $0.001 per
right. The rights expire on April 30, 2009 unless redeemed by the Company prior
to that date.

8. EMPLOYEE BENEFIT PLANS

Stock Option Plans

The Company has three stock option plans: the 1999 Stock Plan (1999 Plan),
the 1990 Stock Option Plan (1990 Plan) and the 1995 LTX (Europe) Ltd. Approved
Stock Option Plan (U.K. Plan).

The 1999 Plan, 1990 Plan and the U.K. Plan provide for the granting of
options to employees to purchase shares of common stock at not less than 100% of
the fair market value of the date of grant. The 1999 Plan and the 1990 Plan also
provide for the granting of options to an employee, director or consultant of
the Company or its subsidiaries to purchase shares of common stock at prices to
be determined by the Board of Directors. Compensation expense relating to shares
granted under this plan at less than fair market value has been charged to
operations over the applicable vesting period. Options under the plans are
exercisable over vesting periods, which

32
<PAGE>

LTX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

are typically three years beginning one year from the date of grant. In December
1997, the stockholders of the Company approved an increase to the number of
shares of common stock that may be granted under the 1990 Plan, through October
2000, from 3,700,000 shares to 5,225,000 shares. At July 31, 2000, 1,292,000
shares were subject to future grant under the 1999 Plan, 8,261 shares were
subject to future grant under the 1990 Plan and 37,826 shares were subject to
future grant under the U.K. Plan.

On December 14, 1998, the Company repriced stock options representing
1,580,510 shares with an average exercise price of $4.57 to $2.81, the market
price at December 14. A total of 1,051,857 options of common stock granted to
the directors and executive officers of the Company were not repriced.

Compensation Expense

The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation (SFAS
123)," which requires employee stock-based compensation to be either recorded or
disclosed at its fair value. As permitted by SFAS 123, the Company has elected
to continue to account for employee stock-based compensation under Accounting
Principles Board Opinion No. 25. Had compensation costs for awards in fiscal
2000, 1999 and 1998 the Company's stock-based compensation plans been determined
based on the fair value at the grant dates consistent with the method set forth
under SFAS 123, the effect on the Company's net income (loss) and net income
(loss) per share would have been as follows:

<TABLE>
<CAPTION>
Year ended July 31,
-------------------------------------------
(in thousands except per share)
-------------------------------------------
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Net income (loss):
As reported......................... $(78,280) $ 375 $ 78,735
Pro forma........................... (81,154) (8,735) 73,915
Net income (loss) per share:
Basic
As reported........................ (2.15) .01 1.84
Pro forma.......................... (2.23) (.25) 1.72
Diluted
As reported........................ (2.15) .01 1.70
Pro forma.......................... (2.23) (.24) 1.60
</TABLE>

Since the method prescribed by SFAS 123 has not been applied to options
granted prior to August 1, 1995, the resulting pro forma compensation expense
may not be representative of the amount to be expected in future years. Pro
forma compensation expense for options granted is reflected over the vesting
period; therefore, future pro forma compensation expense may be greater as
additional options are granted.

The fair value of each option grant is estimated on the grant date using
the Black-Scholes option-pricing model with the following weighted average
assumptions.

<TABLE>
<CAPTION>
Year ended July 31,
--------------------------------------------
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
Volatility............................ 79% 80% 86%
Dividend yield........................ 0% 0% 0%
Risk-free interest rate............... 4.44% 6.18% 6.15%
Expected life of options.............. 7.95 years 7.36 years 4.82 years
</TABLE>

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option-pricing models require the input
of highly subjective assumptions. Because the Company's employee stock options
have characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.

