<PAGE>
                                  UNITED STATES
                       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, 2004
                         Commission file number 1-11700

                            HEMAGEN DIAGNOSTICS, INC.
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                 ("Name of Small Business Issuer in Its Charter)

                     Delaware                       04-2869857
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           (State or Other Jurisdiction          (I.R.S. employer
         of Incorporation or Organization)      identification No.)

         9033 Red Branch Rd., Columbia, MD            21045
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     (Address of Principal Executive Offices)       (Zip Code)

                                 (443) 367-5500
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                (Issuer's telephone number, Including Area Code)

        Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock.

         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. [ ]

         The registrant had revenues of $7,470,697 in its most recent year. The
aggregate market value of the voting stock held by non-affiliates of the
registrant on December 22, 2004, was $4,380,259. As of December 23, 2004,
15,104,343 shares Common Stock were outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the Registrant's Proxy Statement for its 2004 Annual
Meeting are incorporated by reference into Items 9, 10,11,12 and 14 hereof.


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                            HEMAGEN DIAGNOSTICS, INC.
                      INDEX TO ANNUAL REPORT ON FORM 10-KSB

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PART I
Item 1.  Description of Business...............................................................   3
Item 2.  Description of Property...............................................................  11
Item 3.  Legal Proceedings.....................................................................  11
Item 4.  Submission of Matters to a Vote of Security Holders...................................  11

PART II
Item 5.  Market For Common Equity Related Stockholder Matters and Small Business
           Issuer Purchases of Equity Securities...............................................  12
Item 6.  Management's Discussion and Analysis or Plan of Operation.............................  13
Item 7.  Financial Statements..................................................................  17
Item 8.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.  17
Item 8A. Controls and Procedures...............................................................  17

PART III
Item 9.  Directors and Executive Officers of the Registrant....................................  18
Item 10. Executive Compensation................................................................  18
Item 11. Security Ownership of Certain Beneficial Owners and Management
           and Related Stockholder Meeting.....................................................  18
Item 12. Certain Relationships and Related Transactions........................................  18
Item 13. Exhibits, List and Reports on Form 8-K................................................  18
Item 14. Principal Accountant Fees and Services................................................  18
</TABLE>

Certain statements contained in this report that are not historical facts
constitute forward-looking statements, within the meaning of the Private
Securities Litigation Reform Act of 1995, and are intended to be covered by the
safe harbors created by that Act. Forward looking statements may be identified
by words such as "estimates", "anticipates", "projects", "plans", "expects",
"intends", "believes", "should" and similar expressions and by the context in
which they are used. Such statements are based on current expectations. Reliance
should not be placed on forward-looking statements because they involve known
and unknown risks, uncertainties and other factors which may cause actual
results, performance or achievements to differ materially from those expressed
or implied. Any forward-looking statement speaks only as of the date made.
Hemagen undertakes no obligation to update any forward-looking statements to
reflect events or circumstances after the date on which they are made.

Statements concerning the establishments of reserves and adjustments for dated
and obsolete products, expected financial performance, on-going business
strategies and possible future action which Hemagen intends to pursue to achieve
strategic objectives constitute forward-looking information. All forward looking
statements, including those relating to the sufficiency of such charges,
implementation of strategies and the achievement of financial performance are
each subject to numerous conditions, uncertainties, risks and other factors.
Factors which could cause actual performance to differ materially from these
forward-looking statements, include, without limitation, management's analysis
of Hemagen's assets, liabilities and operations, the failure to sell date -
sensitive inventory prior to its expiration, competition, new product
development by competitors which could render particular products obsolete, the
inability to develop or acquire and successfully introduce new products or
improvements of existing products and the ability to assimilate successfully
product acquisitions.


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ITEM 1. DESCRIPTION OF BUSINESS.

         Hemagen Diagnostics, Inc., is a biotechnology company that develops,
         manufactures, and markets more than 150 FDA-cleared proprietary medical
         diagnostic test kits used to aid in the diagnosis of certain autoimmune
         and infectious diseases. Hemagen also manufactures and markets a
         complete line of clinical chemistry reagents through its wholly owned
         subsidiary Reagents Applications, Inc. In addition, Hemagen
         manufactures and sells the Analyst(R) an FDA-cleared clinical chemistry
         analyzer used to measure important constituents in human and animal
         blood, and the Endochek, a clinical chemistry analyzer used to measure
         important constituents in animal blood. In the United States, the
         Company sells its products directly to physicians, veterinarians,
         clinical laboratories and blood banks and on a private-label basis
         through multinational distributors of medical supplies.
         Internationally, the Company sells its products primarily through
         distributors. The Company sells the Analyst(R) and the Endochek both
         directly and through distributors servicing physicians' office
         laboratories and veterinarians' offices. Hemagen's products are used in
         many of the largest laboratories, hospitals, and blood banks around the
         world. Hemagen sells its products to over 1,000 customers worldwide.
         The Company focuses on markets that offer significant growth
         opportunities. The Company was incorporated in 1985 and became a public
         company in 1993. Hemagen's principal offices are located at 9033 Red
         Branch Road, Columbia, Maryland 21045 and the telephone number is (443)
         367-5500. Hemagen maintains a website at www.hemagen.com. Investors can
         obtain copies of our filings with the Securities and Exchange
         Commission from this site free of charge as well as from the Securities
         and Exchange Commission website at www.sec.gov.

         Hemagen's three product lines are as follows:

                  -        A clinical chemistry analyzer line that markets the
                           Analyst(R) Benchtop Clinical Chemistry Analyzer and
                           the Endocheck(TM) Chemistry Analyzer;

                  -        A clinical chemistry division called Reagents
                           Applications, Inc.(RAI or Raichem);

                  -        An autoimmune and infectious disease product line,
                           that sells under the trademark "Virgo(R)" and which
                           offers a complete range of assays that are compatible
                           with most analyzer equipment.

         In September 1998, Hemagen acquired the Analyst(R) Clinical Chemistry
         system from Dade Behring, Inc. The Analyst is a patent protected, low
         cost, bench top clinical chemistry instrument and reagent system. The
         Analyst instrument runs general chemistry profiles for the human and
         veterinary markets using a proprietary consumable rotor that is
         manufactured by Hemagen at its Columbia, Maryland facility. The Analyst
         is cleared by the FDA for marketing in the United States to physician
         office laboratories. In addition to offering the Analyst, Hemagen has
         been acquiring distribution rights for other complimentary products for
         these markets and in December 2002 acquired the Endocheck(TM)
         veterinary chemistry analyzer. Today, Hemagen estimates that its
         customer base for the Analyst is approximately 65% veterinary practices
         and 35% physician office laboratory practices.

         Hemagen acquired Reagents Applications, Inc. (RAI) from Kone Holdings,
         Inc. in 1996. RAI manufactures and markets a complete line of clinical
         chemistry reagents and diagnostic products for in vitro use in
         hospitals, clinics, physicians' office laboratories, and reference
         laboratories. These products are sold directly under the Raichem(R)
         label or private label for several large domestic and international
         customers. Most of the reagents manufactured by RAI can be used
         manually, or in small and large automated high volume clinical
         chemistry analyzers. In December 1999, RAI signed an exclusive supply
         agreement with a multinational diagnostics company, to provide reagents
         for their automated clinical chemistry instrument in the United States.
         This exclusive agreement was renewed in December 2002 and has a
         termination date in December 2006. Sales resulting from this exclusive
         agreement were approximately $923,000 and $1,362,000 in the years
         ending September 30, 2004 and September 30, 2003, respectively. RAI's
         foreign sales were approximately 44% of total sales in the year ending
         September 30, 2004, and mainly represent sales to foreign OEM's and
         distributors.

         Hemagen's Virgo(R) product line division offers autoimmune and
         infectious disease diagnostic test kits manufactured for use on a
         variety of automated instrument platforms. In 1995, Hemagen completed
         the acquisition of a line of diagnostic test kits utilizing
         immunoflourescence from Schiaparelli Biosystems, Inc.


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         These assays represent a comprehensive offering of immunoflourescence
         tests (IFA). In addition to the acquired immunoflouresence tests,
         Hemagen from its inception in 1985 has developed a comprehensive line
         of diagnostic kits based on hemagglutination (called HA) and
         enzyme-linked immunosorbence (called ELISA or EIA) technologies for
         their platforms. The Virgo product-line is marketed directly to the
         largest reference laboratories, hospitals, and universities in the
         United States. Internationally, there are over 20 distributors that
         market the Virgo(R) product line. Hemagen also markets the Virgo(R)
         product line in South America through its 83.7% owned subsidiary
         Hemagen Diagnosticos Comercio, Importacao Exportacao, Ltd. (HDC), a
         Brazilian limited liability company. HDC distributes the Virgo
         autoimmune and infectious disease line throughout South America on an
         exclusive basis in Brazil only.

RECENT DEVELOPMENTS

On September 30, 1999, new management assumed control of the Company pursuant to
a settlement agreement that resulted from a consent solicitation. Management has
taken actions over the past five fiscal years to refinance the business. Many of
the activities over the past five years have focused on consolidating
operations, reducing headcount, cutting costs and increasing sales and marketing
efforts. Specifically, under new management the Company has:

         -        In December 2004, the Company exchanged $6,065,000 Senior
                  Subordinated Secured Convertible Notes that were due April
                  2005 for 5,079,438 shares of Common Stock and new Senior
                  Subordinated Secured Convertible Notes with a face value of
                  $4,033,225. The new Notes pay interest quarterly at the rate
                  of 8% per annum, are convertible to common stock at $0.75 per
                  share any time after September 30, 2005, and are due September
                  30, 2009. The effective date of this exchange was September
                  30, 2004. (See footnote J of the financial statements for a
                  detailed description of transaction).

         -        RAI entered into a supply arrangement with an international
                  biotech company to manufacture several proprietary products on
                  a contract basis. Revenues in fiscal 2004 were approximately
                  $186,000.The Company is attempting to develop this arrangement
                  into additional future business.

         -        In June 2004, the Company purchased an additional 32.7% of the
                  ownership of its Brazilian subsidiary, to now own 83.7% of the
                  subsidiary. The subsidiary distributes the Company's Virgo
                  autoimmune and infectious disease product lines in Brazil.

         -        The Company hired new management for the Brazilian subsidiary.
                  Sales increased by $274,000 in fiscal 2004, which management
                  believes is due to the change in Brazil's management as well
                  as improvement in currency fluctuations. In addition,
                  management plans to register more of its products for sale in
                  Brazil.

         -        Reduced selling, general and administrative expenses by
                  reducing headcount, legal, accounting and other outside
                  services, while managing other expenses much tighter. Selling,
                  general and administrative expenses for fiscal year 2004 were
                  approximately $2,407,000 as compared to approximately
                  $2,528,000 in fiscal year 2003.

         -        Effective September 2003, renewed a traditional working
                  capital line of credit facility for $1 million dollars. This
                  line of credit allows the company greater flexibility to
                  pursue new growth opportunities and realize efficiencies in
                  its operations. To date the Company has not used this line of
                  credit.

         -        As of December 2001, acquired substantially all of the assets
                  of Kalisto Biologicals, Inc. Kalisto manufactured and marketed
                  a clinical chemistry analyzer called the Endochek(TM),that is
                  used to measure essential constituents in animal blood. The
                  Endochek is now marketed by Hemagen as an alternative to the
                  Analyst(R) and is used to reach more price sensitive
                  veterinary practices than those that would normally purchase
                  the Analyst. During the first half of fiscal 2002, the
                  Endochek manufacturing of reagents were successfully relocated
                  to Hemagen's Columbia, MD facility with no required addition
                  to head count or fixed costs at the facility.



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         -        Consolidated operations in fiscal 2001, closing the Waltham,
                  Massachusetts facility, moving the administrative operations
                  and certain production to Hemagen's Columbia, Maryland
                  facility. Certain unprofitable product lines were
                  discontinued.

         -        Since 1999, reduced headcount by approximately 54%, from 98
                  employees as of September 30, 1999, to 45 as of September 30,
                  2004. Management is currently recruiting for approximately
                  five positions. With the exception of the five positions
                  management is looking to fill, management believes that the
                  reduction in the number of employees has had no impact on
                  operations, and has helped the Company become more price
                  competitive.

