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 June 30, 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 June 30, 2006, the issuer had 15,325,289 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     |  |  | 20
|-------------- |  |  | --
|CERTIFICATIONS |  |  | 21

2

---

# PART I  Financial
Information

Item 1.     Financial
Statements

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

|ASSETS                                                  | June 30,
2006 | September 30,
2005
|------------------------------------------------------- | ------------- | ------------------
|CURRENT ASSETS:                                         |               |                   
|Cash and cash equivalents                               |               |                   
|Accounts receivables, less allowance for                |               |                   
|doubtful accounts of $54,915 and $86,862 at             |               |                   
|June 30, 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 $ 7,205,478 and $7,218,967 at       |               |                   
|June 30, 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 SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS(UNAUDITED)

|LIABILITIES AND STOCKHOLDERS' DEFICIT                                | June 30,
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 $223,518 and $269,257 at        |               |                   
|June 30, 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:  15,325,289 and 15,304,351                   |               |                   
|at June 30, 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 June 30, 2006         |               |                   
|and September 30, 2005, respectively                                 |               |                   
|                                                                     |               |                   
|                                                                     |               |                   
|Total Stockholders' Deficit                                          |               |                   
|                                                                     |               |                   
|Total Liabilities and Stockholders' Deficit                          |               |                   
|                                                                     |               |                   

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

4

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

|                                           | Three Months Ended Nine 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                                   |                                     
|                                           |                                     
|Total other income (expenses)              |                                     
|                                           |                                     
|Net loss before income taxes               |                                     
|                                           |                                     
|Income tax expense                         |                                     
|                                           |                                     
|Net loss                                   |                                     
|                                           |                                     
|Foreign currency translation adjustments   |                                     
|                                           |                                     
|Comprehensive 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

---

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

|                                                                        | Nine Months Ended
June 30,
|----------------------------------------------------------------------- | --------------------------
|
|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                                   |                           
|Customer deposits                                                       |                           
|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                                          |                           
|Net proceeds from 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 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 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 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
LOSS PER SHARE

Basic loss per common share is computed based upon the weighted average number
of common shares outstanding during the three and nine months ended June 30,
2006 and June 30, 2005. Diluted loss per common share is 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 loss 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 nine months ended June 30, 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
June 30 | Nine Months Ended
June 30
|------------------- | -------------------------- | -------------------------
|
|Convertible notes   |                            |                          
|Options to purchase |                            |                          
|common stock        |                            |                          
|                    |                            |                          
|                    |                            |                          
|                    |                            |                          

# NOTE D  STOCK
BASED COMPENSATION

At June 30, 2006, options for the
purchase of 2,501,014 shares of common stock with a weighted average exercise price of
$1.05 were outstanding. During the nine months ended June 30, 2006 options to purchase
545,000 shares were granted at exercise prices of between $0.20 and $0.34 per share.
During the nine months ended June 30, 2006, 337,000 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 loss and our
net loss per common and common share equivalent would have changed to the pro forma
amounts indicated below:

---

|                              | Three Months Ended | Nine 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 87% 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.

# NOTE E  INVENTORIES

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

| |                 | June 30,
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 June
30, 2006, the outstanding balance on the line of credit was $400,000 and the effective
interest rate on the line of credit was 9%. See also Note J Subsequent Events.

10

---

# 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 and the remainder to be utilized to make
improvements to the building and for relocation and installation of Hemagens
existing equipment into the new building. The commitment for this financing expired on
June 30, 2006, but was extended until September 30, 2006. The note payable is secured by a
first lien on the property. At June 30, 2006, the Company had an outstanding loan balance
of $657,681. During the construction period, Hemagen is required to 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 with a twenty-year amortization schedule. 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 June 30, 2006 this rate was 9.53%.
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.

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. On July 10, 2006, the company completed the sale of
the building, see Subsequent Events footnote, NOTE J.

11

---

# 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
investor converted 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 June
30, 2006 and September 30, 2005, the unamortized discount on Subordinated Notes was
$223,518 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 face amount plus any accrued
and unpaid interest.

In accordance with GAAP, the Company
computed the debt discount at the time of the exchange offering by determining the fair
value of the 5,079,438 shares of its common stock on the closing market price of $0.38 at
September 30, 2004, to be $1,930,186; and the fair value of the New Notes was determined
by using 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.

12

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|                  | United*
States | Brazil | Consolidated
|----------------- | -------------- | ------ | ------------
|Nine Months Ended |                |        |             
|June 30, 2006:    |                |       
|Revenues          |                |        |             
|Long-lived assets |                |        |             
|                  |                |        |             
|Nine Months Ended |                |       
|June 30, 2005:    |                |       
|Revenues          |                |        |             
|Long-lived assets |                |        |             

* Includes export sales to countries
other than Brazil.

