**FORM 10-Q**

** **

**United States**

**Securities and Exchange Commission**

**Washington,D. C. 20549**

 

| **(Mark One)**                                                     | ** **                                                                                          |
|--------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------|
| **x**                                                              | **Quarterly Report Pursuant to Section 13 or  15(d)  of the Securities Exchange Act of 1934**  |
|                                                               |
| **For the  quarterly period ended:   November 30, 2007** |
|                                                               |
| **OR**                                                             |
|                                                               |
| o                                                                  | **Transition Report Pursuant to Section 13 or  15(d)  of the Securities Exchange Act of 1934** |

 

**CommissionFile Number: 0-14820**

 

**IMMUCOR, INC.**

(Exact name ofregistrant as specified in its charter)

 

| **Georgia**                      | ** ** | **22-2408354**       |
|----------------------------------|------------|----------------------|
| (State or other  jurisdiction of |       | (I.R.S. Employer     |
| incorporation or  organization)  |       | Identification  No.) |

 

**3130Gateway Drive P.O. Box 5625 Norcross, Georgia 30091-5625**

(Address ofprincipal executive offices)  (Zip Code)

 

Registrant’stelephone number:  **(770)441-2051**

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

 

Yes x        Noo

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2of the Exchange Act. (Check one):

 

Large accelerated filer x            Acceleratedfiler o             Non-acceleratedfiler o

 

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

 

Yes o       No  x

 

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

 

As of December 31,2007: **Common Stock, $0.10 Par Value – 69,971,367**

 

 

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**IMMUCOR, INC. AND SUBSIDIARIES**

 

**FORM 10-Q**

 

**INDEX**

** **
| **PART I.      FINANCIAL  INFORMATION** |
|----------------------------------------------------------------------------|
|                                                                       |   |
| **Item 1.**                                                                | **Financial Statements** |
|                                                                       |   |
|                                                                       | Condensed Consolidated  Balance Sheets as of November 30, 2007 (unaudited) and May 31, 2007 |
|                                                                       |   |
|                                                                       | Condensed Consolidated  Statements of Income for the three and six months ended November 30,  2007 and 2006 (unaudited) |
|                                                                       |   |
|                                                                       | Condensed Consolidated  Statement of Shareholders’ Equity and Comprehensive Income for the period June 1,  2007 through November 30, 2007 (unaudited) |
|                                                                       |   |
|                                                                       | Condensed Consolidated  Statements of Cash Flows for the six months ended November 30, 2007 and  2006 (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 1A.**                                                               | **Risk Factors** |
| ** **                                                                 | ** ** |
| **Item 2.**                                                                | **Unregistered  Sales of Equity Securities and Use of Proceeds** |
| ** **                                                                 | ** ** |
| ** Item 4.**                                                          | **Submission of  Matters to a Vote of Security Holders** |
| ** **                                                                 | ** ** |
| **Item 6.**                                                                | **Exhibits** |
| ** **                                                                 | ** ** |
| ** **                                                                 | **SIGNATURES** |

 

2

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**PART IFINANCIAL INFORMATION**

** **

**ITEM 1. FinancialStatements**

 

**IMMUCOR, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

(Amounts inthousands, except share data)

 
| ** **                                                                                                                                                                  | ** ** | **November 30, 2007** | ** ** | **May 31, 2007** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|----------------------------|------------|
| ** **                                                                                                                                                                  | ** ** | **(unaudited)**                 | ** ** | ** **                 | ** ** |
| **ASSETS**                                                                                                                                                                  |       |                            |       |                       |       |
|                                                                                                                                                                        |       |                            |       |                       |       |
| CURRENT ASSETS:                                                                                                                                                             |       |                            |       |                       |       |
| Cash and cash  equivalents                                                                                                                                                  |       | $                               | 137,778    |                       | $          | 113,551 |   |
| Trade accounts  receivable, net of allowance for doubtful accounts of $1,886 at November 30,  2007 and $1,726 at May 31, 2007                                               |       | 53,547                          |       | 47,768                     |       |
| Inventories                                                                                                                                                                 |       | 36,337                          |       | 29,320                     |       |
| Deferred income  tax assets, current portion                                                                                                                                |       | 4,561                           |       | 3,614                      |       |
| Prepaid expenses  and other current assets                                                                                                                                  |       | 5,534                           |       | 5,567                      |       |
| Total current  assets                                                                                                                                                       |       | 237,757                         |       | 199,820                    |       |
|                                                                                                                                                                        |       |                            |       |                       |       |
| PROPERTY AND  EQUIPMENT, Net                                                                                                                                                |       | 33,570                          |       | 30,245                     |       |
| GOODWILL                                                                                                                                                                    |       | 36,159                          |       | 34,763                     |       |
| INTANGIBLE  ASSETS, Net                                                                                                                                                     |       | 5,982                           |       | 5,719                      |       |
| DEFERRED INCOME  TAX ASSETS                                                                                                                                                 |       | 7,797                           |       | 4,225                      |       |
| OTHER ASSETS                                                                                                                                                                |       | 691                             |       | 706                        |       |
| Total assets                                                                                                                                                                |       | $                               | 321,956    |                       | $          | 275,478 |   |
|                                                                                                                                                                        |       |                            |       |                       |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                                                                              |       |                            |       |                       |       |
| ** **                                                                                                                                                                  |       |                            |       |                       |       |
| CURRENT  LIABILITIES:                                                                                                                                                       |       |                            |       |                       |       |
| Accounts payable                                                                                                                                                            |       | $                               | 8,761      |                       | $          | 8,056 |   |
| Accrued expenses  and other current liabilities                                                                                                                             |       | 14,793                          |       | 14,055                     |       |
| Income taxes  payable                                                                                                                                                       |       | 5,570                           |       | 7,180                      |       |
| Deferred  revenue, current portion                                                                                                                                          |       | 9,929                           |       | 7,321                      |       |
| Current portion  of acquisition liability                                                                                                                                   |       | 4,079                           |       | 343                        |       |
| Total current  liabilities                                                                                                                                                  |       | 43,132                          |       | 36,955                     |       |
|                                                                                                                                                                        |       |                            |       |                       |       |
| ACQUISITION  LIABILITY                                                                                                                                                      |       | —                          |       | 3,488                      |       |
| DEFERRED REVENUE                                                                                                                                                            |       | 12,718                          |       | 12,361                     |       |
| DEFERRED INCOME  TAX LIABILITIES                                                                                                                                            |       | 976                             |       | 1,275                      |       |
| OTHER LONG-TERM  LIABILITIES                                                                                                                                                |       | 2,009                           |       | 1,951                      |       |
| Total  liabilities                                                                                                                                                          |       | 58,835                          |       | 56,030                     |       |
| COMMITMENTS AND  CONTINGENCIES (Note 10)                                                                                                                                    |       |                            |       |                       |       |
| SHAREHOLDERS’  EQUITY:                                                                                                                                                 |       |                            |       |                       |       |
| Common stock,  $0.10 par value; authorized 120,000,000 shares, issued and outstanding 69,969,774  and 69,086,652 shares at November 30, 2007 and May 31, 2007, respectively |       | 6,997                           |       | 6,909                      |       |
| Additional  paid-in capital                                                                                                                                                 |       | 33,508                          |       | 29,076                     |       |
| Retained  earnings                                                                                                                                                          |       | 213,519                         |       | 179,768                    |       |
| Accumulated  other comprehensive income                                                                                                                                     |       | 9,097                           |       | 3,695                      |       |
| Total  shareholders’ equity                                                                                                                                            |       | 263,121                         |       | 219,448                    |       |
| Total  liabilities and shareholders’ equity                                                                                                                            |       | $                               | 321,956    |                       | $          | 275,478 |   |

 

The accompanyingnotes are an integral part of these Condensed Consolidated FinancialStatements.

 

3

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**IMMUCOR, INC. ANDSUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF INCOME**

(Amounts in thousands, except per sharedata)

(Unaudited)

 
| ** **                        | ** ** | **Three  Months Ended** | ** ** | **Six  Months Ended**   | ** ** |
|-----------------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                        | ** ** | **November  30,  2007** | ** ** | **November  30,  2006** | ** ** | **November  30,  2007** | ** ** | **November  30,  2006** | ** ** |
|                              |       |                    |       |                    |       |   |   |   |   |
| NET SALES                         |       | $                       | 61,924     |                    | $          | 54,426 |   | $ | 125,556 |   | $ | 105,466 |   |
| COST OF SALES                     |       | 20,050                  |       | 16,583                  |       | 37,802 |   | 33,087 |   |
| GROSS PROFIT                      |       | 41,874                  |       | 37,843                  |       | 87,754 |   | 72,379 |   |
|                              |       |                    |       |                    |       |   |   |   |   |
| OPERATING  EXPENSES:              |       |                    |       |                    |       |   |   |   |   |
| Research and  development         |       | 1,434                   |       | 1,808                   |       | 3,489 |   | 3,034 |   |
| Selling and  marketing            |       | 7,844                   |       | 6,755                   |       | 15,413 |   | 12,314 |   |
| Distribution                      |       | 2,646                   |       | 2,380                   |       | 5,330 |   | 4,668 |   |
| General and  administrative       |       | 6,278                   |       | 5,291                   |       | 12,158 |   | 10,513 |   |
| Restructuring  expense            |       | 192                     |       | 182                     |       | 723 |   | 569 |   |
| Amortization  expense and other   |       | 87                      |       | 86                      |       | 173 |   | 173 |   |
| Total operating  expenses         |       | 18,481                  |       | 16,502                  |       | 37,286 |   | 31,271 |   |
|                              |       |                    |       |                    |       |   |   |   |   |
| INCOME FROM  OPERATIONS           |       | 23,393                  |       | 21,341                  |       | 50,468 |   | 41,108 |   |
|                              |       |                    |       |                    |       |   |   |   |   |
| NON-OPERATING  INCOME (EXPENSES): |       |                    |       |                    |       |   |   |   |   |
| Interest income                   |       | 1,131                   |       | 645                     |       | 2,244 |   | 1,163 |   |
| Interest expense                  |       | (86                     | )          | (111                    | )          | (181 | ) | (229 | ) |
| Other, net                        |       | 268                     |       | 154                     |       | 87 |   | 94 |   |
| Total  non-operating income       |       | 1,313                   |       | 688                     |       | 2,150 |   | 1,028 |   |
|                              |       |                    |       |                    |       |   |   |   |   |
| INCOME BEFORE  INCOME TAXES       |       | 24,706                  |       | 22,029                  |       | 52,618 |   | 42,136 |   |
| PROVISION FOR  INCOME TAXES       |       | 8,542                   |       | 7,927                   |       | 18,704 |   | 15,301 |   |
| NET INCOME                        |       | $                       | 16,164     |                    | $          | 14,102 |   | $ | 33,914 |   | $ | 26,835 |   |
|                              |       |                    |       |                    |       |   |   |   |   |
| Earnings per  share:              |       |                    |       |                    |       |   |   |   |   |
| Per common share  - basic         |       | $                       | 0.23       |                    | $          | 0.21 |   | $ | 0.49 |   | $ | 0.39 |   |
| Per common share  - diluted       |       | $                       | 0.23       |                    | $          | 0.20 |   | $ | 0.48 |   | $ | 0.38 |   |
|                                   |            |                         |            |                         |            |  |  |  |  |  |  |  |  |  |

 

The accompanying notes are an integral part of these CondensedConsolidated Financial Statements.

 

4

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**IMMUCOR, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTOF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME**

(Unaudited, amounts in thousands)

 
| ** **                                          | ** ** | **Common Stock** | ** ** | **Additional  Paid-In** | ** ** | **Retained** | ** ** | **Accumulated  Other  Comprehensive** | ** ** | **Total  Shareholders’** | ** ** |
|-----------------------------------------------------|------------|-----------------------|------------|-------------------------|------------|--------------|------------|---------------------------------------|------------|-------------------------------|------------|
| ** **                                          | ** ** | **Shares**            | ** ** | **Amount**              | ** ** | **Capital**  | ** ** | **Earnings**                          | ** ** | **Income***                   | ** ** | **Equity** | ** ** |
|                                                |       |                  |       |                    |       |         |       |                                  |       |                          |       |   |   |
| BALANCE, MAY 31,  2007, as previously reported      |       | 69,087                |       | $                       | 6,909      |         | $          | 29,076                                |       | $                             | 179,768    |   | $ | 3,695 |   | $ | 219,448 |   |
| Adjustment on  adoption of FIN 48 (see Note 7) |       | —                |       | —                  |       | —       |       | (163                                  | )          | —                        |       | (163 | ) |
| BALANCE, MAY 31,  2007, adjusted                    |       | 69,087                |       | 6,909                   |       | 29,076       |       | 179,605                               |       | 3,695                         |       | 219,285 |   |
|                                                |       |                  |       |                    |       |         |       |                                  |       |                          |       |   |   |
| Shares issued  under employee stock plans           |       | 1,109                 |       | 111                     |       | 2,135        |       | —                                |       | —                        |       | 2,246 |   |
| Share-based  compensation expense                   |       | —                |       | —                  |       | 2,032        |       | —                                |       | —                        |       | 2,032 |   |
| Stock  repurchases and retirements                  |       | (226                  | )          | (23                     | )          | (6,014       | )          | —                                |       | —                        |       | (6,037 | ) |
| Tax benefits  related to share-based compensation   |       | —                |       | —                  |       | 6,279        |       | —                                |       | —                        |       | 6,279 |   |
| Comprehensive  income:                              |       |                  |       |                    |       |         |       |                                  |       |                          |       |   |   |
| Foreign currency  translation adjustments           |       | —                |       | —                  |       | —       |       | —                                |       | 5,402                         |       | 5,402 |   |
| Net income                                          |       | —                |       | —                  |       | —       |       | 33,914                                |       | —                        |       | 33,914 |   |
| Total  comprehensive income                         |       |                  |       |                    |       |         |       |                                  |       |                          |       | 39,316 |   |
|                                                |       |                  |       |                    |       |         |       |                                  |       |                          |       |   |   |
| BALANCE,  NOVEMBER 30, 2007                         |       | 69,970                |       | $                       | 6,997      |         | $          | 33,508                                |       | $                             | 213,519    |   | $ | 9,097 |   | $ | 263,121 |   |

 

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*Accumulated OtherComprehensive Income balance primarily consists of foreign currency translationadjustments and has no tax effect.

