**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-K**

| (Mark One)                                                                                                                                         | ** ** |                                                                                                    |
|----------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|
| **x**                                                                                                                                              |       | **ANNUAL REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**     |
| **For the fiscal year ended May 31, 2006**                                                                                                    |
| **OR**                                                                                                                                             |
| o                                                                                                                                                  |       | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| **For the transition period from                    to** |
| Commission file number**0-14820**                                                                                                                  |

 

**IMMUCOR, INC.**

(Exact name of registrantas specified in its charter)

| **Georgia**                                                     |       | **22-2408354**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or other jurisdiction of incorporation or  organization) |       | (I.R.S.  Employer Identification No.) |
| **3130  GATEWAY DRIVE,**                                        | ** ** | **30091-5625**                        |
| **P.O. BOX 5625**                                          |       | (Zip  Code)                           |
| **Norcross, Georgia**                                           |       |                                  |
| (Address of principal executive offices)                        |       |                                  |

 

Registrant’stelephone number, including area code, is **(770) 441-2051**

Securitiesregistered pursuant to Section 12(b) of the Act:**NONE**

Securitiesregistered pursuant to Section 12(g) of the Act:**COMMON STOCK, $.10 PAR VALUE**(Title of Class)

**COMMON STOCKPURCHASE RIGHTS**(Title of Class)

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o   No x

Indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or Section 15(d) ofthe Exchange Act. Yes o   No x

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the Registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days. Yes x   No o

Indicate by a check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, and willnot be contained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K. o

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.

Large acceleratedfiler x            Acceleratedfiler o            Non-acceleratedfiler o

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No x

As of November 30, 2005, the aggregate marketvalue of the common stock held by non-affiliates of the registrant was$1,100,092,039, based upon the closing price on the Nasdaq National Market onthat date. For the purpose of calculating this amount, all officers anddirectors have been treated as affiliates.

As of June 30, 2006, there were 67,654,406 sharesof common stock outstanding.

**DOCUMENTSINCORPORATED BY REFERENCE**

Part III - Portions ofthe Registrant’s Proxy Statement relative to the 2006 Annual Meeting ofStockholders to be held on November 15, 2006.

 

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**Tableof Contents**

| **Part I**   |       |                                                                                                               |       |       |
|-------------------|------------|--------------------------------------------------------------------------------------------------------------------|------------|------------|
| Item 1.           |       | Business                                                                                                           |       | 3          |
| Item  1A.         |       | Risk Factors                                                                                                       |       | 14         |
| Item 1B.          |       | Unresolved Staff Comments                                                                                          |       | 19         |
| Item 2.           |       | Properties                                                                                                         |       | 19         |
| Item  3.          |       | Legal  Proceedings                                                                                                 |       | 19         |
| Item 4.           |       | Submission of Matters to a Vote of Security Holders                                                                |       | 20         |
| **Part II**  | ** ** | ** **                                                                                                         | ** ** | ** ** |
| Item 5.           |       | Market for Registrant’s Common Equity, Related  Stockholder Matters and Issuer Purchases of Equity Securities |       | 21         |
| Item 6.           |       | Selected Financial Data                                                                                            |       | 23         |
| Item 7.           |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                        |       | 24         |
| Item 7A.          |       | Quantitative and Qualitative Disclosures about Market  Risk                                                        |       | 37         |
| Item 8.           |       | Financial Statements and Supplementary Data                                                                        |       | 38         |
| Item 9.           |       | Changes in and Disagreements with Accountants on  Accounting and Financial Disclosure                              |       | 72         |
| Item 9A.          |       | Controls and Procedures                                                                                            |       | 72         |
| Item  9B.         |       | Other  Information                                                                                                 |       | 75         |
| **Part III** |       |                                                                                                               |       |       |
| Item 10.          |       | Directors and Executive Officers of the Registrant                                                                 |       | 76         |
| Item 11.          |       | Executive Compensation                                                                                             |       | 76         |
| Item 12.          |       | Security Ownership of Certain Beneficial Owners and  Management                                                    |       | 76         |
| Item 13.          |       | Certain Relationships and Related Transactions                                                                     |       | 76         |
| Item 14.          |       | Principal Accountant Fees and Services                                                                             |       | 76         |
| **Part IV**  | ** ** | ** **                                                                                                         | ** ** | ** ** |
| Item 15.          |       | Exhibits and Financial Statement Schedules                                                                         |       | 76         |
| Signatures        |       | 80                                                                                                                 |
| Ex-21             |       | Subsidiaries of the Registrant                                                                                     |       |       |
| Ex-23             |       | Consents of Experts and Counsel                                                                                    |       |       |
| Ex-31.1           |       | Certificate of Principal Executive Officer Pursuant to  Rule 13a-14(a)                                        |       |       |
| Ex-31.2           |       | Certificate of Principal Financial Officer Pursuant to  Rule 13a-14(a)                                        |       |       |
| Ex-32             |       | Certifications Required Under Section 906 of the  Sarbanes-Oxley Act of 2002                                  |       |       |

 

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**PART I**

**FORWARD—LOOKINGSTATEMENTS**

*This documentcontains forward-looking statements that are based upon current expectationsthat are within the meaning of the Private Securities Reform Act of 1995.Forward-looking statements include, without limitation, any statement that maypredict, forecast, indicate, or imply future results, performance, orachievements, and may contain the words “believe”, “anticipate”, “expect”, “estimate”,“project”, “will be”, “will continue”, “will likely result”, or words or phrasesof similar meaning. Forward-looking statements involve risks and uncertaintiesthat may cause actual results to differ materially from the forward-lookingstatements. We intend that such statements be protected by the safe harborcreated thereby. The risks and uncertainties are detailed from time to time inreports filed by us with the SEC, including Forms 8-K, 10-Q, and 10-K.*

*In addition, such statements are subject to the risksand uncertainties discussed in the “Risk Factors” section and elsewhere in thisdocument. The risks included here are not exhaustive. Other sections of thisreport may include additional factors that could adversely affect our businessand financial performance. Moreover, we operate in a very competitive andrapidly changing environment. New risk factors emerge from time to time, and itis not possible for management to predict all such risk factors, nor can itassess the impact of all such risk factors on our business or the extent towhich any factor, or combination of factors, may cause actual results to differmaterially from those contained in any forward-looking statements. Given theserisks and uncertainties, investors should not place undue reliance onforward-looking statements as a prediction of actual results.*

**Item 1.—Business.**

Founded in 1982, Immucor, Inc.,a Georgia corporation (“Immucor” or the “Company”), develops, manufactures andsells a complete line of reagents and automated systems used primarily byhospitals, clinical laboratories and blood banks in a number of tests performedto detect and identify certain properties of the cell and serum components ofhuman blood prior to blood transfusion. The Company continues to placeincreasing emphasis on the development and sale of instruments and instrumentsystems that use the Company’s proprietary reagents, while promoting increasedsales of its traditional reagent product line.

**Developments duringFiscal Year 2006**

*NewPricing Strategies.*   The Company remains focusedin the execution of its new pricing strategies which are detailed in thestrategy section under Item 1. A new standardized pricing structure providescustomers pricing leverage if they purchase all of the primary blood bank reagentproducts offered by us.  Also in fiscal2006, the Company completed its conversion from selling Capture products inkits to selling them as individual components. As a result of theimplementation of these combined strategies, the Company achieved a sizableincrease in year-over-year revenues for fiscal 2006. In fiscal 2007, theCompany expects to achieve further revenue gains due to the year-over-yearimpact of the cancellation of selected group purchasing contracts and theirsubsequent conversion to standardized pricing, as well as the year-over-yearimpact of selling Capture products as individual components introduced infiscal 2005.

*GalileoFurther Market Penetration.**  *TheCompany continues to solicit large, prestigious laboratories to drop our competitor’sproducts and begin using ours. As a result, both Duke University Medical Centerand The Mayo Clinic recently acquired Galileo instruments and in January 2006,the Company received an order to supply eight Galileo instruments from BloodSystems Laboratories, the national leader in blood donor testing services. In April 2006,the FDA gave clearance to market two additional assays for the Galileo—Capture-CMVand Capture-S. The addition of these assays should result in furtherpenetration of the Galileo into the donor center market. As of May 31,2006, the Company had received purchase orders for a total of 367 Galileoinstruments worldwide, including 233 in Europe, 132 in North America, and 2 inJapan, and 294 of these instruments are generating reagent revenues.

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*ThirdGeneration Instrument Design Progression.*   At theAmerican Association of Blood Banks convention held in October 2005, theCompany revealed a prototype of its new third generation instrument, theGalileo EchoTM, to the blood bank community. The Company expects to launch theinstrument in Europe and the U.S. markets in the third quarter of fiscal 2007. Theactual launch date is dependent on FDA clearance of the instrument in theUnited States and assumes clearance will take approximately 90 days after thesubmission is received by the FDA. The Galileo EchoTM has a significantlysmaller footprint than the ABS2000 with many of the features of the Galileo,including a broad test menu and quick turnaround time.  The new instrument will appeal to the small-to medium-sized hospital market, the largest segment of the Company’s customers(which number approximately 5,000 to 6,000 worldwide), to which the Company’sABS2000 instrument is currently marketed. The cost of development totaled $0.8million and $1.6 million in fiscal 2006 and fiscal 2005, respectively, and isexpected to be minimal in fiscal 2007.

*JapaneseAcquisition.**  *OnJuly 5, 2005, in an effort to expand its presence in Japan, the Companyacquired Immucor-Kainos, Inc. - a newly-formed company to which Kainos Laboratories, Inc. (“Kainos”),the Company’s former distributor of Immucor products in Japan, spun off its blood-bankingdivision. Immucor paid Kainos ¥459 million (approximately $4.1 million) in cashon signing of the purchase agreements, and will pay an additional ¥300 million(approximately $2.7 million) over three years with minimum payments of ¥125million in each of the first two years and the remaining ¥50 million in thethird year. A final payment of ¥441 million will be made after a three-yeartransition period ending on June 30, 2008, or earlier upon mutualagreement. Kainos has agreed to provide certain services to Immucor-Kainosduring the first three years. The Company believes the acquisition of thisbusiness is a key step towards further penetrating the Japanese transfusiondiagnostics market, the third largest such market in the world after Europe andthe United States.

*OutsideDirector Addition.*   On May 15, 2006, MichaelS. Goldman agreed to join Immucor’s Board of Directors. Mr. Goldman is aManaging Director and founding principal of TM Capital Corp., a New York andAtlanta based investment bank which focuses on assisting public and privateclient companies in completing mergers, acquisitions and financings which buildshareholder value. Mr. Goldman has been an advisor to several other publichealth care companies. TM Capital has represented Immucor in a number oftransactions.

*StockSplits.*   Immucor implemented a three-for-twostock split in fiscal 2006, increasing the number of outstanding shares ofcommon stock from approximately 45 million to approximately 68 million sharesduring the year. All share and per share amounts disclosed in this documenthave been retroactively adjusted to reflect the impact of this stock split.

*Share Repurchase.*   OnDecember 13, 2005, the Board of Directors authorized the Company torepurchase up to an additional 1.5 million shares, under the repurchase programinitiated in 1998. During the fiscal year ended May 31, 2006, the Companyrepurchased 1,580,100 shares for approximately $24.8 million at an average pershare price of $15.69, bringing the aggregate number of shares to 7,950,975repurchased under that program through May 31, 2006. An aggregate of1,424,025 shares were available for repurchase under the program as of May 31,2006.

**Industry**

Immucor is part of the immunohematology industry,which generally seeks to prevent or cure certain diseases or conditions throughthe transfusion of blood and blood components. In the U.S., the FDA regulateshuman blood as a drug and as a biological product, and it regulates thetransfusion of blood as the administration of a drug and of a biologicalproduct. The FDA regulates all phases of the immunohematology industry,including donor selection and the collection, classification, storage, handlingand transfusion of blood and blood components. The FDA requires all facilitiesthat manufacture products 

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used for any of thosepurposes, and the products themselves, to be registered or licensed by the FDA.See “Regulation.”

The principal components of blood are plasma (thefluid portion) and red cells. Blood also contains antibodies and antigens. Antibodiesare proteins that are naturally produced by the human body in response to theintroduction of foreign substances (antigens). Antigens are substances thatstimulate the production of antibodies. Red blood cells, which transport oxygenfrom the lungs to other parts of the body and return carbon dioxide to thelungs, are categorized by four blood groups (A, B, AB and O) and two bloodtypes (Rh positive and Rh negative), based on the presence or absence ofcertain antigens on the surface of the cells. It is crucial that the healthcare provider correctly identify the antibodies and antigens present in patientand donor blood. For example, if a donor’s red blood cells contain antigensthat could react with the corresponding antibody in the patient’s plasma, thetransfusion of the red blood cells may result in the potentiallylife-threatening destruction of the transfused red blood cells.

Because of the critical importance of matching patientand donor blood, procedures for testing compatibility are generally performedby highly educated technologists in hospitals, blood banks and laboratories. Atpresent, with few exceptions, these tests are performed manually usingprocedures which the Company believes can be significantly improved using itsinstrumentation and solid phase system to automate the testing procedures. See “Instrumentsand Instrument Systems.”

The Company believes thatthe worldwide market for traditional blood bank reagents (those used in manualtesting) is approximately $500 to $600 million, and that this market isrelatively mature given current technology. The industry is labor-intensive andthe Company estimates worldwide industry labor costs approach approximately $1billion. Therefore, the introduction of labor saving products will provideadditional growth in the market. The Company believes that its blood bankautomation and solid phase testing systems improve test results and reduce thetime necessary to perform certain test procedures, thereby offering acost-effective alternative for its customers. The Company anticipates thatautomation will increase the available market for traditional and automatedreagents to approximately $1 billion while decreasing the overall cost of bloodtesting by reducing the labor component by approximately $500 million.

**Strategy**

Immucor’s goal is to increase its share of theworldwide market by automating the blood bank laboratory and firmlyestablishing Immucor as the world leader in blood bank automation. In order toimplement this strategy, the Company intends to:

*i)Maximize Instrument Placements to Sell More Reagents.**  *The Company’s strategy is to strengthen itsleadership position in the automation of blood bank testing by continuing toexpand its base of installed instruments with emphasis on markets in the UnitedStates, Western Europe, Canada and Japan. To increase instrument placements,the Company offers customers a selection of automated analyzers, which addressthe various needs of low, medium, and high-volume testing facilities. TheCompany utilizes a “razor/razorblade” business model since the Company’sinstruments are designed to operate with the Company’s proprietary reagents.Once a customer procures an instrument from the Company, the customer is likelyto continue to purchase proprietary reagents from the Company for use with theinstrument. In order to satisfy the broad spectrum of customers’ operationaland financial criteria, the Company intends to continue to offer severalinstrument procurement options, including third-party financing leases, directsales and reagent rentals and to expand the range and price points of itsinstrument offerings.

*ii)Convert to Standardized Pricing and Promote Customer Loyalty.**  *The Company continues to follow its new pricingstrategy to ultimately convert all major group purchasing contracts tostandardized tier pricing. In fiscal 2006, the Company completed its conversionfrom selling Capture 

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products in kits toselling them as individual components for the purpose of separately pricingindividual products. The Company also continues to offer a Customer LoyaltyProgram, which is intended to promote higher volumes of sales, while partially shieldingthe Company’s more loyal customers from the effects of price increases. TheCompany expects these pricing adjustments will continue to have a significantfavorable impact on the Company’s financial performance while adding onlyslightly to the patient’s medical cost.

*iii)Maximize Revenue Stream per Instrument Placement.**  *Each instrument placed typically provides the Companywith a recurring revenue stream through the sale of reagents and supplies.Immucor’s family of blood bank testing systems operates exclusively with theCompany’s proprietary reagent lines and Capture technology. Because thesereagents have been developed for automated technology, they command a premiumprice over traditional products. The average annual revenue per instrumentplacement is $20,000 to over $100,000, depending on a facility’s testing volume.The Company also continues to develop new reagent applications and upgradesystem software and hardware in order to expand instrument test menus, therebyincreasing reagent usage per placement.

*iv) Develop New andEnhanced Products.**  *Immucorcontinually seeks to improve existing reagent products and develop new reagentproducts to enhance its market share and improve gross margins. The Company hasso far successfully introduced and commercialized the ABS2000, the ROSYS Plato,the DIAS PLUS and the Galileo automated analyzers, and is planning theintroduction of the third-generation Galileo EchoTM, all of which operateexclusively with Immucor’s proprietary solid phase Capture assays. The Companyintends to expand its business and grow revenue by investing more in researchand development projects to accelerate new product introductions.

**ProprietaryTechnology Platform**

*ManualTesting.**  *Undertraditional agglutination blood testing techniques, the technologist mixesserum with red blood cells in a test tube, performs several additionalprocedures, and then examines the mixture to determine whether there has beenan agglutination reaction. A positive reaction will occur if the cells aredrawn together in clumps by the presence of corresponding antibodies andantigens. However, since the mixture is a fluid, it is sometimes difficult forthe technologist to determine whether a positive reaction has occurred.

Due to the critical importance of matching patient anddonor blood, testing procedures using agglutination techniques are usuallyperformed manually by highly educated technologists. Depending on the manualtest method used (as well as the technical proficiency of the person performingthe test), the process can take from 30 minutes to an hour, and if the testresults are ambiguous the entire process may need to be repeated. Thus, asignificant amount of expensive labor is involved in manual agglutination testing.

*SolidPhase Technology.**  *TheCompany’s automated reagent products are part of a proprietary solid phaseblood test system, in which one of the reactants (either an antigen or anantibody) is applied or bound to a solid support like a microtitration plate(the solid phase), and the bound reactant captures other reactants in a fluidstate and binds those fluid reactants to the solid phase. In these testsystems, patient or donor serum or plasma is placed in the well of a plasticmicrotitration plate on which antigen or antibody reactants have been bound.Special proprietary indicator cells manufactured by Immucor are then added. Positivereactions adhere to the well as a thin layer and negative reactions do notadhere but settle to the bottom as a small cell button. These reactions occurrapidly and result in clearly defined, machine-readable test results that areoften easier to interpret than the subjective results sometimes obtained fromexisting agglutination technology. Also, in batch test mode these solid phasetest results can generally be obtained in substantially less time than bytraditional agglutination techniques.

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Immucor has obtained FDA clearance for sale of fivetest systems using its solid phase technology: a platelet antibody detectionsystem, Capture-P; a red cell antibody detection system, Capture-R; Capture-RSelect, used for antibody screening, identification, phenotyping, crossmatching and in the weak D test; and two infectious disease tests, Capture-CMVand Capture-S.

*Potential Labor Cost Savings.*   Basedon industry sources, the Company believes labor costs are the largest componentof the total cost of operating a hospital blood bank. The Company believes itssolid phase blood testing system improves test results and significantlyreduces the time necessary to perform many blood and blood component tests,thereby making significant labor cost savings possible.

**Reagents**

Most of Immucor’s current reagent products are used intests performed prior to blood transfusions to determine the blood group and typeof patient and donor blood in the detection and identification of blood groupantibodies, in platelet antibody detection and in prenatal care. The FDArequires the accurate testing of blood and blood components prior totransfusions using only FDA licensed reagents such as those manufactured andsold by the Company.

Thefollowing table sets forth the products sold by or exclusively for the Company,most of which are manufactured by or exclusively for the Company:

| Product Group                                  | ** ** | ** **                                                                                                                                                                                                 | ** ** | **Principal Use** |
|------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|
| ABO Blood Grouping                             |       | Detect and identify ABO antigens on red blood cells  in order to classify a specimen’s blood group as either A, B, AB or O.                                                                           |
| Rh Blood Typing                                |       | Detect Rh antigens in  order to classify a specimen as either Rh positive or Rh negative, and to  detect other Rh-hr antigens.                                                                             |
| Anti-human Globulin Serums (Coombs Serums)     |       | Used with other products for routine cross matching, and antibody detection  and identification; allows a reaction to occur by bridging between antibodies  that by themselves could not cause a reaction. |
| Reagent Red Blood Cells                        |       | Detect and identify  antibodies in patient or donor blood, confirm ABO blood grouping results and  validate the performance of anti-human serum in the test system.                                        |
| Rare Serums                                    |       | Detect the presence or  absence of rare red cell antigens.                                                                                                                                                 |
| Antibody Potentiators                          |       | Increase the sensitivity  of antigen-antibody tests.                                                                                                                                                       |
| Quality Control Systems                        |       | Daily evaluation of the  reactivity of routine blood testing reagents.                                                                                                                                     |
| Monoclonal (Hybridoma) Antibody-based Reagents |       | Detect and identify ABO and other antigens on red blood cells.                                                                                                                                             |
| Technical Proficiency Systems                  |       | Reagent tests used to  determine technical proficiency and provide continuing education for  technical staff.                                                                                              |
| Fetal Bleed Screen Kit                         |       | Detect excessive  fetal-maternal hemorrhage in Rh-negative women.                                                                                                                                          |
| Capture-P                                      |       | Detect platelet  antibodies.                                                                                                                                                                               |
| Capture-R                                      |       | Detect and identify  unexpected IgG antibodies to red blood cells.                                                                                                                                         |
| Capture-CMV                                    |       | Detect antibodies to  cytomegalovirus.                                                                                                                                                                     |
| Capture-S                                      |       | Detect antilipid  antibodies for syphilis screening.                                                                                                                                                       |
| Capture-R Select                               |       | Antibody screening, identification, phenotyping,  cross matching and in the weak D test.                                                                                                                   |

 

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**Instruments andInstrument Systems**

The Company believes that the blood banking industrytoday is labor-intensive, and that a market exists for further automation ofblood compatibility tests currently being performed manually by hospital anddonor center blood bank technologists. Based on the results of independentworkflow studies, the Company believes that its instruments and instrumentsystems significantly reduce the amount of blood bank technologist timerequired to perform routine blood compatibility tests.

*ABS2000:First Generation Blood Bank System.**  *This automated, “walk-away” blood bank analyzer is acarousel-based batch analyzer using Immucor’s proprietary Capture reagentproduct technology to perform blood typing and antibody screening. The ABS2000is manufactured exclusively for Immucor by Bio-Tek Instruments, Inc., awholly-owned subsidiary of Lionheart Technologies, Inc.

*ROSYSPlato: Microplate Liquid Handler and Sample Processor.*   TheROSYS Plato provides medium sized donor centers, clinical referencelaboratories and large hospital transfusion laboratories with automated liquidand sample handling for processing of microtitration plates and also usesImmucor’s proprietary solid phase Capture assays. The Company’s current salesstrategy is to upgrade this semi-automated analyzer to the fully automatedGalileo system.

*GALILEO:Second Generation Blood Bank System.*   The Galileoprovides hospitals, clinical reference laboratories and blood donor centers afully automated solution to perform all the routine blood bank tests, includingblood grouping, antibody screening, crossmatch, DAT, antibody identification,CMV and syphilis screening. A high throughput instrument, Galileo can processup to 224 different samples at once. The Galileo uses Immucor’s proprietaryCapture reagent product technology and is manufactured exclusively for Immucorby Stratec Biomedical AG.

*CAPTURE WORKSTATION:**  *Semi-automated components for performing ourproprietary Capture assays manually. Positioned as a back-up system for ourfully automated customers or as a stand alone solution for small laboratorieslooking to standardize testing.

**Collagen**

Since 2004 Immucor,through its Gamma Biologicals subsidiary, has produced human collagen mesh atits Houston facility for Inamed Corporation, a global healthcare company, themarket leader in the popular dermal filler market, and now a wholly ownedsubsidiary of Allergan, Inc. (NYSE: AGN). Gamma also produces NouriCel®, aby-product of the human collagen production process. The Company has terminatedthe Inamed contract effective July 2008 due to the Company’s intention toclose the Houston facility.

**Products UnderDevelopment**

Immucor continually seeks to improve its existingproducts and to develop new ones in order to increase its market share. Priorto their sale, any new products will require licensing or pre-market clearancefrom the FDA. The Company employs several persons whose specific duties are toimprove existing products and develop new products for the Company’s existingand potential customers. The Company also has established relationships withother individuals and institutions that provide similar services and theCompany expects that it will continue to form and maintain such relationships. TheCompany intends to continue focusing its product development efforts primarilyin the areas of blood bank automation, solid phase technology and in severalother areas that may also be useful in the development of these products. Forthe fiscal years ended May 31, 2006, 2005 and 2004, the Company spentapproximately $4.6 million, $4.5 million and $3.7 million, respectively, forresearch and development. The Company may in the future acquire relatedtechnologies and product lines, or the companies that own them, to improve theCompany’s ability to meet the needs of its customers.

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*BloodBank Automation.*   The Company has contracted withBio-Tek Instruments, Inc. to develop the Company’s third generation assayinstrument, the Galileo EchoTM, a fast, lightweight, fully automated instrumentto be targeted to the small- to medium-sized hospital market. This market isthe largest segment of the Company’s customers, numbering approximately 5,000to 6,000 worldwide, to which the Company’s ABS2000 instrument is currentlymarketed. The Galileo EchoTM is significantly smaller and faster than the ABS2000,and has substantially all of the features of the Company’s larger Galileoproduct, apart from lower throughput. The Galileo Echo development cost totaled$0.8 million, $1.6 million and $0.8 million during the fiscal years endedMay 31, 2006, 2005 and 2004, respectively. Under the Bio-Tek contract, apurchase order for the first 100 units of the Galileo EchoTM has been issued bythe Company, and once all of these units have been received the Company will bedeemed to issue a purchase order for an additional 100 units. There is nominimum purchase requirement to maintain exclusivity. The Company expects tolaunch the instrument in Europe and the U.S. markets in the third quarter offiscal 2007. The actual launch date is dependent on FDA clearance of theinstrument in the United States and assumes clearance will take approximately90 days after the submission is received by the FDA.

*AdditionalSolid Phase Applications.*   The Company plans tocontinue to develop and refine its patented solid phase technology. TheCompany’s newest Capture product, Capture-R Select is a screening test for thedetection of weak D antigens on donor red cells. Capture-R Selectuses anti-human RBC specific monoclonalantibody produced to immobilize unwashed human red blood cells. It has beendeveloped for use on the Galileo for antibody screening, antibodyidentification, phenotyping, cross matching and in the weak D test.

*MonoclonalAntibodies.*   Monoclonal antibodies are derived byfusing an antibody-producing cell with a tumor cell, resulting in a hybridomacell that manufactures the original antibody. The Company is actively engagedin the development of additional monoclonal antibodies for a variety of uses,including the detection of blood group and infectious disease antigens and foruse in its solid phase test systems. Monoclonal antibodies are highly specific,a trait which allows them to detect and identify antigens with greaterefficiency than other reagents. Product quality and consistency is maintainedfrom production lot to production lot.

*KODE Biotech LimitedTechnology Licensing Agreement.**  *InJuly 2005, the Company signed a comprehensive technology licensingagreement with KODE Biotech Limited (formerly Kiwi Ingenuity Limited) to useits KODETM technology platform to create a quality control system for bloodgroup typing. KODE Biotech Limited, in association with the Auckland Universityof Technology Biotechnology Research Institute, has developed a range of KODETMtechnology platforms which allow for the attachment of molecules to the outsideof cells, thereby resulting in a quality control system for blood grouping. TheCompany expects to be able to offer its customers heightened assurance as tothe accuracy of test results by incorporating this technology into the Company’sproducts.

**Marketing andDistribution**

Immucor’s potential U.S. customers are approximately6,000 blood banks, hospitals and clinical laboratories. The Company maintainsan active client base of over 5,500 customers worldwide, and no single customerpurchases in excess of 4% of the Company’s current annual sales volume. TheCompany believes there is a slight amount of seasonality to its sales activityas fewer donations and elective surgical procedures are performed in its firstquarter (June-August) and third quarter (December-February).

The Company markets and sells its products directlythrough 140 sales, marketing and support personnel employed by the Company inthe U.S., Canada, Europe and Japan. In addition, the Company utilizes 11 salesagents in Italy. The Company has hired personnel whom the Company considers tobe highly experienced and respected for their knowledge of the blood bankdiagnostic business and individuals with previous success in laboratoryinstrument reagent sales. In operating as a systems-oriented 

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organization, the Companyconducts extensive capital sales training of its sales force. Immucor alsosponsors workshops in the U.S., Europe, Latin America and Asia to whichcustomers and potential customers are invited to hear the latest developmentsin the industry.

There is no material backlog of reagent revenues. At May 31,2006, the Company had unrecognized revenue from instrument sales of approximately$16.1 million. Additionally, as of May 31, 2006, the Company hadunexecuted instrument purchase orders from customers totaling $1.2 million.

In fiscal year 2006,approximately 71% of consolidated net sales were generated in the U.S. Withincreased penetration of the markets in the rest of the world, the percentagecontribution from the sales outside the United States is likely to increase inthe future.

**Suppliers**

The Company obtains raw materials from numerousoutside suppliers. The Company is not dependent on any single supplier, exceptfor certain manufacturers of instrumentation, including Bio-Tek Instruments, Inc.for the Galileo EchoTM, Stratec Biomedical AG for the Galileo, and Celliance (asubsidiary of Millipore Corporation), the joint manufacturer of some of theCompany’s monoclonal antibody-based products. The Company believes that itsbusiness relationship with its suppliers is excellent. Management believes thatif the supply of instrumentation were interrupted, alternate suppliers could befound, but the commencement of supply could take one to two years.

Certain of the Company’sproducts are derived from blood having particular or rare combinations ofantibodies or antigens, which are found in a limited number of individuals. TheCompany to date has not experienced any major difficulty in obtainingsufficient quantities of such blood for use in manufacturing its products, butthere can be no assurance that a sufficient supply of such blood will always beavailable to the Company.

**Regulation**

The manufacture and sale of blood banking products isa highly regulated business and is subject to continuing compliance withmultiple U.S., Canadian, European, Japanese and other country-specificstatutes, regulations and standards that generally include licensing, producttesting, facilities compliance, product labeling, post-market vigilance andconsumer disclosure.

An FDA facility license is issued for an indefiniteperiod of time, subject to the FDA’s right to revoke the license.  As part of its overview responsibility, theFDA makes plant and facility inspections on an unannounced basis. Further, asample of each production lot of many of the Company’s products must besubmitted to and cleared by the FDA prior to its sale or distribution. TheCompany operates under U.S. Government Establishment License No. 886granted by the FDA in December 1982 to Immucor, Inc. for the Norcrossfacility and U.S. Government Establishment License No. 435, granted by theNational Institutes of Health in 1971 to Gamma Biologicals, Inc. for theHouston facility.

In March 2006, the FDA inspected the Immucor, Inc.facility in Norcross, Georgia and reported 13 observations. The Companyresponded to the observations in April 2006, outlining its plans toimplement corrective actions as appropriate. In February 2005, the FDAinspected the Gamma Biologicals, Inc. facility in Houston, Texas andreported eight observations. The Company responded to these observations on May 2,2005, outlining its plans to implement corrective actions as appropriate. TheFDA routinely verifies company implementations and commitments duringsubsequent visits.

In addition, each product manufactured by the Companyis subject to formal product submissions and review processes by the FDA and otherregulatory bodies, such as Health Canada, a European recognized Notified Bodyand the Japanese Ministry of Health prior to authorization to market. Significantchanges to the Company’s products or facilities can require additionalsubmission and review prior to implementation.

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For example, the Company holds several FDA productlicenses to manufacture blood-grouping reagents, anti-human globulin reagentsand reagent red blood cells. The Company must prepare biological productlicense applications or 510(k) pre-market notifications to the FDA toobtain product licenses or market clearance for a new product or instrument. Toaccomplish this, the Company must submit detailed product information to theFDA, perform a clinical trial of the product, and demonstrate to thesatisfaction of the FDA that the product meets certain efficacy and safetystandards. There can be no assurance that any future product licenses orinstrument clearances will be obtained by the Company.

In fiscal 2006, each Immucor manufacturing facilityworldwide successfully transitioned its quality management system from ISO13485:1996 to the next revision of the standard, ISO 13485:2003. All Immucormanufacturing facilities were issued certification to the ISO 13485: 2003standard for its quality management systems. This is an internationallyrecognized standard and certification is required in order to continue productdistribution in key markets such as Europe and Canada. In addition, to continuemarketing its products to the European Union, the Company is required tomaintain certification under the EC Full Quality Assurance System Assessment inaccordance with the requirements of Annex IV of the IVD Medical DevicesDirective 98/79/EC. This certification authorizes the use of the CE mark onCompany products that allows products free access to all countries within theEuropean Union. The Company successfully completed certifications for CEmarking of all products manufactured for the European market.

In addition to the U.S., Europe, Canada and Japan,there are multiple countries worldwide that also impose regulatory barriers tomarket entry. The Company continues to maintain product registrations andapprovals necessary to maintain access to foreign markets.

In North America, theCompany has hired and retained several employees who are highly experienced inFDA and other regulatory authority compliance, and the Company believes thatits manufacturing and on-going quality control procedures conform to therequired statutes, regulations and standards.

**Environmental**

Immucor generateshazardous waste and has a U.S. Environmental Protection Agency identificationnumber. All hazardous material is manifested and disposed of properly. Immucoris in compliance with applicable portions of the federal and state hazardouswaste regulations and has never been a party to any environmental proceeding.