   TECHNOLOGY

         Analyst Instrument System

         Hemagen acquired a patent protected rotor based technology for use in
the Analyst in 1998. The Analyst is a bench-top centrifugal clinical chemistry
analyzer. The Analyst utilizes a consumable a rotor that contains dry
prepackaged reagents. The Analyst spins the rotor, mixing the patient sample
with the dry reagents, producing a result in approximately ten minutes. Hemagen
currently markets four types of rotors providing a variety of clinical chemistry
tests which are 510K cleared by the FDA for the Human medical market. The
Analyst instrument has been designated by the Clinical Laboratory Improvements
Amendments (CLIA) as a moderately complex system, and is therefore suitable for
both the physician and veterinary office laboratories.

         Clinical Chemistries

         Hemagen's blood chemistry and Analyst system assays are used to aid the
monitoring and measurement of health profiles, such as cholesterol, blood urea
nitrogen, triglycerides, glucose and uric acid.

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

         The presence and concentration of certain antibodies in human blood can
assist physicians in the diagnosis of certain diseases. Hemagen'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 is recognized by a specific antibody
which will bind to it in the proper environment, making it detectable either by
the naked eye, or with the aid of a laboratory technique, which amplifies the
reaction so that it is rendered visible. Hemagen's hemagglutination, ELISA and
immunofluorescence assays are three examples of such amplification. Some of
these technologies include a lyophilization (freeze drying) technique which
substantially extends the shelf life of Hemagen's hemagglutination assays, and
proprietary methods to prepare reagents and plates for its ELISA assays.

         Immunofluorescence

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


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         ELISA

         ELISA or EIA tests employ small plastic wells coated with particular
antigens. The test process involves introducing the patient's serum into the
well 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 well. After the wells
are 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 (conjugate, substrate) are added which will cause a color change
in the liquid, 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.

Hemagen has developed an application for its ELISA technology to detect
cardiovascular and inflammatory 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 prevention of
cardiovascular disease, the imminent rejection of transplanted organs or the
onset of infections. Such earlier detection could enable physicians to better
plan appropriate treatment of patients with these conditions. Hemagen currently
markets two test kits to detect inflammatory signals.

         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 bind to the foreign antigen when placed in
contact with a specific antibody and this will cause agglutination of these
cells. The presence of certain antibodies in an individual's serum (blood from
which clotted RBCs 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 Hemagen's hemagglutination test, a technician combines
Hemagen's sensitized RBCs with a patient's serum in a small well with a V-shaped
bottom according to directions included with Hemagen'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 a
diffuse red, which indicates a positive reaction.

CURRENT PRODUCTS

         Analyst(R) System Products

         Hemagen currently markets four FDA 510K cleared rotor types for use on
the Analyst clinical chemistry analyzer, two general chemistry rotors, a glucose
test and a lipid screen test. In addition, Hemagen sells a general chemistry
rotor specifically designed for the veterinary marketplace called the VET-16.

         RAI Products

         Hemagen's general chemistry products, sold under the trade name
RAICHEM(R) consist of a broad range of assays used on automated and
semi-automated clinical chemistry analyzer 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 Hemagen include those for blood levels of glucose, cholesterol,
triglycerides, uric acid, urea nitrogen and total protein. In all, more than 70
of Hemagen's clinical chemistry products have been 510K cleared by the FDA for
sale in the United States.



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         Immunofluorescence  or "IFA" Products

         Hemagen's immunofluorescence products consist primarily of diagnostic
assays for infectious diseases and several products for autoimmune diseases.
Immunofluorescence kits are used as primary or confirmatory tests in many large
clinical laboratories in the United States. There are currently 15 kits sold in
the immunofluorescence format.

Hemagen's immunofluorescence products are used to aid in the diagnosis of the
following:

              cytomegalovirus infections      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
                                              autoimmune diseases

    ELISA Assays

         Hemagen develops, manufactures, and markets ELISA test kits for the
detection of disease. Along with the immunofluorescence and hemagglutination
assays, Hemagen's ELISA kits test for specific antibodies. The quantitative or
semi-quantitative test results give useful information about the stage and
prevalence of a particular disease. Elisa tests are widely used by large
laboratories, due to their ready adaptability to automation and high volume
testing. Hemagen's autoimmune and infectious disease ELISA kits are used in the
diagnosis of the following diseases:

    Systemic Lupus Erythematous (lupus)    Anti-phospholipid Syndrome
    Rheumatoid Arthritis                   Venous and arterial thromboses
    Scleroderma                            Thrombocytopenia
    Sjogren's syndrome                     Recurrent abortion
    Glomerulonephritis                     Toxoplasmosis
    mixed connective tissue disease        Rubella (German Measles)
    Polymyositis                           Cytomegalovirus infections
    Dermatomyositis                        Herpes simplex 1 & 2 infections
    Primary biliary cirrhosis              Varicella Zoster infections (chicken
    Wegener's granulomatosis                 pox & shingles)
    Systemic Vasculitides                  Chagas Disease


Hemagen has also developed specialized assays for quantitative analysis of the
acute phase markers, C-Reactive Protein and Serum Amyloid A. These are important
in the detection and prediction of inflammatory events associated with several
diseases, including systemic lupus, rheumatoid arthritis, and myocardial
infarct.

Hemagen also offers ELISA & hemagglutination screening assays, capable of
verifying the presence of as many as six analytes in a single test. This is a
useful tool in a patient's initial assessment. For example, if an individual's
autoimmune screen 6 test is positive, individual marker kits are then used to
differentially diagnose


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the particular rheumatoid disease. To better serve customer's needs, most of
these kits are in both lyophilized and liquid-stable form.

    Hemagglutination Assays

         Hemagen's hemagglutination assays are based on Hemagen's proprietary
technique to lyophilize, or "freeze dry," the RBCs which form the central
component of a hemagglutination assay. Hemagen'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,
most 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, Hemagen 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 Hemagen's
test kits are generally available within two hours. Hemagen'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 infections

DISTRIBUTION AND MARKETING

         General

         In the United States, Hemagen, excluding the RAI division, sells its
products directly to clinical laboratories, hospitals, veterinary offices, and
research organization. Internationally, Hemagen sells its products primarily
through distributors. Hemagen grants both exclusive and non-exclusive
distributorships, which generally cover limited geographic areas and specific
test kits. Hemagen has relationships with over 20 distributors in various
countries worldwide.

         The RAI division mainly sells it products to OEM ("Original Equipment
Manufactures") suppliers and distributors. In December 1999, Hemagen's RAI
division signed a thirty-six month supply agreement with a multinational
diagnostics company to supply reagents to be used with its automated clinical
chemistry instrument. In December 2002, RAI signed a second four year supply
agreement that expires in December 2006. The agreement provides that RAI will be
the exclusive supplier of reagents for their automated instrument in the United
States. In fiscal 2004 and 2003, sales to this customer were approximately
$923,000 and $1,362,000, respectively and accounted for approximately 12% and
16% of Hemagen's revenues for fiscal years ended September 30, 2004 and 2003,
respectively.

         Hemagen's primary non-exclusive distributor of the Analyst product line
to physician office laboratories is Medpointe, Inc., which was acquired during
fiscal year 2003 by Inverness Medical Innovations Inc. ("Inverness"). Sales to
Inverness accounted for approximately 7% and 6% of Hemagen's revenue for the
fiscal years ended September 30, 2004 and 2003, respectively.

         Hemagen markets its Virgo product line in South America through HDC in
Brazil. HDC maintains an office in Sao Paulo, Brazil that is staffed by
full-time sales administrators who receive and process orders and other
employees that handle light assembly work, shipping, and technical support for
the products. In fiscal years 2004, and 2003, Hemagen derived product sales
through HDC of $870,000 and $596,000, respectively, which represents 12% and 7%
of Hemagen's total sales, respectively.



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PRODUCTS UNDER DEVELOPMENT

         Hemagen spent approximately $248,000 and $220,000 on research and
development for the fiscal years ended September 30, 2004, and 2003,
respectively. Such research and development is focused on:

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

    -    Evaluating and developing complimentary products for Hemagen's Analyst
         product line to distribute to the veterinary market and alternative
         tests utilizing the Analysts' rotor technology; and

    -    Continuing to develop additional assays and reagents to fill in its
         clinical chemistry reagent product line sold under the RAICHEM label;

    -    Developing new ELISA kits for the autoimmune market, particularly with
         respect to tests for antiphospholipid syndrome and acute phase protein
         detection.

MANUFACTURING AND SOURCES OF SUPPLY

         Hemagen manufactures its ELISA test kits, hemagglutination test kits,
immunofluorescence test kits and Analyst and Endochek consumables at its
Columbia, Maryland facility. Clinical chemistry products are produced at
Hemagen's facility in San Diego, California. The Analyst and the Endochek
instruments are manufactured by third parties for Hemagen. Hemagen purchases
many of the antigens and other reagents used in its kits from outside vendors.
Certain of these antigens and reagents are from single suppliers. The Company
attempts to minimize the risk from these single suppliers by maintaining a
safety supply of inventory. If the products purchased from these single sources
become unavailable there can be no assurances that the Company will be able to
substitute a new supplier in a timely manner and thus could have a material
adverse effect on the business, financial condition, and results of operations.
Some of the reagents used in Hemagen's test kits are manufactured at Hemagen's
facilities. Hemagen uses lyophilization equipment to preserve sensitized red
blood cells for its hemagglutination test kits. All of Hemagen's products are
manufactured under the Quality System Regulation as defined by the FDA.

         Most components used in Hemagen's products are available from multiple
sources. The outsourced manufacturing of the Analyst instrument can be obtained
from multiple sources while the manufacturing of the Endochek is sole sourced.
Hemagen does not consider the dependence on a sole source for the Endochek a
material business risk for Hemagen because the Analyst instrument is a viable
alternative to the Endochek. The chemistry tablets that are used in the Analyst
rotors are manufactured for the Company pursuant to a manufacturing agreement
with Dade Behring, Inc. Although Dade Behring has been a reliable vendor for the
Company, today they represent the sole source for those tablets. The company
continues to explore other potential vendors for tablet manufacturing although
there can be no assurances that we will be able to develop any new suppliers for
the chemistry tablets.

GOVERNMENT REGULATION

         Hemagen's manufacturing, distribution, and marketing of diagnostic test
kits are subject to a number of both domestic and international regulatory
controls. In the United States, Hemagen's production and marketing activities
are subject to regulation by the FDA, under the authority of the Federal Food
Drug, and Cosmetic Act, as amended.

         These regulations require that Hemagen must formally notify the FDA of
its intentions to market in vitro diagnostic devices through a regulatory
submissions process, either the 510(k) process or the Premarket Approval (PMA)
process. When a 510(k) process is used Hemagen is required to demonstrate that
the product is "substantially equivalent" to another product in commercial
distribution. Hemagen cannot proceed with sales of its diagnostic products in
the United States until it receives clearance from the FDA in the form of a
substantial equivalency letter. Currently, the majority of products that are
reviewed by the 510(k) process are cleared within 90 days. In certain cases,
specifically for Class III devices, Hemagen must follow the PMA process that
involves a lengthier and more burdensome process.

         Hemagen is required to register with the FDA as a device manufacturer
and to disclose its devices. Accordingly, Hemagen is subject to inspection on a
routine basis for compliance with the FDA's Quality System Regulations. These
regulations require that Hemagen manufacture its products and maintain its
documents in a


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prescribed manner with respect to design, manufacturing, testing, process
control and distribution activities. In addition, Hemagen is required to comply
with various FDA requirements for labeling, pursuant to the applicable
regulations. Finally, the FDA prohibits an approved device from being marketed
for unapproved applications. Hemagen believes it is in conformity with all such
regulations.

      In January 2004, the Company received CE certification thereby allowing
the Company to sell certain of its registered products in the European
Community. The Company plans to obtain ISO 13485 certification in order to
market additional products in the European Community and Canada.

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. Many of these companies have substantially greater capital
resources and have marketing and business organizations of substantially greater
size than Hemagen. 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 Hemagen, for a longer period of time than has
Hemagen. Hemagen believes that its primary competitors in the market include
Abaxis Inc., Bion, Bio-Rad Laboratories, Corgenix Medical Corporation, Diamedix
Corporation, IDEXX Laboratories, Inc., Immco Diagnostics, Heska Corporation,
INOVA Diagnostics, Inc., Pointe Scientific, Inc., The Binding Site. Ltd,
Trace-America, and Trinity Biotech Plc, among others. Hemagen 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 Hemagen.
Hemagen 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 Hemagen's test kits could
lead a physician to predict the inappropriate therapy for a particular patient.
Hemagen maintains product liability insurance in the amount of up to $5,000,000
per incident and in the aggregate which, based on Hemagen's experience and
industry practice, Hemagen believes to be adequate for its present operations.
No assurance can be given that Hemagen's insurance coverage is sufficient to
fully insure against claims which may be made against Hemagen.

