**FORM 10-Q**

 

**United States**

**Securities and Exchange Commission**

**Washington, D. C. 20549**

 
| ** **                                    | **(Mark One)** | ** **                                                                                          |
|-----------------------------------------------|----------------|-----------------------------------------------------------------------------------------------------|
| ** **                                    | **ý**     | **Quarterly Report Pursuant to Section 13 or  15(d)  of the Securities Exchange Act of 1934**  | ** ** |
| ** **                                    | ** **     | ** **                                                                                          |
| **For Quarter Ended: November 30, 2005** |
| ** **                                    |
| **OR**                                        |
| ** **                                    | ** **     |
| ** **                                    | **o**          | **Transition Report Pursuant to Section 13 or  15(d)  of the Securities Exchange Act of 1934** | ** ** |

 

**Commission File Number: 0-14820**

 

**IMMUCOR, INC.**

(Exact name of registrant as specified in its charter)

 
| **Georgia**                                                                          | ** ** | **22-2408354**      |
|--------------------------------------------------------------------------------------|------------|---------------------|
| (State or other jurisdiction of                                                      |       | (I.R.S. Employer    |
| incorporation or organization)                                                       |       | Identification No.) |
|                                                                                 |       |                |
| **3130 Gateway Drive P.O. Box 5625 Norcross,  Georgia 30091-5625**    |
| (Address of principal executive offices)**     **(Zip Code) |
|                                                                                 |       |                |
| Registrant’s telephone number: **(770) 441-2051**                               |

 

Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.

 

Yes ý     No o

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act).

 

Yes ý     No o

 

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

 

Yes o     No ý

 

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date.

 

As of December 31, 2005: Common Stock, $0.10 Par Value – 44,429,190

 

 

----

 

**IMMUCOR, INC. AND SUBSIDIARIES**

 

**FORM 10-Q**

 

**INDEX**

 
| **PART I.  FINANCIAL  INFORMATION** |                                                                                                                                        |
|-----------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------|
|                                          |                                                                                                                                        |   |
| **Item 1.**                                   | **Financial Statements**                                                                                                                    |   |
|                                          |                                                                                                                                        |   |
|                                          | Condensed  Consolidated Balance Sheets as of November 30, 2005 (unaudited) and May 31,  2005                                      |   |
|                                          |                                                                                                                                        |   |
|                                          | Condensed  Consolidated Statements of Income for the three months and six months ended November 30,  2005 and 2004 (unaudited)         |   |
|                                          |                                                                                                                                        |   |
|                                          | Condensed  Consolidated Statement of Shareholders’ Equity for the period June 1,  2005 through November 30, 2005 (unaudited) |   |
|                                          |                                                                                                                                        |   |
|                                          | Condensed  Consolidated Statements of Cash Flows for the six months ended November 30,  2005 and 2004 (unaudited)                      |   |
|                                          |                                                                                                                                        |   |
|                                          | Notes  to Condensed Consolidated Financial Statements (unaudited)                                                                           |   |
|                                          |                                                                                                                                        |   |
| **Item 2.**                                   | **Management’s Discussion and  Analysis of Financial Condition and Results of Operations**                                             |   |
|                                          |                                                                                                                                        |   |
| **Item 3.**                                   | **Quantitative and Qualitative  Disclosures about Market Risk**                                                                             |   |
|                                          |                                                                                                                                        |   |
| **Item 4.**                                   | **Controls and Procedures**                                                                                                                 |   |
|                                          |                                                                                                                                        |   |
| **PART II.  OTHER  INFORMATION**    |                                                                                                                                        |
|                                          |                                                                                                                                        |   |
| **Item 1.**                                   | **Legal Proceedings**                                                                                                                       |   |
| **Item 2.**                                   | **Unregistered Sales of Equity  Securities and Use of Proceeds**                                                                            |   |
| **Item 6.**                                   | **Exhibits and Reports on Form 8-K**                                                                                                   |   |
|                                          |                                                                                                                                        |   |
|                                          | SIGNATURES                                                                                                                                  |   |

 

2

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**PART I**

 

**FINANCIAL INFORMATION**

 

**ITEM 1.  Financial Statements.**

 

# **IMMUCOR, INC. AND SUBSIDIARIES**

### **CONDENSEDCONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                                                                      | ** ** | **November 30, 2005** | ** **  | **May 31, 2005** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|-------------|-----------------------|------------|
| ** **                                                                                                                                      | ** ** | **(Unaudited)**            | ** **  | ** **            | ** ** |
| **ASSETS**                                                                                                                                      | ** ** | ** **                 | ** **  | ** **            | ** ** |
|                                                                                                                                            |       |                       |        |                  |       |
| CURRENT ASSETS:                                                                                                                                 |       |                       |        |                  |       |
| Cash and cash equivalents                                                                                                                       |       | $                          | 33,423,037  |                  | $          | 37,107,539 |   |
| Short-term investments                                                                                                                          |       | 2,968,214                  |        | 1,972,649             |       |
| Accounts receivable, trade (less allowance for  doubtful accounts of $1,886,606 at November 30, 2005 and $1,873,657 at May 31,  2005) |       | 36,921,671                 |        | 34,629,624            |       |
| Other receivables                                                                                                                               |       | 1,091,964                  |        | 1,112,671             |       |
| Inventories                                                                                                                                     |       | 19,825,463                 |        | 21,836,412            |       |
| Income taxes receivable                                                                                                                         |       | 6,145                      |        | 222,133               |       |
| Deferred income taxes                                                                                                                           |       | 1,567,058                  |        | 1,568,137             |       |
| Prepaid expenses and other                                                                                                                      |       | 1,768,928                  |        | 2,433,309             |       |
|                                                                                                                                            |       |                       |        |                  |       |
| Total current assets                                                                                                                            |       | 97,572,480                 |        | 100,882,474           |       |
|                                                                                                                                            |       |                       |        |                  |       |
| PROPERTY, PLANT AND EQUIPMENT - Net                                                                                                             |       | 22,055,704                 |        | 23,034,727            |       |
|                                                                                                                                            |       |                       |        |                  |       |
| DEFERRED INCOME TAXES                                                                                                                           |       | 2,068,886                  |        | 1,845,203             |       |
|                                                                                                                                            |       |                       |        |                  |       |
| OTHER ASSETS - Net                                                                                                                              |       | 276,847                    |        | 1,112,997             |       |
|                                                                                                                                            |       |                       |        |                  |       |
| DEFERRED LICENSING COSTS - Net                                                                                                                  |       | 4,042,493                  |        | 772,240               |       |
|                                                                                                                                            |       |                       |        |                  |       |
| CUSTOMER LISTS - Net                                                                                                                            |       | 2,324,937                  |        | 1,140,000             |       |
|                                                                                                                                            |       |                       |        |                  |       |
| GOODWILL                                                                                                                                        |       | 33,609,178                 |        | 28,825,592            |       |
|                                                                                                                                            |       |                       |        |                  |       |
|                                                                                                                                            |       | $                          | 161,950,525 |                  | $          | 157,613,233 |   |

 

See notes to condensed consolidatedfinancial statements.

 

3

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| ** **                                                                                                                                                                           | ** ** | **November 30, 2005** | ** **  | **May 31, 2005** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|-------------|-----------------------|------------|
| ** **                                                                                                                                                                           | ** ** | **(Unaudited)**            | ** **  | ** **            | ** ** |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                                                                        | ** ** | ** **                 | ** **  | ** **            | ** ** |
|                                                                                                                                                                                 |       |                       |        |                  |       |
| CURRENT LIABILITIES:                                                                                                                                                                 |       |                       |        |                  |       |
| Current portion of borrowings under bank line of  credit agreements                                                                                                                  |       | $                          | —      |                  | $          | 148,188 |   |
| Current portion of long-term debt                                                                                                                                                    |       | 41,678                     |        | 4,042,295             |       |
| Current portion of capital lease obligations                                                                                                                                         |       | —                     |        | 426,926               |       |
| Current portion of acquisition liability                                                                                                                                             |       | 1,009,793                  |        | —                |       |
| Accounts payable                                                                                                                                                                     |       | 11,091,013                 |        | 8,027,562             |       |
| Income taxes payable                                                                                                                                                                 |       | 2,068,423                  |        | 3,448,502             |       |
| Accrued salaries and wages                                                                                                                                                           |       | 3,541,683                  |        | 3,343,894             |       |
| Deferred income taxes                                                                                                                                                                |       | 594,361                    |        | 661,040               |       |
| Deferred revenue                                                                                                                                                                     |       | 4,280,374                  |        | 4,044,069             |       |
| Other accrued liabilities                                                                                                                                                            |       | 5,452,871                  |        | 5,794,071             |       |
|                                                                                                                                                                                 |       |                       |        |                  |       |
| Total current liabilities                                                                                                                                                            |       | 28,080,196                 |        | 29,936,547            |       |
|                                                                                                                                                                                 |       |                       |        |                  |       |
| LONG-TERM DEBT – Net of current portion                                                                                                                                         |       | 55,892                     |        | 2,080,713             |       |
|                                                                                                                                                                                 |       |                       |        |                  |       |
| CAPITAL LEASE OBLIGATIONS – Net of current portion                                                                                                                              |       | —                     |        | 910,405               |       |
|                                                                                                                                                                                 |       |                       |        |                  |       |
| ACQUISITION LIABILITY                                                                                                                                                                |       | 4,112,747                  |        | —                |       |
|                                                                                                                                                                                 |       |                       |        |                  |       |
| DEFERRED INCOME TAXES – Net of current portion                                                                                                                                  |       | 2,236,102                  |        | 2,285,344             |       |
|                                                                                                                                                                                 |       |                       |        |                  |       |
| DEFERRED REVENUE – Net of current portion                                                                                                                                       |       | 7,087,325                  |        | 3,514,633             |       |
|                                                                                                                                                                                 |       |                       |        |                  |       |
| OTHER LIABILITIES                                                                                                                                                                    |       | 1,550,226                  |        | 1,453,240             |       |
|                                                                                                                                                                                 |       |                       |        |                  |       |
| COMMITMENTS AND CONTINGENCIES                                                                                                                                                        |       |                       |        |                  |       |
|                                                                                                                                                                                 |       |                       |        |                  |       |
| SHAREHOLDERS’ EQUITY:                                                                                                                                                           |       |                       |        |                  |       |
| Common stock - authorized  60,000,000 shares, $0.10 par value; issued and outstanding 45,036,069  and 45,525,592 at November 30,  2005 and May 31, 2005, respectively |       | 4,503,607                  |        | 4,552,560             |       |
| Additional paid-in capital                                                                                                                                                           |       | 19,251,634                 |        | 32,691,614            |       |
| Retained earnings                                                                                                                                                                    |       | 95,917,300                 |        | 79,856,954            |       |
| Accumulated other comprehensive income (loss)                                                                                                                                        |       | (844,504                   | )           | 331,223               |       |
|                                                                                                                                                                                 |       |                       |        |                  |       |
| Total shareholders’ equity                                                                                                                                                      |       | 118,828,037                |        | 117,432,351           |       |
|                                                                                                                                                                                 |       |                       |        |                  |       |
|                                                                                                                                                                                 |       | $                          | 161,950,525 |                  | $          | 157,613,233 |   |

 

See notes to condensed consolidatedfinancial statements.

 

4

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## **IMMUCOR, INC. AND SUBSIDIARIES**

### **CONDENSEDCONSOLIDATED STATEMENTS OF INCOME**

(Unaudited)

 
| ** **                     | ** ** | **Three Months Ended** | ** ** | **Six Months Ended**  | ** ** |
|--------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                     | ** ** | **November 30,**  | ** ** | **November 30,** | ** ** | **November 30,** | ** ** | **November 30,** | ** ** |
| ** **                     | ** ** | **2005**               | ** ** | **2004**              | ** ** | **2005** | ** ** | **2004** | ** ** |
|                           |       |                   |       |                  |       |   |   |   |   |
| NET SALES                      |       | $                      | 44,024,845 |                  | $          | 32,640,218 |   | $ | 86,459,338 |   | $ | 64,742,429 |   |
|                           |       |                   |       |                  |       |   |   |   |   |
| COST OF SALES                  |       | 15,483,662             |       | 14,319,019            |       | 31,222,852 |   | 28,108,758 |   |
|                           |       |                   |       |                  |       |   |   |   |   |
| GROSS PROFIT                   |       | 28,541,183             |       | 18,321,199            |       | 55,236,486 |   | 36,633,671 |   |
|                           |       |                   |       |                  |       |   |   |   |   |
| OPERATING EXPENSES:            |       |                   |       |                  |       |   |   |   |   |
| Research and development       |       | 1,207,601              |       | 1,153,920             |       | 2,463,032 |   | 2,242,726 |   |
| Selling and marketing          |       | 5,194,913              |       | 4,210,898             |       | 10,409,574 |   | 8,277,284 |   |
| Distribution                   |       | 1,930,917              |       | 1,952,845             |       | 3,782,237 |   | 3,891,862 |   |
| General and administrative     |       | 4,887,864              |       | 3,749,230             |       | 10,710,120 |   | 6,766,162 |   |
| Restructuring expense          |       | 2,456,766              |       | —                |       | 2,456,766 |   | — |   |
| Amortization expense and other |       | 96,879                 |       | 606,299               |       | 167,376 |   | 702,362 |   |
|                           |       |                   |       |                  |       |   |   |   |   |
| Total operating expenses       |       | 15,774,940             |       | 11,673,192            |       | 29,989,105 |   | 21,880,396 |   |
|                           |       |                   |       |                  |       |   |   |   |   |
| INCOME FROM OPERATIONS         |       | 12,766,243             |       | 6,648,007             |       | 25,247,381 |   | 14,753,275 |   |
|                           |       |                   |       |                  |       |   |   |   |   |
| OTHER INCOME (EXPENSE):        |       |                   |       |                  |       |   |   |   |   |
| Interest income                |       | 232,558                |       | 111,761               |       | 415,533 |   | 248,388 |   |
| Interest expense               |       | (182,871               | )          | (219,055              | )          | (341,854 | ) | (325,387 | ) |
| Other - net                    |       | (152,550               | )          | 575,919               |       | (70,123 | ) | 280,715 |   |
|                           |       |                   |       |                  |       |   |   |   |   |
| Total other income (expense)   |       | (102,863               | )          | 468,625               |       | 3,556 |   | 203,716 |   |
|                           |       |                   |       |                  |       |   |   |   |   |
| INCOME BEFORE INCOME TAXES     |       | 12,663,380             |       | 7,116,632             |       | 25,250,937 |   | 14,956,991 |   |
| INCOME TAX EXPENSE             |       | 4,608,710              |       | 2,907,133             |       | 9,190,591 |   | 5,798,539 |   |
| NET INCOME                     |       | $                      | 8,054,670  |                  | $          | 4,209,499 |   | $ | 16,060,346 |   | $ | 9,158,452 |   |
|                           |       |                   |       |                  |       |   |   |   |   |
| Earnings per share:            |       |                   |       |                  |       |   |   |   |   |
| Per common share - Basic       |       | $                      | 0.18       |                  | $          | 0.09 |   | $ | 0.35 |   | $ | 0.20 |   |
| Per common share - Diluted     |       | $                      | 0.17       |                  | $          | 0.09 |   | $ | 0.34 |   | $ | 0.19 |   |

 

See notes to condensed consolidatedfinancial statements.

