UNITED STATES 
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934



|For the Quarterly Period
 Ended December 31, 2005 | Commission File
 Number 1-11700
|------------------------------------------------- | -------------------------------

|HEMAGEN DIAGNOSTICS, INC.                                               
|------------------------------------------------------------------------
|(Exact name of Small Business Issuer as
       Specified in its Charter)

|Delaware                |  | 04-2869857              
|----------------------- |  | ------------------------
|(State of Organization) |  | (I.R.S. Employer Number)

|9033 Red Branch Road, Columbia, Maryland 21045-2105
|---------------------------------------------------
|(Address of principal executive offices, Zip Code) 

|(443) 367 5500                                  
|------------------------------------------------
|(Issuer's telephone number, including area code)

Check
whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities and Exchange Act of 1934 during the preceding 12 months and (2) has been
subject to such filing requirements for the past 90 days.

Yes  [X]
                                    No  [   ]

Indicate by
check mark whether the registrant is a shell company.

Yes  [   ]
                                    No  [X]

As
of December 31, 2005, the issuer had 15,225,289 shares of Common Stock, $.01 par value per
share outstanding.

Transitional Small Business Disclosure Format:          Yes  [   ]
                                    No  [X]

---

# HEMAGEN DIAGNOSTICS,
INC. AND SUBSIDIARIES

# INDEX

|PART I.
       FINANCIAL INFORMATION | PAGE NUMBER
|------------------------------------ | -----------
|                                     | Item 1.    
|                                     |            
|                                     |            
|                                     |            
|                                     |            
|                                     | Item 2.    
|                                     | Item 3.    

|PART II.
       OTHER INFORMATION
|---------------------------------
|                                 
|                                 
|                                 
|                                 
|                                 

|SIGNATURES     |  |  | 20
|-------------- |  |  | --
|CERTIFICATIONS |  |  | 21

2

---

# PART I  Financial
Information

Item 1.   Financial
Statements

# HEMAGEN DIAGNOSTICS,
INC. AND SUBSIDIARIES                            CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)

|                                                        | December 31,
2005 | September 30,
2005
|------------------------------------------------------- | ----------------- | ------------------
|ASSETS                                                  |                   |                   
|                                                        |                   |                   
|CURRENT ASSETS:                                         |                   |                   
|Cash and cash equivalents                               |                   |                   
|Accounts receivable, less allowance for                 |                   |                   
|doubtful accounts of $86,862 at December 31, 2005       |                   |                   
|and September 30, 2005                                  |                   |                   
|Inventory; net                                          |                   |                   
|Prepaid expenses and other current assets               |                   |                   
|                                                        |                   |                   
|Total current assets                                    |                   |                   
|                                                        |                   |                   
|PROPERTY AND EQUIPMENT; net of accumulated depreciation |                   |                   
|and amortization of $7,215,685 and $7,218,967 at        |                   |                   
|December 31, 2005 and September 30, 2005, respectively  |                   |                   
|OTHER ASSETS, NET                                       |                   |                   
|                                                        |                   |                   
|Total Assets                                            |                   |                   
|                                                        |                   |                   

The accompanying notes are an
integral part of the financial statements.

3

---

# HEMAGEN DIAGNOSTICS,
INC. AND SUBSIDIARIES                            CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)

# LIABILITIES AND
STOCKHOLDERS EQUITY

|                                                                | December 31,
2005 | September 30,
2005
|--------------------------------------------------------------- | ----------------- | ------------------
|CURRENT LIABILITIES:                                            |                   |                   
|Senior subordinated secured convertible notes                   |                   |                   
|Revolving line of credit                                        |                   |                   
|Accounts payable and accrued liabilities                        |                   |                   
|Deferred revenue                                                |                   |                   
|Note payable                                                    |                   |                   
|                                                                |                   |                   
|Total Current Liabilities                                       |                   |                   
|                                                                |                   |                   
|Senior subordinated secured convertible notes due September 30, |                   |                   
|2009, net of unamortized discount of $255,666 and $269,257 at   |                   |                   
|December 31, 2005 and September 30, 2005, respectively          |                   |                   
|                                                                |                   |                   
|Total liabilities                                               |                   |                   
|                                                                |                   |                   
|COMMITMENTS AND CONTINGENGIES                                   |                   |                   
|                                                                |                   |                   
|STOCKHOLDERS' DEFICIT                                           |                   |                   
|                                                                |                   |                   
|Preferred stock, $0.01 par value - 1,000,000                    |                   |                   
|shares authorized; none issued                                  |                   |                   
|Common stock, $.01 par value - 30,000,000                       |                   |                   
|shares authorized; issued and outstanding:                      |                   |                   
|15,325,289 and 15,304,351 at December 31, 2005                  |                   |                   
|and September 30, 2005, respectively                            |                   |                   
|Additional paid-in capital                                      |                   |                   
|Accumulated deficit                                             |                   |                   
|Accumulated other comprehensive loss-                           |                   |                   
|currency translation loss                                       |                   |                   
|Less treasury stock at cost; 100,000                            |                   |                   
|shares at December 31, 2005                                     |                   |                   
|and September 30, 2004, respectively                            |                   |                   
|                                                                |                   |                   
|Total Stockholders' Deficit                                     |                   |                   
|                                                                |                   |                   
|Total Liabilities and Stockholders' Deficit                     |                   |                   
|                                                                |                   |                   

The accompanying notes are an
integral part of the financial statements.