**Patents, Trademarksand Royalties**

Since 1986, the U.S. Patent Office has issued toImmucor six patents pertaining to its solid phase technology, one of which expiredin 2003, and one of which expires in September 2006. We believe theremaining patents, together with the Company’s trade secrets and know-how, willprevent any current or future competitors from successfully copying anddistributing our solid phase products. In addition, the requirement to registerproducts like these with the FDA, and have them produced at an FDA-licensedfacility, acts as an additional barrier to entry into this market.

Immucor’s solid phase technology was initiallyacquired in 1983 from five researchers at the Community Blood Center of GreaterKansas City (“Blood Center”) pursuant to an agreement that terminates on September 8,2006. Under that agreement the Company has paid the Blood Center royaltiesequal to 4% of the net sales from products utilizing the solid phasetechnology, including for the fiscal years ended May 31, 2006, 2005 and2004 approximately $848,000, $523,000, and $451,000, respectively.

The Company has registered the trademark “Immucor” and“Gamma” and several product names, such as “ABS2000”, “ImmuAdd”, “Capture”, “Capture-P”,“MCP”, “Capture-R”, “Ready-Screen”, 

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“Ready-ID”, “Capture-CMV”and “Galileo”. Dominion Biologicals, Limited, our wholly owned subsidiary inHalifax, Nova Scotia, has registered the trademark “NOVACLONE”.

Through the acquisition ofthe BCA blood bank division of Biopool International, Inc. (now known asTrinity Biotech Manufacturing Ltd.), the Company acquired several registeredtrademarks but produces only one of the products with the registered trademark “RESt”.The Company continues to distribute four products manufactured by TrinityBiotech Manufacturing Ltd.

*Trademarks Used inthis Report*

The Company claims rights to the following trademarksused in this report:

ABS2000®Capture®Capture-CMV®Capture-P®Capture-R®Capture-R SelectTMCapture-STMEchoTMGalileo®Gamma®ImmuAdd®Immucor®MCP®NOVACLONE®Ready-ID®Ready-Screen®RESt®

This report also refers to the following products forwhich trademarks are claimed by other companies:

“DIAS Plus” (DYNEXTechnologies, Inc.)“KODE” (KODE Biotech Limited)“Microreader Plus” (IBG Limited)“NouriCel” (SkinMedica, Inc.)“ROSYS Plato” (Qiagen, Inc.)

**Competition**

Competition in the immunohematology industry is basedon quality of product, pricing, talent of the sales forces, ability to furnisha range of existing and new products, customer service and continuity ofproduct supply. In the past several years, the Company has maintained itsoverseas sales and increased its domestic reagent market share. Managementbelieves that this is due to the Company’s emphasis on product quality,introduction of new and specialty products, customer service and training.

Ortho-Clinical Diagnostics, a Johnson &Johnson company, is the Company’s sole competitor with licenses to manufacturean extensive line of blood banking reagents in the United States. The Companybelieves that it became the North American market leader in terms of salesduring fiscal 1999 and remains the North American market leader. A small lineof reagent red blood cells manufactured in Europe by Medion Diagnostics GmbH isdistributed by Olympus in the U.S. market, but this product line lacks manytraditional reagents required by the blood bank industry. The Company seeks tocontinue to increase its 

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worldwide market sharethrough the use of its experienced direct sales force and expansion of itsproduct line to offer customers a full range of reagents. The Company believesit can increase its market share by developing and marketing products based onits blood bank automation strategy and solid phase technology.

The Galileo instrument was introduced to the majorEuropean countries in June 2002. Throughput for ABO/Rh and antibodyscreening on the Galileo is 70 tests per hour. This is an important feature forthe European market where most of the laboratories are open for one shift perday and the testing is condensed into an eight-hour testing period versus a 24-hourtesting period in the United States. The Company believes that none of theinstruments currently marketed are as fast as the Galileo. The instrument speedcoupled with its broad test menu gives the Galileo the advantage in the U.S.market as well. The Company received FDA clearance to market the Galileo in theUnited States in April 2004.

In June 2003, Ortho-Clinical Diagnostics, throughits Micro Typing Systems subsidiary, began marketing the Ortho ProVueTM. Throughputfor ABO/Rh and antibody screening is believed to be eight to ten tests per hourand is to be used in conjunction with the proprietary ID-Micro TypingTM GelTestTM for both ABO/Rh type and antibody screen. The only Immucor instrumentswith which the ProVueTM currently competes directly are the ABS2000 and thenewly developed Galileo EchoTM. Management believes the EchoTM and ABS2000’s useof traditional reagents for ABO and Rh type combined with its proprietarytechnologies for antibody screen offers a competitive price advantage over theOrtho ProVueTM.

Olympus America Inc. has also developed an automatedanalyzer for the blood donor market. The instrument, known as the PK7200, hasbeen on the market for a number of years. The instrument performs only ABO/Rhtesting, CMV and syphilis screening, and does not perform antibody screening. TheCompany is aware that Olympus is performing U.S. clinical trials for a newanalyzer, the PK7300. The Company believes that the PK7300 is targeted toperform ABO/Rh testing, Rh/Kell phenotyping, and CMV and syphilis screening.Management does not believe the Olympus PK instruments will have a materialadverse effect on the Company’s revenue or instrument strategy in North America.

In 2005, Olympus America Inc. received approval tomarket the Tango, a fully automated instrument to perform ABO/Rh and antibodyscreening. The Tango was developed by Biotest AG, a German pharmaceutical anddiagnostic company, and is being distributed by Olympus in the U.S. market. TheTango has been sold in Europe and other markets by Biotest AG for severalyears, but has not been favorably accepted in the U.S. market.

Biotest AG presently has FDA licenses to sell sixreagent products in the U.S., as well as the special reagents utilized by theTango. The Company believes that Biotest plans to introduce a complete line oftraditional reagents to the U.S. market and that it will take between 6 to 12months for Biotest to complete that line. Since the****productline is incomplete, there is no evidence that Biotest will be in a position, inthe near term, to market a complete viable commercial product line.

Diamed, a Swiss company, markets in Europe the WalkAway Diana instrument that is manufactured by Grifols, a Spanish company. Thissystem utilizes Diamed’s proprietary gel cards and is the same instrument thatis marketed as the ProVueTM by Ortho-Clinical Diagnostics in the United States.Grifols produces a line of gel cards which are sold principally in Spain,Portugal and Latin America. Diamed has recently introduced the Technoinstrument for larger laboratories which is similar in performance to the OrthoAutoVue. It is too early to predict how successful it will be.

Ortho-Clinical Diagnostics also competes in theEuropean instrument market with the AutoVue instrument with a throughput forABO/Rh and antibody screening of approximately 25 tests per hour. The system,which has been on the market for about 10 years, utilizes Ortho Biovue columnagglutination. Management believes the ABS2000 and Galileo’s use of traditionalreagents for ABO and Rh type 

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combined with itsproprietary technologies for antibody screening offer the customer significantprice savings over the AutoVue instrument.

The Company jointly manufactures some of itsmonoclonal antibody-based products with Celliance Ltd (“Celliance”) (asubsidiary of Millipore Corporation) under a 5-year contract expiring in September 2008.Under a former provision of the contract, Celliance was prohibited fromactively selling its branded finished products to end users in North Americaand Western Europe. However, this restriction terminated in July 2006 uponthe sale of Celliance’s parent corporation.

Management believes thatImmucor is well positioned to compete favorably in the blood bank businessprincipally because of the completeness of its product line, quality andcompetitive pricing structure for its products, and introduction of innovativeproducts such as blood bank automation coupled with the Company’s Captureproducts (see Reagents, and Instruments and Instrument Systems). Continuingresearch efforts in the area of blood bank automation (see Products UnderDevelopment), the experience and expertise of its sales personnel (seeMarketing and Distribution) and the expertise of its technical and customersupport staff will enable the Company to retain its competitive advantage inthe market.

**Employees**

At May 31, 2006, the Company and its subsidiarieshad a total of 563 full-time employees. The Company had 372 full-time employeesin the U.S., of whom 54 were in sales and marketing, 267 were in manufacturing,research and distribution, and 51 were in administration. In Germany, Portugal,Italy, Spain, Canada, Belgium and Japan, the Company had 191 full-timeemployees, 86 of whom worked in sales and marketing, 73 in manufacturing,research and distribution, and 32 in administration.

As in the past the Companyhas experienced a low staff turnover rate in fiscal 2006. There are no Companyemployees that are represented by a union. The Company considers its employeerelations to be good.

**AvailableInformation**

Immucor files reports,proxy statements and other information under the Securities Exchange Act of1934, as amended (the “1934 Act”) with the Securities and Exchange Commission(the “Commission”). The public may read and copy any Company filings at theCommission’s Public Reference Room at 100 F Street, N.E., Washington, D.C.20549. Information on the operation of the Public Reference Room may beobtained by calling the Commission at 1-800-SEC-0330. Becausethe Company makes filings to the Commission electronically, information mayalso be accessed at the Commission’s Internet site (www.sec.gov). This sitecontains reports, proxies and information statements and other informationregarding issuers that file electronically with the Commission. Electronicversions of the Company’s annual report on Form 10-K, quarterlyreports on Form 10-Q, current reports on Form 8-K and anyamendments to these reports filed or furnished with the SEC may also beaccessed through the Company website at www.immucor.com under “AboutUs/Investor Information/SEC Filings”. All such reports are available throughthe Company’s website free of charge.

**Item 1A.—RiskFactors.**

*We are subject to various risks and uncertaintiesrelating to or arising out of the nature of our business and general business,economic, financing, legal and other factors or conditions that may affect us.We provide the following cautionary discussion of risks and uncertaintiesrelevant to our business, which we believe are factors that, individually or inthe aggregate, could have a material and adverse impact on our business,results of operations and financial condition, or could cause our actual resultsto differ materially from expected or historical results. You should understandthat it is not possible to predict or identify all such factors.*

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*Consequently, our business operations could also beaffected by additional factors that are not presently known to us or that wecurrently consider to be immaterial to our operations.*

***Risks Relating to Our Company***

**A catastrophicevent at our Norcross, Georgia facility would prevent us from producing many ofour reagent products.**

Substantially all ourreagent products are produced in our Norcross facility. While we have reliablesupplies of most raw materials, our reagent production is highly dependent onthe uninterrupted and efficient operation of the Norcross facility, and theCompany currently has no plans to develop a third-party reagent manufacturingcapability. Therefore, if a catastrophic event occurred at the Norcrossfacility, such as a fire or tornado, many of those products could not beproduced until the manufacturing portion of the facility was restored andcleared by the FDA. The Company maintains a disaster plan to minimize theeffects of such a catastrophe, and we have obtained insurance to protectagainst certain business interruption losses. However, there can be noassurance that such coverage will be adequate or that such coverage willcontinue to remain available on acceptable terms, if at all.

**Unforeseen productperformance problems could prevent us from selling the affected products oreven result in a recall of previously-placed products.**

Our instruments, reagentsand other products are subject to regulation by governmental and privateagencies in the United States and abroad, which regulate the testing,manufacturing, packaging, labeling, distribution and marketing of medicalsupplies and devices. All of our products receive all required clearances fromthose agencies before we sell them. However, if any of our products failed toperform in the manner represented during this clearance process, particularlyconcerning safety issues, one or more of these agencies could require us tocease selling that product, or even recall previously-placed products, and toresubmit the product for clearance before we could sell it again. Depending onthe product, and the availability of acceptable substitutes, such an agencyaction could result in significantly reduced revenues and earnings for anindefinite period.

**Any unforeseendelays or costs relating to the planned closure of our Houston facility ordifficulties in consolidating our manufacturing facilities could adverselyaffect our business and operating results.**

In November 2005, weannounced plans to close our manufacturing facility located in Houston, Texasand to consolidate production at the facility into our Norcross, Georgia andHalifax, Nova Scotia manufacturing facilities. Any delays, including regulatorydelays, or higher than expected consolidation costs could limit or delayrealization of the increased efficiencies that we expect to realize from thisclosure and could negatively impact our operating results.

**We are highlydependent on our senior management team and other key employees, and the lossof one or more of these employees could adversely affect our operations.**

Our success is dependentupon the efforts of our senior management and staff, including sales, technicaland management personnel, many of whom have very specialized industry andtechnical expertise that is not easily replaced. If key individuals leave us,we could be adversely affected if suitable replacement personnel are not quicklyrecruited. Our future success depends on our ability to continue to attract,retain and motivate qualified personnel. There is intense competition formedical technologists and in some markets there is a shortage of qualifiedpersonnel in our industry. If we are unable to continue to attract or retainhighly qualified personnel, the development, growth and future success of ourbusiness could be adversely affected.

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**Our customers andpotential customers may choose to delay significant capital expenditures, whichcould have an adverse effect on the sales of our instruments.**

For many of the hospitals,blood banks and other institutions to which we offer our products, the purchaseof one of our instrument systems represents a significant capital expenditure.Some of these customers may choose to delay significant capital expendituressuch as the purchase of an instrument from us because of other needed capitalexpenditures or for other reasons. Because our business operates on a“razor/razorblade” model, any delays in purchasing our instruments would alsoresult in delayed purchases of our proprietary reagents. As a result, ourrevenues and financial results could be adversely affected.

**If customers delayintegrating our instruments into their blood banking operations, our operatingresults could be negatively impacted.**

From time to time in thepast, certain of our customers have experienced delays between the purchase ofour instruments and the successful integration of these instruments into theirexisting operations. These delays may be due to a number of factors, includingstaffing and training issues and interfacing our instruments with thecustomer’s computer systems. As a result, we have experienced, with certaincustomers, significant delays between the time that an instrument is purchasedand the time that such instrument is brought “on line” by the customer. We havetaken steps in the design of our next generation instruments intended to makeit easier for our customers to integrate the instruments into existingoperations. However, because our business operates on a “razor/razorblade”model, such integration delays could also result in delayed purchases of ourproprietary reagents.

**In order tocontinue to successfully grow our business, we must expand sales of ourproducts into additional foreign markets.**

An integral part of ourstrategy is to place our instruments in additional markets, particularly inJapan. In furtherance of this strategy, we recently acquired the blood bankingbusiness of our former distributor in Japan. Our ability to grow successfullyin Japan and other markets depends in part on our ability to achieve productacceptance and customer loyalty in these markets. Additionally, our operationsin foreign countries present certain challenges and are subject to certainrisks not necessarily present in our domestic operations, such as fluctuationsin currency exchange rates, shipping delays, changes in applicable laws andregulations and various restrictions on trade. These factors could impact ourability to compete successfully in these markets, which could in turnnegatively affect our international expansion goals, and could have a materialadverse effect on our operating results.

**Because we sell ourproducts internationally, we could be adversely affected by fluctuations inforeign currency exchange rates.**

In the fiscal year endedMay 31, 2006, our foreign net sales, including net domestic export salesto unaffiliated customers, accounted for approximately 31% of our total netsales. As a result, fluctuations in foreign currency exchange rates,particularly the Euro, Canadian Dollar and Yen against the U.S. Dollar, couldmake our products less competitive and affect our sales and earnings levels. Anincrease in our foreign sales would increase this exposure. The company has nothistorically hedged against currency exchange rate fluctuations, but may do soin the future if the exposure increases.

**We cannot predictthe outcome of pending governmental investigations and other pending legalmatters.**

As discussed in Item 3—Legal Proceedings ofPart I of this Annual Report on Form 10-K, our Italiansubsidiary and Dr. Gioacchino De Chirico have been the subjects of acriminal investigation in Milan, Italy relating to payments to certain Italianphysicians. The public prosecutor in Milan has completed his investigation andpresented formal charges against our subsidiary and Dr. De Chirico. TheSEC has also issued a formal investigative order relating to certain of thesematters, but has not given any indication as 

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to the ultimate outcome ofits investigation. These investigations have resulted in, and may continue toresult in, a diversion of our management’s time and attention and theincurrence of increased costs. These investigations could also result in civilpenalties or criminal proceedings, including fines, injunctions or orders withrespect to future activities, all of which could result in further substantialcosts and diversion of management time and attention.

We and certain of ourcurrent and former officers and directors have also been named defendants infederal securities class action and federal and state shareholder derivativelawsuits. The plaintiffs in these lawsuits may make additional claims, expandexisting claims and/or expand the time periods covered by the complaints, andother plaintiffs may bring additional actions with other claims. We expect toincur significant defense costs regardless of the outcome of these lawsuits. Ifwe do not prevail in any such actions, we could be required to pay substantialdamages or settlement costs, part or all of which may not be covered byinsurance.

**Our financialperformance is highly dependent on the timely and successful introduction ofnew products and services.**

Our financial performancedepends in large part upon our ability to successfully develop and market nextgeneration and new instruments and other products in a rapidly changingtechnological and economic environment. If we fail to successfully identify newproduct opportunities and timely develop and introduce new instruments thatachieve market acceptance, we may lose our market share and our future revenueand earnings may suffer. We are currently in the process of developing andobtaining regulatory clearance for our third-generation Galileo EchoTMinstrument, which we intend to market to small- to medium-sized hospitals. Ifthe introduction of this or other next-generation instruments were to be delayeddue to regulatory, development, or other obstacles, our revenues, earnings andmarket share could be negatively impacted. Additionally, our next generationinstruments must compete with current and future instruments offered by ourcompetitors. Finally, as we approach the introduction of our new ornext-generation products, sales of our legacy products may declinesubstantially.

**We are dependent onsome single source suppliers.**

We purchase certaininstruments and reagents from single source suppliers (see Business—Suppliers).The disruption of such supply relationships could impair our ability toprocess, manufacture and test products or cause us to incur costs associatedwith the development of alternative sources. In addition, in some instances,FDA clearance would be required to replace or substitute a supplier orcomponent that we use. Any such disruption could result in delays in makingproduct shipments, which could have a material adverse effect on our financialcondition and results of operations.

**We may be unable toadequately protect our proprietary technology.**

Our ability to competedepends in part on our ability to maintain the proprietary nature of our ownedand licensed intellectual property. There can be no assurance as to the degreeof protection offered by our various patents, the likelihood that patents willbe issued on pending patent applications, or, with regard to licensedintellectual property, that the licenses will not be terminated. Although oneof the two original patents on our proprietary solid-phase technology expiredin August 2003 and the other expires in September 2006, we believeour remaining patents, together with our trade secrets and know-how, willprevent any current or future competitors from successfully copying anddistributing our solid phase products. In addition, the requirement to registerproducts like these with the FDA, and have them produced at an FDA-licensedfacility, acts as an additional barrier to entry into this market. However,there can be no assurance that competitors will not develop around the patentedaspects of any of our current or proposed products, independently developtechnology or know-how that is the same as or competitive with our technologyand know-how or otherwise obtain access to our intellectual property. If 

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we areunable to maintain the proprietary nature of our intellectual property and oursignificant current or proposed products, our revenues and results ofoperations may be adversely affected.

***Risks Relating to our Industry***

**Governmentregulation may delay or prevent new product introduction.**

Our instruments, reagents and other products aresubject to regulation by governmental and private agencies in the United Statesand abroad, which regulate the testing, manufacturing, packaging, labeling,distribution and marketing of medical supplies and devices. Certaininternational regulatory bodies also impose import and tax restrictions, tariffregulations, and duties on imported products. Delays in agency review cansignificantly delay new product introduction and may result in a productbecoming “outdated” or losing its market opportunity before it can beintroduced. Also, the FDA and international agencies have the authority torequire a recall or modification of products in the event of a defect.

The FDA and other agency clearances generally arerequired before we can market new instruments or reagents in the United Statesor make significant changes to existing products. The process of obtainingmarketing clearances and approvals from regulatory agencies for new productscan be time consuming and expensive. There is no assurance that clearances orapprovals will be granted or that agency review will not involve delays thatwould adversely affect our ability to commercialize our products.

Federal, state and foreignregulations regarding the manufacture and sale of our products are subject tochange. We cannot predict what impact, if any, such changes might have on ourbusiness. In addition, there can be no assurance that regulation of ourproducts will not become more restrictive in the future and that any suchdevelopment would not have a material adverse effect on our business.

**The industry andmarket segments in which we operate are highly competitive, and we may not beable to compete effectively with larger companies with greater financialresources than we have.**

Our industry and marketswe operate in are highly competitive. Some of our competitors have greaterfinancial resources than we do, making them better equipped to fund researchand development, manufacturing and marketing efforts, or license technologiesand intellectual property from third parties. Moreover, competitive andregulatory conditions in many markets in which we operate restrict our abilityto fully recoup our costs in those markets. Our competitors can be expected tocontinue to improve the design and performance of their products and tointroduce new products with competitive price and performance characteristics. Althoughwe believe that we have certain technological and other advantages over ourcompetitors, maintaining these advantages will require us to continue to investin research and development, sales and marketing and customer service andsupport. We cannot assure you that we will have sufficient resources tocontinue to make such investments at levels that our larger competitors canmake or that we will be successful in maintaining such advantages.

**We may be exposedto product liability claims resulting from the use of products we sell anddistribute.**

Although product liabilityclaims in our industry are infrequent, the expansion of our business in anincreasing litigious business environment may expose us to product liabilityclaims related to the products we sell. We maintain insurance that includes productliability coverage and we believe our insurance coverage is adequate for ourbusinesses. However, there can be no assurance that insurance coverage forthese risks will continue to be available or, if available, that it will besufficient to cover potential claims or that the present level of coverage willcontinue to be available at a reasonable cost. A partially or completelyuninsured successful claim against us could have a material adverse effect onus.

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**Item 1B.—UnresolvedStaff Comments.**

Not applicable.

**Item 2.—Properties.**

The Company leases approximately 135,000 square feetin Norcross, Georgia, a suburb of Atlanta, as its executive offices,laboratories, manufacturing and warehousing facilities. The term of the leaseis for an eleven-year period ending June 2016 with a right to renew for anadditional five years. The Company leases an additional domestic warehousingfacility under an operating lease agreement expiring in fiscal 2008 with aright to renew for an additional five years. In fiscal 2006, the Company leaseda new warehousing facility with the lease agreement expiring in fiscal 2017. TheCompany owns a 41,000 square foot building on a three-acre tract of land innorthwest Houston, which is used primarily for manufacturing. Rent charges inthe U.S. for the fiscal year ended May 31, 2006 were approximately$950,000.

In Germany, the Companyleases 2,300 square meters of office and warehouse space near Frankfurt. Rentexpense for the fiscal year ended May 31, 2006 totaled approximately$289,000. The term of the lease in Germany is through April 2009. In Italy, rent expense for thefiscal year ended May 31, 2006 totaled approximately $121,000 for 850square meters of office and warehouse space. The Company has six separate leaseagreements for the facility in Italy with terms expiring between April 2006and September 2010. In Portugal, the Company leases 110 square meters ofoffice space and rent expense for the fiscal year ended May 31, 2006 wasapproximately $22,000. In Spain, the Company leases 314 square meters of officespace and rent expense for the fiscal year ended May 31, 2006 wasapproximately $59,000. In Japan, the Company leases 270 square meters of officespace and rent expense for the fiscal year ended May 31, 2006 wasapproximately $145,000. In Belgium, the Company owns land and a 1,400 squaremeter building. In Canada, the Company owns a 15,000 square foot building onapproximately one acre of land that houses the local office and manufacturingand warehouse facilities. The Company believes all of its facilities and leaseterms are adequate and suitable for the Company’s current and anticipatedbusiness for the foreseeable future.

**Item 3.—LegalProceedings.**

As previously reported, our Italian subsidiary and Dr. GioacchinoDe Chirico, the former President of the subsidiary, have been the subjects of acriminal investigation in Milan, Italy centered on payments by severalcompanies to certain Italian physicians allegedly in exchange for favorablecontract awards by their hospitals. The public prosecutor in Milan hascompleted his investigation into these payments, and has charged Dr. DeChirico, as the former President of the subsidiary, with participating incertain of those payments to gain favorable procurement action for the subsidiaryat the physicians’ hospitals. The subsidiary has also been charged becauseunder Italian law the subsidiary can be held responsible for the actionsallegedly taken by an officer. The prosecutor’s charges have been presented toa judge who must decide whether the case will be sent to trial. The preliminaryhearing before the judge has been set for October 10, 2006, and, based onadvice from Italian legal counsel, we believe the judge will send the case totrial. The subsidiary is considering seeking a plea-bargaining agreement withthe prosecutor. However, Dr. De Chirico has vigorously denied anywrongdoing, and we understand he does not intend to enter into a plea bargain.If Dr. De Chirico or the subsidiary does not settle this matter, webelieve a trial would not begin until 2007, and appeals of an unfavorableverdict could take several years.

In 2005 the Audit Committee of our Board of Directorscompleted an internal investigation prompted by the Italian investigation anddetermined that a €13,500 payment to aphysician as the organizer and chairman of a convention sponsored by theItalian subsidiary was not improper, but the invoice for those servicesresulted in a violation of the books and records provisions of the ForeignCorrupt Practices Act. 

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The investigation alsoconcluded that payments to another physician totaling approximately $47,000 mayhave been related not only to the performance of certain services but also tothe introduction of an instrument system into that physician’s hospital andperhaps other hospitals. The SEC has issued a formal investigative order inthese matters, we have made a number of voluntary submissions to the SEC and wecontinue to cooperate with the SEC. The SEC has not expressed to us anyconclusions about the ultimate outcome of its investigation. No determinationcan yet be made as to whether, in connection with these circumstances, we willbecome subject to any fines, penalties and/or other charges imposed by anygovernmental authority, or any other damages or costs that may arise inconnection with these circumstances.

Between August 31 and October 19, 2005, aseries of ten class-action lawsuits were filed in the United StatesDistrict Court for the Northern District of Georgia against the Company andcertain of its current and former directors and officers alleging violations ofthe securities laws. The Court has consolidated these cases for dispositionunder the caption *In re Immucor, Inc.Securities Litigation,* File No. 1:05-CV-2276-WSD,designated lead plaintiffs, permitted the filing of an amended consolidatedcomplaint, and established a schedule for briefing our motion to dismissthe claims. The consolidated complaint, brought on behalf of a putativeclass of shareholders who purchased our stock between August 16, 2004and August 29, 2005, alleges that our stock prices during that period wereinflated as a result of material misrepresentations or omissions in ourfinancial statements and other public announcements regarding our business. On March 7,2006, we timely moved to dismiss the consolidated complaint. The motion todismiss has been fully briefed and is awaiting court disposition. Discovery hasnot yet begun. The Court made no determination whether any of the plaintiffs’claims have merit or should be allowed to proceed as a class action. Webelieve the claims are without merit, and intend to vigorously defend theCompany. While we do not currently expect these lawsuits to materially affectour financial condition or results of operations, there can be no assurance ofany particular outcome.

In September 2005, F. Baragano Pharmaceuticalsfiled suit against the Company in the U.S. District Court for the District ofPuerto Rico, alleging that the Company cancelled a distribution contractwithout just cause, and seeking $350,000 plus interest, costs and attorneyfees. In June 2006 the Company settled the lawsuit for $45,000.

The Company’s compliance with its Affirmative ActionPlan is being audited by the U.S. Department of Labor’s Office of Federal ContractCompliance Programs (OFCCP) concerning personnel activity from July 1,2003 through June 30, 2004 and July 1, 2004 through February 13,2005. If OFCCP determines that a violation of Federal antidiscriminationstatutes has occurred, it has the power to order remedial action. Due to thepreliminary nature of this matter, we are not yet able to determine whether theCompany will become subject to any such remedial action.

Other than as set forthabove, the Company is not currently subject to any material legal proceedings,nor, to the Company’s knowledge, is any material legal proceeding threatenedagainst the Company. However, from time to time, the Company may become aparty to certain legal proceedings in the ordinary course of business. We donot believe any ongoing legal proceedings including those summarized above,will have a material adverse effect on our consolidated financial position.

**Item 4.—Submissionof Matters to a Vote of Security Holders.**

During the fourth quarterof fiscal year 2006, no matters were submitted to a vote of the securityholders.

20

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**PART II**

**Item5.—Market for Registrant’s Common Equity, Related Stockholder Matters andIssuer Purchases of Equity Securities.**

Immucor’s common stocktrades on The Nasdaq National Market System of The Nasdaq Stock Market underthe symbol: BLUD. The following table sets forth the quarterly high and lowprices of the common stock for the fiscal periods indicated as reported byNasdaq. These prices represent inter-dealer quotations without retail markups,markdowns or commissions and may not represent actual transactions.

| ** **                                    | ** ** | **High**   | ** ** | **Low**    | ** ** |
|-----------------------------------------------|------------|------------|------------|------------|------------|
| **Period  from June 1 through June 30, 2006** |       | $          | 19.57      |       | $          | 16.86 |   |
| **Fiscal  Year Ended May 31, 2006**      | ** ** | ** ** | ** ** | ** ** | ** ** |
| First Quarter                                 |       | $          | 24.00      |       | $          | 15.11 |   |
| Second Quarter                                |       | 18.90      |       | 14.37      |       |
| Third Quarter                                 |       | 20.91      |       | 15.14      |       |
| Fourth Quarter                                |       | 21.56      |       | 16.03      |       |
| **Fiscal  Year Ended May 31, 2005**      | ** ** | ** ** | ** ** | ** ** | ** ** |
| First Quarter                                 |       | $          | 9.88       |       | $          | 7.80 |   |
| Second Quarter                                |       | 14.32      |       | 9.09       |       |
| Third Quarter                                 |       | 21.16      |       | 14.11      |       |
| Fourth Quarter                                |       | 23.32      |       | 17.44      |       |

 

As of June 30, 2006, therewere 265****holders of record of the Company’scommon stock. The last reported sales price of the common stock on such datewas $19.23.

**Dividend Policy**

Immucor has not declaredany cash dividends with respect to its common stock. The Company presently intendsto continue to retain all earnings in connection with its business.

**Stock Splits**

On April 11, 2006,the Board of Directors approved a three-for-two stock split. The stock splitwas distributed on May 15, 2006 and resulted in the issuance of 22,685,368shares of common stock, net of 98 fractional shares for which cash was paid. Previously,the Company had distributed three-for-two splits on July 16, 2004 and on December 13,2004. All share and per share amounts disclosed in this document have beenretroactively adjusted to reflect the stock splits described above.

**Equity CompensationPlan Information**

In 2005 the Company’s Board of Directors adopted, andthe shareholders approved, the Immucor, Inc. 2005 Long-Term Incentive Plan(the “2005 Plan”). The 2005 Plan replaces the Company’s preexisting stockoption plans which have been frozen and remain in effect only to the extent ofawards outstanding under these plans. Under the 2005 Plan, besides grantingstock options, management will be able to award stock appreciation rights,restricted stock, deferred stock, and other performance-based awards asincentive and compensation to employees. The maximum number of shares of theCompany’s common stock as to which awards may be granted under the 2005 Plan is3,600,000. The maximum number of shares that may be used for awards other thanstock options is 1,800,000, and the maximum number of shares that may be usedfor grants of incentive stock options is 1,800,000.

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Thefollowing table provides information as of May 31, 2006 with respect tothe shares of our common stock that may be issued under our existing equitycompensation plans:

| **Plan category**                                         | ** ** | ** ** | ** ** | **Number of securities  to be issued upon exercise  of outstanding options,  warrants and rights** | ** ** | **Weighted average  exercise price of   outstanding options,  warrants and rights** | ** ** | **Number of  securities remaining  available for  future issuance ***** | ** ** |
|----------------------------------------------------------------|------------|------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------|------------|
| Equity  compensation plans approved by security holders *      |       |       | 2,949,657  |                                                                                                                                                 |       |                                                                                                                   | $          | 6.17                                                                                             |       |   |   | 3,518,637 |   |   |
| Equity  compensation plans not approved by security holders ** |       |       | 1,943,300  |                                                                                                                                                 |       |                                                                                                                   | $          | 1.07                                                                                             |       |   |   | — |   |   |
| Total                                                          |       |       | 4,892,957  |                                                                                                                                                 |       |                                                                                                                   | $          | 4.14                                                                                             |       |   |   | 3,518,637 |   |   |

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                 * Includes the Company’s 1998 Stock Option Plan,2003 Stock Option Plan and 2005 Long-Term Incentive Plan.

          ** Includes the Company’s 1990 Stock Option Planand 1995 Stock Option Plan.

   *** Number of securities available for futureissuance represents securities available under the 2005 Long-Term IncentivePlan. At May 31, 2006, options had been granted under the 2005 Long-TermIncentive Plan to purchase 81,363 shares of common stock; all of the 3,518,637remaining shares are available for issue under the 2005 Long-Term IncentivePlan; and, alternatively, up to 1,800,000 shares could be issued as restrictedstock or other non-option awards after May 31, 2006, and the remaining1,718,637 shares could be issued under stock options grants after May 31,2006. No securities are available for future issuance under any of the otherplans which were frozen when the 2005 Long-Term Incentive Plan was adopted. Fora description of the material features of these plans, see Note 13 to theconsolidated financial statements.

**Stock RepurchaseProgram**

On December 13, 2005, the Board of Directorsauthorized the Company to repurchase up to an additional 1.5 million shares,under the repurchase program initiated in 1998, increasing to 2,040,225 theshares available for purchase. During the fiscal year ended May 31, 2006,the Company repurchased 1,580,100 shares for approximately $24.8 million at anaverage per share price of $15.69, bringing the aggregate number of shares to7,950,975 repurchased under that program through May 31, 2006. Anaggregate of 1,424,025 shares were available for repurchase under the programas of May 31, 2006.