# NOTE J  SUBSEQUENT
EVENTS

On July 10, 2006, the Company
completed the sale of its manufacturing building that was originally purchased in June
2005 to house the companys headquarters, to combine certain manufacturing processes,
and to provide additional space for future growth. The building was purchased for $800,000
plus regular and customary expenses and was sold in July 2006 for $1,800,000, less
expenses. The company realized approximately $951,000 in net proceeds from the sale after
paying down its construction loan of approximately $665,000. The company also paid down
its revolving line of credit in July, in its entirety, which was outstanding in the amount
of $400,000. As a result of the sale, the Company will record a gain of approximately $750,000 in the fourth quarter
of 2006.

# 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.

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.

13

---

# 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, Immunofluorescence, 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

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# Results of Operations

The Three Month Period
Ended June 30, 2006Compared to the Three Month Period Ended June 30, 2005

Revenues for the three-month period
ended June 30, 2006, compared to the three-month period ended June 30, 2005 decreased by
approximately $126,000 (7%) to approximately $1,661,000 from $1,787,000 for the same
period ended June 30, 2005. The decrease in revenues resulted from decreased sales of the
Companys Analyst products of approximately $80,000, a decrease in sales at the
Companys Raichem Division of $77,000 offset by an increase in revenues at the
Companys Brazilian Subsidiary of approximately $56,000. The decrease in sales with
the Analyst product line mainly resulted from continuing decreases in sales of consumable rotors for the
human marketplace and lower equipment sales. The decrease in sales at Raichem resulted
from decreased orders from OEM customers. The Company has been working to improve
certain of its products.

Cost of product sales decreased
approximately $232,000 (19%) to $987,000 from $1,219,000 for the same period last year.
Cost of product sales as a percentage of sales decreased to 59% from 68%. Approximately
$80,000 of the decrease of cost of sales was attributed to improved margins with the
Analyst product line as a result of increased production levels from the previous
comparable period, a decrease in cost of sales of approximately $63,000 at the Raichem
division was mainly attributable to lower temporary headcount. Gross margins for the
quarter were 41% as compared to 32% in the previous period.

Research and development expenses
increased $10,000 (15%) to approximately $75,000 from $65,000 due to a product development
projects.

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.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 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.
| | - | ----------------------------------------------------------------------------------------

15

---

Selling, general and administrative
(SG&A) expenses increased by approximately $18,000 (3%) for the quarter
ended June 30, 2006 to $616,000 from $598,000 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 $4,000 (4%) to approximately $106,000 in the quarter ended June 30, 2006
from $102,000 in the prior period this increase was mainly due to an increase in interest
expense.

Income tax expense for the quarter
ended June 30, 2006 was $22,000 as compared to $17,000 for the quarter ended June 30,
2005. This tax expense resulted from income realized at the Companys Brazilian
subsidiary.

The net loss for the period was
approximately $144,000 for the three months ended June 30, 2006 as compared to a net loss
of approximately $213,000 in the prior period. The improvement in the net loss from the
prior period mainly resulted from the decrease in cost of goods sold as a percentage of
sales, and improved margins from the prior year quarter.

The Nine Month Period
Ended June 30, 2006Compared to the Nine Month Period Ended June 30, 2005

Revenues for the nine-month period
ended June 30, 2006 decreased by approximately $23,000 (1%) to approximately $5,529,000
from $5,552,000 for the same period ended June 30, 2005. This decrease resulted from
continuing decreases in sales of the Companys Analyst products of $153,000
and a decrease in sales of the Companys Raichem products of $183,000, and was
offset by increases in sales at the Companys Brazilian subsidiary of $305,000.

Cost of product sales decreased by
approximately $902,000 (22%) to $3,182,000 from $4,084,000 for the same period last year.
Cost of product sales as a percentage of sales decreased from 74% to 58%. Cost of sales
decreased approximately $700,000 in the Companys Analyst® product line. This
decrease was mainly attributable to lower depreciation of approximately $315,000, and
higher production levels, which created greater manufacturing efficiencies. 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. The additional
decrease in cost of sales as a percentage of sales is mainly attributable to overall
reduced spending in the companys production.

Research and development expenses
increased $24,000 (12%) to approximately $231,000 from $207,000 mainly due to increased
research material supply purchases and consulting expenditures.

16

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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 June 30, 2006.

Selling, general and administrative
(SG&A) expenses for the nine months ended June 30, 2006 were $1,793,000,
which is slightly higher than the previous period expenses of $1,731,000. This increase is
attributable to increased consulting and administrative labor expenses as well as
increased legal expenses in the current period.