 

The accompanyingnotes are an integral part of these Condensed Consolidated FinancialStatements.

 

5

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**IMMUCOR, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTSOF CASH FLOWS**

(Unaudited, amounts in thousands)

 
| ** **                                                                         | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                         | ** ** | **November 30,  2007**    | ** ** | **November 30,  2006** | ** ** |
| OPERATING  ACTIVITIES:                                                             |       |                           |       |   |   |
| Net income                                                                         |       | $                              | 33,914     |   | $ | 26,835 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                           |       |   |   |
| Depreciation and  amortization                                                     |       | 4,063                          |       | 3,211 |   |
| Accretion of  acquisition liabilities                                              |       | 90                             |       | 90 |   |
| (Profit) Loss on  retirement of fixed assets                                       |       | (20                            | )          | 100 |   |
| Provision for  doubtful accounts                                                   |       | 277                            |       | (53 | ) |
| Share-based  compensation expense                                                  |       | 2,032                          |       | 1,652 |   |
| Deferred income  taxes                                                             |       | (3,031                         | )          | (1,913 | ) |
| Excess tax  benefit from share-based compensation                                  |       | (6,279                         | )          | (9,475 | ) |
|                                                                               |       |                           |       |   |   |
| Changes in  operating assets and liabilities:                                      |       |                           |       |   |   |
| Accounts  receivable, trade                                                        |       | (3,776                         | )          | (3,635 | ) |
| Income taxes                                                                       |       | 2,270                          |       | (1,263 | ) |
| Inventories                                                                        |       | (6,073                         | )          | (1,883 | ) |
| Other assets                                                                       |       | (123                           | )          | 1,758 |   |
| Accounts payable                                                                   |       | 441                            |       | (1,013 | ) |
| Deferred revenue                                                                   |       | 2,769                          |       | 1,361 |   |
| Accrued expenses  and other liabilities                                            |       | 56                             |       | 2,001 |   |
| Cash provided by  operating activities                                             |       | 26,610                         |       | 17,773 |   |
|                                                                               |       |                           |       |   |   |
| INVESTING  ACTIVITIES:                                                             |       |                           |       |   |   |
| Purchases of  property and equipment                                               |       | (5,711                         | )          | (4,729 | ) |
| Proceeds from  short-term investments, net                                         |       | —                         |       | 988 |   |
| Cash used in  investing activities                                                 |       | (5,711                         | )          | (3,741 | ) |
|                                                                               |       |                           |       |   |   |
| FINANCING  ACTIVITIES:                                                             |       |                           |       |   |   |
| Repayments of  long-term debt and liabilities                                      |       | (233                           | )          | (478 | ) |
| Repurchase of  common stock                                                        |       | (5,539                         | )          | (4,872 | ) |
| Proceeds from  exercise of stock options                                           |       | 1,794                          |       | 2,389 |   |
| Excess tax  benefit from share-based compensation                                  |       | 6,279                          |       | 9,475 |   |
| Cash provided by  financing activities                                             |       | 2,301                          |       | 6,514 |   |
|                                                                               |       |                           |       |   |   |
| EFFECT OF  EXCHANGE RATES ON CASH AND CASH EQUIVALENTS                             |       | 1,027                          |       | (126 | ) |
| INCREASE IN CASH  AND CASH EQUIVALENTS                                             |       | 24,227                         |       | 20,420 |   |
| CASH AND CASH  EQUIVALENTS AT BEGINNING OF PERIOD                                  |       | 113,551                        |       | 54,103 |   |
| CASH AND CASH  EQUIVALENTS AT END OF PERIOD                                        |       | $                              | 137,778    |   | $ | 74,523 |   |
|                                                                               |       |                           |       |   |   |
| SUPPLEMENTAL  INFORMATION:                                                         |       |                           |       |   |   |
| Tax paid                                                                           |       | $                              | 19,464     |   | $ | 17,793 |   |
| Interest paid                                                                      |       | 84                             |       | 120 |   |
| NON-CASH  INVESTING AND FINANCING ACTIVITIES:                                      |       |                           |       |   |   |
| Shares  surrendered for amounts due on stock options exercised                     |       | $                              | 498        |   | $ | — |   |

 

The accompanyingnotes are an integral part of these Condensed Consolidated FinancialStatements.

 

6

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** **

**IMMUCOR,INC. AND SUBSIDIARIES**

**Notes to Condensed Consolidated FinancialStatements**(Unaudited)

 

# **1.****             ****NATURE OFBUSINESS AND BASIS OF PRESENTATION**

#  

***Natureof Business***

Immucor, Inc. (“Immucor”and, together with its wholly owned subsidiaries, the “Company”) is in thebusiness of developing, manufacturing and marketing immunological diagnosticmedical products. The Company operates facilities in the United States, Canada,Europe and Japan. The unaudited condensed consolidated financial statementsinclude the accounts of the Company and all of its subsidiaries.

 

***Basisof Presentation***

The accompanyingcondensed consolidated financial statements are unaudited and have beenprepared in accordance with U.S. generally accepted accounting principles (“U.S.GAAP”) for interim financial information, and the Securities and ExchangeCommission’s (“SEC”) instructions for Form 10-Q and Article 10 ofRegulation S-X. Accordingly, they do not include all of the information andfootnotes required by U.S. GAAP for complete financial statements. In theopinion of management, all adjustments, consisting of normal recurringadjustments, unless otherwise disclosed in a separate note, considerednecessary for a fair presentation of the unaudited condensed consolidatedfinancial statements have been recorded in the interim periods presented. Theseunaudited, condensed consolidated financial statements should be read inconjunction with the Company’s audited, consolidated financial statements andrelated notes for the year ended May 31, 2007, included in the Company’sAnnual Report on Form 10-K.

 

The accompanyingcondensed consolidated financial statements present results of operations forthe three and six months ended November 30, 2007. These results are notnecessarily indicative of the results that may be achieved for the year ending May 31,2008, or any other period.

 

***Basisof Consolidation***

The condensedconsolidated financial statements include the accounts of Immucor and all itssubsidiaries. All significant inter-company balances and transactions have beeneliminated in consolidation.

 

# **2.****             ****INVENTORIES**

#  

Inventories are stated atthe lower of cost (first-in, first-out basis) or market (net realizable value):

 
| ** **                  | ** ** | **November 30, 2007** | ** ** | **May 31, 2007** | ** ** |
|-----------------------------|------------|---------------------------------|------------|----------------------------|------------|
| ** **                  | ** ** | **(in thousands)**         | ** ** |
|                        |       |                            |       |                       |       |
| Raw materials and  supplies |       | $                               | 7,793      |                       | $          | 6,364 |   |
| Work in process             |       | 4,776                           |       | 4,829                      |       |
| Finished goods              |       | 23,768                          |       | 18,127                     |       |
|                        |       | $                               | 36,337     |                       | $          | 29,320 |   |

 

Finished goods at November 30,2007 and May 31, 2007 include approximately $6.4 million and $3.4 million,respectively, of EchoTM instruments and related parts and accessories. TheCompany launched its EchoTM instrument in the first quarter ended August 31,2007 and has increased its EchoTM inventory during the six months ended November 30,2007 in anticipation of an increase in EchoTM instrument business.

 

# **3.****             ****SHAREHOLDERS’EQUITY**

#  

During the first quarterof fiscal 2008, the Company either withheld from certain option exercises orreacquired from certain restricted stock holders an aggregate of 206,787 sharesvalued at $5.5 million in compliance with the statutory tax withholdingrequirements. The Company retired these shares and disclosed their value as ‘Stockrepurchases and retirements’ in the condensed consolidated statement ofshareholders’ equity and

 

7

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comprehensive income andas ‘Repurchase of common stock’ under financing activities in the condensedconsolidated statements of cash flows.

 

During the first quarterof fiscal 2008, the Company also withheld 18,609 shares valued at $0.5 millionfrom an employee who exercised options and elected to pay the option exerciseprice by having shares withheld. These shares were also retired and theirvalues were disclosed as ‘Stock repurchases and retirements’ in the condensedconsolidated statement of shareholders’ equity and comprehensive income and as ‘Non-cashinvesting and financing activities’ in the condensed consolidated statements ofcash flows.

 

The shares acquired inthe first quarter of fiscal 2008 were returned to the status of authorized, butunissued shares. No shares were withheld or acquired in the second quarter offiscal 2008.

 

# **4.****             ****STOCKREPURCHASE PROGRAM**

#  

The Company instituted a stock repurchase program in June 1998 forup to 6,075,000 shares of its common stock. On June 1, 2004, August 2,2004 and December 13, 2005, the Board of Directors authorized the Companyto repurchase up to an additional 675,000, 1,125,000 and 1,500,000 shares,respectively.

 

During the six monthsended November 30, 2007, the Company did not make any repurchases in theopen market under the 1998 repurchase program. During the six months ended November 30,2006, 281,969 shares were repurchased for $4.9 million. As of November 30,2007, 8,232,944 shares had been repurchased under the program, leaving1,142,056 shares available for repurchase.

 

The shares repurchased in fiscal 2007 were returned to the status ofauthorized, but unissued shares.

 

# **5.****             ****SHARE-BASEDCOMPENSATION**

#  

*Plansummary*

 

The Immucor, Inc.2005 Long-Term Incentive Plan (the “2005 Plan”) was the only active plan duringthe first six months of fiscal 2008. Under the 2005 Plan, management is able toaward stock options, stock appreciation rights, restricted stock, deferredstock, and other performance-based awards as incentive and compensation toemployees. The maximum number of shares of the Company’s common stock as towhich awards may be granted under the 2005 Plan is 3,600,000. The maximumnumber of shares that may be used for awards other than stock options is1,800,000, and the maximum number of shares that may be used for grants ofincentive stock options is 1,800,000. Options are granted at the closing marketprice on the date of the grant. Option awards generally vest equally over afour-year period and have a six-year contractual term. Restricted stock awardsgenerally vest equally over a five-year period. The 2005 Plan provides foraccelerated vesting of option and restricted stock awards if there is a changein control, as defined in the 2005 Plan.

 

*Valuationmethod used and assumptions*

 

The fair value of eachoption grant in the three months and six months ended November 30, 2007and 2006 was estimated on the date of grant using the Black-Scholesoption-pricing model with the following weighted-average assumptions:

 
| ** **                   | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                   | ** ** | **November 30,**            | ** ** | **November 30,**          | ** ** | **November 30,** | ** ** | **November 30,** | ** ** |
| ** **                   | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| Risk-free  interest rate (1) |       | 4.05%                            |       | 4.61%                          |       | 5.04% |   | 4.96% |   |
| Expected  volatility (2)     |       | 40.04%                           |       | 46.82%                         |       | 40.25% |   | 47.81% |   |
| Expected life  (years) (3)   |       | 4.25                        |       | 4.25                      |       | 4.25  |   | 4.25  |   |
| Expected  dividend yield (4) |       | —                      |       | —                    |       | —  |   | —  |   |

 

----

| (1) | Based on the U.S.  Treasury yield curve in effect at the time of grant.                                                                                                           |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Expected stock price  volatility is based on the average historical volatility of the Company’s shares  during the period corresponding to the expected life of the options. |

 

8

----

 
| (3) | Represents the period  of time options are expected to remain outstanding. The weighted average  expected option term was determined using the “simplified method” as allowed  by Staff Accounting Bulletin No. 107. The “simplified method” calculates the  expected term as the average of the vesting term and original contractual  term of the options. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (4) | The Company has not  paid dividends on its common stock and does not expect to pay dividends on  its common stock in the near future.                                                                                                                                                                                                                                            |

 

*Impact ofadoption of SFAS 123R*

 

On adoption of Statementof Financial Accounting Standard No. 123R, “*Share-BasedPayment”* (“SFAS 123R”) as of June 1, 2006, the unrecognizedcompensation expense associated with the remaining portion of the unvestedoutstanding awards was $4.5 million ($2.9 million, net of taxes) which is beingrecognized on a straight-line basis over the weighted-average vesting period ofapproximately 1.75 years.

 

Total share-basedcompensation expense included in the condensed consolidated statements ofincome for the three-month periods ended November 30, 2007 and November 30,2006 was $1.0 million ($0.7 million, net of taxes), and $0.9 million ($0.7million, net of taxes), respectively. Total share-based compensation expenseincluded in the condensed consolidated statements of income for the six-monthperiods ended November 30, 2007 and November 30, 2006 was $2.0million ($1.4 million, net of taxes), and $1.7 million ($1.2 million, net oftaxes), respectively.

 

The impact of theadoption of SFAS 123R on basic and diluted earnings per share was a reductionby $0.01 per share for each of the three-month periods ended November 30,2007 and November 30, 2006. The impact on basic and diluted earnings pershare was a reduction by $0.02 per share for each of the six-month periodsended November 30, 2007 and November 30, 2006.

