=======================================================================
                     SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C.  20549
                     ----------------------------------

                                 FORM 10-KSB
              Annual Report Pursuant to Section 13 or 15(d) of

                     the Securities Exchange Act of 1934

                For the fiscal year ended September 30, 1996
                       Commission file number 1-11700

                          HEMAGEN DIAGNOSTICS, INC.
           ------------------------------------------------------
           (Exact name of registrant as specified in its charter)

              Delaware                               04-2869857
   ---------------------------------             -------------------
     (State or other jurisdiction                 (I.R.S. employer
   of incorporation or organization)             identification No.)

34-40 Bear Hill Road, Waltham, Massachusetts            02154
--------------------------------------------          ----------
 (Address of principal executive offices)             (Zip Code)

                               (617) 890-3766
            ----------------------------------------------------
            (Registrant's telephone number, including area code)


         Securities registered pursuant to Section 12(b) of the Act:


         Title of each class                    Name of each exchange
         on which registered                    ---------------------
         -------------------

            Common Stock                        Boston Stock Exchange

      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 60 days.  Yes  X   No    .
                                               ---     ---

      Indicate by check mark if disclosure of delinquent filers pursuant to 
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.    X  
                                 ---

      The registrant had revenues of $10,219,335 in its most recent fiscal 
year.  The aggregate market value of the voting stock held by non-affiliates 
of the registrant on December 18, 1996 was $16,947,662.  As of December 18, 
1996, 7,626,890 shares of Common Stock, $.01 par value per share, were 
outstanding.

      Certain items of Part III of this Form 10-KSB incorporate by reference 
certain portions of the registrant's definitive proxy statement to be filed 
with the Securities and Exchange Commission in connection with the 
registrant's 1997 Annual Meeting of Stockholders.


                                   PART I

      This report contains certain forward-looking statements that are 
subject to risks and uncertainties, including without limitation those 
discussed herein in the section entitled "Management's Discussion and 
Analysis of Financial Condition and Results of Operations" and those 
discussed in the section entitled "Risk Factors" in the Prospectus contained 
in the registrant's Registration Statement on Form S-3, File No. 333-6147 
(which section in hereby incorporated by reference herein).  These risks and 
uncertainties could cause the registrant's actual results in future periods 
to differ materially from its historical results and from any opinions or 
statements expressed in such forward-looking statements.  Such forward-
looking statements speak only as of the date of this report, and the 
registrant cautions readers not to place undue reliance on such statements.

Item 1.  Business.

General

      Hemagen Diagnostics, Inc. (the "Company") develops, manufactures and 
markets proprietary medical diagnostic test kits, or "assays," used to aid 
in the diagnosis of autoimmune and infectious diseases, in general health 
assessment and for research purposes.  The Company also develops, 
manufactures and markets materials for the manufacture of such diagnostic 
test kits. Autoimmune diseases are diseases in which the immune system 
mistakenly identifies the body's cells and tissues as foreign and attempts 
to destroy them.  Rheumatoid arthritis is an example of an autoimmune 
disease.  The Company generally focuses on markets which it believes offer 
significant growth potential and limited competition.

      Until July 1995, the Company's products were based primarily on two 
diagnostic technologies, hemagglutination and enzyme-linked immunosorbence 
("ELISA" or "EIA").  In July 1995, the Company completed the acquisition of 
a line of similar but complementary test kits using a third technology, 
immunofluorescence, from Schiapparelli Biosystems, Inc. (The "VIRGO 
Acquisition").  These acquired assays are sold under the registered 
trademark VIRGO[registered trademark].

      On March 1, 1996, the Company acquired Reagents Applications, Inc. 
("RAI") from Kone Holdings, Inc.  RAI manufactures and markets a complete 
line of clinical chemistry reagents and diagnostic products for in vitro 
diagnostic use in hospitals, clinics and laboratories.  These products are 
sold under the RAICHEM label directly and through a network of over 30 
distributors in the United States and international markets.  RAI also 
produces private label reagents for domestic and international customers.  
Most RAI reagents can be used in both automated and manual analyzers.  RAI's 
leading product lines include blood chemistry assays used to aid the 
monitoring and measurement of health profiles, such as cholesterol, blood 
urea nitrogen (BUN), triglycerides, glucose and uric acid.

      On November 1, 1996, the Company completed the purchase of 
substantially all the assets of Cellular Products, Inc., now known as 872 
Main Street Corporation.  872 Main Street Corporation was operating under 
the provisions of Chapter 11 of the United States Bankruptcy Code.  The 
Company continues to operate the facility located in Buffalo, New York 
through its wholly owned subsidiary, Cellular Products, Inc. ("CPI").  CPI 
manufactures biotechnology materials and assays for research and for the 
manufacture of clinical diagnostic test kits.

      The Company offers over 90 test kits that have been cleared by the 
United States Food and Drug Administration (the "FDA') for sale in the 
United States.  Several additional test kits are sold in foreign markets.  
The Company markets and sells its brand name products worldwide, directly 
and through national and international distributors and manufacturers' 
representatives.  The Company markets its products in South America through 
its majority owned subsidiary, Hemagen Diagnosticos Comercio, Importacao e 
Exportacao, Ltd., a Brazilian limited liability company ("HDC").  In 
addition, the Company sells certain of its products on a  private-label 
basis to multinational distributors of medical diagnostics.

      In December 1994 the Company entered into a five-year agreement (the 
"Carter-Wallace Agreement") with Carter-Wallace, Inc. ("Carter-Wallace") to 
manufacture approximately 14 diagnostic test kits for the Wampole division 
of Carter-Wallace.  The test kits, which had previously been manufactured by 
Carter-Wallace, are used to aid the diagnosis of common diseases such as 
rheumatoid arthritis, mononucleosis, strep throat and rubella, as well as to 
detect pregnancy. Carter-Wallace has agreed to purchase its requirements for 
these test kits from the Company during the term of the Agreement, subject 
to the Company maintaining certain quality standards.  The test kits are 
sold by Carter-Wallace to clinical laboratories and physicians' office 
laboratories both domestically and abroad.  

      From December 1994 through May 1995, the Company remodeled its 
manufacturing facility and developed certain technical capabilities in 
preparation for producing test kits under the Carter-Wallace Agreement.  
Initial shipments of finished goods under the Carter-Wallace Agreement began 
during the Company's third quarter of fiscal 1995 and full scale production 
commenced in the Company's second quarter of fiscal 1996.  The Carter-
Wallace Agreement contains provisions for two-year extensions and may be 
expanded to include additional products. 

      The Company owns a proprietary technique for preserving red blood 
cells, a key component of the Company's hemagglutination assays.  This 
technology enables the Company to manufacture products which have a shelf 
life of up to 24 months (compared to a typical shelf life of 30 to 60 days 
for traditional hemagglutination processes), provide quick and accurate 
results, require no special laboratory equipment to perform and are more 
reliable than previously available hemagglutination assays.  The extended 
shelf life and improvements in the consistency of these assays substantially 
eliminate limitations previously encountered in the use of hemagglutination 
assays.

      The Company markets and sells certain of its products through third 
parties, including Olympus America, Inc. ("Olympus"), an affiliate of 
Olympus Optical Co., Ltd. of Japan, Sigma Diagnostics, Inc. ("Sigma"), a 
subsidiary of Sigma-Aldrich Corp and Boehringer Mannheim, GmbH.  Olympus is 
the world's largest supplier of automated blood-typing equipment to blood 
banks and large commercial laboratories and Boehringer Mannheim is one of 
the world's largest diagnostic manufacturer and marketer.  Since 1989, the 
Company has been the exclusive provider to Olympus of an assay to detect 
cytomegalovirus ("CMV") antibodies for use with Olympus' automated blood-
typing equipment.  In September 1992 the Company entered into an agreement 
with Olympus to become the exclusive distributor of Olympus' automated 
blood-typing equipment for all of South America.  In February, 1995 this 
agreement was terminated with no further obligation on either party.
 
      In May 1992, the Company entered into a five-year agreement with 
Sigma, pursuant to which the Company manufactures certain of its ELISA 
assays for distribution and sale by Sigma under the Sigma label.  In October 
1992, the Company entered into a product development agreement with Sigma 
for the development of 11 ELISA assays during the year ending December 31, 
1993.  The Company completed the development of these assays in September 
1993.  See "Business--Distribution and Marketing."

      In November, 1993 the Company entered into a product development 
agreement with Boehringer Mannheim, GmbH ("Boehringer" or "BM") to develop 
and manufacture certain products for BM.  In July, 1995 the Company and BM 
signed an OEM Agreement relating to one of the products developed under this 
agreement relating to a test for Chagas' disease.

      The Company owns a 51% interest in HDC, a Brazilian limited liability 
company.  The Company and HDC have signed an agreement in principal for the 
Company to acquire substantially all of the remaining interest in HDC by 
issuing stock options to the minority stockholders of HDC with an exercise 
price at or above the fair market value of the Company's Common Stock.  The 
Company and minority stockholders of HDC are discussing whether this 
arrangement should be consummated or not.  Unless the context otherwise 
requires, the term "Company" includes HDC, RAI, CPI and the Virgo 
Acquisition.

Recent Developments

      Cellular Products, Inc.  

      On November 1, 1996, the Company, through its wholly owned subsidiary, 
CPI, acquired substantially all the assets of 872 Main Street Corporation 
(formally Cellular Products, Inc.) for $400,000 in cash and a $200,000 
promissory note payable November 1, 1997.  CPI is based in Buffalo, New York 
and is a manufacturer of biotechnology materials and assays for research and 
for the manufacture of clinical diagnostic test kits.  CPI's principal focus 
is on infectious diseases, particularly retro viruses such as HIV and HTLV.  
Its products are used in the growth and testing of these viruses and as raw 
materials by manufacturers of clinical diagnostic assays for HIV and HTLV.  
The product mix includes enzyme oligonucleotide assays, monoclonal 
antibodies, recombinant growth factors, viral lysates and bulk raw 
materials.

      872 Main Street Corporation, originally founded in 1982, as Cellular 
Products, Inc. has been operating under the provisions of Chapter 11 of the 
federal bankruptcy code since November 1994.  The Company believes the 
acquisition will enable the Company to produce several key raw materials for 
its tests, allow for the better control of manufacturing costs and enhance 
the Company's research programs.

      Reagents Applications, Inc.

      On March 1, 1996, the Company acquired all of the capital stock of RAI 
for a total purchase price of approximately $4.9 million in cash.  RAI, 
based in San Diego, California, manufactures and markets clinical reagents 
and assays used in hospitals and private laboratories.  The Company sells 
these products worldwide directly and through distributors and original 
equipment manufacturers.  RAI had revenues of approximately $5,807,000 for 
the year ended December 31, 1995 and $2,661,000 for the seven months ending 
September 30, 1996.

      VIRGO[registered trademark] Acquisition

      On July 1, 1995, the Company completed the VIRGO[registered trademark] 
Acquisition from Schiapparelli BioSystems, Inc. ("SBI").  In connection with 
this acquisition, the Company paid $1,000,000 in cash and issued a 
promissory note for $380,000 that was paid December 15, 1995.  The Company 
manufactures the VIRGO[registered trademark] products at a portion of the 
facility previously used by SBI in Columbia, Maryland.  

      The VIRGO[registered trademark] products consist primarily of assays 
that aid in the diagnosis of infectious and autoimmune diseases using 
immunofluorescence technology.  VIRGO[registered trademark] test kits are 
used by over 300 clinical laboratories in the United States and Europe, 
including certain existing customers of the Company.  The Company sells the 
VIRGO[registered trademark] products through some of its existing 
distribution channels and to former customers and distributors of SBI.

      Schiapparelli Biosystems B.V.

      The Company and Schiapparelli Biosystems B.V. ("Schiapparelli") 
entered into a distribution agreement whereby Schiapparelli will exclusively 
purchase certain diagnostic test kits from the Company for resale in various 
European countries.  Schiapparelli must meet minimum annual purchases in 
order to retain its rights under the agreement.

      Olympus America, Inc.

      In July, 1996, the Company signed an agreement with Olympus under 
which Olympus will continue to purchase an assay to detect CMV for use with 
Olympus' automated blood-typing equipment exclusively from the Company.   
The Company retained the right to sell the CMV test anywhere in the world 
other than North America and Hawaii.  The Company may not sell the test in 
North America or Hawaii so long as Olympus meets certain minimum annual 
purchase requirements.

      Agreement with Sheffield Medical Technologies, Inc.

      In December 1995, the Company entered into an agreement with Sheffield 
Medical Technologies, Inc. to develop a test for an antibody believed to be 
responsible for nonprogression of the HIV virus into Acquired Immune 
Deficiency Syndrome ("AIDS") in HIV positive individuals.  The agreement 
calls for the Company to develop a blood test for the antibody which is 
believed to be present in virtually all of the HIV positive individuals who 
survive at least ten years following diagnosis of the HIV infection.  The 
assay, if developed, could be useful in monitoring a vaccine that may one 
day be developed to generate the antibody.


Technology

      The presence and concentration of certain antibodies in the blood of 
an individual can assist physicians in the diagnosis of certain diseases.  
The Company's assays are in vitro (outside of a patient's body) diagnostic 
tests that are used to measure specific substances, either antigens or 
antibodies, in blood or other body fluids.  An antigen is a substance that 
reacts with a particular antibody in a manner which, in the proper 
environment, is detectable either by the naked eye or with the aid of a 
laboratory technique which amplifies the reaction so that it is rendered 
visible.  The Company's hemagglutination, ELISA and immunofluorescence 
assays are three examples of such an amplification.  The Company's blood 
chemistry assays are used to aid the monitoring and measurement of health 
profiles, such as cholesterol, blood urea nitrogen (BUN), triglycerides, 
glucose and uric acid.

      The Company relies upon proprietary technologies in the manufacture of 
its kits.  These technologies include a lyophilization (freeze drying) 
technique which substantially extends the shelf life of the Company's 
hemagglutination assays, and proprietary methods to prepare antigens for its 
ELISA assays.

      Hemagglutination

      Hemagglutination is the agglutination or "clumping" of red blood cells 
("RBCs").  Many substances, including certain antibodies, when placed in 
contact with RBCs, will cause agglutination.

      Under the appropriate conditions, human RBCs may be modified or 
sensitized by binding specific foreign antigens to their surface.  These 
sensitized RBCs will agglutinate when placed in contact with a specific 
antibody to the foreign antigen.  The presence of certain antibodies in an 
individual's serum (blood from which clotted red blood cells have been 
removed) can indicate certain diseases. By sensitizing RBCs with an antigen 
that specifically reacts with a particular antibody, the simple visible 
observation of the agglutination reaction will indicate the presence of the 
disease-produced antibody.  The use of RBCs instead of other particles can 
allow for simple visual observation of the agglutination reaction in the 
proper environment, and reduces the non-specific reactions seen in 
artificial systems such as those that utilize latex particles.

      To perform the Company's hemagglutination test, a technician combines 
the Company's sensitized RBCs with a patient's serum in a small well with a 
V-shaped bottom according to a set of directions included with the Company's 
test kits.  If no agglutination takes place, the RBCs will settle to the 
bottom of the well, resulting in a clearly visible red dot which indicates 
that the test is negative.