4

---

# HEMAGEN DIAGNOSTICS,
INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)

|                                                     | Three Months Ended
|---------------------------------------------------- | ------------------
|
|Revenues:                                            |                   
|Product sales                                        |                   
|                                                     |                   
|Costs and expenses:                                  |                   
|Cost of product sales                                |                   
|Research and development                             |                   
|Selling, general and administrative                  |                   
|                                                     |                   
|Operating income (loss)                              |                   
|                                                     |                   
|Other expenses:                                      |                   
|Interest expense, net, including                     |                   
|$14,638 and $15,326 respectively                     |                   
|of debt discount amortization                        |                   
|Other                                                |                   
|                                                     |                   
|Total other expenses                                 |                   
|                                                     |                   
|Net income (loss) before income taxes                |                   
|                                                     |                   
|Income tax expense                                   |                   
|                                                     |                   
|Net income (loss)                                    |                   
|                                                     |                   
|Other comprehensive loss, net of tax:                |                   
|Foreign currency translation adjustments             |                   
|                                                     |                   
|Other comprehensive loss                             |                   
|                                                     |                   
|Comprehensive income (loss)                          |                   
|                                                     |                   
|Net income (loss) per share - basic:                 |                   
|                                                     |                   
|Net income (loss) per share - diluted                |                   
|                                                     |                   
|Weighted average common shares outstanding - basic   |                   
|                                                     |                   
|Weighted average common shares outstanding - diluted |                   
|                                                     |                   

The accompanying notes are an integral
part of the financial statements

5

---

# HEMAGEN DIAGNOSTICS,
INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)

|                                                    | Three Months Ended
December 31,
|--------------------------------------------------- | -------------------------------
|
|Cash flows from operating activities:               |                                
|Net income (loss)                                   |                                
|Adjustments to reconcile net income (loss) to net   |                                
|cash provided by operating activities:              |                                
|Depreciation and amortization                       |                                
|Amortization of debt discount                       |                                
|Gain on exchange of senior subordinated secured     |                                
|convertible note                                    |                                
|Loss on sale of property and equipment              |                                
|Changes in operating assets and liabilities:        |                                
|Accounts and other receivables                      |                                
|Prepaid expenses and other current assets           |                                
|Inventories                                         |                                
|Accounts payable and accrued expenses               |                                
|Deferred revenue                                    |                                
|                                                    |                                
|Net cash provided by (used in) operating activities |                                
|                                                    |                                
|Cash flows from investing activities:               |                                
|Purchase of property and equipment                  |                                
|                                                    |                                
|Net cash used in investing activities               |                                
|                                                    |                                
|Cash flows from financing activities:               |                                
|Net repayments of revolving line of credit          |                                
|Net borrowings on construction mortgage             |                                
|financing obtained with purchase                    |                                
|of land and building                                |                                
|Exercise of stock options                           |                                
|                                                    |                                
|Net cash provided by financing activities           |                                
|                                                    |                                
|Effects of foreign exchange rate                    |                                
|                                                    |                                
|Net increase (decrease) in cash and cash equivalent |                                
|                                                    |                                
|Cash and cash equivalents at beginning of period    |                                
|                                                    |                                
|Cash and cash equivalents at end of period          |                                
|                                                    |                                
|Supplemental disclosure of cash flow information:   |                                
|Interest paid                                       |                                
|                                                    |                                
|Issuance of 20,938 shares of common stock and       |                                
|$16,625 senior secured convertible note due         |                                
|September 30, 2009, with an original issue          |                                
|discount of $1,047 in exchange for $25,000          |                                
|senior secured convertible notes due April 17,      |                                
|2005                                                |                                
|                                                    |                                

The accompanying notes are an
integral part of the financial statements.