 

*Stockoption activity*

 

The options granted underthe 2005 Plan during the six months ended November 30, 2007 have asix-year term with vesting of 25% at each anniversary of the issuance date; therestricted shares vest 20% at each anniversary of the issuance date. TheCompany has not granted any option or share awards with market or performanceconditions. Compensation costs for stock options with tiered vesting terms arerecognized evenly over the vesting periods.

 

The following is asummary of the changes in outstanding options for the six months ended November 30,2007:

 
| ** **                                               | ** ** | **Number of  Shares** | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Weighted  Average  Remaining  Contractual  Life (years)** | ** ** | **Aggregate  Intrinsic Value  (1)** | ** ** |
|----------------------------------------------------------|------------|-----------------------|------------|---------------------------------------|------------|-------------------------------------------------------------|------------|-------------------------------------|------------|
|                                                     |       |                  |       |                                  |       |                                                        |       | **(in  thousands)**                 |       |
| Outstanding at  May 31, 2007                             |       | 3,570,914             |       | $                                     | 5.63       |                                                        |       |                                |       |   |
| Granted                                                  |       | 424,736               |       | $                                     | 29.23      |                                                        |       |                                |       |   |
| Exercised                                                |       | (1,038,489            | )          | $                                     | 1.85       |                                                        |       |                                |       |   |
| Forfeited                                                |       | (9,141                | )          | $                                     | 20.44      |                                                        |       |                                |       |   |
| Expired                                                  |       | (223,605              | )          | $                                     | 1.21       |                                                        |       |                                |       |   |
| Outstanding at  August 31, 2007                          |       | 2,724,415             |       | $                                     | 11.07      |                                                        | 5.5        |                                | $          | 60,712 |   |
|                                                     |       |                  |       |                                  |       |                                                        |       |                                |       |
| Granted                                                  |       | 4,998                 |       | $                                     | 31.72      |                                                        |       |                                |       |   |
| Exercised                                                |       | (43,863               | )          | $                                     | 7.53       |                                                        |       |                                |       |   |
| Forfeited                                                |       | (8,910                | )          | $                                     | 29.23      |                                                        |       |                                |       |   |
| Expired                                                  |       | (83,725               | )          | $                                     | 1.05       |                                                        |       |                                |       |   |
| Outstanding at  November 30, 2007                        |       | 2,592,915             |       | $                                     | 11.43      |                                                        | 5.4        |                                | $          | 51,351 |   |
|                                                     |       |                  |       |                                  |       |                                                        |       |                                |       |
| Exercisable at  November 30, 2007                        |       | 1,680,608             |       | $                                     | 6.26       |                                                        | 5.1        |                                | $          | 41,949 |   |
|                                                     |       |                  |       |                                  |       |                                                        |       |                                |       |
| Shares available  for future grants at November 30, 2007 |       | 1,084,137             |       |                                  |       |                                                        |       |                                |       |

 

9

----

 

----

| (1) | The aggregate intrinsic  value in the above table represents the total pre-tax intrinsic value (the  difference between the Company’s closing stock price on the last trading day  of the quarter and the exercise price, multiplied by the number of options).                                                                    |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | The weighted-average  grant-date fair value of share options granted during the first six months of  fiscal years 2008 and 2007 was $11.59 and $7.83, respectively. The total  intrinsic value of share options exercised during the first six months of  fiscal years 2008 and 2007 was $29.6 million and $27.8 million, respectively. |

 

*Restrictedstock activity*

 

The Company awardedrestricted shares for the first time on June 6, 2006. The following is asummary of the changes in nonvested restricted stock for the six months ended November 30,2007:

 
| ** **                                              | ** ** | **Number of Shares** | ** ** | **Weighted-Average  Grant-Date Fair  Value** | ** ** |
|---------------------------------------------------------|------------|----------------------|------------|----------------------------------------------|------------|
|                                                    |
| ** **                                              |
| Nonvested stock outstanding at May 31, 2007             |       | 112,590              |       | $                                            | 17.51      |   |
| Granted                                                 |       | 48,055               |       | 29.23                                        |       |
| Vested                                                  |       | (22,518              | )          | 17.51                                        |       |
| Forfeited                                               |       | (1,360               | )          | —                                       |       |
| Nonvested stock outstanding at August 31, 2007          |       | 136,767              |       | $                                            | 21.63      |   |
|                                                    |       |                 |       |                                         |       |
| Granted                                                 |       | —               |       | —                                       |       |
| Vested                                                  |       | (3,648               | )          | 23.49                                        |       |
| Forfeited                                               |       | (184                 | )          | 17.51                                        |       |
| Expired                                                 |       | —               |       | —                                       |       |
| Nonvested stock outstanding at November 30, 2007        |       | 132,935              |       | $                                            | 21.58      |   |
|                                                    |       |                 |       |                                         |       |
| Shares available for future grants at November 30, 2007 |       | 1,630,984            |       |                                         |       |

 

The total fair value ofshares vested during the six-month period ended November 30, 2007 was $0.8million. No shares vested during the six-month period ended November 30,2006.

 

As of November 30,2007, there was $8.7 million of total unrecognized compensation cost related tononvested share-based compensation arrangements. This compensation cost isexpected to be recognized through June 8, 2012, based on existing vestingterms with the weighted average remaining expense recognition period beingapproximately 3.24 years.

 

# **6.****             ****COMPREHENSIVEINCOME**

#  

The components of comprehensive income for the three-month andsix-month periods ended November 30, 2007 and 2006 are as follows (inthousands):

 
| ** **                                    | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                    | ** ** | **November 30,**            | ** ** | **November 30,**          | ** ** | **November 30,** | ** ** | **November 30,** | ** ** |
| ** **                                    | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                          |       |                             |       |                           |       |   |   |   |   |
| Net income                                    |       | $                                | 16,164     |                           | $          | 14,102 |   | $ | 33,914 |   | $ | 26,835 |   |
| Net foreign  currency translation adjustments |       | 4,031                            |       | 811                            |       | 5,402 |   | 73 |   |
| Comprehensive  income                         |       | $                                | 20,195     |                           | $          | 14,913 |   | $ | 39,316 |   | $ | 26,908 |   |

 

No tax effect is recordedfor foreign currency translation adjustments as the foreign net assetstranslated are deemed permanently invested.

 

10

----

 

# **7.****             ****INCOMETAXES**

#  

The Company adopted theprovisions of Financial Interpretation No. 48, “*Accountingfor Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109*”(“FIN 48”) on June 1, 2007. The cumulative effect of implementation of FIN48 was a $0.2 million increase in the liability for unrecognized tax benefits,which was accounted for as a decrease in the May 31, 2007 balance ofretained earnings. As of the adoption date, the Company had gross unrecognizedtax benefits of $5.1 million, which was accounted for as follows (inthousands):

 
| Reduction in  Retained Earnings (cumulative effect) |   | $ | 163   |   |
|-----------------------------------------------------|--------|---|-------|--------|
| Addition to  Deferred Tax Assets                    |   | $ | 1,745 |   |
| Reduction in FAS  5 Reserve                         |   | $ | 3,222 |   |
| Increase in  Liability                              |   | $ | 5,130 |   |

 

The total balance ofunrecognized tax benefits that would affect the effective tax rate, ifrecognized, is $3.4 million. The Company does not currently anticipate that thetotal amount of unrecognized tax benefits will significantly increase ordecrease during the twelve months ending November 30, 2008.

 

The Company recognizesinterest and penalties related to unrecognized tax benefits in income taxexpense. Upon adoption of FIN 48 on June 1, 2007, the Company recognized$1.0 million of gross interest expense. The company has not recognized anypenalties upon adoption of FIN 48. The amount of the unrecognized tax benefitsdid not change significantly during the three or six months ended November 30,2007.

 

The Company is subject totaxation in the U.S. and various states and foreign jurisdictions. The Company’stax years for the fiscal years ended May 31, 2004, May 31, 2005, and May 31,2006 are subject to examination by the tax authorities.

 

With few exceptions, theCompany is no longer subject to U.S. federal, state, local or foreignexaminations by tax authorities for years before the fiscal year ended May 31,2004.

 

# **8.****             ****EARNINGSPER SHARE**

#  

The following table sets forth the computation of basic and dilutedearnings per share in accordance with Statement of Financial AccountingStandard No. 128, “*Earnings per Share”*.

 

Basic earnings per common share are calculated by dividing net incomeby weighted-average common shares outstanding during the period. Dilutedearnings per common share are calculated by dividing net income byweighted-average common shares outstanding during the period plus dilutivepotential common shares, which are determined as follows (in thousands, exceptper share data):

 

11

----

 
| ** **                                             | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                             | ** ** | **November 30,**            | ** ** | **November 30,**          | ** ** | **November 30,** | ** ** | **November 30,** | ** ** |
| ** **                                             | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                   |       |                             |       |                           |       |   |   |   |   |
| Numerator for  basic and diluted earnings per share:   |       |                             |       |                           |       |   |   |   |   |
| Net Income                                             |       | $                                | 16,164     |                           | $          | 14,102 |   | $ | 33,914 |   | $ | 26,835 |   |
|                                                   |       |                             |       |                           |       |   |   |   |   |
| Denominator:                                           |       |                             |       |                           |       |   |   |   |   |
| For basic  earnings per share                          |       |                             |       |                           |       |   |   |   |   |
| - weighted  average shares basis                       |       | 69,954                           |       | 68,245                         |       | 69,693 |   | 67,971 |   |
| Effect of  dilutive stock options and restricted stock |       | 1,157                            |       | 2,301                          |       | 1,401 |   | 2,388 |   |
| Denominator for  diluted earnings per share            |       |                             |       |                           |       |   |   |   |   |
| -adjusted  weighted average shares basis               |       | 71,111                           |       | 70,546                         |       | 71,094 |   | 70,359 |   |
|                                                   |       |                             |       |                           |       |   |   |   |   |
| Earnings per  common share – basic                |       | $                                | 0.23       |                           | $          | 0.21 |   | $ | 0.49 |   | $ | 0.39 |   |
| Earnings per  common share – diluted              |       | $                                | 0.23       |                           | $          | 0.20 |   | $ | 0.48 |   | $ | 0.38 |   |

 

The effect of 2,760 and332 out-of-the-money options for the quarter ended November 30, 2007 and2006, respectively, and 10,813 and 4,029 out-of-the-money options for the sixmonths ended November 30, 2007 and 2006, respectively, were excluded fromthe above calculation as inclusion of these securities would be anti-dilutive.

 

# **9.****             ****SEGMENTAND GEOGRAPHIC INFORMATION**

#  

The Company’s operations and segments are organizedaround geographic areas. Immucor’s “Other” segment includes the operations ofBelgium, Portugal, Spain and France. The foreign locations principally functionas distributors of products developed and manufactured by the Company in theUnited States and Canada. The accounting policies applied in the preparation ofthe Company’s consolidated financial statements are applied consistently acrossall segments. Intersegment sales are recorded at market price and areeliminated in consolidation.

 

Segment information for the three-month and six-monthperiods ended November 30, 2007 and 2006 is summarized below (inthousands).

 