PATENTS AND PROPRIETARY RIGHTS

          Hemagen protects its technology primarily as trade secrets rather than
relying on patents, either because patent protection is not possible or, in
management's opinion, would be less effective than maintaining secrecy. In
addition, Hemagen 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 Hemagen's efforts to maintain secrecy
will be successful or that third parties will not be able to develop the
technology independently. Hemagen may in the future apply for patent protection
for certain of its technology when management believes such protection would be
beneficial to Hemagen. 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 Hemagen's technology.

ROYALTY OBLIGATIONS

         Hemagen is required to pay royalties to third parties on sales of some
of its products. Hemagen had a license agreement with Dade Behring, Inc. for the
license of technical information relating to the Analyst(R) product line. The
license was signed in conjunction with the Analyst acquisition and required
payments through August 2004. Hemagen has a license agreement for the use of
certain technology involved in the manufacture and sale of the Analyst product
line. This license agreement terminates upon the expiration of the last patent
associated


                                       10
<PAGE>

with the applicable technology, which is February 2007.

EMPLOYEES

         As of September 30, 2004, Hemagen had 45 full-time employees, 14 are
employed in sales, marketing, general and administrative activities and 31 are
involved in production and research and development.

         None of Hemagen's employees are represented by a labor organization and
Hemagen is not a party to any collective bargaining agreement. Hemagen has never
experienced any strike or work stoppage and considers its relationship with its
employees to be excellent.

ITEM 2. DESCRIPTION OF PROPERTY

         Hemagen maintains its principal administrative office, laboratory and
production operations in a 27,400 square foot leased facility in Columbia,
Maryland. Under the Columbia lease, which extends through July 30, 2007, Hemagen
pays approximately $152,000 per year in rent. Hemagen also leases 20,160 square
feet in San Diego, California, where it manufactures the RAICHEM products. Under
the San Diego lease, which extends through March 31, 2005, Hemagen will pay
approximately $118,000 in rent during the next fiscal year, unless the Company
elects to renew its lease.

         Hemagen's 83.7%-owned subsidiary, Hemagen Diagnosticos Comercio,
Importacao e Exportacao, Ltd, leases approximately 6,000 square feet of flexible
office space in Sao Paulo, Brazil pursuant to a lease that expires on June 30,
2006. This subsidiary pays approximately $32,400 per year in rent for this
space.

         It is management's opinion that all of the properties are adequately
insured. The Company believes that it currently has excess space.

ITEM 3. LEGAL PROCEEDINGS

         None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None





                                       11
<PAGE>

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY RELATED STOCKHOLDER MATTERS AND
        SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

         Hemagen's Common Stock has been traded on the over-the-counter bulletin
board (OTC-BB) market since March 3, 2003 under the symbol "HMGN". Prior to that
date, the Company's common stock traded on the over - the-counter market through
the Nasdaq Smallcap Market from February 4, 1993 to February 28, 2003. On
December 22, 2004 the closing bid and ask price for the Common Stock as reported
by the OTC-BB were $0.30 and $0.34 per share, respectively.

    For the periods indicated, the following table sets for the range of high
and low bid prices for the Common Stock as reported by the OTC-BB and the Nasdaq
during Fiscal 2004 and 2003. 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>
FISCAL 2003
First Quarter......................              $0.46             $0.10
Second Quarter.....................              $0.43             $0.10
Third Quarter......................              $0.48             $0.15
Fourth Quarter.....................              $0.33             $0.23

FISCAL 2004
First Quarter......................              $0.69             $0.24
Second  Quarter....................              $0.91             $0.47
Third Quarter......................              $0.80             $0.53
Fourth Quarter.....................              $0.68             $0.35
</TABLE>

         As of December 22, 2004, there were 161 holders of record of Hemagen's
Common Stock which Hemagen believes represents approximately 2,000 beneficial
owners.

    DIVIDENDS

         Hemagen has never paid cash dividends. Hemagen 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.

    SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

         The following table sets forth our Securities authorized for issuance
under our currently effective Equity Compensation Plans.

<TABLE>
<CAPTION>
Plan category                                                                           Number of securities
                                                                Weighted-average       remaining available for
                                Number of securities to be     exercise price of        future issuance under
                                 issued upon exercise of          outstanding         equity compensation plans
                                   outstanding options,       options,warrants and      (excluding securities
                                   warrants, and rights              rights           reflected in column (a))
<S>                             <C>                           <C>                     <C>

Equity compensation plans
approved by security holders            3,267,014(1)                      $1.19                384,000(2)

Equity compensation plans not
approved by security holders               -----                          -----                  -----

Total                                   3,267,014(1)                      $1.19                384,000(2)
</TABLE>

(1)  Amount includes 1,000,000 options for the purchase of common stock options
     issued under the Company's 1992 Stock Option Plan, 1,732,014 options for
     the purchase of common stock approved by the shareholders in conjunction
     with the consent solicitation which resulted in the replacement of certain
     former members of the


                                       12
<PAGE>

     Company's senior management and Board of Directors on September 30, 1999,
     and 616,000 options for the purchase of common stock pursuant to the
     Company's 2001 Stock Option Plan approved by the shareholders on February
     27, 2001.

(2)  Amount represents options for the purchase of common stock approved by the
     shareholders pursuant to the Company's 2001 Stock Option Plan that have not
     been issued as of as of September 30, 2004.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

OVERVIEW

Historically, Hemagen has concentrated its efforts on developing, manufacturing
and marketing medical diagnostic test kits used to aid in the diagnosis of
certain diseases and for assessing general health conditions. Hemagen has
approximately 150 different test kits available that are 510(K) cleared for sale
in the United States by the FDA.

Fiscal year 2004 represents the fifth year of operations under a new management
team, after the management changed pursuant to a settlement agreement executed
on September 30, 1999. Management has been working over the past five fiscal
years to reorganize the Company to achieve sustained profitability. In order to
achieve those goals management sought to:

    -    Improve the leverage of the Company

    -    Improve Management

    -    Improve sales and marketing by increasing profitable sales and
         eliminate unprofitable product lines.

    -    Reduce expenses; and

    -    Better manage working capital.

There can be no assurance that any of the above actions management is taking
will achieve the desired results. However, management believes that as a direct
result of these actions, that cash flow from operations and cash on hand at
September 30, 2004 and its traditional line of credit availability will be
sufficient to finance its operations for fiscal 2005. See the "Recent
Accomplishments" section on page 4.

RESULTS OF OPERATIONS

Fiscal Year Ended September 30, 2003 Compared to Fiscal Year Ended September 30,
2002

Revenues for fiscal 2004 decreased $1,002,000 (12%) to approximately $7,471,000
from approximately $8,473,000 for fiscal 2003. This reduction in sales resulted
from $512,000 of reduced sales of clinical chemistry reagents at the Company's
Raichem division, $316,000 of reduced sales of the Analyst Clinical Chemistry
Analyzer product line, and $174,000 of reduced sales of Hemagen's Virgo division
of autoimmune and infectious disease diagnostic test kits.

Lower sales at the Company's Raichem division resulted from $439,000 of lower
sales under an OEM contract to the Company's largest customer. The reduction
resulted from price reductions of approximately $150,000 and lower overall
purchases from the previous year. The company currently has an exclusive
agreement with this customer that extends until December 2006, and is working
with the customer to add additional products under this contract. Other
reductions of sales resulted from lower sales to Raichem's foreign OEM
customers.

Sales of the Analyst Clinical Chemistry Analyzer product line were $316,000
lower than the prior year as a result of approximately $237,000 of lower sales
to veterinary practices and the distributors that support that market in
addition to $63,000 of lower sales of the Company's Veterinary Endochek product
line. The largest decrease within the Analyst sales stem from lower sales to a
foreign distributor of $57,000 which resulted from lower sales after its full
first year of distribution and initial stocking orders. Other decreases stemmed
from lower purchases by the domestic veterinary practices.

Virgo product line sales were $174,000 lower than the prior year as a result of
the loss of a contract with a major U.S. reference lab of $320,000, lower sales
to foreign distributors of the Virgo immunofluorescence line of


                                       13
<PAGE>

$93,000, and the loss of revenues to a major U.S. reference lab due to the
consolidation within reference labs and Virgo being replaced as a supplier to
the surviving lab of $47,000. These reductions were offset by a $274,000
increase in revenues at the Company's 83.7% owned Brazilian subsidiary. In June
2004, the Company purchased an additional 32.7% of the ownership of its
Brazilian subsidiary to now own 83.7% of the subsidiary. The Company has changed
the management of the Brazilian subsidiary and has recruited a new sales team
for the subsidiary which has been a major reason for the improvement in
revenues, in addition to favorable foreign currency fluctuations.

The Company believes it will be able to increase revenues by adding additional
OEM contracts at the Company's Raichem division, continuing to grow the revenue
base of the Company's 83.7% owned Brazilian subsidiary, and increase the growth
within the Veterinary market for the Analyst. However, Hemagen can give no
assurances that it will be able to increase revenues in the future.

Cost of product sales decreased approximately $157,000 (3%) to approximately
$5,324,000 from approximately $5,480,000 in fiscal 2003 due to the reduction in
the overall sales volume. Cost of product sales as a percentage of sales was 71%
in fiscal year 2004 as compared to 65% in fiscal year 2003. Gross margins for
fiscal year 2004 were 29% as compared to 35% in fiscal year 2003. The gross
margins for the year decreased 6% in fiscal 2004 as a result of the lower sales
levels and the Company having fixed labor and overhead expenses that could not
be reduced to reflect this lower sales level. In addition, the Company had
expensed of $129,000 related to additional provisions established for excess
inventory levels of ELISA and HA product lines that potentially will become
obsolete as a result of the lower sales level in fiscal year 2004.

Research and development expenses for fiscal 2004 increased approximately
$28,000 (13%) to approximately $247,000. This increase is attributable to higher
consultancy expenses.

Selling, general and administrative expenses for fiscal 2004 decreased
approximately $122,000 (5%) to approximately $2,407,000 primarily due to reduced
administrative salaries at the Company's Columbia, Maryland headquarters and
Raichem division and lower royalty expenses in the current fiscal year.

In fiscal 2004, the Company had other operating expenses of $62,000 as compared
to no expenses in the previous year. This expense is related to the purchase of
an additional 32.7% of the common shares outstanding of its Brazilian subsidiary
for $20,000 and two non-compete agreements costing $42,000 signed in conjunction
with the purchase of the shares. The Company expensed these purchases in the
current year because of the uncertainty of any future value of this investment.
Historically, the Company's Brazilian subsidiary has generated losses since its
inception in 1992, and most of the current management in Brazil has been in
place for less than one year. The Company acquired these shares and non-compete
agreements because in the future, the Company is seeking to expand its marketing
efforts in Brazil.

For the fiscal year 2004, Hemagen had an operating loss of $569,000 as compared
to operating income of $245,000 for the previous fiscal year. This reduction in
operating income resulted from lower sales, lower gross margins, and the
one-time charge of $62,000 for the additional investment in Brazil.

Net other expense increased to approximately $3,006,000 (99%) from approximately
$1,510,000 in fiscal 2003 due to debt conversion costs of $863,000 recorded in
fiscal 2004 and an increase in interest expense. Net interest expense for fiscal
2004 was $2,139,000 as compared to $1,520,000 in fiscal 2003. This increase is
mainly attributed to the non-cash amortization of the discount on the senior
subordinated secured convertible notes, which was $1,680,000 for fiscal 2004,
compared to $997,000 for 2003 (see Footnote K of the Financial Statements).