6

---

# HEMAGEN DIAGNOSTICS,
INC. AND SUBSIDIARIES                              NOTES TO CONSOLIDATED
                              FINANCIAL STATEMENTS

# NOTE A  BASIS OF
PRESENTATION

Hemagen Diagnostics, Inc.
(Hemagen or the Company) has prepared the accompanying unaudited
consolidated financial statements in accordance with accounting principles generally
accepted in the United States of America for interim financial information and pursuant to
the rules and regulations of the Securities and Exchange Commission instructions to Form
10-QSB and Item 310(b) of regulation S-B. These financial statements should be read
together with the financial statements and notes in the Companys 2005 Annual Report
on Form 10-KSB filed with the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America have been
condensed or omitted. The accompanying financial statements reflect all adjustments and
disclosures, which, in the Companys opinion, are necessary for fair presentation.
All such adjustments are of a normal recurring nature. The results of operations for the
interim periods are not necessarily indicative of the results of the entire year.

At December 31, 2005, Hemagen had
$278,000 of unrestricted cash, working capital of $1,841,000 and a current ratio of 1.7 to
1.0. Hemagen currently has a revolving line of credit with a bank for the purpose of
financing working capital needs as required. The line of credit facility currently
provides for borrowings up to $500,000, at an annual interest rate of the prime rate plus
3/4%. The line of credit facility was initially established to provide borrowings of up to
$1,000,000 but was reduced in June 2005 in conjunction with the Company establishing
$1,935,000 in financing for the purchase and subsequent build out of a corporate
manufacturing headquarters building located in Baltimore, Maryland. At December 31, 2005
the Company had $340,000 borrowed on its line of credit facility.

The Company purchased this new
headquarters building in order to reduce its overall overhead expenses related to
facilities, utilities, inventory control and labor costs and will look to combine as many
of its manufacturing processes in that facility over the next year. Likewise, the Company
believes that by owning its own facility it will be able to ensure that its facilities
expenses remain stable for the foreseeable future; and that it will have additional space
for future growth by internal growth, acquisition, or product line expansion.

Hemagen believes that cash flow from
operations, cash on hand at December 31, 2005, and the availability of the line of credit
will be sufficient to finance its operations for fiscal 2006. The line of credit matures
on March 31, 2006 and the Company expects to renew the line at that time. However Hemagen
can give no assurances that it will have

---

sufficient cash flow to finance its
operations. The Company is currently working to expand its borrowing availability
particularly during the construction period to ensure there is more than adequate credit
availability to the Company at all times. Hemagen has no off-balance sheet financing
arrangements.

# NOTE B- RECENT ACCOUNTING
PRONOUNCEMENTS

In May 2005, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 154, Accounting for Changes and Error Corrections  a
replacement of Accounting Opinions Board (APB) Opinion No. 20 and FASB
Statement No. 3. SFAS No. 154 requires retrospective applications to changes in
accounting principles for prior periods financial statements, unless it is
impracticable to determine either the period-specific effects or the cumulative effect of
the change. SFAS No. 154 is effective for accounting changes and corrections of errors
made in fiscal years beginning after December 15, 2005, and earlier adoption is permitted
for accounting changes and corrections of errors made in fiscal years beginning after
December 15, 2005, and earlier adoption is permitted for accounting changes and
corrections of errors made in fiscal years beginning after this statement was issued. The
Company has adopted SFAS No. 154 as of its issuance and will apply its provisions to any
changes in accounting principle that occur in future periods. The Companys adoption
of SFAS No. 154 did not have a material impact on the Companys financial condition
or results of operations during the three months ended December 31, 2005.

In December 2004, the FASB issued
SFAS No. 123 (revised 2004), Share-Based Payment. This statement will provide
investors and other users of financial statements with more complete financial information
by requiring that the compensation cost relating to share-based payment transactions be
recognized in financial statements. That cost will be measured based on the fair value of
the equity or liability instruments issued. This statement covers a wide range of
share-based compensation arrangements including share options, restricted share plans,
performance-based awards, share appreciation rights, and employee share purchase plans,
and replaces FASB SFAS No. 123 Accounting for Stock-Based Compensation, and
supersedes APB Opinion No. 25. Statement 123, as originally issued in 1995, established as
preferable a fair-value-based method of accounting for share-based payment transactions
with employees. However, that statement permitted entities the option of continuing to
apply the guidance in APB No. 25, as long as the footnotes to financial statements
disclosed the pro forma net income under the fair-value-based method. The Company will be
required to apply SFAS No. 123(R) as of October 1, 2006. The Company has evaluated the
impact of the adoption of SFAS No. 123(R), and does not believe the impact will be
significant to the Companys overall results of operations or financial position.

---

# NOTE C- NET INCOME (LOSS)
PER SHARE

Basic earnings per common share are
computed based upon the weighted average number of common shares outstanding during the
three months ended December 31, 2005 and December 31, 2004. Diluted earnings per common
share are computed based on common shares outstanding plus the effect of dilutive stock
options and other potentially dilutive common stock equivalents consisting of stock
purchase options and convertible debentures. The dilutive effect of stock options and
other potentially dilutive common stock equivalents is determined using the treasury stock
and if-converted method based on the Companys average stock price.