12

----

 
| ** **                     | ** ** | **For the Three Months Ended November 30, 2007** | ** ** |
|--------------------------------|------------|-------------------------------------------------------------------------------------|------------|
| ** **                     | ** ** | **U.S.**                                                                            | ** ** | **Germany** | ** ** | **Italy** | ** ** | **Canada** | ** ** | **Japan** | ** ** | **Other** | ** ** | **Elims** | ** ** | **Consolidated** | ** ** |
| Traditional  reagent revenues: |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers        |       | $                                                                                   | 32,713     |   | $ | 2,221 |   | $ | 2,160 |   | $ | 2,536 |   | $ | 1,832 |   | $ | 1,562 |   | $ | — |   | $ | 43,024 |   |
| Affiliates                     |       | 1,364                                                                               |       | 904 |   | — |   | 49 |   | — |   | 1 |   | (2,318 | ) | — |   |
| Total                          |       | 34,077                                                                              |       | 3,125 |   | 2,160 |   | 2,585 |   | 1,832 |   | 1,563 |   | (2,318 | ) | 43,024 |   |
| Capture  revenues:             |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers        |       | 7,530                                                                               |       | 999 |   | 1,365 |   | 728 |   | 132 |   | 1,485 |   | — |   | 12,239 |   |
| Affiliates                     |       | 1,481                                                                               |       | 588 |   | — |   | — |   | — |   | — |   | (2,069 | ) | — |   |
| Total                          |       | 9,011                                                                               |       | 1,587 |   | 1,365 |   | 728 |   | 132 |   | 1,485 |   | (2,069 | ) | 12,239 |   |
| Net instrument  revenues:      |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers        |       | 3,226                                                                               |       | 1,509 |   | 623 |   | 735 |   | 62 |   | 316 |   | — |   | 6,471 |   |
| Affiliates                     |       | 217                                                                                 |       | 828 |   | — |   | — |   | — |   | — |   | (1,045 | ) | — |   |
| Total                          |       | 3,443                                                                               |       | 2,337 |   | 623 |   | 735 |   | 62 |   | 316 |   | (1,045 | ) | 6,471 |   |
| Net collagen  revenues:        |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers        |       | 190                                                                                 |       | — |   | — |   | — |   | — |   | — |   | — |   | 190 |   |
| Affiliates                     |       | —                                                                              |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Total                          |       | 190                                                                                 |       | — |   | — |   | — |   | — |   | — |   | — |   | 190 |   |
|                           |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Sales                      |       | 46,721                                                                              |       | 7,049 |   | 4,148 |   | 4,048 |   | 2,026 |   | 3,364 |   | (5,432 | ) | 61,924 |   |
|                           |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss)  from operations |       | 21,124                                                                              |       | (66 | ) | 684 |   | 1,438 |   | (107 | ) | 124 |   | 196 |   | 23,393 |   |
|                           |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                   |       | 1,143                                                                               |       | 183 |   | 386 |   | 59 |   | 52 |   | 259 |   | — |   | 2,082 |   |
| Amortization                   |       | 71                                                                                  |       | — |   | — |   | — |   | 17 |   | — |   | — |   | 88 |   |
| Restructuring  expenses        |       | 192                                                                                 |       | — |   | — |   | — |   | — |   | — |   | — |   | 192 |   |
| Income tax  (benefit) expense  |       | 7,955                                                                               |       | (301 | ) | 414 |   | 377 |   | — |   | 25 |   | 72 |   | 8,542 |   |
| Capital  expenditures          |       | 1,670                                                                               |       | 103 |   | 601 |   | 19 |   | 66 |   | 313 |   | — |   | 2,772 |   |
|                                |            |                                                                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                     | ** ** | **For the Three Months Ended November 30, 2006** | ** ** |
|--------------------------------|------------|-------------------------------------------------------------------------------------|------------|
| ** **                     | ** ** | **U.S.**                                                                            | ** ** | **Germany** | ** ** | **Italy** | ** ** | **Canada** | ** ** | **Japan** | ** ** | **Other** | ** ** | **Elims** | ** ** | **Consolidated** | ** ** |
| Traditional  reagent revenues: |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers        |       | $                                                                                   | 28,472     |   | $ | 1,851 |   | $ | 2,093 |   | $ | 2,175 |   | $ | 1,842 |   | $ | 1,007 |   | $ | — |   | $ | 37,440 |   |
| Affiliates                     |       | 1,494                                                                               |       | 503 |   | — |   | 57 |   | — |   | 91 |   | (2,145 | ) | — |   |
| Total                          |       | 29,966                                                                              |       | 2,354 |   | 2,093 |   | 2,232 |   | 1,842 |   | 1,098 |   | (2,145 | ) | 37,440 |   |
| Capture  revenues:             |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers        |       | 6,682                                                                               |       | 784 |   | 1,502 |   | 484 |   | 201 |   | 1,302 |   | — |   | 10,955 |   |
| Affiliates                     |       | 1,401                                                                               |       | 232 |   | — |   | — |   | — |   | — |   | (1,633 | ) | — |   |
| Total                          |       | 8,083                                                                               |       | 1,016 |   | 1,502 |   | 484 |   | 201 |   | 1,302 |   | (1,633 | ) | 10,955 |   |
| Net instrument  revenues:      |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers        |       | 2,608                                                                               |       | 1,132 |   | 304 |   | 149 |   | 3 |   | 686 |   | — |   | 4,882 |   |
| Affiliates                     |       | 248                                                                                 |       | 1,054 |   | — |   | — |   | — |   | — |   | (1,302 | ) | — |   |
| Total                          |       | 2,856                                                                               |       | 2,186 |   | 304 |   | 149 |   | 3 |   | 686 |   | (1,302 | ) | 4,882 |   |
| Net collagen  revenues:        |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers        |       | 1,149                                                                               |       |   |   |   |   |   |   |   |   |   |   | — |   | 1,149 |   |
| Affiliates                     |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   | — |   | — |   |
| Total                          |       | 1,149                                                                               |       | — |   | — |   | — |   | — |   | — |   | — |   | 1,149 |   |
|                           |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Sales                      |       | 42,054                                                                              |       | 5,556 |   | 3,899 |   | 2,865 |   | 2,046 |   | 3,086 |   | (5,080 | ) | 54,426 |   |
|                           |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss)  from operations |       | 18,778                                                                              |       | (53 | ) | 896 |   | 1,405 |   | 163 |   | 231 |   | (79 | ) | 21,341 |   |
|                           |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                   |       | 783                                                                                 |       | 160 |   | 341 |   | 48 |   | 39 |   | 198 |   | — |   | 1,569 |   |
| Amortization                   |       | 71                                                                                  |       | — |   | — |   | — |   | 16 |   | 2 |   | — |   | 89 |   |
| Restructuring  expenses        |       | 182                                                                                 |       | — |   | — |   | — |   | — |   | — |   | — |   | 182 |   |
| Income tax  (benefit) expense  |       | 6,997                                                                               |       | (95 | ) | 498 |   | 536 |   | — |   | 20 |   | (29 | ) | 7,927 |   |
| Capital  expenditures          |       | 2,346                                                                               |       | 228 |   | 145 |   | 20 |   | 8 |   | 202 |   | — |   | 2,949 |   |
|                                |            |                                                                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

13

----

 
| ** **                      | ** ** | **For the Six Months Ended November 30, 2007** | ** ** |
|---------------------------------|------------|-----------------------------------------------------------------------------------|------------|
| ** **                      | ** ** | **U.S.**                                                                          | ** ** | **Germany** | ** ** | **Italy** | ** ** | **Canada** | ** ** | **Japan** | ** ** | **Other** | ** ** | **Elims** | ** ** | **Consolidated** | ** ** |
| Traditional  reagent revenues:  |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers         |       | $                                                                                 | 68,010     |   | $ | 4,148 |   | $ | 4,336 |   | $ | 4,850 |   | $ | 3,662 |   | $ | 3,095 |   | $ | — |   | $ | 88,101 |   |
| Affiliates                      |       | 2,960                                                                             |       | 1,921 |   | — |   | 118 |   | — |   | 6 |   | (5,005 | ) | — |   |
| Total                           |       | 70,970                                                                            |       | 6,069 |   | 4,336 |   | 4,968 |   | 3,662 |   | 3,101 |   | (5,005 | ) | 88,101 |   |
| Capture  revenues:              |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers         |       | 15,077                                                                            |       | 1,934 |   | 2,899 |   | 1,348 |   | 229 |   | 2,690 |   | — |   | 24,177 |   |
| Affiliates                      |       | 3,177                                                                             |       | 1,140 |   | — |   | — |   | — |   | — |   | (4,317 | ) | — |   |
| Total                           |       | 18,254                                                                            |       | 3,074 |   | 2,899 |   | 1,348 |   | 229 |   | 2,690 |   | (4,317 | ) | 24,177 |   |
| Net instrument  revenues:       |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers         |       | 6,134                                                                             |       | 2,373 |   | 1,293 |   | 969 |   | 158 |   | 654 |   | — |   | 11,581 |   |
| Affiliates                      |       | 874                                                                               |       | 1,724 |   | — |   | — |   | — |   | — |   | (2,598 | ) | — |   |
| Total                           |       | 7,008                                                                             |       | 4,097 |   | 1,293 |   | 969 |   | 158 |   | 654 |   | (2,598 | ) | 11,581 |   |
| Net collagen  revenues:         |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers         |       | 1,697                                                                             |       | — |   | — |   | — |   | — |   | — |   | — |   | 1,697 |   |
| Affiliates                      |       | —                                                                            |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Total                           |       | 1,697                                                                             |       | — |   | — |   | — |   | — |   | — |   | — |   | 1,697 |   |
|                            |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Sales                       |       | 97,929                                                                            |       | 13,240 |   | 8,528 |   | 7,285 |   | 4,049 |   | 6,445 |   | (11,920 | ) | 125,556 |   |
|                            |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss)  from operations  |       | 46,085                                                                            |       | 30 |   | 1,639 |   | 2,679 |   | (199 | ) | 371 |   | (137 | ) | 50,468 |   |
|                            |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                    |       | 2,104                                                                             |       | 360 |   | 719 |   | 112 |   | 100 |   | 495 |   | — |   | 3,890 |   |
| Amortization                    |       | 141                                                                               |       | — |   | — |   | — |   | 32 |   | — |   | — |   | 173 |   |
| Restructuring  expenses         |       | 723                                                                               |       | — |   | — |   | — |   | — |   | — |   | — |   | 723 |   |
| Income tax  (benefit) expense   |       | 17,186                                                                            |       | (267 | ) | 950 |   | 850 |   | — |   | 36 |   | (51 | ) | 18,704 |   |
| Capital  expenditures           |       | 4,074                                                                             |       | 162 |   | 800 |   | 86 |   | 88 |   | 501 |   |   |   | 5,711 |   |
| Property &  equipment - net |       | 23,535                                                                            |       | 2,276 |   | 3,120 |   | 1,351 |   | 619 |   | 2,669 |   | — |   | 33,570 |   |
| Total assets at  period end     |       | 277,972                                                                           |       | 18,602 |   | 26,539 |   | 20,602 |   | 15,609 |   | 13,391 |   | (50,759 | ) | 321,956 |   |
|                                 |            |                                                                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                     | ** ** | **For the Six Months Ended November 30, 2006** | ** ** |
|--------------------------------|------------|-----------------------------------------------------------------------------------|------------|
| ** **                     | ** ** | **U.S.**                                                                          | ** ** | **Germany** | ** ** | **Italy** | ** ** | **Canada** | ** ** | **Japan** | ** ** | **Other** | ** ** | **Elims** | ** ** | **Consolidated** | ** ** |
| Traditional  reagent revenues: |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers        |       | $                                                                                 | 56,700     |   | $ | 3,685 |   | $ | 4,017 |   | $ | 4,385 |   | $ | 3,741 |   | $ | 2,020 |   | $ | — |   | $ | 74,548 |   |
| Affiliates                     |       | 3,080                                                                             |       | 911 |   | — |   | 115 |   | — |   | 132 |   | (4,238 | ) | — |   |
| Total                          |       | 59,780                                                                            |       | 4,596 |   | 4,017 |   | 4,500 |   | 3,741 |   | 2,152 |   | (4,238 | ) | 74,548 |   |
| Capture  revenues:             |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers        |       | 12,201                                                                            |       | 1,676 |   | 2,847 |   | 921 |   | 332 |   | 2,565 |   | — |   | 20,542 |   |
| Affiliates                     |       | 2,617                                                                             |       | 277 |   | — |   | — |   | — |   | — |   | (2,894 | ) | — |   |
| Total                          |       | 14,818                                                                            |       | 1,953 |   | 2,847 |   | 921 |   | 332 |   | 2,565 |   | (2,894 | ) | 20,542 |   |
| Net instrument  revenues:      |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers        |       | 4,827                                                                             |       | 1,564 |   | 585 |   | 254 |   | 5 |   | 916 |   | — |   | 8,151 |   |
| Affiliates                     |       | 438                                                                               |       | 1,876 |   | — |   | — |   | — |   | — |   | (2,314 | ) | — |   |
| Total                          |       | 5,265                                                                             |       | 3,440 |   | 585 |   | 254 |   | 5 |   | 916 |   | (2,314 | ) | 8,151 |   |
| Net collagen  revenues:        |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers        |       | 2,225                                                                             |       |   |   |   |   |   |   |   |   |   |   | — |   | 2,225 |   |
| Affiliates                     |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   | — |   | — |   |
| Total                          |       | 2,225                                                                             |       | — |   | — |   | — |   | — |   | — |   | — |   | 2,225 |   |
|                           |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Sales                      |       | 82,088                                                                            |       | 9,989 |   | 7,449 |   | 5,675 |   | 4,078 |   | 5,633 |   | (9,446 | ) | 105,466 |   |
|                           |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss)  from operations |       | 36,929                                                                            |       | (338 | ) | 1,533 |   | 2,611 |   | 52 |   | 638 |   | (317 | ) | 41,108 |   |
|                           |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                   |       | 1,483                                                                             |       | 327 |   | 667 |   | 95 |   | 78 |   | 384 |   | — |   | 3,034 |   |
| Amortization                   |       | 141                                                                               |       | — |   | — |   | — |   | 32 |   | 4 |   | — |   | 177 |   |
| Restructuring  expenses        |       | 569                                                                               |       | — |   | — |   | — |   | — |   | — |   | — |   | 569 |   |
| Income tax  (benefit) expense  |       | 13,610                                                                            |       | (95 | ) | 838 |   | 1,030 |   | — |   | 35 |   | (117 | ) | 15,301 |   |
| Capital  expenditures          |       | 3,633                                                                             |       | 274 |   | 404 |   | 35 |   | 20 |   | 363 |   | — |   | 4,729 |   |
| Property &  equipment, net |       | 18,207                                                                            |       | 2,447 |   | 2,904 |   | 1,239 |   | 529 |   | 2,111 |   | — |   | 27,437 |   |
| Total assets at  period end    |       | 196,081                                                                           |       | 12,911 |   | 20,715 |   | 15,479 |   | 13,020 |   | 10,402 |   | (44,130 | ) | 224,478 |   |
|                                |            |                                                                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The Company’s U.S.operations made net export sales to unaffiliated customers of approximately$1.6 million and $1.4 million for the three months ended November 30, 2007and 2006, respectively, and approximately $2.9 million and $2.6 million for thesix months ended November 30, 2007 and 2006, respectively. The Company’sGerman operations made net export sales to unaffiliated customers ofapproximately $2.1 million and $1.3 million for the three months ended November 30,2007 and 2006, respectively, and approximately $3.4 million and $2.2 millionfor the six months ended November 30, 2007 and 2006, respectively. TheCompany’s Canadian operations made net

 

14

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export sales tounaffiliated customers of approximately $0.7 million and $0.4 million,respectively, for the three months ended November 30, 2007 and 2006, andapproximately $1.1 million and $0.9 million for the six months ended November 30,2007 and 2006, respectively.