      In contrast, if the particular antibody is present in the patient's 
blood, the RBCs will agglutinate, which prevents the RBCs from settling to 
the bottom of the well.  Instead of the small red dot, the substance will 
appear diffuse, which indicates a positive reaction.

      ELISA

      ELISA (or EIA) tests employ small plastic vessels coated with 
particular antigens. The test process involves introducing the patient's 
serum into the vessel to allow a reaction to occur.  If the antibody being 
tested for is present, it will bind to the antigens on the inner surface of 
the vessel.  After the vessel is rinsed, the specifically bound antibody 
will remain while any non-specific antibodies will be washed away.  To 
detect the quantity of the specific antibody, other compounds are added 
which will cause a color change in the vessel, the intensity of which is 
proportionate to the quantity of the specific antibody bound.  If no color 
is noted, this indicates that the patient's serum did not contain detectable 
quantities of the specific antibody.

      Immunofluorescence

      The Company's immunofluorescence tests utilize a fluorescent 
microscope.  Mammalian cells grown on microscope slides are treated with 
disease-producing organisms (viral or bacterial).  Serum from a patient is 
placed in contact with the infected cells.  If a patient has antibodies to 
the organism causing the disease, the antibodies will bind to the organism.  
A chemical is added to the slide which binds to the organism and the 
antibody, if present.  When the slide is illuminated with light at a 
specific wavelength in the microscope, the chemically-treated cells will 
appear fluorescent, indicating a positive test result.  If the patient did 
not have the appropriate antibody, no fluorescence will appear and the test 
result will be deemed negative.

      Clinical Chemistries

      The Company produces a line of general clinical chemistry reagents 
utilizing colorimetric, turbometric and enzymatic procedures.  These 
chemistry reagents are those most commonly performed in clinical 
laboratories as general health screening tests and in the identifications of 
diseases.  These tests can be performed using a broad range of automated 
and semi-automated instruments typically used by clinical laboratories.

      Acute Phase Reactants and Apolipoproteins

      The Company has developed a new application for its ELISA technology 
to detect cardiovascular risk factors (apolipoproteins) and inflammatory 
signals (acute phase reactants), the latter of which are present in a 
patient's blood prior to the clinical manifestation of infection or 
inflammation.  If successful, these technologies could lead to earlier 
detection and treatment of cardiovascular disease, the imminent rejection of 
transplanted organs, or the onset of infections, than is possible with 
techniques now commercially available.  Such earlier detection could enable 
physicians to better plan appropriate treatment of patients with these 
conditions.  The Company currently markets two test kits to detect 
inflammatory signals.  Product sales for these tests were not material in 
fiscal 1996, 1995 or 1994.

Current Products 

      Hemagglutination Assays

      The Company believes that it manufactures and markets the only 
commercially available hemagglutination kits which test for antibodies to 
antigens present in the nucleus of a cell ("extractable nuclear antigens," 
or "ENAs") which are markers of certain autoimmune diseases.  Each of the 
Company's hemagglutination assays is based on the Company's proprietary 
technique to lyophilize, or "freeze dry," the RBCs which form the central 
component of a hemagglutination assay. The Company's proprietary 
lyophilization technique for the preservation of RBCs permits the production 
of standardized, easy-to-use and accurate hemagglutination tests with an 
extended shelf life, all of which are attributes previously unavailable 
using hemagglutination assays. The shelf-life of the lyophilized RBCs before 
reconstitution may be up to 24 months. A technician reconstitutes the 
powdered cells in a water-based solution prior to introducing the patient's 
serum. 

      Each hemagglutination test also requires a specific formula to 
sensitize the RBCs prior to lyophilization such that they will react to a 
specific antibody. For each of its tests, the Company uses a proprietary 
formula to combine antigens and other reagents with RBCs in a manner that 
allows for standard, sensitive and specific agglutination reactions. Results 
from the Company's test kits are generally available within two hours.  The 
Company's hemagglutination test kits aid in the diagnosis of the following 
diseases:

         SLE (lupus)                         dermatomyositis
         mixed connective tissue disease     polymyositis
         Sjogren's syndrome                  rheumatoid arthritis
         scleroderma (systemic sclerosis)    Chagas' disease
                                             cytomegalovirus (cmv)

      ELISA Assays

      The Company develops and markets ELISA tests for the detection of 
disease markers.  As with corresponding hemagglutination tests produced by 
the Company, most of the Company's ELISA assays test for elevated levels of 
antibodies, which are useful indicators of certain diseases. ELISA tests are 
widely used by large laboratories because these tests adapt easily to 
automated diagnostic testing equipment.  The Company's FDA cleared ELISA 
test kits aid in the diagnosis of the following diseases:

         SLE (lupus)                         polymyositis
         mixed connective tissue disease     dermatomyositis
         Sjogren's syndrome                  connective tissue diseases
         scleroderma (systemic sclerosis)    dermatomyositis
                                             Chagas' disease

      Certain of the Company's ELISA tests are also used to monitor the 
acute phase response to infection and inflammation in diseases such as lupus 
and rheumatoid arthritis.

      The Company's ELISA and hemagglutination kits include screen tests in 
which up to six different diagnostic indices are monitored at the same time, 
which is useful in the rapid initial screening of patients. If the screen 
test is positive, individual kits are available to identify which of these 
six indices is present.

      VIRGO[registered trademark] Products

      The Company's immunofluorescence ("IFA") products, sold under the 
trade name VIRGO[registered trademark], consist primarily of diagnostic 
assays for infectious diseases.  VIRGO[registered trademark] test kits are 
used as primary or confirmatory tests in many large clinical laboratories in 
the United States.  There are currently 15 kits in the VIRGO[registered 
trademark] product line. 

      The Company's VIRGO[registered trademark] products are used to aid in 
the diagnosis of the following:

         cytomegalovirus                     herpes simplex
         SLE (lupus)                         german measles
         connective tissue diseases          chicken pox
         primary bilary cirrhosis            infections with Epstein-Barr virus
         toxoplasmosis                       chlamydial infections
         syphilis                            measles
         primary RSV infections              mumps infections


      RAI Products

      The Company's general chemistry products, sold under the trade name 
RAICHEM[trademark], consist of a broad range of  assays used on automated 
and semi-automated clinical chemistry analysis systems.  Many of the RAICHEM 
assays are used in profiling general health conditions and as specific 
indications of possible disease states.  The most widely recognized general 
chemistry tests made by the Company include those for blood levels of 
glucose, cholesterol, triglycerides, uric acid, urea nitrogen and total 
protein.  In all, more than 60 of the Company's clinical chemistry products 
have been cleared by the FDA for sale in the United States.

      CPI Products

      The Company's wholly owned subsidiary, CPI, manufactures and markets 
biotechnology materials and assays for research and for the manufacture of 
clinical diagnostic test kits.  CPI's product line focuses on two target 
markets within the bioreagents marketplace.  The first is the research 
product market which includes T Cell Growth Factors, Retro-Tek Antigen EIA 
kits, Gene Detective EOA kits, monoclonal antibodies, Lymphocyte Isolation 
Adjuncts, and Recombinant Growth Factors.  The second market is the 
industrial raw materials market.  Major products in this area include 
purified viral lysates, monoclonal antibodies, polyclonal antibodies and 
conjugates.  CPI also services a number of smaller markets with products 
such as the Retro-Tek IFA kits and is the exclusive distributor for a 
product line manufactured by Genelabs Diagnostics U.S.A. Inc.


South American Activities

      In 1991, the Company began to market its product line in South America 
through HDC.  In Fiscal 1994, HDC completed the renovation of a new 
manufacturing and office facility in Sao Paulo, Brazil, which allows HDC to 
complete light manufacturing of test kits in South America.

      The Company markets its full product line to the South American 
market, including three proprietary assays for Chagas' disease. Chagas' 
disease (American Trypanosomiasis) is an insect and blood transfusion 
transmitted parasitic infection which eventually attacks the victim's 
cardiovascular system. Due to poor sanitation and other factors, insects 
have transmitted Chagas' disease widely throughout Central and South 
America, with substantial encroachment into Mexico.  In response to the need 
for efficient and accurate testing for Chagas' disease, the Company has 
developed three diagnostic tests: an instrument-free hemagglutination assay, 
an ELISA assay, and a hemagglutination assay prepared specifically for use 
with certain automated blood-typing instruments.  The ELISA assay has 
recently received FDA clearance for sale in the United States.  

      The sales office in Sao Paulo is presently staffed by five full-time 
salespeople administrators who receive and process orders, and four people 
in production, shipping and technical support.  In addition, Dr. de 
Oliveira, the Company's Vice President of Research and Development, spends 
time in Brazil attending to business of the Company. In fiscal 1996, 1995 
and 1994 the Company derived product sales through HDC of approximately 
$956,000, $973,000, and $268,000 respectively.  See "Business - Facilities." 

Distribution and Marketing

      General

      In the United States, the Company sells its products directly to 
clinical laboratories and blood banks and on a private-label basis through 
multinational distributors of medical supplies.  Internationally, the 
Company sells its products primarily through distributors. The Company 
grants exclusive and non-exclusive distributorships, which generally cover 
limited geographic areas and specific test kits. The Company's exclusive 
distributorship arrangements generally condition exclusivity on the 
distributor maintaining minimum purchases from the Company. The Company has 
relationships with approximately 35 distributors and its products have been 
sold in over 20 countries. The Company also engages four independent sales 
representatives, who market the Company's products to blood banks and 
clinical laboratories.  

      Since 1989 the Company has been the exclusive provider of test kits to 
detect CMV antibodies for use with the Olympus' PK Series Pre-Transfusion 
instruments, the world's most widely used automated blood-typing instruments 
in blood banks and large commercial laboratories. Pursuant to the terms of 
the Company's agreement with Olympus, the Company provides CMV test kits for 
sale by Olympus worldwide to users of the PK Series Pre-Transfusion 
instruments.  The agreement provides that Olympus must purchase a minimum 
number of hemagglutination CMV test kits annually from the Company through 
February, 1998, subject to the Company meeting certain requirements.  The 
agreement specifies that during its term, the Company will not sell its CMV 
assays to any customers in North America or Hawaii which use Olympus 
instruments or use competing laboratory analysis equipment in blood banks. 
Sales of CMV assays to Olympus were approximately $395,000, $674,000 and 
$592,000 during fiscal 1996, 1995 and 1994, respectively. 

      The Company also manufactures products on a private label basis for 
Sigma Diagnostics, Boehringer Mannheim GmbH ("Boehringer"), and Carter-
Wallace pursuant to supply agreements.  Some of these agreements provide for 
minimum purchases, however, the Company cannot predict the level of revenues 
it will derive from these agreements.

      Carter-Wallace accounted for approximately 18% of the Company's 
revenue for the fiscal year ended September 30, 1996.  Although the Company 
expects that its relationship Carter Wallace to continue, if it were to 
cease doing business with the Company it would have a material adverse 
effect on the Company's business. 

Products Under Development

      The Company is presently developing new products in areas described 
below. The Company spent a total of approximately $778,000, $562,000 and 
$727,000 on Company-sponsored research and development for the fiscal years 
ended September 30, 1996, 1995 and 1994, respectively. The Company spent a 
total of approximately $36,000, $11,000 and $0 on externally-sponsored 
research and development for the years ended September 30, 1996, 1995 and 
1994, respectively.

      Autoimmune Diseases

      The Company intends to continue its development of products to aid in 
the diagnosis of autoimmune diseases. Hemagglutination and ELISA kits for 
the detection of antibodies associated with chronic autoimmune active 
hepatitis, primary biliary cirrhosis and thyroiditis are currently under 
development. The Company believes that it will have commercially available 
assays for these purposes in fiscal 1997, subject to obtaining appropriate 
regulatory clearances. 

      Acute Phase Reactants and Apolipoproteins

      The Company continues to develop an application for its ELISA 
technology which would detect cardiovascular risk factors (apolipoproteins) 
and inflammatory signals (acute phase reactants) that are present in a 
patient's blood prior to the manifestation of disease. In addition, this 
assay could lead to earlier detection of organ transplant rejection or 
infection than is possible with techniques now commercially available. See 
"Business - Relationship with Boston University."

      The Company is developing a unique modification of its ELISA 
technology to test for acute phase reactants, proteins which the human liver 
produces when the body's tissues are damaged by a wound or infection. This 
technology is licensed by the Company from Boston University, which has a 
patent for the technology. See "Business - Relationship with Boston 
University." The Company is using its new technology of detecting levels of 
acute phase reactants to produce a number of new test kits. The Company's 
first product utilizing this technology, a new assay for acute infection and 
chronic inflammation, is currently in clinical studies.

      The Company's acute phase reactant technology has a number of 
potential applications, including:

            Transplantation
            ---------------

            The key to successful organ transplantation is to ensure that 
      the new organ is not rejected by the recipient's body. This can be 
      aided in part by administering appropriate drugs prior to the time   
      when the recipient's body rejects the transplant. It has been reported 
      that during the early phase of the rejection process, the body will 
      produce increased levels of certain acute phase reactants. Using the 
      Company's serum amyloid A ("SAA") assay, physicians may be able to 
      detect the point at which a body is rejecting a transplanted organ 
      earlier than current techniques allow. 

            Cardiovascular Diseases
            -----------------------

            The Company is developing a test to measure two blood 
      lipoproteins, which are indicators of risk of cardiovascular 
      disease. High levels of these two lipoproteins have been cited in a 
      study supported by the National Institutes of Health as more 
      reliable indices of cardiovascular risk than cholesterol levels.  
      Together with SAA, these technologies could detect high risk levels in 
      patients with chronic autoimmune disease.

            Rheumatoid Arthritis
            --------------------

            In connection with the Company's development program, the 
      Company has sold test kits utilizing its acute phase reactant 
      technology to Pfizer for use in the evaluation of Pfizer's 
      experimental drug Tenidap[registered trademark] for the treatment of 
      rheumatoid arthritis.

      Infectious Diseases

      The Company continues to develop additional assays to aid in the 
diagnosis of infectious diseases.  The Company recently completed the 
development of products known as  a "ToRCH panel" which include assays for 
toxoplasmosis, rubella, CMV, and herpes. The Company is also developing test 
kits for Lyme disease and for Epstein-Barr virus.  As with all of the 
Company's products under development, these products will have to undergo 
FDA review before they can be marketed and sold in the United States.  The 
Company cannot predict when it will receive FDA clearance for these 
products, if at all.  See "Business - Government Regulation."

      Clinical Chemistry Reagents

      The Company continues to develop additional assays and reagents to 
fill in its clinical chemistry reagent product line sold under the RAICHEM 
label.

Relationship with Boston University

      Dr. Carl Franzblau, the Chairman of the Board, Chief Executive Officer 
and President of the Company, serves as a Professor and Chairman of the 
Department of Biochemistry and as Associate Dean for Graduate Affairs at 
Boston University School of Medicine. Dr. Alan Cohen, a Director of the 
Company, serves as a Professor of Medicine and Pharmacology at Boston 
University School of Medicine. Lawrence Gilbert, a Director of the Company, 
was also the Director of the Patent and Technology Administration at Boston 
University through December, 1994. Dr. John I. Sandson, a Director of the 
Company, is Dean Emeritus of Boston University School of Medicine. Charles 
W. Smith, a Director of the Company, served as Senior Vice President of 
Boston University from 1984 through 1989 and as its Treasurer from 1983 
through June 1992.  The Company believes that the continuing relationship 
between Boston University and these individuals, particularly Dr. Franzblau, 
is beneficial to the Company, particularly with respect to providing the 
Company with access to new developments in scientific areas related to the 
Company's business.