 

5

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**IMMUCOR, INC. AND SUBSEDIARIES**

### **CONDENSEDCONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY**

(Unaudited)

 
| ** **                                      | ** ** | ** **       | ** ** | ** **  | ** ** | ** **     | ** ** | ** **        | ** ** | **Accumulated**        | ** ** | ** **  | ** ** |
|-------------------------------------------------|------------|------------------|------------|-------------|------------|----------------|------------|-------------------|------------|------------------------|------------|-------------|------------|
| ** **                                      | ** ** | ** **       | ** ** | ** **  | ** ** | **Additional** | ** ** | ** **        | ** ** | **Other**              | ** ** | **Total**   | ** ** |
| ** **                                      | ** ** | **Common Stock** | ** ** | **Paid-In** | ** ** | **Retained**   | ** ** | **Comprehensive** | ** ** | **Shareholders’** | ** ** |
| ** **                                      | ** ** | **Shares**       | ** ** | **Amount**  | ** ** | **Capital**    | ** ** | **Earnings**      | ** ** | **Income (Loss)**      | ** ** | **Equity**  | ** ** |
| BALANCE, MAY 31, 2005                      |       | 45,525,592       |       | $           | 4,552,560  |           | $          | 32,691,614        |       | $                      | 79,856,954 |        | $          | 331,223 |   | $ | 117,432,351 |   |
|                                            |       |             |       |        |       |           |       |              |       |                   |       |        |       |
| Exercise of stock options                       |       | 153,077          |       | 15,307      |       | 115,147        |       | —            |       | —                 |       | 130,454     |       |
| Expense recognized on options awarded           |       | —           |       | —      |       | 77,105         |       | —            |       | —                 |       | 77,105      |       |
| Stock repurchases and retirements               |       | (642,600         | )          | (64,260     | )          | (14,792,548    | )          | —            |       | —                 |       | (14,856,808 | )          |
| Tax benefits related to stock options and other |       | —           |       | —      |       | 1,160,316      |       | —            |       | —                 |       | 1,160,316   |       |
| Comprehensive income:                           |       |             |       |        |       |           |       |              |       |                   |       |        |       |
| Foreign currency translation adjustment         |       | —           |       | —      |       | —         |       | —            |       | (1,186,000             | )          | (1,186,000  | )          |
| Hedge loss reclassified into earnings           |       | —           |       | —      |       | —         |       | —            |       | 10,273                 |       | 10,273      |       |
| Net income                                      |       | —           |       | —      |       | —         |       | 16,060,346        |       | —                 |       | 16,060,346  |       |
| Total comprehensive income                      |       |             |       |        |       |           |       |              |       |                   |       | 14,884,619  |       |
|                                            |       |             |       |        |       |           |       |              |       |                   |       |        |       |
| BALANCE, NOVEMBER 30, 2005                 |       | 45,036,069       |       | $           | 4,503,607  |           | $          | 19,251,634        |       | $                      | 95,917,300 |        | $          | (844,504 | ) | $ | 118,828,037 |   |
|                                                 |            |                  |            |             |            |                |            |                   |            |                        |            |             |            |  |  |  |  |  |  |

 

Accumulated OtherComprehensive Income balance primarily consists of foreign currency translationadjustments.

 

See notes to condensed consolidatedfinancial statements.

 

6

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**IMMUCOR, INC. AND SUBSIDIARIES**

### **CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

(Unaudited)

 
| ** **                                                                          | ** ** | **Six Months Ended**  | ** ** |
|-------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                          | ** ** | **November 30,** | ** ** | **November 30,** | ** ** |
| ** **                                                                          | ** ** | **2005**              | ** ** | **2004** | ** ** |
| OPERATING ACTIVITIES:                                                               |       |                  |       |   |   |
| Net income                                                                          |       | $                     | 16,060,346 |   | $ | 9,158,452 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities:  |       |                  |       |   |   |
| Depreciation and amortization                                                       |       | 3,491,203             |       | 3,379,245 |   |
| Accretion of liabilities                                                            |       | 77,410                |       | — |   |
| Loss on retirement of fixed assets                                                  |       | 131,847               |       | 580,713 |   |
| Foreign exchange gain                                                               |       | (241,502              | )          | — |   |
| Provision for restructuring expenses                                                |       | 2,456,766             |       | — |   |
| Provision for doubtful accounts                                                     |       | 145,457               |       | 194,211 |   |
| Gain on sale of long-term investment                                                |       | —                |       | (530,000 | ) |
| Deferred tax benefit                                                                |       | (186,406              | )          | (11,298 | ) |
| Other                                                                               |       | 79,509                |       | 375,935 |   |
| Changes in operating assets and liabilities, net of  effects from acquired company: |       |                  |       |   |   |
| Accounts receivable, trade                                                          |       | (3,168,872            | )          | (2,287,977 | ) |
| Income taxes                                                                        |       | (101,841              | )          | 3,043,091 |   |
| Inventories                                                                         |       | 1,514,224             |       | 310,553 |   |
| Other receivables                                                                   |       | (30,427               | )          | (232,623 | ) |
| Other current assets                                                                |       | 643,593               |       | (566,461 | ) |
| Other long-term assets                                                              |       | 577,781               |       | 142,629 |   |
| Accounts payable                                                                    |       | 2,693,449             |       | (437,913 | ) |
| Deferred revenue                                                                    |       | 3,731,601             |       | 581,939 |   |
| Other current liabilities                                                           |       | 31,585                |       | 1,065,336 |   |
| Other long-term liabilities                                                         |       | 884,193               |       | (47,377 | ) |
| Total adjustments                                                                   |       | 12,729,570            |       | 5,560,003 |   |
| Cash provided by operating activities                                               |       | 28,789,916            |       | 14,718,455 |   |
| INVESTING ACTIVITIES:                                                               |       |                  |       |   |   |
| Purchases of property and equipment                                                 |       | (4,402,336            | )          | (2,600,601 | ) |
| Proceeds from sale of property and equipment                                        |       | —                |       | 9,411 |   |
| Payment for net assets of acquired company                                          |       | (4,731,616            | )          | — |   |
| Investments in held-to-maturity marketable  securities                              |       | (995,565              | )          | — |   |
| Proceeds from sale of long-term investment                                          |       | —                |       | 1,300,000 |   |
| Cash used in investing activities                                                   |       | (10,129,517           | )          | (1,291,190 | ) |
| FINANCING ACTIVITIES:                                                               |       |                  |       |   |   |
| Borrowings (repayments) under line of credit  agreements, net                       |       | (145,139              | )          | 93 |   |
| Repayments of long-term debt and capital leases                                     |       | (7,332,603            | )          | (3,391,656 | ) |
| Repurchase of common stock                                                          |       | (14,856,808           | )          | (8,027,567 | ) |
| Payment for fractional shares resulting from stock  split                           |       | —                |       | (7,085 | ) |
| Proceeds from exercise of stock options                                             |       | 130,454               |       | 529,583 |   |
| Cash used in financing activities                                                   |       | (22,204,096           | )          | (10,896,632 | ) |
| EFFECT OF EXCHANGE RATE CHANGES ON CASH                                             |       | (140,805              | )          | (166,212 | ) |
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                    |       | (3,684,502            | )          | 2,364,421 |   |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                    |       | 37,107,539            |       | 15,697,082 |   |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD                                          |       | $                     | 33,423,037 |   | $ | 18,061,503 |   |

 

See Note 8 for supplementalcash flow information.

See notes to condensed consolidatedfinancial statements.

 

7

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**IMMUCOR, INC. AND SUBSIDIARIES**

**Notes to Condensed ConsolidatedFinancial Statements**

(Unaudited)

 

1.               NATUREOF BUSINESS AND BASIS OF PRESENTATION

 

*Nature ofBusiness*

Immucor, Inc.(“Immucor” and, together with its wholly owned subsidiaries, the “Company”) isin the business of developing, manufacturing and marketing immunologicaldiagnostic medical products. The Company operates facilities in the UnitedStates, Canada, Europe and Japan. The unaudited condensed consolidatedfinancial statements include the accounts of the Company and all its subsidiaries.

 

*Basis ofPresentation*

Theaccompanying condensed consolidated financial statements are unaudited and havebeen prepared in accordance with U.S. generally accepted accounting principles(“GAAP”) for interim financial information, and the instructions to Form 10-Qand Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotesrequired by GAAP for complete financial statements. In the opinion ofmanagement, all adjustments, consisting of normal recurring adjustments, unlessotherwise disclosed in a separate note, considered necessary for a fairpresentation of the unaudited, condensed consolidated financial statementspresent fairly the financial position and results of operations for the interimperiods presented. These unaudited, condensed consolidated financial statementsshould be read in conjunction with the Company’s audited, consolidatedfinancial statements and related notes for the year ended May 31, 2005,included in the Company’s Annual Report on Form 10-K.

 

Theaccompanying condensed consolidated financial statements present results ofoperations for the three and six months ended November 30, 2005. Theseresults are not necessarily indicative of the results that may be achieved forthe year ending May 31, 2006 or any other period.

 

*Basis ofConsolidation*

Thecondensed consolidated financial statements include the accounts of Immucor andits subsidiaries. All significant inter-company balances and transactions havebeen eliminated in consolidation. Certain amounts in the prior periods’financial statements have been reclassified to conform to the presentation offinancial statements in this report.

 

2.               STOCK-BASEDCOMPENSATION

 

TheCompany adopted the disclosure only provisions for employee stock-basedcompensation under SFAS Statement No. 148, “*Accountingfor Stock-Based Compensation – Transition and Disclosure,”* and continuesto account for employee stock-based compensation using the intrinsic valuemethod under Accounting Principles Board (“APB”) Opinion No. 25, “*Accounting for Stock Issued to Employees”. *Accordingly, the Companyrecognizes compensation expense only if the stock price on the grantmeasurement date exceeds the exercise price. In such a case, the intrinsic value of the grant is recognized ascompensation expense over the vesting period of the grant and credited toequity. Upon exercise, net proceeds, including tax benefit realized, arecredited to equity.

 

Had theCompany adopted the fair value recognition provisions of SFAS Statement No. 123“*Accounting for Stock-Based Compensation*”,as amended by SFAS Statement No. 148, the effect on the Company’s netincome and earnings per share would have been as follows:

 

8

----

 
| ** **                                                                                                              | ** ** | **For the Three Months Ended** | ** ** | **For the Six Months Ended** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|------------------------------|------------|
| ** **                                                                                                              | ** ** | **November 30,**          | ** ** | **November 30,**        | ** ** | **November 30,** | ** ** | **November 30,** | ** ** |
| ** **                                                                                                              | ** ** | **2005**                       | ** ** | **2004**                     | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net income as reported                                                                                                  |       | $                              | 8,054,670  |                         | $          | 4,209,499 |   | $ | 16,060,346 |   | $ | 9,158,452 |   |
| Add: stock based employee compensation included in  reported net income, net of taxes                                   |       | 29,118                         |       | —                       |       | 64,357 |   | — |   |
| Less: stock-based employee compensation expense  determined under fair value based methods for all awards, net of taxes |       | (399,544                       | )          | (403,090                     | )          | (815,616 | ) | (871,319 | ) |
| Pro forma net income                                                                                                    |       | $                              | 7,684,244  |                         | $          | 3,806,409 |   | $ | 15,309,087 |   | $ | 8,287,133 |   |
|                                                                                                                    |       |                           |       |                         |       |   |   |   |   |
| Earnings per share as reported:                                                                                         |       |                           |       |                         |       |   |   |   |   |
| Per common share - Basic                                                                                                |       | $                              | 0.18       |                         | $          | 0.09 |   | $ | 0.35 |   | $ | 0.20 |   |
| Per common share - Diluted                                                                                              |       | $                              | 0.17       |                         | $          | 0.09 |   | $ | 0.34 |   | $ | 0.19 |   |
|                                                                                                                    |       |                           |       |                         |       |   |   |   |   |
| Pro forma earnings per share:                                                                                           |       |                           |       |                         |       |   |   |   |   |
| Per common share - Basic                                                                                                |       | $                              | 0.17       |                         | $          | 0.08 |   | $ | 0.34 |   | $ | 0.18 |   |
| Per common share - Diluted                                                                                              |       | $                              | 0.16       |                         | $          | 0.08 |   | $ | 0.32 |   | $ | 0.17 |   |

 

At anannual meeting of the Company’s shareholders held on December 13, 2005,the shareholders approved establishment of Immucor, Inc. 2005 Long-TermIncentive Plan (the “2005 Plan”). The plan replaces all other stock incentiveplans which will be frozen and will remain in effect only to the extent ofawards outstanding under these plans. Under the 2005 plan, besides grantingstock options, management will be able to award stock appreciation rights,restricted stock, deferred stock, and other performance-based awards asincentive and compensation to employees. The maximum number of shares of theCompany’s common stock as to which awards may be granted under the 2005 Plan is2,400,000. The maximum number of shares that may be used for awards other thanstock options is 1,200,000, and the maximum number of shares that may be usedfor grants of incentive stock options is 1,200,000.