TheCompany repurchased shares of its Common Stock under the Company’s stockrepurchase plan during the three-month period ended May 31, 2006 asindicated in the table below:

| **Period**          | ** ** | ** ** | ** ** | **Shares Purchased** | ** ** | **Average Price  Per Share** | ** ** | **Shares Purchased to  Date as Part of Publicly  Announced Plan** | ** ** | **Maximum # of Shares  Available to Purchase  Under the Plan** | ** ** |
|---------------------|------------|------------|------------|---------------------------|------------|----------------------------------------|------------|------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------|------------|
| March 1-31, 2006    |       |       | —     |                      |       |                                   | $          | —                                                                                               |       |                                                                                              |       | 7,800,975 |   |   |   | 1,049,350 |   |   |
| April 1-30, 2006    |       |       | —     |                      |       |                                   | $          | —                                                                                               |       |                                                                                              |       | 7,800,975 |   |   |   | 1,574,025 |   |   |
| May 1-31, 2006 |       |       | 150,000    |                      |       |                                   | $          | 17.20                                                                                                |       |                                                                                              |       | 7,950,975 |   |   |   | 1,424,025 |   |   |

 

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**Item 6.—SelectedFinancial Data.**

(In thousands,except per share amounts)

| ** **                            | ** ** | **For the Year Ended May 31,** | ** ** |
|---------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                            | ** ** | **2006**                                                | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                            | ** ** | **(3)**                                                 | ** ** | **(1)** | ** ** | **(1)(2)** | ** ** | **(1)(2)** | ** ** | **(1)(2)** | ** ** |
| **Statement of Income Data:**         |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net sales                             |       | $                                                       | 183,506    |   | $ | 144,786 |   | $ | 112,558 |   |   | $ | 98,648 |   |   |   | $ | 84,472 |   |   |
| Cost of sales                         |       | 61,969                                                  |       | 57,541 |   | 50,488 |   |   | 42,939 |   |   |   | 37,608 |   |   |
| Gross profit                          |       | 121,537                                                 |       | 87,245 |   | 62,070 |   |   | 55,709 |   |   |   | 46,864 |   |   |
| Operating expenses:                   |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Research and development              |       | 4,623                                                   |       | 4,463 |   | 3,749 |   |   | 2,051 |   |   |   | 1,997 |   |   |
| Selling, general, and  administrative |       | 51,185                                                  |       | 45,530 |   | 36,619 |   |   | 31,354 |   |   |   | 29,826 |   |   |
| Restructuring expenses                |       | 2,689                                                   |       | — |   | — |   |   | — |   |   |   | — |   |   |
| Total operating expenses              |       | 58,497                                                  |       | 49,993 |   | 40,368 |   |   | 33,405 |   |   |   | 31,823 |   |   |
| Income from operations                |       | 63,040                                                  |       | 37,252 |   | 21,702 |   |   | 22,304 |   |   |   | 15,041 |   |   |
| Other:                                |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest income                       |       | 978                                                     |       | 624 |   | 41 |   |   | 127 |   |   |   | 41 |   |   |
| Interest expense                      |       | (516                                                    | )          | (662 | ) | (881 | ) |   | (2,406 | ) |   |   | (4,454 | ) |   |
| Other (loss)income—net           |       | (342                                                    | )          | 767 |   | (598 | ) |   | 158 |   |   |   | 1,356 |   |   |
| Total other                           |       | 120                                                     |       | 729 |   | (1,438 | ) |   | (2,121 | ) |   |   | (3,057 | ) |   |
| Income before income  taxes           |       | 63,160                                                  |       | 37,981 |   | 20,264 |   |   | 20,183 |   |   |   | 11,984 |   |   |
| Income taxes                          |       | 23,317                                                  |       | 14,071 |   | 7,726 |   |   | 5,813 |   |   |   | 3,189 |   |   |
| Net income                            |       | $                                                       | 39,843     |   | $ | 23,910 |   | $ | 12,538 |   |   | $ | 14,370 |   |   |   | $ | 8,795 |   |   |
| Income per share:                     |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Per common share—basic           |       | $                                                       | 0.59       |   | $ | 0.35 |   | $ | 0.19 |   |   | $ | 0.23 |   |   |   | $ | 0.16 |   |   |
| Per common share—diluted         |       | $                                                       | 0.56       |   | $ | 0.34 |   | $ | 0.18 |   |   | $ | 0.21 |   |   |   | $ | 0.15 |   |   |
| Weighted average shares outstanding:  |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Common shares                         |       | 68,004                                                  |       | 67,699 |   | 66,387 |   |   | 63,458 |   |   |   | 55,481 |   |   |
| Common shares—assuming dilution  |       | 71,401                                                  |       | 71,350 |   | 70,491 |   |   | 68,210 |   |   |   | 57,983 |   |   |

 

| ** **                                   | ** ** | **May 31,** | ** ** |
|----------------------------------------------|------------|------------------|------------|
| ** **                                   | ** ** | **2006**         | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| **Balance Sheet Data:**                      | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Working capital                              |       | $                | 92,883     |   | $ | 70,946 |   | $ | 48,261 |   | $ | 40,872 |   | $ | 27,070 |   |
| Total assets                                 |       | 191,687          |       | 157,613 |   | 124,417 |   | 116,886 |   | 101,367 |   |
| Long-term  obligations, less current portion |       | 3,980            |       | 2,991 |   | 7,216 |   | 18,231 |   | 31,581 |   |
| Retained earnings                            |       | 119,700          |       | 79,857 |   | 55,956 |   | 43,426 |   | 29,057 |   |
| Shareholders’ equity                    |       | 143,871          |       | 117,432 |   | 92,953 |   | 73,695 |   | 43,953 |   |
|                                              |            |                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

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       (1) All share and per share amounts have been retroactively adjusted toreflect the May 2006, December 2004, July 2004, November 2003and September 2002 three-for-two stock splits.

       (2) Certain salary expensesfor the years ended May 31, 2004, 2003 and 2002 have been reclassified toconform to the current year presentation; these reclassifications impact Costof sales and Selling, general andadministrative expenses.

       (3) Figures for the year ended May 31, 2006include Immucor-Kainos which was acquired in July 2005. See Note 19 to theconsolidated statements for financial information since its acquisition underthe “Japan” column.

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**Item 7.—Management’sDiscussion and Analysis of Financial Condition and Results of Operations.**

**Overview**

*Performance*

Our overall strategy for fiscal 2006 was to continueour focus on improving gross margins on our products through achievingcontinued benefits from strategies implemented in fiscal year 2005, as well asthrough the implementation of new strategies. Our gross margin increased to 66%for fiscal year 2006 from 60% achieved in fiscal year 2005 and 55% achieved infiscal 2004.

The 27% increase inrevenue and a 10% improvement in overall gross margin during the year ended May 31,2006, as compared to the prior year period, were due to several factors,including:

·       Reagentprice increases, attributable in part to the cancellation in January 2005of supply agreements with two group purchasing organizations which annuallycontributed approximately $25 million to our revenues, in order toincrease member purchasing prices as well as reduce administrative feesassociated with these contracts;

·       IncreasedCapture reagent revenues, driven primarily by the kit-to-component marketingchangeover implemented in the third quarter of fiscal 2005, as well asplacement of additional instruments which require the use of Capture reagents;and

·       Increasedmanufacturing efficiencies due in part to the continued elimination of a numberof redundant products previously manufactured at our three manufacturingfacilities.

Our reporting of revenue and gross margins is affectedby the application of Emerging Issues Task Force (“EITF”) Issue No. 00-21,*Accounting for Revenue Arrangements withMultiple Deliverables*. The accounting treatment mandated by thispronouncement resulted in the deferral of certain revenue for sales agreementswhich had multiple deliverables. As of May 31, 2006 and May 31, 2005,we had deferred revenue liabilities of approximately $16.1 million and $7.6million, respectively, and a significant portion of these balances related tothe deferral of revenue from sale of instruments.

We were again successfulin containing operating expenses which rose by only 17% to $58.5 million. Netincome increased to $39.8 million, or 67%, compared to prior year. Increasedrevenue, improved gross margin and control of expenses contributed to ourachieving a record year in terms of revenue and net income.

*Acquisition inJapan*

On July 5, 2005, inan effort to expand our presence in Japan, we acquired Immucor-Kainos, Inc.—anewly-formed company to which Kainos Laboratories, Inc. (“Kainos”), ourformer distributor of Immucor products in Japan, spun off its blood-bankingdivision. We paid Kainos ¥459 million (approximately $4.1 million) in cash onsigning of the purchase agreements, and will pay an additional ¥300 million(approximately $2.7 million) over three years with minimum payments of ¥125million in each of the first two years and the remaining ¥50 million in thethird year. A final payment of ¥441 million will be made after a three-yeartransition period ending on June 30, 2008, or earlier upon mutualagreement. Kainos has agreed to provide certain services to us during the firstthree years. We believe the acquisition of this business is a key step towardsfurther penetrating the Japanese transfusion diagnostics market, the thirdlargest such market in the world after Europe and the United States.

*Business Outlook*

For fiscal 2007, weare continuing to focus on improving gross margins through achieving continuedbenefits from successful strategies already implemented, as well as through theimplementation of new 

24

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strategies.Listed below are the key factors which we expect will drive further revenue andgross margin improvements in fiscal 2007:

·       *Expanding customer base of our Customer Loyalty Program*

Wecontinue to offer this program to expand reagent utilization throughout ourcustomer base. First implemented in fiscal 2005, the program promotespartnering with the customer to standardize blood bank products. The programpromotes higher sales volumes while partially shielding our more loyalcustomers from the effects of price increases.

·       *Impact of Galileo increased market penetration*

Weexpect Capture revenues to increase in fiscal 2007 over fiscal 2006, due to thecontinued impact of fiscal 2006 Galileo placements as well as expected newplacements in fiscal 2007.  As of May 31,2006, we have received purchase orders for 233 Galileo instruments fromEuropean customers since introducing the Galileo to the European market in thefirst quarter of fiscal 2003. Additionally, as of May 31, 2006: 118Galileo instruments purchase orders have been received from U.S. customerssince FDA clearance was received in April 2004; 14 Galileo purchase ordershave been received from Canadian customers since Health Canada clearance wasreceived in July 2004; and two purchase orders have been received fromJapanese customers since Ministry of Health clearance was received in July 2004.As of May 31, 2006, 294 of these instruments were generating reagentrevenues.

·       *Increased Japanese market penetration*

Webelieve the acquisition of Immucor-Kainos is a key step towards furtherpenetrating the Japanese transfusion diagnostics market, the third largest suchmarket in the world after Europe and the United States. The results of thissubsidiary have been included in our consolidated financial statements from July 5,2005, the date of acquisition.

·       *Introduction of Galileo EchoTM*

Weexpect to further improve our competitive position going into fiscal 2007through the launch of our third generation automated assay instrument, theGalileo EchoTM, which is expected to be released in European and U.S. markets inthe third quarter of fiscal 2007. The actual launch date is dependent on FDAclearance of the instrument in the United States and assumes clearance willtake approximately 90 days after the submission is received by the FDA. GalileoEchoTM is significantly smaller and faster than our ABS2000, and hassubstantially all of the features of our larger instrument, Galileo, apart fromlower throughput. We believe the Galileo EchoTM will appeal to the small- tomedium-sized hospital market, the largest segment of our customers(approximately 5,000 to 6,000 worldwide), to which our ABS2000 instrument iscurrently marketed.

·       *Increased manufacturing efficiencies*

Webelieve the following decisions and steps will further increase efficiencies inour manufacturing operations and help us in containing our expenses:

i)                  We will continueeliminating redundant products currently manufactured at the Company’s threemanufacturing facilities.

ii)              We will continueincreasing manufacturing efficiencies going into fiscal 2007 throughimplementation of a Manufacturing Execution System (“MES”), a new salesforecasting system, and a new marketing database, the combination of which isexpected to drive more accurate forecasting of product demand and resultingmaterial and labor requirements. The new marketing database was implemented in June 2005and the new sales forecasting system 

25

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was implemented in January 2006. MES preliminary design work willcommence in fiscal 2007 and is expected to be implemented in fiscal 2008.

iii)          Ourdecision to consolidate manufacturing operations in Norcross, Georgia and closethe Houston, Texas facility by December 2007 will further reduce overheadsand improve margins and net income.

**Results ofOperations**

For the fiscal year ended May 31, 2006, net salestotaled $183.5 million, up 27% from the prior year net sales of $144.8 million.Net income was up 67%, from $23.9 million in fiscal 2005 to $39.8 million infiscal 2006. Diluted earnings per share totaled $0.56 for fiscal 2006, ascompared to diluted earnings per share of $0.34 for the prior year, an increaseof 65%.

Since the acquisition of Immucor Japan on July 5,2005, Immucor Japan is reflected in our results of operations for eleven monthsof fiscal 2006. It contributed $7.4 million to revenue and incurred loss fromoperations of $0.4 million in fiscal 2006.

United States operationscontinue to generate a majority of our revenue and operating income. U.S.operations generated 71% and 90%, respectively, of our revenue and operatingincome in fiscal 2006 compared to 68% and 85%, respectively, in fiscal year2005.

*Comparison of Years Ended May 31, 2006 and May 31,2005*

| ** **                     | ** ** | **Year ended May 31,** | ** ** | ** ** | ** ** |
|--------------------------------|------------|---------------------------------------|------------|------------|------------|
| ** **                     | ** ** | **2006**                              | ** ** | **2005**   | ** ** | **% change** | ** ** |
| ** **                     | ** ** | **(In thousands)**               | ** ** | ** ** | ** ** |
| Net Sales                      |       | $                                     | 183,506    |       | $          | 144,786 |   |   | 27 | % |   |
| Gross profit                   |       | 121,537                               |       | 87,245     |       |   | 39 | % |   |
| Gross profit  percentage       |       | 66                                    | %          | 60         | %          |   | 10 | % |   |
| Research and development       |       | 4,623                                 |       | 4,463      |       |   | 4 | % |   |
| Selling and marketing          |       | 20,877                                |       | 18,228     |       |   | 15 | % |   |
| Distribution                   |       | 8,004                                 |       | 8,044      |       |   | 0 | % |   |
| General and administrative     |       | 21,963                                |       | 18,559     |       |   | 18 | % |   |
| Restructuring expenses         |       | 2,689                                 |       | —     |       |   | n/m |   |   |
| Amortization expense and other |       | 341                                   |       | 699        |       |   | -51 | % |   |
| Total operating expenses       |       | 58,497                                |       | 49,993     |       |   | 17 | % |   |
| Other income                   |       | 120                                   |       | 729        |       |   | -84 | % |   |
| Income before  income tax      |       | 63,160                                |       | 37,981     |       |   | 66 | % |   |
| Provision for  income tax      |       | 23,317                                |       | 14,071     |       |   | 66 | % |   |
| Net income                     |       | $                                     | 39,843     |       | $          | 23,910 |   |   | 67 | % |   |

 

*Net sales*

Traditional reagent revenues grew to $132.7 millioncompared to $99.2 million in fiscal 2005, a 34% increase. The growth intraditional reagent revenue (i.e. products not utilizing our patented Capturetechnology) occurred mainly as a result of price increases, the effect of whichwas marginally offset (approximately $3.9 million) by a slight decrease insales volume in the United States. Traditional reagent sales have historicallybeen our primary source of revenue and still constitute a very significantportion of our business. We expect the significance of this line of products todecline as we place more instruments in the market and increase sales of ourCapture products.

26

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Capture product sales were $34.3 million compared to$29.6 million in fiscal 2005, a 16% increase. The increase is primarilyattributable to the change of marketing strategy in January 2005 fromselling products in kits to selling individual components and to priceincreases. Sales of Capture products are largely dependent on the number ofactive instruments requiring the use of Capture reagents placed with customersand in operation. As we succeed in placing more instruments in the market, weexpect revenue from Capture products to increase.

Sales of instruments were $12.5 million in fiscal 2006and fiscal 2005. Most instrument sales in the United States are recognized overthe life of the underlying reagent contract, which is normally five years. Infiscal 2006 approximately $13.8 million of instrument sales and associatedservice revenue were deferred in this manner, compared to $8.8 million infiscal 2005, a 57% increase. As of May 31, 2006 and May 31, 2005,deferred instrument and service revenues totaled $16.1 million and $7.6million, respectively. Revenue recognized from instrument sales and associatedservice revenue was approximately $5.5 million in fiscal 2006 and $2.9 millionin fiscal 2005, a 90% increase. We expect to put more Galileo instruments inthe market and also expect to begin generating revenues from the sale of ournew Galileo EchoTM instruments which we expect to launch in the U.S. and Europein the third quarter of fiscal 2007. The actual launch date is dependent on FDAclearance of the instrument in the United States and assumes clearance willtake approximately 90 days after the submission is received by the FDA. Weexpect to recognize more revenue in the coming years as we place moreinstruments in the market and also recognize the revenue which we have beendeferring.

Human collagen forms avery small part of our business, and sales of this product line were $3.9million in fiscal 2006, an increase of $0.5 million compared to the prior year.

*Gross margin*

Overall gross margin(gross profit as a percentage of net sales) improved during fiscal 2006 to 66%,up from 60% in fiscal 2005. Gross margin of 72% on traditional reagents forfiscal 2006 was higher than the 63% achieved in the prior year, primarily dueto benefits from higher prices and manufacturing efficiencies. The gross marginon Capture products improved slightly to 81% from 80% achieved in the prioryear. In the case of instruments, comparing gross margin percentages fromperiod to period can be misleading because of the way revenue and cost forcertain types of instrument sales are recorded. Where sales contracts haveprice guarantee clauses, instrument costs are expensed when the sale is made,but the related revenue is deferred and recorded as income over the term of theagreement. For fiscal 2006, the gross margin on instruments was a negative 20%and for fiscal 2005 it was a negative 5%. In fiscal 2006, we recorded more costfrom sales of instruments but the growth in revenue recognized was at a slowerrate. This resulted in negative gross margin increasing to 20% from 5% infiscal 2005.  The gross margin on humancollagen sales was 32% in fiscal 2006 compared to 38% in fiscal 2005 due to anincrease in costs.

*Operating expenses*

Research and development expenses were $4.6 millionfor fiscal 2006, $0.2 million higher than those recorded in the prior fiscalyear. As we reached the final phase of the development of the Galileo EchoTM,the new third generation instrument targeted for the small- to medium-sizedhospital market, the spending on this project decreased to $0.8 million infiscal 2006 from $1.6 million spent in fiscal 2005. Cost incurred on otherprojects accounted for a net increase of $0.2 million in the research anddevelopment expenses for fiscal 2006 compared to fiscal 2005.

Selling and marketing expenses increased byapproximately $2.6 million to $20.9 million, or 15% over the prior fiscal year.The Japanese affiliate, which was acquired in the first quarter of fiscal 2006,added $3.1 million to selling and marketing expenses in the current fiscalyear.

27

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Distribution expenses forfiscal 2006 were $8.0 million which was marginally less than the amountincurred in the prior fiscal year. The Japanese affiliate added $0.2 million todistribution expenses in the current fiscal year.

General and administrativeexpenses in fiscal 2006 rose $3.4 million, or 18%, to $22.0 million over fiscal2005. The increase was attributable primarily to Sarbanes-Oxley compliance($2.3 million), hiring of new personnel ($0.7 million) and severance cost ($0.4million). The Japanese affiliate added $0.9 million to general andadministration expenses in the current fiscal year.

Our decision toconsolidate our manufacturing operations in Norcross, Georgia resulted inrestructuring charges of $2.7 million in the fiscal year 2006. Of the totalcharge of $2.7 million, $2.3 million was for the impairment of long-livedassets at the Houston, Texas facility. There were no significant changes in thethird and fourth quarters of fiscal 2006 to the total estimated cost and initialcharges recorded in the second quarter of fiscal 2006. No restructuring chargeswere recorded in fiscal year 2005.

*Income taxes*

The provision for incometaxes rose $9.2 million in fiscal 2006 from the prior year, primarily due tohigher pre-tax income with the overall effective tax rate for fiscal 2006 and2005 remaining at 37%. Deferred tax assets pertaining to operating losscarry-forwards increased by approximately $2.8 million, of which approximately$1.9 million related to our foreign affiliates (a major portion of it relatingto the 2003 European restructure and to the operating loss incurred by the Japaneseaffiliate acquired in fiscal 2006) and approximately $0.9 million was for stateoperating losses relating to “unwinding” of the state and local tax structureimplemented in 2003. It is more likely than not that these tax losses will notbe utilized and as a result we have recorded deferred tax valuation allowancesagainst these assets. This is reflected in an increase in the deferred taxvaluation allowances of $2.8 million.

As a result of utilizingcompensation cost deductions arising from the exercise of nonqualified employeestock options for federal and state income tax purposes, we realized income taxbenefits of approximately $6.4 million in fiscal 2006 and fiscal 2005. 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 income statement because the relatedcompensation deductions are not recognized as compensation expense forfinancial reporting purposes. Our income tax liability is reduced by theseamounts.

*Comparison of Years Ended May 31, 2005 and May 31,2004*

| ** **                      | ** ** | **Year ended May 31,** | ** ** | ** ** | ** ** |
|---------------------------------|------------|---------------------------------------|------------|------------|------------|
| ** **                      | ** ** | **2005 **                        | ** ** | **2004**   | ** ** | **% change** | ** ** |
| ** **                      | ** ** | **(in thousands)**               | ** ** | ** ** | ** ** |
| Net Sales                       |       | $                                     | 144,786    |       | $          | 112,558 |   |   | 29 | % |   |
| Gross profit                    |       | 87,245                                |       | 62,070     |       |   | 41 | % |   |
| Gross profit percentage         |       | 60                                    | %          | 55         | %          |   | 9 | % |   |
| Research and development        |       | 4,463                                 |       | 3,749      |       |   | 19 | % |   |
| Selling and marketing           |       | 18,228                                |       | 16,182     |       |   | 13 | % |   |
| Distribution                    |       | 8,044                                 |       | 8,499      |       |   | -5 | % |   |
| General and  administrative     |       | 18,559                                |       | 11,569     |       |   | 60 | % |   |
| Amortization expense and  other |       | 699                                   |       | 369        |       |   | 89 | % |   |
| Total operating expenses        |       | 49,993                                |       | 40,368     |       |   | 24 | % |   |
| Other income (loss)             |       | 729                                   |       | (1,438     | )          |   | n/m |   |   |
| Income before income tax        |       | 37,981                                |       | 20,264     |       |   | 87 | % |   |
| Provision for income tax        |       | 14,071                                |       | 7,726      |       |   | 82 | % |   |
| Net income                      |       | $                                     | 23,910     |       | $          | 12,538 |   |   | 91 | % |   |

 

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*Net sales*

Reagent revenues grew to$128.8 million compared to $102.3 million in the prior year, a 26% increase. Thegrowth in reagent revenues occurred as a result of traditional reagent priceincreases in North America, which contributed $15.9 million to the increase,and volume and price increases in proprietary Capture products. Capture productsales were $29.6 million versus $21.9 million in fiscal 2004. Human collagensales were $3.5 million versus $0.5 million in fiscal 2004, as the firstshipment of collagen did not occur until May 2004. Sales of instrumentswere $12.5 million in fiscal 2005, compared to $9.8 million in fiscal 2004. Instrumentrevenues grew in part due to higher service contract revenue as a result of newplacements under service contracts, as well as increases in service contractpricing.

*Gross margin*

The gross margin (grossprofit as a percentage of sales) on traditional reagents for the year ended May 31,2005 benefited from the price increases discussed above, increasing to 63% forfiscal 2005 from 56% for fiscal 2004. The benefit of the prices increases waspartially offset by higher regulatory costs in the first quarter of fiscal 2005to support CE-marking in Europe. The gross margin on Capture products was 80%for fiscal 2005, compared with 74% for fiscal 2004. Capture gross margin wasfavorably impacted by a changeover from selling the products in kits to sellingthe individual components—an operational change which resulted in increases inboth volume and price. The gross margin on human collagen sales was 38% forfiscal 2005, compared with 21% for fiscal 2004. This improvement was due inpart to a fourth quarter fiscal 2005 adjustment totaling approximately $0.2million regarding previously invoiced shipments for which quantity discountswere not earned. The gross margin on instruments, including the impact of thecost of providing service was a negative 5% for fiscal 2005, compared to apositive 5% for fiscal 2004. In the quarter ended February 28, 2005, theCompany also changed how it was accounting for the costs of instruments underthird-party leasing arrangements and, as a result, recorded additional cost ofsales of approximately $327,000.

*Operating expenses*

Research and development expenses were $4.5 millionfor fiscal 2005, $0.7 million higher than those recorded in the prior fiscalyear. Spending on the development of the Galileo EchoTM was $1.6 million and$0.8 million in fiscal 2005 and 2004, respectively.

Selling and marketing expenses increased $2.0 millionover the prior fiscal year, but decreased as a percentage of sales. Thisdecrease as a percentage of sales was due primarily to higherperiod-over-period sales as discussed more fully above.

Distribution expenses for fiscal 2005 decreased by$0.5 million from those recorded in the prior year period. This reduction wasdue primarily to the consolidation of the Houston facility shipping functioninto the Norcross facility, a process which was begun during the fourth quarterof fiscal 2004 and completed in the first quarter of fiscal 2005.

General and administrativeexpenses in fiscal 2005 rose $7.0 million over fiscal 2004. The increase wasattributable primarily to higher legal fees due mainly to the Italianinvestigation as well as higher audit and tax fees, due in part to theSarbanes-Oxley Section 404 internal control assessment.

*Other income(expense)*

Interest expense decreased$0.2 million in fiscal 2005 primarily as a result of reduced levels oflong-term debt. Other income, net, for fiscal year 2005, primarily reflects a$0.5 million gain on the sale of the Company’s long-term investment inLionheart Technologies, Inc. in November 2004, as well as a net gainon foreign currency transactions. These gains were partially offset by a $0.2million charge representing a 

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legalsettlement agreed upon in December 2004 regarding a pre-existing claim anda $0.3 million charge associated with the buyout of a distribution agreement inthe first quarter of fiscal 2005. Other (expense) income, net, for fiscal 2004,reflects a charge of $0.9 million in the third quarter of fiscal 2004 to writeoff unamortized deferred financing charges related to the Company’s previouscredit facility.

*Income taxes*

The provision for incometaxes rose $6.3 million in fiscal 2005 from the prior year, primarily due tohigher pre-tax income. State tax rates are estimated to be higher as theCompany refines its state tax structure. The increase in the provision for theyear was partially offset by a benefit for a research and development taxcredit for the current fiscal year as well as the prior three fiscal years. Thiscredit totaled approximately $622,000, on which the Company provided a 30%reserve based on historical settlement claims of similar cases with theInternal Revenue Service.

**Liquidity andCapital Resources**

Ourprincipal sources of liquidity are cash on hand and cash from operations. Wehave adequate working capital and sources of capital to carry on our currentbusiness and to meet our existing capital requirements. At May 31, 2006,we had working capital of $92.9 million, compared to $70.9 million of workingcapital at May 31, 2005. The following chart shows the cash flows providedby or used in operating, investing and financing activities for fiscal years2006, 2005 and 2004, as well as the effect of exchange rates on cash and cashequivalents for those same years:

| ** **                                                    | ** ** | **For the year ended May 31,** | ** ** |
|---------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                    | ** ** | **2006**                                                | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                    | ** ** | **(in thousands)**                                 | ** ** |
| Net cash provided  by operating activities                    |       | $                                                       | 62,716     |   | $ | 41,486 |   | $ | 22,660 |   |
| Net cash used in  investing activities                        |       | (14,620                                                 | )          | (7,116 | ) | (7,106 | ) |
| Net cash used in  financing activities                        |       | (31,045                                                 | )          | (12,412 | ) | (11,265 | ) |
| Effect of  exchange rate changes on cash and cash equivalents |       | (55                                                     | )          | (547 | ) | 225 |   |
| Increase in cash and  cash equivalents                        |       | $                                                       | 16,996     |   | $ | 21,411 |   | $ | 4,514 |   |

 

Our cash and cash equivalents were $54.1 million at May 31,2006, as compared to $37.1 million at May 31, 2005. In fiscal 2006, wepaid $4.7 million for the purchase of Immucor-Kainos, repaid $8.1 million oflong-term debt and capital leases and spent $24.8 million to repurchase sharesof our common stock under the stock repurchase plan. These significant andnon-recurring payments were more than compensated for by $62.7 million in cashgenerated through operating activities for fiscal 2006, resulting in netimprovement of $17.0 million in cash and cash equivalents balances.

As of May 31, 2005, the Company’s cash and cashequivalents balances totaled $37.1 million, an increase of $21.4 million overfiscal 2004. These increases were driven by higher net cash provided byoperating activities. Net cash provided by operating activities totaled approximately$41.5 million and $22.7 million for the fiscal years 2005 and 2004,respectively.

*Operatingactivities—*Net cash generated by operating activitieswas $62.7 million for the year ended May 31, 2006, a $21.2 millionincrease over the $41.5 million generated in the year ended May 31, 2005. Thisincrease was primarily driven by a $17.7 million, or 54%, increase in netincome, adjusted for non-cash income statement items, in fiscal 2006 comparedto fiscal 2005. Positive movement in certain components of working capitalfurther improved the cash generated from operating activities; significantly,an increase in deferred revenue contributed $8.6 million of cash in fiscal 2006compared to $5.8 million in fiscal 2005. A significant portion of ourinstrument sales revenue is deferred and, as of May 31, 2006, we 

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had approximately $16.1million of deferred revenues compared to $7.6 million at May 31, 2005. Cashfrom operating activities is affected by the level of instrument sales activityfor which revenue is deferred. A significant increase in instrument sales withdeferred revenue tends to have a positive effect on the cash position eventhough revenue is not recorded in the same accounting period, and a significantdecrease in such sales would have the opposite effect on the cash position. Anothermajor factor in the increase in cash generated from operating activities wasthe improved management of inventory, accounts receivable and accounts payable;additional capital required for these components of working capital duringfiscal 2006 was $2.2 million compared to $10.9 million increase in fiscal 2005.

*Investing  activities—*In fiscal2006, $14.6 million of cash was used in investing activities primarily for theacquisition of Immucor-Kainos, Inc. ($4.7 million) and capitalexpenditures ($10.8 million). The $10.8 million in capital expendituresfor fiscal 2006 consisted primarily of $1.5 million for instruments used fordemonstration purposes or placed at customer sites on reagent rentalagreements, $7.3 million for building, machinery and equipment and furniture additionsand upgrades, and $2.0 million for computer hardware and software enhancementsand replacements. Planned capital expenditures for fiscal 2007 totalapproximately $13.5 million, including approximately $4.1 million for upgradesof manufacturing, quality and support systems, approximately $3.7 million forinstruments, approximately $2.5 million for building renovations, andapproximately $3.2 million in computer hardware and software expenditures forinfrastructure upgrades.

In fiscal 2005, $7.1 million of cash was used ininvesting activities consisting primarily of capital expenditures totaling $6.6million and investments in marketable debt securities totaling $2.0 million,partially offset by $1.3 million in proceeds from the sale of our long-terminvestment in Lionheart Technologies, Inc. The $6.6 million in capitalexpenditures for the year ended May 31, 2005 consisted primarily of $2.8million for instruments, $1.9 million for machinery and equipment upgrades foruse primarily at the Company’s Norcross facility, and $1.1 million for computerhardware and software enhancements of the enterprise software system.

*Financing activities—*Netcash used in financing activities totaled approximately $31.0 million and $12.4million in fiscal 2006 and fiscal 2005, respectively. In fiscal 2006, weutilized $24.8 million to repurchase shares of our common stock, compared to$8.0 million we spent in fiscal 2005. We had a cash outlay of $8.1 million infiscal 2006 to pay off all of our long-term debt and capital leases. In fiscal2005, we repaid $5.8 million of our long-term debt. Our cash position and cashgenerated by operations allowed us to repay all capital lease obligations andlong-term borrowings from financial institutions. We received $2.1 millionand $1.6 million from the exercise of employee stock options in fiscal 2006 and2005, respectively.

*Stock RepurchaseProgram*

During the year ended May 31, 2006, werepurchased 1,580,100 shares at an average share price of $15.69. During thefiscal year ended May 31, 2006, the total amount spent for the sharesbought under this program amounted to $24.8 million, compared to $8.0 millionspent during the fiscal year ended May 31, 2005. An aggregate of 1,424,025shares were available for repurchase under the program as of May 31, 2006.

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*Contingencies*

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 disclosecontingent liabilities, when there is a reasonable possibility that theultimate loss will exceed the recorded liability. Estimating probable lossesrequires analysis of multiple factors, in some cases including judgments aboutthe potential actions of third-party claimants and courts. Therefore, actuallosses in any future period are inherently uncertain. We currently are involvedin certain legal proceedings. We do not believe these proceedings will have amaterial adverse effect on our consolidated financial position. It is possible,however, that future results of operations for any particular quarterly orannual period could be materially affected by changes in our assumptions or theeffectiveness of our strategies related to these proceedings. Contingentliabilities are described in Note 21 to the consolidated financial statements.

*Future CashRequirements and Restrictions*

In July 2005, we paid Kainos ¥459 million(approximately $4.1 million) in cash on signing of the purchase agreements, andare required to pay an additional ¥300 million (approximately $2.7 million)over three years with minimum payments of ¥125 million in each of the first twoyears and the remaining ¥50 million in the third year. As of May 31, 2006,we have paid ¥106 million of this liability. In addition, a final payment of¥441 million will be made after a three-year transition period ending on June 30,2008, or earlier upon mutual agreement.