      License Agreements

      In March 1992, the Company entered into a license agreement (the "B. 
U. License Agreement") with Boston University (the "University") pursuant to 
which the Company has obtained the exclusive right to use certain of the 
University's patented technology to manufacture and market assays for the 
detection of acute phase reactants. See "Business - Products under 
Development." Pursuant to the B. U. License Agreement, the Company is 
obligated to pay an annual royalty of 5% of the first $50,000 of the 
Company's net sales of these assays, and 10% of the Company's net sales of 
these assays in excess of $50,000 until the Company has paid the University 
a license fee of $10,000 and reimbursed it for certain patent expenses. 
Thereafter, the Company will pay a 5% royalty on its net sales of these 
assays.  Sales under the B.U. License Agreement have been immaterial to 
date.

      In July 1994, the Company entered into a second license agreement with 
the University under which the Company obtained the exclusive right to use 
additional patented and patent-pending technology of the University to 
manufacture and market certain products.  The royalties due under the terms 
of the agreement are the same as the B.U. License Agreement and will be 
applied to a license fee of $15,000.  No royalties were paid in the years 
ended September 30, 1996, 1995 or 1994 and no amounts were accrued for 
royalties at September 30, 1996, 1995 or 1994.  The agreement terminates 
upon the termination of the patents.

      Product Development Agreement

      On February 14, 1992 the Company entered into a product development 
agreement with the University to develop a urine-based assay to measure 
levels of desmosine, which can indicate certain diseases such as cystic 
fibrosis and emphysema. This agreement was terminated in 1993.  The parties 
are currently in discussions concerning the desirability of commercializing 
this technology.

Manufacturing and Sources of Supply

      The Company manufactures its hemagglutination and ELISA test kits 
primarily at its facility in Waltham, Massachusetts, and its 
VIRGO[registered trademark] products based on immunofluorescence technology 
at its facility in Columbia, Maryland.  The RAICHEM line is produced at the 
Company's facility in San Diego, California and the CPI line is produced in 
Buffalo, New York.  It purchases RBCs and some of the antigens and other 
reagents used in the kits from outside vendors. Most reagents used in the 
Company's test kits are manufactured at the Company's facilities. The 
Company uses lyophilization equipment to preserve sensitized RBCs for its 
hemagglutination test kits.

      All components used in the Company's products are available from 
multiple sources, except for an antigen called SSA, which the Company uses 
in two of its ELISA and two of its hemagglutination test kits. The Company 
believes that the supplier of this antigen produces this antigen for many 
customers. Management believes that if necessary, the Company could produce 
sufficient quantities of this antigen itself. Therefore, if the supply of 
this antigen were to cease, the Company believes it would not have a long-
term material adverse impact on the Company's business taken as a whole. 

Government Regulation

      The Company's manufacturing and marketing of diagnostic test kits are 
subject to government regulation in the United States and in other countries 
in which the Company's products are sought to be marketed.  The process of 
obtaining regulatory clearance involves lengthy and detailed laboratory and 
clinical testing, and other costly and time consuming procedures. This 
regulatory process may delay marketing of new products for lengthy periods 
and impose costly procedures, thereby furnishing an advantage to competitors 
with greater resources. Although over 90 of the Company's current products 
have been cleared by the FDA through the 510(k) review process, described 
below, there can be no assurance that regulatory clearance will be granted 
on a timely basis in the future, if at all. The extent of government 
regulation which may arise from future legislative or administrative action 
cannot be predicted. 

      In vitro monitoring products, such as those employing antibodies for 
the detection of autoimmune diseases in humans, are generally classified as 
medical devices by the FDA. For some in vitro products, the United States 
Food, Drug, and Cosmetic Act provides a process known as a "510(k) review" 
to enable the manufacturer to demonstrate that the proposed product is 
"substantially equivalent" to another product in commercial distribution in 
the United States before May 28, 1976 or which has subsequently been 
classified as a Class I or Class II medical device. When a 510(k) review is 
used, a sponsor is required to submit a Pre-Market Notification to the FDA. 
In the absence of a response from the FDA, the Company would not be able to 
proceed with sales of its in vitro product for diagnostic use unless and 
until it received notification from the FDA. In the event that the FDA 
requests additional information for the Pre-market Notification, there could 
be multiple cycles of submissions until clearance is obtained. The FDA has 
statutory authority to also require clinical studies data to support a Pre-
Market Notification 510(k) application.

      In cases where there are no existing FDA approved products 
"substantially equivalent" to the new product, an approved pre-market 
approval application ("PMA"), which involves a lengthier and more burdensome 
process, would be required before the FDA would allow commercial 
distribution. No assurance can be given that any in vitro blood test the 
Company develops in the future will be found to have an intended use that 
would qualify the new test for 510(k) clearance. Accordingly, a PMA may be 
required for any new application of the Company's proposed in vitro blood 
tests.

      The FDA invariably requires clinical data for a PMA and, although the 
FDA may grant 510(k) clearance without supporting clinical data, such data 
may be required if the FDA determines that technical differences from 
existing products suggest the need for additional evidence of safety or 
effectiveness of the new product. If clinical studies are necessary, the FDA 
may require the Company to obtain an investigational device exemption 
("IDE"). An IDE normally restricts the distribution of an investigational 
device to a limited number of institutions, and use by a limited number of 
investigators, for the purpose of performing studies to be submitted to the 
FDA in a 510(k) Pre-Market Notification or a PMA. The amount that can be 
charged for use of an investigational device in a clinical study is 
generally limited to recovery of costs until a 510(k) notification is 
cleared or PMA approval is granted by the FDA. Accordingly, no significant 
return can be expected during the study of investigational devices.

      Although certain diagnostic products are exempt from IDE requirements, 
the exemption applies only to tests which do not require an invasive 
sampling procedure that presents significant risk, do not introduce energy 
(such as X-rays) into a subject, and are not used as diagnostics without a 
confirmatory diagnosis by a medically established diagnostic product or 
procedure. The Company's products would not be used as diagnostics without 
such a confirmatory diagnosis while an investigational device.

      Medical devices may be exported before receiving IDE, 510(k) or PMA 
clearance under certain conditions, providing FDA approval of the proposed 
exportation is obtained. The receiving country must certify that the device 
is not in conflict with the laws of that country and that the foreign 
government is aware of the device's import. In addition, the FDA may require 
safety data similar to that required for approval of an IDE before approving 
the exportation of a new device. In foreign countries, the Company's 
distributors are generally responsible for obtaining any required government 
consents.

      The Company is also required to register with the FDA as a device 
manufacturer and list its devices. As such, the Company is subject to 
inspection on a routine basis for compliance with the FDA's Good 
Manufacturing Practice ("GMP") regulations. These regulations require that 
the Company manufacture its products and maintain its documents in a 
prescribed manner with respect to manufacturing, testing and control 
activities. Failure to comply with applicable GMP or other regulatory 
requirements can result in, among other things, sanctions, fines, delays or 
suspensions of approvals, injunctions against further distribution, seizures 
or recalls of products, operating restrictions and criminal prosecutions. In 
addition, the Company is required to comply with various FDA requirements 
for labeling. Pursuant to the Medical Device Reporting Act regulations, the 
Company is also required to notify the FDA of any deaths or serious injuries 
alleged to have been associated with the use of its diagnostic test kits as 
well as product malfunctions that would likely cause or contribute to death 
or serious injury if the malfunction were to recur. Finally, the FDA 
prohibits an approved device from being marketed for unapproved 
applications. Failure to comply with regulatory requirements could have a 
material adverse effect on the Company's business, financial condition and 
results of operations. 

Competition

      The clinical diagnostic industry is highly competitive. There are many 
companies, both public and private, engaged in diagnostics-related research 
and development, including a number of well-known pharmaceutical and 
chemical companies. Competition is based primarily on product reliability, 
customer service and price. Some of these companies have substantially 
greater capital resources and have marketing and business organizations of 
substantially greater size than the Company. Many companies have been 
working on immunodiagnostic reagents and products, including some products 
believed to be similar to those currently marketed or under development by 
the Company, for a longer period of time than has the Company. The Company 
believes that its primary competitors in the diagnostics market include 
Abbott Laboratories, Sigma Diagnostics, Trace-America, Inc., Gull 
Laboratories, Inc., Inova, Sanofi Diagnostics Pasteur, Inc.  and Diamedix 
Corporation.  The Company expects competition within this industry to 
intensify. 

Product Liability

      The testing, marketing and sale of clinical diagnostic products entail 
an inherent risk of allegations of product liability, and there can be no 
assurance that product liability claims will not be asserted against the 
Company. The Company may incur product liability due to product failure or 
improper use of products by the user. Inaccurate detection may result in the 
failure to administer necessary therapeutic drugs or administration of 
unnecessary and potentially toxic drugs. Even with proper use of a product, 
there may be specific instances in which the results obtained from the 
Company's test kits could lead a physician to incorrectly predict the 
appropriate therapy for a particular patient. The Company maintains product 
liability insurance in the amount of up to $5,000,000 per incident and in 
the aggregate which, based on the Company's experience and industry 
practice, the Company believes to be adequate for its present operations. No 
assurance can be given that the amount of the Company's insurance is 
sufficient to fully insure against claims which may be made against the 
Company. 

Patents and Proprietary Rights

      The Company protects its technology primarily as trade secrets rather 
than by relying on patents, either because patent protection is not possible 
or, in management's opinion, would be less effective than maintaining 
secrecy. In addition, the Company relies upon confidentiality agreements 
with its employees. To the extent that it relies on confidentiality 
agreements and trade secret protection, there can be no assurance that the 
Company's efforts to maintain secrecy will be successful or that third 
parties will not be able to develop the technology independently. The 
Company may in the future apply for patent protection for certain of its 
technology when management believes such protection would be beneficial to 
the Company. The protection afforded by patents depends upon a variety of 
factors which may severely limit the value of the patent protection, 
particularly in foreign countries, and no assurance can be given that 
patents, if granted, will provide meaningful protection for the Company's 
technology. 

Royalty Obligations

      The Company is required to pay royalties to third parties on sales of 
some of its products and proposed products. See "Business - Relationship 
with Boston University" 

Employees

      As of September 30, 1996, the Company had 96 full-time employees, of 
which five are executive officers, 26 are employed in sales, marketing, 
general and administrative activities and 65 are involved in production and 
research and development.  After the CPI acquisition, the Company had 110 
full-time employees.

Item 2. Description of Property.

      The Company maintains its principal executive offices, laboratory and 
production operations in Waltham, Massachusetts in two adjacent buildings; 
one a 4,000 sq. ft. facility which houses the Company's research and 
development laboratories, and the other a 15,000 sq. ft. facility which 
accommodates the laboratory and production operations and the executive 
offices of the Company. The Company pays rent in the amount of $36,000 per 
annum for the 4,000 square foot facility on a month-to-month basis. The 
Company pays rent in the amount of $82,500 per annum for the 15,000 square 
foot facility pursuant to the terms of that lease which ends May 30, 1997. 
The Company also leases 29,000 square feet in a production facility in 
Columbia, Maryland where it manufactures the VIRGO[registered trademark] 
product line.  Under the Columbia lease, which has a five-year term through 
June 30, 2000, the Company pays $100,000 per annum in rent. The Company also 
leases 20,100 square feet in San Diego, California, where it manufactures 
the RAICHEM products.  Under the San Diego lease, which extends through 
September 30, 1997, the Company pays $225,084 per annum.  In addition, the 
Company leases a 1,900 square foot warehouse facility near its production 
site for which it pays $13,080 per annum on an annual lease which may be 
renewed each April 1. The Company believes that its facilities are adequate 
for its present and foreseeable needs. 

      The Company's 51%-owned subsidiary leases approximately 4,500 square 
feet in Sao Paulo, Brazil pursuant to a lease which expires in September 30, 
1997. This subsidiary pays rent in an amount of approximately $5,500 per 
month for this space. The Company believes that its facilities in Sao Paulo 
are adequate for its present and foreseeable needs.

      As part of the purchase of substantially all the assets of 872 Main 
Street Corporation in November, 1996, the Company acquired the land and 
building located at 872 Main Street in Buffalo, New York.  CPI operates out 
of this facility which consists of approximately 15,000 square feet of 
space.  The Company believes that its facilities in Buffalo, New York are 
adequate for its present and foreseeable needs.


Item 3. Legal Proceedings.

      The Company is not presently involved in any material pending 
litigation.  



                                   PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.

      The Company's Common Stock has been traded on the over-the-counter 
market through the National Association of Securities Dealers Automated 
Quotation System ("NASDAQ") since February 4, 1993.  The Company's Common 
Stock is also traded on the Boston Stock Exchange.  On December 18, 1996, 
the closing bid and ask prices for the Common Stock as reported by NASDAQ 
were $2.69  and $2.88, respectively, per share.

      For the periods indicated, the following table sets for the range of 
high and low bid prices for the Common Stock as reported by NASDAQ during 
Fiscal 1996.  These prices reflect inter-dealer prices, without retail mark-
up, mark-down or commission, and may not represent actual transactions.

<TABLE>
<CAPTION>
                                                  High     Low
                                                  ----     ---
<S>                                               <C>      <C>
1995
First Fiscal Quarter..........................    $3.50    $1.88
Second Fiscal Quarter.........................    $2.25    $1.13
Third Fiscal Quarter..........................    $2.13    $1.09
Fourth Fiscal Quarter.........................    $4.50    $1.75
1996
First Fiscal Quarter..........................    $3.50    $1.75
Second Fiscal Quarter.........................    $4.13    $2.50
Third Fiscal Quarter..........................    $4.13    $2.63
Fourth Fiscal Quarter.........................    $3.13    $2.00
1997
First Quarter (through December 18, 1996).....    $2.94    $2.13
</TABLE>

      As of December 18, 1996, there were approximately 236 holders of 
record of the Company's Common Stock.

Dividends

      The Company has never paid cash dividends.  The Company currently 
intends to retain all future earnings, if any, for use in its business and 
does not anticipate paying any cash dividends in the foreseeable future.


Item 6.  Management's Discussion and Analysis of Financial Condition and 
Results of Operations.

      This section contains certain forward-looking statements that are 
subject to risks and uncertainties  including without limitation those 
discussed in the section entitled "Risk Factors" in the Prospectus contained 
in the registrant's Registration Statement on Form S-3, File No. 333-6147 
(which section is hereby incorporated by reference herein).  These risks and 
uncertainties could cause the registrant's actual results in future periods 
to differ materially from its historical results and from any opinions or 
statements expressed in such forward-looking statements.  Such forward-
looking statements speak only as of the date of this report, and the 
registrant cautions readers not to place undue reliance on such statements.