33
<PAGE>

LTX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Stock Option Activity

<TABLE>
<CAPTION>
1998 1999 2000
------------ ------------ -------------
Weighted Weighted Weighted
--------- --------- ---------
Average Average Average
--------- --------- ---------
Number of Exercise Number of Exercise Number of Exercise
------------ --------- ------------ --------- ------------- ---------
Shares Price Shares Price Shares Price
------------ --------- ------------ --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning of year.......... 3,260,283 $ 3.94 4,186,793 $ 4.26 5,295,555 $ 4.74
Granted/repriced................................ 1,178,250 4.57 3,683,967 4.88 300,900 24.58
Exercised....................................... (108,515) 2.83 (411,854) 2.49 (1,761,680) 3.16
Forfeited/repriced.............................. (143,225) 4.96 (2,163,351) 4.51 (9,695) 4.93
Options outstanding, end of year................ 4,186,793 4.26 5,295,555 4.74 3,825,080 7.01
Options exercisable............................. 1,612,478 3.46 1,492,123 3.38 1,455,023 4.90
Options available for grant..................... 1,105,626 720,262 1,338,087
Weighted average fair value of options
granted during year............................ $ 3.55 $ 3.81 $ 17.33
</TABLE>

As of July 31, 2000, the status of the Company's outstanding and exercisable
options is as follows:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------- --------------------------------------
Weighted
------------------
Average Weighted Weighted
------------------ ------------------- ------------------
Range of Number Remaining Average Number Average
-------------------- ------------------ ------------------ ------------------- ------------------ ------------------
Exercise Price ($) Outstanding Contractual Life Exercise Price ($) Exercisable Exercise Price ($)
-------------------- ------------------ ------------------ ------------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
0.00- 4.63 1,637,504 7.4 3.10 746,644 2.88
4.64- 9.25 1,829,076 8.0 7.48 648,379 6.62
9.26- 13.88 122,500 7.2 12.20 60,000 11.44
13.89- 18.50 123,500 9.4 18.07 -- --
18.51- 37.00 44,500 9.8 33.63 -- --
37.01- 41.63 37,500 9.6 37.75 -- --
41.64- 46.25 30,500 9.6 46.25 -- --
--------- --- ----- --------- -----
3,825,080 7.8 7.01 1,455,023 4.90
========= === ===== ========= =====
</TABLE>

Employees' Stock Purchase Plan

In December 1993, the stockholders of the Company approved the adoption of
the 1993 Employees' Stock Purchase Plan, which replaced the 1983 Employees'
Stock Purchase Plan, which expired in December 1993. Under this plan, eligible
employees may contribute up to 15% of their annual compensation for the purchase
of common stock of the Company up to $25,000 of fair market value of the stock
per calendar year. The plan limited the number of shares which can be issued for
any semi-annual plan period to 150,000 shares. In 1999, the shareholders of the
Company increased the number of shares which can be issued over the term of the
plan to 3,000,000 shares. At July 31, 2000, 1,171,322 shares were available for
future issuance under this plan.

Other Compensation Plans

In fiscal 1996, the Company established a Profit Sharing Bonus Plan, wherein
a percentage of pretax profits are distributed semi-annually to all employees.
The Company based on this Profit Sharing Bonus Plan distributed to all eligible
employees approximately $3,227,000, $0, and $0, for fiscal years 2000, 1999, and
1998, respectively.

In addition, the Company has a 401(k) Growth and Investment Program. Eligible
employees may make voluntary contributions to this plan through a salary
reduction contract up to the statutory limit or 15% of their annual
compensation. In fiscal 1996, the Company began matching employees' voluntary
contributions to the plan, up to certain prescribed limits. These Company
contributions vest at a rate of 20% per year. The Company resumed matching
contributions in October of fiscal 2000 after ceasing the matching of
contributions in October of fiscal

34
<PAGE>

LTX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

1999. The total charge to expense under this plan was approximately $1,780,000,
$152,000 and $1,056,000 for fiscal 2000, 1999, and 1998, respectively.

9. INDUSTRY AND GEOGRAPHIC SEGMENT INFORMATION

The Company operates predominantly in one industry segment: the design,
manufacture and marketing of automated test equipment for the semiconductor
industry that is used to test system-on-a-chip, digital, analog and mixed signal
(a combination of digital and analog) integrated circuits ("ICs").

In fiscal year 2000, sales to three customers accounted for 19%, 13% and 11%
of net sales, respectively. No single customer accounted for greater than 10%
of total sales revenue in fiscal 1999 and fiscal 1998. Sales to the top ten
customers were 74%, 60%, and 55%, of net sales in fiscal 2000, 1999, and 1998,
respectively.

