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 March 31, 2006 | 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 March 31, 2006, the issuer had 15,225,289 shares of Common Stock, $.01 par value per
share outstanding.

---

# HEMAGEN DIAGNOSTICS,
INC. AND SUBSIDIARIES

# INDEX

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

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

|SIGNATURES     |  |  | 21
|-------------- |  |  | --
|CERTIFICATIONS |  |  | 22

2

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# PART I  Financial
Information

Item 1.     Financial
Statements

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

|                                                        | March 31,
2006 | September 30,
2005
|------------------------------------------------------- | -------------- | ------------------
|ASSETS                                                  |                |                   
|CURRENT ASSETS:                                         |                |                   
|Cash and cash equivalents                               |                |                   
|Accounts receivables, less allowance for                |                |                   
|doubtful accounts of $78,497 and $86,862 at             |                |                   
|March 31, 2006 and September 30, 2005, respectively     |                |                   
|Inventories, net                                        |                |                   
|Prepaid expenses and other current assets               |                |                   
|                                                        |                |                   
|Total current assets                                    |                |                   
|                                                        |                |                   
|PROPERTY AND EQUIPMENT; net of accumulated depreciation |                |                   
|and amortization of $7,240,712 and $7,218,967 at        |                |                   
|March 31, 2006 and September 30, 2005, respectively     |                |                   
|OTHER ASSETS                                            |                |                   
|                                                        |                |                   
|Total Assets                                            |                |                   
|                                                        |                |                   

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

3

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

|LIABILITIES AND STOCKHOLDERS' DEFICIT                                | March 31,
2006 | September 30,
2005
|-------------------------------------------------------------------- | -------------- | ------------------
|                                                                     |                |                   
|CURRENT LIABILITIES:                                                 |                |                   
|Senior subordinated secured convertible notes due April 17, 2005     |                |                   
|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 $239,369 and $269,257 at        |                |                   
|March 31, 2006 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:  15,304,351 and 15,294,343 at                |                |                   
|March 31, 2006 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 March 31, 2006        |                |                   
|and September 30, 2005, respectively                                 |                |                   
|                                                                     |                |                   
|Total Stockholders' Deficit                                          |                |                   
|                                                                     |                |                   
|Total Liabilities and Stockholders' Deficit                          |                |                   
|                                                                     |                |                   

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

4

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

|                                           | Three Months Ended | Six Months Ended
|------------------------------------------ | ------------------ | ----------------
|
|Revenues:                                  |                    |                 
|Product sales                              |                    |                 
|                                           |                    |                 
|Costs and expenses:                        |                    |                 
|Cost of product sales                      |                    |                 
|Research and development                   |                    |                 
|Selling, general and administrative        |                    |                 
|                                           |                    |                 
|Operating income (loss)                    |                    |                 
|                                           |                    |                 
|Other income (expenses):                   |                    |                 
|Interest and amortization of debt          |                    |                 
|discount                                   |                    |                 
|Other                                      |                    |                 
|                                           |                    |                 
|Total other income (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 loss per share - basic:                |                    |                 
|                                           |                    |                 
|Net 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

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

|                                                   | Six Months Ended
March 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                      |                           
|Loss on disposal of property and equipment         |                           
|Changes in operating assets and liabilities:       |                           
|Accounts and other receivables                     |                           
|Prepaid expenses and other current and non-current |                           
|operating assets                                   |                           
|Inventories                                        |                           
|Accounts payable and accrued expenses              |                           
|Deferred revenue                                   |                           
|                                                   |                           
|Net cash 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 borrowings on note payable                     |                           
|Exercise of stock options                          |                           
|                                                   |                           
|Net cash provided by financing activities          |                           
|                                                   |                           
|Effects of foreign exchange rate                   |                           
|                                                   |                           
|Net decrease in cash and cash equivalents          |                           
|                                                   |                           
|Cash and cash equivalents at beginning of period   |                           
|                                                   |                           
|Cash and cash equivalents at end of period         |                           
|                                                   |                           
|Supplemental disclosure of cash flow information:  |                           
|Interest paid                                      |                           
|                                                   |                           

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

6

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# 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.

# 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 and six months ended March 31, 2006.

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

7

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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 is evaluating 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 and
six months ended March 31, 2006 and March 31, 2005. 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. Included in the calculation of
diluted weighted average shares outstanding for the three and six months ended March 31,
2006, were 157,903 and 102,692 shares, respectively related to stock purchase options.