 

The Company discontinuedmanufacturing collagen products in the second quarter of fiscal 2008.

 

# **10.****      ****COMMITMENTSAND CONTINGENCIES**

#  

*FTC Investigation*

On October 12, 2007, the Company received aletter from the Federal Trade Commission (“FTC”) requesting that the Companyvoluntarily provide certain documents and information to the FTC concerningthree acquisitions made by the Company in the period from 1996 through 1999,and concerning the Company’s product pricing activities since then.  The letter states the request is part of anon-public investigation by the FTC of whether the Company violated federalantitrust laws or engaged in unfair methods of competition through thoseacquisitions, and whether the Company or others engaged in unfair methods ofcompetition by restricting price competition. The FTC letter states that neither the letter nor the existence of theinvestigation indicates that the FTC has concluded that the Company or anyoneelse has violated the law.  The Companyintends to cooperate with the FTC in this investigation, and is in the processof responding to the FTC’s request.  Atthis time the Company cannot reasonably assess the timing or outcome of theinvestigation or its effect, if any, on the Company’s business.

 

Other than as set forth above or as previouslyreported in the Company’s Annual Report on Form 10-K for the fiscal yearended May 31, 2007, as amended, the Company is not currently subject toany material legal proceedings, nor, to the Company’s knowledge, is anymaterial legal proceeding threatened against the Company.  However, from time to time, the Company maybecome a party to certain legal proceedings in the ordinary course of business.Management does not believe any ongoing legal proceedings, including thosesummarized above, will have a material adverse effect on the Company’sconsolidated financial position.

 

# **11.****      ****RECENTACCOUNTING PRONOUNCEMENTS**

#  

*Incometaxes*

 

On July 13, 2006,the Financial Accounting Standard Board (“FASB”) issued FIN 48.  FIN 48 clarifies the accounting foruncertainty in income taxes recognized in an entity’s financial statements inaccordance with  Statement of FinancialAccounting Standard (“SFAS”) No. 109, “*Accounting for IncomeTaxes*” and prescribes a recognition threshold and measurementattributes for financial statement disclosure of tax positions taken orexpected to be taken on a tax return. Under FIN 48, the impact of an uncertain income tax position on anincome tax return must be recognized at the largest amount that is more-likely-than-notto be sustained upon audit by the relevant taxing authority.  An uncertain income tax position will not berecognized if it has less than a 50% likelihood of being sustained.  Additionally, FIN 48 provides guidance onderecognition, classification, interest and penalties, accounting in interimperiods, disclosure and transition. The Company implemented FIN 48 effective June 1,2007. A more detailed discussion of the effect of the adoption of FIN 48 isincluded in Note 7, “Income Taxes.”

 

*Fairvalue measurements*

 

In September 2006,the FASB issued SFAS No. 157, “*Fair Value Measurements*”.SFAS No. 157 provides guidance for using fair value to measure assets andliabilities. This standard also responds to investors’ requests for expandedinformation about the extent to which companies measure assets and liabilitiesat fair value, the information used to measure fair value and the effect offair value measurements on earnings. SFAS No. 157 applies whenever other standards require (or permit) assetsor liabilities to be measured at fair value. The standard does not expand theuse of fair value in any new circumstances. SFAS No. 157 is effective forthe Company in its fiscal year beginning June 1, 2008. The Company doesnot believe SFAS No. 157 will have a material impact on its results ofoperation or financial position.

 

15

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*Fairvalue option for certain financial instruments*

 

On February 15,2007, the FASB issued SFAS No. 159, “*The FairValue Option for Financial Assets and Financial Liabilities,*” whichgives entities the option to measure eligible financial assets, financialliabilities and firm commitments at fair value (i.e., the fair value option),on an instrument-by-instrument basis, that are otherwise not permitted to beaccounted for at fair value under other accounting standards.  The election to use the fair value option isavailable when an entity first recognizes a financial asset or financial liabilityor upon entering into a firm commitment. Subsequent changes in fair value mustbe recorded in earnings.  SFAS No. 159is effective for the Company in its fiscal year beginning June 1, 2008.The Company is currently assessing the effect of implementing this guidance,which is dependent upon the nature and extent of eligible items elected to bemeasured at fair value upon initial application of the standard.  However, the Company does not expect theadoption of SFAS No. 159 to have a material impact on its results ofoperation or financial position.

 

*Advancepayments for research and development activities*

 

In June 2007, theEmerging Issues Task Force (“EITF”) issued EITF 07-3, “*Accountingfor Nonrefundable Advance Payments for Goods or Services to Be Used in FutureResearch and Development Activities*” (“EITF 07-3”). EITF 07-3addresses the diversity that exists with respect to the accounting for thenon-refundable portion of a payment made by a research and development entityfor future research and development activities. The EITF concluded that anentity must defer and capitalize non-refundable advance payments made forresearch and development activities until the related goods are delivered orthe related services are performed. Entities should continue to evaluate whether they expect the goods to bedelivered or services to be rendered.  Ifan entity does not expect the goods to be delivered or services to be rendered,the capitalized advance payment should be charged to expense.  EITF 07-3 is effective for the Company in itsfiscal year beginning June 1, 2008. The Company does not believe theadoption of EITF 07-3 will have a material impact on its results ofoperations or financial position.

 

## **ITEM 2.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

## ** **

*Certainstatements that the Company may make from time to time, including allstatements contained in this report that are not statements of historical fact,constitute “forward-looking statements” within the meaning of the PrivateSecurities Litigation Reform Act of 1995 and the safe harbor provisions setforth in Section 27A of the Securities Act of 1933 and Section 21E ofthe Securities Exchange Act of 1934. Forward-looking statements may beidentified by words such as “plans,” “expects,” “believes,” “anticipates,” “estimates,”“projects,” “will,” “should” and other words of similar meaning used inconjunction with, among other things, discussions of future operations,financial performance, product development and new product launches, FDA andother regulatory applications and approvals, market position andexpenditures.  Factors that could causeactual results to differ materially from those expressed in any forward-lookingstatement made by, or on behalf of, the Company include the following, some ofwhich are described in greater detail below: lower than expected marketacceptance of the Company’s new Galileo Echo instrument; the decision ofcustomers to defer capital spending; the inability of customers to efficientlyintegrate the Company’s instruments into their blood banking operations;increased competition in the sale of instruments and reagents, particularly inNorth America; product development or regulatory obstacles; the ability to hireand retain key managers; changes in interest rates; fluctuations in foreigncurrency conversion rates; the ability of the Company’s Japanese subsidiary toattain expected revenue, gross margin and net income levels; the outcome of anylegal claims or regulatory investigations known or unknown; delays in regulatoryapprovals required to move Houston manufacturing to another Company facility;higher than expected Houston closure costs; higher than expected manufacturingconsolidation costs; the unexpected application of different accounting rules;and general economic conditions. In addition, the strengthening of the USDollar versus the Euro, Canadian Dollar and Japanese Yen would adversely impactreported results. Investors are cautioned not to place undue reliance on anyforward-looking statements.  The Companycautions that historical results should not be relied upon as indications offuture performance.  The Company assumesno obligation to update any forward-looking statements.*  *Additional information concerning these and other factors which couldcause differences between forward-looking statements and future actual resultsis discussed under the heading “Risk Factors” in the Company’s Annual Report onForm 10-K for the year ended May 31, 2007.*

 

16

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**Overview**

 

*Our Business*

 

We develop, manufacture, and sell a complete line of reagents andautomated systems used primarily by hospitals, clinical laboratories and bloodbanks in tests performed to detect and identify certain properties of humanblood prior to blood transfusion. We have manufacturing facilities in theUnited States and Canada. We sell our products from these facilities andthrough our affiliates in Germany, Italy, Belgium, Spain, Portugal, France andJapan.

 

The FDA regulates all aspects of the immunohematology industry,including marketing of reagents and instruments used to detect and identifyblood properties. Our industry has been very labor intensive, but in recentyears it has made noticeable advances in automating certain manual processes.  We believe that companies that havesuccessfully introduced new technologies and automated products have seen theirprofitability improve.

 

We have introducedseveral instruments in the past, and we continue to focus on developing newinstruments and improving our existing instruments. In June 2007, wereceived FDA clearance to market our latest instrument, EchoTM, which is acompact bench top, fully-automated walk-away instrument for small- andmedium-sized hospitals, blood banks and transfusion laboratories.  EchoTM uses Capture products, our proprietaryreagents, and offers an extensive test menu and significant labor reductionwhile increasing productivity and patient safety. We expect to increase ourmarket share and revenues from the sale of EchoTM and Galileo® instruments andthe sale of Capture products in the near term. Instruments and Capture productscurrently account for approximately 30% of our revenues.

 

*Performance*

 

In fiscal 2008, we continue to focus on increasing revenue and marketshare. We have concentrated our efforts on successfully marketing the EchoTM,which received FDA clearance in June 2007. As part of this effort, infiscal 2008, we have continued to critically examine our organizationalstructure and modify it where necessary, including the hiring and training ofadditional sales, technical and contracting personnel to ensure the smooth introductionof the EchoTM. We also continue to place Galileo® instruments in the market.

 

As of November 30, 2007, we had received ordersfor a total of 540 Galileo® instruments worldwide (an increase of 36instruments in the second quarter of fiscal 2008), including 304 in Europe, 234in North America and 2 in Japan, and 478 of these Galileo® instruments weregenerating reagent revenues, an increase of 22 instruments in the secondquarter of fiscal 2008. We began selling EchoTM in the first quarter of fiscal2008. As of November 30, 2007, we had received orders for a total of 85EchoTM instruments worldwide, with orders for 55 EchoTM instruments received inthe second quarter of fiscal 2008 and 30 EchoTM instruments prior to the secondquarter of fiscal 2008.

 

Revenue increased by 14%and 19% during the three months and six months ended November 30, 2007,respectively, compared to revenue earned in the corresponding periods of fiscal2007. These improvements were largely attributable to the price increases inour traditional reagents (reagents not using our patented Capture technology)introduced in fiscal 2006 and 2007, and to a lesser extent due to exchangegains and sales volume increases in Capture products and instruments. We do notexpect prices for traditional reagents to increase in fiscal 2008 as much asthey increased in fiscal 2007.

 

Our overall gross margindecreased to 68% during the second quarter of fiscal 2008 from 70% achieved inthe corresponding quarter of fiscal 2007. The reduction in the overall grossmargin was primarily due to a reduction in instrument margins as a result of anincrease in instrument sales in the second quarter of fiscal 2008 compared tothe corresponding quarter of fiscal 2007. In the second quarter of fiscal 2008,we expensed the cost of 25 Galileo and 9 Echo instruments for which revenue wasdeferred, compared to 8 Galileo expensed in the prior year second quarter. Wemay see similar pressure on our overall gross margin as we expect the number ofsuch transactions to increase in the future. Margin on products other thaninstruments improved from 75% in the second quarter of fiscal 2007 to 76% inthe current quarter.

 

In the second quarter offiscal 2008, our operating expenses rose by 12% while gross profit increased by11%, which translated into a 15% increase in net income compared to the secondquarter of fiscal 2007. In the six months ended November 30, 2007, ouroperating expenses rose by 19% while gross profit increased by 21%, whichtranslated into a 26% increase in net income compared to the correspondingperiod of fiscal 2007. Expenses relating to the EchoTM launch and costassociated with the development of the next generation of the 

 

17

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Galileo® contributed to ahigher percentage increase in operating expenses than we have experienced inthe recent past.

 

On December 10,2007, we entered into an agreement to sell our Houston property and certain ofthe Houston assets for approximately $2.4 million to SkinMedica, Inc., forwhom we used to manufacture certain collagen products at the Houston facility.We will record a gain of approximately $1.0 million on this sale in the thirdquarter of fiscal 2008. With this sale, the restructuring plan relating to theclosure of the Houston, Texas, manufacturing facility and the consolidation ofproduction in Norcross, Georgia, and Halifax, Nova Scotia is substantiallycomplete.

 

*Business Outlook*

 

For fiscal 2008, our primary focus has been and willbe to successfully introduce and market the new Echo*TM*to small- and medium-size customers. We will also continue to focus on placingGalileo® instruments with larger customers. Over the next few years, we expectour core business to shift gradually from being mainly a supplier oftraditional reagents to being a major supplier of automated instruments thatuse our proprietary Capture technology and products. We expect to complete ourdevelopment of the next generation of the Galileo® with additional and improvedfeatures in the 2008 calendar year, and we expect to submit it to the FDA forclearance in the 2009 calendar year.

 

We have decided to sell our products directly inFrance instead of through a distributor, and we are currently developing atransition plan with Bio-Rad Laboratories, Inc., our current distributor.Because our marketing efforts in France will be disrupted during thetransition, we expect instrument revenue and related reagent revenue to belower in France in fiscal 2008 than originally expected.  However, thisexpected shortfall will not be material to our overall results. In the sixmonths ended November 30, 2007, we have spent $0.2 million and expect toincur additional expenses in the remainder of fiscal 2008 to establish the neworganization in France.