We expect that cash and cash equivalents and cash flows fromoperations will be sufficient to support operations and planned capitalexpenditures for the next 12 months. We have no long-term debt except theacquisition liability for the purchase of Immucor-Kainos. There are norestrictions on our foreign subsidiaries in the matter of sending dividends, ormaking loans or advances to the parent company. Contractual obligations andcommercial commitments, primarily for the next five years, are detailed in thetable below:

*Contractual Obligationsand Commercial Commitments*

| ** **                          | ** ** | **Payments Due by Period** | ** ** |
|-------------------------------------|------------|-------------------------------------------|------------|
| **Contractual Obligations**    | ** ** | ** **                                | ** ** | **Total** | ** ** | **Less than 1 year** | ** ** | **1-3 years** | ** ** | **4-5 years** | ** ** | **After 5 years** | ** ** |
| ** **                          | ** ** | **(in thousands)**                   | ** ** |
| Long-Term Debt  and Lines of Credit |       | $                                         | —     |   |   | $ | — |   |   | $ | — |   |   | $ | — |   |   |   | $ | — |   |   |
| Capital Lease  Obligations          |       | —                                    |       |   | — |   |   | — |   |   | — |   |   |   | — |   |   |
| Operating Leases                    |       | 13,034                                    |       |   | 1,942 |   |   | 3,319 |   |   | 1,964 |   |   |   | 5,809 |   |   |
| Purchase  Obligations(1)            |       | 17,384                                    |       |   | 14,229 |   |   | 3,155 |   |   | — |   |   |   | — |   |   |
| Other Long-Term  Obligations(2)     |       | 5,055                                     |       |   | 1,074 |   |   | 3,981 |   |   | — |   |   |   | — |   |   |
| Total Contractual Cash  Obligations |       | $                                         | 35,473     |   |   | $ | 17,245 |   |   | $ | 10,455 |   |   | $ | 1,964 |   |   |   | $ | 5,809 |   |   |
|                                     |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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       (1) Includes outstanding purchase commitments and commitments toCelliance, Ltd. and Bio-Tek Instruments, Inc. as more fully discussed inNote 21 to the consolidated financial statements.

       (2) Represents Japan acquisition liability.

*Off-Balance SheetArrangements*

The Company has nooff-balance sheet financial arrangements as of May 31, 2006.

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**Critical AccountingPolicies**

*General*

We have identified thepolicies below as critical to our business operations and the understanding ofour results of operations. The impact and any associated risks related to thesepolicies 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 detaileddiscussion on the application of these and other accounting policies, see Note1 to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K.Note that our preparation of this Annual Report on Form 10-Krequires us to make estimates and assumptions that affect the reported amountsof assets and liabilities, the disclosure of contingent assets and liabilitiesat the date of our financial statements, and the reported amounts of revenueand expenses during the reporting period. Actual results could differ fromthose estimates, and certain assumptions could prove to be incorrect. Seniormanagement has discussed the development and selection of critical accountingestimates and the related Management’s Discussion and Analysis of FinancialCondition and Results of Operations disclosure with the Audit Committee of theCompany’s Board of Directors.

*Revenue Recognition*

We recognizerevenue 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 conditions cause management to determine thesecriteria are not met for certain future transactions, revenue recognized forany reporting period could be adversely affected.

·       *Reagent sales*

Revenuefrom the sale of our reagents to end users is recognized upon shipment whenboth title and risk of loss transfer to the customer upon shipment, unlessthere are specific contractual terms to the contrary. Revenue from the sale ofour reagents to distributors is recognized FOB customs clearance when bothtitle and risk of loss transfer to the customer.

·       *Medical instrument sales*

Revenue from the sale ofour medical instruments is generally recognized upon shipment and completion ofcontractual obligations. Revenue from rentals of our medical instruments isrecognized over the term of the rental agreement. Instrument service contractrevenue is recognized over the term of the contract.

Beginningin the second quarter of fiscal year 2004, we recognize revenue on the sale ofmedical instruments in accordance with Emerging Issues Task Force (“EITF”)Issue No. 00-21, *Accounting forRevenue Arrangements with Multiple Deliverables*. Our medicalinstrument sales contracts involve multiple deliverables, including the sale orrental of an instrument (including delivery, installation and training), theservicing of the instrument during the first year, and, in some cases, priceguarantees for consumables purchased during the contract period and/orproviding a software interface. We have determined the fair value of certain ofthese elements, such as training and first year service. The portion of theinstrument sales price applicable to the instrument itself is recognized uponshipment and completion of contractual obligations relating to training and/orinstallation based on the related contractual specifications. If the agreementdoes not include any price guarantees, the sales price in excess of the fairvalues of training and service is allocated to the instrument itself. The fairvalue of a training session is recognized as revenue when services are provided.If multiple sessions are contractually provided for, and not all training hasbeen completed at the time the instrument is recognized, additional trainingrevenue is recognized upon 

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delivery.The fair value of first year service is deferred and recognized over the firstyear of the contract. If the agreement contains price guarantees, the entiresales price is deferred and recognized over the related guarantee period due tothe fair value of the price guarantee not being determinable at that time. Theallocation of the total consideration received, which is based on the estimatedfair value of the units of accounting, requires judgment by management.

·       *Sales subject to a plan of factoring*

Sales subject to a plan offactoring are recorded at net realizable value (defined as gross sales less theannual estimated cost of factoring the sale). Should the factored sale remainuncollected by the factor at the end of one year, an estimate of the additionalfactoring discount is made and recorded monthly as an additional reduction ofsales revenue.

*Trade AccountsReceivables and Allowance for Doubtful Accounts*

Trade receivables at May 31,2006, totaling $37.2 million, and at May 31, 2005, totaling $34.6 million,are net of allowances for doubtful accounts of $2.0 million and $1.9 million,respectively. The allowance for doubtful accounts represents a reserve forestimated losses resulting from the inability of our customers to pay theirdebts. The collectibility of trade receivable balances is regularly evaluatedbased on a combination of factors such as customer credit-worthiness, pasttransaction history with the customer, current economic industry trends andchanges in customer payment patterns. If it is determined that a customer willbe unable to fully meet its financial obligation, such as in the case of abankruptcy filing or other material events impacting its business, a specific allowancefor doubtful accounts is recorded to reduce the related receivable to theamount expected to be recovered.

*Inventory*

Inventories are stated atthe lower of cost (first-in, first-out basis) or market (net realizable value).Cost includes material, labor and manufacturing overhead. We use a standardcost system as a tool to monitor production efficiency. The standard costsystem applies estimated labor and manufacturing overhead factors to inventorybased on budgeted production and efficiency levels, staffing levels and costsof operation, based on the experience and judgment of management. Actual costsand production levels may vary from the standard established and such variancesare charged to the consolidated statement of income as a component of cost ofsales. Since U.S. generally accepted accounting principles require that thestandard cost approximate actual cost, periodic adjustments are made to thestandard rates to approximate actual costs. The provision for obsolete and/orexcess 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 material changes have been made to the inventorypolicy during fiscal 2006, 2005 or 2004.

*Goodwill*

On adoption of SFAS No. 142, *Goodwill andOther Intangible Assets,* goodwill and indefinite lived intangibleassets are no longer amortized but are tested for impairment annually or morefrequently if impairment indicators arise. Intangible assets that have finitelives are continuing to be amortized over their useful lives.

We evaluate the carryingvalue of goodwill during the fourth quarter of each year and between annualevaluations if events occur or circumstances change that would more likely thannot reduce the fair value of the reporting unit below its carrying amount. Suchcircumstances could include, but are not limited to: (1) a significantadverse 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’s 

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carryingamount, including goodwill. The fair value of the reporting unit is estimatedusing primarily the income, or discounted cash flows, approach. If the carryingamount of a reporting unit exceeds its fair value, then the amount of theimpairment loss must be measured. The impairment loss would be calculated bycomparing the implied fair value of reporting unit goodwill to its carryingamount. In calculating the implied fair value of reporting unit goodwill, thefair value of the reporting unit is allocated to all of the other assets andliabilities of that unit based on their fair values. The excess of the fairvalue of a reporting unit over the amount assigned to its other assets andliabilities is the implied fair value of goodwill. An impairment loss would berecognized when the carrying amount of goodwill exceeds its implied fair value.Our evaluation of goodwill completed during the year resulted in no impairmentlosses.

*Income Taxes*

Our income tax policyrecords the estimated future tax effects of temporary differences between thetax bases of assets and liabilities and amounts reported in the accompanyingconsolidated balance sheets, as well as operating loss and tax creditcarry-forwards. The value of our deferred tax assets assumes that we will beable to generate sufficient future taxable income in certain tax jurisdictions,based on estimates and assumptions. If these estimates and related assumptionschange in the future, we may be required to record additional valuationallowances against our deferred tax assets resulting in additional income taxexpense in our consolidated statements of income. In assessing therealizability of deferred tax assets, we consider whether it is more likelythan not that some portion or all of the deferred tax assets will not berealized and consider the scheduled reversal of deferred tax liabilities,projected future taxable income, carry-back opportunities, and tax-planningstrategies in making this assessment. We also evaluate the realizability of thedeferred tax assets and assess the need for additional valuation allowancesquarterly. No material changes have been made to the income tax policy duringfiscal 2006. See Note 15 to the consolidated financial statements.

*Stock-basedEmployee Compensation*

For the fiscal year ended May 31, 2006 and priorperiods, we accounted for stock option grants in accordance with APB Opinion No. 25,*Accounting for Stock Issued to Employees*,and accordingly did not recognize compensation expense for the stock optiongrants. We usually granted stock options for a fixed number of shares toemployees with an exercise price equal to the fair value of the shares at thedate of the grant.  However, beginning infiscal 2005, we began awarding grants to eligible new hires with the respectiveexercise price equal to the closing price on the business day immediately priorto the grant date; therefore in these cases, the exercise price may be higheror lower than the fair value of the shares at the date of grant. Management hasdetermined that the aggregate difference between the grant date fair values andthe exercise prices for grants awarded to new hires is not material(approximately $12,000 in total for the grants issued below market price infiscal 2006), and accordingly has not included any such compensation costrelated to these grants in the Company’s results of operations. Under our 2005Long-Term Incentive Plan, options are granted to eligible new hires with anexercise price equal to the closing price of the first day of employment.

We adopted SFAS No. 148, *Accountingfor Stock-based Compensation—Transition and Disclosure—an amendment of FASBStatement No. 123* in the period ended May 31, 2003*.*This Statement provides alternative methods of transitionfor a voluntary change to the fair value based method of accounting forstock-based employee compensation. In addition, this Statement amends thedisclosure requirements of Statement 123 to require prominent disclosures inboth annual and interim financial statements about the method of accounting forstock-based employee compensation and the effect of the method used on reportedresults. See Note 1 to the consolidated financial statements.

In December 2004, the FASB issued Statement No. 123(revised 2004), *Share-based Payment*,which is a revision of FASB Statement No. 123,*Accounting for Stock-based Compensation* (“Statement 123(R)”). 

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Generally, the approach inStatement 123(R) is similar to the approach described in Statement 123. However,Statement 123(R) requiresall share-based payments to employees, including grants of employee stockoptions, to be recognized in the statement of income based on their fairvalues. Pro forma disclosure is no longer an alternative. Alternative phase-inmethods are allowed under Statement No. 123(R). We adopted Statement No. 123(R) effectiveJune 1, 2006 using the “modified-prospective method” which requires thatcompensation expense be recognized beginning with the effective date, based onthe requirements of this statement, for all share-based payments granted afterthe effective date, and based on the requirements of SFAS 123, for allawards granted to employees prior to the effective date of this statement thatremain unvested on the effective date. We will continue to apply theBlack-Scholes valuation model in determining the fair value of share-basedpayments to employees, which will then be amortized on a straight-line basis.

Accordingly, the adoptionof Statement No. 123(R)’s fair value method will negatively impact ourresults of operations. The impact of adoption of Statement No. 123(R) cannotbe quantified at this time because it will depend on the level of share-basedpayments granted in the future, expected volatilities and expected usefullives, among other factors, present at the grant date. However, had Statement No. 123(R) beeneffective in prior periods, the impact of that standard would have approximatedthe impact of Statement No. 123 as described in our disclosure of proforma net income and net income per share in Note 1 to our 2006 consolidated financial statementsincluded in Item 8 of this Form 10-K. As of June 1, 2006,the unrecognized compensation expense associated with the remaining portion ofthe unvested outstanding awards is $4.5 million ($2.9 million, net of tax). StatementNo. 123(R) also requires the benefit of tax deductions in excess ofrecognized compensation cost to be reported as a financing cash flow, ratherthan as an operating cash flow as required under currently effective accountingliterature. This requirement will reduce net operating cash flows and increasenet financing cash flows in periods after adoption of Statement No. 123(R).While we cannot estimate what those amounts will be in the future (because theydepend on, among other things, when employees exercise stock options), theamount of operating cash flows recognized in prior periods for such excess taxdeductions was $6.4 million in fiscal 2006 and fiscal 2005, and $3.6 millionin fiscal 2004.

**Impact of RecentlyIssued Accounting Standards**

*SFAS No. 151—*InNovember 2004, the FASB issued Statement No. 151, *Inventory Costs—an amendment of ARB No. 43, Chapter 4*(“SFASNo. 151”)*.*SFAS No. 151 amends theguidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify theaccounting for abnormal amounts of idle facility expense, freight, handlingcosts, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4,previously stated that “. . . under some circumstances, items such as idlefacility expense, excessive spoilage, double freight, and rehandling costs maybe so abnormal as to require treatment as current period charges. . .”.SFAS No. 151 requires that those items be recognized as current-periodcharges regardless of whether they meet the criterion of “so abnormal.” Inaddition, this Statement requires that allocation of fixed production overheadsto the costs of conversion be based on the normal capacity of the productionfacilities. This new standard is effective for inventory costs incurred duringfiscal years beginning after June 15, 2005. Earlier application ispermitted for inventory costs incurred during fiscal years beginning after November 23,2004. Our adoption of the standard in the fiscal year beginning June 1, 2006is not likely to have a significant impact on our financial statements.

*SFAS No. 123R—*InDecember 2004, the FASB issued Statement No. 123 (revised 2004), *Share-based Payment*, which is a revisionof FASB Statement No. 123,*Accountingfor Stock-based Compensation*. Generally, the approach in Statement123(R) is similar to the approach described in Statement 123. However,Statement 123(R) requiresall share-based payments to employees, including grants of employee stockoptions, to be recognized in the statement of income based on their fairvalues. Pro forma disclosure is no longer an alternative. Alternative phase-inmethods are allowed under Statement No. 123(R). We 

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adopted Statement No. 123(R) effectiveJune 1, 2006 using the “modified-prospective method” which requires thatcompensation expense be recognized beginning with the effective date, based onthe requirements of this statement, for all share-based payments granted afterthe effective date, and based on the requirements of SFAS 123, for allawards granted to employees prior to the effective date of this statement thatremain unvested on the effective date. As permitted by Statement No. 123,for periods prior to June 1, 2006, we accounted for share-based paymentsto employees using Opinion No. 25’s intrinsic value method and, as such,generally recognized no compensation cost for the granting of employee stockoptions, except as disclosed in Note 1to our 2006 consolidated financial statements contained in Item 8 ofthis Form 10-K. Accordingly, the adoption of Statement No. 123(R)’sfair value method will negatively impact our statements of operations. Theimpact of adoption of Statement No. 123(R) cannot be quantified atthis time because it will depend on the level of share-based payments granted inthe future, expected volatilities and expected useful lives, among otherfactors, present at the grant date. However, had Statement No. 123(R) beeneffective in prior periods, the impact of that standard would have approximatedthe impact of Statement No. 123 as described in our disclosure of proforma net income and net income per share in Note 1 to our 2006 consolidated financial statementsincluded in Item 8 of this Form 10-K. As of June 1, 2006,the unrecognized compensation expense associated with the remaining portion ofthe unvested outstanding awards is $4.5 million ($2.9 million, net of tax). StatementNo. 123(R) also requires the benefit of tax deductions in excess ofrecognized compensation cost to be reported as a financing cash flow, rather thanas an operating cash flow as required under currently effective accountingliterature. This requirement will reduce net operating cash flows and increasenet financing cash flows in periods after adoption of Statement No. 123(R).While we cannot estimate what those amounts will be in the future (because theydepend on, among other things, when employees exercise stock options), theamount of operating cash flows recognized in prior periods for such excess taxdeductions was $6.4 million in fiscal 2006 and fiscal 2005, and$3.6 million in fiscal 2004.

*SFAS No. 154—*InMay 2005, the FASB issued Statement No. 154, *AccountingChanges and Error Corrections* (“SFAS No. 154”), which replacesAccounting Principles Board Opinions No. 20, *AccountingChanges*, and SFAS No. 3, *Reporting AccountingChanges in Interim Financial Statements-An Amendment of APB Opinion No. 28*.SFAS No. 154 provides guidance on the accounting for and reporting ofaccounting changes and error corrections. It establishes retrospectiveapplication, or the latest practicable date, as the required method forreporting a change in accounting principle and the reporting of a correction ofan error. SFAS No. 154 is effective for accounting changes andcorrections of errors made in fiscal years beginning after December 15,2005. Our adoption of the standard in the fiscal year beginning June 1,2006 is not likely to have a significant impact on our financial statements.

**Item 7A.—Quantitativeand Qualitative Disclosures about Market Risk.**

We are exposed to market risks for foreign currencyexchange rates and to a lesser extent for interest rates that could adverselyimpact our results of operations and financial condition. We have repaid all ofour interest-bearing debts during fiscal 2006 and interest rate risk appliesonly to our cash and short-term investment portfolio. To manage the volatilityrelated to these typical business exposures, we may enter into variousderivative transactions when appropriate. We do not hold or issue derivativeinstruments for trading or other speculative purposes. We are not currentlysubject to significant market risks for commodity prices or other relevantmarket price risks.

*ForeignCurrency Risk.*   Operating income generatedoutside the United States as a percentage of total operating income was 10% in2006, 15% in 2005 and 5% in 2004. Fluctuations in foreign exchange rates,principally with the U.S. Dollar versus the Euro, Canadian Dollar and JapaneseYen, could impact our operating results. It has not been the Company’s practiceto actively hedge its foreign subsidiaries’ assets or liabilities denominatedin local currency. During fiscal year ended May 31, 2006, the Company’sexposure to foreign currency exchange risk increased slightly with the purchaseof Immucor-Kainos, Inc., 

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the Company’s newsubsidiary which had financial instruments of approximately $3.2 million at May 31,2006. Also, future payment obligations totaling $5.1 million related to theacquisition of Immucor-Kainos are denominated in Japanese Yen, and are thereforesubject to foreign currency exchange risk. In 2006, 2005, and 2004, the Companyrecorded net foreign currency transaction gains of approximately $1,000,$0.5 million and $0.5 million, respectively; and foreign currency translationgains of $2.3 million, $0.6 million and $0.4 million, respectively. In fiscal2006, a 5% decrease compared to fiscal 2005 in the U.S.-Euro weighted averageexchange rate decreased net sales and net income by approximately $1.8 millionand $0.1 million, respectively. A 10% change in the year-to-date weightedaverage Euro exchange rate would have had the effect of increasing ordecreasing net sales and net income by approximately $3.6 million and $0.2million, respectively. In case of U.S.-Canadian Dollar, a 7% increase in fiscal2006 compared to fiscal 2005 in the weighted average exchange rate increasednet sales and net income by approximately $0.7 million and $0.2 million,respectively. A 10% change in the year-to-date weighted average Canadian Dollarexchange rate would have had the effect of increasing or decreasing net salesand net income by approximately $1.0 million and $0.2 million, respectively.

*Interest Rate Risk.*   Weplace our cash, cash equivalents and marketable securities, which generallyhave a term of less than one year, with high-quality financial institutions andhave investment guidelines relative to diversification and maturities designedto maintain safety and liquidity. As of May 31, 2006, we had cash, cashequivalents and marketable securities totaling $55.7 million. If, during fiscal2006, average short-term interest rates decreased by 1.0% from fiscal 2005average rates, based on our quarterly average balance of cash, cash equivalentsand marketable securities, our projected interest income from short-terminvestments would have decreased by approximately $0.6 million.

**Item 8.—FinancialStatements and Supplementary Data.**

A.             Financial Statements

The followingconsolidated financial statements of the Company are included under this item:

·        Reportof Independent Registered Public Accounting Firm on Consolidated FinancialStatements

·        Reportof Ernst & Young LLP, Independent Registered Public Accounting Firm

·        ConsolidatedBalance Sheets, May 31, 2006 and 2005

·        ConsolidatedStatements of Income for the Years Ended May 31, 2006, 2005 and 2004

·        ConsolidatedStatements of Shareholders’ Equity for the Years Ended May 31, 2006, 2005and 2004

·        ConsolidatedStatements of Cash Flows for the Years Ended May 31, 2006, 2005 and 2004

·        Notesto Consolidated Financial Statements

·        Consolidated FinancialStatement Schedule

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**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

The Board of DirectorsImmucor, Inc.

We have audited the accompanying consolidated balancesheet of Immucor, Inc. as of May 31, 2006, and the related statementsof income, shareholders’ equity and cash flows for the year then ended. Thesefinancial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based onour audit.

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

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects, the financialposition of Immucor, Inc. as of May 31, 2006, and the results oftheir operations and their cash flows for the year then ended in conformitywith accounting principles generally accepted in the United States of America.

Our audit was conducted for the purpose of forming anopinion on the basic financial statements taken as a whole. The Schedule II forthe year ended May 31, 2006, is presented for purposes of additionalanalysis and is not a required part of the basic financial statements. Thisschedule has been subjected to the auditing procedures applied in the audit ofthe basic consolidated financial statements and, in our opinion, is fairlystated in all material respects in relation to the basic financial statementstaken as a whole.

We also have audited, in accordancewith the standards of the Public Company Accounting Oversight Board (UnitedStates), the effectiveness of Immucor, Inc.’s internal control overfinancial reporting as of May 31, 2006, based on criteria established inInternal Control-Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (“COSO”) and our report dated July 28,2006 expressed an unqualified opinion on management’s assessment of, and theeffective operation of, internal control over financial reporting.

/s/ Grant Thornton LLPAtlanta, GeorgiaJuly 28, 2006

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**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To Board of Directors and ShareholdersImmucor, Inc.

We have audited the accompanying consolidated balancesheet of Immucor, Inc. and subsidiaries (the “Company”) as of May 31,2005 and the related consolidated statements of income, shareholders’ equity,and cash flows for each of the two years in the period ended May 31, 2005.Our audits also included the financial statement schedule listed in the Indexat Item 15(a). These financial statements and schedule are the responsibilityof the Company’s management. Our responsibility is to express an opinion onthese financial statements and schedule based on our audits.

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

In ouropinion, the Company’s consolidated financial statements referred to abovepresent fairly, in all material respects, its consolidated financial positionas of May 31, 2005 and the consolidated results of its operations and itscash flows for each of the two years in the period ended May 31, 2005, inconformity with U.S. generally accepted accounting principles. Also, in ouropinion, the related financial statement schedule, when considered in relationto the basic financial statements taken as a whole, presents fairly in allmaterial respects the information set forth therein.

|                                           |   | /s/ Ernst & Young LLP |
|-------------------------------------------|--------|--------------------------------|
| Atlanta, Georgia  September 13, 2005 |   |                           |

 

 

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**A.     FinancialStatements.**

**IMMUCOR,INC. AND SUBSIDIARIES**

**CONSOLIDATEDBALANCE SHEETS**

**(Amounts in thousands)**

| ** **                                                                                                                                                           | ** ** | **May 31, 2006** | ** ** | **May 31, 2005** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| **ASSETS**                                                                                                                                                           |       |                       |       |                       |       |   |   |   |   |
| CURRENT ASSETS:                                                                                                                                                      |       |                       |       |                       |       |   |   |   |   |
| Cash and cash equivalents                                                                                                                                            |       |                       | $          | 54,103                     |       |   |   | $ | 37,108 |   |   |
| Short-term investments                                                                                                                                               |       |                       | 1,640      |                       |       |   | 1,973 |   |   |
| Trade accounts  receivable, net of allowance for doubtful accounts of $1,950 at May 31,  2006 and $1,874 at May 31, 2005                                   |       |                       | 37,199     |                       |       |   | 34,630 |   |   |
| Inventories                                                                                                                                                          |       |                       | 20,651     |                       |       |   | 21,836 |   |   |
| Deferred income tax  assets, current portion                                                                                                                         |       |                       | 2,041      |                       |       |   | 1,568 |   |   |
| Prepaid expenses and  other current assets                                                                                                                           |       |                       | 5,158      |                       |       |   | 3,767 |   |   |
| Total current assets                                                                                                                                                 |       |                       | 120,792    |                       |       |   | 100,882 |   |   |
| PROPERTY AND  EQUIPMENT, Net                                                                                                                                         |       |                       | 25,684     |                       |       |   | 23,035 |   |   |
| GOODWILL                                                                                                                                                             |       |                       | 34,691     |                       |       |   | 28,826 |   |   |
| OTHER INTANGIBLE  ASSETS, Net                                                                                                                                        |       |                       | 6,532      |                       |       |   | 1,912 |   |   |
| DEFERRED INCOME  TAX ASSETS                                                                                                                                          |       |                       | 3,115      |                       |       |   | 1,845 |   |   |
| OTHER ASSETS                                                                                                                                                         |       |                       | 873        |                       |       |   | 1,113 |   |   |
| Total assets                                                                                                                                                         |       |                       | $          | 191,687                    |       |   |   | $ | 157,613 |   |   |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                                                        |       |                       |       |                       |       |   |   |   |   |
| CURRENT LIABILITIES:                                                                                                                                                 |       |                       |       |                       |       |   |   |   |   |
| Accounts payable                                                                                                                                                     |       |                       | $          | 7,271                      |       |   |   | $ | 8,028 |   |   |
| Accrued expenses and  other current liabilities                                                                                                                      |       |                       | 9,470      |                       |       |   | 9,800 |   |   |
| Income taxes payable                                                                                                                                                 |       |                       | 5,519      |                       |       |   | 3,448 |   |   |
| Deferred revenue—current  portion                                                                                                                               |       |                       | 4,575      |                       |       |   | 4,044 |   |   |
| Current portion of  long-term liabilities                                                                                                                            |       |                       | 1,074      |                       |       |   | 4,617 |   |   |
| Total current liabilities                                                                                                                                            |       |                       | 27,909     |                       |       |   | 29,937 |   |   |
| LONG-TERM DEBT                                                                                                                                                       |       |                       | —     |                       |       |   | 2,081 |   |   |
| CAPITAL LEASE  OBLIGATIONS                                                                                                                                           |       |                       | —     |                       |       |   | 910 |   |   |
| ACQUISITION  LIABILITY                                                                                                                                               |       |                       | 3,980      |                       |       |   | — |   |   |
| DEFERRED REVENUE                                                                                                                                                     |       |                       | 11,500     |                       |       |   | 3,515 |   |   |
| DEFERRED INCOME  TAX LIABILITIES                                                                                                                                     |       |                       | 2,232      |                       |       |   | 2,285 |   |   |
| OTHER LONG-TERM  LIABILITIES                                                                                                                                         |       |                       | 2,195      |                       |       |   | 1,453 |   |   |
| Total liabilities                                                                                                                                                    |       |                       | 47,816     |                       |       |   | 40,181 |   |   |
| Commitments and contingencies (Note 21)                                                                                                                              |       |                       |       |                       |       |   |   |   |   |
| SHAREHOLDERS’ EQUITY:                                                                                                                                           |       |                       |       |                       |       |   |   |   |   |
| Common stock, $0.10 par  value; authorized 120,000 shares, issued and outstanding 67,926 and 68,288  shares at May 31, 2006 and May 31, 2005, respectively |       |                       | 6,793      |                       |       |   | 6,829 |   |   |
| Additional paid-in  capital                                                                                                                                          |       |                       | 14,752     |                       |       |   | 30,415 |   |   |
| Retained earnings                                                                                                                                                    |       |                       | 119,700    |                       |       |   | 79,857 |   |   |
| Accumulated other  comprehensive income                                                                                                                              |       |                       | 2,626      |                       |       |   | 331 |   |   |
| Total shareholders’  equity                                                                                                                                     |       |                       | 143,871    |                       |       |   | 117,432 |   |   |
| Total liabilities and shareholders’ equity                                                                                                                      |       |                       | $          | 191,687                    |       |   |   | $ | 157,613 |   |   |

 

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

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**IMMUCOR,INC. AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF INCOME**

**(Amounts in thousands, except pershare data)**

| ** **                     | ** ** | **For the year ended May 31,** | ** ** |
|--------------------------------|------------|---------------------------------------------------------|------------|
| ** **                     | ** ** | **2006**                                                | ** ** | **2005** | ** ** | **2004** | ** ** |
| NET SALES                      |       | $                                                       | 183,506    |   | $ | 144,786 |   | $ | 112,558 |   |
| COST OF SALES                  |       | 61,969                                                  |       | 57,541 |   | 50,488 |   |
| GROSS PROFIT                   |       | 121,537                                                 |       | 87,245 |   | 62,070 |   |
| OPERATING  EXPENSES:           |       |                                                    |       |   |   |   |   |
| Research and development       |       | 4,623                                                   |       | 4,463 |   | 3,749 |   |
| Selling and marketing          |       | 20,877                                                  |       | 18,228 |   | 16,182 |   |
| Distribution                   |       | 8,004                                                   |       | 8,044 |   | 8,499 |   |
| General and administrative     |       | 21,963                                                  |       | 18,559 |   | 11,569 |   |
| Restructuring expenses         |       | 2,689                                                   |       | — |   | — |   |
| Amortization expense and other |       | 341                                                     |       | 699 |   | 369 |   |
| Total operating expenses       |       | 58,497                                                  |       | 49,993 |   | 40,368 |   |
| INCOME FROM OPERATIONS         |       | 63,040                                                  |       | 37,252 |   | 21,702 |   |
| OTHER INCOME  (EXPENSE):       |       |                                                    |       |   |   |   |   |
| Interest income                |       | 978                                                     |       | 624 |   | 41 |   |
| Interest expense               |       | (516                                                    | )          | (662 | ) | (881 | ) |
| Other income (loss)            |       | (342                                                    | )          | 767 |   | (598 | ) |
| Total other                    |       | 120                                                     |       | 729 |   | (1,438 | ) |
| INCOME BEFORE INCOME TAXES     |       | 63,160                                                  |       | 37,981 |   | 20,264 |   |
| PROVISION FOR  INCOME TAXES    |       | 23,317                                                  |       | 14,071 |   | 7,726 |   |
| NET INCOME                     |       | $                                                       | 39,843     |   | $ | 23,910 |   | $ | 12,538 |   |
| Earnings per  share:           |       |                                                    |       |   |   |   |   |
| Per common share—basic    |       | $                                                       | 0.59       |   | $ | 0.35 |   | $ | 0.19 |   |
| Per common share—diluted  |       | $                                                       | 0.56       |   | $ | 0.34 |   | $ | 0.18 |   |

 

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

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**IMMUCOR, INC. ANDSUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME**

**(Amounts in thousands)**

| ** **                                       | ** ** | ** **            | ** ** | ** **  | ** ** | ** **     | ** ** | ** **        | ** ** | **Accumulated**        | ** ** | ** ** | ** ** |
|--------------------------------------------------|------------|-----------------------|------------|-------------|------------|----------------|------------|-------------------|------------|------------------------|------------|------------|------------|
| ** **                                       | ** ** | ** **            | ** ** | ** **  | ** ** | **Additional** | ** ** | ** **        | ** ** | **Other**              | ** ** | **Total**  | ** ** |
| ** **                                       | ** ** | **Common Stock** | ** ** | **Paid-In** | ** ** | **Retained**   | ** ** | **Comprehensive** | ** ** | **Shareholders’** | ** ** |
| ** **                                       | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **Capital**    | ** ** | **Earnings**      | ** ** | **Income (Loss)** | ** ** | **Equity** | ** ** |
| BALANCE, MAY 31, 2003                       |       |   65,132         |       |        | $          | 6,512          |       |              |       | $                      | 24,539     |       |       | $ | 43,426 |   |   | $ | (783 | ) |   |   | $ | 73,694 |   |   |
| Exercise of stock options                        |       | 2,770                 |       |        | 277        |           |       |              | 2,415      |                   |       | —     |       |   | — |   |   |   | 2,692 |   |   |
| Cash paid for fractional shares from stock split |       | (5                    | )          |        | —     |           |       |              | —     |                   |       | (8         | )          |   | — |   |   |   | (8 | ) |   |
| Tax benefits related to stock options and other  |       | —                |       |        | —     |           |       |              | 3,582      |                   |       | —     |       |   | — |   |   |   | 3,582 |   |   |
| Comprehensive income (net  of taxes):            |       |                  |       |        |       |           |       |              |       |                   |       |       |       |   |   |   |   |   |   |   |   |
| Foreign currency translation adjustments         |       | —                |       |        | —     |           |       |              | —     |                   |       | —     |       |   | 433 |   |   |   | 433 |   |   |
| Hedge loss reclassified into earnings            |       | —                |       |        | —     |           |       |              | —     |                   |       | —     |       |   | 21 |   |   |   | 21 |   |   |
| Net income                                       |       | —                |       |        | —     |           |       |              | —     |                   |       | 12,538     |       |   | — |   |   |   | 12,538 |   |   |
| Total comprehensive income                       |       |                  |       |        |       |           |       |              |       |                   |       |       |       |   |   |   |   |   | 12,992 |   |   |
| BALANCE, MAY 31, 2004                       |       | 67,897                |       |        | 6,789      |           |       |              | 30,536     |                   |       | 55,956     |       |   | (329 | ) |   |   | 92,952 |   |   |
| Exercise of stock options                        |       | 1,326                 |       |        | 133        |           |       |              | 1,425      |                   |       | —     |       |   | — |   |   |   | 1,558 |   |   |
| Expense recognized on options awarded            |       | —                |       |        | —     |           |       |              | 21         |                   |       | —     |       |   | — |   |   |   | 21 |   |   |
| Cash paid for fractional shares from stock split |       | (1                    | )          |        | —     |           |       |              | —     |                   |       | (9         | )          |   | — |   |   |   | (9 | ) |   |
| Stock repurchases and retirements                |       | (934                  | )          |        | (93        | )              |       |              | (7,934     | )                      |       | —     |       |   | — |   |   |   | (8,027 | ) |   |
| Tax benefits related to stock options and other  |       | —                |       |        | —     |           |       |              | 6,367      |                   |       | —     |       |   | — |   |   |   | 6,367 |   |   |
| Comprehensive income (net  of taxes):            |       |                  |       |        |       |           |       |              |       |                   |       |       |       |   |   |   |   |   |   |   |   |
| Foreign currency translation adjustments         |       | —                |       |        | —     |           |       |              | —     |                   |       | —     |       |   | 639 |   |   |   | 639 |   |   |
| Hedge loss reclassified into earnings            |       | —                |       |        | —     |           |       |              | —     |                   |       | —     |       |   | 21 |   |   |   | 21 |   |   |
| Net income                                       |       | —                |       |        | —     |           |       |              | —     |                   |       | 23,910     |       |   | — |   |   |   | 23,910 |   |   |
| Total comprehensive income                       |       |                  |       |        |       |           |       |              |       |                   |       |       |       |   |   |   |   |   | 24,570 |   |   |
| BALANCE, MAY 31, 2005                       |       | 68,288                |       |        | 6,829      |           |       |              | 30,415     |                   |       | 79,857     |       |   | 331 |   |   |   | 117,432 |   |   |
| Exercise of stock options                        |       | 1,218                 |       |        | 122        |           |       |              | 1,953      |                   |       | —     |       |   | — |   |   |   | 2,075 |   |   |
| Expense recognized on options awarded            |       | —                |       |        | —     |           |       |              | 720        |                   |       | —     |       |   | — |   |   |   | 720 |   |   |
| Cash paid for fractional shares from stock split |       | —                |       |        | —     |           |       |              | (3         | )                      |       | —     |       |   | — |   |   |   | (3 | ) |   |
| Stock repurchases and retirements                |       | (1,580                | )          |        | (158       | )              |       |              | (24,684    | )                      |       | —     |       |   | — |   |   |   | (24,842 | ) |   |
| Tax benefits related to stock options and other  |       | —                |       |        | —     |           |       |              | 6,351      |                   |       | —     |       |   | — |   |   |   | 6,351 |   |   |
| Comprehensive income (net  of taxes):            |       |                  |       |        |       |           |       |              |       |                   |       |       |       |   |   |   |   |   |   |   |   |
| Foreign currency translation adjustments         |       | —                |       |        | —     |           |       |              | —     |                   |       | —     |       |   | 2,285 |   |   |   | 2,285 |   |   |
| Hedge loss reclassified into earnings            |       | —                |       |        | —     |           |       |              | —     |                   |       | —     |       |   | 10 |   |   |   | 10 |   |   |
| Net income                                       |       | —                |       |        | —     |           |       |              | —     |                   |       | 39,843     |       |   | — |   |   |   | 39,843 |   |   |
| Total comprehensive income                       |       |                  |       |        |       |           |       |              |       |                   |       |       |       |   |   |   |   |   | 42,138 |   |   |
| BALANCE,  MAY 31, 2006                      |       | 67,926                |       |        | $          | 6,793          |       |              |       | $                      | 14,752     |       |       | $ | 119,700 |   |   | $ | 2,626 |   |   |   | $ | 143,871 |   |   |

 

Accumulated Other Comprehensive Income balanceprimarily consists of foreign currency translation adjustments and has no taxeffect.