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 and six months ended March 31, 2006 and
2005 based on the Companys average stock price in the current period and net loss
for the prior period.

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

8

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# NOTE D   STOCK
BASED COMPENSATION

At March 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 six months ended March 31, 2006 options to purchase
445,000 shares at an exercise price of $0.20 per share were granted. During the six months
ended March 31, 2006, no options were exercised or expired.

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

|                              | Three Months Ended | Six Months Ended
|----------------------------- | ------------------ | ----------------
|
|Net Income (Loss):            |                    |                 
|As reported                   |                    |                 
|                              |                    |                 
|Less stock-based compensation |                    |                 
|expense:                      |                    |                 
|determined under the fair     |                    |                 
|value method  for all awards  |                    |                 
|                              |                    |                 
|Pro forma net loss            |                    |                 
|                              |                    |                 
|Net loss 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 2006 and 2005; dividend
yield of 0%; expected volatility of 81% and 300% for 2006 and 2005, respectively;
risk-free interest rate of 5% and 4% for 2006 and 2005; and expected terms of 5 to 10
years.

9

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# NOTE E   INVENTORIES

Inventories at March 31, 2006 and
September 30, 2005 consist of the following;

| |                 | March 31,
            
2006 | 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, 2007.
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
March 31, 2006, the outstanding balance on the line of credit was $400,000 and the
effective interest rate on the line of credit was 8.5%.

# 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 March 31, 2006, 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 March 31, 2006 this rate was 9.34%.
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

10

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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.

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.

In March 2006, the Company signed an
agreement to sell the facility that is being financed with the note payable. The Company
has received a deposit from the potential buyer and the buyer is now occupying the
facility on a short term lease basis. If the Company sells this building, the Company will
recognize a gain on the sale of the building and the note will be paid in full.

# 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
exchange was accepted by the investor under the same terms as those that had accepted the
exchange effective September 30, 2004 and was accounted for as if it had been converted at
that time. At March 31, 2006 and September 30, 2005, the unamortized discount on these
notes was $239,269 and $269,257, respectively.

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.

11

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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 at September 30, 2004.

# 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
|----------------- | -------------- | ------ | ------------
|Six Months Ended  |                |        |             
|March 31, 2006:   |                |       
|Revenues          |                |        |             
|Long-lived assets |                |        |             
|                  |                |        |             
|Six Months Ended  |                |       
|March 31, 2005:   |                |       
|Revenues          |                |        | $           
|Long-lived assets |                |        |             

* Includes export sales to countries
other than Brazil.

# Managements Discussion
and Analysis of Financial Conditionand 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.

12

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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 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.

13

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# 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.

# Results of Operations

# The Three Month Period
Ended March 31, 2006Compared to the Three Month Period Ended March 31, 2005

Revenues for the three-month period
ended March 31, 2006 decreased by approximately $84,000 (4%) to approximately $1,903,000
from $1,987,000 for the same period ended March 31, 2005. The change in revenues mainly
resulted from lower volume of Raichem and Analyst product sold in the current period of
$152,000 and $67,000, respectively, offset by a 60% increase at the Companys 100%
owned Brazilian subsidiary.

Cost of product sales decreased
approximately $457,000 (29%) to $1,135,000 from $1,592,000 for the same period last year.
Cost of product sales as a percentage of sales decreased from 80% to 60%. This decrease in
cost of sales as a percentage of sales is mainly attributed to reduced costs and higher
production levels. Reduced costs included lower depreciation expense mainly from the
Analyst product line, and lower labor, consulting and facility costs in the current
period. Gross margins for the quarter were 40% as compared to 20% in the previous period.
In addition to the reduced spending levels, production levels for the quarter were higher
for the Raichem and VIRGO product lines which resulted in improved margin. In the previous
period, Analyst production levels were substantially lower than normal levels and the
prior period had lower margins as a result of the lower Analyst production.

Research and development expenses
increased $16,000 (20%) to approximately $96,000 from $80,000 due to an increase of
expenditures on development consultants in the current quarter.

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

| |  | Evaluating and developing complimentary products for Hemagens Analyst product line
to distribute to the veterinary market, expanding the consumable rotor products to include
a T4 and electrolyte rotor for the veterinary market.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

14

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| |  | The Company entered into discussions and is currently negotiating terms with instrument
design and manufacturing companies to redesign and upgrade the Analyst instrument
technology.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The Company has engaged a scientific consultant to enhance the Companys ELISA
products.
| | - | ----------------------------------------------------------------------------------------

Selling, general and administrative
(SG&A) expenses increased by approximately $34,000 (6%) for the quarter
ended March 31, 2006 to $595,000 from $561,000 in the previous period. This increase is
attributable to increased selling expenses with the Companys U.S. operations and
increased operating expenses at the companys Brazilian subsidiary.