The Company's operations by geographic segment for the three years ended July
31, 2000 are summarized as follows:

<TABLE>
<CAPTION>
Year ended July 31,
-------------------
(in thousands)
--------------
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Sales to unaffiliated customers:
United States...................................................... $ 77,905 $ 61,603 $116,375
Taiwan............................................................. 37,070 27,799 55,620
Japan.............................................................. 26,655 11,645 8,030
Singapore.......................................................... 20,270 18,156 67,545
All other countries................................................ 34,327 38,123 57,965
-------- -------- --------
Total sales to unaffiliated customers................................ 196,227 157,326 305,535
-------- -------- --------
Long-lived assets:
United States...................................................... 24,342 24,965 30,847
Taiwan............................................................. 1,300 1,175 915
Japan.............................................................. 2,116 59 53
Singapore.......................................................... 4,702 3,695 3,290
All other countries................................................ 2,967 2,048 3,020
-------- -------- --------
Total long-lived assets.............................................. $ 35,427 $ 31,942 $ 38,125
======== ======== ========
</TABLE>

Transfer prices on products sold to foreign subsidiaries are intended to
produce profit margins that correspond to the subsidiary's sale and support
efforts. Sales to customers in North America are 99% within the United States.

35
<PAGE>

LTX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

10. COMMITMENTS

The Company has operating lease commitments for certain facilities and
equipment and capital lease commitments for certain equipment. Minimum lease
payments net of sublease proceeds under noncancelable leases at July 31, 2000,
are as follows:

<TABLE>
<CAPTION>
(in thousands)
Total Total
Year ended July 31, Real Estate Equipment Operating Capital
------------------- ----------- ----------- Leases Leases
-------------- --------------
<S> <C> <C> <C> <C>
2001............................... $ 3,955 $ 6,483 $10,438 $1,541
2002............................... 4,625 7,265 11,890 1,541
2003............................... 2,171 2,191 4,362 1,466
2004............................... 1,980 131 2,111 644
2005............................... 188 48 236 --
2006 and thereafter..................... 3,361 -- 3,361 --
------- ------- ------- ------
Total minimum lease payments............ $16,280 $16,118 $32,398 $5,192
Less: amount representing interest...... $ 809
------
Present value of total capital leases... $4,383
</TABLE>

Total rental expense for fiscal 2000, 1999, and 1998 was $8,879,000,
$6,832,000, and $6,713,000, respectively.

11. RESTRUCTURING AND INVENTORY CHARGES

In fiscal 1998, the Asian financial crisis (which began in January 1998)
created a major impact on the global economy, precipitating a further drop in
demand than the Company and the industry had been previously experiencing. As a
result, the Company's sales dropped to $33 million in the fourth quarter of
fiscal 1998, compared to $54 million in the third quarter of fiscal 1998.
Simultaneously, the Company's development and introduction of the Fusion product
line was occurring. The sudden drop in demand for the Company's products,
combined with the introduction of the Fusion product line, resulted in
significant excess and obsolete inventory. Management determined to restructure
the Company's operations during the fourth quarter of fiscal 1998, in line with
its strategy of focusing on the Fusion product line. As a result of the combined
rapid and sudden decline in global demand for Semiconductor Test Equipment and
the transition to the Fusion product line, the Company recorded a $40.7 million
inventory charge in the fourth quarter of fiscal 1998. Inventory purchases in
the second and third quarters of fiscal 1998 in anticipation of a higher level
of demand for its existing products consisted of a large amount of custom and
semi-custom inventory that would become obsolete or difficult to sell due to the
declining business conditions within the industry in the third and fourth
quarter of that same fiscal year.

The $40.7 million inventory charge taken in fiscal 1998 consisted of a
write-down of the Delta Series product line for $25.3 million, the Synchro and
77/90 product lines for $11.8 million, and $3.6 million for service parts deemed
excess or obsolete.

The $6.3 million restructuring charge recorded in the fourth quarter of
fiscal 1998 included: $3.2 million in employee separation costs, $2.9 million in
asset impairment write-offs and $.2 million in lease terminations and other
contractual obligations. The workforce reduction impacted 259 employees, of
which 211 were in Production & Engineering, 33 in Sales & Marketing and 15 in
Administration. Asset impairment write-offs of $2.9 million related to the write
off of capitalized Master and Delta Series testers and test equipment at its
facilities in San Jose and Korea. The Company no longer manufactures the Master
series line and this equipment was written down to zero value and depreciation
expense permanently ceased. The assets were disposed of or sold in fiscal 1999.
The company received $.3 million in cash and short term notes for the sale of
these assets. There is no remaining accrued liability balance to be paid that
relates to the fiscal 1998 restructuring plan as of July 31, 2000.