 

**Resultsof Operations**

 
| ** **                | ** ** | **Three Months Ended** | ** ** | ** ** | ** ** | ** **                     | ** ** | **Six Months Ended** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------|------------|----------------------------------|------------|------------|------------|--------------------------------|------------|--------------------------------|------------|------------|------------|------------|------------|
| ** **                | ** ** | **November 30,**            | ** ** | **Change** | ** ** | **November 30,**          | ** ** | **Change**                     | ** ** |
| ** **                | ** ** | **2007**                         | ** ** | **2006**   | ** ** | **Amount**                     | ** ** | **%**                          | ** ** | **2007**   | ** ** | **2006**   | ** ** | **Amount** | ** ** | **%** | ** ** |
| ** **                | ** ** | **($ in thousands)**   | ** ** | ** ** | ** ** | **($ in thousands)** | ** ** | ** **                     | ** ** |
| Net Sales            |       | $                                | 61,924     |       | $          | 54,426                         |       | $                              | 7,498      |       | 14%        |       | $          | 125,556 |   | $ | 105,466 |   | $ | 20,090 |   | 19% |   |
| Gross profit              |       | 41,874                           |       | 37,843     |       | 4,031                          |       | 11%                            |       | 87,754     |       | 72,379     |       | 15,375 |   | 21% |   |
| Gross profit  percentage  |       | 68                               | %          | 70         | %          | n/m                            |       | -2%                            |       | 70         | %          | 69         | %          | n/m |   | 1% |   |
| Operating  expenses       |       | 18,481                           |       | 16,502     |       | 1,979                          |       | 12%                            |       | 37,286     |       | 31,271     |       | 6,015 |   | 19% |   |
| Income from  Operations   |       | 23,393                           |       | 21,341     |       | 2,052                          |       | 10%                            |       | 50,468     |       | 41,108     |       | 9,360 |   | 23% |   |
| Non-operating  income     |       | 1,313                            |       | 688        |       | 625                            |       | 91%                            |       | 2,150      |       | 1,028      |       | 1,122 |   | 109% |   |
| Income before  income tax |       | 24,706                           |       | 22,029     |       | 2,677                          |       | 12%                            |       | 52,618     |       | 42,136     |       | 10,482 |   | 25% |   |
| Provision for  income tax |       | 8,542                            |       | 7,927      |       | 615                            |       | 8%                             |       | 18,704     |       | 15,301     |       | 3,403 |   | 22% |   |
| Net income                |       | $                                | 16,164     |       | $          | 14,102                         |       | $                              | 2,062      |       | 15%        |       | $          | 33,914 |   | $ | 26,835 |   | $ | 7,079 |   | 26% |   |

 

Improved sales, along with a proportionately lowerincrease in operating expenses, resulted in an increase in net income of $2.1million and $7.1 million for the three-month and six-month periods of fiscal2008, respectively, which translate into a 15% and a 26% increase over thecorresponding periods of fiscal 2007, respectively. Diluted earnings per sharetotaled $0.23 and $0.48 for the three-month and six-month periods of fiscal2008, respectively, as compared to diluted earnings per share of $0.20 and$0.38 for the corresponding periods of fiscal 2007, respectively.

 

United States operationscontinue to generate the majority of our revenue and operating income. U.S.operations generated 77% and 91%, respectively, of our revenue and operatingincome in the six months ended November 30, 2007 compared to 72% and 90%,respectively, in the corresponding period of fiscal 2007.

 

18

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* *

*Net Sales*

 
| ** **            | ** ** | **Three Months Ended** | ** ** | ** ** | ** ** | **Six Months Ended** | ** ** | ** ** | ** ** |
|-----------------------|------------|----------------------------------|------------|------------|------------|--------------------------------|------------|------------|------------|
| ** **            | ** ** | **November 30,**            | ** ** | **Change** | ** ** | **November 30,**          | ** ** | **Change** | ** ** |
| ** **            | ** ** | **2007**                         | ** ** | **2006**   | ** ** | **Amount**                     | ** ** | **%**      | ** ** | **2007** | ** ** | **2006** | ** ** | **Amount** | ** ** | **%** | ** ** |
| ** **            | ** ** | **($ in  thousands)**       | ** ** | ** ** | ** ** | **($ in  thousands)**     | ** ** | ** ** | ** ** |
| Traditional  reagents |       | $                                | 43,024     |       | $          | 37,440                         |       | $          | 5,584      |   | 15% |   | $ | 88,101 |   | $ | 74,548 |   | $ | 13,553 |   | 18% |   |
| Capture products      |       | 12,239                           |       | 10,955     |       | 1,284                          |       | 12%        |       | 24,177 |   | 20,542 |   | 3,635 |   | 18% |   |
| Instruments           |       | 6,471                            |       | 4,882      |       | 1,589                          |       | 33%        |       | 11,581 |   | 8,151 |   | 3,430 |   | 42% |   |
| Collagen              |       | 190                              |       | 1,149      |       | (959                           | )          | -83%       |       | 1,697 |   | 2,225 |   | (528 | ) | -24% |   |
|                  |       | $                                | 61,924     |       | $          | 54,426                         |       | $          | 7,498      |   | 14% |   | $ | 125,556 |   | $ | 105,466 |   | $ | 20,090 |   | 19% |   |

 

Of the $7.5 million total increase in revenues in thesecond quarter of fiscal 2008 compared to the corresponding quarter of fiscal2007, approximately $6.6 million came from price increases in the UnitedStates, approximately $1.9 million was attributable to the effect of thechanges in the Euro, Japanese Yen and Canadian dollar exchange rates andapproximately $0.8 million came from sales increases, including instrument revenuesoutside the United States. These revenue increases were partially offset byapproximately $1.8 million in volume decreases (including a reduction of $1.0million due to the discontinuation of the production of collagen products) inthe United States.

 

Of the $20.1 million total increase in revenues in thesix months ended November 30, 2007 compared to the corresponding period offiscal 2007, approximately $15.3 million came from price increases in theUnited States, approximately $2.7 million was attributable to the effect of thechanges in the Euro, Japanese Yen and Canadian dollar exchange rates andapproximately $2.4 million came from sales increases, including instrumentrevenues outside the United States. These revenue increases were partially offsetby approximately $0.3 million in volume decreases (a reduction of $0.5 milliondue to the discontinuation of the production of collagen products, offset by$0.2 million volume increases in other products) in the United States.

 

The 15% and 18% growth in traditional reagent revenuein the three-month and six-month periods ended November 30, 2007,respectively, compared to the corresponding periods of fiscal 2007 occurredmainly as a result of price increases in the United States.  Traditional reagent sales have historicallybeen our primary source of revenue and still constitute roughly 70% of ourrevenues.  We expect the significance ofthis line of products to gradually decline as we place more instruments in themarket that use our proprietary Capture products. We do not expect prices fortraditional reagents to increase in fiscal 2008 as much as they increased infiscal 2007.

 

Sales of Capture productsincreased by 12% and 18% in the three-month and six-month periods ended November 30,2007, respectively, compared to the corresponding periods of fiscal 2007 mainlydue to volume increases.  Sales ofCapture products are largely dependent on the number of installed instrumentsrequiring the use of Capture reagents. As we succeed in placing more instruments in the market, we expectrevenue from Capture products to continue to increase.

 

Revenue from instruments increased by 33% and 42% inthe three-month and six-month periods ended November 30, 2007,respectively, compared to the corresponding periods of fiscal 2007. Mostinstrument sales in the United States are recognized over the life of theunderlying reagent contract, which is normally five years. In the fiscal 2008quarter, $2.1 million of deferred revenue was recognized from previously placedinstruments compared to $1.0 million recognized in the 2007 quarter, andapproximately $3.3 million of instrument sales were deferred in this manner,compared to $1.1 million in the 2007 quarter. In the first six months of fiscal2008, $3.7 million of deferred revenue was recognized from previously placedinstruments compared to $1.8 million recognized in the corresponding period offiscal 2007, and in the 2008 fiscal period, approximately $6.1 million ofinstrument sales were deferred in this manner, compared to $3.0 million in thecorresponding 2007 period. As of November 30, 2007 and November 30,2006, deferred instrument and service revenues totaled $22.6 million and $17.4million, respectively.

 

We discontinued manufacturing collagen products in thesecond quarter of fiscal 2008 as our commitment to a third party has expired.This action resulted in a revenue decrease of $1.0 million and $0.5 million inthe three-month and six-month periods, respectively, compared to revenue earnedfrom these products in the corresponding periods of fiscal 2007.

 

19

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*GrossMargins*

 
| ** **            | ** ** | **Three Months Ended  November 30,** | ** ** | ** **        | ** ** |
|-----------------------|------------|-----------------------------------------------------|------------|-------------------|------------|
| ** **            | ** ** | **2007**                                            | ** ** | **2006**          | ** ** | **Change** | ** ** |
| ** **            | ** ** | **Amount**                                          | ** ** | **Margin %** | ** ** | **Amount** | ** ** | **Margin %** | ** ** | **Amount** | ** ** | **%** | ** ** |
|                  |       | **(in ’000)**                                  | ** ** | ** **        | ** ** | **(in ’000)** | ** ** | ** ** | ** ** | **(in ’000)** | ** ** |   |   |
| Traditional  reagents |       | $                                                   | 32,153     |              | 75%        |   | $ | 28,040 |   | 75% |   | $ | 4,113 |   | 15% |   |
| Capture products      |       | 10,335                                              |       | 84%               |       | 9,088 |   | 83% |   | 1,247 |   | 14% |   |
| Instruments           |       | (505                                                | )          | -8%               |       | 446 |   | 9% |   | (951 | ) | 213% |   |
| Collagen              |       | (109                                                | )          | -57%              |       | 269 |   | 23% |   | (378 | ) | -141% |   |
|                  |       | $                                                   | 41,874     |              | 68%        |   | $ | 37,843 |   | 70% |   | $ | 4,031 |   | 11% |   |

 
| ** **            | ** ** | **Six Months Ended  November 30,** | ** ** | ** **        | ** ** |
|-----------------------|------------|---------------------------------------------------|------------|-------------------|------------|
| ** **            | ** ** | **2007**                                          | ** ** | **2006**          | ** ** | **Change** | ** ** |
| ** **            | ** ** | **Amount**                                        | ** ** | **Margin %** | ** ** | **Amount** | ** ** | **Margin %** | ** ** | **Amount** | ** ** | **%** | ** ** |
| ** **            | ** ** | **(in ’000)**                           | ** ** | ** **        | ** ** | **(in ’000)** | ** ** | ** ** | ** ** | **(in ’000)** | ** ** | ** ** | ** ** |
| Traditional  reagents |       | $                                                 | 68,016     |              | 77%        |   | $ | 55,462 |   | 74% |   | $ | 12,554 |   | 23% |   |
| Capture products      |       | 20,436                                            |       | 85%               |       | 16,819 |   | 82% |   | 3,617 |   | 22% |   |
| Instruments           |       | (715                                              | )          | -6%               |       | (575 | ) | -7% |   | (140 | ) | -24% |   |
| Collagen              |       | 17                                                |       | 1%                |       | 673 |   | 30% |   | (656 | ) | -97% |   |
|                  |       | $                                                 | 87,754     |              | 70%        |   | $ | 72,379 |   | 69% |   | $ | 15,375 |   | 21% |   |

 

Our overall gross margindecreased to 68% during the second quarter of fiscal 2008 from 70% achieved inthe corresponding quarter of fiscal 2007. In the second quarter of fiscal 2008,we expensed the cost of 25 Galileo and 9 Echo instruments for which revenue wasdeferred compared to 8 Galileo in the prior year second quarter. The reductionin the overall gross margin was primarily due to a reduction in instrumentmargins as a result of this increase in instrument sales in the second quarterof fiscal 2008 compared to the corresponding quarter of fiscal 2007. Additionally,the discontinuation of the production of collagen products accounted for about0.5% reduction in the overall gross margin. Margin on products other than theinstruments improved from 75% in the second quarter of fiscal 2007 to 76% inthe current quarter.

 

For the six months ended November 30,2007, our overall gross margin increased to 70% from 69% achieved in thecorresponding period of fiscal 2007. Improvements in margins of traditionalreagents and Capture products by 2% and 3%, respectively, contributed to the 1%increase in the overall margin during the six months ended November 30,2007 compared to the overall margin achieved in the corresponding period offiscal 2007.

 

Gross margins ontraditional reagents for the three-month periods ended November 30, 2007and November 30, 2006 remained at 75%. Gross margin on traditionalreagents improved by 3% to 77% in the six-month period ended November 30,2007 compared to the corresponding period of fiscal 2007 primarily due to priceincreases.

 

The gross margin onCapture products improved by 1% and 3% in the three-month and six-month periodsended November 30, 2007, respectively, compared to the correspondingperiods of fiscal 2007.  This improvementwas largely impacted by a reduction in royalty expenses.  In the six-month period ended November 30,2006, we paid royalties of $0.2 million under an agreement which expired infiscal 2007 for certain Capture products; we did not incur any royalty expensesfor these products in the six-month period ended November 30, 2007.

 

In the case ofinstruments, comparing gross margin from period to period can be misleading dueto the method of accounting used for revenue and cost for certain types ofinstrument sales.  Where sales contractshave price guarantee clauses, instrument costs are expensed when the sale ismade, but the related revenue is deferred and recorded as income over the termof the contract.  For the three-month andsix-month periods ended November 30, 2007, the gross margin on instrumentswas negative 8% and negative 6%, respectively, compared to 9% and negative 7%,respectively, for the corresponding periods in fiscal 2007.