The operating income for the nine
months ended June 30, 2006 was $322,000 as compared to a $470,000 operating loss for the
nine-month period ended June 30, 2005, an increase in the operating income of
approximately $792,000 from the prior comparable 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
approximately $46,000 (16%) to approximately $340,000 in the nine months ended June 30,
2006 from $294,000 in the prior period due to increased interest expense primarily as a
result of the increase in interest expense related to the building purchased by the
company in June 2005.

Income tax expense for the nine
months ended June 30, 2006 was $65,000 compared to $33,000 for the nine months ended June
30, 2005. This tax expense resulted from income realized at the Companys Brazilian
subsidiary. The net loss for the period was approximately $83,000 for the nine months
ended June 30, 2006 as compared to a net loss of approximately $797,000 in the prior
period. The decrease in the net loss from the prior period mainly resulted from lower cost
of goods sold and improved margins.

# Liquidity and Capital
Resources

At June 30, 2006, Hemagen had
approximately $221,000 of cash, and working capital of approximately $1,672,489. 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 June 30, 2006 the Company had $400,000 outstanding on its line of
credit facility. This line of credit facility expires on March 31, 2007, also see
Subsequent Events footnote, NOTE J.

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Hemagen believes that cash flow from
operations, cash on hand at June 30, 2006, the proceeds from the sale of the building (as
further described in Note J to the Financial Statements), 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 nine months ended June 30, 2006 was $63,000 as compared to cash used
of approximately $559,000 during the nine months ended June 30, 2005. The cash
generated by the change in operating assets and liabilities was approximately
$58,000 in the nine month period ended June 30, 2006 as compared to $94,000
generated in the prior period.

Approximately $15,000 of cash was
used in investing activities in the nine months ended June 30, 2006 as compared to
$833,000 of cash used for investing activities in the nine months ended June 30, 2005. The
cash used in the previous period is attributed to capital expenditures related to the
purchase of a new corporate manufacturing facility in Maryland that was purchased in June
2005. See Notes G and J of the Financial Statements.

In the second fiscal quarter of 2006,
the Company signed a contract to sell the new corporate manufacturing facility that was
originally purchased in June 2005 to house the companys headquarters, to combine
certain manufacturing processes and to provide additional space for future growth. If
sold, the company intended to terminate all financing it had lined up to finance the build
out. No commitments for capital expenditures in fiscal 2006 had been made as of June 30,
2006. On July 10, 2006, the Company completed the sale of its manufacturing building. The
building was purchased for $800,000 plus regular and customary expenses and was sold in
July 2006 for $1,800,000, less expenses. The company realized approximately $951,000 in
net proceeds from the sale after paying down its construction loan of approximately
$665,000. The company also paid down its revolving line of credit in July, in its
entirety, which was outstanding in the amount of $400,000. As a result of the sale, the
Company will record a gain in the fourth quarter of 2006.

In the nine months ended June 30,
2005, the Company borrowed approximately $657,000 related to purchase of the building
described above.

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# Item 3.    Controls and
Procedures

The Companys Chief Executive
Officer, William P. Hales has evaluated the effectiveness of the design and operation of
the Companys disclosure controls and procedures as of June 30, 2006. Based upon this
evaluation, this officer believes that the Companys disclosure controls and
procedures were effective as of June 30, 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 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, resigned effective March 15, 2006. No replacement has been
hired although management has hired an interim CFO firm to assist it in preparing these
financial statements. The Company continues to search for a suitable replacement of its
CFO and in the meantime will continue to engage the currently engaged Interim CFO firm.
Due to the limited transition period afforded by our former CFO we required more time to
process and analyze the necessary information. We therefore, filed Form 12b-25,
Notification of Late Filing, in order to be able to properly file these financial
statements. 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.

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|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                                                                                                              
|April 1-31, 2006    |                                      |                                  |                                                                                         | 9,425                                                                                                               
|May 1-31, 2006      |                                      |                                  |                                                                                         | 19,575                                                                                                              
|June 1-30, 2006     |                                      |                                  |                                                                                         | 5,250                                                                                                               
|Total               |                                      |                                  |                                                                                         | 122,757                                                                                                             

| | (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 it 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 6.    Exhibits.

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

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

| | Exhibit 31.2 | Certification of Principal 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 Principal 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.

|August 21, 2006August 21, 2006 |  | Hemagen Diagnostics, Inc.
(Registrant)/s/William P. Hales
William P. HalesPresident andChief Executive Officer/s/William P. Hales
William P. HalesPrincipal Financial Officer
|------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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