Other expenses increased
approximately $21,000 (22%) to approximately $118,000 in the quarter ended March 31, 2006
from $97,000 in the prior period, due to increased interest expense. Interest expense for
the three months ended March 31, 2006, was $118,000 as compared to $97,000 in the three
months ended March 31, 2005, primarily as the result of the interest expense on the note
payable for the building that was purchased in June 2005 (See Note G). Cash payments of
interest expense increased to 104,000 from $79,000 in the prior period as a result of the
financing described in Note G.

Income tax expense for the quarter
ended March 31, 2006 was $20,000 as compared to $5,000 for the quarter ended March 31,
2005. This tax expense resulted from income realized at the Companys Brazilian
subsidiary.

The net loss for the period was
approximately $61,000 for the three months ended March 31, 2006 as compared to a net loss
of approximately $349,000 in the prior period. The decrease in the net loss from the prior
period mainly resulted from improved margins from the prior year.

# The Six Month Period
Ended March 31, 2005Compared to the Six Month Period Ended March 31, 2004

Revenues for the six-month period
ended March 31, 2006 increased by approximately $103,000 (3%) to approximately $3,868,000
from $3,765,000 for the same period ended March 31, 2005. This increase is primarily
attributed to higher sales at the Companys Brazilian subsidiary of approximately
$249,000 and VIRGO product line of approximately $32,000, offset by lower sales with the
Companys Analyst and Endochek product lines of $110,000 and $68,000 of lower sales
of the Companys Raichem division.

Cost of product sales decreased by
approximately $670,000 (23%) to $2,196,000 from $2,865,000 for the same period last year.
Cost of product sales as a percentage of sales decreased from 76% to 57%. Gross margins
year to date were 43% as compared to 24% in the prior period. This decrease in cost of
sales as a percentage of sales is

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mainly attributed to reduced spending
for all of the Companys production with the largest reduction being lower
depreciation expense of approximately $210,000 and higher production levels with the
Companys Analyst product line. In the previous year, the Analyst production was
unusually low which resulted in higher cost of sales and negatively impacted the gross
margin in the previous period.

Research and development expenses
increased $14,000 (10%) to approximately $156,000 from $142,000 mainly due to increased
consulting expenditures and supply purchases.

The Company is currently working to
complete several research and development projects that are more fully described in the
above comments for the three months ended March 31, 2006.

Selling, general and administrative
(SG&A) expenses for the six months ended March 31, 2006 were $1,177,000
which is $44,000 (4%) higher than the previous period expenses of $1,133,000. This
increase is mainly attributable to increased expenditures at the Companys Brazilian
subsidiary.

The operating income for the current
period was $339,000 as compared to operating loss of $375,000 in the prior period, an
improvement of $715,000 from the prior period. This improvement in operating income is
mainly attributed to the reduced cost of product sales and higher margin reported in the
current period.

Other expenses increased by
approximately $42,000 (22%) to approximately $234,000 in the six months ended March 31,
2006 from $192,000 in the prior period, due to increased interest expense. Interest
expense for the six months ended March 31, 2006, was $235,000 as compared to $192,000 in
the six months ended March 31, 2005, primarily as the result of increased borrowings
associated with the purchase of a building in June 2005. Cash payments of interest expense
increased from $160,000 in the prior period to $205,000 in the current period.

Income tax expense for the quarter
ended March 31, 2006 was $44,000 as compared to $16,000 for the quarter ended March 31,
2005. This tax expense resulted from income realized at the Companys Brazilian
subsidiary.

The net income for the period was
approximately $61,000 for the six months ended March 31, 2006 as compared to a net loss of
approximately $584,000 in the prior period. The increase in the net income from the prior
period mainly resulted from improved margins and higher sales from the previous period.

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# Liquidity and Capital
Resources

At March 31, 2006, Hemagen had
approximately $207,000 of cash, and working capital of approximately $1,775,000. At
September 30, 2005 the Company had $272,000 of cash and working capital of $1,683,000.

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 March 31, 2006 the Company had $400,000 borrowed on its line of
credit facility. This line of credit facility expires on March 31, 2007.

