From time to time the Company makes statements or projections about future financial results or economic performance, or statements about plans and objectives for future operations, which are referred to as "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and the safe harbor provisions set forth in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may be identified by words such as "plans," "expects," "believes," "anticipates," "estimates," "projects," "will," "should" and other words of similar meaning. We sometimes use forward-looking statements in discussions of future operations, financial performance, product development and new product launches, FDA and other regulatory applications and approvals, market position and expenditures. Some of the statements in this report are such forward-looking statements. Factors that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company include the following, some of which are described in greater detail below: the outcome and costs associated with the Company's Quality Process Improvement Project; the outcome of the administrative action ("notice of intent to revoke our biological license") received by the Food and Drug Administration ("FDA"); customer reaction to the FDA action and the subsequent impact on the business; lower than expected demand for the Company's instruments; the decision of customers to defer capital spending; the unexpected change in the mix of instruments being purchased instead of acquired through other means, which could significantly change costs recognized in the period; the inability of customers to efficiently integrate the Company's instruments into their blood banking operations; increased competition in the sale of instruments and reagents, particularly in the United States; unanticipated operational problems that result in non-compliance with FDA regulations; the failure to effectively integrate BioArray operations into the Company's overall operations; product development obstacles including obstacles related to the development of the Galileo Neo as well as the next generation automated instrument for the molecular immunohematology products; regulatory obstacles including obstacles in securing regulatory approval of the molecular immunohematology products; the inability to hire and retain, and the unexpected loss of, key managers; changes in interest rates; fluctuations in foreign currency conversion rates; the strengthening of the U.S. Dollar versus any of the functional currencies in which the Company operates and its adverse impact on reported results; the inability of the Company's Japanese, French and United Kingdom subsidiaries to attain expected revenue, gross margin and net income levels; the outcome of any legal claims or regulatory investigations known or unknown, including the ongoing investigations by the Department of Justice and the Federal Trade Commission, and the related customer and shareholder lawsuits; the Company's inability to protect its intellectual property or its infringement of the intellectual property of others; lower than expected market acceptance of the molecular immunohematology products; the unexpected application of different accounting rules; general economic conditions; and adverse developments with respect to the operation or performance of the Company, its products and its affiliates or the market price of its common stock. Investors are cautioned not to place undue reliance on any forward-looking statements. The Company cautions that historical results should not be relied upon as indications of future performance. The Company assumes no obligation to update any forward-looking statements. Additional information concerning these and other factors which could cause differences between forward-looking statements and future actual results is discussed under the heading "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended May 31, 2009 as filed with the SEC on July 24, 2009 as such risk factors may be revised or expanded in this report.

Overview

Our Business

We develop, manufacture, and sell a complete line of reagents and automated systems used primarily by hospitals, clinical laboratories and blood banks in tests performed to detect and identify certain properties of human blood prior to blood transfusions. We have manufacturing facilities in the United States and Canada. We sell our products from these facilities and through our affiliates in Western Europe and Japan as well as through third-party distributors in other markets.

We operate in a highly regulated industry and are subject to continuing compliance with multiple country-specific statutes, regulations and standards. For example, in the U.S. the Food and Drug Administration ("FDA") regulates all aspects of the blood banking industry, including the marketing of reagents and instruments used to detect and identify blood properties.

Our strategy is to drive automation in the blood bank with the goal of improving the blood bank's operations as well as patient safety. We have introduced several instruments in the past, and we continue to focus on developing new instruments and improving our existing instruments. We received FDA clearance in June 2007 to market our Galileo Echo ® ("Echo") instrument. The Echo is a compact bench top, fully-automated walk-away instrument that meets the needs of the small- to medium-sized hospital market as well as integrated delivery networks that want to standardize the operations of their blood banks. Like our high volume Galileo® instrument, Echo uses Capture® technology, our proprietary reagents, and offers an extensive test menu and significant labor reduction while increasing productivity and patient safety.