36
<PAGE>

LTX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Fiscal 1997 Restructuring

The Company's charge for excess inventory of $9.3 million in the first
quarter of fiscal 1997 was a result of management's new strategy for its Digital
product line. During the first quarter of fiscal 1997, the Company restructured
its Digital Products Division management team and initiated a new marketing and
product development strategy that produced an anticipated reduction in the
realizable value of existing inventories relating to non-strategic products.

The bulk of this charge for excess inventory of $9.3 million related to
product obsolescence in the Company's Delta 50 and Delta 100 Test Systems, which
were replaced with the Delta STE line.

In fiscal 1997, the Company redirected its product strategy to focus
primarily on functionally complex devices known as "systems-on-a chip". As a
result, the Company restructured its Digital Products Division and began
emphasizing sales of its Delta/STE mixed technology test systems. In fiscal
1997, the Company recorded a restructuring charge of $6.8 million consisting of
$4.0 million for cancelled non-strategic development projects and technology
upgrades to the customers, $1.7 million in severance costs relating to workforce
reductions, $.6 million of asset impairments and $.3 million in equipment lease
cancellations. The workforce reduction totaled 180 employees, of which 166 were
in production and engineering, 10 in administration and 4 in sales and
marketing.

The remaining accrued balance as of July 31, 2000 of $1.7 million relates to
the estimated cost to replace certain board modules. In fiscal 2000, no cash
expenditures were made on this project.

Restructuring Cost
($000's)

Charges: (See Note)

<TABLE>
<CAPTION>
From the From the From the
Pre-Fiscal 1996 Plan Fiscal 1997 Plan Fiscal 1998 Plan
-------------------- ---------------- ----------------
<S> <C> <C> <C>
Employee separation cost......................... $ 1,900 $1,750 $3,145
Cancelled engineering projects................... -- 1,250 --
New system board modules......................... -- 2,850 --
Fixed asset write-downs.......................... -- 600 2,908
Termination of leases and other contractual
obligations.................................... 12,500 300 219
------- ------ ------
Total........................................ $14,400 $6,750 $6,272
======= ====== ======
Incurred through July 31, 2000................... 13,887 5,000 6,272
Ending accrual at July 31, 2000.................. 513 1,750 --
Actual cash payments in fiscal 2000.............. -- -- --
</TABLE>

Note: Charges represent cash items except for the fixed asset write-downs which
is a non-cash item.

Headcount Reduction

<TABLE>
<CAPTION>
From the From the
-------- --------
Fiscal 1997 Plan Fiscal 1998 Plan
---------------- ----------------
<S> <C> <C>
Sales and marketing...................................................... 4 33
Administration........................................................... 10 15
Production and engineering............................................... 166 211
--- ---
Total reduction...................................................... 180 259
</TABLE>

37
<PAGE>

LTX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

12. QUARTERLY RESULTS OF OPERATIONS (unaudited)

QUARTERLY RESULTS OF OPERATIONS
(unaudited)
(In thousands, except per share data)

<TABLE>
<CAPTION>
Year Ended July 31, 2000
-------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter(1)
------- ------- ------- ----------
<S> <C> <C> <C> <C>
Net sales.......................................... $60,005 $70,210 $82,117 $93,203
Gross profit....................................... 26,936 33,228 39,398 44,895
Net income......................................... 6,874 12,036 17,529 42,296
Net income per share:
Basic.......................................... .19 .28 .39 .89
Diluted........................................ .17 .26 .37 .84
</TABLE>

<TABLE>
<CAPTION>
Year Ended July 31, 1999
----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales.......................................... $27,018 $33,691 $43,210 $53,407
Gross profit....................................... 9,667 12,751 18,198 23,259
Net income (loss).................................. (6,892) 1,139 1,794 4,334
Net income (loss) per share:
Basic.......................................... (.19) .03 .05 .12
Diluted........................................ (.19) .03 .05 .11
</TABLE>

________
(1) The Company recorded a benefit of $20.3 million for certain deferred tax
assets in its fourth quarter results of operations for fiscal 2000.