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

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**IMMUCOR, INC. ANDSUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(Amounts in thousands)**

| ** **                                                                          | ** ** | **For the year ended May 31,** | ** ** |
|-------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                          | ** ** | **2006**                                                | ** ** | **2005** | ** ** | **2004** | ** ** |
| OPERATING ACTIVITIES                                                                |       |                                                    |       |   |   |   |   |
| Net income                                                                          |       | $                                                       | 39,843     |   | $ | 23,910 |   | $ | 12,538 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities:  |       |                                                    |       |   |   |   |   |
| Depreciation and amortization                                                       |       | 6,929                                                   |       | 7,442 |   | 6,440 |   |
| Accretion of acquisition liabilities                                                |       | 168                                                     |       | — |   | — |   |
| Loss on retirement of fixed assets                                                  |       | 354                                                     |       | 700 |   | 189 |   |
| Loss on retirement of debt                                                          |       | —                                                  |       | — |   | 924 |   |
| Impairment of long lived assets                                                     |       | 2,322                                                   |       | — |   | — |   |
| Provision for doubtful accounts                                                     |       | 254                                                     |       | 942 |   | 206 |   |
| Gain on sale of long-term investment                                                |       | —                                                  |       | (530 | ) | — |   |
| Compensation expense recognized for stock options                                   |       | 720                                                     |       | 21 |   | — |   |
| Other                                                                               |       | —                                                  |       | 369 |   | — |   |
| Changes  in operating assets and liabilities, net of effects from acquired company: |       |                                                    |       |   |   |   |   |
| Accounts receivable, trade                                                          |       | (2,077                                                  | )          | (8,786 | ) | (491 | ) |
| Income taxes                                                                        |       | 8,437                                                   |       | 11,195 |   | 2,800 |   |
| Deferred income taxes                                                               |       | (2,411                                                  | )          | (1,635 | ) | 1,199 |   |
| Inventories                                                                         |       | 1,044                                                   |       | (2,015 | ) | (3,323 | ) |
| Other current assets                                                                |       | (1,407                                                  | )          | (706 | ) | 1,393 |   |
| Other assets                                                                        |       | 9                                                       |       | (241 | ) | (508 | ) |
| Accounts payable                                                                    |       | (1,107                                                  | )          | (143 | ) | 161 |   |
| Deferred revenue                                                                    |       | 8,623                                                   |       | 5,768 |   | 936 |   |
| Accrued expenses and other current liabilities                                      |       | 645                                                     |       | 4,249 |   | 450 |   |
| Other long-term liabilities                                                         |       | 370                                                     |       | 946 |   | (254 | ) |
| Total adjustments                                                                   |       | 22,873                                                  |       | 17,576 |   | 10,122 |   |
| Cash provided by operating activities                                               |       | 62,716                                                  |       | 41,486 |   | 22,660 |   |
| INVESTING  ACTIVITIES:                                                              |       |                                                    |       |   |   |   |   |
| Purchases of property and equipment                                                 |       | (10,824                                                 | )          | (6,593 | ) | (7,106 | ) |
| Proceeds from sale of property and equipment                                        |       | —                                                  |       | 28 |   | — |   |
| Payment for net assets of acquired company                                          |       | (4,738                                                  | )          | — |   | — |   |
| Profit realized during Japan acquisition negotiations                               |       | 574                                                     |       | — |   | — |   |
| Surrender of life insurance policy for cash                                         |       | —                                                  |       | 110 |   | — |   |
| Procceds from (purchase of) short-term investments,  net                            |       | 368                                                     |       | (1,961 | ) | — |   |
| Proceeds from sale of long-term investments                                         |       | —                                                  |       | 1,300 |   | — |   |
| Cash used in investing activities                                                   |       | (14,620                                                 | )          | (7,116 | ) | (7,106 | ) |
| FINANCING  ACTIVITIES:                                                              |       |                                                    |       |   |   |   |   |
| Repayments of line of credit agreements, net                                        |       | (146                                                    | )          | (152 | ) | 70 |   |
| Borrowing of long-term debt                                                         |       | —                                                  |       | — |   | 12,000 |   |
| Repayments of long-term debt and capital leases                                     |       | (8,129                                                  | )          | (5,805 | ) | (26,473 | ) |
| Repurchase of common stock                                                          |       | (24,842                                                 | )          | (8,028 | ) | — |   |
| Payment for fractional shares resulting from stock  split                           |       | (3                                                      | )          | (9 | ) | (8 | ) |
| Proceeds from exercise of stock options                                             |       | 2,075                                                   |       | 1,582 |   | 3,299 |   |
| Payment of debt issue costs                                                         |       | —                                                  |       | — |   | (153 | ) |
| Cash used in financing activities                                                   |       | (31,045                                                 | )          | (12,412 | ) | (11,265 | ) |
| EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS                               |       | (55                                                     | )          | (547 | ) | 225 |   |
| INCREASE IN CASH AND CASH EQUIVALENTS                                               |       | 16,996                                                  |       | 21,411 |   | 4,514 |   |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                      |       | 37,108                                                  |       | 15,697 |   | 11,183 |   |
| CASH AND CASH  EQUIVALENTS AT END OF YEAR                                           |       | $                                                       | 54,104     |   | $ | 37,108 |   | $ | 15,697 |   |

 

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

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**IMMUCOR, INC. ANDSUBSIDIARIES**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

**1.**                 NATUREOF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

*Natureof Business—**Founded*in 1982, Immucor, Inc.,a Georgia corporation (“Immucor” or the “Company”), develops, manufactures andsells a complete line of reagents and automated systems used primarily byhospitals, clinical laboratories and blood banks in a number of tests performedto detect and identify certain properties of the cell and serum components ofhuman blood prior to blood transfusion. The Company operates facilities inNorth America, Europe and Japan. The Company continues to place increasingemphasis on the development and sale of instruments and instrument systems thatuse the Company’s proprietary reagents, while also promoting increased sales ofits traditional reagent product line.

*ConsolidationPolicy—**The*consolidated financialstatements include the accounts of the Company and all its subsidiaries. Allsignificant inter-company balances and transactions have been eliminated inconsolidation.

*Useof Estimates—**The***preparationof financial statements in conformity with U.S. generally accepted accountingprinciples requires management to make estimates and assumptions that affectthe amounts reported in the financial statements and accompanying notes. Actualresults could differ from those estimates.

*Reclassifications—**Certain*prior yearbalances have been reclassified to conform to the current year presentation.Additionally, the consolidated balance sheets include retroactive adjustmentsof equity due to a three-for-two stock split in fiscal year 2006. These retroactiveadjustments of equity also impacted the consolidated statements of shareholders’equity, but had no impact on the consolidated statements of income or on theconsolidated statements of cash flows. In fiscal year 2005, besides retroactiveadjustments for stock splits, certain salary expenses were reclassified whichhad no impact on the consolidated balance sheets, consolidated statements ofshareholders’ equity or consolidated statements of cash flows, but did have animpact on certain captions on the consolidated statements of income.

*Stock-BasedCompensation—**The*Company currently accounts forstock option grants in accordance with APB Opinion No. 25, *Accounting for Stock Issued to Employees*. The Companyusually grants stock options for a fixed number of shares to employees with anexercise price equal to the fair value of the shares at the date of the grant,and accordingly does not recognize compensation expense for stock option grants.However, beginning in fiscal 2005, the Company began awarding grants toeligible new hires with the respective exercise price equal to the closingprice on the business day immediately prior to the grant date; therefore inthese cases, the exercise price may be higher or lower than the fair value ofthe shares at the date of grant. Management has determined that the aggregatedifference between the grant date fair values and the exercise prices forgrants awarded to new hires is not material (approximately $12,000 in total forthe grants issued with exercise price below market price in fiscal 2006), andaccordingly has not included any such compensation cost related to these grantsin the Company’s results of operations. Under our 2005 Long-Term IncentivePlan, options are granted to eligible new hires with an exercise price equal tothe closing price of the first day of employment. The Company utilizes thedisclosure-only provisions of Statement of Financial Accounting Standards No. 123(“SFAS No. 123”), “Accounting for Stock-Based Compensation,” as amended.

In December 2004, the FASB issued SFAS No. 123(R),“*Share-Based Payment*,” which replacesSFAS No. 123 and supersedes APB No. 25. SFAS No. 123(R) requiresthat the fair value of all share-based payment transactions be recognized inthe financial statements. The Company adopted SFAS No. 123(R) on June 1,2006 and it will be effective for its fiscal year 2007.

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In December 2002,the FASB issued SFAS No. 148, *Accounting for Stock-BasedCompensation—Transition and Disclosure—an amendment of FASB Statement No. 123.*This Statement provides alternative methods of transition for avoluntary change to the fair value based method of accounting for stock-basedemployee compensation. In addition, this Statement amends the disclosurerequirements of Statement 123 to require prominent disclosures in both annualand interim financial statements about the method of accounting for stock-basedemployee compensation and the effect of the method used on reported results. TheCompany issues graded options with vesting of these options spread over fouryears from the date of the grant, and it consistently uses a straight-linebasis for expensing fair value of the options for the disclosure requirementsof SFAS No. 148. The following table illustrates the effect on net incomeand earnings per share if the Company had applied the fair value recognitionprovisions of SFAS No. 123 to stock-based employee compensation:

| ** **                                                                                                         | ** ** | **For the year ended May 31,**                     | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|
| ** **                                                                                                         | ** ** | **2006**                                                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                                         | ** ** | **(amounts in thousands,  except per share data)** | ** ** |
| Net income as  reported                                                                                            |       | $                                                                           | 39,843     |   | $ | 23,910 |   | $ | 12,538 |   |
| Stock based  employee compensation included in reported net income, net of taxes                                   |       | 562                                                                         |       | — |   | — |   |
| Stock-based  employee compensation expense determined under fair value based methods for  all awards, net of taxes |       | (4,261                                                                      | )          | (2,067 | ) | (1,111 | ) |
| Pro forma net income                                                                                               |       | $                                                                           | 36,144     |   | $ | 21,843 |   | $ | 11,427 |   |
| Earnings per  share as reported:                                                                                   |       |                                                                        |       |   |   |   |   |
| Per common share—basic                                                                                        |       | $                                                                           | 0.59       |   | $ | 0.35 |   | $ | 0.19 |   |
| Per common share—diluted                                                                                      |       | $                                                                           | 0.56       |   | $ | 0.34 |   | $ | 0.18 |   |
| Pro forma  earnings per share:                                                                                     |       |                                                                        |       |   |   |   |   |
| Per common share—basic                                                                                        |       | $                                                                           | 0.53       |   | $ | 0.32 |   | $ | 0.17 |   |
| Per common share—diluted                                                                                      |       | $                                                                           | 0.51       |   | $ | 0.31 |   | $ | 0.16 |   |

 

*Acceleration of vesting of certainoption*s—On January 18, 2006, the Board ofDirectors of the Company approved the acceleration of vesting of certainoutstanding stock options previously awarded to certain employees (none of whomare directors or executive officers) under the Company’s equity compensationplans. As a result of this action, options to purchase approximately 311,000shares of the Company’s common stock, which otherwise would have vested fromtime to time over the next four years, became immediately exercisable. The acceleratedoptions have exercise prices ranging from $20.03 to $23.53 per share, which isgreater than $17.89, the closing price of the Company’s common stock on theNasdaq National Market on January 17, 2006, the day before the Board ofDirectors’ approved the acceleration. Under the recently issued FinancialAccounting Standards Board Statement No. 123 (revised 2004), “*Share-Based Payment*” (“SFAS 123R”), the Company will berequired to treat unvested stock options as an expense beginning June 1,2006. The primary reasons for accelerating the vesting of these options were (i) toreduce the cumulative non-cash compensation expense that the Company would haveotherwise been required to recognize in future periods as a result of theadoption of SFAS 123R, and (ii) to enhance the perceived value of theaccelerated options, all of which were out-of-the-money at the time of theacceleration, to the employees who hold such options.

As a result of this decision, during the quarter endedFebruary 28, 2006, the Company recorded compensation expense ofapproximately $642,000 (amount net of taxes - $498,000), which represented theremaining  unearned compensation forthese options and which was being expensed over the vesting periods of theseoptions. This acceleration of vesting pertains to a group grant awarded in thequarter 

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ended August 31,2005, for which the fair value of the shares on the grant measurement dateexceeded the exercise price.

*Concentrationof Credit Risk—**Financial*instruments thatpotentially subject the Company to concentrations of credit risk consistprimarily of cash and cash equivalents and accounts receivable. The Companyplaces its cash and cash equivalents with high quality financial institutions.Cash and cash equivalents were $54.1 million and $37.1 million at May 31,2006 and 2005, respectively, representing cash on deposit with high-qualityfinancial institutions, more than 85% of it located in the U.S. At May 31,2005, the Company also had short-term investments in high-quality debtsecurities totaling $1.6 million and $2.0 million at May 31, 2006 andMay 31, 2005, respectively.

Concentrations of credit risk with respect to accountsreceivable are limited because a large number of geographically diversecustomers make up the Company’s customer base, thus spreading the trade creditrisk. At May 31, 2006 and May 31, 2005, no single group or customerrepresents more than 10% of total accounts receivable. The Company controlscredit risk through credit limits and monitoring procedures. At May 31,2006 and 2005, the Company’s accounts receivable balance of $37.2 million and$34.6 million, respectively, was 48% and 49% of foreign origin, predominantlyEuropean. Some European countries require longer payment terms as a part ofdoing business. This may subject the Company to a higher risk ofuncollectiblity. This risk is considered when the allowance for doubtfulaccounts is evaluated. The Company generally does not require collateral fromits customers. Factoring of accounts receivable is an additional method used bythe Company to mitigate the risk of uncollectibility for certain customers whoroutinely take longer than one year to pay. The Company has agreements with twofactoring companies in Italy to sell certain of its trade receivables innon-recourse transactions. The trade receivables were sold at a discount plusadministrative and other fees. Sales of trade receivables were reflected as areduction of accounts receivable in the accompanying consolidated balancesheets. The proceeds received were included as cash in the accompanyingconsolidated balance sheets and as operating activities in the consolidatedstatements of cash flows. The factoring companies retain a certain percentageof the collectible amount and these amounts are disclosed as ‘prepaid expensesand other current assets’ in the consolidated balance sheets. The outstandingretention amounts were $1.9 million and $0.9 million as of May 31, 2006and 2005, respectively. The factoring fee is charged against revenues on theconsolidated statements of income. The factoring fees amounted to approximately$75,000 and $72,000 for fiscal 2006 and 2005, respectively.

*Cashand Cash Equivalents—**The***Companyconsiders deposits that can be redeemed on demand and investments with anoriginal maturity of three months or less when purchased to be cash and cashequivalents.

*Short-termInvestments—**As***partof its cash management program, the Company from time to time maintains aportfolio of marketable investment securities. The securities have aninvestment grade and a term to earliest maturity generally of less than oneyear and include certificates of deposit. At times such investments may be inexcess of the Federal Deposit Insurance Corporation (FDIC) insurance limit. Thesesecurities are carried at cost, which approximates market.

*Inventories—**Inventories***are stated at the lower of cost (first-in, first-out basis)or market (net realizable value). Cost includes material, labor and manufacturingoverhead. The Company uses a standard cost system as a tool to monitorproduction efficiency. The standard cost system applies estimated labor andmanufacturing overhead factors to inventory based on budgeted production andefficiency levels, staffing levels and costs of operation, based on theexperience and judgment of management. Actual costs and production levels mayvary from the standard established and variances are charged to theconsolidated statement of income as a component of cost of sales. Since U.S.generally accepted accounting principles require that the standard costapproximate actual cost, periodic adjustments are made to the standard rates toapproximate actual costs. The provision for obsolete and/or excess inventory 

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is reviewed on a quarterlybasis or, if warranted by circumstances, more frequently. In evaluating thisreserve, management considers technology changes, competition, customer demand,product shelf life and manufacturing quality. No material changes have beenmade to the inventory policy during fiscal 2006, 2005 or 2004.

*FairValue of Financial Instruments—**The***carrying amounts reported in the consolidated balancesheets for cash and cash equivalents, accounts receivable, long-terminvestments and accounts payable approximate their fair values. The acquisitionliability in the accompanying consolidated balance sheets is recorded at thefair value using a current discount rate of 3.7% which was the market rate forsimilar securities at the time of acquisition.

*Property,Plant and Equipment—**Property,***plantand equipment is stated at cost less accumulated depreciation. Expenditures forreplacements are capitalized, and the replaced items are retired. Normalmaintenance and repairs are charged to operations. Major maintenance and repairactivities that significantly enhance the useful life of the asset arecapitalized. When property and equipment are retired, sold, or otherwisedisposed of, the asset’s carrying amount and related accumulated depreciationare removed from the accounts and any gain or loss is included in operations. Depreciationis computed using the straight-line method over the estimated lives ofthe related assets ranging from three to thirty years. Certain internal andexternal costs incurred in the development of computer software for internaluse are capitalized and included in property, plant and equipment in accordancewith Statement of Position 98-1, *Accounting for the Costsof Computer Software Developed or Obtained for Internal Use*.

*Goodwill—**On***adoption of SFAS No. 142, *Goodwill andOther Intangible Assets,* goodwill and indefinite lived intangibleassets are no longer amortized but are tested for impairment annually or morefrequently if impairment indicators arise. Intangible assets that have finite livesare continuing to be amortized over their useful lives.

The Company evaluates the carrying value of goodwillduring the fourth quarter of each year and between annual evaluations if eventsoccur or circumstances change that would more likely than not reduce the fairvalue of the reporting unit below its carrying amount. Such circumstances couldinclude, but are not limited to: (1) a significant adverse change in legalfactors or in business climate, (2) unanticipated competition, or (3) anadverse action or assessment by a regulator. When evaluating whether goodwillis impaired, the Company compares the fair value of the reporting unit to whichthe goodwill is assigned to the reporting unit’s carrying amount, includinggoodwill. The fair value of the reporting unit is estimated using primarily theincome, or discounted cash flows, approach. If the carrying amount of areporting unit exceeds its fair value, then the amount of the impairment lossmust be measured. The impairment loss would be calculated by comparing theimplied fair value of reporting unit goodwill to its carrying amount. Incalculating the implied fair value of reporting unit goodwill, the fair valueof the reporting unit is allocated to all of the other assets and liabilitiesof that unit based on their fair values. The excess of the fair value of areporting unit over the amount assigned to its other assets and liabilities isthe implied fair value of goodwill. An impairment loss would be recognized whenthe carrying amount of goodwill exceeds its implied fair value. The Company’sevaluation of goodwill completed during the year resulted in no impairmentlosses.

*DeferredLicensing Costs—**Deferred***licensingcosts with finite lives are amortized over their useful lives. In certainsituations the deferred licensing costs are considered to have infinite livessuch as in the countries where the law and regulations are such that thebarriers to obtaining a new license are very severe and upfront costs are highbut, once the licenses are acquired, effort and costs required to maintain suchlicenses are minimal. The carrying values of assets with infinite lives are notamortized but they are tested annually for impairment. Carrying values oflicensing costs are also tested if any triggering event which may impair thevalue of the asset occurs.

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*CustomerLists—**Customer***listsare amortized over their useful lives. Carrying values of customer lists aretested for impairment annually or more frequently if impairment indicatorsarise.

*NetSales Relating to Foreign Operations—**Sales***to customers outside the United States approximated 31% ofnet sales in fiscal 2006 and 37% of net sales in fiscal 2005.

*ForeignCurrency Translation—**The***financialstatements of foreign subsidiaries have been translated into U.S. Dollars inaccordance with SFAS No. 52,*Foreign CurrencyTranslation*. The financial position and results of operations of theCompany’s foreign subsidiaries are measured using the foreign subsidiary’slocal currency as the functional currency. Revenues and expenses of suchsubsidiaries have been translated into U.S. Dollars at average exchange ratesprevailing during the period. Assets and liabilities have been translated atthe rates of exchange on the balance sheet date. The resulting translation gainand loss adjustments are recorded directly as a separate component ofshareholders’ equity, unless there is a sale or complete liquidation of theunderlying foreign investments. Foreign currency translation adjustmentsresulted in a gain of $2.3 million and $0.6 million in fiscal 2006 and 2005,respectively.

Transaction gains and losses that arise from exchangerate fluctuations on transactions denominated in a currency other than thefunctional currency are included in the results of operations as incurred. Netforeign currency transaction gains included in operations were negligible infiscal 2006 and $0.5 million in fiscal 2005, and are included in ‘other income(loss)’ in the consolidated statements of income.

*Revenue Recognition—*TheCompany recognizes revenue when the following four basic criteria have beenmet:  (1) persuasive evidence of anarrangement exists; (2) delivery has occurred or services rendered; (3) thefee is fixed and determinable; and (4) collectibility is reasonablyassured.

·       *Reagent sales*

Revenuefrom the sale of the Company’s reagents to end users is recognized uponshipment when both title and risk of loss transfer to the customer uponshipment, unless there are specific contractual terms to the contrary. Revenuefrom the sale of the Company’s reagents to distributors is recognized FOBcustoms clearance when both title and risk of loss transfer to the customer.

·       *Human collagen and collagen by-product sales*

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

·       *Medical instrument sales*

Revenue from the sale ofthe Company’s medical instruments is generally recognized upon shipment andcompletion of contractual obligations. Revenue from rentals of the Company’smedical instruments is recognized over the term of the rental agreement. Instrumentservice contract revenue is recognized over the term of the contract.

Beginning in the secondquarter of fiscal year 2004, the Company recognizes revenue on the sale ofmedical instruments in accordance with Emerging Issues Task Force (“EITF”)Issue No. 00-21, *Accounting forRevenue Arrangements with Multiple Deliverables*. The Company’smedical instrument sales contracts involve multiple deliverables, including thesale or rental of an instrument (including delivery, installation andtraining), the servicing of the instrument during the first year, and, in somecases, price guarantees for consumables purchased during the contract periodand/or providing a software interface. The Company has determined the fairvalue of certain of these elements, such as 

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training and first yearservice. The portion of the instrument sales price applicable to the instrumentitself is recognized upon shipment and completion of contractual obligationsrelating to training and/or installation based on the related contractualspecifications. If the agreement does not include any price guarantees, thesales price in excess of the fair values of training and service is allocatedto the instrument itself. The fair value of a training session is recognized asrevenue when services are provided. If multiple sessions are contractuallyprovided for, and not all training has been completed at the time theinstrument is recognized, additional training revenue is recognized upondelivery. The fair value of first year service is deferred and recognized overthe first year of the contract. The Company believes it not possible todetermine the fair value of price guarantees. If the agreement contains priceguarantees, the entire sales price is deferred and recognized over the relatedguarantee period. The allocation of the total consideration received, which isbased on the estimated fair value of the units of accounting, requires judgmentby management.

Inlimited situations involving third-party lease arrangements, the Company hasentered into repurchase agreements whereby if the consignee customer terminatesthe lease, the Company has agreed to repurchase the instrument for a purchaseprice equal to the remaining unpaid lease payments. The Company defers therevenue related to the sale of instruments, and subsequently recognizes therevenue over the lease term if persuasive evidence exists that the consigneecustomer has not terminated the lease. In prior periods, the Company deferredthe corresponding cost of these instrument sales and recognized the costs over thesame period as the related revenue. During the fiscal quarter ended February 28,2005, the Company determined that it was more appropriate to recognize theinstrument costs in these deferral situations when the instrument has beeninstalled and written acceptance has been received from the customer. Accordingly,during the fiscal quarter ended February 28, 2005, the Company recordedadditional cost of sales totaling approximately $327,000, which was related toprior quarters. The Company now records all instrument costs at the time theinstrument is installed and accepted by the customer and title is legallytransferred to the customer.

·       *Sales subject to a plan of factoring*

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

*Shippingand Handling Charges and Sales Tax—**The***amounts billed to customers for shipping and handling oforders are classified as revenue and reported in the statements of income asnet sales. The cost of handling customer orders and the cost of shipments arereported in the operating expense section of the statements of income asdistribution expense. The cost of handling customer orders and the cost ofshipments were approximately $8.0 million for the years ended May 31, 2006and 2005 and $8.5 million for the year ended May 31, 2004. Sales taxesinvoiced to customers and payable to government agencies are recorded on a netbasis with the sales tax portion of a sales invoice directly credited to aliability account and the balance of the invoice credited to a revenue account.

*EarningsPer Share—**All***earningsper share amounts reflect the May 2006, December 2004, July 2004and November 2003 three-for-two stock splits. See Note 16 to theconsolidated financial statements.

*TradeAccounts Receivable and Allowance for Doubtful Accounts—**Trade***receivables at May 31, 2006, totaling $37.2 million,and at May 31, 2005, totaling $34.6 million, are net of allowances fordoubtful accounts of $2.0 million and $1.9 million, respectively. The allowancefor doubtful accounts represents a reserve for estimated losses resulting fromthe inability of the Company’s customers to pay their debts. The collectibilityof trade receivable balances is regularly evaluated based on a combination offactors such as customer credit-worthiness, past transaction history with thecustomer, current economic industry trends 

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and changes in customerpayment patterns. If it is determined that a customer will be unable to fullymeet its financial obligation, such as in the case of a bankruptcy filing orother material events impacting its business, a specific allowance for doubtfulaccounts is recorded to reduce the related receivable to the amount expected tobe recovered.

*AdvertisingCosts—**The***advertisingcosts are expensed as incurred and are classified as selling and marketingoperating expenses. Advertising expenses were $0.4 million for the years ended May 31,2006 and 2005, and $0.7 million for the year ended May 31, 2004.

*Losscontingencies—**Certain***conditionsmay exist as of the date the financial statements are issued which may resultin a loss to the Company but which will only be resolved when one or morefuture events occur or fail to occur. The Company’s management and its legalcounsel assess such contingent liabilities, and such assessment inherentlyinvolves an exercise of judgment. In assessing loss contingencies related tolegal proceedings that are pending against the Company or unasserted claimsthat may result in such proceedings, the Company’s legal counsel evaluates theperceived merits of any legal proceedings or unasserted claims as well as theperceived merits of the amount of relief sought or expected to be soughttherein.

If the assessment of a contingency indicates that itis probable that a material loss is likely to occur and the amount of theliability can be estimated, then the estimated liability would be accrued inthe Company’s financial statements. If the assessment indicates that apotentially material loss contingency is not probable, but is reasonablypossible, or is probable but cannot be estimated, then the nature of thecontingent liability, together with an estimate of the range of possible lossif determinable and material, would be disclosed.

Loss contingencies considered remote are generally notdisclosed unless they involve guarantees, in which case the nature of theguarantee would be disclosed. Legal costs relating to loss contingencies areexpensed as incurred.

*IncomeTaxes—**The***Company’sincome tax policy records the estimated future tax effects of temporarydifferences between the tax bases of assets and liabilities and amountsreported in the accompanying consolidated balance sheets, as well as operatingloss and tax credit carry-forwards. The value of the Company’s deferred taxassets assumes that the Company will be able to generate sufficient futuretaxable income in certain tax jurisdictions, based on estimates andassumptions. If these estimates and related assumptions change in the future,the Company may be required to record additional valuation allowances againstits deferred tax assets resulting in additional income tax expense in theCompany’s consolidated statements of income. In assessing the realizability ofdeferred tax assets, management considers whether it is more likely than notthat some portion or all of the deferred tax assets will not be realized andconsiders the scheduled reversal of deferred tax liabilities, projected futuretaxable income, carry-back opportunities, and tax-planning strategies in makingthis assessment. Management also evaluates the realizability of the deferredtax assets and assesses the need for additional valuation allowances quarterly.No material changes have been made to the income tax policy during fiscal 2006.See Note 15 to the consolidated financial statements.

*Impactof Recently Issued Accounting Standards—**In***November 2004, the FASB issued Statement No. 151,*Inventory Costs—an amendment of ARB No. 43,Chapter 4*(“SFAS No. 151”)*.*SFAS No. 151amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” toclarify the accounting for abnormal amounts of idle facility expense, freight,handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter4, previously stated that “. . . under some circumstances, items such as idlefacility expense, excessive spoilage, double freight, and rehandling costs maybe so abnormal as to require treatment as current period charges. . .” SFAS No. 151requires that those items be recognized as current-period charges regardless ofwhether they meet the criterion of “so abnormal.” In addition, this Statementrequires that allocation of fixed production overheads to the costs ofconversion be based on the 

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normal capacity of theproduction facilities. This new standard is effective for inventory costsincurred during fiscal years beginning after June 15, 2005. The Company’sadoption of the standard in the fiscal year beginning on June 1, 2006 isnot likely to have a significant impact on its financial statements.