Overview

      Since its inception, the Company has concentrated its efforts on 
developing, manufacturing and marketing medical diagnostic test kits used to 
aid in the diagnosis of certain diseases.  During the fiscal years ending 
1996 and 1995 the Company has also concentrated its expansion efforts on 
synergistic acquisitions of companies, product lines and assets.   The 
Company presently has more than 100 different test kits available for 
general sale, over 90 of which have received FDA clearance for sale in the 
United States. 

Results of Operations

Fiscal Year Ended September 30, 1996 Compared to Fiscal Year Ended September 
30, 1995

      Revenues increased to approximately $10,219,000 from approximately 
$3,955,000 (158%), primarily as a result of (i) sales from the Company's 
March 1, 1996 acquisition of RAI, (ii) sales from the VIRGO[registered 
trademark] product line and (iii) contract manufacturing sales to Carter-
Wallace.  Approximately $2,667,000 (43%) of the increase is directly 
attributable the RAI acquisition.

      Cost of product sales increased to approximately $6,213,000 from 
approximately $2,173,000 (186%), and increased as a percentage of product 
sales to 61% from 55% due to lower gross margin Carter Wallace and Virgo
[registered trademark] sales and the effect of purchase accounting
adjustments for the acquisition of the RAI subsidiary of approximately 
$400,000. Of the total increase approximately $2,154,000 (53%) is directly 
attributable to the RAI acquisition.

      Research and development expenses increased to approximately $814,000 
from approximately $573,000 (42%), primarily due to the addition of RAI and 
Virgo[registered trademark] related research and development expenses.  Of 
the total increase approximately $91,000 (38%) is attributable to the 
acquisition of RAI.   The Company is currently developing and completing 
studies related to FDA 510(k) submissions for several new products. 

      Selling, general and administrative expenses increased to 
approximately $3,237,000 from approximately $2,055,000 (58%), primarily due 
to expenses at RAI and increased payroll and payroll  benefits.  RAI 
expenses accouted for approximately $764,000 (65%) of this increase.  SG&A 
expenses decreased as a percentage of revenues from 52% to 32% due to the 
Company's utilization of its present infrastructure to manage additional 
operations.

      Net other expense increased to approximately $419,000 from 
approximately $139,000 due to an increase in interest expense due to 
financing activities which included a private placement offering of 
$2,000,000 completed in September, 1995 (see Liquidity and Capital 
Resources), capital lease agreements used to acquire machinery and equipment 
and expenses related to the issuance of warrants.

      Net loss decreased to approximately $464,000 from approximately 
$985,000, primarily due to higher VIRGO[registered trademark] and 
Carter-Wallace sales and the acquisition of RAI.  This was partially offset 
by higher cost of product sales, research and development costs, selling, 
general and administrative expenses and an increase in net other expense.

      Fiscal Year Ended September 30, 1995 Compared to Fiscal Year Ended
      September 30, 1994

      Revenues increased to approximately $3,955,000 from approximately 
$2,361,000 (67%), primarily as a result of (i) increased sales by the 
Company's foreign subsidiary, HDC, (ii) sales arising subsequent to July 1, 
1995 in connection with the VIRGO[registered trademark] acquisition, (iii) 
increased revenue from the rental of automated blood-typing systems, and 
(iv) contract manufacturing sales to Carter-Wallace.  

      Cost of product sales increased to approximately $2,173,000 from 
approximately $1,185,000 (83%), and increased as a percentage of product 
sales to 55% from 50% primarily due to increased costs of depreciation and 
costs associated with the startup of the manufacturing contract with Carter-
Wallace, which included material, payroll, depreciation and facility 
expenses.

      Research and development expenses decreased to approximately $573,000 
from approximately $727,000 (21%), primarily due to a decrease in lab 
supplies and raw materials used for research conducted in connection with 
the Company's new product development activities.  The Company is currently 
developing and completing studies related to FDA 510(k) submissions for 
several new products.

      Selling, general and administrative expenses increased to 
approximately $2,055,000 from approximately $1,579,000 (30%), primarily due 
to increased expenses at HDC relating to staffing and operating its 
manufacturing facility in Sao Paulo, Brazil and increased bad debt expense.

      Net other expense increased to approximately $139,000 from 
approximately $4,000 due to an increase in interest expense and a decrease 
in interest income.  The increase in interest expense primarily relates to 
financing activities which the Company has entered into to acquire machinery 
and equipment.  Interest income decreased due to a reduction in the average 
balance of interest bearing accounts held by the Company and lower rates of 
interest.

      Net loss decreased to approximately $985,000 from approximately 
$1,108,000, primarily due to higher HDC and Carter-Wallace sales, the 
addition of VIRGO[registered trademark] sales in the fourth quarter and 
lower research and development costs.  This was partially offset by an 
increase in selling, general and administrative expenses and a decrease in 
the gross margin percentage.


Liquidity and Capital Resources

      The Company has financed its capital expenditures, operating 
requirements and growth primarily from the initial public offering of its 
common stock, a bridge loan, lease financing arrangements, borrowings from 
nonaffiliates and related parties, cash flow from operations and private 
placements completed in September 1995 and March, 1996.

      On November 1, 1996 the Company, through its wholly owned subsidiary, 
CPI, completed the purchase of substantially all the assets of 872 Main 
Street Corporation (formally Cellular Products, Inc.) for $400,000 in cash 
and a $200,000 promissory note payable on November 1, 1997.  CPI is based in 
Buffalo, New York and is a manufacturer of biotechnology materials and 
assays for research and for the manufacture of clinical diagnostic test 
kits.  It's products are used in the growth and testing of retro viruses and 
as raw materials by manufacturers of clinical diagnostic assays.  The 
product mix includes enzyme oligonucleotide assays, monoclonal antibodies, 
recombinant growth factors, viral lysates and bulk raw materials.  The 
Company believes the acquisition will enable the Company to produce several 
key raw materials for its test, allow for better control of manufacturing 
costs and enhance the Company's research programs.

      On March 19, 1996 the Company completed a private placement equity 
offering which provided net proceeds of $6,410,000.  In connection with the 
offering the Company issued 2,695,255 units at a price of $2.75 per unit.  
Each unit consisted of one share of common stock and one common stock 
purchase warrant.  The warrant became tradable upon the completion of a 
November 14, 1996 amended registration statement, expires in five years, and 
provides the option to purchase one share of common stock for $2.75.  The 
proceeds from the offering were used to purchase RAI, reduce corporate debt 
and to provide additional working capital for the Company.

      On March 1, 1996 the Company acquired 100% of the outstanding stock of 
RAI from Kone Holdings, Inc. for $4,979,195 in cash.  RAI is a manufacturer 
of diagnostic test kits which focus in the areas of clinical chemistry and 
serum proteins.  RAI has approximately 60 test kits which have received FDA 
clearance for sale in the United States.  Management believes that the 
addition of this subsidiary complements the Company's existing businesses.

      In September and October 1995, the Company completed a private 
placement, resulting in net proceeds of approximately $1,949,000 which was 
raised through the issuance of unsecured promissory notes ("Notes"), which 
were scheduled to mature August 1997 and bore interest at the rate of 13% 
per annum.  In January, 1996 the Company retired $450,000 of the Notes for 
$450,000 in cash and 100,000 warrants.  These warrants allow the holder to 
purchase common stock at $1.00 per share.  The remaining Notes have been 
converted into 1,550,000 shares of common stock.  As of the completion of a 
registration statement as amended on November 11, 1996, these warrants can 
be traded pursuant to the terms of the prospectus.

      On July 1, 1995 the Company acquired assets relating to a line of 
diagnostic test kits from Schiapparelli Biosystems, Inc. for $1,380,000 
consisting of $1 million which was paid on July 1, 1995 and a note to 
Schiapparelli of approximately $380,000 which was paid on December 15, 1995.  
The VIRGO[registered trademark] line of test kits, based on 
immunofluorescence technology, is used in the detection of infectious and 
autoimmune disease and complement the Company's existing product line. 

      In December, 1994 the Company entered into a five-year agreement with 
Carter-Wallace, Inc. to manufacture a broad range of diagnostic test kits 
for its Wampole Division.  The transfer of technology from Carter-Wallace to 
the Company was completed during the quarter ended March 31, 1996.

      At September 30, 1996, the Company's working capital was approximately 
$5,417,000 compared to approximately $2,518,000 at September 30, 1995.  This 
increase was principally due to the Company's private placement equity 
offering and the acquisition of net working capital from RAI.  The increase 
was partially offset by the cash payment used to acquire RAI and by the year 
to date operating losses.

      Inventory balances increased from approximately $1,085,000 on 
September 30, 1995 to approximately $3,178,000 on September 30, 1996 due to 
the purchase of RAI inventory and the purchase of approximately $496,000 
worth of raw material inventory from Carter Wallace.  Accounts payable and 
accrued expenses increased from approximately $773,000 to approximately 
$1,429,000 primarily due to the assumption of RAI payables and the Carter 
Wallace inventory purchases.  The Carter Wallace purchases will be paid for 
over a two year period.  Accounts Receivable balances increased from 
approximately $949,000 to approximately $1,674,000 primarily due to the RAI  
acquisition.

      Long term debt decreased from approximately $4,266,000 on September 
30, 1995 to approximately  $958,000 on September 30, 1996, due to the 
conversion of $1,550,000 in Notes (described above) into common stock, the 
retiring of an additional $450,000 of these Notes and the prepayment of 
approximately $848,000 of capital lease obligations following the private 
placement equity offering of March 19, 1996.  Notes payable of approximately 
$380,000 were repaid in December, 1995.

      At September 30, 1996 the Company had capital finance arrangements 
with two companies totaling approximately $958,000.  The Company used this 
financing to acquire blood typing machines and other equipment.  The Company 
is required to pay an average of $42,000 per month in the aggregate under 
these arrangements during fiscal 1997.  These arrangements run through 1998.

      Management believes its cash and cash equivalents and short-term 
investments, together with anticipated cash flow from operations, are 
sufficient to meet the Company's cash needs for its ongoing business.


Impact of Inflation

      Domestic inflation during the last three fiscal years has not had a 
significant effect on the Company's business activities.  Translation and 
transaction gains and losses between the Company and its subsidiary in 
Brazil are expensed each period.

New Accounting Pronouncements

      Effective October 1, 1994, the Company adopted Statement of Financial 
Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain 
Investments in Debt and Equity Securities", which requires that debt and 
marketable equity securities be classified as trading, available-for-sale or 
held-to-maturity.  Available-for-sale securities are reported in the balance 
sheet at fair value with unrealized gains or losses included in a separate 
component of stockholders' equity.  At September 30, 1996 and 1995, the 
Company held certificates of deposit of $1,360,249 and $803,000, 
respectively.  All certificates held at September 30, 1996 mature within one 
year.  These certificates of deposit are classified as available-for-sale 
and are recorded at  cost at September 30, 1996 and 1995, which approximates 
fair value.

      Effective October 1, 1995, the Company adopted Statement of Financial
Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" ("FAS 121"). The new
standard establishes new guidelines regarding when impairment losses on
long-lived assets, which included property and equipment, certain identifiable
intangible assets and goodwill should be recognized and how impairment losses
should be measured. It is the opinion of the Company's management that the
effect of the implementation of FAS 121 is not material to the Company's
financial statements.

      In October 1995, the Financial Accounting Standards Board issued 
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), 
"Accounting for Stock-Based Compensation."  SFAS 123 allows the Company to 
account for its stock-based employee compensation plans based upon either a 
fair value method or the intrinsic value method currently followed by the 
Company.  If the current method is retained, SFAS 123 requires certain 
additional disclosures regarding the impact which the fair value method 
would have on the results of the Company's operations.  The Company expects 
to retain its current method of accounting for stock-based compensation 
plans, and therefore, the adoption of SFAS 123 will have no impact on the 
Company's financial position or results of operations.  Adoption of SFAS 123 
is required for financial statements of fiscal years beginning after 
December 15, 1995.  The Company will implement the disclosure requirements 
of SFAS 123 as required.

Item 7.  Financial Statements and Supplementary Data.

      See Item 13 below and the Index therein for a listing of the financial 
statements and supplementary data filed as part of this report.

Item 8.  Change in Certifying Accountants.

      On January 29, 1996, Price Waterhouse LLP declined to stand for 
reelection as independent accountants for the Company.

      There were no disagreements between the Company and Price Waterhouse LLP
regarding any matters of accounting principles or practices, financial 
statement disclosure or auditing scope or procedures in connection with the 
audit of each of the Company's fiscal years in the period October 1, 1994 
through September 30, 1995, or at any time through January 29, 1996 which, 
if not resolved to the satisfaction of Price Waterhouse LLP would have caused 
Price Waterhouse LLP to make reference to the subject matter of such 
disagreement in connection with its report.  There have been no reportable 
events (as defined by Regulation S-B Item 304(a)(1)(iv)(B)) during the 
period from October 1, 1994 through September 30, 1995, and during the 
period through January 29, 1996.  In addition, during this period, the 
Company has not consulted another accountant regarding the application of 
accounting principles to a specified transaction.

      The report of Price Waterhouse LLP upon the Company's financial statement
for the fiscal year ending September 30, 1995 contained neither an adverse 
opinion nor a disclaimer of opinion nor was such report qualified or 
modified as to uncertainty, audit scope or accounting principles.

      Price Waterhouse LLP has furnished the Company with a letter addressed to 
the SEC stating that it agrees with the above statements.  A copy of the 
letter, dated February 2, 1996, was filed as an exhibit to the Company's 
report on Form 8-K filed with the Commission on February 3, 1996 and is 
incorporated herein by reference.

      On May 20, 1996 the Board of Directors of the Company approved the 
engagement of BDO Seidman, LLP as the independent accountants for the 
Company.

                                  PART III

      Items 9 to 12 are incorporated herein by reference to the Company's 
definitive proxy statement to be filed with the Securities and Exchange 
Commission.

                                   PART IV

Item 13.       Exhibits, List and Reports on Form 8-K.

        (a)(1)   Financial Statements.  The financial statements required to be
                 filed by Item 7 herewith are as follows:

<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----

<S>                                                                       <C>
Report of Independent Certified Public Accountants - BDO Seidman, LLP     F-2
Report of Independent Accountants - Price Waterhouse LLP                  F-3
Consolidated Balance Sheets at September 30, 1996
 and 1995                                                                 F-4 to F-5
Consolidated Statements of Operations for the years
 ended September 30, 1996, 1995 and 1994                                  F-6
Consolidated Statements of Stockholders' Equity
 for the years ended September 30, 1996, 1995 and 1994                    F-7
Consolidated Statements of Cash Flows for the years
 ended September 30, 1996, 1995 and 1994                                  F-8 to F-9
Notes to Consolidated Financial Statements                                F-10 to F-33
</TABLE>

        (a)(2) Exhibits.  

               (i)  The following exhibits, required by Item 601 of Regulation
                    S-B, are filed herewith:

None.

               (ii) The following exhibits were filed as part of the Company's 
                    Form SB-2 Registration Statement (33-52686-B) declared
                    effective by the Securities and Exchange Commission (the
                    "Commission") on February 4, 1993 and are herein
                    incorporated by reference:



<TABLE>
<CAPTION>

Exhibit No.         Title
-----------         -----

 
 <C>                <S>
   3a               Certificate of Incorporation.

   3b               Bylaws.