 

20

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*OperatingExpenses*

 
| ** **                      | ** ** | **Three Months Ended  November 30,** | ** ** | **Change** | ** ** | **Six Months Ended  November 30,** | ** ** | **Change** | ** ** |
|---------------------------------|------------|-----------------------------------------------------|------------|------------|------------|---------------------------------------------------|------------|------------|------------|
| ** **                      | ** ** | **2007**                                            | ** ** | **2006**   | ** ** | **Amount**                                        | ** ** | **%**      | ** ** | **2007** | ** ** | **2006** | ** ** | **Amount** | ** ** | **%** | ** ** |
| ** **                      | ** ** | **($ in thousands)**                      | ** ** | ** ** | ** ** | **($ in thousands)**                    | ** ** | ** ** | ** ** |
| Research and  development       |       | $                                                   | 1,434      |       | $          | 1,808                                             |       | $          | (374       | ) | -21% |   | $ | 3,489 |   | $ | 3,034 |   | $ | 455 |   | 15% |   |
| Selling and  marketing          |       | 7,844                                               |       | 6,755      |       | 1,089                                             |       | 16%        |       | 15,413 |   | 12,314 |   | 3,099 |   | 25% |   |
| Distribution                    |       | 2,646                                               |       | 2,380      |       | 266                                               |       | 11%        |       | 5,330 |   | 4,668 |   | 662 |   | 14% |   |
| General and  administrative     |       | 6,278                                               |       | 5,291      |       | 987                                               |       | 19%        |       | 12,158 |   | 10,513 |   | 1,645 |   | 16% |   |
| Restructuring  expense          |       | 192                                                 |       | 182        |       | 10                                                |       | 5%         |       | 723 |   | 569 |   | 154 |   | 27% |   |
| Amortization  expense and other |       | 87                                                  |       | 86         |       | 1                                                 |       | 1%         |       | 173 |   | 173 |   | –– |   | 0% |   |
| Total operating  expenses       |       | $                                                   | 18,481     |       | $          | 16,502                                            |       | $          | 1,979      |   | 12% |   | $ | 37,286 |   | $ | 31,271 |   | $ | 6,015 |   | 19% |   |

 

Selling and marketingexpenses increased by approximately $1.1 million and $3.1 million for thethree-month and six-month periods ended November 30, 2007, respectively,compared to the corresponding periods of fiscal 2007. Such expenses wereimpacted primarily by new hires, annual salary increases and other salaryrelated expenses and an increase in sales meetings, conventions and travelexpenses. A significant amount of these expenses related to the launch of theEchoTM instrument in fiscal 2008.

 

General andadministrative expenses increased by $1.0 million in the second quarter offiscal 2008 compared to the corresponding 2007 quarter; $0.6 million of theincrease related to personnel costs and consultancy fees. General andadministrative expenses increased by $1.6 million in the six-month period endedNovember 30, 2007 compared to the corresponding 2007 fiscal period; majorvariations were an increase in salaries, new hires, share-based compensationand bonus expenses (approximately $1.6 million) and a reduction in professionalservices attributable primarily to the reduction in outsourcing of Sarbanes-Oxleycompliance work (approximately $0.7 million).

 

*IncomeTaxes*

 

The provision for incometaxes increased $0.6 million and $3.4 million in the three-month and six-monthperiods ended November 30, 2007, respectively, compared to thecorresponding periods in fiscal 2007 primarily due to higher pre-tax income.The effective income tax rate was 34.6% and 35.5% in the three-month andsix-month periods ended November 30, 2007, respectively, compared with36.0% and 36.3% in the three-month and six-month periods ended November 30,2006. The decrease in the effective rates in fiscal 2008 is principally due tothe reduction of the German income tax rate by approximately 10% and therecording of previously unclaimed research and development credits in fiscal 2008by the Canadian affiliate.

 

As a result of utilizingcompensation cost deductions arising from the exercise of nonqualified employeestock options granted prior to June 1, 2006 for federal and state incometax purposes, we realized income tax benefits of approximately $1.9 million and$6.3 million in the three-month and six-month periods ended November 30,2007, respectively, compared to $9.1 million and $9.5 million realized in thecorresponding periods of fiscal 2007.  Asrequired by U.S. generally accepted accounting principles, these income taxbenefits are recognized in our financial statements as additions to additionalpaid-in capital rather than as reductions of the respective income taxprovisions in the consolidated financial statements because the relatedcompensation deductions were not recognized as compensation expense forfinancial reporting purposes. Our income tax liability is reduced by theseamounts.

 

*Non-OperatingIncome (Expenses)*

 
| ** **            | ** ** | **Three Months Ended  November 30,** | ** ** | **Change**                     | ** ** | **Six Months Ended  November 30,** | ** ** | **Change** | ** ** |
|-----------------------|------------|-----------------------------------------------------|------------|--------------------------------|------------|---------------------------------------------------|------------|------------|------------|
| ** **            | ** ** | **2007**                                            | ** ** | **2006**                       | ** ** | **Amount**                                        | ** ** | **2007**   | ** ** | **2006** | ** ** | **Amount** | ** ** |
| ** **            | ** ** | **($ in thousands)**                      | ** ** | **($ in thousands)** | ** ** |
| Non-operating  income |       | $                                                   | 1,313      |                           | $          | 688                                               |       | $          | 625        |   | $ | 2,150 |   | $ | 1,028 |   | $ | 1,122 |   |
|                       |            |                                                     |            |                                |            |                                                   |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

The increases in non-operating income for thethree-month and six-month periods of fiscal 2008 compared to the correspondingperiods of fiscal 2007 were primarily attributable to an increase in interestincome due to the increase in our cash balances.

 

*NetIncome and Earnings per Share*

 

Higher sales and gross profit resulted in net incomeof $16.1 million, up 15% from $14.1 million for the second 

 

21

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quarter compared to the corresponding 2007 quarterand, for the six-month period ended November 30, 2007, higher sales and grossprofit resulted in net income of $33.9 million, up 26% from $26.8 million forthe corresponding fiscal 2007 period. For the second quarter of fiscal 2008, diluted earnings per share were$0.23, up from $0.20 for the corresponding fiscal 2007 quarter.  For the six-month period ended November 30,2007, diluted earnings per share were $0.48, up from $0.38 for the 2007 fiscalperiod.

 

**Liquidityand Capital Resources**

 
| ** **                                                    | ** ** | **For the Six Months Ended  November 30,** | ** ** |
|---------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                                                    | ** ** | **2007**                                                            | ** ** | **2006** | ** ** |
| ** **                                                    | ** ** | **(in  thousands)**                                                 | ** ** |
|                                                          |       |                                                                |       |   |   |
| Net cash  provided by operating activities                    |       | $                                                                   | 26,610     |   | $ | 17,773 |   |
| Net cash used in  investing activities                        |       | (5,711                                                              | )          | (3,741 | ) |
| Net cash  provided by financing activities                    |       | 2,301                                                               |       | 6,514 |   |
| Effect of  exchange rate changes on cash and cash equivalents |       | 1,027                                                               |       | (126 | ) |
| Increase in cash  and cash equivalents                        |       | $                                                                   | 24,227     |   | $ | 20,420 |   |

 

Our cash and cashequivalents were $137.8 million at November 30, 2007, as compared to$113.6 million at May 31, 2007. Factors significantly contributing to the $24.2 million increase in thesix-month period ended November 30, 2007 were the $33.9 million in netincome and $6.3 million in tax benefits received from the exercise of stockoptions, partly offset by an increase in inventory of $6.1 million and a cashoutflow of $5.5 million for payment of withholding taxes in compliance with thestatutory tax withholding requirements on exercise of options and vesting ofrestricted shares in exchange for surrender of the Company’s shares of equalvalue.

 

*OperatingActivities -* Net cash generated by operating activities was$26.6 million for the six-month period ended November 30, 2007 (the “2008Period”), an increase of $8.8 million over the $17.8 million generated in thesix-month period ended November 30, 2006 (the “2007 Period”).  The increase in net income of $7.1 million(from $26.8 million for the 2007 Period to $33.9 million for the 2008 Period)and, among other things, an adjustment of approximately $3.2 million ($6.3million for the 2008 Period compared to $9.5 million for the 2007 Period) forthe tax benefit arising on exercise of stock options (which is required to bedisclosed as cash generated by financing activities since our adoption of SFAS123(R) effective June 1, 2006) was partly offset by an increase ininventory of approximately $4.2 million ($6.1 million in the 2008 Periodcompared to $1.9 million in the 2007 Period) mainly due to the build up ofinventory of instruments and related parts in anticipation of an increase ininstrument business in the near term following the launch of our EchoTMinstrument in June 2007.

 

*InvestingActivities -* For the 2008 Period, $5.7 million of net cashwas used in investing activities for the purchase of property and equipment. Inthe 2007 Period, we spent $4.7 million on the purchase of property andequipment, offset by proceeds from the maturity of short term investments ($1.0million).

 

*FinancingActivities –*In the 2008 Period, net cash provided byfinancing activities was $2.3 million, compared to $6.5 million of net cashprovided in the 2007 Period. During the first quarter of fiscal 2008, we had acash outflow of $5.5 million for payment of withholding taxes in compliancewith the statutory tax withholding requirements on exercise of options andvesting of restricted shares in exchange for surrender of the Company’s sharesof equal value. The value of these reacquired shares is disclosed as ‘Repurchaseof common stock’ under financing activities in the condensed consolidatedstatement of cash flows.  In the 2008Period, we did not repurchase any shares in the open market under our stockrepurchase program, compared to the $4.9 million used in the 2007 Period forthis purpose. We received $1.8 million and $2.4 million from the exercise ofemployee stock options in the 2008 Period and 2007 Period, respectively.  We received $6.3 million and $9.5 millionexcess tax benefits from share-based compensation for the 2008 Period and 2007Period, respectively.

 

22

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*Stock Repurchase Program*

 

During the 2008 Period, we did not repurchase any shares under theprogram. During the 2007 Period, 281,969 shares amounting to $4.9 million wererepurchased under this program.  Anaggregate of 1,142,056 shares were available for repurchase under the programas of November 30, 2007.

 

*ContingentLiabilities*

 

We record contingent liabilities resulting from asserted andunasserted claims against us when it is probable that a liability has beenincurred and the amount of the loss is reasonably estimable.  We disclose contingent liabilities when thereis a reasonable possibility that the ultimate loss will exceed the recordedliability. Estimating probable losses requires analysis of multiple factors, insome cases including judgments about the potential actions of third-party claimantsand courts. Therefore, actual losses in any future period are inherentlyuncertain. We currently are involved in certain legal proceedings. We do notbelieve these proceedings will have a material adverse effect on ourconsolidated financial position. It is possible, however, that future resultsof operations for any particular quarterly or annual period could be materiallyaffected by changes in our assumptions or the effectiveness of our strategiesrelated to these proceedings.  Contingentliabilities are described in Note 10 to the condensed consolidated financialstatements.

 

*FutureCash Requirements and Restrictions*

 

We expect that cash andcash equivalents and cash flows from operations will be sufficient to supportoperations and planned capital expenditures for at least the next 12months.  There are no restrictions on oursubsidiaries with respect to sending dividends, or making loans or advances toImmucor.

 

**CriticalAccounting Policies**

 

*General*

 

We have identified thepolicies below as critical to our business operations and to the understandingof our results of operations. The impact and any associated risks related tothese policies on our business operations are discussed throughout Management’sDiscussion and Analysis of Financial Condition and Results of Operations wheresuch policies affect our reported and expected financial results.  For a detailed discussion on the applicationof these and other accounting policies, see the notes to the condensedconsolidated financial statements of this quarterly report on Form 10-Qand the notes to the consolidated financial statements and the ManagementDiscussion and Analysis of Financial Condition and Results of Operationscontained in our Annual Report on Form 10-K for the fiscal year ended May 31,2007. Senior management has discussed the development and selection of criticalaccounting estimates and the related Management’s Discussion and Analysis ofFinancial Condition and Results of Operations disclosure with the AuditCommittee of our Board of Directors. We believe that our most criticalaccounting policies and estimates relate to the following:

 
| i.   | Revenue recognition                                            |
|------|----------------------------------------------------------------|
| ii.  | Trade accounts  receivable and allowance for doubtful accounts |
| iii. | Inventories                                                    |
| iv.  | Goodwill                                                       |
| v.   | Income taxes                                                   |
| vi.  | Share-based  compensation                                      |

* *

*i) RevenueRecognition*

 

In accordance with theStaff Accounting Bulletin No. 104, “*Revenue Recognition”*, guidance, werecognize revenue when the following four basic criteria have been met:  (1) persuasive evidence of anarrangement exists; (2) delivery has occurred or services 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

Revenue from the sale ofour reagents to end users is recognized upon shipment when both title and riskof loss transfer to the customer, unless there are specific contractual termsto the contrary.  Revenue from the 

 

23

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sale of our reagents todistributors is recognized FOB customs clearance when both title and risk ofloss transfer to the customer.

 

·      Medical instrument sales

Revenue from the sale ofour medical instruments without multiple deliverables is generally recognizedupon shipment and completion of contractual obligations.  Revenue from rentals of our medicalinstruments is recognized over the term of the rental agreement.  Instrument service contract revenue isrecognized over the term of the contract.

 

In cases of sales ofinstruments with multiple deliverables, we recognize revenue in accordance withEmerging Issues Task Force (“EITF”) Issue No. 00-21, “*Accounting for Revenue Arrangements with MultipleDeliverables”*. Our medical instrument sales contracts with multipledeliverables include the sale or rental of an instrument (including delivery,installation and training), the servicing of the instrument during the firstyear, and, in many cases, price guarantees for consumables purchased during thecontract period.  We have determined thefair value of certain of these elements, such as training and first yearservice.  The portion of the instrumentsales price applicable to the instrument itself is recognized upon shipment andcompletion of contractual obligations relating to training and/orinstallation.  If the agreement does notinclude any price guarantees, the sales price in excess of the fair values oftraining and service is allocated to the instrument itself.  The fair value of a training session isrecognized as revenue when services are provided.  If multiple training sessions arecontractually provided, then additional training revenue is recognized upondelivery.  The fair value of first yearservice is recognized over the first year of the contract.  If the agreement contains price guarantees,the entire arrangement consideration is deferred and recognized over therelated guarantee period due to the fair value of the price guarantee not beingdeterminable at the point of sale.  Theallocation of the total consideration, which is based on the estimated fairvalue of the units of accounting, requires judgment by management.