In December 2004, the FASB issued Statement No. 123(revised 2004), *Share-based Payment*, which is arevision of FASB Statement No. 123, *Accounting for Stock-basedCompensation*. Generally, the approach in Statement 123(R) issimilar to the approach described in Statement 123. However, Statement 123(R) requiresall share-based payments to employees, including grants of employee stockoptions, to be recognized in the statement of income based on their fairvalues. Pro forma disclosure is no longer an alternative. Alternative phase-inmethods are allowed under Statement No. 123(R). The Company adoptedStatement No. 123(R) effective June 1, 2006 using the “modified-prospectivemethod” which requires that compensation expense be recognized beginning withthe effective date, based on the requirements of this statement, for allshare-based payments granted after the effective date, and based on therequirements of SFAS 123, for all awards granted to employees prior to theeffective date of this statement that remain unvested on the effective date. TheCompany will continue to apply the Black-Scholes valuation model in determiningthe fair value of share-based payments to employees, which will then beamortized on a straight-line basis. As permitted by Statement No. 123, forperiods prior to June 1, 2006, the Company accounted for share-basedpayments to employees using Opinion No. 25’s intrinsic value method and,as such, generally recognized no compensation cost for the granting of employeestock options. Accordingly, the adoption of Statement No. 123(R)’s fairvalue method will negatively impact the Company’s statements of income. Theimpact of adoption of Statement No. 123(R) cannot be quantified atthis time because it will depend on the level of share-based payments grantedin the future, expected volatilities and expected useful lives, among otherfactors, present at the grant date. However, had Statement No. 123(R) beeneffective in prior periods, the impact of that standard would have approximatedthe impact of Statement No. 123 as described in the disclosure of proforma net income and net income per share in Note 1 under the subheading ‘Stock-BasedCompensation’. As of June 1, 2006, the unrecognized compensation expenseassociated with the remaining portion of the unvested outstanding awards is$4.5 million ($2.9 million, net of tax). Statement No. 123(R) alsorequires the benefit of tax deductions in excess of recognized compensationcost to be reported as a financing cash flow, rather than as an operating cashflow as required under currently effective accounting literature. Thisrequirement will reduce net operating cash flows and increase net financingcash flows in periods after adoption of Statement No. 123(R). While theCompany cannot estimate what those amounts will be in the future (because theydepend on, among other things, when employees exercise stock options), theamount of operating cash flows recognized in prior periods for such excess taxdeductions was $6.4 million in fiscal 2006 and fiscal 2005, and$3.6 million in fiscal 2004.

In May 2005, the FASB issued Statement No. 154,*Accounting Changes and Error Corrections*(“SFAS No. 154”), which replaces Accounting Principles Board Opinions No. 20,*Accounting Changes,* and SFAS No. 3,*Reporting Accounting Changes in Interim FinancialStatements-An Amendment of APB Opinion No. 28*. SFAS No. 154provides guidance on the accounting for and reporting of accounting changes anderror corrections. It establishes retrospective application, or the latestpracticable date, as the required method for reporting a change in accountingprinciple and the reporting of a correction of an error. SFAS No. 154is effective for accounting changes and corrections of errors made in fiscalyears beginning after December 15, 2005. The Company’s adoption of SFASNo.154 on June 1, 2006 is not expected to have a material impact on itsfinancial statements.

The FASB issued FASB Interpretation No. (“FIN”)48, “Accounting for Uncertainty in Income Taxes,” onJuly 13, 2006. The new rules will be effective for the Company infiscal 2008. At this time, we have not completed our review and assessment ofthe impact of adoption of FIN 48.

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**2.**                 ACQUISITION

On July 5, 2005, in an effort to expand itspresence in Japan, the Company acquired a 100% interest in Immucor-Kainos, Inc.—anewly-formed company to which Kainos Laboratories, Inc. (“Kainos”), theCompany’s former distributor of Immucor products in Japan, spun off itsblood-banking division. Immucor paid Kainos ¥459 million (approximately $4.1million) in cash on signing of the purchase agreements, and will pay anadditional ¥300 million (approximately $2.7 million) over three years with minimumpayments of ¥125 million in each of the first two years and the remaining ¥50million in the third year. A final payment of ¥441 million will be made after athree-year transition period ending on June 30, 2008, or earlier uponmutual agreement. The Company has recorded ¥741 million (with an approximatepresent value of ¥678 million and $6.1 million, using a discount rate ofapproximately 3.7% per annum), as a liability. Immucor-Kainos, Inc. hasbeen consolidated as a wholly owned subsidiary in these financial statements.

During the second quarter of fiscal year 2006, theCompany completed a valuation of the intangible assets acquired in thetransaction. Pursuant to the valuation, the Company allocated ¥150 million(approximately $1.3 million) to the purchase of the customer list and ¥400million (approximately $3.6 million) to the business licenses and regulatorypermits.

Besidespayment of the purchase consideration to Kainos, the Company incurredadditional direct cost of $0.5 million associated with this acquisition. Thefollowing table summarizes the allocation of acquisition cost, includingprofessional fees and other related acquisition costs to the assets acquiredbased on their fair values (in thousands):

| Tangible assets  acquired   |   | $     | 102    |   |
|-----------------------------|--------|-------|--------|--------|
| Intangible assets  acquired |   | 4,928 |   |
| Goodwill acquired           |   | 5,702 |   |
| Total acquisition cost      |   | $     | 10,732 |   |

 

At the time of signing the agreement, the Company paid¥520 million (approximately $4.7 million), including ¥61 million foracquisition related expenses. As of May 31, 2006, the Company has paid¥106 million (approximately $0.9 million) of the total acquisition liability of¥741 million (approximately $6.6 million).

The total purchase price includes a premium based onmanagement’s assessment that the Company will achieve higher futureprofitability levels in the Japanese market by acquiring direct control ofmarketing the Company’s products with the installation of Immucor personnel inkey managerial positions overseeing the operations of the business. The primarypurpose of this acquisition is to allow Immucor to directly market and sell itsproducts and expand its presence in Japan. Additionally, in accordance with theterms of the purchase agreement, Kainos has agreed to supply certain servicesto Immucor-Kainos during the three-year transition period.

At May 31, 2006, Immucor-Kainos owed Kainosapproximately $1.1 million for products supplied by Kainos, and was owedapproximately $2.4 million from Kainos for products sold by Kainos on behalf ofImmucor-Kainos. Additionally, Kainos owed Immucor approximately $0.4 millionfor products supplied to Kainos from the United States.

No pro forma informationregarding revenue and income for the acquired business is provided as theeffect of the acquisition on the consolidated financial statements is notmaterial. Goodwill and intangible assets are considered not deductible for taxpurposes in accounting for this acquisition. The results of operations of theacquired subsidiary have been included from July 5, 2005 onwards, the dateof acquisition. See Note 19 for segment information for Japan.

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**3.**                 INVENTORY

Inventoriesare stated at the lower of cost (first-in, first-out basis) or market (netrealizable value):

| ** **                  | ** ** | **May 31,**        | ** ** |
|-----------------------------|------------|-------------------------|------------|
| ** **                  | ** ** | **2006**                | ** ** | **2005** | ** ** |
| ** **                  | ** ** | **(in thousands)** | ** ** |
| Raw materials and  supplies |       | $                       | 4,341      |   | $ | 5,710 |   |
| Work in process             |       | 3,495                   |       | 2,946 |   |
| Finished goods              |       | 12,815                  |       | 13,180 |   |
|                        |       | $                       | 20,651     |   | $ | 21,836 |   |

 

**4.**                 PROPERTY ANDEQUIPMENT

| ** **                              | ** ** | **May 31,**        | ** ** |
|-----------------------------------------|------------|-------------------------|------------|
| ** **                              | ** ** | **2006**                | ** ** | **2005** | ** ** |
| ** **                              | ** ** | **(in thousands)** | ** ** |
| Assets owned:                           |       |                    |       |   |   |
| Land                                    |       | $                       | 343        |   | $ | 336 |   |
| Buildings and improvements              |       | 7,643                   |       | 7,669 |   |
| Leasehold  improvements                 |       | 4,452                   |       | 4,217 |   |
| Furniture and  fixtures                 |       | 1,704                   |       | 2,865 |   |
| Machinery and  equipment                |       | 39,241                  |       | 35,624 |   |
|                                    |       | 53,383                  |       | 50,711 |   |
| Less accumulated  depreciation          |       | (27,699                 | )          | (29,292 | ) |
| Assets owned—net                   |       | 25,684                  |       | 21,419 |   |
| Assets under  capital lease:            |       |                    |       |   |   |
| Furniture and  fixtures                 |       | —                  |       | 18 |   |
| Machinery and  equipment                |       | —                  |       | 2,266 |   |
|                                    |       | —                  |       | 2,284 |   |
| Less accumulated  depreciation          |       | —                  |       | (668 | ) |
| Assets under  capital lease—net    |       | —                  |       | 1,616 |   |
| Property, plant and  equipment—net |       | $                       | 25,684     |   | $ | 23,035 |   |

 

*Depreciation—*Depreciationexpense was $6.6 million in fiscal year 2006, $7.0 million in fiscal year 2005,and $5.8 million in fiscal year 2004.

*Leasedassets—**During***theyear ended May 31, 2006, the Company repaid all capital leases and theassets were reclassified as “assets owned” in the above table.

*HoustonImpairment—*A decision to close the Houstonmanufacturing facility prompted a review for the possible impairment oflong-lived assets associated with this facility. Under a restructuring plan,the Company will continue to use the long-lived assets of the Houston facilityuntil December 2007, the estimated completion date for consolidating themanufacturing operations in Norcross, Georgia. The long-lived assets of thisfacility were supported by the future cash flows expected to result from theHouston operations.

The impairment review during the second quarter offiscal year 2006 indicated that estimated undiscounted cash flows expected toresult from the remaining use of the Houston facility’s long-lived assets,primarily a building, were insufficient to recover their carrying value.Accordingly, the Company reduced the carrying value of these long-lived assetsto their estimated fair value resulting in non-cash impairment loss of $2.3million during the second quarter of fiscal year 2006.

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The Company used an independent third party appraisalto assist it in evaluating the fair value of the building. The non-cashimpairment charges are included with restructuring expenses in the accompanyingconsolidated statements of income.

Based upon the Company’s decision to continue tomanufacture and use the building in Houston until the transfer of themanufacturing operations to Norcross is complete, the Company continues todepreciate the adjusted carrying value of the building.

*Construction in Progress—*TheCompany is expanding its current manufacturing facility in Norcross, which isscheduled to be completed in fiscal 2007. As of May 31, 2006, the Companyincurred and capitalized $3.0 million, of which $2.8 million is included inleasehold improvements, $0.1 million is included in furniture and fixtures and$0.1 million is included in machinery and equipment in the above table. Theestimated cost to be incurred in fiscal 2007 to complete the buildingrenovation and manufacturing facility is approximately $6.2 million.

**5.**                 GOODWILL

Changesin the carrying amount of goodwill for the year ended May 31, 2006 and2005 were as follows:

| ** **                                         | ** ** | **2006**                | ** ** | **2005** | ** ** |
|----------------------------------------------------|------------|-------------------------|------------|----------|------------|
| ** **                                         | ** ** | **(in thousands)** | ** ** |
| Balance at  beginning of year                      |       | $                       | 28,826     |     | $          | 28,192 |   |
| Foreign currency  translation adjustment           |       | 1,070                   |       | 634      |       |
| Goodwill on  acquisition of Immucor-Kainos (Japan) |       | 4,795                   |       | —   |       |
| Balance at end of year                             |       | $                       | 34,691     |     | $          | 28,826 |   |

 

On July 5, 2005, the Company acquiredImmucor-Kainos, Inc., including goodwill amounting to $5.7 million.Immucor-Kainos goodwill was reduced by approximately $574,000 for profitrealized during acquisition negotiations and by approximately $332,000 forrealization of deferred revenue relating to a distribution agreement withKainos which was canceled on signing of the acquisition agreement. Goodwillrelating to Immucor-Kainos is shown net of these two adjustments in the abovetable.

Goodwill is tested forimpairment in the fourth quarter of each fiscal year or earlier if a triggeringevent occurs. Testing of impairment of goodwill confirmed that the carryingvalue of goodwill was not impaired, and consequently no impairment charges wererecorded in the years ended May 31, 2006 and May 31, 2005. Thegoodwill acquired on the acquisition of Immucor-Kainos was not tested in thefourth quarter of fiscal 2006 as a professional valuation of the goodwill wascarried out as of August 31, 2005. It will be tested for impairment withother goodwill amounts in the fourth quarter of fiscal 2007 and annuallythereafter.

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**6.**                 OTHER INTANGIBLEASSETS

| ** **                                      | ** ** | ** **                      | ** ** | **May 31, 2006** | ** ** | **May 31, 2005**    | ** ** |
|-------------------------------------------------|------------|---------------------------------|------------|----------------------------|------------|-------------------------------|------------|
| ** **                                      | ** ** | **Weighted  Average Life** | ** ** | **Cost**                   | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** | **Cost** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** |
| ** **                                      | ** ** | **(in thousands)**         | ** ** |
| Intangible assets  subject to amortization:     |       |                            |       |                       |       |                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deferred  licensing costs                       |       |                            | 5 yrs      |                       |       | $                             | 551        |   |   | $ | (464 | ) |   | $ | 87 |   | $ | 533 |   |   | $ | (465 | ) |   | $ | 68 |   |
| Distribution  rights                            |       |                            | 10 yrs     |                       |       | 2,078                         |       |   | (1,526 | ) |   | 552 |   | 2,034 |   |   | (1,330 | ) |   | 704 |   |
| Customer lists                                  |       |                            | 20 yrs     |                       |       | 3,036                         |       |   | (706 | ) |   | 2,330 |   | 1,700 |   |   | (560 | ) |   | 1,140 |   |
| Total amortizable assets                        |       |                            |       |                       |       | 5,665                         |       |   | (2,696 | ) |   | 2,969 |   | 4,267 |   |   | (2,355 | ) |   | 1,912 |   |
| Intangible assets not  subject to amortization: |       |                            |       |                       |       |                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deferred  licensing costs                       |       |                            |       |                       |       | 3,563                         |       |   | — |   |   | 3,563 |   | — |   |   | — |   |   | — |   |
| Total non-amortizable assets                    |       |                            |       |                       |       | 3,563                         |       |   | — |   |   | 3,563 |   | — |   |   | — |   |   | — |   |
| Total other  intangible assets                  |       |                            |       |                       |       | $                             | 9,228      |   |   | $ | (2,696 | ) |   | $ | 6,532 |   | $ | 4,267 |   |   | $ | (2,355 | ) |   | $ | 1,912 |   |

 

During the year ended May 31, 2006, the Companyacquired a customer list with the acquisition of Immucor-Kainos, which wasvalued at $1.3 million with a useful life of 20 years, and licensing andregulatory permits, which were assumed to have infinite lives and were valuedat $3.6 million. The customer list is being amortized over 20 years, and thelicensing and regulatory permits will not be amortized but will be tested forimpairment annually in the fourth quarter of each fiscal year.

Amortizationof intangible assets amounted to $0.3 million for the year ended May 31,2006 and $0.4 million for the years ended May 31, 2005 and 2004. Thefollowing table presents our estimate of amortization expense for each of thefive next succeeding fiscal years (in thousands):

| **Year Ending May 31:** | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------------------------------|------------|------------|------------|------------|------------|
| 2007                                   |       | $          | 348        |       |
| 2008                                   |       | 348        |       |
| 2009                                   |       | 213        |       |
| 2010                                   |       | 164        |       |
| 2011                                   |       | 164        |       |
| Thereafter                             |       | 1,732      |       |
|                                   |       | $          | 2,969      |       |

 

**7.**                 ACCRUED EXPENSESAND OTHER CURRENT LIABILITIES

| ** **                                              | ** ** | **May 31,**        | ** ** |
|---------------------------------------------------------|------------|-------------------------|------------|
| ** **                                              | ** ** | **2006**                | ** ** | **2005** | ** ** |
| ** **                                              | ** ** | **(in thousands)** | ** ** |
| Sales and other  taxes payable                          |       | $                       | 1,152      |   | $ | 936 |   |
| Salaries and  wages                                     |       | 3,231                   |       | 3,696 |   |
| Deferred income  taxes liabilities—current portion |       | —                  |       | 661 |   |
| Professional fees                                       |       | 2,027                   |       | 1,562 |   |
| Dealer  commissions                                     |       | 675                     |       | 570 |   |
| Royalties                                               |       | 506                     |       | 297 |   |
| Accruals for  pricing discounts to dealers              |       | 415                     |       | 41 |   |
| Other accruals                                          |       | 1,464                   |       |   2,037 |   |
| Accrued expenses and  other current liabilities         |       | $                       | 9,470      |   | $ | 9,800 |   |

 

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**8.**                 LONG-TERMDEBT

| ** **                                                                                                                                 | ** ** | **May 31,**   | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|
| ** **                                                                                                                                 | ** ** | **2006**           | ** ** | **2005** | ** ** |
| ** **                                                                                                                                 | ** ** | **(in thousands)** | ** ** |
| *Primary  Obligations*                                                                                                                     | * *   | * *           | * *   | * * | * * |
| Term Loan  (interest rate ranging from LIBOR plus 1.0% to LIBOR plus 1.75%, paid in full  in November 2005)                                |       | $                  | —     | * * | $ | 6,000 |   |
| *Secondary  Obligations*                                                                                                                   | * *   | * *           | * *   | * * | * * |
| Line of credit—Spanish  subsidiary (denominated in Euros at an interest rate of EURIBOR plus 0.45%,  paid in full in November 2005)   |       | —             | * *   | 148 |   |
| Mortgage note  payable—Belgian subsidiary (denominated in Belgian Francs at an interest rate  of 6.25%, paid in full in January 2006) |       | —             | * *   | 123 |   |
|                                                                                                                                       |       | —             | * *   | 6,271 |   |
| Less current  portion                                                                                                                      |       | —             | * *   | (4,190 | ) |
|                                                                                                                                       |       | $                  | —     | * * | $ | 2,081 |   |

 

*Primary Obligations*

During the year ended May 31, 2006, the Companyprepaid the term loan obtained under the $27.0 million secured creditfacility with its principal lender from cash generated from operations, andcancelled the credit facility. The credit facility was due to expire in December 2006and was comprised of a $15.0 million revolver and a $12.0 million termloan. The term loan was payable in quarterly installments of $1.0 million.The term loan and the revolver bore interest of LIBOR plus additionalpercentage points ranging from 1.0% to 1.75%, or bank prime rate plus additionalpercentage points ranging from (0.5%) to 1.0% based on certain calculations asdefined in the Loan Agreement. The commitment fee on the unused borrowings was0.125%. The loans were collateralized by the capital stock of all of theCompany’s subsidiaries. The Company recorded a non-cash, pre-tax charge of$924,000 in the third quarter of fiscal 2004 to write off unamortized deferredfinancing charges related to its previous credit facility.

The Company’s agreement with its principal lendercontained certain financial and other covenants that, among other things,limited annual capital expenditures, limited payment of cash dividends and for repurchaseof stock, limited the incurrence of additional debt, and required themaintenance of certain financial ratios.

The Company had aninterest rate swap agreement, which matured in September 2005, with itsprincipal lender. Due to the ineffectiveness of the swap related to the U.S.loan, approximately $10,250 was reclassified from comprehensive income (loss)to earnings as interest expense for the years ended May 31, 2006 and$20,500 for the years ended May 31, 2005 and 2004, and approximately$6,700, $138,000 and $266,000 was charged directly to interest expense for theyears ended May 31, 2006, 2005 and 2004, respectively.

*SecondaryObligations*

During the year ended May 31,2006, the Company repaid the amounts due under the Spanish line of credit andthe Belgium mortgage note. At May 31, 2006, the Company had approximately$154,000 and $449,000 in funds available under line of credit agreements forthe Spanish and Italian affiliates, respectively.

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**9.**                 CAPITAL LEASEOBLIGATIONS

| ** **                                                                                                                                                                  | ** ** | **May 31,**        | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                                                                                                                  | ** ** | **2006**                | ** ** | **2005** | ** ** |
| ** **                                                                                                                                                                  | ** ** | **(in thousands)** | ** ** |
| Machinery and  equipment related to the telephone system bearing an interest rate of 7.93%  with a maturity date of December 2008                                           |       | $                       | —     |   | $ | 117 |   |
| Instruments at  customer sites—German subsidiary, bearing interest at 2.2% and with a  maturity date of October 2005                                                   |       | —                  |       | 21 |   |
| Instruments at  customer sites—Spanish subsidiary, bearing interest rates ranging from 5.18%  to 8.5% and with maturity dates ranging from June 2008 to September 2009 |       | —                  |       | 1,134 |   |
| Instruments at  customer sites—Italian subsidiary, bearing interest rates ranging from 2.5%  to 2.75% and with maturities ranging from August 2005 to February 2006    |       | —                  |       | 65 |   |
|                                                                                                                                                                        |       | —                  |       | 1,337 |   |
| Less current  portion                                                                                                                                                       |       | —                  |       | (427 | ) |
|                                                                                                                                                                        |       | $                       | —     |   | $ | 910 |   |

 

During the year ended May 31,2006, the Company repaid all its capital lease obligations. The capital leaseobligations were collateralized by the indicated assets and amortization onrelated assets was included in depreciation expense.

**10.**          DEFERREDREVENUE

Asdescribed in Note 1, the Company’s medical instrument sales contracts involvemultiple deliverables, and certain of revenues from these contracts aredeferred and recognized over the terms of the agreements which are generallyfive years. The Company also defers revenue from service contracts over theterm of the agreements. The additions to and recognition of deferred revenuefor the year ended May 31, 2006 and May 31, 2005 were as follows:

| ** **                                        | ** ** | **May 31,**        | ** ** |
|---------------------------------------------------|------------|-------------------------|------------|
| ** **                                        | ** ** | **2006**                | ** ** | **2005** | ** ** |
| ** **                                        | ** ** | **(in thousands)** | ** ** |
| Balance at  beginningof year                      |       | $                       | 7,559      |   | $ | 1,791 |   |
| Foreign currency translation  adjustment          |       | 224                     |       | (193 | ) |
| Additions to  deferred revenue from new contracts |       | 13,772                  |       | 8,819 |   |
| Revenue recognized  during the year               |       | (5,480                  | )          | (2,858 | ) |
|                                              |       | 16,075                  |       | 7,559 |   |
| Less: Deferred  Revenue—current portion      |       | (4,575                  | )          | (4,044 | ) |
| Balance at end of year                            |       | $                       | 11,500     |   | $ | 3,515 |   |

 

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**11.**          OTHERLONG TERM LIABILITIES

| ** **                                | ** ** | **May 31,**        | ** ** |
|-------------------------------------------|------------|-------------------------|------------|
| ** **                                | ** ** | **2006**                | ** ** | **2005** | ** ** |
| ** **                                | ** ** | **(in thousands)** | ** ** |
| Severence  indemnity for employees        |       | $                       | 558        |   | $ | 439 |   |
| Deferred  leasehold improvement incentive |       | 1,438                   |       | 1,115 |   |
| Restructuring  provision                  |       | 342                     |       | — |   |
|                                      |       | 2,338                   |       | 1,554 |   |
| Less current portion                      |       | (143                    | )          | (101 | ) |
| Other long term  liabilities              |       | $                       | 2,195      |   | $ | 1,453 |   |

 

The Company creditsleasehold improvement incentives received from the landlord to rent expenseover the term of the lease agreement.

**12.**          COMMONSTOCK

*Increase inauthorized capital to 120 million shares*

At an annual meeting ofthe Company’s shareholders held on December 13, 2005, the shareholders ofthe Company approved the increase of the Company’s authorized capital of commonstock, par value $0.10, from 60 million shares to 120 million shares.

*Stock split*

Immucor distributed athree-for-two stock split, on May 15, 2006 to the shareholders of recordon April 24, 2006 which resulted in the issuance of 22,685,368 shares ofcommon stock, net of 98 fractional shares which were paid in cash. Immucor hadalso distributed a three-for-two stock split, on July 16, 2004 and December 13,2004 which resulted in the issuance of 10,066,940 and 15,061,379 shares ofcommon stock, respectively. The stock splits were the sixth, seventh and eighthfor the Company since its initial public offering in December 1985.

*Reserved shares*

At May 31, 2006,4,892,957 shares of common stock were reserved for future issuance upon exercisesof previously granted stock options.

*Stock repurchases*

The Company instituted a stock repurchase program in June 1998for up to 6,075,000 shares of its common stock, of which 5,437,125 shares hadbeen purchased prior to the end of the 2004 fiscal year, leaving 637,875 sharesavailable for repurchase. On June 1, 2004 and August 2, 2004, theBoard of Directors authorized the Company to repurchase up to additional675,000 and 1,125,000 shares, respectively.

On December 13, 2005, the Board of Directorsauthorized the Company to repurchase up to an additional 1.5 million shares,increasing to 2,040,225 the shares available for purchase. During the yearended May 31, 2006, the Company repurchased 1,580,100 shares at an averageper share price of $15.69. An aggregate of 1,424,025 shares were available forrepurchase under the program as of May 31, 2006.

During fiscal year ended May 31,2006, the total amount spent for the shares bought under this program amountedto $24.8 million, compared to $8.0 million spent during the fiscal year ended May 31,2005.

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**13.**          STOCKOPTIONS

All references to historical awards, outstandingawards and availability of shares for future grants under Immucor’s stockplans, as described below, and related prices per share have been retroactivelyadjusted, for comparability purposes, to reflect the three-for-two stock splitsdistributed in May 2006, December 2004, July 2004 and November 2003.

At an annual meeting of the Company’s shareholdersheld on December 13, 2005, the shareholders approved establishment of theImmucor, Inc. 2005 Long-Term Incentive Plan (the “2005 Plan”). The 2005Plan replaces the Company’s preexisting stock option plans which have beenfrozen and remain in effect only to the extent of awards outstanding under theseplans. Under the 2005 Plan, besides granting stock options, management will beable to award stock appreciation rights, restricted stock, deferred stock, andother performance-based awards as incentive and compensation to employees. Themaximum number of shares of the Company’s common stock as to which awards maybe granted under the 2005 Plan is 3,600,000. The maximum number of shares thatmay be used for awards other than stock options is 1,800,000, and the maximumnumber of shares that may be used for grants of incentive stock options is1,800,000. Option awards generally vest based on four years of continuousservice and have 6-year contractual terms. Share awards generally vestover four years. The 2005 Plan provides for accelerated vesting of option andshare awards if there is a change in control, as defined in the plan.

The Company has elected to follow AccountingPrinciples Board Opinion No. 25, *Accounting for StockIssued to Employees*, (“APB 25”) and related interpretations in accountingfor its employee stock options. Under APB 25, because the exercise price of theCompany’s employee stock options equals the market price of the underlyingstock on the date of grant, no compensation expense is recognized. Exerciseprices of stock options are determined by the Stock Option Committee and, withthe exception of those awarded to new employees in fiscal 2005 and fiscal 2006,have been the fair market value at the date of the grant. Beginning in fiscal2005, the Company began awarding grants to eligible new hires with therespective exercise price equal to the closing price on the business dayimmediately prior to the grant date; therefore in these cases, the exerciseprice may be higher or lower than the fair value of the shares at the date ofgrant. Management has determined that the aggregate difference between thegrant date fair values and the exercise prices for grants awarded to new hiresis not material (approximately $12,000 in total for the grants issued withexercise price below market price in fiscal 2006), and accordingly has notincluded any such compensation cost related to these grants in the Company’sresults of operations. Under the 2005 plan, the exercise price per share cannotbe less than the fair market value of the share on the grant date.

Theeffects on net income and earnings per common share if we had applied the fairvalue recognition provisions of SFAS 123 to our fixed-based stock option awardsare included in Note 1. Thefair value for these options was estimated at the date of grant using aBlack-Scholes option-pricing model with the following weighted averageassumptions:

| ** **               | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------|------------|----------|------------|----------|------------|----------|------------|
| Risk-free  interest rate |       | 4.36     | %          | 4.00     | %          | 3.68     | %          |
| Expected life  (years)   |       | 7.3      |       | 8.0      |       | 8.0      |       |
| Expected  volatility     |       | 64.90    | %          | 68.40    | %          | 68.60    | %          |
| Expected dividend yield  |       | 0.00     | %          | 0.00     | %          | 0.00     | %          |

 

60

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Activity for theCompany’s option plans was as follows for the years ended May 31, 2006,2005 and 2004:

| ** **                   | ** ** | ** ** | ** ** | ** **               | ** ** | **Weighted**              | ** ** |
|------------------------------|------------|------------|------------|--------------------------|------------|---------------------------|------------|
| ** **                   | ** ** | ** ** | ** ** | **Range of**        | ** ** | **Average Exercise** | ** ** |
| ** **                   | ** ** | **Shares** | ** ** | **Exercise Prices** | ** ** | **Price**                 | ** ** |
| Outstanding at  May 31, 2003 |       | 8,924,211  |       | $                        | 0.33       | –                    |       | $ | 4.40 |   |   |   | $ | 1.07 |   |   |
| Granted                      |       | 1,546,730  |       | $                        | 4.07       | –                    |       | $ | 6.60 |   |   |   | $ | 5.85 |   |   |
| Exercised                    |       | (2,693,186 | )          | $                        | 0.33       | –                    |       | $ | 2.02 |   |   |   | $ | 0.97 |   |   |
| Expired                      |       | (1,704     | )          | $                        | 1.15       | –                    |       | $ | 1.60 |   |   |   | $ | 1.40 |   |   |
| Forfeited                    |       | (167,772   | )          | $                        | 0.35       | –                    |       | $ | 4.40 |   |   |   | $ | 1.37 |   |   |
| Outstanding at May 31, 2004  |       | 7,608,279  |       | $                        | 0.33       | –                    |       | $ | 6.60 |   |   |   | $ | 2.07 |   |   |
| Granted                      |       | 421,982    |       | $                        | 8.49       | –                    |       | $ | 21.07 |   |   |   | $ | 18.94 |   |   |
| Exercised                    |       | (1,353,932 | )          | $                        | 0.33       | –                    |       | $ | 3.95 |   |   |   | $ | 1.11 |   |   |
| Expired                      |       | (218,314   | )          | $                        | 0.58       | –                    |       | $ | 1.24 |   |   |   | $ | 0.79 |   |   |
| Forfeited                    |       | (196,610   | )          | $                        | 0.33       | –                    |       | $ | 9.61 |   |   |   | $ | 2.91 |   |   |
| Outstanding at May 31, 2005  |       | 6,261,405  |       | $                        | 0.35       | –                    |       | $ | 21.07 |   |   |   | $ | 3.41 |   |   |
| Granted                      |       | 158,583    |       | $                        | 15.57      | –                    |       | $ | 23.53 |   |   |   | $ | 18.66 |   |   |
| Exercised                    |       | (1,222,116 | )          | $                        | 0.36       | –                    |       | $ | 6.18 |   |   |   | $ | 1.76 |   |   |
| Expired                      |       | (56,317    | )          | $                        | 0.89       | –                    |       | $ | 3.55 |   |   |   | $ | 1.37 |   |   |
| Forfeited                    |       | (248,598)  |       | $                        | 0.89       | –                    |       | $ | 20.03 |   |   |   | $ | 6.82 |   |   |
| Outstanding at  May 31, 2006 |       | 4,892,957  |       | $                        | 0.36       | –                    |       | $ | 23.53 |   |   |   | $ | 4.14 |   |   |

 

At May 31, 2006, 2005, and 2004, options for3,942,959, 3,035,282 and 2,976,957 shares of common stock, respectively, wereexercisable, at weighted average exercise prices of $3.18, $1.11 and $1.07,respectively. At May 31, 2006, 1,718,637 shares of common stock wereavailable for future grants of stock options and 1,800,000 shares of commonstock were available for future grants of awards other than stock options. Theweighted average grant date fair value of options granted during fiscal 2006was $13.34 for those granted at market value, $10.83 for those granted at abovemarket value, and $13.03 for those granted at below market value. The weightedaverage grant date fair value of options granted during fiscal 2005 was $8.49for those granted at market value, $10.91 for those granted above market value,and $9.37 for those granted at below market value. The weighted average grantdate fair value of options granted during fiscal 2004 was $4.31—all weregranted at market value.

The following table as of May 31, 2006 sets forthby group of exercise price ranges, the number of options outstanding, weightedaverage exercise prices and weighted average remaining contractual lives ofoptions outstanding, and the number and weighted average exercise prices ofoptions currently exercisable.

| ** **                                | ** ** | **Options Oustanding**   | ** ** | **Options Exercisable** | ** ** |
|-------------------------------------------|------------|--------------------------|------------|------------------------------|------------|
| ** **                                | ** ** | ** **               | ** ** | **Weighted**                 | ** ** | **Weighted** | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **                                | ** ** | ** **               | ** ** | **Average**                  | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** |
| **Range of **                   | ** ** | **Number of ** | ** ** | **Exercise**                 | ** ** | **Contractual** | ** ** | **Number of** | ** ** | **Exercise** | ** ** |
| **Exercise Prices**                  | ** ** | **Shares**               | ** ** | **Price**                    | ** ** | **Life** | ** ** | **Shares** | ** ** | **Price** | ** ** |
| $** **—  – $** **1.00 |       | 1,606,206                |       |                         | $          | 0.87 |   |   |   | 5.5 |   |   | 1,606,206 |   |   | $ | 0.87 |   |   |
| 1.01 – **  **2.00          |       | 1,426,204                |       |                         | 1.23       |   |   |   | 2.4 |   |   | 1,426,204 |   |   | 1.23 |   |   |
| 2.01 – **  **4.00          |       | 199,133                  |       |                         | 2.87       |   |   |   | 6.3 |   |   | 108,951 |   |   | 2.64 |   |   |
| 4.01 – **  **8.00          |       | 1,151,818                |       |                         | 5.85       |   |   |   | 7.6 |   |   | 492,832 |   |   | 5.90 |   |   |
| 8.01 – ** **16.00               |       | 34,054                   |       |                         | 13.63      |   |   |   | 8.6 |   |   | — |   |   | — |   |   |
| 16.01 – ** **24.00              |       | 475,542                  |       |                         | 19.64      |   |   |   | 8.7 |   |   | 308,766 |   |   | 20.07 |   |   |
|                                      |       | 4,892,957                |       |                         | $          | 4.14 |   |   |   | 5.5 |   |   | 3,942,959 |   |   | $ | 3.18 |   |   |

 

61

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**14.**          RESTRUCTURINGEXPENSES

On October 31, 2005, the Board of Directors ofthe Company approved a plan to close the Company’s Houston, Texas manufacturingfacility. The decision to close the facility was driven by a number of factorsincluding, in particular, the expense of operating two separate FDA licensedmanufacturing facilities. This closure, which is subject to certain regulatoryclearances, is scheduled to be completed by December 2007.