In August 2008, we invested in what we believe will be the future of the blood bank - molecular immunohematology - with our acquisition of privately-held BioArray Solutions ("BioArray"). BioArray pioneered the development of DNA typing of blood for transfusion. With the goal of improving transfusion medicine, we believe that molecular immunohematology will revolutionize blood bank operations. In many countries, blood pre-transfusion testing is limited to the prevention of transfusion reactions and not for the prevention of alloimmunization, which occurs when antigens foreign to the patient are inadvertently introduced into the patient's blood system through transfusions. If alloimmunization occurs, the patient develops new antibodies in response to the foreign antigens, thereby complicating future transfusions. By using multiplex, cost-effective molecular testing, we plan to introduce a system that allows testing to prevent alloimmunization for better patient care. We are currently working on the next generation instrument to allow for the further commercialization of our molecular immunohematology technology. Our current timeline is to have a research use only instrument available in the first half of calendar 2011.

Recent Developments

Two significant recent developments are the acquisition of BioArray and the development of the next generation automated instrument to allow the full scale commercialization of our acquired molecular immunohematology offering, which are discussed above under "Our Business." The following discusses other recent developments in our business.

Continued market penetration of the Echo instrument - We launched our latest instrument, the Echo, in the first quarter of fiscal 2008. The Echo features STAT functionality, exceptional mean time between failures and what we believe is the fastest turnaround time in the industry. The Echo is targeted at the small- to medium-sized hospital market, the largest segment of our market, numbering approximately 6,000 worldwide. As of August 31, 2009, we had received orders for a total of 643 Echo instruments worldwide. We believe continued market penetration of Echo will be a growth driver for the Company.

Upcoming launch of Galileo Neo™ - We are currently developing a new version of the Galileo, named the Galileo Neo, which will be our fourth generation automated instrument. We believe the original Galileo, which was launched in Western Europe in 2002 and in the U.S. in 2004, is approaching its natural replacement cycle of 5-7 years. Galileo Neo, like the original Galileo, will be targeted at high volume customers: large hospitals, donor centers and reference laboratories. We expect the Galileo Neo will have faster turnaround times and a longer mean time between failure than the current Galileo as well as new features such as STAT functionality. We expect to launch the Galileo Neo during the first calendar quarter of 2010.

FDA Administrative Action - In June 2009, we announced that the FDA, in an administrative action based on a January 2009 inspection, issued a notice of intent to revoke our biologics license with respect to our Reagent Red Blood Cells and Anti-E (Monoclonal) Blood Grouping Reagent products. Under this administrative action, we have the opportunity to demonstrate or achieve compliance before the FDA initiates revocation proceedings or takes other action. The FDA did not order the recall of any of our products or restrict us from selling these products. This administrative action was a follow on to a warning letter that we had received in May 2008. We had been working on a remediation plan, submitted after the warning letter, but had failed to make adequate progress at the time of the FDA's follow up January 2009 inspection. In early calendar 2009 (during our fiscal third quarter), we formalized efforts to improve our quality systems through the Quality Process Improvement Project, which is discussed in further detail below. In response to the June 2009 administrative action, we submitted a detailed remediation plan that outlines our actions and timelines to correct the FDA's noted deficiencies from the January 2009 inspection. The Quality Process Improvement Project served as the basis for the detailed remediation plan. We continue to implement the Project and believe that, in addition to addressing the deficiencies noted by the FDA, we will have a world-class quality system upon its completion. We are targeting to complete the Project during our third fiscal quarter of 2010.

Quality Process Improvement Project - During our third fiscal quarter of 2009, we formalized our efforts to improve the processes and procedures of our quality department through establishing the Quality Process Improvement Project. The Project expanded the role of consultants hired in April 2008. The Project's objective is to deliver on our commitment of maintaining a world-class quality system. During fiscal 2009, we spent approximately $2.4 million on the Project, which was primarily reflected in cost of goods sold. During our first fiscal quarter of 2010, we spent $2.3 million on the Project and we expect to incur a total of $4.0 million to $4.5 million of Project-related expenses in fiscal 2010. The Project expenses primarily represent the cost of external consultants who are assisting us with the Project. We are targeting to complete the Project during our third fiscal quarter of 2010.