 

ii) *TradeAccounts Receivable and Allowance for Doubtful Accounts*

 

Trade receivables at November 30, 2007, totaling $53.5 million,and at May 31, 2007, totaling $47.8 million, are net of allowances fordoubtful accounts of $1.9 million and $1.7 million, respectively. The allowancefor doubtful accounts represents a reserve for estimated losses resulting fromthe inability of our customers to pay their debts. The collectibility of tradereceivable balances is regularly evaluated based on a combination of factorssuch as customer credit-worthiness, past transaction history with the customer,current economic industry trends and changes in customer payment patterns.  If it is determined that a customer will beunable to fully meet its financial obligation, such as in the case of abankruptcy filing or other material events impacting its business, a specificallowance for doubtful accounts is recorded to reduce the related receivable tothe amount expected to be recovered.

 

*iii)Inventories*

 

Inventories are stated atthe lower of cost (first-in, first-out basis) or market (net realizablevalue).  Cost includes material, laborand manufacturing overhead.  We use astandard cost system as a tool to monitor production efficiency. The standardcost system applies estimated labor and manufacturing overhead factors toinventory based on budgeted production and efficiency levels, staffing levelsand costs of operation, based on the experience and judgment of management.Actual costs and production levels may vary from the standard established andsuch variances are charged to the consolidated statement of income as a componentof cost of sales.  Since U.S. generallyaccepted accounting principles require that the standard cost approximateactual cost, periodic adjustments are made to the standard rates to approximateactual costs.  The provision for obsoleteand/or excess inventory is reviewed on a quarterly basis or, if warranted bycircumstances, more frequently. In evaluating this reserve, managementconsiders technology changes, competition, customer demand, product shelf lifeand manufacturing quality.  No materialchanges have been made to the inventory policy during the second quarter offiscal 2008.

 

*iv)Goodwill*

 

On adoption of Statementof Financial Accounting Standard No. 142, “*Goodwill andOther Intangible Assets”*, goodwill and indefinite lived intangibleassets are no longer amortized but are tested for impairment annually or 

 

24

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more frequently ifimpairment indicators arise.  Intangibleassets that have finite lives continue to be amortized over their useful lives.

 

We evaluate the carryingvalue of goodwill as at the end of the third quarter of each year and betweenannual evaluations if events occur or circumstances change that would morelikely than not reduce the fair value of the reporting unit below its carryingamount. Such circumstances could include, but are not limited to: (1) asignificant adverse change in legal factors or in business climate, (2) unanticipatedcompetition, or (3) an adverse action or assessment by a regulator. Whenevaluating whether goodwill is impaired, we compare the fair value of thereporting unit to which the goodwill is assigned to the reporting unit’scarrying amount, including goodwill.  Thefair value of the reporting unit is estimated using primarily the income, ordiscounted cash flows, approach. If the carrying amount of a reporting unitexceeds its fair value, then the amount of the impairment loss must bemeasured.  The impairment loss would becalculated by comparing the implied fair value of the reporting unit’s goodwillto its carrying amount.  In calculatingthe implied fair value of the reporting unit’s goodwill, the fair value of thereporting unit is allocated to all of the other assets and liabilities of thatunit based on their fair values.  Theexcess of the fair value of a reporting unit over the amount assigned to itsother assets and liabilities is the implied fair value of goodwill. Animpairment loss would be recognized when the carrying amount of goodwillexceeds its implied fair value.

 

*v) IncomeTaxes*

 

We record the estimatedfuture tax effects of temporary differences between the tax bases of assets andliabilities and amounts reported in the accompanying consolidated balancesheets, as well as operating loss and tax credit carry-forwards. The value ofour deferred tax assets assumes that we will be able to generate sufficientfuture taxable income in certain tax jurisdictions, based on estimates andassumptions. If these estimates and related assumptions change in the future,we may be required to record additional valuation allowances against ourdeferred 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, and we consider thescheduled reversal of deferred tax liabilities, projected future taxableincome, carry-back opportunities, and tax-planning strategies in making thisassessment.  We assess the need foradditional valuation allowances quarterly.

 

The calculation of taxliabilities involves significant judgment in estimating the impact ofuncertainties in the application of complex tax laws. Although FIN 48, which weadopted at the beginning of fiscal 2008, provides further clarification on theaccounting for uncertainty in income taxes recognized in the financialstatements, the new threshold and measurement attribute prescribed by the FASBwill continue to require significant judgment by management. Resolution ofthese uncertainties in a manner inconsistent with our expectations could have amaterial impact on our results of operations.

 

*vi)Share-based Employee Compensation*

 

We adopted Statement ofFinancial Accounting Standard No. 123R, “*Share-BasedPayment”* (“SFAS 123(R)”), on June 1, 2006, using the modifiedprospective transition method, which requires that (i) compensation costsbe recorded as earned for all unvested stock options outstanding at thebeginning of the first fiscal year of adoption of SFAS 123(R) based on thegrant date fair value estimated in accordance with the original provisions ofStatement of Financial Accounting Standard No. 123, “*Accountingfor Stock-Based Compensation”*, and (ii) for compensation costsfor all share-based payments granted or modified subsequent to the adoption berecorded, based on the grant date fair value estimated in accordance with theprovisions of SFAS 123(R). On adoption of SFAS 123(R), we elected to attributethe value of share-based compensation to expense using the straight-linemethod, which was previously used for disclosing our pro forma informationrequired under SFAS 123.

 

We elected to value ourshare-based payment awards using the Black-Scholes option-pricing model (the “Black-Scholesmodel”), which was previously used for disclosing our pro forma informationrequired under SFAS 123. The Black-Scholes model was developed for use inestimating the fair value of traded options that have no vesting restrictionsand are fully transferable.  TheBlack-Scholes model requires the input of certain assumptions. Our stockoptions have characteristics significantly different from those of tradedoptions, and changes in the assumptions can materially affect the fair valueestimates.

 

25

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We have calculated ouradditional paid in capital pool (“APIC pool”) based on the actual income taxbenefits received from exercises of stock options granted after the effectivedate of SFAS 123 using the long method. The APIC pool is available to absorbany tax deficiencies subsequent to the adoption of SFAS 123(R).

 

## **ITEM 3.  Quantitative and Qualitative Disclosuresabout Market Risk**

## ** **

Therehave been no material changes regarding the Company’s market risk positionsince the filing of its Annual Report on Form 10-K for the fiscal yearended May 31, 2007.  For furtherdetails regarding the quantitative and qualitative disclosures about marketrisk, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk,contained in the Company’s Annual Report on Form 10-K for the fiscal yearended May 31, 2007.

 

## **ITEM4.  Controls and Procedures**

## ** **

As required by Rule 13a-15 under the SecuritiesExchange Act of 1934, an evaluation was carried out under the supervision andwith the participation of our management, including the Chief Executive Officerand Chief Financial Officer, of the effectiveness of the design and operationof our disclosure controls and procedures as of November 30, 2007.  Based upon our evaluation, our ChiefExecutive Officer and Chief Financial Officer have concluded that, as of November 30,2007, our disclosure controls and procedures were effective to providereasonable assurance that information required to be disclosed in the reportsthat we file or submit under the Securities Exchange Act of 1934 is recorded,processed, summarized and reported within the time periods specified in theapplicable rules and forms, and that it is accumulated and communicated toour management, including our Chief Executive Officer and Chief FinancialOfficer, as appropriate, to allow timely decisions regarding requireddisclosure.

 

There were no changes in our internal control overfinancial reporting during the quarter ended November 30, 2007 that havematerially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

 

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**PART II**

 

**OTHERINFORMATION**

 

## **ITEM 1. LegalProceedings**

## ** **

*FTC Investigation*

On October 12, 2007, we received a letter fromthe Federal Trade Commission (“FTC”) requesting that we voluntarily providecertain documents and information to the FTC concerning three acquisitions madeby us in the period from 1996 through 1999, and concerning our product pricing activitiessince then.  The letter states therequest is part of a non-public investigation by the FTC of whether we violatedfederal antitrust laws or engaged in unfair methods of competition throughthose acquisitions, and whether we or others engaged in unfair methods ofcompetition by restricting price competition. The FTC letter states that neither the letter nor the existence of theinvestigation indicates that the FTC has concluded that we or anyone else has violatedthe law.  We intend to cooperate with theFTC in this investigation, and are in the process of responding to the FTC’srequest.  At this time we cannotreasonably assess the timing or outcome of the investigation or its effect, ifany, on our business.

 

Other than as set forth above or as previouslyreported in our Quarterly Report on Form 10-Q for the fiscal period ended August 31,2007, or our Annual Report on Form 10-K for the fiscal year ended May 31,2007, as amended, we are not currently subject to any material legalproceedings, nor, to our knowledge, is any material legal proceeding threatenedagainst us.  However, from time to time,we may become a party to certain legal proceedings in the ordinary course ofbusiness. Management does not believe any ongoing legal proceedings, includingthose summarized above, will have a material adverse effect on our consolidatedfinancial position.

 

## **ITEM 1A.  Risk Factors**

## ** **

As noted in Part I,Item 1A of our Annual Report on Form 10-K for the year ended May 31,2007 in fiscal 2007 approximately 80% of our revenues and 95% of our net incomewere generated from sales in North America, and these results could besignificantly and negatively impacted if current or new competitors increasedtheir competition based on price, thereby potentially reducing our market shareand gross margins.  In September 2007Alba Bioscience, a Scottish company with US operations in Durham, NorthCarolina, announced it had received US FDA clearance to market 15 monoclonalblood grouping reagents, including some not previously available in theUS.  If Alba enters the North Americanmarket, their entry, together with the expected entry of Biotest, Bio-Rad andothers noted in our Annual Report on Form 10-K would create additionalcompetition.

 

There have been no othermaterial changes to the risk factors set forth in our Annual Report on Form 10-K.In addition to the other information set forth in this report, you shouldcarefully consider the factors discussed in Part I, Item 1A, “RiskFactors” in our Annual Report on Form 10-K which could materially affectour business, financial condition or future results. The risks described in ourAnnual Report on Form 10-K are not the only risks facing our company.Additional risks and uncertainties not currently known to us or that wecurrently deem immaterial also may have a material adverse effect on ourbusiness, financial condition and/or operating results.

 

## **ITEM2.        Unregistered Sales of EquitySecurities and Use of Proceeds**

## ** **

TheCompany did not sell unregistered securities during the period covered by thisreport. The Company did not repurchase any shares of its common stock under itsstock repurchase program during the quarter ended November 30, 2007.

 

## **ITEM4.       Submission of Matters to a Voteof Security Holders**

## ** **

The Company held itsAnnual Meeting of Shareholders on November 15, 2007. The following is asummary of the matters voted on at that meeting:

 

The shareholders voted onthe election of eight directors, all incumbent directors of the Company, toserve until the Company’s next Annual Meeting of Shareholders or until theirsuccessors are duly elected and qualified. Each of these directors was electedby the affirmative vote of a plurality of the votes cast at the Annual Meeting.

 

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The number of shares castfor and the number of shares withheld, with respect to each of these persons,were as follows:

 
| **Name**                  | ** ** | **Votes For** | ** ** | **Votes Withheld** | ** ** |
|---------------------------|------------|--------------------|------------|-------------------------|------------|
|                      |       |               |       |                    |       |
| Roswell S.  Bowers        |       | 56,822,998         |       | 9,546,540               |       |
| Dr. Gioacchino  DeChirico |       | 63,391,443         |       | 2,978,095               |       |
| Ralph A. Eatz             |       | 63,113,655         |       | 3,255,883               |       |
| Michael S.  Goldman       |       | 54,858,012         |       | 11,511,526              |       |
| Dr. Jack  Goldstein       |       | 63,185,659         |       | 3,183,879               |       |
| John A. Harris            |       | 61,191,617         |       | 5,177,921               |       |
| Hiroshi Hoketsu           |       | 63,376,870         |       | 2,992,668               |       |
| Joseph E. Rosen           |       | 61,188,828         |       | 5,180,710               |       |

 

## **ITEM 6.  Exhibits**

 

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.

 

 

# SIGNATURES

#  

Pursuant to the requirementsof the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

IMMUCOR, INC.

(Registrant)

 

 
| Date:  | January 8, 2008                                                                                                   |   | By: | /s/ Dr. Gioacchino  De Chirico |   |
|--------|------------------------------------------------------------------------------------------------------------------------|--------|-----|-------------------------------------|--------|
|   | Dr. Gioacchino De  Chirico, Chief Executive Officer  (on behalf of Registrant and as Principal Executive Officer) |
|   |                                                                                                                   |   |
|   |                                                                                                                   |   |
| Date:  | January 8, 2008                                                                                                   |   | By: | /s/ Richard A. Flynt                |   |
|   | Richard A. Flynt, Chief  Financial Officer  (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-Oxlcy Act of 2002. |
|       |       |                                                                                                 |
| 32.2       |       | Certification of Chief  Financial Officer Pursuant to Section 906 of the Sarbanes-Oxlcy Act of 2002. |

 

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