 

3.               ACQUISITION

 

On July 5, 2005, the Company, in an effort to expand its presence in Japan, acquired a 100% interest in Immucor-Kainos, Inc. — a newly-formed company in which Kainos Laboratories, Inc. (“Kainos”), the Company’s former distributor of Immucor products in Japan spun off its blood-banking division to the newly-formed company.  Immucor paid Kainos 459.0 million Japanese Yen (approximately $4.2 million) in cash on signing of the purchase agreements, and will pay an additional 300 million Japanese Yen (approximately $2.5 million) over three years with payment of 125 million Japanese Yen in each of the first two years and the remaining 50 million Japanese Yen in the third year. A final payment of 441.0 million Japanese Yen will be made after a three-year transition period ending on June 30, 2008, or earlier upon mutual agreement. The Company has recorded 741 million Japanese Yen (with approximate present value of $5.1 million, using a discount rate of approximately 3.7% per annum), as a liability. Immucor-Kainos, Inc. has been consolidated as a wholly owned subsidiary in these financial statements.

 

Duringthe second quarter of fiscal year 2006, the Company completed a valuation ofthe intangible assets acquired in the transaction. Pursuant to the valuation,the Company allocated 150 million Japanese Yen (approximately $ 1.3 million) tothe purchase of the customer list and 400 million Japanese Yen (approximately $3.3million) to the business licenses and regulatory permits. Besides payment ofpurchase consideration to Kainos, the Company incurred additional direct costof $0.5 million associated with this acquisition. During the second quarter offiscal year 2006, direct acquisition expenses of 30.8 million Japanese Yen(approximately $276,000) were recorded as additional acquisition cost.

 

Thefollowing table summarizes the allocation of acquisition cost, includingprofessional fees and other related acquisition costs to the assets acquired basedon their fair values:

 

| Net tangible  assets acquired |   | $         | 104,881    |   |
|-------------------------------|--------|-----------|------------|--------|
| Intangible  assets acquired   |   | 4,927,874 |       |
| Goodwill  acquired            |   | 5,689,670 |       |
| Total  acquisition cost       |   | $         | 10,722,425 |   |

 

9

----

 

As of November 30, 2005, the Company has paid 519 million Japanese Yen (approximately $4.7 million) of the total acquisition cost and has accrued the balance of 741 million Japanese Yen (with approximate present value $5.1 million), the present value of the remaining liability, as a liability under the caption - acquisition liability.

 

The total purchase price includes a premium based on management’s assessment that the Company will achieve higher future profitability levels in the Japanese market by acquiring direct control and management of marketing the Company’s products with the installation of Immucor personnel in key managerial positions overseeing the operations of the business.  The primary purpose of this acquisition is to allow Immucor to directly market and sell its products in Japan and to expand its presence in Japan.  Additionally, in accordance with the terms of the purchase agreement, Kainos has agreed to supply certain services to Immucor-Kainos during the three-year transition period.

 

At November 30,2005, Immucor-Kainos owed Kainos approximately $2.7 million for productssupplied by Kainos, and was owed approximately $2.0 million from Kainos forproducts sold by Kainos on behalf of Immucor-Kainos. Additionally, Kainos owed Immucor$0.2 million for products supplied to Kainos from the United States.

 

No proforma information of revenue and income for the acquired business is providedas the effect of the acquisition on the consolidated financial statements isnot material. The results of operations of the acquired subsidiary have beenincluded from July 5, 2005 onwards, the date of acquisition. See Note 10on segment information for details.

 

4.               INVENTORIES

 

Inventoriesare stated at the lower of first-in, first-out cost or market:

 
| ** **                  | ** ** | **As of**                  | ** ** | **As of**             | ** ** |
|-----------------------------|------------|----------------------------|------------|-----------------------|------------|
| ** **                  | ** ** | **November 30, 2005** | ** ** | **May 31, 2005** | ** ** |
|                        |       |                       |       |                  |       |
| Raw materials  and supplies |       | $                          | 4,692,360  |                  | $          | 5,710,331 |   |
| Work in process             |       | 2,947,678                  |       | 2,946,336             |       |
| Finished goods              |       | 12,185,425                 |       | 13,179,745            |       |
|                        |       | $                          | 19,825,463 |                  | $          | 21,836,412 |   |

 

5.               GOODWILL

 

The $4.8million increase in goodwill on the consolidated balance sheets from May 31,2005 to November 30, 2005 relates to the acquisition of Immucor-Kainos, Inc.on July 5, 2005. Goodwill on the acquisition of Immucor-Kainos, Inc.amounting to $5.7 million was reduced by $0.6 million of profit generated fromthe supply of products to Kainos during the negotiation period from April 2005to June 2005, and the reversal of a deferred revenue liability of $0.3million relating to the old distribution agreement with Kainos.

 

6.               CUSTOMERLIST AND DEFERRED LICENSING COSTS

 

Thecustomer list acquired with the acquisition of Immucor-Kainos was valued at$1.3 million with a useful life of 20 years and the licensing and regulatorypermits, which were assumed to have infinite lives, were valued at $3.3 million.The customer list is being amortized over 20 years, and the licensing andregulatory permits will not be amortized but will be tested for impairmentannually at the end of each fiscal year.

 

Amortizationexpense relating to intangible assets for the three-month and six-month periodsended November 30, 2005 was approximately $97,000 and $167,000,respectively, and amortization expense for the three-month and six-monthperiods ended November 30, 2004 was $98,000 and $194,000, respectively.

 

Accumulatedamortization as of November 30, 2005 and May 31, 2005 was $2.5million and $2.4 million, respectively.

 

10

----

 

7.               RESTRUCTURINGEXPENSES

 

On October 31,2005 the Board of Directors of the Company approved a plan to close the Company’sHouston, Texas manufacturing facility.

 

Thedecision to close the facility was driven by a number of factors including, inparticular, the expense of operating two separate FDA licensed manufacturingfacilities.  This closure, which issubject to certain regulatory approvals, is scheduled to be completed by December 2007.

 

Duringthe second quarter of fiscal year 2006, the Company recorded a charge of approximately$2.5 million, including approximately $2.4 million for impairment of long-livedassets and approximately $0.1 million for severance pay. The Company expects toincur approximately $2.1 million of additional costs to close this facility consistingof approximately $0.8 million in costs to consolidate operations and relocateassociated employees, and approximately $1.3 million in retention bonus. Therelocation costs will be expensed when incurred and the retention bonus isexpensed over the period of service necessary to receive such bonus.

 

Totalcash outlays for the restructuring plan are expected to be approximately $2.0 millionto be paid out over the next two years.

 

8.               SUPPLEMENTALCASH FLOW INFORMATION

 
| ** **                                    | ** ** | **Six Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------------|------------|----------------------|------------|----------------------|------------|
| ** **                                    | ** ** | **11/30/05**         | ** ** | **11/30/04**         | ** ** |
|                                          |       |                 |       |                 |       |
| Non-cash  Investing and Financing Activities: |       |                 |       |                 |       |
| Accrual for additional purchase consideration |       | $                    | 5,122,540  |                 | $          | — |   |
| Supplemental information:                     |       |                 |       |                 |       |
| Taxes paid                                    |       | $                    | 9,850,555  |                 | $          | 3,443,432 |   |
| Interest paid                                 |       | 196,414              |       | 321,498              |       |

 

9.               EARNINGSPER SHARE

 

The following table sets forth the computation ofbasic and diluted earnings per share in accordance with SFAS No. 128, *Earnings per Share*. The Company distributed a three-for-two stock split, effected in theform of a 50% stock dividend on July 16, 2004 to the shareholders ofrecord as of the close of business on June 30, 2004.  On November 15, 2004 the Board ofDirectors approved a three-for-two stock split, effected in the form of a 50%stock dividend, to shareholders of record as of the close of business on November 22,2004.  The stock split increased thenumber of shares outstanding by 15,061,379 net of 82.5 fractional shares forwhich cash dividends were paid.  Allshare and per share amounts disclosed in this document pertaining to thethree-month and six-month periods ended November 30, 2004 have beenretroactively adjusted to reflect these stock splits.

 

Basic earnings per common share are calculated bydividing net income by weighted-average common shares outstanding during theperiod. Diluted earnings per common share are calculated by dividing net incomeby weighted-average common shares outstanding during the period plus dilutivepotential common shares, which are determined as follows:

 

11

----

 
| ** **                                                                          | ** ** | **Three Months Ended** | ** ** | **Six Months Ended**  | ** ** |
|-------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                          | ** ** | **November 30,**  | ** ** | **November 30,** | ** ** | **November 30,** | ** ** | **November 30,** | ** ** |
| ** **                                                                          | ** ** | **2005**               | ** ** | **2004**              | ** ** | **2005** | ** ** | **2004** | ** ** |
| Numerator for basic and diluted earnings per share:                                 |       |                   |       |                  |       |   |   |   |   |
| Income available to common shareholders                                             |       | $                      | 8,054,670  |                  | $          | 4,209,499 |   | $ | 16,060,346 |   | $ | 9,158,452 |   |
| Denominator:                                                                        |       |                   |       |                  |       |   |   |   |   |
| For basic earnings per share - weighted average  shares basis                       |       | 45,521,206             |       | 44,863,430            |       | 45,531,525 |   | 44,948,897 |   |
| Effect of dilutive stock options                                                    |       | 2,128,240              |       | 2,479,910             |       | 2,180,330 |   | 2,460,072 |   |
| Denominator for diluted earnings per share -adjusted  weighted average shares basis |       | 47,649,446             |       | 47,343,340            |       | 47,711,855 |   | 47,408,969 |   |
| Earnings per common share – basic                                              |       | $                      | 0.18       |                  | $          | 0.09 |   | $ | 0.35 |   | $ | 0.20 |   |
| Earnings per common share – diluted                                            |       | $                      | 0.17       |                  | $          | 0.09 |   | $ | 0.34 |   | $ | 0.19 |   |

 

10.  SEGMENT AND GEOGRAPHIC INFORMATION

 

TheCompany’s operations and segments are organized around geographic areas.Immucor’s “Other” segment includes the operations of Belgium, Portugal andSpain. The foreign locations principally function as distributors of productsdeveloped and manufactured by the Company in the United States and Canada. Theaccounting policies applied in the preparation of the Company’s consolidated financialstatements are applied consistently across the segments. Intersegment sales arerecorded at market price.