Diluted net income per share does not
include the effect of the following common equivalent shares related to outstanding
convertible debentures and stock purchase options, using the treasury stock method, as
their effect would be antidilutive for the three months ended December 31, 2005 and 2004
based on the Companys average stock price in the current period and net loss for the
prior period.

|                                 | Three Months Ended
December 31
|-------------------------------- | ------------------------------
|
|Convertible notes                |                               
|Options to purchase common stock |                               
|                                 |                               
|                                 |                               
|                                 |                               

# NOTE D  STOCK BASED
COMPENSATION

At December 31, 2005, options for the
purchase of 2,623,514 shares of common stock with a weighted average exercise price of
$1.05 were outstanding. During the three months ended December 31, 2005, options for the
purchase of 445,000 shares of common stock with exercise prices of $0.20 per share were
granted. During the three months ended December 31, 2005, there were no options for the
purchase of Common Stock exercised, while options for the purchase of 114,500 shares of
common stock expired with weighted average exercise prices of $0.68 per share.

In December 2002, the FASB issued
Statement No. 148 Accounting for Stock-Based Compensation- Transition and
Disclosure, (SFAS 148). SFAS 148 provides for alternative methods of
transition for an entity that voluntarily changes to the fair value based method of
accounting for stock-based employee compensation and certain disclosures about the effects
of stock-based compensation. The fair value method of accounting would require the use of
an option pricing model such as the Black-Scholes option pricing model to determine the
compensation expenses associated with stock-based compensation issued in the current
period.

---

If the compensation cost for the
Company compensation plans had been determined consistent with SFAS No.148, our net income
and our net income per common and common share equivalent would have changed to the pro
forma amounts indicated below:

|                                                | Three Months Ended
|----------------------------------------------- | ------------------
|
|Net Income (Loss):                              |                   
|As reported                                     |                   
|                                                |                   
|Less stock-based compensation expense:          |                   
|determined under the fair value method  for all |                   
|awards                                          |                   
|                                                |                   
|Pro forma net income (loss)                     |                   
|                                                |                   
|Net income per common share:                    |                   
|Basic and Diluted;                              |                   
|As reported                                     |                   
|Pro forma                                       |                   

The fair value of each option grant
is estimated on the date of the grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for grants in 2005 and 2004; dividend
yield of 0% for both years; expected volatility of 81% and 300% for 2005 and 2004,
respectively; risk-free interest rate of 5% and 4%, respectively; and expected terms of 5
to 10 years.

---

# NOTE E  INVENTORIES

Inventories at December 31, 2005 and
September 30, 2005 consist of the following;

|                | December 31,
2005 | September 30,
2005
|--------------- | ----------------- | ------------------
|Raw Materials   |                   |                   
|Work-in-process |                   |                   
|Finished goods  |                   |                   
|                |                   |                   
|                |                   |                   
|Less reserves   |                   |                   
|                |                   |                   
|Net inventories |                   |                   
|                |                   |                   

# NOTE F  LINE OF
CREDIT

In September 2002, the Company
obtained a revolving line of credit with a bank for the purpose of financing working
capital needs as required. The line of credit facility provides for borrowing up to
$500,000 at an interest rate of Prime Rate plus 3⁄4% and expires March 31, 2006.
Originally, this line of credit provided for up to $1,000,000 of borrowing but was reduced
in June 2005 in conjunction with the note payable described in Note G. Maximum borrowings
under the loan are based on the domestic receivables and inventory of the Company. At
December 31, 2005, the outstanding balance on the line of credit was $340,000 and the
effective interest rate on the line of credit was 8%.

# NOTE G  NOTE PAYABLE

On June 24, 2005, Hemagen
Diagnostics, Inc. obtained financing of $1,935,000 to provide for the purchase of a new
corporate headquarters facility for $800,000 with the remainder to be used for
improvements to the building and relocation and installation of Hemagens existing
equipment in the new building. The commitment for this financing will expire on June 30,
2006. The note payable is secured by a first lien on the property. At December 31, 2005,
the Company had an outstanding balance of $657,681 related to this commitment. During the
construction period, Hemagen will pay interest only on the borrowings outstanding at a
rate equal to the prime rate plus two percentage points. In conjunction with this
commitment, the Company paid $24,725 in loan origination fees.