38
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of LTX Corporation:

We have audited the accompanying consolidated balance sheets of LTX
Corporation and subsidiaries as of July 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended July 31, 2000. These financial
statements and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of LTX Corporation
and subsidiaries as of July 31, 2000 and 1999 and the results of their
operations and their cash flows for each of the three years in the period ended
July 31, 2000, in conformity with accounting principles generally accepted in
the United States.

Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 14 (a) (2) is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects, the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

Arthur Andersen LLP

Boston, Massachusetts
August 25, 2000

39
<PAGE>

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation
of our report, included in this Form 10-K, into LTX Corporation's previously
filed registration statements on Form S-8 (File No. 2-77475, File No. 2-90698,
File No. 33-7018, File No. 33-14179, File No. 33-32140, File No. 33-32141, File
No. 33-33614, File No. 33-38675, File No. 33-51683, File No. 33-51685, File No.
33-57457, File No. 33-57459, File No. 33-65245, File No. 33-65247, File No. 333-
48363, File No. 333-4834, File No. 333-71455 and File No. 333-30972).

Arthur Andersen LLP

Boston, Massachusetts
September 29, 2000

40
<PAGE>

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

Not applicable.

PART III

Items 10-13. Directors and Executive Officers of the Registrant, Executive
Compensation, Security Ownership of Certain Beneficial Owners and
Management and Certain Relationships and Related Transactions

Information required under these Items is included in the Proxy Statement
for the Annual Meeting of Stockholders to be held on December 5, 2000, under the
headings "Certain Stockholders", "Election of Directors," and "Compensation of
Executives," which information is incorporated herein by reference. Such Proxy
Statement shall be filed with the Securities and Exchange Commission not later
than 120 days after the end of the Company's fiscal year, July 31, 2000.

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(A) 1. Financial Statements

The following consolidated financial statements of the Company included in
the Company's Annual Report to Stockholders for the fiscal year ended July 31,
2000, are included in Item 8, herein.

Report of Independent Public Accountants

Consolidated Balance Sheet--July 31, 2000 and 1999

Consolidated Statement of Operations for the years ended July 31, 2000,
1999 and 1998

Consolidated Statement of Stockholders' Equity for the years ended July 31,
2000, 1999 and 1998

Consolidated Statement of Cash Flows for the years ended July 31, 2000,
1999 and 1998

Notes to the Consolidated Financial Statements

41
<PAGE>

(A) 2. Schedules

SCHEDULE II

LTX CORPORATION

VALUATION AND QUALIFYING ACCOUNTS
For Years Ended July 31, 2000, 1999 and 1998
(in thousands)

<TABLE>
<CAPTION>
Balance at Balance
beginning Charged to Amounts at end
Description of period expense Written off of period
----------- --------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Reserve for sales returns, allowances and doubtful
accounts
July 31, 2000..................................... $2,027 $2,490 $ (869) $3,648
July 31, 1999..................................... $2,200 $ 856 $(1,029) $2,027
July 31, 1998..................................... $1,100 $2,230 $(1,130) $2,200
Accrued restructuring charges
July 31, 2000..................................... $2,263 $ 0 $ 0 $2,263
July 31, 1999..................................... $5,786 $ 0 $(3,523) $2,263
July 31, 1998..................................... $2,491 $6,272 $(2,977) $5,786
</TABLE>