 

12

----

 

##### **Segment information for the threeand six months ended November 30, 2005 and 2004 is summarized below (in000s).**

 
| ** **                    | ** ** | **For the Three Months Ended November 30,  2005** | ** ** |
|-------------------------------|------------|--------------------------------------------------------|------------|
| ** **                    | ** ** | **U.S.**                                               | ** ** | **Germany** | ** ** | **Italy** | ** ** | **Canada** | ** ** | **Japan  (1)** | ** ** | **Other** | ** ** | **Elims** | ** ** | **Consolidated** | ** ** |
| Net reagent revenues:         |       |                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated customers        |       | $                                                      | 28,118     |   | $ | 2,620 |   | $ | 2,934 |   | $ | 2,215 |   | $ | 1,945 |   | $ | 2,129 |   | $ | — |   | $ | 39,961 |   |
| Affiliates                    |       | 2,739                                                  |       | 464 |   | — |   | 40 |   | — |   | 49 |   | (3,292 | ) | — |   |
| Total                         |       | 30,857                                                 |       | 3,084 |   | 2,934 |   | 2,255 |   | 1,945 |   | 2,178 |   | (3,292 | ) | 39,961 |   |
| Net instrument revenues:      |       |                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated customers        |       | 1,642                                                  |       | 368 |   | 357 |   | 234 |   | 2 |   | 358 |   | — |   | 2,961 |   |
| Affiliates                    |       | 48                                                     |       | 530 |   | 1 |   | — |   | — |   | — |   | (579 | ) | — |   |
| Total                         |       | 1,690                                                  |       | 898 |   | 358 |   | 234 |   | 2 |   | 358 |   | (579 | ) | 2,961 |   |
| Net collagen revenues:        |       |                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated customers        |       | 1,103                                                  |       | — |   | — |   | — |   | — |   | — |   | — |   | 1,103 |   |
| Affiliates                    |       | —                                                 |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Total                         |       | 1,103                                                  |       | — |   | — |   | — |   | — |   | — |   | — |   | 1,103 |   |
| Net Sales                     |       | 33,650                                                 |       | 3,982 |   | 3,292 |   | 2,489 |   | 1,947 |   | 2,536 |   | (3,871 | ) | 44,025 |   |
|                          |       |                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss) from operations |       | 11,563                                                 |       | (14 | ) | 294 |   | 1,096 |   | (121 | ) | 230 |   | (282 | ) | 12,766 |   |
| Net income (loss)             |       | 7,284                                                  |       | 5 |   | 168 |   | 690 |   | (92 | ) | 178 |   | (178 | ) | 8,055 |   |
|                               |            |                                                        |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                     | ** ** | **For the Three Months Ended November 30,  2004** | ** ** |
|--------------------------------|------------|--------------------------------------------------------|------------|
| ** **                     | ** ** | **U.S.**                                               | ** ** | **Germany** | ** ** | **Italy** | ** ** | **Canada** | ** ** | **Japan  (1)** | ** ** | **Other** | ** ** | **Elims** | ** ** | **Consolidated** | ** ** |
| Net reagent  revenues:         |       |                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated customers         |       | $                                                      | 18,463     |   | $ | 2,738 |   | $ | 2,787 |   | $ | 2,154 |   | $ | — |   | $ | 2,074 |   | $ | — |   | $ | 28,216 |   |
| Affiliates                     |       | 2,220                                                  |       | 515 |   | — |   | 84 |   | — |   | 25 |   | (2,844 | ) | — |   |
| Total                          |       | 20,683                                                 |       | 3,253 |   | 2,787 |   | 2,238 |   | — |   | 2,099 |   | (2,844 | ) | 28,216 |   |
| Net instrument  revenues:      |       |                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated customers         |       | 2,045                                                  |       | 433 |   | 182 |   | — |   | — |   | 1,028 |   | — |   | 3,688 |   |
| Affiliates                     |       | 90                                                     |       | 1,557 |   | 2 |   | — |   | — |   | 2 |   | (1,651 | ) | — |   |
| Total                          |       | 2,135                                                  |       | 1,990 |   | 184 |   | — |   | — |   | 1,030 |   | (1,651 | ) | 3,688 |   |
| Net collagen  revenues:        |       |                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated customers         |       | 736                                                    |       | — |   | — |   | — |   | — |   | — |   | — |   | 736 |   |
| Affiliates                     |       | —                                                 |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Total                          |       | 736                                                    |       | — |   | — |   | — |   | — |   | — |   | — |   | 736 |   |
| Net Sales                      |       | 23,554                                                 |       | 5,243 |   | 2,971 |   | 2,238 |   | — |   | 3,129 |   | (4,495 | ) | 32,640 |   |
|                           |       |                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss)  from operations |       | 6,338                                                  |       | (107 | ) | (380 | ) | 829 |   | — |   | 114 |   | (146 | ) | 6,648 |   |
| Net income (loss)              |       | 4,273                                                  |       | (70 | ) | (563 | ) | 540 |   | — |   | 121 |   | (92 | ) | 4,209 |   |
|                                |            |                                                        |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

13

----

 
| ** **                     | ** ** | **For the Six Months Ended November 30,  2005** | ** ** |
|--------------------------------|------------|------------------------------------------------------|------------|
| ** **                     | ** ** | **U.S.**                                             | ** ** | **Germany** | ** ** | **Italy** | ** ** | **Canada** | ** ** | **Japan  (1)** | ** ** | **Other** | ** ** | **Elims** | ** ** | **Consolidated** | ** ** |
| Net reagent  revenues:         |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated customers         |       | $                                                    | 55,902     |   | $ | 5,322 |   | $ | 5,892 |   | $ | 4,498 |   | $ | 3,387 |   | $ | 4,203 |   | $ | — |   | $ | 79,204 |   |
| Affiliates                     |       | 4,936                                                |       | 949 |   | — |   | 126 |   | — |   | 93 |   | (6,104 | ) | — |   |
| Total                          |       | 60,838                                               |       | 6,271 |   | 5,892 |   | 4,624 |   | 3,387 |   | 4,296 |   | (6,104 | ) | 79,204 |   |
| Net instrument  revenues:      |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated customers         |       | 2,954                                                |       | 842 |   | 599 |   | 176 |   | 3 |   | 512 |   | — |   | 5,086 |   |
| Affiliates                     |       | 74                                                   |       | 1,253 |   | 1 |   | — |   | — |   | — |   | (1,328 | ) | — |   |
| Total                          |       | 3,028                                                |       | 2,095 |   | 600 |   | 176 |   | 3 |   | 512 |   | (1,328 | ) | 5,086 |   |
| Net collagen  revenues:        |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated customers         |       | 2,169                                                |       | — |   | — |   | — |   | — |   | — |   | — |   | 2,169 |   |
| Affiliates                     |       | —                                               |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Total                          |       | 2,169                                                |       | — |   | — |   | — |   | — |   | — |   | — |   | 2,169 |   |
| Net Sales                      |       | 66,035                                               |       | 8,366 |   | 6,492 |   | 4,800 |   | 3,390 |   | 4,808 |   | (7,432 | ) | 86,459 |   |
|                           |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss)  from operations |       | 22,616                                               |       | 115 |   | 443 |   | 2,027 |   | (34 | ) | 401 |   | (321 | ) | 25,247 |   |
| Net income  (loss)             |       | 14,295                                               |       | 76 |   | 295 |   | 1,296 |   | (29 | ) | 329 |   | (202 | ) | 16,060 |   |
|                           |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total assets                   |       | 142,144                                              |       | 11,387 |   | 17,314 |   | 12,094 |   | 13,776 |   | 8,867 |   | (43,632 | ) | 161,951 |   |
|                                |            |                                                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                    | ** ** | **For the Six Months Ended November 30,  2004** | ** ** |
|-------------------------------|------------|------------------------------------------------------|------------|
| ** **                    | ** ** | **U.S.**                                             | ** ** | **Germany** | ** ** | **Italy** | ** ** | **Canada** | ** ** | **Japan  (1)** | ** ** | **Other** | ** ** | **Elims** | ** ** | **Consolidated** | ** ** |
| Net reagent revenues:         |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated customers        |       | $                                                    | 37,055     |   | $ | 5,836 |   | $ | 5,646 |   | $ | 4,015 |   | $ | — |   | $ | 4,173 |   | $ | — |   | $ | 56,725 |   |
| Affiliates                    |       | 4,386                                                |       | 1,155 |   | — |   | 90 |   | — |   | 45 |   | (5,676 | ) | — |   |
| Total                         |       | 41,441                                               |       | 6,991 |   | 5,646 |   | 4,105 |   | — |   | 4,218 |   | (5,676 | ) | 56,725 |   |
| Net instrument revenues:      |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated customers        |       | 3,897                                                |       | 836 |   | 283 |   | 15 |   | — |   | 1,461 |   | — |   | 6,492 |   |
| Affiliates                    |       | 468                                                  |       | 2,444 |   | 14 |   | — |   | — |   | 2 |   | (2,928 | ) | — |   |
| Total                         |       | 4,365                                                |       | 3,280 |   | 297 |   | 15 |   | — |   | 1,463 |   | (2,928 | ) | 6,492 |   |
| Net collagen revenues:        |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated customers        |       | 1,525                                                |       | — |   | — |   | — |   | — |   | — |   | — |   | 1,525 |   |
| Affiliates                    |       | —                                               |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Total                         |       | 1,525                                                |       | — |   | — |   | — |   | — |   | — |   | — |   | 1,525 |   |
| Net Sales                     |       | 47,331                                               |       | 10,271 |   | 5,943 |   | 4,120 |   | — |   | 5,681 |   | (8,604 | ) | 64,742 |   |
|                          |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss) from operations |       | 13,499                                               |       | (178 | ) | (158 | ) | 1,506 |   | — |   | 190 |   | (106 | ) | 14,753 |   |
| Net income (loss)             |       | 8,516                                                |       | (114 | ) | (327 | ) | 968 |   | — |   | 199 |   | (84 | ) | 9,158 |   |
|                          |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total assets                  |       | 114,590                                              |       | 17,694 |   | 17,726 |   | 11,602 |   | — |   | 12,472 |   | (43,859 | ) | 130,495 |   |
|                               |            |                                                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)          Resultsof operations for Japan are included from July 5, 2005 onwards, the date onwhich the Company acquired the Japanese subsidiary.

 

The Company’s U.S.operations made net export sales to unaffiliated customers of approximately $1.1million and $1.8 million for the three months ended November 30, 2005 and2004, respectively, and approximately $2.5 million and $3.6 million for the sixmonths ended November 30, 2005 and 2004, respectively.  The Company’s German operations made netexport sales to unaffiliated customers of approximately****$0.9million and $0.6 million for the three months ended November 30, 2005 and2004, respectively, and approximately****$1.8 million and$1.8 million for the six months ended November 30, 2005 and 2004,respectively.  The Company’s Canadianoperations made net export sales to unaffiliated customers of approximately****$0.2 million and $0.5 million for the three months ended November 30,2005 and 2004, respectively, and approximately****$1.1million and $1.0 million for the six months ended November 30, 2005 and2004, respectively.

 

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11.         COMPREHENSIVEINCOME

 

The components of comprehensive income for the three-month andsix-month periods ended November 30, 2005 and 2004 are as follows:

 
| ** **                             | ** ** | **For the Three Months Ended** | ** ** | **For the Six Months Ended** | ** ** |
|----------------------------------------|------------|--------------------------------|------------|------------------------------|------------|
| ** **                             | ** ** | **November 30,**          | ** ** | **November 30,**        | ** ** | **November 30,** | ** ** | **November 30,** | ** ** |
| ** **                             | ** ** | **2005**                       | ** ** | **2004**                     | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net income                             |       | $                              | 8,054,670  |                         | $          | 4,209,499 |   | $ | 16,060,346 |   | $ | 9,158,452 |   |
| Net foreign  currency translation      |       | (1,591,001                     | )          | 3,267,830                    |       | (1,186,000 | ) | 3,636,626 |   |
| Hedge loss  reclassified into earnings |       | 5,137                          |       | 5,136                        |       | 10,273 |   | 10,273 |   |
| Comprehensive  income                  |       | $                              | 6,468,806  |                         | $          | 7,482,465 |   | $ | 14,884,619 |   | $ | 12,805,351 |   |

 

12.         RECENTACCOUNTING PRONOUNCEMENTS

 

In November 2004,the FASB issued SFAS No. 151, *Inventory Costs—anamendment of ARB No. 43, Chapter 4* (“SFAS No. 151”)*. *SFAS No. 151amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” toclarify the accounting for abnormal amounts of idle facility expense, freight,handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter4, previously stated that “. . . under some circumstances, items such as idlefacility expense, excessive spoilage, double freight, and rehandling costs may beso abnormal as to require treatment as current period charges. . . “. SFAS No. 151requires that those items be recognized as current-period charges regardless ofwhether they meet the criterion of “so abnormal.” In addition, SFAS No. 151requires that allocation of fixed production overheads to the costs ofconversion be based on the normal capacity of the production facilities.  This new standard is effective for inventorycosts incurred during fiscal years beginning after June 15, 2005.  The Company is in the process of evaluatingthe impact SFAS No. 151 will have upon adoption but does not anticipate itwill have a significant impact on its financial statements.

 

In December 2004,the FASB issued SFAS No. 123 (revised 2004), *Share-Based Payment*(“SFASNo. 123(R)”), which is a revision of SFAS No. 123,*Accounting for Stock-Based Compensation*. Generally, the approach in SFAS No. 123(R) is similar to theapproach described in SFAS No. 123.  However, SFAS No. 123(R) requires all share-based payments toemployees, including grants of employee stock options, to be recognized in thestatement of income based on their fair values. Pro forma disclosure is nolonger an alternative. Upon issuance, SFAS No. 123(R) required publiccompanies to apply the provisions of the Statement in the first interim orannual reporting period beginning after June 15, 2005. In April 2005,the Securities and Exchange Commission approved a new rule that delays theeffective date, requiring public companies to apply SFAS No. 123(R) in thefirst annual period beginning after June 15, 2005. Except for the deferralof the effective date, the guidance in SFAS No. 123(R) is unchanged. TheCompany expects to adopt SFAS No. 123(R) in its first interim period of itsfiscal year ending May 31, 2007 and has concluded that SFAS No. 123(R)will have a material impact on its financial position and results ofoperations. The adoption of this statement should impact net income andearnings per share similar to the pro forma amounts disclosed for the three-monthand six-month periods ended November 30, 2005 and 2004 in Note 2 to the condensedconsolidated financial statements. Actual results in future periods, however, may differ from the pro formaresults reflected in Note 2 due to an increase or decrease in grants ofemployee stock options and/or changes in assumptions, such as the use ofestimated versus actual forfeitures or a change in expected life.

 

In May 2005, theFASB issued SFAS No. 154, *Accounting Changes andError Corrections* (“SFAS No. 154”), which replaces APB Opinion No. 20,*Accounting Changes*, and SFAS No. 3,*Reporting Accounting Changes in Interim FinancialStatements-An Amendment of APB Opinion No. 28*.  SFAS No. 154 provides guidance on theaccounting for and reporting of accounting changes and error corrections. Itestablishes retrospective application, or the latest practicable date, as therequired method for reporting a change in accounting principle and thereporting of a correction of an error. This statement is effective for the Company’sfiscal year ending May 31, 2007.