Upon the completion of the
construction and relocation project, Hemagen will finance up to approximately $1,135,000
of the project costs over ten years amortized over a twenty year period. The rate on the
long term financing will be the Federal Home Loan Bank of Atlanta five year rate index
plus three and three-quarters percentage points. As of December 31, 2005 this rate was
8.76%. This rate is adjustable five years after the anniversary of the conversion to long
term financing. Hemagen has a commitment from the U.S. Small Business Administration (SBA)
to finance up to 40% or $886,000 of the total project costs over a long term basis once
the construction period is completed and certain closing requirements are met. The portion
of the project financed by the SBA will be paid back over twenty years and will bear
interest at the rate determined by the SBA at that time. The current rate on this type of
financing is 6.38%. In conjunction with this commitment, the Company paid $13,000 in loan
origination fees.

11

---

In conjunction with the real estate
and construction financing, Hemagen agreed to reduce its existing line of credit facility
from $1,000,000 to $500,000 of availability in June 2005.

# NOTE H  EXCHANGE
OFFERING

In December 2004, the Company
completed an exchange offering of its senior subordinated secured convertible notes due on
April 17, 2005 (Old Notes) for a total of 5,079,438 shares of its common stock
and $4,033,225 of senior subordinated secured convertible notes due on September 30, 2009
(New Notes). At the completion of the exchange offering, $6,065,000 of Old
Notes, or all but $25,000 of the Old Notes, representing over 99% of the Old Notes, had
been exchanged. The exchange offering was effective as of September 30, 2004, since at
that time more than 80% of the Old Notes had been tendered for exchange. The Company has
accounted for the exchange offering as though the exchange of the entire amount of
$6,065,000 of Old Notes was effective as of September 30, 2004, because at September 30,
2004, the Company had the right and the intent to require the remaining Old Notes to be
exchanged once more than 75% of the Old Notes had been tendered.

In December 2005, the Company
exchanged the remaining $25,000 of notes for a New Note with a face value of $16,625 and
original issue discount of $1,047 and 20,938 shares of common stock. The Company
determined the fair value of the common stock issued at the conversion date to be $0.20
per share or $4,187. The exchange was accepted by the investor under the same terms as
those that had accepted the exchange effective September 30, 2004.

The New Notes pay interest quarterly
at an annual rate of 8%, are convertible at the option of the holder after September 30,
2005 at $0.75 per share into shares of the Companys common stock and mature on
September 30, 2009. The New Notes are secured by a first lien on all real, tangible and
intangible property except for the following that are subordinated to the security for the
New Notes: up to a maximum of $3 million credit facility; real estate financing obtained
for a corporate headquarters subject to limitation; and up to $4.0 million for financing
related to strategic acquisitions. The Company has the right to require conversion of the
New Notes at any time after September 30, 2005 if the Companys common stock has
traded at or above $1.25 per share for a consecutive twenty-day trading period. The
Company may also prepay the New Notes at any time at their full face amount plus any
accrued and unpaid interest.

The Company determined the fair value
of the 5,079,438 shares of its common stock on the closing market price, at September 30,
2004, of its common stock of $0.38 to be $1,930,186. The fair value of the New Notes was
determined by management based on a 10% discount rate, resulting in a fair value of the
New Notes of $3,706,362.

12

---

At December 31, 2005 and September
30, 2005, the unamortized discount on these notes was $255,666 and $269,557, respectively.

# NOTE I 
GEOGRAPHICAL INFORMATION

The Company considers its
manufactured kits, tests and instruments as one operating segment, as defined under
Statement of Financial Accounting Standards No. 131 Disclosures about Segments of an
Enterprise and Related Information.

The following table sets forth
revenue for the periods reported and assets by geographic location.

|                   | United*
States | Brazil | Consolidated
|------------------ | -------------- | ------ | ------------
|December 31, 2005: |                |        |             
|Revenues           |                |        | $           
|Long-lived assets  |                |        |             
|                   |                |        |             
|December 31, 2004: |                |       
|Revenues           |                |        | $           
|Long-lived assets  |                |        |             

* Includes export sales to countries
other than Brazil.

# Item 2.       Managements
Discussion and Analysis of Financial Condition and Results of Operations

Certain statements in this report
that are not historical facts constitute forward-looking statements, within the meaning of
the Private Securities Litigation Reform Act of 1995, and are intended to be covered by
the safe harbors created by that Act. Reliance should not be placed on forward looking
statements because they involve unknown risks, uncertainties and other factors which may
cause actual results, performance or achievements to differ materially from those
expressed or implied. Any forward-looking statement speaks only as of the date made. The
Company undertakes no obligation to update any forward-looking statements to reflect
events or circumstances after the date on which they are made.