   3c               Certificate of Agreement of Merger between Hemagen Diagnostics 
                    Inc., a Massachusetts corporation, and the Company, dated May 1, 1992.

   3d               Articles of Merger between Hemagen Diagnostics Inc., a 
                    Massachusetts corporation, and the Company, dated May 1, 1992.

   4a               Rights of security holders (included in Exhibits 3a and 3b).

   4b               Specimen Stock Certificate.

  10a               Technology Purchase Agreement between Dr. de Oliveira and Dr. 
                    Lazzari and Seragen, Inc., dated April 15, 1983.

  10b               Assignment and Assumption Agreement between the Company and 
                    Seragen, Inc., dated September 12, 1985.

  10c               Product Development Agreement between the Company and Boston 
                    University, dated February 14, 1992.

  10d               License Agreement between the Company and Boston University, dated 
                    March 1992.

  10e               Distributorship Agreement between the Company and Eurobio 
                    Laboratories, dated June 11, 1991.

  10f               Distributorship Agreement between the Company and International 
                    Reagents Corporation, dated February 1, 1990.

  10g               Financial Assistance Agreement between the Company and Hemagen 
                    Diagnosticos, Comercio, Importacao e Exportacao Ltd., dated July 31, 1991.

  10h               Distribution Agreement between the Company and Hemagen 
                    Diagnosticos, Comercio, Importacao e Exportacao Ltd., dated July 31, 1991.

 *10i               Form of Employment Agreement between the Company and Dr. 
                    Franzblau.

 *10j               Form of Employment Agreement between the Company and Dr. de 
                    Oliveira.

 *10k               1992 Stock Option Plan.

  10l               Distributorship Agreement between the Company and Labor 
                    Diagnostika GmbH, dated July 1, 1990.

  10m               Product Purchase Agreement between the Company and Olympus 
                    Corporation, dated February 24, 1989.

  10n               OEM Agreement between the Company and Sigma Diagnostics, Inc., 
                    dated May 11, 1992.

  10o               Note issued by the Company to Boston University, dated December 
                    15, 1985.


  10p               Letter Agreement between the Company and Antonio Lazzari, M.D., 
                    dated April 28, 1985.

  10q               Lease between the Company and Philip Pagliazzo and Rose Pagliazzo, 
                    dated May 15, 1992.

  10r               Distribution Agreement between the Company and Olympus 
                    Corporation, dated September 1, 1992.

 *10s               Form of Employment Agreement between the Company and Mr. von 
                    Stein.

  10t               Product Development Agreement between the Company and Sigma 
                    Diagnostics, Inc., dated October 16, 1992.

 *10u               Revised Employment Agreement between the Company and Dr. de 
                    Oliveira.

 *10v               Revised Employment Agreement between the Company and Dr. 
                    Franzblau.

  10w               Description of the Company's lease for certain premises located in 
                    Waltham, Massachusetts.

  10x               Lease for office space of Hemagen Diagnosticos, Comercio, 
                    Importaceo e Exportaceo, Ltd. ("HDC") in Sao Paulo, Brazil.

  10x               Description of the Lease for office space of HDC in Sao Paulo, 
                    Brazil.

  10y               Equity Purchase Agreement between the Company and HDC, dated as of 
                    October 1, 1992.

  10aa              Form of Warrant issued in connection with the Bridge Loan and 
                    Statement of Registration Rights.

  10cc              Form of Subscription Agreement used in connection with the Bridge 
                    Loan.

  21                List of the Company's Subsidiaries.


<F*>  These exhibits relate to a management contract or compensatory plan or 
      arrangement.

</TABLE>

               (iii) The following exhibit was filed as part of the Company's
                     Form 10-QSB for the quarter ended March 30, 1993.

Exhibit No.         Title
-----------         -----

  10a               Master Lease Agreement between the Company and Aberlyn
                    Capital Management Limited Partnership, dated April 1, 1993.
 
               (iv) The following exhibit was filed as part of the Company's
                    Form 10-KSB for the Fiscal Year ending September 30, 1994.

Exhibit No.    Title
-----------    -----

  10a          Product Development Agreement between the Company and Boehringher
               Mannheim GmbH, dated November 25, 1993.

  10b          Option Agreement between the Company and Boston University, dated
               October 15, 1993.

               (v)  The following exhibits were filed as part of the Company's
                    Form 10QSB for the quarter ending December 31, 1994

  10dd         Distributorship Agreement between the Company and Labor
               Diagnostika GmbH dated October 1, 1994.

  10ee         Agreement between the Company and Carter-Wallace, Inc. dated 
               December 22, 1994.

  10ff         License Assignment and License Agreement between the Company and 
               Aberlyn Capital Management Limited Partnership dated December
               30, 1994.

               (vi) The following exhibits were filed as part of the Company's
                    Form 10-KSB for the year ending September 30, 1996.

Exhibit No.     Title
-----------     -----

  10gg          Distributorship Agreement between the Company and Schiapparelli
                Biosystems. B.V.

  10hh          Distributorship Agreement between the Company and Olympus
                America, Inc.

  23a           Consent of Independent Certified Public Accountants--BDO
                Seidman, LLP

  23b           Consent of Independent Accountants--Price Waterhouse LLP

  27            Financial Data Schedule


        (b)    Reports on Form 8-K.  (i) On July 13, 1995 the Company filed a 
               form 8-K related to the purchase VIRGO[registered trademark]
               product line.

               The Following financial statements were filed with the form 8K.

               Report of KPMG Peat Marwick.
               Statement of Inventory and Equipment and Leasehold Improvements
                of Immunofluorescent Assay and IL-2 Product Lines of
                Schiapparelli Biosystems, Inc. for the year ended December 31,
                1994.
               Statement of Operations before Administrative, Interest and
                Income Tax Expenses of Immunofluorescent Assay and IL-2 Product
                Line for the six month ended June 30, 1995 (unaudited).
               Pro forma Condensed and Combined Statement of Operations of the 
                Company and certain assets acquired from Schiapparelli for the
                nine months ended June 30, 1995 and the year ended September 30,
                1994 (unaudited).

               (ii)  On December 27, 1995 the Company filed a form 8-K
                      announcing the intention of purchasing RAI.
        
               (iii) On February 3, 1996 the Company filed a form 8-K announcing
                      that Price Waterhouse had declined to stand for reelection
                      as independent accountants for the Company.
        
               (iv)  On March 4, 1996 the Company filed a form 8-K related to
                      the purchase of RAI.
        
               The following financial statements were filed with the form 8-K.

               Audited Financial Statements for Reagents Applications, Inc. as
                of December 31, 1994 and 1993.
               Pro Forma Financial Information for the Registrant and RAI for
                the year ended September 30, 1995 and for the three months ended
                December 31, 1995 and December 31, 1994.
        
               (v)   On May 22, 1996 the Company filed a form 8-K related to the
                      approval of BDO Seidman, LLP as the independent
                      accountants for the Company.
        
               (vi)  On November 14, 1996 the Company filed a form 8-K related
                      to the purchase of the assets of 872 Main Street
                      Corporation (formerly Cellular Products, Inc.).



                                 SIGNATURES


      In accordance with Section 13 or 15(d) of the Securities Exchange Act 
of 1934, the registrant has caused this report to be signed on its behalf by 
the undersigned, thereunto duly authorized.  

                             HEMAGEN DIAGNOSTICS, INC.


Date:  December 26, 1996     By:/s/ Dr. Carl Franzblau
                                    -----------------------------
                                    Dr. Carl Franzblau, President


      In accordance with the Securities Exchange Act of 1934, this report 
has been signed below by the following persons on behalf of the registrant 
and in the capacities and on the date indicated.


<TABLE>
<CAPTION>

Name                            Capacity                         Date
----                            --------                         ----

      
<S>                             <C>                              <C>
/s/Carl Franzblau               President and Chairman of        December 26, 1996
---------------------           of the Board of Directors
Carl Franzblau, Ph.D.           (Principal Executive Officer)


/s/William Franzblau            Chief Financial Officer          December 26, 1996
--------------------            (Principal Financial
William Franzblau               Officer)


/s/Myrna Franzblau              Treasurer (Principal             December 26, 1996
------------------              Accounting Officer)
Myrna Franzblau


/s/Alan S. Cohen                Director                         December 26, 1996
-------------------
Alan S. Cohen, M.D.


/s/Lawrence Gilbert             Director                         December 26, 1996
-------------------
Lawrence Gilbert


----------------------------    Director        
Ricardo M. de Oliveira, M.D.


/s/John I. Sandson              Director                         December 26, 1996
---------------------
John I. Sandson, M.D.


/s/Charles W. Smith             Director                         December 26, 1996
-------------------
Charles W. Smith

</TABLE>


                          HEMAGEN DIAGNOSTICS, INC.

                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



                                                                        Page

Report of Independent Accountants - BDO Seidman......................   F-2

Report of Independent Accountants - Price Waterhouse.................   F-3

Consolidated Balance Sheet as of September 30, 1996 and 1995.........   F-4

Consolidated Statement of Operations for the years ended September
 30, 1996, 1995 and 1994.............................................   F-5

Consolidated Statement of Stockholders' Equity for the years ended
 September 30, 1996, 1995 and 1994...................................   F-6

Consolidated Statement of Cash Flows for the years ended September
 30, 1996, 1995 and 1994.............................................   F-7

Notes to Consolidated Financial Statements...........................   F-8


                          HEMAGEN DIAGNOSTICS, INC.

                              INDEX TO EXHIBITS


                                             Hemagen Diagnostics, Inc.
                                                      and Subsidiaries

                            Index to Consolidated Financial Statements

-------------------------------------------------------------------------------


<TABLE>

<S>                                                                      <C>
Report of Independent Certified Public Accountants - BDO Seidman, LLP    F-2

Report of Independent Accountants - Price Waterhouse LLP                 F-3

Consolidated financial statements:

  Balance sheets                                                         F-4 to F-5

  Statements of operations                                               F-6

  Statements of stockholders' equity                                     F-7

  Statements of cash flows                                               F-8 to F-9

  Notes to consolidated financial statements                             F-10 to F-33

</TABLE>


Report of Independent Certified Public Accountants 


To the Board of Directors and Stockholders of
Hemagen Diagnostics, Inc.


We have audited the accompanying consolidated balance sheet of Hemagen 
Diagnostics, Inc. and subsidiaries as of September 30, 1996, and the related 
consolidated statements of operations, stockholders' equity and cash flows for 
the year then ended.  These financial statements are the responsibility of the 
Company's management.  Our responsibility is to express an opinion on these 
financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing 
standards.  Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free of 
material misstatement.  An audit includes examining, on a test basis, evidence 
supporting the amounts and disclosures in the financial statements.  An audit 
also includes assessing the accounting principles used and significant 
estimates made by management, as well as evaluating the overall financial 
statement presentation.  We believe that our audit provides a reasonable basis 
for our opinion.

In our opinion, the consolidated financial statements referred to above present 
fairly, in all material respects, the financial position of Hemagen 
Diagnostics, Inc. and subsidiaries at September 30, 1996, and the results of 
their operations and their cash flows for the year then ended, in conformity 
with generally accepted accounting principles.


  BDO Seidman, LLP



Boston, Massachusetts
November 12, 1996




                      Report of Independent Accountants


To the Board of Directors and
Stockholders of Hemagen Diagnostics, Inc.

In our opinion, the accompanying consolidated balance sheet and the related 
consolidated statements of operations, of stockholders' equity and of cash 
flows present fairly, in all material respects, the financial position of 
Hemagen Diagnostics, Inc. and its subsidiary at September 30, 1995, and the 
results of their operations and their cash flows for each of the two years in 
the period ended September 30, 1995, in conformity with generally accepted 
accounting principles. These financial statements are the responsibility of the 
Company's management; our responsibility is to express an opinion on these 
financial statements based on our audits. We conducted our audits of these 
statements in accordance with generally accepted auditing standards which 
require that we plan and perform the audit to obtain reasonable assurance about 
whether the financial statements are free of material misstatement. An audit 
includes examining, on a test basis, evidence supporting the amounts and 
disclosures in the financial statements, assessing the accounting principles 
used and significant estimates made by management, and evaluating the overall 
financial statement presentation. We believe that our audits provide a 
reasonable basis for the opinion expressed above. We have not audited the 
consolidated financial statements of Hemagen Diagnostics, Inc. for any period 
subsequent to September 30, 1995.



Price Waterhouse LLP


Boston, Massachusetts
November 30, 1995






                                             Hemagen Diagnostics, Inc.
                                                      and Subsidiaries

                                           Consolidated Balance Sheets

-------------------------------------------------------------------------------
<TABLE>
<CAPTION>

September 30,                                                      1996           1995
--------------------------------------------------------------------------------------------

Assets

<S>                                                                <C>            <C>
Current:
  Cash and cash equivalents                                        $   756 919    $ 1 333 067
  Short-term investments                                             1 360 249        803 000
  Accounts receivable, less allowance for
   doubtful accounts of $53,800 and $26,900
   at September 30, 1996 and 1995, respectively                      1 673 791        949 254
  Inventories                                                        3 178 180      1 084 926
  Prepaid expenses and other current assets                            271 800        195 140
---------------------------------------------------------------------------------------------

      Total current assets                                           7 240 939      4 365 387

Property and equipment, net of accumulated depreciation              2 931 879      2 538 282

Other assets                                                         1 636 412        401 414
---------------------------------------------------------------------------------------------

                                                                   $11 809 230    $ 7 305 083
=============================================================================================
</TABLE>

                   See accompanying notes to consolidated financial statements.

<TABLE>
<CAPTION>

September 30,                                                      1996           1995
---------------------------------------------------------------------------------------------

Liabilities and Stockholders' Equity

<S>                                                                <C>            <C>
Current liabilities:
  Accounts payable and accrued expenses                            $ 1 428 790    $   772 574
  Notes payable                                                              -        382 584
  Current maturities of long-term debt                                 395 034        672 073
  Deferred revenue                                                           -         20 000
---------------------------------------------------------------------------------------------
  

      Total current liabilities                                      1 823 824      1 847 231

Long-term debt payable to related parties                                    -        350 000

Long-term debt, less current maturities                                562 672      3 243 566
---------------------------------------------------------------------------------------------
  
      Total liabilities                                              2 386 496      5 440 797
---------------------------------------------------------------------------------------------
  
Minority interest in consolidated subsidiary                                 -              -

Commitments and contingencies (Note 15)

Stockholders' equity:
  Preferred stock, no par value - 1,000,000 shares
   authorized; none issued  -  -
  Common stock, $.01 par value - 30,000,000 shares
   authorized; 7,620,890 and 3,162,000 shares issued
   and outstanding at September 30, 1996 and 1995, respectively         76 209         31 620
  Additional paid-in capital                                        13 132 757      5 154 912
  Accumulated deficit                                               (3 780 232)    (3 316 246)
---------------------------------------------------------------------------------------------
                                                                     9 428 734      1 870 286
  Less - receivable from stockholders                                   (6 000)        (6 000)
---------------------------------------------------------------------------------------------

      Total stockholders' equity                                     9 422 734      1 864 286
---------------------------------------------------------------------------------------------

                                                                   $11 809 230    $ 7 305 083
=============================================================================================
</TABLE>

                   See accompanying notes to consolidated financial statements.