 

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13.         STOCKSPLITS

 

On June 1,2004, the Board of Directors approved a three-for-two stock split, effected inthe form of a 50% stock dividend, to shareholders of record as of the close ofbusiness on June 30, 2004.  Thestock split was distributed on July 16, 2004 and increased the number ofshares outstanding by 10,066,940, net of 326 fractional shares for which cashdividends were paid. On November 15, 2004 the Board of Directors approveda three-for-two stock split, effected in the form of a 50% stock dividend, toshareholders of record as of the close of business on November 22,2004.  The stock split was distributed onDecember 13, 2004 and increased the number of shares outstanding by15,061,379, net of 82.5 fractional shares for which cash dividends werepaid.  All share and per share amountsdisclosed in this document pertaining to the three-month and six-month periodsended November 30, 2004 have been retroactively adjusted to reflect the June andDecember 2004 stock splits described above.

 

14.         STOCKREPURCHASE PROGRAM

 

The Company instituted a stock repurchase program in June 1998for up to 4,050,000 shares, of which 3,624,750 shares had been purchased priorto the end of the 2004 fiscal year, leaving 425,250 shares available forrepurchase.  On June 1, 2004, theBoard of Directors authorized the Company to repurchase up to an additional450,000 shares of its common stock.  On August 2,2004, the Board of Directors authorized the Company to repurchase up to anadditional 750,000 shares of its common stock. During the three-month period ended August 31, 2004, the Companyrepurchased 622,500 shares at an average per share price of $12.87.  During the quarter ended November 30,2005, the Company repurchased 642,600 shares at an average price per share of$23.07, bringing the aggregate number of shares to 4,889,850 repurchased todate since implementation of the 1998 repurchase program. An aggregate of 360,150shares were available for repurchase under the program as of November 30,2005.

 

On December 13,2005, the Board of Directors authorized the increase of the Company’s shares ofcommon stock available under the Company’s stock repurchase plan by one millionshares.

 

15.         COMMITMENTSAND CONTINGENCIES

 

Aspreviously reported, the Company’s Italian subsidiary and Dr. GioacchinoDe Chirico, the former President of the subsidiary, became the subjects of acriminal investigation in Milan, Italy centered on payments by severalcompanies to an Italian physician allegedly in exchange for favorable contractawards by his hospital. An internal investigation conducted by the AuditCommittee of the Company’s Board of Directors determined that a €13,500 paymentto a physician as the organizer and chairman of a convention sponsored by theItalian subsidiary was not improper, but the invoice for those servicesresulted in a violation of the books and records provisions of the ForeignCorrupt Practices Act, and payments to another physician totaling approximately$47,000 may have been related not only to the performance of certain servicesbut also to the introduction of an instrument system into that physician’shospital and perhaps other hospitals. The SEC has issued a formal investigative order in these matters, theCompany has made voluntary submissions to the SEC and the Company continues tocooperate with the SEC.  Neither theItalian prosecutor nor the SEC has expressed to the Company any conclusionsabout the ultimate outcome of their respective investigations.  No determination can yet be made as towhether, in connection with these circumstances, the Company will becomesubject to any fines, penalties and/or other charges imposed by anygovernmental authority, or any other damages or costs that may arise inconnection with these circumstances.

 

TheCompany is aware of ten class-action lawsuits having been filed in the UnitedStates District Court for the Northern District of Georgia against the Companyand certain of its current and former directors and officers allegingviolations of the securities laws. These actions, filed by former shareholdersof the Company, seek damages on behalf of themselves individually and on behalfof an alleged class of former shareholders who either purchased or sold theCompany’s stock between January 7 and August 29, 2005. The lawsuits allege thatthe Company’s stock prices during that time were inflated as a result ofmaterial misrepresentations or omissions in the Company’s financial statements.The cases are at a very early stage. The plaintiffs have informed the courtthat they intend to file an amended and consolidated complaint. As aconsequence, discovery has not yet begun, the Company has not been required tofile an answer or other defenses to the actions, nor has the court made anydetermination whether any of the cases have merit or should be allowed toproceed as class actions. The Company believes each of the lawsuits is withoutmerit, and intends to vigorously defend itself. While the Company does notcurrently expect these lawsuits to materially affect its financial condition orresults of operations, there can be no assurance of any particular outcome.

 

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In September 2005, F. Baragano Pharmaceuticalsfiled suit against the Company in the U.S. District Court for the District ofPuerto Rico, alleging that the Company cancelled a distribution contractwithout just cause, and seeking $350,000 plus interest, costs and attorneyfees.  The Company is defending itselfagainst this lawsuit, but at this time is not able to determine the probabilityof a favorable or unfavorable outcome or an estimate of the amount or range ofpossible loss.

 

The Company’s compliance with its Affirmative ActionPlan is being audited by the US Department of Labor’s Office of FederalContract Compliance Programs (OFCCP) concerning personnel activity from July 1,2003 through June 30, 2004 and July 1, 2004 through February 13,2005.  If OFCCP determines that aviolation of Federal antidiscrimination statutes has occurred, it has the powerto order remedial action.  Due to thepreliminary nature of this matter, the Company is not yet able to determinewhether it will become subject to any such remedial action.

 

Other than as set forth above, the Company is notcurrently subject to any material legal proceedings, nor, to the Company’sknowledge, is any material legal proceeding threatened against the Company. However,from time to time, the Company may become a party to certain legal proceedingsin the ordinary course of business.

 

16.         DEFERREDINSTRUMENT COSTS

 

Incertain limited situations involving third-party leasing arrangements, theCompany enters into a repurchase agreement with the third party whereby if theultimate customer terminates the lease, the Company agrees to repurchase theinstrument for an amount equal to the remaining unpaid lease payments owed tothe third-party leasing company.  Inthese limited situations, the Company continues to defer the revenue related tothe sale and subsequently recognizes the revenue over the lease term as thelease payments are made to the third-party leasing company and it is clear thatthe ultimate customer has not terminated the related lease.  In prior periods, the Company also deferredthe corresponding cost of these instrument sales and recognized the costs overthe same period as the related revenue. During the quarter ended February 28, 2005, the Company determinedthat it was more appropriate to recognize the instrument costs in thesedeferral situations when the instrument has been installed and writtenacceptance has been received from the customer. Accordingly, for the quarter ended February 28, 2005, the Companyrecorded additional cost of sales totaling approximately $327,000 which relatedto prior quarters.  The Company nowrecords all such instrument costs at the time the instrument is installed andaccepted by the customer and title has been legally transferred to thecustomer.

 

17.         SUBSEQUENTEVENTS

 

*Increase in authorized capital to 120 million shares*

 

At an annual meeting of the Company’s shareholdersheld on December 13, 2005, the shareholders of the Company approved theincrease of the Company’s authorized capital of common stock, par value $0.10,from 60 million shares to 120 million shares.

 

*Stock repurchase plan*

 

On December 13,2005, the Board of Directors of the Company authorized the repurchase of anadditional one million shares of common stock under the Company’s stockrepurchase plan. See Note 14.

 

**ITEM2.  Management’s Discussion and Analysisof Financial Condition and Results of Operations.**

 

*Certain statements that Immucor, Inc. (“Immucor” or the “Company”) may make from time to time, including all statements contained in this report that are not statements of historical fact, constitute “forward-looking statements” under the federal securities laws. Forward-looking statements may be identified by words such as “plans,” “expects,” “believes,” “anticipates,” “estimates,” “projects,” “will,” “should” and other words of similar meaning used in conjunction with, among other things, discussions of future operations, financial performance, product development and new product launches, FDA and other regulatory applications and approvals, market position and expenditures.  Factors that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, Immucor include the following,*

 

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*some of which are described in greater detail below:  the decision of customers to defer capital spending; the inability of customers to efficiently integrate our instruments into their blood banking operations; increased competition in the sale of instruments and reagents; product development or regulatory obstacles; the ability to hire and retain key managers; changes in interest rates and foreign currency exchange rates; changes in demand for the Company’s human collagen product; the ability of the Company’s Japanese subsidiary to attain expected revenue, gross margin and net income levels; delays in regulatory approvals or other unforeseen delays related to the Company’s plans to move Houston manufacturing operations to another Company facility; higher than expected costs related to the planned closure of the Houston facility; higher than expected manufacturing consolidation costs; problems in efficiently producing products after the consolidation; the outcome of any legal claims known or unknown; and general economic conditions. In addition, the strengthening of the dollar versus the Euro would adversely impact reported European results.  Investors are cautioned not to place undue reliance on any forward-looking statements.  Immucor cautions that historical results should not be relied upon as indications of future performance.  Immucor assumes no obligation to update any forward-looking statements.*

 

**CriticalAccounting Policies**

 

*General*

 

Wehave identified the policies below as critical to our business operations andthe understanding of our results of operations. The impact and any associatedrisks related to these policies on our business operations is discussedthroughout Management’s Discussion and Analysis of Financial Condition andResults of Operations where such policies affect our reported and expectedfinancial results.  For a detaileddiscussion on the application of these and other accounting policies, see notesto the condensed consolidated financial statements of this Quarterly Report on Form 10-Qand notes to the consolidated financial statements and the MD&A containedin our 2005 Annual Report on Form 10-K for the fiscal year ended May 31,2005.  Note that our preparation of this Form 10-Qrequires us to make estimates and assumptions that affect the reported amountsof assets and liabilities, the disclosure of contingent assets and liabilitiesat the date of our financial statements, and the reported amounts of revenueand expenses during the reporting period. Actual results could differ fromthose estimates, and certain assumptions could prove to be incorrect.  Senior management has discussed thedevelopment and selection of critical accounting estimates and related disclosurein this Management’s Discussion and Analysis of Financial Condition and Resultsof Operations disclosure with the Audit Committee of the Board of Directors.

 

*RevenueRecognition*

 

TheCompany recognizes revenue when the following four basic criteria have beenmet:  (1) persuasive evidence of anarrangement exists; (2) delivery has occurred or services are rendered; (3) thefee is fixed and determinable; and (4) collectibility is reasonablyassured.  Should changes in conditionscause management to determine these criteria are not met for certain futuretransactions, revenue recognized for any reporting period could be adverselyaffected.

 

•                  Reagent sales

 

Revenuefrom the sale of the Company’s reagents in the U.S. market is generallyrecognized upon shipment when both title and risk of loss transfer to thecustomer upon shipment.  Revenue from thesale of the Company’s reagents in the export market is recognized FOB upon customsclearance at which time both title and risk of loss transfer to the customer.

 

•                  Human collagen and collagenby-product sales

 

Revenuefrom the sale of the Company’s human collagen product and from the sale ofby-products of collagen is recognized upon shipment and either passage of a 10-dayinspection period (or, for by-products of collagen, passage of a 30-dayinspection period), or upon receipt of notification of customeracceptance.  In accordance with arevenue-sharing agreement between the Company and the Company’s human collagencustomer, revenue from the sale of by-products is allocated 66.7% to theCompany and 33.3% to the collagen customer.

 

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•                  Medical instrument sales

 

Revenuefrom the sale of the Company’s medical instruments is generally recognized uponshipment and completion of contractual obligations relating to training and/orinstallation based on terms of the related agreements.  Revenue from rentals of the Company’s medicalinstruments is recognized over the life of the rental agreement.  Instrument service contract revenue isrecognized over the life of the contract.

 

TheCompany recognizes revenue on the sale of medical instruments in accordancewith Emerging Issues Task Force (“EITF”) Issue No. 00-21, *Accounting for Revenue Arrangements with MultipleDeliverables*, for agreements entered into beginning in the secondquarter of fiscal year 2004.  The Company’smedical instrument sales contracts involve multiple deliverables, including thesale or rental of an instrument (including training), the subsequent servicingof the instrument during the first year, reagent products provided to thecustomer during the validation period and, in some cases, price guarantees forconsumables purchased during the contract period and/or a software interface tobe provided to the customer.  The Companyhas determined the fair value of certain of these elements, such as training,validation reagents, and first year service. The portion of the instrument sales price applicable to the instrumentitself is recognized upon shipment and completion of contractual obligationsrelating to training and/or installation based on the terms of the relatedagreement.  The Company believes it notpossible to determine the fair value of price guarantees.  If the agreement contains price guarantees,the entire sales price is deferred and recognized over the guaranteeperiod.  If the agreement does notinclude any price guarantees, the sales price in excess of the fair values oftraining, validation reagents, and service is allocated to the instrumentitself; using the residual method.  Thefair value of at least one customer training session is recognized as revenuewhen the instrument itself is recognized, provided the training has beenprovided. If multiple training sessions are contractually provided for, and notall training has been complete at the time the instrument is recognized,additional training revenue is recognized upon delivery. The fair value ofreagent products provided to the customer during the validation period is alsorecognized when the instrument itself is recognized.  The fair value of first year service isdeferred and recognized over the first year of the contract.  The allocation of the total considerationreceived based on the estimated fair value of the units of accounting requiresjudgment by management.