Forward-looking statements may be
identified by words such as estimates, anticipates,
projects, plans, expects, intends,
believes, should, and similar expressions and the negative
versions thereof and by the context in which they are used. Statements concerning the
establishments of reserves and adjustments for dated and obsolete products, expected
financial performance, on-going business strategies and possible future action which
Hemagen intends to pursue to achieve strategic objectives constitute forward-looking
information. The sufficiency of such charges, implementation of strategies and the
achievement of financial performance are each subject to numerous conditions,
uncertainties and risk factors. Factors which could

13

---

cause actual performance to differ
materially from these forward-looking statements, include, without limitation,
managements analysis of Hemagens assets, liabilities and operations, the
failure to sell datesensitive inventory prior to its expiration, competition, new
product development by competitors which could render particular products obsolete, the
inability to develop or acquire and successfully introduce new products or improvements of
existing products, costs and difficulties in complying with laws and regulations
administered by the U.S. Food and Drug Administration and the ability to assimilate
successfully product acquisitions.

# Overview

Hemagen Diagnostics, Inc., is a
biotechnology company that develops, manufactures, and markets more than 150 FDA-cleared
proprietary medical diagnostic test kits. Hemagen has three different product lines. The
Virgo® product line of diagnostic test kits is used to aid in the diagnosis of certain
autoimmune and infectious diseases, using ELISA, Immunoflourescence, and hemagglutination
technology. Hemagen also manufactures and markets a complete line of clinical chemistry
reagents through its wholly owned subsidiary Reagents Applications, Inc., under the brand
name Raichem, as well as various OEM arrangements. In addition, Hemagen manufactures and
sells the Analyst® an FDA-cleared clinical chemistry analyzer used to measure
important constituents in human and animal blood, and the Endochek, a clinical chemistry
analyzer used to measure important constituents in animal blood. In the United States, the
Company sells its products directly to physicians, veterinarians, clinical laboratories
and blood banks and on a private-label basis through multinational distributors of medical
diagnostics and supplies. Internationally, the Company sells its products primarily
through distributors. The Company sells the Analyst® and the Endochek both directly
and through distributors servicing physicians office laboratories and
veterinarians offices. The Company was incorporated in 1985 and became a public
company in 1993.

Hemagens Corporate offices are
located at 9033 Red Branch Road, Columbia, Maryland 21045 and the telephone number is
(443) 367-5500. Hemagen maintains a website at www.hemagen.com. Investors can obtain
copies of our filings with the Securities and Exchange Commission from this site free of
charge as well as from the Securities and Exchange Commission website at www.sec.gov.

# Critical Accounting
Policies

We have identified certain accounting
policies as critical to our business operations and the understanding of our results of
operations. The impact and any associated risks related to the identified critical
accounting policies on our business operations are discussed in our Annual Report on Form
10-KSB for the fiscal year ended September 30, 2005 filed with the Securities and Exchange
Commission.

14

---

# Results of Operations

# The Three Month Period Ended December
31, 2005 Compared to the Three Month Period Ended December 31, 2004

Revenues for the three-month period
ended December 31, 2005 increased by approximately $187,000 (11%) to approximately
$1,965,000 from $1,778,000 for the same period ended December 31, 2004. This increase is
primarily attributed to increased revenues with the Companys Virgo autoimmune and
infectious disease product line including its Brazilian operation and increased sales at
the Companys Raichem division.

Cost of product sales decreased by
approximately $212,000 (17%) to $1,061,000 from $1,273,000 for the same period last year.
Cost of product sales as a percentage of sales decreased from 72% to 54%. This decrease in
cost of sales as a percentage of sales is mainly attributed to increased production and
better manufacturing efficiencies in the current period. In the prior period, the
Companys Analyst division had higher than normal material usage and reduced
production levels.

Research and development expenses
decreased $2,000 (3%) to approximately $60,000 from $62,000 mainly due to the timing of
material supply purchases.

The Company is currently working to
complete several research and development programs including:

| |  | Activities related to upgrades to the Analyst instrument and product offering such as
evaluating and developing complimentary products for Hemagens Analyst product line
to distribute to the veterinary market and alternative tests utilizing the Analysts
rotor technology;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Continuing to develop additional assays and reagents to compliment the Raichem clinical
chemistry reagent product line; and
| | - | ---------------------------------------------------------------------------------------------------------------------------

| |  | Developing
new ELISA kits and enhancing existing ELISA kits.
| | - | ------------------------------------------------------------

Selling, general and administrative
(SG&A) expenses for the three months ended December 31, 2005 increased
$11,000 (2%) to $583,000 from $572,000 in the same period last year due to the timing of
expenditures.

The operating income for the current
period was $262,000 as compared to a loss of $129,000 in the prior period, an increase of
$391,000 (303%) from the prior period. This increase is mainly attributed to the increased
revenue and decrease in cost of product which resulted in higher margins during the
current period.