                                             Hemagen Diagnostics, Inc.
                                                      and Subsidiaries

                                 Consolidated Statements of Operations
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>

Years ended September 30,                          1996           1995          1994
-------------------------------------------------------------------------------------------


<S>                                                <C>            <C>           <C>
Revenue:
  Product sales                                    $10 161 335    $3 935 195    $ 2 360 541
  Research and development contracts                    58 000        20 000              -
-------------------------------------------------------------------------------------------
                                                    10 219 335     3 955 195      2 360 541
-------------------------------------------------------------------------------------------

Cost and expenses:
  Cost of product sales                              6 213 398     2 173 087      1 185 022
  Cost of research and development revenue              36 040        10 814              -
  Research and development                             777 718       562 497        727 149
  Selling, general and administrative                3 237 045     2 054 908      1 579 376
-------------------------------------------------------------------------------------------
                                                    10 264 201     4 801 306      3 491 547
-------------------------------------------------------------------------------------------
    Operating loss                                     (44 866)     (846 111)    (1 131 006)
-------------------------------------------------------------------------------------------

Other income (expenses):
  Interest income                                      106 566       108 961        129 743
  Interest expense                                    (517 052)     (265 696)       (87 833)
  Foreign exchange gain (loss)                         (21 179)       17 903        (46 001)
  Other                                                 12 545             -              -
-------------------------------------------------------------------------------------------
                                                      (419 120)     (138 832)        (4 091)
-------------------------------------------------------------------------------------------

    Loss before provision for income tax
     benefit and minority interest in net loss
     of consolidated subsidiary                       (463 986)     (984 943)    (1 135 097)

Income tax benefit                                           -             -        (17 661)
-------------------------------------------------------------------------------------------
    Loss before minority interest                     (463 986)     (984 943)    (1 117 436)

Minority interest in net loss of
 consolidated subsidiary                                     -             -         (9 314)
-------------------------------------------------------------------------------------------
Net loss                                           $  (463 986)   $ (984 943)   $(1 108 122)
===========================================================================================

Net loss per share                                 $      (.08)   $     (.31)   $      (.35)
===========================================================================================

Weighted average shares outstanding                  5 666 357     3 157 759      3 150 000
===========================================================================================
</TABLE>


                   See accompanying notes to consolidated financial statements.
 

                                             Hemagen Diagnostics, Inc.
                                                      And Subsidiaries


                       Consolidated Statements of Stockholders' Equity
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                      Common Stock       Additional                 Receivable 
                                                   --------------------  Paid-in      Accumulated   from           Stockholders'
                                                   Shares     Par Value  Capital      Deficit       Stockholders   Equity
--------------------------------------------------------------------------------------------------------------------------------

<S>                                                <C>        <C>        <C>          <C>           <C>            <C>
Balance at September 30, 1993                      3 150 000  $31 500    $ 4 960 032  $(1 223 181)  $(6 000)       $ 3 762 351
  Net loss                                                 -        -              -   (1 108 122)        -         (1 108 122)
------------------------------------------------------------------------------------------------------------------------------

Balance at September 30, 1994                      3 150 000   31 500      4 960 032   (2 331 303)   (6 000)         2 654 229
  Issuance of common stock to Board of Directors
   in lieu of compensation                            12 000      120         23 880            -         -             24 000
  Issuance of stock purchase warrants                      -        -        171 000            -         -            171 000
  Net loss                                                 -        -              -     (984 943)        -           (984 943)
------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1995                      3 162 000   31 620      5 154 912   (3 316 246)   (6 000)         1 864 286
  Issuance of common stock upon conversion
   of subordinated debt                            1 550 000   15 500      1 502 565            -         -          1 518 065
  Issuance of common stock, net of expenses,
   in connection with private placement offering   2 695 255   26 953      6 383 216            -         -          6 410 169
  Exercise of common stock purchase warrants          90 517      905           (905)           -         -                  -
  Exercise of common stock purchase warrants          45 259      453           (453)           -         -                  -
  Exercise of common stock purchase warrants          45 259      452           (452)           -         -                  -
  Issuance of common stock to employees under
   stock option plan                                   5 100       51          8 899            -         -              8 950
  Issuance of common stock to Board of Directors
   under stock option plan                             7 500       75         11 175            -         -             11 250
  Issuance of common stock purchase warrants               -        -         50 000            -         -             50 000
  Issuance of common stock to Board of Directors
   in lieu of compensation                            20 000      200         23 800            -         -             24 000
  Net loss                                                 -        -              -     (463 986)        -           (463 986)
------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996                      7 620 890  $76 209    $13 132 757  $(3 780 232)  $(6 000)       $ 9 422 734
==============================================================================================================================
</TABLE>

                   See accompanying notes to consolidated financial statements.


                                             Hemagen Diagnostics, Inc.
                                                      and Subsidiaries

                                              Statements of Cash Flows
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>

September 30,                                         1996           1995           1994
-----------------------------------------------------------------------------------------------

<S>                                                   <C>            <C>            <C>
Cash flow from operating activities:
  Net loss                                            $  (463 986)   $  (984 943)   $(1 108 122)
  Adjustments to reconcile net loss to cash
   provided (used) by operating activities:
    Depreciation and amortization                         763 041        415 803        231 281
    Compensation relating to the issuance of
     warrants and common stock                             74 000              -              -
    Amortization of deferred financing costs and
     debt discount                                              -         37 530              -
    Foreign exchange (gain) loss                           21 179        (17 903)        46 001
    Minority interest in net income (loss) of
     consolidated subsidiary                                    -              -         (9 314)
    Loss on sale of fixed assets                                -              -          3 866
    Changes in operating assets and liabilities,
     net of effects of purchase of RAI in 1996
     and Virgo[registered trademark] in 1995:
      Restricted cash                                           -         53 000        (53 000)
      Accounts receivable                                 135 435       (437 744)      (192 007)
      Amounts due from related party                            -              -         20 000
      Refundable income taxes                                   -         17 661         (7 993)
      Inventories                                        (306 967)      (141 728)      (135 347)
      Prepaid expenses and other current assets              (471)       (42 394)        25 065
      Accounts payable and accrued expenses               329 871        479 128        830 356
      Deferred revenue                                    (20 000)        20 000              -
-----------------------------------------------------------------------------------------------
        Net cash provided (used) by
         operating activities                             532 102       (601 590)      (349 214)
-----------------------------------------------------------------------------------------------

Cash flow from investing activities:
  Payment for acquisition, net of cash acquired        (4 920 548)    (1 034 670)             -
  Purchases of short-term investments                  (1 360 249)      (303 000)             -
  Proceeds from maturity of short-term investments        803 000        650 000        850 000
  Purchases of property and equipment                    (234 343)      (330 636)      (957 489)
  Proceeds from sale of fixed assets                            -              -         14 575
  Other assets                                            345 973       (255 346)        (8 678)
-----------------------------------------------------------------------------------------------
        Net cash used by investing activities          (5 366 167)    (1 273 652)      (101 592)
-----------------------------------------------------------------------------------------------

Cash flows from financing activities:
  Proceeds from notes payable to related party                  -        350 000              -
  Repayments of notes payable to related party           (350 000)             -              -
  Proceeds from issuance of long-term debt                108 392      3 007 052              -
  Repayments of long-term debt                         (1 930 844)      (355 942)      (220 306)
  Proceeds from issuance of common stock, net           6 410 169              -              -
  Deferred financing costs                                      -        (51 095)             -
  Exercise of stock options and warrants                   20 200              -              -
-----------------------------------------------------------------------------------------------

        Net cash provided (used) by
         financing activities                           4 257 917      2 950 015       (220 306)
-----------------------------------------------------------------------------------------------

Effect of exchange rates on
 cash and cash equivalents                                      -        (10 383)       (54 541)
-----------------------------------------------------------------------------------------------

Net increase (decrease) in cash
 and cash equivalents                                    (576 148)     1 064 390       (725 653)

Cash and cash equivalents at
 beginning of year                                      1 333 067        268 677        994 330
-----------------------------------------------------------------------------------------------

Cash and cash equivalents at end of year              $   756 919    $ 1 333 067    $   268 677
===============================================================================================
Cash payments of interest                             $   507 849    $   242 930    $    87 833
===============================================================================================
Cash payments (refunds) of taxes                      $         -    $   (17 661)   $         -
===============================================================================================
</TABLE>


Supplemental disclosure of non-cash financing and investing activities, see 
Note 2.


                   See accompanying notes to consolidated financial statements.
 

1.  Nature of Business and Organization

      Hemagen Diagnostics, Inc. ("Hemagen" or the "Company") is a biotechnology
company which develops, manufactures and markets laboratory medical diagnostic 
kits used to aid in the diagnosis of certain autoimmune and infectious 
diseases.  In the United States, the Company sells its products directly to 
clinical laboratories and blood banks and on a private-label basis through 
multinational distributors of medical supplies. Internationally, the Company 
sells its products primarily through distributors.  The Company was 
incorporated in the Commonwealth of Massachusetts in 1985 and reincorporated in 
the state of Delaware in 1992.


2.  Significant Accounting Policies

    Estimates and  Assumptions

      The preparation of financial statements in conformity with generally 
accepted accounting principles requires management to make estimates and 
assumptions that affect the reported amounts of assets and liabilities and 
disclosure of contingent assets and liabilities at the date of the financial 
statements and the reported amounts of revenues and expenses during the 
reporting period.  Actual results could differ from those estimates.

    Principles of Consolidation

      The accompanying consolidated financial statements include the accounts 
of the Company and Hemagen Diagnostics Commercio, Importaco & Exporataco, Ltd. 
("HDC") for the three years ended September 30, 1996 and the accounts of 
Reagents Applications, Inc. ("RAI") from March  1, 1996, the effective date of 
the acquisition as described in Note 3.  All significant intercompany balances 
and transactions have been eliminated in consolidation.

      The Company has a 51% interest in HDC.  Minority interest in consolidated 
subsidiary represents the minority shareholders' proportionate share of the 
earnings of HDC.  All losses of HDC in excess of the minority shareholders' 
investment have been allocated to the Company.

    Foreign Currency Translation

      The functional currency of HDC is the U.S. dollar.  Certain assets 
(primarily inventories and property and equipment) and liabilities and related 
income and expenses of HDC are remeasured into U.S. dollars at exchange rates 
in effect when the assets were acquired or the liabilities were incurred.  All 
other assets and liabilities are translated at the exchange rates in effect as 
of the balance sheet date, and income and expense items are translated at 
average exchange rates for the period. Remeasurement gains and losses are 
included in operations as they occur.

    Cash Equivalents and Short-Term Investments

      The Company considers all investments with an original maturity of three 
months or less to be cash equivalents.  The Company invests its excess cash in 
certificates of deposit.

      Effective October 1, 1994, the Company adopted Statement of Financial 
Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments 
in Debt and Equity Securities", which requires that debt and marketable equity 
securities be classified as trading, available--for--sale or held--to--
maturity.  Available--for--sale securities are reported in the balance sheet at 
fair value with unrealized gains or losses included in a separate component of 
stockholders' equity.  At September 30, 1996 and 1995, the Company held 
certificates of deposit of $1,360,249 and $803,000, respectively.  All 
certificates held at September 30, 1996 mature within one year.  These 
certificates of deposit are classified as available--for--sale and are recorded 
at cost at September 30, 1996 and 1995, which approximates fair value.

    Inventories

      Inventories are stated at the lower of cost, determined on a first--in, 
first--out basis, or market.

    Property and Equipment

      Property and equipment is stated at cost.  Depreciation is provided on a 
straight--line basis over the estimated useful lives of the related assets.  
Expenditures for repairs and maintenance are expensed as incurred.

    Goodwill

       Goodwill resulting from the excess of cost over fair value of net assets 
acquired is being amortized on a straight-line basis over 15 years.  The 
Company evaluates the recoverability and remaining life of its goodwill and 
determines whether the goodwill should be completely or partially written-off 
or the amortization period accelerated.  The Company will recognize an 
impairment of goodwill if undiscounted estimated future operating cash flows of 
the acquired business are determined to be less than the carrying amount of the 
goodwill.  If the Company determines that the goodwill has been impaired, the 
measurement of the impairment will be equal to the excess of the carrying 
amount of the goodwill over the amount of the undiscounted estimated future 
operating cash flows.  If an impairment of goodwill were to occur, the Company 
would reflect the impairment through a reduction in the carrying value of 
goodwill.

    Income Taxes

      The Company utilizes the liability method of accounting for income taxes, 
as set forth in Statement of Financial Accounting Standards No. 109, 
"Accounting For Income Taxes".  Under this method, deferred tax liabilities and 
assets are recognized for the expected future tax consequences of temporary 
differences between the carrying amount and the tax basis of assets and 
liabilities.

    Revenue Recognition

      Revenue from the sale of products is recognized when the product is 
shipped.  Revenue from contracts to conduct research and development is 
recognized using the percentage--of--completion method.  Losses are provided 
for at the time that management determines that contract costs will exceed 
related revenues.  The portion of contract billings related to research and 
development not complete at the balance sheet date is included in deferred 
revenue.

    Advertising

      The Company expenses advertising costs as incurred.  Advertising expense 
was approximately $48,000, $32,000 and $23,000 in fiscal 1996, 1995 and 1994, 
respectively.

    Net Income (Loss) Per Share

      Net income (loss) per share is based on the weighted average number of 
shares of common stock and common stock equivalents outstanding during each 
period, and shares obtainable through conversion of convertible debt.  
Convertible debt and common stock equivalents, consisting of outstanding stock 
options and warrants, are excluded from the computation in loss periods as 
their effect is antidilutive.

    Statement of Cash Flows - Disclosure of Non-Cash Financing and Investing 
    Activities


      During 1996, the Company forced the conversion of $1,550,000 of notes 
payable into 1,550,000 shares of common stock.  Also in connection with the 
conversion, common stock purchase warrants with a total estimated value of 
$50,000 were issued.

      Common stock with a value of $24,000 was issued to non-employee members 
of the Board of Directors in lieu of compensation during 1996.

      During 1996, 181,035 warrants were exercised in a non-monetary 
transaction whereby the Company forgo its rights to the cash consideration upon 
exercise of these warrants in return for the warrant holder's forfeiture of 
their right to exercise the remaining 68,965 warrants.

      An instrument with a net book value of $157,319 was transferred from 
fixed assets to inventory during 1996.

      Capital lease obligations of $400,802 and $643,564 related to sale and 
leaseback transactions, were incurred in fiscal 1995 and 1994, respectively, 
when the Company entered into capital lease agreements for fixed assets.  An 
additional capital lease obligation for fixed assets of $117,650 was entered 
into in 1995.  The capital lease obligations entered into in 1994 include an 
asset of $174,750 acquired by the Company in 1993 and recorded in accounts 
payable at September 30, 1993.  In fiscal 1994, this liability was paid 
directly by the leasing company and the lease liability was recorded by the 
Company (see Note 6).

      An instrument with a cost of $174,750 was transferred from inventory to 
fixed assets in 1994.

      Long term debt of $3,994 was forgiven in conjunction with the sale of 
fixed assets in 1994.

      Fixed assets with a book value of $799,500, recorded in accounts payable 
at September 30, 1994, were returned in 1995 prior to being paid for.