The debt conversion costs realized by the Company in fiscal 2004 of $863,000
resulted from an exchange offer the Company completed in December 2004 that had
an effective date of September 30, 2004. The Company exchanged $6,065,000 of its
Senior Secured Convertible Notes that were due on April 17, 2005 for 5,079,438
shares of common stock and Senior Secured Convertible Notes with a face value of
$4,033,225 (See Note J of the financial statements for an explanation of the
Exchange offer and description of the securities issued). The debt conversion
costs represent the difference between the fair value of the securities issued
as of September 30, 2004 and the net book value of the Senior Secured
Convertible Notes that were cancelled as a result of the exchange. There were no
debt conversion costs in the previous fiscal year.

Growth with the OEM contracts is expected by offering additional products under
the Company's current contracts.

                                       14
<PAGE>

Net loss for fiscal 2004 increased to approximately $3,599,000 (184%) or $0.36
per share basic and diluted compared to a net loss of approximately $1,256,000
or $0.13 per share basic and diluted, for the previous year primarily due to the
debt conversion costs in the current fiscal year, the increase in interest
expense associated with the discount on the Senior Subordinated Secured
Convertible Notes, and the lower sales and margins in the current fiscal year.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2004, Hemagen had $539,000 of unrestricted cash, working
capital of $3,334,000 and a current ratio of 3.0 to 1.0. In September 2002,
Hemagen obtained a revolving line of credit with a bank for the purpose of
financing working capital needs as required. The line of credit facility
provides for borrowings up to $1,000,000, at an annual interest rate of the
prime rate plus 3/4%. Maximum borrowings under the loan agreement are subject to
the domestic receivables and inventory of Hemagen. At September 30, 2004 the
effective interest rate on the line of credit was 5.5%. The Company has not yet
borrowed on this line of credit.

In fiscal 2004, Hemagen had capital expenditures of $39,000 and has capital
expenditures planned for fiscal 2005 related to the purchase and build out of a
new corporate manufacturing facility in Maryland. No commitments for capital
expenditures in fiscal 2005 have been made at this time. The Company has a
deposit on a building that it is evaluating at this time, and estimates these
capital expenditures will be between $2.0 to $2.4 million. This purchase is
contingent upon the Company obtaining appropriate financing.

In fiscal 2004, Hemagen used cash of approximately $186,000. Cash used by
operating activities was approximately $166,000. Cash used by investing
activities was approximately $54,000 and financing activities generated
approximately $3,000. The effect of exchange rates on cash in the current fiscal
year resulted in a positive adjustment of approximately $31,000 which offset the
cash usage from operating and investing activities.

Hemagen believes that cash flow from operations, cash on hand at September 30,
2004, and the availability of the line of credit will be sufficient to finance
its operations and revenue to debt for fiscal 2005. The line of credit matures
on March 31, 2005 and the Company expects to renew the line at that time. All
major capital expenditures will be financed by the Company. However Hemagen can
give no assurances that it will have sufficient cash flow to finance its
operations. Hemagen has no off-balance sheet financing arrangements.

Effective September 30, 2004, the Company completed an exchange offer to
exchange 8% Senior Subordinated Secured Convertible Notes outstanding of
$6,065,000 that were convertible into 3,032,500 shares of Common Stock that were
due in April 2005 for 5,079,438 shares of common stock and 8% Senior
Subordinated Secured Convertible Notes of $4,033,225 that are convertible into
5,377,633 shares of Common stock due September 2009. This exchange has been a
non-cash transaction and accordingly had no impact on the cash reported by the
Company.

FISCAL 2004 COMPARED TO FISCAL 2003

Hemagen used $166,000 of cash flow from operating activities during fiscal 2004
compared to generating $459,000 in cash flow from operating activities in fiscal
2003. This increase in cash used is attributed to the increase in the net loss
after adjusting for non-cash charges of approximately $292,000 as compared to
net income after adjusting for non-cash charges of $487,000 in fiscal 2003.
Changes in working capital mainly include increases in the cash provided by
lower accounts receivable of $145,000, and increased accounts payable and
accrued expenses of $202,000 offset by an increase in the cash used by higher
inventory levels of $237,000.

Cash used in investing activities totaled $54,000 in fiscal 2004, as compared to
$9,000 of cash used in fiscal 2003. The increase in cash used in fiscal 2004 was
related to additional capital expenditures of approximately $30,000 and $20,000
spent to purchase additional shares of common stock of the Company's Brazilian
subsidiary.

Cash generated by financing activities totaled $3,000 in fiscal 2004 as compared
to $157,000 used in fiscal 2003.



                                       15
<PAGE>

The cash used in fiscal 2003 is attributed to the final payment on the
subordinated note payable that was paid in November 2002.

NEW ACCOUNTING PRONOUNCEMENTS

In November 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 151 "Inventory Costs". This
Statement amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to
clarify the accounting for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage). In addition, this Statement
requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. The
provisions of this Statement will be effective for the Company beginning with
its fiscal year ending 2006. The Company is currently evaluating the impact this
new Standard will have on its operations, but believes that it will not have a
material impact on the Company's financial position or results of operations.

In December 2004, the FASB issued Statement of Financial Accounting Standards
No. 153 "Exchanges of Nonmonetary Assets - an amendment of APB Opinion No. 29".
This Statement amend APB Opinion 29 to eliminate the exception for nonmonetary
exchanges of similar productive assets and replaces it with a general exception
for exchanges of nonmonetary assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash flows of the
entity are expected to change significantly as a result of the exchange. The
adoption of this Standard is not expected to have any material impact on the
Company's financial position or results of operations.

Also in December 2004, the FASB issued Statement of Financial Accounting
Standards No. 123 (revised 2004) "Share-Based Payment". This Statements requires
that the cost resulting from all share-based transactions be recorded in the
financial statements. The Statement establishes fair value as the measurement
objective in accounting for share-based payment arrangements and requires all
entities to apply a fair-value-based measurement in accounting for share-based
payment transactions with employees. The Statement also establishes fair value
as the measurement objective for transactions in which an entity acquires goods
or services from non-employees in share-based payment transactions. The
Statement replaces FASB Statement No. 123 "Accounting for Stock-Based
Compensation" and supercedes APB Opinion No. 25 "Accounting for Stock Issued to
Employees". The provisions of this Statement will be effective for the Company
beginning with its fiscal year ending 2007. The Company is currently evaluating
the impact this new Standard will have on its operations, but believes that it
will not have a material impact on the Company's financial position or results
of operations.

CRITICAL ACCOUNTING POLICIES

The preparation of consolidated financial statements requires us to make
estimates and judgments with respect to the selection and application of
accounting policies that affect the reporting of amounts of assets, liabilities,
revenues and expenses, and the disclosures of contingent assets and liabilities.
We base our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities. Actual results may differ from these estimates under different
assumptions or conditions.

We believe the following critical accounting policies and estimates have the
greatest impact on the preparation of our consolidated financial statements:

Revenue Recognition

We manufacture and market a broad offering of in vitro diagnostic products and
services which currently include: (1) reagents and consumables for general
chemistry analyzers, (2) medical diagnostic test kits (3) medical diagnostic
instruments, and (4) maintenance services. Reagents and consumables, in addition
to medical test kits represent the largest portion of our sales. Revenues from
reagents and consumables and test kits are recognized when the product is
shipped and all contractual obligations have been satisfied and it is reasonably
assured that the resulting receivable is collectible.

Instruments are usually sold either directly to the customer or to a third party
financing entity that in turn leases it


                                       16
<PAGE>

to the end customer. Instrument revenue is recognized upon shipment and when all
contractual obligations have been satisfied and it is reasonably assured that
the resulting receivable is collectible

Revenue under product service contracts, which are generally for one year or
less, are recognized ratably over the term of the contract.

Accounts Receivable

The majority of the Company's accounts receivable are due from distributors
(domestic and international), hospitals, universities, and physician and
veterinary offices and other entities in the medical field. Credit is extended
based on evaluation of a customers' financial condition and, generally,
collateral is not required. Accounts receivable are most often due within 30
days and are stated at amounts due from customers net of an allowance for
doubtful accounts. Accounts outstanding longer than the contractual payment
terms are considered past due. We maintain allowances for doubtful accounts
based on a number of factors, including the length of time the accounts
receivable are past due, the Company's previous loss history, the customer's
current ability to pay its obligation to the Company, and the condition of the
general economy and the industry as a whole. The Company writes-off accounts
receivable when they become uncollectible, and payments subsequently received on
such receivables are credited to the allowance for doubtful accounts. Actual
amounts collectible could vary from our estimates and affect our operating
results.

Inventories

Inventories are stated at the lower of cost or market. Market for raw materials
is based on replacement costs and, for other inventory classifications, on net
realizable value. We regularly review inventory quantities on hand and record a
provision for deterioration, excess and obsolete inventory based primarily on
our estimated forecast of product demand and production requirements for the
next 12 to 18 months, depending on the product. Several factors may influence
the realizability of our inventories, including technological change and new
product development. These factors could result in an increase in the amount of
obsolete inventory on hand. Additionally, our estimates of future product demand
may prove to be inaccurate, in which case we may have understated or overstated
the provision required for excess and obsolete inventory. In the future, if we
determine that our inventory was overvalued, we will be required to recognize
such costs in cost of goods sold at the time of such determination. Although we
make every effort to ensure the accuracy of our forecasts of future product
demand, any significant unanticipated changes in demand or technological
developments could have a significant impact on the value of our inventory and
our reported operating results.

ITEM 7. FINANCIAL STATEMENTS

         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. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

         None.

ITEM 8A. CONTROLS AND PROCEDURES

    The Company's Chief Executive Officer, William P. Hales, and Chief Financial
    Officer, Deborah F. Ricci, have evaluated the Company's disclosure controls
    and procedures within 90 days prior to the date of this report. Based upon
    this evaluation, these officers believe that the Company's disclosure
    controls and procedures are effective in timely alerting them to material
    information required to be included in the Company's Securities and Exchange
    Commission filings.

    There have been no significant changes in the Company's internal controls
    over financial reporting that occurred during the last fiscal year that has
    materially affected or is reasonably likely to affect Hemagen's internal
    control over financial reporting. Management is aware that there is a lack
    of segregation of duties due to the small number of employees within the
    financial and administrative functions of the Company.


                                       17
<PAGE>

    Management will continue to evaluate the employees involved and
    the control procedures in place, the risks associated with such lack of
    segregation and whether the potential benefits of adding employees
    to clearly segregate duties justifies the expense associated with such
    increases. In addition, management is aware that many of the internal
    controls that are in place at the Company are undocumented controls.
    The Company is working to document these controls over the up coming year
    to be in compliance with Section 404 of the Sarbannes-Oxley Act of 2002.

                                    PART III

ITEMS 9 THROUGH 12 AND 14 ARE INCORPORATED BY REFERENCE TO THE REGISTRANT'S
PROXY STATEMENT RELATING TO ITS 2004 ANNUAL SHAREHOLDERS MEETING TO BE FILED
WITH THE COMMISSION PURSUANT TO REGULATION 14A. INFORMATION REQUIRED BY
REGULATION S-B ITEM 201(d) IS CONTAINED IN ITEMS OF THIS FORM 10-KSB.

ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K

         None.


(a)(1) AND (2) FINANCIAL STATEMENTS AND SCHEDULES

<TABLE>
<CAPTION>
                                                                       PAGE
                                                                       ----
<S>                                                                    <C>
Report of Independent Registered Public Accounting firm                 F-2
Consolidated Balance Sheets at September 30, 2004
and 2003                                                                F-3

Consolidated Statements of Operations for the years
ended September 30, 2004, and 2003                                      F-5

Consolidated Statements of Stockholders' Equity
for the years ended September 30, 2004, and 2003                        F-6

Consolidated Statements of Cash Flows for the years
ended September 30, 2004, and 2003                                      F-7

Notes to Consolidated Financial Statements                              F-8
</TABLE>

(a)(3) EXHIBIT LIST.

<TABLE>
<CAPTION>
Exhibit No.                          Description of Exhibit                            Filing Status
-----------                          ----------------------                            -------------
<S>           <C>                                                                      <C>

3.1           Certificate of Incorporation.                                                   A

3.2           Bylaws.                                                                         A

4.1           Specimen Stock Certificate.                                                     A

4.2           Rights Agreement dated January 27, 1999.                                        A

4.3           First Amendment to the Rights Agreement dated September 30, 1999.               B

10.6*         1992 Stock Option Plan.                                                         A

10.17         Description of the Lease for office space of HDC in Sao Paulo, Brazil.          A
</TABLE>


                                       18
<PAGE>

<TABLE>
<S>           <C>                                                                             <C>
10.25         Settlement  Agreement dated September 30, 1999.                                 C

10.29         Form of 8% Senior Subordinated Secured Convertible Note.                        E

10.30         Second Amendment to the Lease between the Company and 9033                      E
              Red Branch Road, L.L.C. dated June 9,2000.