 

Incertain limited situations involving third-party leasing arrangements, theCompany enters into a repurchase agreement whereby if the ultimate customerterminates the lease, the Company agrees to repurchase the instrument for anamount equal to the remaining unpaid lease payments owed to the third-partyleasing company.  In these limitedsituations, the Company continues to defer the revenue related to the sale andsubsequently recognizes the revenue over the lease term as the lease paymentsare made to the third-party leasing company and it is clear that the ultimatecustomer has not terminated the related lease. In prior periods, the Company also deferred the corresponding cost ofthese instrument sales and recognized the costs over the same period as therelated revenue.  During the fiscalquarter ended February 28, 2005, the Company determined that it was moreappropriate to recognize the instrument costs in these deferral situations whenthe instrument has been installed and written acceptance has been received fromthe customer.  Accordingly, during thefiscal quarter ended February 28, 2005, the Company recorded additionalcost of sales totaling approximately $327,000, which was related to priorquarters but which was not material to any single quarter.  The Company now records all instrument costsat the time the instrument is installed and accepted by the customer and titlehas been legally transferred to the customer.

 

•                  Sales subject to a plan offactoring

 

Sales subject to a plan of factoring are recorded attheir net realizable value (defined as gross sales less the annual estimatedcost of factoring the sale).  Should thefactored sale remain uncollected by the factor at the end of one year, anestimate of the additional factoring discount is made and recorded monthly asan additional reduction of sales revenue.

 

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•                  Shipping and handling charges

 

Theamounts billed to customers for shipping and handling charges are recognized innet sales upon shipment. The associated cost of these shipments is recorded incost of sales.

 

*Allowancefor Doubtful Accounts*

 

The Company records anallowance for doubtful accounts based on specifically identified amounts thatit believes to be uncollectible. The Company also records an additionalallowance based on certain percentages of its aged receivables, which aredetermined based on its experience and assessment of the general financialconditions affecting its customer base. If the Company’s actual collectionsexperience changes, revisions to its allowance may be required. The Company hasa large number of customers with individually small amounts due at any givenbalance sheet date. Any unanticipated change in the creditworthiness of anysuch customer or other matters affecting the collectibility of amounts due fromsuch customers would not have a material effect on the Company’s results ofoperations in the period in which such changes or events occur. After theCompany’s attempts to collect a receivable have failed, the receivable iswritten off against the allowance.

 

*Inventory*

 

Inventories are stated atthe lower of cost or market determined on a first-in, first-out cost ormarket.  Cost includes material, laborand manufacturing overhead.  The Companyuses a standard cost system as a tool to monitor production efficiency.  The standard cost system applies estimatedlabor and manufacturing overhead factors to inventory based on budgetedproduction and efficiency levels, staffing levels and costs of operation, basedon the experience and judgment of management. Actual costs and production levels may vary from the standardestablished, and are charged to the consolidated statement of operations as acomponent of cost of sales.  Since U.S.generally accepted accounting principles require that the standard costapproximate actual cost, periodic adjustments are necessary.  The provision for obsolete inventory isreviewed on a quarterly basis.  Allfinished good reagent products due to expire in less than six months arewritten down to zero in the period in which this expiration threshold is met.  Any raw, intermediate, or finished productthat has been quarantined because it has failed quality control (QC) is writtendown to zero in the period in which the product fails QC testing.  Should the product be successfully reworkedand pass final quality control checks, it is then valued at its standardcost.  Obsolete and quarantined inventoryis physically segregated from useable and saleable inventory and destroyed accordingto regulatory and fiscal guidelines.  Nomaterial changes have been made to the inventory policy during the six-monthperiod ended November 30, 2005.

 

*Goodwill,Intangible Assets and Other Long-lived Assets*

 

In assessing therecoverability of the Company’s goodwill and other long-lived assets, we mustmake assumptions regarding estimated future cash flows and other factors todetermine the fair value of the respective assets. If these estimates or theirrelated assumptions change in the future, we may be required to recordimpairment charges for these assets not previously recorded. On June 1,2002 we adopted Statement of Financial Accounting Standards (“SFAS”) No. 142,*Goodwill and Other Intangible Assets*,and are required to analyze the Company’s goodwill and intangible assets forimpairment on an annual basis or more frequently if impairment indicatorsarise.

 

*IncomeTaxes*

 

Our income tax policyrecords the estimated future tax effects of temporary differences between thetax bases of assets and liabilities and amounts reported in the accompanyingconsolidated balance sheets, as well as operating loss and tax creditcarry-forwards. We follow very specific and detailed guidelines regarding therecoverability of any tax assets recorded on the balance sheet and provide anyallowances as required.  We believe thatthe value of our deferred tax assets assumes that we will be able to generatesufficient future taxable income in certain tax jurisdictions, based onestimates and assumptions. If these estimates and related assumptions change inthe future, we may be required to record additional valuation allowancesagainst our deferred tax assets resulting in additional income tax expense in ourconsolidated statements of income. In assessing the realizability of deferredtax assets, we consider whether it is more likely than not that some portion orall of the deferred tax assets will not be realized.  We consider the scheduled reversal ofdeferred tax liabilities, projected future taxable income, carry-back opportunities,and tax-planning strategies in making this assessment.  We evaluate the realizability of the deferredtax

 

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assets and assess theneed for additional valuation allowances quarterly.  No material changes have been made to theincome tax policy during the six-month period ended November 30, 2005.

 

*Stock-BasedEmployee Compensation*

* *

We currently account forstock option grants in accordance with APB Opinion No. 25, *Accounting for Stock Issued to Employees. *Accordingly, we recognizecompensation expense only if the stock price on the grant measurement dateexceeds the exercise price (i.e. the grant has intrinsic value).  In such a case, the intrinsic value of thegrant is recognized as compensation expense over the vesting period of thegrant. We have recorded compensation expense totaling approximately $29,000 and$64,000, respectively, for the three-month and six-month periods ended November 30,2005.

 

In December 2002,the FASB issued SFAS No. 148, *Accounting for Stock-basedCompensation – Transition and Disclosure – an amendment of FASB Statement No. 123. *SFAS No. 148 providesalternative methods of transition for a voluntary change to the fair valuebased method of accounting for stock-based employee compensation.  In addition, SFAS No. 148 amends thedisclosure requirements of SFAS No. 123 to require prominent disclosuresin both annual and interim financial statements about the method of accountingfor stock-based employee compensation and the effect of the method used onreported results.  We adopted the transitionaldisclosure requirements in the period ended May 31, 2003.  See Note 2 to the condensed consolidatedfinancial statements.

 

In December 2004, the FASB issued SFAS No. 123(revised 2004), *Share-Based Payment*(“SFAS No. 123(R)”), which is arevision of SFAS No. 123,*Accountingfor Stock-Based Compensation*.  Generally, the approach in SFAS No. 123(R)is similar to the approach described in SFAS No. 123.  However, SFAS No. 123(R)requires all share-basedpayments to employees, including grants of employee stock options, to berecognized in the statement of income based on their fair values. Pro formadisclosure is no longer an alternative. We are required to adopt SFAS No. 123(R)in our first interim period of our fiscal year ending May 31, 2007 andhave concluded that SFAS No. 123(R) will have a material impact on ourfinancial position and results of operations. The adoption of this statementshould impact net income and earnings per share similar to the pro formaamounts disclosed for the three-month and six-month periods ended November 30,2005 and 2004 in Note 2 to the condensed consolidated financialstatements.  Actual results in futureperiods, however, may differ from the pro forma results reflected in Note 2 dueto an increase or decrease in grants of employee stock options and/or changesin assumptions, such as the use of estimated versus actual forfeitures or achange in expected life.

 

**Overview**

 

Founded in 1982, Immucordevelops, manufactures and sells a complete line of reagents and automatedsystems used primarily by hospitals, clinical laboratories and blood banks in anumber of tests performed to detect and identify certain properties of the celland serum components of human blood prior to blood transfusion.  Our strategy is to strengthen our leadershipposition in the automation of blood bank testing by continuing to expand ourbase of installed instruments. To facilitate instrument placements, we offercustomers a selection of automated analyzers, which address the various needsof low, medium, and high-volume testing facilities.  We utilize a “razor/razorblade” businessmodel.  Our instruments are designed tooperate with our proprietary reagents. Therefore, once a customer procures an instrument from us, the customeris likely to continue to purchase proprietary reagents from us for use with theinstrument on a going-forward basis.  Inorder to satisfy the broad spectrum of customers’ operational and financialcriteria, we intend to continue to offer several instrument procurementoptions, including third-party financing leases, direct sales and reagentrentals and to expand the range and price points of our instrument offerings.

 

For fiscal 2006, we arecontinuing to focus on improving gross margins on our products throughachieving continued benefits from strategies already implemented prior to May 31,2005, as well as through the implementation of new strategies.  Our gross margin increased to 64.8% for thequarter ended November 30, 2005, from 56.1% for the quarter ended November 30,2004.  Gross margin for the six-monthperiod ended November 30, 2005 increased as well, from 56.6% for the prioryear period to 63.9%.

 

As further discussedbelow under “Results of Operations,” the improvement in gross margin during thequarter ended November 30, 2005, as compared to the prior year period, wasdue primarily to the following:

 

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•                  Reagent price increases, attributablein part to the cancellation, in January 2005, of supply agreements withtwo group purchasing organizations which annually contributed approximately $25million to our revenue, in order to increase member purchasing prices as wellas reduce administrative fees associated with these contracts;

 

•                  Increased Capture reagent revenues,driven primarily by the kit-to-component marketing changeover implemented inthe third quarter of fiscal 2005, as well as placement of additionalinstruments which require use of Capture reagents; and

 

•                  Increased manufacturing efficienciesdue in part to the continued elimination of a number of redundant productspreviously manufactured at our three manufacturing facilities.

 

Listed below are the key factors which we expect will further grossmargin improvements during the remainder of fiscal 2006:

 

•                  Implementationof Customer Loyalty Program

 

This new program has been built upon the standardizedtier pricing structure first implemented in fiscal 2005.  As with the structure implemented in fiscal2005, there are three pricing tiers – each representing differing levels ofcustomer loyalty, with the highest tier consisting of the lowest prices for anautomated instrument customer and the lowest tier consisting of the highestprices for the non-committed, occasional customer.  The new program, which was implemented in August 2005,is intended to promote higher sales volumes while partially shielding our moreloyal customers from the effects of price increases.

 

•                  Impact ofGalileo increased market penetration

 

We expect Capture reagent revenues to continue toincrease in fiscal 2006 over fiscal 2005, due to the continued impact of fiscal2005 Galileo placements as well as expected new placements in fiscal 2006.  In addition, service revenue is expected tocontinue to increase as the service warranty periods for prior year Galileoplacements expire and additional service contracts are purchased by customers.

 

•                  Increased Japanese marketpenetration 

 

On July 5,2005, we acquired Immucor-Kainos, Inc. from our former Japanesedistributor, Kainos Laboratories, Inc. (“Kainos”).  We believe the acquisition of this company isa key step towards further penetrating the Japanese transfusion diagnosticsmarket, the third largest such market in the world after Europe and the UnitedStates.  The results of this subsidiaryhave been included in our consolidated financial statements from July 5,2005, the date of acquisition.

 

•                  Implementation of new Kiwi technology

 

In July 2005, wesigned a technology licensing agreement with Kiwi Ingenuity Limited (“Kiwi”), apartner to Auckland University of Technology Biotechnology Research Instituteto use Kiwi’s KODETM technology platform to create a quality control system forblood group typing. This technology allows for the attachment of molecules tothe outside of cells, thereby resulting in a quality control system for bloodgrouping.  We expect to begin using thisnew technology in manufacturing products beginning in late fiscal 2006, andexpect that offering our customers heightened assurance as to the accuracy oftest results will provide us with a competitive advantage, thereby increasingoverall revenues.  We expect to spendapproximately $15,000 in research and development costs related to thistechnology in fiscal 2006.

 

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•                  Increased manufacturingefficiencies

 

Weexpect to continue the process of eliminating redundant products currentlymanufactured at our three manufacturing facilities.

 

Additionally, we expect to continue increasing manufacturingefficiencies going into fiscal 2007 through implementation of a ManufacturingExecution System (“MES”), a new sales forecasting system, and a new marketingdatabase, the combination of which is expected to drive more accurateforecasting of product demand and resulting material and laborrequirements.  The new marketing databasewas implemented in June 2005.  Thenew sales forecasting system is expected to be implemented in January 2006.   MES is expected to be implemented in thefirst quarter of fiscal 2007.

 

In addition to the above strategies, we expect to further improve ourcompetitive position going into fiscal 2007 through the launch of our thirdgeneration automated assay instrument, which is expected to be released in theEuropean market in the summer of 2006. At the American Association for ClinicalChemistry convention held in July 2005, we presented a prototype of ournew third generation instrument, the Galileo EchoTM.  The Galileo EchoTM is significantly smallerand faster than the ABS2000 and, apart from lower throughput, has substantiallyall of the features of our larger Galileo product.  We believe the new instrument will appeal tothe small- to medium-sized hospital market, the largest segment of our customers(which number approximately 5,000 to 6,000 worldwide), to which our ABS2000instrument is currently marketed.

 

Additionally, as a resultof the closure of the Houston, Texas manufacturing facility in December 2007and the subsequent consolidation of production in Norcross, Georgia andHalifax, Nova Scotia, the Company anticipates a significant reduction in costs,with the benefits expected to be partially realized in the 2008 fiscal year andfully realized in fiscal 2009 and subsequent years.