      In conjunction with the purchase of certain assets and liabilities of 
Schiapparelli, a note payable for $382,584 was issued (see Note 3).

      Common stock purchase warrants with a total estimated value of $116,000 
were issued in 1995 to outside consultants for services to be rendered (see 
Note 11).

      Common stock purchase warrants with a total estimated value of $55,000 
were issued in 1995 to a leasing company in conjunction with financing 
agreements (see Note 11).

      Common stock with a value of $24,000 was issued to non--employee members 
of the Board of Directors in lieu of compensation during 1995 (see Note 11).

    New Accounting Pronouncements

      Effective October 1, 1995, the Company adopted Statement of Financial 
Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived 
Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121").  The new 
standard establishes new guidelines regarding when impairment losses on long-
lived assets, which include property and equipment, certain identifiable 
intangible assets and goodwill, should be recognized and how impairment losses 
should be measured.  It is of the opinion of the Company's management that the 
effect of the implementation of SFAS 121 is not material to the Company's 
financial statements.

      In October 1995, the Financial Accounting Standards Board issued 
Statement of Financial Accounting Standard No. 123 ("SFAS 123"), "Accounting 
for Stock--Based Compensation." SFAS 123 allows the Company to account for its 
stock--based employee compensation plans based upon either a fair value method 
or the intrinsic value method currently followed by the Company.  If the 
current method is retained, SFAS 123 requires certain additional disclosures 
regarding the impact which the fair value method would have on the results of 
the Company's operations.  The Company expects to retain its current method of 
accounting for stock--based compensation plans, and therefore, the adoption of 
SFAS 123 will have no impact on the Company's financial position or results of 
operations.  Adoption of SFAS 123 is required for financial statements of 
fiscal years beginning after December 15, 1995.  The Company will implement the 
disclosure requirements of SFAS 123 as required in fiscal 1997.

3.  Acquisitions

      Effective March 1, 1996, the Company acquired 100% of the outstanding 
common stock of Reagents Applications, Inc., a manufacturer of diagnostic test 
kits for a cash purchase price of $4,979,195.

      The acquisition was recorded using the purchase method of accounting, 
whereby the net assets acquired were recorded at their estimated fair values 
and the excess of cost over the fair value of the net assets acquired of 
approximately $1,635,487 was allocated to goodwill and is being amortized over 
15 years.

      The Company acquired certain assets, primarily inventory and fixed 
assets, and assumed certain liabilities, related to the Virgo[registered 
trademark] product line of Schiapparelli Biosystems, Inc. ("Schiapparelli") on 
July 1, 1995 for total consideration and related costs of $1,417,254.  The 
purchase price was paid in three installments: $1,000,000 upon closing and 
notes payable of $250,000 due on December 31, 1995 and $132,584 due on June 30, 
1996.  Both parties subsequently agreed to accelerate the payment of these 
notes to December 15, 1995.  The notes payable to Schiapparelli were secured by 
a first priority security interest in the accounts receivable and inventory of 
the Virgo[registered trademark] business.  At September 30, 1995, the accounts 
receivable and inventory balance of the Virgo[registered trademark] business 
exceeded the amount of the note.  The acquisition was funded by the issuance of 
$2,000,000 13% convertible notes through  a private placement offering (see 
Note 10).  The acquisition was accounted for under the purchase method of 
accounting, and accordingly, the purchase price was allocated to the assets 
acquired and liabilities assumed based upon their fair values at the date of 
acquisition.  The excess of the fair value of net assets acquired over the 
purchase price was recorded as a reduction of the value of fixed assets 
acquired, in accordance with the provisions of Accounting Principles Board 
Opinion No. 16, "Business Combinations".  The Virgo[registered trademark] 
products consist primarily of assays that aid in the diagnosis of infectious 
and autoimmune diseases using immunofluorescence technology.

      The consolidated statements of operations and cash flows for the year 
ended September 30, 1996 include the results of operations and cash flows for 
RAI from March 1, 1996 through September 30, 1996 and for Virgo[registered 
trademark] for the entire year.

      The consolidated statements of operations and cash flows for the year 
ended September 30, 1995 include the results of operations and cash flows for 
Virgo[registered trademark] from July 1, 1995 through September 30, 1995.

      The unaudited pro forma combined results of operations of the Company and 
the businesses acquired in fiscal 1996 and 1995 for the years ended September 
30, 1996 and 1995, assuming that the acquisitions had occurred at October 1, 
1994 and after giving effect to certain pro forma adjustments are as follows:

<TABLE>
<CAPTION>
      September 30,                1996           1995
      ------------------------------------------------

      <S>                   <C>            <C>
      Revenue               $12 334 000    $11 664 000

      Net loss                 (855 000)      (428 000)

      Net loss per share           (.14)          (.08)

</TABLE>

4.  Related Party Transactions

    Related Parties

      The Company's Chairman of the Board, Chief Executive Officer, President 
and principal stockholder is the Chairman of Boston University's (the 
"University") Biochemistry Department and a Professor and Associate Dean for 
Graduate Affairs of the University's School of Medicine.  Certain other 
directors and stockholders of the Company are also employed by the University. 
 The Company has entered into certain product development and license 
agreements with the University as further described below.

    Product Development Agreement

      In February 1992, the Company entered into a product development 
agreement with the University to develop, on a best efforts basis, a product 
which can indicate certain diseases.  Under this agreement, the Company is 
obligated to provide facilities, personnel, supplies and services totaling 
$100,000, which are recorded as research and development contract support costs 
as incurred.  No such costs were incurred in the years ended September 30, 
1996, 1995 or 1994.  The Company retains a 50% interest in all intellectual 
property developed.  The University is obligated to provide $100,000 in cash to 
the Company over the term of the agreement to pay for the services of two 
employees of the Company and certain equipment and other costs which are 
recorded as costs of research and development revenues as incurred.  The 
Company recorded $10,814 of such costs in the year ended September 30, 1995.  
No such costs were incurred in the years ended September 30, 1996 or 1994.  The 
Company received $40,000 from the University under this agreement in the year 
ended September 30, 1995, of which $20,000 of revenue was recognized in 1995 
and the remaining $20,000 was recognized in 1996.  No revenue was recognized 
under this product development agreement in the year ended September 30, 1994. 
 No amounts were due to the Company at September 30, 1996 or 1995 under this 
agreement.

      If the technology developed is licensed to a third party, royalties will 
be distributed in proportion to the number of patents and patent applications 
licensed to the Company and the University, respectively.  License fees will be 
distributed equally up to a maximum of $215,000; thereafter, the fees will be 
allocated in the same manner as royalties.

      The agreement terminated in September 1993.  The agreement provided that 
following its termination (i) if the Company and the University both desire to 
further develop and market the technology, that they enter into a joint venture 
for that purpose, (ii) if only the Company desires to further develop the 
technology, it may purchase the rights to the technology and reimburse the 
University for its initial $100,000 investment, (iii) if only the University 
desires to pursue the technology, then the University will repay the Company 
for its initial investment, (iv) if neither party desires to pursue the 
technology, neither party will have any obligation to the other.  The rights to 
the technology will be assigned in accordance with patent law and the 
University shall own any equipment purchased with University funds.  If neither 
party desires to pursue the technology, the Company has agreed to assign its 
rights to the technology to the University.  The Company intends to further 
develop the technology and is discussing the alternatives with the University. 

    License Agreements

      In March 1992, the Company entered into a license agreement with the 
University under which the Company obtained the exclusive right to use the 
University's patented and patent -pending technology to manufacture and market 
certain products.  Under the agreement, the Company is obligated to pay an 
annual royalty of 5% of the first $50,000 of the Company's net sales of these 
products and 10% of net sales of these products in excess of $50,000 until the 
Company has paid the University  a license fee of $10,000 in total and 
reimbursed it for certain patent expenses.  All royalties to be paid thereafter 
will equal 5% of the Company's net sales of these products.  Sales of products 
using technology obtained under the agreement, but not specifically covered 
under the patent application, and sales which occur if no patents are granted, 
are subject to a 3% royalty for a period of ten years.  The Company also agreed 
to pay the University 27.5% of royalties the Company receives if it sublicenses 
the technology and 25% of the license fees resulting from any sublicense 
agreement.  There were no royalties paid in the years ended September 30, 1996 
or 1995.  Royalties of $2,873 were paid in the year ended September 30, 1994 
and $618 was accrued at September 30, 1995.  The agreement terminates upon the 
termination of the patents.

      In July 1994, the Company entered into a license agreement with the 
University under which the Company obtained the exclusive right to use 
additional patented and patent--pending technology of the University to 
manufacture and market certain products.  The royalties due under the terms of 
the agreement are the same as the initial license agreement and will be applied 
to the license fee of $15,000.  No royalties were paid in the years ended 
September 30, 1996, 1995 or 1994 and no amounts were accrued for royalties at 
September 30, 1996 or 1995.  The agreement terminates upon the termination of 
the patents.

    Convertible Notes

      In fiscal 1995, the Company issued approximately $350,000 of the 
$1,956,250 private placement offering of convertible notes (see Note 10) to 
related parties.  The related parties consist primarily of board members, 
officers, and management of the Company and their family members.  At September 
30, 1995, the Company had accrued interest of approximately $7,000 relating to 
these notes and the same amount of interest expense had been incurred for 
fiscal 1995.  The Company recognized $30,000 of interest expense relating to 
these notes in fiscal 1996.

      The Company forced the conversion of these notes into shares of common 
stock as further described in Note 11.


5.  Inventories

      Inventories consist of the following:

<TABLE>
<CAPTION>

      September 30,                          1996          1995
      ---------------------------------------------------------

      <S>                              <C>           <C>
      Raw materials                    $1 278 021    $  382 578
      Work-in-process                     274 181       346 517
      Finished goods                    1 625 978       355 831
      ---------------------------------------------------------
                                       $3 178 180    $1 084 926
      =========================================================
</TABLE>



6.  Property and Equipment

      Property and equipment include the following:

<TABLE>
<CAPTION>
      September 30,                          1996          1995
      ---------------------------------------------------------

      <S>                              <C>           <C>
      Furniture and equipment          $3 950 300    $2 893 063
      Leasehold improvements              523 113       481 734
      ---------------------------------------------------------
                                        4 473 413     3 374 797
      Less accumulated depreciation
       and amortization                 1 541 534       836 515
      ---------------------------------------------------------
                                       $2 931 879    $2 538 282
      =========================================================
</TABLE>


      Depreciation and amortization expense relating to property and equipment 
was $708,525, $404,522 and $219,766 for the years ended September 30, 1996, 
1995 and 1994, respectively.

      Included in the above amounts is equipment of $174,750 which was not in 
service at September 30, 1995.  Depreciation on this equipment began in 1996 
when the equipment was placed in service.  Included in the above amounts is 
property and equipment acquired under capital leases of $534,114 and $1,927,004 
at September 30, 1996 and 1995, respectively. Accumulated depreciation and 
amortization on property and equipment under capital leases totaled $321,671 
and $338,988 at September 30, 1996 and 1995, respectively.

      In fiscal 1996, the Company retired lease obligations amounting to 
$1,337,044 and acquired the ownership of the assets under these leases.


7.  Other Assets

      Other assets consist of the following:

<TABLE>
<CAPTION>
                                       1996          1995
      -------------------------------------------------------

      <S>                              <C>           <C>
      Goodwill, net of accumulated
       amortization of $54,516         $1 580 971    $      -
      Other                                55 441     401 414
      -------------------------------------------------------
                                       $1 636 412    $401 414
      =======================================================

</TABLE>

8.  Accounts Payable and Accrued Expenses

      Accounts payable and accrued expenses include the following:

<TABLE>
<CAPTION>
      September 30,                1996          1995
      ---------------------------------------------------

      <S>                          <C>           <C>
      Accounts payable - trade     $  645 068    $556 739
      Accrued professional fees       144 149      60 100
      Accrued vacation                155 163      46 000
      Accrued other                   484 410     109 735
                                   ----------------------
                                   $1 428 790    $772 574
      ===================================================
</TABLE>
    

9.  Development and License Agreements

      In October 1992, the Company entered into a product development agreement 
with a customer, under which the customer and the Company would each contribute 
$93,500, subject to the Company meeting specified goals in connection with the 
development of a product line by December 31, 1993.  The Company completed the 
development in the year ended September 30, 1993, and all amounts due under the 
terms of the agreement were paid in full.  Under this agreement, the customer 
received a perpetual, non--exclusive license to manufacture the product. The 
customer and the Company agreed to pay royalties to each other, ranging from 2% 
to 6%, on net sales of the product sold by the other during the first ten years 
after development.  In addition, the selling party shall pay a royalty equal to 
6% of net sales of the product to the other party until a total amount of 
$93,500 has been paid to the other party.  After the Company has been 
reimbursed its $93,500 contribution, the balance of the customer's contribution 
not already repaid by the Company shall be repaid in eight quarters by 
offsetting any royalty payments due to the customer.  If the customer elects 
not to manufacture the product itself, then Hemagen shall have the right of 
first refusal to manufacture the product for sale by the customer.  Hemagen 
retains ownership rights in all technology developed under this agreement. 

     There were no sales of this product in the years ended September 30, 1996, 
1995 or 1994.  The Company and the customer are in the process of filing for 
FDA clearance for sale of such products in the U.S.

      In November 1993, the Company entered into a product development 
agreement with a customer under which the Company would develop a product which 
would work in conjunction with the customer's blood analyzer.  Under the terms 
of the agreement, the Company would provide facilities and personnel and the 
customer would provide the use of its blood analyzer and materials.  The 
Company completed the development in the year ended September 30, 1994.  Under 
this agreement, the Company maintains exclusive rights to manufacture and sell 
the product and may enter into an OEM agreement with the customer.  The Company 
may grant the customer the right to manufacture the product on its own under 
mutually agreeable terms but 
neither party has the right to license or assign the right to manufacture the 
product to a third party without the permission of the other party.  As of 
September 30, 1996, no OEM or license agreements have been entered into by the 
Company and the customer.  There were no sales of this product in the years 
ended September 30, 1996, 1995 or 1994.


10. Financing Arrangements

    Long-Term Debt

      Borrowings classified as long-term debt consist of the following:


<TABLE>
<CAPTION>

      September 30,                                 1996        1995
      --------------------------------------------------------------------

      <S>                                           <C>         <C>
      Term loan at an effective interest rate of
       approximately 13%, monthly principal and
       interest payments of $31,309 from January
       1996 through December 1998                   $789 340    $1 000 000

      Obligations under capital leases (Note 15)     168 366     1 309 389

      Convertible 13% notes, converted into
       common stock during fiscal 1996                     -     1 956 250
      --------------------------------------------------------------------
                                                     957 706     4 265 639

      Less current portion                           395 034       672 073
      --------------------------------------------------------------------
                                                    $562 672    $3 593 566
      ====================================================================

</TABLE>

    Term Loan

      In December 1994, the Company borrowed $1,000,000 from a leasing company, 
using certain patents as collateral, to fund working capital requirements.  The 
Company's first year of interest was netted from the proceeds of the loan and 
recorded as prepaid interest.  Principal and interest payments are due in 
monthly installments of $31,309 beginning in January 1996 through December 
1998, with a balloon payment of $100,000 due at the end of the term.  At the 
Company's option, the amount due at the end of the term may be paid in four 
additional monthly installments of $25,437.  Principal repayments for the 
fiscal years ending September 30, 1997, 1998 and 1999 will be $268,281, 
$331,778 and $189,281, respectively.