The U.S. Department of Justice Subpoena - In April 2009, we announced that we had received a subpoena from the U.S. Department of Justice, Antitrust Division related to an investigation of possible violations of the federal criminal antitrust laws in the blood reagents industry. The subpoena requires us to produce documents for the period beginning September 1, 2000 through the present. We are cooperating fully with the Department of Justice.

Lawsuits - Since May 2009, more than 30 antitrust lawsuits have been filed against Immucor, Ortho-Clinical Diagnostics, Inc. and Johnson & Johnson Health Care Systems, Inc. alleging that those companies conspired to fix blood reagent prices. Additionally, in August and September 2009, two lawsuit were filed against Immucor alleging violations of the federal securities laws. These lawsuits are in the preliminary stages. See Part II, Item 1. Legal Proceedings below.

Performance



                                       Three Months Ended                 Change
                                  August 31,        August 31,
                                     2009              2008          Amount        %
                                                   ($ in thousands)
      Net sales                  $     83,071      $     73,176      $ 9,895       14 %
      Gross margin                     59,689            53,425        6,264       12 %
      Gross margin percentage            71.9 %            73.0 %
      Operating expenses               26,347            22,800        3,547       16 %

      Income from operations           33,342            30,625        2,717        9 %
      Non-operating income                215               247          (32 )    -13 %

      Income before income tax         33,557            30,872        2,685        9 %
      Provision for income tax         12,224            10,916        1,308       12 %

      Net income                 $     21,333      $     19,956      $ 1,377        7 %

      Earnings per share:
      Per common share-basic     $       0.30      $       0.28      $  0.02        7 %

      Per common share-diluted   $       0.30      $       0.28      $  0.02        7 %

Revenue increased by approximately $9.9 million or approximately 14% during the three months ended August 31, 2009 compared with revenue in the prior year quarter. This increase was primarily attributable to approximately $6.5 million from price contributions, which included incremental revenue from both contractual and discretionary sources, and approximately $5.1 million from volume contributions, which included incremental revenue from instrument placements. These increases were offset by a negative currency impact of approximately $1.7 million.

For the first quarter of fiscal 2010, our consolidated gross margin decreased to 71.9% from 73.0% achieved in the first quarter of fiscal 2009, primarily due to $2.3 million of costs related to our Quality Process Improvement Project, which was reflected in cost of sales. Operating expenses increased approximately 16%, primarily due to our acquisition of BioArray. Net income increased approximately 7% in the first quarter of fiscal 2010 over the prior year quarter.

As of August 31, 2009, we had received orders for a total of 643 Echo instruments worldwide (an increase of 40 instruments in the first quarter of fiscal 2010), including 137 in Europe, including distributors, 493 in the U.S. and Canada and 13 in Japan, and approximately 430 of these Echo instruments were generating reagent revenues at the expected annualized run rate. For Galileo, as of August 31, 2009, we had received orders for a total of 651 Galileo instruments worldwide (an increase of 14 instruments in the first quarter of fiscal 2010), including 379 in Europe, including distributors, 266 in the U.S. and Canada and 6 in Japan, and approximately 614 of these Galileo instruments were generating reagent revenues at the expected annualized run rate.

Results of Operations

Net Sales



                                          Three Months Ended          Change
                                      August 31,     August 31,
                                         2009           2008       Amount     %
                                                   ($ in thousands)
         Traditional reagents         $    54,719   $     49,272   $ 5,447    11 %
         Capture products                  18,303         15,174     3,129    21 %
         Instruments                        9,292          8,579       713     8 %
         Molecular immunohematology           757            151       606   401 %

                                      $    83,071   $     73,176   $ 9,895    14 %

Traditional reagent revenue increased by approximately $5.4 million, or approximately 11%, in the first quarter of fiscal 2010 compared with the prior year quarter primarily due to price contributions, which included incremental revenue from both contractual and discretionary sources. Traditional reagent sales, which accounted for approximately two-thirds of total revenue in the current year quarter, have historically been a significant portion of our revenue. We expect our revenue mix to change over time as we place more instruments in the market, which results in increased sales of our Capture reagents.