 

**Liquidityand Capital Resources**

 

At November 30,2005, we had working capital of $69.5 million, compared to $70.9 million ofworking capital at May 31, 2005. Our cash and cash equivalents were $33.4 million at November 30,2005, as compared to $37.1 million at May 31, 2005. In the first twoquarters of fiscal 2006, we paid $4.7 million for the purchase ofImmucor-Kainos, repaid $7.3 million long-term debt and spent $14.9 million torepurchase shares of our common stock under the stock repurchase plan.  These factors contributed to the smallreduction in the working capital and cash and cash equivalents even thoughoperating activities generated $28.8 million cash for the six months ended November 30,2005.

 

Net cash generated byoperating activities increased to $28.8 million for the six months ended November 30,2005, up $14.1 million from $14.7 million generated in the same period ended November 30,2004.  This increase was primarily drivenby a 75.4% increase in net income.

 

For the six months ended November 30,2005, $10.1 million of cash was used in investing activities primarily for thefollowing:  (1) acquisition ofImmucor-Kainos, Inc. ($4.7 million), (2) capital expenditures ($4.4million), and (3) investments in held-to-maturity marketable securities($1.0 million).  The $4.4 million incapital expenditures for the six-month period ended November 30, 2005consisted primarily of $0.6 million for Galileo and other instruments used fordemonstration purposes by the sales force or placed at customer sites on reagentrental agreements to be depreciated over the life of the respective agreements,$2.3 million for building, machinery and equipment and furniture additions and upgradesprimarily at our Norcross facility, and $1.5 million for computer hardware andsoftware enhancements of the enterprise software system.  Planned capital expenditures for fiscal 2006total approximately $8.7 million.

 

In July 2005, we paid Kainos 459.0 million Japanese Yen (approximately$4.2 million) in cash on signing of the purchase agreements, and will payadditional 300 million Japanese Yen (approximately $2.5 million) over threeyears with payment of 125 million Japanese Yen in each of the first two yearsand the remaining 50 million Japanese Yen in the third year. A final payment of441.0 million Japanese Yen will be made after a three-year transition periodending on June 30, 2008, or earlier upon mutual agreement.

 

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Net cash used infinancing activities totaled approximately $22.2 million and $10.9 million for thesix months ended November 30, 2005 and 2004, respectively. The majority ofthe usage of cash in the current year period is attributable to $14.9 million utilizedto repurchase shares of our common stock and $7.3 million to repay long termdebt. We repaid all capital lease obligations amounting to approximately $0.9million, and also all of the $6.3 million borrowings from financialinstitutions, except approximately, $98,000 from the surplus generated fromoperating activities. We received $130,000 from exercise of employee stockoptions.

 

We instituted a stock repurchase program in June 1998 for up to4,050,000 shares, of which 3,624,750 shares had been purchased prior to the endof the 2004 fiscal year, leaving 425,250 shares available for repurchase.  On June 1, 2004, the Board of Directorsauthorized the Company to repurchase up to an additional 450,000 shares of itscommon stock.  On August 2, 2004,the Board of Directors authorized the Company to repurchase up to an additional750,000 shares of its common stock. During the three-month period ended August 31, 2004, the Companyrepurchased 622,500 shares at an average per share price of $12.87.  During the quarter ended November 30,2005, the Company repurchased 642,600 shares at an average price per share of$23.07, bringing the aggregate number of shares to 4,889,850 repurchased todate since implementation of the 1998 repurchase program. An aggregate of360,150 shares remained available for repurchase under the program as of November 30,2005. On December 13, 2005, the Board authorized the Company to repurchaseup to additional one million shares, increasing to 1,360,150 shares availablefor repurchase.

 

In October 2004, we initiated an internal investigation into certain events involving our Italian subsidiary.  The internal investigation also addressed the underpayment of value added tax (VAT) by our Italian subsidiary.  All due but unpaid VAT has now been paid, with required interest, although the Italian tax authorities may impose a penalty for underpayment of VAT. As of November 30, 2005, we had incurred approximately $3.6 million in professional fees associated with this investigation.  During the three-month and six-month periods ended November 30, 2005, we had incurred an additional $0.5 million and $1.0 million, respectively, in professional fees associated with this matter.  We believe we may incur up to an additional $0.7 million during the remainder of fiscal 2006 in professional fees and/or other costs related to this investigation.  As discussed more fully in Note 15 to the condensed consolidated financial statements, no determination can yet be made as to whether we, in connection with the circumstances surrounding the Italian investigation, will become subject to any fines, penalties and/or other charges imposed by any governmental authority, or any other damages or costs that may arise in connection with these circumstances.  Accordingly, no provisions for any liabilities that may result upon closure of this matter have been made in the accompanying financial statements,.

 

As discussed in Note 15to the condensed consolidated financial statements and in Part II, Item 1(Legal Proceedings), certain lawsuits have been filed in the United StatesDistrict Court for the Northern District of Georgia against us and certain ofour current and former directors and officers, alleging violations of thesecurities laws.  We believe each of thelawsuits is without merit, and intend to defend the Company vigorously.  While we do not currently expect theselawsuits to materially affect our financial condition or results of operations,there can be no assurance of any particular outcome.

 

On October 31, 2005our directors approved a plan to close our Houston, Texas manufacturing facility.  The decision to close the facility was drivenby a number of factors including, in particular, the expense of operating twoseparate FDA licensed manufacturing facilities. This closure, which is subject to certain regulatory approvals, is scheduledto be completed by December 2007. During the second quarter of fiscal year 2006, we recorded a charge ofapproximately $2.5 million, including approximately $2.4 million for impairmentof long-lived assets and approximately $0.1 for severance pay. The remainingprojected closure costs of approximately $2.1 million consist of approximately$1.3 million in costs to consolidate operations and relocate associatedemployees to Norcross, and approximately $0.8 million in retention bonus. Theemployee relocation costs will be expensed when incurred and the retentionbonus is expensed over the period of service necessary to receive such bonus.Net cash outlays related to the consolidation of operations, relocation ofemployees, and employee termination costs are expected to be approximately $2.0million to be paid out over the next two years.

 

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We expect that cash andcash equivalents and cash flows from operations will be sufficient to supportoperations and planned capital expenditures for the next 12 months, as well asfund future long-term debt payments. There are no restrictions on our subsidiaries in the matter of sendingdividends, or making loans or advances to Immucor.

 

**Resultsof Operations**

 

We generated revenues of$44.0 million and $86.5 million, respectively, for the three-month and six-monthperiods ended November 30, 2005. These revenue results represented respective increases of $11.4 millionand $21.7 million over the same fiscal periods in the prior year.  Net income for the three-month and six-monthperiods ended November 30, 2005 totaled $8.1 million and $16.1 million,respectively; the results represented respective increases of $3.8 million and $6.9million in net income over the same fiscal periods in the prior year.

 

Diluted earnings pershare were $0.17 for the three-month period ended November 30, 2005,compared with diluted earnings per share of $0.09 for the three-month periodended November 30, 2004.  Dilutedearnings per share were $0.34 for the six-month period ended November 30,2005, compared with diluted earnings per share of $0.19 for the six-monthperiod ended November 30, 2004.

 

For the three-monthperiod ended November 30, 2005, the effect on net sales and gross marginof the change in the Euro exchange rate was an approximate decrease of $0.5million and $0.2 million, respectively, and minimal for net income. For thesix-month period ended November 30, 2005, the effect on net sales andgross margin of the change in the Euro exchange rate was an approximate decreaseof $0.5 million and $0.2 million, respectively, and minimal for net income.

 

Revenues

 

Revenuefor the fiscal second quarter was a record $44.0 million, up 34.9% from $32.6million in the same period last year. The $11.4 million increase was primarilythe result of price increases. Gross margin improved during the quarter to arecord 64.8% up from 56.1% in the prior year quarter.

 

Reagentrevenues grew to $40.0 million compared to $28.2 million in the prior yearquarter, a 41.8% increase.  The growth intraditional reagent revenue (i.e. products not utilizing the Company’s patentedCapture® technology) occurred mainly as a result of price increases.  Capture® product sales were $8.4 million inthe three-month period ended November 30, 2005 compared to $6.6 million inthe three-month period ended November 30, 2004.  Sales of instruments were $3.0 million in thesecond quarter of 2006 compared to $3.7 million in the second quarter of 2005;the reduction was primarily due to additional deferrals required for the salescontracts that included price guarantees. Most instrument sales in the UnitedStates are now being recognized over the life of the underlying reagentcontract, which is normally five years. In the quarter ended November 30,2005 approximately $1.4 million of instrument sales were deferred in thismanner. As of November 30, 2005, deferred instrument revenues, including servicerevenues, totaled $11.4 million. Human collagen sales were $1.1 millioncompared to $0.7 million in the prior year quarter.

 

Forthe six-month period ended November 30, 2005, reagent revenues increased $22.5million (or 39.6%) over the prior year period. This growth for the year-to-date period was attributable primarily tothe price increases as outlined above for the quarterly period.  For the six-month period ended November 30,2005, Capture® product sales were $16.3 million as compared to $13.1 million forthe same period in fiscal 2005.    Instrumentrevenues for the six-month period ended November 30, 2005 totaled $5.1million as compared to $6.5 million in the prior year period, the reduction wasprimarily due to additional deferrals required for the sales contracts which offeredprice guarantees. Human collagen sales were $2.2 million as compared to $1.5million for the same period in fiscal 2005.

 

Gross Margin

 

Overallgross margin improved during the quarter to a record 64.8%, up from 56.1% inthe prior year quarter. Gross margin on traditional reagents for the quarterended November 30, 2005 increased to 68.4% for the current quarter from56.7% for the prior year quarter as a result of the price increases discussedabove as well as from improved manufacturing efficiencies.  The gross margin on Capture® products was 78.6%for the current quarter, compared with 76.7% in the prior year quarter.  The gross margin on instruments, includingthe impact of the cost of providing

 

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servicewas 0.2% for the current quarter, compared to 22.1% for the same quarter lastyear.  Instrument gross margin in thecurrent quarter was impacted by $1.4 million of revenue from instrument sales beingdeferred while the entire cost of sales of $0.7 million on those instrumentsales was expensed in the current quarter. The gross margin on human collagensales was 31.1% during the quarter, compared with 25.4% in the prior yearquarter.

 

Overall gross marginimproved during the six-month period ended November 30, 2005 to a record63.9%, up from 56.6% in the prior six-month period ended November 30, 2004.Gross margin of 68.8% on traditional reagents for the six-month period ended November 30,2005 was higher than the 57.0% achieved in the prior year period; the increasewas primarily due to benefits from higher prices and improved manufacturingefficiencies. The gross margin on human collagen sales was 29.7% during the sixmonths ended November 30, 2005, compared with 27.6% in the same prior yearperiod.  The gross margin on instrumentswas negative 31.4% as compared to 18.6% in the six-month period in the prioryear; the decrease in gross margin was primarily due to additional revenuedeferrals required for the sales contracts which offered price guarantees andalso due to increase in signing and recording full cost of instruments upfrontfor sales contracts for which revenue is deferred over the term of thecontract. The gross margin on Capture® products improved to 79.1% from 77.3% inthe prior six-month period.

 

Operating Expenses

 

Research and development expenses increased byapproximately $54,000 to $1.2 million in the second quarter, up 4.7% comparedto the prior year quarter.  For thesix-month period ended November 30, 2005, we spent $2.5 million ascompared to $2.2 million in the prior year period.  Spending on the development of Galileo Echo, thenew third generation instrument targeted for the small to medium hospitalmarket was $0.2 million and $0.5 million, respectively, for the three- andsix-month periods ended November 30, 2005. In these same periods in the prior year, $0.4 million and $0.8 million,respectively, were spent on Galileo Echo.

 

Selling and marketingexpenses increased $1.0 million and $2.1 million, respectively, over the three-monthand six- month periods ended November 30, 2004. The Japanese jointventure, which did not exist in the prior year, added $0.9 million and $1.4million to selling and marketing expenses for the three-month and six-monthperiods in the current fiscal year. Our staff cost increased for the six-monthperiod by $0.4 million for new hires and by $0.2 million for sales commissions.

 

Distributionexpenses decreased nominally for the three-month period and by $0.1 million forthe six-month period ended November 30, 2005 compared to the same periodended November 30, 2004.

 

General andadministrative expenses increased by $1.1 million for the second quarter of2006 as compared to the prior year quarter, partly due to higher legal andaudit fees associated with the finalization of the internal investigationrelating to events in Italy and higher audit fees associated with theadditional procedures arising from compliance with the Sarbanes-Oxley Act requiredto complete the Annual Report on Form 10-K. For the six-month period ofthis fiscal year, the general and administration expenses increased by $3.9million compared to the previous year period with legal and audit fees andstaff costs accounting for the main increases.

 

Ourdecision to consolidate our manufacturing operations resulted in arestructuring charge of $2.5 million in the quarter. We recorded $0.1 millionfor severance pay and $2.4 million in impairment charges for long-lived assetsat Houston, Texas facility for the three-month ended November 30, 2005. Norestructuring charges were recorded in the comparative quarter for the previousyear or in the first quarter of fiscal 2006.

 

Amortization expenses andother decreased by approximately $0.5 million for the three-month and six-monthperiods ended November 30, 2005 over the prior year periods because theprior year periods included a $0.5 million charge related to improperlyrecorded transactions on the Company’s Italian subsidiary’s books discoveredduring the Company’s internal investigation into activities in that subsidiary.  See Note 15 to the condensed consolidatedfinancial statements.

 

Net Income and Earningsper Share

 

Higher sales, improvedmargins and only a marginal increase in expenses resulted in net income for thesecond quarter of $8.1 million, up 91.3% from $4.2 million for the same quarterlast year. For the six-month period, the net

 

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income was $16.1 millioncompared to $9.2 million in the prior year period, an increase of 75.4%. Forthe second quarter, diluted earnings per share totaled $0.17, up from $0.09 forthe same period last year; for the six-month period, diluted earnings per sharewas $0.34 per share compared to $0.19 for the same period last year.