During fiscal year 2006, the Company recorded a chargeof approximately $2.7 million in connection with this planned closure,including approximately $2.3 million for impairment of long-lived assets basedon an independent valuation, and approximately $0.4 million for severance pay,retention bonuses and other expenses. The Company expects to incurapproximately $1.9 million of additional costs to close this facilityconsisting of approximately $0.6 million in costs to consolidate operations,approximately $0.7 million to relocate associated employees andapproximately $0.6 million for retention bonuses and other expenses. The coststo consolidate operations and relocate employees are expensed when incurred andthe retention bonuses are expensed over the period of service necessary toreceive such bonuses.

Total future cash outlaysfor the restructuring plan are expected to be approximately $2.3 million to bepaid out over the next two years.

**15.**          INCOMETAXES

Sources of income before income taxes are summarizedbelow:

| ** **           | ** ** | **Year Ended May31,** | ** ** |
|----------------------|------------|---------------------------------|------------|
| ** **           | ** ** | **2006**                        | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **           | ** ** | **(in thousands)**         | ** ** |
| Domestic  Operations |       | $                               | 56,459     |   | $ | 31,711 |   | $ | 19,032 |   |
| Foreign  Operations  |       | 6,701                           |       | 6,270 |   | 1,232 |   |
| Total                |       | $                               | 63,160     |   | $ | 37,981 |   | $ | 20,264 |   |

 

The provision for income taxes is summarized asfollows:

| ** **   | ** ** | **Year Ended May 31,** | ** ** |
|--------------|------------|---------------------------------------|------------|
| ** **   | ** ** | **2006**                              | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **   | ** ** | **(in thousands)**               | ** ** |
| Current:     |       |                                  |       |   |   |   |   |
| Federal      |       | $                                     | 20,963     |   | $ | 12,979 |   | $ | 5,294 |   |
| Foreign      |       | 3,593                                 |       | 1,908 |   | 1,045 |   |
| State        |       | 1,218                                 |       | 1,377 |   | 760 |   |
|         |       | 25,774                                |       | 16,264 |   | 7,099 |   |
| Deferred:    |       |                                  |       |   |   |   |   |
| Federal      |       | (1,707                                | )          | (2,617 | ) | 687 |   |
| Foreign      |       | (752                                  | )          | 505 |   | (492 | ) |
| State        |       | 2                                     |       | (81 | ) | 432 |   |
|         |       | (2,457                                | )          | (2,193 | ) | 627 |   |
| Income taxes |       | $                                     | 23,317     |   | $ | 14,071 |   | $ | 7,726 |   |

 

Deferred income taxes reflect the net tax effects of: (a) temporarydifferences between the carrying amounts of assets and liabilities forfinancial reporting purposes and income tax purposes; and (b) operatingloss carry-forwards. Valuation allowances are established when necessary toreduce deferred tax assets to the amounts expected to be realized. Based onassessments of all available evidence including, but not limited to, theoperating history and lack of profitability of certain subsidiaries, managementdoes not believe it is more likely than not that the Company will be able torealize the subsidiaries’ net operating loss carry-forwards and tax benefitsand, as a result, deferred tax valuation allowances have been recorded 

62

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against these deferred tax assets as follows:  Belgium, $1.0 million; France $0.3 million;Japan, $0.6 million; and Spain, $0.2 million. The Company has also establisheda valuation allowance against state operating loss carry-forwards of $0.9 million.Net operating loss carry-forwards for France and Belgium do not expire; othernet operating loss carry-forwards expire beginning in 2013.

The tax effects of significant items comprising theCompany’s net deferred tax assets at May 31, 2006 and 2005 are as follows:

| ** **                         | ** ** | **Year Ended May31,** | ** ** |
|------------------------------------|------------|---------------------------------|------------|
| ** **                         | ** ** | **2006**                        | ** ** | **2005** | ** ** |
| ** **                         | ** ** | **(in thousands)**         | ** ** |
| Deferred tax liabilities:          |       |                            |       |   |   |
| Amortization                       |       | $                               | (1,707     | ) | $ | (1,662 | ) |
| Depreciation                       |       | (557                            | )          | (865 | ) |
| Other                              |       | (488                            | )          | (638 | ) |
| Deferred tax assets:               |       |                            |       |   |   |
| Reserves not  currently deductible |       | 4,908                           |       | 3,465 |   |
| Operating loss  carry-forwards     |       | 2,938                           |       | 147 |   |
| Uniform  capitalization            |       | 859                             |       | 143 |   |
|                               |       | 5,953                           |       | 590 |   |
| Valuation  allowance               |       | (3,029                          | )          | (123 | ) |
| Net deferred tax asset             |       | $                               | 2,924      |   | $ | 467 |   |

 

The change in valuation allowances is due primarily toreserves against net operating loss carry-forwards related to entities involvedin the 2003 European restructure, which the Company did not previously believewere available for utilization, the net operating loss carry-forward of theCompany’s newly acquired subsidiary in Japan, and state net operating losscarry-forwards available as a result of the Company’s “unwinding” of the stateand local tax structure implemented in 2003.

Deferred taxes are not provided for temporarydifferences of approximately $11.7 million, $8.4 million and $5.0 million as ofMay 31, 2006, 2005 and 2004, respectively, representing earnings ofnon-U.S. subsidiaries that are intended to be permanently reinvested.Computation of the potential deferred tax liability associated with theseundistributed earnings is not practicable.

The Company has decided not to implement any repatriationplanning as provided by the American Jobs Creation Act of 2004. Accordingly, noimpact from this legislation has been reflected in the amounts shown aspermanently reinvested.

TheCompany’s effective tax rate differs from the federal statutory rate asfollows:

| ** **                                                                 | ** ** | **Year Ended May31,** | ** ** |
|----------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                 | ** ** | **2006**                        | ** ** | **2005** | ** ** | **2004** | ** ** |
| Federal statutory  tax rate                                                |       |                            | 35         | % |   |   | 35 | % |   |   | 35 | % |   |
| State income  taxes, net of federal tax benefit                            |       |                            | 3          |   |   |   | 3 |   |   |   | 1 |   |   |
| Extraterritorial  income exclusion and Production Activity Deduction (PAD) |       |                            | (2         | ) |   |   | (1 | ) |   |   | (2 | ) |   |
| Difference in  effective income tax rates of other countries               |       |                            | —     |   |   |   | 1 |   |   |   | — |   |   |
| Research and  development credits                                          |       |                            | —     |   |   |   | (1 | ) |   |   | — |   |   |
| Change in  deferred tax valuation allowance                                |       |                            | 1          |   |   |   | — |   |   |   | 1 |   |   |
| Other                                                                      |       |                            | —     |   |   |   | — |   |   |   | 3 |   |   |
|                                                                       |       |                            | 37         | % |   |   | 37 | % |   |   | 38 | % |   |

 

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As a result of utilizing compensation cost deductionsarising from the exercise of nonqualified employee stock options for federaland state income tax purposes, the Company realized income tax benefits of $6.4million in fiscal 2006 and 2005, and $3.6 million in 2004. These income taxbenefits are recognized in the accompanying financial statements as additionsto additional paid-in capital rather than as reductions of the respectiveincome tax provisions because the related compensation deductions are notrecognized as compensation expense for financial reporting purposes.

In fiscal 2004, a true up of the estimated tax benefitof the 2003 European restructure and adjustments for misapplication of Texasfranchise tax rules for fiscal years 2002 and 2003 added $0.1 million and$0.3 million, respectively, to income tax expense. In addition, a reserveof $0.2 million was established to recognize the increasingly conservativepositions taken by the various state taxing authorities with respect to therelated party transactions. The Company added approximately $0.9 million tothis reserve in fiscal 2005. In fiscal 2006, the Company added approximately$26,000 to this reserve, representing estimated interest expense.

In fiscal 2005, theCompany claimed credits for qualified research and development activitiesperformed during the years 2001 through 2005 of approximately $0.6 million. Infiscal 2006, the Company claimed approximately $0.1 million in credits forqualified research and development activities performed during the periodJune 1, 2005 through December 31, 2005, the date the credit expired.The Company has recorded reserves of $0.3 million, approximately 30% of thetotal credits claimed for all years.

**16.**          EARNINGS PER SHARE

Thefollowing table sets forth the computation of earnings per common share andcommon share—assuming dilution in accordance with SFAS No. 128, *Earnings per Share:*

| ** **                                                                              | ** ** | **Year Ended May 31,**     | ** ** |
|-----------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                              | ** ** | **2006**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                              | ** ** | **(in thousands, except per share data)** | ** ** |
| Numerator for basic and  diluted earnings per share:                                    |       |                                      |       |   |   |   |   |
| Income available  to common shareholders                                                |       | $                                         | 39,843     |   | $ | 23,910 |   | $ | 12,538 |   |
| Denominator:                                                                            |       |                                      |       |   |   |   |   |
| For basic earnings per share—weighted average shares  basis                        |       | 68,004                                    |       | 67,699 |   | 66,387 |   |
| Effect of dilutive stock options                                                        |       | 3,397                                     |       | 3,651 |   | 4,104 |   |
| Denominator for diluted earnings per share—adjusted  weighted average shares basis |       | 71,401                                    |       | 71,350 |   | 70,491 |   |
| Earnings per  common share – basic                                                 |       | $                                         | 0.59       |   | $ | 0.35 |   | $ | 0.19 |   |
| Earnings per common  share – diluted                                               |       | $                                         | 0.56       |   | $ | 0.34 |   | $ | 0.18 |   |

 

The effect of 429,949, 44,324 and 1,305,755out-of-the-money options and warrants was excluded from the above calculationas inclusion of these securities would be anti-dilutive for the years ended May 31,2006, 2005 and 2004, respectively.

On June 6, 2006, theCompany issued options to employees to purchase 157,217 shares of common stockat an exercise price of $17.51 per share, which was the closing price on thedate of the grant. The Company also issued 127,105 shares of restricted stock. Theseoptions and restricted stock are excluded in calculating the above dilutedearnings per share but will have a dilutive effect on the future earnings pershare calculations.

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**17.**          COMPREHENSIVEINCOME

Thecomponents of comprehensive income for the years ended May 31, 2006, 2005and 2004 are as follows:

| ** **                                   | ** ** | **For the year ended May 31,** | ** ** |
|----------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                   | ** ** | **2006**                                                | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                   | ** ** | **(In thousands)**                                 | ** ** |
| Net income                                   |       | $                                                       | 39,843     |   | $ | 23,910 |   | $ | 12,538 |   |
| Foreign currency  translation adjustment     |       | 2,285                                                   |       | 639 |   | 433 |   |
| Hedge loss  reclassified to interest expense |       | 10                                                      |       | 21 |   | 21 |   |
| Comprehensive income                         |       | $                                                       | 42,138     |   | $ | 24,570 |   | $ | 12,992 |   |

 

**18.   SUPPLEMENTALCASH FLOW INFORMATION**

| ** **                                    | ** ** | **For the year ended May 31,** | ** ** |
|-----------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                    | ** ** | **2006**                                                | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                    | ** ** | **(In thousands)**                                 | ** ** |
| Non-cash Investing and  Financing Activities: |       |                                                    |       |   |   |   |   |
| Capital leases                                |       | $                                                       | —     |   | $ | 385 |   | $ | 939 |   |
| Acquisition liability assumed                 |       | $                                                       | 6,073      |   | $ | — |   | $ | — |   |
| Supplemental  information                     |       |                                                    |       |   |   |   |   |
| Taxes paid                                    |       | $                                                       | 18,053     |   | $ | 5,353 |   | $ | 4,656 |   |
| Interest paid                                 |       | $                                                       | 478        |   | $ | 834 |   | $ | 1,368 |   |

 

**19.**          DOMESTICAND FOREIGN OPERATIONS

The Company’s operations and segments are organizedaround geographic areas. Immucor’s “Other” segment includes the operations ofBelgium, Portugal and Spain. The foreign locations principally function asdistributors 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 acrossthe segments. Intersegment sales are recorded at market price.

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Segmentinformation concerning the Company’s domestic and foreign operations for theyears ended May 31, 2006, 2005 and 2004 is summarized below (inthousands):

| ** **                                      | ** ** | **For the Year Ended May 31, 2006** | ** ** |
|-------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                      | ** ** | **U.S.**                                           | ** ** | **Germany** | ** ** | **Italy** | ** ** | **Canada** | ** ** | **Japan(1)** | ** ** | **Other** | ** ** | **Elims** | ** ** | **Consolidated** | ** ** |
| Net reagent revenues:                           |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers                         |       | $                                                  | 119,145    |   |   | $ | 10,775 |   |   | $ | 12,077 |   |   | $ | 9,252 |   |   |   | $ | 7,372 |   |   | $ | 8,439 |   | $ | — |   |   | $ | 167,060 |   |   |
| Affiliates                                      |       | 10,504                                             |       |   | 1,938 |   |   | — |   |   | 206 |   |   |   | — |   |   | 197 |   | (12,845 | ) |   | — |   |   |
| Total                                           |       | 129,649                                            |       |   | 12,713 |   |   | 12,077 |   |   | 9,458 |   |   |   | 7,372 |   |   | 8,636 |   | (12,845 | ) |   | 167,060 |   |   |
| Net instrument revenues:                        |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers                         |       | 7,263                                              |       |   | 1,984 |   |   | 1,191 |   |   | 345 |   |   |   | 15 |   |   | 1,719 |   | — |   |   | 12,517 |   |   |
| Affiliates                                      |       | 802                                                |       |   | 3,095 |   |   | 1 |   |   | — |   |   |   | — |   |   | 2 |   | (3,900 | ) |   | — |   |   |
| Total                                           |       | 8,065                                              |       |   | 5,079 |   |   | 1,192 |   |   | 345 |   |   |   | 15 |   |   | 1,721 |   | (3,900 | ) |   | 12,517 |   |   |
| Net collagen revenues:                          |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers                         |       | 3,929                                              |       |   | — |   |   | — |   |   | — |   |   |   | — |   |   | — |   | — |   |   | 3,929 |   |   |
| Affiliates                                      |       | —                                             |       |   | — |   |   | — |   |   | — |   |   |   | — |   |   | — |   | — |   |   | — |   |   |
| Total                                           |       | 3,929                                              |       |   | — |   |   | — |   |   | — |   |   |   | — |   |   | — |   | — |   |   | 3,929 |   |   |
| Net Sales                                       |       | 141,643                                            |       |   | 17,792 |   |   | 13,269 |   |   | 9,803 |   |   |   | 7,387 |   |   | 10,357 |   | (16,745 | ) |   | 183,506 |   |   |
| Income (loss) from  operations                  |       | 56,728                                             |       |   | 745 |   |   | 1,678 |   |   | 3,856 |   |   |   | (433 | ) |   | 681 |   | (215 | ) |   | 63,040 |   |   |
| Depreciation                                    |       | 3,196                                              |       |   | 748 |   |   | 1,566 |   |   | 216 |   |   |   | 104 |   |   | 672 |   | — |   |   | 6,502 |   |   |
| Amortization                                    |       | 360                                                |       |   | — |   |   | — |   |   | — |   |   |   | 60 |   |   | 7 |   | — |   |   | 427 |   |   |
| Restructuring  expenses                         |       | 2,689                                              |       |   | — |   |   | — |   |   | — |   |   |   | — |   |   | — |   | — |   |   | 2,689 |   |   |
| Income tax  (benefit) expense                   |       | 20,477                                             |       |   | 367 |   |   | 842 |   |   | 1,563 |   |   |   | — |   |   | 147 |   | (79 | ) |   | 23,317 |   |   |
| Capital  expenditures                           |       | 8,964                                              |       |   | 684 |   |   | 453 |   |   | 286 |   |   |   | 78 |   |   | 359 |   | — |   |   | 10,824 |   |   |
| Property &  equipment—net, at year end |       | 16,057                                             |       |   | 2,508 |   |   | 3,080 |   |   | 1,344 |   |   |   | 605 |   |   | 2,090 |   | — |   |   | 25,684 |   |   |
| Total assets at  year end                       |       | 165,102                                            |       |   | 12,139 |   |   | 20,026 |   |   | 14,249 |   |   |   | 14,125 |   |   | 9,382 |   | (43,336 | ) |   | 191,687 |   |   |
|                                                 |            |                                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

| ** **                                     | ** ** | **For the Year Ended May 31, 2005** | ** ** |
|------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                     | ** ** | **U.S.**                                                          | ** ** | **Germany** | ** ** | **Italy** | ** ** | **Canada** | ** ** | **Japan(1)** | ** ** | **Other** | ** ** | **Elims** | ** ** | **Consolidated** | ** ** |
| Net reagent revenues:                          |       |                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated customers                         |       | $                                                                 | 88,616     |   |   | $ | 11,674 |   |   | $ | 11,637 |   |   | $ | 8,095 |   |   |   | $ | — |   |   | $ | 8,778 |   | $ | — |   |   | $ | 128,800 |   |   |
| Affiliates                                     |       | 9,237                                                             |       |   | 2,199 |   |   | — |   |   | 245 |   |   |   | — |   |   | 139 |   | (11,820 | ) |   | — |   |   |
| Total                                          |       | 97,853                                                            |       |   | 13,873 |   |   | 11,637 |   |   | 8,340 |   |   |   | — |   |   | 8,917 |   | (11,820 | ) |   | 128,800 |   |   |
| Net instrument revenues:                       |       |                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated customers                         |       | 6,250                                                             |       |   | 2,578 |   |   | 927 |   |   | 170 |   |   |   | — |   |   | 2,589 |   | — |   |   | 12,514 |   |   |
| Affiliates                                     |       | 937                                                               |       |   | 4,612 |   |   | 15 |   |   | — |   |   |   | — |   |   | 2 |   | (5,566 | ) |   | — |   |   |
| Total                                          |       | 7,187                                                             |       |   | 7,190 |   |   | 942 |   |   | 170 |   |   |   | — |   |   | 2,591 |   | (5,566 | ) |   | 12,514 |   |   |
| Net collagen revenues:                         |       |                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated customers                         |       | 3,472                                                             |       |   | — |   |   | — |   |   | — |   |   |   | — |   |   | — |   | — |   |   | 3,472 |   |   |
| Affiliates                                     |       | —                                                            |       |   | — |   |   | — |   |   | — |   |   |   | — |   |   | — |   | — |   |   | — |   |   |
| Total                                          |       | 3,472                                                             |       |   | — |   |   | — |   |   | — |   |   |   | — |   |   | — |   | — |   |   | 3,472 |   |   |
| Net Sales                                      |       | 108,512                                                           |       |   | 21,063 |   |   | 12,579 |   |   | 8,510 |   |   |   | — |   |   | 11,508 |   | (17,386 | ) |   | 144,786 |   |   |
| Income (loss) from operations                  |       | 31,548                                                            |       |   | 2,169 |   |   | (11 | ) |   | 3,217 |   |   |   | — |   |   | 355 |   | (26 | ) |   | 37,252 |   |   |
| Depreciation                                   |       | 3,231                                                             |       |   | 970 |   |   | 1,657 |   |   | 259 |   |   |   | — |   |   | 898 |   | — |   |   | 7,015 |   |   |
| Amortization                                   |       | 378                                                               |       |   | — |   |   | — |   |   | — |   |   |   | — |   |   | — |   | — |   |   | 378 |   |   |
| Restructuring expenses                         |       | —                                                            |       |   | — |   |   | — |   |   | — |   |   |   | — |   |   | — |   | — |   |   | — |   |   |
| Income tax (benefit) expense                   |       | 11,650                                                            |       |   | 862 |   |   | 243 |   |   | 1,213 |   |   |   | — |   |   | 95 |   | 8 |   |   | 14,071 |   |   |
| Capital expenditures                           |       | 3,397                                                             |       |   | 249 |   |   | 1,881 |   |   | 217 |   |   |   | — |   |   | 849 |   | — |   |   | 6,593 |   |   |
| Property & equipment—net, at year end |       | 12,754                                                            |       |   | 2,473 |   |   | 4,240 |   |   | 1,182 |   |   |   | — |   |   | 2,386 |   | — |   |   | 23,035 |   |   |
| Total assets at  year end                      |       | 140,319                                                           |       |   | 13,730 |   |   | 16,814 |   |   | 11,881 |   |   |   | — |   |   | 10,054 |   | (35,185 | ) |   | 157,613 |   |   |
|                                                |            |                                                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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| ** **                                     | ** ** | **For the Year Ended May 31, 2004** | ** ** |
|------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                     | ** ** | **U.S.**                                                          | ** ** | **Germany** | ** ** | **Italy** | ** ** | **Canada** | ** ** | **Japan(1)** | ** ** | **Other** | ** ** | **Elims** | ** ** | **Consolidated** | ** ** |
| Net reagent revenues:                          |       |                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated customers                         |       | $                                                                 | 67,785     |   |   | $ | 10,444 |   |   | $ | 9,042 |   |   | $ | 7,193 |   |   |   | $ | — |   |   | $ | 7,862 |   | $ | — |   |   | $ | 102,326 |   |   |
| Affiliates                                     |       | 9,269                                                             |       |   | 2,691 |   |   | — |   |   | 116 |   |   |   | — |   |   | 162 |   | (12,238 | ) |   | — |   |   |
| Total                                          |       | 77,054                                                            |       |   | 13,135 |   |   | 9,042 |   |   | 7,309 |   |   |   | — |   |   | 8,024 |   | (12,238 | ) |   | 102,326 |   |   |
| Net instrument revenues:                       |       |                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated customers                         |       | 4,316                                                             |       |   | 2,682 |   |   | 573 |   |   | 111 |   |   |   | — |   |   | 2,091 |   | — |   |   | 9,773 |   |   |
| Affiliates                                     |       | 154                                                               |       |   | 3,969 |   |   | — |   |   | — |   |   |   | — |   |   | 39 |   | (4,162 | ) |   | — |   |   |
| Total                                          |       | 4,470                                                             |       |   | 6,651 |   |   | 573 |   |   | 111 |   |   |   | — |   |   | 2,130 |   | (4,162 | ) |   | 9,773 |   |   |
| Net collagen revenues:                         |       |                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated customers                         |       | 459                                                               |       |   | — |   |   | — |   |   | — |   |   |   | — |   |   | — |   | — |   |   | 459 |   |   |
| Affiliates                                     |       | —                                                            |       |   | — |   |   | — |   |   | — |   |   |   | — |   |   | — |   | — |   |   | — |   |   |
| Total                                          |       | 459                                                               |       |   | — |   |   | — |   |   | — |   |   |   | — |   |   | — |   | — |   |   | 459 |   |   |
| Net Sales                                      |       | 81,983                                                            |       |   | 19,786 |   |   | 9,615 |   |   | 7,420 |   |   |   | — |   |   | 10,154 |   | (16,400 | ) |   | 112,558 |   |   |
| Income (loss) from operations                  |       | 17,486                                                            |       |   | (1,130 | ) |   | 309 |   |   | 2,344 |   |   |   | — |   |   | (333 | ) | 3,026 |   |   | 21,702 |   |   |
| Depreciation                                   |       | 3,003                                                             |       |   | 884 |   |   | 1,134 |   |   | 114 |   |   |   | — |   |   | 690 |   | — |   |   | 5,825 |   |   |
| Amortization                                   |       | 369                                                               |       |   | — |   |   | — |   |   | — |   |   |   | — |   |   | — |   | — |   |   | 369 |   |   |
| Restructuring expenses                         |       | —                                                            |       |   | — |   |   | — |   |   | — |   |   |   | — |   |   | — |   | — |   |   | — |   |   |
| Income tax (benefit) expense                   |       | 7,171                                                             |       |   | (543 | ) |   | 191 |   |   | 848 |   |   |   | — |   |   | 57 |   | 2 |   |   | 7,726 |   |   |
| Capital expenditures                           |       | 3,123                                                             |       |   | 938 |   |   | 1,965 |   |   | 186 |   |   |   | — |   |   | 894 |   | — |   |   | 7,106 |   |   |
| Property & equipment—net, at year end |       | 12,291                                                            |       |   | 3,299 |   |   | 3,987 |   |   | 1,123 |   |   |   | — |   |   | 2,335 |   | — |   |   | 23,035 |   |   |
| Total assets at  year end                      |       | 114,062                                                           |       |   | 16,992 |   |   | 15,836 |   |   | 9,610 |   |   |   | — |   |   | 10,853 |   | (42,936 | ) |   | 124,417 |   |   |
|                                                |            |                                                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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       (1) Results of operations for Japan are included from July 5, 2005onwards, the date on which the Company acquired Immucor-Kainos, Inc.

During the years ended May 31,2006, 2005 and 2004, the Company’s U.S. operations made net export sales tounaffiliated customers of approximately $4.3 million, $6.9 million and $4.9million, respectively. The Company’s German operations made net export sales tounaffiliated customers of $4.3 million, $5.5 million and $4.9 million forthe years ended May 31, 2006, 2005, and 2004, respectively. The Company’sCanadian operations made net export sales to unaffiliated customers of $2.1million, $1.9 million and $2.2 million for the years ending May 31,2006, 2005, and 2004, respectively. Product sales to affiliates are valued atmarket prices.

**20.**          RETIREMENTPLAN

The Company maintains a 401(k) retirement plancovering its domestic employees who meet certain age and length of servicerequirements, as defined in the Plan document. The Company matches a portion ofemployee contributions to the plan. During the years ended May 31, 2006,2005 and 2004, the Company’s matching contributions to the plan wereapproximately $544,000, $336,000 and $269,000, respectively. Effective January 1,2005, employees vest immediately in the Company’s matching contributions. Priorto this date, vesting in the Company’s matching contributions was based onyears of continuous service.

The Company’s Canadianaffiliate maintains a defined contribution pension plan covering all Canadianemployees, except temporary employees. The Company matches a portion ofemployee contributions to the plan, and each employee vests in the Company’smatching contributions once they have been a participant continuously for twoyears. During the years ended May 31, 2006, 2005 and 2004, the Company’smatching contributions to the plan were approximately $80,000, $58,000 and$59,000, respectively.

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**21.**          COMMITMENTSAND CONTINGENCIES

*Lease Commitments*

The Company leases domestic office, warehousing andmanufacturing facilities under an operating lease agreement expiring in fiscal2017 with a right to renew for an additional five years. The Company leases anadditional domestic warehousing facility under an operating lease agreementexpiring in fiscal 2008 with a right to renew for an additional five years. Infiscal 2006, the Company leased a new warehousing facility with the leaseagreement expiring in fiscal 2017.

The Company leases foreign office, manufacturing andwarehouse facilities and automobiles under operating lease agreements expiringat various dates through fiscal 2010. Total rental expense, principally foroffice, manufacturing and warehouse space, was $2.5 million in fiscal 2006,$2.2 million in fiscal 2005 and $1.9 million in fiscal 2004. In Germany, theoffice facility is leased from a company owned by the family of a formerofficer. Rental expense under this lease were $289,000, $258,000 and $244,000for fiscal 2006, 2005 and 2004, respectively, and are believed to be at fairmarket value.

In fiscal 2005, the Company received a cash incentivetotaling $136,000 regarding its domestic office, warehousing and manufacturingfacilities. This incentive was accounted for as deferred rent and is beingamortized over the term of the lease. The current portion of this incentive($12,000 at May 31, 2006) is included in other accrued liabilities; theremaining unamortized portion is included in other long-term liabilities. Thislease also contained a leasehold improvement incentive allowing for a maximumreimbursement of $1.5 million, of which $1.4 million has been reimbursed asof June 30, 2006. The Company received approximately $984,000 and $423,000in June 2005 and June 2006, respectively, for improvements incurredand submitted to the landlord for reimbursement. Accordingly, thesereimbursements due from the landlord were accrued as receivables and areincluded in prepaid expenses and other with corresponding credits recorded asdeferred rent and amortized as reductions of rent expense over the term of thelease.

Thefollowing is a schedule of approximate future annual lease payments under alloperating leases that have initial or remaining non-cancelable lease terms inexcess of one year as of May 31, 2006 (in thousands):

| **Year Ending May 31:** | ** ** | ** ** | ** ** |
|----------------------------------------|------------|------------|------------|
| 2007                                   |       | $          | 1,942      |   |
| 2008                                   |       | 1,726      |       |
| 2009                                   |       | 1,593      |       |
| 2010                                   |       | 1,042      |       |
| 2011                                   |       | 922        |       |
| Thereafter                             |       | 5,809      |       |
|                                   |       | $          | 13,034     |   |

 

The Company may, at itsoption, extend its office and warehouse facilities lease terms through variousdates.

*Royalty Commitmentfor Technology Rights*

In March 1983, theCompany acquired rights to technology to be used in developing diagnostictesting products. In connection with this acquisition, the Company has agreedto pay to the Community Blood Center of Greater Kansas City royalties equal to4% of the net sales through August 26, 2006 from products utilizing thetechnology. Royalties under this agreement amounted to approximately $848,000,$523,000 and $451,000 in fiscal 2006, 2005 and 2004, respectively.

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*Other Commitments*

The Company entered into an instrument purchaseagreement with Bio-Tek Instruments, Inc. for the development of a fast,lightweight, fully automated instrument on January 19, 2004. This thirdgeneration assay instrument, named the “Galileo EchoTM”, will replace theCompany’s ABS2000 and is targeted to serve the small to medium-sized hospitalmarket, the largest segment of the Company’s customers, which numberapproximately 5,000 to 6,000 worldwide. The Galileo EchoTM is significantlysmaller and faster than the ABS2000, and has substantially all of the featuresof the Company’s larger Galileo® product, apart from lower throughput. The costof development totaled $0.8 million, $1.6 million and $0.8 million in fiscal2006, 2005 and 2004, respectively. The Company accepted the manufacturer’sengineering model in fiscal 2005, whereupon the Company was deemed to issue apurchase order for 100 units. In accordance with the November 2004amendment to the instrument purchase agreement, the Company committed topurchase an additional 100 units. There is no minimum purchase requirement tomaintain exclusivity. The Company expects to launch the instrument in Europeand the U.S. in the third quarter of fiscal 2007. The actual launch date isdependent on FDA clearance of the instrument in the United States and assumesclearance will take approximately 90 days after the submission is received bythe FDA. The Company purchased 31 instruments costing approximately $1.0million in fiscal 2006 and is planning to spend approximately $2.2 million toacquire an additional 69 instruments to fulfill the obligation to purchase thefirst 100 units. A down payment of $700,000 was paid in fiscal 2005.

In September 2003,the Company entered into a five-year purchase agreement with Celliance Ltd (“Celliance”)(a subsidiary of Millipore Corporation). The Company will supply Celliance witha 12-month rolling forecast of purchases that constitute a bindingpurchase order. In return, Celliance will supply the product at the pricespecified in the purchase agreement with prices to increase annually beginning January 1,2004. Celliance will supply products at the listed prices and at reducedperformance prices if certain sales volume has been reached. The agreement alsoprovides for a preferential treatment for supply of products in relation toCelliance’s sales orders from other customers. At May 31, 2006, theCompany’s commitments under this arrangement are $2.1 million for fiscal 2007.

*Contingencies*

As previously reported, the Company’s Italiansubsidiary and Dr. Gioacchino De Chirico, the former President of thesubsidiary, have been the subjects of a criminal investigation in Milan, Italycentered on payments by several companies to certain Italian physiciansallegedly in exchange for favorable contract awards by their hospitals. Thepublic prosecutor in Milan has announced the completion of his investigationinto these payments, and has alleged that Dr. De Chirico, as the formerPresident of the subsidiary, participated in certain of those payments to gainfavorable procurement action for the subsidiary at the physicians’ hospitals.The subsidiary has also been charged because under Italian law the subsidiarycan be held responsible for the actions allegedly taken by an officer. Theprosecutor’s charges have been presented to a judge who must decide whether thecase will be sent to trial. The preliminary hearing before the judge has beenset for October 10, 2006, and, based on advice from Italian legal counsel,we believe the judge will send the case to trial. The subsidiary is consideringseeking a plea-bargaining agreement with the prosecutor. However, Dr. DeChirico has vigorously denied any wrongdoing, and we understand he does notintend to enter into a plea bargain. If Dr. De Chirico or the subsidiarydoes not settle this matter, we believe a trial would not begin until 2007, andappeals of an unfavorable verdict could take several years.