10.32         Second Restructuring Agreement between the Company and                          D
              Dade Behring, Inc. dated November 9, 2000.

10.35*        2001 Stock Option Plan.                                                         D

10.40         Line of Credit Financing Agreement between Hemagen Diagnostics, Inc.            I
              and Reagents Applications, Inc and Bay National Bank dated
              September 26,2002

10.42*        Directors Rule 10(b)5-1 Stock Purchase Plan                                     J

10.44         Hemagen Employee Stock Ownership Plan                                           K

10.45         Trust Agreement for the Hemagen Stock Ownership Plan                            K

10.50         Quota Purchase and Sale Agreement and Non-Competition Agreement                 K

14.0          Code of Ethics Policy                                                           J

14.1          Insider Trading Policy                                                          J

23            Consent of Independent Certified Public Accountants                             J

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

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

32.1          Certification of Chief Executive Officer pursuant to Rule 13a-14(b)             J

32.2          Certification of Chief Financial Officer pursuant to Rule 13a-14(b)             J
</TABLE>

*Management compensatory contracts.

A.  Incorporated by reference to Registration Statement No. 33-52686-B.

B.  Incorporated by reference to Hemagen's Form 10-KSB for the fiscal year ended
    September 30, 2000.

C.  Incorporated by reference to Hemagen's Form 8-K filed on October 7, 1999.

D.  Incorporated by reference to Hemagen's Form 10-KSB for the fiscal year ended
    September 30, 2001.

E.  Incorporated by reference to Hemagen's Form S-3 filed on July 21, 2000.

F.  Incorporated by reference to Hemagen's Form S-8, Registration Statement No.
    333-57080, filed with the SEC on March 15, 2001.

G.  Incorporated by reference to Hemagen's 10-QSB for the quarter ended March
    31, 2001.

H.  Incorporated by reference to Hemagen's Form 8-K filed on March 23, 2001.

I.  Incorporated by reference to Hemagen's Form 10-KSB for the fiscal year ended
    September 30, 2002.

J.  Incorporated by reference to Hemagen's Form 10-KSB for the fiscal year ended
    September 30, 2003.

K.  Filed herewith.

(b) Reports on Form 8-K. None during the Fourth Quarter.


                                       19
<PAGE>


                                 C O N T E N T S
--------------------------------------------------------------------------------

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                      F-2

CONSOLIDATED FINANCIAL STATEMENTS:

 BALANCE SHEETS AT SEPTEMBER 30, 2004 AND 2003                               F-3

 STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
     SEPTEMBER 30, 2004 AND 2003                                             F-5

 STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED
     SEPTEMBER 30, 2004 AND 2003                                             F-6

 STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
     SEPTEMBER 30, 2004 AND 2003                                             F-7

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                  F-8


                                      F-1
<PAGE>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheets of Hemagen
Diagnostics, Inc. and subsidiaries as of September 30, 2004 and 2003, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years 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 audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hemagen Diagnostics, Inc. and
subsidiaries at September 30, 2004 and 2003, and the consolidated results of
their operations and their cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States of America.

/s/ Grant Thornton LLP
Baltimore, Maryland
November 22, 2004



                                      F-2
<PAGE>
                    HEMAGEN DIAGNOSTICS INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

                        AS OF SEPTEMBER 30, 2004 AND 2003



<TABLE>
<CAPTION>
                                                      2004        2003
                                                   ----------  ----------
<S>                                                <C>         <C>
                        ASSETS

CURRENT ASSETS:
   Cash and cash equivalents                       $  538,542  $  724,287
   Accounts receivable, less allowance for
     doubtful accounts of $ 102,359 and $179,251
     at September 30, 2004 and 2003, respectively     959,135   1,142,180
   Inventories, net                                 3,339,932   3,250,890
   Prepaid expenses and other current assets          153,756     172,988
                                                   ----------  ----------

     Total current assets                           4,991,365   5,290,345

PROPERTY AND EQUIPMENT, net of accumulated
  depreciation and amortization                       468,509     997,942


OTHER ASSETS, NET
   Goodwill                                           152,325     152,325
   Other                                               13,240      45,975
                                                   ----------  ----------
                                                      165,565     198,300

    Total Assets                                   $5,625,439  $6,486,587
                                                   ==========  ==========
</TABLE>


   The accompanying notes are an integral part of these financial statements


                                      F-3
<PAGE>
                    HEMAGEN DIAGNOSTICS INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

                        AS OF SEPTEMBER 30, 2004 AND 2003


<TABLE>
<CAPTION>
                                                                                     2004           2003
                                                                                 ------------   ------------
<S>                                                                              <C>            <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
    Current portion senior subordinated secured convertible notes due April 17,
    2005, net of unamortized discount of 5,188 at September 30, 2004             $     19,812   $         --
    Accounts payable and accrued liabilities                                        1,584,041      1,393,875
    Deferred revenue                                                                   53,262         57,763
                                                                                 ------------   ------------

           Total current liabilities                                                1,657,115      1,451,638

    Senior subordinated secured convertible notes due
    September 30, 2009, net of unamortized discount of
    $326,863 at September 30, 2004                                                  3,706,362             --
    Senior subordinated secured convertible notes due April 17, 2005, net of
    unamortized discount of $ 2,977,060 at September 30, 2003                              --      3,112,940
                                                                                 ------------   ------------

              Total liabilities                                                     5,363,477      4,564,578
                                                                                 ------------   ------------

COMMITMENTS AND CONTINGENCIES                                                              --             --
STOCKHOLDERS' EQUITY
   Preferred stock, $0.01 par value - 1,000,000 shares
      authorized; none issued                                                              --             --
   Common stock, $0.01 par value - 30,000,000
     shares authorized; 15,294,343 and
     10,204,855 shares issued outstanding at September 30, 2004 and 2003,
     respectively                                                                     152,943        102,048
   Additional paid-in capital                                                      22,829,354     20,947,149
   Accumulated deficit                                                            (22,478,886)   (18,879,718)

   Accumulated other comprehensive loss -                                            (151,812)      (157,833)
      currency translation loss
   Less treasury stock at cost; 100,000 shares at
      September 30, 2004 and 2003, respectively                                       (89,637)       (89,637)
                                                                                 ------------   ------------

     Total stockholders' equity                                                       261,962      1,922,009
                                                                                 ------------   ------------

     Total liabilities and stockholders' equity                                  $  5,625,439   $  6,486,587
                                                                                 ============   ============
</TABLE>


    The accompanying notes are an integral part of these financial statements

                                      F-4
<PAGE>
                    HEMAGEN DIAGNOSTICS INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF OPERATIONS

                     YEARS ENDED SEPTEMBER 30, 2004 AND 2003


<TABLE>
<CAPTION>
                                                                2004            2003
                                                            ------------   ------------
<S>                                                         <C>            <C>
NET SALES                                                   $  7,470,677   $  8,472,711

COSTS AND EXPENSES
    Costs of sales                                             5,323,560      5,480,109
    Research and development                                     247,267        219,644
    Selling, general and administrative                        2,406,898      2,528,439
    Other operating expenses                                      62,000             --
                                                            ------------   ------------
          Total cost and expenses                              8,039,725      8,228,192
                                                            ------------   ------------

          Operating income (loss)                               (569,048)       244,519

OTHER INCOME (EXPENSES)
      Interest income                                             31,359         33,874
      Interest expense, including $1,658,162 and $996,991,
          respectively of debt discount amortization          (2,170,323)    (1,519,804)
      Debt conversion costs                                     (863,253)            --
      Other expense                                               (4,165)       (23,858)
                                                            ------------   ------------

            Total other income (expense)                      (3,006,381)    (1,509,788)
                                                            ------------   ------------
      Net loss before income taxes                            (3,575,430)    (1,265,269)

      Income tax expense                                         (23,738)            --

NET LOSS                                                      (3,599,168)  $ (1,265,269)
                                                            ============   ============

Net loss per share - Basic and Diluted                      $      (0.36)  $      (0.13)
                                                            ============   ============


Weighted average common shares used in the calculation
           of net loss per share                              10,108,517     10,104,855
                                                            ============   ============
</TABLE>


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


                                      F-5
<PAGE>
                   HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                     YEARS ENDED SEPTEMBER 30, 2004 AND 2003


<TABLE>
<CAPTION>
                                                                                                         Accumulated
                                                     Common Stock       Additional                          Other
                                                  --------------------    Paid-in       Accumulated    Comprehensive
                                                  Shares     Par Value    Capital         Deficit           Loss
                                                  ------     ---------    -------         -------           ----
<S>                                              <C>         <C>        <C>            <C>               <C>
Balance at October 1, 2002                       10,168,011  $101,680   $20,933,517    $(17,614,449)     $(125,481)
                                                 ----------   --------  -----------    ------------      ---------
Net Loss                                                 --        --            --      (1,265,269)            --
Foreign exchange translation adjustment                  --        --            --              --        (32,352)
Total Comprehensive loss
Issuance of common stock in lieu
  of cash payments                                   36,844        368       13,632              --             --
                                                 ----------   --------  -----------    ------------      ---------
Balance at September 30, 2003                    10,204,855    102,048   20,947,149     (18,879,718)      (157,833)

Net loss                                                 --         --           --      (3,599,168)            --
Foreign exchange translation adjustment                  --         --           --              --          6,021
Total Comprehensive loss
Issuance of common stock in exchange for
  secured convertible Notes due April 17, 2005    5,079,438     50,794    1,879,393              --             --
Exercise of stock options                            10,050        101        2,812              --             --
                                                 ----------   --------  -----------    ------------      ---------
Balance at September 30, 2004                    15,294,343   $152,943  $22,829,354    $(22,478,886)     $(151,812)
                                                 ----------   --------  -----------    ------------      ---------
</TABLE>


<TABLE>
<CAPTION>
                                                    Treasury Stock           Total
                                                  -------------------     Stockholders'
                                                  Shares       Cost          Equity
                                                  ------       ----          ------
<S>                                              <C>         <C>         <C>
Balance at October 1, 2002                        100,000   $(89,637)    $  3,205,630
                                                  -------   ---------    ------------
Net Loss                                               --         --       (1,265,269)
Foreign exchange translation adjustment                --         --          (32,352)
Total Comprehensive loss                                                   (1,297,621)
Issuance of common stock in lieu
  of cash payments                                     --         --           14,448
                                                  -------   ---------    ------------
Balance at September 30, 2003                     100,000    (89,637)       1,922,009

Net loss                                               --         --       (3,599,168)
Foreign exchange translation adjustment                --         --            6,021
Total Comprehensive loss                                                   (2,724,435)
Issuance of common stock in exchange for
  secured convertible Notes due April 17, 2005         --         --        1,930,186
Exercise of stock options                              --         --            2,913
                                                  -------   ---------    ------------
Balance at September 30, 2004                     100,000   $ (89,637)   $    261,962
                                                  -------   ---------    ------------
</TABLE>

    The accompanying notes are an integral part of these financial statements


                                      F-6
<PAGE>
                    HEMAGEN DIAGNOSTICS, INC.AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           SEPTEMBER 30, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                         2004          2003
                                                                      -----------   -----------
<S>                                                                  <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net loss                                                         $(3,599,168)  $(1,265,269)
    Adjustments to reconcile net loss to net cash provided by
    (used by) operating activities
        Depreciation and amortization                                     552,897       643,803
        Amortization of debt discount                                   1,680,167       996,991
        Provision for bad debts                                            15,737        14,368
        Provision for inventories                                         129,095        98,158
        Debt conversion costs associated with the exchange of
             senior secured convertible notes                             863,253            --
        Loss on sales of property and equipment                             4,426          (585)
        Write off of additional investment in Brazilian subsidiary
             and related non-compete agreements                            62,000            --
        Changes in operating assets and liabilities:
          Accounts receivable                                             167,308        21,988
          Inventories                                                    (218,137)       19,269
          Prepaid expenses and other current assets                        (8,768)        8,274
          Accounts payable and accrued expenses                           190,166       (12,465)
          Deferred revenue                                                 (4,501)      (65,707)
                                                                      -----------   -----------