Capture revenue increased by approximately $3.1 million, or approximately 21% in the first quarter of fiscal 2010 compared with the prior year quarter primarily due to increased volume. Sales of Capture reagents are largely dependent on the number of installed instruments requiring the use of our proprietary Capture technology. As we continue to place more instruments in the market, we expect revenue from Capture reagents to continue to increase.

Revenue from instruments increased by approximately $0.7 million, or approximately 8% in the first quarter of fiscal 2010 compared with the prior year quarter due to increased instrument placements. Historically, revenue from instrument sales in the United States has been recognized over the life of the underlying reagent contract when it includes a price guarantee, which is normally five years. In the first fiscal quarter of 2010, approximately $2.2 million of deferred revenue was recognized from previously placed instruments compared to $2.8 million recognized in the prior year quarter. We deferred approximately $0.7 million of instrument revenues related to instrument placements in the current year quarter, compared to $2.1 million in the prior year quarter. We continued to have a significant proportion of instruments that are acquired as rentals in the current year quarter, which resulted in revenue being recognized over the term of the contract as earned, versus deferred and amortized as in the case of the instrument being sold. As of August 31, 2009 and 2008, deferred instrument and service revenues totaled approximately $21.0 million and $23.9 million, respectively.

Molecular immunohematology revenue increased $0.6 million in the first quarter of fiscal 2010 compared with the previous year quarter. Our molecular immunohematology products are a result of our August 4, 2008 BioArray acquisition.

Gross Margins (1)



                                                          Three Months Ended
                                              August 31, 2009              August 31, 2008            Change
                                           Amount         Margin %        Amount      Margin %        Amount
                                          (in '000)                      (in '000)                   (in '000)
Traditional reagents (1)                 $    41,646          76.1 %    $    38,770       78.7 %    $     2,876
Capture products (1)                          15,245          83.3 %         13,157       86.7 %          2,088
Instruments (1)                                2,977          32.0 %          1,489       17.4 %          1,488
Molecular immunohematology (1)                  (179 )       -23.6 %              9        6.0 %           (188 )

                                         $    59,689          71.9 %    $    53,425       73.0 %    $     6,264

(1) The determination of gross margin is exclusive of amortization expense which is presented separately as an operating expense in the income statement.

Gross margins on traditional reagents decreased to 76.1% in the first quarter of fiscal 2010 from 78.7% in the prior year quarter, primarily due to approximately $2.3 million in costs related to our Quality Process Improvement Project. These costs were reflected in traditional reagent cost of sales.

Capture product gross margins decreased to 83.3% in the first quarter of fiscal 2010 from 86.7% in the prior year quarter primarily due to manufacturing variances and sales mix.

Gross margins on instruments increased to 32.0% in the current year quarter from 17.4% in the prior year quarter, primarily due to favorable purchase price variances related to parts as well as sales mix. In the current year quarter, more instruments were rented (versus sold) as compared to the prior year quarter. Where sales contracts have reagent price guarantee clauses (which our automation contracts typically do), instrument costs are expensed when the sale is made, but the related instrument revenue is deferred and recorded as income over the term of the contract. When an instrument is rented, revenue and expenses for the transaction are recognized evenly over the life of the contract. Additionally, current year margins benefited from the recognition of revenue deferred from prior periods with approximately $2.2 million of deferred revenue recognized in the first quarter of fiscal 2010.

Operating Expenses



                                         Three Months Ended
                                     August 31,     August 31,         Change
                                        2009           2008       Amount        %
                                               ($ in thousands)
        Research and development     $     3,823   $      1,880   $ 1,943      103 %
        Selling and marketing              9,464          9,469        (5 )      0 %
        Distribution                       3,506          3,468        38        1 %
        General and administrative         8,487          7,458     1,029       14 %
        Amortization expense               1,067            525       542      103 %

        Total operating expenses     $    26,347   $     22,800   $ 3,547       16 %

Research and development expenses increased by approximately $1.9 million in the first quarter of fiscal 2010 over the prior year quarter, primarily due to the acquisition of BioArray, which took place on August 4, 2008, and the development of the molecular immunohematology technology we acquired.