Hemagen believes that cash flow from
operations, cash on hand at March 31, 2006, and its credit available under its line of
credit facility and note payable 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). An additional $25,000 principal amount of the
notes was converted in December 2005 with an effective date of September 30, 2004.

Net cash used in operating activities
during the six months ended March 31, 2006 was $65,000 as compared to cash used of
approximately $278,000 during the six months ended March 31, 2005. The net income after
adjusting for non-cash items such as depreciation and amortization of discount on debt,
for the six months ended March 31, 2006 was approximately $110,000 as compared to $318,000
of cash used in the previous period. The cash used by the change in operating assets and
liabilities represented a change of approximately $136,000 (340%) to approximately
$176,000 of cash used in the six month period ended March 31, 2006 as compared to $40,000
generated in the prior period. The increase in cash used by the change in operating assets
mainly resulted from higher cash usage for inventory and receivables of $405,000 and
$89,000, respectively offset by lower cash used for accounts payable, accrued expenses and
deferred revenue of $207,000.

Approximately $7,000 of cash was used
in investing activities in the six months ended March 31, 2006 as compared to $11,000 of
cash used for investing activities in the six months ended March 31, 2005. The cash used
in the current period is attributed to capital expenditures which is consistent with the
previous period. The Company has capital expenditures estimated at $1,323,000 planned for
fiscal 2006 related to the build

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out of a new corporate manufacturing
facility in Maryland that was purchased in June 2005.

The Company has a financing
commitment in place to finance all of the expenditures related to the new facility if the
new building is not sold, on a short term basis using construction financing that matures
on June 30, 2006. At 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 9.34%. 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 6.38%. Once this build out
project is complete and long term financing is in place, the debt related to this capital
at March 31, 2006 and September 30, 2005, will be classified as a long term liability of
the Company. At March 31, 2006 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.

At this time, the Company has a
signed contract to sell the new corporate manufacturing facility and, if sold, the Company
will terminate all financing it has lined up to finance the build out. No commitments for
capital expenditures in fiscal 2006 have been made at this time.

In the six months ended March 31,
2006, the Company borrowed approximately $7,000 related to the construction loan described
above. Approximately $3,000 of cash was generated from financing activities in the six
months ended March 31, 2005, which was derived from the exercise of stock options.

# 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 March 31, 2006. Based upon this evaluation, these officers believe
that the Companys disclosure controls and procedures were effective as of March 31,
2006.

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

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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.

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.

The Companys Chief Financial
Officer, Deborah F. Ricci, has resigned effective March 15, 2006. No replacement has been
hired although management is seeking a suitable replacement. These developments may
adversely affect the Companys internal control over financial reporting.

# PART II.    OTHER
INFORMATION

# Item 2.     Unregistered
Sales of Equity Securities and Use of Proceeds.

|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(1) | (d) Maximum Number (or
Approximate Dollar Value)
of Shares that May Yet Be
Purchased Under the Plans
or Programs (2)
|------------------- | ------------------------------------ | -------------------------------- | --------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------
|October 1-31, 2005  |                                      |                                  |                                                                                         | 16,157                                                                                                              
|November 1-30, 2005 |                                      |                                  |                                                                                         | 18,225                                                                                                              
|December 1-31, 2005 |                                      |                                  |                                                                                         | 26,800                                                                                                              
|February 1-28, 2006 |                                      |                                  |                                                                                         | 11,875                                                                                                              
|March 1-31, 2006    |                                      |                                  |                                                                                         | 15,450                                                                                                              
|Total               |                                      |                                  |                                                                                         | 88,507                                                                                                              

| | (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.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------

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# Item 4.      Submission of
Matters to a Vote of Security Holders.

The Registrants Annual
Shareholders Meeting was held March 3, 2006. At the meeting, Alan S. Cohen was
elected a director for the term expiring in 2009 by a vote of 10,739,819 shares For and
169,447 shares Withheld.

Richard W. Edwards was elected a
director for the term expiring in 2009 by a vote of 10,734,119 shares For and 175,147
shares Withheld.

# Item 6.    Exhibits and
Reports on Form 8-K.

|(a) | 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
| | ------------ | ---------------------------------------------------------------------------------------------------------------------

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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.

|May 10, 2006May 10, 2006 |  | Hemagen Diagnostics, Inc.
(Registrant)/s/William P. Hales
William P. HalesPresident andChief Executive Officer/s/Deborah F. Ricci
Deborah F. RicciChief Financial Officer
|------------------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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