                 Net cash provided by (used in) operating activities     (165,525)      458,825
                                                                      -----------   -----------
 CASH FLOWS FROM INVESTING ACTIVITIES

         Purchase of property and equipment                               (38,689)       (9,305)
         Purchase of additional shares of common stock of
              Brazilian subsidiary                                        (20,000)           --
         Proceeds from sales of property and equipment                      4,721            --
                                                                      -----------   -----------
                 Net cash (used in) provided by investing activities      (53,968)       (9,305)
                                                                      -----------   -----------
 CASH FLOWS FROM FINANCING ACTIVITIES

         Exercise of stock options                                          2,913            --
         Net repayments of note payable                                        --      (156,839)
                                                                      -----------   -----------
                  Net cash (used in) financing activities                   2,913      (156,839)
                                                                      -----------   -----------

 EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS                     30,835       (32,352)
                                                                      -----------   -----------

 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                    (185,745)      260,329
                                                                      -----------   -----------

 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                             724,287       463,958
                                                                      -----------   -----------

 CASH AND CASH EQUIVALENTS, END OF YEAR                               $   538,542   $   724,287
                                                                      ===========   ===========
</TABLE>

                                      F-7
<PAGE>
                   HEMAGEN DIAGNOSTICS, INC.AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           SEPTEMBER 30, 2004 AND 2003

NOTE A - NATURE OF BUSINESS

   Hemagen Diagnostics, Inc. (the "Company") is a biotechnology company that
   develops, manufactures and markets medical diagnostic test kits used to aid
   in the diagnosis of certain autoimmune and infectious diseases and general
   chemistry assessment. The Company was incorporated on May 1, 1992 under the
   laws of the State of Delaware. In the United States, the Company sells its
   products directly to physicians, veterinarians, clinical laboratories and
   blood banks and on a private-label basis through multinational distributors
   of medical supplies. Internationally, the Company sells its products
   primarily through distributors. The Company also manufactures and sells an
   FDA-cleared benchtop clinical chemistry analyzer system ( called "The
   Analyst") used to measure important constituents in human and animal blood.
   The Company sells The Analyst both directly and through distributors
   servicing both the physician's office laboratory and veterinary markets.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   PRINCIPLES OF CONSOLIDATION

   The accompanying consolidated financial statements include the accounts of
   the Company, its wholly owned subsidiary, Reagents Applications, Inc. ("RAI")
   and its majority owned subsidiary, Hemagen Diagnostics Commercio, Importaco &
   Exporataco, Ltd. ("HDC"). All significant intercompany balances and
   transactions have been eliminated in consolidation.

   The Company has a 83.7% interest in HDC. All losses of HDC in excess of the
   minority shareholders' investment have been allocated to the Company.

   USE OF ESTIMATES

   The preparation of financial statements in conformity with accounting
   principles generally accepted in the United States of America, 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.


                                      F-8
<PAGE>
                    HEMAGEN DIAGNOSTICS, INC.AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

                           SEPTEMBER 30, 2004 AND 2003

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED

   FOREIGN CURRENCY TRANSLATION

   The financial position and results of operations of HDC are measured using
   HDC's local currency as the functional currency. Revenues and expenses of HDC
   have been translated into U.S. dollars at average exchange rates prevailing
   during the year. Assets and liabilities have been translated at the rates of
   exchange on the balance sheet date. The resulting translation gain and loss
   adjustments are recorded directly as a separate component of stockholders'
   equity.

   CASH EQUIVALENTS

   The Company considers all investments with original maturities of three
   months or less at the date of purchase to be cash equivalents.


                                      F-9
<PAGE>
                    HEMAGEN DIAGNOSTICS, INC.AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

                           SEPTEMBER 30, 2004 AND 2003

   ACCOUNTS RECEIVABLE

   The majority of the Company's accounts receivable are due from distributors
   (domestic and international), hospitals, universities, and physician and
   veterinary offices and other entities in the medical field. Credit is
   extended based on evaluation of a customers' financial condition and,
   generally, collateral is not required. Accounts receivable are most often due
   within 30 days and are stated at amounts due from customers net of an
   allowance for doubtful accounts. Accounts outstanding longer than the
   contractual payment terms are considered past due. The Company determines its
   allowance by considering a number of factors, including the length of time
   trade accounts receivable are past due, the Company's previous loss history,
   the customer's current ability to pay its obligation to the Company, and the
   condition of the general economy and the industry as a whole. The Company
   writes-off accounts receivable when they become uncollectible, and payments
   subsequently received on such receivables are credited to the allowance for
   doubtful accounts. The balance of the allowance for doubtful accounts was
   $102,359 and $179,251 on September 30, 2004 and 2003, respectively. The
   Company does not accrue interest on accounts receivable past due. Changes in
   the Company's allowance for doubtful accounts is summarized as follows:

<TABLE>
<CAPTION>
                                                  Allowance for
                                                    Doubtful
                                                    Accounts
                                               ----------------
<S>                                            <C>
BALANCE, OCTOBER 1, 2002                             $ 532,111
    Bad debt expense                                    14,368
    Accounts receivable write-offs                    (367,228)
                                                     ---------

BALANCE, SEPTEMBER 30, 2003                          $ 179,251
    Bad debt expense                                    15,737
    Accounts receivable write-offs                     (92,629)
                                                     ---------

BALANCE, SEPTEMBER 30, 2004                          $ 102,359
                                                     ---------
</TABLE>

   INVENTORIES

   Inventories are stated at the lower of cost or market, determined on a
   first-in, first-out basis. Inventory reserves are established for
   obsolescence based on expiration dating of perishable products and excess
   levels of inventory on hand.


                                      F-10
<PAGE>
                    HEMAGEN DIAGNOSTICS, INC.AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

                           SEPTEMBER 30, 2004 AND 2003

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED

   LONG-LIVED ASSETS

   The Company reviews the carrying values of its long-lived assets for possible
   impairment whenever events or changes in circumstances indicate that the
   carrying amount of the assets may not be recoverable. Should the review
   indicate that long-lived assets are not recoverable (i.e., the carrying
   amount is less than the future projected undiscounted cash flows), this
   carrying amount would be reduced to fair value.

   PROPERTY AND EQUIPMENT

   Property and equipment are stated at cost. Depreciation is provided on a
   straight-line basis over the estimated useful lives of the related assets
   which range from 4 to 10 years. Expenditures for repairs and maintenance are
   expensed as incurred.

   OTHER ASSETS

   Other assets, net consists primarily of goodwill resulting from the
   acquisition of RAI. In July 2001, the Financial Accounting Standards Board
   ("FASB") issued Statement of Financial Accounting Standards No. 142 Goodwill
   and Intangible Assets ("SFAS 142"). SFAs No.142 requires goodwill to be
   tested annually for impairment and between annual tests in certain
   circumstances, and written down when impaired, rather than being amortized as
   previous accounting standards required.

   In accordance with SFAS 142, the company ceased amortizing goodwill of
   $152,325, therefore, there was no amortization in fiscal year 2004 or 2003.
   Based on the impairment tests performed, there was no impairment of goodwill
   in fiscal 2004.

   INCOME TAXES

   The Company follows the liability method of 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 at each year-end
   based on enacted tax laws and statutory tax rates applicable to the periods
   in which the differences are expected to affect taxable income. A valuation
   allowance is established when necessary to reduce deferred tax assets to the
   amount expected to be realized.


                                      F-11
<PAGE>

                    HEMAGEN DIAGNOSTICS, INC.AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

                           SEPTEMBER 30, 2004 AND 2003


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED

    REVENUE RECOGNITION

    Revenues from the sale of products are recognized when shipped and all
    contractual obligations have been satisfied and the collection of the
    resulting receivable is reasonably assured. Revenues from product service
    contracts are recognized ratably over the terms of the contracts. Losses are
    provided for at the time that management determines that contract costs will
    exceed related revenues. The portion of product service contracts not
    complete at the balance sheet date is included in deferred revenue.

    STOCK- BASED COMPENSATION

    The Company accounts for stock-based employee compensation arrangements
    using the intrinsic-value method in accordance with the provisions of
    Accounting Principles Board Opinion No. 25 (APB 25) Accounting for Stock
    Issued to Employees, and complies with the disclosure provisions of
    Statement of Financial Accounting Standard No. 148 (SFAS No. 148),
    "Accounting for Stock-Based Compensation Transition and Disclosure".

    Had the Company applied the fair value recognition provisions of Financial
    Accounting Standards Board ("FASB") Statement No. 123 "Accounting for
    Stock-Based Compensation" to stock based employee compensation, the
    Company's net loss for the years ended September 30, 2004 and 2003 would
    have increased as shown in the table below.

<TABLE>
<CAPTION>
                                              2004          2003
                                           -----------   -----------
<S>                                       <C>            <C>
Net Loss as reported                       $(3,599,168)  $(1,265,269)
Deduct: Total stock-based employee
   compensation expense determined under
   fair value based method for all awards      (28,412)      (39,192)
                                          ------------   -----------

Proforma Net Loss                          $(3,627,580)  $(1,304,461)
                                          ============   ===========

Basic and Diluted Net Loss per
    share as  reported                    ($      0.36)  $     (0.13)
                                          ============   ===========

Proforma Basic and Diluted
    Net loss per share                    ($      0.36)  $     (0.13)
                                          ============   ===========
</TABLE>

                                      F-12
<PAGE>
                    HEMAGEN DIAGNOSTICS, INC.AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

                           SEPTEMBER 30, 2004 AND 2003


 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED

   NET LOSS PER SHARE OF COMMON STOCK

   Basic "earnings per share" excludes the effect of any dilutive options or
   convertible securities and is computed by dividing the net income (loss) by
   the weighted average number of common shares outstanding for the period.
   Diluted earnings per share is computed by dividing the net income (loss) by
   the sum of the weighted average number of common shares and common share
   equivalents computed using the average market price for the period under the
   treasury stock method.

   Common share equivalents outstanding at September 30, 2004 and 2003 totaled
   5,393,014 and 5,556,110 shares, respectively including currently outstanding
   stock options and convertible debt. These shares were not included in the
   denominator for diluted income per share as their effect was anti-dilutive.

   RESEARCH AND DEVELOPMENT COSTS

   All costs incurred to research, design and develop products are considered
   research and development costs and are charged to expense as incurred.

   FAIR VALUE OF FINANCIAL INSTRUMENTS

   Financial instruments include cash and cash equivalents, short-term
   investments, customer receivables, accounts payable, certain other accrued
   liabilities and long-term debt. The fair value of long-term debt approximates
   the carrying amount based on the current rate offered to the Company for debt
   of similar remaining maturities. The carrying values of all other financial
   instruments are reasonable estimates of their values.

   ADVERTISING EXPENSES

   Costs of advertising, which also includes promotional expenses are expensed
   as incurred. Advertising expenses for fiscal 2004 and 2003 were $20,639, and
   $5,799 respectively.

   SHIPPING AND HANDLING

   The cost of shipping products to customers is included in cost of goods sold.
   Amounts billed to a customer in a sale transaction related to shipping and
   handling is classified as revenue.



                                      F-13
<PAGE>
                    HEMAGEN DIAGNOSTICS, INC.AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

                           SEPTEMBER 30, 2004 AND 2003


   CURRENT ACCOUNTING PRONOUNCEMENTS

   In November 2004, the Financial Accounting Standards Board ("FASB") issued
   Statement of Financial Accounting Standard No. 151 "Inventory Costs". This
   Statement amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing,"
   to clarify the accounting for abnormal amounts of idle facility expense,
   freight, handling costs, and wasted material (spoilage). In addition, this
   Statement requires that allocation of fixed production overheads to the costs
   of conversion be based on the normal capacity of the production facilities.
   The provisions of this Statement will be effective for the Company beginning
   with its fiscal year ending 2006. The Company is currently evaluating the
   impact this new Standard will have on its operations, but believes that it
   will not have a material impact on the Company's financial position or
   results of operations.

   In December 2004, the FASB issued Statement of Financial Accounting
   Standards No. 153 "Exchanges of Nonmonetary Assets - an amendment of APB
   Opinion No. 29". This Statement amended APB Opinion 29 to eliminate the
   exception for nonmonetary exchanges of similar productive assets and
   replaces it with a general exception for exchanges of nonmonetary assets
   that do not have commercial substance. A nonmonetary exchange has commercial
   substance if the future cash flows of the entity are expected to change
   significantly as a result of the exchange. The adoption of this Standard is
   not expected to have any material impact on the Company's financial position
   or results of operations.