 

**ITEM3.  Quantitative and QualitativeDisclosures about Market Risk.**

 

Therehave been no material changes regarding the Company’s market risk position sincethe filing of its Annual Report on Form 10-K for the fiscal year ended May 31,2005, except for additional foreign currency exchange risks associated with theCompany’s new subsidiary – Immucor-Kainos, Inc. This additional risk relatesto potential volatility in the exchange rates for the Japanese Yen, which isthe local currency for this new subsidiary which has total assets ofapproximately $13.8 million at November 30, 2005. Also, the acquisitionliability totaling $5.1 million for the acquisition of Immucor-Kainos isdenominated in Japanese Yen, and is therefore subject to foreign currencyexchange risk. For further details regarding the quantitative and qualitativedisclosures about market risk, see Item 7A-Quantitative and QualitativeDisclosures About Market Risk, contained in the Company’s Annual Report on Form 10-K.

 

**ITEM 4.  Controls and Procedures.**

 

*(a) Evaluationof Disclosure Controls and Procedures*

 

The Company’s newsubsidiary, Immucor-Kainos, Inc., was excluded from management’s quarterlyevaluation as of November 30, 2005 due to the subsidiary being onlyrecently acquired on July 5, 2005. This subsidiary will be included in future evaluations of theeffectiveness of the Company’s disclosure controls and procedures beginning nolater than the quarter ending August 31, 2006.

 

As previously reported in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2005, the Company carried out an evaluation, under the supervision of and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(b) and 15d-15(b) under the Exchange Act as of May 31, 2005. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were ineffective as of May 31, 2005, and identified the following control deficiencies in the Company’s internal control over financial reporting:

 

*RevenueRecognition and Billing Processes.*  Managementconcluded that as of May 31, 2005, material weaknesses existed related toineffective controls over the Company’s revenue recognition and billingprocesses resulting from: the lack of controls over the review of allarrangement documentation in order to properly record revenue, the lack ofcontrols over ensuring that all arrangement terms and conditions are known forproper revenue recognition evaluation, and the lack of personnel withsufficient skills and experience to properly record revenue from multi-elementarrangements.

 

*FinancialStatement Close Process. *Management also concluded that as of May 31,2005, material weaknesses existed related to the Company’s financial statementclose process resulting from: the lack of adequate processes, controls, and reviewand approval procedures to ensure that financial statements and disclosures generatedfor external purposes are prepared in accordance with generally acceptedaccounting principles; the lack of personnel with sufficient skills andexperience to properly analyze certain technical accounting issues inaccordance with generally accepted accounting principles; and the lack ofadequate policies and procedures in certain international locations withrespect to preparing journal entries and reconciling certain significantaccounts.

 

TheCompany’s management concluded that the control deficiencies described aboveconstitute “material weaknesses” as defined by Section 404 of theSarbanes-Oxley Act of 2002.  As a resultof these control deficiencies, management was required to record materialadjustments to the Company’s financial statements during the fiscal year ended May 31,2005, and management concluded that the Company’s internal control overfinancial reporting was ineffective as of May 31, 2005.  Therefore, Ernst & Young LLP, atthat time the Company’s independent registered public accounting firm, issuedan adverse opinion with respect to the Company’s internal control overfinancial reporting in the Company’s Form 10-K for the fiscal year ended May 31,2005.

 

Therewere no material adjustments to the Company’s interim financial statements forthe periods ended August 31, 2005 or November 30, 2005 relating tothese control deficiencies.  However,these control deficiencies could result

 

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in amaterial misstatement in the Company’s annual or interim financial statementsthat would not be prevented or detected by employees of the Company in thenormal course of performing their work.  Management,with the oversight of the Audit Committee of the Board of Directors, has begunthe remediation process for these control deficiencies as expeditiously aspossible and significant progress has been made in improving internal controls,but management was unable to conclude that full remediation had occurred as of November 30,2005.  Therefore, the Company’s ChiefExecutive Officer and Chief Financial Officer have concluded that the Company’sdisclosure controls and procedures remain ineffective as of November 30,2005.

 

*(b)  Changes in Internal Control over FinancialReporting*

 

In thesecond quarter of fiscal 2006, the Company made significant progress in thefollowing areas which were identified as areas requiring remediation in thefirst quarter of fiscal 2006:

 

•                             Formalizing controls around periodicmonitoring of impairment indicators for inventory and long-lived assets;

 

•                             Strengthening the policies and proceduressurrounding fixed assets, including periodic physical counts andreconciliations of significant assets;

 

•                             Strengthening the policies and proceduressurrounding the accounting for leases including centralization of contracts forsignificant leases;

 

•                             Strengthening the controls related tostock option grant authorization, accounting and reporting;

 

•                             Strengthening the review and approvalprocess around contract documentation, and seeking out additional expertise inrevenue accounting policy matters;

 

•                             Expanding review procedures at eachquarter end in support of footnote disclosures through a structured disclosurecommittee that will be established;

 

•                             Strengthening the controls and review proceduresrelating to income taxes;

 

•                             Further addition of internal audit staffto increase the periodic review of compliance with management’s stated policiesand procedures; and

 

•                             Further addition of accounting staff andexpertise to improve the control environment and to compensate for theweaknesses identified.

 

Additionally, in August 2005,Steven C. Ramsey resigned as the Company’s Chief Financial Officer and wasreplaced on an interim basis by Patrick D. Waddy, who was subsequently appointedas the Company’s new Chief Financial Officer on December 16, 2005.

 

Other than in connectionwith the foregoing, management’s quarterly evaluation as of November 30,2005 identified no changes in our internal control over financial reportingduring the second fiscal quarter covered by this report that materiallyaffected, or are reasonably likely to materially affect, our internal controlover financial reporting.

 

**PART II**

 

**OTHER INFORMATION**

 

**ITEM 1. Legal Proceedings.**

 

As we previouslyreported, our Italian subsidiary and Dr. Gioacchino De Chirico, the formerPresident of the subsidiary, became the subjects of a criminal investigation inMilan, Italy centered on payments by several companies to an Italian physicianallegedly in exchange for favorable contract awards by his hospital. Aninternal investigation conducted by the Audit Committee of our Board ofDirectors determined that a €13,500 payment to a physician as the organizer andchairman of a convention sponsored by the Italian subsidiary was not improper,but the invoice for those services resulted in a violation of the books andrecords provisions of the Foreign Corrupt Practices Act, and payments toanother physician totaling approximately $47,000 may have been related not onlyto the performance of certain services but also to the introduction of aninstrument system into that physician’s hospital

 

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and perhaps otherhospitals.  The SEC has issued a formalinvestigative order in these matters, we have made voluntary submissions to theSEC and we continue to cooperate with the SEC. Neither the Italian prosecutor nor the SEC has expressed to us anyconclusions about the ultimate outcome of their respective investigations.  No determination can yet be made as towhether, in connection with these circumstances, we will become subject to anyfines, penalties and/or other charges imposed by any governmental authority, orany other damages or costs that may arise in connection with thesecircumstances.

 

We are aware of tenseparate lawsuits having been filed in the United States District Court for theNorthern District of Georgia against us and certain of our current and formerdirectors and officers alleging violations of the securities laws. Theseactions, filed by former shareholders, seek damages on behalf of themselvesindividually and on behalf of an alleged class of former shareholders whoeither purchased or sold our stock between January 7 and August 29, 2005. Thelawsuits allege that our stock prices during that time were inflated as aresult of material misrepresentations or omissions in our financial statements.The cases are at a very early stage. The plaintiffs have informed the courtthey intend to file an amended and consolidated complaint. As a consequence,discovery has not yet begun, we have not been required to file an answer orother defenses to the actions, nor has the court made any determination whetherany of the cases have merit or should be allowed to proceed as class actions.We believe each of the lawsuits is without merit, and we intend to vigorouslydefend the Company. While we do not currently expect these lawsuits tomaterially affect our financial condition or results of operations, there canbe no assurance of any particular outcome.

 

InSeptember 2005, F. Baragano Pharmaceuticals filed suit against the Companyin the U.S. District Court for the District of Puerto Rico, alleging that theCompany cancelled a distribution contract without just cause, and is seeking$350,000 plus interest, costs and attorney fees.  The Company is defending itself against thislawsuit, but at this time is not able to determine the probability of afavorable or unfavorable outcome or an estimate of the amount or range ofpossible loss.

 

TheCompany’s compliance with its Affirmative Action Plan is being audited by theUS Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP)concerning personnel activity from July 1, 2003 through June 30, 2004and July 1, 2004 through February 13, 2005.  If OFCCP determines that a violation ofFederal antidiscrimination statutes has occurred, it has the power to orderremedial action.  Due to the preliminarynature of this matter, we are not yet able to determine whether the Companywill become subject to any such remedial action.

 

Otherthan as set forth above, the Company is not currently subject to any materiallegal proceedings, nor, to the Company’s knowledge, is any material legalproceeding threatened against the Company. However, from time to time, theCompany may become a party to certain legal proceedings in the ordinary courseof business.

 

**ITEM 2.     Unregistered Sales of Equity Securitiesand Use of Proceeds.**

 

The Company repurchased shares of its CommonStock under the Company’s stock repurchase plan during the quarter ended November 30,2005 as indicated in the table below:

 
| **Period**          | ** ** | **Total # of  Shares  Purchased** | ** ** | **Average  Price Paid  per Share** | ** ** | **Total # of Shares  Purchased as Part of  Publicly Announced  Plan** | ** ** | **Maximum # of  Shares that May  Yet Be Purchased  Under the Plan** | ** ** |
|---------------------|------------|-----------------------------------|------------|------------------------------------|------------|----------------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| 9/1/05 - 9/30/05    |       | —                            |       | —                             |       | —                                                                     |       | —                                                              |       |
| 10/1/05 -  10/31/05 |       | —                            |       | —                             |       | —                                                                     |       | —                                                              |       |
| 11/1/05 -  11/30/05 |       | 642,600                           |       | $                                  | 23.07      |                                                                       | 4,889,850  |                                                                | 360,150    |   |
|                     |            |                                   |            |                                    |            |                                                                            |            |                                                                     |            |  |

 

The Company’s stockrepurchase program was first instituted in June 1998 for up to 4,050,000 shares,of which 3,624,750 shares had been purchased prior to the end of the Company’s2004 fiscal year, leaving 425,250 shares available for repurchase.  On June 1, 2004, the Company announcedthat the Board of Directors had authorized the repurchase of an additional450,000 shares under the program, and on August 2, 2004, the Companyannounced that the Board of Directors had authorized the repurchase of anadditional 750,000 shares under the program. On December 13, 2005, theBoard authorized the Company to repurchase up to additional one million shares,increasing to 1,360,150 shares available for repurchase under the plan. TheCompany’s stock purchase plan does not have an expiration date.

 

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**ITEM6.  Exhibits and Reports on Form 8-K.**

 

(a)          TheCompany has filed the following exhibits with this report.

 

31.1                           Certificationof Principal Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a).*

 

31.2                           Certificationof Principal Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a).*

 

32.1                           Certificationof Chief Executive Officer Pursuant to Section 906 of the Sarbanes-OxleyAct of 2002.*

 

32.2                           Certificationof Chief Financial Officer Pursuant to Section 906 of the Sarbanes-OxleyAct of 2002.*

 

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*Thecertifications contained in these exhibits are not “filed” for purposes of Section 18of the Exchange Act [15 U.S.C. 78r], or otherwise subject to the liability ofthat section.  Such certifications willnot be deemed to be incorporated by reference into any filing under theSecurities Act or the Exchange Act, except to the extent that the Companyspecifically incorporates them by reference.

 

SIGNATURES

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 

IMMUCOR, INC.

(Registrant)

 

 
| Date:  | January 6,  2006 |   | By:                                                      | /s/ Edward L.  Gallup                                         |   |
|--------|-----------------------|--------|----------------------------------------------------------|---------------------------------------------------------------|--------|
|   |                  |   |                                                     | Edward L.  Gallup, Chief Executive Officer                    |
|   |                  |   |                                                     | (on behalf of  Registrant and as Principal Executive Officer) |
|   |                  |   |                                                     |                                                          |
|   |                  |   |                                                     |                                                          |
| Date:  | January 6,  2006 |   | By:                                                      | /s/  Patrick D. Waddy                                         |   |
|   |                  |   | Patrick  D. Waddy, Chief Financial Officer and Secretary |
|   |                  |   | (Principal  Financial and Accounting Officer)            |

 

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**EXHIBIT INDEX**

 
| **Number** | ** ** | **Description**                                                                                              |
|------------|------------|--------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                         |
| 31.1       |       | Certification of  Principal Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a).* |
|       |       |                                                                                                         |
| 31.2       |       | Certification of  Principal Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a).* |
|       |       |                                                                                                         |
| 32.1       |       | Certification of  Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002.*  |
|       |       |                                                                                                         |
| 32.2       |       | Certification of  Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002.*  |

 

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*                 Thecertifications contained in these exhibits are not “filed” for purposes of Section 18of the Exchange Act [15 U.S.C. 78r], or otherwise subject to the liability ofthat section.  Such certifications willnot be deemed to be incorporated by reference into any filing under theSecurities Act or the Exchange Act, except to the extent that the Companyspecifically incorporates them by reference.

 

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