42
<PAGE>

(A) 3. Exhibits

Certain of the exhibits listed hereunder have previously been filed with
the Commission as exhibits to the Company's Registration Statement No. 2-75470
on Form S-1 filed December 23, 1981, as amended (the 1981 Registration
Statement); to the Company's Registration Statement No. 2-94218 on Form S-1
filed November 8, 1984, as amended (the 1984 Registration Statement); to the
Company's Registration Statement No. 33-35401 on Form S-4 filed June 26, 1990,
as amended (the 1990 Registration Statement No. 1); to the Company's
Registration Statement No. 33-39610 on Form S-3 filed June 10, 1991, as amended
(the 1991 Registration Statement No. 1); to the Company's Amendment No. 1 to
Registration Statement No. 33-62125 on Form S-3 filed September 11, 1995 (the
1995 Registration Statement No. 1); to the Company's Form 8A/A filed September
30, 1993 amending the Company's Registration Statement on Form 8-A filed
November 24, 1982 (the 1993 8A/A); to the Company's Current Report on Form 8-K,
filed May 11, 1989; the Company's Annual Reports on Form 10-K for one of the
years ended July 31, 1998, 1997, 1996, 1995, 1994, 1993, 1992, 1991, 1990, 1989,
1988, 1987, 1986, 1985, 1984 and 1983; or the Company's Quarterly Reports on 10-
Q for one of the quarters ended October 31, 1997, January 31, 1998, April 30,
1998, January 31, 1999, October 31, 1999 and January 31, 2000 and are hereby
incorporated by reference. The location of each document so incorporated by
reference is noted parenthetically.

(A) Listing of Exhibits

<TABLE>
<S> <C>
(3) (A) --Articles of Organization, as amended. (Exhibit 3.1 to the 1995 Registration Statement No. 1)

(3) (B) --By-laws, as amended. (Exhibit 3(B) to the Quarterly Report on Form 10-Q for the quarter ended
October 31, 1997)

(4) (C) --Rights Agreement. (Exhibit I of the Registrant's Current Report on Form 8-K, filed May 3, 1999)

(10) (B)+ --1990 Stock Option Plan. (Exhibit 10(B) to the Quarterly Report on Form 10-Q for the quarter
ended January 31, 1998)

(10) (D)+ --1993 Employees' Stock Purchase Plan. (Exhibit 10(D) to the Quarterly Report on Form 10-Q for the
quarter ended January 31, 1999)

(10) (E)+ --1983 Non-Qualified Stock Option Plan. (Exhibit 10(E) to the 1983 Annual Report on Form 10-K)

(10) (F) --LTX Corporation Growth and Investment Program, as restated. (Exhibit 10(F) to the 1993 Annual
Report on Form 10-K)

(10) (I) --Lease dated as of March 8, 1984 relating to land and building at McCandless Park, San Jose,
California. (Exhibit 10(I) to the 1984 Registration statement)

(10) (J) --Lease dated as of July 16, 1984 relating to Company's administration facility on Rosemont
Avenue, Westwood, Massachusetts. (Exhibit 10(J) to the 1984 Registration Statement)

(10) (K) --Lease dated as of February 27, 1985 relating to land and building at McCandless Park, San Jose,
California. (Exhibit 10(K) to the 1985 Annual Report on Form 10-K)

(10) (M) --Lease dated as of November 26, 1980 relating to Company's facility at 5 Rosemont Avenue, Westwood, Massachusetts, and
Amendment dated as of April 29, 1982, and Third Amendment and Restatement of Lease dated April 29, 1982. (Exhibit
10(M) to the 1993 Annual Report on Form 10-K)

(10) (M)(i) --Fourth Amendment to Lease dated as of September 1, 1999 (Exhibit 10(M)(i) to the Quarterly
Report on Form 10-Q for the quarter ended January 31, 2000)

(10) (R)* --License and Development Agreement dated as of January 28, 1993 between LTX Corporation and Ando
Electric Co., Ltd. (Exhibit 10(R) to the 1993 Annual Report on Form 10-K)

(10) (S)* --Distribution and Supply Agreement dated as of January 28, 1993 between LTX Corporation and Ando
Electric Co., Ltd. (Exhibit 10(S) to the 1993 Annual Report on Form 10-K)

(10) (T)* --Letter Agreement dated as of January 29, 1993 between LTX Corporation and Ando Electric Co.,
Ltd. (Exhibit 10(T) to the 1993 Annual Report on Form 10-K)

(10) (U) --Loan and Security Agreement and Export-Import Loan and Security Agreement, both dated as of
October 1, 1999 between LTX Corporation and Silicon Valley Bank (Exhibit 10(U) to the Quarterly
</TABLE>

43
<PAGE>

<TABLE>
<S> <C>
Report on Form 10-Q for the Quarter ended October 31, 1999)

(10) (V) --Loan Agreement dated as of July 20, 1994 between LTX Corporation and Ando Electric Co., Ltd.
(Exhibit 10(V) to the 1994 Annual Report on Form 10-K)