    Convertible 13% Notes

      In the fourth quarter of fiscal 1995, the Company completed a private 
placement offering of $1,956,250 in notes to fund the acquisition of the 
Virgo[registered trademark] product line (see Note 3).  An additional $43,750 
of notes were issued in October 1995.  The notes bore interest at 13%, payable 
August 1 and February 1, and were scheduled to mature on August 1, 1997.  The 
notes, including any accrued interest thereon, were convertible into shares of 
the Company's common stock at a conversion price of $1.00.  The Company was 
allowed to force conversion at any time after the registration of the shares of 
the underlying common stock was declared effective if the quoted market price 
of the Company's common stock was greater than or equal to $3.00 for 5 
consecutive days.  The Company was obligated to register the shares of common 
stock issuable upon conversion of the notes by February 29, 1996 with the 
Securities and Exchange Commission (the "SEC").  If the shares were not 
registered by that date, the Company was obligated to issue upon conversion an 
additional 10% of the shares underlying the notes for each 30 day period or 
portion thereof that the securities remained unregistered. The notes were 
unsecured and were subordinate to all of the Company's other indebtedness.  In 
conjunction with this offering, the Company incurred debt issuance costs of 
$51,095, which was being amortized over the life of the debt.  Of these debt 
issuance costs, $19,160 was amortized during 1996 while the remaining $31,935 
was offset against additional paid-in capital upon the conversion of the notes 
into common stock.

      During fiscal 1996, the Company repaid $450,000 of these notes and forced 
the conversion of the remaining $1,550,000 as further described in Note 11.


11. Stockholders' Equity

    Preferred Stock

      The Company is authorized to issue up to 1,000,000 shares of preferred 
stock, $.01 par value per share.  The preferred stock may be issued in one or 
more series, the terms of which may be determined at the time of issuance by 
the Board of Directors and may include voting rights, preferences as to 
dividends and liquidation, conversion and redemption rights and sinking fund 
provisions.

    Common Stock

      During 1996, and as discussed in Note 10, the Company forced the 
conversion of the unpaid principal balance of the 13% Subordinated Convertible 
Notes into 1,550,000 shares of common stock at a rate of $1.00 per share.  All 
of these shares were registered with the SEC under the Securities Act of 1933 
with the filing of a Form SB-2, registration statement, which, as amended, was 
declared effective on November 11, 1996.

      Also during 1996, the Company filed a Form SB-2, registration statement, 
under the Securities Act of 1933 with the SEC in order to register 2,695,255 
shares of common stock which were issued in a private placement offering (the 
"Private Placement Offering").  This registration statement, as amended, was 
declared effective on November 14, 1996.  The Company received net proceeds 
after expenses of approximately $6,410,000 in connection with the Private 
Placement Offering.

      In connection with the exercise of certain common stock purchase warrants 
and options, the Company issued 193,635 shares of common stock during 1996.

    Board of Directors Common Stock

      During 1996 and 1995, the Company issued 20,000 and 12,000 shares, 
respectively, of common stock to non--employee members of the Board of 
Directors in lieu of cash compensation.  The related compensation expense is 
amortized over the one year service period.

    Common Stock Purchase Warrants

      In connection with certain bridge financing which was repaid in 1993, the 
Company issued warrants to purchase 360,000 shares of common stock at $3.00 per 
share and a warrant to purchase 36,000 shares of common stock at $3.60 per 
share exercisable through December 31, 1997.  During 1995, the Company repriced 
90,000 warrants to individuals who participated in both the 1992 bridge 
financing and the 1995 private placement.  The warrants were repriced from 
$3.00 per share to $1.50 per share.  During 1996, 7,500 of these warrants were 
exercised.  The incremental value of the repriced warrants over the original 
warrants at the time of repricing was estimated by management and determined 
not to be material to the Company's results of operations or financial 
position.  Upon the effective date of the registration statement filed in 
connection with the initial public offering, the warrant to purchase 36,000 
shares was cancelled.  This was replaced with warrants to purchase 100,000 
shares of common stock at $8.00 per share exercisable through February 3, 1998. 
 During 1995, 70,000 of these warrants were forfeited.

      In conjunction with sale and leaseback transactions (see Notes 2, 6, 10 
and 15), the Company issued warrants to purchase 50,000 and 20,000 shares of 
common stock at $3.25 per share exercisable through April 1, 1998 and April 29, 
1999 in fiscal 1993 and 1994, respectively.  The value of the warrants at the 
time of issuance was estimated by management and determined not to be material 
to the Company's results of operations and financial position.

      In conjunction with the $1,000,000 term loan and a sale and leaseback 
transaction with a leasing company (see Notes 10 and 15) in fiscal 1995, the 
Company issued warrants to purchase 52,000 and 35,000 shares of common stock at 
$2.50 and $2.00 per share, respectively, exercisable through December 30, 1999 
and June 30, 2000, respectively.  The value of the warrants at the time of 
issuance was estimated by management to be $35,000 and $20,000, respectively.

      In 1995, the Company issued 250,000 warrants to purchase common stock at 
$1.00 per share exercisable through August 10, 2000 to three consultants for 
services provided to the Company during the period July 1, 1995 through June 
30, 1996.  The value of the warrants at the time of issuance was estimated by 
management to be $116,000.  The value was amortized over the period the 
services were provided.  During fiscal 1996, 181,035 warrants were exercised in 
a non-monetary transaction whereby the Company relinquished its rights to the 
cash consideration upon exercise of these warrants in return for the warrant 
holder's forfeiture of their right to exercise the remaining warrants.

      In October 1995, the Company issued 10,000 warrants to purchase common 
stock at $2.37 per share exercisable through October 16, 1997 to an investor.  
The value of the warrants at the time of issuance was estimated by management 
and determined not to be material to the Company's results of operations and 
financial position.

      In connection with the Private Placement Offering, the Company issued 
2,695,255 common stock purchase warrants exercisable at $2.75 per share and 
expiring on February 28, 2001.

      Also in connection with the Private Placement Offering, the Company 
issued Placement Agent Warrants allowing for the purchase of 269,526 units at a 
price of $2.75 per unit.  Each unit consists of one share of the Company's 
common stock and one common stock Purchase Warrant which entitles the holder to 
purchase one share of the Company's common stock for $2.75 per share, expiring 
February 28, 2001.  The Placement Agent Warrants expire February 28, 1999.

      In January 1996, the Company issued 100,000 warrants to purchase common 
stock at $1.00 per share exercisable through January 8, 1999.  The value of the 
warrants at the time of issuance was estimated by management to be $50,000.

    Reserved Shares

      At September 30, 1996, the Company has reserved 4,737,896 shares of 
common stock for issuance upon the exercise of outstanding common stock options 
and warrants.  During March 1996, the Company's Board of Directors voted to 
increase the number of authorized shares of common stock from 10,000,000 to 
30,000,000.

    1992 Stock Option Plan

      The 1992 Stock Option Plan (the "Plan") provides for the grant of 
incentive and nonqualified stock options for the purchase of up to an aggregate 
of 200,000 shares of the Company's common stock by employees, directors and 
consultants of the Company.  In 1994, the stock option plan was amended to 
provide for the purchase of up to an aggregate of 500,000 shares of the 
Company's common stock.  The Board of Directors is responsible for the 
administration of the Plan.  The Board determines the term of each option, 
number of shares for which each option is granted and the rate at which each 
option is exercisable.  The Company may not grant an employee incentive stock 
options with a fair market value in excess of $100,000 that is exercisable 
during any one calendar year.  The term of incentive stock options granted 
cannot exceed ten years (five years for options granted to holders of more than 
10% of the voting stock of the Company).  The exercise price for incentive 
stock options granted may not be less than 100% of the fair market value per 
share of the underlying common stock (110% for options granted to holders of 
more than 10% of the voting stock of the Company).  The Board, at the request 
of any optionee, may convert incentive stock options that have not been 
exercised at the date of conversion into non-qualified stock options.

      In the years ended September 30, 1996, 1995 and 1994, 11,000, 128,100 and 
8,000 options were granted, respectively, at exercise prices ranging from 
$1.75--$5.50.  During 1995, the Board of Directors approved the repricing of 
53,250 stock options from $5.50 to $1.75.  The exercise price of the repriced 
options approximated the fair market value of the Company's common stock on the 
date of repricing.  During 1996, 5,100 shares were exercised.  In the years 
ended September 30, 1996 and 1995, 5,025 and 750 options were forfeited, 
respectively.  At September 30, 1996, 1995 and 1994, 228,225, 227,350 and 
100,000 options were outstanding, respectively.  At September 30, 1996 and 
1995, 213,225 and 181,850 options, respectively, were exercisable and 266,675 
and 272,650 options, respectively, were available for future grant.

12. Income Taxes

      Domestic and foreign income (loss) before income taxes and minority 
interest in net income (loss) of consolidated subsidiary are as follows:

<TABLE>
<CAPTION>

      Years ended September 30,    1996         1995         1994
      ------------------------------------------------------------------


      <S>                          <C>          <C>          <C>
      Domestic                     $(342 997)   $(886 947)   $  (972 337)
      Foreign                       (120 989)     (97 996)      (162 760)
      ------------------------------------------------------------------
                                   $(463 986)   $(984 943)   $(1 135 097)
      ==================================================================
</TABLE>


      The following summarizes the provision (benefit) for income taxes:

<TABLE>
<CAPTION>
      Years ended September 30,    1996         1995         1994


      <S>                          <C>          <C>          <C>
      Current:
        Federal                    $       -    $       -    $   (17 661)
      ------------------------------------------------------------------
                                           -            -        (17 661)

      Deferred:
        Federal                    $       -            -              -
      ------------------------------------------------------------------
                                   $       -    $       -    $   (17 661)
      ==================================================================
</TABLE>

      The difference between income taxes provided at the Company's effective 
tax rate and the Federal statutory rate is as follows

<TABLE>
<CAPTION>

      Years ended September 30,       1996         1995        1994
      ------------------------------------------------------------------

      <S>                             <C>           <C>         <C>
      Federal tax (benefit) at
       statutory rate                 $(157 755)   $(334 881)  $(385 933)
      Losses without tax benefit        157 755      334 881     368 272
      ------------------------------------------------------------------
                                      $       -    $       -   $ (17 661)
      ==================================================================
</TABLE>


      Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
    
      September 30,                           1996           1995
      ------------------------------------------------------------------


      <S>                                     <C>            <C>
      Deferred tax assets:

      Net operating loss carryforwards        $   950 000    $ 1 026 000
      Amortization of intangible assets           579 000              -
      Research and development and
       investment tax credit carryforwards         65 000         95 000
      Other                                        80 000        131 000
      ------------------------------------------------------------------
        Gross deferred tax assets               1 674 000      1 252 000

      Deferred tax asset valuation
       allowance                               (1 285 000)    (1 252 000)
      ------------------------------------------------------------------
      Net deferred tax assets                 $   389 000    $         -
      ==================================================================
      Deferred tax liability:

      Basis difference of property
       and equipment                          $   389 000    $         -
      ==================================================================

</TABLE>

      The change in the valuation allowance for deferred tax assets was an 
increase of $33,000 primarily related to carryforwards for net operating loss 
and research and development tax credits, since the realization of these future 
benefits is not sufficiently assured as of September 30, 1996.  If the Company 
achieves profitability, these deferred tax assets may be available to offset 
future income tax liabilities.

      At September 30, 1996, the Company has approximately $2,376,000, 
$2,628,000, and $388,000 of federal, state and foreign net operating losses, 
respectively, available to offset future taxable income, which expire on 
various dates through 2011.  At September 30, 1996, the Company has $99,000 of 
federal research and development tax credit carryforwards and $63,000 of state 
research and development and investment tax credit carryforwards available to 
offset future income taxes payable, which expire on various dates through 2011. 
 Ownership changes as defined in the Internal Revenue Code may limit the amount 
of net operating loss and tax credit carryforwards that may be utilized 
annually.


13. Significant Sales and Concentration of Credit Risk


      In 1996, the Company derived revenues from a single customer totalling 
$1,832,000.  The Company derived revenues from another customer amounting to 
$646,000, $827,000, and $748,000 for the years ended 1996, 1995 and 1994, 
respectively.  In 1994, the Company derived revenues from two additional 
customers totalling $499,000 and $277,000.  Revenues derived from export sales, 
which include revenues from certain of the customers disclosed above, amounted 
to $3,484,000 in 1996, $1,601,000 in 1995, and $759,000 in 1994.  Export sales 
to Europe were approximately $2,383,000 in 1996, $477,000 in 1995, and $607,000 
in 1994.  Export sales to South America were approximately $1,100,000 in 1996 
and $1,029,000 in 1995.  Export sales to South America were less than 10% of 
consolidated revenues in 1994.

14. International Operations

      The following is a summary of certain selected financial information as 
of September 30, 1996, 1995 and 1994 and for the years then ended of the 
Company's 51% owned subsidiary, excluding the applicable intercompany balances.


<TABLE>
<CAPTION>
      September 30,    1996        1995        1994
      -------------------------------------------------

      <S>              <C>         <C>         <C>
      Assets           $933 718    $950 826    $352 284
      Liabilities      $ 71 802    $ 77 158    $ 23 223
      Revenues         $955 944    $972 730    $268 094

</TABLE>

15. Commitments

    Leases

      The Company leases an office and manufacturing facility under a 
cancelable operating lease, under which it has no future minimum rental 
commitments.  In May 1992, the Company entered into a five year noncancelable 
operating lease for a second office and manufacturing facility.  During 1995, 
in connection with the acquisition of the Virgo[registered trademark] product 
line (see Note 3), the Company leased an office and manufacturing facility 
under a five year noncancelable term.  During 1996, in connection with the 
acquisition of RAI (see Note 3), the Company leased an office and manufacturing 
facility under a five year, noncancelable term.  Future minimum lease 
commitments under the noncancelable operating leases and capital leases (see 
Note 6) are as follows:

<TABLE>
<CAPTION>
                                           Operating    Capital
      Year ending September 30,            Leases       Leases
      ----------------------------------------------------------

      <S>                                  <C>          <C>
      1997                                 $  441 000   $169 278
      1998                                    429 000     44 997
      1999                                    442 000          -
      2000                                    421 000          -
      2001                                    336 000          -
      Thereafter                              301 000          -
      ----------------------------------------------------------
                                           $2 370 000    214 275
                                           ==========

      Less amount representing interest                   45 909
                                                        --------
                                                        $168 366
                                                        ========
</TABLE>

      Rent expense approximated $344,000, $174,000, and $155,000 in 1996, 1995 
and 1994, respectively.


16. Subsequent Event

      On November 1, 1996, the Company acquired substantially all of the assets 
of 872 Main Street Corporation (formerly Cellular Products, Inc.) for $400,000 
in cash and a $200,000 promissory note payable November 1, 1997.  The acquired 
company is a manufacturer of biotechnology materials and assays for research 
and for the manufacture of clinical diagnostic test kits.