Selling and marketing expenses as well as distribution expenses were in line with the prior year quarter.

General and administrative expenses increased by approximately $1.0 million in the first quarter of fiscal 2010 over the prior year, primarily due to increased legal fees and the addition of BioArray.

Amortization expense increased by approximately $0.5 million in the first quarter of fiscal 2010 compared with the prior year primarily due to amortization of finite-lived intangibles that were recorded upon the acquisition of BioArray.

Non-Operating Income



                                          Three Months Ended
                                      August 31,      August 31,     Change
                                         2009            2008        Amount
                                                ($ in thousands)
    Non-operating income (expense)   $        215    $        247   $    (32 )    -13 %

Non-operating income was essentially in line with the prior year quarter.

Income Taxes

The provision for income taxes increased $1.3 million for the three months ended August 31, 2009 compared with the corresponding period in fiscal 2009 primarily due to changes in pre-tax income. The effective income tax rate was 36.4% in the three-month period ended August 31, 2009, compared with 35.4% in the three-month period ended August 31, 2008, respectively. The effective tax rate of 35.4% for the first quarter of fiscal 2009 was positively impacted by certain provision-to-return true-up adjustments totaling approximately $0.4 million that were not recurring. Excluding these adjustments, the effective tax rate for the first quarter of fiscal 2009 would have been 36.6%.

As a result of using compensation cost deductions arising from the exercise of nonqualified employee stock options and vesting of restricted shares for federal and state income tax purposes, we realized income tax benefits of approximately $0.2 million and $3.0 million in the three-month periods ended August 31, 2009 and August 31, 2008, respectively. The majority of the exercises that contribute to the tax benefit are exercises of options that were granted prior to the adoption of SFAS 123(R). Therefore, as required by U.S. generally accepted accounting principles, these income tax benefits are recognized in our financial statements as additions to additional paid-in capital rather than as reductions of the respective income tax provisions in the consolidated financial statements because the related compensation deductions were not recognized as compensation expense for financial reporting purposes. Our income tax liability is reduced by these amounts.

Liquidity and Capital Resources



                                                          For the Three Months Ended
                                                        August 31,           August 31,
                                                           2009                 2008
                                                                (in thousands)
Net cash provided by operating activities              $     24,527          $    21,560
Net cash used in investing activities                        (3,552 )           (110,069 )
Net cash provided by (used in) financing
activities                                                   (6,018 )              4,015
Effect of exchange rate changes on cash and cash
equivalents                                                   1,071               (1,442 )

Increase (decrease) in cash and cash equivalents       $     16,028          $   (85,936 )

Our cash and cash equivalents were $152.5 million at August 31, 2009, as compared with $136.5 million at May 31, 2009. The increase in our cash position primarily resulted from operating cash flow in the first quarter of fiscal 2010.

Operating Activities-Net cash generated by operating activities was $24.5 million for the three months ended August 31, 2009, compared with $21.6 million generated in the three months ended August 31, 2008. The year-over-year increase was primarily due to increased profitability.

Investing Activities-For the first fiscal quarter of 2010, $3.6 million of net cash was used in investing activities compared with $110.0 million of cash used in the prior year quarter. In the first quarter of fiscal 2009, we paid $108.2 million for the acquisitions of BioArray and our U.K. distributor. For the purchase of property and equipment, we spent $3.6 million in the current year quarter compared with $1.8 million spent in the prior year quarter.

Financing Activities-In the first quarter of fiscal 2010, net cash used in financing activities was $6.0 million, compared with $4.0 million of net cash provided in the prior year period. During the current year quarter, we had a cash outflow of $0.2 million for payment of withholding taxes in compliance with . . .