(10) (W)* --Amendment No. 1 to License and Development Agreement dated as of July 20, 1994 between LTX
Corporation and Ando Electric Co., Ltd. (Exhibit 10(W) to the 1994 Annual Report on Form 10-K)

(10) (X) --Employment Agreement dated as of January 1, 1997 between LTX Corporation and Kenneth E. Daub.
(Exhibit 10(X) to the 1997 Annual Report on Form 10-K)

(10) (Y) --Form of Change of Control Agreement entered into with certain executive officers as of March 2,
1998 (Exhibit 10 (Y) to the Quarterly Report on Form 10-Q for the quarter ended January 31, 1998)

(10) (AA)* --Fusion Agreement dated as of April 24, 1998 between LTX Corporation and Ando Electric Co., Ltd.
(Exhibit 10 (AA) to the Quarterly Report on Form 10-Q for the quarter ended April 30, 1998)

(10) (BB) --Second Amendment to Loan Agreement between LTX Corporation and Ando Electric Co., Ltd. (Exhibit
10(BB) to the Quarterly Report on Form 10-Q for the quarter ended January 31, 1999)

10 (CC) --1999 Stock Plan (Exhibit 10 (CC) to the Quarterly Report on Form 10-Q for the quarter ended
October 31, 1999)

(22) --Subsidiaries of Registrant

(27) --Financial Data Schedules (Exhibit 27 hereto)
</TABLE>

____________
+ This exhibit is a compensatory plan or arrangement in which executive
officers or directors of the Company participate.
* Confidential treatment requested as to certain portions thereof. The
confidential portion has been omitted and filed separately with the
Commission.

Pursuant to Item 601 of Regulation S-K, certain instruments with respect to
long-term debt not exceeding 10% of the total assets of the Company and its
subsidiaries on a consolidated basis are not filed herewith. The Company hereby
agrees to furnish to the Commission a copy of each such instrument upon request.

Item 14(b). Reports on Form 8-K

The Company did not file any reports on Form 8-K during the fourth quarter
of fiscal 2000.

44
<PAGE>

Item 14(c). Exhibits

Exhibit 22--Subsidiaries of Registrant

<TABLE>
<CAPTION>
Company
<S> <C> <C>
LTX (Europe) Limited............................................................. United Kingdom 100%
LTX International Inc., Domestic International Sales Corporation (DISC).......... Delaware 100%
LTX (Deutschland) GmBH........................................................... West Germany 100%
LTX France S.A................................................................... France 100%
LTX Test Systems Corporation..................................................... Delaware 100%
LTX (Italia) S.r................................................................. Italy 100%
LTX (Foreign Sales Corporation) B.V.............................................. The Netherlands 100%
LTX Asia International, Inc...................................................... Delaware 100%
LTX Israel Limited............................................................... Israel 100%
LTX (Malaysia) SDN.BHD........................................................... Malaysia 100%
</TABLE>

The subsidiaries listed are all included in the consolidated financial
statements of the Company.

45
<PAGE>

SIGNATURES

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

LTX Corporation

By /s/ Roger W. Blethen
-------------------------------------------------
Roger W. Blethen
Chief Executive Officer, President and Director

September 25, 2000

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

<TABLE>
<S> <C> <C>
/s/ Samuel Rubinovitz Chairman of the Board September 25, 2000
-----------------------------------------
Samuel Rubinovitz

/s/ Roger W. Blethen Chief Executive Officer, September 25, 2000
-----------------------------------------
Roger W. Blethen President and Director
(Principal Executive Officer)

/s/ David G. Tacelli Chief Financial Officer September 25, 2000
-----------------------------------------
David G. Tacelli (Principal Financial and
Accounting Officer)

/s/ Robert J. Boehlke Director September 25, 2000
-----------------------------------------
Robert J. Boehlke

/s/ Jacques Bouyer Director September 25, 2000
-----------------------------------------
Jacques Bouyer

/s/ Stephen M. Jennings Director September 25, 2000
-----------------------------------------
Stephen M. Jennings

/s/ Roger J. Maggs Director September 25, 2000
-----------------------------------------
Roger J. Maggs

/s/ Robert E. Moore Director September 25, 2000
-----------------------------------------
Robert E. Moore
</TABLE>