Other expenses increased by
approximately $21,000 (22%) to approximately $116,000 in the three months ended December
31, 2005 from $95,000 in the prior period, due to

15

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increased interest expense. Interest
expense for the three months ended December 31, 2005, was $117,000 as compared to $95,000
in the three months ended December 31, 2004, primarily as the result of the Companys
construction financing for the purchase of its new headquarters facility that was
purchased in June 2005, as described in Note G.

Income tax expense for the quarter
ended December 31, 2005 was $23,535 as compared to $11,000 expense for the quarter ended
December 31, 2004. This tax expense resulted from income realized at the Companys
Brazilian subsidiary. The increase from the prior period mainly resulted from the increase
in operating income from the prior period for that division.

The net income for the period was
approximately $122,000 for the three months ended December 31, 2005 as compared to a net
loss of approximately $236,000 in the prior period. This improvement mainly resulted from
increased revenues and improved margins.

# Liquidity and Capital
Resources

At December 31, 2005, Hemagen had
approximately $278,000 of cash, and working capital of approximately $1,841,000. At
September 30, 2005 the Company had $272,000 of cash and working capital of $1,683,000. The
current ratio at December 31, 2005 was 1.8 to 1.0 as compared to a current ratio of 1.7 to
1.0 at September 30, 2005.

Hemagen currently has a revolving
line of credit with a bank for the purpose of financing working capital needs as required.
The line of credit facility currently provides for borrowings up to $500,000, at an annual
interest rate of the prime rate plus 3/4%. The line of credit facility was initially
established to provide borrowings of up to $1,000,000 but was reduced in June 2005 in
conjunction with the Company establishing $1,935,000 in financing for the purchase and
subsequent build out of a corporate manufacturing headquarters building located in
Baltimore, Maryland. At December 31, 2005 the Company had $340,000 borrowed on its line of
credit facility. This line of credit facility expires on March 31, 2005 and the Company is
expecting to renew it at that time.

Hemagen believes that cash flow from
operations, cash on hand at December 31, 2005, and its credit available under its line of
credit facility will be sufficient to finance its operations and capital expenditures over
the next twelve months.

Effective September 30, 2004, the
Company issued $4,033,225 principal amount of Senior Subordinated Secured Convertible
Notes due September 30, 2009 and 5,079,438 shares of common stock in exchange for
$6,065,000 principal amount of its Senior Subordinated Secured Convertible Notes due April
17, 2005. The new Notes issued are convertible into Common Stock at $0.75 per share at any
time after September 30, 2005 (See Note H).

16

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Net cash generated by operating
activities during the three months ended December 31, 2005 was $70,000 as compared to cash
used of approximately $209,000 during the three months ended December 31, 2004. The net
income (loss) after adjusting for non-cash items such as depreciation and amortization of
discount on debt, for the three months ended December 31, 2005 generated cash of
approximately $145,000 as compared to $103,000 of cash used in the previous period. This
improvement in cash generated came from higher sales and reduced cost of product sales in
the current period. The cash used by the change in operating assets and liabilities
represented a change of approximately $33,000 (30%) to approximately $74,000 of cash used
in the three month period ended December 31, 2005 as compared to $107,000 used in the
prior period. The decrease in cash used by the change in operating assets mainly resulted
from the decrease of cash used for accounts payable and accrued expenses of $259,000 and
by an increase in cash generated by reduced prepaid expenses and other current assets of
$86,000 offset by an increase in cash used for inventory of $191,000 and reduced cash
collections of accounts receivable of $115,000.

There were no investing activities in
the three months ended December 31, 2005 as compared to $7,000 of cash used for investing
activities in the three months ended December 31, 2004. The Company has capital
expenditures estimated at $1,323,000 planned for fiscal 2006 related to the build out of a
new corporate manufacturing facility in Maryland that was purchased in June 2005. No
commitments for capital expenditures in fiscal 2006 have been made at this time.
In February 2006, the Company purchased the remaining 16.3% ownership of its Brazilian
subsidiary for approximately $10,000.

The
Company has a financing commitment in place to finance all of the expenditures on a short
term basis using construction financing that matures on June 30, 2006 and then upon the
completion of the build out, commitments are in place to finance approximately $2,021,000
on a long term basis. Upon the completion of the construction and relocation project,
Hemagen will finance up to approximately $1,135,000 of the project costs over ten years
amortized over a twenty year period with a traditional bank mortgage. The rate on the long
term financing will be the Federal Home Loan Bank of Atlanta five year rate index plus
three and three-quarters percentage points. Currently this rate is approximately 8.9%.
This rate is adjustable five years after the anniversary of the conversion to long term
financing. In addition, the Company has a commitment from the U.S. Small Business
Administration (SBA) to finance up to 40% or $886,000 of the total project costs over a
long term basis once the construction period is completed and certain closing requirements
are met. The portion of the project financed by the SBA will be paid back over twenty
years and will bear interest at the rate determined by the SBA at that time. The current
rate on this type of financing is approximately 6.4%. Once this build out project is
complete and long term financing is in place, the debt related to this capital at December
31, 2005 and September 30, 2005, will be classified as a long term liability of the
Company. At December 31, 2005 and September 30, 2005, this construction note payable is
classified as a current liability of the Company and thus has had a substantial impact on
the working capital ratio.