   Also in December 2004, the FASB issued Statement of Financial Accounting
   Standards No. 123 (revised 2004) "Share-Based Payment". This Statement
   requires that the cost resulting from all share-based transactions be
   recorded in the financial statements. The Statement establishes fair value as
   the measurement objective in accounting for share-based payment arrangements
   and requires all entities to apply a fair-value-based measurement in
   accounting for share-based payment transactions with employees. The Statement
   also establishes fair value as the measurement objective for transactions in
   which an entity acquires goods or services from non-employees in share-based
   payment transactions. The Statement replaces FASB Statement No. 123
   "Accounting for Stock-Based Compensation" and supercedes APB Opinion No. 25
   "Accounting for Stock Issued to Employees". The provisions of this Statement
   will be effective for the Company beginning with its fiscal year ending 2007.
   The Company is currently evaluating the impact this new Standard will have on
   its operations, but believes that it will not have a material impact on the
   Company's financial position or results of operations.


                                      F-14
<PAGE>
                    HEMAGEN DIAGNOSTICS, INC.AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           SEPTEMBER 30, 2004 AND 2003

NOTE C - RELATED PARTY TRANSACTIONS

   William P. Hales, and an investment group, Redwood Holdings, Inc. solicited
   written consents from shareholders of Hemagen seeking several changes to its
   Bylaws, the removal of its directors and the election of William P. Hales and
   the principals of Redwood Holdings, Inc. to the Board of Directors in fiscal
   year 1999. Following the delivery of consents, the matter was settled
   pursuant to a settlement agreement executed on September 30, 1999.

   As part of the settlement agreement four of Hemagen's six directors resigned
   and were replaced by William P. Hales, and the three principals of Redwood
   Holdings, Inc. At that time, the four new directors purchased from the
   previous management all of their common shares totaling 777,801 at a price
   approximating the current market value at that time. As of January 2003, the
   Company is no longer affiliated with Redwood Holdings, Inc. or any of its
   principals.

   In October 2003, the Company issued 36,844 shares of its common stock to four
   outside directors with an aggregate market value of $14,000 for services
   these directors performed in the year ended September 30, 2003.


                                      F-15
<PAGE>
                    HEMAGEN DIAGNOSTICS, INC.AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           SEPTEMBER 30, 2004 AND 2003


NOTE D - INVENTORIES

   Inventories at September 30, consist of the following:

<TABLE>
<CAPTION>
                                      2004           2003
                                   -----------   -----------
<S>                                <C>           <C>
Raw materials                      $ 1,895,064   $ 2,167,046
Work-in-process                        135,651       144,080
Finished goods                       2,027,824     1,639,962
                                   -----------   -----------
                                     4,058,539     3,951,088
Less reserves                         (718,607)     (700,198)
                                   -----------   -----------
Net inventories                    $ 3,339,932   $ 3,250,890
                                   ===========   ===========
</TABLE>

NOTE E - PROPERTY AND EQUIPMENT

   Property and equipment at September 30, consist of the following:

<TABLE>
<CAPTION>
                                             2004           2003
                                          -----------   -----------
<S>                                       <C>           <C>
Furniture and equipment                   $ 7,275,809   $ 7,570,369
Leasehold improvements                         64,198        75,105
                                          -----------   -----------
                                            7,340,007     7,645,474
Less accumulated depreciation
  and amortization                         (6,871,498)   (6,647,532)
                                          -----------   -----------
                                          $   468,509   $   997,942
                                          ===========   ===========
</TABLE>

   Depreciation and amortization expense relating to property and equipment was
   approximately $532,000 and $534,000 for the years ended September 30, 2004,
   and 2003, respectively.


                                      F-16
<PAGE>
                    HEMAGEN DIAGNOSTICS, INC.AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           SEPTEMBER 30, 2004 AND 2003


NOTE F - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

   Accounts payable and accrued expenses include the following at September 30,

<TABLE>
<CAPTION>
                                             2004         2003
                                          ----------  ----------
<S>                                       <C>         <C>
Accounts payable - trade                     874,226  $  623,042
Accrued professional fees                    185,447     136,316
Accrued royalties                            300,556     327,544
Accrued vacation                              96,352      94,507
Accrued other                                127,460     212,466
                                          ----------  ----------

                                          $1,584,041  $1,393,875
                                          ==========  ==========
</TABLE>


NOTE G - DEVELOPMENT AND LICENSE AGREEMENTS

   In August 1998, the Company entered into an agreement under which the Company
   obtained exclusive proprietary rights to certain patents, licenses and
   technology to manufacture, market and sell certain products. This agreement
   required quarterly royalty payments based on a percentage of sales of defined
   products through August 31, 2004.

   In addition, the Company entered into a sublicense agreement whereby two
   license agreements, one of which expired in March 2000, related to certain
   Analyst(R) products that were transferred to the Company. The remaining
   license agreement, which contains provisions for royalty obligations, based
   on production and net sales of certain products, expires in February 2007.

   Expense related to the royalty agreement and the sublicense agreement
   amounted to approximately $27,000 and $87,000 during years ended September
   30, 2004 and 2003, respectively.

NOTE H - LINE OF CREDIT

   The Company has a revolving line of credit from a bank to finance working
   capital needs as required. The line of credit facility provides for borrowing
   up to $1,000,000 at an interest rate equal to the prime rate plus 3/4%.
   Maximum borrowings under the loan are based on the domestic receivables and
   inventory of the Company. The Company has not borrowed on this line of credit
   to date. The line of credit matures on March 31, 2005 and the Company will
   look to renew the line at that time. At September 30, 2004 the effective
   interest rate on the line of credit was 5.5%.



                                      F-17
<PAGE>
                    HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           SEPTEMBER 30, 2004 AND 2003


NOTE I - EXCHANGE OFFERING

   The Company completed an exchange offering of $6,065,000 of its senior
   subordinated secured convertible notes ("Old Notes") due on April 17, 2005
   for 5,079,438 shares of its common stock and $4,033,225 of senior
   subordinated secured convertible notes ("New Notes") due on September 30,
   2009. At the completion of the exchange offering in December 2004, all but
   $25,000 of the Old Notes with a total face value of $6,090,000 had been
   exchanged. The exchange offering was effective as of September 30, 2004, at
   which time more than 80% of the Old Notes were exchanged. The Company has
   accounted for the exchange offering as though the entire amount of $6,065,000
   of Old Notes exchanged were exchanged as of September 30, 2004, since at
   September 30, 2004 the Company had the right and the intent to require the
   remaining Old Notes to be exchanged.

   The shares of common stock issued in connection with the exchange offering
   are restricted by the terms of the tender offer with the shareholder,
   restricting their sale or transfer until after September 30, 2005.

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

   In connection with the exchange offering the Company expensed $863,253 of the
   $1,291,705 debt discount remaining at the time of the exchange offering
   related to the Old Notes. The amount recorded as expense represented the
   excess of the fair value of the New Notes and common stock issued in the
   exchange offering over the net book value of the Old Notes.


                                      F-18
<PAGE>
                    HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           SEPTEMBER 30, 2004 AND 2003


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

<TABLE>
<S>                                              <C>
Value of common stock issued                     $ 1,930,186
Value of New Notes                                 3,706,362
                                                 -----------
                                                   5,636,548
Net book value of Old Notes                       (4,773,295)
                                                 -----------
Exchange offering expense                        $   863,253
                                                 ===========
</TABLE>


   At the effective date of the exchange offering, the Company had an
   unamortized debt discount related to the Old Notes of $1,291,705. In
   connections with the exchange offering, the Company expensed $863,253 of this
   discount, leaving $326,863 remaining as a discount recorded against the New
   Notes which will be amortized over the term of the New Notes.


                                      F-19
<PAGE>
                    HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           SEPTEMBER 30, 2004 AND 2003


NOTE J - SENIOR SUBORDINATED SECURED CONVERTIBLE NOTES

   On May 24, 2000, the Company completed a private placement offering of senior
   subordinated secured convertible note units in the face amount of $6,315,000
   with net proceeds of $6,025,524. The units consisted of senior subordinated
   convertible notes, common stock and detachable warrants. Each unit was sold
   for $500,000 and consisted of one $500,000 senior subordinated secured
   convertible note, 200,000 detachable warrants to purchase common stock and
   93,750 shares of common stock.

   The senior subordinated secured convertible notes mature on April 17, 2005,
   with no principal payments required until maturity. These notes provided for
   quarterly interest payments at the annual rate of 8%. The effective interest
   rate on these notes was calculated to be approximately 58% and an original
   issue discount of $5,185,629 was being amortized over the term of the notes.
   As described in Note J, on September 30, 2004, Senior Subordinated Secured
   notes payable with a face value of $6,065,000 were exchanged for shares of
   the Company's Common Stock and new notes. The face value of the notes
   outstanding at September 30, 2004 and 2003 is $25,000 and $6,090,000,
   respectively. The unamortized discount on these notes equals $5,188 and
   $2,977,000 at September 30, 2004 and 2003, respectively. As of September 30,
   2004, this outstanding Note has been classified as a current liability of the
   Company.

   The senior subordinated secured convertible notes were convertible into
   shares of the Company's common stock at a conversion price of $2.00 per
   share. The Old Notes were secured by a first lien on all real, tangible, and
   intangible property except for a subordination provided ax security for a $1
   million line of credit and a second lien on the security for that loan. The
   Company had the right to force the notes to be converted at any time after
   the common stock has traded above $4.50 for ten consecutive business days.
   Additionally, the Company may prepay the notes at any time at the full face
   value of the notes plus accrued and unpaid interest.

      In conjunction with the sale of the units, 2,526,000 warrants were issued.
      Each warrant issued allowed the holder to purchase one share of common
      stock at an exercise price of $2.75, through their extended date of April
      30, 2003. The Company determined the fair value of the warrants to be
      $1.34 each or $3,384,840 in aggregate when they were issued based on the
      Black Scholes Valuation Model. The offering provided for the issue of
      1,184,072 shares of common stock to the unit holders. These shares were
      valued at approximately $1.52 per share for a total value of $1,799,789.
      The placement agent for the offering received warrants to purchase 75,800
      shares and 75,800 shares of the Company's common stock with a value of
      $216,788.



                                      F-20
<PAGE>
                    HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           SEPTEMBER 30, 2004 AND 2003


NOTE K - 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.

   ACCUMULATED OTHER COMPREHENSIVE LOSS

     Accumulated other comprehensive loss consists solely of foreign currency
     translation adjustments totaling $151,812 and $157,833 at September 30,
     2004 and 2003, respectively.

   STOCK OPTIONS

   On February 27, 2001, the shareholders voted to approve the 2001 Stock Option
   Plan. The 2001 Stock Option Plan provides for the grant of incentive and
   nonqualified stock options for the purchase of an aggregate of 1,000,000
   shares of the Company's common stock by employees, directors and consultants
   of the Company. The Compensation Committee of the Board of Directors is
   responsible for the administration of the Plan. The Compensation Committee
   determines the term of each option, the number of shares for which each
   option is granted and the rate at which each option is exercisable.

   Prior to the establishment of the 2001 Stock Option Plan, the Company granted
   certain stock options in accordance with the terms of the 1992 Stock Option
   Plan. The 1992 Stock Option Plan, as amended, provides for the grant of
   incentive and nonqualified stock options for the purchase of an aggregate of
   1,000,000 shares of the Company's common stock by employees, directors, and
   consultants of the Company. The Board of Directors is responsible for the
   administration of the Plan. The terms of the 1992 Stock Option Plan are
   generally the same as those of the 2001 Stock Option Plan as described above.



                                      F-21
<PAGE>
                    HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           SEPTEMBER 30, 2004 AND 2003


   NOTE K - STOCKHOLDERS' EQUITY-CONTINUED

   On September 30, 1999, the Company's Board of Directors awarded options to
   the Company's President and Chief Executive Officer and certain directors at
   that date to purchase an aggregate of 1,732,014 shares of the Company's
   common stock at an exercise price of $1.36 per share, which represented the
   fair value of the common stock at that date. The options were granted
   pursuant to stockholder authorization received during a consent solicitation
   which resulted in the replacement of certain former members of the Company's
   senior management and Board of Directors. The options, which were not issued
   under the Plan, expire on September 30, 2009 and are transferable and became
   exercisable on March 31, 2001.