In 2005 the Audit Committee of our Board of Directorscompleted an internal investigation prompted by the Italian investigation anddetermined that a €13,500 payment to aphysician as the organizer and chairman of a convention sponsored by theItalian subsidiary was not improper, but the invoice for those servicesresulted in a violation of the books and records provisions of the ForeignCorrupt Practices Act. The investigation also concluded that payments toanother physician totaling approximately $47,000 may 

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have been related not onlyto the performance of certain services but also to the introduction of aninstrument system into that physician’s hospital and perhaps other hospitals.The SEC has issued a formal investigative order in these matters. The Companyhas made a number of voluntary submissions to the SEC and it continues tocooperate with the SEC. The SEC has not expressed to the Company any conclusionsabout the ultimate outcome of its investigation. No determination can yet bemade as to whether, in connection with these circumstances, the Company willbecome subject to any fines, penalties and/or other charges imposed by anygovernmental authority, or any other damages or costs that may arise inconnection with these circumstances.

Between August 31 and October 19, 2005, aseries of ten class-action lawsuits were filed in the United StatesDistrict Court for the Northern District of Georgia against the Company andcertain of its current and former directors and officers alleging violations ofthe securities laws. The Court has consolidated these cases for dispositionunder the caption *In re Immucor, Inc.Securities Litigation,* File No. 1:05-CV-2276-WSD,designated lead plaintiffs, permitted the filing of an amended consolidatedcomplaint, and established a schedule for briefing the Company’s motion todismiss the claims. The consolidated complaint, brought on behalf of a putativeclass of shareholders who purchased our stock between August 16, 2004and August 29, 2005, alleges that the Company’s stock prices during thatperiod were inflated as a result of material misrepresentations or omissions inthe Company’s financial statements and other public announcements regarding itsbusiness. On March 7, 2006, the Company timely moved to dismiss theconsolidated complaint. The motion to dismiss has been fully briefed and isawaiting court disposition.  Discoveryhas not yet begun. The Court made no determination whether any of theplaintiffs’ claims have merit or should be allowed to proceed as aclass action. Management believes the claims are without merit, andintends to vigorously defend the Company. While management does not currentlyexpect these lawsuits to materially affect the Company’s financial condition orresults of operations, there can be no assurance of any particular outcome.

In September 2005, F. Baragano Pharmaceuticalsfiled suit against the Company in the U.S. District Court for the District ofPuerto Rico, alleging that the Company cancelled a distribution contractwithout just cause, and is seeking $350,000 plus interest, costs and attorneyfees. In June 2006, the Company settled the lawsuit for $45,000.

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

Other than as set forthabove, the Company is not currently subject to any material legal proceedings,nor, to the Company’s knowledge, is any material legal proceeding threatenedagainst the Company. However, from time to time, the Company may become aparty to certain legal proceedings in the ordinary course of business.

**22.**          RELATEDPARTY TRANSACTIONS

Michael S. Goldman joined the Company’s Board ofDirectors effective May 15, 2006. Mr. Goldman is a Managing Directorand founding principal of TM Capital Corp., a New York and Atlanta investmentbank which has represented the Company in a number of transactions prior to Mr. Goldmanbecoming a director of the Company. The Company paid fees to TM Capital Corp.totaling $470,000, $60,000 and $20,000 in fiscal years 2006, 2005 and 2004,respectively.

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**IMMUCOR, INC. ANDSUBSIDIARIES**

**SCHEDULEII—VALUATION AND QUALIFYING ACCOUNTS**

**YEARSENDED MAY 31, 2006, 2005 AND 2004**

| ** **                               | ** ** | ** **    | ** ** | **Charged to** | ** ** | ** **     | ** ** | ** **  | ** ** |
|------------------------------------------|------------|---------------|------------|---------------------|------------|----------------|------------|-------------|------------|
| ** **                               | ** ** | **Beginning** | ** ** | **Costs and**  | ** ** | ** **     | ** ** | **Ending**  | ** ** |
| ** **                               | ** ** | **Balance**   | ** ** | **Expense**         | ** ** | **Deductions** | ** ** | **Balance** | ** ** |
| 2006                                     |       |          |       |                |       |           |       |        |       |   |   |   |   |   |   |
| Allowance for doubtful accounts          |       |          | $          | 1,874               |       |           |       | $           | 254        |   |   |   | $ | (178 | ) |   | $ | 1,950 |   |
| Provision for restructuring expense      |       |          | $          | —              |       |           |       | $           | 342        |   |   |   | $ | — |   |   | $ | 342 |   |
| Deferred income tax valuation allowance  |       |          | $          | 123                 |       |           |       | $           | 2,906      |   |   |   | $ | — |   |   | $ | 3,029 |   |
| 2005                                     |       |          |       |                |       |           |       |        |       |   |   |   |   |   |   |
| Allowance for doubtful accounts          |       |          | $          | 1,330               |       |           |       | $           | 942        |   |   |   | $ | (398 | ) |   | $ | 1,874 |   |
| Deferred income tax valuation allowance  |       |          | $          | 266                 |       |           |       | $           | —     |   |   |   | $ | (143 | ) |   | $ | 123 |   |
| 2004                                     |       |          |       |                |       |           |       |        |       |   |   |   |   |   |   |
| Allowance for doubtful accounts          |       |          | $          | 1,678               |       |           |       | $           | 206        |   |   |   | $ | (554 | ) |   | $ | 1,330 |   |
| Deferred income  tax valuation allowance |       |          | $          | 223                 |       |           |       | $           | 43         |   |   |   | $ | — |   |   | $ | 266 |   |

 

Note 1:       “Deductions”for the “Allowance for doubtful accounts” represent accounts written off duringthe period less recoveries of accounts previously written off and exchangedifferences generated.

**B.****              SupplementaryData**

**QUARTERLYFINANCIAL DATA (UNAUDITED)**

| ** **                  | ** ** | ** **                                                            | ** ** | ** ** | ** ** | ** **       | ** ** | ** **              | ** ** | ** **          | ** ** | **Earnings Per**        | ** ** |
|-----------------------------|------------|-----------------------------------------------------------------------|------------|------------|------------|------------------|------------|-------------------------|------------|---------------------|------------|------------------------------|------------|
| ** **                  | ** ** | ** **                                                            | ** ** | ** ** | ** ** | **Income ** | ** ** | ** **              | ** ** | **Earnings**        | ** ** | **Common Share -** | ** ** |
| ** **                  | ** ** | **Net**                                                               | ** ** | **Gross**  | ** ** | **from **   | ** ** | **Net **           | ** ** | **Per Common** | ** ** | **Assuming**                 | ** ** |
| **Fiscal Year  Ended** | ** ** | ** **                                                            | ** ** | **Sales**  | ** ** | **Profit**       | ** ** | **Operations(2) ** | ** ** | **Income **    | ** ** | **Share(1)**                 | ** ** | **Dilution(1)** | ** ** |
| ** **                  | ** ** | **(In thousands, except per share amounts)** | ** ** |
| **May 31, 2006**            |       |                                                                  |       |       |       |             |       |                    |       |                |       |                         |       |   |   |   |   |   |   |
| First Quarter               |       | $                                                                     | 42,434     |       | $          | 26,695           |       |                    | $          | 12,481              |       |                         | $          | 8,006 |   |   | $ | 0.12 |   |   |   | $ | 0.12 |   |   |
| Second Quarter              |       | 44,025                                                                |       | 28,541     |       |             | 12,766     |                    |       | 8,055               |       |                         | $          | 0.12 |   |   |   | $ | 0.11 |   |   |
| Third Quarter               |       | 47,090                                                                |       | 32,134     |       |             | 19,079     |                    |       | 11,721              |       |                         | $          | 0.17 |   |   |   | $ | 0.16 |   |   |
| Fourth Quarter              |       | 49,957                                                                |       | 34,167     |       |             | 18,714     |                    |       | 12,061              |       |                         | $          | 0.18 |   |   |   | $ | 0.17 |   |   |
|                        |       | $                                                                     | 183,506    |       | $          | 121,537          |       |                    | $          | 63,040              |       |                         | $          | 39,843 |   |   | $ | 0.59 |   |   |   | $ | 0.56 |   |   |
| **May 31,  2005**           |       |                                                                  |       |       |       |             |       |                    |       |                |       |                         |       |   |   |   |   |   |   |
| First Quarter               |       | $                                                                     | 32,102     |       | $          | 18,312           |       |                    | $          | 8,105               |       |                         | $          | 4,949 |   |   | $ | 0.07 |   |   |   | $ | 0.07 |   |   |
| Second Quarter              |       | 32,640                                                                |       | 18,321     |       |             | 6,648      |                    |       | 4,209               |       |                         | $          | 0.06 |   |   |   | $ | 0.06 |   |   |
| Third Quarter               |       | 37,982                                                                |       | 23,866     |       |             | 9,658      |                    |       | 6,224               |       |                         | $          | 0.09 |   |   |   | $ | 0.09 |   |   |
| Fourth Quarter              |       | 42,062                                                                |       | 26,746     |       |             | 12,841     |                    |       | 8,528               |       |                         | $          | 0.13 |   |   |   | $ | 0.12 |   |   |
|                        |       | $                                                                     | 144,786    |       | $          | 87,245           |       |                    | $          | 37,252              |       |                         | $          | 23,910 |   |   | $ | 0.35 |   |   |   | $ | 0.34 |   |   |
|                             |            |                                                                       |            |            |            |                  |            |                         |            |                     |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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       (1) All share and per share amounts have been retroactively adjusted toreflect the May 2006, December 2004 and July 2004 three-for-twostock splits.

       (2) Income from operations for the second quarterof the year ended May 31, 2006 includes a one-time charge amounting toapproximately $2,457,000 for restructuring expenses pertaining to the proposedclosure of the Houston manufacturing facilities.

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**Item 9.—Changes inand Disagreements with Accountants on Accounting and Financial Disclosure.**

Not applicable.

**Item 9A.—Controlsand Procedures.**

*(a) Evaluationof Disclosure Controls and Procedures*

The Company’s new majority owned subsidiary—Immucor-Kainos, Inc.—wasexcluded from management’s annual evaluation as of May 31, 2006, due tothe subsidiary being only recently acquired on July 5, 2005 and also dueto the Company being in the process of implementing its computer systems atImmucor-Kainos, Inc. This subsidiary will be included in futureevaluations of the effectiveness of the Company’s disclosure controls andprocedures when the system has been implemented, beginning no later than thequarter ending August 31, 2006.

As previously reported in the Company’s Annual Reporton Form 10-K for the fiscal year ended May 31, 2005, the  Company carried out an evaluation, under thesupervision of and with the participation of the Company’s management,including the Company’s Chief Executive Officer and Chief Financial Officer, ofthe effectiveness of the design and operation of the Company’s disclosurecontrols and procedures pursuant to Rule 13a-15(b) and 15d-15(b) underthe Exchange Act as of May 31, 2005. Based upon that evaluation, the ChiefExecutive Officer and Chief Financial Officer concluded that the Company’sdisclosure controls and procedures were ineffective as of May 31, 2005,and identified two material weaknesses in the Company’s internal control overfinancial reporting. A material weakness is a control deficiency, orcombination of control deficiencies, that results in more than a remotelikelihood that a material misstatement of the annual or interim financialstatements will not be prevented or detected. The identified materialweaknesses were as follows:

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

*Financial Statement Close Process*—Management also concludedthat as of May 31, 2005, material weaknesses existed related to theCompany’s financial statement close process resulting from: the lack ofadequate processes, controls, and review and approval procedures to ensure thatfinancial statements and disclosures generated for external purposes areprepared in accordance with generally accepted accounting principles; the lackof personnel with sufficient skills and experience to properly analyze certaintechnical accounting issues in accordance with generally accepted accountingprinciples; and the lack of adequate policies and procedures in certaininternational locations with respect to preparing journal entries andreconciling certain significant accounts.

Beginning in thefirst quarter of fiscal 2006 and concluding in the third quarter of fiscal2006, management completed the remediation work on the material weaknessesmentioned above. This involved the implementation of corrective measures in thefollowing areas identified as requiring remediation:

·       Formalizingcontrols around periodic monitoring of impairment indicators for inventory andlong-lived assets;

·       Strengtheningthe policies and procedures surrounding fixed assets, including periodicphysical counts and reconciliations of significant assets;

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·       Strengtheningthe controls related to stock option grant authorization, accounting andreporting;

·       Strengtheningthe review and approval process around the Company’s sales contracts to ensurethat they meet the criteria for revenue recognition, and seeking additionalinternal expertise in the area of revenue recognition;

·       Expandingreview procedures at each quarter end in support of footnote disclosuresthrough the establishment of a structured disclosure committee that commencedits work beginning with the review of the filing of the Company’s Form 10-Qfor the quarter ended February 28, 2006;

·       Strengtheningthe controls and review procedures relating to income taxes;

·       Furtheraddition of internal audit staff to increase the periodic review of compliancewith management’s stated policies and procedures; and

·       Furtheraddition of accounting staff and expertise to improve the Company’s controlenvironment and to compensate for the weaknesses identified.

Based on the evaluation completed in the fourthquarter of 2006, management has concluded that these control improvementsare properly designed and operating effectively as of May 31, 2006, andthe two material weaknesses existing as of May 31, 2005 have beenremediated. Management’s annual report on Internal Control over Financial Reporting for fiscal2006 is contained in Item 9A—(c) below.

Our independent registeredpublic accounting firm, Grant Thornton LLP, has issued an attestation report onmanagement’s assessment of our internal control over financial reporting. Thisreport is contained in Item 9A—(d) below.

*(b)  Changesin Internal Control over Financial Reporting*

Except as noted above,there was no significant change in our internal control over financialreporting that occurred during our most recently completed fiscal quarter thathas materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.

*(c) Management’s Annual Report on Internal Control over Financial Reporting*

The management of Immucor is responsible for establishing and maintaining adequateinternal control over financial reporting, as such is defined in Rules 13a-15(f) and15d-15(f) promulgated under the Securities Exchange Act of 1934, asamended. The Company’s internal control over financial reporting is a processthat is designed to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles.

Internal control systems, no matter how well designed,have inherent limitations. Therefore, even those systems determined to beeffective can provide only reasonable assurance with respect to financialstatement preparation and presentation, and may not prevent or detectmisstatements. In addition, projections of any evaluation of effectiveness tofuture periods are subject to risks that controls may become inadequate becauseof changes in conditions, individuals make errors in judgment, or individualsdo not comply with policies or procedures.

Immucor’s management performed an assessment of theeffectiveness of the Company’s internal control over financial reporting as of May 31,2006, utilizing the criteria described in “Internal Control—IntegratedFramework” issued by the Committee of Sponsoring Organizations of the TreadwayCommission (“COSO”). The objective of this assessment is to determine whetherthe Company’s internal control over financial reporting was effective as of May 31,2006. Immucor’s management has concluded that, as of May 31, 2006, itsinternal control over financial reporting was effective based on thesecriteria.

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Immucor acquired Immucor-Kainos, Inc. in July 2005.During the post acquisition period in fiscal 2006, Immucor-Kainos was excludedfrom management’s evaluation of disclosure controls and procedures. The Companyis currently in the process of implementing its computer systems atImmucor-Kainos, Inc. This subsidiary will be included in futureevaluations of the effectiveness of the Company’s disclosure controls andprocedures when these systems have been implemented.

Immucormanagement’s assessment of the effectiveness of its internal control overfinancial reporting as of May 31, 2006 has been audited by Grant ThorntonLLP, the independent registered public accounting firm that audited ourfinancial statements included in this Annual Report on Form 10-K.Grant Thornton LLP has issued an attestation report on management’s assessmentof the Company’s internal control over financial reporting, which is includedin Item 9A—(d) below.

| /s/ EDWARD L. GALLUP                                |   | /s/ PATRICK D. WADDY                                        |   |   |
|-----------------------------------------------------|--------|-------------------------------------------------------------|--------|--------|
| Edward L. Gallup                                    |   | Patrick D. Waddy                                            |   |   |
| Chairman of the  Board and  Chief Executive Officer |   | Vice President—  Chief Financial Officer and Secretary |   |   |

 

***(d) ***Report ofIndependent Registered Public Accounting Firm on Internal Control overFinancial Reporting

**REPORT OF GRANTTHORNTON LLP, INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM, ON INTERNAL CONTROL OVER FINANCIAL REPORTING**

The Board of DirectorsImmucor, Inc.

We have audited management’s assessment included inthe accompanying Management’s Report on Internal Controls Over FinancialReporting that Immucor, Inc. maintained effective internal control overfinancial reporting as of May 31, 2006 based on criteria established inInternal Control—Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (“COSO”). Immucor, Inc.’s managementis responsible for maintaining effective internal control over financialreporting and for its assessment of the effectiveness of internal control overfinancial reporting. Our responsibility is to express an opinion on management’sassessment and an opinion on the effectiveness of the company’s internalcontrol over financial reporting based on our audit.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, evaluatingmanagement’s assessment, testing and evaluating the design and operatingeffectiveness of internal control, and performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides areasonable basis for our opinions.

A company’s internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention 

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or timely detection ofunauthorized acquisition, use, or disposition of the company’s assets thatcould have a material effect on the financial statements.

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

As described in management’s Report on Internal ControlsOver Financial Reporting, management has excluded Immucor-Kainos, Inc. (“Kainos”)from its assessment of internal controls over financial reporting as of May 31,2006 because it was acquired by the company in July 2005. We have alsoexcluded Kainos from our audit of internal control over financial reporting. Kainosis a wholly owned subsidiary whose total assets and total revenues represent 7%and 4%, respectively, of the related consolidated financial statement amountsas of and for the year ended May 31, 2006.

In our opinion, management’s assessment that Immucor, Inc.maintained effective internal control over financial reporting as of May 31,2006, is fairly stated, in all material respects, based on criteria establishedin Internal Control-Integrated Framework issued by the COSO. Also in ouropinion, Immucor, Inc. maintained, in all material respects, effectiveinternal control over financial reporting as of May 31, 2006, based oncriteria established in Internal Control—Integrated Framework issued by theCOSO.

We have also audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the consolidated balance sheet of Immucor, Inc. as of May 31,2006 and the related statements of income, shareholders’ equity, and cash flowsfor the year then ended and our report dated July 28, 2006 expressed anunqualified opinion on those financial statements.

/s/ Grant Thornton LLPAtlanta, GeorgiaJuly 28, 2006

**Item 9B.—OtherInformation.**

Not applicable.

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**PART III**

**Item 10.—Directorsand Executive Officers of the Registrant.**

The information requiredby this Item shall be contained in the proxy statement for the 2006 annualmeeting, which shall be filed within 120 days of May 31, 2006.

**Item 11.—ExecutiveCompensation.**

The information requiredby this Item shall be contained in the proxy statement for the 2006 annualmeeting, which shall be filed within 120 days of May 31, 2006.

**Item 12.—SecurityOwnership of Certain Beneficial Owners and Management and Related Stockholder Matters.**

The information requiredby this Item shall be contained in the proxy statement for the 2006 annualmeeting, which shall be filed within 120 days of May 31, 2006.

**Item 13.—CertainRelationships and Related Transactions.**

The information requiredby this Item shall be contained in the proxy statement for the 2006 annualmeeting, which shall be filed within 120 days of May 31, 2006.

**Item 14.—PrincipalAccountant Fees and Services.**

The information requiredby this Item shall be contained in the proxy statement for the 2006 annualmeeting, which shall be filed within 120 days of May 31, 2006.

**PART IV**

**Item 15.—Exhibitsand Financial Statement Schedules.**

(a)           Documentsfiled as part of this report:

| 1.     |   | Consolidated Financial Statements.                                                                                                                                                                                                          |   |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   | The Consolidated  Financial Statements, Notes thereto, and Report of Independent Registered  Public Accounting Firm thereon are included in Part II, Item 8 of this  report.                                                           |   |
| 2.     |   | Consolidated Financial  Statement Schedule included in Part II, Item 8 of this report.                                                                                                                                                 |   |
|   |   | Schedule II—Valuation  and Qualifying Accounts.                                                                                                                                                                                        |   |
|   |   | Other financial  statement schedules are omitted as they are not required or not applicable.                                                                                                                                                |   |
| 3.     |   | Exhibits.                                                                                                                                                                                                                                   |   |
| 3.1    |   | Amended and Restated  Articles of Incorporation (incorporated by reference to Exhibit 3.1 to  Immucor, Inc.’s Quarterly Report on Form 10-Q filed on  January 16, 2001).                                           |   |
| 3.2    |   | Amendment to Amended and  Restated Articles of Incorporation dated November 11, 2004 (incorporated  by reference to Exhibit 3.1 to Immucor, Inc.’s quarterly report on  Form 10-Q filed on January 14, 2005). |   |

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| 3.3    |   | Amendment to Amended and  Restated Articles of Incorporation dated December 22, 2005 (incorporated  by reference to Exhibit 3.3 to Immucor, Inc.’s quarterly report on  Form 10-Q filed on April 6, 2006).                                                                              |   |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 3.4    |   | Amended and Restated  Bylaws (incorporated by reference to Exhibit 3.2 to Immucor, Inc.’s  Annual Report on Form 10-K filed on August 16, 2004).                                                                                                                                             |   |
| 4.1    |   | Amended and Restated  Shareholder Rights Agreement dated as of November 20, 2001 between  Immucor, Inc. and EquiServe Trust Company, N.A. as Rights Agent  (incorporated by reference to Exhibit 4.1 to Immucor, Inc.’s  quarterly report on Form 10-Q filed on January 14, 2002). |   |
| 10.1   |   | Standard Industrial  Lease, dated July 21, 1982, between the Company and Colony Center, Ltd. (incorporated  by reference to Exhibit 10.2 to Immucor, Inc.’s Annual Report on  Form 10-K for the fiscal year ended May 31, 1985).                                                        |   |
| 10.1-1 |   | Lease Amendment dated  June 28, 1989, between the Company and Colony Center, Ltd. (incorporated  by reference to Exhibit 10.1-1 to Immucor, Inc.’s Annual  Report on Form 10-K for the fiscal year ended May 31, 1989).                                                                 |   |
| 10.1-2 |   | Lease Amendment dated  November 8, 1991, between the Company and Colony Center, Ltd.  (incorporated by reference to Exhibit 10.1-1 to  Immucor, Inc.’s Annual Report on Form 10-K for the fiscal  year ended May 31, 1992).                                                             |   |
| 10.1-3 |   | Lease Agreement, dated  February 2, 1996, between the Company and Connecticut General Life  Insurance Company (incorporated by reference to Exhibit 10.1-3 to  Immucor, Inc.’s Annual Report on Form 10-K for the fiscal  year ended May 31, 1996).                                     |   |
| 10.1-4 |   | Lease Amendment, dated  March 8, 1998, between the Company and Connecticut General Life  Insurance Company (incorporated by reference to Exhibit 10.1-4 to  Immucor, Inc.’s Annual Report on Form 10-K for the fiscal  year ended May 31, 1998).                                        |   |
| 10.1-5 |   | Lease Amendment, dated  August 11, 1999, between the Company and Connecticut General Life  Insurance Company (incorporated by reference to Exhibit 10.1-5 to  Immucor, Inc.’s Annual Report on Form 10-K for the fiscal  year ended May 31, 1999).                                      |   |
| 10.2   |   | Agreement, dated  March 11, 1983, between the Company and The Kansas City Group, as  amended through January 21, 1985 (incorporated by reference to  Exhibit 10.2 to Registration Statement No. 33-16275 on Form S-1).                                                                       |   |
| 10.3   |   | Agreement dated  August 27, 1987, between the Company and the Kansas City Group amending  Exhibit 10.2 (incorporated by reference to Exhibit 10.3 to  Immucor, Inc.’s Annual Report on Form 10-K for the fiscal  year ended May 31, 1989).                                         |   |
| 10.4   |   | United States Department  of Health and Human Services Establishment License dated December 28,  1982, for the manufacture of biological products (incorporated by reference  to Exhibit 10.12 to Registration Statement No. 33-966 on  Form S-1).                                                |   |
| 10.5   |   | United States Department  of Health and Human Services Product License dated December 28, 1982,  for the manufacture and sale of reagent red blood cells (incorporated by  reference to Exhibit 10.13 to Registration Statement No. 33-966  on Form S-1).                                         |   |
| 10.6   |   | United States Department  of Health and Human Services Product License dated May 20, 1983, for the  manufacture and sale of blood grouping sera (incorporated by reference to  Exhibit 10.14 to Registration Statement No. 33-966 on  Form S-1).                                                  |   |

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| 10.7    |   | United States Department  of Health and Human Services Product License date November 18, 1983, for  the manufacture and sale of anti-human serum (incorporated by reference to  Exhibit 10.15 to Registration Statement No. 33-966 on  Form S-1).                                                                                                    |   |
|---------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 10.8*   |   | Immucor, Inc. 2005  Long-Term Incentive Plan (incorporated by reference to Exhibit 4.2 to  Immucor, Inc.’s Registration Statement No. 333-131902 filed  on April 5, 2006).                                                                                                                                                                 |   |
| 10.9*   |   | 2003 Stock Option Plan  (incorporated by reference to Exhibit 10.8 to Immucor, Inc.’s  Annual Report on Form 10-K filed on August 16, 2004).                                                                                                                                                                                                    |   |
| 10.9-1* |   | Amended and Restated  2003 Stock Option Plan, amended and restated as of November 10, 2004  (incorporated by reference to Exhibit 10.8-1 to Immucor, Inc’s  Annual Report on Form 10-K filed on October 19, 2005).                                                                                                                              |   |
| 10.10*  |   | Amended and Restated  1998 Stock Option Plan (incorporated by reference to Exhibit 10.9 to  Immucor, Inc.’s Annual Report on Form 10-K filed on  August 16, 2004).                                                                                                                                                                              |   |
| 10.11*  |   | Amended and Restated  1995 Stock Option Plan (incorporated by reference to Exhibit 10.10 to  Immucor, Inc.’s Annual Report on Form 10-K filed on  August 16, 2004).                                                                                                                                                                             |   |
| 10.12*  |   | 1990 Stock Option Plan,  including form of Stock Option Agreement used thereunder (incorporated by  reference to Exhibit 10.15 to Immucor, Inc.’s Annual Report on  Form 10-K for the fiscal year ended May 31, 1995).                                                                                                                          |   |
| 10.13*  |   | Employment Agreement  dated October 13, 1998, between the Company and Patrick D. Waddy  (incorporated by reference to Exhibit 10.12 to Immucor, Inc’s Annual  Report on Form 10-K filed on October 19, 2005).                                                                                                                                   |   |
| 10.14   |   | Loan Agreement among  Immucor, Inc., Dominion Biologicals, Limited, and Immucor Medizinische  Diagnostik GmbH, as borrowers, and Wachovia Bank, National Association, as  lender, dated as of February 23, 2001 (incorporated by reference to  Exhibit 10.23 to Immucor, Inc.’s quarterly report on Form 10-Q  filed April 23, 2001). |   |
| 10.15   |   | Loan Modification  No. 1 dated as of September 11, 2001 between Immucor, Inc.,  Dominion Biologicals, Limited, Immucor Medizinische Diagnostik GmbH and  Wachovia Bank, National Association (incorporated by reference to  Exhibit 10.21 to Immucor, Inc.’s quarterly report on Form 10-Q  filed January 14, 2002).             |   |
| 10.16*  |   | Form of  indemnification agreement between the Company and certain directors  (incorporated by reference to Exhibit 10.22 to Immucor, Inc.’s  quarterly report on Form 10-Q filed January 14, 2002).                                                                                                                                       |   |
| 10.17   |   | Loan Modification  No. 2 dated as of July 18, 2002 between Immucor, Inc.,  Dominion Biologicals, Limited, Immucor Medizinische Diagnostik GmbH and  Wachovia Bank, National Association (incorporated by reference to  Exhibit 10.23 to Immucor, Inc.’s Annual Report on Form 10-K  for the fiscal year ended May 31, 2002).     |   |
| 10.18   |   | Loan Agreement among  Immucor, Inc., as borrower, and SunTrust Bank, as lender, dated as of  December 18, 2003 (incorporated by reference to Exhibit 10.1 to  Immucor, Inc.’s quarterly report on Form 10-Q filed on  April 14, 2004).                                                                                                |   |
| 10.19   |   | Human Extracellular  Matrix Mesh Supply Agreement dated June 30, 2003, between the Company  and Inamed Corporation (incorporated by reference to Exhibit 10.18 to  Immucor, Inc.’s Annual Report on Form 10-K filed on  August 16, 2004).                                                                                                  |   |

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| 10.20* |   | Employment Agreement  dated May 1, 2004, between the Company and Edward L. Gallup  (incorporated by reference to Exhibit 10.19 to Immucor, Inc.’s  Annual Report on Form 10-K filed on August 16, 2004).                                             |   |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 10.21* |   | Amendment No. 1 to  Employment Agreement, dated May 22, 2006, by and between the Company and  Edward L. Gallup (incorporated by reference to Exhibit 10.2 to  Immucor, Inc.’s Current Report on Form 8-K filed on  May 25, 2006).               |   |
| 10.22* |   | Employment Agreement  dated May 1, 2004, between the Company and Ralph A. Eatz (incorporated  by reference to Exhibit 10.20 to Immucor, Inc.’s Annual Report on  Form 10-K filed on August 16, 2004).                                                |   |
| 10.23* |   | Amendment No. 1 to  Employment Agreement, dated May 22, 2006, by and between the Company and  Ralph A. Eatz (incorporated by reference to Exhibit 10.4 to  Immucor, Inc.’s Current Report on Form 8-K filed on  May 25, 2006).                  |   |
| 10.24* |   | Employment Agreement  dated December 1, 2003, between the Company and Dr. Gioacchino De  Chirico (incorporated by reference to Exhibit 10.21 to  Immucor, Inc.’s Annual Report on Form 10-K filed on  August 16, 2004).                         |   |
| 10.25* |   | Amendment No. 1,  dated May 1, 2004, to the Employment Agreement between the Company and  Dr. Gioacchino De Chirico (incorporated by reference to  Exhibit 10.22 to Immucor, Inc.’s Annual Report on Form 10-K  filed on August 16, 2004). |   |
| 10.26* |   | Employment Agreement  dated July 28, 2003, between the Company and Didier Lanson (incorporated  by reference to Exhibit 10.23 to Immucor, Inc’s Annual Report on  Form 10-K filed on October 19, 2005).                                                   |   |
| 21     |   | Subsidiaries of the  Registrant.                                                                                                                                                                                                                                                   |   |
| 23.1   |   | Consent of Grant  Thornton LLP, Independent Registered Public Accounting Firm.                                                                                                                                                                                                     |   |
| 23.2   |   | Consent of  Ernst & Young LLP, Independent Registered Public Accounting Firm.                                                                                                                                                                                             |   |
| 31.1   |   | Certification of Principal Executive Officer Pursuant to  Rule 13a-14(a).                                                                                                                                                                                                |   |
| 31.2   |   | Certification of  Principal Financial Officer Pursuant to Rule 13a-14(a).                                                                                                                                                                                                     |   |
| 32.1   |   | Certification of Chief  Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of  2002.                                                                                                                                                                         |   |
| 32.2   |   | Certification of Chief  Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of  2002.                                                                                                                                                                         |   |

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*                  Denotes a management contract or compensatoryplan or arrangement

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**SIGNATURES**

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

**IMMUCOR,INC.**

| By:    |   | /s/ EDWARD L. GALLUP                                                 |   |
|--------|--------|----------------------------------------------------------------------|--------|
|   |   | Edward L. Gallup, Chairman of the Board and Chief  Executive Officer |   |
|   |   | (Principal Executive Officer)                                        |   |
|   |   | July 31, 2006                                                   |   |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the registrant and inthe capacities and on the dates indicated.

| /s/ EDWARD L. GALLUP                                                          |   |   |
|-------------------------------------------------------------------------------|--------|--------|
| Edward L. Gallup,  Director, Chairman of the Board of Directors,              |   |   |
| and Chief  Executive Officer                                                  |   |   |
| (Principle  Executive Officer)                                                |   |   |
| July 31,  2006                                                           |   |   |
| /s/ PATRICK D.  WADDY                                                         |   |   |
| Patrick D. Waddy,  Vice President - Chief Financial Officer and Secretary     |   |   |
| (Principal  Financial and Accounting Officer)                                 |   |   |
| July 31,  2006                                                           |   |   |
| /s/ ROSWELL S.  BOWERS                                                        |   |   |
| Roswell S.  Bowers, Director                                                  |   |   |
| July 31,  2006                                                           |   |   |
| /s/ DR.  GIOACCHINO DE CHIRICO                                                |   |   |
| Dr. Gioacchino  De Chirico, Director, President                          |   |   |
| July 31,  2006                                                           |   |   |
| /s/ RALPH A. EATZ                                                             |   |   |
| Ralph A. Eatz,  Director, Senior Vice President—Chief Scientific Officer |   |   |
| July 31,  2006                                                           |   |   |
| /s/ MICHAEL GOLDMAN                                                           |   |   |
| Michael Goldman,  Director                                                    |   |   |
| July 31,  2006                                                           |   |   |

 

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**EXHIBITINDEX**

| Number | ** ** | **Description**                                                                                            |
|--------|------------|------------------------------------------------------------------------------------------------------------|
| 21     |       | Subsidiaries of the  Registrant.                                                                           |
| 23.1   |       | Consent of Grant  Thornton LLP, Independent Registered Public Accounting Firm.                             |
| 23.2   |       | Consent of  Ernst & Young LLP, Independent Registered Public Accounting Firm.                     |
| 31.1   |       | Certification of  Principal Executive Officer Pursuant to Rule 13a-14(a).                             |
| 31.2   |       | Certification of  Principal Financial Officer Pursuant to Rule 13a-14(a).                             |
| 32.1   |       | Certification of Chief  Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of  2002. |
| 32.2   |       | Certification of Chief  Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of  2002. |

 

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