Approximately $52,000 of cash was
used from financing activities in the three months ended December 31, 2005 as compared to
$3,000 generated in the three months ended December 31, 2004. The increase in cash used is
mainly attributed to the net

17

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repayment of the revolving line of
credit facility offset by the borrowings under the Note payable for the construction
financing on the Companys new building.

# Item 3.    Controls and
Procedures

The Companys Chief Executive
Officer, William P. Hales, and Chief Financial Officer, Deborah F. Ricci, have evaluated
the effectiveness of the design and operation of the Companys disclosure controls
and procedures as of December 31, 2005. Based upon this evaluation, these officers believe
that the Companys disclosure controls and procedures were effective as of December
31, 2005.

Management is aware that there is a
lack of segregation of duties due to the small number of employees within the financial
and administrative functions of the Company. However, management has decided that
considering the employees involved and the control procedures in place, risks associated
with such lack of segregation are insignificant and the potential benefits of adding
employees to clearly segregate duties do not justify the expenses associated with such
increases. Management will continue to evaluate this segregation of duties. In addition,
management is aware that many of the internal controls that are in place at the Company
are undocumented. The Company is currently working to appropriately document these
internal controls. The Company is working to document these controls to be in compliance
with Section 404 of the Sarbanes-Oxley Act of 2002 by September 30, 2006.

There has been no change in the
Companys internal control over financial reporting identified in connection with the
evaluation of internal controls that occurred during the last fiscal quarter that has
materially affected, or is reasonably likely to affect, Hemagens internal control
over financial reporting.

---

# PART II.       OTHER INFORMATION

|Item  2. | Unregistered Sales of Equity Securities and Use of Proceeds.
|-------- | ------------------------------------------------------------

Small Business Issuer
Purchases of Equity Securities

|Period              | (a) Total
Number of
Shares
Purchased | (b)
Average
Price Paid
per Share | (c) Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs | (d) Maximum Number (or
Approximate Dollar Value)
of Shares that May Yet Be
Purchased Under the Plans
or Programs
|------------------- | ------------------------------------ | -------------------------------- | ------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------
|October 1-31, 2005  |                                      | 16,157                           |                                                                                      | $0.21                                                                                                           
|November 1-30, 2005 |                                      | 18,225                           |                                                                                      | $0.22                                                                                                           
|December 1-31, 2005 |                                      | 26,800                           |                                                                                      | $0.21                                                                                                           
|Total               |                                      | 61,182                           |                                                                                      | $0.22                                                                                                           

|(1) | Represents shares of Companys Common Stock purchased pursuant to the
               Companys Employee Stock Ownership Plan (ESOP) that was established October
               1, 2003 with no expiration. The purpose of the plan is not to repurchase, but
               rather is an employee benefit plan.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | There is no maximum number of shares that may be purchased under the
               Companys Employee Stock Ownership Plan.
|--- | ----------------------------------------------------------------------------------------------------------------------------

|Item  5. | Other Information.
|-------- | ------------------

On February 14, 2006 the Registrant
announced its earnings for the quarter ended December 31, 2005 through the press release
which is attached as Exhibit 99.

# Item 6.    Exhibits

| | Exhibit 31.1 | Certification of Chief Executive Officer pursuant
to Rule 13a-14(a)
| | ------------ | -------------------------------------------------------------------

| | Exhibit 31.2 | Certification of Chief Financial Officer pursuant
 to Rule 13a-14(a)
| | ------------ | --------------------------------------------------------------------

| | Exhibit 32.1 | Certification of Chief Executive Officer pursuant to Section 1350 of Chapter 63 of
Title 18 of the United States Code
| | ------------ | ---------------------------------------------------------------------------------------------------------------------

| | Exhibit 32.2 | Certification of Chief Financial Officer pursuant to Section 1350 of Chapter 63 of
Title 18 of the United States Code
| | ------------ | ---------------------------------------------------------------------------------------------------------------------

| | Exhibit 99 | Press release issued February 14, 2006
| | ---------- | --------------------------------------

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SIGNATURES

Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf of the undersigned thereunto duly authorized.

|February 14, 2006February 14, 2006 |  | Hemagen Diagnostics, Inc.
(Registrant)BY: /s/William P. Hales
William P. HalesPresident andChief Executive OfficerBY: /s/Deborah F. Ricci
Deborah F. RicciChief Financial Officer
|---------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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