     Changes in options outstanding are summarized as follows:

<TABLE>
<CAPTION>
                                                  Weighted
                                                 -Average
                                                 Exercise
                                     Shares        Price
                                   ----------    --------
<S>                                <C>           <C>
BALANCE, OCTOBER 1, 2002            2,809,610      $1.23
    Granted                           123,500       0.46
    Exercised                              --         --
    Cancelled or expired             (458,100)      0.87
                                    ---------

BALANCE, SEPTEMBER 30, 2003         2,475,010      $1.27
    Granted                           125,000       0.56
    Exercised                         (10,050)      0.29
    Cancelled or expired             (241,946)      1.70
                                    ---------

BALANCE, SEPTEMBER 30, 2004         2,348,014      $1.19
                                    =========

EXERCISABLE AT SEPTEMBER 30, 2004   2,237,014      $1.23
                                    =========      =====
</TABLE>


                                      F-22
<PAGE>
                   HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           SEPTEMBER 30, 2004 AND 2003


NOTE K - STOCKHOLDERS' EQUITY-CONTINUED

   The following table summarizes information about stock options outstanding at
   September 30, 2004


<TABLE>
<CAPTION>
              Options Outstanding
              -------------------
                                               Weighted-Average
                                Number            Remaining
                            Outstanding at     Contractual Life     Weighted Average
Range of Exercise Prices  September 30, 2004       (years)           Exercise Price
------------------------  ------------------       -------           --------------
<S>                       <C>                  <C>                  <C>
     0.29   -  0.64              312,500            3.9                   0.58
     0.70   -  1.25              283,500            2.8                   0.84
     1.26   -  1.36            1,732,014            5.0                   1.36
     1.37   -  2.00               20,000            1.7                   2.00
     --------------            ---------            ---                   ----
     $0.29 to $2.00            2,348,014            4.5                   1.19
     --------------            ---------            ---                   ----
</TABLE>


                                      F-23
<PAGE>
                    HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           SEPTEMBER 30, 2004 AND 2003

NOTE K - STOCKHOLDERS' EQUITY-CONTINUED

     STOCK OPTIONS CONTINUED

     The fair value of each option grant was determined on the date of the grant
     using the Black-Scholes option-pricing model with the following
     weighed-average assumptions used for grants in 2004 and 2003; dividend
     yield of 0%; expected volatility rates of 300% and 165% for 2004 and 2003,
     respectively; risk-free interest rate of 4% for both years; and expected
     lives ranging from 5.0 to 10.0 years.

     The weighted average grant date fair value of options granted during 2004
     and 2003 was $70,462 and $55,188, respectively.

     STOCK RIGHTS PURCHASE AGREEMENT

     In fiscal year 1999, the Company's Board of Directors implemented a Stock
     Purchase Rights Agreement (the "Agreement"). Under the Agreement, as
     amended, the Company declared a dividend of one common share purchase right
     (a "Right") for each share of the Company's outstanding common stock as of
     February 10, 1999. Each Right entitles the holder to purchase from the
     Company $4.00 worth of Company common stock at a per-share price equal to
     50 percent of the current market price. The Rights become exercisable only
     if a person or group, as defined, acquires beneficial ownership of 15
     percent or more of the Company's outstanding common stock or announces a
     tender offer that would result in beneficial ownership of 15 percent or
     more of the Company's outstanding common stock. Pursuant to a Board of
     Directors' resolution dated January 9, 2003, William P. Hales, the
     Company's current Chief Executive Officer and a stock and debt holder, is
     exempt under the Agreement. The Rights, which expire on January 27, 2009,
     are redeemable in whole, but not in part, at the Company's option at $0.001
     per Right at any time prior to the earlier of ten days after public
     announcement that a person or group has acquired beneficial ownership of
     15% or more of the Company's outstanding common stock or the expiration
     date of the Rights. There are no rights outstanding on September 30, 2004.


                                      F-24
<PAGE>
                    HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           SEPTEMBER 30, 2004 AND 2003

NOTE L - INCOME TAXES

For the years ended September 30, 2004 and 2003, domestic and foreign (losses)
or income before income taxes are as follows:

<TABLE>
<CAPTION>
Years ended September 30,          2004            2003
                                -----------     -----------
<S>                             <C>             <C>
Domestic                        $(3,748,381)    $(1,260,694)
Foreign                             172,951          (4,375)
                                -----------     -----------

                                $(3,575,430)    $(1,265,069)
                                ===========     ===========
</TABLE>

In the fiscal year ended September 30, 2004, the Company had income tax expense
of $23,738 which was related to foreign income tax expenses from its Brazilian
subsidiary.

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,                             2004                2003
-------------------------                             ----                ----
<S>                                                   <C>                 <C>
Federal tax (credit) at statutory rate                 (34%)               (34%)
Current tax benefit of
   operating losses                                     34                  34
                                                        --                  --

                                                         0%                  0%
                                                        ==                  ==
</TABLE>



                                      F-25
<PAGE>
                    HEMAGEN DIAGNOSTICS, INC.AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           SEPTEMBER 30, 2004 AND 2003


NOTE L - INCOME TAXES-CONTINUED

   Deferred tax assets (liabilities) are comprised of the following at September
30, 2004 and 2003:

<TABLE>
<CAPTION>
                                     2004           2003
                                  -----------    ----------
<S>                               <C>           <C>
Net operating loss carryforwards  $ 6,345,000   $ 5,369,000
Inventory reserve                     294,000       280,000
Accounts receivable reserve            41,000        71,700
Debt conversion cost                  345,000            --
Other                                 185,000       220,000
                                  -----------   -----------
Total deferred tax assets           7,210,000     5,940,700
Basis difference in fixed assets      (37,000)     (103,100)
                                  -----------   -----------
Net deferred tax assets           $ 7,173,000   $ 5,837,600
Valuation allowance               $(7,173,000)   (5,837,600)
                                  -----------   -----------

Net deferred tax assets           $        --   $        --
                                  ===========   ===========
</TABLE>


   The Company has provided a valuation allowance equal to 100% of the total net
   deferred tax asset in recognition of the uncertainty regarding the ultimate
   amount of the net deferred tax asset that will be realized.

   At September 30, 2004, the Company has approximately $18,662,000 and
   $16,686,000 of federal and state net operating loss carry-forwards,
   respectively, available to offset future taxable income, which expire on
   various dates through 2024. 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.


                                      F-26
<PAGE>
                   HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           SEPTEMBER 30, 2004 AND 2003


NOTE M - SIGNIFICANT SALES AND CONCENTRATION OF CREDIT RISK

   During the years ended September 30, 2004 and 2003, the Company derived
   $923,000 and $1,343,000 in revenues, respectively from one significant
   customer representing 12% and 16%, respectively of total sales. These sales
   were in conjunction with a supply agreement that extends to December 2006.
   Revenues derived from export sales amounted to approximately $3,036,000, or
   41% of total sales in 2004 and $2,969,000, or 35% of total sales in 2003.
   Export sales to Europe were approximately $1,443,000 or 19% of total sales in
   2004 and $1,608,000, or 19% of total sales in 2003. Export sales to South
   America were approximately $1,116,000, or 15% of total sales in 2003 and
   $682,000, or 8% of total sales in 2003.

NOTE N - GEOGRAPHICAL INFORMATION

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

   The following table sets forth revenue and assets by geographic location.

<TABLE>
<CAPTION>
                                      United*
                                      States           Brazil          Consolidated
                                      ------           ------          ------------
<S>                                  <C>              <C>              <C>
        SEPTEMBER 30, 2004:
           Revenues                  $6,545,129       $931,005          $7,476,134
           Long-lived assets            603,954         30,120             634,074

        SEPTEMBER 30, 2003:
           Revenues                  $7,852,072       $620,639          $8,472,711
           Long-lived assets          1,135,917         60,325           1,196,242
</TABLE>


* Includes export sales to countries other than Brazil of approximately
$2,110,000 and $2,349,000 in 2004 and 2003, respectively.


                                      F-27
<PAGE>
                   HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           SEPTEMBER 30, 2004 AND 2003

NOTE O - COMMITMENTS

The Company leases certain facilities and equipment under non-cancelable
operating leases expiring through 2007. Future minimum lease commitments under
the non-cancelable operating leases are as follows:

<TABLE>
<CAPTION>
      Years ending September 30,                 2004
                                               --------
<S>                                            <C>
      2005                                     356,310
      2006                                     223,492
      2007                                     154,090
      2008                                       9,537
      THEREAFTER                                    --
</TABLE>

Rent expense approximated $471,000 and $532,000 in 2004 and 2003, respectively.

The Company has entered into an employment agreement with a key employee which
defines certain payment of salary and the issuance of stock options.

RETIREMENT PLAN

The Company maintains a defined contribution retirement plan, which qualifies
under Section 401(k) of the Internal Revenue Code, covering substantially all
employees. Participant contributions and employer matching contributions are
made as defined in the Plan agreement. No contributions to the plan were made in
fiscal 2004, and contributions of approximately $40,000 were made in fiscal
2003.

Effective October 1, 2004, the Company created an Employee Stock Option Plan
(ESOP) for the benefit of its employees, which has been submitted to the
Internal Revenue Service for determination as a qualified retirement plan
subject to section 4975(E)7 of the Code. The Company's contributions to the ESOP
were $40,000 in fiscal 2004.


                                      F-28
<PAGE>

                   HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           SEPTEMBER 30, 2004 AND 2003


NOTE P - CONTINGENCIES

   On February 7, 2002, URRMA Biopharma, Inc. filed suit against Hemagen in the
   Superior Court, District of Montreal, and Providence of Quebec, Canada. The
   suit sought approximately $20,645,000 in damages for an alleged breach of
   contract for failure to provide information called for under an alleged
   manufacturing agreement and for publishing misleading information regarding
   the product and URRMA. Hemagen responded to the claim and filed a counter
   suit for approximately $19,752,000 on June 10, 2002. On January 16, 2003, the
   Company agreed to settle the matter. Under the terms of the settlement
   agreement URRMA agreed to pay the Company cash of approximately $100,000,
   $50,000 of which was paid in February 2003 and $50,000 which was due in
   February 2004, and royalties of 3% of revenues of URRMA's R7V test kit
   beginning on the date of the first commercial sale of the kit until the total
   royalties equal $250,000. The payment of $50,000 due in February 2004 has not
   been paid by URRMA and due to URRMA's financial condition no receivable has
   been established. No royalties have been paid as of September 30, 2004.

NOTE Q - SUPPLEMENTAL DISCLOSURE OF CASH

<TABLE>
<CAPTION>
        September 30,                                                      2004        2003
                                                                        ----------  ----------
<S>                                                                     <C>         <C>
Cash paid for interest                                                  $  483,195  $  504,480
                                                                        ==========  ==========

Disclosure of non-cash investing and financing activities:

Issuance of 5,079,438 shares of common stock and $4,033,225 senior
  secured convertible notes due September 30, 2009, with an original
  issue discount of $326,863 in exchange for $6,065,000 senior secured
  convertible notes due April 17, 2005, net of unamortized discount of
  $1,291,705 at September 30, 2004                                       4,773,295          --
                                                                        ==========  ==========
Issuance of 36,844 shares of
  common stock in lieu of cash
  payments in fiscal 2003                                                       --      14,448
                                                                        ==========  ==========
</TABLE>


                                      F-29



<PAGE>
                                   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 23, 2004                   By: /s/  William P. Hales
                                              ---------------------------------
                                              William P. Hales, President &
                                              Chief Executive Officer

          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/ William P. Hales                      President and Chief Executive
------------------------------------      Officer, Director                  December 23, 2004
William P. Hales

 /s/ Alan S. Cohen                        Director                           December 23, 2004
------------------------------------
Alan S. Cohen, M.D.

/s/ Richard W. Edwards                    Director                           December 23, 2004
------------------------------------
Richard W. Edwards

/s/ Edward T. Lutz                        Director                           December 23, 2004
------------------------------------
Edward T. Lutz

/s/ Deborah F. Ricci                      Principal Financial Officer        December 23, 2004
------------------------------------
Deborah F. Ricci
</TABLE>